convergent communications inc /co (form: 10-k405/a,...

Business Address400 INVERNESS DRIVESOUTHSUITE 400ENGLEWOOD CO 801123037493000

Mailing Address400 INVERNESS DR. SOUTHSUITE 400ENGLEWOOD CO 80112

SECURITIES AND EXCHANGE COMMISSION

FORM 10-K405/AAnnual report pursuant to section 13 and 15(d), Regulation S-K Item 405 [amend]

Filing Date: 2000-04-24 | Period of Report: 1999-12-31SEC Accession No. 0000927356-00-000860

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FILERCONVERGENT COMMUNICATIONS INC /COCIK:1046558| IRS No.: 841337265 | State of Incorp.:CO | Fiscal Year End: 1231Type: 10-K405/A | Act: NE | File No.: 000-26515 | Film No.: 607569SIC: 4813 Telephone communications (no radiotelephone)

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UNITED STATESSECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-K/A(Mark One)

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999

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OR

[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______ to _______

Commission file number 333-53953

CONVERGENT COMMUNICATIONS, INC.(Exact name of registrant as specified in its charter)

<TABLE><S> <C>

Colorado 84-1337265(State or other jurisdiction of incorporation) (I.R.S. Employer Identification No.)</TABLE>

400 Inverness Drive South, Suite 400Englewood, Colorado 80112

(303) 749-3000(Address and telephone number of principal executive offices)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class Name of each exchange on which registeredCommon Stock Nasdaq National Market

Securities registered pursuant to section 12(g) of the Act:Not Applicable

Indicate by check mark whether the registrant (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days. Yes X No___

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Indicate by check mark if disclosure of delinquent filers pursuant to Item405 of Regulation S-K is not contained herein, and will not be contained, to thebest of registrant's knowledge, in definitive proxy or information statementsincorporated by reference in Part III of this Form 10-K or any amendment to thisForm 10-K. [X]

On March 20, 2000, 28,932,281 shares of the registrant's Common Stock wereoutstanding. On March 20, 2000, the aggregate market value of our common stockheld by non-affiliates was approximately $314.6 million, based on a price pershare of common stock of 10.875.

DOCUMENTS INCORPORATED BY REFERENCE

The information called for by Part III is incorporated by reference to ourdefinitive Proxy Statement for the 2000 Annual Meeting of Stockholders whichwill be filed with the Securities and Exchange Commission no later than 120 daysafter December 31, 1999.

TABLE OF CONTENTS

<TABLE><S> <C>PART IItem 1. Business .................................................................................... 1Item 2. Properties .................................................................................. 13Item 3. Legal Proceedings ........................................................................... 13Item 4. Submission of Matters to a Vote of Security Holders ......................................... 13

PART IIItem 5. Market for Registrant's Common Equity and Related Stockholder Matters ....................... 14Item 6. Selected Financial Data ..................................................................... 16



Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation ........ 18Item 7A. Quantitative and Qualitative Disclosures About Market Risk ................................. 28Item 8. Financial Statements and Supplementary Data ................................................. 29Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure ........ 52

PART IIIItem 10. Directors and Executive Officers of the Registrant ......................................... 52Item 11. Executive Compensation ..................................................................... 52Item 12. Security Ownership of Certain Beneficial Owners and Management ............................. 52Item 13. Certain Relationships and Related Transactions ............................................. 52

PART IVItem 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K ........................... 53</TABLE>

Note Concerning Forward-Looking Information

Some of the information in this report contains forward-looking statementsthat involve substantial risks and uncertainties. You can identify thesestatements by forward-looking words such as "may," "will," "expect,""anticipate," "believe," "estimate" and "continue" or similar words. You shouldread statements that contain these words carefully because they: (1) discuss ourfuture expectations; (2) contain projections of our future results of operationsor of our financial condition; or (3) state other "forward-looking" information.We believe that it is important to communicate our future expectations to ourinvestors. However, there may be events in the future that we have notaccurately predicted or over which we have no control. These events may includefuture operating results and potential competition, among other things.Cautionary language in this report provides examples of risks, uncertainties andevents that may cause our actual results to differ materially from theexpectations we describe in our forward-looking statements. You should be awarethat the occurrence of the events described in this report could have a materialadverse effect on our business, operating results and financial condition.

PART I

Item 1. Business

Introduction

We are a rapidly growing national provider of e-Sourcing solutionsprimarily to businesses with 25 to 500 employees. "e-Sourcing" is the managementof communications solutions that allow businesses to leverage technology,systems and networking resources -including broadband Internet Protocal basedapplications- without having to "own" or internally build and manage thoseresources. Inside our customers' premises we own communications networks andprovide professional services, such as the design, installation, management andmonitoring of those networks. Outside our customers' premises, we provide a fullrange of data and voice transport services. By operating networks both insideand outside our customers' premises, and by offering a broad range of Internet,data and voice systems and services, we provide small and medium sizedbusinesses with state-of-the-art communications solutions, including data andvoice networks based on broadband Internet Protocol, electronic commerce,connections to the Internet and sophisticated communications systems.

--------------------------------------------------------------------------------Internet Protocol-----------------

Internet Protocol or IP is a standard industry method of identifying,tracking and reassembling packets of information transferred over multiplecommunications networks, including the Internet.--------------------------------------------------------------------------------

We offer each of our systems and services on a stand alone basis or as abundled communications solution under long-term service agreements in which wemay own all or a portion of the inside network, provide professional servicesinside our customers' premises, supply data network services outside theirpremises and provide equipment financing where the customer chooses to own theirinside network. The comprehensive solution, which we call Enterprise ManagedServices, reduces our customers' capital needs, technical staffing requirementsand risks associated with evolving communications technologies.

We are deploying Cisco Systems, Inc.'s multi-service data and voice switchin each of the 35 metropolitan areas in which we currently operate and will alsodeploy them in additional markets we expect to enter. These next-generationswitches will enable us to route our customers' external communications trafficmore efficiently and with lower capital outlay than with traditional switches.

Over the last three years, we have:

. rapidly established a nationwide presence in 35 metropolitan markets;

. grown our customer base and provided our systems and services to more



than 33,000 customers in the last two years either directly or throughbusinesses we have acquired;

. increased sales to $160.0 million in 1999 from $61.6 million in 1998and $10.2 in 1997;

. raised $338.6 million in debt and equity offerings;

. completed 18 acquisitions, expanding our market presence, techniciansand capabilities to deliver our comprehensive service offerings;

. designed and implemented an IP/ATM network that will connect ourmulti-service, data and voice switching platforms and carry ourcustomers' traffic using ATM technology;

--------------------------------------------------------------------------------ATM---

Asynchronous Transfer Mode (or ATM) is a high-speed technology used totransport information in packets. ATM packets are fixed in size and allow thetransport of size-intensive and time-sensitive applications, such as video andvoice, quickly and efficiently.--------------------------------------------------------------------------------

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. grown our employee base to more than 1,500, including an experiencedsales team of 375, technical staff of 558 and customer care supportstaff of 180;

. devoted significant resources to the development, testing andimplementation of our operational support system; and

. developed, tested and implemented our national network operationscenter.

Our Solutions

We offer comprehensive communications solutions--ones that havetraditionally been readily available only to large enterprises--to small andmedium sized businesses. The combination of our focus on this market and ournational scale enables us to design sophisticated data and voice systems andsolutions tailored to these small and medium sized businesses.

Our services utilize the data and voice networks, inside and outside of ourcustomers' enterprises.

. Inside our customers' enterprises we own networks and design, install,manage, maintain and monitor these networks (local area networks, widearea networks, computers, private branch exchanges, key systems,handsets, etc.) under long-term service agreements for which thecustomer pays a flat monthly fee. The IP-based integrated data andvoice network solutions that we provide (including eCommerce, webapplication development and web hosting), and which we expect willbecome a larger portion of our business, can significantly reduceoverall network administration and capital costs for our customers.

. Outside our customers' enterprises, we provide next generation datacentric networks that connect the internal network to the Internetusing broadband transport technology. As we continue to build ourIP/ATM network, we will migrate many of these services to our ownnetwork.

[GRAPH APPEARS HERE]

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With our premiere offering, Enterprise Managed Services, our mostcomprehensive eSourcing solution, we become an outsourcing partner to ourclients by taking ownership and full responsibility for planning, installing,provisioning and maintaining their communications systems and networks,including their critical eBusiness integration projects. We offer this service,in addition to owning all or a portion of the data and voice communicationssystems inside our customers' enterprises, for a flat, monthly, per user feeunder a long-term contract. Using these inside networks in conjunction with ourcomprehensive next generation IP/ATM networks, we lower our customers' costs byreducing network outages and providing faster Internet access which allows themto use their applications more efficiently. This offering can also reduce theircapital expenditures, technical staffing requirements and risks associated withquickly evolving communications technologies.

Our Business Strategy



Our business strategy is designed to generate a broad source of stable andrecurring revenue. In implementing this strategy, we will:

Target Small and Medium Sized Businesses. The small and medium sizedbusiness market has historically been underserved by national systemsintegrators, outsourcers, data technology companies and telecommunicationsproviders, even though many small and medium sized businesses demand high-performance communications solutions. Because we are focused on this market, wehave developed systems, services and solutions that are well suited for thefinancial resources, growth characteristics, technological sophistication andother needs of small and medium sized businesses.

Provide Sophisticated, One-Stop, Integrated Communications Solutions.Most small and medium sized businesses do not have the internal capability orcapital required to deploy, fully utilize and effectively manage evolving dataand voice systems. We are increasingly able to respond to substantially all ofour customers' communications needs and can offer equipment leasing andmaintenance contracts. This comprehensive approach is designed to reduce thecomplexity and expense of owning and operating communications networks for ourcustomers. Our solutions are designed to facilitate the migration of traditionalcommunications systems to integrated IP-based data and voice networks.

Own the Communications Network Inside Our Customers' Enterprises.Through our Enterprise Managed Services, we seek to own the data and voicenetworks inside our customers' premises and provide these networks to ourcustomers along with management, maintenance and monitoring services under long-term service agreements. This approach is designed to:

. allow our customers to focus on their core business and outsourcetheir communications needs;

. capture a large portion of our customers' communications spending;

. minimize customer turnover;

. generate high-margin revenue; and

. enhance our opportunities to sell additional systems and serviceupgrades to existing customers.

Focus on Solutions-Based Selling. We market our systems and services, suchas Enterprise Managed Services, as solutions to business problems rather than asstand-alone products. We do so by marketing to the senior management andprincipals of our potential customers, providing them with an analysis of thebenefits of our comprehensive solutions. In the process we become the singlesource provider (e-Sourcer) to these customers under long-term servicecontracts.

Provide Preeminent, Local Customer Care. We strive to provide best-in-careservice by offering our customers immediate and around-the-clock access to ourcustomer care staff. Our 180 customer care specialists are trained in allaspects of the systems, services and solutions offered in their market.

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Our Systems and Services

As a single-source provider of a wide array of communications systems,services and solutions we have identified three core areas of expertise fromwhich these solutions are produced and supported. These areas, segmented by ourStrategic Management Units (SMUs), include eBusiness Solutions, EnterpriseServices and Enterprise Systems.

eBusiness Solutions

Our eBusiness capabilities allow growing enterprises to capitalize on thepower of the Internet to reach and support their customers. Managed through fivenational eBusiness solution centers in Portland, Denver, Chicago, Atlanta andSan Francisco, services offered are as follows:

. Application Service Provider ("ASP") Services. We offer ASP Services,which are custom-tailored service offerings for growing enterprisesseeking rapid delivery of cost-effective, high value-added,comprehensive solutions for their eBusiness initiatives. ASP Servicesconsist of eCommerce applications, e-procurement, and other electronicCustomer Relationship Management (eCRM) applications. These servicestransform the methods by which organizations connect buyers andsellers and process transactions, as well as customize and sell theirsystems and services.

. Strategic Web Development. We specialize in creating dynamic Web sitesthat perform beyond that of a "static" home page, incorporating



features such as database integration, multimedia streaming and one-to-one marketing capabilities. In cases in which a business has anexisting Web site, we provide enhancements that increase itsfunctionality and performance. In either case, we help make theInternet presence an even more valuable part of their business.

. eCommerce. Our eBusiness Solutions Group uses creativity and digitaltechnology to transform the way organizations connect buyers andsellers, process payments and customize and sell systems and services.We develop and implement custom eCommerce solutions to help clientsgenerate new and additional sources of revenue, streamline businessprocesses, extend marketing efforts and maximize efficiency. We alsointegrate those eCommerce solutions with our clients' existingdatabase and back-office systems.

. Intranet Development. Our custom intranet solutions turn simple Websites running on a corporate network into a strategy for informationdistribution across our client's company and the world. We implementdynamic and manageable intranets that streamline business processes,and maximize efficiency.

. Extranet Development. We extend the use of our clients' intranet toenable selected suppliers, distributors, and customers to communicatethrough a business-to-business extranet. We build and implementapplications that allow selected users access to private data andapplications via the World Wide Web. By applying an extranetapplication to business processes, we enhance marketing efforts andmaximize efficiency.

. Custom Web Hosting. We offer three types of hosting environments:shared, dedicated and co-located. Our hosting solutions are customizedon multiple platforms to meet our clients' online requirements and toensure that the final online product is reliable. We have thefacilities and manpower to ensure the connectivity, redundancy andsecurity of our customers' online business objectives.

. e-WebBuilder. We offer e-WebBuilder, which allows businesses torealize the promise of online technology today, without having todivert funds from their operating budget to buy expensive equipment,or hire and retain the networking staff needed to design and maintainweb-based programs. With e-WebBuilder Express, customers develop theinformation about their company that they want to place online. Then,choosing from more than 100 professionally designed templates, theyselect a look for the

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site that best reflects the image of their company. Our Catalog optionadds the benefits of e-commerce by allowing customers to displayproducts and services in an online catalog.

Enterprise Services

Our Enterprise Services SMU is focused on the support of both inside andoutside premises services and solutions, including:

. Enterprise Managed Services (EMS). We provide Enterprise Managed Servicessolutions under long-term service agreements for a flat, monthly, per userfee. We believe the EMS offering to be particularly attractive to our smalland medium sized business customers because it:

. provides them with a broadband network platform with highspeedconnectivity to the Internet;

. reduces their costs of long-term ownership while increasing theirbusiness effectiveness;

. reduces their risks and burdens associated with owning, operating andmaintaining data and voice networks;

. replaces costly and unpredictable capital outlays with stable andpredictible monthly expenses; and

. reduces their need to employ costly and difficult-to-recruitinformation technology personnel.

Other services we offer in conjunction with EMS are as follows:

- EMS Connect. EMS Connect is a bundled solution delivering our mostpopular network services in a pre-designed format including DSL,dedicated long distance and frame relay service.



- EMS Telephony. EMS Telephony is a complete service offering of voicecommunications systems tailored to meet the needs of small and mediumsized businesses.

- EMS Office. EMS Office is an offering that includes packaged voice anddata desktop configurations, internet access, LAN and telephonyservers offered at a flat rate based on the number of desktops.

In addition, for customers that choose to own their internal network, weprovide leasing options to facilitate the purchase of their data and voicesystems. We use our existing credit arrangements, or obtain new creditfacilities, to provide lease alternatives to our customers. We believe thatthese services enhance our ability to attract customers and act as their single-source provider. We also believe that these services allow us to maintaincontact with customers and provide us with the opportunity to sell additionalsystems and services to them.

. Professional Services. We design, install, manage, maintain and monitornetworks and systems including local area networks, wide area networks andintegrated IP-based networks, and assist our customers with adding andmoving phone lines. The benefits to our customers include:

. A single point of contact for networking services;

. Improved reliability and quality of our customer's network throughproactive trending analysis;

. Real-time, Web-based network performance reporting available 24 hoursper day, 7 days a week; and

. Lower cost of network management through leveraging shared resources;

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. Broadband Services. Our Broadband Services include Internet access, framerelay (ATM and IP switching), long distance service, local telephoneservice and public phone service.

. Internet Access. We currently offer highspeed Internet access servicesin all of our markets through our EMS Connect service usinginterconnections with UUNet. Our network is connected to three primaryInternet gateways located at Hearndon, Virginia, Santa Clara,California, and Chicago, Illinois.

--------------------------------------------------------------------------------Frame Relay-----------

Frame relay is a high-speed sevice which transports information in packets ofvarying sizes. Frame relay is a highly reliable digital service, efficient athandling high-speed, "bursty" data over wide area network.--------------------------------------------------------------------------------

. Transport Services. We are developing an ATM service in conjunctionwith our development and deployment of our national IP/ATM network. Wealso provide managed frame relay services to our customers allowingthem to transmit data, voice and video traffic on a single digitalfacility. We are currently testing various types of digital subscriberline, or DSL, services with a leading provider. Once we select aprimary provider of digital subscriber line services, we will beginproviding those transport services to our customers.

--------------------------------------------------------------------------------DSL---

Digital Subscriber Line (or DSL) enables high-speed local data transport overthe existing copper wire insfrastructure.--------------------------------------------------------------------------------

. Long Distance Services. We provide resold inter-state and intra-statelong distance services. We also provide enhanced services such astoll-free calling services and travel card services.

. Local Phone Services. We provide resold local phone services.

Enterprise Systems

. Data Systems. We are a provider of systems from a large variety ofsuppliers needed to create data networks including routers, hubs, bridges,multiplexers, switches, servers, personal computers, and other equipment.We also market integrated IP-based private branch exchanges, or PBXs, and abroad range of other IP-based devices.



. Voice Systems. We are a provider of voice network systems such as privatebranch exchanges, key systems (smaller versions of PBXs), handsets, voiceprocessing and messaging systems and call management software.

Sales and Marketing

Since January 1, 1998, we have provided our systems or services to morethan 35,000 businesses, either directly or through businesses we have acquired.As of December 31, 1999, we are selling all our data systems and services in 17of our markets, voice systems and services in all of our markets and a fullsuite of offerings, including EMS, in seven markets. We are developingadditional data, Internet and EMS expertise in the markets in which we do notcurrently offer those systems and services. We anticipate being able to provideall of our systems and services in an additional four of our markets by the endof 2000, and in all of our existing markets by the second half of 2002.

Our Sales Team. We sell our systems, services and solutions through ourstaff of approximately 375 sales representatives and support and approximately558 technicians in 49 offices in our 35 markets. Our sales force is supervisedby area and regional general managers, each of whom has responsibility for allsales functions in one of our geographic regions. A significant portion of thecompensation of the sales force is tied to annual goal and quota programs withincentive bonuses paid based on gross margin (rather than revenue) targets setby us.

Selling Our Enterprise Managed Services. We market our Enterprise ManagedServices to the upper level management of our current and potential customers asa business solution rather than a technology solution. Our

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sales teams seek to demonstrate to the business decision makers the quantifiablebenefits of not owning their inside communications systems and networks andallowing us to own and manage the communications systems and networks insidetheir premises. The analyses we use to accomplish this task include:

. Vendor Cost-Efficiency Analysis. A field audit of a customer's pastcommunications bills for a variety of services from outside vendorsidentifies the total cost for these services, vendor billing errors,services billed but not provided, or services paid for but notutilized.

. Network Analysis. A physical audit of a customer's communicationsnetwork assets quantifies the capital a customer has invested in theircommunications network and the costs associated with future upgradesto the customers network to meet their growing needs, and identifiesdesign flaws in the customer's network.

. Resource and Skill Set Analysis. An audit of internal resourcesrequired to maintain the customer's communications system and networkquantifies the labor costs and identifies the skill sets required toachieve the customer's stated business goals.

. Security Analysis. An audit of a customer's system and networkdetermines the vulnerability of a customer's proprietary informationto hackers and competitors.

. The Convergent Communications Solution. A custom-tailored proposalthat presents our advanced communications solution to the customer'sInternet, data and voice requirements.

As part of our solution, we conclude by providing a comparative "total cost ofownership analysis." This analysis is an economic comparison of our solution tothe customer's current communications system and network and managementapproach. The comparison includes the potential cash infusion the customer willreceive from the sale of its network assets to us and the potential reduction inexpenses associated with reducing personnel and outside vendor costs.

Marketing. We use a variety of marketing programs and media to raiseawareness of our systems, services and solutions and to generate sales leads andopportunities. In addition, sales leads often come from our existing satisfiedcustomers. Our programs include:

. advertising in newspapers, magazines and trade journals;

. advertising on radio;

. sending direct mail solicitations;

. conducting business seminars;

. participating in trade shows;



. cross selling systems and services to the more than 81,000 customerswho have previously purchased voice systems or services from us orcompanies we have acquired; and

. creating alliances and lead referral agreements with key vendors andsuppliers.

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Customers and Markets

Our Customers. We have provided our systems and services to more than35,000 customers since January 1, 1998, either directly or through businesses wehave acquired.

Our Markets. We currently provide our systems and services in 35metropolitan areas and we intend to expand into an additional 15 markets overthe next two years. Our existing markets are:

[MAP APPEARS HERE]

Customer Care and Operations Support

Our Customer Care Staff. Our sales and customer support functions arehighly integrated. Our 180 customer care specialists are trained in all aspectsof the systems, services and solutions offered in their markets. Our integratedapproach allows us to pursue our goal of providing best-in-care service startingwith the initial customer contact and continuing throughout the life of theaccount.

Commitment to Superior Service. In order to provide superior service we:

. Act Immediately. Our employees are specialists who will begintroubleshooting immediately to resolve any problem and reach aconclusion during the initial contact. Our national customer carecenter provides additional around-the-clock support, 365 days a yearand the seven regional customer care centers are staffed nine hours aday, five days a week to handle the anticipated workload.

. Provide a Single Point of Contact. Our customers can call a singletoll-free number for assistance in solving most problems. Because ourcustomer care teams are trained in the entire suite of communicationsystems and services we offer, they are able to assist customers insolving problems that may involve more than one system or serviceissue.

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Our Operational Support System. Our operational support system isdesigned to integrate all of our internal support services. This integrationwill permit customer care, sales engineering, service management, servicedelivery, accounting and inventory sales management personnel to access a singlecustomer record. Accordingly, a customer can get support for any of our systemsand services with one phone call. By providing comprehensive, real-time customerinformation, this system is designed to enable our customer supportrepresentatives to respond faster to inquiries, provide greater quality customercare, and identify more opportunities to sell additional systems and services.

We are in the process of adding additional functionality to our operationalsupport system, including improved order entry systems, dispatch and otherlogistics functions, improved trouble ticket systems and contract managementfeatures. These enhancements are designed to increase our efficiency insupporting our existing voice product and service customers and to increase oursales of data systems and services to them.

National Network Operations Center. Our national network operations centerprovides customer support and proactive and fully redundant network monitoringsystems. These systems provide us the ability to monitor all types of networkand customer devices installed in the field including routers, hubs, servers,switches, desktop computers, printers and other peripheral devices. For thesedevices, our system provides:

. logical depictions of our customers' networks for quick isolation oftrouble;

. graphical presentations of equipment locations by bay, shelf and cardfor quick identification;

. remote connection and testing capability; and

. network administration to manage bandwidth and configure and manage



equipment.

Network Architecture

Our DS3 nationwide network connects our Cisco powered next generationmulti-services switching platforms (NG-MSSP) which we call our Enterprise Pointsof Presence, or ePOPs. This nationwide network carries our customers' voice,video, data and Internet traffic using Internet Protocol (IP) and ATMtechnology, unlike traditional switches, which are designed to transport onlyspecific types of data or voice services. Our NG-MSSP allows for customers toconnect to the network via multiple technologies including XDSL, Frame Relay,ATM, IP, Private Line, and wireless at speeds ranging from 64k (DS0) up to DS3.We lease fiber capacity from Level 3 Communications, MCI Worldcom and WilliamsCommunications and install our equipment at the connection points. Our NG-MSSPnetwork is connected to three regional Internet aggregation private peeringgateways located in Hearndon, VA, Chicago, IL, and Santa Clara, CA. Thesegateways provide redundant connectivity to the Internet, improve throughputspeed, allow private and public connections over the same customer connection,and provide connectivity to hosting facilities. We have 16 nationwideoperational ePOPs. We expect to have 32 operational ePOPs by the end of 2000.

As of December 31, 1999, we had deployed 16 ePOPs with 8 additional ePOPsunder construction with estimated completion by July 2000. During the next 30months, we intend to deploy 34 additional ePOPs, including the 8 currently underconstruction. This switching architecture allows us to offer more functionalityat a substantially lower capital and operating cost than the combination oftraditional switches necessary to carry the same types of traffic. Our agreementwith Cisco also makes us a Cisco Powered Network Partner, which is a designationthat recognizes a select group of service providers who are committed toproviding high-performance reliable networking services. In addition, we have a$103.5 million financing facility with Cisco Systems Capital Corporation tofinance the purchase and installation of ePOPs.

Acquisitions

Since our inception, we have completed 18 acquisitions that have aided inestablishing our operations in 28 of our 35 markets and have added to our skillsand areas of expertise. We are expanding the product and service

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offerings available to the acquired sales and field personnel, thereby creatingnew sales opportunities. We expect to continue to make selective acquisitions toexpand our expertise and broaden our geographic coverage.

The key factors we have and will continue to use in evaluating potentialacquisitions are:

. cross-selling and up-selling opportunities;

. size and quality of the acquired customer base;

. acceleration of our new market entry or expansion of existing markets;

. additions to our sales force and technical personnel;

. costs of acquisition; and

. historical and projected financial performance.

Market Environment

Although several larger data and voice companies have entered or will enterour market, we believe that we will be successful because:

. we have expertise in providing integrated data and voice systems,services and solutions specifically tailored to the needs of small andmedium sized business;

. we provide broad product and service offerings with a suitablesolution and price point for nearly every business in our targetmarket;

. we have already established a sizeable customer base and a welltrained technical staff;

. we are focused on providing extremely high quality customer serviceand technical support;

. we are willing to lease our network solutions to our customers; and

. we intend to continue to offer new systems, services and solutions toenable small and medium sized businesses to take advantage of leadingtechnology.



We expect that we will face growing competition from a number of systemsintegrators, outsourcers, data technology companies and telecommunicationsproviders, among others. Although we do not believe that a significant number ofother companies are providing Enterprise Managed Services solutions or acomparable range of data and telephony systems, services and solutions to smalland medium sized businesses, we do face intense competition in each of ourindividual product and service offerings.

Regulatory Environment

Overview. Some of our offerings are subject to federal and stateregulation. At the federal level, we are subject to the Communications Act of1934 and the regulations of the Federal Communications Commission (FCC) to theextent that we provide interstate and international telecommunications services.At the state level, we are subject to state laws and the jurisdiction of thestate public utility commissions. The degree of regulation varies from state tostate.

The regulation of telecommunications services at all levels is in flux inthe aftermath of the Telecommunications Act of 1996, which comprehensivelyamended the Communications Act of 1934 to promote competition in all areas oftelecommunications. The Telecommunications Act of 1996 amendments eliminated

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many legal barriers to competition in various telecommunications marketplacesand set many of the basic terms governing the relationships between competingtelecommunications carriers, particularly in the provision of local telephoneservice. The implementation of the Telecommunications Act of 1996 is ongoing. Itis the subject of numerous administrative proceedings both before the FCC andthe various state public utility commissions, and litigation in both the federaland state courts. These proceedings could, to varying degrees, significantlyalter the regulatory landscape. We cannot predict the outcome of any of theseproceedings or whether they will adversely affect our business.

Federal Regulation. Our interstate and international "telecommunicationsservices", like those of all carriers, are subject to the regulations of theFCC. By contrast, our "information services" offerings, network design andmaintenance services, network management services, and web page development andhosting services are not regulated. Also unregulated is the equipment that weprovide to our customers to use with our telecommunications services, although,as discussed below, the FCC does require that equipment connected to the publicnetwork meet certain technical standards.

There is some ambiguity regarding the regulatory status of certain of ourservices. While we regard those services as unregulated, to date there has beenno ruling on their status by the FCC. It is possible that the FCC willultimately rule that they are telecommunications services and therefore aresubject to regulation. For example, under the current regulatory structure, webelieve our national IP/ATM network is an information service, and thereforeexempt from regulation. However, the regulatory classification of voicecommunications using IP or ATM technology is in a state of flux, and there is apossibility that voice communications using IP or ATM technology will be subjectto regulation in the near future. A determination that these products are notinformation services could make them significantly less competitive.

The FCC has established different levels of regulation for dominant andnondominant carriers. The regional Bell operating companies, GTE, and otherincumbent local exchange telephone companies are classified as dominant. Allother carriers, including us, are classified as nondominant. As a nondominantcarrier, we are subject to much less regulation than are the dominant carriers.Among other things, the FCC does not regulate the rates that we charge for ourinterstate and international services or require us to obtain authorization inadvance for the installation, acquisition or operation of our domestic networkfacilities.

The FCC has also decided that nondominant carriers should not file tariffssetting forth their rates for interstate services. That ruling, however, hasbeen stayed pending the resolution of a court challenge. Until the stay islifted, we are required to file tariffs for our interstate services, includingresold long-distance, frame relay, and operator services. If and when thedecision not to require the filing of tariffs becomes effective, we couldbenefit from the decrease in compliance costs and the elimination of delays ingetting new products to market.

Regardless of our nondominant status, we must comply with the provisions ofthe Communications Act of 1934 pertaining to common carriers. We are subject tothe general requirement that the rates, terms, and conditions of our services be"just and reasonable" and we may not make any "unjust or unreasonable"discrimination in our rates, terms, and conditions. The FCC has the authority toenforce our compliance with these requirements.

We offer some services that are subject to specific regulatory



requirements, including operator services and public phone service. With respectto our operator services, we are required to disclose to callers that they mayobtain a rate quote before placing a call and must file informational tariffswith the FCC containing detailed information about our rates. With respect toour public phone services, the FCC requires us to post certain consumerinformation at each public phone location.

The FCC also requires that equipment that is connected to the publicswitched telephone network will not harm the network. The systems we installmust meet the FCC's technical standards. While we are ultimately responsible forensuring that our equipment complies with federal network standards, as apractical matter, the burden of compliance lies with our suppliers.

11

While the FCC recently ruled that calls to the Internet are interstatecalls and thus subject to the FCC's jurisdiction, the FCC currently does notregulate the Internet and has said that it will refrain from doing so in thefuture. No assurances can be given, however, as to the degree of the FCC'sregulation of the Internet in the future, or its effect on our website hostingand other Internet-related systems or services. Potential negative effects couldinclude the increased costs to comply with any regulations which are imposed anddelays in getting new products and services to market.

In addition to regulating interstate and international telecommunicationsservices, the FCC also has a significant new role under the TelecommunicationsAct of 1996 in overseeing the opening of the intrastate telecommunicationsmarketplace to competition. The FCC has issued an extensive framework of rulesgoverning the terms under which incumbent local exchange companies are requiredto open their networks to competing providers. Among other things, the incumbentlocal exchange companies must allow competitors to interconnect with theirnetworks and must make their retail services available to competitors atwholesale rates for resale. We have taken advantage of these rules to enter thelocal telecommunications marketplace by reselling incumbent local exchangecompanies' services. Numerous parties have challenged various portions of theresale regulations both before the FCC and in the courts, including thediscounts at which the local exchange companies must make their servicesavailable to us for resale. If the discounts available to us are decreased as aresult of those challenges, it would affect our costs of providing localtelephone service.

State Regulation. Some of our resold local and long-distance services areclassified as intrastate and therefore are subject to state regulation. In moststates in which we do business, we are required to obtain a certificate ofpublic convenience and necessity and operating authority for the sale of longdistance and local phone services. In addition, we are often required to filetariffs setting forth the terms, conditions, and prices for services which areclassified as intrastate, particularly local exchange services.

The state public utility commissions also must approve the agreements thatwe enter into allowing us to purchase the retail services of the incumbent localexchange carriers at a discount for resale.

Our Regulatory Status. We are authorized by the FCC to provide resoldinternational services. We also have tariffs on file with the FCC for interstatelong distance services, frame relay services and operator services. At the statelevel, we are authorized to provide intrastate long distance services in 47states and are certified to provide local telephone services in 17 states.

Employees

As of December 31, 1999, we had 1,559 full-time employees, none of whom arerepresented by unions.

<TABLE><CAPTION>

Number ofJob Description Employees--------------- ----------<S> <C>

Sales Representatives and Sales Management.................. 375Technical Staff............................................. 558Customer Care............................................... 180Information Technology...................................... 49Support Services........................................... 397

-----1,559=====

</TABLE>

Employee Retention. We believe that our ability to implement our businessplan and continue to grow will depend in large part on our ability to continueto attract and retain qualified employees. In addition to fixed basecompensation, employees at all levels participate in our incentive compensation



plan. All employees are eligible to receive cash bonuses, while management mayreceive bonuses including both cash and shares of our common stock. In addition,we offer a comprehensive benefits package including a 401(k) plan with adiscretionary company match of shares of our common stock, insurance, cafeteriaplan, tuition reimbursement, and, for upper management, a deferred compensationplan.

12

Item 2. Properties

We lease sales and support facilities in each of our markets. Our principalcorporate and support facilities are also leased, and are as follows:

<TABLE><CAPTION>Location Size (sq. ft) Lease Expiration Use of Facility-------- ------------- ---------------- ---------------<S> <C> <C> <C>Englewood, Colorado 28,488 April 30, 2003 Headquarters and support services

Englewood, Colorado 68,566 February 28, 2002 Information systems, information technologyand other support services

Englewood, Colorado 16,700 November 30, 2000 National Operations Center and DenverOperations

</TABLE>

Item 3. Legal Proceedings

We are involved in legal proceedings from time to time, none of which webelieve, if decided adversely to us, would have a material adverse effect on ourbusiness, financial condition or results of operations.

Item 4. Submission of Matters to a Vote of Security Holders

This item is inapplicable.

13

PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.

Our common stock is quoted on The Nasdaq National Market under the symbol"CONV." Trading in our common stock began on July 19, 1999. The followingtable sets forth the high and low intra-day sales prices per share of our commonstock as reported on The Nasdaq National Market based on published financialsources, for the periods indicated:

<TABLE><CAPTION>

Period High Low------ ---- ---

<S> <C> <C>

1998First Quarter n/a n/aSecond Quarter n/a n/aThird Quarter n/a n/aFourth Quarter n/a n/a

1999First Quarter n/a n/aSecond Quarter n/a n/aThird Quarter $28,000 $8,500Fourth Quarter $18,750 $8,563

</TABLE>

As of March 20, 2000, there were 28,932,281 shares of our common stockissued and outstanding held by approximately 6,000 shareholders of record.

We have never paid cash dividends on our common stock. We currently intendto retain future earnings, if any, to fund the development and growth of ourbusiness. Therefore, we do not currently anticipate paying any cash dividends inthe foreseeable future. In addition, the terms of the indenture governing our13% Series B Senior Notes due 2008 contain restrictions on our ability to paydividends or other distributions.

14

The following tables summarize all equity securities issued or sold by usduring the fiscal year ended December 31, 1999 that were not sold pursuant to



registered offerings:

<TABLE><CAPTION>

Underwriters or Class of Number of ExemptionDate Purchasers Shares Consideration ($) Claimed

----------------- ------------------------ --------- ---------------------------------- ------------<S> <C> <C> <C> <C>Feb. 12, 1999 and Sellers in an acquisition 24,925 Substantially all of the assets of Section 4(2)May 26, 1999........ the target company

Mar. 31, 1999 Employee options 48,250 $193,500 Rule 701through Aug. 2,1999 ...............

Apr. 19, 1999........ Sellers in an acquisition 37,000 100% equity interest in the target Section 4(2)company

Apr. 23, 1999 and Employees 93,547 Deferred compensation plan payment Section 4(2)May 7, 1999.........

Apr 23, 1999 through Warrant Exercises 2,285,040 $13,130,195 Section 4(2)Dec. 21, 1999.......

Jul. 19, 1999........ Series A Preferred Stock 2,666,677 Conversion of previously issued Section 4(2)Conversion securities. No additional

consideration received.Aug. 3, 1999......... Employee options 30,552 $54,800 Section 4(2)Aug. 4, 1999......... Employees 27,500 Services performed Section 4(2)Sep. 10, 1999........ Sellers in an acquisition 2,500 Additional consideration for purchase Section 4(2)

pursuant to earn-out provisionsSep. 23, 1999........ Sellers in an acquisition 40,771 100% equity interest in the target Section 4(2)

companyOct. 19, 1999........ Employees 5,498 Incentive compensation plan payment Section 4(2)Oct. 29, 1999........ Sellers in an acquisition 217,671 100% equity interest in the target Section 4(2)

companyNov. 30, 1999........ Sellers in an acquisition 84,165 Substantially all of the assets of Section 4(2)

the target companyWarrants

Mar. 17, 1999 and Series A Preferred Stock 958,334 Additional consideration for Series A Section 4(2)Mar. 31, 1999....... holders Preferred Stock purchase

Mar. 21, 1999........ Credit facility provider 200,000 Increase in credit facility Section 4(2)Jun. 3, 1999......... Credit facility provider 375,000 $20 million credit facility Section 4(2)Jul. 16, 1999........ Credti facility provider 575,000 $105 million credit facility Section 4(2)

Series A Preferred Stock

Mar. 17, 1999 andMar. 31, 1999........ Accredited investors 800,000 $20,000,000 Section 4(2)</TABLE>

15

Item 6. Selected Financial Data

The following selected financial data should be read along with"Management's Discussion and Analysis of Financial Condition and Results ofOperations" and our consolidated financial statements and accompanying notes allof which appear later in this Form 10-K. The selected financial data have beenderived from our consolidated financial statements and the financial statementsof our predecessor, which have been audited by PricewaterhouseCoopers LLP,independent accountants. On December 17, 1996, we acquired IntegratedCommunication Networks, L.C., which is referred to as the "predecessor" for theperiod prior to the acquisition. Convergent Communications, since March 1, 1996,together with Integrated Communication Networks, L.C., since December 17, 1996,is referred to as the "successor." Share and per share information is notpresented for the predecessor as they are not relevant due to the predecessor'sdifferent capital structure.

in thousands, except per share amounts

<TABLE><CAPTION>

PREDECESSOR SUCCESSOR------------------------------- ---------------------------------------------------------------

January 1, March 1,For the Year 1996 1996 For the Year For the Year For the Year

Ended through through Ended Ended EndedDecember 31, December 16, December 31, December 31, December 31, December 31,

1995 1996 1996 1997 1998 1999------------- ------------ ------------ ------------ ------------- ------------

<S> <C> <C> <C> <C> <C> <C>Operating Statement Data:

Revenue..................... $1,434 $1,496 $ 98 $ 10,210 $ 61,600 $ 159,922

Cost of sales excluding



depreciation............... 964 1,018 79 7,368 43,703 104,045Selling, general andadministrative............. 405 554 552 10,983 47,862 125,350

Depreciation andamortization............... 127 124 41 1,453 7,493 17,295

Impairment of long-livedassets..................... -- -- -- -- -- 650

------ ------ ------ -------- -------- ---------Total operating expenses... 1,496 1,696 672 19,804 99,058 247,340Operating loss............. (62) (200) (574) (9,594) (37,458) (87,418)

Interest expense............ (17) (21) (1) (156) (17,502) (25,491)Interest income............. -- -- -- 251 4,632 4,880Other expense, net.......... -- -- -- (156) (248) (231)

------ ------ ------ -------- -------- ---------Net loss.................... (79) $ (221) $ (575) $ (9,655) $(50,576) $(108,260)

====== ====== ====== ======== ======== =========

Net loss per share (basicand diluted)............... $(0.15) $ (0.92) $ (3.68) $ (5.32)

Weighted average sharesoutstanding (basic anddiluted)................... 3,887 10,461 13,732 20,356

Other Operating Data:Net cash provided by (usedin) operating activities... 60 $ (31) $ (242) $ (6,698) $(28,698) $ (97,355)

Net cash used in investingactivities................. (8) (36) (1,446) (11,648) (94,647) (61,143)

Net cash provided by (usedin) financing activities... (61) 91 4,849 15,852 148,274 158,116

EBITDA(1)................... 65 (76) (534) (8,141) (29,965) (69,473)</TABLE>---------------(1) As used in this report, EBITDA consists of earnings before interest (net),

income taxes, depreciation and amortization, impairment of long-livedassets and other income (expense). EBITDA is a measure commonly used toanalyze companies on the basis of operating performance. It is not ameasure of financial performance under GAAP and should not be considered asan alternative to net income (loss) as a measure of performance or as analternative to cash flow as a measure of liquidity. Our measure of EBITDAmay not be comparable to similarly titled measures used by other companies.

16

Item 6. Selected Financial Data-(Continued)

in thousands

<TABLE><CAPTION>

PREDECESSOR SUCCESSOR------------- --------------------------------------------------------------------

As of As of As of As of As ofDecember 31, December 31, December 31, December 31, December 31,

1995 1996 1997 1998 1999------------- --------------------------------------------------------------------

<S> <C> <C> <C> <C> <C>Balance Sheet:Cash, cash equivalents and short-terminvestments................................ $ 13 $3,161 $ 8,039 $ 25,597 $ 59,957

Restricted cash............................. -- -- 406 51,350 38,469Working capital............................. (10) 1,890 5,334 28,500 76,975Goodwill, net............................... 228 3,201 6,393 46,526 56,037Total assets................................ 797 9,887 24,922 185,656 295,213Total debt.................................. 440 1,456 1,933 168,268 205,474Total liabilities ......................... 580 1,902 6,194 207,005 258,593Shareholders' equity (deficit).............. 217 7,985 18,728 (21,349) 36,620</TABLE>-------------

17

Item 7. Management's Discussion and Analysis of Financial Condition andResults of Operation

MANAGEMENT'S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read along with the consolidatedfinancial statements and the accompanying notes included later in this Form 10-K. This discussion includes forward-looking statements and is based on current



expectations which involve risks and uncertainties. Because of the uncertaintyof many factors, what actually occurs in the future may be very different fromwhat we project in our forward-looking statements.

Overview

We are a rapidly growing national provider of e-Sourcing solutionsprimarily to businesses with 25 to 500 employees. "e-Sourcing" is the managementof communications solutions that allow businesses to leverage technology,systems and networking resources such as broadband Internet Protocol basedapplications. Inside our customers' premises we own communications networks andprovide professional services, such as the design, installation, management andmonitoring of those networks. Outside our customers' premises, we provide a fullrange of data and voice transport services. By operating networks both insideand outside our customers' premises, and by offering a broad range of Internet,data and voice systems and services, we enable small and medium sized businessesto use state-of-the-art communications solutions, including data and voicenetworks based on broadband Internet Protocol, electronic commerce, the Internetand sophisticated communications systems. We intend to become the leadingprovider of IP-based Internet, data and voice systems and services to small andmedium sized businesses.

We were first capitalized in March 1996. Since that time, we havesuccessfully raised $338.9 million in capital, including $450,000 in founders'capital, $24.0 million in two private placements of common stock in 1996 and1997 (including an additional $450,000 from the founders), $160.0 millionthrough the 1998 sale of our 13% Senior Notes and related warrants, $20.0million in a 1999 sale of our convertible preferred stock and warrants toaffiliates of Sandler Capital Group and $134.1 million in our Initial PublicOffering in July 1999. We also have borrowing capacity under our existingComdisco equipment lease facility of $30.0 million.

In the last three years, we completed 18 strategic acquisitions, the mostsignificant of which was the 1998 acquisition of substantially all of the assetsof Tie Communications at a cost of approximately $51.4 million. With theacquisition of these assets, we accelerated our growth by adding 24 new marketsand 452 employees with experience in voice systems and services. Thisacquisition also gave us the opportunity to cross-market our data systems andservices, including Enterprise Managed Services, to customers that purchasedsystems or services from Tie in the past.

We began offering Enterprise Managed Services in December 1997 and, as ofDecember 1999, had entered into long-term Enterprise Managed Services contractswith 64 customers with an aggregate of approximately 3,246 computers andtelephones. We expect these contracts to provide us with approximately $9.1million in annual contract revenue, and over their terms we expect them toproduce total revenue of approximately $46.4 million.

18

Description of Financial Components

We classify our business into three segments: eBusiness, EnterpriseServices and Enterprise Systems.

Revenue and cost of sales. The following chart outlines the components ofrevenue and the related cost of sales excluding depreciation, by segment:

<TABLE><S> <C>Revenue: Cost of Sales (excluding depreciation):e Business. web design and hosting . engineer and technician compensation and benefits. eCommerce. intranet and extranet development

-------------------------------------------------Enterprise ServicesProfessional Services . engineer and technician compensation and benefits. network planning, design, maintenance,

and monitoring

Broadband Services . leased line facilities' costs of connecting a. frame relay (ATM and IP switching), customer's to long distance or local network

Internet access, long distance service, . capacity charges that long distance and local carriers,local telephone service and public phone Internet service providers and others impose to use theirservice equipment and network

Managed Services . all the costs associated with all the data and voice. long-term contracts (typically three to five systems and services described in this table

years) under which we own, manage and areresponsible for all or a portion of thenetwork inside our customers' premises



-------------------------------------------------

Enterprise Systems. sale and installation of data, voice and video . cost of data, voice and video network systems

network systems. costs of installation, including technician

compensation and benefits</TABLE>

19

Selling, general and administrative expenses have increased significantlyand will continue to increase as we recruit additional management and supportpersonnel necessary for continued growth. However, we expect these expenses todecline as a percentage of our revenue as we expand our customer base and beginselling additional systems and services in each of our markets.

. Sales and marketing expenses include commissions paid in connectionwith our sales programs, marketing salaries and benefits, travelexpenses, trade show expenses, consulting fees and promotional costs.Also included are the costs of soliciting potential customers such astelemarketing, brochures, targeted advertising and promotionalcampaigns. We expect these expenses to increase as we add additionalsales and marketing personnel and further implement our business plan.

. General and administrative expenses primarily consist of salaries andrelated expenses of management and support services personnel,occupancy fees, professional fees and general corporate andadministrative expenses. We also include costs associated with thedevelopment, support and expected enhancements of our operationalsupport software platform, to the extent these costs are notcapitalized.

Depreciation and amortization expense includes depreciation of property,network and equipment (over two to five years), including our assets locatedinside our customers' premises provided under Enterprise Managed Servicescontracts. Amortization expense includes the amortization of intangible assets(over three to ten years), primarily goodwill (over ten years), that resultedfrom business acquisitions. We had 56.0 million of goodwill, net ofamortization, on December 31, 1999. Depreciation and amortization will increaseas we install additional ePOP switching platforms and expand our EnterpriseManaged Services business and as a result of increased amortization ofintangibles expected to result from future acquisitions.

Interest expense includes interest expense on our short-term and long-termdebt, including capital leases. The majority of the interest expense is relatedto our 13% Senior Notes which mature in 2008. Interest expense will increase aswe continue to finance a significant portion of our capital expenditures,including our purchase of Cisco Systems Inc.'s multi-service, data and voiceswitches and additional Cisco Systems, Inc. equipment under our $103.5 millionequipment facility with Cisco Systems Capital Corporation.

20

Results of Operations

Management evaluates and makes operating decisions about each of ouroperating segments based on a number of factors. Two of the more significantfactors we use in evaluating operating performance are: revenue and gross marginbefore depreciation. We do not account for assets by business segment. As aresult, depreciation and amortization are not factors used by management inevaluating the operating performance of our segments.

The percentages shown in the following table with respect to revenuerepresent revenue for each business segment as a percentage of total revenue.Percentages with respect to cost of sales excluding depreciation and grossmargin before depreciation are a percentage of revenue for the related segment.

<TABLE><CAPTION>

Years Ended December 31,-----------------------------------------------------------------

1997 1998 1999------------------ ------------------ -------------------

(dollars in thousands)<S> <C> <C> <C> <C> <C> <C>Revenue:eBusiness................................................ $ - -% $ - -% $ 1,742 1%Enterprise Services...................................... 2,795 27 27,922 45 64,806 41Enterprise Systems....................................... 7,415 73 33,678 55 93,374 58

------- --- ------- --- -------- ---Total revenue........................................... 10,210 100 61,600 100 159,922 100

------- --- ------- --- -------- ---



Cost of sales excluding depreciation:eBusiness................................................ - - - - 720 41Enterprise Services...................................... 1,278 46 15,587 56 32,827 51Enterprise Systems....................................... 6,090 82 28,116 84 70,498 76

------- --- ------- --- -------- ---Total cost of sales excluding depreciation.............. 7,368 72 43,703 71 104,045 65

------- --- ------- --- -------- ---Gross margin before depreciation:eBusiness................................................ - - - - 1,022 59Enterprise Services...................................... 1,517 54 12,335 44 31,979 49Enterprise Systems....................................... 1,325 18 5,562 17 22,876 25

------- --- ------- --- -------- ---Total gross margin before depreciation.................. $ 2,842 28% $17,897 29% $ 55,877 35%

======= ======= ========</TABLE>

Summary Quarterly Financial Data

The table below presents unaudited quarterly statement of operations datafor each of the last eight quarters through December 31, 1999. This informationhas been derived from unaudited financial statements that have been prepared onthe same basis as the audited financial statements contained elsewhere in thisForm 10-K and, in our opinion, includes all adjustments, consisting only ofnormal recurring adjustments, that are necessary for a fair presentation of theinformation. You should read these unaudited quarterly results along with ourconsolidated financial statements and the accompanying notes appearing later inthis Form 10-K. The operating results for any quarter are not necessarilyindicative of results for any future periods.

<TABLE><CAPTION>

1998 1999------------------------------------------ ------------------------------------------

1st 2nd 3rd(1) 4th 1st 2nd 3rd 4th--------------------------------------------------------------------------------------

(in thousands, except per share amounts)<S> <C> <C> <C> <C> <C> <C> <C> <C>Quarterly Operating Data:Revenue................................ $ 6,523 $ 7,982 $ 22,316 $ 24,779 $ 31,709 $ 38,053 $ 42,422 $ 47,738Cost of sales excluding depreciation... 4,798 5,772 14,717 18,416 20,743 23,714 26,977 32,610Selling, general and administrative.... 6,062 7,710 15,507 18,583 23,337 27,411 31,927 42,675Depreciation and amortization.......... 762 1,191 2,646 2,894 2,863 4,107 4,872 5,453Impairment of long-lived assets........ - - - - - - 650

--------------------------------------------------------------------------------------Operating loss........................ (5,099) (6,691) (10,554) (15,114) (15,234) (17,179) (21,355) (33,650)

Net loss............................... $(5,111) $(11,169) $(15,355) $(18,941) $(20,129) $(22,960) $(26,358) $(38,813)======================================================================================

EBITDA(2).............................. $(4,337) $ (5,500) $ (7,908) $(12,220) $(12,372) $(13,071) $(16,483) $(27,547)======================================================================================

</TABLE>---(1) On August 1, 1998, we completed our largest acquisition to date when we

acquired substantially all of the assets of Tie Communications, Inc. for$51.4 million, including $40.0 million in cash plus other costs and assumedliabilities.

21

(2) As used in this report, EBITDA consists of earnings before interest (net),income taxes, depreciation and amortization, impairment of long-livedassets and other income (expense). EBITDA is a measure commonly used toanalyze companies on the basis of operating performance. It is not ameasure of financial performance under GAAP and should not be considered asan alternative to net income (loss) as a measure of performance or as analternative to cash flow as a measure of liquidity. Our measure of EBITDAmay not be comparable to similarly titled measures used by other companies.

We have generated greater revenue in each successive quarter since ourinception, reflecting increases in the number of customers, mainly due toacquisitions, and in sales to existing customers. Cost of sales excludingdepreciation has increased in every quarter, reflecting product and servicecosts directly associated with revenue. Our selling, general and administrativeexpenses have increased in every quarter and reflect sales and marketing costssuch as sales commissions, and the development and growth of regional andcorporate support staff. Depreciation and amortization has increased in eachquarter through December 31, 1999. The increases in depreciation are due to thepurchase of property, network and equipment inside and outside our customers'premises associated with our expansion to 35 markets as of December 31, 1999,and due to the deployment of our multi-service data and voice switching platformin 16 markets. The increases in amortization are due to the increase in goodwilland other intangible assets resulting from the completion of 18 acquisitionsthrough December 31, 1999. We have also experienced increasing operating, EBITDAand net losses every quarter.



Year Ended December 31, 1998 Compared to the Year Ended December 31, 1999

Revenue for 1999 was approximately $159.9 million, $98.3 million greater thanrevenue for 1998. The increase in revenue was a result of both acquisitions andinternal growth. We completed six acquisitions during 1999, onetelecommunications equipment provider and integrator and five data networkintegration services providers. The increase in revenue was also largely due toour growing operations and sales staff having pursued the cross sellingopportunities presented in new markets. The majority of the increase in revenuewas attributable to the enterprise systems segment of our business, whichincreased $59.7 million while enterprise services increased $36.9 million. Themajority of the increase in enterprise systems revenue was from sales of voicecommunications systems which is attributable to the influence of the sales forceobtained through the Tie acquisition which was a voice equipment provider andlong-distance reseller acquired in the third quarter of 1998. The increase inenterprise services revenue consisted of increases of $29.8 million inprofessional services, $4.1 million in broadband services and $3.0 million inEnterprise Managed Services. Also, during 1999 we implemented a new segment,eBusiness Solutions, which accounted for the remaining $1.7 million of theincrease in revenue for 1999.

A significant factor in our strategy to increase recurring enterprise servicesrevenue is through our Enterprise Managed Services offering. While revenue fromEnterprise Managed Services contributed $2.9 million to the increase in revenuefor 1999, contract value increased from $14.6 million as of December 31, 1998 to$46.4 million as of December 31, 1999. This represents an increase in customersfrom 18 at the end of 1998 to 64 at the end of 1999.

Cost of sales excluding depreciation increased $60.3 million from 1998 to 1999,while declining as a percentage of total revenue from 71% for the year endedDecember 31, 1998 to 65% for the year ended December 31, 1999. This decline as apercentage of total revenue is a reflection of the decline in cost of salesexcluding depreciation for both systems and services. Cost of enterprisessystems sales excluding depreciation declined 8.0% as a percentage of enterprisesystems revenue, from 84% for 1998 to 76% for 1999. This decrease as apercentage of product revenue is due to an increase in sales of voice systems,which have a lower related cost of sales excluding depreciation than datasystems. Cost of enterprise services sales, as a percentage of enterprisesservices revenue, decreased from 56% for 1998 to 51% for 1999. The decrease incost of service sales as a percentage of service revenue was primarily due to anincrease in our offering of professional services such as network and Webdesign, maintenance and monitoring and Enterprise Managed Services, which have alower related cost.

Selling, general and administrative expenses increased $77.5 million from 1998to 1999. This increase in selling, general and administrative expenses islargely due to continued growth of the support services organization required tosupport expanding field operations, which accounted for approximately $59.9million or 48% of total selling, general and administrative expenses for theyear ended December 31, 1999. Salary and benefit related expenses increased$53.5 million, as a result of adding 682 employees between December 31, 1998 andDecember 31, 1999,

22

and as a result of having a full year of expenses related to the 452 employeesobtained through the Tie acquisition compared to five months of Tie relatedexpenses in 1998. The increase in expense is also a result of the six businesscombinations completed during 1999. Selling, general and administrative expensesremained constant as a percentage of revenue at 78% for both 1998 and 1999. Weexpect selling, general and administrative expenses to decrease as a percentageof revenue as we limit the growth of our corporate support services organizationand continue to expand our customer base and sell additional systems andservices in all of our markets.

Depreciation and amortization expense increased approximately $9.8 million from1998 to 1999. The increase is a direct result of an increase of $49.3 million inproperty, network and equipment and $15.1 million in goodwill. Other intangibleassets increased $2.8 million. As of December 31, 1999 we had $56.0 million ingoodwill, net of amortization, which is being amortized over ten years. Theincrease in property, network and equipment is largely due to:

. the addition and expansion of new and existing markets;

. the completion of six acquisitions;

. the development and deployment of 16 of our multi-functional,integrated data and voice switching platforms;

. continued development of our operational support system;

. the increase in assets managed under Enterprise Managed Servicescontracts; and



. office equipment and furniture related to the growth of our supportservices organization.

Impairment of long-lived assets resulted from the writeoff of certain of ouroperating systems which are no longer being utilized.

Interest expense increased by approximately $8.0 million from 1998 to 1999. Theincrease is primarily a result of a full year of interest expense in 1999compared to nine months of interest in 1998 on $160.0 million in principalamount of our 13% Senior Notes issued in April 1998. The increase is also aresult of:

. assumed indebtedness from acquisitions;

. increased indebtedness under our equipment financing facilities withComdisco and GATX Capital;

. indebtedness under the Goldman Sachs Credit Partners L.P. seniorsecured credit facility;

. indebtedness incurred under the financing facility with Cisco SystemsCapital Corporation; and

. indebtedess for proceeds received in discounted long-term receivablestransactions.

We expect that interest expense will increase as we continue to finance asignificant portion of our capital expenditures, including equipment purchasedfor installation at our customers' offices in connection with the provision ofEnterprise Managed Services and equipment purchased under our $103.5 millionequipment facility with Cisco Systems Capital Corporation.

Interest income increased approximately $248,000 from 1998 to 1999. Theincrease in interest income is due to earnings on the remaining proceeds fromthe $160.0 million in principal amount of our 13% Senior Notes issued in April1998, proceeds from the sale of convertible preferred stock in March 1999, a$10.0 million credit facility entered into in June 1999 and net proceeds ofapproximately $122.3 million from our initial public offering in July 1999compared to interest income on the proceeds of the $160.0 million in principalamount of our 13% Senior Notes in 1998.

23

Other income (expense), net which consists of miscellaneous other non-operatingtypes of income and expenses, changed slightly from net other expense ofapproximately $248,000 in 1998 to net other expense of approximately $231,000 in1999. Net other expense for 1999 is primarily due to a loss recognized on thetermination of a stock purchase agreement and sale of an investment.

24

Year Ended December 31, 1997 Compared to the Year Ended December 31, 1998

Revenue increased by $51.4 million in 1998, to approximately six times 1997revenue. The increase in revenue was primarily due to our expansion fromeight markets at December 31, 1997 to 32 markets at December 31, 1998, as aresult of the six acquisitions we completed during the year. The increasein revenue was also due to internal growth of our operations and salesstaff. The most significant acquisition was the acquisition of the assetsof Tie, which occurred in the third quarter of 1998. The Tie acquisitioncontributed most of the sizable increase in enterprise systems revenue andan even greater increase in enterprise services revenue. The balance of thegrowth in enterprise systems revenue was primarily a result of thedevelopment and growth of existing markets and a full year of operations in1998 compared to a partial year of operations in 1997 for those markets weentered in late 1997. As a result of the Tie acquisition and our strategyto increase our service offerings, our overall revenue mix shifted fromapproximately 27% in services in 1997, to 45% in services in 1998.

Cost of sales excluding depreciation increased $36.3 million from 1997 to1998. While it declined slightly as a percentage of total revenue from 72%in 1997 to 71% in 1998, cost of enterprise services sales as a percentageof enterprise services revenue increased from 46% in 1997 to 56% in 1998.The increase as a percentage of enterprise services revenue was primarilydue to a shift in service mix to services such as long-distance which havea higher related cost of sales. Cost of enterprise systems sales excludingdepreciation, as a percentage of enterprise systems revenue, remainedrelatively constant, increasing from 82% in 1997 to 84% in 1998.

Selling, general and administrative expenses increased $36.9 million from1997 to 1998, but decreased as a percentage of revenue from 108% in 1997 to78% in 1998. However, we expect selling general and administrative expenses



to increase as a percentage of revenue over the short term as we incurcosts associated with the aligning of our operations to capitalize on oureBusiness Solutions and IP-based (Internet Protocol) infrastructure areasof our business and also the growth of our support services organizationrequired to support expanding field operations.

The $36.9 million increase was primarily a result of:

. the expansion from eight to 32 markets;

. the completion of six acquisitions, including the assets of Tie;

. an increase from 165 employees at December 31, 1997 to 877 atDecember 31, 1998 (452 of which were hired as a result of the Tieacquisition); and

. continued growth of the support services organization requiredfor expanding field operations, which accounted for approximately$20.2 million or 42% of total selling, general and administrativeexpenses for 1998.

Depreciation and amortization expense increased approximately $6.0 millionfrom 1997 to 1998. This increase was a direct result of an increase of$22.7 million in property, network and equipment from 1997 to 1998 and anincrease in goodwill (before 1998 amortization) of $42.6 million and otherintangible assets of $1.7 million as a result of the six acquisitionscompleted in 1998. As of December 31, 1998 we had $46.5 million ingoodwill, net of amortization, which will be amortized over the next tenyears. The increase in property, network and equipment is largely due to:

. the expansion from eight to 32 markets;

. the development and deployment of our multi-service data andvoice switching platform in three markets;

. continued development of our operational support system;

. the increase in assets managed under Enterprise Managed Servicescontracts; and

25

. office equipment and furniture related to the growth of oursupport services organization.

Interest expense increased by approximately $17.3 million as a result ofthe April 1998 issuance of our 13% Senior Notes, which consisted of $160million in principal amount of promissory notes and warrants to purchase864,000 shares of common stock. Approximately $1.2 million of this increaserelates to accretion of the debt discount resulting from the value assignedto the warrants and amortization of debt issuance costs, neither of whichare cash expenses. Interest expense also increased as a result of assumedindebtedness from acquisitions, as well as increased indebtedness under ourequipment financing facilities with Comdisco and Sun Financial Group, Inc.due to property, network and equipment purchased for our networks bothinside and outside our customers' premises.

Interest income increased approximately $4.4 million as a result of thetemporary investment of the proceeds of the offering of our 13% SeniorNotes, prior to the use of these proceeds in our business.

Other expense (net) increased by approximately $92,000 and primarilyconsisted of losses on disposal of assets and miscellaneous other non-operating types of expenses.

Liquidity and Capital Resources

Since inception, in addition to borrowings under our credit facilities wehave funded our net losses and capital expenditures through financingactivities as outlined in the following table. In the table below, netproceeds equals the gross proceeds of the offering less advisors' fees,underwriting discounts and other expenses associated with the offering.

<TABLE><CAPTION>

Gross NetSecurities Sold Proceeds Proceeds----------------------------------------------------------------------------- -------- --------

(in thousands)<S> <C> <C>Initial sale of 3,750 shares of common stock to founders(April through October 1996)............................................... $ 450 $ 450

3,500 shares of common stock and 1,750 warrants(December 1996 through February 1997)...................................... 7,000 6,296



3,410 shares of common stock and 1,705 warrants(October through November 1997)............................................ 17,050 15,340

13% Senior Notes and 864 warrants (April 1998).............................. 160,000 152,378Sale of 800 shares of Series A Convertible Preferred Stock and958 warrants (March 1999).................................................. 20,000 19,300

Initial Public Offering of 8,937 shares of common stock (July 1999)......... 134,051 122,281-------- --------

Total funds raised......................................................... $338,551 $316,045======== ========

</TABLE>

Our principal uses of cash are to fund working capital requirements,capital expenditures, business acquisitions, operating losses and interestexpenses. We expect that our expansion will require additional capitalexpenditures and direct operating costs and expenses. As a result, we expect toincur net losses for at least the next 36 months. However, if our customer basegrows and we are successful in offering all of our data services and systems, webelieve revenue will increase in larger proportion than operating expenses.

As of December 31, 1999, we had current assets of $141.4 million,including cash, cash equivalents and short-term investments of $60.0 million andrestricted cash of $20.8 million, and working capital of $77.0 million. Inaddition, we also had $17.7 million in non-current restricted cash. The majorityof our restricted cash, along with the interest we earn on this cash, will beused to make the interest payments through April 2001 on our 13% Senior Notes.We invest excess funds in short-term investments until these funds are neededfor debt payments, capital investments, acquisitions and operations of thebusiness.

26

Cash Flows From Operating Activities. Operating activities used cash ofapproximately $97.4 million during 1999, $28.7 million during 1998 and $6.7million during 1997. Cash used in operating activities in 1999 was primarily dueto the net loss of $108.3 million, an increase in trade accounts receivable andother current asset categories of $23.2 million and a decrease in other accruedliabilities of $3.0 million. These uses of cash were partially offset by $27.3million in non-cash expenses such as depreciation and amortization and stockcompensation and an increase in trade payables and accrued compensation of $9.7million. While cash used in operating activities as a percentage of revenuedeclined from 66% in 1997 to 47% in 1998, the percentage, as a percentage ofrevenue increased in 1999 to 61%. The primary reason for this increase is due toour vendor credit lines not increasing adequately to support the significantincrease in our purchasing activity. The strengthening of our liquidityposition, as a result of the expected proceeds from the sales of our preferredstock and borrowing under the $50.0 million credit facility ( see "Cash FlowFrom Financing Activities" and "Future Capital Requirements" below), shouldallow us to negotiate better credit terms with our vendors.

The majority of the increase from 1997 to 1998 was due to an increase intrade accounts receivable of approximately $11.0 million and a $40.9 millionincrease in the operating loss, which were partially offset by an increase intrade accounts payable of approximately $12.4 million, an increase of $5.2million of accrued interest expense, and non-cash expenses such as depreciationand amortization and other changes in working capital. Cash used in operatingactivities during 1997 was primarily due to our net loss of $9.7 million,partially offset by non-cash expenses such as depreciation and amortization andchanges in working capital.

Cash Flows From Investing Activities. Investing activities used cash of$61.1 million during 1999, $94.6 million during 1998 and $11.6 million during1997. The majority of the cash used in investing activities in 1999 consisted ofshort-term investments of $34.3 million, capital expenditures of $20.8 million,acquisitions of $10.5 million and investment in leases receivable of $8.2million. An additional $28.3 million of capital expenditures were financed underour financing facilities, including approximately $9.5 million for our ePOPdeployment and $3.3 million in assets being utilized in Enterprise ManagedServices contracts.

Cash used in investing activities during 1998 consisted primarily ofrestricted cash investments in U.S. government securities of $50.9 million inconnection with the sale of our 13% Senior Notes, acquisitions of $42.4 million($40.0 million of which was used for the Tie acquisition) and capitalexpenditures of $6.9 million. These cash uses were partially offset by maturingshort-term investments of $7.4 million. Cash used for investing activitiesduring 1997 consisted of $7.4 million used for short-term investments, $2.0million in capital expenditures and $1.5 million for business combinations.

Cash Flows From Financing Activities. Financing activities provided cash ofapproximately $158.1 million during 1999, $148.3 million during 1998 and $15.9million during 1997. Cash provided by financing activities during 1999 consistedof $122.3 million in net proceeds from our initial public offering, $19.2million in net proceeds from the sale of our convertible preferred stock, $16.2million, net of financing costs, in new borrowing under the senior secured



credit facility ($9.5 million) and discounting of long-term receivables withlendors ($6.7 million). We received an additional $13.3 million in new proceedsfrom the exercise of options and warrants. Cash provided was partially offset byapproximately $12.8 million in payments on long-term borrowings.

Cash provided by financing activities during 1998 consisted ofapproximately $152.4 million in net proceeds from the sale of our 13% SeniorNotes and warrants, which was partially offset by approximately $4.3 million inpayments on long-term borrowings. In 1997 cash flows from financing activitiesconsisted of $17.3 million in net proceeds from the sale of shares of our commonstock and warrants, which was partially offset by approximately $1.4 million indebt repayments.

The following is a description of the significant financing activities that havefunded our operations to date:

In November 1997, we entered into an agreement with Comdisco, Inc. throughwhich we can receive up to $50 million of equipment lease financing. At December31, 1999, $30 million was available to us under this facility of which a totalof approximately $24.8 million had been utilized. The remaining $20 million willbecome available upon the satisfaction of additional conditions. This facilitywill expire on June 30, 2000.

27

On April 2, 1998 we completed the offering of our 13% Senior Notes, in theaggregate principal amount of $160.0 million and warrants to purchase 864,000shares of common stock. At the closing, we deposited $56.8 million of theproceeds from that offering in a collateral account. The amount in thecollateral account along with the interest earned, will be sufficient to pay thefirst six interest payments on the 13% Senior Notes, of which two have been madeas of April 1, 1999. We received approximately $95.6 million after deductingoffering costs of approximately $7.6 million and funding the collateral account.The 13% Senior Notes contain certain covenants that restrict our ability toincur additional debt and make certain payments, including dividends.

In March 1999, we sold to affiliates of the Sandler Capital Group 800,000shares of our convertible preferred stock and warrants to purchase 958,333shares of our common stock, for total consideration of $20.0 million. Theproceeds from the sale, net of related offering costs, were approximately $19.2million. These shares of preferred stock were converted to 2,666,667 shares ofour common stock in conjunction with our initial public offering in July 1999.

In June 1999, we entered into a $10.0 million senior secured creditfacility with Goldman Sachs Credit Partners L.P. The proceeds of this facilityare being used for working capital and other general corporate purposes.Interest accrues at the greater of 13.0% or LIBOR plus 6.0% with interestpayments due monthly. The principal amount outstanding along with any accruedinterest is due in June, 2002. We cannot re-borrow amounts repaid under thisfacility. In connection with this facility, we also issued to Goldman SachsCredit Partners L.P. a warrant to acquire 375,000 shares of common stock at anexercise price of $15.00 per share, none of which had been exercised as ofDecember 31, 1999. We have obtained waivers for non-compliance with certainfinancial covenants of this facility as of December 31, 1999. We have borrowedthe full amount available under this facility and anticipate repaying it in fullduring the second quarter of 2000 with a portion of the proceeds from the saleof our preferred stock, discussed below.

In July 1999, we entered into a six-year $103.5 million credit facilitywith Cisco Systems Capital Corporation. This credit facility will provide thefinancing for the purchase and installation of our Cisco Systems, Inc. multi-service data and voice switching platform and for other Cisco equipment. Underthe terms of this agreement, Cisco Systems, Inc. also received a warrant topurchase 575,000 shares of our common stock, none of which had been exercised asof December 31, 1999. The warrant has an exercise price of $15.00 per share andis exercisable for three years from the date of issuance. The facility will beavailable in three tranches over a three year period with quarterly payments dueover three years beginning one year from the availability of each tranche. As ofDecember 31, 1999, we had borrowed $9.5 million under this facility.

We have an agreement with GATX Capital Corporation, that was used tofinance our internal capital needs under which $4.7 million was outstanding onDecember 31, 1999.

In April 2000, we entered into a $50.0 million Senior Secured RevolvingLine of Credit Facility with Foothill Capital Corporation. Under the terms ofthis $50.0 million credit facility we are able to borrow up to 85% of eligiblereceivables, as defined in the agreement, and the lessor of $12.0 million or 50%of eligible inventory, as defined in the agreement.

In April 2000 we sold to an investment group led by Texas Pacific Group(TPG), 175,000 shares of our 8% convertible redeemable preferred stock, 700,000warrants exercisable at $20 per share and 1.17 million warrants exercisable at$25 per share. The investment was a combination of $150 million from TPG and $25



million from affiliates of Sandler Capital Management. The preferred stock isconvertible into shares of our common stock at a conversion price of $13 pershare. As a condition of the investment, TPG has designated two members to ourboard of directors. In addition, in connection with this transaction, we have,with the approval of TPG, appointed Joseph Zell as our President and CEO.

Future Capital Requirements. We have significant debt in relation to ourequity. At December 31, 1999, we had $205.5 million in debt and $36.6 million inshareholders' equity, which includes paid-in capital of $205.0 million. Ourbusiness plan will continue to require a substantial amount of capital to fundour expansion of existing markets and acquisitions. Our business plan includesthe following:

28

. deploying our multi-service data and voice switching platform in allof our markets and leasing of our IP/ATM network connecting ourswitches;

. funding the purchase, installation and ownership of the enterprisenetworks of our Enterprise Managed Services customers (which includesproviding these customers with all necessary hardware, software,transmission facilities and management, maintenance and monitoringservices);

. continuing to develop customer care and sales organizations;

. continuing to develop our operational support system; and

. funding operating losses and debt service requirements.

. evaluate acquisitions and investments

We estimate that our existing funds at December 31, 1999, our availableborrowing under our financing and leasing facilities currently in place andadditional funds from the sale of our 8% preferred stock and the $50.0 millionsenior secured credit facility will be sufficient to meet our capitalrequirements for the foreseeable future. We may require additional capitalsooner than anticipated if there are material shortfalls in our operating andfinancial performance or if we are more aggressive in our expansion thancurrently contemplated. We cannot be certain that we would be successful inraising sufficient debt or equity capital to fund our operations on a timelybasis or on acceptable terms. If needed financing were not available onacceptable terms, we could be compelled to alter our business strategy, delay orabandon some of our future plans or expenditures or fail to make interestpayments on our debt. Any of these events would have a material adverse effecton our business, financial condition, results of operations and liquidity and onthe price of our common stock.

Recent Accounting Standards

In December 1999 the Securities and Exchange Commission issued StaffAccounting Bulletin No. 101 "Revenue Recognition in Financial Statements" ("SAB101"). SAB 101 provides guidance in applying generally accepted accountingprinciples to selected revenue recognition issues. We are currently evaluatingchanges to our current revenue recognition policies that may result from theapplication of this SAB.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

This item is inapplicable.

29

Item 8. Financial Statements and Supplementary Data

Report of Independent Accountants

To the Board of Directors of Convergent Communications, Inc.

In our opinion, the accompanying consolidated balance sheets and therelated consolidated statements of operations, of shareholders' equity (deficit)and of cash flows present fairly, in all material respects, the financialposition of Convergent Communications, Inc. at December 31, 1998 and 1999, andthe results of their operations and their cash flows for the years endedDecember 31, 1997, 1998, and 1999, in conformity with accounting principlesgenerally accepted in the United States. These financial statements are theresponsibility of the Company's management; our responsibility is to express anopinion on these financial statements based on our audits. We conducted ouraudits of these statements in accordance with auditing standards generallyaccepted in the United States which require that we plan and perform the auditto obtain reasonable assurance about whether the financial statements are free



of material misstatement. An audit includes examining, on a test basis, evidencesupporting the amounts and disclosures in the financial statements, assessingthe accounting principles used and significant estimates made by management, andevaluating the overall financial statement presentation. We believe that ouraudits provide a reasonable basis for the opinion expressed above.

Our report on the consolidated financial statements referred to above previouslycontained an explanatory paragraph indicating that there was substantial doubtabout the Company's ability to continue as a going concern. As discussed in Note1 to the consolidated financial statements, on April 18, 2000 the Companyobtained additional financing, which alleviated this uncertainty..

PricewaterhouseCoopers LLP

Denver, ColoradoMarch 13, 2000, except forNote 7 as to which the date is March 28, 2000 andNote 1 as to which the date is April 18, 2000

30

CONVERGENT COMMUNICATIONS, INC.CONSOLIDATED BALANCE SHEETS

(in thousands)<TABLE><CAPTION>

December 31,-------------------------

1998 1999---------- ----------

<S> <C> <C>ASSETS

Current assets:Cash and cash equivalents........................................................ $ 25,597 $ 25,215Short-term investments........................................................... -- 34,742Restricted cash.................................................................. 20,800 20,800Trade accounts receivable, net of allowance for doubtful accounts of

$1,909 and $2,512, respectively................................................ 17,661 37,778Inventory........................................................................ 6,827 13,810Prepaid expenses, deposits, leases receivable and other.......................... 2,134 9,070

-------- ---------Total current assets.......................................................... 73,019 141,415

Property, network and equipment.................................................... 28,139 77,455Less accumulated depreciation...................................................... (4,883) (15,292)

-------- ---------Total property, network and equipment......................................... 23,256 62,163

Restricted cash.................................................................... 30,550 17,669Goodwill, net of amortization of $2,967 and $8,528, respectively................... 46,526 56,037Other intangible assets, net of amortization of $1,470 and $3,589, respectively.... 10,281 10,967Leases receivable, net of current portion.......................................... 797 6,150Investments and other assets....................................................... 1,226 812

-------- ---------Total assets.................................................................. $185,655 $ 295,213

======== =========

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)Current liabilities:

Trade accounts payable........................................................... $ 15,061 $ 25,086Accrued compensation............................................................. 4,583 10,423Accrued interest................................................................. 5,214 5,308Other accrued liabilities........................................................ 8,666 5,990Deferred revenue and customer deposits........................................... 5,212 6,312Current portion of notes payable................................................. 604 1,788Current portion of capital leases................................................ 5,179 9,533

-------- ---------Total current liabilities..................................................... 44,519 64,440

Long-term notes payable, less current portion...................................... 153,731 177,995Long-term capital leases, less current portion..................................... 8,754 16,158

-------- ---------Total liabilities............................................................. 207,004 258,593

-------- ---------Commitments (Note 8)Shareholders' equity (deficit):

Preferred stock, 1 million shares authorized, none issued........................ -- --Common stock, no par value, 100 million shares authorized, 13,924 and28,642 shares issued and outstanding, respectively.............................. 27,487 196,937

Additional paid-in-capital....................................................... 11,719 8,025Treasury stock................................................................... (502) (919)



Deferred compensation obligation................................................. 502 919Accumulated other comprehensive income........................................... -- 573Unearned compensation............................................................ (150) (250)Accumulated deficit.............................................................. (60,405) (168,665)

-------- ---------Total shareholders' equity (deficit).......................................... (21,349) 36,620

-------- ---------Total liabilities and shareholders' equity (deficit)....................... $185,655 $ 295,213

======== =========</TABLE>

The accompanying notes are an integral part of these consolidated financialstatements.

31

CONVERGENT COMMUNICATIONS, INC.CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)<TABLE><CAPTION>

Years Ended December 31,----------------------------------------

1997 1998 1999---------- ---------- ----------

<S> <C> <C> <C>Revenue................................................................. $10,210 $ 61,600 $ 159,922

------- -------- ---------

Cost of sales, excluding depreciation................................... 7,368 43,703 104,045Selling, general and administrative..................................... 10,983 47,862 125,350Depreciation and amortization........................................... 1,453 7,493 17,295Impairment of long-lived assets......................................... -- -- 650

------- -------- ---------Total operating expenses........................................... 19,804 99,058 247,340

------- -------- ---------

Operating loss.......................................................... (9,594) (37,458) (87,418)

Interest expense........................................................ (156) (17,502) (25,491)Interest income......................................................... 251 4,632 4,880Other income (expense).................................................. (156) (248) (231)

------- -------- ---------

Net loss........................................................... (9,655) (50,576) (108,260)

Other comprehensive income,unrealized holding gains on investments................................ -- -- 573

------- -------- ---------Comprehensive loss...................................................... $(9,655) $(50,576) $(107,687)

======= ======== =========

Net loss per share (basic and diluted).................................. $ (0.92) $ (3.68) $ (5.32)======= ======== =========

Weighted average shares outstanding (basic and diluted)................. 10,461 13,732 20,356======= ======== =========

</TABLE>


32

CONVERGENT COMMUNICATIONS, INC.CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)


Additional DeferredCommon Common Paid-in Treasury CompensationShares Stock Capital Stock Obligation

-------- --------- ----------- ---------- --------------<S> <C> <C> <C> <C> <C>Balance, December 31, 1996........................ 7,870 $ 8,007 $ 152 $ -- $ --Sale of stock in private placement............... 4,530 15,846 3,415 -- --Offering costs................................... -- (2,780) 777 -- --Stock issued to SONeTech......................... 187 375 -- -- --Stock issued in acquisitions..................... 437 2,112 -- -- --Exercise of stock options........................ 475 262 -- -- --Stock purchases.................................. (100) (12) -- -- --Compensation..................................... 30 194 -- -- --Warrants......................................... -- -- 430 -- --



Other comprehensive income:Unrealized loss on securities................... -- -- -- -- --

Net loss......................................... -- -- -- -- -------- -------- ------- ------ -----

Balance, December 31, 1997........................ 13,429 24,004 4,774 -- --Common stock issued for:401(k) match.................................... 69 436 -- -- --Payments to consultants......................... 10 55 -- -- --Correction of private placement................. 10 -- -- -- --Business combinations........................... 240 2,267 -- -- --Exercise of stock options....................... 44 17 -- -- --Exercise of warrants............................ 35 129 (21) -- --

Compensation..................................... 87 579 -- -- --Deferred stock compensation...................... -- -- -- (502) 502Warrants issued in private placement............. -- -- 6,886 -- --Warrants issued to consultants................... -- -- 80 -- --Other comprehensive income:Reclassification adjustment for lossincluded in net loss........................... -- -- -- -- --

Net loss......................................... -- -- -- -- -------- -------- ------- ----- -----

Balance, December 31, 1998........................ 13,924 27,487 11,719 (502) 502Common stock issued for:Initial Public Offering, net ofoffering costs................................. 8,937 122,281 -- -- --

401(k) match.................................... 257 2,751 -- -- --Business combinations........................... 405 4,234 -- -- --Exercise of stock options....................... 79 248 -- -- --Exercise of warrants............................ 2,285 19,346 (6,325) -- --

Preferred stock conversion....................... 2,667 19,206 -- -- --Compensation..................................... 130 1,388 -- -- --Shares repurchased............................... (38) (4) -- -- --Distribution of deferred stock................... (4) (50) -- 180 (180)Deferred stock compensation...................... -- -- -- (597) 597Warrants issued in connection with financing..... -- 50 2,459 -- --Options issued to employees...................... -- -- 172 -- --Other comprehensive income:Unrealized gain on investments................... -- -- -- -- --Net loss......................................... -- -- -- -- --

------ -------- ------- ----- -----Balance, December 31, 1999........................ 28,642 $196,937 $ 8,025 $(919) $ 919

====== ======== ======= ===== =====

<CAPTION>Accumulated

OtherUnearned Comprehensive Accumulated

Compensation Income Deficit Total------------ -------------- ------------- --------

<S> <C> <C> <C> <C>Balance, December 31, 1996........................ $ -- $ -- $ (174) $ 7,985Sale of stock in private placement............... -- -- -- 19,261Offering costs................................... -- -- -- (2,003)Stock issued to SONeTech......................... -- -- -- 375Stock issued in acquisitions..................... -- -- -- 2,112Exercise of stock options........................ (205) -- -- 57Stock purchases.................................. -- -- -- (12)Compensation..................................... -- -- -- 194Warrants......................................... -- -- -- 430Other comprehensive income:Unrealized loss on securities................... -- (17) -- (17)

Net loss......................................... -- -- (9,655) (9,655)------ ----- --------- ---------

Balance, December 31, 1997........................ (205) (17) (9,829) 18,727Common stock issued for:401(k) match.................................... -- -- -- 436Payments to consultants......................... -- -- -- 55Correction of private placement................. -- -- -- --Business combinations........................... -- -- -- 2,267Exercise of stock options....................... -- -- -- 17Exercise of warrants............................ -- -- -- 108

Compensation..................................... 55 -- -- 634Deferred stock compensation...................... -- -- -- --Warrants issued in private placement............. -- -- -- 6,886Warrants issued to consultants................... -- -- -- 80Other comprehensive income:Reclassification adjustment for lossincluded in net loss........................... -- 17 -- 17

Net loss......................................... -- -- (50,576) (50,576)------ ----- --------- ---------

Balance, December 31, 1998........................ (150) -- (60,405) (21,349)Common stock issued for:Initial Public Offering, net ofoffering costs................................. -- -- -- 122,281

401(k) match.................................... -- -- -- 2,751



Business combinations........................... -- -- -- 4,234Exercise of stock options....................... -- -- -- 248Exercise of warrants............................ -- -- -- 13,021

Preferred stock conversion....................... -- -- -- 19,206Compensation..................................... (100) -- -- 1,288Shares repurchased............................... -- -- -- (4)Distribution of deferred stock................... -- -- -- (50)Deferred stock compensation...................... -- -- -- --Warrants issued in connection with financing..... -- -- -- 2,509Options issued to employees...................... -- -- -- 172Other comprehensive income:Unrealized gain on investments................... -- 573 -- 573Net loss......................................... -- -- (108,260) (108,260)

------ ----- --------- ---------Balance, December 31, 1999........................ $(250) $ 573 $(168,665) $ 36,620

===== ===== ========= =========</TABLE>


33

CONVERGENT COMMUNICATIONS, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS


Years Ended December 31,----------------------------------------

1997 1998 1999---------- ---------- ----------

<S> <C> <C> <C>Cash flows from operating activitiesNet loss........................................................... $ (9,655) $(50,576) $(108,260)Adjustments to reconcile net loss to net cash used inoperating activities:

Depreciation and amortization...................................... 1,453 7,493 17,295Impairment of long-lived assets.................................... -- -- 650Amortization of deferred financing costs and accretion ofdebt discount..................................................... -- 1,162 1,984

Provision for uncollectible accounts............................... -- 197 3,153Stock compensation expense......................................... 195 634 1,460401k contributions through the issuance of stock................... -- 436 2,751Warrants issued for the payment of consulting fees................. -- 80 --Loss from sale of equipment and investment......................... 91 -- 221Change in working capital (net of acquisitions):Trade accounts receivable......................................... (1,527) (10,970) (16,489)Inventory......................................................... (230) (2,068) (2,527)Prepaid expenses, deposits and other current assets............... (43) (870) (4,181)Trade accounts payable............................................ 1,327 12,357 4,194Accrued compensation.............................................. 1,468 2,592 5,459Accrued interest.................................................. -- 5,214 94Deferred revenue and customer deposits............................ 62 3,300 (194)Other accrued liabilities......................................... 161 2,321 (2,965)

-------- -------- ---------Net cash used in operating activities.............................. (6,698) (28,698) (97,355)

Cash flows from investing activitiesAdditions of property and equipment................................ (2,042) (6,877) (20,820)Acquisitions, net of cash acquired................................. (1,542) (42,364) (10,545)Short-term investments............................................. (7,388) 7,388 (34,343)Restricted cash.................................................... (406) (50,944) 12,880Leases receivable.................................................. -- (1,174) (8,242)Proceeds from sale of investment................................... -- -- 155Intangible and other assets........................................ (270) (675) (228)

-------- -------- ---------Net cash used in investing activities.............................. (11,648) (94,646) (61,143)

Cash flows from financing activitiesProceeds from initial public offering, net......................... -- -- 122,281Proceeds from private placements of debt and equity, net........... 17,257 152,378 19,206Payments on notes payable.......................................... (1,450) (1,397) (5,642)Payments on capital leases......................................... -- (2,941) (7,193)Proceeds from borrowings, net of costs............................. -- 109 16,199Proceeds from exercise of stock options and warrants............... 57 125 13,269Repurchase of common shares........................................ (12) -- (4)

-------- -------- ---------Net cash provided by financing activities.......................... 15,852 148,274 158,116

-------- -------- ---------Net increase (decrease) in cash and cash equivalents................ (2,494) 24,930 (382)Cash and cash equivalents at beginning of period.................... 3,161 667 25,597

-------- -------- ---------Cash and cash equivalents at end of period......................... $ 667 $ 25,597 $ 25,215

======== ======== =========Supplemental disclosure of other cash and non-



cash investing and financing activities:Acquisition of equipment through financing facilities.............. $ 1,675 $ 13,039 $ 28,304Interest paid...................................................... $ 145 $ 11,125 $ 23,413

</TABLE>The accompanying notes are an integral part of these consolidated financial

statements.

34

CONVERGENT COMMUNICATIONS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Basis of Presentation:

References in these footnotes to "Convergent Communications," "us," "we,"and "our" refer to Convergent Communications, Inc. and its subsidiaries.

We are a rapidly growing national provider of e-Sourcing solutionsprimarily to businesses with 25 to 500 employees. "e-Sourcing" is the purchaseof managed communications solutions over broadband Internet Protocol basedapplications. Inside our customers' premises we own communications networks andprovide professional services, such as the design, installation, management andmonitoring of those networks. Outside our customers' premises, we provide a fullrange of data and voice transport services. By operating networks both insideand outside our customers' premises, and by offering a broad range of Internet,data and voice systems and services, we enable small and medium sized businessesto use state-of-the-art communications solutions, including data and voicenetworks based on broadband Internet Protocol, electronic commerce, the Internetand sophisticated communications systems. We intend to become the leadingprovider of IP-based Internet, data and voice systems and services to small andmedium sized businesses. We provide the following systems and services:

. eBusiness which includes Web development and hosting;

. Enterprise Services which include integration services, enterprise managedservices and broadband services;

. Enterprise Systems which consists of data and voice systems.

Our ultimate success depends upon, among other factors, establishment ofour nationwide network, funding the development of our enterprise networks,continuing to develop our customer care and sales organizations, integratingacquired businesses, attracting and retaining customers, continuing to developand integrate our operational support system and other back office systems,responding to competitive developments, continuing to attract, retain andmotivate qualified personnel, and continuing to upgrade our technologies andcommercialize our services incorporating such technologies. There is noassurance that we will be successful in addressing these matters and failure todo so could have a material adverse effect on our business prospects, operatingresults and financial condition. Our business plan will continue to require asubstantial amount of capital to fund our expansion of our existing and acquiredmarkets. As we continue to expand our business, we will seek additional sourcesof financing to fund our development. If we are unsuccessful in obtaining suchfinancing, we would be compelled to alter our business strategy or delay orabandon some of our future plans.

In April 2000, we entered into a three year $50.0 million Senior SecuredRevolving Line of Credit Facility with Foothill Capital Corporation. Under theterms of this $50.0 million credit facility we are able to borrow up to 85% ofeligible receivables, as defined in the agreement, and the lessor of $12.0million or 50% of eligible inventory, as defined in the agreement. The facilitywill automatically renew for one year periods unless earlier terminated andcarries an interest rate of 1.0% above the Wells Fargo Bank, N.A., base rate.

In April 2000 we sold to an investment group led by Texas Pacific Group(TPG), 175,000 shares of our 8% convertible redeemable preferred stock, 700,000warrants exercisable at $20 per share and 1.17 million warrants exercisable at$25 per share. The investment was a combination of $150 million from TPG and $25million from affiliates of Sandler Capital Management. The preferred stock isconvertible into shares of our common stock at a conversion price of $13 pershare. As a condition of completing the investmentTPG has designated two membersto our board of directors. In addition, in connection with this transaction, wehave, with the approval of TPG, appointed Joseph Zell as our President and CEO.

35

CONVERGENT COMMUNICATIONS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)

2. Summary of Significant Accounting Policies:

Principles of Consolidation:



The accompanying consolidated financial statements include our accounts andthe accounts of our wholly-owned subsidiaries. All intercompany amounts andtransactions have been eliminated

Use of Estimates:

Our management is required to make estimates and assumptions in order toprepare the financial statements in conformity with generally acceptedaccounting principles. These estimates and assumptions affect the reportedamounts of assets and liabilities and disclosure of contingent assets andliabilities at the date of the financial statements and also affect the reportedamounts of revenues and expenses during the reporting period. Actual resultscould differ from those estimates.

Cash and Cash Equivalents:

We consider all highly liquid investments with an original maturity ofthree months or less to be cash equivalents.

Short-term Investments:

Short-term investments are classified as available-for-sale securities atDecember 31, 1999. Gains or losses on the sale of short-term investments arerecognized on the specific identification method. Unrealized gains or losses aretreated as a separate component of comprehensive income until the security thatthe unrealized gain or loss was recorded on is sold.

Restricted Cash:

Restricted cash primarily represents funds held in collateral accounts forpaying semi-annual interest payments on our 13% Senior Notes through April 1,2001. The cash is invested in U.S. Government Securities, which mature semi-annually on October 1 and April 1 through April 1, 2001 (see Note 7). Restrictedcash also represents cash used to collateralize letters of credit, which areheld as collateral for certain of our office leases, capital lease obligationsand performance bonds. The amounts invested are classified as held to maturityand carried at amortized cost which approximates fair value.

Fair Value of Financial Instruments:

The carrying amounts reported in the balance sheets for cash and cashequivalents, short-term investments, accounts receivable, accounts payable andshort-term borrowings approximate fair value because of the immediate or short-term maturity of these financial instruments. The carrying amounts reported forlong-term debt other than the 13% Senior Notes approximate fair value based uponmanagement's best estimates of what interest rates would be available for thesame or similar instruments. The 13% Senior Notes are publicly tradedsecurities. The quoted fair market value and the carrying amount of the 13%Senior Notes at December 31, 1998 and 1999 are as follows:

36


<TABLE><CAPTION>

Carrying Fair MarketAmount Value

------------- -------------<S> <C> <C>

1998........................... $160,000,000 $ 76,800,0001999........................... $160,000,000 $120,000,000

</TABLE>

Property, Network and Equipment:

Property, network and equipment are recorded at cost. Depreciation iscomputed using the straight-line method over the estimated useful lives of theassets or the lease term if shorter, which range from two to five years.Expenditures which significantly increase asset values or extend useful livesare capitalized. Maintenance and repairs are expensed as incurred. Whenproperty, network and equipment is retired, sold or otherwise disposed of, thecost and related accumulated depreciation are removed from the accounts, andresulting gains and losses are reflected in operations.

Inventory:

Inventory primarily consists of new and refurbished equipment for resaleand is valued at the lower of cost or market using the first-in, first-outmethod. We evaluate the need and establish reserves associated with obsolete andexcess inventory.



Intangible Assets:

. Intangible assets consist of the following:

. Goodwill represents the excess purchase price over the net assetsacquired in acquisitions and is being amortized over ten years.

. Customer lists were obtained through business combinations and arebeing amortized over five years.

. Debt offering costs represent costs incurred in connection with anoffering of 13% senior notes (see Note 7) and are being amortized overthe term of the notes, ten years.

. Deferred finance costs are costs associated with obtaining certainfinancing arrangements and are amortized over the life of thefinancing arrangements, two to four years.

. Site location contracts are exclusive rights to operate publictelephones at various locations we acquired through businesscombinations. The site location contracts are being amortized over theaverage lives of the contracts, primarily three years.

. Software license fees represent proprietary rights to softwareassociated with our public telephones which are being amortized overfive years, the estimated life of the related equipment.

We periodically evaluate the carrying amount of our intangible assets basedon undiscounted cash flows, or other indicators of fair value, to determinewhether adjustments to these amounts are required.

Long-Lived Assets:

We evaluate the recoverability of long-lived assets in accordance withStatement of Financial Accounting Standards No. 121, "Accounting for theImpairment of Long-Lived Assets and for Long-Lived Assets to be

37


Disposed Of" ("SFAS 121"). SFAS 121 requires an evaluation of indicators ofimpairment and future undiscounted cash flows to be generated by those assets.Impairment is measured as the amount by which the asset's carrying amountsexceed the future discounted cash flows estimated to be generated by thoseassets. Certain of our long-lived operating assets were written off during 1999in accordance with SFAS 121.

Investments:

Investments consist of ownership interests of less than 20% in unrelatedentities and are accounted for as available for sale securities. Changes inmarket value of the investments are included as a component of othercomprehensive income.

Software:

We capitalize certain internal and external costs of developing softwarefor internal use in accordance with SOP 98-1. These costs are amortized on astraight line basis over three years, which is the estimated useful life of thesoftware.

Revenue Recognition:

Revenue is recognized for product sales when the product is shipped.Revenue from non-recurring services are recognized when the services areprovided. Revenue for long-term service and maintenance contracts is recognizedover the term of the contract as the services are provided. Revenue fromreselling of long distance service is recognized at the time of performancebased on customer usage. Revenue from sales of equipment under sales type leasesis recognezed at the inception of the lease.

Deferred Revenue:

Deferred revenue represents the unearned portion of revenue related to ourlong-term service and maintenance contracts, which is recognized over the term



of the contract, generally one year.

Income Taxes:

Deferred tax assets and liabilities are recognized for future taxconsequences attributable to the differences between the financial statementcarrying value of existing assets and liabilities and their respective taxbases. Deferred tax assets and liabilities are measured by using enacted taxrates that are applicable to the future years in which deferred tax assets orliabilities are expected to be realized or settled. The effect of a change intax rates on deferred tax assets and liabilities is recognized in net earningsin the period in which the tax rate change is enacted. We establish a valuationallowance when it is more likely than not that a deferred tax asset will not berecovered.

Stock-Based Compensation:

We use the intrinsic value method under Accounting Principles Board OpinionNo. 25, "Accounting for Stock Issued to Employees," to account for ouremployee stock-based compensation plans. We account for options and warrantsgranted to non-employees in accordance with Statement of Financial AccountingStandards No. 123 "Accounting for Stock-Based Compensation" ("SFAS 123"),which requires that we recognize an amount based on the fair value of the optionor warrant at the time of grant.

Concentrations of Credit Risk:

38


We sell systems and services to small and medium sized businesses on openaccount and do not obtain collateral for our receivables. We also offer servicesand systems and lease equipment to our customers under long-term contracts,generally three to five years, in which we maintain ownership in the underlyingequipment. We believe our reserves for potential credit losses are adequate andwe perform on-going credit evaluations.

All of our cash, cash equivalents and investments are maintained at threefinancial institutions. The investments consist of high-quality commercialpaper.

Reclassifications:

Certain reclassifications have been made to the prior year data to make itconsistent with the 1999 presentation. These reclassifications had no impact onnet loss.

Recent Accounting Standards:

In December 1999 the Securities and Exchange Commission issued StaffAccounting Bulletin No. 101 "Revenue Recognition in Financial Statements" ("SAB101"). SAB 101 provides guidance in applying generally accepted accountingprinciples to selected revenue recognition issues. We are currently evaluatingchanges to our current revenue recognition policies that may result from theapplication of this SAB.

3. Acquisitions:

Communication Services of Iowa, Inc. In April 1997, we acquiredCommunication Services of Iowa, Inc. (CSI), an Iowa reseller of telephonykeyboard PBX telephone equipment to businesses. We paid $100,000 cash, issued a$100,000 one-year promissory note at 8% and issued 25,000 shares of our commonstock valued at $50,000 for total consideration of $250,000. The note was paidin March 1998.

A.T.T.ex Corporation. In September 1997, we acquired A.T.T.ex Corporation(A.T.T.ex) of Des Moines, Iowa, a telecommunications service company thatprovided direct telephony service support to corporate customers. The purchaseprice consisted of $450,000 in cash and the issuance of 37,500 shares of ourcommon stock valued at $187,500 for total consideration of $637,500.

Vital Integration Solutions, Inc. In September 1997, we acquired VitalIntegration Solutions, Inc. (Vital) of Des Moines, Iowa and Omaha, Nebraska, afull service integration solutions provider which specialized in comprehensiveinformation management and networking solutions. Vital provided its clients with



the hardware, software and integration services necessary to build informationsystems and networks. We paid $500,000 in cash and issued 375,000 shares of ourcommon stock valued at $1,875,000 for total consideration of $2,375,000.

Telephone Communications Corporation. In February 1998, we acquired theassets and assumed certain liabilities of Telephone Communications Corporation(TCC) of Vail, Colorado. TCC was a long distance switchless reseller providing1+, 0+, 800, and Calling Card services to cities such as Dillon, Frisco and theVail Valley. We paid $400,000 in cash, issued a $200,000 one-year note at 8% andissued 5,000 shares of our common stock which for purchase accounting purposeswere assigned a value of $8.00 per share. We also assumed a note with NationalNetwork Corporation of approximately $287,000, which was paid in April 1998.Total consideration for the purchase was $927,000. We negotiated an earlydiscounted payoff of the $200,000 note in the total amount of $180,000(including accrued interest of $2,250) in May 1998.

Network Computer Solutions, LLC. In February 1998, we acquired the assetsand assumed certain liabilities of Network Computer Solutions (NCS) of GreenwoodVillage, Colorado. NCS provided network integration services. We paid $500,000in cash, issued 50,000 shares of our common stock which for purchase

39


accounting purposes were assigned a value of $8.00, assumed liabilities of$438,372 and paid a finders fee of $150,000 for total consideration of$1,488,372.

Communication Services of Colorado. In May 1998, we completed a mergerwith Communication Services of Colorado (CSC) of Englewood, Colorado. CSC was along distance switchless reseller providing 1+, 0+, 800, and Calling Cardservices. The purchase price consisted of $475,000 in cash, the issuance of a$530,000 one-year note at 8% and assumed liabilities of $341,054 for totalconsideration of $1,346,054.

HH&H Communications Technologies, Inc. In May 1998, we completed theacquisition of the assets and certain liabilities of HH&H CommunicationsTechnologies, Inc. (CTI), a voice equipment provider in Texas. We paid $200,000in cash, issued 15,000 shares of our common stock, which for accounting purposeswere assigned a value of $8.50 per share, and assumed liabilities of $151,383for total consideration of $478,883.

CMB Holdings, Inc. d/b/a Independent Equipment Company. In June 1998, wecompleted the acquisition of substantially all of the assets of CMB Holdings,Inc. d/b/a Independent Equipment Company (IEC), an equipment remarketer inFlorida. The purchase price consisted of the issuance of 170,000 shares of ourcommon stock, which for accounting purposes were assigned a value of $10.00 pershare, for total consideration of $1.7 million.

Tie Communications, Inc. Effective August 1, 1998 we completed theacquisition of substantially all the assets and certain of the liabilities ofTie Communications, Inc. (Tie). The purchase price consisted of $40.0 million incash and the assumption of certain liabilities, which with legal andprofessional and other costs resulted in a total purchase price of approximately$51.4 million. Tie was a telecommunications equipment provider and a nationwidereseller of long-distance service.

Kansas Communications, Inc. In February 1999, we acquired the assets andassumed certain liabilities of Kansas Communications, Inc. (KCI). KCI was atelecommunications equipment provider and integrator. The purchase priceconsisted of $1.5 million in cash, $4.5 million in notes payable and 24,925shares of our common stock, which, for purchase accounting purposes, wereassigned a value of $10.00 per share, and assumed liabilities of $2.4 millionresulting in total consideration of $8.7 million. In April 1999, $1.5 million ofthe notes payable were paid with the proceeds from the sale of our Series AConvertible Preferred Stock. In July 1999 $2.0 million of the notes payable wasrepaid and the remaining balance was paid in November 1999.

BSSi Innovations, Inc. In April 1999, we acquired BSSi Innovations, Inc.(BSSi). BSSi was a data network integration services provider based in Chicago,Illinois. The purchase price consisted of $455,000 in cash, 37,000 shares of ourcommon stock, which for purchase accounting purposes were assigned a value of$10.00 per share, and assumed debt of approximately $525,000, resulting in totalconsideration of $1.4 million. An additional 20,000 shares may be issued ifcertain financial conditions are met.

Choice Solutions, Inc. In June 1999 we purchased the majority of the assetsand assumed certain liabilities of Choice Solutions, Inc. (CSI). CSI was a datanetwork integration services provider based in Dallas, Texas. The purchase priceconsisted of $1.1 million in cash. Up to $225,000 in additional shares of ourcommon stock may be issued if certain financial conditions are met.



Network Technologies Group. In September 1999, we purchased the majority ofthe assets and assumed certain liabilities of Network Technologies Group (NTG).NTG was a data network integration services provider based in Miami, Florida.The purchase price consisted of $675,000 in cash and $475,000 in shares of ourcommon stock for a total purchase price of $1.2 million. Up to an additional$500,000 in shares of our common stock may be issued if certain financialconditions are met.

Entre Business Technology Group. In October 1999, we acquired VideoEnterprises Corporation, d/b/a Entre Business Technology Group (EBTG). EBTG wasa data network integration services provider based in Atlanta, Georgia. Thepurchase price consisted of $2.0 in cash, $2.1 million in shares of our commonstock, and assumed debt of approximately $2.6 million, resulting in totalconsideration of $6.7 million. Up to $700,000 in additional shares of our commonstock may be issued if certain financial conditions are met.

40


Classic Datacom, Inc. In November 1999, we purchased the majority of theassets and assumed certain liabilities of Classic Datacom, Inc. (CDI). CDI was adata network integration services provider based in Hartford, Connecticut. Thepurchase price consisted of $1.7 million in cash and $1.0 million in commonstock for total consideration of $2.7 million. Up to $600,000 in additionalshares of our common stock may be issued if certain financial conditions aremet.

We accounted for these acquisitions as business combinations, which wereaccounted for by the purchase method of accounting. We valued the acquisitionsat the fair market value of the consideration given. With regard to our commonstock and warrants, prior to our initial public offering, we determined the fairmarket value based upon a number of factors including a market analysis ofpublicly traded companies and a discounted cash flow analysis. An option pricingmodel was also used to value our warrants. In connection with the acquisitions,the excess of consideration given over the fair market value of the net assetsacquired is being amortized on a straight line basis over the estimated life ofthe intangible assets acquired which is five to ten years. The accompanyingfinancial statements include the accounts of the acquired companies from theeffective dates of the acquisitions.

In addition to the business acquisitions previously discussed, we have alsocompleted purchases of certain assets of other companies as follows:

Big Planet, Inc. In October 1997, we acquired certain assets and assumedcertain liabilities of Big Planet, Inc., of Portland, Oregon. Big Planet is anInternet service provider (ISP) offering a full range of Internet services,including Internet access, Web hosting, maintenance, and site design. We paid$250,000 in cash for the assets and the assumption of certain trade payables.

Sigmacom Corporation. In December 1997, we acquired certain dataintegration assets of Cavion Technology, Inc. (formerly Sigmacom Corporation).Cavion is a systems integrator for corporate audio, video and datacommunications, providing state-of-the-art systems that combinetelecommunications and computer network technologies. Cavion is also developingInternet application software for financial institutions such as credit unions.We paid $875,000 in cash and issued Sigmacom a warrant to purchase 25,000 sharesof our common stock at an exercise price of $15.00 per share, which expired inDecember 1999. We valued the warrants, at an aggregate value of $30,000utilizing an option pricing model and a number of factors including a marketanalysis of publicly traded companies and a discounted cash flow analysis. Wealso acquired a minority interest in Cavion's software development business towhich we allocated $350,000 of the purchase price. The value of this minorityinterest as of December 31, 1999 was approximately $520,000.

The consideration paid for acquisitions in 1997, 1998 and 1999, and theallocation of such consideration to the acquired assets and assumed liabilitiesis as follows:

<TABLE><CAPTION>

1997 1998 1999---------- ----------- ----------

(in thousands)<S> <C> <C> <C>

Cash paid, net of cash acquired............................. $1,542 $42,364 $10,545Common stock issued to the former owners.................... 2,113 2,266 4,234Notes payable and liability to former owners................ 100 908 4,490Warrants issued............................................. 55 -- --

------ ------- -------



Total amount to be allocated.............................. $3,810 $45,538 $19,269====== ======= =======

Allocation to acquired assets and assumedliabilities:Goodwill.................................................. $3,384 $42,544 $15,344Accounts receivable....................................... 400 4,813 6,959Inventory................................................. 116 4,586 4,300Equipment................................................. 356 2,945 1,202Customer lists............................................ -- 1,684 --

</TABLE>

41


<TABLE><S> <C> <C> <C>

Prepaid expenses, deposits and othercurrent assets........................................... 4 669 153

Investment................................................ 350 -- --Accounts payable and accrued liabilities.................. (637) (6,804) (6,903)Deferred revenue, net of costs............................ -- (1,912) (1,602)Debt...................................................... (163) (2,987) (184)

------ ------- -------Amounts allocated........................................... $3,810 $45,538 $19,269

======= ======= =======</TABLE>

On a pro forma basis, as though the above combinations had taken place atthe beginning of the periods presented, revenue, net loss and net loss per sharewould have been as follows (unaudited):

<TABLE><CAPTION>

1998 1999------------- ---------------

(in thousands, exceptper share amounts)

<S> <C> <C>Revenue ...................................................... $ 109,667 $ 192,895Net loss ..................................................... $ (59,462) $ (110,041)Net loss per share ........................................... $ (2.14) $ (5.33)Weighted average shares ...................................... 27,847 20,628

</TABLE>

4. Short-Term Investments:

All of our short-term investments as of December 31, 1999 are classified asavailable for sale. The investments had an amortized cost basis of $34.3 millionat December 31, 1999 and a fair value of $34.7 million at December 31, 1999. Theunrealized gain at December 31, 1999 related to these investments which maturedin 2000 was $398,881.

5. Leases Receivable:

Our wholly owned subsidiary, Convergent Capital Corporation (CCC), leasesdata and telephony equipment to our customers under direct financing and salestype leases. The receivables, which are due over two to five years, arecollateralized by the equipment being leased. The current portion of leasesreceivable is included in other current assets. The components of leasesreceivable and the future minimum payments receivable are as follows:

<TABLE><CAPTION>

December 31,1999

------------(in thousands)

<S> <C>Receivable:

2000................................................... $ 3,8582001................................................... 3,4462002................................................... 2,5822003................................................... 1,0552004................................................... 505

Thereafter........................................... 76-------

Gross receivables........................................ 11,522Unearned income.......................................... (1,747)

-------Lease receivables........................................ 9,775



Less: current portion.................................... (3,625)-------

Long-term lease receivables.............................. $ 6,150=======

</TABLE>

42


6. Property, Network and Equipment:

Property, network and equipment consists of the following:

<TABLE><CAPTION>

December 31,------------------------1998 1999

-------- -------(in thousands)

<S> <C> <C>Office furniture and equipment........................................... $14,057 $27,424Network equipment........................................................ 8,608 37,843Enterprise Managed Services network equipment............................ 4,297 7,611Leasehold improvements................................................... 939 2,875Company vehicles......................................................... 238 1,702

------- -------28,139 77,455

Less accumulated depreciation............................................ (4,883) (15,292)------- -------

Net property, network and equipment...................................... $23,256 $62,163======= =======

</TABLE>

Depreciation expense was $515,317 for the year ended December 31, 1997,$4.3 million for the year ended December 31, 1998 and $10.6 million for the yearended December 31, 1999.

We enter into capital leases for various equipment. Equipment under capitalleases is as follows:

<TABLE><CAPTION>

December 31,------------------------1998 1999

-------- -------(in thousands)

<S> <C> <C>Network equipment......................................................... $11,865 $15,189Furniture and equipment................................................... 4,020 16,072Vehicles.................................................................. - 1,431

------- -------15,885 32,692

Less accumulated depreciation............................................. (2,906) (7,872)------- -------$12,979 $24,820======= =======

</TABLE>

7. Notes Payable and Capital Leases:

Notes Payable

Notes payable consist of the following:

<TABLE><CAPTION>

December 31,------------------------

1998 1999-------- --------

(in thousands)<S> <C> <C>

13% Senior Notes payable, (i) below.................................. $153,630 $154,319$10.0 Million Senior Facility, (ii) below............................ - 9,631$103.5 Million Credit Facility, (iii) below.......................... - 9,537Notes payable for discounted long-term receivables, (iv) below....... - 6,193Note payable for acquisition, interest at 8%, principal and

accrued interest due May 1999..................................... 530 -



Other................................................................ 175 103-------- -------154,335 179,783

Less current portion................................................. (604) (1,788)-------- -------

Long term portion.................................................... $153,731 $177,995======== ========

</TABLE>

43


---------------(i) On April 2, 1998 we completed a private offering of $160.0 million of 13%Senior Notes and 640,000 warrants to purchase 864,000 of our common shares. The13% Senior Notes mature on April 1, 2008 and interest is payable semi-annuallyin arrears on April 1 and October 1 of each year beginning October 1, 1998. Atthe same time as the closing of the 13% Notes Offering, we deposited U.S.Government Securities in a collateral account. The amount deposited in thecollateral account together with the interest earned on those securities, willbe enough to pay the first six interest payments on the 13% Senior Notes. Thefirst payment was made on October 1, 1998. The 13% Senior Notes contain certaincovenants that restrict our ability to incur additional debt and to make certainpayments, including dividends. Each Warrant entitles the holder to purchase 1.35shares of our common stock at an exercise price of $.02 per share. The Warrantsare currently exercisable and expire on April 1, 2008. Each Warrant was assigneda value of $21.52 using an option pricing model, a market analysis of publiclytraded companies and a discounted cash flow analysis. The proceeds that wereattributable to the Warrants were treated as a discount to the 13% Senior Notesand allocated to shareholders' equity. We received proceeds approximately of$95.6 million after deducting offering costs of approximately $7.6 million andmaking the deposit of $56.8 million into the collateral account. As of December31, 1999 the amount outstanding, net of the unaccreted discount of $6.4 millionresulting from the allocation of the warrants, was $154.3 million.

(ii) In June 1999, we entered into a $10.0 million senior secured creditfacility with Goldman Sachs Credit Partners L.P. The proceeds of this facilityare being used for working capital and other general corporate purposes.Interest accrues at the greater of 13.0% or LIBOR plus 6.0% with interestpayments due monthly. The principal amount outstanding along with any accruedinterest is due in June, 2002. We cannot re-borrow amounts repaid under thisfacility. In connection with this facility, we also issued to Goldman SachsCredit Partners L.P. a warrant to acquire 375,000 shares of common stock at anexercise price of $15.00 per share, which are exercisable through July 23, 2002.As of December 31, 1999 none of these warrants had been exercised. We haveobtained waivers for non-compliance with certain financial covenants of thisfacility as of December 31, 1999. We have borrowed the full amount availableunder this facility.

(iii) In July 1999, we entered into a six-year $103.5 million credit facilitywith Cisco Systems Capital Corporation. This credit facility will provide thefinancing for the purchase and installation of our Cisco Systems, Inc. multi-service data and voice switching platform and for other Cisco equipment. Underthe terms of this agreement, Cisco Systems, Inc. also received a warrant topurchase 575,000 shares of our common stock, none of which had been exercised asof December 31, 1999. The warrant has an exercise price of $15.00 per share andis exercisable for three years from the date of issuance. The facility will beavailable in three tranches over a three year period with quarterly payments dueover three years beginning one year from the availability of each tranche. Asof December 31, 1999, we had borrowed $9.5 million under this facility.

(iv) We have entered into financing arrangements in which we have assigned, ona non-recourse basis, certain of our long-term receivables resulting fromequipment leasing and Enterprise Managed Services contracts, to financinginstitutions. The indebtedness resulting from these transactions is paid downover the term of the corresponding receivables which is two to five years.Interest on this borrowing ranges from 6% to 12% and is collateralized by theequipment provided under the contract with our customer.

Scheduled maturities on debt outstanding are as follows:

<TABLE><CAPTION>

December 31,1999

---------------Due in: (in thousands)<S> <C>

2000...................................................................................... $ 1,7882001...................................................................................... 5,0992002...................................................................................... 14,9392003...................................................................................... 3,701



2004...................................................................................... 240</TABLE>

44


<TABLE><S> <C>Thereafter..................................................................................... 160,066

--------185,833

Less unaccreted discount....................................................................... (6,050)--------

Total debt................................................................................... $179,783========

</TABLE>

Capital Leases

Some of our equipment and equipment used by our customers is leased undercapital leases. The following is a schedule of the minimum lease payments undercapital leases together with the present value of the minimum lease payments.

<TABLE><CAPTION>

December 31,1999


Due in:<S> <C>2000......................................................................................... $14,8162001.......................................................................................... 12,8242002.......................................................................................... 9,4582003.......................................................................................... 8232004.......................................................................................... 42

------Total minimum lease payments.................................................................. 37,963Less amount representing interest............................................................. (12,272)

-------Present value of minimum lease payments....................................................... 25,691Less current portion.......................................................................... (9,533)

-------Long-term portion............................................................................. $16,158

=======</TABLE>

Comdisco Facility. In November 1997 we entered into an agreement withComdisco, Inc. (Comdisco) which provides for up to $50 million of equipmentlease financing. At December 31, 1999, $30 million of the $50.0 million wasavailable for us to use of which $24.8 million was being utilized. The remaining$20.0 million will be available upon the satisfaction of additional conditions.This facility will expire on June 30, 2000.

The Comdisco facility is collateralized by the equipment being financed. Inaddition, we are required to issue a warrant to acquire shares of our commonstock in an amount equal to ten percent (10%) of the facility, divided by theexercise price per share. The exercise price per share is equal to the pricepaid by investors in recent equity offerings, not less than $6.00 per share. Thewarrants will be issued in three installments based upon amounts available underthe facility. We issued a warrant in 1997 for the purchase of 166,666 shares ofour common stock at an exercise price of $6.00 per share for the first $10million of the facility. We issued a warrant in 1999 for the purchase of 200,000shares of our common stock at an exercise price of $10.00 per share for thesecond $20.0 million of the facility. The warrants were valued utilizing anoption pricing model, and a number of factors including a market analysis ofpublicly traded companies and a discounted cash flow analysis. The warrants, allof which were outstanding as of December 31, 1999, are being amortized intointerest expense over three years.

GATX Financing. In May 1997, we entered into a Master Equipment Leasewith GATX Technology Services Corporation (GATX) to lease equipment, facilitiesand related items for our internal expansion as well as equipment to be used forcustomer installations. The facility is collateralized by a $100,000 standbyletter of credit. In connection with the establishment of the facility, weissued a warrant to GATX for the purchase of 40,285 shares of our common stockat an exercise price of $6.00 per share. We valued the warrant utilizing anoption pricing model and a number of other factors including a market analysisof publicly traded companies and a discounted cash flow analysis. The warrant isbeing amortized into interest expense over three years. We had amountsoutstanding under this facility of $4.4 million as of December 31, 1998 and $4.7



million as of December 31, 1999.

45


8. Commitments:

We lease a portion of our buildings and equipment under operating leases. Futureminimum payments under operating leases are as follows:

<TABLE><CAPTION>

December 31,1999


<S> <C>Due in:2000................................................................. $ 7,9412001................................................................. 6,7622002................................................................. 6,0132003................................................................. 4,7892004................................................................. 3,517Thereafter........................................................... 3,324

-------$32,346=======

</TABLE>

Rent expense under operating leases was $431,930 for the year ended December 31,1997, $4.3 million for the year ended December 31, 1998, and $7.0 million forthe year ended December 31, 1999.

9. Shareholders' Equity (Deficit):

We have 1,000,000 shares of preferred stock authorized none of which wereoutstanding as of December 31, 1998 and 1999.

On October 31, 1996, we issued 187,500 shares of our common stock in exchangefor a 10% equity interest in Services-oriented open Network Technologies, Inc.(SONeTech) and an exclusive engineering and consulting agreement. In May, 1999,we reacquired 37,500 shares of our common stock for $4,500 and sold our equityinterest. A loss of $220,500 was recognized in the transaction.

In February 1997, we completed the second of two tranches of an offering of anaggregate of 3,500,000 units. Each of the units consisted of one share of commonstock and one-half warrant to purchase a share of common stock (the firsttranche of 2,369,763 units closed in late 1996). The units were sold at a priceof $2.00 each. One warrant entitled the holder to purchase one share of commonstock for a price of $3.00 per share for five years from the date of theoffering. As part of the offering, we issued warrants to purchase 1,750,000 ofour common shares to investors, which were exercisable at $3.00 per share. As ofDecember 31, 1999, 173,115 of these warrants had been exercised and 872 had beencancelled. We also issued warrants to purchase 370,625 of our common shares tothe placement agents, which are exercisable at $2.40 per share through November7, 2001. As of December 31, 1999, all of these warrants remained outstanding.

In October 1997, we completed an offering of 3,410,000 units consisting of oneshare of our common stock and one-half warrant to purchase a share of our commonstock. The units were sold at a price of $5.00 each. The proceeds, net ofrelated offering costs, were approximately $15.2 million. One warrant entitlesthe holder to purchase one share of our common stock for a price of $7.50 pershare, beginning in November 1998 through July 14, 1999. As of December 31,1999, 1,667,250 of these warrants had been exercised and 37,750 were cancelled.We also issued warrants to purchase 307,930 of our common shares to theplacement agents exercisable at $6.00 per share beginning in May 1998 throughNovember 14, 2002. As of December 31, 1999 12,053 of these warrants had beenexercised and 1,627 had been cancelled.

In connection with the signing of financing agreements with Comdisco, Inc. andGATX, we granted Comdisco warrants to purchase 166,666 shares of our commonstock and granted GATX warrants to purchase 40,285 shares of our common stock.All of these warrants are exercisable at $6.00 per share. The Comdisco warrantsare currently

46




exercisable and expire on July 23, 2004. The GATX warrants are exercisablebeginning in May 1998 and expire in May 2002. As of December 31, 1999, all ofthese warrants remained outstanding.

In August 1998, we entered into a consulting agreement under which theconsultant recruited senior management personnel on behalf of our wholly-ownedsubsidiary, Convergent Capital Corporation. As a result of the servicesperformed under this agreement, we issued warrants to the consultant to purchase62,500 shares of our common stock at $10.00 per share. The warrants arecurrently exercisable and expire on August 3, 2008. We valued the warrants usingan option pricing model and recognized consulting expense of $79,883. As ofDecember 31, 1999, all of these warrants remained outstanding.

Certain holders of our common stock and the holders of certain warrants have theright to demand that we file a registration statement to register their sharesand the shares underlying their warrants.

Stock Option Plans:

We have adopted the 1996 and 1997 Incentive and Non-Statutory Option Plans, the1998 and 1999 Stock Option Plan and the Stock Incentive Plan (the "Plans") whichauthorize us to grant up to 6,450,000 shares of our common stock to employees,consultants and directors under incentive stock options within the meaning ofSection 422A of the Internal Revenue Code of 1986, as amended, and to grant non-statutory stock options.

The Plans require that the exercise price of options we grant must be at leastequal to the fair market value of a share of our common stock on the date of thegrant and must be exercisable over a period of up to ten years. However, if anemployee owns more than 10% of our outstanding common stock, then the exerciseprice of an incentive option must be at least 110% of the fair market value of ashare of our common stock on the date of grant and must be exercisable over aperiod of five years. All of our options vest over five years.

The Plans are administered by our Board of Directors or a committee of theBoard which determines the terms of the options granted, including the exerciseprice, the number of shares of our common stock subject to the option, and theterms and conditions of exercise. No option granted under the Plan istransferable by the optionee other than by will or the laws of descent anddistribution and each option is exercisable during the lifetime of the optioneeonly by such optionee.

In May 1997, we accelerated the vesting provisions related to options ofcertain employees to purchase 475,000 shares with an exercise price of $0.12 pershare and all of the options were exercised. The underlying shares are subjectto a repurchase agreement over a five year period whereby we can repurchase aportion of the shares upon termination of employment. The amount available forrepurchase is reduced by 20% each year of employment. In late 1997, werepurchased 100,000 shares for $0.12 per share, upon the termination of one ofthe exercising employees. The repurchased shares are included in the authorizedbut unissued shares of common stock. At December 31, 1999, approximately 105,000shares were subject to repurchase.

47


The following table sets forth our stock option activity:<TABLE><CAPTION>

Weighted WeightedAverage Average

Number of Exercise Grant DateShares Price Fair Value

----------- -------------- --------------(in thousands)

<S> <C> <C> <C>Outstanding at December 31, 1996............................... $ 905 $ 1.02 $ --

GrantedAbove market value........................................ 1,405 3.60 0.52At market value........................................... 493 3.90 1.12

Exercised .................................................. (475) 0.12 --Canceled..................................................... (6) 2.66 --

------ ----- -----Outstanding at December 31, 1997............................... 2,322 3.38 --

GrantedAbove market value........................................ 1,361 11.26 0.16At market value........................................... 321 7.48 1.74




----- ----- -----Outstanding at December 31, 1998............................... 3,322 6.50 --

GrantedAbove market value........................................ 475 14.49 5.65At market value........................................... 549 10.43 5.87Below market value........................................ 103 14.28 17.35


----- ----- -----Outstanding at December 31, 1999............................... $ 3,784 $ 8.30 $ --

======= ====== ======</TABLE>

The following table indicates the number of shares exercisable and the weightedaverage exercise prices at December 31:

<TABLE><CAPTION>

1997 1998 1999-------- -------- ----------

<S> <C> <C> <C>Options exercisable................................................... 172,500 495,050 1,025,200Weighted average exercise price....................................... $ 2.58 $ 3.32 $ 5.27</TABLE>

At December 31, 1999, the range of exercise prices and weighted averageremaining contractual life for options outstanding was as follows:

<TABLE><CAPTION>

Weighted AverageOption Price Remaining Contractual

Number of Shares Range Life---------------- ---------------- ---------------------<S> <C> <C>1,265,250 . . . . . . . . . . . $ 2.00 to $ 5.00 5.6 years

842,700 . . . . . . . . . . . $ 5.01 to $10.00 6.4 years1,574,750 . . . . . . . . . . . $10.01 to $15.00 8.4 years

100,500 . . . . . . . . . . . $15.01 to $20.00 9.3 years750 . . . . . . . . . . . $20.01 to $21.50 9.6 years

</TABLE>

48


If the compensation cost for the Plan was determined based on the fair value atthe grant dates for awards using the method prescribed by SFAS 123, our proforma net loss and net loss per share would have been as follows:

<TABLE><CAPTION>

Years Ended December 31,--------------------------------------------

1997 1998 1999---------= ---------- -----------

(in thousands, except per share amounts)<S> <C> <C> <C>

Net loss:As reported............................................ $(9,655) $(50,576) $(108,260)Pro-forma.............................................. $(9,703) $(50,958) $(109,073)

Net loss per share:As reported............................................ $ (0.92) $ (3.68) $ (5.32)Pro-forma.............................................. $ (0.92) $ (3.72) $ (5.36)

</TABLE>

The fair value of each option grant is estimated on the date of grant usingthe minimum value method prior to our Initial Public Offering IPO) on July 19,1999 and the Black Scholes method from July 19, 1999 forward, with the followingassumptions:

<TABLE><CAPTION>

Years Ended December 31,----------------------------------------------

1997 1998 1999---------- ----------- -----------

<S> <C> <C> <C>



Dividend yield............................................ - - -Volatility................................................ - - 141Risk-free interest rate................................... 5.65-6.84% 5.38-5.71% 4.60-6.30%Expected lives............................................ 5 years 5 years 5 years

</TABLE>

Because we expect to make additional option grants, the above pro formadisclosures are not necessarily representative of pro forma effects on netincome to be reported for future years.

We recognized compensation expense for employee stock grants and stockoptions of $194,517 for the year ended December 31, 1997, $633,828 for the yearended December 31, 1998, and $1.5 million for the year ended December 31, 1999.

49


10. Business Segments:

We classify our business into three fundamental areas: eBusiness Solutions,Enterprise Services and Enterprise Systems. Senior management evaluates andmakes operating decisions about each of these operating segments based on anumber of factors. We do not account for assets by business segment and,therefore, depreciation and amortization are not factors used in evaluatingoperating performance. Two of the most significant factors used in evaluatingthe operating performance are: revenue and gross margin before depreciation aspresented below:

<TABLE><CAPTION>

Years Ended December 31,--------------------------------------------------------------

1997 1998 1999-------------- ---------------- ----------------

(in thousands)<S> <C> <C> <C>Revenue:

eBusiness Solutions....................................... $ -- $ -- $ 1,742Enterprise Services....................................... 2,795 27,922 64,806Enterprise Systems........................................ 7,415 33,678 93,374

-------------- ---------------- ----------------Total................................................... 10,210 61,600 159,922

-------------- ---------------- ----------------Gross margin before depreciation:

eBusiness Solutions....................................... -- -- 1,022Enterprise Services....................................... 1,517 12,335 31,979Enterprise Systems........................................ 1,325 5,562 22,876

-------------- ---------------- ----------------Total................................................... 2,842 17,897 55,877

-------------- ---------------- ----------------Reconciliation to net loss:

Selling, general and administrative....................... (10,983) (47,862) (125,350)Depreciation and amortization............................. (1,453) (7,493) (17,295)Impairment of long-lived assets........................... -- -- (650)

-------------- ---------------- ----------------Operating loss............................................ (9,594) (37,458) (87,418)Interest expense.......................................... (156) (17,502) (25,491)Interest income........................................... 251 4,632 4,880Other income (expense).................................... (156) (248) (231)

-------------- ---------------- ----------------Net loss................................................ $ (9,655) $ (50,576) $ (108,260)

============== ================ ================</TABLE>

11. Deferred Compensation:

We have a Deferred Compensation plan whereby certain management employeescan elect to defer a portion of their compensation which will be paid in sharesof our common stock at a future date. The plan requires that we issue shares ofcommon stock into a rabbi trust which will then be distributed to the employeeat a specified date in the future not less than one year from the deferral date.We have recorded the deferred compensation amount as treasury stock (foraccounting purposes) and as a deferred compensation obligation in theshareholders' equity (deficit) section of the balance sheet. As of December 31,1999, 148,171 shares of our common stock are being held in the rabbi trust.

12. Income Taxes:

For federal income tax purposes we had net operating loss carryforwards of



$152.2 million as of December 31, 1999. Section 382 of the Internal Revenue Codeplaces certain limitations on the annual amount of net operating losscarryforwards which can be utilized if certain changes in ownership occur. As aresult, our ability to use these net operating loss carryforwards, which willbegin to expire in 2011, may be limited.

50


The components of the net deferred tax assets are as follows:

<TABLE><CAPTION>

December 31,----------------------------

1998 1999--------- --------

(in thousands)<S> <C> <C>Deferred tax assets:

Net operating loss carryforwards.................................. $17,058 $57,828Deferred revenue.................................................. 1,924 2,441Accrued vacation and bonus........................................ 1,342 1,635Intangibles....................................................... 549 1,031Allowance for doubtful accounts................................... 528 747Deferred gain on sales-type leases................................ - 646Charitable contributions.......................................... - 16Property and equipment............................................ 462 367Self-insurance and warranty liabilities........................... 449 135Original issue discount........................................... 384 201Valuation allowance............................................... (22,696) (65,047)

-------- --------Total net deferred tax assets.................................. $ - $ -

========= ========</TABLE>

The increase in the valuation allowance of $19.1 million in 1998 and $42.4million in 1999 are due to increased losses during each year. We have recorded afull valuation allowance on the net deferred tax assets due to continuinglosses.

Our actual income taxes differed from the expected federal statutory rate asfollows:

<TABLE><CAPTION>

Years Ended December 31,----------------------------------------------------

1997 1998 1999-------------- ------------- ------------

<S> <C> <C> <C>Statutory tax rate............................................... 34% 34% 35%State taxes, net of federal benefit.............................. 4 4 3Valuation allowance.............................................. (38) (38) (38)

-------------- ------------- ------------Effective tax rate............................................... -% -% -%

============== ============= ============</TABLE>

13. Net Loss Per Share:

The net loss available to common shareholders consists of the following:

<TABLE><CAPTION>

Years Ended December 31,----------------------------------------------------

1997 1998 1999----------- ------------ ------------

(in thousands)<S> <C> <C> <C>

Net loss..................................................... $ (9,655) $ (50,576) $ (108,260)=========== ========== ==========

The weighted average shares consist of the following:Weighted average common shares used for

basic and fully diluted earnings per share................. 10,461 13,732 20,356=========== ========== ==========

Anti-dilutive options and warrants not included inthe calculation............................................ 3,827 6,975 8,868



=========== ========== ==========</TABLE>

14. Employee Benefit Plans:

We adopted an employee benefit 401(k) plan for all employees effectiveMarch 1, 1997. Under the plan, employees may voluntarily elect to have up to 15%of their salaries deducted from earnings and placed in the plan. We may elect tomatch up to 6% of the employee contributions by contributing our common stock tothe plan. Our contributions are determined on a quarterly basis and the numberof shares to be contributed is based upon the

51


estimated fair value of the stock at the end of each quarter. During 1998 wecontributed $182,792 of our common stock for the year ended December 31, 1997match and contributed $253,102 of our common stock for the first and secondquarters of 1998. During 1999, we contributed $712,596 for the third and fourthquarters 1998 and contributed $2.0 million for the first, second, and thirdquarters of 1999. An additional $932,498 was accrued as of December 31, 1999 forthe fourth quarter of 1999 which was contributed in February, 2000.

15. Related Party Transactions:

In August 1998, we entered into a two year agreement with StrategicHealthcare Solutions, LLC (SHS) under which SHS was engaged to provide newcustomers in the healthcare industry to us. One of our directors is a principalof Strategic Asset Management which has an ownership interest in SHS. Under theagreement, we pay SHS a monthly fee and commissions (an aggregate ofapproximately $125,000 in 1998 and $227,336 in 1999). In addition, we issued awarrant to SHS which entitles them to purchase up to a maximum of 131,250 sharesof our common stock at an exercise price of $12.00.

The warrant includes performance objectives which are reviewedsemiannually. If SHS does not meet those performance objectives, all or aportion of the shares available for each six-month period (32,813 shares) isreduced. The warrant is not exercisable until August 1, 2000 and expires August1, 2003. During 1999, 64,331 shares applicable to the warrant were cancelled asa result of not meeting the performance objectives.

In October 1999, we entered into a long-term Enterprise Managed Servicesagreement with Cavion Technologies, Inc. (Cavion). Under this agreement we havedesigned a network which we now own, maintain and monitor and supportconnectivity, including providing equipment and related services for thenetwork. In connection with this agreement we purchased $286,000 of equipmentfrom Cavion. In exchange for the use of our equipment and services provided,Cavion will pay us a monthly fee over a term of five years. In October 1999,John Evans was elected as a member of the Board of Directors of Cavion. Inaddition, through a business combination we completed in 1997, we own 67,603shares of Cavion which represents a less than 2% ownership percentage. Inconnection with the EMS agreement we recognized revenue of approximately$135,000 during 1999 of which, approximately $85,000 remained in trade accountsreceivable as of December 31, 1999.

52

Item 9. Changes in and Disagreements with Accountants on Accounting andFinancial Disclosure

None

PART III

Item 10. Directors and Executive Officers of the Registrant

The information required by this item is incorporated herein by referenceto our definitive proxy statement for our 2000 Annual Meeting of Stockholders.

Item 11. Executive Compensation


Item 12. Security Ownership Of Certain Beneficial Owners And ManagementPrincipal Shareholders




Item 13. Certain Relationships And Related Transactions


53

PART IV

Item 14. Exhibits, Financial statements schedules, and reports on form 8-K

(a)(1) The following consolidated financial statements of ConvergentCommunications, Inc. are included in Item 8 of this Report on Form 10-K:

Report of Independent Accountants

Consolidated Balance Sheets as of December 31, 1998 and 1999

Consolidated Statements of Operations for the years ended December 31,1997, 1998 and 1999

Consolidated Statements of Shareholders' Equity (Defecit) for the yearsended December 31, 1997, 1998 and 1999

Consolidated Statements of Cash Flows for the years ended December 31,1997, 1998 and 1999

Notes to Consolidated Financial Statements

(a)(2) The following financial statement schedules of ConvergentCommunications for the three years ended December 31, 1999 are included in thisReport on Form 10-K, as required by Item 14(d):

. Report of Independent Accountants on Financial Statement Schedule

. Schedule II--Valuation and Qualifying Accounts

All other schedules have been omitted because the information is notrequired or is included in the consolidated financial statements.

(a)(3) List of Exhibits (including management contracts or compensatory plansor arrangements required to be filed)

<TABLE><CAPTION>

ExhibitNo.

------------------<S> <C>

3.1*** Amended and Restated Articles of Incorporation of Convergent Communications, Inc.

3.2** Articles of Amendment to the Amended and Restated Articles of Incorporation of ConvergentCommunications, Inc.

3.3+ Articles of Amendment to the Amended and Restated Articles of Incorporation of ConvergentCommunications, Inc.

3.4+++ Third Articles of Amendment to Amended and Restated Articles of Incorporation of ConvergentCommunications, Inc.

3.5 Articles of Amendment to Amended and Restated Articles of Incorporation of ConvergentCommunications, Inc.

3.6 Amended and Restated Bylaws of Convergent Communications, Inc.</TABLE>

54

<TABLE><S> <C>

4.1*** Indenture, dated as of April 2, 1998, by and among the Company and Norwest Bank Colorado, N.A.

4.2*** Warrant Agreement, dated as of April 2, 1998

4.3*** Warrant Registration Rights Agreement, dated as of April 2, 1998

4.4*** Collateral Account Control Agreement, dated as of April 2, 1998

4.5*** Custody and Security Agreement, dated as of April 2, 1998

4.6** Investor Rights Agreement, dated as of March 17, 1999

4.7** Warrant Agreement, dated as of March 17, 1999



4.8++ Warrant Agreement, dated as of June 3, 1999

4.9++++ Warrant to Purchase Common Stock of Convergent Communications, Inc. dated as of July 16, 1999

4.10 Securities Purchase Agreement, dated as of April 4, 2000

4.11 Investor Rights Agreement, dated as of April 18, 2000

4.12 Warrant Agreement, dated as of April 18, 2000

10.1 Employment Agreement, dated April 17, 2000, between Joseph R. Zell and the Company

10.2 First Amendment to Employment Agreement, dated April 9, 2000, between Brian R. Ervine and the Company

10.3++++++ Employment Agreement, dated March 9, 2000, between Martin E. Freidel and the Company

10.4++++++ Employment Agreement, dated March 9, 2000, between Brian R. Ervine and the Company

10.5++++++ Employment Agreement, dated March 9, 2000, between Michael Dozier and the Company

10.6++++++ Employment Agreement, dated March 9, 2000, between D. Randall Hake and the Company

10.7++++++ Employment Agreement, dated March 9, 2000, between Gregory P. McGraw and the Company

10.8*** Asset Purchase Agreement, dated June 16, 1998 (as amended) by and between ConvergentCommunications Services, Inc. and Tie Communications, Inc., Debtor-in-Possession

10.9*** Master Lease Agreement, dated November 11, 1997, between Comdisco, Inc. and the Company

10.10*** Master Lease Agreement, dated November 17, 1997, between Convergent Capital Corporationand the Company

10.11*** Program Agreement, dated November 19, 1997, among Comdisco, Inc., ConvergentCommunications Services, Inc. and the Company

10.12 Loan and Security Agreement by and between Convergent Communications Services, Inc. andFoothill Capital Corporation, as agent, dated as of April 18, 2000

</TABLE>

55

<TABLE><S> <C>10.13 Secured Continuing Guaranty by Convergent Communications, Inc. in

favor of Foothill Capital Corporation, as agent, dated as ofApril 18, 2000

10.14++ Purchase and License Agreement by and between Cisco Systems, Inc.and Convergent Communications Services, Inc. dated July 16, 1999

10.15++++ Credit Agreement dated as of July 16, 1999 between ConvergentCommunications Services, Inc. and Cisco Systems CapitalCorporation

10.16++++ Guaranty dated as of July 16, 1999 by Convergent Communications,Inc. in favor of Cisco Systems Capital Corporation

21.1++++++ Subsidiaries

23.1 Consent of PricewaterhouseCoopers LLP

24.1 Power of Attorney (included on page 58)

27.1 Financial Data Schedule

99.1++++++ Audit Committee Charter effective March 9, 2000

* Previously filed and incorporated by reference to the 1999 annualreport on Form 10-K (SEC File No. 333-53953)

** Previously filed and incorporated by reference to the 1998 annualreport on Form 10-K (SEC File No. 333-53953).

*** Previously filed and incorporated by reference to theRegistration Statement on Form S-4 (Reg. No. 333-5393).

+ Previously filed and incorporated by reference to theRegistration Statement on Form S-1 (Reg. No. 333-78483) filed May14, 1999.

++ Previously filed and incorporated by reference to Amendment No. 1to Registration Statement on Form S-1 (Reg. No. 333-78483) filedon June 28, 1999.



+++ Previously filed and incorporated by reference to Amendment No. 2to Registration Statement on Form S-1 (Reg. No. 333-78483) filedon July 15, 1999.

++ Previously filed and incorporated by reference to Amendment No. 3to Registration Statement on Form S-1 (Reg. No. 333-78483) filedon July 16, 1999

++++ Previously filed and incorporated by reference to Amendment No. 4to Registration Statement on Form S-1 (Reg. No. 333-78483) filedon July 19, 1999.

++++++ Previously filed and incorporated by reference to the 1999 annualreport on Form 10-K (SEC File No. 333-53953).

</TABLE>

(b) Reports on Form 8-K

Report on Form 8-K filed April 20, 2000

SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TOSECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIESPURSUANT TO SECTION 12 OF THE ACT.

The registrant has not sent to security holders any annual report coveringthe registrant's last fiscal year or any proxy material relating to a meeting ofsecurity holders. Copies of such annual report and proxy will be furnished tothe Commission when it is sent to security holders.

56

SIGNATURES

Pursuant to the requirements of Section 15(d) of the Securities ExchangeAct of 1934, the registrant has duly caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized, on April 24, 2000.

Convergent Communications, Inc.

By: /s/ Joseph R. Zell--------------------------------------Joseph R. ZellPresident and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, thisreport has been signed below by the following persons on behalf of theregistrant and in capacities and on the dates indicated.

<TABLE><CAPTION>

Signature Title Date-------------------------------------- --------------------------------------- ------------------<S> <C> <C>

/s/ JOSEPH R. ZELL President, Chief Executive April 24, 2000-------------------------------------- Officer and Director

Joseph R. Zell (Principal ExecutiveOfficer)

/s/ BRIAN R. ERVINE Chief Financial Officer and April 24 2000-------------------------------------- Treasurer (Principal Financial and

Brian R. Ervine Principal Accounting Officer)

Director April 24, 2000--------------------------------------

Jeffrey A. Shaw

Director April 24, 2000--------------------------------------

Richard W. Boyce</TABLE>

57

<TABLE><CAPTION>



Signature Title Date-------------------------------------------- -------------------------------------------- ---------------------<S> <C> <C>

/s/ Spencer I. Browne* Director April 24, 2000--------------------------------------------

Spencer I. Browne

/s/ Michael J. Marocco* Director April 24, 2000--------------------------------------------

Michael J. Marocco

/s/ Richard G. Tomlinson* Director April 24, 2000--------------------------------------------

Richard G. Tomlinson

* By /s/ MARTIN E. FREIDEL

Martin E. Freidel, attorney in fact.</TABLE>

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appearsbelow hereby constitutes and appoints Martin E. Freidel, as such person's trueand lawful attorney-in-fact and agent with full power of substitution for suchperson and in such person's name, place and stead, in any and all capacities, tosign and to file with the Securities and Exchange Commission a report ofConvergent Communications, Inc., a Colorado corporation (the "Corporation"), onForm 10-K, with exhibits thereto and other documents in connection therewith,granting unto each said attorney-in-fact and agent full power and authority todo and perform each and every act and thing requisite and necessary to be donein and about the premises, as fully to all intents and purposes as such personmight or could do in person, hereby ratifying and confirming all that saidattorney-in-fact and agent, or any substitute therefor, may lawfully do or causeto be done by virtue thereof.

58

REPORT OF INDEPENDENT ACCOUNTANTSON FINANCIAL STATEMENT SCHEDULE

To the Board of Directors ofConvergent Communications, Inc.

Our audits of the consolidated financial statements referred to in ourreport dated March 13, 2000 except for Note 7 as to which the date is March 28,2000 and Note 1 as to which the date is April 18, 2000, appearing in Item 8 ofthis Annual Report on Form 10-K also included an audit of the financialstatement schedule listed in the index in Item 14(a)(2) of this Form 10-K. Inour opinion, this financial statement schedule presents fairly, in all materialrespects, the information set forth therein when read in conjunction with therelated consolidated financial statements.


Denver, ColoradoMarch 13, 2000

59

SCHEDULE II

Valuation and Qualifying Accounts(in thousands)

<TABLE><CAPTION>

Balance Chargedat to Costs Balance at

Beginning and Deductions/ End ofof Period Expenses Writeoffs Other Period

------------ ----------- -------------- -------- -------------<S> <C> <C> <C> <C> <C>Allowance for uncollectible tradereceivables:Year ended December 31, 1997 $ -- $ 21 $ -- $ -- $ 21

------- ------- ------- ------ -------Year ended December 31, 1998 $ 21 $ 401 $ (205) $1,691 (i) $ 1,908



------- ------- ------- ------ -------Year ended December 31, 1999 $ 1,908 $ 3,154 $(2,550) $ -- $ 2,512

------- ------- ------- ------ -------Allowance for obsolete or excess

inventory:Year ended December 31, 1997 $ -- $ -- $ -- $ -- $ --

------- ------- ------- ------ -------Year ended December 31, 1998 $ -- $ 68 $ -- $ -- $ 68

------- ------- ------- ------ -------Year ended December 31, 1999 $ 68 $ 1,368 $ (88) $ -- $ 1,348

------- ------- ------- ------ -------Valuation allowance for deferredtax assets:Year ended December 31, 1997 $ -- $ 3,582 (ii) $ -- $ -- $ 3,582

------- ------- ------- ------ -------Year ended December 31, 1998 $ 3,582 $19,114 (ii) $ -- $ -- $22,696

------- ------- ------- ------ -------Year ended December 31, 1999 $22,696 $42,351 (ii) $ -- $ -- $65,047

------- ------- ------- ------ -------

</TABLE>(i) Represents amount from acquisition of certain assets of Tie

Communications, Inc.(ii) Represents a full valuation against the net deferred tax assets.

60



EXHIBIT 3.5

ARTICLES OF AMENDMENTTO

THE AMENDED AND RESTATEDARTICLES OF INCORPORATION

OFCONVERGENT COMMUNICATIONS, INC.

Pursuant to the Provisions ofSection 7-106-102 of the Business Corporation Act

of the State of Colorado

CONVERGENT COMMUNICATIONS, INC., a corporation organized andexisting under the laws of the State of Colorado, hereby certifies that,pursuant to authority contained in its Amended and Restated Articles ofIncorporation and in accordance with Section 7-106-102 of the BusinessCorporation Act of the State of Colorado, the Board of Directors of theCorporation on April 17, 2000, duly adopted the following resolution withoutshareholder action, such shareholder action not being required:

RESOLVED, that pursuant to authority expressly granted by theAmended and Restated Articles of Incorporation of Convergent Communications,Inc., a Colorado corporation (the "Corporation"), the Board of Directors herebycreates and authorizes the issuance of a series of the preferred stock, no parvalue, of the Corporation, to consist of one hundred seventy-five thousand(175,000) shares, and hereby fixes the designation, dividend rights, votingpowers, rights on liquidation or dissolution and other preferences and relative,participating, optional or other rights, and the qualifications, limitations orrestrictions of the shares of such series (in addition to any thereof set forthin the Corporation's Amended and Restated Articles of Incorporation that areapplicable to the Corporation's preferred stock of all series) as follows:

Section 1. Designation; Original Issuance; Status of Reacquired or ConvertedShares.

1.1 The designation of the series of the preferred stock, no parvalue, of the Corporation authorized hereby is "Series B Senior CumulativeConvertible Preferred Stock" (the "Series B Preferred Stock"), the stated value(the "Stated Value") per share shall be $1,000 and the number of sharesconstituting such series shall be one hundred seventy five thousand (175,000).The dividend rights, voting powers, rights on liquidation or dissolution andother preferences and relative, participating, optional or other rights, and thequalifications, limitations or restrictions of the shares of such series are asset forth in these Articles.

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1.2 Shares of the Series B Preferred Stock shall be originallyissued pursuant to the Purchase Agreement (as defined in Section 2 below) and,thereafter, no additional shares of Series B Stock shall be issued by theCorporation other than with the prior written consent of the Majority Holders(as defined in Section 2 below).

1.3 All shares of Series B Preferred Stock received by theCorporation upon conversion or redeemed, retired, purchased or otherwiseacquired by the Corporation or any of its Subsidiaries shall be retired andshall be restored to the status of authorized, undesignated and unissued sharesof preferred stock of the Corporation and, subject to the restrictions containedin these Articles, may be reissued as part of another series of the preferredstock of the Corporation, but such shares shall not be reissued as Series BPreferred Stock.

Section 2. Certain Definitions.

The terms defined in this Section 2 shall have the meanings hereinspecified:

"Accumulated Arrearage" means, with respect to any Series B Share asof any date of determination the aggregate amount of all accumulated and unpaiddividends, whether or not earned or declared, which shall have become Arrearagesin respect of such Series B Share from and after the date of original issuancethereof to such date of determination, without any reduction for paymentssubsequently made by the Company in respect thereof.

"Adjustment Date" has the meaning set forth in Section 10.3(d).

"Additional Shares of Common Stock" means any shares of Common Stockissued or deemed to be issued by the Corporation after the Closing Time (otherthan shares issued upon conversion of any Series B Share or exercise of anyWarrant).

"Affiliate" has the meaning set forth in Rule 12b-2 of theregulations promulgated under the Exchange Act. The term "affiliated" (whetheror not capitalized) shall have a correlative meaning. For purposes hereof,neither the Corporation nor any Subsidiary shall be deemed to be an Affiliate ofany Purchaser and no Purchaser nor any of its Affiliates shall be deemed to bean Affiliate of the Corporation.

"Arrearage" has the meaning set forth in Section 4.1(b).

"Bankruptcy Code" means Title 11 of the United States Code.

"Beneficial Owner" means a beneficial owner within the meaning ofRules 13d-3 and 13d-5 under the Exchange Act, as interpreted by the Commission,provided that a Person shall be deemed to have beneficial ownership of allsecurities that such Person has a right to acquire without regard to the 60 daylimitation in subdivision (d)(i) of such Rule 13d-3. The terms (whether or not



capitalized) "beneficially own" and "owned beneficially" shall have correlativemeanings.

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"Board" means the Board of Directors of the Corporation.

"Business Day" means any day other than a Saturday, a Sunday or aday on which banking institutions in either New York, New York, or the city andstate in which the principal executive offices of the Corporation within theUnited States are located are authorized or obligated by law or executive orderto close.

"capital stock" when used with respect to any corporation means(unless the context otherwise indicates) any and all shares of capital stock(however designated) of such corporation, including each class and series ofcommon stock and preferred stock of such corporation, any class or series, anyand all stock appreciation rights and any and all equivalents of any of theforegoing, and including any security or interest convertible into or warrant,option or other right (absolute or contingent) to subscribe for, purchase orotherwise acquire any of the foregoing, in each case whether or not evidenced byany certificate, instrument or other document and whether voting or nonvoting.

"Change of Control" means the occurrence of any of the followingevents: (a) any "person" or "group" (as such terms are used in Sections 13(d)and 14(d) of the Exchange Act), excluding the Permitted Holders, is or becomesthe "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the ExchangeAct, except that a person shall be deemed to have "beneficial ownership" of allsecurities that such person has the right to acquire, whether such right isexercisable immediately or only after the passage of time), directly orindirectly, of more than 50% of the total Voting Stock of the Company; (b) theCompany consolidates with, or merges with or into, another person or sells,assigns, conveys, transfers, leases or otherwise disposes of all orsubstantially all of its assets to any person, or any person consolidates with,or merges with or into, the Company, in any such event pursuant to a transactionin which the outstanding Voting Stock of the Company is converted into orexchanged for cash, securities or other property, other than any suchtransaction where (i) the outstanding Voting Stock of the Company is convertedinto or exchanged for (1) Voting Stock (other than Disqualified Stock) of thesurviving or transferee corporation or its parent corporation and/or (2) cash,securities and other property in an amount which could be paid by the Company asa Restricted Payment under the Indenture and (ii) immediately after suchtransaction no "person" or "group" (as such terms are used in clause (a)),excluding Permitted Holders, is the "beneficial owner" (as such term is used inclause (a)), directly or indirectly, of more than 50% of the total Voting Stockof the surviving or transferee corporation or its parent corporation, asapplicable; or (c) during any consecutive two-year period, individuals who atthe beginning of such period constituted the Board (together with any newdirectors whose election by the Board or whose nomination for election by thestockholders of the Company was approved by a vote of a majority of the



directors then still in office who were either directors at the beginning ofsuch period or whose election or nomination for election was previously soapproved) cease for any reason to constitute a majority of the Board then inoffice.

"Closing Date" means the date of the closing of the consummation ofthe issuance of Series B Shares to the Purchasers pursuant to the PurchaseAgreement.

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"Closing Time" means 10:00 A.M., New York City time, on the ClosingDate.

"Commission" means the Securities and Exchange Commission or anysuccessor federal agency administering the Securities Act.

"Common Stock" means the Common Stock, no par value, of theCorporation as constituted on the Closing Date, and any capital stock into whichsuch Common Stock may thereafter be changed, and (except where the contextotherwise requires) shall also include (i) capital stock of the Corporation ofeach and every other class or series (regardless of how denominated) which isalso not preferred as to dividends or assets on liquidation over any other classor series of stock of the Corporation and which is not subject to redemption and(ii) shares of common stock of any successor or acquiring Entity (as defined inSection 10.16) received by or distributed to the holders of Common Stock of theCorporation in the circumstances contemplated by such Section.

"Conversion Price" means, as of any time and with respect to anySeries B Share, the initial price of Thirteen Dollars ($13.00), as such initialprice shall have from time to time been cumulatively adjusted pursuant toSection 10 through such time.

"Conversion Rate" means, as of any time and with respect to anySeries B Share, (x) the number of shares of Common Stock obtained by dividing(i) the sum of (A) the Stated Value, (B) the Accumulated Arrearage and (C) theaggregate amount of all other accumulated and unpaid dividends, in each case inrespect of such Series B Share at such time by (ii) the Conversion Price ineffect at such time, determined in accordance with Section 9 and Section 10after giving cumulative effect to all adjustments pursuant to Section 10 throughsuch time, together with (y) the kind, number and amount of any other securitiesand other property made part of the Conversion Rate as the result of adjustmentsmade pursuant to Section 4.2(b) or Section 10, if applicable.

"Conversion Securities" means, with respect to any Series B Share atany time, each class and series of Conversion Stock, each class, series andissue of any other securities, and any Rights with respect to any of suchConversion Stock or other securities, any shares, number or other amount ofwhich at such time are deliverable upon conversion of any Series B Share.



"Conversion Stock" means, with respect to any Series B Share at anytime, the Common Stock, each other class or series of capital stock and anyRights with respect to any of the foregoing shares, the number or other amountof which at such time is deliverable upon conversion of any Series B Share.

"Convertible Securities" means evidences of indebtedness, shares ofstock or other securities or obligations (except the Series B Preferred Stockand the Warrants) that are convertible into or exchangeable, with or withoutpayment of additional consideration in cash or property, for any Common Stock,either immediately or upon the occurrence of a specified date or a specifiedevent or the satisfaction or happening of any other condition or contingency.

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"Current Market Price" means, in respect of any share of CommonStock as of any date, the average of the reported last sales prices for the tenconsecutive Trading Days commencing twenty Trading Days before the date inquestion. The reported last sales price for each Trading Day shall be thereported last sales price, regular way, as reported on the National Market tierof The Nasdaq Stock Market (or, if the Common Stock shall be traded principallythrough the facilities of a national securities exchange other than Nasdaq StockMarket, such national securities exchange). As used herein, the term "TradingDay" means a day on which The Nasdaq Stock Market (or such other nationalsecurities exchange) is open for business, provided that if no sales of theCommon Stock take place on such day on the relevant exchange or stock marketdetermined under the immediately preceding sentence, such day shall not be aTrading Day. In case any event that would require an adjustment to theConversion Price pursuant to Section 10 occurs with an "ex" date or an effectivedate occurring during the foregoing ten consecutive Trading Day period, the lastsales prices used in determining the Current Market Price shall be appropriatelyadjusted to take such event into account.

"Designated Director" has the meaning set forth in Section 7.1.

"Dividend Rate" means the rate of eight percent (8%) per annum.

"Election Form" has the meaning set forth in Section 3.7(a)(iii).

"Employee Option" means any option to purchase Common Stock forcash, which is granted by or with the approval of the Board to any director,officer, employee or consultant of the Corporation or any subsidiary of theCorporation pursuant to (i) the Corporation's stock option plans disclosed in aschedule to the Purchase Agreement and as in effect on the Closing Date or (ii)any other option plan adopted by the Corporation after the Closing Date with theapproval of the Majority Holders or the Series B Directors (collectively, the"Stock Option Plans").

"Entity" means any corporation, limited liability company, generalor limited partnership, joint venture, association, joint stock company, trust,other unincorporated business or organization or other Person which is not



either a natural person or a governmental authority or agency.

An "equity interest" in or of any Entity includes any capital stockor other equity security issued by such Entity, any partnership (general orlimited) or joint venture interest in such Entity, any other equity, ownership,participating or beneficial interest in such Entity, any stock appreciation orother equity appreciation right with respect to such Entity, and any equivalentof any of the foregoing, regardless of how denominated and whether voting ornon-voting, and any security or interest convertible into or warrant, option orother right (absolute or contingent) to subscribe for, purchase or otherwiseacquire, any of the foregoing, in each case whether or not evidenced by anycertificate, instrument or other document and whether voting or nonvoting.

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"Exchange Act" means the Securities Exchange Act of 1934, asamended.

"Existing Rights" means all Rights (including stock options issuedpursuant to the Corporation's Stock Option Plans) and Convertible Securities,not including any Series B Shares or Warrants, which were outstanding, or whichthe Corporation had agreed to issue, at the Closing Time and disclosed on aschedule to the Purchase Agreement.

"Fair Market Value" means, in respect of any security, asset orother property, the price at which a willing seller would sell and a willingbuyer would buy such security, asset or other property having full knowledge ofthe facts, in an arm's-length transaction without time constraints, and withoutbeing under any compulsion to buy or sell. The Fair Market Value of a share ofCommon Stock as of any time shall be equal to the Current Market Price in effectat the time of determination. The Fair Market Value of the Corporation shall bedetermined on a going concern basis, and on the basis that the management andother key employees of the Corporation and its subsidiaries will continue to beemployed indefinitely and without treating as liabilities the amount, if any,payable or which may be payable by the Corporation pursuant to theindemnification provisions of the Purchase Agreement.

"Guarantee" means, as applied to any obligation, (i) a guarantee(other than by endorsement of negotiable instruments for collection in theordinary course of business), direct or indirect, in any manner, of any part orall of such obligation and (ii) an agreement, direct or indirect, contingent orotherwise, the practical effect of which is to assure in any way the payment orperformance (or payment of damages in the event of non-performance) of all orany part of such obligation, including, without limiting the foregoing, thepayment of amounts drawn down by letters of credit.

"Holder" means (whether or not capitalized) a Person in whose nameany Series B Share is registered on the books of the Corporation maintained forsuch purpose.



"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of1976, as amended, and the rules and regulations promulgated thereunder.

"Indenture" means the Indenture, dated as of April 2, 1998, betweenthe Corporation and Norwest Bank Colorado, N.A., a national banking association,as Trustee (the "Trustee"), as in effect at the date hereof, regardless of anysubsequent amendment, modification, termination or expiration thereof.

"Indebtedness" means, with respect to any Person, withoutduplication, (i) all obligations of such Person for money borrowed, (ii) allobligations of such Person evidenced by bonds, debentures, notes, or othersimilar instruments, (iii) all obligations of such Person upon which interestcharges are customarily paid, (iv) all obligations of such Person underconditional sale or other title retention agreements relating to property orassets purchased by such Person, (v) all obligations of such Person issued orassumed as the deferred purchase price of property or services

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(excluding (x) trade accounts payable and accrued obligations incurred in theordinary course of business and (y) deferred earn-out and other performance-based payment obligations incurred in connection with any Permitted Acquisition(as such term is defined in the Indenture as in effect on the date of thePurchase Agreement)), (vi) all Indebtedness of others secured by (or for whichthe holder of such Indebtedness has an existing right, contingent or otherwise,to be secured by) any Lien on property owned or acquired by such Person, whetheror not the obligations secured thereby have been assumed, (vii) all Guaranteesby such Person of Indebtedness of others, (viii) all capital lease obligationsof such Person, (ix) all obligations (determined on the basis of actual, notnotional, obligations) of such Person in respect of interest rate protectionagreements, foreign currency exchange agreements or other interest or exchangerate hedging arrangements and (x) all obligations of such Person as an accountparty in respect of letters of credit and bankers' acceptances issued in supportof obligations that constitute Indebtedness under any other clause of thisdefinition (unless such obligations are fully cash collateralized).

"Insolvency Law" means the Bankruptcy Code and any other law,foreign, federal or state, relating to bankruptcy, receivership, reorganization,insolvency, adjustment, compromise or extension of debt or other relief of adebtor from creditors.

"Investor Rights Agreement" means the Investor Rights Agreement,dated as of the Closing Date, among the Corporation and the Purchasers, as itmay be further amended from time to time in accordance with its terms.

"Junior Stock" means (i) each class or series of Common Stock, (ii)any other class or series of capital stock of the Corporation hereafter created,other than (A) any class or series of Parity Stock (except to the extentprovided under clause (iii) of this sentence) and (B) any class or series ofSenior Stock (except to the extent provided under clause (iii) of this



sentence), and (iii) any class or series of Parity Stock or Senior Stock to theextent that it ranks junior to the Series B Preferred Stock as to dividendrights, rights of redemption or rights on liquidation, as the case may be. Forpurposes of clause (iii) above, a class or series of Parity Stock or SeniorStock shall rank junior to the Series B Preferred Stock as to dividend rights,rights of redemption or rights on liquidation if the holders of shares of SeriesB Preferred Stock shall be entitled to dividend payments, payments on redemptionor payments of amounts distributable upon dissolution, liquidation or winding upof the Corporation, as the case may be, in preference or priority to the holdersof shares of such class or series.

"Lien" means any mortgage, charge, pledge, lien (statutory orother), security interest, hypothecation, assignment for security, claim, orpreference or priority or other encumbrance upon or with respect to any propertyof any kind. A Person shall be deemed to own subject to a Lien any propertywhich such Person has acquired or holds subject to the interest of a vendor orlessor under any conditional sale agreement, capital lease or other titleretention agreement.

"Liquidation Price" means, with respect to any share of Series BPreferred Stock as of any date of determination, the amount equal to the StatedValue of such share, plus the aggregate

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amount of all other accumulated and unpaid dividends on such share, includingany Arrearage (whether or not earned or declared and whether or not there areunrestricted funds of the Corporation legally available for the payment ofdividends), if any, as of such date of determination.

"Majority Holders" or "Holders of a majority of the shares of SeriesB Preferred Stock" means, as of any time, the holder or holders of record ofmore than fifty percent (50%) of the Series B Shares then outstanding.

"Make-Whole Premium" means, with respect to the Series B Shares atany Redemption Date, the aggregate present value of all required interestpayments due on such Series B Shares through the Scheduled Redemption Date,computed using a discount rate equal to the Treasury Rate plus 100 basis points.

"Notes" means the Corporation's 13% Series B Senior Notes due 2008issued under the Indenture.

"Originally Issued Shares" means, as of any time, the aggregatenumber of Conversion Securities represented by the Series B Shares issued to TPGon the Closing Date, as such aggregate number shall have from time to time beencumulatively adjusted as a result of the operation of Section 9 and Section 10through such time.

"Outstanding Common Shares" means, as of any time, all issued andoutstanding shares of Common Stock as of such time, except shares then owned or



held by or for the account of the Corporation or any subsidiary thereof.Outstanding Common Shares shall not include any shares issuable upon exercise,conversion or exchange of any Rights or Convertible Securities or the Series BPreferred Stock or issuable in payment of any dividend or other distributionwhich has been declared but not actually paid, nor any other shares which havenot actually been issued.

"Parity Stock" means each class or series of capital stock of theCorporation, if any, hereafter created with the approval of the Majority Holdersand ranking on a parity basis with the Series B Preferred Stock as to any of thefollowing: dividends, rights of redemption or rights on liquidation. Capitalstock of any class or series shall rank on a parity as to dividends, rights ofredemption or rights on liquidation with shares of Series B Preferred Stock,whether or not the dividend rates, dividend payment dates, redemption orliquidation prices per share or sinking fund provisions, if any, are differentfrom those of the Series B Preferred Stock if the holders of such stock shall beentitled to the receipt of dividends, amounts distributable upon dissolution,liquidation or winding up of the Corporation or redemption payments, as the casemay be, in proportion to their respective dividend rates, liquidation prices orredemption prices, respectively, without preference or priority, one over theother, as between the holders of such stock and the holders of shares of theSeries B Preferred Stock. No class or series of capital stock that ranks juniorto the Series B Preferred Stock as to rights on liquidation shall rank or bedeemed to rank on a parity basis with the Series B Preferred Stock as todividend rights or rights of redemption, unless the instrument creating orevidencing such class or series of capital stock otherwise expressly provides.

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"Permitted Holders" means (i) John R. Evans, Keith V. Burge andPhilip G. Allen and their spouses, issue or other members of their immediatefamilies (the "Evans Family," the "Burge Family" and the "Allen Family,"respectively), (ii) trusts or other entities created for the benefit of anymember of the Evans Family, the Burge Family or the Allen Family, (iii) entitiescontrolled by any of the Evans Family, the Burge Family or the Allen Family,(iv) in the event of the death of any member of the Evans Family, the BurgeFamily or the Allen Family, the heirs or testamentary legatees of such member ofthe Evans Family, the Burge Family or the Allen Family and (v) TPG.

"Person" means any individual, corporation, limited liabilitycompany, general or limited partnership, joint venture, association, joint stockcompany, trust, unincorporated business or organization, government or agency orpolitical subdivision thereof, or other entity, whether acting in an individual,fiduciary or other capacity.

"Preferred Interest" as applied to the equity interests of anyPerson means equity interests of any class or classes (however designated) whichare preferred as to the payments of dividends or distributions, as to rights ofredemption or as to the distribution of assets upon any voluntary or involuntaryliquidation or dissolution of such Person, over equity interests of any other



class of such Person.

"Purchase Agreement" means the Securities Purchase Agreement, datedas of April 4, 2000, between the Corporation and the Purchasers, as the same maybe amended from time to time in accordance with its or their respective termsand with the prior written consent of the Majority Holders.

"Purchasers" mean TPG, Sandler Capital and any of their respectiveAffiliates, successors or permitted assignees under the Purchase Agreement.

"Rate of Return" shall, for any Purchaser, mean a rate of return ofthe applicable percentage per annum on the aggregate purchase price paid for theSeries B Shares purchased by such Purchaser, compounded monthly, taking intoaccount the timing and amounts of all distributions attributable to such SeriesB Shares. For purposes of calculating such Rate of Return, any distributionsreceived by such Purchaser during any month shall be deemed to have beenreceived on the last day of such month.

"Redeemable Stock" has the meaning set forth in Section 10.3(c).

"Redemption Agent" has the meaning set forth in Section 6.7.

"Redemption Date" as to any share of Series B Preferred Stock shallmean:

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(i) in the case of a redemption pursuant to Section 6.1, theScheduled Redemption Date;

(ii) in the case of a redemption pursuant to Section 6.2 orSection 6.3, the date determined pursuant to such Section; or

(iii) in the case of a redemption pursuant to Section 6.4, thedate after the fifth anniversary of the Closing Date specified in the notice ofredemption given in accordance with Section 6.6;

provided that, for purposes of all provisions of these Articles, including anyprovision under which any Series B Share is stated to cease to be outstanding orconvertible on or as of the Redemption Date or any date determined by referenceto the Redemption Date, in none of the foregoing cases shall such date be aRedemption Date unless (A) the applicable Redemption Price is actuallyindefeasibly paid in full on such date or (B) such date is a Business Day andthe consideration sufficient for the payment thereof, and for no other purpose,has been indefeasibly deposited in a trust fund with the Redemption Agent, withirrevocable instructions and authority to the Redemption Agent to pay theRedemption Price, all in accordance with Section 6.7, and if the RedemptionPrice is not so indefeasibly paid in full or the consideration sufficienttherefor is not so indefeasibly deposited, then the Redemption Date will be thedate on which such Redemption Price is indefeasibly and fully paid or the first



Business Day on which the consideration sufficient for the payment thereof, andfor no other purpose, has been so indefeasibly deposited, except that thisproviso is not intended to eliminate, qualify, modify or limit the rights of theholders of the Series B Preferred Stock under any provision of these Articles,or any other rights or remedies which such holders may have at law, in equity orby contract in the event of the failure of the Corporation to redeem shares ofSeries B Preferred Stock as and when required by these Articles.

"Redemption Price" means, as to any share of Series B PreferredStock that is to be redeemed on any Redemption Date pursuant to Section 6.1,Section 6.2, Section 6.3 or Section 6.4, the Redemption Price of such sharedetermined pursuant to such Section.

"Reference Price" means, as of any time, the higher of (x) theConversion Price then in effect or (y) the Current Market Price per share of theCommon Stock determined as of such time.

A "Reorganization Event" shall be deemed to have occurred upon thehappening of any of the following:

(i) the appointment of a receiver or trustee to administer allor a substantial portion of the Corporation or any material Subsidiary's assetswhich shall remain in effect for 60 days;

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(ii) the filing by the Corporation or any material Subsidiaryof a voluntary petition for relief under any Insolvency Law or of a pleading inany court of record admitting in writing its inability to pay its debts as theybecome due;

(iii) the making by the Corporation or any material Subsidiaryof a general assignment for the benefit of creditors;

(iv) the filing by the Corporation or any material Subsidiaryof an answer admitting the material allegations of, or its consenting to ordefaulting in answering, a petition for relief filed against it in anyproceeding under any Insolvency Law; or

(v) the entry of an order, judgment or decree by any court ofcompetent jurisdiction granting relief against the Corporation or any materialSubsidiary in an involuntary proceeding under any Insolvency Law and thecontinuance of any such decree or order for relief unstayed and in effect for aperiod of 60 consecutive days.

"Restricted Subsidiary" means any Subsidiary of the Company that hasnot been designated by the Board, by a Board Resolution delivered to theTrustee, as an Unrestricted Subsidiary pursuant to and in compliance withSection 1017 of the Indenture. Any such Designation may be revoked by a BoardResolution delivered to the Trustee, subject to the provisions of such covenant.



"Rights" means any options, warrants or other rights (exceptConvertible Securities, the Series B Preferred Stock and the Warrants), howeverdenominated, to subscribe for, purchase or otherwise acquire any Common Stock orConvertible Securities, with or without payment of additional consideration incash or property, either immediately or upon the occurrence of a specified dateor a specified event or the satisfaction or happening of any other condition orcontingency.

"Sale of the Company" means any of the following:

(i) any Change of Control; or

(ii) the Corporation, in one or more transactions, sells,assigns, conveys, transfers, leases or otherwise disposes of all orsubstantially all of its assets to any Person or Persons; or

(iii) the Corporation consolidates with, or merges with or into,another Person, sells, assigns, conveys, transfers, leases or otherwise disposesof all or substantially all of its assets directly or indirectly to any Person,or any person consolidates with, or merges with or into, the Corporation, in anysuch event pursuant to a transaction in which the outstanding Common Stock ofthe Corporation is converted into or exchanged for cash, securities, equityinterests or other property and immediately after such transaction the Personswho were the Beneficial Owners of the outstanding Common Stock of theCorporation immediately prior to such transaction are not the

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Beneficial Owners, directly or indirectly, of more than 50% of the combinedvoting power represented by all then outstanding common stock of the survivingor transferee Person; or

(iv) any Reorganization Event.

"Sandler Capital" means Sandler Capital Partners IV, L.P., SandlerCapital Partners IV FTE, L.P., Sandler Capital Partners V, L.P. and theirAffiliates.

"Scheduled Redemption Date" means April 18, 2010, the tenthanniversary of the Closing Date.

"Securities Act" means the Securities Act of 1933, as amended, andthe rules and regulations of the Commission thereunder.

"Senior Stock" means each class or series of capital stock of theCorporation, if any, hereafter created with the approval of the Majority Holdersand ranking prior to the Series B Preferred Stock as to dividends, rights ofredemption or rights on liquidation, as the case may be. Capital stock of anyclass or series shall rank prior to the Series B Preferred Stock as to



dividends, upon redemption or upon liquidation if the holders of such class orseries shall be entitled to the receipt of dividends, payments on redemption orpayments of amounts distributable upon the dissolution, liquidation or windingup of the Corporation, as the case may be, in preference or priority to theholders of shares of Series B Preferred Stock. No class or series of capitalstock that ranks junior to or on parity with the Series B Preferred Stock as torights on liquidation shall rank or be deemed to rank as senior to the Series BPreferred Stock as to dividend rights or rights of redemption, unless theinstrument creating or evidencing such class or series of capital stockotherwise expressly provides.

"Series B Articles of Amendment" means the Articles of Amendment tothe Amended and Restated Articles of Incorporation of the Corporation settingforth the resolution of the Board creating and authorizing the issuance of theSeries B Preferred Stock and filed with the Colorado Secretary of State pursuantto the Colorado Business Corporation Act or any successor provisions of theCorporation's Articles of Incorporation, as the same may have been amended priorto or concurrently with the Closing Time and thereafter may be amended.

"Series B Director" means each director of the Corporation (i)designated by TPG as a "Series B Director" under the Investor Rights Agreementor (ii) who is a Designated Director.

"Series B Preferred Stock" has the meaning set forth in Section 1.1.

"Series B Share" means any issued and outstanding share of Series BPreferred Stock. In no event shall shares of Series B Preferred Stock owned orheld by or for the account of the Corporation or any Subsidiary be deemed to beissued and outstanding for any purpose.

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"Stated Value" means, with respect to each share of Series BPreferred Stock, the amount of One Thousand Dollars.

"Stock Option Plans" has the meaning given to such term within thedefinition of Employee Option, as set forth above.

"Subsidiary" means, as of any time, each Entity as to which any ofthe following statements is true as of such time:

(i) such Entity is an Affiliate of the Corporation which iscontrolled by the Corporation, or

(ii) the Corporation owns or controls, directly or indirectlythrough one or more intermediaries, 50% or more of the outstanding equityinterests in such Entity having ordinary voting power to elect a majority of themembers of the Board or joint venture, partnership or other managementcommittee, trustees, managers or other Persons ordinarily having the power,authority or responsibility for managing or directing the management of such



Entity, or

(iii) the Corporation, directly or indirectly through one ormore intermediaries, is entitled under ordinary circumstances to 50% or more ofthe profits or losses of such Entity or to receive upon dissolution andliquidation of such Entity 50% or more of the assets available for distributionto the holders of equity interests in such Entity, or

(iv) such Entity is a partnership (general or limited) or otherunincorporated Entity and the Corporation or another Subsidiary (i) is a generalpartner thereof or acts in a similar capacity with respect thereto or (ii) hasliability for the debts and obligations thereof over and above its investmenttherein.

"TPG" means TPG Partners III, L.P., T3 Partners, L.P. and theirAffiliates and designated assignees under the Purchase Agreement.

"Treasury Rate" means the yield to maturity at the time ofcomputation of United States Treasury securities with a constant maturity (ascompiled and published in the most recent Federal Reserve Statistical ReleaseH.15 (519) which has become publicly available at least two business days priorto the Redemption Date (or, if such Statistical Release is no longer published,any publicly available source or similar market data)) most nearly equal to theperiod from the Redemption Date through the Scheduled Redemption Date; provided,however, that if the period from the Redemption Date to the Scheduled RedemptionDate is not equal to the constant maturity of a United States Treasury securityfor which a weekly average yield is given, the Treasury Rate shall be obtainedby linear interpolation (calculated to the nearest one-twelfth of a year) fromthe weekly average yields of United States Treasury securities for which suchyields are given, except that if the period from the Redemption Date through theScheduled Redemption Date is less than one year, the weekly average yield onactually traded United States Treasury securities adjusted to

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a constant maturity of one year shall be used.

"Trustee" means the trustee under the Indenture.

"Warrant Agreement" means the Warrant Agreement, dated as of theClosing Date, between the Corporation and the Purchasers, as it may be amendedfrom time to time in accordance with its terms.

"Warrant Shares" means the shares of Common Stock issued or issuableupon exercise of the Warrants.

"Warrants" means the Warrants to purchase shares of Common Stockissued and sold by the Corporation to, and purchased by, the Purchasers pursuantto the Purchase Agreement and the Warrant Agreement.



"Wholly Owned Subsidiary" means an Entity all of the equityinterests of which at the time are owned beneficially and of record by theCorporation, one or more Wholly Owned Subsidiaries of the Corporation or theCorporation and one or more Wholly Owned Subsidiaries of the Corporation.

Section 3. Rank; Certain Restrictions; Fractional Shares; Certain Notices to beGiven; Actions to Facilitate Redemption.

3.1 Rank. The Series B Preferred Stock shall, with respect todividend rights, rights on liquidation, winding up and dissolution and rightsupon redemption, rank prior to (i) the Common Stock and (ii) any other class orseries of capital stock of the Corporation, whether now existing or hereaftercreated, except (in the case of this clause (ii) only) any class or series ofParity Stock or Senior Stock hereafter created and issued with the priorapproval of the Majority Holders, to the extent otherwise provided for by theterms of such other class or series of Parity Stock or Senior Stock set forth inthe instrument creating and authorizing such Parity Stock or Senior Stock,provided that such terms shall have been furnished in writing to and approved bythe Majority Holders.

3.2 Certain Restrictions on Payments in Respect of Capital Stock.Except if and to the extent expressly authorized by or provided in Section 3.4or Section 3.5 or with the prior approval of the Majority Holders so long as anySeries B Preferred Stock is outstanding, the Corporation shall not, directly orindirectly through any Subsidiary:

(i) declare or pay dividends on, or declare or make any otherdistribution, whether in cash, property, securities or any other form ofconsideration, to the holders of or otherwise with respect to, the Common Stockor any other class or series of capital stock of the Corporation now existing orhereafter created other than the Series B Preferred Stock;

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(ii) redeem, purchase or otherwise acquire for cash, property,securities or any other form of consideration any outstanding shares of CommonStock or any other class or series of capital stock of the Corporation nowexisting or hereafter created other than the Series B Preferred Stock;

(iii) redeem, purchase or otherwise acquire for cash, property,securities or any other form of consideration any Series B Shares otherwise thanin accordance with the terms of these Articles, but conversion of any Series BShares in accordance with the terms of these Articles shall not be deemed to bea redemption, purchase or other acquisition subject to this clause; or

(iv) set aside, pursuant to a sinking fund or otherwise, anycash, property, securities or other form of consideration for any of theforegoing purposes.

3.3 Pro Rata Redemptions and Purchases. If any date or event shall



occur that requires the Corporation to redeem any Series B Shares and theCorporation has insufficient legally available funds to redeem all Series BShares required to be redeemed, then: (i) the Corporation shall give writtennotice to such effect to the holders of Series B Shares as soon as practicable(and in any event not later than ten Business Days) prior to the applicableredemption date; and (ii) subject to the third sentence of this subsection, (A)the funds legally available for such purpose shall be applied to redeem theSeries B Shares then required to be redeemed ratably in proportion to therespective full amounts to which the holders of the Series B Shares would beentitled if the Corporation had sufficient legally available funds to redeem allSeries B Shares then required to be redeemed and (B) as and when the Corporationhas additional legally available funds, it shall apply such funds to redeem thebalance of the Series B Shares so required to be redeemed proportionately asprovided above in this sentence. In the event of any such partial redemption,the Series B Shares to be redeemed shall be selected on a pro rata basis fromamong all holders of the Series B Shares. At any time after a notice from theCorporation is given pursuant to the first sentence of this subsection andbefore the applicable redemption date, the Majority Holders may notify theCorporation in writing that such Majority Holders object to partial redemptionsas provided in the first sentence of this subsection. If such a writtenobjection is given, the Corporation shall not make any such redemption of anySeries B Shares unless or until it is otherwise instructed in writing by theMajority Holders. Nothing contained in this Section 3.3 is intended toeliminate, qualify, modify or limit the rights of the holders of any Series BShares under any provision of these Articles, including Section 3.8, at law, inequity, by contract or otherwise in the event of the failure of the Corporationto redeem any Series B Shares as and at the times that would be required but forthe provisions of this Section 3.3.

3.4 Restriction on Dividends, Redemptions, Etc. by Subsidiaries.So long as any shares of Series B Preferred Stock shall be outstanding, withoutthe prior approval of the Majority Holders, the Corporation will not permit anySubsidiary to declare or pay any dividend on or declare or make any otherdistribution to any holder or holders of or otherwise with respect to any equityinterest in such Subsidiary (whether in cash, property, securities or any otherform of consideration) nor redeem, purchase or otherwise acquire for cash,property or any other form of consideration any

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equity interest in such Subsidiary. Neither this Section 3.4 nor Section 3.2hereof shall (i) restrict investments by any Restricted Subsidiary in theCorporation or another Restricted Subsidiary or (ii) restrict the payment by anyRestricted Subsidiary of dividends and other distributions solely in respect of,and redemptions, purchases and other acquisitions solely of, equity interests insuch Restricted Subsidiary owned by the Corporation or any other RestrictedSubsidiary or (iii) so long as any Notes are outstanding, impose upon anyRestricted Subsidiary any restriction prohibited by Section 1016 of theIndenture. The Corporation will not, without the prior approval of the MajorityHolders, permit any of the Subsidiaries to issue any Preferred Interest other



than issuances by a Restricted Subsidiary to the Corporation or anotherRestricted Subsidiary.

3.5 Certain Exceptions.

(a) Senior and Parity Stock Created with Consent of Series BDirectors. If, after the Closing Date, the Corporation, with the prior approvalof the Series B Directors, creates and issues any class or series of ParityStock or Senior Stock, the restrictions contained in Section 3.2 shall besubject to such exceptions, if any, expressly provided for by the terms of suchParity Stock or Senior Stock set forth in the instrument creating andauthorizing such Parity Stock or Senior Stock.

(b) Certain Payments on Junior Stock. (i) The Corporation may paycash in lieu of fractional shares of Common Stock pursuant to the Warrants orthe terms of Existing Rights as in effect on the Closing Date; (ii) theCorporation may repurchase shares of capital stock in connection with cashlessexercises of the Warrants or Convertible Securities (provided that suchrepurchase does not result in any actual payment of cash, securities or otherproperty to the holders of such Warrants or Convertible Securities (other thanissuance of the Junior Stock deliverable by virtue of such exercise)); and (iii)provided that the Corporation is in compliance with all of its obligations underthese Articles, the Corporation may repurchase or otherwise acquire for valueshares of Common Stock of the Corporation or any options or rights to acquireCommon Stock of the Corporation owned by any director, officer or employee ofthe Corporation or its Subsidiaries pursuant to any management equitysubscription agreement or similar agreement, or otherwise upon the death,disability, retirement or termination of employment or departure from the Board,provided, that for purposes of this clause (iii), the aggregate price paid forall such repurchased, redeemed, acquired or retired Common Stock of theCorporation or options shall not exceed in the aggregate $500,000 in anycalendar year.

3.6 Fractional Shares. Fractional shares of Series B PreferredStock may be issued, either upon original issuance pursuant to the PurchaseAgreement or otherwise as permitted by Section 1.2, or from time to timethereafter upon transfers, exchanges or partial conversions or redemptions ofoutstanding shares (or fractional shares) thereof or certificates therefor. Eachfractional share of Series B Preferred Stock, if any, outstanding shall beentitled to ratably proportionate rights, powers, privileges, benefits andpreferences, and be subject to the same qualifications, limitations andrestrictions, as a whole share of the Series B Preferred Stock, includingconversion rights.

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3.7 Certain Notices and Other Obligations Relating to Change ofControl or Sale of the Company.

(a) Notices.



(i) If the Corporation agrees or the Board passes a resolutionauthorizing the Corporation to voluntarily consummate or take, or assist any oneor more of the holders of its Common Stock in consummating or taking, anytransaction or action which would, if consummated, result in a Change of Controlor Sale of the Company, or if the Corporation receives formal written noticethat any Person has engaged or is proposing to engage in any such transactionwhich would, if consummated, result in a Change of Control or Sale of theCompany, then it shall send to each holder of Series B Preferred Stock, at least30 days prior to the scheduled or anticipated closing of such transaction or thetaking of such action (or, in the case where the Corporation receives formalwritten notice of such transaction, immediately upon receiving such formalwritten notice if such notice is received less than 30 days prior to thescheduled or anticipated closing of such transaction), a written notice whichwill summarize the material terms of such transaction or action, and if any ofsuch terms change in any material respect prior to such closing, the Corporationshall promptly notify the holders of the Series B Preferred Stock in writing.

(ii) If any Change of Control or Sale of the Company occurs,the Corporation shall give the holders of the Series B Preferred Stock writtennotice thereof promptly, and in any event not later than the fifth Business Dayafter the Corporation has knowledge of such occurrence, and such notice shallsummarize the material facts relating to such event or transaction.

(iii) If Section 6.2 applies, each notice given by theCorporation pursuant to Section 3.7(a)(ii) shall be accompanied by anappropriate form (an "Election Form") by which the holders of the Series BPreferred Stock may elect whether or not to require the Corporation to redeemtheir shares of the Series B Preferred Stock in accordance with the terms ofSection 6.2.

(b) Redemption Election. If Section 6.2 applies, and, at any timewithin a period of 30 days after Election Forms are mailed, the Corporationshall have received completed Election Forms from the Majority Holders electingto require the Corporation to redeem the Series B Shares held by them, theCorporation shall upon the consummation of such transaction redeem from allholders of Series B Preferred Stock, in accordance with Section 6.2 and theother applicable provisions of these Articles, all outstanding shares of SeriesB Preferred Stock; provided, however, that the Corporation shall not, at anytime that no Notes are outstanding, voluntarily consummate, or assist any of theholders of its Common Stock in consummating, any transaction which would resultin a Change of Control unless (i) prior to the date such transaction isconsummated, the procedures specified in this Section 3.7 shall have beenfollowed and the period of 30 days referred to in this sentence shall haveexpired; (ii) if the Corporation would be required to redeem all shares ofSeries B Preferred Stock by virtue of such Change of Control, the Corporationshall have deposited with a Redemption Agent funds sufficient to redeem on theapplicable redemption date all Series B Shares required to be redeemed at theapplicable Redemption Price; and (iii) the

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Corporation shall have given written notice of its compliance with clause (ii)of this sentence to each holder of Series B Preferred Stock.

(c) Successive Events. The provisions of this Section 3.7 shallapply successively to each Change of Control or Sale of the Company which mayoccur.

3.8 Actions to Facilitate Required Redemptions.

(a) Company Obligations. If, at any time that any redemption ofany share of Series B Preferred Stock is, or with the passage of time after anynotice will be, required by any provision of these Articles, the Corporation isin material violation or breach of the terms of any material indebtedness of theCorporation or a default or event of default with respect to or under anymaterial indebtedness of the Corporation exists and has not been waived orcured, if the Corporation is insolvent under applicable law, or if theCorporation's capital is impaired under the law of the jurisdiction ofincorporation, or if any such violation, breach, default, event of default,insolvency or impairment of capital or any material violation of law wouldresult from such redemption, then the Corporation shall (i) promptly givewritten notice to such effect to the holders of the Series B Preferred Stock and(ii) subject to the terms of the Indenture, take all reasonable lawful actionsto cure or avoid such violation, breach, default or event of default, to restoreor preserve its solvency or to cure or avoid such impairment of capital, in eachcase as necessary to enable the Corporation to make such redemption to thefullest extent possible.

(b) Other Rights of Holders. Nothing contained in this Section 3.8is intended to eliminate, qualify, modify or limit the rights of the holders ofthe Series B Preferred Stock under any provision of these Articles, or any otherrights or remedies which such holders may have at law, in equity or by contractin the event of the failure of the Corporation to redeem shares of Series BPreferred Stock as and when required by these Articles.

Section 4. Dividends.

4.1 Fixed Rate Dividends.

(a) Dividend Rate; Compounding of Dividends. The holders of theSeries B Preferred Stock shall be entitled to receive, when, as and if declaredby the Board, out of funds legally available therefor, cumulative cashdividends, in preference and priority to dividends on any Junior Stock, thatshall accrue on the Stated Value of each share of the Series B Preferred Stockat the Dividend Rate from time to time in effect, from and including the ClosingDate of such share to and including the date on which such share ceases to beoutstanding in accordance with the terms of these Articles. Dividends shall bepayable in four equal quarterly installments on the last day of March, June,September and December of each year, or if any such date is not a Business Day,on the Business Day next preceding such day (each such date, regardless ofwhether any dividends have been paid or declared and set aside for payment on



such date, a "Dividend Payment Date"), to holders of record as they appear onthe stock record books of the Corporation on the fifteenth day

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prior to the relevant Dividend Payment Date; provided, however, that theCorporation may elect not to declare or make any dividend payment due hereunderon any Dividend Payment Date (other than as required in connection with anyredemption of shares of Series B Preferred Stock or any liquidation, dissolutionor winding up of the Corporation), and any such amount then due in respect ofdividends shall constitute an Arrearage (as defined below). Dividends shall bepaid only when, as and if declared by the Board out of funds at the time legallyavailable for the payment of dividends. Dividends shall begin to accumulate onoutstanding shares of Series B Preferred Stock from the date of issuance andshall be deemed to accumulate from day to day whether or not earned or declareduntil paid. Dividends shall accumulate on the basis of a 360-day year consistingof twelve 30-day months (four 90-day quarters) and the actual number of dayselapsed in the period for which payable.

(b) Compounding of Fixed Rate Dividends. Dividends on the Series BPreferred Stock shall be cumulative, and from and after any Dividend PaymentDate on which any dividend that has accumulated or been deemed to haveaccumulated through such date, whether or not declared, has not been paid infull, additional dividends shall accumulate in respect of the amount of suchunpaid dividends (such amount, the "Arrearage") at the Dividend Rate (or suchlesser rate as may be the maximum rate that is then permitted by applicablelaw). Such additional dividends in respect of any Arrearage shall be deemed toaccumulate from day to day whether or not earned or declared until the Arrearageis paid, shall be calculated as of such successive Dividend Payment Date andshall constitute an additional Arrearage from and after any Dividend PaymentDate to the extent not paid on such Dividend Payment Date. Unless the contextrequires otherwise, references in any Article herein to dividends that haveaccumulated or that have been deemed to have accumulated with respect to theSeries B Preferred Stock shall include the amount, if any, of any Arrearagetogether with any dividends accumulated or deemed to have accumulated on suchArrearage pursuant to the immediately preceding two sentences.

(c) Payment and Record Dates. Dividends paid on the shares ofSeries B Preferred Stock in an amount less than the total amount of suchdividends at the time accumulated and payable on all outstanding shares ofSeries B Preferred Stock shall be allocated pro rata on a share-by-share basisamong all such shares then outstanding. Dividends that are declared and paid inan amount less than the full amount of dividends accumulated on the Series BPreferred Stock (and on any Arrearage) shall be applied first to any currentdividend that has not become an Arrearage. All cash payments of dividends on theshares of Series B Preferred Stock shall be made in such coin or currency of theUnited States of America as at the time of payment is legal tender for paymentof public and private debts.

4.2 Participating Dividend Rights.



(a) Right to Participating Dividends. Subject to the priorpreferences and other rights of any Senior Stock ranking prior to the Series BPreferred Stock with respect to dividends and the provisions of Section 3 andSection 4.2(b), if the Corporation shall at any time or from time to timedeclare or pay any dividend or declare or make any distribution, whether payablein cash or in

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assets, securities (whether issued by the Corporation or another Person, butother than Common Stock) or any other form of property or consideration otherthan cash, on the Common Stock of any class or series into which the Series BPreferred Stock is then convertible, the holders of Series B Preferred Stockshall be entitled to receive, when, as and if declared by the Board and fromassets of the Corporation legally available therefor, a dividend or distributionper Series B Share in like kind and equal to the amount of such cash or suchassets, securities or any other form of property or consideration (as the casemay be) declared, paid or made with respect to a number of shares of such classor series of Common Stock equal to the number of shares of such class or seriesinto which a share of Series B Preferred Stock may be converted as of the datesuch dividend on the Series B Preferred Stock is paid. If, in connection withany such dividend or distribution declared or paid or made on any such class orseries of Common Stock, the holders of such class or series are given anyelection with respect to the form of consideration to be received, the sameright of election shall be given to the holders of the Series B Preferred Stockwith respect to the corresponding dividend or distribution on the Series BPreferred Stock. The Board shall declare a dividend or distribution on theSeries B Preferred Stock as contemplated by this Section 4.2(a) immediatelyprior to the time it declares a dividend or distribution on the Common Stock.

(b) Coordination With Conversion Right. To the extent that Section10 provides for an adjustment to the Conversion Price by reason of any dividendor distribution of cash or property other than Common Stock on any class orseries of Common Stock referred to in Section 4.2(a), the Majority Holders shallhave the right to elect either (i) to require the corresponding dividend ordistribution on the Series B Preferred Stock contemplated by Section 4.2(a) tobe declared and paid or made as provided herein, in which case such adjustmentto the Conversion Price shall not be made to such extent or (ii) to requiresuch adjustment to the Conversion Price to be made, in which case suchcorresponding dividend or distribution on the Series B Preferred Stock shall notbe declared and paid or made to such extent. The election of the MajorityHolders shall bind all holders of Series B Shares. In declaring, making andpaying dividends and distributions on the Common Stock as to which such right ofelection exists, the Corporation shall provide the holders of the Series BShares with reasonable advance notice and forms of election, and shall otherwiseact in good faith, so that such holders may effectively exercise all rights ofelection provided for in this Section on a timely basis.

(c) Record and Payment Dates. The Board may fix a record date for



the determination of holders of Series B Preferred Stock entitled to receive adividend or distribution pursuant to Section 4.2(a), which date shall be thesame as the record date for the corresponding dividend or distribution on theCommon Stock. The payment date for any such dividend or distribution shall beon or before the payment date for the corresponding dividend or distribution onthe Common Stock.

(d) Dividends Are Preferred and Fully Cumulative. Dividends onthe Series B Preferred Stock provided for in Section 4.2(a) shall be payableprior and in preference to any dividends or distributions to the holders of anyJunior Stock, and, if not paid, shall be fully cumulative, whether or notdeclared.

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4.3 No Offset; Accrued Dividends. None of the accrual, declarationor payment of dividends provided for in Section 4.1 shall reduce or otherwiseaffect the amount, or the accrual or payment, of dividends to which the holdersof the Series B Preferred Stock shall from time to time be or become entitledunder Section 4.2. Similarly, none of the accrual, declaration or payment ofdividends provided for in Section 4.2 shall reduce or otherwise affect theamount, or the accrual or payment, of dividends to which the holders of theSeries B Preferred Stock shall from time to time be or become entitled underSection 4.1. The amount of dividends "accrued (or accumulated) and unpaid" withrespect to any share of Series B Preferred Stock as of any date shall include(i) all dividends and dividends on dividends provided for in Section 4.1(whether or not declared) that have accrued on such share as provided in suchSection to and including such date of determination that have not been paid asof such date and (ii) all dividends on such share provided for in Section 4.2that have been declared but not been paid as of such date.

Section 5. Distributions Upon Liquidation, Dissolution or Winding Up.

5.1 Payment of Preference Amount.

(a) Liquidation Preference. Subject to the prior preferences andother rights of any Senior Stock ranking prior to the Series B Preferred Stockwith respect to rights upon liquidation, dissolution or winding up of theCorporation, in the event of any liquidation, dissolution or winding up of theCorporation, whether voluntary or involuntary, the holders of shares of theSeries B Preferred Stock shall be entitled to receive from the assets of theCorporation available for distribution to stockholders after payment of allother debts and obligations of the Corporation, before any payment ordistribution on any Junior Stock is declared, made or provided for or any cash,property or other consideration shall be set aside for such purpose, cash in anamount per share of Series B Preferred Stock equal to the Liquidation Price ofsuch share determined as of the Determination Time (as defined below in thisSection). The "Determination Time" shall be immediately prior to the recorddate for such distribution to the holders of such class or series of CommonStock or, if no such record date is fixed, immediately prior to any other time



as of which the holders of such class or series of Common Stock entitled toreceive such distribution is determined. In connection with any liquidation,dissolution or winding up of the Corporation, whether voluntary or involuntary,after payment in full to the holders of the Series B Preferred Stock and theholders of all other classes or series of Parity Stock, if any, which rank on aparity basis with the Series B Preferred Stock with respect to distributionsupon such liquidation, dissolution or winding up of the respective preferentialamounts to which they are entitled, the Corporation shall distribute itsremaining assets and properties available for distribution to the holders ofCommon Stock and the Series B Preferred Stock, with the distribution to holdersof the Series B Preferred Stock being in like kind and equal to the amount ofassets and property distributed with respect to a number of shares of CommonStock equal to the number of shares of Common Stock into which a share of SeriesB Preferred Stock may be converted.

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(b) Elections. If, in connection with any distribution withrespect to any class or series of Common Stock referred to in the last sentenceof Section 5.1(a), the holders of such class or series are given any electionwith respect to the form of consideration to be received, the same right ofelection shall be given to the holders of the Series B Preferred Stock withrespect to the corresponding distribution to the holders of the Series BPreferred Stock. The Corporation shall provide the holders of the Series BShares with reasonable advance notice and forms of election, and shall otherwiseact in good faith, so that such holders may effectively exercise all such rightsof election on a timely basis.

5.2 Pro Rata Distributions to Parity Stock Holders. If, upondistribution of the Corporation's assets in liquidation, dissolution or windingup, the assets of the Corporation available for distribution to its stockholdersshall be insufficient to permit payment in full to the holders of the Series BPreferred Stock and the holders of all other classes or series of Parity Stock,if any, which rank on a parity basis with the Series B Preferred Stock withrespect to distributions upon such liquidation, dissolution or winding up of therespective full preferential amounts to which they are entitled, then the entireassets of the Corporation available for distribution to stockholders (after fulldistribution on Senior Stock, if any) shall be distributed ratably to suchholders in proportion to the respective full preferential amounts to which theshares of Series B Preferred Stock and all such other classes and series ofParity Stock would otherwise be entitled.

5.3 Record Date and Notice. Unless the Majority Holders otherwiseagree in writing, in the event of any liquidation, dissolution or winding up ofthe Corporation, whether voluntary or involuntary:

(i) Any distribution to the holders of capital stock of theCorporation of any class or series of assets of the Corporation available fordistribution to its stockholders will be made to the holders of record of suchclass or series as of a record date that is not less than 10 days nor more than



30 days prior to the date such distribution is proposed to be made (each, a"Distribution Date"). Each Distribution Date for any distribution to theholders of the Series B Shares shall not in any event be later than the date ofany related or contemporaneous distribution to the holders of any Parity Stockor Junior Stock.

(ii) The Corporation shall give to each holder of Series BPreferred Stock at least 20 days' prior written notice of the record date to befixed for any payment or distribution to any of the holders of any capital stockof the Corporation of any class or series. In addition to any other informationrequired by these Articles, any contract or applicable law, such notice shalldescribe in reasonable detail each payment or distribution proposed to be made,identify all classes and series of capital stock that will participate in suchpayment or distribution and the relative participations of the holders of eachsuch class or series and state the record date and Distribution Date for suchpayment or distribution. Such notice shall be accompanied by a statement, inreasonable detail, showing the amount, kind and value of all assets of theCorporation available for payment or distribution to its stockholders. After anysuch notice is given, the Corporation shall promptly furnish to each holder ofSeries B Preferred Stock any information that such holder may reasonably

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request relating to the liquidation, dissolution or winding up of theCorporation and its assets and liabilities, including any information reasonablyrequested and in the possession of the Corporation in order to assist suchholder in determining whether to exercise any right to convert any or all ofsuch holder's shares of Series B Preferred Stock pursuant to Section 9.

(iii) The Series B Shares shall continue to be convertible intoCommon Stock in accordance with the terms of these Articles unless and untilsuch holders have received payment of the full preferential amounts to whichthey are entitled pursuant to Section 5.1.

Section 6. Redemption.

6.1 Mandatory Redemption. On the Scheduled Redemption Date, theCorporation shall redeem all shares of Series B Preferred Stock then outstandingat a Redemption Price per share equal to the greater of (i) the LiquidationPrice of such share and (ii) sixty percent (60%) of the Current Market Price ofthe Conversion Securities and other assets or property, if any, into which oneSeries B Share is then convertible, in each case determined as of such date.

6.2 Redemption Upon Change of Control That Occurs When No Notes AreOutstanding.

(a) Redemption Right When Notes Are Not Outstanding. The provisionsof this Section 6.2 shall be suspended, and shall not have any force or effectso long as any Notes continue to be outstanding, but shall automatically becomeeffective and enforceable in accordance with their terms as to any Change of



Control that occurs at any time after the first time as of which no Notes areoutstanding.

(b) Redemption at Option of Holders. Upon the occurrence of aChange of Control to which this Section 6.2, on the Redemption Date determinedpursuant to this Section 6.2, is applicable, the Majority Holders shall have theright to require the Corporation to redeem, on the Redemption Date determinedpursuant to this Section 6.2, all of the Series B Shares outstanding on the dateof the occurrence of such Change of Control at the Redemption Price per shareequal to 101% of the Liquidation Price thereof, determined as of the RedemptionDate. Such right may be exercised by one or more Election Forms or any otherwritten notices to such effect which, collectively, have been signed by theMajority Holders and given to the Corporation at any time after the date ofoccurrence of such Change of Control and prior to the expiration of the periodof 30 days after Election Forms are delivered to the holders of the Series BPreferred Stock pursuant to Section 3.7. If such right is so exercised, theRedemption Date shall be a Business Day selected by the Majority Holders that isnot sooner than the tenth day after and not later than the twentieth day afterthe Election Forms or other written notices referred to in the second sentenceof this Section are submitted to the Corporation.

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6.3 Redemption Upon Change of Control That Occurs When Notes AreOutstanding.

(a) Redemption Right When Notes Are Outstanding. The provisions ofthis Section 6.3 shall apply to any Change of Control that occurs while anyNotes are outstanding, but shall not apply to any Change of Control that occursafter the first time as of which no Notes are outstanding.

(b) Redemption at the Option of the Holders. Upon the occurrenceof a Change of Control to which this Section 6.3 is applicable, the MajorityHolders shall have the right to require the Corporation to redeem, on theRedemption Date determined pursuant to this Section 6.3, all of the Series BShares outstanding on the date of the occurrence of such Change of Control atthe Redemption Price per share equal to 101% of the Liquidation Price thereof,determined as of the Redemption Date. The Corporation shall give written noticeof such redemption to each Holder of Series B Shares by telegram, telex,facsimile transmission or first-class mail, postage prepaid. Such notice shallbe given to the holders of the Series B Shares not less than twenty-five daysnor more than forty-five days before the Redemption Date and in no event laterthan the date the related notice required by Section 1014(a) of the Indenture isgiven to holders of Notes. If the Corporation shall have insufficient legallyavailable funds to redeem all Series B Shares, the Series B Shares to beredeemed shall be selected as provided in Section 3.3. The Majority Holdersshall have the right to revoke any redemption pursuant to this Section 6.3 inthe manner described in Section 6.3(c)(v).

(c) Additional Procedures. The Corporation's notice given pursuant



to Section 6.3(b) shall, in addition to containing or being accompanied by anyother information required by these Articles or applicable law, state thefollowing: (i) the Redemption Price and the Redemption Date, which shall be aBusiness Day no earlier than twenty-five days nor later than forty-five daysfrom the date such notice is mailed, or such later date as is necessary tocomply with any applicable securities laws or regulations, but in no event laterthan the first Business Day after the "Change of Control Payment Date"established pursuant to Section 1014(b) of the Indenture; (ii) that all Series BShares to be redeemed will continue to accrue dividends, continue to beconvertible and continue to be outstanding for all purposes until the RedemptionPrice thereof is paid as provided herein; (iii) that, unless the Corporationdefaults in the payment of the Redemption Price, any Series B Shares redeemed asprovided herein shall cease to accrue dividends after the Redemption Date; (iv)that, in order to receive payment of the Redemption Price therefor, holders ofSeries B Shares to be redeemed shall be required to surrender the stockcertificates evidencing such Series B Shares to the Redemption Agent at theaddress specified in the notice prior to the close of business on the fifthBusiness Day preceding the Redemption Date; (v) that the Majority Holders shallbe entitled to elect to waive and revoke the redemption of Series B Sharespursuant to this Section 6.3 if the Corporation or the Redemption Agentreceives, not later than the close of business on the second Business Daypreceding the Redemption Date, a telegram, telex, facsimile transmission orletter specifically to that effect, and that such election shall bind allholders of Series B Shares, in which case the provisions of this Section 6.3shall cease to be applicable to such Change of Control; and (vi) thecircumstances and relevant facts regarding such Change of Control.

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(d) Deposit With Redemption Agent; Redemption. Unless the MajorityHolders make the election referred to in clause (v) of Section 6.3(c), on theRedemption Date the Corporation shall, subject to Section 6.3(e), deposit withthe Redemption Agent money, in immediately available funds, sufficient to paythe Redemption Price of all Series B Shares to be redeemed. The RedemptionAgent will promptly mail or deliver to the holders of the Series B Shares to beredeemed payment in an amount equal to the aggregate Redemption Price for suchSeries B Shares and the Corporation shall promptly issue, execute and mail ordeliver to each holder who delivered to the Corporation or the Redemption Agentany stock certificate evidencing more Series B Shares than are redeemed areplacement stock certificate evidencing the Series B Shares not redeemed. Ifany of the Series B Shares evidenced by any stock certificate are not redeemedfor any reason when required, the Corporation shall cause the Redemption Agentto promptly mail or deliver such certificate to the holder of such Series BShares.

(e) Sections 1009 and 1014 of Indenture. If any Notes areoutstanding at the Redemption Date for a redemption required by Section 6.3(b)and any Notes are required to be repurchased pursuant to Section 1014 of theIndenture, the Corporation shall not be required to redeem any Series B Sharespursuant to this Section 6.3 prior to the time of the Corporation's repurchase



of all such Notes so required to be repurchased and the Redemption Dateotherwise determined pursuant to this sentence shall be deferred until the datesuch repurchase is completed. The redemption of any Series B Shares pursuant tothis Section 6.3 shall, at all times while any Notes are outstanding, be subjectto the Corporation's compliance with Section 1009 of the Indenture. If, byreason of the restrictions contained in Section 1009 of the Indenture, theCorporation is unable, without default under the Indenture, to pay, on theRedemption Date established pursuant to this Section 6.3 the full RedemptionPrice for one hundred percent of all Series B Shares outstanding on the date ofthe occurrence of such Change of Control pursuant to such Redemption Date, then

(i) the Corporation shall promptly give, by telegram, telex orfacsimile transmission, a written notice to that effect to each holder of SeriesB Shares, with such notice also stating (A) the relevant facts establishing thatsuch payment would result in a violation of the Indenture, and (B) the maximumamount of funds available to the Corporation for such redemption of Series BShares under Section 1009 of the Indenture and the maximum number of Series BShares that the Corporation could redeem using those funds and the percentage ofall outstanding Series B Shares represented by such number of Series B Sharesthat could be so redeemed; and

(ii) the Majority Holders may elect, by written notice given tothe Corporation by telegram, telex or facsimile transmission within ten BusinessDays after the notice for the Corporation is given, to either

(A) require the Corporation to promptly apply to theredemption (in accordance with the provisions of this Section 6.3) of the SeriesB Shares required to be redeemed the maximum amount of funds available to theCorporation under Section 1009 of the Indenture, and thereafter (x) promptlyapply all funds that thereafter become available for use for such purpose by

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the Corporation without violation of the Indenture to redeem Series B Shares and(y) if any Series B Shares continue to be outstanding on the first date as ofwhich no Notes are outstanding, promptly redeem all such Series B Shares ashereinafter provided in this Section, or

(B) waive the requirement that the Corporation redeem anySeries B Shares pursuant to this Section 6.3 until the first day after the finalmaturity of the Notes, in which case the provisions of this Section 6.3 shallcease to be applicable to such Change of Control.

If the Majority Holders make the election under subclause (ii)(B) of theimmediately preceding sentence, then the Corporation shall, on the first dayafter the final maturity date of the Notes, promptly redeem all Series B Sharesthen outstanding in accordance with this Section 6.3 and the other applicableprovisions of this Section 6 as though it were assumed that such day were thedate of the occurrence of a Change of Control, with such redemption to be madeon the Redemption Date and at the Redemption Price determined pursuant to this



Section 6.3 based on such assumption (but ignoring any qualifications orlimitations that are attributable to the Notes and the Indenture). If theMajority Holders make the election under subclause (ii)(A) of the secondpreceding sentence, then each redemption required by subclause (ii)(A)(x) or(ii)(A)(y) of such sentence shall be made in accordance with the following:

(i) the Redemption Price per share for all Series B Shares to beredeemed shall be equal to 101% of the Liquidation Price as of the date theRedemption Price is actually paid to the holders of the Series B Sharesredeemed;

(ii) the Redemption Date shall be a Business Day no earlier thantwenty-five days nor later than forty-five days from the date that funds forsuch redemption became available under Section 1009 of the Indenture or, in thecase of subclause (ii)(A)(y), the first date as of which no Notes shall beoutstanding;

(iii) the Corporation shall give written notice of such redemptionto each holder of Series B Shares by telegram, telex, facsimile transmission orfirst-class mail, postage prepaid, with such notice to be given to the holdersof the Series B Shares not less than twenty-five days nor more than forty-fivedays before the applicable Redemption Date, and

(iv) Sections 6.7, 3.3 and 3.8 shall apply.

(f) Selection of Shares to be Redeemed; Shares Remain OutstandingUntil Paid For. Section 3.3 hereof shall govern the selection of the Series BShares to be redeemed in the case of any partial redemption pursuant to thisSection. Notwithstanding any other provision of these Series B Articles ofAmendment, no Series B Share required to be redeemed or delivered for redemptionpursuant to this Section 6.3 shall cease to be, or shall be deemed to cease tobe, outstanding for any purpose unless or until the applicable Redemption Pricetherefor is actually paid in cash to the holder thereof or deposited with theRedemption Agent as provided in Section 6.7.

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6.4 At Corporation's Option. At any time after the fifthanniversary of the Closing Date, all but not less than all of the Series BShares then outstanding may be redeemed at the option of the Corporation at theper share redemption price equal to the sum of (i) the greater of (A) theLiquidation Price of such share determined as of the Redemption Date and (B) theCurrent Market Price of the Conversion Securities and other assets or property,if any, into which one Series B Share is convertible on the Redemption Date,plus (ii) the Make-Whole Premium. Unless otherwise approved by the MajorityHolders, the Corporation shall not exercise its right of redemption pursuant tothis Section 6.4 unless such redemption does not and shall not result inimpairment of the Corporation's capital, otherwise result in a violation ofapplicable law or result in a material breach, violation, default or event ofdefault under any agreement or instrument to which the Corporation is a party or



by or to which it or its assets are bound or subject and unless the Corporationis not then insolvent and would not be rendered insolvent as a result of suchredemption.

6.5 Form and Source of Redemption Payments. The Redemption Pricefor all shares redeemed pursuant to Section 6.1, Section 6.2, Section 6.3 orSection 6.4 shall be paid in cash from unrestricted funds legally available forsuch purpose.

6.6 Notice of Redemption. Notice of any redemption by theCorporation pursuant to Section 6.1 or Section 6.4 shall be given to the holdersof record of the shares of Series B Preferred Stock to be redeemed, at theirrespective addresses as the same appear upon the books of the Corporation or aresupplied by them in writing to the Corporation for the purpose of such notice.Such notice shall be given not more than 45 days nor less than 20 days prior tothe applicable redemption date. In addition to any information required by lawor by the applicable rules of any national stock exchange or nationalinterdealer quotation system, such notice shall set forth the Redemption Price,the redemption date, the number of shares to be redeemed and the place at whichthe shares called for redemption will, upon presentation and surrender of thestock certificates evidencing such shares, be redeemed, and shall state the nameand address of the Redemption Agent appointed in accordance with Section 6.7.

6.7 Deposit of Redemption Price. If any shares of Series BPreferred Stock are to be redeemed pursuant to Section 6.1, Section 6.2, Section6.3 or Section 6.4, then on or before the applicable Redemption Date theCorporation shall deposit, in an irrevocable trust fund for the sole purpose ofredeeming the shares of Series B Preferred Stock to be redeemed on suchRedemption Date, with any bank or trust company organized under the laws of theUnited States of America or any state thereof having capital, undivided profitsand surplus aggregating at least $250,000,000 or having capital, undividedprofits and surplus aggregating at least $250,000,000 on a consolidated basiswith such bank's or trust company's parent; provided, however, that, in suchcase, such parent has guaranteed all of the existing and future obligations ofsuch bank or trust company (a "Redemption Agent"), immediately availableunrestricted funds legally available for such purpose sufficient to redeem alloutstanding Series B Shares for the applicable Redemption Price on suchRedemption Date, with irrevocable instructions and authority to the RedemptionAgent, on behalf and at the expense of the Corporation, to pay, commencing onsuch Redemption Date or prior

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thereto, the Redemption Price of the Series B Shares to their respective holdersupon the surrender of their share certificates and, from and after the later ofthe date of such deposit and such Redemption Date, such shares shall be deemedto be no longer outstanding and the holders thereof shall cease to bestockholders with respect to such shares and shall have no rights with respectthereto, except the right to receive payment, as provided in these Articles, ofthe Redemption Price of such shares, calculated through such Redemption Date,



upon surrender of the certificates therefor. Until such date, the Series BShares shall, continue to be convertible into Common Stock in accordance withSection 9 and shall continue to be issued and outstanding for all otherpurposes. Any funds so deposited with the Redemption Agent by the Corporationand unclaimed for six months from the Redemption Date shall (unless anapplicable escheat or abandoned property law designates another Person) be paidto the Corporation, after which repayment the holders of such shares of Series BPreferred Stock shall look to the Corporation for the payment of the RedemptionPrice therefor, without interest. If, in the case of a redemption pursuant toSection 6.3, there is a conflict between the provisions of Section 6.3 and thisSection 6.7, the provisions of Section 6.3 shall govern to the extent of theconflict.

7 Board Representation.

7.1 Right to Elect Three Directors. For so long as TPG is theBeneficial Owner of at least forty percent (40%) of the Originally IssuedShares, in the event that TPG shall have voted its shares of capital stock ofthe Corporation in accordance with Section 8.02 of the Investor Rights Agreementand, notwithstanding such vote, the Board shall not include at least twodesignees of TPG as contemplated by the Investor Rights Agreement, the number ofdirectors constituting the Board shall, in accordance with the resolutionadopted by the Board on April 17, 2000, be increased by three (3), and theHolders shall have, in addition to the other voting rights set forth herein andunder Colorado law, the exclusive right, voting as a separate class, to electthree directors of the Corporation, provided that such right shall terminate (i)upon the redemption of all of the Series B Shares completed in accordance withSection 6.1, Section 6.2, Section 6.3 or Section 6.4 or (ii) at any time themembers of the Board (other than the directors elected pursuant to this Section7.1) shall include at least two designees of TPG as contemplated by the InvestorRights Agreement. The directors whom, at any time and from time to time, theholders of the Series B Preferred Stock elect or are entitled to elect voting asa separate class are sometimes herein referred to as the "Designated Directors".Subject to earlier death, resignation or removal pursuant to Section 7.3, eachDesignated Director elected or appointed at any time as provided herein shallserve until his or her term shall have expired and his or her successor shallhave been elected as provided herein. At their option and in their solediscretion and for any one or more periods of any length of time, the Holders atany time and from time to time may choose not to exercise their right to electthe Designated Directors or to fill any vacancy existing in the office of aDesignated Director, without prejudice to any subsequent exercise of such right.

7.2 Manner of Election. Subject to the last sentence of thisSection 7.2 and Section 4 of Article III of the By-Laws, each DesignatedDirector shall be elected (and if such directors previously have been electedand any vacancy shall exist, such vacancy shall be filled) either

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(i) by written consent of the Majority Holders given in accordance with Section



8.1; or (ii) by vote of the Holders voting as a separate class and in accordancewith Section 8.2, at (A) annual meetings of the shareholders of thisCorporation, or (B) a special meeting of the holders of Series B Preferred Stockfor the purpose of electing such directors (or filling any such vacancy), to becalled by the Secretary of this Corporation upon the written request of theholders of record of 10% or more of the number of shares of Series B PreferredStock then outstanding; provided, however, that if the Secretary of thisCorporation shall fail to call any such special meeting within 10 days after anysuch request, such meeting may be called by any Series B Director.Notwithstanding the foregoing, the Secretary shall not be required to call anysuch special meeting in the case of any such request received by thisCorporation less than 45 days before the date fixed for any annual meeting ofshareholders, and if in such case such special meeting is not called, theholders of Series B Preferred Stock shall be entitled to vote (as a class) atsuch annual meeting to elect the Designated Director (or to fill any suchvacancy).

7.3 Removal. Any Designated Director may at any time and from timeto time be removed, with or without cause, by and only by the Holders. Anyvacancy in the office of a Designated Director resulting from death, resignationor removal or existing for any other reason whatsoever may be filled only by theHolders. Any director elected to fill a vacancy shall serve the same remainingterm as that of his or her predecessor and until his or her successor has beenelected.

7.4 Certain Procedural Matters. So long as the Holders of theSeries B Preferred Stock shall have the right to elect a Designated Director:

(i) any one or more members of the Board or any committee thereofmay participate in meetings of the Board by conference telephone;

(ii) each member of the Board or any committee thereof shall begiven not less than three Business Days' prior written notice of each meeting ofthe Board or such committee (or one day's prior written notice in case ofmeetings to consider emergency matters), specifying the time and place of suchmeeting and the matters to be discussed thereat, unless such member signs(either before or after such meeting) a written waiver of his right to be givensuch notice, or attends such meeting without protesting (prior thereto or at thecommencement thereof) the failure to be given such notice;

(iii) each member of the Board or any committee thereof shall begiven not less than three Business Days' prior written notice of any actionproposed to be taken by the Board or such committee without a meeting (or oneday's prior written notice in case of proposed actions involving emergencymatters), unless such member signs (either before or after such action is taken)a written waiver of his right to be given such notice, or gives his writtenconsent to such action without protesting the failure to be given such notice;and

(iv) no executive committee of the Board, and no other newcommittee of the Board which is authorized to exercise any powers of the Board,



shall be created except (A) for committees

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satisfying the requirements of Section 7.6 or (B) otherwise with the concurrenceof the Series B Directors or the Holders; and at any meeting of the Board or anycommittee thereof, a quorum for the purpose of taking any action shall requirethe presence in person or participation by conference telephone or similarcommunications equipment of a number of directors equal to at least a majorityof the entire Board or the entire committee, respectively.

7.5 Indemnification. The Corporation shall (i) to the fullestextent permitted by applicable law, indemnify the holders of the Series BPreferred Stock and each current and former Series B Director who is made aparty or threatened to be made a party to any threatened, pending or completedaction, suit or proceeding, whether civil, criminal, administrative orinvestigative, by reason of the fact that such Person is or was a shareholder ordirector of the Corporation, or is or was serving at the request of theCorporation as a director, officer, employee or agent of another corporation,partnership, joint venture, trust or other enterprise, against all expenses(including attorneys' fees), judgments, fines and amounts paid in settlementactually and reasonably incurred by such Person in connection with such action,suit or proceeding and (ii) pay in advance, or advance to each such shareholder,director and former director for payment of, expenses incurred in defending anysuch action, suit or proceeding to the maximum extent permitted by applicablelaw. The rights conferred on any Person by this Section 7.5 shall not beexclusive of any other rights which such Person may have or acquire under anystatute, under the Corporation's Amended and Restated Articles of Incorporation,under the Corporation's By-laws, under any agreement, vote of stockholders ordisinterested directors or otherwise.

7.6 Committees. For so long as TPG is the Beneficial Owner of atleast forty percent (40%) of the Originally Issued Shares, at least one-third ofthe members of each and every committee of the Board shall be comprised ofSeries B Directors unless compliance with this Section 7.6 would result in abreach by the Company of the listing requirements of The Nasdaq Stock Market.

8 Actions by Holders Generally; Consistent Charter and By-lawProvisions.

8.1 Actions by Written Consent or at Meetings. With respect toaction by the Holders of the Series B Preferred Stock upon any matter on whichthe Holders are entitled to vote as a separate series or class, such action maybe taken either at a meeting of the Holders or without a stockholder meeting bythe written consent of Holders of shares of Series B Preferred Stock havingvoting power to cast not less than the minimum number of votes that would benecessary to authorize or take such action at a meeting at which all shares ofSeries B Preferred Stock entitled to vote were present and voted. Notice shallbe given in accordance with the applicable provisions of the Colorado BusinessCorporation Act of the taking of corporate action without a meeting by less than



unanimous written consent to those Holders of Series B Preferred Stock whoseshares were not represented on the written consent.

8.2 Meetings. At any meeting having as a purpose either theelection of a Series B Director or any action upon any other matter on which theHolders of the Series B Preferred Stock

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are entitled to vote as a separate series or class, the presence, in person orby proxy, of the Holders of record of at least a majority of the Series B Sharesthen outstanding shall be required and be sufficient to constitute a quorum ofsuch series or class for any such purpose, and the affirmative vote of theHolders of a majority of the shares of Series B Preferred Stock then present atand entitled to vote at such meeting shall be the act of the Series B PreferredStock, except where these Articles require a greater affirmative vote, in whichcase such greater voting requirement shall apply. At any such meeting oradjournment thereof, (i) the absence of a quorum of such Holders of Series BPreferred Stock shall not prevent the election of the directors to be elected bythe Holders of shares other than the Series B Preferred Stock or the taking ofany other action which they are entitled to take, and the absence of a quorum ofHolders of shares other than the Series B Preferred Stock shall not prevent theelection of any director to be elected by the Holders of the Series B PreferredStock or the taking of any other action which they are entitled to take and (ii)in the absence of such quorum, either of Holders of the Series B Preferred Stockor of shares other than the Series B Preferred Stock (or both), a majority ofthe Holders, present in person or by proxy, of the series, class or classes ofstock which lack a quorum shall have power to adjourn the meeting for theelection of directors which they are entitled to elect or the taking of anyother action which they are entitled to take, from time to time, without noticeother than announcement at the meeting, until a quorum shall be present.

8.3 Consistent By-laws and Charter. The Amended and RestatedArticles of Incorporation and the By-laws of the Corporation shall at all timescontain provisions consistent with the provisions, purposes and intent ofSections 3 through 11, inclusive, and the other provisions of these Articles,and in the event of any conflict between the provisions of these Articles andsuch other instruments, the provisions of these Articles shall prevail to thefullest extent permitted by Colorado law.

9 Conversion Right Generally.

9.1 Conversion Right. Unless previously redeemed in accordancewith Section 6, each share of Series B Preferred Stock may be converted at theoption of the holder thereof, in whole or in part, at any time into the numberof fully paid and nonassessable shares of Common Stock equal to the ConversionRate in effect at the time of conversion and in the manner and on the terms andconditions hereinafter provided in this Section 9 and Section 10. The ConversionRate, the Conversion Price and the kind, number and amount of securities andother property deliverable upon conversion of any Series B Share shall be



subject to adjustment from time to time as set forth in Section 10. In the eventthat cash, property or securities other than Common Stock shall be payable,deliverable or issuable upon conversion, then all references to Common Stock inthis Section 9 and in Section 10 shall be deemed to apply, so far as appropriateand as nearly as may be, to such cash, property or other securities.

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9.2 Mechanics of Conversion.

(a) Conversion Notice. In order to convert any Series B Share, theholder thereof shall deliver to the Corporation at its principal executiveoffices within the United States or at another office or agency designated bythe Corporation pursuant to Section 10.14, the certificate(s) evidencing theSeries B Share(s) to be converted, which certificate(s), if the Corporationshall so request, shall be duly endorsed to the Corporation or in blank oraccompanied by proper instruments of transfer to the Corporation or in blank(such endorsements or instruments of transfer to be in form reasonablysatisfactory to the Corporation), and shall give written notice to theCorporation at said office that such holder elects to convert all or a part ofthe Series B Share(s) represented by said certificate(s) in accordance with theterms of this Section 9, and shall state in writing therein the name or namesand denomination or denominations in which such Holder wishes certificate(s) forCommon Stock to be issued.

(b) Subscription. Subject to Section 9.2(d), every such notice ofelection to convert shall constitute a contract between the holder of suchSeries B Share(s) and the Corporation, whereby the holder of such Series BShare(s) shall be deemed to subscribe for the amount of Common Stock which suchholder shall be entitled to receive upon conversion of the number of shares ofSeries B Preferred Stock to be converted, and, in satisfaction of suchsubscription, to deliver the shares of Series B Preferred Stock to be converted,and whereby the Corporation shall be deemed to agree that the surrender of theshares of Series B Preferred Stock to be converted shall constitute full paymentof such subscription for such Common Stock to be issued upon such conversion.

(c) Issuance of Conversion Securities. The Corporation will assoon as practicable after such deposit of a certificate or certificates forSeries B Preferred Stock to be converted, accompanied by the written noticeabove prescribed, issue and deliver at such offices of the Corporation or atsuch other office or agency to the Person for whose account such Series BPreferred Stock was so surrendered, or to his nominee(s) or, subject tocompliance with applicable law, transferee(s), a certificate or certificates forthe number of whole shares of Common Stock to which such holder shall beentitled. Subject to Section 9.2(d), such conversion shall be deemed to havebeen made as of the date of such surrender of the Series B Preferred Stock to beconverted, and the Person or Persons entitled to receive the Common Stockissuable upon conversion of such Series B Preferred Stock shall be treated forall purposes as the record holder or holders of such Common Stock on such date.Simultaneously with the delivery of such certificate(s) for such Common Stock,



the Corporation also shall duly deliver to such holder all cash, othersecurities and other property, if any, to which he is entitled by virtue of theconversion of such Series B Preferred Stock. If fewer than all of the Series BShares evidenced by any stock certificate delivered to the Corporation inconnection with a conversion are to be converted, the Corporation shall alsodeliver to such holder, at the time of delivery of the certificate(s)representing such Common Stock, a new stock certificate, dated as of the ClosingDate, evidencing the number of Series B Shares remaining unconverted andotherwise identical to the stock certificate for Series B Shares so delivered bysuch holder.

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(d) Conversions Associated With Public Offerings. Notwithstandingthe foregoing, if any notice of conversion given by any Holder states that suchconversion is in connection with an offering of securities registered or to beregistered pursuant to the Securities Act, then such conversion may, at theoption of such Holder, be conditioned upon and deferred until the closing of thesale of such securities pursuant to such offering or another date designated bysuch Holder, in which event the Series B Share(s) covered by such notice shallnot be deemed to have been converted until immediately prior to the closing ofsuch sale or such other date (as the case may be) and the Corporation shall,unless otherwise instructed by such Holder, deliver the stock certificate(s) andany cash, securities or other property to which such Holder shall be entitled atsuch time or times as such Holder shall reasonably request.

9.3 Expenses and Taxes. The Corporation shall pay all expenses inconnection with, and all stamp, transfer and other similar taxes and othergovernmental charges that may be imposed with respect to, the issue or deliveryof the shares of Common Stock and cash, property or other securities which anyHolder is entitled to receive upon conversion of any Series B Share(s). TheCorporation shall not be required, however, to pay any stamp, stock transfer orother similar tax or other governmental charge required to be paid solely byvirtue of any transfer involved in the issue of shares of Common Stock in anyname other than that of the Holder of the Series B Share(s) converted at theorder of such Holder, and if any such transfer is involved, the Corporationshall not be required to issue or deliver the shares of Common Stock as to whichsuch tax or charge is applicable until such tax or other charge shall have beenpaid or it has been established to the Corporation's reasonable satisfactionthat no such tax or other charge is due.

9.4 Fractional Shares of Common Stock. If the number of shares ofCommon Stock issuable on the conversion of Series B Share(s) is not a wholenumber, the Corporation shall not be required to issue any fraction of a shareof Common Stock and such number of shares issuable shall be rounded up to thenext highest whole number. If a certificate or certificates evidencing morethan one Series B Share shall be surrendered for conversion at one time by thesame Holder, the number of full shares which shall be issuable upon conversionthereof shall be computed on the basis of the aggregate number of Series BShares so surrendered for conversion. Notwithstanding the provisions of this



Section 9.4, in computing adjustments to the Conversion Rate pursuant to Section10, fractional shares of Common Stock shall be taken into account as provided inSection 10.8(c) and any outstanding Series B Share may at any time represent theright to receive upon conversion less than one share of Common Stock or someother number of shares of Common Stock which is not a whole number.

9.5 Covenant to Reserve Shares for Issuance on Conversion. TheCorporation shall at all times reserve and keep available out of the authorizedbut unissued shares of Common Stock, solely for the purpose of issuance uponconversion of Series B Shares, the full number of shares of Common Stockissuable if all outstanding Series B Shares were to be converted in full. Allshares of Common Stock which shall be issuable upon conversion of any Series BShare shall be newly issued, duly authorized, validly issued, fully paid andnonassessable and without any personal liability attaching to the ownershipthereof, and the issuance thereof shall not give rise or otherwise

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be subject to preemptive or similar purchase rights on the part of any Person orPersons, and the Corporation shall take any corporate and other actions thatmay, in the opinion of its counsel, be necessary in order that the Corporationmay validly and legally issue fully paid and nonassessable all shares of CommonStock and all shares of the Corporation's capital stock of any other class orseries issuable upon conversion of the Series B Preferred Stock. The Corporationhereby authorizes and directs its current and future transfer agents, if any,for the Common Stock and for any shares of the Corporation's capital stock ofany other class or series issuable upon the conversion of the Series B PreferredStock at all times to reserve such number of authorized shares as shall berequired for such purpose. The Corporation shall supply such transfer agentswith duly executed stock certificates for such purposes.

9.6 Compliance with Governmental Requirements; Listing of Shares.

(a) General. If issuance of any Conversion Securities issuableupon conversion of any Series B Share(s) require, under any applicable federal,state, local or foreign law, rule or regulation or any applicable requirement ofany national securities exchange or inter-dealer quotation system, anyregistration, qualification, listing or approval before such shares may beissued upon conversion, the Corporation shall in good faith, as promptly aspracticable and at its expense, diligently endeavor to cause such shares to beduly registered, qualified, approved or listed, as the case may be, and theconversion of such Series B Share(s) shall be suspended for the period duringwhich such registration, qualification, approval or listing is being diligentlypursued or sought by the Corporation.

(b) Listing. During all periods during which shares of Common Stockor any other capital stock or securities of the same class, series or issue asare issuable upon conversion of any Series B Share are listed, qualified orotherwise eligible for trading or quotation on any national securities exchangeor The Nasdaq Stock Market, the National Association of Securities Dealers, Inc.



Automated Quotation System or any similar quotation system, the Corporationshall cause all shares of Common Stock, and all such other capital stock andsecurities, issuable upon conversion of such Series B Share to be listed,qualified or eligible for trading or quotation thereon upon issuance thereof.

(c) HSR Act, Etc. If any Holder's intended conversion of anySeries B Shares would or might be subject to the HSR Act, the Corporation shallpromptly comply with any applicable requirements under the HSR Act relating tofiling and furnishing of information to the Federal Trade Commission and theAntitrust Division of the Department of Justice and shall cooperate, and causeall Persons which are part of the same "person" (as defined for purposes of theHSR Act) as the Corporation to cooperate and assist in such filing andcompliance. If any Holder is advised by its legal counsel that its intendedconversion of any Series B Share(s) would or might be subject to any other law,rule or regulation which requires any filing with or review or approval by anygovernmental authority or agency, the Corporation shall promptly comply with anyrequirements of such law, rule or regulation applicable to it and shallcooperate with such Holder in such Holder's efforts to comply with therequirements of such law, rule or regulation applicable to it on a timely basis.

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(d) Expenses. Each of the Corporation and such Holder shall bearand pay any costs or expenses that it incurs in complying with this Section 9.6,except that each shall pay one half of any filing fee payable to the FTC or theDepartment of Justice pursuant to this Section 9.6 and the HSR Act.

10. Conversion Adjustments.

10.1 Adjustment Generally. The Conversion Price and the ConversionRate shall be subject to adjustment from time to time as hereinafter set forth.Adjustments of the Conversion Price and the Conversion Rate shall be cumulativeand shall be made successively on each and every occasion that any eventrequiring any such adjustment shall occur. The form of the stock certificate(s)evidencing the Series B Shares need not be changed because of any adjustmentmade pursuant hereto.

10.2 Stock Dividends, Subdivisions, Combinations andRecapitalizations. If the Corporation shall at any time (i) declare or pay adividend or declare, pay or make any other distribution on the Common Stock inshares of Common Stock, (ii) subdivide the outstanding shares of Common Stockinto a greater number of shares or (iii) combine the outstanding shares ofCommon Stock into a smaller number of shares, then in each and every such eventthe Conversion Price in effect immediately prior to (x) in the case of adividend or distribution, the record date for the determination of stockholdersentitled to receive such dividend or distribution (or, if no such record date isfixed, immediately prior to any other time as of which the stockholders entitledto participate in such dividend or distribution is determined) or (y) in thecase of a subdivision, combination or reclassification, the effectiveness ofsuch subdivision, combination or reclassification shall be adjusted to a price



obtained by multiplying such Conversion Price by a fraction of which (1) thenumerator shall be the number of shares of Common Stock outstanding immediatelyprior to such record date or effective time referred to in clause (x) or (y) ofthis sentence and (2) the denominator shall be the sum of such number of sharesof Common Stock outstanding and the total number of shares of Common Stockconstituting such dividend or distribution.

An adjustment made pursuant to this Section 10.2 shall becomeeffective immediately after such record date (or other applicable date referredto in clause (x) of the immediately preceding sentence) in the case of adividend or distribution, subject to Section 10.8(d), and shall become effectiveimmediately after the effective date in the case of a subdivision, combinationor reclassification.

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10.3 Certain Other Distributions.

(a) Adjustment Formula. Subject to Section 10.3(b) and Section10.3(c), if the Corporation shall at any time declare or make any distribution,by dividend or otherwise, to all holders of outstanding shares of Common Stockof any cash or other assets or property of any nature whatsoever, any debtsecurities or other evidences of its indebtedness, any capital stock, any othersecurities of any nature whatsoever or any warrants, options or other Rights tosubscribe for, purchase or otherwise acquire any assets, property, capitalstock, debt or other securities or evidences of indebtedness (excludingdividends, distributions or issuances covered by Section 10.2, Rights covered bySection 10.5 and Convertible Securities covered by Section 10.6), or shall takea record of such holders for the purpose of entitling them to receive such adistribution, then the Conversion Price shall be adjusted to equal the productof

(i) the Conversion Price determined as of immediately priorto the applicable Adjustment Date determined pursuant to Section 10.3(d)multiplied by

(ii) a fraction, the numerator of which shall be the excessof (x) the Current Market Price per share of the Outstanding Common Sharesimmediately before such Adjustment Date over (y) the amount allocable to oneshare of the Outstanding Common Shares as of such Adjustment Date of the sum of(A) any such cash so distributable and (B) the Fair Market Value (as determinedas of such date in good faith by the Board) of any and all such evidences ofindebtedness, shares of capital stock, debt securities, other securities,property, assets or Rights so distributable, and the denominator of which shallbe such Current Market Price per share of the Outstanding Common Sharesimmediately before the Adjustment Date.

(b) When Adjustment Is Not to be Made. No adjustment pursuant tothe provisions of Section 10.3(a) shall be made if such adjustment would resultin a Conversion Price that is greater than the Conversion Price in effect prior



to such adjustment. In addition, at the election of the Majority Holders madewithin 30 days of receipt of the notice with respect to such adjustment issuedpursuant to Section 10.10, in lieu of the adjustment to the Conversion Pricepursuant to the provisions of Section 10.3(a), but subject to Section 10.3(c),the Conversion Rate determined as of immediately prior to the effective date forsuch adjustment specified in the last sentence of this Section 10.3 shall beadjusted so that the Holder of any Series B Share thereafter surrendered forconversion shall be entitled to receive the kind and number or amount of sharesof Common Stock (or other capital stock of the Corporation), other ConversionSecurities and other property or assets which such Holder would have received(after giving effect to all adjustments required by this Section 10) had suchSeries B Share been converted immediately prior to

(i) the record date for the determination of thestockholders entitled to receive such distribution, or

(ii) if no such record date is fixed, as of any other time asof which the holders of Common Stock entitled to participate in suchdistribution was determined,

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plus the kind and amount of cash, other assets or property, debt securities,other evidences of indebtedness, other securities or Rights which such Holderwould have been entitled to receive by virtue of being the record holder, as ofsuch record date or other time, of such kind and number or amount of shares ofCommon Stock or other Conversion Securities. For such purpose, it shall beassumed that such holder of Common Stock or other Conversion Securities failedto exercise rights of election, if any, as to the kind or amount of shares orstock, other securities or property receivable in such distribution, providedthat if the kind or amount of shares of stock, other securities or propertyreceivable in such distribution is not the same for each non-electing share,then the kind and amount of shares of stock, other securities or propertyreceivable upon consummation of such transaction for each non-electing shareshall be deemed to be the kind and amount so receivable per share by a pluralityof the non-electing shares. If after an adjustment a Holder upon conversion ofa Series B Share may receive shares of two or more classes of capital stock ofthe Company, the Board shall determine, in good faith, the allocation of theadjusted Conversion Price between the classes of capital stock. After suchallocation, the conversion privilege and the Conversion Price shall thereafterbe subject to adjustment on terms comparable to those applicable to Common Stockin this Section 10.

(c) Special Rule for Distributions of Redeemable Stock. If byvirtue of the applicability of Section 10.3(b) in any one or more events, theConversion Securities issuable upon conversion of any Series B Share consist ofor include any shares of any class or series of capital stock that provides byits terms a right in favor of the Corporation to call, redeem, exchange orotherwise acquire all of the outstanding shares or units of such class or series(such class or series of capital stock being herein referred to as "Redeemable



Stock") and if the Corporation redeems all or any part of the outstanding sharesof such Redeemable Stock prior to the date on which such Series B Share isconverted, then upon conversion of such Series B Share the Holder thereof shallbe entitled to receive, in lieu of such shares of Redeemable Stock or, in theevent of such a partial redemption, a pro rata portion of such shares, the kindand amount of cash or other assets, securities or other property orconsideration paid by the Corporation with respect to its redemption of an equalnumber of shares of such Redeemable Stock. If the consideration so paid upon theCorporation's redemption of any such Redeemable Stock consists of or includesany other class or series of Redeemable Stock which is also redeemed beforeconversion of any Series B Share, then the provisions of the first sentence ofthis Section 10.3(c) (and of this sentence) shall apply to successively to theshares of such other class or series of Redeemable Stock.

(d) Adjustment Date. The "Adjustment Date" for any distribution inrespect of which an adjustment is required by this Section 10.3 shall be either(i) the date of taking of a record of holders of Common Stock for the purposeof entitling them to receive such distribution or, if no record is taken, at thedate as of which the holders of Common Stock entitled to participate in suchdistribution were determined or (ii) the date of such distribution, whicheverdate yields the largest decrease in the Conversion Price, as the case may be, inapplying the formula contained in the first sentence of this Section 10.3.

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(e) Adjustment Effective Date. An adjustment made pursuant to thisSection 10.3 shall become effective, subject to Section 10.8(d), immediatelyafter such record date or, if no such record date is fixed, immediately afterthe time as of which holders of Common Stock entitled to participate in suchdistribution were determined or, if no such time is fixed, as of the date ofsuch distribution.

10.4 Issuance of Additional Shares of Common Stock.

(a) Adjustment Formula. Subject to Section 10.4(b), if at any timethe Corporation shall issue, or pursuant to Section 10.5, Section 10.6, Section10.7 or Section 10.8 be deemed to issue, any Additional Shares of Common Stockin exchange for consideration in an amount, determined in accordance withSection 10.8(a) and Section 10.8(e), per Additional Share of Common Stock lessthan the Reference Price as of the applicable time of determination specified inthe last sentence of this Section 10.4(a), then the Conversion Price shall beadjusted to equal the product obtained by multiplying the Conversion Price ineffect immediately prior to such time of determination by a fraction (i) thenumerator of which shall be the number of Outstanding Common Shares immediatelybefore such issuance or deemed issuance plus the number of shares which theaggregate amount of consideration, if any, received by the Corporation upon suchissuance or deemed issuance of all the Additional Shares of Common Stock soissued or deemed to be issued would purchase at the Reference Price determinedas of such time and (ii) the denominator of which shall be the number ofOutstanding Common Shares immediately before such issuance or deemed issuance



plus such number of Additional Shares of Common Stock so issued or deemed to beissued. The applicable time of determination shall be:

(i) if the event requiring the adjustment is the taking of arecord date for any dividend or distribution referred to in Section 10.5 orSection 10.6, as of either the close of business on such record date or the datesuch dividend or distribution is paid, whichever produces the highest ReferencePrice, or

(ii) in the case of any other issuance or deemed issuance,immediately prior to the time of such issuance or deemed issuance.

(b) When Adjustment is Not Required. The provisions of Section10.4(a) shall not apply to any issuance of Additional Shares of Common Stock forwhich an adjustment is made under Section 10.2 or Section 10.3. Subject toSection 10.7, no adjustment of the Conversion Price shall be made under thisSection 10.4 upon the issuance of any Additional Shares of Common Stock whichare or are deemed to be issued pursuant to (i) the exercise of any ExistingRights in accordance with the terms thereof in effect as of the Closing Date or(ii) the exercise of any other Rights or the exercise of any conversion orexchange rights in any other Convertible Securities if, in the case of any suchRights or Convertible Securities referred to in this clause (ii) any suchadjustment shall previously have been made, or no such adjustment shall havebeen required to be made, upon the issuance of such Rights or upon the issuanceof such Convertible Securities (or upon the issuance of any Rights therefor)pursuant to Section 10.5 or Section 10.6.

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(c) Effective Date. Each adjustment pursuant to this Section 10.4by reason of any issuance or deemed issuance of any Additional Shares of CommonStock shall be effective as of the date of such issuance or deemed issuance.

10.5 Issuance of Rights.

(a) Adjustment. If at any time the Corporation shall take a recordof the holders of its Common Stock for the purpose of entitling them to receivea dividend or other distribution of, or shall in any manner (whether directly orindirectly by assumption in a consolidation or in a merger in which theCorporation is the surviving corporation or otherwise) issue to any Person orPersons, any Rights to subscribe for, purchase or otherwise acquire anyAdditional Shares of Common Stock or any Convertible Securities, in any casewhether or not such Rights or the right to exchange or convert such ConvertibleSecurities is immediately exercisable, and the consideration per share for whichCommon Stock is issuable upon the exercise of such Rights or upon conversion orexchange of such Convertible Securities, determined pursuant to Section 10.8(a)and Section 10.8(e), shall be less than the Reference Price determined as of theapplicable time of determination specified in the last sentence of this Section10.5(a), then the maximum number of shares of Common Stock issuable upon theexercise of such Rights or, in the case of Rights for Convertible Securities,



upon the conversion or exchange of such Convertible Securities determined as ofsuch applicable time shall be deemed to be Additional Shares of Common Stockissued as of such applicable time for such consideration per share and theConversion Price shall be adjusted as provided in Section 10.4. The applicabletime of determination shall be:

(i) if the event requiring the adjustment is the taking of arecord date for any dividend or distribution of Rights referred to in thisSection 10.5(a), as of either the close of business on such record date or thedate such dividend or distribution is paid, whichever produces the highestReference Price, or

(ii) in the case of any other issuance of Rights, immediatelyprior to the time of such issuance.

(b) No Further Adjustment on Exercise. Subject to Section 10.7, nofurther adjustments of the Conversion Price shall be made upon the actualissuance of such Common Stock or of such Convertible Securities upon exercise ofsuch Rights or upon the actual issuance of such Common Stock upon suchconversion or exchange of such Convertible Securities for which an adjustmentpursuant to this Section 10.5 previously had been made or was not required to bemade. Subject to Section 10.7, no adjustment under this Section 10.5 shall berequired by reason of the grant of Employee Options that have an exercise priceper share of Common Stock at least equal to the Current Market Price at the timeof grant.

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10.6 Issuance of Convertible Securities.

(a) Adjustment. If at any time the Corporation shall take a recordof the holders of its Common Stock for the purpose of entitling them to receivea dividend or other distribution of, or shall in any manner (whether directly orindirectly by assumption in a consolidation or in a merger in which theCorporation is the surviving corporation or otherwise) issue to any Person orPersons, any Convertible Securities, whether or not the rights to exchange orconvert thereunder are immediately exercisable, and the consideration per sharefor which Common Stock is issuable upon such conversion or exchange, determinedpursuant to Section 10.8(a) and Section 10.8(e), shall be less than theReference Price determined as of the applicable time of determination specifiedin the last sentence of this Section 10.6(a), then the maximum number of sharesof Common Stock issuable upon the conversion or exchange of such ConvertibleSecurities determined as of such time of determination shall be deemed to beAdditional Shares of Common Stock issued as of such time of determination forsuch consideration per share and the Conversion Price shall be adjusted asprovided in Section 10.4. If the terms of any Convertible Securities providefor any issuance of additional Convertible Securities (whether in payment ofdividends or interest or otherwise), then each occasion on which any suchadditional Convertible Securities are issued shall be deemed a new issuance ofConvertible Securities for which an adjustment pursuant to this Section 10.6



shall be made. The applicable time of determination shall be:

(i) if the event requiring the adjustment is the taking of arecord date for any dividend or distribution of Rights referred to in thisSection 10.6(a), as of either the close of business on such record date or thedate such dividend or distribution is paid, whichever produces the highestReference Price, or

(ii) in the case of any other issuance of Rights, immediatelyprior to the time of such issuance.

(b) No Further Adjustment Upon Conversion. Subject to Section10.7, no further adjustment of the Conversion Price shall be made under thisSection 10.6 upon the issuance of any Convertible Securities which are issuedpursuant to the exercise of any Rights therefor if any such adjustment shallpreviously have been made upon the issuance of such Rights pursuant to Section10.5. Subject to Section 10.7, no further adjustments of the Conversion Priceshall be made upon the actual issuance of such Common Stock upon conversion orexchange of Convertible Securities for which an adjustment pursuant to thisSection 10.6 previously had been made or was not required.

10.7 Superseding Adjustment.

(a) Readjustment if Adjustment Previously Made. If, at any timeafter any adjustment of the Conversion Price shall have been made pursuant toSection 10.5 or Section 10.6 in respect of any Rights or any ConvertibleSecurities:

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(i) the consideration paid or payable to the Corporation, orthe number of shares of Common Stock issued or issuable, upon the exercise,conversion or exchange of the Rights or Convertible Securities in respect ofwhich such adjustment was made is increased or decreased by virtue of provisionscontained therein for an automatic increase or decrease (as the case may be)upon the occurrence of a specified date or event, any amendment or modificationof or departure from the terms thereof previously in effect or otherwise (otherthan under or by reason of an event resulting in a change pursuant to theprovisions set forth in the documents governing such Rights or ConvertibleSecurities designed to protect against dilution, which event also results in anadjustment pursuant to this Section 10), the adjustments to the Conversion Pricecomputed upon the original grant, issuance or sale thereof or upon the taking ofa record date with respect thereto (as the case may be), and any subsequentadjustments based thereon, shall, upon any such increase or decrease becomingeffective, be readjusted to the Conversion Price which would then be in effecthad such adjustment originally been made on the basis that such increased ordecreased consideration paid or payable or such increased or decreased number ofshares of Common Stock issued or issuable was the consideration paid or payableor the number of shares issued or issuable in respect of such Rights orConvertible Securities which are actually outstanding immediately prior to the



effective time of such increase or decrease (but no such readjustment shall bemade with respect to any Rights or Convertible Securities which for any reasonno longer are outstanding as of such time); or

(ii) any Rights or any rights of conversion or exchange underConvertible Securities in respect of which such adjustment was made shall expirewithout having been fully exercised, the adjustments to the Conversion Pricecomputed upon the original grant, issuance or sale thereof or upon the taking ofa record date with respect thereto (as the case may be), and any subsequentadjustments based thereon, shall, upon such expiration, be recomputed as if:

(1) in the case of such Rights or ConvertibleSecurities, the only Additional Shares of Common Stock issued were the shares ofCommon Stock, if any, actually issued upon the exercise of such Rights or theconversion or exchange of such Convertible Securities and the considerationreceived for such Additional Shares of Common Stock was, in the case of Rights,the consideration actually received by the Corporation for the grant, issuanceor sale of all such Rights, whether or not exercised, plus the considerationactually received by the Corporation upon such exercise, or, in the case ofConvertible Securities, the consideration actually received by the Corporationfor the issuance or sale of all such Convertible Securities which were actuallyconverted or exchanged, plus the additional consideration, if any, actuallyreceived by the Corporation upon such conversion or exchange; and

(2) in the case of any such Rights exercisable forConvertible Securities, only the Convertible Securities, if any, actually issuedor sold upon the exercise thereof were issued at the time of grant, issuance orsale of such Rights, and the consideration received by the Corporation for theAdditional Shares of Common Stock deemed to have been then issued was theconsideration actually received by the Corporation for the grant, issuance orsale of all such Rights, whether or not exercised, plus the additionalconsideration, if any, actually received by the

41

Corporation upon the issuance or sale of the Convertible Securities with respectto which such Rights were actually exercised.

(b) When Readjustment is Not to be Made. No readjustment pursuantto this Section 10.7 shall have the effect of (i) decreasing the number ofshares of Common Stock or the amounts of other Conversion Securities, cash orother property into which any Series B Share is convertible below the number ofsuch shares and the amounts of such other Conversion Securities, cash andproperty into which such Series B Share would have been convertible if theoriginal adjustment had not been made but all subsequent adjustments, if any,required by this Section 10 had been made or (ii) requiring any surrender,return or redelivery of any shares of Common Stock, other Conversion Securities,cash or other property delivered upon any conversion of any Series B Share priorto the time such readjustment is made, requiring that the converting Holder orany subsequent holder of any such shares of Common Stock, Conversion Securities



or other property make any payment to the Corporation or otherwise affectingsuch shares of Common Stock, other Conversion Securities or other property orthe rights or obligations of the converting Holder or any such subsequent holderwith respect thereto. From and after any adjustment or adjustments provided forin this Section 10.7, the Conversion Price shall continue to be subject tofurther adjustment as provided in this Section 10.

(c) Adjustment When No Adjustment Was Previously Made. If, at anytime after any grant, sale or other issuance of any Rights or ConvertibleSecurities for which an adjustment of the Conversion Price shall not have beenrequired to be made pursuant to the provisions of Section 10.5 or Section 10.6(as the case may be), the consideration paid or payable to the Corporation uponthe exercise of such Rights or Convertible Securities is decreased, or thenumber of shares of Common Stock issued or issuable upon the exercise of suchRights or Convertible Securities is increased, in either case by virtue ofprovisions contained therein for an automatic decrease or increase (as the casemay be) upon the occurrence of a specified date or event, any amendment ormodification of or departure from the terms thereof previously in effect orotherwise (other than under or by reason of an event resulting in a changepursuant to the provisions set forth in the documents governing such Rights orConvertible Securities designed to protect against dilution, which event alsoresults in an adjustment pursuant to this Section 10), then such event shall,for purposes of Section 10.5 (in the case of such Rights) or Section 10.6 (inthe case of such Convertible Securities) be deemed to be a new issuance, as ofthe date of the effectiveness of such decrease or increase (as the case may be)of Rights or Convertible Securities having terms reflecting such changes.

(d) Adjustment for Events Affecting Existing Rights. If the numberof shares of Common Stock issued or issuable upon exercise of any Existing Rightis increased as a direct or indirect result of any amendment or modification ofor departure from the terms thereof previously in effect (other than as a resultof the issuance of the Series B Shares, the conversion of the Series B Shares,the issuance of the Warrants or the exercise of the Warrants), then suchincreased number of shares of Common Stock issued or issuable upon exercisethereof shall be deemed to be Additional Shares of Common Stock issued as of theeffective date of such increase for the additional consideration, if any,payable to acquire such increased number of shares upon exercise of such

42

Existing Right, and the Conversion Price shall be adjusted as provided inSection 10.4. If the consideration payable for shares of Common Stock issued orissuable upon exercise of any Existing Right is decreased as a direct orindirect result of any amendment or modification of or departure from the termsthereof previously in effect, then such event shall be deemed to be theissuance, as of the effective date of such decrease, of a number of AdditionalShares of Common Stock equal to the excess of (i) the maximum number of sharesof Common Stock issuable upon exercise of such Existing Right over (ii) thenumber of shares of Common Stock determined by dividing the total consideration,if any, that would be payable to the Corporation upon the exercise in full of



such Existing Right after giving effect to such decrease by the amount ofconsideration per share of Common Stock issuable upon exercise of such ExistingRight that would have been payable to the Corporation absent such decrease. Theprovisions of this Section 10.7(d) are in addition to (and not exclusive of) anyother rights or remedies of such holders in the event that any such amendment,modification or departure occurs without any required approval of the holders ofSeries B Shares.

10.8 Other Provisions Applicable to Adjustments. The followingprovisions shall be applicable to the making of adjustments provided for in thisSection 10:

(a) Computation of Consideration.

Subject to Section 10.8(e) and the last sentence of this Section10.8(a):

(i) To the extent that any Additional Shares of Common Stock, anyConvertible Securities or any Rights to subscribe for or purchase any AdditionalShares of Common Stock or any Convertible Securities shall be issued or deemedto be issued for cash consideration, the consideration received or deemed to bereceived by the Corporation therefor shall be the net amount of the cashreceived or deemed to be received by the Corporation therefor (in any such casesubtracting any amounts received in respect of accrued interest, accrueddividends or other similar amounts which the Corporation may be obligated to payto the holders thereof in the future and any compensation, discounts or expensespaid or incurred by the Corporation in connection with the issuance thereof).

(ii) To the extent that such issuance or deemed issuance shall befor a consideration other than cash, then, except as herein otherwise expresslyprovided, the amount of such consideration shall be deemed to be the Fair MarketValue of such consideration at the time of such issuance or deemed issuance asdetermined in good faith by the Board.

(iii) In case any Additional Shares of Common Stock, anyConvertible Securities or any Rights to subscribe for, purchase or otherwiseacquire Additional Shares of Common Stock or Convertible Securities shall beissued or deemed to be issued in connection with any merger, consolidation,share exchange or similar transaction, the amount of consideration thereforshall be deemed to be the Fair Market Value, as determined in good faith by theBoard, of such portion of the assets and business of the nonsurvivingcorporation as the Board in good faith shall determine

43

to be attributable to such Additional Shares of Common Stock, ConvertibleSecurities, or Rights, as the case may be.

(iv) In case any Additional Shares of Common Stock, anyConvertible Securities or any Rights to subscribe for, purchase or otherwise



acquire Additional Shares of Common Stock or Convertible Securities are issuedor deemed to be issued in combination with each other or with any othersecurities or property in connection with any transaction in which theCorporation receives cash, securities, property or other consideration, or anycombination of the foregoing, then the amount of consideration therefor shall bedeemed to be such portion of the cash, securities, property and otherconsideration received by the Corporation as the Board in good faith shalldetermine to be attributable to such Additional Shares of Common Stock,Convertible Securities or Rights, as the case may be, with any noncashconsideration being valued at its Fair Market Value as determined by the Boardin good faith. The consideration for any Additional Shares of Common Stockissuable or deemed to be issuable pursuant to any Rights to subscribe for,purchase or otherwise acquire the same shall be the consideration received ordeemed to be received by the Corporation for issuing such Rights plus theminimum additional consideration, if any, paid or payable to the Corporationupon the exercise or deemed exercise of such Rights.

(v) The consideration for any Additional Shares of Common Stockissued or issuable pursuant to the terms of any Convertible Securities coveredby any Rights to subscribe for, purchase or otherwise acquire such ConvertibleSecurities shall be the consideration received or deemed to be received by theCorporation for issuing such Rights, plus the minimum additional consideration,if any, paid or payable to the Corporation in respect of the subscription for,purchase or other acquisition of such Convertible Securities, plus the minimumadditional consideration, if any, paid or payable to the Corporation upon theexercise or deemed exercise of the right of conversion or exchange in suchConvertible Securities.

(vi) The consideration for any Additional Shares of Common Stockissuable or deemed to be issuable pursuant to the terms of any ConvertibleSecurities, other than any covered by any Rights to subscribe for, purchase oracquire the same, shall be the consideration received or deemed to be receivedby the Corporation for issuing such Convertible Securities plus the minimumadditional consideration, if any, paid or payable to the Corporation upon theexercise of the right of conversion or exchange in such Convertible Securities.

(vii) For all purposes of this Section 10, all Rights orConvertible Securities issued or deemed to be issued to directors, officers,employees or consultants of the Corporation or any Subsidiary shall be deemed tobe issued for no consideration except to the extent the Corporation receives inexchange for the issuance thereof consideration other than services rendered orto be rendered.

(b) When Adjustments to Be Made. The adjustments required by thisSection 10 shall be made whenever and as often as any specified event requiringan adjustment shall occur, except that any adjustment of the number of shares ofCommon Stock into which a Series B Share

44



is convertible that would otherwise be required may be postponed (except in thecase of a subdivision or combination of shares of the Common Stock) up to, butnot beyond the date of conversion if such adjustment either by itself or withother adjustments not previously made adds or subtracts less than 1% of theshares of Common Stock into which a Series B Share is convertible immediatelyprior to the making of such adjustment. Any adjustment representing a change ofless than such minimum amount (except as aforesaid) which is postponed shall becarried forward and made as soon as such adjustment, together with otheradjustments required by this Section 10 and not previously made by virtue ofthis Section 10.8(b), would result in a minimum adjustment or on the date ofconversion or, if earlier, upon conversion. For the purpose of any adjustment,any specified event shall be deemed to have occurred at the close of business onthe date of its occurrence.

(c) Fractional Interests. In computing adjustments under thisSection 10, fractional interests in Common Stock shall be taken into account tothe nearest 1/100th of a share.

(d) Delivery of Due Bills. If, after the taking of any record ofthe holders of any class or series of capital stock of the Corporation for thepurpose of entitling them to receive a dividend or distribution for or inconnection with any other event which an adjustment pursuant to this Section 10is required, but prior to the occurrence of the event for which such record istaken, any Series B Share is converted, the Corporation shall deliver to theconverting Holder a due bill or other appropriate instrument evidencing suchHolder's right to receive the additional shares of Common Stock, othersecurities, cash and other property receivable upon conversion by reason of anadjustment pursuant to this Section 10 that would have been required by reasonof such dividend, distribution or other event if the Series B Shares hadcontinued to be outstanding immediately after the occurrence of the eventrequiring such adjustment.

(e) Certain Determinations. Any determination of the CurrentMarket Price of any share of Common Stock or the Fair Market Value of any othersecurity, asset, property or consideration which may be required to be made bythe Board pursuant to or in connection with the application of any provision ofthese Articles may be disputed in good faith by the Holders and any such disputeshall be resolved by an independent investment banking firm of recognizednational standing jointly selected by the Holders and the Corporation (and whosefees and expenses shall be paid by the Corporation), whose decision with respectto such dispute shall be final and conclusive and binding on the Corporation andall holders of Series B Shares. Any determination by the Board pursuant toSection 10.9(b) or Section 10.16 may be disputed in good faith by the Holders,and any such dispute shall be resolved in accordance with Section 10.15.

(f) Other Action Affecting Common Stock. In case at any time orfrom time to time the Corporation shall take any action in respect of its CommonStock which is not one described in any other provision of Section 10 asrequiring an adjustment, then, unless such action will not have an adverseeffect upon the rights and intended benefits of the holders of Series B Shares,



the number of shares of Common Stock and the kind and amount of other securitiesand property into which

45

each Series B Share is convertible shall be increased in such manner as may beequitable in the circumstances.

10.9 Multiple Classes of Common Stock.

(a) Election Right. If, at any time while any Series B Shares areoutstanding, the Corporation's authorized capital stock shall include two ormore classes or series of Common Stock, then each Holder shall have the right,upon each conversion of any of such Holder's Series B Share(s), to elect toreceive such number of shares of each such class or series as such Holderdesires, provided that the total number of shares of all classes and seriesselected by such Holder shall not exceed the aggregate number of shares ofCommon Stock issuable upon conversion of such Series B Share(s).

(b) Adjustment Rights Apply. If, as a result of any adjustmentmade pursuant to Section 10, by virtue of the existence of Section 10.9(a), as aresult of any event referred to in Section 10.16, or otherwise, the Holder of aSeries B Share would, upon conversion thereof, become the holder of more thanone class or series of capital stock of the Corporation, then the ConversionRate and the Conversion Price shall be subject to adjustment in respect of eachsuch class and series of capital stock in a manner and on terms as nearly asequivalent as practicable to all the provisions set forth in this Section 10,which manner and terms shall be determined by the Board promptly after each suchadjustment, each such action by the Corporation and each other event which hasor might have such result. Promptly after the Board makes any suchdetermination, the Corporation shall deliver to each Holder a written noticewhich shall describe in reasonable detail the manner and terms so determined.

10.10 Notices to Holders.

(a) Notice of Adjustments. Whenever the Conversion Price or theConversion Rate shall be adjusted pursuant to Section 10, the Corporation at itsexpense shall forthwith prepare a certificate to be executed by the chieffinancial officer of the Corporation setting forth, in reasonable detail, theevent requiring the adjustment, the nature and amount of such adjustment, themethod by which such adjustment was calculated (including a description of thebasis on which the Board made any determination required by any provision ofSection 10), the date as of which such adjustment was or will be effective asprovided herein, the Conversion Price and the Conversion Rate immediately priorto such event and the Conversion Price and the Conversion Rate immediately aftersuch adjustment and all other relevant information. The Corporation shallpromptly cause to be delivered to each Holder a signed copy of such certificate.The Corporation shall, upon the written request at any time of any Holder,furnish or cause to be furnished to such Holder a like certificate setting forththe Conversion Price and the Conversion Rate at the time in effect and showing



how such Conversion Price and Conversion Rate were calculated.

(b) Notice of Corporate Action. If at any time:

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(i) the Corporation shall take a record of the holders ofany class, series or issue of its capital stock or other securities for thepurpose of entitling them to receive a dividend or other distribution, or anyright to subscribe for, purchase or otherwise acquire any evidences of itsindebtedness, any shares of capital stock of any class or series, any cash orany other securities or property, or to receive any other right, interest orbenefit, or

(ii) there shall be any capital reorganization of theCorporation, any reclassification or recapitalization of the capital stock ofthe Corporation or any consolidation or merger or binding share exchange of theCorporation with, or any sale, transfer or other disposition of all orsubstantially all the property, assets or business of the Corporation to,another Person or any other event referred to in Section 10.16 or within thedefinition of the term "Sale of the Company" shall occur or be proposed, or

(iii) there shall be any tender offer or exchange offer forConversion Securities of any class, series or issue, or

(iv) there shall be a voluntary or involuntary dissolution,liquidation or winding up of the Corporation,

then the Corporation shall (x) give to each Holder at least 20 days' priorwritten notice of the date on which a record date shall be fixed for suchdividend, distribution or right or for determining rights to vote in respect ofany such reorganization, reclassification, merger, consolidation, sale,transfer, disposition, dissolution, liquidation or winding up, (y) promptlyafter learning of any such tender or exchange offer, deliver to each Holdernotice thereof, a copy of all written offering material which the Corporationpossesses or reasonably can obtain or if no such materials exist or arepossessed or can reasonably be obtained by the Corporation, a written summary ofall material terms and conditions of and other material facts relating theretoknown to the Corporation and (z) give each Holder at least 20 days' priorwritten notice of the scheduled, planned or anticipated date when any suchreorganization, reclassification, merger, consolidation, sale, transfer,disposition, dissolution, liquidation, winding up or other event shall takeplace. Such notice in accordance with clause (x) of the immediately precedingsentence also shall specify (i) the date on which any such record is to be takenfor the purpose of the event covered by the notice or any related event, and(ii) the date on which such event or related event is to take place and, ifapplicable, the time, if any such time is to be fixed, as of which the holdersof Common Stock shall be entitled to exchange their shares of Common Stock forsecurities, cash or other property deliverable as a result of such event orrelated event.



(c) Notices To Stockholders. In addition to the foregoing, eachHolder shall be given the same notices of corporate action or proposed corporateaction as any holder of Common Stock.

10.11 No Impairment. The Corporation shall not by or throughamending its Articles of Incorporation, any reorganization, transfer of assets,consolidation, merger, share exchange, dissolution, issue or sale of securitiesor any other voluntary action, avoid or seek to avoid

47

the observance or performance of any of the terms of these Articles, but will atall times in good faith carry out and assist in the carrying out of all suchterms and in the taking of all such actions as may be necessary or appropriateto protect the rights and intended benefits of the holders of the Series BShares against impairment. Without limiting the generality of the foregoing, theCorporation (i) will not directly or indirectly increase the par value of anyshares of Common Stock or other capital stock receivable upon the conversion ofany Series B Share above the Conversion Price immediately prior to such increasein par value, (ii) will not take any action that results in any adjustment tothe Conversion Rate or Conversion Price pursuant to Section 10 if after suchadjustment the total number of shares of Common Stock or shares of any otherclass or series of Conversion Stock issuable upon the conversion of all of theoutstanding Series B Shares would exceed the total number of shares of CommonStock or such other Conversion Stock, respectively, then authorized by theCorporation's Articles of Incorporation and available and reserved for thepurpose of issuance upon such conversion, (iii) will not enter into anytransaction or take any action which, by reason of any resulting adjustmenthereunder, would cause the Conversion Price to be less than the par value pershare of Common Stock and (iv) will take all such action as may be necessary orappropriate in order that the Corporation may validly and legally issue sharesof each class and series of Conversion Stock and other Conversion Securitiesupon the conversion of any Series B Share which in each case are fully paid,non-assessable and without personal liability attaching to the ownership thereofand not subject to preemptive and similar purchase rights. Upon the request ofany Holder, at any time, the Corporation will acknowledge in writing, in formsatisfactory to such Holder, the continuing validity of each certificate for anySeries B Share(s) then held by such Holder and the obligations of theCorporation with respect thereto and thereunder.

10.12 Taking of Record; Stock Transfer Books. In the case of alldividends or other distributions by the Corporation to the holders of its CommonStock with respect to which any provision of Section 10 refers to the taking ofa record of such holders, in each such case the Corporation will not declare,pay or make any such dividend or distribution unless it shall take such a recordand the Corporation shall take each such record as of the close of business on aBusiness Day. The Corporation shall not be required to convert any shares ofSeries B Preferred Stock, and no surrender of Series B Preferred Stock shall beeffective for that purpose, while the stock transfer books of the Corporation



are closed for any proper purpose; but the surrender of Series B Preferred Stockfor conversion during any period while such books are so closed shall becomeeffective for conversion immediately upon the reopening of such books, as if theconversion had been made on the date such Series B Preferred Stock wassurrendered for conversion. The Corporation will not at any time voluntarilyclose its stock transfer books so as to result in preventing or delaying theconversion or transfer of any Series B Share.

10.13 Each Holder May Enforce Rights. Notwithstanding any of theprovisions hereof, any Holder, without the consent of any other Holder, or anyholder of any Conversion Securities may, in his own behalf and for his ownbenefit, enforce, and may institute and maintain any suit, action or proceedingagainst the Corporation suitable to enforce, or otherwise in respect of, hisrights with respect to his Series B Shares or Conversion Securities.

48

10.14 Office of the Corporation. As long as any of the Series BShares are outstanding, the Corporation shall maintain one or more offices oragencies where the Series B Shares may be presented for conversion and Series BShares and Conversion Securities may be presented for registration of transfer,division or combination. Series B Shares and Conversion Securities may, in anyevent, be presented for such purposes at the principal executive offices of theCorporation in the United States.

10.15 Resolution of Certain Disputes.

(a) Consultation. If there shall arise any dispute between theCorporation and the Majority Holders concerning the interpretation, applicationor operation of the adjustment provisions of Section 10 (other than any suchdispute referred to in the first sentence of Section 10.8(e), which shall beresolved as stated therein), the Corporation and the Majority Holders willpromptly attempt to settle such dispute through consultation and negotiation ingood faith and in a spirit of mutual cooperation. If agreement is reachedconcerning the resolution of such dispute, then such agreement shall be final,conclusive and binding on the Corporation and all holders of Series B Shares.

(b) Arbitration. If, on or before the thirtieth day after writtennotice of such dispute is given by the Corporation to the holders of the SeriesB Shares or the Majority Holders to the Corporation, such dispute has not beenresolved by the agreement of the Corporation and the Majority Holders, suchdispute shall be settled by an expedited arbitration proceeding conducted inaccordance with the then current Commercial Arbitration rules of the AmericanArbitration Association in New York, New York by a single arbitrator whosatisfies the requirements of Section 10.15(e) and who is mutually acceptable tothe Corporation and the Majority Holders or, in the event such Persons fail toagree upon such arbitrator within ten Business Days after such written notice ofdispute is given, an arbitrator who satisfies such requirements appointed by theAmerican Arbitration Association upon application of either the Corporation orthe Majority Holders. Neither the Corporation nor the Majority Holders shall



unreasonably withhold its approval of the selection of an arbitrator satisfyingthe requirements of Section 10.15(e).

(c) Certain Provisions Applicable to Arbitration. The Corporationand the Majority Holders shall provide such arbitrator with such information asmay be reasonably requested in connection with the arbitration of such disputeand shall otherwise cooperate with each other and such arbitrator in good faithand with the goal of resolving such dispute as promptly as reasonablypracticable. The arbitrator shall not have authority to award damages, butshall have only the authority to determine disputes regarding the matters setforth in the first sentence of Section 10.15(a). Subject to the immediatelypreceding sentence and to Section 10.15(f), the arbitrator's decision based onwritten conclusions of law and fact with respect to the dispute referred to sucharbitration shall be final and binding and may be entered in any court withjurisdiction, and the Corporation and the holders of the Series B Shares shallabide by such decision. Each party shall bear its own costs and expenses,including attorney's fees, incurred in connection with any arbitrationproceeding, except that the Corporation and the holders of the Series B Shares(as a

49

group) each shall pay one-half of all fees, costs and disbursements of thearbitrator and of or charged by the American Arbitration Association.

(d) Other Remedies. The provisions of this Section 10.15 shall notin any way limit or otherwise affect (i) the right of any Holder to seek, withregard to the matter in dispute, specific performance or other injunctive reliefin any court of competent jurisdiction or (ii) the rights or remedies of anyHolder with respect to any claim, controversy or dispute not submitted to anddecided by an arbitrator pursuant to this Section 10.15.

(e) Arbitrators. Each arbitrator appointed pursuant to Section10.15(a) shall be an attorney who practices law in New York City, who hassubstantial experience in sophisticated corporate and securities transactionsgenerally and in negotiating and drafting "antidilution" provisions of warrantsand convertible securities in particular and who has not, and who is not amember or employee of any firm which has, rendered legal services to any of theparties to the dispute or any of their respective Affiliates within thepreceding two years and who has no interest (other than the receipt of customaryfees for his services as an arbitrator) in the matter in dispute.

(f) Other Rights Unaffected. Nothing contained in this Section10.15 or any other provision hereof is intended to or shall preclude any holderof any Series B Share or Conversion Securities from exercising or pursuing orotherwise limiting or affecting the rights or remedies which such holder mayhave pursuant to the Purchase Agreement, at law, in equity or otherwise byreason of any matter which is the subject of or basis for any dispute referredto in Section 10.15(a) (or any other matter), and the dispute resolutionmechanisms provided for in this Section 10.15 are intended solely as a means of



resolving bona fide disputes concerning the interpretation, application oroperation of the adjustment provisions of Section 10 (other than any suchdispute referred to in the first sentence of Section 10.8(e), which shall beresolved as stated therein) or bona fide disputes which the last sentence ofSection 10.8(e) provides will be resolved pursuant to this Section 10.15, andnot for the purpose of determining the rights of holders of Series B Shares orConversion Securities or the liabilities or obligations of the Corporation, forthe purpose of resolving or settling any claim by any such holder of any breachor inaccuracy of any representation or warranty of, or any breach or failure toperform any covenant, agreement or obligation, of the Corporation containedherein or in the Purchase Agreement or any other Transaction Document (asdefined in the Purchase Agreement) or any other purpose. Without limiting thegenerality of the immediately preceding sentence, no decision of any arbitratorappointed pursuant to this Section 10.15 shall have or be given any res judicataor similar effect in any action, suit or proceeding in which any claim by anyholder of any Series B Share or Conversion Securities of any breach orinaccuracy of any representation or warranty of, or any breach or failure toperform any covenant, agreement or obligation, of the Corporation containedherein or in the Purchase Agreement or any other agreement or instrument is tobe adjudicated.

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10.16 Reclassification, Consolidation, Merger or Sale, Conveyanceor Lease or Assets.

(a) Adjustments. Unless, as a result of such event, the Series BShares are redeemed in accordance with Section 6.2 by reason of the election ofthe Majority Holders in accordance with such Section, if any of the followingshall occur while any Series B Shares are outstanding:

(i) any consolidation, merger, binding share exchange orreorganization to which the Corporation is party (other than a consolidation,merger, share exchange or reorganization in which the Corporation is thecontinuing corporation and which does not result in any reclassification of orchange in the outstanding shares of Conversion Securities of any class or seriesissuable upon conversion of the Series B Preferred Stock); or

(ii) any sale, conveyance, transfer or lease to anotherEntity of the properties and assets of the Corporation as an entirety orsubstantially as an entirety,

then the Corporation or the successor or acquiring Entity, as the case may be,shall thereupon make appropriate provision, reasonably satisfactory to theMajority Holders, so that the holders of the Series B Shares then outstandingshall have the right at any time thereafter, upon conversion of the Series BShares, to receive the kind and amount of shares of common stock of suchsuccessor or acquiring Entity, other capital stock or equity interests, othersecurities and property receivable or purchasable (as the case may be) upon suchreclassification, change, consolidation, merger, sale, conveyance, transfer or



lease as would be received by a holder of the number of shares of Common Stock,the number of shares of each other class or series of Conversion Stock and thekind and amount of all other Conversion Securities issuable upon conversion ofsuch Series B Shares immediately prior to such consolidation, merger, sale,conveyance, transfer or lease (after giving effect to all adjustments requiredby this Section 10). If the holders of the Common Stock, any other shares ofConversion Stock or any other Conversion Securities of any class or series haverights of election as to the kind or amount of capital stock or other equityinterests, other securities or other property receivable upon consummation ofany such transaction, then the same right of election shall be given to theholders of the Series B Preferred Stock. For purposes of this Section 10.16,"common stock of the successor or acquiring Entity" shall include capital stock(or other equity interests if such Entity is not a corporation) of such Entityof any class which is not preferred as to dividends or assets on liquidationover any other class or series of stock of such corporation (or other equityinterests of a non-corporate Entity) and which is not subject to redemption andshall also include any evidences of indebtedness, shares of capital stock,equity interests or other securities which are convertible into or exchangeablefor any such capital stock (or other equity interests), either immediately orupon the arrival of a specified date or the happening of a specified event andany warrants or other rights to subscribe for or purchase any such capital stock(or other equity interests).

(b) Express Assumption by Successor or Acquiring Corporation. Incase of any such merger, consolidation, share exchange, reorganization, ordisposition of assets, the successor or

51

acquiring corporation shall expressly assume the due and punctual observance andperformance of each and every covenant and condition of these Articles to beperformed and observed by the Corporation and all the obligations andliabilities thereunder or otherwise with respect thereto, subject to suchmodifications as may be deemed appropriate (as determined by resolution of theBoard) in order to provide for adjustments of shares of the capital stock, othersecurities or other property into which Series B Shares are convertible whichshall be as nearly equivalent as practicable to the adjustments provided for inSection 10. Promptly after the Board makes any such determination, theCorporation shall deliver to each Holder a written notice which shall describein reasonable detail the manner and terms so determined.

(c) Provisions Apply Successively. The foregoing provisions ofthis Section 10.16 shall similarly apply to successive reorganizations, mergers,consolidations or disposition of assets.

Section 11. Voting Rights. (a) The Series B Shares shall not carry votingrights except as provided in these Articles and except for any voting rights towhich the holders thereof may be or become entitled under the BusinessCorporation Act of the State of Colorado as in effect from time to time (or anysuccessor statutory provisions) or other applicable law. The foregoing shall



not prevent the Corporation from granting, by contract or otherwise, to anyholder or holders of any Series B Shares any consent or approval, veto orsimilar rights of any nature whatsoever. So long as any shares of the Series BPreferred Stock are outstanding, each share of Series B Preferred Stock shallentitle the holder thereof to vote on all matters voted on by holders of CommonStock, and the shares of Series B Preferred Stock shall vote together withshares of Common Stock as a single class on such matter. With respect to anysuch vote, each share of Series B Preferred Stock shall entitle its holder to anumber of votes equal to the number of shares of Common Stock into which suchshare of Series B Preferred Stock is convertible at the time of the record datewith respect to such vote (assuming all conditions precedent to such conversionhave been satisfied and that such conversion had occurred as of the record datefor such vote).

(b) If on any date (i) the Corporation shall have failed to satisfyits obligation to redeem shares of Series B Preferred Stock pursuant to theterms of these Articles or (ii) any default or event of default has occurred andis continuing under any Indebtedness of the Corporation or any of itsSubsidiaries, the outstanding principal amount of which is in excess of$5,000,000, and as a result of such default or event of default the holdersthereof have accelerated the maturity thereof, and such default, event ofdefault or event is not cured or waived within 30 days after the MajorityHolders shall have furnished to the Corporation notice of their intention toexercise the rights set forth in this Section 11(b), then the number of membersconstituting the Board shall be increased (as provided in the resolution adoptedby the Board on April 17, 2000) so as to enable the holders of the Series BPreferred Stock to designate a majority of the Board of Directors (including theSeries B Directors), and the Holders, voting together as a separate class, shallhave, in addition to the other voting rights set forth herein, the exclusiveright to elect that number of directors (such additional directors, the"Majority Directors") of the Corporation necessary to fill such newly-createddirectorships. Such additional voting right shall continue until such time assuch failure, default, event of default or event is cured, at which time suchadditional voting rights of the Series B Preferred

52

Stock shall terminate subject to revesting in the event of each and everysubsequent event of the character indicated above.

(c) The foregoing rights of holders of shares of Series B PreferredStock to take any action as provided in this Section 11 may be exercised at anyannual meeting of stockholders or at a special meeting of stockholders held forsuch purpose as hereinafter provided or at any adjournment thereof, or by thewritten consent, delivered to the Secretary of the Corporation, of the holdersof the minimum number of shares required to take such action. So long as suchright to vote continues (and unless such right has been exercised by writtenconsent of the minimum number of shares required to take such action), theChairman of the Board may call, and upon the written request of holders ofrecord of 10% of the outstanding shares of Series B Preferred Stock, addressed



to the Secretary of the Corporation at the principal office of the Corporation,shall call, a special meeting of the holders of shares entitled to vote asprovided herein. Such meeting shall be held as soon as reasonably practicableafter delivery of such request to the Secretary, at the place and upon thenotice provided by law and in the By-laws for the holding of meetings ofstockholders.

(d) Each director elected pursuant to subsection (b) hereof shallserve until the next annual meeting or until his or her successor shall beelected and shall qualify. In case any vacancy shall occur among the directorselected pursuant to subsection (b) hereof, such vacancy shall be filled for theunexpired portion of the term by vote of the remaining director or directorstheretofore elected pursuant to the same subsection (or such director's ordirectors' successor in office), if any. If any such vacancy is not so filledwithin 20 days after the creation thereof or if all of the directors so electedshall cease to serve as directors before their term shall expire, the holders ofthe shares of Series B Preferred Stock then outstanding and entitled to vote forsuch director pursuant to the provisions of subsection (b) hereof, as the casemay be, may elect successors to hold office for the unexpired terms of anyvacant directorships, by written consent as provided herein, or at a specialmeeting of such holders called as provided herein. The holders of a majority ofthe shares entitled to vote for directors pursuant to subsection (b) hereof, asthe case may be, shall have the right to remove with or without cause at anytime and replace any directors such holders have elected pursuant to suchsection, by written consent as herein provided, or at a special meeting of suchholders called as provided herein.

(e) For so long as TPG is the Beneficial Owner of at least fortypercent (40%) of the Originally Issued Shares, without the consent of theMajority Holders:

(i) the Corporation shall not amend, alter, repeal or waive(whether by amendment, merger, consolidation or otherwise) any of the provisionsof its Amended and Restated Articles of Incorporation, these Series B Articlesof Amendment or its By-laws, or any resolution of the Board or any otherinstrument establishing and designating any capital stock of the Corporation anddetermining the relative rights, privileges, powers or preferences thereof;

(ii) the Corporation shall not, and shall cause eachSubsidiary not to, (A) authorize, create or designate any new class or series ofcapital stock, or (B) issue or sell any

53

shares of capital stock or derivative securities, except as already authorized,or (C) combine, subdivide or recapitalize the Series B Preferred Stock;

(iii) the Corporation shall not, and shall cause eachSubsidiary not to, engage or participate in, or agree to engage or participatein, a Sale of the Company, except in the event that such Sale of the Company



would result in proceeds in respect of the Series B Preferred Stock of at leastthe greater of (A) two times the Liquidation Price, and (B) a thirty percent(30%) Rate of Return on the per share purchase price of $1,000 for each Series BShare paid pursuant to the Purchase Agreement, calculated from the Closing Dateto the date of such transaction, in which case the consent of the MajorityHolders to such Sale of the Company shall not be required;

(iv) appoint or terminate the Chief Executive Officer or anyother member of senior management of the Company; or

(v) alter the number of directors comprising the Board(other than pursuant to the resolutions of the Board adopted on April 17, 2000).

(f) The Corporation shall not enter into any agreement, amend ormodify any existing agreement or obligation or issue any security thatprohibits, conflicts or is inconsistent with, or would be breached by, theCorporation's performance of its obligations hereunder.

(g) Solely for the purposes of this Section 11, the consent of theMajority Holders shall be deemed to have been given with respect to any matterif the Series B Directors shall have unanimously consented thereto.

Section 12. Headings. The headings of the various sections and subsectionshereof are for convenience of reference only and shall not affect theinterpretation of any of the provisions hereof.

Section 13. Terms Generally. References herein to "these Articles" are to theSeries B Articles of Amendment as the same may be amended from time to time inaccordance with Section 19. The definitions of terms contained herein shallapply equally to both the singular and plural forms of the terms defined.Whenever the context may require, any pronoun shall include the correspondingmasculine, feminine and neuter forms. The words "include", "includes" and"including" shall be deemed to be followed by the phrase "without limitation".The words "herein", "hereof" and "hereunder" and words of similar import referto these Articles in its entirety and not to any part hereof, unless the contextshall otherwise require. All references herein to Sections shall be deemedreferences to Sections of these Articles, unless the context shall otherwiserequire. Unless the context shall otherwise require, any references to anyagreement or other instrument or to any statute or regulation or any specificsection or other provision thereof are to it as amended and supplemented fromtime to time (and, in the case of a statute or regulation or specific section orother provision thereof, to any successor to such statute, regulation, sectionor other provision). Unless otherwise expressly provided herein or unless thecontext shall otherwise require, any provision of this Agreement using a definedterm (such as "Subsidiary" or "Wholly Owned Subsidiary") which

54

is based on a specified relationship between one Person and one or more otherPersons shall, as of any time, refer to such Persons who have the specified



relationship as of that particular time. Any reference in this Agreement to a"day" or number of "days" (without the explicit qualification of "Business")shall be interpreted as a reference to a calendar day or number of calendardays. Unless the context clearly indicates otherwise, "or" shall not beexclusive and means "and/or." When used with reference to any Right orConvertible Security, the term "exercise" means to exercise the right tosubscribe for, purchase or otherwise acquire shares of Common Stock representedby such Right or the right to exchange or convert such Convertible Security foror into shares of Common Stock represented by such Convertible Security, andvariants of such word (including "exercised" and "exercisable") shall havecorrelative meanings. Whenever used with respect to any Additional Share ofCommon Stock or any other share of Common Stock, the word "issue" includes anyissuance, sale or other method of transfer or delivery of such share, whethersuch share is newly issued or is a treasury share and variants of such word(including "issued", "issuance" or "issuable") used with respect to anyAdditional Share of Common Stock or any other share of Common Stock shall havecorrelative meanings; therefore, any provision of these Articles which is statedto be applicable if the Corporation issues or shall issue any share isapplicable both to a newly issued share and to a treasury share sold orotherwise transferred or delivered. The word "property" shall include assets orproperty of any kind, real, personal, tangible or intangible.

Section 14. Actions on Non-Business Days. If any action or notice is to betaken or given on or by a particular calendar day, and such calendar day is nota Business Day, then such action or notice shall be deferred until, and may betaken or given on, the next Business Day.

Section 15. Severability. If any provision of these Articles shall be illegal,invalid or unenforceable by reason of any rule of law or public policy, thatprovision will be enforced to the maximum extent permissible so as to effect theintent thereof and the validity, legality and enforceability of the remainingprovisions shall not in any way be affected or impaired thereby. In any suchcase, if requested by the Majority Holders, the Corporation will negotiate ingood faith to amend these Articles to replace the illegal, invalid orunenforceable language with legal, valid and enforceable language which asclosely as possible reflects such intent.

Section 16. Waivers. Any provision of these Articles that prohibits, limits orrestricts actions by the Corporation, or imposes obligations on the Corporation,may be waived in whole or in part, or the application of all or any part of suchprovision in any particular circumstance or generally may be waived, in eachcase with the consent of the Majority Holders, either in writing or by vote at ameeting called for such purpose at which the holders of Series B Preferred Stockshall vote as a separate class, unless a greater vote or consent is requiredunder Colorado law, in which event such greater vote or consent requirementshall apply.

Section 17. Defects in Notices. No failure on the part of the Corporation togive any notice required by any provision of these Articles, nor any delay ordefect in any such notice which is given or in the giving thereof, shalladversely affect the rights which the holders of the Series B Preferred Stock



would have if such notice had been duly given on a timely basis, and suchholders shall be

55

entitled to exercise such rights from and at any time after they acquire actualknowledge of the matters required to be set forth in such notice.

Section 18. Specific Performance; Injunctive Relief. In addition to any otherrights or remedies which may be available at law, in equity or by contract, anyholder from time to time of shares of Series B Preferred Stock shall be entitledto obtain in any court of competent jurisdiction specific performance of, or aninjunction or other order restraining any act or proposed act by the Corporationwhich would result in a violation of, any of the terms or provisions of theseArticles.

Section 19. Amendment. The Series B Articles of Amendment may be amended fromtime to time by the Board with the affirmative vote at a meeting duly called andheld or written consent of the Majority Holders, unless a greater vote orconsent is required under Colorado law, in which event such greater vote orconsent requirement shall apply. Unless otherwise required by mandatoryprovisions of applicable law, no vote or consent of the holders of any otherclass or series of the Corporation's stock shall be necessary.

Section 20. Decisions by Holders Generally. Unless otherwise expresslyprovided herein, all decisions and determinations required or permitted to bemade hereunder by the holders collectively or as a class (including any decisionas to whether to give any consent or approval) shall be made by the MajorityHolders. To the maximum extent permitted by law, each Person who is or shallbecome a holder of any Series B Share waives all fiduciary duties to suchPerson, if any, that the Majority Holders or any other holder otherwise would ormight have in its or their capacities as such.

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Dated: April 17, 2000

CONVERGENT COMMUNICATIONS, INC.

By: /s/ Joseph R. Zell_________________________________________

Name: Joseph R. ZellTitle: President and Chief Executive Officer

By: /s/ Martin E. Freidel_________________________________________

Name: Martin E. Freidel



Title: Secretary

57



Exhibit 3.6

AMENDED AND RESTATED BYLAWS

OF


ARTICLE I

1. Offices.

1.1 The principal office of the corporation shall be designated fromtime to time by the corporation and may be within or outside of Colorado.

1.2 The corporation may have such other offices, either within oroutside Colorado, as the board of directors may designate or as the business ofthe corporation may require from time to time.

1.3 The registered office of the corporation required by the ColoradoBusiness Corporation Act to be maintained in Colorado may be, but need not be,identical with the principal office, and the address of the registered officemay be changed from time to time by the board of directors.

ARTICLE II

Shareholders

1. Annual Meeting.

1.1 The annual meeting of the shareholders shall be held during thefirst or second fiscal quarters of the corporation of each year on a date and ata time fixed by the board of directors of the corporation (or by the presidentin the absence of action by the board of directors), beginning with the year1997, for the purpose of electing directors and for the transaction of suchother business as may come before the meeting. If the election of directors isnot held on the day fixed as provided herein for any annual meeting of theshareholders, or any adjournment thereof, the board of directors shall cause theelection to be held at a special meeting of the shareholders as soon thereafteras it may conveniently be held.

1.2 A shareholder may apply to the district court in the county in



Colorado where the corporation's principal office is located or, if thecorporation has no principal office in Colorado, to the district court of thecounty in which the corporation's registered office is located to seek an orderthat a shareholder meeting be held (i) if an annual meeting was not held withinsix months after the close of the corporation's most recently ended fiscal yearor fifteen months after its last annual meeting, whichever is earlier, or (ii)if the shareholder participated in a proper call of or proper demand for aspecial meeting and notice of the special meeting was not given within thirtydays after the date of the call or the date the last of the demands necessary torequire calling of the meeting was received by the corporation pursuant toSection 7-107-102(1)(b) of the Colorado Business Corporation Act, or the specialmeeting was not held in accordance with the notice.

2. Special Meetings. Unless otherwise prescribed by statute, specialmeetings of the shareholders may be called for any purpose by the chairman ofthe board, the chief executive officer, the president, the secretary or by theboard of directors. The president or secretary shall call a special meeting ofthe shareholders if the corporation receives one or more written demands for themeeting, stating the purpose or purposes for which it is to be held, signed anddated by holders of shares representing at least ten percent of all the votesentitled to be cast on any issue proposed to be considered at the meeting. Inaddition, special meetings of preferred shareholders shall be held at such timeand in such manner as may be proscribed in the terms of such preferred shares.

3. Place of Meeting. The board of directors may designate any place,either within or outside Colorado, as the place for any annual meeting or anyspecial meeting called by the board of directors. A waiver of notice signed byall shareholders entitled to vote at a meeting may designate any place, eitherwithin or outside Colorado, as the place for such meeting. If no designation ismade, or if a special meeting is called other than by the board, the place ofmeeting shall be the principal office of the corporation.

4 Notice of Meeting.

4.1 Written notice stating the place, date, and hour of the meetingshall be given not less than ten nor more than sixty days before the date of themeeting, except that (i) if the number of authorized shares is to be increased,at least thirty days' notice shall be given, or (ii) any other longer noticeperiod is required by the Colorado Business Corporation Act. Notice of aspecial meeting shall include a description of the purpose or purposes of themeeting. Notice of an annual meeting need not include a description of thepurpose or purposes of the meeting except the purpose or purposes shall bestated with respect to (i) an amendment to the articles of incorporation of thecorporation, (ii) a merger or share exchange in which the corporation is a partyand, with respect to a share exchange, in which the corporation's shares will beacquired, (iii) a sale, lease, exchange or other disposition, other than in theusual and regular course of business, of all or substantially all of theproperty of the corporation or of another entity which this corporationcontrols, in each case with or without the goodwill, (iv) a dissolution of the

2



corporation, or (v) any other purpose for which a statement of purpose isrequired by the Colorado Business Corporation Act. Notice shall be givenpersonally or by mail, private carrier, telegraph, teletype, electronicallytransmitted facsimile or other form of wire or wireless communication by or atthe direction of the president, the secretary, or the officer or persons callingthe meeting, to each shareholder of record entitled to vote at such meeting. Ifmailed and if in a comprehensible form, such notice shall be deemed to be givenand effective when deposited in the United States mail, addressed to theshareholder at his address as it appears in the corporation's current record ofshareholders, with postage prepaid. If notice is given other than by mail, andprovided that such notice is in a comprehensible form, the notice is given andeffective on the date received by the shareholder.

4.2 If requested by the person or persons lawfully calling suchmeeting, the secretary shall give notice thereof at the corporation's expense.No notice need be sent to any shareholder if three successive notices mailed tothe last known address of such shareholder have been returned as undeliverableuntil such time as another address for such shareholder is made known to thecorporation by such shareholder. In order to be entitled to receive notice ofany meeting, a shareholder shall advise the corporation in writing of any changein such shareholder's mailing address as shown on the corporation's books andrecords.

4.3 When a meeting is adjourned to another date, time or place,notice need not be given of the new date, time or place if the new date, time orplace of such meeting is announced before adjournment at the meeting at whichthe adjournment is taken. At the adjourned meeting the corporation may transactany business which may have been transacted at the original meeting. If theadjournment is for more than 120 days, or if a new record date is fixed for theadjourned meeting, a new notice of the adjourned meeting shall be given to eachshareholder of record entitled to vote at the meeting as of the new record date.

4.4 A shareholder may waive notice of a meeting before or after thetime and date of the meeting by a writing signed by such shareholder. Suchwaiver shall be delivered to the corporation for filing with the corporaterecords. Further, by attending a meeting either in person or by proxy, ashareholder waives objection to lack of notice or defective notice of themeeting unless the shareholder objects at the beginning of the meeting to theholding of the meeting or the transaction of business at the meeting because oflack of notice or defective notice. By attending the meeting, the shareholderalso waives any objection to consideration at the meeting of a particular matternot within the purpose or purposes described in the meeting notice unless theshareholder objects to considering the matter when it is presented.

5. Fixing of Record Date.

5.1 For the purpose of determining shareholders entitled to (i)notice of or vote at any meeting of shareholders or any adjournment thereof,(ii) receive distributions or share dividends, or (iii) demand a specialmeeting, or to make a determination of shareholders for any other proper



purpose, the board of directors may fix a future date as the record date for anysuch

3

determination of shareholders, such date in any case to be not more thanseventy days, and, in case of a meeting of shareholders, not less than ten days,prior to the date on which the particular action requiring such determination ofshareholders is to be taken. If no record date is fixed by the directors, therecord date shall be the date on which notice of the meeting is mailed toshareholders, or the date on which the resolution of the board of directorsproviding for a distribution is adopted, as the case may be. When adetermination of shareholders entitled to vote at any meeting of shareholders ismade as provided in this Section, such determination shall apply to anyadjournment thereof unless the board of directors fixes a new record date, whichit must do if the meeting is adjourned to a date more than 120 days after thedate fixed for the original meeting.

5.2 Notwithstanding the above, the record date for determining theshareholders entitled to take action without a meeting or entitled to be givennotice of action so taken shall be the date a writing upon which the action istaken is first received by the corporation. The record date for determiningshareholders entitled to demand a special meeting shall be the date of theearliest of any of the demands pursuant to which the meeting is called.

6. Voting Lists.

6.1 The secretary shall make, at the earlier of ten days before eachmeeting of shareholders or two business days after notice of the meeting hasbeen given, a complete list of the shareholders entitled to be given notice ofsuch meeting or any adjournment thereof. The list shall be arranged by votinggroups and within each voting group by class or series of shares, shall be inalphabetical order within each class or series, and shall show the address ofand the number of shares of each class or series held by each shareholder. Forthe period beginning the earlier of ten days prior to the meeting or twobusiness days after notice of the meeting is given and continuing through themeeting and any adjournment thereof, this list shall be kept on file at theprincipal office of the corporation, or at a place (which shall be identified inthe notice) in the city where the meeting will be held. Such list shall beavailable for inspection on written demand by any shareholder (including for thepurpose of this Section 6 any holder of voting trust certificates) or his agentor attorney during regular business hours and during the period available forinspection. The original stock transfer books shall be prima facie evidence asto the shareholders entitled to examine such list or to vote at any meeting ofshareholders.

6.2 Any shareholder, his agent or attorney may copy the list duringregular business hours and during the period it is available for inspection,provided (i) the shareholder has been a shareholder for at least three monthsimmediately preceding the demand or holds at least five percent of all



outstanding shares of any class of shares as of the date of the demand, (ii) thedemand is made in good faith and for a purpose reasonably related to thedemanding shareholder's interest as a shareholder, (iii) the shareholderdescribes with reasonable particularity the purpose and the records theshareholder desires to inspect, (iv) the records are directly connected with thedescribed purpose, and (v) the shareholder pays a reasonable charge

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covering the costs of labor and material for such copies, not to exceed theestimated cost of production and reproduction.

7. Recognition Procedure for Beneficial Owners. The board of directorsmay adopt by resolution a procedure whereby a shareholder of the corporation maycertify in writing to the corporation that all or a portion of the sharesregistered in the name of such shareholder are held for the account of aspecified person or persons. The resolution may set forth (i) the types ofnominees to which it applies, (ii) the rights or privileges that the corporationwill recognize in a beneficial owner, which may include rights and privilegesother than voting, (iii) the form of certification and the information to becontained therein, (iv) if the certification is with respect to a record date,the time within which the certification must be received by the corporation, (v)the period for which the nominee's use of the procedure is effective, and (vi)such other provisions with respect to the procedure as the board deems necessaryor desirable. Upon receipt by the corporation of a certificate complying withthe procedure established by the board of directors, the persons specified inthe certification shall be deemed, for the purpose or purposes set forth in thecertification, to be the registered holders of the number of shares specified inplace of the shareholder making the certification.

8. Quorum and Manner of Acting.

8.1 A majority of the votes entitled to be cast on a matter by avoting group shall constitute a quorum of that voting group for action on thematter. If less than a majority of such votes are represented at a meeting, amajority of the votes so represented may adjourn the meeting from time to timewithout further notice, for a period not to exceed 120 days for any oneadjournment. If a quorum is present at such adjourned meeting, any business maybe transacted which might have been transacted at the meeting as originallynoticed. The shareholders present at a duly organized meeting may continue totransact business until adjournment, notwithstanding the withdrawal of enoughshareholders to leave less than a quorum, unless the meeting is adjourned and anew record date is set for the adjourned meeting.

8.2 If a quorum exists, action on a matter other than the election ofdirectors by a voting group is approved if the votes cast within the votinggroup favoring the action exceed the votes cast within the voting group opposingthe action, unless the vote of a greater number or voting by classes is requiredby law or the articles of incorporation.



9. Proxies.

9.1 At all meetings of shareholders, a shareholder may vote by proxyby signing an appointment form or similar writing, either personally or by hisduly authorized attorney-in-fact. A shareholder may also appoint a proxy bytransmitting or authorizing the transmission of a telegram, teletype, or otherelectronic transmission providing a written statement of the appointment to theproxy, a proxy solicitor, proxy support service organization, or other personduly authorized by the proxy to receive appointments as agent for

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the proxy, or to the corporation. The transmitted appointment shall set forthor be transmitted with written evidence from which it can be determined that theshareholder transmitted or authorized the transmission of the appointment. Theproxy appointment form or similar writing shall be filed with the secretary ofthe corporation before or at the time of the meeting. The appointment of aproxy is effective when received by the corporation and is valid for elevenmonths unless a different period is expressly provided in the appointment formor similar writing.

9.2 Any complete copy, including an electronically transmittedfacsimile, of an appointment of a proxy may be substituted for or used in lieuof the original appointment for any purpose for which the original appointmentcould be used.

9.3 Revocation of a proxy does not affect the right of thecorporation to accept the proxy's authority unless (i) the corporation hadnotice that the appointment was coupled with an interest and notice that suchinterest is extinguished is received by the secretary or other officer or agentauthorized to tabulate votes before the proxy exercises his authority under theappointment, or (ii) other notice of the revocation of the appointment isreceived by the secretary or other officer or agent authorized to tabulate votesbefore the proxy exercises his authority under the appointment. Other notice ofrevocation may, in the discretion of the corporation, be deemed to include theappearance at a shareholders' meeting of the shareholder who granted the proxyand his voting in person on any matter subject to a vote at such meeting.

9.4 The death or incapacity of the shareholder appointing a proxydoes not affect the right of the corporation to accept the proxy's authorityunless notice of the death or incapacity is received by the secretary or otherofficer or agent authorized to tabulate votes before the proxy exercises hisauthority under the appointment.

9.5 The corporation shall not be required to recognize an appointmentmade irrevocable if it has received a writing revoking the appointment signed bythe shareholder (including a shareholder who is a successor to the shareholderwho granted the proxy) either personally or by his attorney-in-fact,notwithstanding that the revocation may be a breach of an obligation of theshareholder to another person not to revoke the appointment.



9.6 Subject to Article II, Section 11 and any express limitation onthe proxy's authority appearing on the appointment form, the corporation isentitled to accept the proxy's vote or other action as that of the shareholdermaking the appointment.

10. Voting of Shares.

10.1 Each outstanding share, regardless of class, shall be entitled toone vote, except in the election of directors, and each fractional share shallbe entitled to a corresponding fractional vote on each matter submitted to avote at a meeting of shareholders, except to the extent that the voting rightsof the shares of any class or classes are limited or denied by the

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articles of incorporation as permitted by the Colorado Business CorporationAct. Cumulative voting shall not be permitted in the election of directors orfor any other purpose. Each record holder of stock shall be entitled to votein the election of directors and shall have as many votes for each of theshares owned by him as there are directors to be elected and for whoseelection he has the right to vote.

10.2 At each election of directors, that number of candidatesequaling the number of directors to be elected, having the highest number ofvotes cast in favor of their election, shall be elected to the board ofdirectors.

10.3 Except as otherwise ordered by a court of competentjurisdiction upon a finding that the purpose of this Section would not beviolated in the circumstances presented to the court, the shares of thecorporation are not entitled to be voted if they are owned, directly orindirectly, by a second corporation, domestic or foreign, and the firstcorporation owns, directly or indirectly, a majority of the shares entitled tovote for directors of the second corporation except to the extent the secondcorporation holds the shares in a fiduciary capacity.

10.4 Redeemable shares are not entitled to be voted after notice ofredemption is mailed to the holders and a sum sufficient to redeem the shareshas been deposited with a bank, trust company or other financial institutionunder an irrevocable obligation to pay the holders the redemption price onsurrender of the shares.

10.5 Notwithstanding the foregoing, the voting rights of the SeriesB Senior Cumulative Convertible Preferred Stock (the "Series B Stock") shall beas set forth in the Articles of Amendment to the Amended and Restated Articlesof Incorporation related to the Series B Stock (the "Articles of Amendment").

11. Corporation's Acceptance of Votes.



11.1 If the name signed on a vote, consent, waiver, proxyappointment, or proxy appointment revocation corresponds to the name of ashareholder, the corporation, if acting in good faith, is entitled to acceptthe vote, consent, waiver, proxy appointment or proxy appointment revocationand give it effect as the act of the shareholder. If the name signed on avote, consent, waiver, proxy appointment or proxy appointment revocation doesnot correspond to the name of a shareholder, the corporation, if acting ingood faith, is nevertheless entitled to accept the vote, consent, waiver, proxyappointment or proxy appointment revocation and to give it effect as the actof the shareholder if:

(i) the shareholder is an entity and the name signed purports to be that ofan officer or agent of the entity;

(ii) the name signed purports to be that of an administrator, executor,guardian or conservator representing the shareholder and, if thecorporation requests, evidence of

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fiduciary status acceptable to the corporation has been presented withrespect to the vote, consent, waiver, proxy appointment or proxyappointment revocation;

(iii) the name signed purports to be that of a receiver or trustee inbankruptcy of the shareholder and, if the corporation requests, evidence ofthis status acceptable to the corporation has been presented with respectto the vote, consent, waiver, proxy appointment or proxy appointmentrevocation;

(iv) the name signed purports to be that of a pledgee, beneficial owneror attorney-in-fact of the shareholder and, if the corporation requests,evidence acceptable to the corporation of the signatory's authority to signfor the shareholder has been presented with respect to the vote, consent,waiver, proxy appointment or proxy appointment revocation;

(v) two or more persons are the shareholder as co-tenants or fiduciariesand the name signed purports to be the name of at least one of the co-tenants or fiduciaries, and the person signing appears to be acting onbehalf of all the co-tenants or fiduciaries; or

(vi) the acceptance of the vote, consent, waiver, proxy appointment orproxy appointment revocation is otherwise proper under rules established bythe corporation that are not inconsistent with this Section 11.

11.2 The corporation is entitled to reject a vote, consent, waiver,proxy appointment or proxy appointment revocation if the secretary or otherofficer or agent authorized to tabulate votes, acting in good faith, hasreasonable basis for doubt about the validity of the signature on it or aboutthe signatory's authority to sign for the shareholder.



11.3 Neither the corporation nor its officers nor any agent whoaccepts or rejects a vote, consent, waiver, proxy appointment or proxyappointment revocation in good faith and in accordance with the standards ofthis Section is liable in damages for the consequences of the acceptance orrejection.

12. Informal Action by Shareholders.

12.1 Any action required or permitted to be taken at a meeting of theshareholders may be taken without a meeting if a written consent (orcounterparts thereof) that sets forth the action so taken is signed by all ofthe shareholders entitled to vote with respect to the subject matter thereof andreceived by the corporation. Such consent shall have the same force and effectas a unanimous vote of the shareholders and may be stated as such in anydocument. Action taken under this Section is effective as of the date the lastwriting necessary to effect the action is received by the corporation, unlessall of the writings specify a different effective date, in which case suchspecified date shall be the effective date for such action. If any shareholderrevokes his consent as provided for herein prior to what would otherwise be theeffective date, the action

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proposed in the consent shall be invalid. The record date for determiningshareholders entitled to take action without a meeting is the date thecorporation first receives a writing upon which the action is taken.

12.2 Any shareholder who has signed a writing describing andconsenting to action taken pursuant to this Section may revoke such consent by awriting signed by the shareholder describing the action and stating that theshareholder's prior consent thereto is revoked, if such writing is received bythe corporation before the effectiveness of the action.

13. Meetings by Telecommunication. Any or all of the shareholders mayparticipate in an annual or special shareholders' meeting by, or the meeting maybe conducted through the use of, any means of communication by which all personsparticipating in the meeting may hear each other during the meeting. Ashareholder participating in a meeting by this means is deemed to be present inperson at the meeting.

ARTICLE III

Board of Directors

1. General Powers. All corporate powers shall be exercised by or underthe authority of, and the business and affairs of the corporation shall bemanaged under the direction of its board of directors, except as otherwiseprovided in the Colorado Business Corporation Act or the articles of



incorporation.

2. Number, Qualifications and Tenure.

2.1 Prior to the purchase and sale of the corporation's Series BStock, the number of directors of the corporation shall be fixed from time totime by the board of directors, within a range of no fewer than one or more thaneleven. A director shall be a natural person who is eighteen years of age orolder. A director need not be a resident of Colorado or a shareholder of thecorporation.

2.2 (a) Following the sale of the Series B Stock, the board ofdirectors of the corporation shall have seven members unless and until it ischanged pursuant to these Bylaws.

(b) If, (i) TPG and its Affiliates (as such terms are definedin the Articles of Amendment) is the Beneficial Owner of at least forty percentof the Originally Issued Shares (as such terms are defined in the Articles ofAmendment); (ii) TPG shall have voted its shares for directors in accordancewith the terms of Section 8.02 of the Investor Rights Agreement dated April 18,2000 by and among the corporation and certain investors (the "Investor RightsAgreement"); and (iii) the board of directors shall not include at least twodirectors so designated by TPG, then the board of directors of the corporationshall have ten members, three of which

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shall be elected by a majority of the holders of the Series B Stock votingtogether as a separate class.

(c) If on any date when any Series B Stock is outstanding (i) thecorporation shall have failed to satisfy its obligation to redeem shares ofSeries B Stock pursuant to the terms of the Articles of Amendment or (ii) anydefault or event of default has occurred and is continuing under anyIndebtedness (as defined in the Articles of Amendment) of the corporation or anyof its subsidiaries, the outstanding principal amount of which is in excess of$5,000,000, and as a result of such default or event of default the holdersthereof have accelerated the maturity thereof, and such default, event ofdefault or event is not cured or waived within 30 days after the MajorityHolders (as defined in the Articles of Amendment) shall have furnished to thecorporation notice of such default, event of default or event, then the numberof members constituting the board of directors shall be increased so as toenable the holders of the Series B Stock to designate a majority (including theSeries B Directors (as defined in the Articles of Amendment)) of the board ofdirectors. If the conditions precedent set forth in (i) or (ii) of theimmediately preceding sentence are satisfied and the size of the board ofdirectors is increased in accordance with the immediately preceding sentence,then the holders of the Series B Stock, voting together as a separate class,shall have the exclusive right to elect that number of directors of thecorporation necessary to fill such newly created directorships.



(d) If at any time after the board of directors has been increased inaccordance with Section 2.2(b) of this Article III, two designees of TPG areelected to the board of directors as contemplated by Section 8.02 of theInvestor Rights Agreement, the size of the board of directors shall be decreasedand the board of directors shall return to the size it was immediately precedingthe increase in the size of the board of directors pursuant to Section 2.2(b).If at any time after the board of directors has been increased in accordancewith Section 2.2(c) of this Article III, the failure, default, event of defaultor event provided for in (i) or (ii) of Section 2.2(c) is cured, the size of theboard of directors shall be decreased and the board of directors shall return tothe size it was immediately preceding such failure, default, event of default orevent.

(e) The increases or decreases in the size of the board of directorscontemplated by this Section 2.2 shall automatically and immediately occur ifthe conditions precedent to such increase or decrease shall occur, and nofurther action by the board of directors shall be required to effectuate thechange in the size of the board of directors contemplated by this Section 2.2.

2.3 The board of directors shall be divided into three classes, ClassI, Class II and Class III. Such classes shall be as nearly equal in number ofdirectors as possible. Each director shall serve for a term ending on the thirdannual meeting of shareholders at which such director was elected; provided,however, that the directors first elected to Class I shall serve for a termending on the third annual meeting next following the end of the calendar year1998, the directors first elected to Class II shall serve for a term ending onthe second annual meeting next

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following the end of the calendar year 1998 and the directors first elected toClass III shall serve for a term ending on the annual meeting next followingthe end of the calendar year 1998. The foregoing notwithstanding, eachdirector shall serve until his successor shall have been duly elected andqualified unless he shall resign, become disqualified, disabled or shallotherwise be removed. Directors shall be removed in the manner provided bythe Colorado Business Corporation Act.

3. Vacancies. Any director may resign at any time by giving writtennotice to the corporation. Such resignation shall take effect at the time thenotice is received by the corporation unless the notice specifies a latereffective date. Unless otherwise specified in the notice of resignation, thecorporation's acceptance of such resignation shall not be necessary to make iteffective. Any vacancy on the board of directors may be filled by theaffirmative vote of a majority of the shareholders or the board of directors,and if the directors remaining in office constitute fewer than a quorum of theboard, the directors may fill the vacancy by the affirmative vote of a majorityof all the directors remaining in office; provided, however, that if a vacancyoccurs with respect to a director elected solely by the shareholders of a series



of preferred shares, such vacancy shall be filled in accordance with the termsof such preferred shares. Any director elected to fill a vacancy shall holdoffice for the unexpired term of his predecessor in office.

4. Nomination of Directors. If any class or holder(s) of securities ofthe corporation is entitled to elect directors to serve on the board ofdirectors pursuant to the terms of the corporation's Articles of Incorporation,as in effect from time to time, such class or holder(s) shall nominate directorsaccording to the following procedure:

(a) the holder(s) of shares of such class may present a nominee ornominees to the board of directors for approval; and

(b) the board of directors shall then either approve and nominate, ordisapprove and reject the nominee or nominees of the class or holder(s). If theboard approves such nominee(s), the board of directors shall either elect suchnominee(s) or present such nominee(s) for election by the shareholders of thecorporation; and

(c) if the board of directors rejects the nominee(s), then the classor holder(s) may select an alternative nominee or nominees and present thealternative nominee(s) to the board as provided in (a), or the class orholder(s) shall be entitled to nominate such nominees for election to the boardof directors in accordance with the applicable provisions of the Articles ofIncorporation, these Bylaws, and the Colorado Business Corporation Act.

5. Regular Meetings. A regular meeting of the board of directors shallbe held without notice immediately after and at the same place as the annualmeeting of shareholders. The board of directors may provide by resolution thetime and place, either within or outside Colorado, for the holding of additionalregular meetings without other notice.

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6. Special Meetings. Special meetings of the board of directors may becalled by or at the request of the chief executive officer, president or any twodirectors. The person or persons authorized to call special meetings of theboard of directors may fix any place, either within or outside Colorado, as theplace for holding any special meeting of the board of directors called by them,provided that no meeting shall be called outside the State of Colorado unless amajority of the board of directors has so authorized.

7. Notice.

7.1 Notice of any special meeting shall be given at least threebusiness days prior to the meeting by written notice either personally deliveredor mailed to each director at his business address, or by notice transmitted bytelegraph, telex, electronically transmitted facsimile or other form of wire orwireless communication. If mailed, such notice shall be deemed to be given andto be effective on the earlier of (i) three days after such notice is deposited



in the United States mail, properly addressed, with postage prepaid, or (ii) thedate shown on the return receipt, if mailed by registered or certified mailreturn receipt requested. If notice is given by telex, electronicallytransmitted facsimile or other similar form of wire or wireless communication,such notice shall be deemed to be given and to be effective when sent, and withrespect to a telegram, such notice shall be deemed to be given and to beeffective when the telegram is delivered to the telegraph company. If adirector has designated in writing one or more reasonable addresses or facsimilenumbers for delivery of notice to him, notice sent by mail, telegraph, telex,electronically transmitted facsimile or other form of wire or wirelesscommunication shall not be deemed to have been given or to be effective unlesssent to such addresses or facsimile numbers, as the case may be. If a specialmeeting is called to address or consider emergency matters, then notice givenone business day prior to the meeting by written notice either personallydelivered or by notice transmitted by telegraph, telex, electronicallytransmitted facsimile or other form of wire or wireless communication shall besufficient.

7.2 A director may waive notice of a meeting before or after the timeand date of the meeting by a writing signed by such director. Such waiver shallbe delivered to the corporation for filing with the corporate records. Further,a director's attendance at or participation in a meeting waives any requirednotice to him of the meeting unless at the beginning of the meeting, or promptlyupon his later arrival, the director objects to holding the meeting ortransacting business at the meeting because of lack of notice or defectivenotice and does not thereafter vote for or assent to action taken at themeeting. Neither the business to be transacted at, nor the purpose of, anyregular or special meeting of the board of directors need be specified in thenotice or waiver of notice of such meeting.

8. Quorum.

8.1 A majority of the number of directors fixed by the board ofdirectors or, if no number is fixed, a majority of the number in officeimmediately before the meeting begins, shall constitute a quorum for thetransaction of business at any meeting of the board of directors.

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8.2 If less than such majority is present at a meeting, a majority ofthe directors present may adjourn the meeting from time to time without furthernotice, for a period not to exceed sixty days at any one adjournment.

9. Manner of Acting. The act of the majority of the directors present ata meeting at which a quorum is present shall be the act of the board ofdirectors.

10. Compensation. By resolution of the board of directors, any directormay be paid any one or more of the following: his expenses, if any, ofattendance at meetings, a fixed sum for attendance at each meeting, a stated



salary as director, or such other compensation as the corporation and thedirector may reasonably agree upon. No such payment shall preclude any directorfrom serving the corporation in any other capacity and receiving compensationtherefor.

11. Presumption of Assent. A director of the corporation who is presentat a meeting of the board of directors or committee of the board at which actionon any corporate matter is taken shall be presumed to have assented to theaction taken unless (i) the director objects at the beginning of the meeting, orpromptly upon his arrival, to the holding of the meeting or the transaction ofbusiness at the meeting and does not thereafter vote for or assent to any actiontaken at the meeting, (ii) the director contemporaneously requests that hisdissent or abstention as to any specific action taken be entered in the minutesof the meeting, or (iii) the director causes written notice of his dissent orabstention as to any specific action to be received by the presiding officer ofthe meeting before its adjournment or by the corporation promptly after theadjournment of the meeting. A director may dissent to a specific action at ameeting, while assenting to others. The right to dissent to a specific actiontaken at a meeting of the board of directors or a committee of the board shallnot be available to a director who voted in favor of such action.

12. Committees.

12.1 By resolution adopted by a majority of all the directors inoffice when the action is taken, the board of directors may designate from amongits members an executive committee and one or more other committees, and appointone or more members of the board of directors to serve on them; provided,however, that for so long as TPG is the Beneficial Owner of at least fortypercent (40%) of the Originally Issued Shares, at least one-third of the membersof each and every committee of the board of directors shall be comprised ofSeries B Directors unless compliance with this Section 12.1 would result in abreach by the corporation of the listing requirements of The Nasdaq StockMarket; and provided further, however, that for so long as the holders of theSeries B Stock have the right to elect a Designated Director, no executivecommittee of the board of directors, and no other new committee of the board ofdirectors which is authorized to exercise any powers of the board of directors,shall be created except for committees satisfying the requirements of the otherproviso of this sentence or otherwise with the concurrence of either the SeriesB Directors or the holders of the Series B

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Stock. To the extent provided in the resolution, each committee shall have allthe authority of the board of directors, except that no such committee shallhave the authority to (i) authorize distributions, (ii) approve or propose toshareholders actions or proposals required by the Colorado Business CorporationAct to be approved by shareholders, (iii) fill vacancies on the board ofdirectors or any committee thereof, (iv) amend articles of incorporation,(v) adopt, amend or repeal the bylaws, (vi) approve a plan of merger notrequiring shareholder approval, (vii) authorize or approve the reacquisition



of shares unless pursuant to a formula or method prescribed by the board ofdirectors, or (viii) authorize or approve the issuance or sale of shares, orcontract for the sale of shares or determine the designations and relativerights, preferences and limitations of a class or series of shares, exceptthat the board of directors may authorize a committee or officer to do sowithin limits specifically prescribed by the board of directors. The committeeshall then have full power within the limits set by the board of directors toadopt any final resolution setting forth all preferences, limitations andrelative rights of such class or series and to authorize an amendment of thearticles of incorporation stating the preferences, limitations and relativerights of a class or series for filing with the Secretary of State under theColorado Business Corporation Act. For purposes of this Section 12.1 ofArticle III, the terms "Affiliates," "Beneficial Owner," "Designated Director,""Holders" and "Series B Directors" shall have the respective meanings assignedto them in the Articles of Amendment.

12.2 Sections 5, 6, 7, 8, 9, 13 and 14 of Article III, which governmeetings, notice, waiver of notice, quorum, voting requirements, action withouta meeting of the board of directors and telephonic meetings, shall apply tocommittees and their members appointed under this Section 12.

12.3 Neither the designation of any such committee, the delegationof authority to such committee, nor any action by such committee pursuant to itsauthority shall alone constitute compliance by any member of the board ofdirectors or a member of the committee in question with his responsibility toconform to the standard of care set forth in Article III, Section 15 of thesebylaws.

12.4 Operating Committee. There shall be an Operating Committee toconsist of five directors, two of whom shall be Series B Directors (as that termis defined in the Series B Articles of Amendment) and one of whom shall be thedirector designated by Sandler Capital Partners IV, L.P. pursuant to the termsof the Investor Rights Agreement dated April 18, 2000 between the corporationand certain investors. The members of the Operating Committee shall have nopower or authority unless and until such time as the corporation shall fail tocomply with any material provision of (i) its annual budget, including, withoutlimitation, by falling at least fifteen percent (15%) short of any of therevenue or EBITDA targets established in any such budget (as adjusted for anyacquisitions made by the corporation) or (ii) any of the budget, restrictive orfinancial covenants in the corporation's Indenture dated April 2, 1998 or in anyother credit agreement with respect to Indebtedness (as defined in theIndenture) in excess of $5 million to which the corporation is a party.Following the occurrence of an event described in (i) or (ii) in the immediatelypreceding sentence, the Operating Committee shall have the power and

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authority to direct management in the implementation of the corporation'slong-term and annual operating plans and budget.



13. Informal Action by Directors. Any action required or permitted to betaken at a meeting of the directors or any committee designated by the board ofdirectors may be taken without a meeting if a written consent (or counterpartsthereof) that sets forth the action so taken is signed by all of the directorsentitled to vote with respect to the action taken. Such consent shall have thesame force and effect as a unanimous vote of the directors or committee membersand may be stated as such in any document. Unless the consent specifies adifferent effective date, action taken under this Section 13 is effective at thetime the last director signs a writing describing the action taken, unless,before such time, any director has revoked his consent by a writing signed bythe director and received by the chief executive officer, president or thesecretary of the corporation. A facsimile signature shall be adequate toevidence a director's consent.

14. Telephonic Meetings. The board of directors may permit any director(or any member of a committee designated by the board) to participate in aregular or special meeting of the board of directors or a committee thereofthrough the use of any means of communication by which all directorsparticipating in the meeting can hear each other during the meeting. A directorparticipating in a meeting in this manner is deemed to be present in person atthe meeting.

15. Standard of Care.

15.1 A director shall perform his duties as a director, includingwithout limitation his duties as a member of any committee of the board, in goodfaith, in a manner he reasonably believes to be in the best interests of thecorporation, and with the care an ordinarily prudent person in a like positionwould exercise under similar circumstances. In performing his duties, adirector shall be entitled to rely on information, opinions, reports orstatements, including financial statements and other financial data, in eachcase prepared or presented by the persons herein designated. However, he shallnot be considered to be acting in good faith if he has knowledge concerning thematter in question that would cause such reliance to be unwarranted. A directorshall not be liable to the corporation or its shareholders for any action hetakes or omits to take as a director if, in connection with such action oromission, he performs his duties in compliance with this Section 15.

15.2 The designated persons on whom a director is entitled to rely are(i) one or more officers or employees of the corporation whom the directorreasonably believes to be reliable and competent in the matters presented, (ii)legal counsel, public accountant, or other person as to matters which thedirector reasonably believes to be within such person's professional or expertcompetence, or (iii) a committee of the board of directors on which the directordoes not serve if the director reasonably believes the committee meritsconfidence.

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16. Designated Directors. In the event that Designated Directors (as



defined in the Articles of Amendment) are elected pursuant to the terms of theArticles of Amendment, the provisions of Section 7.4 of the Articles ofAmendment shall govern the procedural matters addressed therein.

ARTICLE IV

Officers and Agents

1. General. The officers of the corporation shall be a president and asecretary, each of whom shall be a natural person eighteen years of age orolder. The board of directors or an officer or officers authorized by the boardmay appoint such other officers, assistant officers, committees and agents,including a chairman of the board, chief executive officer, chief operatingofficer, chief financial officer, vice presidents, treasurer, controller,assistant secretaries and assistant treasurers, as they may consider necessary.The board of directors or the officer or officers authorized by the board shallfrom time to time determine the procedure for the appointment of officers, theirterm of office, their authority and duties and their compensation. One personmay hold more than one office. In all cases where the duties of any officer,agent or employee are not prescribed by the bylaws or by the board of directors,such officer, agent or employee shall follow the orders and instructions of thepresident of the corporation.

2. Appointment and Term of Office. The officers of the corporation shallbe appointed by the board of directors at each annual meeting of the board heldafter each annual meeting of the shareholders. If the appointment of officersis not made at such meeting or if an officer or officers are to be appointed byanother officer or officers of the corporation, such appointments shall be madeas soon thereafter as conveniently may be. Each officer shall hold office untilthe first of the following occurs: his successor shall have been duly appointedand qualified, his death, his resignation, or his removal in the manner providedin Section 3.

3. Resignation and Removal.

3.1 An officer may resign at any time by giving written notice ofresignation to the corporation. The resignation is effective when the notice isreceived by the corporation unless the notice specifies a later effective date.

3.2 Any officer or agent may be removed at any time with cause by theboard of directors or an officer or officers authorized by the board. Suchremoval does not affect the contract rights, if any, of the corporation or ofthe person so removed. The appointment of an officer or agent shall not initself create contract rights.

16

4. Vacancies. A vacancy in any office, however occurring, may be filledby the board of directors, or by the officer or officers authorized by the



board, for the unexpired portion of the officer's term. If an officer resignsand his resignation is made effective at a later date, the board of directors,or officer or officers authorized by the board, may permit the officer to remainin office until the effective date and may fill the pending vacancy before theeffective date if the board of directors or officer or officers authorized bythe board provide that the successor shall not take office until the effectivedate. In the alternative, the board of directors, or officer or officersauthorized by the board of directors, may remove the officer at any time beforethe effective date and may fill the resulting vacancy.

5. Chief Executive Officer. Subject to the direction and supervision ofthe board of directors the chief executive officer of the corporation shall, ingeneral, supervise and control all of the business and affairs of thecorporation. The chief executive officer shall, when present, preside at allmeetings of the shareholders and of the board of directors unless a chairman ofthe board has been appointed in which case the chief executive officer shallpreside at such meetings only in the absence of the chairman of the board. Thechief executive officer may sign, with the president, secretary, assistantsecretary or any other proper officer of the corporation, any deeds, mortgages,bonds, contracts or other instruments which the board of directors hasauthorized to be executed, except in cases in which the signing and executionthereof shall be expressly delegated by the board of directors or by thesebylaws to some other officer or agent of the corporation, or shall be requiredby law to be otherwise signed or executed; and in general shall perform allduties as may be prescribed by the board of directors from time to time.

6. President. Subject to the direction and supervision of the board ofdirectors and unless a chief executive officer has been appointed, the presidentshall be the chief executive officer of the corporation, and shall have generaland active control of its affairs and business and general supervision of itsofficers, agents and employees. Unless otherwise directed by the board ofdirectors, the president shall attend in person or by substitute appointed byhim, or shall execute on behalf of the corporation written instrumentsappointing a proxy or proxies to represent the corporation, at all meetings ofthe stockholders of any other corporation in which the corporation holds anystock. On behalf of the corporation, the president may in person or bysubstitute or by proxy execute written waivers of notice and consents withrespect to any such meetings. At all such meetings and otherwise, thepresident, in person or by substitute or proxy, may vote the stock held by thecorporation, execute written consents and other instruments with respect to suchstock, and exercise any and all rights and powers incident to the ownership ofsaid stock, subject to the instructions, if any, of the board of directors. Thepresident shall have custody of the treasurer's bond, if any. All powers of thepresident shall be conferred on the chief executive officer if one shall beappointed.

7. Vice Presidents. When and if appointed, the vice presidents shallassist the president and shall perform such duties as may be assigned to them bythe president or by the board of directors. In the absence of the president,the vice president, if any (or, if more than one, the vice presidents in theorder designated by the board of directors, or if the board makes no



17

such designation, then the vice president designated by the president, or ifneither the board nor the president makes any such designation, the senior vicepresident as determined by first election to that office), shall have the powersand perform the duties of the president.

8. Secretary.

8.1 The secretary shall (i) prepare and maintain as permanent recordsthe minutes of the proceedings of the shareholders and the board of directors, arecord of all actions taken by the shareholders or board of directors without ameeting, a record of all actions taken by a committee of the board of directorsin place of the board of directors on behalf of the corporation, and a record ofall waivers of notice of meetings of shareholders and of the board of directorsor any committee thereof, (ii) see that all notices are duly given in accordancewith the provisions of these bylaws and as required by law, (iii) serve ascustodian of the corporate records and of the seal of the corporation and affixthe seal to all documents when authorized by the board of directors, (iv) keepat the corporation's registered office or principal place of business a recordcontaining the names and addresses of all shareholders in a form that permitspreparation of a list of shareholders arranged by voting group and by class orseries of shares within each voting group, that is alphabetical within eachclass or series and that shows the address of, and the number of shares of eachclass or series held by, each shareholder, unless such a record shall be kept atthe office of the corporation's transfer agent or registrar, (v) maintain at thecorporation's principal office the originals or copies of the corporation'sarticles of incorporation, bylaws, minutes of all shareholders' meetings andrecords of all action taken by shareholders without a meeting for the past threeyears, all written communications within the past three years to shareholders asa group or to the holders of any class or series of shares as a group, a list ofthe names and business addresses of the current directors and officers, a copyof the corporation's most recent corporate report filed with the Secretary ofState, and financial statements showing in reasonable detail the corporation'sassets and liabilities and results of operations for the last three years, (vi)have general charge of the stock transfer books of the corporation, unless thecorporation has a transfer agent, (vii) authenticate records of the corporation,and (viii) in general, perform all duties incident to the office of secretaryand such other duties as from time to time may be assigned to him by thepresident or by the board of directors. Assistant secretaries, if any, shallhave the same duties and powers, subject to supervision by the secretary. Thedirectors and/or shareholders may however respectively designate a person otherthan the secretary or assistant secretary to keep the minutes of theirrespective meetings.

8.2 Any books, records, or minutes of the corporation may be inwritten form or in any form capable of being converted into written form withina reasonable time.



9. Treasurer.

9.1 When and if appointed, the treasurer shall be the principalfinancial officer of the corporation, shall have the care and custody of allfunds, securities, evidences of

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indebtedness and other personal property of the corporation and shall depositthe same in accordance with the instructions of the board of directors. Heshall receive and give receipts and acquittances for money paid in on accountof the corporation, and shall pay out of the corporation's funds on hand allbills, payrolls and other just debts of the corporation of whatever nature uponmaturity. He shall perform all other duties incident to the office of thetreasurer and, upon request of the board, shall make such reports to it as maybe required at any time. He shall, if required by the board, give thecorporation a bond in such sums and with such sureties as shall be satisfactoryto the board, conditioned upon the faithful performance of his duties and forthe restoration to the corporation of all books, papers, vouchers, money andother property of whatever kind in his possession or under his controlbelonging to the corporation. He shall have such other powers and perform suchother duties as may from time to time be prescribed by the board of directorsor the president. The assistant treasurers, if any, shall have the same powersand duties, subject to the supervision of the treasurer.

9.2 The treasurer shall also be the principal accounting officer ofthe corporation. He shall prescribe and maintain the methods and systems ofaccounting to be followed, keep complete books and records of account asrequired by the Colorado Business Corporation Act, prepare and file all local,state and federal tax returns, prescribe and maintain an adequate system ofinternal audit and prepare and furnish to the president and the board ofdirectors statements of account showing the financial position of thecorporation and the results of its operations.

ARTICLE V

Stock

1. Certificates. The board of directors shall be authorized to issue anyof its classes of shares with or without certificates. The fact that the sharesare not represented by certificates shall have no effect on the rights andobligations of shareholders. If the shares are represented by certificates,such shares shall be represented by consecutively numbered certificates signed,either manually or by facsimile, in the name of the corporation by one or morepersons designated by the board of directors. In case any officer who hassigned or whose facsimile signature has been placed upon such certificate shallhave ceased to be such officer before such certificate is issued, suchcertificate may nonetheless be issued by the corporation with the same effect asif he were such officer at the date of its issue. Certificates of stock shall



be in such form and shall contain such information consistent with law as shallbe prescribed by the board of directors. If shares are not represented bycertificates, within a reasonable time following the issue or transfer of suchshares, the corporation shall send the shareholder a complete written statementof all of the information required to be provided to holders of uncertificatedshares by the Colorado Business Corporation Act.

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2. Consideration for Shares. Certificated or uncertificated shares shallnot be issued until the shares represented thereby are fully paid. The board ofdirectors may authorize the issuance of shares for consideration consisting ofany tangible or intangible property or benefit to the corporation, includingcash, promissory notes, services performed or other securities of thecorporation. Future services shall not constitute payment or partial paymentfor shares of the corporation. The promissory note of a subscriber or anaffiliate of a subscriber shall not constitute payment or partial payment forshares of the corporation unless the note is negotiable and is secured bycollateral, other than the shares being purchased, having a fair market value atleast equal to the principal amount of the note. For purposes of this Section2, "promissory note" means a negotiable instrument on which there is anobligation to pay independent of collateral and does not include a non-recoursenote.

3. Lost Certificates. In case of the alleged loss, destruction ormutilation of a certificate of stock, the board of directors may direct theissuance of a new certificate in lieu thereof upon such terms and conditions inconformity with law as the board may prescribe. The board of directors may inits discretion require an affidavit of lost certificate and/or a bond in suchform and amount and with such surety as it may determine before issuing a newcertificate.

4. Transfer of Shares.

4.1 Upon surrender to the corporation or to a transfer agent of thecorporation of a certificate of stock duly endorsed or accompanied by properevidence of succession, assignment or authority to transfer, and receipt of suchdocumentary stamps as may be required by law and evidence of compliance with allapplicable securities laws and other restrictions, the corporation shall issue anew certificate to the person entitled thereto, and cancel the old certificate.Every such transfer of stock shall be entered on the stock books of thecorporation which shall be kept at its principal office or by the person and theplace designated by the board of directors.

4.2 Except as otherwise expressly provided in Article II, Sections 7and 11, and except for the assertion of dissenters' rights to the extentprovided in Article 113 of the Colorado Business Corporation Act, thecorporation shall be entitled to treat the registered holder of any shares ofthe corporation as the owner thereof for all purposes, and the corporation shallnot be bound to recognize any equitable or other claim to, or interest in, such



shares or rights deriving from such shares on the part of any person other thanthe registered holder, including without limitation any purchaser, assignee ortransferee of such shares or rights deriving from such shares, unless and untilsuch other person becomes the registered holder of such shares, whether or notthe corporation shall have either actual or constructive notice of the claimedinterest of such other person.

5. Transfer Agent, Registrars and Paying Agents. The board may at itsdiscretion appoint one or more transfer agents, registrars and agents for makingpayment upon any class of stock, bond, debenture or other security of thecorporation. Such agents and

20

registrars may be located either within or outside Colorado. They shall havesuch rights and duties and shall be entitled to such compensation as may beagreed.

ARTICLE VI

Indemnification of Certain Persons

1. Indemnification.

1.1 For purposes of Article VI, a "Proper Person" means any personwho was or is a party or is threatened to be made a party to any threatened,pending, or completed action, suit or proceeding, whether civil, criminal,administrative or investigative, and whether formal or informal, by reason ofthe fact that he is or was a director, officer, employee, fiduciary or agent ofthe corporation, or is or was serving at the request of the corporation as adirector, officer, partner, trustee, employee, fiduciary or agent of any foreignor domestic profit or nonprofit corporation or of any partnership, jointventure, trust, profit or nonprofit unincorporated association, limitedliability company, or other enterprise or employee benefit plan. Thecorporation shall indemnify any Proper Person against reasonably incurredexpenses (including attorneys' fees), judgments, penalties, fines (including anyexcise tax assessed with respect to an employee benefit plan) and amounts paidin settlement reasonably incurred by him in connection with such action, suit orproceeding if it is determined by the groups set forth in Section 4 of thisArticle that he conducted himself in good faith and that he reasonably believed(i) in the case of conduct in his official capacity with the corporation, thathis conduct was in the corporation's best interests, or (ii) in all other cases(except criminal cases), that his conduct was at least not opposed to thecorporation's best interests, or (iii) in the case of any criminal proceeding,that he had no reasonable cause to believe his conduct was unlawful. A ProperPerson will be deemed to be acting in his official capacity while acting as adirector, officer, employee or agent on behalf of this corporation and not whileacting on this corporation's behalf for some other entity.



1.2 No indemnification shall be made under this Article VI to aProper Person with respect to any claim, issue or matter in connection with aproceeding by or in the right of a corporation in which the Proper Person wasadjudged liable to the corporation or in connection with any proceeding chargingthat the Proper Person derived an improper personal benefit, whether or notinvolving action in an official capacity, in which he was adjudged liable on thebasis that he derived an improper personal benefit. Further, indemnificationunder this Section in connection with a proceeding brought by or in the right ofthe corporation shall be limited to reasonable expenses, including attorneys'fees, incurred in connection with the proceeding.

2. Right to Indemnification. The corporation shall indemnify any ProperPerson who was wholly successful, on the merits or otherwise, in defense of anyaction, suit, or proceeding as to which he was entitled to indemnification underSection l of this Article VI against expenses (including attorneys' fees)reasonably incurred by him in connection with the

21

proceeding without the necessity of any action by the corporation other thanthe determination in good faith that the defense has been wholly successful.

3. Effect of Termination of Action. The termination of any action, suitor proceeding by judgment, order, settlement or conviction, or upon a plea ofnolo contendere or its equivalent shall not of itself create a presumption thatthe person seeking indemnification did not meet the standards of conductdescribed in Section l of this Article VI. Entry of a judgment by consent aspart of a settlement shall not be deemed an adjudication of liability, asdescribed in Section 2 of this Article VI.

4. Groups Authorized to Make Indemnification Determination. Except wherethere is a right to indemnification as set forth in Sections 1 or 2 of thisArticle or where indemnification is ordered by a court in Section 5, anyindemnification shall be made by the corporation only as authorized in thespecific case upon a determination by a proper group that indemnification of theProper Person is permissible under the circumstances because he has met theapplicable standards of conduct set forth in Section l of this Article. Thisdetermination shall be made by the board of directors by a majority vote ofthose present at a meeting at which a quorum is present, which quorum shallconsist of directors not parties to the proceeding ("Quorum"). If a Quorumcannot be obtained, the determination shall be made by a majority vote of acommittee of the board of directors designated by the board, which committeeshall consist of two or more directors not parties to the proceeding, exceptthat directors who are parties to the proceeding may participate in thedesignation of directors for the committee. If a Quorum of the board ofdirectors cannot be obtained and the committee cannot be established, or even ifa Quorum is obtained or the committee is designated and a majority of thedirectors constituting such Quorum or committee so directs, the determinationshall be made by (i) independent legal counsel selected by a vote of the boardof directors or the committee in the manner specified in this Section 4 or, if a



Quorum of the full board of directors cannot be obtained and a committee cannotbe established, by independent legal counsel selected by a majority vote of thefull board (including directors who are parties to the action) or (ii) a vote ofthe shareholders.

5. Court-Ordered Indemnification. Any Proper Person may apply forindemnification to the court conducting the proceeding or to another court ofcompetent jurisdiction for mandatory indemnification under Section 2 of thisArticle, including indemnification for reasonable expenses incurred to obtaincourt-ordered indemnification. If the court determines that such Proper Personis fairly and reasonably entitled to indemnification in view of all the relevantcircumstances, whether or not he met the standards of conduct set forth inSection l of this Article or was adjudged liable in the proceeding, the courtmay order such indemnification as the court deems proper except that if theProper Person has been adjudged liable, indemnification shall be limited toreasonable expenses incurred in connection with the proceeding and reasonableexpenses incurred to obtain court-ordered indemnification.

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6. Advance of Expenses. Reasonable expenses (including attorneys' fees)incurred in defending an action, suit or proceeding as described in Section 1may be paid by the corporation to any Proper Person in advance of the finaldisposition of such action, suit or proceeding upon receipt of (i) a writtenaffirmation of such Proper Person's good faith belief that he has met thestandards of conduct prescribed by Section l of this Article VI, (ii) a writtenundertaking, executed personally or on the Proper Person's behalf, to repay suchadvances if it is ultimately determined that he did not meet the prescribedstandards of conduct (the undertaking shall be an unlimited general obligationof the Proper Person but need not be secured and may be accepted withoutreference to financial ability to make repayment), and (iii) a determination ismade by the proper group (as described in Section 4 of this Article VI) that thefacts as then known to the group would not preclude indemnification.Determination and authorization of payments shall be made in the same mannerspecified in Section 4 of this Article VI.

7. Witness Expenses. The sections of this Article VI do not limit thecorporation's authority to pay or reimburse expenses incurred by a director inconnection with an appearance as a witness in a proceeding at a time when he hasnot been made a named defendant or respondent in the proceeding.

8. Report to Shareholders. Any indemnification of or advance of expensesto a director in accordance with this Article VI, if arising out of a proceedingby or on behalf of the corporation, shall be reported in writing to theshareholders with or before the notice of the next shareholders' meeting. Ifthe next shareholder action is taken without a meeting at the instigation of theboard of directors, such notice shall be given to the shareholders at or beforethe time the first shareholder signs a writing consenting to such action.

ARTICLE VII



Provision of Insurance

1. Insurance. By action of the board of directors, notwithstanding anyinterest of the directors in the action, the corporation may purchase andmaintain insurance, in such scope and amounts as the board of directors deemsappropriate, on behalf of any person who is or was a director, officer,employee, fiduciary or agent of the corporation, or who, while a director,officer, employee, fiduciary or agent of the corporation, is or was serving atthe request of the corporation as a director, officer, partner, trustee,employee, fiduciary or agent of any other foreign or domestic corporation or ofany partnership, joint venture, trust, profit or nonprofit unincorporatedassociation, limited liability company or other enterprise or employee benefitplan, against any liability asserted against, or incurred by, him in thatcapacity or arising out of his status as such, whether or not the corporationwould have the power to indemnify him against such liability under theprovisions of Article VI or applicable law. Any such insurance may be procuredfrom any insurance company designated by the board of directors of the

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corporation, whether such insurance company is formed under the laws of Coloradoor any other jurisdiction of the United States or elsewhere, including anyinsurance company in which the corporation has an equity interest or any otherinterest, through stock ownership or otherwise.

ARTICLE VIII

Miscellaneous

1. Seal. The corporate seal of the corporation shall be circular in formand shall contain the name of the corporation and the words, "Seal, Colorado."

2. Fiscal Year. The fiscal year of the corporation shall be asestablished by the board of directors.

3. Amendments. The board of directors, with the consent of either (a)holders of more than fifty percent of the Series B Preferred Stock thenoutstanding or (b) the Series B Directors, shall have power, to the maximumextent permitted by the Colorado Business Corporation Act, to make, amend andrepeal the bylaws of the corporation at any regular or special meeting of theboard unless the shareholders, in making, amending or repealing a particularbylaw, expressly provide that the directors may not amend or repeal such bylaw.The shareholders also shall have the power to make, amend or repeal the bylawsof the corporation at any annual meeting or at any special meeting called forthat purpose; provided, however, that the shareholders may only make, amend orrepeal the bylaws with approval of the holders of more than fifty percent of theSeries B Preferred Stock then outstanding and the approval of that portion of



the holders of the Common Stock required under the Colorado Business CorporationAct.

4. Gender. The masculine gender is used in these bylaws as a matter ofconvenience only and shall be interpreted to include the feminine and neutergenders as the circumstances indicate.

5. Conflicts. In the event of any irreconcilable conflict between thesebylaws and either the corporation's articles of incorporation or applicable law,the latter shall control.

6. Definitions. Except as otherwise specifically provided in thesebylaws, all terms used in these bylaws shall have the same definition as in theColorado Business Corporation Act.

7. Rules of Order. At any meeting of shareholders or directors of theCorporation at which a question of procedure arises, the person presiding at themeeting may rely upon the Robert's Rules of Order, Newly Revised as then ineffect to resolve any such question.

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Adopted: April 17, 2000.

/s/ Martin E. Friedel-----------------------------------------Secretary

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EXHIBIT 4.10

EXECUTION COPY

SECURITIES PURCHASE AGREEMENT-----------------------------

SECURITIES PURCHASE AGREEMENT, dated as of April 4, 2000, betweenConvergent Communications, Inc., a Colorado corporation (the "Company"), andeach of the entities named on Exhibit A hereto (each, a "Purchaser").

---------

In consideration of the representations, warranties, and covenants hereincontained, and for other good and valuable consideration, the receipt andsufficiency of which are hereby acknowledged, the parties hereto, intending tobe legally bound, hereby agree as follows.

ARTICLE IDEFINITIONS-----------

1.1 Certain Definitions. As used in this Agreement, the following terms-------------------

shall have the following meanings:

"Accredited Investor" has the meaning set forth in Regulation D promulgated-------------------

under the Securities Act.

"Adverse Consequences" means all actions, suits, proceedings, hearings,--------------------

investigations, charges, complaints, claims, demands, injunctions, Judgments,rulings, damages, dues, penalties, fines, costs, amounts paid in settlement,Liabilities, obligations, Taxes, Liens, losses (other than investment losses),expenses, and fees, including court costs and reasonable attorneys' fees andexpenses.

"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations---------

promulgated under the Securities Exchange Act.

"Affiliated Group" means any affiliated group within the meaning of Code----------------

Section 1504(a).

"Agreement" means this Securities Purchase Agreement, including all---------

exhibits and schedules hereto, between the Parties, as the same may be amendedfrom time to time in accordance with the provisions hereof.

"Assets" means all properties and assets, real and personal, tangible and------

intangible, of every type and description, whether owned or leased or otherwisepossessed, used, held for use or usable in the Company's or any of itsSubsidiaries' businesses, including the Licenses, the Intangible Property andthe Company Contracts.

1

"Balance Sheet" means the audited consolidated balance sheet of the Company-------------

and its Subsidiaries as of December 31, 1999 included in the FinancialStatements.

"Basis" means, with respect to any specified consequence, any past or-----

present fact, situation, circumstance, status, condition, activity, practice,plan, occurrence, event, incident, action, failure to act or transaction thatreasonably could form the basis for such consequence.



"Business Day" has the meaning set forth in the Series B Articles of------------

Amendment in Exhibit B.---------

"CEO" means Joseph Zell.---

"CEO Agreement" has the meaning set forth in Section 2.2(d) hereof, in the-------------

form attached hereto as Exhibit F.---------

"Class I" means the class of directors of the Board of Directors with a-------

term expiring at the annual meeting of stockholders of the Company in 2000 andevery third annual meeting thereafter.

"Class II" means the class of directors of the Board of Directors with a--------


"Class III" means the class of directors of the Board of Directors with a---------


"Closing" has the meaning set forth in Section 2.2(b).------- --------------

"Closing Date" has the meaning set forth in Section 2.2(b).------------ --------------

"Code" means the Internal Revenue Code of 1986, as amended.----

"Commission" means the Securities and Exchange Commission or any successor----------

Governmental Authority.

"Common Stock" has the meaning set forth in the Series B Articles of------------

Amendment in Exhibit B.---------

"Company" has the meaning set forth in the preface above.-------

"Company Contracts" has the meaning set forth in Section 3.20.----------------- ------------

2

"Company Transaction" means any (A) direct or indirect acquisition or-------------------

purchase of any equity securities of the Company or any of its Subsidiaries,that results in any Person (other than TPG) Beneficially Owning 25% or more ofany class of equity securities of the Company or equity securities of any of itsSubsidiaries, (B) business combination, sale of all or substantially all of theCompany's assets, liquidation, dissolution or similar transaction involving theCompany or any of its Subsidiaries, or (C) other transaction by the Company theconsummation of which would prevent or materially delay the transactioncontemplated hereby.

"Company Parties" means the Company and its Subsidiaries.---------------

"Company's Knowledge" means the actual knowledge of the Company's officers,-------------------

after due inquiry.



"Contract" means any agreement, contract, commitment, indenture, lease,--------

license, instrument, note, bond, security, agreement in principle, letter ofintent, undertaking, promise, covenant, arrangement or understanding, whetherwritten or oral.

"Conversion Shares" has the meaning set forth in Section 2.2(a).----------------- --------------

"Disclosure Schedule" has the meaning set forth in the preface of Article------------------- -------

III.---

"Employee Benefit Plan" means any (i) nonqualified deferred or incentive---------------------

compensation, retirement, bonus, stock option or other equity based, severance,termination, retention or change in control plan or arrangement, (ii) qualifieddefined contribution retirement plan or arrangement which is an Employee PensionBenefit Plan, (iii) qualified defined benefit retirement plan or arrangementwhich is an Employee Pension Benefit Plan (including any Multiemployer Plan), or(iv) Employee Welfare Benefit Plan or material fringe benefit plan or program.

"Employee Pension Benefit Plan" has the meaning set forth in ERISA Section-----------------------------

3(2).

"Employee Welfare Benefit Plan" has the meaning set forth in ERISA Section-----------------------------

3(1).

"Entity" means a partnership, limited liability partnership, corporation,------

limited liability company, association, joint stock company, trust, estate,joint venture, or unincorporated organization.

"Environmental, Health, and Safety Laws" means federal, state, local, and--------------------------------------

foreign law (including common law), statutes, regulations, ordinances, Judgmentsor binding agreements with any Governmental Authority concerning pollution orprotection of the environment, public health and safety, or employee health andsafety, including laws relating to emissions, discharges, releases, orthreatened releases of Hazardous Materials into ambient air, surface water,ground water, or lands

3

or otherwise relating to the manufacture, processing, distribution, use,treatment, storage, disposal, transport, or handling of Hazardous Materials.

"Environmental Studies" has the meaning set forth in Section 3.14(d).--------------------- ---------------

"ERISA" means the Employee Retirement Income Security Act of 1974, as-----

amended.

"ERISA Affiliate" means each entity which is treated as a single employer---------------

with the Company for purposes of Code Section 414.

"FCPA" means the Foreign Corrupt Practices Act of 1977, as amended.----

"Fiduciary" has the meaning set forth in ERISA Section 3(21).---------

"Financial Statements" has the meaning set forth in Section 3.9.-------------------- -----------

"GAAP" means United States generally accepted accounting principles as in----

effect from time to time.



"Governmental Authority" means any nation or government, any state or other----------------------

political subdivision thereof, and any Person exercising executive, legislative,judicial, regulatory or administrative functions of or pertaining to government.

"Hazardous Materials" shall mean any chemical substance, including without-------------------

limitation any: pollutant; contaminant; chemical; raw material; intermediate,product or by-product; industrial, solid, toxic or hazardous substance, materialor waste; petroleum or any fraction thereof; asbestos or asbestos-containing-material; and polychlorinated biphenyls; including without limitation allsubstances, materials or wastes; which are now regulated, classified orconsidered to be hazardous, dangerous or toxic under any Environmental, Healthor Safety Law, now or hereafter enacted, promulgated, or amended.

"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976,-------

as amended, and the regulations promulgated thereunder.

"Indemnified Party" has the meaning set forth in Section 6.4.----------------- -----------

"Indemnifying Party" has the meaning set forth in Section 6.4.------------------ -----------

"Indenture" means the Indenture dated April 2, 1998 between Convergent---------

Communications, Inc. as Issuer and Norwest Bank Colorado, N.A., as Trustee.

4

"Intangible Property" means all certificates of deposit, bank accounts,-------------------

securities, partnership or other ownership interests, rights to receive money orproperty by assignment, future interests, claims and rights against thirdparties, accounts and notes receivables owned or held directly or beneficiallyby or on behalf of the account of the Company or any of its Subsidiaries, theLicenses, the Intellectual Property and any other intangible property of anynature of the Company or any of its Subsidiaries.

"Intellectual Property" means (i) all inventions (whether patentable or---------------------

unpatentable and whether or not reduced to practice), all improvements thereto,and all patents, patent applications, and patent disclosures, (ii) alltrademarks, service marks, trade dress, logos, trade names, and corporate names,including all goodwill associated therewith, and all applications,registrations, and renewals in connection therewith, (iii) all copyrightableworks, all copyrights, and all applications, registrations, and renewals inconnection therewith, (iv) all trade secrets and confidential businessinformation (including ideas, research and development, know-how, formulas,compositions, manufacturing and production processes and techniques, technicaldata, designs, drawings, specifications, customer and supplier lists, pricingand cost information, and business and marketing plans and proposals), (v) allcomputer software (including data and related documentation), (vi) all otherproprietary rights, and (vii) all copies and tangible embodiments thereof (inwhatever form or medium).

"Investor Rights Agreement" means the Investor Rights Agreement, dated as-------------------------

of April [__], 2000, between the Company and the Purchasers, as it may beamended from time to time in accordance with its terms, having the terms setforth in the form of Investor Rights Agreement attached hereto as Exhibit G.

---------

"Judgment" means any judgment, writ, order or decree of or by any--------

arbitrator, court, judge, justice or magistrate, including any bankruptcy courtor judge, and any order of or by any other Governmental Authority.

"Liability" means any liability (whether known or unknown, whether asserted---------

or unasserted, whether absolute or contingent, whether accrued or unaccrued,



whether liquidated or unliquidated, and whether due or to become due), includingany such liability for Taxes and any such liability with respect to anyRedeemable Equity.

"Licenses" has the meaning set forth in Section 3.16.-------- ------------

"Lien" means any mortgage, pledge, lien (statutory or other), encumbrance,----

hypothecation, charge, security interest, claim, option, right to acquire,adverse interest, assignment, deposit arrangement, restriction, or preference,priority or other security agreement or preferential arrangement of any kind ornature whatsoever (including any conditional sale or other title retentionagreement, any financing lease involving substantially the same economic effectas any of the

5

foregoing and the filing of any financing statement under the Uniform CommercialCode or comparable law of any jurisdiction).

"Material Adverse Effect" means any event, fact, circumstance or occurrence-----------------------

which results or would result in a material adverse change in or a materialadverse effect on any of (i) the financial condition, results of operation,business, operations or regulatory status of the Company and its Subsidiariestaken as one enterprise, or (ii) the legality or validity as to the Company orenforceability as against the Company of any Transaction Document or (iii) theability of the Company or any of its Subsidiaries to perform its materialobligations hereunder or under any other Transaction Document.

"Multiemployer Plan" has the meaning set forth in ERISA Section 3(37).------------------

"Ordinary Course of Business" means the ordinary course of business of the---------------------------

Company and its Subsidiaries consistent with past custom and practice (includingwith respect to quantity and frequency) taking into consideration increases inquantity and frequency resulting from the recent growth of the Company.

"Originally Issued Shares" means, as of any time, the aggregate number of------------------------

Conversion Shares represented by the Series B Shares issued to TPG on theClosing Date, as such aggregate number shall have been from time to timecumulatively adjusted as a result of the operation of Section 9 and Section 10

--------- ----------of the Series B Articles of Amendment through such time.

"Parties" means the Company and the Purchasers.-------

"PBGC" means the Pension Benefit Guaranty Corporation.----

"Permitted Liens" means (i) mechanic's, materialmen's, and similar Liens---------------

for construction in progress or evidencing indebtedness for related servicesthat are not more than sixty days past due, (ii) Liens for Taxes not yet due andpayable or for Taxes that the taxpayer is contesting in good faith throughappropriate proceedings, (iii) purchase money Liens and Liens securing rentalpayments under capital lease arrangements, (iv) Liens incurred pursuant to thetransactions entered into in connection with, or permitted by, the Indenture;(v) Liens existing as of the date hereof and disclosed in the DisclosureSchedule or disclosed to Purchasers pursuant to Section 3.26 and (vi) otherLiens arising in the Ordinary Course of Business and not incurred in connectionwith the borrowing of money which do not materially impair the current use,occupancy or value or the marketability of title of the Asset subject thereto.

"Person" means an individual, Entity, or Governmental Authority.------

"Prohibited Transaction" has the meaning set forth in ERISA Section 406 or----------------------



Code Section 4975.

6

"Purchasers" means each of the parties identified as such on Exhibit A and---------- ---------

their Affiliates and designated assignees.

"Purchaser Indemnified Parties" means the Purchasers and their successors-----------------------------

and Representatives.

"Purchaser Placement Fee" means $5,250,000.-----------------------

"Redeemable Equity" of any Person means any equity interest of such Person-----------------

that by its terms or otherwise, absolutely, contingently or otherwise, is or maybe required to be redeemed or repurchased by such Person or is or may becomeredeemable or repurchasable at the option of the holder thereof.

"Registrable Shares" has the meaning set forth in the Investor Rights------------------

Agreement.

"Related Persons" means, as to any Person, (i) any Affiliate of such Person---------------

(other than a Company Party), (ii) any Entity (other than a Company Party) ofwhich such Person or any of its Related Persons is a director, officer, partner,manager or other member of management with the power to direct the managementand policies of such Entity, (iii) any Entity (other than a Company Party) thatis the issuer of any equity interests of any class or series beneficially ownedby such Person or any of its Related Persons which represent 10% or more of alloutstanding equity interests of that class or series, or (iv) any trust orestate in which such Person has a substantial beneficial interest or as to whichsuch Person serves as trustee or in a similar capacity. If such Person is a

natural person, such Person's "Related Persons" shall also include such Person'sparents, children, siblings and spouse, the parents and siblings of suchPerson's spouse and the spouses of such Person's children and any Entity (otherthan a Company Party), trust or estate with which any such relative of suchPerson has any relationship specified in clause (i), (ii) or (iii) of the firstsentence of this definition.

"Remedies Exception" means (i) applicable bankruptcy, insolvency,------------------

reorganization, moratorium, and other laws of general application, heretofore orhereafter enacted or in effect, affecting the rights and remedies of creditorsgenerally, and (ii) the exercise, whether in an action or proceeding at law orin equity, of judicial or administrative discretion in accordance with generalequitable principles, particularly as to the availability of the remedy ofspecific performance or other injunctive relief.

"Reportable Event" has the meaning set forth in ERISA Section 4043.----------------

"Regulatory Approvals" means (i) any and all certificates, permits,---------------------

licenses, franchises, concessions, grants, consents, approvals, orders,registrations, authorizations, waivers, variances or

7

clearances from, or filings or registrations with, Governmental Authorities, and(ii) any and all waiting periods imposed by applicable laws.

"Representatives" means, with respect to any Person, any of such Person's---------------

officers, directors, employees, agents, attorneys, accountants, consultants,equity financing partners or financial advisors or other Person associated with,or acting on behalf of, such Person.



"Required Regulatory Approval" means a Regulatory Approval (i) necessary----------------------------

under the HSR Act, or required under the Securities Act, the Exchange Act or thesecurities laws of the several states of the United States, for or in connectionwith the consummation by the parties thereto of the transactions contemplated bythe Transaction Documents, or (ii) consisting of the filing by the Company ofthe Series B Articles of Amendment with the Secretary of State of the State ofColorado.

"Requirement of Law" means, as to any Person, the charter and bylaws or------------------

other organizational or governing documents of such Person, and all federal,state and local laws, rules, regulations, Judgments or other determinations ofan arbitrator, court or other Governmental Authority, applicable to or bindingupon such Person or any of its property or to which such Person or any of itsproperty is subject.

"Rights" means, with respect to any Person, any subscription, option,------

warrant, convertible or exchangeable security or other right, howeverdenominated, to subscribe for, purchase or otherwise acquire any capital stock,other equity interest or other security of any class or series and of anyissuer, with or without payment of additional consideration in cash or property,either immediately or upon the occurrence of a specified date or a specifiedevent or the satisfaction or happening of any other condition or contingency.

"Securities" means the collective reference to the Shares and the Warrants.----------

"Securities Act" means the Securities Act of 1933, as amended.--------------

"Securities Exchange Act" means the Securities Exchange Act of 1934, as-----------------------

amended.

"Series A Warrants" has the meaning set forth in Section 2.2(a).----------------- --------------

"Series B Warrants" has the meaning set forth in Section 2.2(a).----------------- --------------

"Series B Articles of Amendment" means the Articles of Amendment to the------------------------------

Amended and Restated Articles of Incorporation of the Company setting forth acopy of the resolution adopted by the Board of Directors of the Company creatingand authorizing the Series B Preferred Stock, as filed with the Secretary ofState of the State of Colorado on or prior to the date hereof, in the formattached hereto as Exhibit B, or any successor provisions of the Company's

---------Articles of Incorporation.

8

"Series B Preferred Stock" means the Series B Senior Cumulative Convertible------------------------

Preferred Stock, no par value, of the Company.

"Shares" has the meaning set forth in Section 2.2(a).------ ---------------

"Subsidiary" means, when used with respect to any Person as of any time,----------

any other Person as to which any of the following statements is true as of suchtime:

(i) such second Person is an Affiliate of such first Person whichis, directly or indirectly through one or more intermediaries, controlledby such first Person, or

(ii) such first Person owns or controls, directly or indirectlythrough one or more intermediaries, 50% or more of the outstanding equityinterests in such second Person having ordinary voting power to elect a



majority of the members of the board of directors or joint venture,partnership or other management committee, trustees, managers or otherPersons ordinarily having the power, authority or responsibility formanaging or directing the management of such second Person, or

(iii) such first Person, directly or indirectly through one ormore intermediaries, is entitled under ordinary circumstances to 50% ormore of the profits or losses of such second Person or to receive upondissolution and liquidation of such second Person 50% or more of the assetsavailable for distribution to the holders of equity interests in suchsecond Person,

and in the case of any of clauses (i), (ii) and (iii), disregarding any votingpower, equity interests or other rights or interests which any Person other thanthe first Person or another Subsidiary of the first Person would or might haveupon the happening of any contingency, the satisfaction of any condition or theoccurrence of any event which has not happened, been satisfied or occurred as ofsuch time.

"Tax" means any federal, state, local, or foreign income, gross receipts,---

license, payroll, employment, excise, severance, stamp, occupation, premium,windfall profits, environmental, customs duties, capital stock, franchise,profits, withholding, social security (or similar), unemployment, disability,real property, personal property, sales, use, transfer, registration, valueadded, alternative or add-on minimum, estimated, or other tax of any kindwhatsoever, including any interest, penalty, or addition thereto, whetherdisputed or not.

"Tax Return" means any return, declaration, report, claim for refund, or----------

information return or statement relating to Taxes, including any schedule orattachment thereto, and including any amendment thereof, required to be filedunder any statute, rule or regulation.

"Termination Fee" means $5,250,000.---------------

9

"Third Party Claim" has the meaning set forth in Section 6.4 below.----------------- -----------

"TPG" means TPG Partners III, L.P. and its Affiliates.---

"Transaction Documents" means this Agreement, the Investor Rights---------------------

Agreement, the Series B Articles of Amendment, the Warrant Agreement, theWarrants and each other certificate, instrument or agreement executed anddelivered by the Company or any of its Subsidiaries pursuant to or in connectionwith the transactions contemplated by any of the foregoing.

"Transactions" means any and all of the transactions contemplated by this------------

Agreement or any of the other Transaction Documents, including the issuance,sale and purchase of the Shares and the Warrants on the date hereof or at theClosing, the issuance and sale of Warrant Securities upon the exercise of anyWarrants and the issuance and delivery of the Conversion Shares upon theconversion of any Series B Preferred Stock.

"Underlying Shares" means the collective reference to the Shares of Common-----------------

Stock issuable upon conversion of the Series B Preferred Stock in accordancewith the Series B Articles of Amendment or upon exercise of the Warrants inaccordance with the Warrant Agreement.

"Warrant Agreement" means the Warrant Agreement, dated the date hereof,-----------------

between the Company and the Purchasers, as it may be amended from time to timein accordance with its terms, having the terms set forth in the form of WarrantAgreement attached hereto as Exhibit E.

---------



"Warrant Certificate" means any certificate evidencing one or more Warrants-------------------

which may at any time or from time to time be outstanding in accordance with theterms of the Warrant Agreement.

"Warrants" means, collectively, the Series A Warrants and the Series B--------

Warrants.

"Warrant Securities" has the meaning set forth in the Warrant Agreement.------------------

1.2 Certain Rules of Construction. This Agreement is to be interpreted-----------------------------

in accordance with the following rules of construction:

(i) Number and Gender. All definitions of terms apply equally to-----------------

both the singular and plural forms of the terms defined. Whenever thecontext may require, any pronoun shall include the corresponding masculine,feminine and neuter forms.

(ii) "Including," "Herein," Etc. The words "include," "includes"--------------------------

and "including" are deemed to be followed by the phrase "withoutlimitation". The words "herein", "hereof",

10

and "hereunder" and words of similar import refer to this Agreement(including all Exhibits and Schedules) in its entirety and are not limitedto any part hereof unless the context shall otherwise require. The word"or" is not exclusive and means "and/or."

(iii) Subdivisions and Attachments. All references in this----------------------------

Agreement to Articles, Sections, subsections, Exhibits and Schedules are,respectively, references to Articles, Sections and subsections of, andExhibits and Schedules attached to, this Agreement, unless otherwisespecified.

(iv) References to Documents and Laws. All references to any--------------------------------

Transaction Document are to it as amended, modified and supplemented fromtime to time in accordance with its terms. All references to (x) any otheragreement or instrument or (y) any Requirement of Law, License or similaritem are to it as amended and supplemented from time to time (and, in thecase of a statute, law or regulation, to any corresponding provisions ofsuccessor statutes, laws or regulations), unless otherwise specified.

(v) References to Days. Any reference in this Agreement or a------------------

Transaction Document to a "day" or number of "days" (without the explicitqualification "Business") is a reference to a calendar day or number ofcalendar days. If any action or notice is to be taken or given on or by aparticular calendar day, and such calendar day is not a Business Day, thensuch action or notice may be taken or given on the next Business Day.

(vi) Examples. If, in any provision of any Transaction Document,--------

any example is given (through the use of the words "such as," "forexample," "e.g." or otherwise) of the meaning, intent or operation of any

---provision, such example is intended to be illustrative only and notexclusive.

(vii) Participation in Drafting. The Parties and their respective-------------------------

legal counsel have participated in the drafting of this Agreement, and thisAgreement will be construed simply and according to its fair meaning andwithout any presumption or prejudice for or against any Party.



(viii) Headings. The table of contents and section headings--------

contained in this Agreement are inserted for convenience only and shall notaffect in any way the meaning or interpretation of this Agreement.

ARTICLE IIPURCHASE AND SALE-----------------

2.1 Authorization of Securities. Prior to the execution and delivery of---------------------------

this Agreement, the Company has duly (i) designated, created and authorized theSeries B Preferred Stock and the

11

issuance and sale of shares thereof pursuant to this Agreement and (ii)authorized the Warrants and the issuance and sale thereof pursuant to thisAgreement.

2.2 Securities Purchase.-------------------

(a) Sale and Purchase. At the Closing, the Company shall issue and sell-----------------

to the Purchasers, and the Purchasers shall purchase from the Company, for anaggregate purchase price of $175,000,000 (i) a total of 175,000 shares of SeriesB Preferred Stock (the "Shares"), having the rights, preferences, privileges andrestrictions set forth in the Series B Articles of Amendment, each shareconvertible at the option of the holder at any time following the Closing intoshares (the "Conversion Shares") of Common Stock in accordance with the terms ofthe Series B Articles of Amendment, (ii) Series A Warrants, having the terms setforth in the form of Warrant attached hereto as Exhibit C, to purchase an

---------aggregate of 700,000 shares of Common Stock (the "Series A Warrants"), and (iii)Series B Warrants, having the terms set forth in the form of Warrant attachedhereto as Exhibit D, to purchase 1,166,667 shares of Common Stock (the Series B

---------Warrants"), in the case of each of (ii) and (iii) subject to adjustment inaccordance with the Warrant Agreement. The number of Shares, Series A Warrantsand Series B Warrants to be purchased at the Closing by each Purchaser, and theportion of the aggregate purchase price to be paid by each Purchaser, are setforth next to such Purchaser's name on Exhibit A hereto.

---------

(b) Delivery of Securities; Payment of Purchase Price. The closing of the-------------------------------------------------

purchase and sale of the Securities (the "Closing") shall take place on thethird Business Day following the satisfaction or waiver of each of theconditions set forth in Sections 2.2(c), (d) and (e) at the offices of Gibson,

----------------------------Dunn & Crutcher LLP, 1801 California Street, Suite 4100, Denver, Colorado (the"Closing Date"), or at such other time and place as is mutually acceptable tothe Parties. Delivery of the Securities purchased by the Purchasers pursuant tothis Agreement will be made at the Closing by the Company delivering to thePurchasers, against payment of the purchase price therefor, (i) a stockcertificate or certificates, dated the Closing Date, representing the number ofShares purchased by the Purchasers, with each such certificate being registeredin the name of the Purchasers and (ii) Warrant Certificates, dated the ClosingDate, representing the number of Warrants purchased by the Purchasers, with eachsuch certificate being registered in the name of the respective Purchaser,together with the Warrant Agreement, duly executed and delivered by the Companyand the Purchasers. Payment by the Purchasers of the agreed purchase price forthe Shares and Warrants (against which the Purchaser Placement Fee payable tothe Purchasers (which shall be allocated pro rata to the respective purchaseprices payable by them as set forth in Exhibit A) and any amounts due to the

---------Purchaser for expenses pursuant to Section 8.9 hereof has been netted) shall be

-----------made by wire transfer (to the account of the Company previously designated by itin writing) and the Company shall acknowledge receipt from the Purchasers ofpayment in full.



(c) Conditions of Each Party. The obligation of the Company and the------------------------

Purchasers to consummate the sale and purchase of the Securities as contemplatedby this Agreement is subject

12

to the satisfaction of the following conditions, any of which may be waived inwriting by the Company and the Purchasers:

(i) Proceedings Not Restrained. No order or injunction shall--------------------------

have been issued by a court of competent jurisdiction preventing theconsummation of the transactions contemplated hereby, and no action, suit,proceeding or investigation shall have been instituted or threatened thatseeks to restrain, restrict or prohibit or impose substantial penalties ordamages with respect to (or any other materially adverse relief or remedyin connection with) such transactions.

(ii) Purchase Permitted By Applicable Laws. All Regulatory-------------------------------------

Approvals shall have been received, and the purchase and sale of theSecurities to be purchased at the Closing by the Purchasers on the termsand conditions herein provided (including the application of the proceedstherefrom by the Company) shall not violate any applicable Requirement ofLaw.

(d) Conditions of the Purchasers. The obligation to purchase and pay for----------------------------

the Securities to be purchased by the Purchasers at the Closing Date ascontemplated by this Agreement is subject to the satisfaction, on or before theClosing Date, of the following conditions, any of which may be waived in writingby the Purchasers:

(i) Certain Documents. In addition to the stock certificates and-----------------

Warrant Certificates required by Section 2.2(b), the Purchasers shall have--------------

received the following, each dated the Closing Date (except as otherwisespecified below):

(A) a certificate of the Secretary or an Assistant Secretaryof the Company certifying (x) the names and signatures of the officersof the Company authorized to sign the certificates and other documentsto be delivered by the Company on the Closing Date and (y) that theconditions contained in the other subdivisions of this Section 2.3(d)

--------------and, to the knowledge of the Company, subdivision (i) of Section

-------2.3(c), have been satisfied;------

(B) a certificate of the chief executive officer of theCompany and the Secretary of the Company (x) attaching copies,certified by such officers as true and complete, of the resolutions ofthe Board of Directors of the Company in connection with theauthorization and approval of the execution, delivery and performanceof the Transaction Documents and consummation of the Transactions andof all other documents evidencing all necessary corporate action takenin connection therewith, (y) attaching copies, certified by suchofficers as true and complete, of the Amended and Restated Articles ofIncorporation and By-laws of the Company and of the Series B Articlesof Amendment, each as amended through the Closing Date, and (z) whichincludes a representation by such officers that the copies

13

of the Series B Articles of Amendment, the Articles of Incorporationand By-Laws or other organizational documents of each Subsidiary ofthe Company, as previously provided to the Purchasers, are true andcomplete in all respects;



(C) favorable opinions of Gibson, Dunn & Crutcher LLP,counsel to the Company, and Martin E. Freidel, General Counsel to theCompany, in form and substance satisfactory to the Purchasers.

(ii) Representations and Warranties; No Default. The------------------------------------------

representations and warranties of the Company contained in this Agreementshall have been true and correct in all material respects (except that anyrepresentation or warranty qualified by materiality or Material AdverseEffect shall be true and correct in all respects) on the date of thisAgreement and as of the Closing Date as if made on the Closing Date; andthe Company shall have performed and complied with all agreements,covenants, conditions and obligations contained in this Agreement, theSeries B Articles of Amendment, the Investor Rights Agreement and theWarrant Agreement that are required to be performed or complied with by iton or before the Closing.

(iii) No Material Adverse Change. Since the date hereof, the--------------------------

Company shall have operated its business only in the Ordinary Course ofBusiness and there shall not exist or have occurred any condition, event orstate of facts that has had or is reasonably likely to have a MaterialAdverse Effect, whether or not arising in the Ordinary Course of Business.

(iv) Absence of Certain Events. No Sale of the Company (as-------------------------

defined in Exhibit B), no Reorganization Event (as defined in Exhibit B),--------- ---------

no Change of Control (as defined in Exhibit B) and no action or event shall---------

have been taken or shall have occurred which has or would result in anyadjustment under Section 10 of the Series B Articles of Amendment orArticle III of the Warrant Agreement.

(v) Fairness Opinion. Warburg Dillon Read LLC shall have----------------

delivered (and not withdrawn or modified in any adverse respect) a writtenopinion to the Board of Directors to the effect that the consideration paidto the Company for the shares of Series B Preferred Stock sold pursuant toSection 2.2, is fair, from a financial point of view, to the Company, and atrue and correct copy of such opinion shall have been delivered to thePurchasers.

(vi) Consents. All Regulatory Approvals (including, without--------

limitation, the Required Regulatory Approvals) from any GovernmentalAuthority and all consents, waivers or approvals from any other Person(including, without limitation, the former holders of the Series APreferred Convertible Stock of the Company or pursuant to the Indenture orany of the Company's other debt or credit agreements or material contracts)required for or

14

in connection with the execution and delivery of the Transaction Documentsand the consummation of the transactions contemplated thereby shall havebeen obtained or made on terms reasonably satisfactory to the Purchasers,and all waiting periods specified under applicable Law (including, withoutlimitation, the waiting period under the HSR Act), the expiration of whichis necessary for such consummation, shall have expired or been terminated.

(vii) Board Composition; By-laws. (i) The Board shall have--------------------------

been constituted in the manner contemplated by the Investor RightsAgreement (including that: the size of the Board shall be seven directors(subject to increase only to the extent provided in the Series B Articlesto accommodate the Designated Directors or the Majority Directors (each asdefined in the Series B Articles of Amendment)), and the composition of theBoard shall be as specified in Schedule 2.2(d)(vii) and, if necessary,there shall be one vacancy for the future election of an independentdirector to be designated by TPG); (ii) appropriate resolutions to effectthe establishment of the Operating Committee contemplated by the Investor



Rights Agreement (the "Operating Committee") shall have been duly adoptedby the Board; (iii) the By-laws of the Company shall have been amended, inform and substance satisfactory to the Purchasers, to effectuate thepurposes and intentions of Sections 7 and 11 of the Series B Articles ofAmendment and the Investor Rights Agreement, including by providing: (A)that the Board shall have seven members, subject to increase only to theextent provided in the Series B Articles to accommodate the DesignatedDirectors or the Majority Directors (each as defined in the Series BArticles of Amendment); (B) for the establishment of the OperatingCommittee; (C) that directors may take action in the manner described inSection 7.4 of the Series B Articles of Amendment; (D) that for so long asTPG is the Beneficial Owner of at least 40% of the Originally IssuedShares, except to the extent that the listing requirements of the NasdaqStock Market's National Market would be breached by the operation of thisclause (D), at least one-third of the members of each and every committeeof the Board will be Series B Directors (as defined in the Series BArticles of Amendment); and (E) for the indemnification described inSection 7.5 of the Series B Articles of Amendment; and (iv) directors' andshareholders' liability insurance shall be available to the directorsdesignated by the Purchasers on terms satisfactory to the Purchasers and inan amount of coverage at least equal to $40,000,000.

(viii) CEO and Related Matters. The CEO shall have been duly-----------------------

and validly appointed Chief Executive Officer of the Company by allnecessary action of the Board of Directors, and the Company and CEO shallhave executed the employment agreement (the "CEO Agreement") substantially

-------------in the form of Exhibit F hereto or otherwise on terms reasonably acceptable

---------to the Purchasers and the Company.

(ix) Agreements. Each of the Series B Articles of Amendment,----------

the Investor Rights Agreement and the Warrant Agreement shall have beenexecuted and delivered and shall be in full force and effect insubstantially the forms attached hereto, and

15

the Series B Articles of Amendment shall have been duly filed with andrecorded by the Secretary of State of the State of Colorado; and theCompany shall have furnished to the Purchaser evidence satisfactory to thePurchaser of such filing.

(x) Credit Facilities; Defaults. (i) The entire outstanding---------------------------

principal amount of and accrued interest on the $10,000,000 credit facilitybetween the Company and Goldman Sachs Credit Partners, L.P., which amountshall be no greater than $12,000,000, shall have been paid in full and theobligations of the Company with respect to such loan shall be satisfied infull, in each case concurrently with the consummation of the transactionscontemplated by this Agreement, no default shall exist (or occur uponconsummation of the Transactions) under such loan or any other materialfinancing instrument of the Company or any other Company Contract, and noaction shall be taken to accelerate any material indebtedness of theCompany. Contemporaneously with the Closing hereunder, the Company shallenter into a new working capital facility with Foothill Capital (orcomparable institution) on terms and conditions reasonably acceptable tothe Purchasers (the "Foothill Facility"); and (ii) the Foothill Facilityshall be in full force and effect thereafter and the Company shall have atleast $50,000,000 in firmly committed availability thereunder.

(e) Condition of the Company. The Company's obligation to issue and------------------------

sell the Securities to be sold to and purchased by the Purchasers at the ClosingDate as contemplated by this Agreement is subject to the satisfaction of thecondition, which may be waived in writing by the Company, that therepresentations and warranties contained in Article IV of this Agreement shallbe true and correct in all material respects (except that any representation orwarranty qualified by materiality or Material Adverse Effect shall be true andcorrect in all respects) on and as of the Closing Date, and the Company shallhave received a certificate to that effect signed by each of the Purchasers.



2.3 Use of Proceeds. The Company shall use all proceeds of the sale of---------------

the Securities for working capital and capital expenditures as provided in theCompany's 2000 business plan heretofore approved by the Company's Board ofDirectors and furnished to the Purchasers.

ARTICLE III

COMPANY REPRESENTATIONS AND WARRANTIES---------------------------------------

The Company represents and warrants to and covenants and agrees with thePurchasers as follows as of the date hereof and, after giving effect to all ofthe Transactions being consummated on the Closing Date, as of the Closing Datewith the same force and effect as if made at and as of such time, in each case,except as set forth in the disclosure schedule delivered by the Company to thePurchasers on the date hereof (the "Disclosure Schedule"). Suchrepresentations, warranties, covenants and agreements have constituted amaterial inducement to the Purchasers to enter into this

16

Agreement, to enter into the other Transaction Documents to which it has becomea party, to purchase the securities purchased by it pursuant hereto and toconsummate the other Transactions. The Disclosure Schedule is arranged insections corresponding to the lettered and numbered sections in this Agreementwhich require the disclosure. Any matter disclosed in one section of theDisclosure Schedule may be cross-referenced in other sections of the DisclosureSchedule, and upon such cross-referencing shall be deemed disclosed for allpurposes of the section of the Disclosure Schedule in which such cross-referenceis contained.

3.1 Certain Representations and Warranties Regarding the Transactions.-----------------------------------------------------------------

(a) Authorization of Transactions. The Company has full power and-----------------------------

authority to execute and deliver this Agreement and each other TransactionDocument and to perform its obligations hereunder and thereunder. Theexecution, delivery and performance by the Company of this Agreement and eachother Transaction Document have been duly authorized by the Board of Directorsof the Company and by all other necessary corporate action on the part of theCompany. Each of this Agreement and each other Transaction Document to whichthe Company is a named party has been duly executed and delivered by the Companyand constitutes the valid and legally binding obligation of the Company,enforceable against the Company in accordance with its terms, subject to theRemedies Exception. The Company is not required to give any notice,declaration, report or statement to, make any filing with, or obtain anyauthorization, consent, declaration or approval of any Governmental Authority orany other Person in connection with the execution, delivery or performance bythe Company or any of its Subsidiaries of this Agreement or any otherTransaction Document or the consummation of the Transactions or in order topreclude any termination, suspension, modification or impairment of any of theCompany Contracts or any legal or contractual right, privilege, license orfranchise which is included in the Assets.

(b) Consents; No Conflicts. Except as set forth in the Disclosure-----------------------

Schedule, no regulatory approval from, or registration, disclosure, declarationor filing with, any Governmental Authority is required to be made or obtained bythe Company or any of its Subsidiaries in connection with the execution,delivery and performance of the Transaction Documents and the consummation ofthe transactions contemplated thereby. The execution and delivery of theTransaction Documents and the consummation of the Transactions contemplatedhereby will not constitute a "Change of Control" or "Change in Control" (orsimilar concept) as such term (or concept) is defined in any material contract,agreement, indenture, mortgage, note, lease or other instrument to which theCompany or any of its Subsidiaries is a party or by which the Company or anysuch Subsidiary is bound or to which the properties of the Company or any suchSubsidiary is subject.



(c) Series B Articles of Amendment. By the Closing, all actions necessary------------------------------

in order to duly and validly authorize and designate the Series B PreferredStock and authorize and create the Warrants, including all necessary corporateaction on the part of the Company and its stockholders, shall have been takenand the Series B Articles of Amendment in the form attached hereto as Exhibit

-------

17

B and the Warrant Agreement shall each be in full force and effect and shall not-have been amended, modified or supplemented.

(d) Financial Advisors and Brokers; Fairness Opinion. Except for Warburg------------------------------------------------

Dillon Read L.L.C., no Person has acted, directly or indirectly, as a broker,finder or financial advisor of the Company in connection with the TransactionDocuments or the transactions contemplated thereby, and no Person is entitled toreceive any broker's, finder's or similar fee or commission in respect thereofbased in any way on any agreement, arrangement or understanding made by or onbehalf of the Company, any of its Subsidiaries or any of their respectivedirectors, officers or employees. Furthermore: (i) true and correct copies ofall agreements between the Company, on the one hand, and Warburg Dillon ReadL.L.C., on the other, have been delivered to the Purchasers; and (ii) theCompany has received an opinion of Warburg Dillon Read L.L.C. to the effect thatthe consideration to be paid to the Company for the shares of Series B PreferredStock to be sold hereunder is fair, from a financial point of view, to theCompany.

(e) Offerees; Exemption from Registration. None of the Company Parties,-------------------------------------

their respective directors and officers, their respective Affiliates or anyPerson acting as agent for or on behalf of any of the Company Parties has,directly or indirectly, sold, offered for sale, or solicited offers to buy anyof the Securities or other securities of the Company so as to bring the offer,issuance or sale of the Securities as contemplated by this Agreement within theregistration requirements of Section 5 of the Securities Act, or within theregistration or qualification requirements of any "blue sky" or securities lawsof any state or other jurisdiction. Assuming the Purchasers are all AccreditedInvestors, the offering, issuance and sale of the Securities are exempt from theregistration provisions of the Securities Act.

3.2 Organization, Qualification, and Corporate Power. The Company is a------------------------------------------------

corporation duly organized, validly existing, and in good standing under thelaws of the State of Colorado. Each of its Subsidiaries is a limited liabilitycompany or a corporation duly organized, validly existing and in good standingunder the laws of the jurisdiction of its incorporation. Each of the CompanyParties is duly authorized, qualified and licensed and is in good standing toconduct business under the laws of each jurisdiction in which the propertyowned, leased or operated by it or the nature of the business conducted by itmakes such qualification or license necessary, except in such jurisdictionswhere the lack of such qualification or license or the failure to be in goodstanding would not have a Material Adverse Effect. Each jurisdiction in whichthe Company or any of its Subsidiaries is authorized to conduct business isidentified in the Disclosure Schedule. Each of the Company Parties has fullcorporate power and authority to carry on the businesses in which it is engagedas such businesses are now being conducted and to own, lease and use theproperties currently owned, leased and used by it. The Disclosure Schedulelists the directors and officers of the Company and the managers or directorsand officers, as the case may be, of each of its Subsidiaries. The Company hasmade available to the Purchasers true, correct and complete copies of thecharter and bylaws or other operational documents of each of its Subsidiaries(in each case as amended to date).

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3.3 Terms, Validity, Etc. The Company has delivered to the Purchasers---------------------

true and complete copies of its Articles of Incorporation and By-Laws as ineffect on the date hereof. The Shares and the Warrants, when issued as provided



herein, and the Underlying Shares, when issued upon conversion of Series BShares in accordance with the Series B Articles of Amendment or the exercise,conversion or exchange of Warrants in accordance with the Warrant Agreement,will be duly authorized, validly issued, fully paid and nonassessable, free andclear of any Lien, restriction or claim, other than any restriction on transferunder applicable Federal and State securities laws, and with no personalliability attaching to the ownership thereof, and the holder thereof will havethe respective rights, preferences and privileges, and will be subject only tothe applicable limitations and restrictions, provided in the Company's Amendedand Restated Articles of Incorporation (including the Series B Articles ofAmendment), the Warrant Agreement and the other Transaction Documents.

3.4 Capitalization.--------------

(a) The authorized and issued capital stock of the Company consisted solelyof (i) 100,000,000 authorized shares of Common Stock, of which 28,929,824 shareswere issued and outstanding, all Persons, to the Company's Knowledge, owning ofrecord greater than 5% of the outstanding shares are named in the DisclosureSchedule and no shares were held in treasury, and (ii) 1,000,000 authorizedshares of "blank-check" Preferred Stock, none of which was designated, issued oroutstanding, except for 175,000 unissued shares designated as Series B PreferredStock. As of such time, except as set forth in the Disclosure Schedule, (i) noshares of capital stock of the Company of any class or series were reserved forissuance except for the shares of Common Stock issuable upon conversion of theShares or exercise of the Warrants; and (ii) other than pursuant to certainprovisions of the Transaction Documents, there were no voting trusts or otherContracts, arrangements or understandings to which the Company was a party or bywhich it was bound or of which the Company had knowledge that directly,indirectly, absolutely or contingently, related to the issuance, ownership,pledge, transfer, purchase, redemption or repurchase, voting or registrationunder the Securities Act of, or any restrictions with respect to, any shares ofauthorized, issued, or outstanding capital stock of the Company of any class orseries. No Redeemable Equity of the Company is authorized, issued oroutstanding. The Company has previously furnished to the Purchasers a true,correct and complete copy of each registration rights agreement entered into bythe Company in favor of any Person.

(b) Immediately after the Closing and after giving effect to theissuance of the Shares and the Warrants, the statements in Section 3.4(a) shall

--------------be true, accurate and complete in all material respects, except that the Sharesand the Warrants will be outstanding.

(c) Except as set forth in the Disclosure Schedule, there are nooutstanding or authorized Rights or other Contracts, commitments, arrangementsor understandings that could require the Company to issue, sell, or otherwisecause to become outstanding any shares of its capital stock, or stockappreciation, phantom stock, profit participation, or similar rights withrespect to the

19

Company. No capital stock or other securities of the Company have been, and theSecurities are not being, and the Underlying Shares, when issued upon conversionof the Series B Shares or exercise of the Warrants, as the case may be, will notbe, issued in violation of any preemptive rights. The Company has duly reserved15,328,206 shares of Common Stock for issuance upon conversion, exercise orexchange of the Shares and the Warrants. None of the issuance or sale of theSecurities, any future conversion, exercise or exchange of any Series B Share orWarrant, nor any future adjustments in the number of shares of Common Stock orthe kinds or amounts of other securities or property deliverable upon exercise,conversion or exchange of the Warrants or conversion of Series B Shares or inthe amount of consideration payable by holders upon such exercise or conversionshall (i) give any Person any preemptive right or any similar or other right tosubscribe for, purchase or otherwise acquire any of the Securities, any WarrantSecurities, any convertible securities, any other shares of capital stock of theCompany of any class or series or any Rights with respect thereto or any othersecurities of the Company or (ii) result in any adjustments in the number ofshares of Common Stock or the kinds or amounts of other securities or propertydeliverable upon exercise of the Existing Rights or in the amount ofconsideration payable by the holders thereof upon such exercise. Withoutlimiting the generality of the foregoing, except as set forth in the Disclosure



Schedule, no conversion price or exercise price of any Right or other securityof the Company will be reduced, and the number of shares of Common Stockunderlying any Right or other security of the Company shall not be increased, asthe result of the issuance or exercise of the Securities.

3.5 Indebtedness. The Disclosure Schedule contains a list of all------------

outstanding loan or credit agreements, notes, bonds, mortgages, indentures andother similar agreements and instruments pursuant to which the Company or any ofits Subsidiaries has borrowed money (other than purchase money indebtedness andindebtedness for money borrowed by a Subsidiary from the Company, in each caseincurred in the Ordinary Course of Business) in excess of $250,000, and therespective amounts of principal and accrued and unpaid interest outstandingthereunder as of a recent date.

3.6 Compliance with Laws; Noncontravention.--------------------------------------

(a) Compliance and Noncontravention. Neither the execution, delivery or-------------------------------

performance of this Agreement or any other Transaction Document, nor theconsummation of any of the Transactions does or will (i) violate any Requirementof Law or Judgment to which the Company, any of its Subsidiaries or any of theAssets is subject or bound, or any provision of the charter or bylaws of theCompany or of the charter, bylaws, operating agreement or other organizationaldocument of any of its Subsidiaries, or (ii) conflict with, result in a breachof, constitute a default under, result in the acceleration of, create in anyparty the right to accelerate, terminate, modify, or cancel, or require anynotice under, any Company Contract or any legal or contractual right,privilege, License or franchise which is included in the Assets, or result inthe imposition of any Lien upon any of the Assets, except where any suchviolation, conflict, breach, default, right to accelerate, terminate, modify orcancel, or require a notice or result in the imposition of a Lien would not havea Material Adverse Effect. Assuming that the representations and warranties ofthe Purchasers contained herein are true, neither the Company nor any of itsSubsidiaries is required to give any

20

notice, declaration, report or statement to, make any filing with, or obtain anyauthorization, consent, declaration or approval of any Governmental Authority orother third party in connection with the execution and delivery by the Partiesof, or the consummation of the Transactions or in order to preclude anytermination, suspension, modification or impairment of any of the CompanyContracts or any material legal or contractual right, privilege, License orfranchise which is included in the Assets.

(b) Corporate Controls. Neither the Company nor any of its Subsidiaries:------------------

(i) are aware of or have taken any action, directly or indirectly, that wouldresult in a violation by such Persons of the FCPA or the Federal Law for theLiability of Public Servants, had such laws applied, including, withoutlimitation, making use of the mails or any means or instrumentality ofinterstate commerce corruptly in furtherance of an offer, payment, promise topay or authorization of the payment of any money, or other property, gift,promise to give, or authorization of the giving of anything of value to any"foreign official" (as such term is defined in the FCPA) or any foreignpolitical party or official thereof or any candidate for foreign politicaloffice, in contravention of the FCPA or in violation of any Law of any Countryof Operations; or (ii) have offered, promised, authorized or made, directly orindirectly, any unlawful payments or any payments or other inducements to anyforeign official, with the intent or purpose or result of: (A) influencing anyact or decision of such official in his official capacity, (B) inducing suchofficial to do or omit to do any act in violation of the lawful duty of suchofficial, or (C) inducing such official to use his influence with a governmentor instrumentality thereof to affect or influence any act or decision of suchgovernment or instrumentality, in each case in order to assist the Company orany of its Subsidiaries in obtaining or retaining business for or with, ordirecting business to, any Person.

3.7 Subsidiaries.------------



(a) The Disclosure Schedule sets forth for each Subsidiary of the Company(i) its name and jurisdiction of organization, (ii) its form of organization andcapital structure, and (iii) the capital stock or membership or other equityinterests held by the Company in such Subsidiary. The Company holds of recordand owns beneficially all of the outstanding shares of capital stock or otherequity or ownership interests in each of its Subsidiaries, free and clear of anyrestrictions on transfer (other than restrictions under the Securities Act andstate securities laws or as disclosed on the Disclosure Schedule), Taxes, Liens,options, warrants, purchase rights, contracts, commitments, equities, claims,and demands of any nature whatsoever.

(b) Except as set forth in the Disclosure Schedule, there are nooutstanding or authorized Rights, Contracts, arrangements or understandings thatcould require the Company or any of its Subsidiaries to sell, transfer, orotherwise dispose of any equity or ownership interest in any of its Subsidiariesor that could require any Subsidiary of the Company to issue, sell, or otherwisecause to become outstanding any of its own shares of capital stock or membershipor other equity or ownership interests or any shares of capital stock ormembership or other equity or ownership interests in any other Subsidiary. Thereare no (i) authorized or outstanding stock appreciation,

21

phantom stock, profit participation, or similar rights with respect to orRedeemable Equity of, any Subsidiary of the Company or (ii) voting trusts,proxies, or other agreements or understandings with respect to the voting of anycapital stock, membership interest or other equity or ownership interests of anysuch Subsidiary. Except as set forth in the Disclosure Schedule, none of theCompany Parties controls directly or indirectly or has any direct or indirectequity participation or other investment in any Person which is not aSubsidiary.

3.8 Corporate Records. The minute books or similar records of the-----------------

Company and each of its Subsidiaries, which have been made available to thePurchasers, contain true and complete records in all material respects of allmeetings of, or written consents in lieu of meetings executed by, the respectiveboards of directors (and all committees thereof) and shareholders or otherequity owners of the Company and each such Subsidiary. All material actions andtransactions taken or entered into by the Company or any such Subsidiary andrequiring action by its Board of Directors (or Persons performing similarfunctions for any non-corporate Subsidiary) or shareholders or other equityowners have been duly authorized or ratified as necessary and are evidenced insuch minute books; except where the failure of such authorization, ratificationor evidence in the minute book would not have a Material Adverse Effect. Thestock certificate books and stock records of the Company and each suchSubsidiary, as made available to the Purchasers, are true and complete.

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3.9 Financial Statements.--------------------

(a) Company Reports; Financial Statements. (a) The Company has made-------------------------------------

available to the Purchasers a true and complete copy of (i) the Company's AnnualReport on Form 10-K for the year ended December 31, 1999, (ii) the Company'sQuarterly Report on Form 10-Q for the period ended September 30, 1999 and (iii)each registration statement, report on Form 8-K, proxy statement, informationstatement or other report or statement filed by the Company with the Commissionsince September 30, 1999 and prior to the date hereof, in each case in the form(including exhibits and any amendments thereto) filed with the Commission(collectively, the "SEC Reports"). As of their respective dates, the SEC

-----------Reports and any registration statement, report, proxy statement, informationstatement or other statement filed by the Company with the Commission after thedate hereof and before the Closing Date ("Subsequent Reports") (i) was, or will

------------------be, as the case may be, timely filed with the Commission; (ii) complied, or willcomply, as the case may be, in all material respects, with the applicablerequirements of the Exchange Act and the Securities Act, and (iii) did not, orwill not, as the case may be, contain any untrue statement of a material fact or



omit to state a material fact required to be stated therein or necessary inorder to make the statements therein, in light of the circumstances under whichthey were made, not misleading.

(b) Each of the consolidated balance sheets (including, where applicable,the related notes and schedules) included in or incorporated by reference intothe SEC Reports and any Subsequent Reports fairly presents, or will fairlypresent, as the case may be, in all material respects, the consolidatedfinancial position of the Company and its Subsidiaries as of the date thereof,and each of the consolidated statements of income (or statements of results ofoperations), stockholders' equity and cash flows (including the related notesand schedules) included in or incorporated by reference into the SEC Reports andany Subsequent Reports fairly presents or will fairly present as the case maybe, in all material respects, the results of operations, retained earnings andcash flows, as the case may be, of the Company and its Subsidiaries (on aconsolidated basis) for the periods or as of the dates, as the case may be, setforth therein, in each case in accordance with GAAP applied on a consistentbasis throughout the periods covered (except as otherwise noted therein) and incompliance with the rules and regulations of the Commission.

3.10 Events Subsequent to Most Recent Fiscal Period End. Except as--------------------------------------------------

disclosed in the SEC Reports or the Disclosure Schedule, since December 31,1999, there has not been any Material Adverse Effect and each Company Party hasconducted its business and affairs in the Ordinary Course of Business. Withoutlimiting the generality of the foregoing, since December 31, 1999:

(a) none of the Company Parties has sold, leased, transferred, orassigned any of its Assets, other than (i) immaterial Assets or (ii) Assetssold, leased, transferred or assigned in the Ordinary Course of Business;

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(b) none of the Company Parties has entered into any agreement,Contract or license (or series of related Contracts) involving more than$250,000 and outside the Ordinary Course of Business;

(c) none of the Company Parties has accelerated, terminated (otherthan upon the expiration of its term), modified, or canceled any Contract (orseries of related Contracts) and involving more than $250,000 to which theCompany or any of its Subsidiaries is or was a party or by which it is or wasbound;

(d) none of the Company Parties has imposed or suffered to exist anyLien upon any of the Assets, other than Permitted Liens;

(e) none of the Company Parties has purchased, leased or acquired anyAssets or made any capital or operating expenditure (or series of relatedcapital or operating expenditures), capital addition or improvement, in eithercase, not contemplated by the Company's current annual operating budget andinvolving more than $250,000;

(f) none of the Company Parties has made any capital investment in,any loan to, or any acquisition of the securities or assets of, any other Person(or series of related capital investments, loans, and acquisitions) notcontemplated by the Company's current annual operating budget and involving morethan $250,000;

(g) none of the Company Parties has issued any note, bond or otherdebt security or Redeemable Equity or created, incurred, assumed, or guaranteedany indebtedness for borrowed money or capitalized lease obligations involvingmore than $250,000 singly or $500,000 in the aggregate (other than indebtednessfor money borrowed by a Subsidiary from the Company, in each case incurred inthe Ordinary Course of Business);

(h) there has been no change made or authorized in the charter orbylaws of the Company or in the charter, bylaws, operating agreement or otherorganizational documents of any of its Subsidiaries (except for the designationof the Series B Preferred Stock);

(i) the Company has not declared, set aside, or paid any dividend ormade any distribution with respect to its capital stock (whether in cash,securities, property or otherwise) or redeemed, purchased, or otherwise acquired



any of its capital stock, or granted any Rights to purchase or obtain (includingupon conversion, exchange, or exercise) any of its capital stock;

(j) none of the Company Parties has experienced any damage,destruction, or loss (whether or not covered by insurance) to any materialamount of its Assets;

(k) none of the Company Parties has made any loan to any Person,(other than accounts receivable in the Ordinary Course of Business) or enteredinto any other transaction with

24

or for the benefit of any of the Company's stockholders, directors, officers, oremployees, in each case involving more than $25,000;

(l) none of the Company Parties has discharged or satisfied any Lien,or paid, canceled, compromised or otherwise satisfied any obligation,indebtedness or Liability (absolute or contingent) other than the payment in theOrdinary Course of Business of current Liabilities shown on the Balance Sheet orincurred since the date thereof in the Ordinary Course of Business;

(m) none of the Company Parties has (A) increased the rate ofcompensation payable or to become payable by it to any of its officers,directors, employees or agents, except for increases in the Ordinary Course ofBusiness or required under the current terms of employment agreements, or (B)granted, made or accrued any bonus, incentive compensation, service award orother like benefit, contingently or otherwise, to or for the credit of any ofits officers, directors, employees or agents, other than in the Ordinary Courseof Business, or made or provided under any employee welfare, pension,retirement, profit sharing or similar payment or benefit except pursuant toregularly scheduled payments required pursuant to the current terms of theEmployee Benefit Plans described in the Disclosure Schedule or (C) paid orgranted any right to receive any severance or termination pay to any officer,director, or agent;

(n) except as disclosed in the Financial Statements, none of theCompany Parties has made any material change in any method of accounting or anyaccounting practice; and

(o) none of the Company Parties has entered into any Contract to doany of the foregoing.

3.11 Undisclosed Liabilities. (i) None of the Company Parties has any-----------------------

Liability or other obligation which, singly or in the aggregate, would berequired to be reflected or reserved against in a balance sheet of the Companyand its Subsidiaries prepared in accordance with GAAP and (ii) to the Company'sKnowledge, there is no Basis for any present or future action, suit, proceeding,hearing, investigation, charge, complaint, claim, or demand against any of themwhich if asserted could result in any such Liability or other obligation which,singly or in the aggregate, would be required to be reflected or reservedagainst in a balance sheet of the Company and its Subsidiaries prepared inaccordance with GAAP, except for (x) Liabilities set forth on the face of theBalance Sheet (rather than in any notes thereto), (y) Liabilities which havearisen after the date of the Balance Sheet in the Ordinary Course of Business(none of which results from, arises out of, relates to, is in the nature of, orwas caused by any breach of Contract, tort, infringement, or violation of law)and (z) Liabilities that do not have a Material Adverse Effect on the CompanyParties. Other than as set forth on the Disclosure Schedule, there are nocontractual or other restrictions or limitations on the ability of the CompanyParties to pay any dividends or make any other distributions on, or to purchase,redeem or otherwise acquire any of its Securities.

25

3.12 Legal Compliance. Each of the Company Parties has complied in all----------------

material respects with all applicable Requirements of Law and Judgments, and noaction, suit, proceeding, hearing, investigation, charge, complaint, claim,demand, or notice has been filed or commenced against any of them alleging anyfailure so to comply except to the extent that such failure would not have a



Material Adverse Effect.

3.13 Tax Matters.-----------

(a) Each of the Company Parties has filed on a timely basis all TaxReturns that it was required to file on or prior to the date hereof. All suchTax Returns were, when filed, correct and complete in all material respects.All Taxes owed by the Company Parties (whether or not shown on any Tax Return)have been paid or accrued. None of the Company Parties is currently thebeneficiary of any extension of time within which to file any Tax Return. Noclaim has ever been made by a Governmental Authority in a jurisdiction where anyof the Company Parties does not file Tax Returns that it is or may be subject totaxation by that jurisdiction. There are no Liens on any of the Assets thatarose in connection with any failure (or alleged failure) to pay any Tax.

(b) Each Company Party has withheld and paid to the properGovernmental Authority all Taxes required to have been withheld and paid inconnection with amounts paid or owing to any employee, independent contractor,creditor, stockholder, or other third party.

(c) There is no dispute or claim concerning any Tax Liability of theCompany or any of its Subsidiaries either (i) claimed or raised by anyGovernmental Authority in writing or (ii) to the Company's knowledge, based uponpersonal contact by any officer or employee of the Company or any of itsSubsidiaries with any agent of any Governmental Authority. The DisclosureSchedule lists all federal, state, local, and foreign income Tax Returns thathave been audited, and indicates those Tax Returns that currently are thesubject of audit.

(d) None of the Company Parties has waived any statute of limitationsin respect of Taxes or agreed to any extension of time with respect to a Taxassessment or deficiency.

(e) None of the Company Parties has filed a consent under Code Section341(f) concerning collapsible corporations. None of the Company Parties hasmade any payments, is obligated to make any payments, nor is a party to anyagreement that under certain circumstances could obligate it to make anypayments, that will not be deductible under Code Section 280G. None of theCompany Parties is a party to any Tax allocation or sharing agreement which willnot be terminated effective as of the First Closing. Neither the Company norits Subsidiaries has been a member of an Affiliated Group filing a consolidatedfederal income Tax Return other than a group the common parent of which was theCompany.

26

(f) None of the Company Parties has any liability for the Taxes of anyPerson other than another Company Party under Reg. Section 1.1502-6 (or anysimilar provisions of state, local, or foreign law, as a transferee orsuccessor, by contract or otherwise).

3.14 Real Property; Environmental Matters.------------------------------------

(a) The Disclosure Schedule identifies all real property as to whichthe Company or any of its Subsidiaries is the fee owner, operator or the lesseeunder a lease described in Section 3.14(e).

---------------

(b) To the Company's Knowledge there are no pending actions orproceedings (including condemnation proceedings) concerning any such current orformerly owned, operated or leased real property that, if adversely determinedto the Company or its Subsidiaries, can reasonably be expected to have aMaterial Adverse Effect and, to the Company's knowledge, no such action orproceeding has been threatened.

(c) None of the Company Parties has received any written notice fromany city, village or Governmental Authority requiring the correction of anycondition with respect to any Property by reason of a violation or allegedviolation of any applicable law or regulation which could reasonably be expectedto have a Material Adverse Effect, other than notices with respect to violationsor alleged violations that have been cured.



(d) The Company has made available to the Purchasers complete copiesof any third party reports that are in the Company's possession or control, havebeen prepared within the last five years, and relate to the physical orenvironmental condition of any of the real property currently or formerly owned,operated, leased or occupied by the Company or any of its Subsidiaries (the

"Environmental Studies").----------------------

(e) The Disclosure Schedule contains a list of all leases or otherContracts or arrangements pursuant to which real property is leased to orotherwise occupied or used by any Company Party requiring payments in excess of$500,000 per year. With respect to each such Contract:

(i) if written, the Company has provided the Purchasers withtrue, correct and complete copy thereof, as in effect and as amended ormodified or agreed to be amended or modified;

(ii) such Contract is in full force and effect and is legal,valid, binding and enforceable against the parties thereto, subject to theRemedies Exception; and

(iii) neither the Company nor any of its Subsidiaries is indefault in its obligations to pay rent under such Contract and to theCompany's knowledge, neither the

27

Company nor any of its Subsidiaries nor any other party thereto is indefault in any of its other material obligations thereunder.

(f) No Company Party nor, to the Company's knowledge, any owner of anyreal property owned, leased or occupied by the Company or any of itsSubsidiaries has received any outstanding written notice or request forinformation from any Governmental Authority regarding any release or threatenedrelease of any Hazardous Materials or any actual or alleged material violationof Environmental, Health, and Safety Laws relating to such property or itsoccupancy, operation or use by the Company or any of its Subsidiaries andarising under Environmental, Health, and Safety Laws, which if adverselydetermined to the Company, any of its Subsidiaries or such owner, as the casemay be, could reasonably be expected to have a Material Adverse Effect.

(g) Except as described in the Environmental Studies, each of theCompany Parties has complied and is in compliance, with all Environmental,Health, and Safety Laws and has obtained, has complied, and is currently incompliance with, in each case in all material respects, all Licenses that arerequired pursuant to Environmental, Health, and Safety Laws for the occupationof its facilities or the operation of its businesses, in each case wherenoncompliance could reasonably be expected to have a Material Adverse Effect.

(h) to the Company's Knowledge, there are no past or present events,conditions or circumstances, including but not limited to pending changes in anyEnvironmental, Health and Safety Law or License, that are likely to interferewith or otherwise affect the businesses or operations of the Company or any ofits Subsidiaries in the manner now conducted or which would interferesubstantially with compliance or continued compliance with any Environmental,Health and Safety Law or License, in each case in a manner that could reasonablybe expected to have a Material Adverse Effect.

3.15 Intellectual Property.---------------------

(a) The Disclosure Schedule sets forth an accurate and complete listof the material Intellectual Property owned by the Company Parties. Except asexpressly set forth in the Disclosure Schedule, the Company is the sole andexclusive owner of all such Intellectual Property. The Company has rights touse all Intellectual Property material to its Business or has readily availablesubstitutes for such Intellectual Property.

(b) Each of the Company Parties owns or has adequate rights to use (inthe manner and to the extent presently used) all of the Intellectual Propertyused in or necessary for the operation and conduct of its business as presently



or proposed to be conducted, without, to the Company's knowledge, any materialconflict or claim of conflict with the rights of others. None of suchIntellectual Property is subject to any outstanding Judgment restricting the usethereof by the Company or any of its Subsidiaries.

28

(c) (i) None of the Company Parties has interfered with, infringedupon, misappropriated, or otherwise come into conflict with any IntellectualProperty rights of third parties and (ii) to the knowledge of the Company, nothird party has interfered with, infringed upon, misappropriated, or otherwisecome into conflict with any Intellectual Property rights of the Company Parties.

(d) No Company Party is in material default in the payment of anyroyalties, license fees or other consideration to any owner or licensor of anyIntellectual Property used in or necessary for the conduct of its business asnow conducted and as proposed to be conducted or to any agent or representativeof any such owner or licensor by reason of such Company Party's use thereof norotherwise is in default in any material respect in the performance of any of itsobligations to any such owner or licensor, and no such owner or licensor, norany such agent or representative, has notified any Company Party in writing ofany claim of any such default.

3.16 Licenses; Requirements of Law. Each of the Company Parties-----------------------------

possesses all material authorizations, approvals, consents, licenses, permits,easements, certificates and other rights and permissions necessary to conductits respective business and to own, lease and operate its respective propertiesas currently or proposed to be conducted, owned, leased or operated(collectively for all Company Parties, the "Licenses"). All of the Licenses arein full force and effect. The Company has no reason to believe that any of theLicenses will be revoked, canceled, rescinded, or not renewed in the ordinarycourse and on the same or more favorable material terms, other than any suchrevocation, cancellation, rescission, or non-renewal of any License which is notindividually or in the aggregate with one or more other License(s), material tothe business or operations of the Company and the Subsidiaries taken as whole.There is not now pending any material complaint nor, to the knowledge of theCompany, any basis for any such complaint, which might have any of the resultsreferred to in the immediately preceding sentence. Each of the Company Partiesis operating in all material respects in accordance with the terms of theLicenses. Each of the Company Parties is, and has conducted its business andaffairs, in compliance with all applicable Requirements of Law, except where thefailure to comply has not had and, insofar as reasonably can be foreseen, willnot have a Material Adverse Effect.

3.17 Title to Personal Property; Liens; Intangible Property. Each------------------------------------------------------

Company Party has good title to all of its properties which are not realproperty, free and clear of all Liens, other than Permitted Liens.

3.18 Insurance. The properties and operations of each Company Party are---------

insured under various policies of general liability and other forms of insurancecovering such risks as are usually insured against by reasonably prudentcompanies engaged in the businesses and activities in which such Company Partyis engaged, in amounts which are customarily considered adequate in relation tothe business and properties of such Company Party, and all premiums to date havebeen paid in full. No Company Party has been refused any insurance, nor has itscoverage been limited, by an

29

insurance carrier to which it has applied for insurance or with which it hascarried insurance during the past five years.

3.19 Absence of Certain Interests of Affiliated Parties. Except as set--------------------------------------------------

forth in the Disclosure Schedule, no present or former stockholder, partner,director, officer or employee of any Company Party nor any of their RelatedPersons owns or has any proprietary, financial or other interest, direct orindirect, in whole or in part, in any Intellectual Property or any othermaterial asset or property which any Company Party owns, possesses or uses in



its business as now or proposed to be conducted, or is involved in any businessarrangement or relationship with any Company Party which is material to thebusiness and operations of the Company Parties. None of the present or formerstockholders, partners, joint venturers, directors or officers of any CompanyParty or any Related Person of any of the foregoing is indebted to any CompanyParty, and no Company Party is indebted or has any other liability to any suchPerson, except (i) pursuant to the express terms of one or more Contractsidentified in the Disclosure Schedule and (ii) liabilities to directors orofficers for compensation for services in such capacity (or as employees) or tostockholders who are employees rendered since the end of the last calendarmonth.

3.20 Contracts. The Disclosure Schedule lists the following contracts---------

and other agreements to or by which the Company or any of its Subsidiaries is aparty or bound (the "Company Contracts"):

(i) Contract with any present or former stockholder, director,officer, or consultant or any Related Person of such Person or for theemployment of any such Person involving payments in excess of $200,000 peryear, including any consultant or any oral contract with any such Personwhich is not terminable at will by the Company Party which is a partythereto without any payment of any kind and except for (x) employmentcontracts with stockholders who are employees of the Company, (y) theCompany Plans and (z) Contracts exclusively between and for the benefit ofand enforceable by Company Parties;

(ii) Contract outside the Ordinary Course of Business for thefuture purchase of, or payment for, equipment, inventory, supplies, othergoods or products or services having a total value or involving totalpayments or costs of $250,000 or more in any one case or in the aggregatefor all Contracts which are related or which are with the same Person orgroup of affiliated Persons;

(iii) Contract outside the Ordinary Course of Business continuingover a period of more than six months from the date hereof having a totalvalue or involving total payments or costs of $250,000 or more in any onecase or in the aggregate for all Contracts which are related or which arewith the same Person or a group of affiliated Persons;

(iv) distribution, dealer, representative or agency Contractoutside the Ordinary Course of Business which, individually or togetherwith one or more such Contracts which

30

are related or are with the same Person or group of affiliated Persons,involve payments in excess of $250,000.

(v) lease outside the Ordinary Course of Business under which anyCompany Party is either lessor or lessee of any real property or anymaterial personal property having annual lease payments in excess of$250,000;

(vi) note, debenture, bond or other security or evidence ofindebtedness, equipment trust agreement, letter of credit agreement, loanagreement, pledge or security agreement, mortgage or other Contractpursuant to which any material contingent obligation (or any otherLiability) in excess of $250,000 of any Company Party to any other Personor of any other Person to any Company Party was incurred or may be incurredin the future or otherwise relating to any such contingent obligation orother Liability;

(vii) Except as provided in the Company's current annual operatingbudget previously approved by the Company's board of directors, Contractfor any capital expenditure or leasehold improvement outside the OrdinaryCourse of Business in excess of $250,000 per year in any single case or$500,000 per year in the aggregate for all cases;

(viii) Contract, not otherwise disclosed (with sufficientspecificity regarding the following), limiting or restraining any CompanyParty from engaging in any business or competing in any manner generally orin any specific geographic area or obligating any Company Party to present



any business or other opportunity to any other Person or grant or offer togrant any other Person any participation or other interest in any businessor other opportunity;

(ix) Contract, not otherwise disclosed (with sufficientspecificity regarding the following), pursuant to which any Person has aright of first refusal, a "tag-along" right or any similar right withrespect to any proposed disposition by any Company Party of any equityinterest in another Company Party or of any other property of such firstCompany Party;

(x) Contract with any labor union or other labor representative;

(xi) bonus, pension, profit-sharing, retirement, stock purchase,stock option or other equity based, deferred or incentive compensation,death benefit, disability, severance, termination, retention, change incontrol, insurance, medical, fringe or other benefit plan, or similar plan,program or Contract in effect with respect to its employees or theemployees of others, except for the Employee Benefit Plans;

(xii) Except as otherwise disclosed, any Contract which providesfor "golden parachute" or similar benefits;

31

(xiii) Except as otherwise disclosed, any Material Contract outsidethe Ordinary Course of Business relating to the mortgaging, pledging orother placing of a Lien on any properties of any Company Party;

(xiv) Except as otherwise disclosed, any Contract under which theconsequences of a default or termination would have a Material AdverseEffect;

The Company has made available to the Purchasers a correct and complete copy ofeach written Contract (as amended to date) listed in the Disclosure Schedule.Each Contract required to be identified in the Disclosure Schedule is in fullforce and effect and, to the Company's knowledge, is the legal, valid andbinding obligation of the parties thereto other than a Company Party andenforceable against such other parties in accordance with its terms, subject tothe Remedies Exception.

3.21 Litigation. The Disclosure Schedule sets forth each Judgment----------

entered against or specifically relating to any of the Company Parties or any ofthe Assets. No Company Party is a party to or otherwise involved in or, to theCompany's knowledge, is threatened to be made a party to or threatened to beinvolved in any action, suit, proceeding, hearing, or investigation of, in, orbefore any court or quasi-judicial or administrative agency of any federal,state, local, or foreign jurisdiction or before any arbitrator which,individually or in the aggregate, would, if determined adversely, have aMaterial Adverse Effect.

3.22 Employees. Except as set forth in the Disclosure Schedule, none of---------

the Company Parties is a party to or bound by any collective bargaining orsimilar labor agreement, nor has any Company Party experienced any strikes,grievances, claims of unfair labor practices, or other collective bargainingdisputes. None of the Company Parties has committed any unfair labor practicewithin the meaning of any applicable Requirement of Law. Each of the CompanyParties is in compliance in all material respects with all applicableRequirements of Law relating to the employment, the terms and conditions ofemployment and the termination of employment of their respective employees.Except as set forth in the Disclosure Schedule to the Company's Knowledge, thereis no organizational effort presently being made or threatened by or on behalfof any labor union or other labor representative with respect to employees ofany Company Party.

3.23 Employee Benefits.-----------------

(a) The Disclosure Schedule lists each Employee Benefit Plan establishedor maintained the Company or any of its Subsidiaries or ERISA Affiliates or towhich the Company or any of its Subsidiaries or ERISA Affiliates contributes or



is obligated to contribute (and each related trust, insurance contract or fund)complies in form and in operation in all material respects with the applicablerequirements of ERISA, the Code, and other applicable Requirements of Law.Except as set forth on the Disclosure Schedule, none of the Company Partiesmaintains any Employee

32

Benefit Plan which is an Employee Pension Benefit Plan. The Company has madeavailable to the Purchasers correct and complete copies of the plan documentsand summary plan descriptions, the most recent Form 5500 Annual Report, and allrelated trust agreements, insurance contracts, and other funding agreementswhich implement each such Employee Benefit Plan.

(b) With respect to each Employee Benefit Plan that any of the CompanyParties or any ERISA Affiliate maintains or ever has maintained or to which anyof them contributes, ever has contributed, or ever has been required tocontribute:

(i) To the knowledge of the Company, no Such Employee Benefit Planwhich is an Employee Pension Benefit Plan has been completely or partiallyterminated or been the subject to a Reportable Event as to which noticewould be required to be filed with the PBGC. No proceeding by the PBGC toterminate any such Employee Pension Benefit Plan (other than anyMultiemployer Plan) has been instituted or threatened.

(ii) To the knowledge of the Company, there have been noProhibited Transactions with respect to any such Employee Benefit Plan. NoFiduciary has any Liability for breach of fiduciary duty or any otherfailure to act or comply in connection with the administration orinvestment of the assets of any such Employee Benefit Plan that would havea Material Adverse Effect.

(iii) No action, suit, proceeding, hearing, or investigation withrespect to the administration or the investment of the assets of any suchEmployee Benefit Plan (other than routine claims for benefits) is pendingor, to the Company's knowledge, threatened, except where the action, suit,proceeding, hearing or investigation would not have a Material AdverseEffect.

(iv) None of the Company Parties nor any ERISA Affiliate hasincurred any Liability to the PBGC (other than PBGC premium payments) orotherwise under Title I or IV of ERISA (including any withdrawal Liability)or under the Code with respect to any such Employee Benefit Plan which isan Employee Pension Benefit Plan.

(v) None of the Company Parties nor any ERISA Affiliates hasincurred or reasonably expects to incur any material liability under orpursuant to Title I or IV or ERISA or the penalty or excise tax provisionsof the Code relating to Employee Benefit Plans.

(c) None of the Company Parties nor any ERISA Affiliate contributes to,ever has contributed to, or ever has been required to contribute to anyMultiemployer Plan or has any Liability (including withdrawal Liability) inrespect of any Multiemployer Plan.

(d) None of the Company Parties maintains nor ever has maintained norcontributes, nor ever has contributed, nor ever has been required to contributeto any Employee Welfare Benefit Plan

33

providing medical, health, or life insurance or other welfare-type benefits forcurrent or future retired or terminated employees, their spouses, or theirdependents (other than in accordance with Part 6 of Title I of ERISA).

(e) The Company Parties have complied with the applicable requirements ofParts 6 and 7 of Title I of ERISA with respect to any Employee Welfare BenefitPlan providing health benefits, except where such noncompliance would not have aMaterial Adverse Effect.

(f) No current or former employee of any Company Party is or may become



entitled, as a result of the consummation of the Transactions (either alone ortogether with the occurrence of any other event), to (i) any accelerated orincreased payment or benefit, (ii) any accelerated or special vesting of anypayment, right or benefit or (iii) any payment or benefit that is not taxdeductible by the applicable Company Party.

3.24 Guaranties. Except as set forth in the Disclosure Schedule and----------

except for guarantees of customer obligations to equipment lessors made in theOrdinary Course of Business, none of the Company Parties is a guarantor or co-borrower in respect of any Liability or obligation or is otherwise liable forany Liability or obligation (including indebtedness) of any other Person otherthan another Company Party.

3.25 Availability of Documents. The Company has made available to the-------------------------

Purchasers copies of all documents, including all Contracts, insurance polices,leases, plans, instruments, and Licenses listed in the Disclosure Schedule orotherwise referred to herein. Such copies are true and complete and include allamendments, supplements and modifications thereto or waivers currently in effectthereunder. The Company will deliver to the Purchasers, at the Closing, (i) acertificate, dated the date hereof, of the chief executive officer of theCompany and the Secretary of the Company (A) attaching copies, certified by suchofficers as true and complete, of the resolutions of the Board of Directors ofthe Company in connection with the authorization and approval of the execution,delivery and performance of the Transaction Documents and consummation of theTransactions and of all other documents evidencing all necessary corporateaction taken in connection therewith, (B) attaching copies, certified by suchofficers as true and complete, of the Amended and Restated Articles ofIncorporation and By-laws of the Company and of the Series B Articles ofAmendment, (C) which includes a representation by such officers that the copiesof the Amended and Restated Articles of Incorporation and By-Laws or otherorganizational documents of each Subsidiary of the Company, as previouslyprovided to the Purchasers, are true and complete in all respects, and (D)setting forth the incumbency of the officer or officers of the Company who haveexecuted and delivered this Agreement and each other Transaction Document,including therein a signature specimen of each such officer or officers; (ii)copies, certified by an officer of the Company, of each Company Party's Articlesof Incorporation or other organizational documents (including, in the case ofthe Company, the Series B Articles of Amendment), in each case as of the date ofthis Agreement, (iii) the results of such Lien and suits and Judgment searchespreviously requested by the Purchasers and performed by a company specializingin such searches and (iv) the

34

opinion of counsel to the Company in the form previously agreed upon by theCompany and the Purchasers. The Company covenants and agrees with the Purchasersthat it shall deliver to the Purchasers a long form certificate of existence andgood standing (including tax good standing) as to each Company Party, dated asof a recent date, of the Secretary of State of the State of Colorado or thejurisdiction of incorporation of such Company Party.

3.26 Restrictions. Except as set forth in Section 3.26 of the------------

Disclosure Schedule, none of the Company Parties is currently a party to orbound by any Contract, subject to any restriction of any nature under any of itscharter or other organizational or constituent documents, subject to anyRequirements of Law or subject to any Judgment which materially adverselyaffects or materially restricts or, so far as the Company can now reasonablyforesee, may in the future have a Material Adverse Effect or materiallyrestrict, the business, operations, properties, results of operations, prospectsor condition (financial or otherwise) of such Company Party.

3.27 Key Employees. Except as set forth on the Disclosure Schedule,-------------

none of the officers or key employees of any Company Party, to the Company'sknowledge, presently intends to terminate his or her employment by such CompanyParty.

3.28 Suppliers; Customers.--------------------



(a) Suppliers. The Disclosure Schedule sets forth the twenty (20) largest---------

suppliers of the Company in terms of purchases as of December 31, 1999, showingthe approximate value of such purchases from each supplier. None of suchsuppliers has notified any Company Party that it intends to terminate or changesignificantly its sale of products purchased by such party or any of thematerial terms thereof. To the knowledge of the Company Parties none of suchsuppliers is insolvent. Except as specifically set forth in the DisclosureSchedule, neither the Company nor any of the Company Parties has granted oragreed to grant any unusual credit, trade-in, free return, discount or otherunusual sales terms in the acquisition of its inventory. The Company Partieshave taken all necessary action to protect their rights under applicablewarranties. There are no claims pending or threatened by any Company Partyagainst any of their suppliers, other than those which would not result in aMaterial Adverse Effect.

(b) Customers. The Disclosure Schedule sets forth the twenty (20) largest---------

customers of the Company and the other Company Parties in terms of aggregatesales as of December 31, 1999. None of such customers has any Company Partythat it intends to terminate or change significantly its purchase of products orany of the material terms thereof. To the knowledge of the Company none of suchcustomers is insolvent. Except as specifically set forth in the DisclosureSchedule neither the Company nor any of the Company Parties has granted oragreed to grant any unusual credit, trade-in, free return, discount or otherunusual sales terms in its sales agreement. The Company and the Company Partieshave taken all necessary action to protect their rights under applicablewarranties. There are no claims pending or threatened by any customers againstthe any Company Party, other than those which would not result in a MaterialAdverse Effect.

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3.29 Other Agreements. All representations and warranties of any----------------

Company Party contained in any of the Transaction Documents other than thisAgreement are accurate and complete in all material respects.

3.30 Disclosure. The representations and warranties contained in this----------

Article III hereto do not contain any untrue statement of a material fact or-----------omit to state any material fact necessary in order to make the statements andinformation contained in this Article III not misleading.

-----------

ARTICLE IVREPRESENTATIONS AND WARRANTIES OF THE PURCHASERS------------------------------------------------

Each Purchaser, severally and not jointly, agrees with, and represents andwarrants, to the Company as follows:

4.1 Purchase for Investment. The Securities being acquired on the date-----------------------

hereof by such Purchaser pursuant to this Agreement are being acquired for itsown account and with no intention of distributing or reselling such Securitiesor any part thereof in any transaction which would be in violation of theSecurities Act, without prejudice, however, to any right of such Purchaser tosell or otherwise dispose of all or any part of such Securities pursuant to aregistration under the Securities Act or under an exemption from suchregistration available under the Securities Act, and subject, nevertheless, tothe disposition of the Purchasers' property being at all times within itscontrol and discretion.

4.2 Organization; Status As Accredited Investor. Such Purchaser is a-------------------------------------------

limited partnership or limited liability company duly organized under the lawsof its jurisdiction of organization and is an Accredited Investor.

4.3 Power. Such Purchaser has all requisite power and authority to



-----execute, deliver and perform its obligations under each of the TransactionDocuments, and to consummate the respective Transactions contemplated hereby andthereby.

4.4 Execution and Delivery; Authorization. Each of the Transaction-------------------------------------

Documents has been duly and validly executed and delivered by such Purchaser.The execution, delivery and performance by such Purchaser of, and theconsummation of the Transactions contemplated by, this Agreement and each of theother Transaction Documents have been duly and validly authorized by allnecessary partnership action on the part of such Purchaser. Each of theTransaction Documents, when executed and delivered, will constitute a legal,valid and binding obligation of such Purchaser, enforceable in accordance withits terms, subject to the Remedies Exception.

36

4.5 Broker's Fees. Such Purchaser does not have any liability or-------------

obligation to pay any fees or commissions to any broker, finder or agent withrespect to the Transactions, with respect to which the Company will have anyliability.

4.6 Restricted Securities. Such Purchaser understands that the---------------------

Securities being acquired by it at the Closing have not been registered underthe Securities Act or the securities laws of any state, based upon an exemptionfrom such registration requirements for non-public offerings pursuant toRegulation D under the Securities Act or other exemptions thereunder, and thatsuch Securities are "restricted securities," as said term is defined in Rule 144of the Rules and Regulations promulgated under the Securities Act.

4.7 Information.-----------

(i) Such Purchaser has had a reasonable opportunity to askquestions of and receive answers and documents from the Company concerningthe Company, and such Purchaser has such knowledge and expertise infinancial and business matters that it is capable of evaluating the meritsand risk involved in an investment in the Securities;

(ii) Except as set forth in this Agreement and the otherTransaction Documents, no representations or warranties have been made tosuch Purchaser by the Company or any agent, employee or affiliate of theCompany relying upon any other information; and

(iii) Such Purchaser understands that the Securities beingacquired by it at the Closing are being offered and sold to it in relianceon specific exemptions from the registration requirements of United Statesfederal and state securities laws and that the Company is relying upon thetruth and accuracy of the representations and warranties of such Purchaserset forth in this Agreement in order to determine the applicability of suchexemptions and the suitability of such Purchaser to acquire the Securities.

37

ARTICLE VCOVENANTS---------

5.1 Conduct of Business. (a) From the date hereof until the Closing Date,-------------------

except as set forth in the Disclosure Schedule hereto or as provided in Section5.1(b) hereof, the Company shall conduct its business and shall cause itsSubsidiaries to conduct their respective businesses in, and only in, theOrdinary Course of Business and shall use, and shall cause its Subsidiaries touse, their best efforts to preserve intact their respective present businessorganizations, operations, goodwill and relationships with third parties(including, without limitation, clients and providers) and to keep available theservices of the present directors, officers and key employees. Without limitingthe generality of the foregoing, from the date hereof until the Closing Date,



without the prior written consent of the Purchasers (except as expresslypermitted or required by this Agreement):

(i) the Company shall not, and shall cause each of its Subsidiariesnot to, sell any of the assets of the Company or itsSubsidiaries (or the securities of entities holding thesame) to any Person, other than the Company or a Wholly-Owned Subsidiary of the Company, in one transaction or aSeries of related transactions, in which the fair value ofthe assets being sold, or the total consideration (in theform of cash or property and including any contingentconsideration and any Indebtedness or other obligationsassumed) to be received by the Company and itsSubsidiaries, exceeds $2,000,000;

(ii) other than in the ordinary course of business consistent withpast practice, the Company shall not, and shall cause eachof its Subsidiaries not to, acquire any assets, in onetransaction or Series of related transactions, in which thetotal consideration (in the form of cash or property andincluding any contingent consideration and any Indebtednessor other obligations assumed) to be paid by the Company andits Subsidiaries exceeds $2,000,000;

(iii) the Company shall not, and shall cause each of its Subsidiariesnot to take any of the actions or enter into any of theagreements, commitments or transactions described inSection 3.10 hereof;

(iv) the Company shall not, and shall cause each of its Subsidiariesnot to, take any action that it knows or has reason tobelieve would cause a representation or warranty of theCompany set forth herein to be untrue in any materialrespect if made at such time, or a covenant of the Companyto fail to be satisfied as of the Closing Date;

(v) the Company shall not take, consummate, approve or authorizeany action or transaction that results or (with the passageof time or otherwise) would result

38

in any adjustment not pursuant to Section 10 of the SeriesB Articles of Amendment or Article III of the WarrantAgreement;

(vi) the Company shall not take, consummate, approve or authorizeany action or transaction which would require the consentof the Majority Holders (as such term is defined in theSeries B Articles of Amendment) after the issuance of theSeries B Preferred Stock;

(vii) the Company shall not, and shall cause each of its Subsidiariesnot to, commit or agree to do any of the foregoing.

5.2 Reasonable Best Efforts. Each of the parties hereto agrees to use its-----------------------

reasonable best efforts promptly to take or cause to be taken all actions andpromptly to do or cause to be done all things necessary, proper or advisableunder applicable laws and regulations to consummate and make effective thetransactions contemplated by this Agreement in accordance with the terms of theAgreement. Without limiting the foregoing, the Purchasers and the Company willuse their reasonable best efforts to make all filings with respect to (includingfilings under the HSR Act), and to obtain, all regulatory approvals necessaryor, in the opinion of the Purchasers or the Company, advisable, in order topermit the consummation of the Transactions contemplated hereby.

5.3 Access. Prior to the Closing, the Company Parties shall grant to the------

Purchasers, or cause to be granted to the Purchasers and their respectiverepresentatives, employees, counsel and accountants reasonable access, duringnormal business hours and upon reasonable notice, to the personnel, properties,books and records of the Company and each of the Company Parties.



5.4 Publicity. Except as required by Law or by obligations pursuant to any---------

listing agreement with or requirement of any national securities exchange ornational quotation system on which the Common Stock is listed, admitted totrading or quoted, neither the Company (nor any of its Affiliates), nor anyPurchaser (nor any of its Affiliates) shall, without the prior written consentof each other party hereto, which consent shall not be unreasonably withheld ordelayed, make any public announcement or issue any press release with respect tothe transactions contemplated by this Agreement. Prior to making any publicdisclosure required by applicable Law or pursuant to any listing agreement withor requirement of any relevant national exchange or national quotation system,the disclosing party shall consult with the other parties hereto, to the extentfeasible, as to the content and timing of such public announcement or pressrelease.

5.5 Status of Dividends. The Company agrees to treat the Series B-------------------

Preferred Stock as equity for all Tax purposes. The Company shall take noaction (other than as required by Law) that would jeopardize the availability ofthe dividends received deduction under Section 243(a)(1) of the Code for thedistributions on the Series B Preferred Stock that are paid out of current oraccumulated earnings and profits, if any.

39

5.6 Exclusivity. (a) The Company shall immediately cease and terminate-----------

any existing solicitation, initiation, encouragement, activity, discussion ornegotiation with any Persons conducted heretofore by the Company, or any of itsSubsidiaries with respect to any proposed, potential or contemplated CompanyTransaction.

(b) From the date hereof until the earlier of (i) the Closing Date and (ii)the termination of this Agreement (the "Exclusivity Period"), the Company shall

------------------not, and shall not permit any of its Subsidiaries or Affiliates or any of its ortheir directors, officers or Representatives to, directly or indirectly, (A)solicit or initiate, or encourage the submission of, any offer, (B) participatein any discussions or negotiations regarding, or furnish to any Person anyinformation with respect to, or take any other action to facilitate anyinquiries or the making of any offer that constitutes, or may reasonably beexpected to lead to, any proposal or Company Transaction, other than atransaction with TPG, or (C) authorize, engage in, or enter into any agreementor understanding with respect to, any Company Transaction; provided that the

--------Company may, in response to an unsolicited written proposal from a third party,engage in the activities specified in clause (B) and (C) of this Section 5.6(b),if (x) in the opinion of the Company's outside legal counsel, such action isrequired for the Board of Directors to comply with its fiduciary duties underColorado law, (y) the Company shall have notified the Purchasers not later than24 hours after having received the relevant proposal for a Company Transaction(which notice shall identify the Person making the proposal and set forth thematerial terms thereof) and (z) the Company shall have refrained from taking anyaction specified in clause (C) of this Section 5.6(b) until the third dayfollowing the receipt by the Purchasers of the notification referred to inclause (y) of this Section 5.6(b). The Company will keep the Purchasers fullyinformed of the status and details of any such proposal or request and anyrelated discussions or negotiations. The Company will promptly notify thePurchasers of any proposal (which notice shall identify the Person making theproposal and set forth the material terms thereof) that the Company, any of itsSubsidiaries or Affiliates or any of its or their directors, officers orrepresentatives may receive during the Exclusivity Period.

5.7 Notifications. At all times prior to the Closing Date, the-------------

Purchasers shall promptly notify the Company and the Company shall promptlynotify the Purchasers in writing of any fact, change, condition, circumstance oroccurrence or nonoccurrence of any event which will or is reasonably likely toresult in the failure to satisfy the conditions to be complied with or satisfiedby it hereunder, provided, however, that the delivery of any notice pursuant to

-------- -------this Section 5.7 shall not limit or otherwise affect the remedies available



hereunder to any party receiving such notice.

5.8. Listing; Reservation. (a) So long as there are shares of Series B--------------------

Preferred Stock, Conversion Shares, Warrants or Warrant Shares outstanding, theCompany shall use its reasonable best efforts to ensure that the Common Stockcontinues to be quoted on the Nasdaq Stock Market's National Market.

(b) From and after the Closing, the Company shall at all times reserve andkeep available, out of its authorized and unissued Common Stock, solely for thepurpose of issuing Common Stock

40

upon the exercise of Warrants, such number of shares of Common Stock free ofpreemptive rights as shall be sufficient to issue Common Stock upon the exerciseof all outstanding Warrants.

ARTICLE VIINDEMNIFICATION---------------

6.1 Survival of Representations and Warranties. All of the------------------------------------------

representations and warranties contained in this Agreement shall survive theClosing hereunder and continue in full force and effect until the secondanniversary of the Closing. To be effective, any claim for indemnification fora breach of a representation or warranty must be made prior to such secondanniversary.

6.2 Indemnification Provisions for Benefit of the Purchasers. The--------------------------------------------------------

Company agrees to defend, protect, indemnify and hold harmless each PurchaserIndemnified Party against, from and for any and all Adverse Consequences of anykind or nature (including reasonable fees and disbursements of counsel and othercosts reasonably incurred in connection with any action, suit or proceedinginitiated by such Purchaser Indemnified Party in connection with securing,exercising, enjoying and enforcing such Purchaser Indemnified Party's rights,benefits and privileges or enforcing any Company Party's obligations andliabilities under any Transaction Document), whether direct, indirect orconsequential, in any manner resulting from, arising out of, based upon orrelated or attributable to: (i) any breach or inaccuracy of any representationor warranty of, or any breach or failure to perform any covenant, agreement orobligation, of any Company Party contained in this Agreement or any otherTransaction Document; (ii) the invalidity or unenforceability, or allegedinvalidity or unenforceability, of any provision of any Transaction Document;(iii) any liability or obligation arising as a result of any Person claiming acommission, finder's fee or other payment for services rendered as a broker orfinder on behalf of any Company Party in connection with any of theTransactions; or (iv) any claim by any holder or former holder of capital stock,equity interests or other securities, or any creditor, of any Company Party orany Affiliate of any Company Party or any other Person with whom any CompanyParty has contractual relationships relating to any claim against any CompanyParty or by reason of consummation of any of the Transactions; provided that

--------unless and until a final and non-appealable judicial determination shall be madethat such Indemnified Party is not entitled to indemnification under clause (ii)above, each such Indemnified Party shall be reimbursed for all indemnifiedlosses under clause (ii) above as they are incurred; provided, further, that if

-------- -------a final and non-appealable judicial determination shall be made that suchIndemnified Party is not entitled to be indemnified for losses under clause (ii)above, such Indemnified Party shall repay to the Company the amount of suchLosses for which the Company shall have reimbursed such Indemnified Party.

6.3 Indemnification Provisions for Benefit of the Company. In the event-----------------------------------------------------

that any Purchaser breaches any of its representations, warranties, andcovenants contained herein, the Purchaser shall protect, defend, hold harmlessand indemnify the Company against, from and for the entirety of any AdverseConsequences the Company may suffer through and after the date of the claim forindemnification (but excluding any Adverse Consequences the Company may sufferafter



41

the end of any applicable survival period) resulting from or caused by thebreach, including all Adverse Consequences arising out of the enforcement ofthis Section 6.3.

-----------

6.4 Matters Involving Third Parties.-------------------------------

(a) If any third party shall notify any Party (the "Indemnified Party")with respect to any matter (a "Third Party Claim") which may give rise to aclaim for indemnification against any other Party (the "Indemnifying Party")under this Article V, then the Indemnified Party shall promptly notify each

---------Indemnifying Party thereof in writing; provided, however, that no delay on the

-----------------part of the Indemnified Party in notifying any Indemnifying Party shall relievethe Indemnifying Party from any obligation hereunder unless (and then solely tothe extent) the Indemnifying Party thereby is prejudiced; it being understoodand agreed that the failure of the Indemnified Party to so notify theIndemnifying Party prior to settling a Third Party Claim (whether by paying aclaim or executing a binding settlement agreement with respect thereto) or theentry of a judgment or issuance of an award with respect to a Third Party Claimshall constitute actual prejudice to the Indemnifying Party's ability to defendagainst such Third Party Claim.

(b) Any Indemnifying Party will have the right to defend the IndemnifiedParty against the Third Party Claim with counsel of its choice reasonablysatisfactory to the Indemnified Party so long as (i) the Indemnifying Partynotifies the Indemnified Party in writing within 30 calendar days after theIndemnified Party has given notice of the Third Party Claim that theIndemnifying Party or Parties will indemnify the Indemnified Party from andagainst the entirety of any Adverse Consequences the Indemnified Party maysuffer resulting from, arising out of, relating to, in the nature of, or causedby the Third Party Claim (it being understood by the Parties that theIndemnified Party may take such actions as are reasonable in connection with itsdefense until it receives such notice from the Indemnifying Party), and (ii) theIndemnifying Party conducts the defense of the Third Party Claim actively anddiligently.

(c) So long as the Indemnifying Party is conducting the defense of theThird Party Claim in accordance with Section 6.4(b) above, (i) the Indemnified

--------------Party may retain separate co-counsel at its sole cost and expense andparticipate in the defense of the Third Party Claim (provided that theIndemnified Party will have the right to employ separate counsel to representthe Indemnified Party (the fees and expenses of which will be borne by theIndemnifying Party if, in the Indemnified Party's reasonable judgment, aconflict of interest between the Indemnified Party and the Indemnifying Partyexists with respect to such claim), (ii) the Indemnified Party will not consentto the entry of any judgment or enter into any settlement with respect to theThird Party Claim without the prior written consent of the Indemnifying Party(not to be withheld unreasonably), and (iii) the Indemnifying Party will not,without the prior written consent of the Indemnified Party (not to be withheldunreasonably), consent to the entry of any judgment or enter into any settlementwith respect to the Third Party Claim in which any relief other than the paymentof money damages is sought against any Indemnified Party, unless suchsettlement, compromise or consent includes as an

42

unconditional term thereof the giving by the claimant, petitioner or plaintiff,as applicable, to such Indemnified Party of a release from all liability withrespect to such Third Party Claim.

(d) In the event any of the conditions in Section 6.4(b) above is or--------------

becomes unsatisfied, however, (i) the Indemnified Party may defend against, andconsent to the entry of any judgment or enter into any settlement with respectto, the Third Party Claim in any manner it reasonably may deem appropriate (and



the Indemnified Party need not consult with, or obtain any consent from, anyIndemnifying Party in connection therewith), (ii) the Indemnifying Parties willreimburse the Indemnified Party promptly and periodically for the costs ofdefending against the Third Party Claim (including reasonable attorneys' feesand expenses), and (iii) the Indemnifying Parties will remain responsible forany Adverse Consequences the Indemnified Party may suffer resulting from,arising out of, relating to, in the nature of, or caused by the Third PartyClaim to the fullest extent provided in this Article VI.

----------

ARTICLE VIITERMINATION-----------

7.1 Termination of Agreement. Subject to Section 7.2 hereof, this------------------------

Agreement may be terminated by notice in writing at any time prior to theClosing by:

(a) the Purchasers or the Company, if the Closing shall not have occurredon or before May 31, 2000; provided, however, that the right to terminate this

-------- -------Agreement under this Section 7.1(a) shall not be available to any party whosefailure to fulfill any obligation under this Agreement has been the cause of, orresulted in, the failure of the Closing to occur on or before such date;

(b) the Purchasers or the Company, if any Governmental Entity of competentjurisdiction shall have issued any judgment, injunction, order, ruling or decreeor taken any other action restraining, enjoining or otherwise prohibiting theconsummation of the transactions contemplated by the Transaction Documents andsuch judgment, injunction, order, ruling, decree or other action becomes finaland nonappealable; provided that the party seeking to terminate this Agreement

--------pursuant to this clause (b) shall have used its best efforts to have suchjudgment, injunction, order, ruling or decree lifted, vacated or denied;

(c) the Purchasers, if the Company shall have taken any action describedin clause (B) or (C) of Section 5.6(b) hereof;

(d) TPG, if any Person (other than TPG) acquires, or the Company acceptsor recommends a fully financed offer made by any Person (other than TPG) toacquire, more than twenty-five percent (25%) of the Common Stock or otherwise toeffect a Change in Control (as defined in Exhibit B); or

---------

43

(e) the Purchasers or the Company, if the Purchasers and the Company somutually agree in writing.

7.2 Effect of Termination. (a) If this Agreement is terminated in---------------------

accordance with Section 7.1 hereof and the transactions contemplated hereby arenot consummated, this Agreement shall become null and void and of no furtherforce and effect except that (i) the terms and provisions of this Section 7.2and Articles VI and VIII hereof shall remain in full force and effect and (ii)any termination of this Agreement shall not relieve any party hereto from anyliability for any breach of its obligations hereunder.

(b) If (i) this Agreement is terminated in accordance with Section 7.1(a)hereof and as of the date set forth in Section 7.1(a) hereof the conditions setforth in Section 2.2 hereof shall not have been satisfied, and (ii) a proposalis made to the Company or any of its Representatives with respect to a CompanyTransaction (whether or not the same Company Transaction as is ultimatelyconsummated or as to which a written agreement, letter of intent, agreement inprinciple, memorandum of understanding or similar writing is ultimately enteredinto) prior to the Cut-Off Date (as defined below) or a proposal with respect toa Company Transaction is publicly announced by the Person contemplating suchtransaction or a Representative of such Person prior to the Cut-Off Date, theCompany shall pay each Purchaser the Termination Fee pro rata in accordance withthe shares of Series B Preferred Stock to be purchased by it hereunder on thedate on which a Company Transaction is consummated. The term "Cut-Off Date"

------------



shall mean the date of termination of this Agreement.

(c) If this Agreement is terminated in accordance with Section 7.1(c)hereof, the Company shall pay each Purchaser the Termination Fee pro rata inaccordance with the shares of Series B Preferred Stock to be purchased by ithereunder on the second Business Day following such termination.

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ARTICLE VIIIMISCELLANEOUS-------------

8.1 No Third Party Beneficiaries. Except as expressly provided in----------------------------

Article V, nothing in this Agreement, expressed or implied, is intended to---------confer upon any Person other than the Parties or their respective successors andpermitted assigns any rights, benefits, remedies, obligations or liabilitiesunder or by reason of this Agreement.

8.2 Entire Agreement. This Agreement and the Transaction Documents----------------

collectively constitute the entire agreement among the Parties with reference tothe matters set forth herein and therein and supersede any prior understandings,negotiations, agreements, or representations by or among the Parties, written ororal, to the extent they related in any way to the subject matter hereof orthereof.

8.3 Succession and Assignment. This Agreement shall be binding upon and-------------------------

inure to the benefit of the Parties named herein and their respective successorsand permitted assigns; provided, however, that neither this Agreement nor any of

-------- -------the rights, interests or obligations of such Party hereunder shall be assignedor delegated by such Party without the prior written consent of the otherParties, which consent may be withheld in the sole discretion of such Parties;

provided further, that a Purchaser shall be permitted to assign its rights-------- -------hereunder to an Affiliate thereof, it being understood that no such assignmentshall relieve such Purchaser of its obligations hereunder.

8.4 Counterparts. This Agreement and each other Transaction Document------------

may be executed in counterparts, each of which shall be deemed to be an originaland all of which together shall be deemed to constitute one and the sameagreement. In addition to any other lawful means of execution or delivery, thisAgreement and the other Transaction Documents may be executed by facsimilesignatures and may be delivered by the exchange of counterparts of signaturepages by means of telecopier transmission.

8.5 Notices. All notices, requests, demands, claims, and other-------

communications hereunder shall be in writing. Any notice, request, demand,claim, or other communication hereunder shall be deemed duly given if (and thentwo Business Days after) it is sent by registered or certified mail, returnreceipt requested, postage prepaid, and addressed to the intended recipient asset forth below:

45

If to the Company: Convergent Communications, Inc.400 Inverness Drive South, Suite 400Englewood, Colorado 80112Attn: General CounselTelephone: (303) 749-3000Telecopy: (303) 749-3113

with a copy to: Richard M. Russo, Esq.Gibson, Dunn & Crutcher LLP1801 California Street, Suite 4100



Denver, Colorado 80202Telephone: (303) 298-5715Telecopy: (303) 296-5310

If to TPG, to TPG at TPG's address supplied from time to time in writing to theCompany, with a copy to:

Paul J. Shim, Esq.Cleary, Gottlieb, Steen & HamiltonOne Liberty PlazaNew York, New York 10006Telephone: (212) 225-2930Telecopy: (212) 225-3999

If to Sandler Capital, to Sandler Capital at Sandler Capital's address suppliedfrom time to time in writing to the Company.

Any Party may send any notice, request, demand, claim, or other communicationhereunder to the intended recipient at the address set forth above using anyother means (including personal delivery, expedited courier, messenger service,telecopy, telex, facsimile transmission, ordinary mail, or electronic mail), butno such notice, request, demand, claim, or other communication shall be deemedto have been duly given unless and until it actually is received by the intendedrecipient. Any Party may change the address to which notices, requests,demands, claims, and other communications hereunder are to be delivered bygiving the other Parties notice in the manner herein set forth.

8.6 Governing Law. This Agreement shall be governed by and construed in-------------

accordance with the laws of the State of New York without giving effect to anychoice or conflict of law provision or rule (whether of the State of New York orany other jurisdiction) that would cause the application of the laws of anyjurisdiction other than the State of New York.

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8.7 Amendments and Waivers. No amendment of any provision of this----------------------

Agreement shall be valid unless the same shall be in writing and signed by theParties. No waiver by any Party of any default, misrepresentation, or breach ofwarranty or covenant hereunder, whether intentional or not, shall be deemed toextend to any prior or subsequent default, misrepresentation, or breach ofwarranty or covenant hereunder or affect in any way any rights arising by virtueof any prior or subsequent such occurrence. No waiver shall be effectivehereunder unless contained in a writing signed by the Party sough to be chargedwith such waiver.

8.8 Severability. If any provision of this Agreement or any other------------

Transaction Document or the application thereof to any person or circumstance isheld by a court of competent jurisdiction to be invalid, void or unenforceable,the remaining provisions hereof, or the application of such provision to Personsor circumstances other than those as to which it has been held invalid, void orunenforceable, shall remain in full force and effect and shall in no way beaffected, impaired or invalidated thereby, provided, that if any provision

--------hereof or thereof or the application of any such provisions shall be so held tobe invalid, void or unenforceable by a court of competent jurisdiction, thensuch court may substitute therefor a suitable and equitable provision in orderto carry out, so far as may be valid and enforceable, the intent and purpose ofthe invalid, void or unenforceable provision and, if such court shall fail ordecline to do so, the Parties shall negotiate in good faith a suitable andequitable substitute provision. To the extent that any such provision shall bejudicially unenforceable in any one or more states, such provision shall not beaffected with respect to any other state, each provision with respect to eachstate being construed as several and independent.

8.9 Fees and Expenses. (a) The Company shall be responsible for the-----------------

payment of all expenses incurred by the Company in connection with theTransaction Documents and the transactions contemplated thereby, regardless ofwhether such transactions are consummated, including, without limitation, allfees and expenses of the Company's legal counsel, all third-party consultants



engaged by the Company to assist in such transactions, all fees and expensesincurred in connection with any filings to be made with any governmental agency.The Company also agrees to reimburse the Purchasers for all out-of-pocketexpenses reasonably incurred by the Purchasers in connection with theTransaction Documents and the transactions contemplated thereby, regardless ofwhether or not the transactions are consummated, including, without limitation,all fees and expenses of the Purchasers' legal counsel, financial advisors,accountants, actuaries, and all third-party consultants engaged by thePurchasers to assist in such transactions (including, without limitation,McKinsey & Company) and all fees and expenses, including fees and expenses oflegal counsel, incurred in connection with enforcing the provisions of, andcollecting amounts payable pursuant to, this Agreement. Such reimbursementsshall be due to the Purchasers at the Closing, or promptly following any earliertermination of this Agreement for any reason or, in the case of fees andexpenses incurred thereafter, promptly upon demand therefor.

(b) All amounts payable under this Agreement shall be paid in immediatelyavailable funds to an account or accounts designated by the recipient of suchamounts.

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8.10 Accuracy of Information. The obligations of the Purchasers hereunder-----------------------

are subject to the accuracy, on and as of the date hereof, of therepresentations and warranties of the Company, and to the accuracy andcompleteness of the information provided by the Company to the Purchasers underthe Transaction Documents.

8.11 Specific Performance. The parties hereto specifically acknowledge--------------------

that monetary damages are not an adequate remedy for violations of thisAgreement, and that any party hereto may, in its sole discretion, apply to acourt of competent jurisdiction for specific performance or injunctive or suchother relief as such court may deem just and proper in order to enforce thisAgreement or prevent any violation hereof and, to the extent permitted byapplicable law and to the extent the party seeking such relief would be entitledon the merits to obtain such relief, each party waives any objection to theimposition of such relief.

8.12 Purchaser Obligations Several, Not Joint. The obligations of the----------------------------------------

Purchasers under this Agreement are several and not joint.

8.13 Incorporation of Exhibits and Schedules. The Exhibits and Schedules---------------------------------------

identified in this Agreement are incorporated herein by reference and made apart hereof to the extent expressly referred to herein.

8.14 Legends. Each stock certificate or other instrument evidencing the-------

Series B Shares, the Warrants, any Conversion Stock or any Warrant Stock shallbear a legend in substantially the form described in Section 9.01 of theInvestor Rights Agreement.

48

IN WITNESS WHEREOF, the Parties hereto have executed this SecuritiesPurchase Agreement as an instrument under seal on the date first above written.


By: /s/ John R. Evans------------------------------

Name: John R. EvansTitle: Chief Executive Officer

TPG CONVERGENT I, L.L.C.

By: /s/ Richard A. Ekleberry



------------------------------Name: Richard A. EkleberryTitle: Vice President

SANDLER CAPITAL PARTNERS V, L.P.

By: Sandler Investment Partners, L.P.,General Partner

By: Sandler Capital Management,General Partner

By: MJDM Corp., a GeneralPartner

By: /s/ Edward G. Grinacoff------------------------------

Edward G. GrinacoffPresident

49

SANDLER CAPITAL PARTNERS IV, L.P.




By: /s/ Edward G. Grinacoff------------------------------


50

EXHIBIT A

<TABLE><CAPTION>

Number of Number ofNumber Series A Series B Aggregate

Purchasers of Shares Warrants Warrants Purchase Price---------- --------- --------- --------- --------------<S> <C> <C> <C> <C>TPG Convergent I, L.L.C. 150,000 600,000 1,000,000 $150,000,000Sandler Capital Partners IV, L.P. 10,000 40,000 66,667 $10,000,000Sandler Capital Partners V, L.P. 15,000 60,000 100,000 $15,000,000

------- ------- --------- ------------Totals: 175,000 700,000 1,166,667 $175,000,000

</TABLE>

51



EXHIBIT 4.11

INVESTOR RIGHTS AGREEMENT

INVESTOR RIGHTS AGREEMENT, dated April 18, 2000, between ConvergentCommunications, Inc., a Colorado corporation (the "Company"), and each of theentities named on Exhibit A hereto (each, an "Initial Investor" and,

---------collectively, the "Initial Investors").

The Company and the Initial Investors have entered into that certainSecurities Purchase Agreement, dated as of April 4, 2000, pursuant to which theInitial Investors are purchasing from the Company, simultaneously with theexecution and delivery of this Agreement on the date hereof, certain securitiesof the Company that are convertible into or exercisable for shares of theCompany's common stock. The Company has agreed to grant the Initial Investorscertain rights with respect to such securities and the underlying common stockof the Company.

In consideration of the premises and the covenants and agreementsherein contained, in order to induce the Initial Investors to enter into suchSecurities Purchase Agreement and consummate the transactions contemplatedthereby and for other good and valuable consideration, the receipt andsufficiency of which are hereby acknowledged, the parties hereto, intending tobe legally bound, hereby agree as follows.

ARTICLE I

DEFINITIONS

SECTION 1.01. As used in this Agreement, the following terms have themeanings indicated:

"Affiliate" has the meaning set forth in Rule 12b-2 of the regulationspromulgated under the Exchange Act. The term "affiliated" (whether or notcapitalized) shall have a correlative meaning. For purposes hereof, the Companyshall not be deemed to be an Affiliate of any Investor or any Affiliate of anyInvestor.

"Agreement" means this Investor Rights Agreement, as amended from timeto time in accordance with the terms hereof.

"Beneficial Owner" means a beneficial owner within the meaning ofRules 13d-3 and 13d-5 under the Exchange Act, as interpreted by the Commission,provided that a Person shall be deemed to have beneficial ownership of allsecurities that such Person has a right to acquire without regard to the 60 day



limitation in subdivision (d)(i) of such Rule 13d-3. The terms (whether or notcapitalized) "beneficially own" and "owned beneficially" shall have correlativemeanings.

"Business Day" means any day other than a Saturday, a Sunday or a dayon which banking institutions in either New York, New York, or the city andstate in which the principal executive offices of the Company within the UnitedStates are located are authorized or obligated by law or executive order toclose.

1

"Closing Date" has the meaning given to such term in the PurchaseAgreement.

"Commencement Date" means the 120th day following the Closing Date.

"Commission" means the Securities and Exchange Commission or any otherfederal agency then administering the Securities Act.

"Common Stock" means the Common Stock, no par value, of the Companyand any capital stock into which such Common Stock may be reclassified orotherwise changed, and, unless the context otherwise requires, such term shallalso include all securities of the Company or any other issuer issued to theholders of shares of Common Stock as a dividend or other distribution on, inexchange for, in replacement of or upon the exercise of any conversion, purchaseor subscription right associated with any shares of Common Stock.

"Common Stock Rights" shall mean any Rights to subscribe for, purchaseor otherwise acquire any share or shares of Common Stock.

"Company Indemnified Parties" has the meaning set forth in Section-------

6.02.----

"Convertible Securities" means evidences of indebtedness, shares ofcapital stock or other securities or obligations that are convertible into orexchangeable, with or without payment of additional consideration in cash orproperty, for any Common Stock, either immediately or upon the occurrence of aspecified date or a specified event or the satisfaction or happening of anyother condition or contingency.

"Demand Registration" has the meaning set forth in Section 2.01.------------

"Disadvantageous Effect" has the meaning set forth in Section 2.07.------------

"Exchange Act" means the Securities Exchange Act of 1934, as amended,



or any successor federal statute, and (unless the context otherwise indicates)the rules and regulations of the Commission promulgated thereunder, as they eachmay, from time to time, be in effect.

"Existing Registration Rights" mean, as of any time of determination,contractual commitments of the Company that existed as of January 1, 2000, weredisclosed on a schedule to the Purchase Agreement and remain in effect as ofsuch time, entitling Persons to exercise piggy-back registration rights if theCompany registers any of its securities for itself or for others.

"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of1976, as amended, and the rules and regulations promulgated thereunder.

"Indemnified Party" has the meaning set forth in Section 6.03.------------

"Indemnifying Party" has the meaning set forth in Section 6.03.------------

"Initial Investor" has the meaning set forth in the introductoryparagraph.

"Initiating Investor" has the meaning set forth in Section 2.02.------------

2

"Investors" means:

(i) the Initial Investors,

(ii) each other Person, other than the Company or an Affiliate of theCompany, who at any time acquires any Registrable Shares directlyor indirectly from any Initial Investor or other Investor in atransaction or chain of transactions not involving a publicoffering within the meaning of and registered under theSecurities Act, and who

(A) so acquires the lesser of (1) all of the Registrable Sharesheld by such Investor, and (2) 10% of the original number ofRegistrable Shares initially held by all Initial Investors;or

(B) is a constituent stockholder, partner or member (includinglimited partners and retired partners or members) of anInvestor to whom Registrable Shares are distributed as partof a distribution by such Investor to its constituentstockholders, partners or members generally, or is aliquidating trust established in connection with thedissolution or winding up of any Investor; and



(iii) any Investor's successors, Affiliates and, in the case of anyInvestor who is a natural person, such individual's spouse,ancestors, lineal descendants, siblings, executors,administrators and heirs who acquire Registrable Shares by gift,will or intestate succession,

in each of the foregoing cases, if such Person (if not an Initial Investor)agrees in writing to be bound by this Agreement as an Investor and for so longas such Person continues to hold any Registrable Shares.

"Losses" has the meaning set forth in Section 6.01.------------

"Majority Investors" means any one or more Investors who hold a totalnumber of Registrable Shares equal to at least a majority of the aggregatenumber of Registrable Shares then held by all Investors.

"Majority Selling Investors" means, with respect to any DemandRegistration or Piggyback Registration, any one or more Selling Investors whohold a total number of Registrable Shares equal to at least a majority of theaggregate number of Registrable Shares that are or are to be included in suchDemand Registration or Piggyback Registration.

"New Securities" means, subject to Section 7.04, any newly issued------------

shares of capital stock of the Company, including Common Stock and any class orseries of preferred stock, whether authorized or not, and Rights to acquireshares of capital stock.

"New Securities Purchaser" has the meaning set forth in the definitionof "Preissuance Notice" set forth below in this Section 1.01.

------------

3

"Notes" means the Company's 13% Series B Senior Notes due 2008 issuedunder the Indenture, dated as of April 2, 1998, between the Company and NorwestBank Colorado, N.A., a national banking association, as Trustee.

"Number of Common Shares Outstanding" has the meaning set forth in

Section 7.01.------------

"Originally Issued Shares" means, as of any time, the aggregate numberof Conversion Securities (as defined in the Series B Articles of Amendment)represented by the Series B Shares issued to the Investors on the Closing Date,as such aggregate number shall have from time to time been cumulatively adjustedas a result of the operation of the Series B Articles of Amendment.



"Pari Passu Registration Rightsholder" means:

(i) as used in Section 2.06 with respect to any Demand Registration------------

requested by the Investors, a Person (A) who has, at the time ofsuch request, the right, under a then-effective written contractentered into with the Company prior to the Closing Date anddisclosed on a schedule to the Purchase Agreement, to requireshares of Common Stock then owned by such Person to be includedin such Demand Registration and (B) who exercises that right withrespect to all or some of those shares in accordance with theterms of such contract, if and to the extent a breach of such

--------------------contract by the Company would result from the reduction, in thecircumstances contemplated by Section 2.06, of the number of such

------------shares requested to be included by such Person in such DemandRegistration before any reduction in the number of RegistrableShares sought to be included in such Demand Registration by theInvestors; or

(ii) as used in Section 3.02(b) with respect to any Piggyback---------------

Registration in which any Investors have requested inclusion ofRegistrable Shares in accordance with Section 3.01, a Person (A)

------------who has, at the time of such request, the right, under a then-effective written contract entered into with the Company prior tothe Closing Date and disclosed on a schedule to the PurchaseAgreement or granted after the Closing Date without violation ofSection 8.03, to require shares of Common Stock then owned by------------such Person to be included in such Piggyback Registration and (B)who exercises that right with respect to all or some of thoseshares in accordance with the terms of such contract, if and to

---------the extent a breach of such contract by the Company would result----------from the reduction, in the circumstances contemplated by Section

-------3.02(b), of the number of such shares requested to be included by-------such Person in such Piggyback Registration before any reductionin the number of Registrable Shares sought to be included in suchPiggyback Registration by the Investors.

4

"Person" means any individual, corporation, limited liability company,



general or limited partnership, joint venture, association, joint stock company,trust, unincorporated business or organization, government or agency orpolitical subdivision thereof, or other entity, whether acting in an individual,fiduciary or other capacity.

"Piggyback Registration" has the meaning set forth in Section 3.01.------------

"Preissuance Notice" shall be a written notice given to the Investorspursuant to Section 7.01 no later than ten days prior to the date the Company

------------plans to issue New Securities. Each Preissuance Notice shall (i) specify thekind and amount of New Securities proposed to be issued, (ii) if such NewSecurities consist of or include Common Stock Rights, briefly describe the termsof such Common Stock Rights, (iii) identify each Person to whom such NewSecurities are proposed to be issued (each a "New Securities Purchaser"), ifthen known by the Company, (iv) state the method or manner of issuance, (v)state the kind(s) and amount(s) of consideration for which such New Securitiesare proposed to be issued and the determination of the Company's Board ofDirectors of the fair market value of any such consideration other than cashand (vi) describe the other material terms and conditions of the proposedissuance of New Securities.

"Purchase Agreement" means the Securities Purchase Agreement, dated asof April 4, 2000, between the Company and the Investor, as the same may beamended from time to time in accordance with its terms.

"Qualifying Rights" means, as of any time, shares of the Series BPreferred Stock and the Warrants, and also includes all other Common StockRights which, by their terms, are exercisable for shares of Common Stock onlyupon the payment, conversion, surrender, exchange or delivery by the holder ofadditional consideration in cash or property in an amount or having a fairmarket value per share of Common Stock which, as of such time, is equal to orless than the fair market value per share of the Common Stock determined as ofsuch time.

"Registrable Shares" means (i) any and all shares of Common Stockissued or issuable upon conversion of any Series B Share or upon exercise,conversion or exchange of any Warrant, (ii) any and all shares of Common Stock,and any shares of Common Stock issued or issuable upon the exercise of anyRights or other securities, acquired by or issuable to the Investors pursuant toArticle VII of this Agreement and (iii) any other shares of Common Stock issuedin respect of any such shares (because of stock splits, stock dividends,reclassifications, recapitalizations, or similar events); provided, however,

-------- -------that shares of Common Stock which are Registrable Shares shall cease to beRegistrable Shares (x) upon any sale pursuant to a Registration Statement orRule 144 under the Securities Act, (y) upon any sale in any manner to a Personwhich is not entitled to the rights provided by this Agreement or (z) withrespect to the Registrable Shares held by any specific Investor, when all suchRegistrable Shares held by such Investor either (1) may be sold by such Investor



under Rule 144 under the Securities Act without limitation as to manner of saleand without any limitation as to volume or (2) are equal to or less than thenumber that may be sold by such Investor under Rule 144(e) within any three-month period. For purposes of this Agreement, any Person shall be deemed tohold, as of any time, (A) all issued and outstanding shares of Common Stock,

5

Registrable Shares or other securities then held or deemed to be held by suchPerson, (B) all additional shares of Common Stock, Registrable Shares or othersecurities which would then be held by such Person if it were assumed that allshares of Series B Preferred Stock and Warrants, if any, then held or deemed tobe held by such Person had been duly and effectively exercised, exchanged orconverted in full at and effective as of such time, (C) all additional shares ofCommon Stock, Registrable Shares or other securities which would then be held bysuch Person if it were assumed that all Rights, if any, then held or deemed tobe held by such Person had been duly and effectively exercised in full at andeffective as of such time and (D) all additional shares of Common Stock,Registrable Shares or other securities, if any, which such Person then has aright to purchase pursuant to the preemptive rights granted pursuant to thisAgreement by virtue of any prior exercise of such preemptive rights, assuming,in the case of each of clauses (B) and (C), that all adjustments to the kind,number and amount of shares of capital stock or other securities issuable uponexercise, exchange or conversion of any of the shares of Series B PreferredStock, Warrants or other Rights referred to in such clause required by reason ofany event or transaction occurring at or prior to such time had been duly andeffectively made as and when required by the terms thereof.

"Registration Expenses" shall mean, with respect to any DemandRegistration or Piggyback Registration all (i) registration, qualification andfiling fees, (ii) fees and expenses of compliance with securities or blue skylaws (including the reasonable fees and disbursements of counsel for anyunderwriters, dealers or placement agents in connection therewith), (iii)printing expenses (or comparable duplication expenses) and escrow fees, (iv)internal expenses of the Company (including all salaries and expenses ofofficers and employees performing legal or accounting duties), (v) fees anddisbursements of counsel for the Company, (vi) fees and expenses for independentcertified public accountants retained by the Company (including all fees andexpenses associated with special audits or the delivery by independent certifiedpublic accountants of a "cold comfort" letter or letters), (vii) fees andexpenses of any special experts retained by the Company in connection with suchregistration, (viii) fees and expenses of listing the Registrable Shares on asecurities exchange or otherwise in connection with subdivision (r) of Section

-------4.01, (ix) the reasonable fees and expenses of a single firm of legal counsel----for the Investors participating in such Demand Registration or PiggybackRegistration up to $75,000 in connection with a Demand Registration and $25,000in connection with a Piggyback Registration and (x) all other reasonable fees,costs, expenses and disbursements incurred in connection with or incident to the



Company's compliance with Article IV. Registration Expenses do not includeunderwriting commissions or discounts payable in respect to Registrable Sharesof an Investor included in a Demand Registration or Piggyback Registration.

"Registration Statement" means a registration statement of the Companyunder the Securities Act on any form for which the Company then qualifies andwhich permits the sale thereunder of the number of Registrable Shares (and anyother securities of the Company) to be included therein in accordance with thisAgreement by the Selling Investors and, in the case of the Registrable Shares,according to the method(s) of distribution determined in accordance with thisAgreement and in the case of any other securities covered thereby, according tothe plan(s) of distribution described therein, including all exhibits andschedules to, all financial statements included in or otherwise filed with, andall documents incorporated by reference in any such registration statement, ineach case as amended or supplemented as of any reference date.

6

"Rights" means any options, warrants, convertible or exchangeablesecurities or other rights, however denominated, to subscribe for, purchase orotherwise acquire any equity interest or other security of any class or series,with or without payment of additional consideration in cash or property, eitherimmediately or upon the occurrence of a specified date or a specified event orthe satisfaction or happening of any other condition or contingency.

"Securities Act" means the Securities Act of 1933, as amended, or anysuccessor federal statute, and (unless the context otherwise indicates) therules and regulations of the Commission promulgated thereunder, as they eachmay, from time to time, be in effect.

"Selling Investors" means, with respect to any Demand Registration orPiggyback Registration, any Investors holding any Registrable Shares which areor are to be included in such Demand Registration or Piggyback Registration inaccordance with this Agreement.

"Series B Articles of Amendment" means the Amended and RestatedArticles of Incorporation of the Company setting forth the resolution of theBoard creating and authorizing the issuance of the Series B Preferred Stock andfiled with the Colorado Secretary of State or any successor provisions of theCompany's Articles of Incorporation, as the same may have been amended prior toor concurrently with the Closing Date and thereafter may be amended.

"Series B Preferred Stock" means the Series B Senior CumulativeConvertible Preferred Stock, no par value, of the Company.

"Series B Share" means, as of any time, any share of Series BPreferred Stock then issued and outstanding.

"Shelf Registration" has the meaning set forth in Section 2.10.------------



"TPG" means TPG Partners III, L.P., T3 Partners, L.P. and theirAffiliates.

"Warrant Agreement" means the Warrant Agreement, dated the datehereof, between the Company and the Initial Investors, as it may be amended fromtime to time in accordance with its terms.

"Warrants" means the Warrants to purchase shares of Common Stockissued and sold by the Company to, and purchased by, the Initial Investorspursuant to the Purchase Agreement and the Warrant Agreement.

"Warrant Stock" means, with respect to any Warrant at any time, theCommon Stock, each other class or series of capital stock and any Rights withrespect to any of the foregoing, any shares, number or other amount of which atsuch time is deliverable upon exercise of such Warrant.

SECTION 1.02. Terms Generally; Certain Rules of Construction. The----------------------------------------------

definitions of terms contained in this Agreement shall apply equally to both thesingular and plural forms of the terms defined and words in the singular includethe plural and words in the plural include the singular.

7

(a) Whenever the context may require, any pronoun shall include thecorresponding masculine, feminine and neuter forms.

(b) The words "include", "includes" and "including" shall be deemedto be followed by the phrase "without limitation." The words "herein","hereof" and "hereunder" and words of similar import refer to thisAgreement in its entirety and not to any part hereof unless the contextshall otherwise require.

(c) All references herein to Sections shall be deemed references toSections of this Agreement unless the context shall otherwise require.

(d) Unless otherwise expressly provided herein or unless the contextshall otherwise require, any references as of any time to any agreement orother Contract, instrument or document or to any statute or regulation orany specific section or other provision thereof are to it as amended andsupplemented through such time (and, in the case of a statute or regulationor specific section or other provision thereof, to any successor of suchstatute, regulation, section or other provision).

(e) Any reference herein to a "day" or number of "days" (without theexplicit qualification of "Business") shall be interpreted as a referenceto a calendar day or number of calendar days. If any action or notice is tobe taken or given on or by a particular calendar day, and such calendar dayis not a Business Day, then such action or notice shall be deferred until,



or may be taken or given on, the next Business Day.

(f) Unless otherwise expressly provided herein or unless the contextshall otherwise require, any provision of this Agreement using a definedterm (by way of example and without limitation, such as "Investors") whichis based on a specified characteristic, qualification, feature or statusshall, as of any time, refer only to such Persons who have the specifiedcharacteristic, qualification, feature or status as of that particulartime.

(g) For purposes of this Agreement, (i) any acquisition or transferof any Rights to subscribe for, purchase or otherwise acquire anyRegistrable Shares shall also constitute an acquisition or transfer orproposed transfer of the Registrable Shares issuable upon the exercise,exchange or conversion thereof and (ii) any Person who holds any Right tosubscribe for, purchase or otherwise acquire any Common Stock, RegistrableShares or other securities shall be deemed to hold all such Common Stock,Registrable Shares or other securities which then would be issuable if itwere assumed that such Right were then duly exercised, exchanged orconverted in full. When used with reference to any Right, the term"exercise" shall mean to exercise the right to exchange or convert suchRight for or into, subscribe for, purchase or otherwise acquire shares ofCommon Stock represented by such Right, and variants of such word(including "exercised" and "exercisable") shall have correlative meanings.

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(h) The terms "register", "registered" and "registration" refer to a-------- ---------- ------------

registration effected by preparing and filing a registration statement incompliance with the Securities Act, and the declaration or ordering of theeffectiveness of such registration statement.

ARTICLE II

DEMAND REGISTRATION

SECTION 2.01. Right to Demand Registration. The Investors shall have----------------------------

the right to require the Company to register Registrable Shares under theSecurities Act (a "Demand Registration"), which right shall be exercisable inthe manner set forth in this Article II at any time or from time to time on or

----------after the Commencement Date.

SECTION 2.02. Registrations. Any Investor or Investors holding in-------------

the aggregate twenty-five percent (25%) of the Registrable Shares (the"Initiating Investors") then held by all Investors may request, in writing, that



the Company effect a Demand Registration on any form available for suchregistration under the Securities Act, of Registrable Shares constituting atleast 25% of the Registrable Shares owned by the Investors. If the InitiatingInvestors intend to distribute the Registrable Shares by means of anunderwritten offering, they shall so advise the Company in their request. Inthe event such Demand Registration is underwritten, the right of any otherInvestor to participate in such Demand Registration shall be conditioned on suchInvestor's participation in such underwriting on the same terms as theInitiating Investors. Upon receipt of any such request, the Company shallpromptly give written notice of such proposed registration to all otherInvestors. Such Investors shall have the right, by giving written notice to theCompany within thirty days after the Company provides its notice, to elect tohave included in such Demand Registration such of their Registrable Shares assuch Investors may request in such notice of election. Subject to Section 2.03,

------------the Investors shall be entitled in the aggregate to require the Company toeffect four Demand Registrations pursuant to this Section 2.02 (any of which may

------------be a Shelf Registration as provided in Section 2.10) and, except as provided in

------------Section 5.01, a Demand Registration shall not be deemed to have been effected------------unless such registration has been declared or ordered effective and thesecurities offered pursuant to such registration have been sold.

SECTION 2.03. Continuing Demand Registration. Subject to Sections------------------------------ --------

2.06, 2.10 and 4.04, holders of Existing Registration Rights may participate in---- ---- ----the Investors' Demand Registrations; provided, however, that if the number of

-------- -------Registrable Shares sought to be included by the Investors in the first of theirfour Demand Registrations is reduced pursuant to Section 2.06, by reason of the

------------inclusion in such Demand Registration of shares of Common Stock held by anyPerson(s) other than Investors, by more than 25%, the registration shall notcount as a Demand Registration and if the number of Registrable Shares sought tobe included by the Investors in any subsequent Demand Registration is reducedpursuant to Section 2.06, by reason of the inclusion in such Demand Registration

------------of shares of Common Stock held by any Person(s) other than Investors, by morethan 10%, the registration shall not count as a Demand Registration.

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SECTION 2.04. Reasonable Efforts by the Company. Subject to Section--------------------------------- -------

2.05, if a Demand Registration is requested pursuant to Section 2.02 the Company---- ------------shall, as soon as practicable after the period of thirty days referred to in



such Section, file with the Commission and use its reasonable efforts to causeto become effective a Registration Statement which shall cover the RegistrableShares requested to be registered by the Selling Investors and shall take allother actions (including those required by Article IV) as may be necessary or

----------advisable to permit the Selling Investors to dispose of all such RegistrableShares requested to be included in such Demand Registration in accordance withthe intended method(s) of distribution and in compliance with the Securities Actand state "blue sky" and securities laws.

SECTION 2.05. Withdrawals. The Majority Selling Investors may, at-----------

any time and from time to time reasonably in advance of the planned date ofconsummation of the sale or other distribution of Registrable Shares pursuant toany Demand Registration, (i) permit any Selling Investor to withdraw, in wholeor in part, from participation in such Demand Registration, (ii) permit anyInvestor who was not originally a Selling Investor to become a Selling Investorand include in such Demand Registration any or all of such Investor'sRegistrable Shares or (iii) otherwise increase or decrease the number ofRegistrable Shares to be included in such Demand Registration; provided,

--------however, that if any such decrease would result in the reduction of the number-------of Registrable Shares to be registered in such Demand Registration to a numberthat would not be sufficient to satisfy the condition stated in Section 2.02,

------------then such decrease shall not be effective unless approved by the MajoritySelling Investors and, if so approved, the Selling Investor(s) shall be deemedto have abandoned and terminated such Demand Registration. The Majority SellingInvestors may terminate or abandon such Demand Registration upon written noticeto the Company to that effect, in which event such Demand Registration shall bedeemed not to have been requested.

SECTION 2.06. Methods of Distribution; Reduction in Shares to be--------------------------------------------------

Registered. (a) Subject to the last sentence of this Section 2.06(a) and to---------- ---------------the provisions of Section 2.06(b), the Registrable Shares of any Selling

---------------Investor included in a Demand Registration may be registered for sale by suchSelling Investor directly or through sale or placement agents or to or throughone or more underwriters designated from time to time by such Selling Investorand approved by the Company in its reasonable discretion and for resale by anysuch underwriter or broker-dealer, through broker-dealers or in any othermanner, in one or more transactions and at a fixed price or prices, which may bechanged, at market prices prevailing at the time of sale, at prices related tosuch prevailing market prices, at prices determined on a negotiated orcompetitive bid basis or at a price or prices otherwise determined by suchSelling Investor. Notwithstanding the preference of any Selling Investor in anyDemand Registration, if the Majority Selling Investors, in their solediscretion, determine that the offering and sale of Registrable Shares pursuant



to such Demand Registration should be pursuant to an underwriting or through aselling or placement agent or syndicate, then such Majority Selling Investorsshall have the right to select the underwriters or managing underwriter, sellingor placement agent or managing selling or placement agent or syndicate managerfor such offering and sale and to establish, by agreement with suchunderwriters, managing underwriter, selling or placement agents, managingselling or placement agent or syndicate manager or otherwise the price or pricesand other terms of such underwriting, offering and sale, and in such event noSelling Investor who otherwise would be entitled to include Registrable Sharesin such Demand

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Registration shall be entitled to have such Registrable Shares so includedunless they are included in such underwritten offering or offered and soldthrough such selling or placement agent or syndicate at such price or prices andon such terms. Any such managing underwriter, managing selling or placementagent or syndicate manager selected by the Majority Selling Investors, shall besubject to the Company's approval, which shall not be unreasonably withheld ordelayed.

(b) If a Demand Registration is for or includes an underwrittenoffering or an offering through a sales or placement agent or syndicate, and themanaging underwriter, such sales or placement agent, or the managing sales agentor the syndicate manager determines in good faith that inclusion in suchregistration of all Registrable Shares and other securities, if any, requestedor proposed to be included in such offering exceeds the number that could besold without having an adverse effect on such offering, including the price atwhich the Majority Selling Investors propose to sell their Registrable Sharesincluded in such offering, then the number of Registrable Shares to be offeredfor the accounts of the Selling Investors shall be reduced or limited on suchbasis in proportion to the respective numbers of Registrable Shares requested tobe included in such offering by the Selling Investors, to the extent necessaryto reduce the total number of shares to be included in such offering to theamount recommended by such managing underwriter, agent, managing sales agent orsyndicate manager; provided, however, that if, without violation of Section

-------- ------- -------2.10, in connection with such Demand Registration securities other than----Registrable Shares held by Selling Investors are being offered (whether for theaccount of the Company or any Person other than an Investor), such reductionshall be made (i) first, from any shares proposed to be sold for the accounts ofthe Company or other Persons who are neither Investors nor Pari PassuRegistration Rights Holders, allocated among the Company and such other Personsin such manner as may be acceptable to the Company and (ii) second, from theRegistrable Shares requested to be included in such registration by theInvestors and Pari Passu Registration Rights Holders (allocated, if necessary,pro rata among all such Investors and such Pari Passu Registration Rights--- ----Holders on the basis of the relative numbers of shares each such Person has



requested to be included in such registration), it being understood and agreedthat the securities referred to in clause (i) above shall not be included in anysuch offering unless or until all the Registrable Shares requested to beincluded in such offering by the Investors are so included.

SECTION 2.07. Right of the Company to Suspend Registration. The--------------------------------------------

Company shall be entitled to suspend, for a reasonable period of time not inexcess of ninety days after its receipt of a request for a Demand Registrationpursuant to Section 2.02, the filing of any Registration Statement which it

------------otherwise would be required to file pursuant to this Article II, if (i) at any

----------time prior to the filing of such Registration Statement the Board of Directorsof the Company determines, in good faith and in the exercise of reasonablebusiness judgment, that such filing would materially interfere with or otherwiseadversely affect in any material respect any material planned financing,acquisition, corporate reorganization or other transaction involving the Company(a "Disadvantageous Effect") and (ii) the Company gives all Selling Investorswritten notice of such suspension; provided, however, that a suspension pursuant

-------- -------to this Section 2.07 or pursuant to Section 4.02 by reason of the existence of

------------ ------------one or more Disadvantageous Effects shall be authorized only once during anytwelve-month period. In the event of any suspension pursuant to this Section

-------2.07, then unless the request for the Demand----

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Registration is withdrawn pursuant to the last sentence of this Section 2.07,------------

the Company shall file such Registration Statement as soon as practicable afterthe first to occur of (w) the consummation of the transaction which is theasserted basis for such Disadvantageous Effect, (x) the abandonment ortermination of such transaction prior to consummation, (y) the determination bythe Board of Directors of the Company that such filing would not or would nolonger result in such Disadvantageous Effect and (z) the ninety-first (91st) dayafter the receipt of the applicable Demand Notice. If the Company shall suspendthe filing of any Registration Statement pursuant to this Section 2.07, the

------------Majority Selling Investors shall have the right to withdraw the Demand Noticefor such registration by giving written notice to the Company prior toexpiration of such suspension period.

SECTION 2.08. Form of Registration Statement. If in connection with------------------------------

a Demand Registration, the Company proposes to effect such registration throughthe filing of a Registration Statement on a particular registration form



available for such registration under the Securities Act and either theunderwriters or managing underwriter, selling or placement agent or managingselling or placement agent or syndicate manager, if any, in connection with suchDemand Registration shall advise the Company in writing of its or theirreasonable and good faith opinion that the use of another available form is ofmaterial importance to the success of the proposed offering or sale or otherdistribution contemplated, then such Demand Registration shall be effected onsuch other form.

SECTION 2.09. No Other Participants in Demand Registration. Unless--------------------------------------------

otherwise agreed by the Majority Investors, neither the Company nor any otherPerson except Investors and holders of Existing Registration Rights shall bepermitted to include any shares of Common Stock, Rights or other securities forregistration, offering, sale or distribution in any Demand Registration.

SECTION 2.10. Shelf Registration. (a) The Company shall use its------------------

reasonable best efforts to qualify for registration on Form S-3 or anycomparable or successor form or forms. Any request by any Investor for a DemandRegistration pursuant to Section 2.02 or Section 2.03 may, at the election of

------------ ------------the Initiating Investor by specification in the applicable request, include arequest that all or any of the Registrable Shares requested to be included insuch Demand Registration be registered under the Securities Act for offering andsale on a delayed or continuous basis pursuant to Rule 415 under the SecuritiesAct (a "Shelf Registration") to be made effective on or after the CommencementDate. In the event of any such request for a Shelf Registration, the noticegiven by the Initiating Investor pursuant to Section 2.02 shall state that such

------------request was for or included a Shelf Registration. To the extent that a requestfor a Demand Registration is for or includes a Shelf Registration, no SellingInvestor participating in such Shelf Registration shall be required to provideinformation with respect to the desired price range for the Registrable Sharesrequested to be included therein by any Selling Investor or the intendedmethod(s) of disposition or distribution thereof except to the extent and at thetime or times required in order to satisfy the applicable requirements ofRegulation S-K promulgated by the Commission. The method(s) of distribution ofthe Registrable Shares of any Selling Investor included in any ShelfRegistration may be any method or methods permitted by Rule 415 of theSecurities Act and any such Selling Investor may change such method or methodsof distribution at any time and from time to time while the RegistrationStatement relating to such Shelf

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Registration is required to remain effective in accordance with the terms ofSection 2.10(b) hereof, provided that such Selling Investor provides to theCompany the information reasonably required to permit compliance with theapplicable requirements of Regulation S-K promulgated by the Commission.



(b) The Company shall use all reasonable efforts to keep eachRegistration Statement filed with respect to any Shelf Registration continuouslyeffective until the later of (i) two years from the date on which the Commissiondeclares such Registration Statement effective or (ii) three years from theClosing Date. Such period shall be automatically extended by the aggregatenumber of days, if any, during which any delay, deferral, postponement orsuspension is in effect with respect to such Registration Statement.

(c) The Company shall effect any Shelf Registration requestedpursuant to this Agreement on a Registration Statement of the Company under theSecurities Act on any form, including Form S-3, for which the Company thenqualifies and which permits the offering and distribution thereunder of thenumber of Registrable Shares to be included therein in accordance with themethod(s) of distribution determined in accordance with this Agreement.

(d) The fact that a Registration Statement with regard to a ShelfRegistration is effective as of a particular time shall not prejudice orotherwise affect the rights of the Selling Investors to participate in any suchDemand Registration requested by any other Investors or to participate in anyPiggyback Registration.

ARTICLE III

PIGGYBACK REGISTRATION

SECTION 3.01. Right to Require Piggyback Registration. (a) If at any---------------------------------------

time or from time to time, the Company shall determine to register any of itssecurities, either for its own account or the account of a security holder orholders (other than (i) a registration statement on Form S-4 or S-8 (or anysubstitute form that may be adopted by the SEC) or (ii) a registration statementfiled in connection with an offer of securities solely to the Company's existingsecurity holders) in a transaction that may be used for the registration ofRegistrable Shares for distribution by any one or more of the methods permittedby Section 3.02(a), then upon each and every such occasion the Company shall

---------------give prior written notice of such proposed registration to each Investor of itsintention to do so promptly and in any event not later than the tenth BusinessDay before the anticipated filing date of the applicable Registration Statement.Such notice shall specify whether the proposed registration is for the accountof the Company, for the account of one or more other Persons or both and alsospecify the kind and number or amount of securities proposed to be registered onbehalf of each thereof and the proposed offering price or prices anddistribution methods and arrangements. Upon the terms and subject to theconditions and limitations set forth in this Article III, each Investor mayelect to participate in such registration by giving the Company, within ten daysafter such notice has been given by the Company, a written request to registerany or all of such Investor's Registrable Shares in connection with suchregistration (any such registration as to which any such request is made being



sometimes referred to as an "Piggyback Registration"); provided, however, that-------- -------

if the registration is a

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"demand" registration made pursuant to the exercise of Existing RegistrationRights in accordance with the original terms thereof and if, by the originalterms of such Existing Registration Rights, the holders having such ExistingRegistration Rights have the right to exclude from such demand registrationsecurities proposed to be registered by any Persons except holders of suchExisting Registration Rights, then the Investors shall not be entitled toparticipate in such registration unless the holders of such ExistingRegistration Rights participating in such registration otherwise agree inwriting.

(b) Any such request by an Investor shall state (i) the kind andnumber of Registrable Shares to be included in such registration by suchInvestor (ii) such Investor's preferred method of distribution of suchRegistrable Shares permitted by Section 3.02(a) and (iii) any other informationthat the Company reasonably requests in such notice given by it to theInvestors. Upon receipt of one or more of such requests, the Company shall,subject to Section 3.03, as soon as practicable, file with the Commission anduse its reasonable efforts to cause to become effective, a RegistrationStatement which shall cover the Registrable Shares requested to be registered bythe requesting Investors and shall take all such other actions (including thoserequired by Article IV) as may be necessary or advisable to permit therequesting Investors to dispose of all such Registrable Shares requested to beincluded in such Piggyback Registration in accordance with the permittedintended method or methods of distribution in compliance with the Securities Actand state "blue sky" and securities laws.

SECTION 3.02. Methods of Distribution; Reduction in Number of Shares------------------------------------------------------

to be Registered. (a) Subject to Section 3.02(b), Section 3.02(c) and Section---------------- --------------- --------------- -------4.5, the Registrable Shares of any Investor included in a Piggyback Registration---may be registered for sale by such Investor directly or through sales orplacement agents designated from time to time or to or through one or moreunderwriters or broker-dealers designated from time to time by such Investor andfor resale by any such underwriter or broker-dealer, in one or more transactionsand at a fixed price, which may be changed, at market prices prevailing at thetime of sale, at prices related to such prevailing market prices, at pricesdetermined on a negotiated or competitive bid basis or at a price otherwisedetermined by such Investor.

(b) If the registration of which the Company gives notice is for aregistered public offering involving an underwriting, the Company shall soadvise the Investors as a part of the written notice given pursuant to Section



-------3.01. In such event, the right of any Investor to participate in such----registration pursuant to this Article III shall be conditioned upon such

-----------Investor's participation in such underwriting and the inclusion of RegistrableShares in the underwriting to the extent provided herein. Subject to Section

-------4.04, if any Piggyback Registration is for (or includes) an underwritten----offering, the Company will permit each Investor who elects to include any of hisRegistrable Shares in such Piggyback Registration to elect to include any or allof such Registrable Shares in such underwritten offering on the same terms andconditions as any similar securities included therein. In a registrationpursuant to Section 3.01 hereof involving an underwritten public offering, if

------------the managing underwriter or underwriters of such underwritten offering haveinformed, in writing, the Company and each Investor who requested RegistrableShares to be included in such offering that in such underwriter's orunderwriters' reasonable opinion the total number of securities which theCompany, the Investors who requested Registrable Shares to be included in suchoffering and any other Persons desiring

14

to participate in such registration intend to include in such offering is suchas to materially and adversely affect the success of such offering, includingthe price at which such securities can be sold, then the Company will berequired to include in such registration only the amount of securities which itso advised should be included in such registration. In such event:

(i) if the registration was initiated by any security holder(s) ofthe Company exercising "demand" registration rights, securitiesshall be registered in such offering in the following order ofpriority (unless a different order is specified in the documentgranting such holder's demand rights which is in effect prior tothe Closing Date):

(A) first, the securities, if any, which the Company proposes to-----register and the securities such security holder(s)initiating such registration propose to register, allocated,if necessary, pro rata among the Company and such holder(s)

--- ----on the basis of the relative numbers of shares each suchPerson proposes to include in the registration, provided

--------that if such initiating holder or holders are Investors, theCompany shall not be entitled to include any securities insuch registration without the prior written consent of the



Majority Investors and, as among Investors there shall be nopriority and Registrable Securities sought to be included byInvestors shall be included pro rata based on the amount of

--- ----securities sought to be registered by such Persons

(B) second, provided that no securities sought to be included by------ --------the Company or such initiating holder(s) have been excludedfrom such registration, the securities which have beenrequested to be included in such registration by Investorspursuant to this Agreement (unless the initiating holder(s)are Investors, in which case clause (i)(A) shall govern thepriority of the Investors) or by Pari Passu RegistrationRights Holders (allocated, if necessary, pro rata among all

--- ----such Investors and Pari Passu Registration Rights Holders onthe basis of the relative numbers of shares each such Personhas requested to include in registration), and

(C) third, provided that no securities sought to be included----- --------under clause(i)(A) or (i)(B) have been excluded, thesecurities of all other Persons sought to be included insuch registration (allocated, if necessary, among suchPersons in such manner as the Company deems acceptable); or

(ii) if the registration was initiated by the Company, otherwise thanby reason of any such exercise of "demand" registration rights,securities shall be registered in such offering in the followingorder of priority:

(A) first, the securities, if any, which the Company proposes to-----register,

15

(B) second, provided that no securities sought to be included by------ --------the Company have been excluded from such registration, thesecurities which have been requested to be included in suchregistration by Investors pursuant to this Agreement or byPari Passu Registration Rights Holders (allocated, ifnecessary, pro rata among all such Investors and Pari Passu

--- ----Registration Rights Holders on the basis of the relativenumbers of shares each such Person has requested to includein registration), and



(C) third, provided that no securities sought to be included----- --------under clause(ii)(A) or (ii)(B) have been excluded, thesecurities of all other Persons sought to be included insuch registration (allocated, if necessary, among suchPersons in such manner as the Company deems acceptable).

(c) If, as a result of the provisions of Section 3.02(b), any Investorshall not be entitled to include all Registrable Securities in a Piggy-BackRegistration that such Investor has requested to be included, such Investor mayelect to withdraw his request to include Registrable Securities in suchregistration.

SECTION 3.03. Withdrawal of Registration. The Company may, without--------------------------

the consent of any Investor, delay, suspend, abandon or withdraw any PiggybackRegistration and any related proposed offering or other distribution in whichany Investor has requested inclusion of Registrable Shares pursuant to this

Article III.-----------

ARTICLE IV

OBLIGATIONS WITH RESPECT TO REGISTRATION

SECTION 4.01. In General. Whenever the Company is obligated by the----------

provisions of Article II or Article III to effect the registration of any---------- -----------

Registrable Shares under the Securities Act, the Company shall use itsreasonable efforts to effect the registration of all Registrable Shares whichany Investor has requested to be included therein for offering, sale anddistribution in accordance with the permitted intended methods of distributionthereof as quickly as practicable, and in connection therewith the Company willdo the following as expeditiously as possible:

(a) prepare and file with the Commission a Registration Statement onany form for which the Company then qualifies and which is available forthe registration of the Registrable Shares requested to be registered inaccordance with the intended methods of distribution thereof, (i) includein the Registration Statement all Registrable Shares requested to beincluded pursuant to Article II or Article III (as the case may be), and

---------- -----------(ii) use its reasonable efforts to cause such Registration Statement tobecome effective;

(b) prepare and file with the Commission such amendments and post-effective amendments and supplements to the Registration Statement or anyprospectus as may be



16

necessary to keep the Registration Statement effective, current and incompliance with the provisions of the Securities Act, until the last tooccur of (i) the sale or other distribution of all of the RegistrableShares covered by such Registration Statement in accordance with theintended methods of distribution thereof, (ii) the expiration of allperiods during which transactions in Registrable Shares by a dealer are notexempt from the provisions of Section 5 of the Securities Act by virtue ofSection 4(3) of the Securities Act or during which any dealer is obligatedunder the Securities Act to deliver a prospectus in connection withtransactions involving Registrable Shares and (iii) the expiration of allother periods, if any, during which the Registration Statement is requiredto remain effective in order to avoid a violation of applicable law by anyInvestor or the Company related to the sale or other distribution of all ofthe Registrable Shares covered by such Registration Statement in accordancewith the intended methods of distribution thereof;

(c) at least three Business Days prior to filing any RegistrationStatement or prospectus or any amendment or supplement thereto, furnish toeach Investor and each underwriter, if any, of the Registrable Sharescovered by such Registration Statement copies of the current draft of suchRegistration Statement or prospectus (including documents to beincorporated by reference therein), which documents will be subject to thereasonable review and comments of such Investors (and their respectivecounsel) during such three Business Day period, and if any Investor objectsin writing to any statements in any such documents with respect to suchInvestor or the distribution of the Registrable Shares to be included byhim in such Registration Statement, the Company shall, subject toapplicable law, promptly revise such statements to such Investor'sreasonable satisfaction;

(d) promptly notify each Investor of the effectiveness of theRegistration Statement;

(e) furnish to each Investor without charge and as soon as suchdocuments become available to the Company, at least one copy of theRegistration Statement and each amendment thereto, and such number ofconformed copies thereof, copies of the prospectus (including eachpreliminary prospectus and each amendment or supplement thereto), in eachcase together with all exhibits thereto and all documents incorporated byreference in any of such documents as such Investor may reasonably (inlight of such Investor's intended method of distribution) request in orderto facilitate the disposition of the Registrable Shares being sold by suchInvestor (it being understood that the Company consents to the use, incompliance with the Securities Act, of each preliminary prospectus andprospectus and each amendment or supplement thereto by each Investor, eachunderwriter, broker, dealer, placement agent and other securities industryprofessional and each agent of each Investor in connection with the



offering, sale and distribution of the Registrable Shares covered thereby);

(f) promptly notify each Investor, at any time when a prospectusrelating to Registrable Shares of such Investor covered by the RegistrationStatement is required to be delivered under the Securities Act, of thehappening of any event as a result of which the preliminary prospectus orprospectus included in such Registration Statement or any

17

prospectus supplement contains any untrue statement of a material fact oromits to state a material fact necessary to make the statements therein, inlight of the circumstances under which they were made, not misleading, andthe Company will, as promptly as practicable thereafter, prepare and filewith the Commission and furnish to each Investor a supplement or amendmentto such preliminary prospectus, prospectus or prospectus supplement sothat, as thereafter delivered to the prospective purchasers of theRegistrable Shares being distributed by such Investor, such preliminaryprospectus, prospectus or prospectus supplement will not contain any untruestatement of a material fact or omit to state a material fact required tobe stated therein or necessary to make the statements therein, in light ofthe circumstances under which they were made, not misleading;

(g) enter into customary agreements (including, in the case of anunderwritten offering, an underwriting agreement in customary form) andmake such representations and warranties to any underwriters, brokers,dealers, placement agents and other Persons involved in the distribution ofthe Registrable Shares included in such Registration Statement as in form,substance and scope are customarily made by issuers in similarcircumstances or which may be reasonably requested;

(h) furnish to each underwriter, broker, dealer or placement agentparticipating in any offering or sale or other distribution pursuant tosuch Registration Statement a signed counterpart of (i) an opinion ofcounsel to the Company addressed to such underwriter, broker, dealer orplacement agent (as the case may be) and (ii) a "cold comfort" letter orletters from the Company's independent certified public accountants, eachin customary form and covering such matters of the type customarily coveredby legal opinions or "cold comfort" letters (as the case may be) in similarofferings, sales or distributions of securities of similarly situatedissuers and such other matters as the Majority Selling Investors mayreasonably request;

(i) prepare and file with the Commission promptly upon the request ofany such Investor, any amendments or supplements to such RegistrationStatement or the applicable prospectus which, in the reasonable opinion ofcounsel for such Investor, is required under the Securities Act inconnection with the distribution of Registrable Shares by such Investor;

(j) effective on or prior to the date the Registration Statement



becomes effective, use its reasonable efforts to register or qualify theRegistrable Shares covered by a Registration Statement under the securitiesor blue sky laws of such jurisdictions in the United States as the MajoritySelling Investors or any underwriter, broker, dealer or placement agentparticipating in the offering or sale or other distribution of theRegistrable Shares covered thereby shall reasonably request, and do any andall other acts and things which may be reasonably necessary to enable eachSelling Investor to consummate the offering and disposition of suchRegistrable Shares in such jurisdictions of such Registrable Shares inaccordance with the permitted methods of distribution described in suchRegistration Statement; provided, however, that the Company shall in no

-------- -------event be required to qualify generally to do business as a foreigncorporation in any

18

jurisdiction where it is not otherwise required to be so qualified or, toconform its capitalization or the composition of its assets at the time tothe securities or blue sky laws of such jurisdiction;

(k) make generally available to the Company's security-holdersearnings statements satisfying the provisions of the last sentence ofSection 11(a) of the Securities Act no later than forty-five days after theend of the twelve-month period beginning with the first month of the firstfiscal quarter commencing after the effective date of the RegistrationStatement, which earnings statements shall cover said twelve-month period;

(l) promptly notify each Selling Investor and each underwriter,broker, dealer and placement agent participating in any offering or sale orother distribution of securities covered by such Registration Statement ofthe issuance or threatened issuance of any stop order or other ordersuspending the effectiveness of the Registration Statement or preventing orsuspending the use of any preliminary prospectus, prospectus or prospectussupplement; use reasonable efforts to prevent the issuance of any suchthreatened stop order or other order, and if any such order is issued, useits best efforts to obtain the lifting or withdrawal of such order at theearliest possible moment and promptly notify each Selling Investor and eachsuch underwriter, broker, dealer and placement agent of any such lifting orwithdrawal;

(m) as promptly as practicable after filing with the Commission of anydocument which is incorporated by reference into a Registration Statement,notify each Selling Investor of such filing and deliver a copy of suchdocument to each Selling Investor;

(n) cooperate with each Selling Investor and the underwriters,brokers, dealers and placement agents participating in any offering or saleor other distribution of securities covered by such Registration Statementto facilitate the timely preparation and delivery of certificates, not



bearing any restrictive legends, unless otherwise required by suchInvestor, representing the securities covered by such RegistrationStatement, and enable all Registrable Shares of such Selling Investorcovered thereby to be in such denominations and registered in such names assuch Selling Investor may request;

(o) use its reasonable efforts to cause the Registrable Shares coveredby the Registration Statement to be registered with or approved by suchother governmental authorities within the United States and its territoriesas may be necessary to enable the Selling Investors to consummate thedisposition of such securities in accordance with the intended methods ofdisposition;

(p) cooperate with the Selling Investors and the underwriters,brokers, dealers and placement agents participating in any offering or saleor other distribution of securities covered by such Registration Statementin making any filings or submissions required to be made, and in furnishingall appropriate information in connection therewith, with the NationalAssociation of Securities Dealers, Inc., any national

19

securities exchange, any other "self-regulatory organization" (as definedin the Exchange Act) or with any governmental authority;

(q) promptly notify each Selling Investor and each underwriter,broker, dealer and placement agent participating in any offering or sale orother distribution of securities covered by such Registration Statement ofthe issuance or threatened issuance of any order suspending theregistration or qualification of any Registrable Shares covered by suchRegistration Statement for disposition in any jurisdiction; use itsreasonable efforts to prevent the issuance of any such threatened orderand; if any such order is issued, use its reasonable best efforts to obtainthe lifting or withdrawal of such order at the earliest possible moment andpromptly notify each Selling Investor and each such underwriter, broker,dealer and placement agent of any such lifting or withdrawal;

(r) if any shares of Common Stock or any other capital stock orsecurities of the same class, series, issue or other type as anyRegistrable Shares covered by such Registration Statement are or uponconsummation of all sales and other distributions covered by suchRegistration Statement will be listed, qualified or otherwise eligible fortrading or quotation on a national securities exchange or The Nasdaq StockMarket, use its reasonable best efforts to cause, by the date of the firstsale of any Registrable Shares pursuant to such Registration Statement, allRegistrable Shares covered by such Registration Statement to be listed,qualified or eligible for trading or quotation on each such exchange orquotation system;

(s) take, and use its reasonable efforts to cause each of the



respective Affiliates of the Company to take, all action necessary toeffect each registration, offering, sale and distribution of theRegistrable Shares contemplated hereby, including preparing and filing anyrequired financial or other information;

(t) make available to each registrar, transfer agent, trustee orsimilar agent or fiduciary for each class, series, issue or other type ofRegistrable Shares a supply of certificates or other instruments evidencingor constituting such Registrable Shares which shall be in a form complyingwith the requirements of such registrar, transfer agent, trustee or similaragent or fiduciary promptly after the registration of such RegistrableShares;

(u) in the case of an underwritten offering, use its reasonable bestefforts to cause the senior executive officers of the Company toparticipate in the customary "road show" presentations that may bereasonably requested by the managing underwriter or underwriters in anysuch underwritten offering and otherwise to facilitate, cooperate with, andparticipate in each proposed offering contemplated herein and customaryselling efforts related thereto; and

(v) take all other actions which are reasonably necessary or which maybe reasonably requested by the Majority Selling Investors or the MajorityInvestors or any underwriter, broker, dealer or placement agentparticipating in any offering or sale or other distribution of securitiescovered by such Registration Statement to effect the

20

registration and qualification of the Registrable Shares covered by suchRegistration Statement and to facilitate the disposition thereof inaccordance with the respective plans of distribution of the SellingInvestors.

SECTION 4.02. Suspension of Registration Proceedings.--------------------------------------

Notwithstanding anything to the contrary contained herein, if at any time afterthe filing of a Registration Statement in a Demand Registration but before it isdeclared effective by the Commission the Company determines, in its reasonablebusiness judgment, that such offering, sale or other distribution coveredthereby would result in a Disadvantageous Effect, then the Company may suspendthe offering, sale or distribution of any of the Registrable Shares pursuant tosuch Registration Statement by giving written notice to such effect to eachSelling Investor; provided, however, that (i) the Company may not require such

-------- -------suspension unless such suspension is also required on the part of each and everyPerson (including the Company) who proposes to offer, sell or otherwisedistribute any securities pursuant to such Registration Statement and (ii) asuspension pursuant to this Section 4.02 or pursuant to Section 2.07 by reason

------------ ------------



of the existence of one or more Disadvantageous Effects shall be authorized onlyonce during any twelve-month period. Any such suspension pursuant to this

Section 4.02 shall terminate upon the first to occur of (i) the consummation of------------the transaction which is the asserted basis for such Disadvantageous Effect,(ii) the abandonment or termination of such transaction by the Majority SellingInvestors prior to consummation (which will constitute the withdrawal of theDemand Notice with respect to such Demand Registration), (iii) the determinationby the Board of Directors of the Company that such offering, sale or otherdistribution would not or would no longer result in such Disadvantageous Effectand (iv) the ninety-first day after the written notice of such suspension isgiven in accordance with this Section.

SECTION 4.03. Procedures if Stop Order Issued. Each Selling-------------------------------

Investor, upon receipt of any written notice from the Company of the happeningof any event of the kind described in Section 4.01(f), will forthwith

---------------discontinue disposition of Registrable Shares pursuant to the applicableRegistration Statement until such Selling Investor's receipt of the copies ofthe supplemented or amended preliminary prospectus, prospectus or prospectussupplement contemplated by Section 4.01(f), and, if so directed by the Company,

---------------such Selling Investor will deliver to the Company all copies in its possessionof the most recent preliminary prospectus, prospectus or prospectus supplementcovering such Registrable Shares at the time of receipt of such notice. In theevent the Company shall give any such notice after a Registration Statement hasbecome effective, the Company shall extend the period during which theeffectiveness of such Registration Statement shall be maintained pursuant toSection 4.01(b) hereof by the number of days during the period from and---------------including the date of the giving of notice pursuant to Section 4.01(f) to the

---------------date when the Company shall make available to each Selling Investor the copiesof the supplemented or amended preliminary prospectus, prospectus or prospectussupplement contemplated by Section 4.01(f).

---------------

SECTION 4.04. Participation in Underwritten Offers. No Investor or------------------------------------

other Person who otherwise has a right to participate in any underwrittenoffering in connection with a Demand Registration or a Piggyback Registrationshall be entitled to so participate unless such Person (i) agrees to sell itssecurities on the basis provided in any underwriting arrangements applicable toall stockholders who participate therein (including so-called "lock-up"

21

arrangements) and (ii) completes and executes all questionnaires, powers of



attorney, indemnities, underwriting agreements and other documents reasonablyrequired under the terms of such underwriting arrangements and this Agreement;provided, that in the case of any Demand Registration, the Majority Selling--------Investors shall have the right to determine those arrangements by agreement withthe managing underwriter(s) as provided in Section 2.06(a).

SECTION 4.05. Restriction on Other Sales. If, in the case of the--------------------------

first underwritten offering after the date of this Agreement that consists of orincludes offerings of Common Stock for the account of the Company registeredpursuant to Section 5 of the Securities Act, the managing underwriter(s) forsuch offering determine in good faith that public sales of Common Stock by theInvestors otherwise than as part of such offering would adversely affect thesuccess of such offering, and if the Investors, collectively, then ownRegistrable Shares constituting 5% or more of the fully diluted shares of CommonStock then outstanding (after giving effect to all sales, including any byInvestors, and issuances of Common Stock or Rights to acquire Common Stockpursuant to the Registration Statement covering such offering), then to theextent requested by such managing underwriter(s), no Investor shall effect anysale or distribution into the public market of any Common Stock owned by suchInvestor, other than as part of such underwritten offering (to the extent thatsuch Investor has the right or is otherwise allowed to participate therein), forsuch period after the effective date of the Registration Statement covering suchoffering as such managing underwriter(s) shall specify, provided that (i) such

--------period shall not exceed ninety days and (ii) each of the executive officers andthe directors of the Company who beneficially own Common Stock or Rights toacquire Common Stock, and each Person who holds a number of shares of CommonStock (including shares issuable upon exercise of Rights but excluding sharesacquired in a public market) equal to or greater than the number of RegistrableShares held (after giving effect to any sales pursuant to such RegistrationStatement) by the Investors, collectively, also agree to be subject to the samerestrictions for the same period and any waiver or release from such restrictiongranted to any such officer, director or Person is also granted to each of theInvestors with respect to the same number of shares. Any contract or agreemententered into on or after the date hereof pursuant to which the Company issuesany securities or becomes or may become obligated to register or to permit theparticipation in the registration of any securities of the Company shall containrestrictions upon the holders of such securities equivalent to those imposedupon the Investors under this Section. The provisions of this Section 4.05

------------shall not prevent the conversion, exchange or exercise of any securitiespursuant to their respective terms into or for other securities of the Companyor any public sale or other distribution by any of the Investors with the priorconsent of the Company, and are supplemental to any similar requirements imposedby the Securities Act.

ARTICLE V



EXPENSES OF REGISTRATION

SECTION 5.01. Expenses. Except as provided in the last sentence of--------

this Section 5.01, all Registration Expenses incurred in connection with or------------

otherwise incident to any Demand Registration or Piggyback Registration and theoffering or sale or other distribution of any Registrable Shares in connectiontherewith shall be borne by the Company, whether or not any RegistrationStatement filed in connection therewith ever becomes effective or any such sale

22

or other distribution ever is consummated. Underwriting discounts and sellingcommissions attributable to the Registrable Shares included in such registrationshall be borne by the holders of such Registrable Shares pro rata on the basisof the respective numbers of such included Registrable Shares. Subject to thelast sentence of this Section 5.01, the Company shall not be required to pay the

------------Registration Expenses of any Demand Registration begun pursuant to Section 2.02

------------that is withdrawn at the request of the Majority Selling Investors, unless theMajority Investors elect in writing to have such registration counted as aDemand Registration. In any such case, (i) the Holders of Registrable Shares tohave been registered shall bear all such Registration Expenses pro rata on thebasis of the number of shares to have been registered, and (ii) the Companyshall not be deemed to have effected a Demand Registration for purposes of thelast sentence of Section 2.02. Notwithstanding the foregoing, however, the

------------Company shall pay such Registration Expenses (and shall not be deemed to haveeffected a Demand Registration for purposes of the last sentence of Section

-------2.02) if the withdrawal is pursuant to Section 2.07 or Section 3.02.---- ------------ ------------

ARTICLE VI

INDEMNIFICATION AND CONTRIBUTION

SECTION 6.01. Indemnification by the Company. The Company shall------------------------------

indemnify and hold harmless each Investor, each former Investor, each Person (ifany) who controls such Investor or former Investor within the meaning of theSecurities Act or the Exchange Act and each of their respective Affiliates,partners, directors, officers, employees and agents (collectively, the "InvestorIndemnified Parties") from and against any liabilities, obligations, losses,damages, assessments, fines and penalties of any kind or nature, including allamounts paid or agreed to be paid in settlement of any claim, action, suit,hearing, proceeding or investigation (collectively, "Losses"), whether direct,



indirect, joint or several, and subject to Section 6.03, also shall indemnify------------

and reimburse each Investor Indemnified Party for all reasonable fees, costs andexpenses (including reasonable fees and disbursements of counsel) in connectionwith preparing for, defending against or settling, prosecuting any appeal of anyjudgment entered in, or otherwise as a result of, any claim, action, suit,hearing, proceeding or investigation, in each case which in any manner resultsfrom, arises out of, or is based upon or related or attributable to (i) anyuntrue statement or alleged untrue statement of any material fact contained inany Registration Statement as originally filed or in any amendment thereof, orin any preliminary, final or summary prospectus, or in any amendment thereof orsupplement thereto, or any omission or alleged omission to state in any thereofa material fact required to be stated therein or necessary to make thestatements therein not misleading, or (ii) any violation by the Company of anyfederal or state law, rule or regulation or common law applicable to the Companyand relating to action required of or inaction by the Company in connection withany Demand Registration or Piggyback Registration; provided, however, that, in

-------- -------the case of clause (i), the Company shall not be obligated to indemnify anyInvestor or any of its controlling Persons, Affiliates, partners, directors,officers, employees or agents for any Loss to the extent (and only to theextent) that such Loss arises from any such untrue statement made in or omissionfrom the Registration Statement or any amendment thereof, or any relatedpreliminary, final or summary prospectus or any amendment thereof or supplementthereto, which statement or omission related to information about such Investoror its proposed plan of distribution of the

23

Registrable Shares of such Investor covered by such Registration Statement andwas made or omitted in reliance upon and in conformity with the latestinformation about such Investor or its proposed plan of distribution of theRegistrable Shares of such Investor covered by such Registration Statement whichwas provided to the Company by such Investor in writing and stated in writing tobe specifically for use in such Registration Statement (or amendment thereto) orsuch prospectus (or amendment thereof or supplement thereto). The Company willalso indemnify each underwriter, selling broker, dealer manager, placement agentand similar securities industry professional participating in the distributionof Registrable Shares, its officers and directors and each Person who controlssuch Person (within the meaning of the Securities Act) to the extent required bysuch underwriter; provided, however, that if the Company and any such

-------- -------underwriter, selling broker, dealer manager or similar industry professionalenters into an underwriting, purchase or other agreement relating to suchdistribution which contains provisions relating to indemnification andcontribution between the Company and such Person, such provisions shall bedeemed to govern indemnification and contribution as between the Company andsuch Person.

SECTION 6.02. Indemnification by Each Investor. Each Investor,



--------------------------------individually and not jointly, shall indemnify and hold harmless the Company andeach Person, if any, who controls the Company within the meaning of theSecurities Act and the Exchange Act (the "Company Indemnified Parties") and theInvestor Indemnified Parties (other than such indemnifying Investor and itscontrolling Persons, Affiliates, partners, directors, officers, employees andagents) from and against any Loss to which such Company Indemnified Partiesand/or Investor Indemnified Parties may become subject, and subject to Section

-------6.03, also shall indemnify and reimburse each Company Indemnified Party for all----reasonable fees, costs and expenses (including reasonable fees and disbursementsof counsel) in connection with preparing for, defending against or settling,prosecuting any appeal of any Judgment entered in, or otherwise as a result ofany claim, action, suit, hearing, proceeding or investigation, in each caseinsofar and to the extent (and only insofar and to the extent) as such Loss orsuch claim, action, suit, hearing, proceeding or investigation arises out of oris based upon any untrue statement or alleged untrue statement of a materialfact contained in any Registration Statement pursuant to which any RegistrableShares of such Investor were offered and sold or in any related preliminary,final or summary prospectus, or in any amendment thereof or supplement thereto,or any omission or alleged omission to state therein a material fact required tobe stated therein or necessary to make the statements therein, in light of thecircumstances under which they were made, not misleading, if the statement oromission related to information about such Investor or its proposed plan ofdistribution of the Registrable Shares of such Investor covered by suchRegistration Statement and was made or omitted in reliance upon and inconformity with the latest information about such Investor or its proposed planof distribution of the Registrable Shares of such Investor covered by suchRegistration Statement which was provided by such Investor in writing and statedin writing to be specifically for inclusion therein; provided, however, that

-------- -------such Investor will not indemnify or hold harmless any Company Indemnified Partyand/or Investor Indemnified Party from or against any such Loss, fee, cost orexpense if the untrue statement, omission or alleged untrue statement oromission upon which such Losses or expenses are based was contained in oromitted from (as the case may be) any preliminary prospectus, prospectus orsummary prospectus, or any amendment thereof or supplement thereto,

24

used after such time as the Company was advised by or on behalf of such Investoror the Company had knowledge that the information about such Selling Investorcontained therein needs to be corrected, revised or supplemented.

SECTION 6.03. Procedures. Each party claiming a right to----------

indemnification under this Article VI (the "Indemnified Party") shall give----------

notice to the party from whom such indemnification is or may be sought (the



"Indemnifying Party") promptly after such Indemnified Party has actual knowledgeof any claim as to which indemnification may be sought, and the IndemnifyingParty may participate at its own expense in the defense, or if it so elects,assume the defense of any such claim and any action or proceeding resultingtherefrom, including the employment of counsel and the payment of all expenses.The failure of any Indemnified Party to give notice as provided herein shall notrelieve the Indemnifying Party from its obligations to indemnify suchIndemnified Party, except to the extent the Indemnified Party's failure to sonotify actually and materially prejudices the Indemnifying Party's ability todefend against such claim, action or proceeding. In the event that theIndemnifying Party elects to assume the defense in any action or proceeding, anIndemnified Party shall have the right to employ separate counsel in any suchaction or proceeding and to participate in the defense thereof, but suchIndemnified Party shall pay the fees and expenses of such separate counselunless (i) the Indemnifying Party has agreed to pay such fees and expenses, (ii)any relief other than the payment of money is sought against the IndemnifiedParty or (iii) the named parties to any such action or proceeding (including anyimpleaded parties) include such Indemnified Party and the Indemnifying Party,and such Indemnified Party shall have been advised by counsel that there is aconflict of interest between such Indemnified Party and the Indemnifying Partyin the conduct of the defense of such action (in which case, if such IndemnifiedParty notifies the Indemnifying Party in writing that it elects to employseparate counsel at the expense of the Indemnifying Party, the IndemnifyingParty shall not assume the defense of such action or proceeding on suchIndemnified Party's behalf, it being understood, however, that the IndemnifyingParty shall not, in connection with any one such action or proceeding orseparate but substantially similar or related actions or proceedings arising outof the same general allegations or circumstances, be liable for the reasonablefees and expenses of more than one separate firm of attorneys at any time forall Indemnified Parties, which firm shall be designated in writing by theapplicable Indemnified Parties). If the Indemnifying Party elects not todefend, or if, after commencing or undertaking any such defense, theIndemnifying Party fails to prosecute or withdraws from such defense or fails toappeal any Judgment adverse or unfavorable to the Indemnified Party, theIndemnified Party shall have the right to undertake the defense, settlement orappeal thereof (as the case may be), at the Indemnifying Party's expense. Ifthe Indemnified Party assumes the defense of any such claim, investigation,action, suit, hearing or proceeding pursuant to this Section 6.03 and proposes

------------to settle the same prior to a final judgment thereon or to forgo or abandon anyappeal available after final judgment thereon, then the Indemnified Party shallgive the Indemnifying Party prompt written notice thereof and the IndemnifyingParty shall have the right to participate in the settlement, assume or reassumethe defense thereof or prosecute such appeal, in each case at the IndemnifyingParty's expense. The Indemnifying Party shall not, without written consent ofsuch Indemnified Party, settle or compromise or consent to entry of any judgmentwith respect to any such claim, investigation, action, suit, hearing orproceeding (i) in which any relief other than the payment of money damages is ormay be sought against such

25



Indemnified Party or (ii) which does not include as an unconditional termthereof the giving by the claimant, Person conducting such investigation orinitiating such hearing, plaintiff or petitioner to such Indemnified Party of arelease from all liability with respect to such claim, investigation, action,suit or proceeding and all other claims or causes of action (known or unknown)arising or which might arise out of the same facts.

SECTION 6.04. Contribution. In order to provide for just and------------

equitable contribution if a claim for indemnification pursuant to theindemnification provisions of this Article VI is made but it is found in a final

----------judgment by a court of competent jurisdiction (not subject to further appeal)that such indemnification may not be enforced in such case, even though theexpress provisions hereof provide for indemnification in such case or theindemnification provided for under this Article VI, even though so provided for,

----------otherwise is unavailable to or insufficient to hold any Indemnified Partyharmless to the full extent provided herein with respect to any Loss (or anyfees, costs or expenses) for which such indemnification is provided for, thenthe Indemnifying Party shall contribute to the amount paid or payable by suchIndemnified Party as a result of such Losses (i) in such proportion as isappropriate to reflect the relative fault of the Indemnifying Party, on the onehand, and such Indemnified Party, on the other, in connection with thestatements or omissions which resulted in such Losses or (ii) if the allocationprovided by clause (i) above is not permitted by applicable law, in suchproportion as is appropriate to reflect not only the relative fault referred toin clause (i) above but also the relative benefits received by the IndemnifyingParty, on the one hand, and such Indemnified Party, on the other, from thesubject offering or distribution, as well as any other relevant equitableconsiderations. Relative fault shall be determined by reference to, among otherthings, whether the untrue or alleged untrue statement of a material fact or theomission or alleged omission to state a material fact relates to informationsupplied by (or omitted to be supplied by) the Indemnifying Party or theIndemnified Party and the parties' relative intent, knowledge, access toinformation and opportunity to correct or prevent such statement or omission.The relative benefits received by the Indemnifying Party, on the one hand, andthe Indemnified Party, on the other, shall be deemed to be in the sameproportion as the net proceeds of the offering or other distribution received bythe Indemnifying Party bears to the net proceeds of the offering or otherdistribution received by the Indemnified Party. No Person guilty of fraudulentmisrepresentation (within the meaning of Section 11(f) of the Securities Act)shall be entitled to contribution from any person who was not guilty of suchfraudulent misrepresentation. The Company and the Investors agree that it wouldnot be just and equitable if contributions pursuant to this Section 6.04 were to

------------be determined by pro rata allocation (even if all Investors were treated as oneentity for such purpose) or by any other method of allocation which does nottake account of the equitable considerations referred to above in this Section

-------



6.04.----

SECTION 6.05. Limit on Liability of Investors. The parties agree, to-------------------------------

the maximum extent permitted by law, that the obligations and liability of eachSelling Investor with respect to any Demand Registration or PiggybackRegistration, whether for indemnification pursuant to Section 6.02, contribution

------------pursuant to Section 6.04 or otherwise, shall not in any event exceed in the

------------aggregate the amount of net proceeds received by such Selling Investor from thesale of the Registrable Shares sold by such Selling Investor in such DemandRegistration or Piggyback Registration.

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ARTICLE VII

RIGHT OF FIRST OFFER

SECTION 7.01. Issuance of New Securities. Subject to Section 7.04,-------------------------- ------------

if and whenever the Company issues any New Securities, each Investor holding atleast 10% of the Originally Issued Shares will have the right, but not theobligation, to purchase such New Securities up to an amount sufficient to permitit to maintain its percentage common equity interest in the Company (based onthe Number of Common Shares Outstanding immediately prior to the issuance of theNew Securities). The "Number of Common Shares Outstanding" as of any time meansthe sum of (i) the number of shares of Common Stock which then are actuallyissued and outstanding, plus (ii) the total number of additional shares ofCommon Stock which would then be issued and outstanding if it were assumed thatall Qualifying Rights, if any, then held by the Investors and other holders ofQualifying Rights were then duly exercised in full (whether or not thenexercisable). Within ten Business Days after the receipt of such PreissuanceNotice, each Investor may exercise its rights under this Section 7.01 by giving

------------written notice to that effect to the Company. Failure to give such noticewithin that ten Business Days period or failure to pay at the required time thepurchase price for any New Securities as to which a right to purchase will havebeen exercised will constitute a waiver of the rights granted by this Section

-------7.01 as to the particular issuance of New Securities specified in the Company's----Preissuance Notice. In the event that any Investor does not exercise its rightsunder this Section 7.01, such Investor's pro rata share of the New Securities

------------shall be re-offered to those Investors, if any, who did exercise their rightsunder this Section 7.01. Within ten Business Days after the receipt of written



------------notice of such re-offering (the "Subsequent Notice"), each such Investor mayexercise its further rights by giving written notice to that effect to theCompany.

SECTION 7.02. Per Share Price; Valuations. The per share purchase---------------------------

price to be paid upon exercise of the rights granted under this Article VII will-----------

be equal to the lowest per share consideration at which the New Securities areoffered or proposed to be offered by the Company to any New SecuritiesPurchaser. The consideration for which New Securities are offered or proposedto be offered will be determined as follows: (i) in case of the proposedissuance of New Securities for cash, the consideration to be received by theCompany will be the amount of cash for which the New Securities are proposed tobe issued and (ii) in case of the proposed issuance of New Securities in wholeor in part for consideration other than cash, the value of the consideration tobe received by the Company other than cash will be the fair market value of thatconsideration as reasonably determined by the Board of Directors of the Companyin good faith. If any Investor within five days of receipt of any PreissuanceNotice notifies the Company in writing that it objects to any statement of thefair market value of any security or other property contained therein, theCompany and the Investors shall attempt in good faith to agree on the fairmarket value of such security or other property. If they are unable to so agreewithin five Business Days after such notice of objection was given, then withinfive Business Days thereafter, the Company and the Majority Investors shallselect one appraiser and the Company and the Majority Investors shall submit tosuch appraiser (and each other) a brief written statement of their positionregarding the matter in dispute and supporting arguments, and each shall begiven a period of five Business Days thereafter to submit to the other and tothe appraiser a written response to such written statement of the other. Suchappraiser shall within

27

fifteen days of the date of its selection, resolve such dispute by choosingeither the position of the Company set forth in such written statement sosubmitted by the Company or the position of the Investors set forth in suchwritten statement so submitted by the Majority Investors, whichever in theopinion of the appraiser, in its sole discretion, is more consistent with thepurposes and intent of this Agreement. Decisions with respect to suchdetermination made pursuant to this Section 7.02 by the Majority Investors shall

------------be binding on all Investors. Any determination of fair market value forpurposes of this Article VII by agreement of the Company and the Majority

-----------Investors or by an appraiser appointed as provided in this Section 7.02 shall be

------------final and binding on the Company, and each Investor for all purposes of thisArticle VII. Promptly after any final determination of fair market value



-----------pursuant to this Section 7.02, the Company shall give each Investor a written

------------notice stating such fair market value. Each appraiser shall be a nationallyrecognized appraiser or investment banking firm which has substantial experiencein making appraisals similar to that being made, which is not directly orindirectly affiliated with the Company or any other Person who is a party to orotherwise interested in the event resulting in the need for such appraisal andwhich has no interest (other than the receipt of customary fees) in such event.In the event the appraiser agrees with the written statement submitted by theInvestors, the fees and expenses of any appraiser appointed in connection withan appraisal pursuant to this Article VII shall be paid by the Company. In theevent the appraiser agrees with the written statement submitted by the Company,the fees and expenses of any appraiser appointed in connection with an appraisalpursuant to this Article VII shall be paid by the Investors.

-----------

SECTION 7.03. Representations, Warranties and Certain Covenants. In-------------------------------------------------

connection with each issuance of New Securities to any Investor pursuant to thisArticle VII, the Company shall, in the event the Company is making-----------representations, warranties and/or covenants to the New Securities Purchaser,make to each Investor such representations, warranties, and covenants as arecustomarily made by issuers in similar instances (but which in no event shall beless favorable to the Investors than those contemplated by the PreissuanceNotice or otherwise made to or for the benefit of any New Securities Purchaser)and each Investor shall be separately and independently entitled to rely on suchrepresentations and warranties, to the benefit of such covenants and to exerciseall available rights and remedies in the event of any breach or violation of anysuch representations, warranties and covenants. Any representations andwarranties made by an Investor shall consist solely of such representations andwarranties relating to (i) such Investor's authority to consummate the purchaseof the New Securities from the Company and (ii) other similar representationsand warranties as are customarily given by similarly situated purchasers ofsecurities similar to those being purchased by an Investor in a similartransaction but no Investor shall be required to give any such representation orwarranty which the New Securities Purchaser does not give. The representations,warranties, covenants and agreements of each Investor shall be several and notjoint and the representations and warranties of the Investor and of the Company(unless, in the case of the Company, otherwise required by the New SecuritiesPurchasers) shall terminate upon the earlier of (i) the termination of anyrepresentation or warranty made by the New Securities Purchaser or by theCompany and (ii) one year after closing. The right of each Investor to purchasethe full number of New Securities which such Investor is entitled to purchaseunder this Article VII shall not be subject to any conditions whatsoever, other

-----------than the accuracy of the representations made by such Investor, the payment of

28



the purchase price therefor determined as provided herein, and the consummationof the transaction between the Company and the New Securities Purchaser. If anyInvestor shall fail for any reason to purchase any New Securities which it haselected to purchase, the sole right, remedy and recourse of the Company, the NewSecurities Purchaser, and the complying Investors, as the case may be, shall bethe right of the Company to issue to the New Securities Purchaser and the otherInvestors, pro rata based on their respective participations in the transactionas determined pursuant to Section 7.01, additional New Securities equal in kind

------------and number or other relevant amount to the New Securities which such Investorfailed to purchase at the closing, in which event the Majority Investors mayelect to postpone the closing for five Business Days. Unless the Company andany Investor otherwise agree, the closing of any issuance of New Securities toany Investor pursuant to this Article VII shall take place at the principal

-----------executive offices of the Company at 11:00 A.M., local time, on the later of (i)the thirtieth day following the expiration of the period of fifteen BusinessDays after the later of (A) the date of the relevant Preissuance Notice wasgiven (except if there is a relevant Subsequent Notice, in which case the dateof such Subsequent Notice) and (B) the date all disputes as to the valuationshave been resolved and (ii) the fifteenth Business Day following the expirationof all applicable waiting periods, if any, under the HSR Act and the receipt ofall consents, approvals and authorizations from governmental authorities orother Persons which the Majority Investors believe to be necessary or desirablein connection with the acquisition of the New Securities to be issued to theInvestor. The Company shall execute such documents and instruments as may benecessary or reasonably requested to effectuate the issuance of New Securitiesto any Investor.

SECTION 7.04. Limitations. The provisions of this Article VII will----------- -----------

not apply to (i) shares of Common Stock issued as a stock dividend to allholders of shares of Common Stock or upon any subdivision or combination ofshares of Common Stock, (ii) securities issued for the acquisition by theCompany of another entity or business by merger or such other transaction aswould result in the ownership by the Company of not less than a majority of thevoting power of the other entity or for the purchase of all the assets of anentity or business, (iii) shares of Common Stock or Rights that are sold by theCompany pursuant to a bona fide public offering pursuant to a registration

---- ----statement filed under the Act, (iv) shares of Common Stock or Rights issuedpursuant to the Company's stock option plans in existence at the date of thisAgreement or other such stock option plans as approved by the Series BDirectors, (v) the shares of Series B Preferred Stock or Warrants issuedpursuant to the Purchase Agreement or any other Common Stock Rights or anyshares of Common Stock issued upon conversion or exercise thereof, (vi) sharesof Common Stock issued upon exercise of any Common Stock Rights as to which theHolders shall have been afforded the opportunity to exercise their rights offirst refusal pursuant to this Article VII, or (vii) securities issued uponexercise of Common Stock Rights outstanding on the Closing Date and described in



the Purchase Agreement or disclosed on a schedule to the Purchase Agreement.

SECTION 7.05. Terms of Payment of Purchase Price. Subject to Section---------------------------------- -------

7.03 and the rest of this Section, each issuance of New Securities to each----Investor must be on terms not less favorable to such Investor than the mostfavorable terms on which the Company issues or proposes to issue in thetransaction in connection with which the preemptive right is being exercised NewSecurities to any New Securities Purchaser, any other Investor or any otherPerson (without discrimination based on differences in the number or amount ofNew Securities to be

29

acquired). Without limiting the generality of the immediately precedingsentence, (i) each Investor must be given the same options and rights ofelection, if any, as to the kind(s) or amount(s) of consideration to be paid ordelivered for New Securities as any other purchaser is given or was proposed tobe given in the Preissuance Notice and (ii) the purchase price to be paid byeach Investor upon exercise of its rights under this Article VII will be paid

-----------upon terms which are not less favorable than those on which the New Securitiesare sold to any other purchaser, unless those terms provide for payment in amanner which could not reasonably be duplicated by any Investor, such as thetransfer of specific property to the Company, in which event such payment willbe in cash in an amount equal to the fair market value of such specific propertyas reasonably determined by the Board of Directors in good faith. The giving ofa Preissuance Notice shall constitute the representation and warranty by theCompany to each Investor that (i) the proposed issuance is not subject toconditions, contingencies or material terms not disclosed in the PreissuanceNotice or in the accompanying documents delivered therewith; and (ii) neitherthe amount or kind of consideration offered by the New Securities Purchaser forthe New Securities nor any other terms of the proposed issuance or of any othertransaction or proposed transaction with the New Securities Purchaser or any ofits Affiliates have been established for the purpose of circumventing,increasing the cost of exercising or otherwise impairing any Investor's right offirst refusal pursuant to this Article VII or increasing the probability thatany Investor's right of first refusal will not be exercised in full.

SECTION 7.06. Issuance to Others Not Permitted Absent Compliance. If--------------------------------------------------

the Company does not issue and deliver, to each Investor, on or before the 120thday after the date the applicable Preissuance Notice with respect to anyproposed issuance of New Securities is given, all New Securities which suchInvestor is entitled to be issued in accordance with the provisions of this

Article VII for any reason other than the failure of such exercising Investor to-----------tender the purchase price therefor if and when required by this Article VII,



-----------then the Company shall not be entitled to issue any New Securities pursuant tothe related Preissuance Notice. If, after compliance with Section 7.02, there

------------remains any portion of the New Securities specified in a Preissuance Noticewhich have not been elected to be acquired by one or more Investors, the Companyshall be entitled to issue such remaining portion to the Persons, in the mannerand on terms and conditions not materially more favorable to the purchaser thanthose specified in such Preissuance Notice, but only if such issuance isconsummated not later than the 120th day after the date such Preissuance Noticewas given. If such issuance is not so consummated within such period, then theCompany shall not be entitled to issue any such New Securities without againcomplying with the provisions of this Article VII. Notwithstanding theforegoing provisions of this Article VII, unless a binding purchase agreement

-----------entered into pursuant to this Article VII by the Company and such Investor

-----------otherwise provides, the Company may, without liability to any Investor, abandonthe proposed issuance of New Securities.

SECTION 7.07. Rights Apply to Each Issuance of New Securities.-----------------------------------------------

Subject to the last sentence of Section 7.01, the provisions of this Article VII-----------

shall apply successively to each and every issuance or proposed issuance of anyNew Securities.

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ARTICLE VIII

CERTAIN OTHER COVENANTS OF THE COMPANY

The Company hereby covenants and agrees as follows:

SECTION 8.01. Financial Information. So long as an Investor is the---------------------

Beneficial Owner of at least 10% of the Originally Issued Shares, the Companywill furnish to such Investor the following reports:

(a) Within the applicable time period required under the Exchange Act,after the end of each fiscal year of the Company, the information requiredby Form 10-K (or any successor form thereto) under the Exchange Act withrespect to such period (including a "Management's Discussion and Analysisof Financial Condition and Results of Operations" section that describesthe consolidated financial condition and results of operations of theCompany), together with a report thereon by the Company's certifiedindependent accountants;



(b) Within the applicable time period required under the Exchange Actafter the end of each of the first three fiscal quarters of each fiscalyear of the Company, the information required by Form 10-Q (or anysuccessor from thereto) under the Exchange Act with respect to such period(including a "Management's Discussion and Analysis of Financial Conditionand Results of Operations" section that describes the consolidatedfinancial condition and results of operations of the Company);

(c) Any current reports on Form 8-K (or any successor forms) requiredto be filed under the Exchange Act; and

(d) As soon as practicable upon approval or adoption by the Company'sBoard of Directors, the Company will furnish such Investor with theCompany's budget and operating plan (including projected balance sheets andprofit and loss and cash flow statements) for such fiscal year.

SECTION 8.02. (a) Board Representation. For so long as TPG is the--------------------

Beneficial Owner of at least 40% of the Originally Issued Shares held by it atthe Closing Date, the Investors shall vote all shares of capital stock of theCompany held by them and otherwise use best efforts to cause (i) the Board toconsist of seven members, of whom two members will be individuals designated byTPG, one member will be an individual designated by Sandler Capital Partners IV,L.P., a Delaware limited partnership, one member will be the Chief ExecutiveOfficer of the Company, one member will be an independent director acceptable toTPG in its discretion and the remaining two members will be other individualsreasonably acceptable to TPG; and (ii) at least one-third of the members of eachcommittee of the Board to consist of Series B Directors. The directors whom, atany time and from time to time, TPG is entitled to designate under this Section8.02(a), are sometimes herein referred to as the "Series B Directors". As ofthe Closing Date, the directors of the Board shall be in the classes of theBoard specified in Exhibit A. The Parties recognize that certain of the

---------directors referred to in clause (i)

31

of the immediately preceding sentence will not be designated at the ClosingDate. Accordingly, the Parties shall use best efforts to cause to existvacancies on the Board in respect of such undesignated directors and to fillthose vacancies with individuals satisfying the requirements of clause (i) ofthe immediately preceding sentence at the earliest practicable time.

(b) Qualifications of Independent Directors. For purposes hereof, an---------------------------------------

"independent director" is an individual who (unless otherwise approved by theSeries B Directors or, if there is no Series B Director, by TPG) (i) has eithera significant financial investment in the Company or a significant strategicposition or expertise relative to the business of the Company and (ii) is not(A) an officer or employee of the Company or any of its Subsidiaries, (B) a



director, employee, partner, manager or other member of management of anyAffiliate of the Company (except a director of a Subsidiary of the Company), (C)a relative of any Person described in subclause (ii)(A) or (ii)(B) or (D) atrustee of any trust or estate in which any Person described in subclause(ii)(A), (ii)(B) or (ii)(C) is a beneficiary and has a substantial beneficialinterest.

(c) Removal. The Investors shall vote, and otherwise shall use all-------

reasonable efforts to cause any director designated by an Investor to be removedat and only at the request of such Investor. The Investors and the Company(subject to the fiduciary duties of the members of the Board) shall use theirbest efforts to cause any vacancy in the office of a director designated by anInvestor resulting from death, resignation or removal or existing for any otherreason whatsoever to be filled only by such Investor. In addition, in the eventthat the holders of the Series B Shares shall have the right to elect MajorityDirectors pursuant to Section 11(b) of the Series B Articles of Amendment andsuch right is terminated by operation of the last sentence of such Section11(b), the Investors shall use best efforts to cause any additional directorselected pursuant to such Section 11(b) to be removed as promptly as practicableand, in the event that the holders of the Series B Shares shall have the rightto elect Designated Directors pursuant to Section 7.1 of the Series B Articlesof Amendment and such right is terminated by operation of Section 7.1, theInvestors shall use best efforts to cause any additional directors electedpursuant to such Section 7.1 to be removed as promptly as practicable.

(d) Indemnification. The Company shall (i) to the fullest extent---------------

permitted by applicable law, indemnify the holders of the Series B PreferredStock and each current and former Series B Director who is made a party orthreatened to be made a party to any threatened, pending or completed action,suit or proceeding, whether civil, criminal, administrative or investigative, byreason of the fact that such Person is or was a shareholder or director of theCompany, or is or was serving at the request of the Company as a director,officer, employee or agent of another corporation, partnership, joint venture,trust or other enterprise, against all expenses (including attorneys' fees),judgments, fines and amounts paid in settlement actually and reasonably incurredby such Person in connection with such action, suit or proceeding and (ii) payin advance, or advance to each such shareholder, director and former directorfor payment of, expenses incurred in defending any such action, suit orproceeding to the maximum extent permitted by applicable law. The rightsconferred on any Person by this Section 8.02(d) shall not be exclusive of any

---------------other rights which such Person may have or acquire under any

32

statute, under the Company's Articles of Incorporation, under the Company's By-laws, under any agreement, vote of stockholders or disinterested directors orotherwise.



(e) Actions Prohibited Under Series B Articles of Amendment. For so-------------------------------------------------------

long as TPG is the Beneficial Owner of at least 40% of the Originally IssuedShares, the Company shall not, and the Investors shall use best efforts to causethe Company not to, take any action prohibited by Section 11(e) of the Series B

-------------Articles of Amendment.

(f) Operating Committee. For so long as TPG is the Beneficial Owner of-------------------

at least 40% of the Originally Issued Shares, in the event that the Companyshall fail to comply with any material provision of (A) its annual budget(including, without limitation, by falling at least fifteen percent (15%) shortof any of the revenue or EBITDA targets established in any such budget (asadjusted for any acquisitions made by the Company after the setting of suchtargets)) or (B) any of the budget, restrictive or financial covenants in theIndenture or in any other credit agreement with respect to Indebtedness inexcess of $5,000,000 to which the Company is a party (whether or not suchagreement is existing as of the date hereof), the Investors and the Company(subject to the fiduciary duties of the members of the Board) shall use theirbest efforts to cause the Board to establish, if such committee does not alreadyexist, and maintain an Operating Committee consisting of five members, two ofwhom shall be the Series B Directors, one of whom shall be a representative ofSandler (as defined below) and two of whom shall be other members of the Board.The Operating Committee shall have the sole power and authority to directmanagement in the implementation of the Company's long-term and annual operatingplans and budget.

(g) Board Observer Rights. In the event that any Investor declines to---------------------

designate a director of the Company which it is entitled to designate pursuantto Section 8.02(a), the Investors shall take such action as is necessary to

---------------cause such Investor to have the right, in its sole discretion, to haverepresentatives (in the same number as the number of directors which suchInvestor has the right to designate pursuant to Section 8.02(a)) appointed by

---------------them attend any one or more meetings of the Board as observers, and not asdirectors, which representatives shall be entitled to receive the same noticesof meetings of and proposed actions by the Board as directors generally, butshall not be entitled to any voting or consent rights of a director.

SECTION 8.03. Additional Piggyback Registration Rights. From and----------------------------------------

after the Closing Date, the Company shall not (i) grant to any Person rights toparticipate in any Piggyback Registration that are more favorable than therights granted to the Investors in the case of a cut-back in a PiggybackRegistration or (ii) grant any Person a right to piggyback on a DemandRegistration unless such Persons agree that in the event of any required cut-back, such Persons shall have their security proposed to be included in such



registration reduced prior to any reduction in Registrable Shares of theInvestors included in such registration.

ARTICLE IX

MISCELLANEOUS

33

SECTION 9.01. Securities Act Legend. Except as otherwise provided in---------------------

this Section 9.01, each stock certificate or other instrument evidencing the------------

Series B Shares, the Warrants, any Conversion Stock or any Warrant Stock shallbear a legend in substantially the following form:

"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTEREDUNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR OTHERSECURITIES LAWS. THEY ARE `RESTRICTED SECURITIES' WITHIN THE MEANINGOF SEC RULE 144. THE SHARES MAY NOT BE SOLD OR OTHERWISE TRANSFERREDEXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACTAND SUCH LAWS OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THEACT AND SUCH LAWS, THE AVAILABILITY OF WHICH IS TO BE ESTABLISHED TOTHE REASONABLE SATISFACTION OF THE COMPANY. THE SALE, TRANSFER OROTHER DISPOSITION OF THE SECURITIES IS ALSO SUBJECT TO COMPLIANCE WITHTHE TERMS AND CONDITIONS OF THAT CERTAIN INVESTORS RIGHTS AGREEMENT,DATED AS OF APRIL 18, 2000, AS SUPPLEMENTED, MODIFIED AND AMENDED FROMTIME TO TIME, AMONG THE COMPANY AND THE INVESTORS NAMED THEREIN, ACOPY OF WHICH AGREEMENT IS AVAILABLE FOR INSPECTION DURING REGULARBUSINESS HOURS AT THE PRINCIPAL EXECUTIVE OFFICE OF THE COMPANY. ACOPY OF THE DESIGNATIONS, PREFERENCES, LIMITATIONS AND RELATIVE RIGHTSAPPLICABLE TO THIS CLASS OF SECURITIES WILL BE FURNISHED TO THESHAREHOLDER ON REQUEST IN WRITING AND WITHOUT CHARGE."

Any holder of any such certificate or instrument bearing the foregoing legendshall be entitled to promptly receive from the Company, without expense, a newcertificate or instrument of identical tenor representing the same kind ofsecurities and the same number or other amount thereof not bearing such legendif such securities shall have been effectively registered under the SecuritiesAct and are sold or otherwise disposed of in accordance with the intended methodof disposition by the seller thereof set forth in the registration statement, orsuch securities may be freely transferred by such holder by reason of anexemption from registration under the Securities Act, or such legend otherwiseis not required in order to ensure compliance with the Securities Act. Thewritten opinion of Cleary, Gottlieb, Steen & Hamilton, or other legal counselselected by such holder and reasonably satisfactory to the Company with respectto any of the foregoing or with respect to any question concerning whether anyproposed transfer of any such securities would violate the Securities Act shallbe sufficient to determine the issue.



SECTION 9.02. Rule 144. The Company covenants that following the--------

initial registration of any Common Stock, it will file any reports required tobe filed by it under the Securities Act and the Exchange Act so as to enableInvestors who continue to hold any

34

Registrable Shares to sell such Registrable Shares without registration underthe Securities Act within the limitation of the exemptions provided by (i) Rule144 under the Securities Act, as such Rule may be amended from time to time, or(ii) any similar rule or rules now in effect or hereafter adopted by theCommission. Upon the request of any Investor, the Company will promptly deliverto such Investor a written statement as to whether it has complied with suchrequirements.

SECTION 9.03. Amendments and Waivers. The provisions of this----------------------

Agreement, including the provisions of this sentence, may not be amended,modified or supplemented, and waivers of or consents to departures from theprovisions hereof may not be given, unless approved in writing by the Companyand by the Majority Investors. Notwithstanding the foregoing, any waiver ordeparture with respect to any matter which relates exclusively to the rights andobligations of Investors in a specific Piggyback Registration or DemandRegistration, which relates only to the Registrable Shares being registeredpursuant to that Piggyback Registration or Demand Registration, which appliesonly to such specific Piggyback Registration or Demand Registration, and whichdoes not directly or indirectly adversely affect the rights of any otherInvestor with respect to any Registrable Shares not being so registered, shallbe authorized and effective if approved in writing by the Company and theMajority Investors.

SECTION 9.04. Termination. The provisions of this Agreement shall-----------

terminate as to any particular Investor, other than the provisions of ArticleVI, which shall survive any such termination indefinitely, at the first time asof which all Registrable Shares held by such Investor may be publicly sold bysuch Investor pursuant to Rule 144 under the Securities Act without registrationor qualification under the Securities Act or state securities laws, withoutlimitations as to volume or manner of sale and without any limitation,restriction or condition; provided, however, that any obligations of the Company

-------- -------pursuant to Article V or any other provision of this Investor Rights Agreement

---------with respect to any pending or completed Demand Registration or PiggybackRegistration which have not been fully performed shall survive until fullyperformed. In the case of any dispute concerning whether the condition statedin the immediately preceding sentence has been satisfied as of any time, theopinion of an independent law firm of nationally recognized standing selected by



the Majority Investors reasonably satisfactory to the Company shall be final andconclusive. The fees and expense of such law firm will be paid by the losingparty to such dispute.

SECTION 9.05. Certain Mergers and Other Events. If the Company--------------------------------

proposes to consummate any consolidation, merger, binding share exchange orreorganization in which the Company is not the continuing corporation or anysale, conveyance, transfer or lease to another Person of the properties andassets of the Company as an entirety or substantially as an entirety and if, asa result of or in connection with such transaction, the Investors would receiveor would be entitled to receive, in exchange for or otherwise with respect tothe Registrable Shares held by them, any common stock, other capital stock orother securities of the successor or acquiring corporation or any Affiliatethereof or any Rights for any such common stock, capital stock or othersecurities, then the Company shall not consummate such transaction unless thesuccessor or acquiring Person (as the case may be) shall, in a manner reasonablysatisfactory to the Majority Investors, grant to the Investors registrationrights which shall be no less favorable to the

35

Investors than the provisions of this Agreement. In the event of (i) anyreclassification, reorganization or change of the outstanding shares of CommonStock or other capital stock of the Company, (ii) any consolidation, merger,binding share exchange or reorganization to which the Company is party (otherthan a consolidation, merger, share exchange or reorganization in which theCompany is the continuing corporation and which does not result in anyreclassification of or change in the Registrable Shares of any class, series ortype), (iii) any event which results in the securities deliverable upon exerciseor conversion of any Common Stock Rights referred to in the definitions ofRegistrable Shares in Section 1.01 consisting of or including any securities

------------other than shares of Common Stock, or (iv) any other event of any kind occurswhich results in a change in the securities constituting or included in theRegistrable Shares immediately before such event, then the Investors shall beentitled to registration rights with respect to all such securities issued orissuable to them by reason thereof which are comparable in all material respectsto those provided for herein with respect to Registrable Shares. In the eventany dispute relating to this Section 9.5 shall arise, then such dispute shall

-----------promptly thereafter be submitted for resolution by an independent law firm ofrecognized national standing selected by the Company and reasonably acceptableto the Majority Investors (acting as provided above in this Section), whosedecision (with the advice of an independent investment banking firm ofrecognized national standing selected by such law firm, if such law firmbelieves it advisable to seek such advice) shall be final and conclusive. Thereasonable fees and expenses of such law firm (and of any such investmentbanking firm) shall be paid by the Company.



SECTION 9.06. Determinations Generally. Unless otherwise expressly------------------------

provided herein, all decisions and determinations required or permitted to bemade hereunder by any Investor (including any decision as to whether to give anyconsent or approval) shall be made by such Person in its sole discretion.

SECTION 9.07. Binding Effect; Successors and Assigns; Entire----------------------------------------------

Agreement. Except as expressly provided in this Agreement, nothing in this---------Agreement, express or implied, is intended or shall be construed to confer uponor give any creditor, stockholder or Affiliate of the Company or any otherPerson except the parties and the Persons who from time to time are Investorsany remedy or claim under or by reason of this Agreement or any term, covenantor condition hereof, all of which shall be for the sole and exclusive benefit ofthe parties. This Agreement and all of the provisions hereof shall be bindingupon and inure to the benefit of the Company and the Persons who from time totime are Investors and their respective successors and permitted assigns.Except as otherwise specifically permitted or contemplated by this Agreement,neither this Agreement nor any of the rights, interests or obligations of theCompany hereunder shall be assigned or delegated without the prior writtenconsent of the Majority Investors. The provisions of Article VI shall inure to

----------the benefit of, and be enforceable by, each of the Investor Indemnified Partiesand the Company Indemnified Parties. This Agreement constitutes the entireagreement of the parties with respect to the subject matter herein and supersedeall prior agreements and undertakings, both written and oral, among the parties,or any of them, with respect to the specific subject matter hereof.

SECTION 9.08. Interpretation. The headings of the articles and--------------

sections contained in this Agreement are solely for the purpose of reference,are not part of the agreement of the parties and shall not affect the meaning orinterpretation of this Agreement.

36

SECTION 9.09. No Implied Waivers. No action taken pursuant to this------------------

Agreement, including, without limitation, any investigation by or on behalf ofany party or beneficiary, shall be deemed to constitute a waiver by the party orbeneficiary taking such action of compliance with any agreements, covenants,obligations or commitments contained herein or made pursuant hereto. The waiverby any party of a breach or benefit of any provision of this Agreement shall notoperate or be construed as a waiver of any preceding or succeeding breach and nofailure by any party or beneficiary to exercise any right, privilege or remedyhereunder shall be deemed a waiver of such party's or beneficiary's rights,privileges or remedies hereunder or shall be deemed a waiver of such party's orbeneficiary's rights to exercise the same at any subsequent time.



SECTION 9.10. Further Assurances. Each party shall cooperate and------------------

take such actions as may be reasonably requested by another party in order tocarry out the provisions and purposes of this Agreement and the transactionscontemplated hereby. The obligations of the Company with respect to theRegistrable Shares of any Investor included in any Demand Registration orPiggyback Registration are subject to the compliance by such Investor with theimmediately preceding sentence, but the failure of any Investor to so complyshall not affect the Company's obligations with respect to the RegistrableShares of any other Investor included therein.

SECTION 9.11. Counterparts. This Agreement may be executed in------------

counterparts, each of which shall be deemed to be an original and all of whichtogether shall be deemed to constitute one and the same agreement. In additionto any other lawful means of execution or delivery, this Agreement may beexecuted by facsimile signatures and may be delivered by the exchange ofcounterparts of signature pages by means of telecopier transmission.

SECTION 9.12. Notices. All notices, requests, demands, claims, and-------

other communications hereunder shall be in writing. Any notice, request, demand,claim, or other communication hereunder shall be deemed duly given if (and thentwo Business Days after) it is sent by registered or certified mail, returnreceipt requested, postage prepaid, and addressed to the intended recipient asset forth below:

If to the Company:

Convergent Communications, Inc.400 Inverness Drive SouthSuite 400Englewood, Colorado 80112Attn: General CounselTelephone: (303) 749-3000Telecopy: (303) 749-3113

with a copy to:

Richard M. Russo, Esq.Gibson, Dunn & Crutcher L.L.P.

37

1801 California StreetSuite 4100Denver, Colorado 80202Telephone: (303) 298-5715Telecopy: (303) 296-5310



38

If to any Investor, to such Investor at such Investor's address specifiedon Schedule 1 or supplied by such Investor in writing to the Company forpurposes hereof, with a copy to:

Cleary, Gottlieb, Steen & HamiltonOne Liberty PlazaNew York, New York 10006Attention: Paul J. Shim, Esq.Telephone: (212) 225-2930Telecopy: (212) 225-3999

Any party may send any notice, request, demand, claim, or other communicationhereunder to the intended recipient at the address set forth above using anyother means (including personal delivery, expedited courier, messenger service,telecopy, telex, facsimile transmission ordinary mail, or electronic mail), butno such notice, request, demand, claim, or other communication shall be deemedto have been duly given unless and until it actually is received by the intendedrecipient. Any party may change the address to which notices, requests,demands, claims, and other communications hereunder are to be delivered bygiving the other Parties notice in the manner herein set forth.

SECTION 9.13. Governing Law. This Agreement shall be governed by and-------------

construed in accordance with the laws of the State of New York without givingeffect to any choice or conflict of law provision or rule (whether of the Stateof New York or any other jurisdiction) that would cause the application of thelaws of any jurisdiction other than the State of New York; provided, however,that matters subject to the Business Corporation Act of the State of Coloradoshall be governed thereby.

SECTION 9.14. Severability. If any provision of this Agreement or------------

the application thereof to any person or circumstance is held by a court ofcompetent jurisdiction to be invalid, void or unenforceable, the remainingprovisions hereof, or the application of such provision to Persons orcircumstances other than those as to which it has been held invalid, void orunenforceable, shall remain in full force and effect and shall in no way beaffected, impaired or invalidated thereby, provided, that if any provision

--------hereof or thereof or the application of any such provisions shall be so held tobe invalid, void or unenforceable by a court of competent jurisdiction, thensuch court may substitute therefor a suitable and equitable provision in orderto carry out, so far as may be valid and enforceable, the intent and purpose ofthe invalid, void or unenforceable provision and, if such court shall fail ordecline to do so, the parties shall negotiate in good faith a suitable andequitable substitute provision. To the extent that any such provision shall bejudicially unenforceable in any one or more states, such provision shall not be



affected with respect to any other state, each provision with respect to eachstate being construed as several and independent.

SECTION 9.15. Specific Performance. Without intending to limit the--------------------

remedies available to any of the parties, each of the Investors and the Companyacknowledges and agrees that a violation, breach or threatened by the other ofany term of this Agreement will cause such party irreparable injury for which anadequate remedy at law is not available. The parties agree that each partyshall have the right of specific performance and, accordingly, shall

39

be entitled to an injunction, restraining order or other form of equitablerelief, in addition to any and all other rights and remedies at law, from anycourt of competent jurisdiction restraining any other party from committing anybreach or threatened breach of, or otherwise specifically to enforce, anyprovision of this Agreement and all such rights will be cumulative. The partiesfurther agree that any defense in any action for specific performance that aremedy at law would be adequate is waived.

SECTION 9.16. Sandler Capital Agreements. Sandler Capital Partners--------------------------

IV, L.P., Sandler Capital Partners IV FTE, L.P. and Sandler Capital Partners V,L.P., each an Initial Investor hereunder, agree on behalf of themselves andtheir Affiliates (collectively, "Sandler") for the benefit of the Investors thatnotwithstanding the other terms of this Agreement or the terms of any securitiesor agreement to which Sandler may be a party:

(i) the Investors shall be entitled to exercise piggybackregistration rights hereunder in connection with any demandregistration right exercised by Sandler otherwise than pursuantto this Agreement with respect to a number of Registrable Sharesnot to exceed 50% of the securities sought to be registered bySandler pursuant to such demand registration; and

(ii) the issuance, exercise, conversion or accumulation of dividendsin respect of any Series B Share or Warrant shall not result inany adjustment to the exercise price of any warrants held bySandler or other holder of similar warrants or the number ofsecurities for which such warrants are exercisable.

If requested, Sandler shall execute and deliver such instruments as shall benecessary or desirable to effect the foregoing agreements.

(Signatures continued on the next page)

40

IN WITNESS WHEREOF, the parties have executed this Investor Rights



Agreement as of the date first written above.


By: /s/ Joseph R. Zell-----------------------------------------

Joseph R. Zell, Chief Executive Officer

TPG CONVERGENT I, LLC

By: /s/ Richard A. Ekleberry-----------------------------------------

Name: Richard A. EkleberryTitle: Vice President





By: /s/ Edward G. Grinacoff------------------------------------


41







By: /s/ Edward G. Grinacoff-----------------------------------


SANDLER CAPITAL PARTNERS IV FTE, L.P.




By: /s/ Edward G. Grinacoff---------------------------------


42



EXHIBIT 4.12

WARRANT AGREEMENT-----------------

WARRANT AGREEMENT, dated April 18, 2000, between ConvergentCommunications, Inc., a Colorado corporation (the "Corporation"), and each ofthe entities named on Exhibit A hereto (each, a "Purchaser" and collectively,

---------the "Purchasers").

The Corporation and the Purchasers have entered into a certain SecuritiesPurchase Agreement, dated as of April 4, 2000, pursuant to which each Purchaseris purchasing from the Corporation certain warrants issued by the Corporation intwo series, the Series A Warrants and the Series B Warrants, that areconvertible into or exercisable for shares of the Corporation's common stock.The Corporation and the Purchasers intend for this document to set forth theterms of such warrants.

In consideration of the premises and the covenants and agreement hereincontained, in order to induce the Purchasers to enter into such SecuritiesPurchase Agreement and consummate the transactions contemplated thereby and forother good and valuable consideration, the receipt and sufficiency of which arehereby acknowledged, the parties hereto, intending to be legally bound, herebyagree as follows.

ARTICLE I

DEFINITIONS

Section 1.1 As used in this Agreement, the following terms have the-----------

meanings indicated:

"Additional Shares of Common Stock" means any shares of Common Stock issuedor deemed to be issued by the Corporation after the Closing Time (other thanshares issued upon conversion of any Series B Share or exercise of any Warrant).

"Affiliate" has the meaning set forth in Rule 12b-2 of the regulationspromulgated under the Exchange Act. The term "affiliated" (whether or notcapitalized) shall have a correlative meaning. For purposes hereof, neither theCorporation nor any Subsidiary shall be deemed to be an Affiliate of anyPurchaser and no Purchaser nor any Affiliate of any Purchaser shall be deemed tobe an Affiliate of the Corporation.

"Agreement" means this Warrant Agreement, as amended from time to time inaccordance with the terms hereof.



1

"Beneficial Owner" means a beneficial owner within the meaning of Rules13d-3 and 13d-5 under the Exchange Act, as interpreted by the Commission,provided that a Person shall be deemed to have beneficial ownership of allsecurities that such Person has a right to acquire without regard to the 60 daylimitation in subdivision (d)(i) of such Rule 13d-3. The terms (whether or notcapitalized) "beneficially own" and "owned beneficially" shall have correlativemeanings.

"Board" means the Board of Directors of the Corporation.

"Business Day" means any day other than a Saturday, a Sunday or a day onwhich banking institutions in either New York, New York, or the city and statein which the principal executive offices of the Corporation within the UnitedStates are located are authorized or obligated by law or executive order toclose.

"capital stock" when used with respect to any corporation means (unless thecontext otherwise indicates) any and all shares of capital stock (howeverdesignated) of such corporation, including each class and series of common stockand preferred stock of such corporation, any class or series, any and all stockappreciation rights and any and all equivalents of any of the foregoing, andincluding any security or interest convertible into or warrant, option or otherright (absolute or contingent) to subscribe for, purchase or otherwise acquireany of the foregoing, in each case whether or not evidenced by any certificate,instrument or other document and whether voting or nonvoting.

"Change of Control" has the meaning set forth in Section 101 of theIndenture. The definition of such term, together with the definitions of allcapitalized terms used therein that are also defined in the Indenture, arehereby incorporated herein by reference.

"Closing Date" means the date of the closing of the consummation of theissuance of Series B Shares to the Purchasers pursuant to the PurchaseAgreement.

"Closing Time" means 10:00 A.M., New York City time, on the Closing Date.

"Commission" means the Securities and Exchange Commission or any successorfederal agency administering the Securities Act.

"Common Stock" means the Common Stock, no par value, of the Corporation asconstituted on the Closing Date, and any capital stock into which such CommonStock may thereafter be changed, and (except where the context otherwiserequires) shall also include (i) capital stock of the

2



Corporation of each and every other class or series (regardless of howdenominated) which is also not preferred as to dividends or assets onliquidation over any other class or series of stock of the Corporation and whichis not subject to redemption and (ii) shares of common stock of any successor oracquiring corporation (as defined in Section 3.13) received by or distributed tothe holders of Common Stock of the Corporation in the circumstances contemplatedby Section 3.13.

"Convertible Securities" means evidences of indebtedness, shares of stockor other securities or obligations (except the Series B Preferred Stock and theWarrants) that are convertible into or exchangeable, with or without payment ofadditional consideration in cash or property, for any Common Stock, eitherimmediately or upon the occurrence of a specified date or a specified event orthe satisfaction or happening of any other condition or contingency.

"Corporation Parties" means the Corporation and its Subsidiaries.

"Current Market Price" means, in respect of any share of Common Stock as ofany date, the average of the reported last sales prices for the ten consecutiveTrading Days commencing twenty Trading Days before the date in question. Thereported last sales price for each Trading Day shall be the reported last salesprice, regular way, as reported on the National Market tier of The Nasdaq StockMarket (or, if the Common Stock shall be traded principally through thefacilities of a national securities exchange other than The Nasdaq Stock Market,such national securities exchange). As used herein, the term "Trading Day"means a day on which The Nasdaq Stock Market (or such other national securitiesexchange) is open for business, provided that if no sales of the Common Stock

--------take place on such day on the relevant exchange or stock market determined underthe immediately preceding sentence, such day shall not be a Trading Day. Incase any event that would require an adjustment to the Warrant Price pursuant toArticle III occurs with an "ex" date or an effective date occurring during theforegoing ten Trading Day period, the last sales prices used in determining theCurrent Market Price shall be appropriately adjusted to take such event intoaccount.

"Election to Convert" is defined in Section 2.3.-----------

"Election to Exercise" is defined in Section 2.2.-----------

"Employee Option" means any option to purchase Common Stock for cash whichis granted by or with the approval of the Board to any director, officer,employee or consultant of the Corporation or any subsidiary of the Corporationpursuant to (i) the Corporation's stock option plans disclosed in a schedule tothe Purchase Agreement and as in effect on the Closing Date or (ii) any otheroption plan adopted by the Corporation after the Closing Date with the priorapproval of the Majority Holders or the Series B Directors (collectively, the"Stock Option Plans").



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"Entity" means any corporation, limited liability company, general orlimited partnership, joint venture, association, joint stock company, trust,other unincorporated business or organization or other Person which is noteither a natural person or a governmental authority or agency.

An "equity interest" in or of any Entity includes any capital stock orother equity security issued by such Entity, any partnership (general orlimited) or joint venture interest in such Entity, any other equity, ownership,participating or beneficial interest in such Entity, any stock appreciation orother equity appreciation right with respect to such Entity, and any equivalentof any of the foregoing, regardless of how denominated and whether voting ornon-voting, and any security or interest convertible into or warrant, option orother right (absolute or contingent) to subscribe for, purchase or otherwiseacquire, any of the foregoing, in each case whether or not evidenced by anycertificate, instrument or other document and whether voting or nonvoting.

"Exchange Act" means the Securities Exchange Act of 1934, as amended.

"Existing Rights" means all Rights (including stock options issued pursuantto the Corporation's Stock Option Plans) and Convertible Securities, notincluding any Series B Shares or Warrants, which were outstanding, or which theCorporation had agreed to issue, at the Closing Time and disclosed on a scheduleto the Purchase Agreement.

"Fair Market Value" means, in respect of any security, asset or otherproperty, the price at which a willing seller would sell and a willing buyerwould buy such security, asset or other property having full knowledge of thefacts, in an arm's-length transaction without time constraints, and withoutbeing under any compulsion to buy or sell. The Fair Market Value of a share ofCommon Stock as of any time shall be equal to the Current Market Price in effectat the time of determination. The Fair Market Value of the Corporation shall bedetermined on a going concern basis, and on the basis that the management andother key employees of the Corporation and its subsidiaries will continue to beemployed indefinitely and without treating as liabilities the amount, if any,payable or which may be payable by the Corporation pursuant to theindemnification provisions of the Purchase Agreement.

"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976,as amended, and the rules and regulations promulgated thereunder.

"Indenture" means the Indenture, dated as of April 2, 1998, between theCorporation and Norwest Bank Colorado, N.A., a national banking association, asTrustee, as in effect at the Closing Time, regardless of any subsequentamendment, modification, termination or expiration thereof.

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"Investor Rights Agreement" means the Investor Rights Agreement, dated asof the Closing Date, among the Corporation and the Purchasers, as it may befurther amended from time to time in accordance with its terms.

"Majority Holders" means, as of any time, the holders of a majority of theWarrants then outstanding.

"Outstanding Common Shares" means, as of any time, all issued andoutstanding shares of Common Stock as of such time, except shares then owned orheld by or for the account of the Corporation or any subsidiary thereof.Outstanding Common Shares shall not include any shares issuable upon exercise,conversion or exchange of any Rights or Convertible Securities or issuable inpayment of any dividend or other distribution which has been declared but notactually paid, nor any other shares which have not actually been issued.

"Permitted Holders" has the meaning set forth in Section 101 of theIndenture. The definition of such term, together with the definitions of allcapitalized terms used therein that are also defined in the Indenture are herebyincorporated herein by reference.

"Person" means any individual, corporation, limited liability company,general or limited partnership, joint venture, association, joint stock company,trust, unincorporated business or organization, government or agency orpolitical subdivision thereof, or other entity, whether acting in an individual,fiduciary or other capacity.

"Purchase Agreement" means the Securities Purchase Agreement, dated as ofApril 4, 2000, between the Corporation and the Purchasers, as the same may beamended from time to time in accordance with its terms and with the priorwritten consent of the Majority Holders.

"Purchaser" means each of TPG, Sandler Capital and their respectiveAffiliates and permitted assignees under the Purchase Agreement.

"Redeemable Stock" has the meaning set forth in Section 3.2(b).--------------

"Reference Price" means, as of any time, the higher of (x) one-half of theWarrant Price then in effect or (y) the Current Market Price per share of theCommon Stock determined as of such time.

"Reorganization Event" has the meaning assigned to it in the Series BArticles of Amendment.

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"Rights" means (i) any Convertible Securities and (ii) any options,warrants or other rights (except Convertible Securities, the Series B PreferredStock and the Warrants), however denominated, to subscribe for, purchase or



otherwise acquire any Common Stock or Convertible Securities, with or withoutpayment of additional consideration in cash or property, either immediately orupon the occurrence of a specified date or a specified event or the satisfactionor happening of any other condition or contingency.

"Sale of the Company" means any of the following:

(i) any Change of Control; or

(ii) the Corporation consolidates with, or merges with or into,another Person, directly or indirectly sells, assigns, conveys, transfers,leases or otherwise disposes of all or substantially all of its assets to anyPerson, or any Person consolidates with, or merges with or into, the Corporationor any Subsidiary of the Corporation, in any such event pursuant to atransaction in which the outstanding Common Stock of the Corporation isconverted into or exchanged for cash, securities, equity interests or otherproperty and immediately after such transaction the Persons who were theBeneficial Owners of the outstanding Common Stock of the Corporation immediatelyprior to such transaction are not the beneficial owners, directly or indirectly,of more than 50% of the combined voting power represented by all thenoutstanding common stock of the surviving or transferee Person; or

(iii) the Corporation or any of its Subsidiaries purchase, lease orotherwise acquire assets of any Person or Persons, in one or a series of relatedtransactions, for consideration consisting in whole or in part of Common Stock,Convertible Securities or Rights and the number of shares of Common Stock issuedby the Corporation (including all shares issuable or purchasable upon exerciseof all such Convertible Securities and Rights) in such transaction is equal to50% or more of the number of fully diluted shares of Common Stock outstandingimmediately prior to such transaction (or the first of such series oftransactions); or

(iv) any Reorganization Event.

"Sandler Capital" means Sandler Capital Partners IV, L.P. and itsAffiliates.

"Securities Act" means the Securities Act of 1933, as amended, and therules and regulations of the Commission thereunder.

"Series B Articles of Amendment" means the Articles of Amendment to theAmended and Restated Articles of Incorporation of the Corporation setting forththe resolution of the Board

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creating and authorizing the issuance of the Series B Preferred Stock and filedwith the Colorado Secretary of State pursuant to the Colorado BusinessCorporation Act or any successor provisions of the Corporation's Articles ofIncorporation, as the same may have been amended prior to or concurrently with



the Closing Time and thereafter may be amended.

"Series B Director" has the meaning assigned to it in the Series B Articlesof Amendment.

"Series B Preferred Stock" means the Series B Senior Cumulative ConvertiblePreferred Stock, no par value, of the Corporation as constituted on the ClosingDate, and any capital stock into which such Preferred Stock may thereafter bechanged (otherwise than upon conversion thereof).

"Series B Share" means any issued and outstanding share of Series BPreferred Stock. In no event shall shares of Series B Preferred Stock owned orheld by or for the account of the Corporation or any subsidiary thereof bedeemed to be issued and outstanding for any purpose.

"TPG" means TPG Partners III, L.P. and its Affiliates.

"Warrant Certificate" means a certificate, substantially in the formattached hereto, evidencing one or more Warrants.

"Warrant Price" means, as of any time and with respect to any Warrant, theprice payable upon exercise of such Warrant, in whole or in part, for one shareof Common Stock, which price shall be: (i) for the Series A Warrants, theinitial price of Twenty Dollars ($20) per share of Common Stock; and (ii) forthe Series B Warrants, the initial price of Twenty-Five Dollars ($25) per shareof Common Stock, in each case as such initial prices shall have from time totime been cumulatively adjusted pursuant to Article III through such time.

-----------

"Warrant Securities" means, with respect to any Warrant at any time, eachclass and series of Warrant Stock, each class, series and issue of any othersecurities, and any Rights with respect to any of such Warrant Stock or othersecurities, any shares, number or other amount of which at such time aredeliverable to a holder of any Warrant upon exercise of such Warrant.

"Warrant Stock" means, with respect to any Warrant at any time, the CommonStock, each other class or series of capital stock and any Rights or ConvertibleSecurities with respect to any of the foregoing any shares, number or otheramount of which at such time is deliverable to a holder of any Warrant uponexercise of such Warrant.

"Warrants" means collectively, the Series A Warrants and the Series BWarrants.

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"Warrantholder" means the holder of any Warrant or Warrants.

Section 1.2 Terms Generally; Certain Rules of Construction. This Agreement----------------------------------------------



is to be interpreted in accordance with the following rules of construction:

(i) Number and Gender. All definitions of terms apply equally to both-----------------the singular and plural forms of the terms defined. Whenever the textmay require, any pronoun shall include the corresponding masculine,feminine and neuter forms.

(ii) "Including," "Herein," Etc. The words "include," "includes" and--------------------------

"including" are deemed to be followed by the phrase "withoutlimitation". The words "herein", "hereof", and "hereunder" and wordsof similar import refer to this Agreement (including all Exhibits andSchedules) in its entirety and are not limited to any part hereofunless the context shall otherwise require. The word "or" is notexclusive and means "and/or."

(iii) Subdivisions and Attachments. All references in this Agreement to----------------------------Articles, Sections, subsections, Exhibits and Schedules are,respectively, references to Articles, Sections and subsections of,and Exhibits and Schedules attached to, this Agreement, unlessotherwise specified.

(iv) References to Documents and Laws. Except as expressly provided--------------------------------herein, all references to (x) any other agreement or instrument or(y) any law, statute, rule, regulation, permit, license or similaritem are to it as amended and supplemented from time to time (and, inthe case of a law, statute, rule or regulation, to any correspondingprovisions of successor laws, statutes, rules or regulations).

(v) References to Days. Any reference in this Agreement to a "day" or------------------number of "days" (without the explicit qualification "Business") is areference to a calendar day or number of calendar days. If any actionor notice is to be taken or given on or by a particular calendar day,and such calendar day is not a Business Day, then such action ornotice may be taken or given on the next Business Day.

(vi) Examples. If, in any provision of this Agreement, any example is--------given (through the use of the words "such as," "for example," "e.g."

---or otherwise) of the meaning, intent or operation of any provision,such example is intended to be illustrative only and not exclusive orlimiting.

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(vii) Participation in Drafting. The parties and their respective legal-------------------------counsel have participated in the drafting of this Agreement, and thisAgreement will be construed simply and according to its fair meaningand not strictly for or against any party.

(viii) Headings. The table of contents and section headings contained in--------this Agreement are inserted for convenience only and shall not affectin any way the meaning or interpretation of this Agreement.

(ix) "Exercise". When used with reference to any Series B Share, Warrant,--------

Convertible Security or Right, the term "exercise" shall mean theexercise of the right to exchange or convert such Series B Share,Warrant, Convertible Security or Right for or into, subscribe for,purchase or otherwise acquire shares of Common Stock or otherunderlying securities represented by such Series B Share, Warrant,Convertible Security or Right, including an exercise, conversion orexchange of a Warrant pursuant to Section 2.2, 2.3 or 2.4. Variantsof such word (including "exercised" and "exercisable") shall havecorrelative meanings.

(x) "Issue" and "Property". Whenever used with respect to any Additional--------------------

Share of Common Stock or any other share of Common Stock, the word"issue" includes any issuance, sale or other method of transfer ordelivery of such share, whether such share is newly issued or is atreasury share and variants of such word (including "issued","issuance" or "issuable") used with respect to any Additional Shareof Common Stock or any other share of Common Stock shall havecorrelative meanings; therefore, any provision of this Agreementwhich is stated to be applicable if the Corporation issues or shallissue any share is applicable both to a newly issued share and to atreasury share sold or otherwise transferred or delivered. The word"property" shall include assets or property of any kind, real,personal, tangible or intangible.

ARTICLE II

EXERCISE OF WARRANTS

Section 2.1 Exercise of Warrants. Any Warrant or Warrants may be--------------------

exercised, in whole or in part, as provided in this Article II at any time and----------

from time to time during the period of five consecutive years beginning on theClosing Date.

Section 2.2 Mechanics of Exercise. Subject to Section 2.3 and Section



--------------------- ----------- -------2.4, any Warrant or Warrants may be exercised by any Warrantholder, at any time---and from time to time and in whole

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or in part, upon delivery to the Corporation at its principal executive officeswithin the United States or at another office or agency designated by theCorporation pursuant to Section 4.3, of the Warrant Certificate(s) evidencingthe Warrant(s) to be exercised, together with the form of election to purchase(the "Election to Purchase") substantially in the form annexed to this Agreementduly completed and signed by such Warrantholder or by such Warrantholder's dulyappointed legal representative or attorney-in-fact, and payment in full to theCorporation of the aggregate Warrant Price with respect to each Warrantexercised. Payment of the aggregate Warrant Price for the Warrant(s) exercisedshall be made in cash, by bank wire transfer or by check payable to the order ofthe Corporation. Unless such Warrantholder is a Purchaser, if such payment ismade by check, such check shall be certified or an official bank check. Subjectto Section 2.7, any Warrant (or portion thereof) exercised shall be deemed tohave been exercised immediately prior to the close of business on the day ofdelivery of the last to be delivered of such items.

Section 2.3 Conversion In Lieu of Exercise. Any Warrantholder, in its------------------------------

sole discretion may elect, in lieu of the exercise of any Warrant held by suchWarrantholder or any portion thereof in accordance with Section 2.2, to convert

-----------such Warrant or portion thereof into

(i) the nearest whole number of shares of Common Stock equal to thequotient obtained by dividing "A" by "B" where

"A" is the product of (x) the number of shares of Common Stock thenissuable if such Warrant (or portion thereof) were exercised on thedate of conversion and (y) the excess, if any, of (1) the CurrentMarket Price per share of Common Stock as of the date of conversionover (2) the Warrant Price in effect on the date of conversion, and

"B" is the Current Market Price per share of Common Stock as of thedate of conversion, and

(ii) the kind and amount of cash, other securities and other property, ifany, to which such Warrantholder would be entitled upon an exercise ofsuch Warrant or portion thereof.

The conversion right provided for in this Section 2.3 may be exercised in whole-----------

or in part and at any time and from time to time while any Warrant or anyportion of any Warrant is outstanding. The conversion right may be exercised by



any Warrantholder in whole or in part upon delivery to the Corporation at itsprincipal executive offices within the United States or at another office oragency designated by the Corporation pursuant to Section 4.3 of the Warrant

-----------Certificate(s) evidencing the Warrant(s) to be converted, together with a formof election to convert (the "Election to Convert")

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substantially in the form attached to this Agreement duly completed and signedby such Warrantholder or by such Warrantholder's duly appointed legalrepresentative or attorney-in-fact. Any Warrant (or portion thereof) convertedshall be deemed to have been converted immediately prior to the close ofbusiness on the day of surrender of such Warrant for conversion in accordancewith the foregoing.

Section 2.4 Exchange of Warrants In a Recapitalization. The Corporation,------------------------------------------

with the prior written consent of the holders of a majority of the Warrants thenoutstanding, may elect to effect a partial recapitalization of the Corporationpursuant to which all or a portion of the Warrants then outstanding areexchanged, on a per Warrant basis, into the number of shares of Common Stock andthe kind and amount of cash, other securities and other property, if any, intowhich a Warrant could be converted pursuant to Section 2.3 as of the date of

-----------such recapitalization. Any such exchange of less than all outstanding Warrantswill be made on a pro rata basis, and shall be effective (subject to Section

--- ---- -------2.7) on such date as may be determined by the Corporation with the consent ofthe Majority Holders.

Section 2.5 Delivery of Warrant Securities. As promptly as practicable------------------------------

after exercise, conversion or exchange of any Warrant (or portion thereof) asprovided in Section 2.2, 2.3 or 2.4, and in any event within five Business Days

----------- --- ---thereafter, the Corporation shall issue and deliver to the holder, or to hisnominee(s) or, subject to compliance with the Securities Act, transferee(s), acertificate or certificates for the number of whole shares of Common Stock towhich such holder shall be entitled, registered in such name or names as suchWarrantholder may designate in writing. Subject to Section 2.7, each such

-----------certificate shall be dated as of the effective date of exercise as determinedpursuant to Section 2.2, Section 2.3 or Section 2.4, as applicable, and such

----------- ----------- -----------Warrantholder shall be deemed to have become a holder of record of such CommonStock for all purposes as of such date. Simultaneously with the delivery ofsuch certificate(s) for such Common Stock, the Corporation also shall deliver tosuch holder all cash, other securities and other property, if any, to which heis entitled by virtue of the Warrants exercised. If fewer than all of the



Warrants evidenced by any Warrant Certificate delivered to the Corporation forexercise, conversion or exchange are exercised, converted or exchanged, theCorporation shall also deliver to the Warrantholder, at the time of delivery ofthe certificate(s) representing such Common Stock, a new Warrant Certificate,dated as of the Closing Date, evidencing the number of Warrants remainingunexercised and otherwise identical to the Warrant Certificate so delivered, orif requested in writing by the holder, in lieu of issuing such new WarrantCertificate, the Corporation shall make an appropriate notation on such WarrantCertificate so delivered for exercise indicating the number of Warrantsevidenced thereby which remain unexercised and shall return such WarrantCertificate to the holder.

Section 2.6 Expenses and Taxes. The Corporation shall pay all expenses------------------

in connection with, and all taxes and other governmental charges that may beimposed with respect to, the issue

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or delivery of the Warrant Securities and other property which any holder isentitled to receive upon exercise of any Warrant or Warrants pursuant to Section2.2, Section 2.3 or Section 2.4. The Corporation shall not be required, however,to pay any stamp, stock transfer or other similar tax or other governmentalcharge required to be paid solely by virtue of any transfer involved in theissue of Warrant Securities in any name other than that of the holder of theWarrant(s) exercised at the order of such Holder, and if any such transfer isinvolved, the Corporation shall not be required to issue or deliver the WarrantSecurities as to which such tax or charge is applicable until such tax or othercharge shall have been paid or it has been established to the Corporation'sreasonable satisfaction that no such tax or other charge is due.

Section 2.7 Exercise Associated With Public Offerings or Requiring------------------------------------------------------

Governmental Action. Any Warrantholder may, by a letter or other written notice-------------------to the Corporation accompanying such Warrantholder's Notice of Election toExercise or Election to Convert state that the exercise or conversion by suchWarrantholder of any Warrant or portion thereof (i) is in connection with anoffering of securities registered or to be registered pursuant to the SecuritiesAct and is conditioned upon, and subject to withdrawal or revocation (in wholeor in part) at the election of such Warrantholder at any time prior to, theclosing of the sale of such securities pursuant to such offering or (ii) issubject to one or more filings with, reviews or approvals by or otherrequirements of any governmental authority or agency and is conditioned upon,and is subject to withdrawal or revocation (in whole or in part) at the electionof such Warrantholder at any time prior to, the completion of such filings orreviews, the receipt of such approvals or the satisfaction of such otherrequirements. In such event, if such exercise or conversion is not so withdrawnor revoked, the delivery to or upon the order of the exercising or convertingWarrantholder of the certificate(s) or instrument(s) representing or evidencing



the Warrant Shares deliverable by reason of such exercise or conversion shall beat such time or times as such Warrantholder shall specify in a written notice tothe Corporation. During any period following delivery of the Election toExercise or the Election to Convert until such time or times (or such withdrawalor revocation) such Warrant or portion thereof shall continue to be outstandingfor all purposes, including for purposes of adjustments pursuant to Article III.The Majority Holders shall have similar rights in the event of any exchangepursuant to Section 2.4.

-----------

Section 2.8 Fractional Shares of Common Stock. If the number of shares of---------------------------------

Common Stock issuable on the exercise of any Warrant is not a whole number, theCorporation shall not be required to issue any fraction of a share of CommonStock and such number of shares issuable shall be rounded up to the next highestwhole number. If more than one Warrant shall be surrendered for conversion atone time by the same holder, the number of full shares which shall be issuableupon conversion thereof shall be computed on the basis of the aggregate numberof Warrants so surrendered for conversion. Notwithstanding the provisions ofthis Section 2.8, in computing adjustments to the Exercise Price pursuant to

-----------Article III, fractional shares of Common Stock shall

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be taken into account and any outstanding Warrant may at any time represent theright to receive upon conversion less than one share of Common Stock or someother number of shares of Common Stock which is not a whole number.

Section 2.9 Covenant to Reserve Shares for Issuance on Exercise. The---------------------------------------------------

Corporation shall at all times reserve and keep available out of the authorizedbut unissued shares of Common Stock, solely for the purpose of issue uponexercise of the Warrants, the full number of shares of Common Stock issuable ifall outstanding Warrants were to be converted in full. All shares of CommonStock which shall be issuable upon exercise of any Warrant (or portion thereof)shall be newly issued, duly authorized, validly issued, fully paid andnonassessable and without any personal liability attaching to the ownershipthereof, and the issuance thereof shall not give rise or otherwise be subject topreemptive or similar purchase rights on the part of any Person or Persons, andthe Corporation shall take any corporate and other actions that may, in theopinion of its counsel, be necessary in order that the Corporation may complywith the foregoing. The Corporation hereby irrevocably authorizes and directsits current and future transfer agents, if any, for the Common Stock and for anyshares of the Corporation's capital stock of any other class or series issuableupon the conversion of the exercise of the Warrants at all times to reserve suchnumber of authorized shares as shall be requisite for such purpose. TheCorporation shall supply such transfer agents with duly executed stockcertificates for such purposes.



Section 2.10 Compliance with Governmental Requirements; Listing of Shares.------------------------------------------------------------

(a) General. If issuance of any Warrant Securities issuable upon-------

exercise of any Warrant(s) require, under any applicable federal, state, localor foreign law, rule or regulation or any applicable requirement of any nationalsecurities exchange or inter-dealer quotation system, any registration,qualification, listing or approval before such shares may be issued uponconversion, the Corporation shall in good faith, as promptly as practicable andat its expense, diligently endeavor to cause such shares to be duly registered,qualified, approved or listed, as the case may be and Section 2.7 shall apply.

-----------

(b) Listing. Without limiting the generality of Section 2.10(a),-------

if any shares of Common Stock or other capital stock or securities required tobe reserved for issuance upon exercise of any Warrant(s) require registration orqualification with any governmental authority under any federal or state lawbefore such shares may be so issued, the Corporation will in good faith and asexpeditiously as possible and at its expense endeavor to cause such shares to beduly registered. During all periods during which shares of Common Stock or anyother capital stock or securities of the same class, series or issue as areissuable upon exercise of any Warrant are listed, qualified or otherwiseeligible for trading or quotation on any national securities exchange or TheNasdaq Stock Market or any similar quotation system, the Corporation shall causeall shares of Common Stock,

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and all such other capital stock and securities, issuable upon conversion ofsuch Warrant to be listed, qualified or eligible for trading or quotationthereon upon issuance thereof.

(c) HSR Act, Etc. Without limiting the generality of Section 2.10(a),------------ ---------------

if any holder's intended exercise of any Warrant (alone or with other proposedacquisitions of Common Stock or other securities of the Corporation) would ormight be subject to the HSR Act, the Corporation shall promptly comply with anyapplicable requirements under the HSR Act relating to filing and furnishing ofinformation to the Federal Trade Commission and the Antitrust Division of theDepartment of Justice and shall cooperate, and cause all Persons which are partof the same "person" (as defined for purposes of the HSR Act) as the Corporationto cooperate and assist in such filing and compliance. If any holder is advisedby its legal counsel that its intended exercise of Warrant(s) would or might besubject to any other law, rule or regulation which requires any filing with orreview or approval by any governmental authority or agency, the Corporationshall promptly comply with any requirements of such law, rule or regulationapplicable to it and shall cooperate with such holder in such holder's effortsto comply with the requirements of such law, rule or regulation applicable to it



on a timely basis.

(d) Expenses. Each of the Corporation and such holder shall bear and--------

pay any costs or expenses that it incurs in complying with this Section 2.10,------------

except that each shall pay one half of any filing fee payable to the FTC or theDepartment of Justice pursuant to Section 2.10(c) and the HSR Act.

---------------

ARTICLE III

ADJUSTMENT OF WARRANT PRICE ANDWARRANT SECURITIES PURCHASABLE------------------------------

Section 3.1 Adjustment Generally. Initially as of the Closing Time,--------------------

each Warrant issued on the Issue Date shall represent the right to purchase oneshare of Common Stock for an initial Warrant Price of: (i) Twenty Dollars ($20)per share for Series A Warrants; and (ii) Twenty-Five Dollars ($25) per sharefor Series B Warrants. The Warrant Price payable and the type and number andamount of securities and other property deliverable upon exercise of a Series AWarrant or a Series B Warrant shall be subject to adjustment from time to timeas set forth in this Article III. Such adjustments shall be cumulative and

-----------shall be made successively on each and every occasion that any event requiringany such adjustment shall occur. The form of Warrant Certificate need not bechanged because of any adjustment made pursuant to this Article III, and Warrant

-----------Certificates outstanding at the time of such adjustment or issued after suchadjustment may state the same Warrant Price and the same number of shares ofCommon Stock as are stated in the Warrant Certificates prior to such adjustment.

14

Section 3.2 Stock Dividends, Subdivisions, Combinations and-----------------------------------------------

Recapitalizations. If the Corporation shall at any time (i) declare or pay a-----------------dividend or declare, pay or make any other distribution on the Common Stock inshares of Common Stock, (ii) subdivide the outstanding shares of Common Stockinto a greater number of shares or (iii) combine the outstanding shares ofCommon Stock into a smaller number of shares, then in each and every such event,the number of shares of Common Stock purchasable upon exercise of each Warrantshall be adjusted so that the holder of any Warrant thereafter surrendered forexercise shall be entitled to receive the aggregate number of shares of CommonStock or other capital stock of the Corporation which such holder would haveowned and would have been entitled to receive by virtue of the happening of anyof the events described above had such Warrant been exercised (x) in the case of



a dividend or distribution, immediately prior to the record date for thedetermination of the stockholders entitled to receive such dividend ordistribution (or, if no such record date is fixed, immediately prior to anyother time as of which the holders of Common Stock entitled to participate insuch distribution was determined) or (y) in the case of a subdivision,combination or reclassification, on the effective date of such subdivision,combination or reclassification. Upon such adjustment, the Warrant Price shallbe adjusted to be the Warrant Price in effect immediately prior to theeffectiveness of such adjustment multiplied by the quotient obtained by dividingthe number of shares of Common Stock for which a Warrant was exercisableimmediately prior to effectiveness by the number of shares of Common Stock forwhich a Warrant shall be exercisable immediately after such effectiveness. Anadjustment made pursuant to this Section 3.2 shall become effective immediately

-----------after such record date (or other applicable date referred to in subclause (A)(x)of the immediately preceding sentence) in the case of a dividend ordistribution, subject to Section 3.9(d) and 3.9(e), and shall become effective

-------------- ------immediately after the effective date in the case of a subdivision, combinationor reclassification.

Section 3.3 Certain Other Distributions.---------------------------

(a) Other Distributions. Subject to Section 3.3(b) and Section------------------- -------------- -------

3.3(c), if the Corporation shall at any time declare or make any distribution,by dividend or otherwise, to all holders of outstanding shares of Common Stockof any cash or other assets or property of any nature whatsoever, any debtsecurities or other evidences of its indebtedness, any capital stock, any othersecurities of any nature whatsoever or any warrants, options or other Rights tosubscribe for, purchase or otherwise acquire any assets, property, capitalstock, debt or other securities or evidences of indebtedness (excludingdividends or distributions referred to in Section 3.2, Rights referred to in

-----------Section 3.5 and Convertible Securities referred to in Section 3.6), or shall----------- ------------take a record of such holders for the purpose of entitling them to receive sucha distribution, then (i) the number of shares of Common Stock for which eachWarrant is exercisable shall be adjusted to equal the product of the number ofshares of Common Stock for which such Warrant is exercisable immediately priorto the applicable Adjustment Date determined pursuant to Section 3.3(d),

--------------

15

multiplied by a fraction, the numerator of which shall be the Current MarketPrice per share of the Outstanding Common Shares immediately before suchAdjustment Date and the denominator of which shall be the excess of (x) suchCurrent Market Price per share of the Outstanding Common Shares as of the



Adjustment Date over (y) the amount allocable to one share of the OutstandingCommon Shares as of such Adjustment Date of any such cash so distributable andof the Fair Market Value (as determined as of such date in good faith by theBoard) of any and all such evidences of indebtedness, shares of capital stock,debt securities, other securities, property, assets or Rights so distributableand (ii) the Warrant Price shall be adjusted to equal (A) the Warrant Price ineffect immediately prior to such adjustment multiplied by the quotient obtainedby dividing the number of shares of Common Stock for which a single Warrant isexercisable immediately prior to the adjustment by (B) the number of shares ofCommon Stock for which a single Warrant is exercisable immediately after suchadjustment.

(b) When Adjustment Is Not To Be Made. No adjustment pursuant to the---------------------------------

provisions of Section 3.3(a) shall be made if such adjustment would result in--------------

the number of shares of Common Stock for which each Warrant is exercisable beinglower, or a Warrant Price that is higher, than was the case immediately prior tosuch adjustment. In addition, at the election of the Majority Holders madewithin 30 days of receipt of the notice with respect to such adjustment issuedpursuant to Section 3.10, in lieu of the adjustment pursuant to Section 3.3(a),

------------ --------------but subject to Section 3.3(c), the type and number and amount of securities and

--------------other property deliverable upon exercise of any Warrant determined as ofimmediately prior to the effective date for such adjustment specified in Section

-------3.3(c) shall be adjusted so that the holder of any such Warrant thereafter------surrendered for conversion shall be entitled to receive the kind and number oramount of shares of Common Stock (or other capital stock of the Corporation),other Warrant Securities and other property which such holder would havereceived (after giving effect to all adjustments required by this Article III)had such Warrant been exercised immediately prior to

(i) the record date for the determination of the stockholders entitledto receive such distribution, or

(ii) if no such record date is fixed, as of any other time as of whichthe holders of Common Stock entitled to participate in such distributionwas determined,

plus the kind and amount of cash, other assets or property, debt securities,other evidences of indebtedness, other securities or Rights which such holderwould have been entitled to receive by virtue of being the record holder, as ofsuch record date or other time, of such kind and number or amount of shares ofCommon Stock or other Conversion Securities. For such purpose, it shall beassumed that such holder of Common Stock or other Conversion Securities failedto exercise rights of election, if any, as to the kind or amount of shares orstock, other securities or property receivable



16

in such distribution, provided that if the kind or amount of shares of stock,other securities or property receivable in such distribution is not the same foreach non-electing share, then the kind and amount of shares of stock, othersecurities or property receivable upon consummation of such transaction for eachnon-electing share shall be deemed to be the kind and amount so receivable pershare by a plurality of the non-electing shares. If after an adjustment a holderof a Warrant upon exercise may receive shares of two or more classes of capitalstock of the Company, the Board shall determine, in good faith, the allocationof the adjusted Warrant Price between the classes of capital stock. After suchallocation, the exercise privilege and the exercise price of each class ofcapital stock shall thereafter be subject to adjustment on terms comparable tothose applicable to Common Stock in this Article.

(c) Special Rule for Distributions of Redeemable Stock. If by virtue--------------------------------------------------

of the applicability of Sections 3.2(b) and 3.3(b) in any one or more events,---------------------------

the Warrant Securities issuable upon conversion of any Warrant consist of orinclude any shares of any class or series of capital stock that provides by itsterms a right in favor of the Corporation to call, redeem, exchange or otherwiseacquire all of the outstanding shares or units of such class or series (suchclass or series of capital stock being herein referred to as "Redeemable Stock")and if the Corporation redeems all or any part of the outstanding shares of suchRedeemable Stock prior to the date on which such Warrant is exercised, then uponexercise of such Warrant the holder thereof shall be entitled to receive, inlieu of such shares of Redeemable Stock or, in the event of such a partialredemption, a pro rata portion of such shares, the kind and amount of cash or

--- ----other assets, securities or other property or consideration paid by theCorporation with respect to its redemption of an equal number of shares of suchRedeemable Stock. If the consideration so paid upon the Corporation'sredemption of any such Redeemable Stock consists of or includes any other classor series of Redeemable Stock which is also redeemed before exercise of anyWarrant, then the provisions of the first sentence of this Section 3.3(c) (and

--------------of this sentence) shall apply to successively to the shares of such other classor series of Redeemable Stock.

(d) Adjustment Date. The "Adjustment Date" for any distribution in---------------

respect of which an adjustment is required by this Section 3.3 shall be either-----------

(i) the date of taking of a record of holders of Common Stock for the purposeof entitling them to receive such distribution or, if no record is taken, at thedate as of which the holders of Common Stock entitled to participate in suchdistribution were determined or (ii) the date of such distribution, whicheverdate yields the largest increase in the number of shares of Common Stock



issuable upon exercise of a Warrant in applying the formula contained in thefirst sentence of Section 3.3(a).

--------------

(e) Adjustment Effective Date. An adjustment made pursuant to this-------------------------

Section 3.3 shall become effective, subject to Section 3.8(d), immediately after----------- --------------such record date or, if no such record date is fixed, immediately after the timeas of which holders of Common Stock entitled to

17

participate in such distribution were determined or, if no such time is fixed,as of the date of such distribution.

Section 3.4 Issuance of Additional Shares of Common Stock.---------------------------------------------

(a) Adjustment Formula. Subject to Section 3.4(b), if at any timethe Corporation shall issue, or pursuant to Section 3.5, Section 3.6, or Section3.7 be deemed to issue, any Additional Shares of Common Stock in exchange forconsideration in an amount, determined in accordance with Section 3.8(a) andSection 3.8(e), per Additional Share of Common Stock less than the ReferencePrice as of the applicable time of determination specified in the last sentenceof this Section 3.4(a), then (i) the number of shares of Common Stock for whicheach Warrant is exercisable shall be adjusted to equal the product obtained bymultiplying the number of shares of Common Stock for which such Warrant wasexercisable immediately prior to such time of determination by a fraction (x)the numerator of which shall be the number of Outstanding Common Sharesimmediately before such issuance or deemed issuance plus the number ofAdditional Shares of Common Stock so issued or deemed to be issued and (y) thedenominator of which shall be the number of Outstanding Common Sharesimmediately before such issuance or deemed issuance plus the number of shareswhich the aggregate amount of consideration, if any, received by the Corporationupon such issuance or deemed issuance of all such Additional Shares of CommonStock would purchase at the Reference Price determined as of such time and (ii)the Warrant Price shall be adjusted to equal the Warrant Price immediately priorto such adjustment multiplied by the quotient obtained by dividing the number ofshares of Common Stock for which such Warrant was exercisable immediately priorto the adjustment under clause (i) by the number of shares of Common Stock forwhich such Warrant is exercisable immediately after the adjustment under clause(i). The applicable time of determination shall be:

(i) if the event requiring the adjustment is the taking of a record datefor any dividend or distribution referred to in Section 3.5 orSection 3.6, as of either the close of business on such record dateor the date such dividend or distribution is paid, whichever producesthe highest Reference Price, or



(ii) in the case of any other issuance or deemed issuance, immediatelyprior to the time of such issuance or deemed issuance.

(b) When Adjustment is Not Required. The provisions of-------------------------------

Section 3.4(a) shall not apply to any issuance of Additional Shares of CommonStock for which an adjustment is made under Section 3.2 or Section 3.3. Subjectto Section 3.7, no adjustment of the Warrants or the Warrant Price shall be madeunder this Section 3.4 upon the issuance of any Additional Shares of CommonStock which are or are deemed to be issued pursuant to (i) the exercise of anyExisting Rights in

18

accordance with the terms thereof in effect on the Closing Date or (ii) theexercise of any other Rights or the exercise of any conversion or exchangerights in any other Convertible Securities if, in the case of any such Rights orConvertible Securities referred to in this clause (ii) any such adjustment shallpreviously have been made, or no such adjustment shall have been required to bemade, upon the issuance of such Rights or upon the issuance of such ConvertibleSecurities (or upon the issuance of any Rights therefor) pursuant to Section 3.5or Section 3.6.

(c) Effective Date. Each adjustment pursuant to this Section 3.4--------------

by reason of any issuance or deemed issuance of any Additional Shares of CommonStock shall be effective as of the date of such issuance or deemed issuance.

Section 3.5 Issuance of Rights.------------------

(a) Adjustment. If at any time the Corporation shall take a record----------

of the holders of its Common Stock for the purpose of entitling them to receivea dividend or other distribution of, or shall in any manner (whether directly orindirectly by assumption in a consolidation or in a merger in which theCorporation is the surviving corporation or otherwise) issue to any Person orPersons, any Rights to subscribe for, purchase or otherwise acquire anyAdditional Shares of Common Stock or any Convertible Securities, in any casewhether or not such Rights or the right to exchange or convert such ConvertibleSecurities are immediately exercisable, and the consideration per share forwhich Common Stock is issuable upon the exercise of such Rights or uponconversion or exchange of such Convertible Securities determined pursuant toSection 3.8(a) and Section 3.8(e) shall be less than the Reference Pricedetermined as of the applicable time of determination specified in the lastsentence of this Section 3.5(a), then the maximum number of shares of CommonStock issuable upon the exercise of such Rights or, in the case of Rights forConvertible Securities, upon the conversion or exchange of such ConvertibleSecurities determined as of such applicable time shall be deemed to beAdditional Shares of Common Stock issued as of such applicable time for such



consideration per share and the number of shares of Common Stock for which eachWarrant is exercisable and the Warrant Price shall be adjusted as provided inSection 3.4(a). The applicable time of determination shall be

(i) if the event requiring the adjustment is the taking of arecord date for any dividend or distribution of Rightsreferred to in this Section 3.5(a), as of either the close ofbusiness on such record date or the date such dividend ordistribution is paid, whichever produces the highest ReferencePrice, or

(ii) in the case of any other issuance of Rights, immediately priorto the time of such issuance.

19

(b) No Further Adjustment on Exercise. Subject to Section 3.7, no--------------------------------- -----------

further adjustments of the Warrants or the Warrant Price shall be made upon theactual issuance of such Common Stock or of such Convertible Securities uponexercise of such Rights or upon the actual issuance of such Common Stock uponsuch conversion or exchange of such Convertible Securities for which anadjustment pursuant to this Section 3.5 previously had been made or was not

-----------required to be made. Subject to Section 3.7, no adjustment under this Section

----------- -------3.5 shall be required by reason of the grant of Employee Options that have an---exercise price per share of Common Stock, at least equal to the Current MarketPrice at the time of grant.

Section 3.6 Issuance of Convertible Securities.----------------------------------

(a) Adjustment. If at any time the Corporation shall take a record of----------

the holders of its Common Stock for the purpose of entitling them to receive adividend or other distribution of, or shall in any manner (whether directly orindirectly by assumption in a consolidation or in a merger in which theCorporation is the surviving corporation or otherwise) issue, to any Person orPersons, any Convertible Securities, whether or not the rights to exchange orconvert thereunder are immediately exercisable, and the price per share forwhich Common Stock is issuable upon such conversion or exchange determinedpursuant to Section 3.8(a) and Section 3.8(e) shall be less than the Reference

-------------- --------------Price determined as of the applicable time of determination specified in thelast sentence of this Section 3.6(a), then the maximum number of shares of

--------------Common Stock issuable upon the conversion or exchange of such ConvertibleSecurities determined as of such applicable time shall be deemed to be



Additional Shares of Common Stock issued as of such applicable time for suchconsideration per share and the number of shares of Common Stock for which eachWarrant is exercisable and the Warrant Price shall be adjusted as provided inSection 3.4. If the terms of any Convertible Securities provide for any-----------issuance of additional Convertible Securities (whether in payment of dividendsor interest or otherwise), then each occasion on which any such additionalConvertible Securities are issued shall be deemed a new issuance of ConvertibleSecurities for which an adjustment pursuant to this Section 3.6 shall be made.

-----------The applicable time of determination shall be:

(i) if the event requiring the adjustment is the taking of a record datefor any dividend or distribution of Rights referred to in this Section

-------3.6(a), as of either the close of business on such record date or the date------such dividend or distribution is paid, whichever produces the highestReference Price, or

(ii) in the case of any other issuance of Rights, immediately prior to thetime of such issuance.

20

(b) No Further Adjustment Upon Conversion. Subject to Section 3.7,------------------------------------- -----------

no further adjustment of the Warrants or the Warrant Price shall be made underthis Section 3.6 upon the issuance of any Convertible Securities which are

-----------issued pursuant to the exercise of any Rights therefor if any such adjustmentshall previously have been made upon the issuance of such Rights pursuant toSection 3.5. Subject to Section 3.7, no further adjustments of the Warrants or----------- -----------the Warrant Price shall be made upon the actual issuance of such Common Stockupon conversion or exchange of Convertible Securities for which an adjustmentpursuant to this Section 3.6 previously had been made or was not required.

-----------

Section 3.7 Superseding Adjustment.----------------------

(a) Readjustment if Adjustment Previously Made. If, at any timeafter any adjustment of the number of shares of Common Stock for which eachWarrant is exercisable and the Warrant Price shall have been made pursuant toSection 3.5 or Section 3.6:

(i) the consideration paid or payable to the Corporation,or the number of shares of Common Stock issuable, upon the exercise, conversionor exchange of the Rights or Convertible Securities in respect of which such



adjustment was made is increased, in the case of such consideration, ordecreased in the case of such number of shares, by virtue of provisionscontained therein for an automatic increase or decrease (as the case may be)upon the occurrence of a specified date or event, any amendment or modificationof or departure from the terms thereof previously in effect or otherwise (otherthan under or by reason of an event resulting in a change pursuant to theprovisions set forth in the documents governing such Rights or ConvertibleSecurities designed to protect against dilution, which event also results in anadjustment pursuant to this Article III), the adjustments to the Warrant Priceand the number of shares of Common Stock issuable upon exercise of each Warrantcomputed upon the original issuance thereof (or upon the taking of a record datewith respect thereto), and any subsequent adjustments based thereon, shall, uponany such increase or decrease becoming effective, be readjusted to the WarrantPrice and number of shares issuable upon exercise of a single Warrant whichwould then be in effect had such adjustment originally been made on the basisthat such increased or decreased consideration payable or such increased ordecreased number of shares of Common Stock issued or issuable was theconsideration payable or the number of shares issued or issuable in respect ofsuch outstanding Rights or Convertible Securities which are actually outstandingon the effective time of such increase or decrease (but no such readjustmentshall be made with respect to any Rights or Convertible Securities which for anyreason no longer are outstanding as of such time); or

(ii) any Rights or any rights of conversion or exchangeunder Convertible Securities in respect of which such adjustment was made shallexpire without having been fully exercised, the Warrant Price computed upon theoriginal grant, issuance or sale thereof or upon the

21

taking of a record date with respect thereto (as the case may be), and anysubsequent adjustments based thereon, shall, upon such expiration, be recomputedas if:

(A) in the case of such Rights or ConvertibleSecurities, the only Additional Shares of Common Stock issued were the shares ofCommon Stock, if any, actually issued upon the exercise of such Rights or theconversion or exchange of such Convertible Securities and the considerationreceived for such Additional Shares of Common Stock was, in the case of Rights,the consideration actually received by the Corporation for the grant, issuanceor sale of all such Rights, whether or not exercised, plus the considerationactually received by the Corporation upon such exercise, or, in the case ofConvertible Securities, the consideration actually received by the Corporationfor the issuance or sale of all such Convertible Securities which were actuallyconverted or exchanged, plus the additional consideration, if any, actuallyreceived by the Corporation upon such conversion or exchange; and

(B) in the case of any such Rights exercisable forConvertible Securities, only the Convertible Securities, if any, actually issuedupon the exercise thereof were issued at the time of issuance or sale of such



Rights, and the consideration received by the Corporation for the AdditionalShares of Common Stock deemed to have been then issued was the considerationactually received by the Corporation for the grant, issuance or sale of all suchRights, whether or not exercised, plus the additional consideration, if any,actually received by the Corporation upon the issuance or sale of theConvertible Securities with respect to which such Rights were actuallyexercised.

(b) When Readjustment is Not to be Made. No readjustment pursuant to-----------------------------------

this Section 3.7 shall have the effect of (i) decreasing the number of shares of-----------

Common Stock or the amounts of other Warrant Securities, cash or other propertyfor which any Warrant is exercisable below the number of such shares and theamounts of such other Warrant Securities, cash and property for which suchWarrant would have been exercisable if the original adjustment had not beenmade, but all subsequent adjustments, if any, required by this Article III had

-----------been made or (ii) requiring any surrender, return or redelivery of any shares ofCommon Stock, other Conversion Securities, cash or other property delivered uponany exercise of any Warrant prior to the time such readjustment is made,requiring that the exercising holder or any subsequent holder of any such sharesof Common Stock, Warrant Securities or other property make any payment to theCorporation or otherwise affecting such shares of Common Stock, other WarrantSecurities or other property or the rights or obligations of the exercisingHolder or any such subsequent holder with respect thereto. From and after anyadjustment or adjustments provided for in this Section 3.7, the Warrants and the

-----------Warrant Price shall continue to be subject to further adjustment as provided inthis Article III.

-----------

22

(c) Adjustment When No Adjustment Was Previously Made. If, at any-------------------------------------------------

time after any grant, sale or other issuance of any Rights or ConvertibleSecurities for which an adjustment of the Conversion Rate shall not have beenrequired to be made pursuant to the provisions of Section 3.5 or Section 3.6 (as

----------- -----------the case may be), the consideration paid or payable to the Corporation upon theexercise of such Rights or Convertible Securities is decreased, or the number ofshares of Common Stock issued or issuable upon the exercise of such Rights orConvertible Securities is increased, in either case by virtue of provisionscontained therein for an automatic decrease or increase (as the case may be)upon the occurrence of a specified date or event, any amendment or modificationof or departure from the terms thereof previously in effect or otherwise (otherthan under or by reason of an event resulting in a change pursuant to theprovisions set forth in the documents governing such Rights or ConvertibleSecurities designed to protect against dilution, which event also results in an



adjustment pursuant to this Article III), then such event shall, for purposes of-----------

Section 3.5 (in the case of such Rights) or Section 3.6 (in the case of such----------- -----------Convertible Securities) be deemed to be a new issuance, as of the date of theeffectiveness of such decrease or increase (as the case may be) of Rights orConvertible Securities having terms reflecting such changes.

(d) Adjustment for Events Affecting Existing Rights . If the number-----------------------------------------------

of shares of Common Stock issued or issuable upon exercise of any Existing Rightis increased as a direct or indirect result of any amendment or modification ofor departure from the terms thereof previously in effect (other than as a resultof the issuance of the Series B Shares, the conversion of the Series B Shares,the issuance of the Warrants or the exercise of the Warrants), then suchincreased number of shares of Common Stock issued or issuable upon exercisethereof shall be deemed to be Additional Shares of Common Stock issued as of theeffective date of such increase for the additional consideration, if any,payable to acquire such increased number of shares upon exercise of suchExisting Right, and the number of shares of Common Stock for which each Warrantis exercisable and the Warrant Price shall be adjusted as provided in Section

-------3.4. If the consideration payable for shares of Common Stock issued or issuable---upon exercise of any Existing Right is decreased as a direct or indirect resultof any amendment or modification of or departure from the terms thereofpreviously in effect, then such event shall be deemed to be the issuance, as ofthe effective date of such decrease, of a number of Additional Shares of CommonStock equal to the excess of (i) the maximum number of shares of Common Stockissuable upon exercise of such Existing Right over (ii) the number of shares ofCommon Stock determined by dividing the total consideration, if any, that wouldbe payable to the Corporation upon the exercise in full of such Existing Rightafter giving effect to such decrease by the amount of consideration per share ofCommon Stock issuable upon exercise of such Existing Right that would have beenpayable to the Corporation absent such decrease. The provisions of this Section

-------3.7(d) are in addition to (and not exclusive of) any other rights or remedies of------Warrantholders in the event that any such amendment, modification or departureoccurs without any required approval of Warrantholders.

23

Section 3.8 Other Provisions Applicable to Adjustments. The following------------------------------------------

provisions shall be applicable to the making of adjustments provided for in this

Article III:-----------



(a) Computation of Consideration.----------------------------

Subject to Section 3.8(e):--------------

(i) To the extent that any Additional Shares of CommonStock, any Convertible Securities or any Rights to subscribe for or purchase anyAdditional Shares of Common Stock or any Convertible Securities shall be issuedor deemed to be for cash consideration, the consideration received or deemed tobe received by the Corporation therefor shall be the net amount of the cashreceived or deemed to be received by the Corporation therefor (in any such casesubtracting any amounts received in respect of accrued interest, accrueddividends or other similar amounts which the Corporation may be obligated to payto the holders thereof in the future and any compensation, discounts or expensespaid or incurred by the Corporation in connection with the issuance thereof).

(ii) To the extent that such issuance or deemed issuanceshall be for a consideration other than cash, then, except as herein otherwiseexpressly provided, the amount of such consideration shall be deemed to be theFair Market Value of such consideration at the time of such issuance or deemedissuance as determined in good faith by the Board.

(iii) In case any Additional Shares of Common Stock, anyConvertible Securities or any Rights to subscribe for, purchase or otherwiseacquire Additional Shares of Common Stock or Convertible Securities shall beissued or deemed to be issued in connection with any merger, consolidation,share exchange or similar transaction, the amount of consideration thereforshall be deemed to be the Fair Market Value, as determined in good faith by theBoard, of such portion of the assets and business of the nonsurvivingcorporation as the Board in good faith shall determine to be attributable tosuch Additional Shares of Common Stock, Convertible Securities, or Rights, asthe case may be.

(iv) In case any Additional Shares of Common Stock, anyConvertible Securities or any Rights to subscribe for, purchase or otherwiseacquire Additional Shares of Common Stock or Convertible Securities are issuedor deemed to be issued in combination with each other or with any othersecurities or property in connection with any transaction in which theCorporation receives cash, securities, property or other consideration, or anycombination of the foregoing, then the amount of consideration therefor shall bedeemed to be such portion of the cash, securities, property and otherconsideration received by the Corporation as the Board in good faith shalldetermine to be attributable to such Additional Shares of Common Stock,Convertible Securities

24

or Rights, as the case may be, with any noncash consideration being valued atits Fair Market Value as determined by the Board in good faith. The



consideration for any Additional Shares of Common Stock issuable or deemed to beissuable pursuant to any Rights to subscribe for, purchase or otherwise acquirethe same shall be the consideration received or deemed to be received by theCorporation for issuing such Rights plus the minimum additional consideration,if any, paid or payable to the Corporation upon the exercise or deemed exerciseof such Rights.

(v) The consideration for any Additional Shares of CommonStock issued or issuable pursuant to the terms of any Convertible Securitiescovered by any Rights to subscribe for, purchase or otherwise acquire suchConvertible Securities shall be the consideration received or deemed to bereceived by the Corporation for issuing such Rights, plus the minimum additionalconsideration, if any, paid or payable to the Corporation in respect of thesubscription for, purchase or other acquisition of such Convertible Securities,plus the minimum additional consideration, if any, paid or payable to theCorporation upon the exercise or deemed exercise of the right of conversion orexchange in such Convertible Securities.

(vi) The consideration for any Additional Shares of CommonStock issuable or deemed to be issuable pursuant to the terms of any ConvertibleSecurities, other than any covered by any Rights to subscribe for, purchase oracquire the same, shall be the consideration received or deemed to be receivedby the Corporation for issuing such Convertible Securities plus the minimumadditional consideration, if any, paid or payable to the Corporation upon theexercise of the right of conversion or exchange in such Convertible Securities.

(vii) For all purposes of this Article III, all Rights orConvertible Securities issued or deemed to be issued to directors, officers,employees or consultants of the Corporation or any Subsidiary shall be deemed tobe issued for no consideration except to the extent the Corporation receives inexchange for the issuance thereof consideration other than services rendered orto be rendered.

(b) When Adjustments to Be Made. The adjustments required by this---------------------------

Article III shall be made whenever and as often as any specified event requiring-----------an adjustment shall occur, except that any adjustment of the number of shares ofCommon Stock for which a Warrant is exercisable that would otherwise be requiredmay be postponed (except in the case of a subdivision or combination of sharesof the Common Stock) up to, but not beyond the date of conversion if suchadjustment either by itself or with other adjustments not previously made addsor subtracts less than 1% of the shares of Common Stock for which a Warrant isexercisable immediately prior to the making of such adjustment. Any adjustmentrepresenting a change of less than such minimum amount (except as aforesaid)which is postponed shall be carried forward and made as soon as such adjustment,together with other adjustments required by this Article III and not previously

-----------made by

25



virtue of this Section 3.8(b), would result in a minimum adjustment or--------------

on the date of conversion. For the purpose of any adjustment, any specifiedevent shall be deemed to have occurred at the close of business on the date ofits occurrence.

(c) Fractional Interests. In computing adjustments under this--------------------

Article III, fractional interests in Common Stock shall be taken into account to-----------the nearest 1/100th of a share.

(d) Delivery of Due Bills. If, after the taking of any record of---------------------

the holders of any class or series of capital stock of the Corporation for thepurpose of entitling them to receive a dividend or distribution for or inconnection with any other event in respect of which an adjustment pursuant tothis Article III is required, but prior to the occurrence of the event for which

-----------such record is taken, any Warrant is exercised, the Corporation shall deliver tothe exercising Warrantholder a due bill or other appropriate instrumentevidencing such holder's right to receive the additional shares of Common Stock,other securities, cash and other property receivable upon conversion by reasonof an adjustment pursuant to this Article III that would have been required by

-----------reason of such dividend, distribution or other event if the Warrant hadcontinued to be outstanding immediately after the occurrence of the eventrequiring such adjustment.

(e) Certain Determinations. Any determination of the Current Market----------------------

Price of any share of Common Stock or the Fair Market Value of any othersecurity, asset, property or consideration which may be required to be made bythe Board pursuant to or in connection with the application of any provision ofthis Agreement may be disputed in good faith by the Majority Holders and anysuch dispute shall be resolved by an independent investment banking firm ofrecognized national standing mutually selected by the Majority Holders and theCorporation (and whose fees and expenses shall be paid by the Corporation),whose decision with respect to such dispute shall be final and conclusive andbinding on the Corporation and all holders of Series B Shares. Any determinationby the Board pursuant to Section 3.9(b) or Section 3.13 may be disputed in good

-------------- ------------faith by the Majority Holders, and any such dispute shall be resolved inaccordance with Section 3.12.

------------

(f) Other Action Affecting Common Stock. In case at any time or-----------------------------------

from time to time the Corporation shall take any action in respect of its CommonStock which is not one described in any other provision of Article III as



-----------requiring an adjustment, then, unless such action will not have an adverseeffect upon the rights and intended benefits of the holders of Warrants, thenumber of shares of Common Stock and the kind and amount of other securities andproperty for which each Warrant is exercisable shall be increased in such manneras may be equitable in the circumstances.

26

Section 3.9 Multiple Classes of Common Stock.--------------------------------

(a) Election Right. If, at any time while any Warrants are--------------

outstanding, the Corporation's authorized capital stock shall include two ormore classes or series of Common Stock, then each Warrantholder shall have theright, upon each exercise of any of such holder's Warrant(s), to elect toreceive such number of shares of each such class or series as such holderdesires, provided that the total number of shares of all classes and seriesselected by such holder shall not exceed the aggregate number of shares ofCommon Stock issuable upon exercise of such Warrants(s).

(b) Adjustment Rights Apply. If, as a result of any adjustment-----------------------

made pursuant to Article III, by virtue of the existence of Section 3.9(a), as a----------- --------------

result of any event referred to in Section 3.13, or otherwise, the holder of a------------

Warrant would, upon exercise thereof, become the holder of more than one classor series of capital stock of the Corporation, then (i) the Warrant Price shallbe allocated among such classes or series in such manner as the Board shalldetermine in good faith and (ii) number, amount and type of shares of CommonStock and other securities and property for which any Warrant may be exercisedand the Warrant Price shall be subject to adjustment in respect of each suchclass and series of capital stock in a manner and on terms as nearly asequivalent as practicable to the provisions set forth in this Article III, which

-----------manner and terms shall be determined by the Board promptly after each suchadjustment, each such action by the Corporation and each other event which hasor might have such result. Promptly after the Board makes any suchdetermination, the Corporation shall deliver to each Warrantholder a writtennotice which shall describe in reasonable detail the manner and terms sodetermined.

Section 3.10 Notices to Warrant Holders.--------------------------

(a) Notice of Adjustments. Whenever the Warrant Price or the---------------------

number of shares of Common Stock or the kind or amount of other securities or



property for which any Warrant is exercisable shall be adjusted pursuant toArticle III, the Corporation at its expense shall forthwith prepare a-----------certificate to be executed by the chief financial officer of the Corporationsetting forth, in reasonable detail, the event requiring the adjustment, thenature and amount of such adjustment, the method by which such adjustment wascalculated (including a description of the basis on which the Board made anydetermination required by any provision of Article III), the date as of which

-----------such adjustment was or will be effective as provided herein, the number ofshares of Common Stock and the kinds and amounts, other securities, cash andother property for which and the Warrant Price at which each Warrant wasexercisable immediately prior to such event and for and at which such Warrant isexercisable immediately after such adjustment and all other relevantinformation. The Corporation shall promptly cause to be delivered to eachWarrantholder a signed copy of such certificate. The Corporation shall, uponthe written request at any time of any Warrantholder, furnish or cause to befurnished to such Warrantholder a like certificate setting forth (i) the Warrant

27

Price at the time in effect and showing how such Warrant Price was calculated,and (ii) the number of shares of each class or series of Warrant Stock and thekind and amount, if any, of other Warrant Securities, cash and other propertywhich at the time would be received upon the exercise of a Warrant at the timeand showing how the same were calculated.

(b) Notice of Corporate Action. If at any time--------------------------

(i) the Corporation shall take a record of the holders ofany class, series or issue of its capital stock or other securities for thepurpose of entitling them to receive a dividend or other distribution, or anyright to subscribe for, purchase or otherwise acquire any evidences of itsindebtedness, any shares of capital stock of any class or series, any cash orany other securities or property, or to receive any other right, interest orbenefit, or

(ii) there shall be any capital reorganization of theCorporation, any reclassification or recapitalization of the capital stock ofthe Corporation or any Sale of the Company or any other event referred to inSection 3.2 or 3.13 shall occur or be proposed, or

(iii) there shall be any tender offer or exchange offer forWarrant Securities of any class, series or issue, or

(iv) there shall be a voluntary or involuntary dissolution,liquidation or winding up of the Corporation,

then the Corporation shall (x) give to each Warrantholder at least 20 days'



prior written notice of the date on which a record date shall be fixed for suchdividend, distribution or right or for determining rights to vote in respect ofany such reorganization, reclassification, merger, consolidation, sale,transfer, disposition, dissolution, liquidation or winding up, (y) promptlyafter learning of any such tender or exchange offer, deliver to eachWarrantholder notice thereof, a copy of all written offering material which theCorporation possesses or reasonably can obtain or if no such materials exist orare possessed or can reasonably be obtained by the Corporation, a writtensummary of all material terms and conditions of and other material factsrelating thereto known to the Corporation and (z) give each Warrantholder atleast 20 days' prior written notice of the scheduled, planned or anticipateddate when any such reorganization, reclassification, Sale of the Company,merger, consolidation, sale, transfer, dissolution, liquidation, winding up orother event shall take place. Such notice in accordance with clause (x) of theimmediately preceding sentence also shall specify (i) the date on which any suchrecord is to be taken for the purpose of the event covered by the notice or anyrelated event, and (ii) the date on which such event or related event is to takeplace and, if applicable, the time, if any such time is to be fixed, as of whichthe holders of Common Stock shall

28

be entitled to exchange their shares of Common Stock for securities, cash orother property deliverable as a result of such event.

(c) Notices To Stockholders. In addition to the foregoing, each-----------------------

Warrantholder shall be given the same notices of corporate action or proposedcorporate action as any holder of Common Stock.

Section 3.11 No Impairment. The Corporation shall not by or through-------------

amending its certificate of incorporation, any reorganization, transfer ofassets, consolidation, merger, share exchange, dissolution, issue or sale ofsecurities or any other voluntary action, avoid or seek to avoid the observanceor performance of any of the terms of any Warrant or Warrant Certificate, butwill at all times in good faith carry out and assist in the carrying out of allsuch terms and in the taking of all such actions as may be necessary orappropriate to protect the rights and intended benefits of the Warrantholdersagainst impairment. Without limiting the generality of the foregoing, theCorporation (i) will not directly or indirectly increase the par value of anyshares of Common Stock or other capital stock receivable upon the exercise ofany Warrant above the amount payable therefor upon such exercise immediatelyprior to such increase in par value, (ii) will not take any action that resultsin any adjustment to the Warrant Price if after such adjustment the total numberof shares of Common Stock or shares of any other class or series of WarrantStock issuable upon the exercise of all of the outstanding Warrants would exceedthe total number of shares of Common Stock or such other Warrant Stock,respectively, then authorized by the Corporation's Certificate of Incorporationand available and reserved for the purpose of issuance upon such exercise, and



(iii) will take all such action as may be necessary or appropriate in order thatthe Corporation may validly and legally issue shares of each class and series ofWarrant Stock and other Warrant Securities upon the exercise of any Warrantwhich in each case are fully paid, non-assessable and without personal liabilityattaching to the ownership thereof and not subject to preemptive and similarpurchase rights. Upon the request of any Warrantholder, at any time, theCorporation will acknowledge in writing, in form satisfactory to suchWarrantholder, the continuing validity of each Warrant and Warrant Certificatethen held by such Warrantholder and the obligations of the Corporation withrespect thereto and thereunder.

Section 3.12 Resolution of Certain Disputes.------------------------------

(a) Consultation. If there shall arise any dispute between the------------

Corporation and the Majority Holders concerning the interpretation, applicationor operation of the adjustment provisions of Article III (other than any such

-----------dispute referred to in the first sentence of Section 3.8(e), which shall be

--------------resolved as stated therein), the Corporation and the Majority Holders willpromptly attempt to settle such dispute through consultation and negotiation ingood faith and in a spirit of mutual cooperation. If agreement is reachedconcerning the resolution of such dispute,

29

then such agreement shall be final, conclusive and binding on the Corporationand all Warrantholders.

(b) Arbitration. If, on or before the thirtieth day after-----------

written notice of such dispute is given by the Corporation to the Warrantholdersor the Majority Holders to the Corporation, such dispute has not been resolvedby the agreement of the Corporation and the Majority Holders, such dispute shallbe settled by an expedited arbitration proceeding conducted in accordance withthe then current Commercial Arbitration rules of the American ArbitrationAssociation in New York, New York by a single arbitrator who satisfies therequirements of Section 3.12(e) and who is mutually acceptable to the

---------------Corporation and the Majority Holders or, in the event such Persons fail to agreeupon such arbitrator within ten Business Days after such written notice ofdispute is given, an arbitrator who satisfies such requirements appointed by theAmerican Arbitration Association upon application of either the Corporation orthe Majority Holders. Neither the Corporation nor the Majority Holders shallunreasonably withhold its approval of the selection of an arbitrator satisfyingthe requirements of Section 3.12(e).

---------------



(c) Certain Provisions Applicable to Arbitration. The--------------------------------------------

Corporation and the Majority Holders shall provide such arbitrator with suchinformation as may be reasonably requested in connection with the arbitration ofsuch dispute and shall otherwise cooperate with each other and such arbitratorin good faith and with the goal of resolving such dispute as promptly asreasonably practicable. The arbitrator shall not have authority to awarddamages, but shall have only the authority to determine disputes regarding thematters set forth in the first sentence of Section 3.12(a). Subject to the

---------------immediately preceding sentence and to Section 3.12(f), the arbitrator's decision

---------------based on written conclusions of law and fact with respect to the disputereferred to such arbitration shall be final and binding and may be entered inany court with jurisdiction, and the Corporation and the Warrantholders shallabide by such decision and award. Each party shall bear its own costs andexpenses, including attorney's fees, incurred in connection with any arbitrationproceeding, except that the Corporation and the Warrantholders (as a group) eachshall pay one-half of all fees, costs and disbursements of the arbitrator and ofor charged by the American Arbitration Association.

(d) Other Remedies. The provisions of this Section 3.12 shall-------------- ------------

not in any way limit or otherwise affect (i) the right of any Warrantholder toseek, with regard to the matter in dispute, specific performance or otherinjunctive relief in any court of competent jurisdiction or (ii) the rights orremedies of any Warrantholder with respect to any claim, controversy or disputenot submitted to and decided by or within the authority of an arbitratorpursuant to this Section 3.12.

------------

(e) Arbitrators. Each arbitrator appointed pursuant to Section----------- -------

3.12(a) shall be an attorney who practices law in New York City, who has-------substantial experience in sophisticated

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corporate and securities transactions generally and in negotiating and drafting"antidilution" provisions of warrants and convertible securities in particularand who has not, and who is not a member or employee of any firm which has,rendered legal services to any of the parties to the dispute or any of theirrespective Affiliates within the preceding two years and who has no interest(other than the receipt of customary fees for his services as an arbitrator) inthe matter in dispute.

(f) Other Rights Unaffected. Nothing contained in this Section----------------------- -------

3.12 or any other provision hereof is intended to or shall preclude any holder



----of any Warrant or Warrant Stock from exercising or pursuing or otherwiselimiting or affecting the rights or remedies which such holder may have pursuantto the Purchase Agreement, at law, in equity or otherwise by reason of anymatter which is the subject of or basis for any dispute referred to in Section

-------3.12(a) (or any other matter), and the dispute resolution mechanisms provided-------for in this Section 3.12 are intended solely as a means of resolving bona fide

------------ ---- ----disputes concerning the interpretation, application or operation of theadjustment provisions of Article III (other than any such dispute referred to in

-----------the first sentence of Section 3.8(e), which shall be resolved as stated

--------------therein) or bona fide disputes which the last sentence of Section 3.8(e)

---- ----provides will be resolved pursuant to this Section 3.12, and not for the purpose

--------------of determining the rights of holders of Warrants or Warrant Stocks or theliabilities or obligations of the Corporation, for the purpose of resolving orsettling any claim by any such holder of any breach or inaccuracy of anyrepresentation or warranty of, or any breach or failure to perform any covenant,agreement or obligation, of the Corporation contained herein or in the PurchaseAgreement or any other Transaction Agreement (as defined in the PurchaseAgreement) or any other purpose. Without limiting the generality of theimmediately preceding sentence, no decision of any arbitrator appointed pursuantto this Section 3.12 shall have or be given any res judicata or similar effect

------------ --------in any action, suit or proceeding in which any claim by any holder of anyWarrant or Warrant Stock of any breach or inaccuracy of any representation orwarranty of, or any breach or failure to perform any covenant, agreement orobligation, of the Corporation contained herein or in the Purchase Agreement orany other agreement or instrument is to be adjudicated.

Section 3.13 Reclassification, Consolidation, Merger or Sale, Conveyance-----------------------------------------------------------

or Lease or Assets.------------------

(a) Adjustments. If any of the following shall occur while any-----------

Warrants are outstanding:

(i) any consolidation, merger, binding share exchange orreorganization to which the Corporation is party (other thana consolidation, merger, share exchange or reorganization inwhich the Corporation is the continuing corporation and whichdoes not result in any reclassification of or change in theoutstanding shares of Warrant Securities issuable uponexercise of the Warrants); or



31

(ii) any sale, conveyance, transfer or lease to another Entity ofthe properties and assets of the Corporation as an entiretyor substantially as an entirety,

then the Corporation or the successor or acquiring Entity, as the case may be,shall thereupon make appropriate provision, reasonably satisfactory to theMajority Holders, so that the holders of the Warrants then outstanding shallhave the right at any time thereafter, upon exercise of the Warrants, topurchase the kind and amount of shares of common stock of such successor oracquiring Entity, other capital stock or equity interests, other securities andproperty receivable or purchasable (as the case may be) upon suchreclassification, change, consolidation, merger, sale, conveyance, transfer orlease as would be received by a holder of the number of shares of Common Stock,the number of shares of each other class or series of Warrant Stock and the kindand amount of all other Warrant Securities issuable upon exercise of suchWarrant immediately prior to such consolidation, merger, sale, conveyance,transfer or lease (after giving effect to all adjustments required by thisArticle III. If the holders of the Common Stock or any other shares of Warrant-----------Stock of any class or series have rights of election as to the kind or amount ofcapital stock or other equity interests, other securities or other propertyreceivable upon consummation of any such transaction, then the same right ofelection shall be given to the holders of the Warrants. For purposes of thisSection 3.13, "common stock of the successor or acquiring Entity" shall include--------------capital stock (or other equity interests if such Entity is not a corporation) ofsuch Entity of any class which is not preferred as to dividends or assets onliquidation over any other class or series of stock of such corporation (orother equity interests of a non-corporate Entity) and which is not subject toredemption and shall also include any evidences of indebtedness, shares ofcapital stock, equity interests or other securities which are convertible intoor exchangeable for any such capital stock (or other equity interests), eitherimmediately or upon the arrival of a specified date or the happening of aspecified event and any warrants or other rights to subscribe for or purchaseany such capital stock (or other equity interests).

(b) Express Assumption by Successor or Acquiring Corporation.--------------------------------------------------------

In case of any such merger, consolidation, share exchange, reorganization, ordisposition of assets, the successor or acquiring Entity shall expressly assumethe due and punctual observance and performance of each and every covenant andcondition of this resolution to be performed and observed by the Corporation andall the obligations and liabilities thereunder or otherwise with respectthereto, subject to such modifications as may be deemed appropriate (asdetermined by resolution of the Board) in order to provide for adjustments ofshares of the capital stock, other securities or other property for whichWarrants may be exercised which shall be as nearly equivalent as practicable to



the adjustments provided for in Article III. Promptly after the Board makes any-----------

such determination, the Corporation shall deliver to each Warrantholder awritten notice which shall describe in reasonable detail the manner and terms sodetermined.

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(c) Provisions Apply Successively. The foregoing provisions of-----------------------------

this Section 3.13 shall similarly apply to successive reorganizations, mergers,------------

consolidations or disposition of assets.

Section 3.14 Taking of Record; Stock and Warrant Transfer Books. In the--------------------------------------------------

case of all dividends or other distributions by the Corporation to the holdersof its Common Stock with respect to which any provision of Article III refers to

-----------the taking of a record of such holders, in each such case the Corporation willnot declare, pay or make any such dividend or distribution unless it shall takesuch a record and the Corporation take each such record as of the close ofbusiness on a Business Day. The Corporation will not at any time, except upondissolution, liquidation or winding up of the Corporation, close its stocktransfer books or Warrant transfer books so as to result in preventing ordelaying the exercise or transfer of any Warrant.

ARTICLE IV

OTHER PROVISIONS RELATING TO RIGHTSOF HOLDERS OF WARRANTS----------------------

Section 4.1 No Rights or Obligations as Warrant Securityholder Conferred------------------------------------------------------------

by Warrants or Warrant Certificates. Except as otherwise provided herein, no-----------------------------------Warrant Certificate or Warrant evidenced thereby shall, prior to exercisethereof, entitle the holder thereof to any of the rights of a holder of WarrantSecurities, including the right to vote at or to receive notice of any meetingof stockholders of the Corporation or any consent action or other proceeding ofthe Corporation. Neither the ownership of any Warrants or Warrant Certificatenor any provision of any Warrant Certificate shall give rise to any liability ofthe holder thereof for the purchase price of any Warrant Security or as a holderof any Warrant Security, whether such liability is asserted by or on behalf ofthe Corporation, creditors of the Corporation or any other Person.

Section 4.2 Holder of Warrant Certificate May Enforce Rights.------------------------------------------------

Notwithstanding any of the provisions of any Warrant Certificate, any holder of



a Warrant or a Warrant Certificate, without the consent of the holder of anyWarrant Securities or the holder of any other Warrant or Warrant Certificatemay, on his own behalf and for his own benefit, enforce, and may institute andmaintain any suit, action or proceeding against the Corporation suitable toenforce, or otherwise in respect of, his rights under his Warrant Certificate(s)or otherwise with respect to his Warrant(s).

Section 4.3 Office of the Corporation. As long as any of the Warrants-------------------------

remain outstanding, the Corporation shall maintain one or more offices oragencies where the Warrants may be presented for exercise and Warrants andWarrant Securities may be presented for registration of

33

transfer, division or combination. Warrants and Warrant Securities may, in anyevent, be presented for such purposes at the principal executive offices of theCorporation in the United States.

Section 4.4 Uniform Terms. The substantive terms, conditions and other-------------

provisions of all Warrants and Warrant Certificates shall at all times beuniform and identical within each class (except, in the case of WarrantCertificates, as to the number of Warrants evidenced thereby). The Corporationshall not issue any Warrants except pursuant to the Purchase Agreement. AllWarrants outstanding from time to time shall be deemed to have been issued onthe Issue Date, and all Warrant Certificates, whenever issued, shall be deemedto have been issued, and shall be dated, as of the Issue Date.

ARTICLE V

TRANSFER, EXCHANGE AND REPLACEMENT OF WARRANTS----------------------------------------------

Section 5.1 Exchange and Transfer. Transfer of Warrants shall be---------------------

registered on the books of the Corporation to be maintained for such purpose,upon surrender of the Warrant Certificate representing the Warrant or Warrantsto be transferred at any office or agency designated by the Corporation pursuantto Section 4.3, together with a written Assignment Form substantially in the

-----------form annexed to this Agreement duly executed by the holder thereof or his dulyappointed legal representative or attorney-in-fact. Upon such surrender, theCorporation shall, at its expense, execute and deliver a new Warrant Certificateor Warrant Certificates in the name of the assignee or assignees and in thedenomination or denominations specified in such instrument of assignment, andshall issue to the assignor a new Warrant Certificate evidencing the Warrantsnot so assigned. Warrants, if properly assigned in compliance herewith, may beexercised by a new holder thereof without having a new Warrant Certificateissued. At the option of any Warrantholder (i) a Warrant Certificate may be



exchanged for other Warrant Certificates representing, in the aggregate, thesame number of Warrants as the Warrant Certificate exchanged or (ii) two or moreWarrant Certificates may be exchanged for a single Warrant Certificaterepresenting, or some other number of Warrant Certificates representing in theaggregate, the same number of Warrants as the Warrant Certificates exchanged, ineach case upon surrender of the Warrant Certificate(s) to be exchanged at theoffice of the Corporation referred to in Section 2.1 or another office or agencydesignated by the Corporation pursuant to Section 4.3. Whenever any Warrant

-----------Certificate is so surrendered for exchange, the Corporation shall, at itsexpense, execute and deliver the Warrant Certificate(s) which the Warrantholdermaking the exchange is entitled to receive. Upon receipt by the Corporation ofany mutilated Warrant Certificate, or of evidence reasonably satisfactory to itof the loss, theft or destruction of any Warrant Certificate and, in the case ofloss, theft or destruction, of indemnity reasonably satisfactory to it, theCorporation will make and deliver a new Warrant Certificate of identical tenorand representing the same number of Warrants as such mutilated, lost, stolen or

34

destroyed Warrant Certificate. Any Warrant Certificate issued in exchange forany Warrant Certificate, in replacement of any mutilated, lost, stolen ordestroyed Warrant Certificate or upon transfer of any Warrant shall be dated theIssue Date and shall represent an additional contractual obligation of theCorporation, whether or not the mutilated, lost, stolen or destroyed WarrantCertificate shall be at any time enforceable by anyone, and shall be entitled torights and benefits equally and proportionately with any and all other WarrantCertificates duly executed and delivered hereunder.

Section 5.2 Supplying Information. The Corporation shall cooperate with---------------------

each Warrantholder and each holder of Warrant Securities in supplying suchinformation as may be reasonably necessary for such Warrantholder or holder tocomplete and file any information reporting forms presently or hereafterrequired by the Commission as a condition to the availability of an exemptionfrom registration under the Securities Act for the sale or other transfer of anyWarrant or Warrant Securities. Without limiting the generality of theimmediately preceding sentence, Warrantholders and prospective purchasers ofWarrants designated by such holders will have the right to obtain from theCorporation upon request by such holders or prospective purchasers, during anyperiod in which the Corporation is not subject to Section 13 or 15(d) of theExchange Act, the information required by paragraph (d)(4)(i) of Rule 144A inconnection with any transfer or proposed transfer of Warrants.

Section 5.3 Expenses. No service or other charge shall be made for any--------

exchange, substitution, replacement or registration of transfer of Warrants orWarrant Certificates and the Corporation shall bear its own costs and expensesin connection therewith, but the Corporation may require payment of a sumsufficient to cover any stamp, stock transfer or other similar tax or



governmental charge that is required to be paid by the Corporation solely byvirtue of any transfer. All Warrant Certificates issued upon any exchange,substitution, replacement or registration of transfer of Warrant Certificatesshall be the valid obligations of the Corporation, evidencing the sameobligations, and entitled to the same benefits under this Agreement, as theWarrant Certificate surrendered for such exchange, substitution, replacement orregistration of transfer.

ARTICLE VI

MISCELLANEOUS-------------

Section 6.1 Reacquired Warrants. All Warrants received by the-------------------

Corporation upon exercise or redeemed, retired, purchased or otherwise lawfullyacquired by the Corporation or any of its Subsidiaries shall be retired andcanceled and shall not be deemed outstanding for any purpose or reissued.

35

Section 6.2 Amendment. The terms, conditions and other provisions of---------

the Warrants and Warrant Certificates which, as indicated hereinabove, areintended to be uniform may be amended only with the written consent of theCorporation and the Majority Holders. Any such amendment which is so consentedto shall be conclusive and binding on all present and future holders of WarrantCertificates whether or not they have consented to such modification oramendment or waiver and whether or not notation of such modification oramendment is made upon such Warrant Certificates. Any instrument given by or onbehalf of any holder of a Warrant Certificate in connection with any consent toany modification or amendment will be conclusive and binding on all subsequentholders of such Warrant Certificate.

Section 6.3 Determinations Generally. Unless otherwise expressly------------------------

provided herein, all decisions and determinations required or permitted to bemade hereunder by any Purchaser (including any decision as to whether to giveany consent or approval) shall be made by such Person in its sole discretion.

Section 6.4 Binding Effect; Successors and Assigns; Entire Agreement.--------------------------------------------------------

Except as expressly provided in this Agreement, nothing in this Agreement,express or implied, is intended or shall be construed to confer upon or give anycreditor, stockholder or Affiliate of the Corporation or any other Person exceptthe parties and the Persons who from time to time are holders of Warrants anyremedy or claim under or by reason of this Agreement or any term, covenant orcondition hereof, all of which shall be for the sole and exclusive benefit ofthe parties. This Agreement and all of the provisions hereof shall be bindingupon and inure to the benefit of the parties and the Persons who from time to



time are holders of Warrants and their respective successors and permittedassigns. Except as otherwise specifically permitted or contemplated by thisAgreement, neither this Agreement nor any of the rights, interests orobligations of the Corporation hereunder shall be assigned or delegated withoutthe prior written consent of the Majority Holders. This Agreement constitutesthe entire agreement of the parties with respect to the subject matter hereinand supersede all prior agreements and undertakings, both written and oral,among the parties, or any of them, with respect to the specific subject matterhereof.

Section 6.5 No Implied Waivers. No action taken pursuant to this------------------

Agreement, including, without limitation, any investigation by or on behalf ofany party or beneficiary, shall be deemed to constitute a waiver by the party orbeneficiary taking such action of compliance with any agreements, covenants,obligations or commitments contained herein or made pursuant hereto. The waiverby any party of a breach or benefit of any provision of this Agreement shall notoperate or be construed as a waiver of any preceding or succeeding breach and nofailure by any party or beneficiary to exercise any right, privilege or remedyhereunder shall be deemed a waiver of such party's or beneficiary's rights,privileges or remedies hereunder or shall be deemed a waiver of such party's orbeneficiary's rights to exercise the same at any subsequent time.

36

Section 6.6 Further Assurances. Each party shall cooperate and take------------------

such actions as may be reasonably requested by another party in order to carryout the provisions and purposes of this Agreement and the transactionscontemplated hereby.

Section 6.7 Counterparts. This Agreement may be executed in------------

counterparts, each of which shall be deemed to be an original and all of whichtogether shall be deemed to constitute one and the same agreement. In additionto any other lawful means of execution or delivery, this Agreement may beexecuted by facsimile signatures and may be delivered by the exchange ofcounterparts of signature pages by means of telecopier transmission.

Section 6.8 Notices. All notices, requests, demands, claims, and other-------

communications hereunder shall be in writing. Any notice, request, demand,claim, or other communication hereunder shall be deemed duly given if (and thentwo Business Days after) it is sent by registered or certified mail, returnreceipt requested, postage prepaid, and addressed to the intended recipient asset forth below:

If to the Corporation: Convergent Communications, Inc.400 Inverness Drive South, Suite 400Englewood, Colorado 80112



Attn: General CounselTelephone: (303) 749-3000Telecopy: (303) 749-3113

with a copy to: Richard M. Russo, Esq.Gibson, Dunn & Crutcher LLP1801 California Street, Suite 4100Denver, Colorado 80202Telephone: (303) 298-5715Telecopy: (303) 296-5310

If to any Warrantholder, to such Warrantholder at its address or suppliedby such Warrantholder form time to time in writing to the Corporation, withcopies to:

Paul J. Shim, Esq.Cleary, Gottlieb, Steen & HamiltonOne Liberty PlazaNew York, New York 10006Telephone: (212) 225-2930Telecopy: (212) 225-3999

37

Any party may send any notice, request, demand, claim, or other communicationhereunder to the intended recipient at the address set forth above using anyother means (including personal delivery, expedited courier, messenger service,telecopy, telex, facsimile transmission ordinary mail, or electronic mail), butno such notice, request, demand, claim, or other communication shall be deemedto have been duly given unless and until it actually is received by the intendedrecipient. Any party may change the address to which notices, requests,demands, claims, and other communications hereunder are to be delivered bygiving the other parties notice in the manner herein set forth.

Section 6.9 Governing Law. This Agreement shall be governed by and-------------

construed in accordance with the laws of the State of New York without givingeffect to any choice or conflict of law provision or rule (whether of the Stateof New York or any other jurisdiction) that would cause the application of thelaws of any jurisdiction other than the State of New York.

Section 6.10 Severability. If any provision of this Agreement or the------------

application thereof to any person or circumstance is held by a court ofcompetent jurisdiction to be invalid, void or unenforceable, the remainingprovisions hereof, or the application of such provision to Persons orcircumstances other than those as to which it has been held invalid, void orunenforceable, shall remain in full force and effect and shall in no way beaffected, impaired or invalidated thereby, provided, that if any provision

--------



hereof or thereof or the application of any such provisions shall be so held tobe invalid, void or unenforceable by a court of competent jurisdiction, thensuch court may substitute therefor a suitable and equitable provision in orderto carry out, so far as may be valid and enforceable, the intent and purpose ofthe invalid, void or unenforceable provision and, if such court shall fail ordecline to do so, the parties shall negotiate in good faith a suitable andequitable substitute provision. To the extent that any such provision shall bejudicially unenforceable in any one or more states, such provision shall not beaffected with respect to any other state, each provision with respect to eachstate being construed as several and independent.

Section 6.11 Specific Performance. Without intending to limit the--------------------

remedies available to any of the parties, each of the parties acknowledges andagrees that a violation, breach or threatened by the other of any term of thisAgreement will cause such party irreparable injury for which an adequate remedyat law is not available. The parties agree that each party shall have the rightof specific performance and, accordingly, shall be entitled to an injunction,restraining order or other form of equitable relief, in addition to any and allother rights and remedies at law, from any court of competent jurisdictionrestraining any other party from committing any breach or threatened breach of,or otherwise specifically to enforce, any provision of this Agreement and allsuch rights will be cumulative. The parties further agree that any defense inany action for specific performance that a remedy at law would be adequate iswaived.

38

(Signatures continued on the next page)

39

IN WITNESS WHEREOF, the parties have executed this Warrant Agreement as ofthe date first written above.


By: /s/ Joseph R. Zell_________________________________________Joseph R. Zell, Chief Executive Officer

TPG CONVERGENT I, LLC

By: /s/ Richard A. Ekleberry_________________________________________Name: Richard A. EkleberryTitle: Vice President







By: /s/ Edward G. Grinacoff_________________________________________Edward G. GrinacoffPresident

40





By: /s/ Edward G. Grinacoff_______________________Edward G. GrinacoffPresident

SANDLER CAPITAL PARTNERS IV FTE, L.P.




By: /s/ Edward G. Grinacoff_______________________Edward G. Grinacoff



President

41



EXHIBIT 10.1

Convergent Communications(TM) Proprietary Information--------------------------------------------------------------------------------

Employment Services Agreement--------------------------------------------------------------------------------Employee Information--------------------

Joseph R. Zell-------------------------------------- -------------------------(Name)

-------------------------Effective Date: April 17, 2000 (Address)

----------------1. Employment. The Company agrees to employ Employee and Employee hereby agrees

----------to be employed by the Company and/or such of its subsidiaries and affiliatecorporations as determined by the Company on a full-time basis, for the periodand upon the terms and conditions hereinafter set forth, provided that thisAgreement shall not be effective unless and until the Company has executed adefinitive Securities Purchase Agreement with one or more investors whereby theCompany will receive a minimum of $150 million in gross proceeds pursuant to thesale of certain securities.2. Capacity and Duties. Employee shall be employed in the following capacity

-------------------for the Company or any of its affiliates in such capacity of equal or greaterresponsibility. During his employment, Employee shall perform the duties andbear the responsibilities commensurate with his position and shall devote hisfull working time, energy and attention to the performance of his duties andresponsibilities hereunder and shall faithfully and diligently endeavor topromote the business and best interests of the Company and its affiliates.During his employment, Employee may not, without the prior written consent ofthe Company, operate, participate in the management, operations or control of,or act as an employee, officer, consultant, agent or representative of, any typeof business or service (other than as an employee of the Company), provided thatit shall not be a violation of the foregoing for Employee to (i) act or serve asa director, trustee or committee member of any civic or charitable organizationand (ii) manage his personal, financial and legal affairs, so long as suchactivities (described in clauses (i) and (ii)) do not interfere with theperformance of his duties and responsibilities to the Company as providedhereunder.--------------------------------------------------------------------------------

Title: Chief Executive Officer and President

--------------------------------------------------------------------------------3. Compensation and Benefits.

-------------------------3.1 The Company shall pay Employee during the Term of this Agreement an

annual base salary, payable semi-monthly as follows. The annual base salary maybe adjusted from time to time for merit increases in the sole discretion of theCompany.--------------------------------------------------------------------------------

Annual Base Salary: Five Hundred Thousand Dollars ($500,000)

--------------------------------------------------------------------------------3.2 In addition to his Annual Base Salary, during the Term of this

Agreement, Employee shall be eligible to receive a performance bonus (the"Performance Bonus") for each fiscal year of the Company, payable after the endof the fiscal year, if certain performance objectives to be determined by theBoard of Directors of the Company are achieved. The target Performance Bonuswill be a percentage of Employee's annual base salary.--------------------------------------------------------------------------------

Target Performance Bonus: One Hundred Percent (100%) of Annual Base Salary

--------------------------------------------------------------------------------3.3 Throughout the Term of this Agreement, the Company shall provide

Employee a monthly car allowance as shall be determined in accordance with theCompany's policies.

3.4 In addition to the compensation as provided above, the Company shallprovide Employee during the Term of this Agreement, with the benefits of suchinsurance plans, hospitalization plans, stock plans, retirement plans and otheremployee fringe benefits (including sick leave and four (4) weeks annual



vacation time) as shall be generally provided to the other executives of theCompany and for which Employee may be eligible under the terms and conditionsthereof. The Company reserves the right to modify, delete or change its benefitsat any time provided that any such changes applied to Employee shall also applyto the same extent to the Company's other executive officers.

3.5 Throughout the Term of this Agreement, the Company shall reimburseEmployee for all reasonable out-of-pocket expenses incurred by Employee inconnection with the business of the Company and in performance of his dutiesunder this Agreement, upon presentation to the Company by Employee of anitemized accounting of such expenses with reasonable supporting data.

This Employment Services Agreement is further subject to the EmploymentAgreement Terms ("Agreement Terms") attached hereto, and, if this box is marked,[X] Addendum A attached hereto (collectively the "Agreement"). Employee has readand understands the Agreement Terms and agrees to be bound by those conditions.Acceptance of this Agreement is contingent upon acceptance by a representativeof the Company duly authorized to execute this Agreement.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the last dateshown below.

CONVERGENT COMMUNICATIONS, INC. JOSEPH R. ZELL(Company) (Employee)

By: /s/ John R. Evans /s/ Joseph R. Zell---------------------------- -----------------------------------------

Title: Chief Executive Officer-------------------------

Employment Agreement Terms

The following Employment Agreement Terms are in addition to the terms andconditions contained in the Employement Services Agreement cover sheet :

4. Term. The initial term of this Agreement shall commence on the----

Effective Date of this Agreement and shall continue until the third anniversaryof the Effective Date, unless sooner terminated by either party pursuant toSection 5 below ("Term"). The applicable provisions of Sections 6, 7, 8, 9 and10 shall remain in full force and effect as provided and for the time periodsspecified in such Sections notwithstanding the termination of this Agreement;all other obligations of either party to the other under this Agreement shallterminate at the end of the Term.

5. Termination.-----------

5.1 If, during the Term of this Agreement, Employee dies or is preventedfrom performing his duties by reason of illness or incapacity for one hundredforty (140) days in any one hundred eighty (180) day period, the Company mayterminate this Agreement, upon thirty (30) days prior notice thereof to Employeeor his duly appointed legal representative.

5.2 The Company or the Employee may terminate this Agreement upon at leastthirty (30) days prior notice to Employee upon the happening of any of thefollowing events ("Change of Control Event"):

5.2.1 The sale by the Company of substantially all of its assets to asingle purchaser or associated group of purchasers who are not affiliates of theCompany. For the purposes of this Agreement, the term "affiliate" means aperson, firm or corporation that directly or indirectly, through one or moreintermediaries, controls, is controlled by, or is under common control with theCompany or with the Texas Pacific Group or any of its affiliates.

5.2.2 The sale, exchange or other disposition in one transaction ofeighty percent (80%) or more of the outstanding voting stock of the Company toor with a person, firm or corporation not then an affiliate of the Company.

5.2.3 The merger or consolidation of the Company in a transaction notinvolving an affiliate of the Company in which the shareholders of the Companyreceive less than fifty percent (50%) of the outstanding voting stock of the newcontinuing corporation.

5.2.4 A bona fide decision by the Company to terminate its businessand liquidate its assets (but only if such liquidation is not part of a plan tocarry on the Company's business through its shareholders).



5.2.5 If Employee's employment is terminated prior to the date onwhich a Change of Control Event occurs, and such termination was at the requestof a third party who has taken steps to effect a Change of Control Event or wasotherwise caused by the Change of Control Event, then for all purposes of thisAgreement, a Change of Control Event shall be deemed to have occurred prior tosuch termination.

5.3 The Company may terminate this Agreement at any time for grossnegligence or willful non-performance by Employee of any duty as an employee ofthe Company which continues for a period of thirty (30) days after writtennotice specifying such negligence or non-performance.

5.4 The Company may terminate this Agreement immediately upon a materialbreach of any obligation or covenant created by or under this Agreement that isnot cured by Employee within thirty (30) days of his receipt of written noticeof said breach, or upon Employee's intentional commission of a violation of anyfederal law, rule or regulation, or any theft, fraud, embezzlement or similarcrime involving the commission of any felony.

5.5 Company or Employee may terminate this Agreement without cause upon atleast thirty (30) days prior notice.

5.6 Termination Fees. In the event that this Agreement is terminated----------------

pursuant to this Section 5, Company shall pay Employee a Termination Fee asdescribed below, provided that such Termination Fee shall be conditioned uponand subject to Employee executing a valid release and waiver waiving all claimsthat Employee may have against the Company, its affiliates and their respectiveassigns, successors, employees, directors, officers, shareholders and agents,and upon Employee's compliance with the restrictive covenants provided inSections 6 and 7 hereof.

5.6.1 If this Agreement is terminated by (a) the Company undersubsections 5.1, 5.2 or 5.5 above, or (b) by the Employee for any or no reasonmore than three

Initials: Date:--------- --------


(3) months following a Change of Control Event; or (c) by the Employee (i) forGood Reason during the three (3) months following a Change of Control Event asdescribed in subsection 5.2 above or such shorter period as the parties maymutually agree is required to effectuate an orderly transition of Employee'sresponsibilities, or (ii) at any time for Good Reason (as defined below), then:(1) the Company shall continue to pay Employee's monthly base salary, as shallbe in effect on the termination date, for a period of twenty-four (24) monthsfollowing the date of termination; (2) the Company shall provide Employee withthe following benefits coverage: life, medical, dental and vision, for a periodof twenty-four (24) months following the date of termination; (3) two times theamount of the incentive bonus, if any, earned by Employee in the fiscal yearending prior to the date of termination pursuant to Section 3.2 and (4) vestingof Employee's stock options, if any, shall be accelerated such that all stockoptions granted to Employee will vest as of the date of termination; providedthat Employee shall not receive any Termination Fee if he terminates thisAgreement without Good Reason during the three (3) months following a Change ofControl Event as described in subsection 5.2 above or such shorter period as theparties may mutually agree is required to effectuate an orderly transition ofEmployee's responsibilities.

5.6.2 For purposes of this Agreement, "Good Reason" shall mean,without the Employee's express written consent, the occurrence of any of thefollowing circumstances, unless in the case of clauses (i), (v), or (vi), suchcircumstances are fully corrected within thirty (30) days following notice tothe Company:

(i). The material diminution of Employee's authority, dutiesand reporting relationships, or a substantial adverse alteration in the natureor status of the Employee's responsibilities from those in effect immediatelyafter the commencement of his employment;

(ii). A reduction by the Company in the Employee's annual basesalary as then in effect;

(iii). A new Company requirement is instituted which requiresthe Employee to change his work location to a location greater than fifty (50)miles from Employee's work location immediately prior to the institution of the



requirement, but not including a requirement that the Employee travel on theCompany's business to an extent substantially consistent with his presentbusiness travel obligations;

(iv). The failure by the Company, without the Employee'sconsent, to pay to the Employee any portion of any base salary, bonus, othermaterial cash compensation, Common Stock or stock options payable inconsideration of Employee's employment with the Company, or to pay to theEmployee any portion of an installment of deferred compensation under anydeferred compensation program of the Company within seven (7) days of the datesuch compensation is due, unless such failure to pay is reasonably in dispute bythe Company;

(v). The failure by the Company to continue in effect anycompensation plan in which the Employee participates that is material to theEmployee's total compensation, unless an equitable arrangement (embodied in anongoing substitute or alternative plan) has been made with respect to such plan, or the failure by the Company to continue the Employee's participationtherein; provided that this subsection shall not apply in the event of a changein any compensation plan that applies generally to all of the Company'sexecutive officers;

(vi). following a Change of Control Event only: the failure bythe Company to continue to provide the Employee with benefits substantiallysimilar to those enjoyed by the Employee under any of the Company's pension,life insurance, medical, health and accident, or disability plan in which theEmployee was participating immediately after the commencement of his employment;the taking of any action by the Company which would directly or indirectlymaterially reduce any of such benefits or deprive the Employee of any materialfringe benefit enjoyed by the Employee immediately after the commencement of hisemployment; or the failure by the Company to provide the Employee with thenumber of paid vacation days to which the Employee is entitled pursuant to thegreater of (a) this Agreement or (b) the basis of years of service with theCompany in accordance with the Company's normal vacation policy in effectimmediately after the commencement of his employment.

The Employee's right to terminate his employment pursuant to this subsectionshall not be affected by his incapacity due to physical or mental illness. TheEmployee's continued employment shall not constitute consent to, or a waiver ofrights with respect to, any circumstance constituting Good Reason hereunder.

Initials: Date:--------- --------


5.6.3 No Termination Fee shall be paid to Employee in the event thatthis Agreement is terminated for any other reason, including, withoutlimitation, pursuant to subsections 5.3 and 5.4 herein or by Employee pursuantto Section 5.5.

5.6.4 Employee shall not be required to mitigate the amount of anypayment provided for in Section 5.6 of this Agreement by seeking otheremployment or otherwise.

5.7 In the event that this Agreement is terminated pursuant to subsection5.2 or by the Company pursuant to subsection 5.5, Employee shall have a periodof twelve (12) months from the date of termination in which to exerciseEmployee's vested stock options.

5.8 Any termination of Employee's employment by Company (other thantermination pursuant to Section 5.1) shall be communicated by a written notice(the "Notice of Termination"), which shall indicate the specific terminationprovision in this Agreement relied upon and shall set forth in reasonable detailthe facts and circumstances claimed to provide a basis for termination ofEmployee's employment under the provision so indicated. Any purportedtermination pursuant to Section 5.3 and 5.4 that is disputed and finallydetermined not to have been proper shall be a termination by Company in breachof this Agreement.

5.9 Notwithstanding any other provision of this Agreement, Employee shallnot be deemed to have been terminated in conformity with section 5.3 and/or 5.4of this Agreement unless Employee has first received: (A) reasonable notice toEmployee setting forth the reasons for Company's intention to terminate forCause; and (B) an opportunity, with his counsel, to appear before and be heardby the Board at the earliest reasonable date; and (C) delivery of a Notice ofTermination from the Board finding that, in the good faith opinion of the Board,Cause as specified in the notice required by clause 5.9(A), above, exists, and



specifying the particulars thereof in detail.

6. Covenant Not to Compete.-----------------------

6.1 During the term of this Agreement, Employee shall not directly orindirectly, own, manage, operate, control, be employed by, or participate in theownership, management, operation or control of a business that is a DirectCompetitor of the Company within a Relevant Area. For the purposes of thisSection 6, including all subsections of this Section 6, a "Direct Competitor" isa company engaged in providing integrated communications services and/orequipment to small and medium-sized business enterprises, and the "RelevantArea" shall be defined as any area located within, or within fifty (50) milesof, the legal boundaries or limits of any city within which the Company or anyparent, subsidiary or affiliate thereof is providing services, has commenced theacquisition of any authorizations, rights of way or facilities or has commencedthe construction of facilities for the purpose of providing services, or theCompany has publicly announced or privately disclosed in writing to Employeethat it plans to provide Services.

6.2 If, after the termination of this Agreement, Employee directly orindirectly, owns, manages, operates, controls, becomes employed by, orparticipates in the ownership, management, operation or control of a businessthat is a Direct Competitor of the Company within a Relevant Area, then theCompany shall thereafter be relieved of its obligation, if any, to continue thepayment of any Termination Fee to Employee; provided that this section 6.2 shallnot apply if Employee terminates this Agreement for Good Reason, or following aChange of Control Event.

6.3 During the Term of this Agreement (or, if longer, during the term ofEmployee's employment with the Company or any of its affiliates) and for aperiod of twenty-four (24) months after termination of this Agreement (or, iflonger, termination of Employee's employment with the Company or any of itsaffiliates), Employee shall not (i) directly or indirectly cause or attempt tocause any employee of the Company or any of its affiliates to leave the employof the Company or any affiliate, (ii) in any way interfere with the relationshipbetween the Company and any employee or between an affiliate and any employee ofthe affiliate, (iii) directly or indirectly hire any employee of the Company orany affiliate to work for any organization of which Employee is an officer,director, employee, consultant, independent contractor or owner of an equity orother financial interest, or (iv) interfere or attempt to interfere with anytransaction in which the Company or any of its affiliates was involved duringthe Term of this Agreement or Employee's employment, which ever is longer.

6.3 Employee agrees that, because of the nature and sensitivity of theinformation to which he will be privy and because of the nature and national andinternational scope of the Company's business, the restrictions in this Section6 are fair and reasonable.

7. Confidential Information.------------------------

Initials: Date:--------- --------


7.1 The relationship between the Company and Employee is one of confidenceand trust.

7.2 As used in this Agreement (i) "Confidential Information" meansinformation disclosed to or acquired by Employee about the Company's plans,products, processes and services including the Services and any Relevant Area,including information relating to research, development, inventions,manufacturing, purchasing, accounting, engineering, marketing, merchandising,selling, pricing and tariffed or contractual terms, customer lists and prospectlists or other market information, with respect to any of the Company's thencurrent business activities; and (ii) "Inventions" means any inventions,discoveries, concepts and ideas, whether patentable or not, including, withoutlimitation, processes, methods, formulas, and techniques (as well as relatedimprovements and knowledge) that are based on or related to ConfidentialInformation, that pertain in any manner to the Company's then currently usedtechnology, expertise or business and that are made or conceived by Employee,either solely or jointly with others, and while employed by the Company orwithin six (6) months thereafter, whether or not made or conceived duringworking hours or with the use of the Company's facilities, materials orpersonnel.



7.3 Employee agrees that he shall at no time during the term of hisemployment or at any time thereafter disclose any Confidential Information,Inventions or component thereof to any person, firm or corporation to any extentor for any reason or purpose or use any Confidential Information or componentthereof for any purpose other than the conduct of the Company's business.

7.4 Any Confidential Information, Invention or component thereof that isdirectly or indirectly originated, developed or perfected to any degree byEmployee during the term of his employment by the Company shall be and remainthe sole property of the Company and shall be deemed trade secrets of theCompany.

7.5 Upon termination of Employee's employment pursuant to any of theprovisions herein, Employee or his legal representative shall deliver to theCompany all originals and all duplicates and/or copies of all documents,records, notebooks, and similar repositories of or containing ConfidentialInformation or subject matter then in his possession, whether prepared by him ornot.

7.6 Employee agrees that the covenants and agreements contained in thisSection 7 are fair and reasonable and that no waiver or modification of thisSection or any covenant or condition set forth herein shall be valid unless setforth in writing and duly executed by the parties hereto. Employee agrees toexecute such separate and further confidentiality agreements embodying andenlarging upon the provisions of this Section 7 as the Company may reasonablyrequest.

8. Injunctive Relief. Upon a breach or threatened breach by Employee of any-----------------

of the provisions of Sections 6 and 7 of this Agreement, the Company shall beentitled to an injunction restraining Employee from such breach if the Companysatisfies the requirements of Rule 65, Colorado Rules of Civil Procedure, andColorado decisional law applying Rule 65. Nothing herein shall be construed asprohibiting the Company from pursuing any other remedies for such breach orthreatened breach, including recovery of damages from Employee.

9. No Waiver. A waiver by the Company of a breach of any provision of this---------

Agreement by Employee shall not operate or be construed as a waiver of anysubsequent or other breach by Employee.

10. Severability. It is the desire and intent of the parties that the------------

provisions of this Agreement shall be enforced to the fullest extent permissibleunder the laws and public policies applied in each jurisdiction in whichenforcement is sought. Accordingly, if any particular provision or portion ofthis Agreement shall be adjudicated to be invalid or unenforceable, thisAgreement shall be deemed amended to delete therefrom the portion thusadjudicated to be invalid or unenforceable, such deletion to apply only withrespect to the operation of such Section in the particular jurisdiction in whichsuch adjudication is made.

11. Notices. All communications, requests, consents and other notices provided-------

for in this Agreement shall be in writing and shall be deemed given if mailed byfirst class mail, postage prepaid, certified or return receipt requested to theaddresses set forth herein, or last known address and received by the intendedparty. If the mailing is returned to the sender due to an incorrect address,the correct address must be obtained in order for the communication to bereceived and completed.

12. Governing Law. This Agreement shall be governed by and construed and-------------

enforced in accordance with the laws of the State of Colorado.

13. Assignment. The Company may assign its rights and obligations under this----------

Agreement to any affiliate of the Company or, subject to the provisions ofSection 5, to

Initials: Date:--------- --------


any acquirer of substantially all of the business of the Company, and allcovenants and agreements hereunder shall inure to the benefit of and be



enforceable by or against any such assignee. Neither this Agreement nor anyrights or duties hereunder may be assigned or delegated by Employee.

14. Amendments. No provision of this Agreement shall be altered, amended,----------

revoked or waived except by an instrument in writing, signed by each party tothis Agreement.

15. Binding Effect. Except as otherwise provided herein, this Agreement shall--------------

be binding upon and shall inure to the benefit of the parties hereto and theirrespective legal representatives, heirs, successors and assigns.

16. Execution in Counterparts. This Agreement may be executed in any number of-------------------------

counterparts, each of which shall be deemed an original, but all of whichtogether shall constitute one and the same instrument.

17. Entire Agreement. This Agreement (and the Company's arbitration procedures----------------

described below) sets forth the entire agreement and understanding of theparties and supersedes all prior understandings, agreements or representationsby or between the parties, whether written or oral, which relate in any way tothe subject matter hereof, including, without limitation, any previouslyexecuted employment agreements or amendments thereto.

18. Indemnification---------------

18.1 To the greatest extent allowable under applicable law, the Companyshall indemnify and defend Employee from and against all claims, demands andliabilities arising from or relating to Employee's employment or otherrelationships with the Company ("Indemnified Claims"), and advance to Employeeall costs and attorneys' fees incurred by him or on his behalf in connectionwith any Indemnified Claim; provided that in no circumstances shall theindemnification and/or cost advance requirements of this paragraph exceed thescope of the indemnification and cost advance rights extended by the Company'sbylaws to the Company's executive officers.

18.2 Employee represents and warrants that he is not in breach of hisobligations to any former employer under any agreement limiting his ability orright to solicit or hire any individual, and agrees that he shall not during theterm of this Agreement knowingly and intentionally violate any such obligation.Provided that Employee has not knowingly and intentionally violated anyobligations described in the previous sentence, the Company shall fullyindemnify Employee concerning and defend him against any claim or demand by, orliability by Employee to, Employee's former employer (including, withoutlimitation, any demand for repayment of cash, stock or stock options, or anyeffort to cancel stock options or otherwise avoid any obligation relatingthereto) arising from or relating to any contractual or other legal limitationon or prohibition of the solicitation or hiring of any person, as an employee,contractor or otherwise, by the Company or any affiliate thereof.

19. Arbitration. Any dispute arising out of this Agreement, the Employee's-----------

application for employment, the Employee's relationship with the Company, or theEmployee's employment or separation from employment shall be subject toarbitration pursuant to the Company's arbitration procedures. The Employeeacknowledges that a copy of the procedures has been delivered to and read by theEmployee prior to the time he/she executed this Agreement. It is understoodthat all sections of the Arbitration Procedures apply, except those sectionspertaining to at-will employment, which are superseded by this EmploymentAgreement. In his or her final award, the arbitrator shall award the partysubstantially prevailing all costs incurred by that party in connection with thearbitration, including reasonable attorneys' fees and that party's share, ifany, of the fees charged by the arbitrator, and all filing and/or arbitrationadministration fees incurred by that party in connection with the arbitration.

Initials: Date:--------- --------

Convergent Communications(TM) Proprietary Information

--------------------------------------------------------------------------------

Addendum A to Employment Services Agreement



--------------------------------------------------------------------------------

1. Additional Provisions. The Company and Employee agree to the following---------------------

additions, changes and amendments to the Employment Services Agreement and theAgreement Terms:

--------------------------------------------------------------------------------<TABLE><CAPTION>Section Reference Additions, Changes or Amendments-------------------- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------<C> <S>

3.2 Employee's Performance Bonus described in Section 3.2 shall be guaranteed to be a minimum of(addendum) $250,000 for the first fiscal year of Employee's employment which amount shall be offset by any

actual Performance Bonus earned in such year.

---------------------------------------------------------------------------------------------------------------------------3.3 Employee's monthly car allowance shall be $1,200 payable semi-monthly.

(addendum)---------------------------------------------------------------------------------------------------------------------------

3.4 The Company hereby represents and warrants that all stock option grants contemplated or required by(addendum) this Agreement are authorized by and permissible under its various stock option plans and programs,

and that it shall exercise its best efforts to obtain all board and/or shareholder approvals, ifany, required to allow such stock option grants to be made to Employee as, when and on the termsspecified hereunder. Employee shall receive an option to purchase 1,500,000 shares of Companycommon stock at an exercise price of $13.00 per share. 25% of the shares underlying the optionshall be immediately vested upon grant. The remaining 75% of the shares underlying the optionshall vest in three equal installments on each of the succeeding three anniversaries of the date ofgrant, provided that Employee is still employed by the Company on each such anniversary. Theterms and conditions of the Company's Stock Incentive Plan shall govern all other aspects of thestock option grant; provided that in the event of any conflict between any term of this Agreementand any term of the Plan or any Option Certificate issued thereunder, the terms of this Agreementshall control.

{Rest of Page Intentionally Blank}---------------------------------------------------------------------------------------------------------------------------</TABLE>

<TABLE><S> <C> <C>---------------------------------------------------------------------------------------------------------------------------3.6 3.6.1 The Company shall pay Employee a signing bonus comprised of a combination of(new) cash and Common Stock with a total value of $20 million ("Signing Bonus"), which shall

be payable in two equal installments as follows: (i) $10 million in cash or CommonStock in a combination designated by Employee as provided in section 3.6.2, below, onthe later of (a) 31 days after the Company receives Employee's designation or (b) thedate by which the Company has executed definitive Securities Purchase Agreements withone or more investors whereby the Company will receive a minimum of $150 million ingross proceeds pursuant to the sale of certain securities ("Initial Installment"), and(ii) $10 million in cash or Common Stock in a combination designated by Employee asprovided in section 3.6.2, on the earlier to occur of (a) the closing of the merger ofUS West Communications, Inc. and Qwest Communications, Inc., and (b) December 31, 2000("Final Installment").

3.6.2 On or before March 29, 2000, Employee shall deliver to the company a writtendesignation (the "Designation") specifying the combination of cash and Common Stockthat shall together comprise the Initial Installment and the Final Installment (whichmay be comprised of different combinations of cash and Common Stock). To the extentthat Employee elects to receive any portion of Signing Bonus payable in the InitialInstallment in the form of Common Stock, the number of shares of Common Stock to be sogranted shall be determined by dividing the number of dollars of the Signing Bonusdesignated by Employee to be payable in Common Stock by $13.00 To the extent thatEmployee elects to receive any portion of Signing Bonus payable in the FinalInstallment in the form of Common Stock, the number of shares of Common Stock to be sogranted shall be determined by dividing the number of dollars of the Signing Bonusdesignated by Employee to be payable in Common Stock by the volume-weighted averageclosing price of the Common Stock on the NASDAQ National Market for the twenty tradingdays immediately preceding the date of the grant. Employee shall have the right,before his first date of active employment under this Agreement, to defer any cashpayment received as a result of a designation under this section 3.6.2 into a deferredcompensation plan established by the Company. Upon Employee's request, the Companyshall establish a deferred compensation plan as of Employee's first day of activeemployment under this Agreement giving effect to Employee's deferral election.Employee and the Company shall cooperate concerning the terms and conditions of such a



plan.

--------------------------------------------------------------------------------------------------------------------------3.6.3 In the event that Employee's employment is terminated prior to the earlier to

occur of (i) the closing of the merger of US West Communications, Inc. and Qwestcommunications, Inc., and (ii) December 31, 2000 and is (A) voluntarily terminated byEmployee without Good Reason or (B) terminated by the Company pursuant to Section 5.4of this Agreement, then Employee hereby agrees and acknowledges that he shall, onlywith respect to the Initial Installment of the Signing Bonus, repay the net cashportion (after taxes withheld) of the Signing Bonus and return any shares of CommonStock received by Employee as the Common Stock portion of the Signing Bonus to theCompany within twenty (20) days after such termination of employment.

3.6.4 In the event that, after Employee receives the Final Installment, Employee'semployment is (A) voluntarily terminated by Employee without Good Reason or (B)terminated by the Company pursuant to Section 5.4 of this Agreement, then Employeehereby agrees and acknowledges that he shall, only with respect to the FinalInstallment of the Signing Bonus, repay the net cash portion (after taxes withheld) ofthe Signing Bonus and return any shares of Common Stock received by Employee as theCommon Stock portion of the Signing Bonus to the Company within twenty (20) days aftersuch termination of employment in accordance with the following schedule:

</TABLE>

<TABLE><CAPTION>

Date of Termination of Employment Cash, Common Stock Portion of Final(based upon the applicable period of Installment of Signing Bonus to be Returned totime following Employee's receipt of Companythe Final Installment of the Signing

Bonus)<S> <C>-----------------------------------------------------------------------------------------

During the 1st through 3rd month 80%-----------------------------------------------------------------------------------------

During the 4th through 6th month 60%-----------------------------------------------------------------------------------------

During the 7th through 9th month 40%-----------------------------------------------------------------------------------------

During the 10th through 12th month 20%-----------------------------------------------------------------------------------------3.6.5 The Company shall have the right to offset and/or withhold any amounts accruedor owed to Employee in order to satisfy all or any portion of Employee's obligationsunder this Section 3.6.

-----------------------------------------------------------------------------------------------------------</TABLE>

2. Part of Agreement. This Addendum is a part of the Employment Services-----------------

Agreement executed on the same date as this Addendum.

3. Other Terms and Conditions. All other terms and conditions of the--------------------------

Agreement shall remain in full force and effect, as if fully stated herein.

4. Capitalized Terms. Capitalized terms, and other defined terms, shall have-----------------

the same meaning as that accorded to them in the Agreement, unless the contextrequires otherwise.

5. Conflict. If there are any conflicting terms or conditions between the--------

terms and conditions of this Addendum and the terms and conditions of theAgreement, the terms and conditions of this Addendum shall control.



EXHIBIT 10.2

Convergent Communications(TM) Proprietary Information

Amendment 1 to Employment Services Agreement

1. Original Agreement. The Company and Employee have entered into anEmployment Services Agreement dated effective March 9, 2000 ("Agreement"). ThisAmendment is entered into effective April 17, 2000.

2. Modifications. The Company and Employee agree to the following additions,changes and amendments to the Agreement:

Section Reference Additions, Changes or AmendmentsCompany and Employee acknowledge that for purposes of

3.6 this Agreement, the Company will provide temporary(Amendment) living and furniture storage as described in Section 3.6

for a period of one (1) year from the date of Employee'semployment.

Company agrees to pay down Employee's first residential3.7 mortgage interest rate to 7% on Employee's first

(new) residence purchased in the Denver metropolitan area;provided, that (i) the mortgage obtained by Employee issatisfactory to Company and is less than $1 million,(ii) this section shall not apply to any subsequentresidences purchased by Employee or any subsequentmortgages obtained by Employee, and (iii) this sectionshall only apply during the Term of Employee'semployment with the Company.

3. Part of Agreement. This Amendment is a part of the Agreement.

4. Other Terms and Conditions. All other terms and conditions of theAgreement shall remain in full force and effect, as if fully stated herein.

5. Capitalized Terms. Capitalized terms, and other defined terms, shall havethe same meaning as that accorded to them in the Agreement, unless the contextrequires otherwise.

6. Conflict. If there are any conflicting terms or conditions between theterms and conditions of this Amendment and the terms and conditions of theAgreement, the terms and conditions of this Amendment shall control.



IN WITNESS WHEREOF, the parties have executed this Amendment as of the dateshown above.

CONVERGENT COMMUNICATIONS, INC. BRIAN R. ERVINE(Company) (Employee)

By: /s/ Joseph R. Zell /s/ Brian R. Ervine________________________________ ________________________________

Title: Chief Executive Officer_____________________________



EXHIBIT 10.12================================================================================

LOAN AND SECURITY AGREEMENT

by and between

CONVERGENT COMMUNICATIONS SERVICES, INC.

as Borrower

and

THE FINANCIAL INSTITUTIONS NAMED HEREIN

as the Lenders,

and

FOOTHILL CAPITAL CORPORATION

as Agent

Dated as of April 18, 2000

================================================================================

TABLE OF CONTENTS-----------------

<TABLE><CAPTION>

Page(s)-------

<S> <C> <C>1. DEFINITIONS AND CONSTRUCTION....................................................................................... 1

1.1 Definitions.................................................................................................. 11.2 Accounting Terms............................................................................................. 211.3 Code......................................................................................................... 211.4 Construction................................................................................................. 211.5 Schedules and Exhibits....................................................................................... 22

2. LOAN AND TERMS OF PAYMENT.......................................................................................... 22

2.1 Revolving Advances........................................................................................... 222.2 Letter of Credit Subfacility................................................................................. 282.3 [Intentionally Omitted.]..................................................................................... 322.4 Payments..................................................................................................... 322.5 Overadvances................................................................................................. 332.6 Interest and Letter of Credit Fees: Rates, Payments, and Calculations....................................... 332.7 Collection of Accounts....................................................................................... 342.8 Crediting Payments; Application of Collections............................................................... 352.9 Designated Account........................................................................................... 352.10 Maintenance of Loan Account; Statements of Obligations...................................................... 362.11 Fees........................................................................................................ 36

3. CONDITIONS; TERM OF AGREEMENT...................................................................................... 37

3.1 Conditions Precedent to Closing Date......................................................................... 373.2 Conditions Precedent to the Initial Advance and Letter of Credit............................................. 393.3 Conditions Precedent to all Advances and all Letters of Credit............................................... 403.4 Condition Subsequent......................................................................................... 413.5 Term; Automatic Renewal...................................................................................... 413.6 Effect of Termination........................................................................................ 413.7 Early Termination by Borrower................................................................................ 423.8 Termination Upon Event of Default............................................................................ 42

4. CREATION OF SECURITY INTEREST...................................................................................... 42

4.1 Grant of Security Interest................................................................................... 424.2 Negotiable Collateral........................................................................................ 434.3 Collection of Accounts, General Intangibles, and Negotiable Collateral....................................... 434.4 Delivery of Additional Documentation Required................................................................ 434.5 Power of Attorney............................................................................................ 434.6 Right to Inspect............................................................................................. 44

5. REPRESENTATIONS AND WARRANTIES..................................................................................... 44



5.1 No Encumbrances.............................................................................................. 445.2 Eligible Accounts............................................................................................ 44

</TABLE>i

<TABLE><S> <C> <C>

5.3 Eligible Inventory........................................................................................... 445.4 Equipment.................................................................................................... 455.5 Location of Inventory and Equipment.......................................................................... 455.6 Inventory Records............................................................................................ 455.7 Location of Chief Executive Office; FEIN..................................................................... 455.8 Due Organization and Qualification; Subsidiaries............................................................. 455.10 Litigation.................................................................................................. 475.11 No Material Adverse Change.................................................................................. 475.12 No Fraudulent Transfer...................................................................................... 475.13 Employee Benefits........................................................................................... 475.14 Environmental Condition..................................................................................... 475.15 Brokerage Fees.............................................................................................. 485.16 Permits and other Intellectual Property..................................................................... 485.18 Outstanding Balance of Unsecured Notes...................................................................... 48

6. AFFIRMATIVE COVENANTS.............................................................................................. 49

6.1 Accounting System............................................................................................ 496.2 Collateral Reporting......................................................................................... 496.3 Financial Statements, Reports, Certificates.................................................................. 506.4 Tax Returns.................................................................................................. 516.5 Intentionally Omitted........................................................................................ 516.6 Returns...................................................................................................... 516.7 [Intentionally Omitted.]..................................................................................... 516.8 Maintenance of Equipment..................................................................................... 516.9 Taxes........................................................................................................ 516.10 Insurance................................................................................................... 526.11 No Setoffs or Counterclaims................................................................................. 536.12 Location of Inventory and Equipment......................................................................... 536.13 Compliance with Laws........................................................................................ 546.14 Employee Benefits........................................................................................... 546.15 Leases...................................................................................................... 546.16 Broker Commissions.......................................................................................... 556.17 Certain Notices............................................................................................. 55

7. NEGATIVE COVENANTS................................................................................................. 55

7.1 Indebtedness................................................................................................. 557.2 Liens........................................................................................................ 567.3 Restrictions on Fundamental Changes.......................................................................... 567.4 Disposal of Assets........................................................................................... 577.5 Change Name.................................................................................................. 577.6 Guarantee.................................................................................................... 577.7 Nature of Business........................................................................................... 577.8 Prepayments and Amendments................................................................................... 577.9 Change of Control............................................................................................ 587.10 Consignments................................................................................................ 587.11 Distributions............................................................................................... 58

</TABLE>

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<TABLE><S> <C> <C>

7.12 Accounting Methods........................................................................................... 597.13 Investments.................................................................................................. 597.14 Transactions with Affiliates................................................................................. 597.15 Suspension................................................................................................... 607.16 Compensation................................................................................................. 607.17 Use of Proceeds.............................................................................................. 607.18 Change in Location of Chief Executive Office; Inventory and Equipment with Bailees........................... 607.19 No Prohibited Transactions Under ERISA....................................................................... 607.20 Tangible Net Wroth........................................................................................... 617.21 Capital Expenditures......................................................................................... 627.22 Benefit Plans................................................................................................ 62

8. EVENTS OF DEFAULT................................................................................................... 62

9. THE LENDER GROUP'S RIGHTS AND REMEDIES.............................................................................. 65

9.1 Rights and Remedies........................................................................................... 659.2 Remedies Cumulative........................................................................................... 67



10. TAXES AND EXPENSES.................................................................................................. 67

11. WAIVERS; INDEMNIFICATION............................................................................................ 68

11.1 Demand; Protest; etc......................................................................................... 6811.2 The Lender Group's Liability for Collateral.................................................................. 6811.3 Indemnification.............................................................................................. 68

12. NOTICES............................................................................................................. 68

13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.......................................................................... 70

14. DESTRUCTION OF BORROWER'S DOCUMENTS................................................................................. 70

15. ASSIGNMENTS AND PARTICIPATIONS; SUCCESSORS.......................................................................... 71

15.1 Assignments and Participations............................................................................... 7115.2 Successors................................................................................................... 73

16. AMENDMENTS; WAIVERS................................................................................................. 73

16.1 Amendments and Waivers....................................................................................... 7316.2 No Waivers; Cumulative Remedies.............................................................................. 74

17. AGENT; THE LENDER GROUP............................................................................................. 74

17.1 Appointment and Authorization of Agent....................................................................... 7417.2 Delegation of Duties......................................................................................... 7517.3 Liability of Agent........................................................................................... 7517.4 Reliance by Agent............................................................................................ 7617.5 Notice of Default or Event of Default........................................................................ 7617.6 Credit Decision.............................................................................................. 7617.7 Costs and Expenses; Indemnification.......................................................................... 77

</TABLE>

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<TABLE><S> <C> <C>

17.8 Agent in Individual Capacity................................................................................ 7817.9 Successor Agent............................................................................................. 7817.10 Withholding Tax............................................................................................. 7817.11 Collateral Matters.......................................................................................... 8017.12 Restrictions on Actions by Lenders; Sharing of Payments..................................................... 8117.13 Agency for Perfection....................................................................................... 8117.14 Payments by Agent to the Lenders............................................................................ 8117.15 Concerning the Collateral and Related Loan Documents........................................................ 8217.16 Field Audits and Examination Reports; Confidentiality; Disclaimers by Lenders;

Other Reports and Information............................................................................... 8217.17 Several Obligations; No Liability........................................................................... 83

18. GENERAL PROVISIONS................................................................................................. 84

18.1 Effectiveness................................................................................................ 8418.2 Section Headings............................................................................................. 8418.3 Interpretation............................................................................................... 8418.4 Severability of Provisions................................................................................... 8418.5 Amendments in Writing........................................................................................ 8418.6 Counterparts; Telefacsimile Execution........................................................................ 8418.7 Revival and Reinstatement of Obligations..................................................................... 8418.8 Integration.................................................................................................. 85

</TABLE>SCHEDULES AND EXHIBITS----------------------

Schedule C-1 CommitmentsSchedule E-1 Eligible Inventory LocationsSchedule P-1 Permitted LiensSchedule 5.8 SubsidiariesSchedule 5.10 LitigationSchedule 5.13 ERISA Benefit PlansSchedule 6.12 Location of Inventory and EquipmentSchedule 7.1 Permitted Other IndebtednessSchedule 7.14 Transactions with Affiliates

Exhibit A-1 Form of Assignment and Acceptance AgreementExhibit C-1 Form of Compliance CertificateExhibit 3.1(p) Permitted Items and Property to Secure IndebtednessExhibit 3.2(e) Required UCC Terminations, Amendments, and Releases

iv



LOAN AND SECURITY AGREEMENT---------------------------

THIS LOAN AND SECURITY AGREEMENT (this "Agreement"), is entered into as ofApril 18, 2000, among the financial institutions listed on the signature pageshereof (such financial institutions, together with their respective successorsand assigns, are referred to hereinafter each individually as a "Lender" andcollectively as the "Lenders"), FOOTHILL CAPITAL CORPORATION, a Californiacorporation, as agent for the Lenders ("Agent"), with a place of businesslocated at 11111 Santa Monica Boulevard, Suite 1500, Los Angeles, California90025-3333 and CONVERGENT COMMUNICATIONS SERVICES, INC., a Colorado corporation("Borrower"), with its chief executive office located at 400 Inverness DriveSouth, Suite 400, Englewood, Colorado 80112.

The parties agree as follows:

1. DEFINITIONS AND CONSTRUCTION.

1.1 Definitions. As used in this Agreement, the following termsshall have the following definitions:

"Account Debtor" means any Person who is or who may become--------------

obligated under, with respect to, or on account of, an Account.

"Accounts" means all currently existing and hereafter arising--------

accounts, contract rights, and all other forms of obligations owing to Borrowerarising out of the sale or lease of goods or the rendition of services byBorrower, irrespective of whether earned by performance, and any and all creditinsurance, guaranties, or security therefor.

"Acquisition Sub" means CCSI Acquisition Corporation No. 1, a---------------

Colorado corporation.

"Advances" has the meaning set forth in Section 2.1(a).-------- --------------

"Affiliate" means, as applied to any Person, any other Person---------

who directly or indirectly controls, is controlled by, is under common controlwith or is a director or officer of such Person. For purposes of thisdefinition, "control" means the possession, directly or indirectly, of the powerto vote 5% or more of the securities having ordinary voting power for theelection of directors or the direct or indirect power to direct the managementand policies of a Person.

"Agent" means Foothill, solely in its capacity as agent for-----

the Lenders, and shall include any successor agent.

"Agent Account" has the meaning set forth in Section 2.7.------------- -----------

"Agent Advances" has the meaning set forth in Section 2.1(g).-------------- --------------

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"Agent's Liens" has the meaning set forth in Section 4.1.------------- -----------

"Agent-Related Persons" means Agent and any successor agent,---------------------

together with their respective Affiliates, and the officers, directors,employees, counsel, agents, and attorneys-in-fact of such Persons and theirAffiliates.

"Agreement" has the meaning set forth in the preamble hereto.---------

"Assignee" has the meaning set forth in Section 15.1.-------- ------------

"Assignment and Acceptance" has the meaning set forth in-------------------------

Section 15.1 and shall be in the form of Exhibit A-1 attached hereto.

"Authorized Person" means any officer or other employee of-----------------



Borrower.

"Availability" means the amount that Borrower is entitled to------------

borrow as Advances under Section 2.1, such amount being the difference derived-----------

when (a) the sum of (i) the principal amount of Advances (including AgentAdvances and Foothill Loans) then outstanding (including any amounts that theLender Group may have paid for the account of Borrower pursuant to any of theLoan Documents and that have not been reimbursed by Borrower), plus (ii) the

----aggregate amount of the accounts payable of Borrower and the other Loan Partiesthat are not within 45 days of due date, as determined by Agent, is subtractedfrom (b) the least of (i) the Maximum Revolving Amount less the Letter of Credit

----Usage, or (ii) the Borrowing Base less the aggregate amount of all Letter ofCredit Usage, or (iii) the Unsecured Notes Indebtedness Limitation less the

----Letter of Credit Usage.

"Average Unused Portion of Maximum Revolving Amount" means,--------------------------------------------------

as of any date of determination, (a) the Maximum Revolving Amount, less (b) the----

sum of (i) the average Daily Balance of Advances that were outstanding duringthe immediately preceding month, plus (ii) the average Daily Balance of the

----Letter of Credit Usage during the immediately preceding month.

"Bankruptcy Code" means the United States Bankruptcy Code (11---------------

U.S.C. (S) 101 et seq.), as amended, and any successor statute.------

"Benefit Plan" means a "defined benefit plan" (as defined in------------

Section 3(35) of ERISA) for which Borrower, any Subsidiary of Borrower, or anyERISA Affiliate has been an "employer" (as defined in Section 3(5) of ERISA)within the past six years.

"Books" means all of Borrower's and each other Loan Party's,-----

and their respective Subsidiaries', books and records (in whatever media or formthey may now or hereafter exist) including: ledgers; records indicating,summarizing, or evidencing Borrower's and each other Loan Party's, and theirrespective Subsidiaries', properties or assets (including the Collateral) orliabilities; all information relating to Borrower's and each other Loan Party's,and their respective Subsidiaries', business operations or financial condition;all billing software, programs, systems and

2

source codes; and all computer programs, disk or tape files, printouts, runs, orother computer prepared information.

"Borrower" has the meaning set forth in the preamble to this--------

Agreement.

"Borrowing" means a borrowing hereunder consisting of---------

Advances made on the same day by the Lenders to Borrower, or by Foothill in thecase of a Foothill Loan, or by Agent in the case of an Agent Advance.

"Borrowing Base" has the meaning set forth in Section 2.1(a).-------------- --------------

"Business Day" means any day that is not a Saturday, Sunday,------------

or other day on which national banks are authorized or required to close.

"CCC" means Convergent Capital Corporation, a Colorado---

corporation.

"CCI" means Convergent Communications, Inc., a Colorado---

corporation.

"Change of Control" shall be deemed to have occurred at such-----------------

time as (a) a "person" or "group" (within the meaning of Sections 13(d) and14(d)(2) of the Securities Exchange Act of 1934) other than TPG (or an Affiliate



of TPG which is controlled by TPG) or SCM (or an Affiliate of SCM which iscontrolled by SCM) becomes the "beneficial owner" (as defined in Rule 13d-3under the Securities Exchange Act of 1934), directly or indirectly, of more than40% of the total voting power of all classes of stock then outstanding of CCIentitled to vote in the election of directors, or (b) a "person" or "group"(within the meaning of Sections 13(d) and 14(d)(2) of the Securities ExchangeAct of 1934) other than CCI becomes the "beneficial owner" (as defined in Rule13d-3 under the Securities Exchange Act of 1934), directly or indirectly, of anyvoting power of any class of stock then outstanding of Borrower or CCC entitledto vote in the election of directors, or (c) a "person" or "group" (within themeaning of Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934)other than Borrower or CCI becomes the "beneficial owner" (as defined in Rule13d-3 under the Securities Exchange Act of 1934), directly or indirectly, of anyvoting power of any class of stock then outstanding of any Subsidiary ofBorrower entitled to vote in the election of directors.

"Closing Date" means the date of the satisfaction, or waiver------------

in writing by Agent, of all of the conditions contained in Section 3.1.-----------

"Code" means the California Uniform Commercial Code.----

"Collateral" means all of Borrower's right, title, and----------

interest in and to each of the following:

(a) the Accounts,

(b) the Books,

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(c) the General Intangibles,

(d) the Inventory,

(e) the Investment Property,

(f) the Negotiable Collateral,

(g) any money, or other assets of Borrower that now orhereafter come into the possession, custody, or control of any member of theLender Group, and

(h) the proceeds and products, whether tangible orintangible, of any of the foregoing, including proceeds of insurance coveringany or all of the Collateral, and any and all Accounts, the Books, GeneralIntangibles, Inventory, Investment Property, Negotiable Collateral, money,deposit accounts, or other tangible or intangible property resulting from thesale, exchange, collection, or other disposition of any of the foregoing, or anyportion thereof or interest therein, and the proceeds thereof; provided,however, that Collateral shall not include the Excluded Property (asdefined below). As used in this definition of Collateral, "Excluded Property"means Borrower's contract rights, license agreements, leases pertaining to realor personal property or other general intangibles with respect to which thegranting of a security interest therein by Borrower to Agent is prohibited byapplicable law or by the terms and provisions of the written agreement, documentor instrument creating or evidencing such contract rights, license agreements,leases pertaining to real or personal property or other general intangibles(other than to the extent that such prohibition, or the term or provisionproviding for such prohibition, is rendered ineffective pursuant to Section9318(4) of the Code or other applicable law, including the Bankruptcy Code orprinciples of equity); provided, however, that (i) immediately upon the

-------- -------ineffectiveness, lapse or termination of any such prohibition or term orprovision providing for such prohibition, the Collateral shall include, andBorrower shall be deemed to have granted a security interest to Agent in, allsuch contract rights, license agreements, leases pertaining to real or personalproperty and other general intangibles as if such prohibition, or term orprovision providing for such prohibition, had never been in effect, and (ii) inno event shall "Excluded Property" under any circumstances include "accounts"(as such term is defined in the Code) or "inventory" (as such term is defined inthe Code).

"Collateral Access Agreement" means a landlord waiver or---------------------------

consent, mortgagee waiver or consent, bailee letter, or a similaracknowledgement agreement of any warehouseman, processor, lessor, consignee, orother Person in possession of, having a Lien upon, or having rights or interestsin the Equipment or Inventory, in each case, in form and substance satisfactoryto Agent.



"Collections" means all cash, checks, notes, instruments, and-----------

other items of payment (including, insurance proceeds, proceeds of cash sales,rental proceeds, and tax refunds).

4

"Commitment" means, at any time with respect to a Lender, the----------

principal amount set forth beside such Lender's name under the heading"Commitment" on Schedule C-1 attached hereto or on the signature page of the

------------Assignment and Acceptance pursuant to which such Lender became a Lenderhereunder in accordance with the provisions of Section 15.1, as such Commitment

------------may be adjusted from time to time in accordance with the provisions of Section15.1, and "Commitments" means, collectively, the aggregate amount of the

-----------commitments of all of the Lenders.

"Compliance Certificate" means a certificate substantially in----------------------

the form of Exhibit C-1 and delivered by the chief accounting officer ofBorrower to Agent.

"Control Agreement" means a control agreement, in form and-----------------

substance reasonably satisfactory to Agent, between Borrower, Agent, and theapplicable securities intermediary with respect to the applicable SecuritiesAccount and related Investment Property.

"Daily Balance" means the amount of an Obligation owed at the-------------

end of a given day.

"deems itself insecure" means that the Person deems itself---------------------

insecure in accordance with the provisions of Section 1208 of the Code.

"Default" means an event, condition, or default that, with-------

the giving of notice, the passage of time, or both, would be an Event ofDefault.

"Defaulting Lender" means any Lender that fails to make any-----------------

Advance that it is required to make hereunder on any Funding Date and that hasnot cured such failure by making such Advance within 1 Business Day afterwritten demand upon it by Agent to do so.

"Defaulting Lenders Rate" means the Reference Rate for the-----------------------

first 3 days from and after the date the relevant payment is due and,thereafter, at the interest rate then applicable to Advances.

"Designated Account" means account number 1018186981 of------------------

Borrower maintained with Borrower's Designated Account Bank, or such otherdeposit account of Borrower (located within the United States) which has beendesignated, in writing and from time to time, by Borrower to Agent.

"Designated Account Bank" means Norwest Bank Colorado, N.A.,-----------------------

whose office is located at 1740 Broadway, Denver, Colorado 80274-8685, and whoseABA number is 102000076.

"Dilution" means, in each case based upon the experience of--------

the immediately prior 180 days, the result of dividing the Dollar amount of (a)bad debt write-downs, discounts, advertising, returns, promotions, credits, orother dilution with respect to the Accounts, by (b) Borrower's Collections(excluding extraordinary items) plus the Dollar amount of clause (a).

5

"Dilution Reserve" means, as of any date of determination, an----------------

amount sufficient to reduce the advance rate against Eligible Accounts hereunderby one percentage point for each percentage point by which Dilution is in excessof five percent (5%).



"Disbursement Letter" means an instructional letter executed-------------------

and delivered by Borrower to Agent regarding the extensions of credit to be madeon the Initial Advance Effective Date, the form and substance of which shall besatisfactory to Agent.

"Dollars or $" means United States dollars.------------

"Early Termination Premium" has the meaning set forth in-------------------------

Section 3.7.-----------

"Eligible Accounts" means those Accounts (net of unapplied-----------------

cash, customer deposits, deferred maintenance, deferred revenue, billingspertaining to Borrower's "Enterprise Management Services", "Enterprise NetworkSolutions" or similar arrangements, unreconciled variances between Borrower'saccounts receivable aging and Borrower's general ledger, and credits posted toBorrower's general ledger and not reflected on Borrower's accounts receivableaging) created by Borrower in the ordinary course of business, that arise out ofBorrower's sale of goods or rendition of services, that strictly comply witheach and all of the representations and warranties respecting Accounts made byBorrower to Agent in the Loan Documents, and that are and at all times continueto be acceptable to Agent in all respects; provided, however, that standards of

--------- -------eligibility may be fixed and revised from time to time by Agent in Agent'sreasonable credit judgment. Eligible Accounts shall not include the following:

(a) Accounts that the Account Debtor has failed to paywithin 90 days of original invoice date or 60 days of original due date;

(b) Accounts owed by an Account Debtor or its Affiliatesknown to any Loan Party where 50% or more of all Accounts owed by that AccountDebtor (or such Affiliates) are deemed ineligible under clause (a) above;

(c) Accounts with respect to which the Account Debtor isan employee, Subsidiary, Affiliate, or agent of Borrower;

(d) Accounts that have been rebilled;

(e) Accounts with respect to which goods are placed onconsignment, guaranteed sale, sale or return, sale on approval, bill and hold,or other terms by reason of which the payment by the Account Debtor may beconditional;

(f) Accounts that are not payable in Dollars or withrespect to which the Account Debtor: (i) does not maintain its chief executiveoffice in the United States, or (ii) is not organized under the laws of theUnited States or any State thereof, or (iii) is the government of any foreigncountry or sovereign state, or of any state, province, municipality, or otherpolitical

6

subdivision thereof, or of any department, agency, public corporation, or otherinstrumentality thereof, unless (y) the Account is supported by an irrevocableletter of credit satisfactory to Agent (as to form, substance, and issuer ordomestic confirming bank) that has been delivered to Agent and is directlydrawable by Agent, or (z) the Account is covered by credit insurance in form andamount, and by an insurer, satisfactory to Agent;

(g) Accounts with respect to which the Account Debtor iseither (i) the United States or any department, agency, or instrumentality ofthe United States (exclusive, however, of Accounts with respect to whichBorrower has complied, to the satisfaction of Agent, with the Assignment ofClaims Act, 31 U.S.C. (S) 3727), or (ii) any State of the United States(exclusive, however, of Accounts owed by any State that does not have astatutory counterpart to the Assignment of Claims Act);

(h) Accounts with respect to which the Account Debtor isa creditor of Borrower, has or has asserted a right of setoff, has disputed itsliability, or has made any claim with respect to the Account, to the extent ofsuch right, dispute or claim, as the case may be;

(i) Accounts with respect to an Account Debtor whosetotal obligations owing to Borrower exceed 10% of all Eligible Accounts, to theextent of the obligations owing by such Account Debtor in excess of suchpercentage;

(j) Accounts with respect to which the Account Debtor issubject to any Insolvency Proceeding, or becomes insolvent, or goes out ofbusiness;



(k) Accounts the collection of which Agent, in itsreasonable credit judgment, believes to be doubtful by reason of the AccountDebtor's financial condition;

(l) Accounts with respect to which the goods giving riseto such Account have not been shipped and billed to the Account Debtor, theservices giving rise to such Account have not been performed and accepted by theAccount Debtor, or the Account otherwise does not represent a final sale;

(m) Accounts with respect to which the Account Debtor islocated in the states of New Jersey, Minnesota, Indiana, or West Virginia (orany other state that requires a creditor to file a Business Activity Report orsimilar document in order to bring suit or otherwise enforce its remediesagainst such Account Debtor in the courts or through any judicial process ofsuch state), unless Borrower has qualified to do business in New Jersey,Minnesota, Indiana, West Virginia, or such other states, or has filed a Noticeof Business Activities Report with the applicable division of taxation, thedepartment of revenue, or with such other state offices, as appropriate, for thethen-current year, or is exempt from such filing requirement;

(n) Accounts that represent progress payments or otheradvance billings that are due prior to the completion of performance by Borrowerof the subject contract for goods or services;

7

(o) Accounts acquired by Borrower from another Person(whether in a Permitted Acquisition or otherwise) with respect to which Agenthas not performed an audit the results of which are satisfactory to Agent in itssole discretion; and

(p) At any time during which Accounts that arise from orrelate to the sale of voice or data long distance services or switching servicesprovided through a third party (a "Third Party Provider") exceed 30% ofBorrower's revenue during the immediately preceding calendar month, all suchAccounts with respect to which the related Third Party Provider is not a partyto a written intercreditor in favor of Agent, in form and substance satisfactoryto Agent, which provides for, among other things, continuity of service by suchThird Party Provider for a reasonable period of time following a default by anyLoan Party under its agreements with such Third Party Provider.

"Eligible Inventory" means Inventory consisting of first------------------

quality finished goods held for sale in the ordinary course of Borrower'sbusiness, that are located at or in-transit between Borrower's premisesidentified on Schedule E-1, that strictly comply with each and all of the

------------representations and warranties respecting Inventory made by Borrower to Agent inthe Loan Documents, and that are and at all times continue to be acceptable toAgent in its sole discretion in all respects; provided, however, that standards

-------- -------of eligibility may be fixed and revised from time to time by Agent in Agent'ssole discretion. In determining the amount to be so included, Inventory shall bevalued at the lower of cost or market on a basis consistent with Borrower'scurrent and historical accounting practices. An item of Inventory shall not beincluded in Eligible Inventory if:

(a) it is not owned solely by Borrower or Borrower doesnot have good, valid, and marketable title thereto;

(b) it is not located at one of the locations set forthon Schedule E-1;

(c) it is not located on property owned or leased byBorrower or in a contract warehouse, in each case, subject to a CollateralAccess Agreement executed by the mortgagee, lessor, the warehouseman, or otherthird party, as the case may be, and segregated or otherwise separatelyidentifiable from goods of others, if any, stored on the premises;

(d) it is not subject to a valid and perfected firstpriority security interest in favor of Agent for the benefit of the LenderGroup;

(e) it consists of goods returned or rejected byBorrower's customers or goods in transit;

(f) it is obsolete or slow moving, a restrictive orcustom item, raw materials, work-in-process, a component that is not part offinished goods, or constitutes spare parts, packaging and shipping materials,supplies used or consumed in Borrower's business, Inventory subject to a Lien infavor of any third Person, bill and hold goods, defective goods, "seconds," orInventory acquired on consignment or accepted on trade; and



8

(g) it is Inventory acquired in a transaction outside theordinary course of business (whether in a Permitted Acquisition or otherwise)with respect to which Agent has not performed an audit the results of which aresatisfactory to Agent in its sole discretion.

"Eligible Transferee" means: (a) a commercial bank organized-------------------

under the laws of the United States, or any state thereof, and having totalassets in excess of $100,000,000; (b) a commercial bank organized under the lawsof any other country which is a member of the Organization for EconomicCooperation and Development or a political subdivision of any such country, andhaving total assets in excess of $100,000,000; provided that such bank is actingthrough a branch or agency located in the United States; (c) a finance company,insurance company or other financial institution or fund that is engaged inmaking, purchasing or otherwise investing in commercial loans in the ordinarycourse of its business and having total assets in excess of $50,000,000; (d) anyAffiliate (other than individuals) of a pre-existing Lender; (e) so long as noEvent of Default has occurred and is continuing, any other Person approved byAgent and Borrower; and (f) during the continuation of an Event of Default, anyother Person approved by Agent.

"Equipment" means all of Borrower's present and hereafter---------

acquired machinery, machine tools, motors, equipment, furniture, furnishings,fixtures, vehicles (including motor vehicles and trailers), tools, parts, goods(other than consumer goods, farm products, or Inventory), wherever located,including, (a) any interest of Borrower in any of the foregoing, and (b) allattachments, accessories, accessions, replacements, substitutions, additions,and improvements to any of the foregoing.

"ERISA" means the Employee Retirement Income Security Act of-----

1974, 29 U.S.C. (S)(S) 1000 et seq., amendments thereto, successor statutes, andregulations or guidance promulgated thereunder.

"ERISA Affiliate" means (a) any corporation subject to ERISA---------------

whose employees are treated as employed by the same employer as the employees ofBorrower under IRC Section 414(b), (b) any trade or business subject to ERISAwhose employees are treated as employed by the same employer as the employees ofBorrower under IRC Section 414(c), (c) solely for purposes of Section 302 ofERISA and Section 412 of the IRC, any organization subject to ERISA that is amember of an affiliated service group of which Borrower is a member under IRCSection 414(m), or (d) solely for purposes of Section 302 of ERISA and Section412 of the IRC, any party subject to ERISA that is a party to an arrangementwith Borrower and whose employees are aggregated with the employees of Borrowerunder IRC Section 414(o).

"ERISA Event" means (a) a Reportable Event with respect to-----------

any Benefit Plan or Multiemployer Plan, (b) the withdrawal of Borrower, any ofits Subsidiaries or ERISA Affiliates from a Benefit Plan during a plan year inwhich it was a "substantial employer" (as defined in Section 4001(a)(2) ofERISA), (c) the providing of notice of intent to terminate a Benefit Plan in adistress termination (as described in Section 4041(c) of ERISA), (d) theinstitution by the PBGC of proceedings to terminate a Benefit Plan orMultiemployer Plan, (e) any event or condition (i) that provides a basis underSection 4042(a)(1), (2), or (3) of ERISA for the termination of, or the

9

appointment of a trustee to administer, any Benefit Plan or Multiemployer Plan,or (ii) that may result in termination of a Multiemployer Plan pursuant toSection 4041A of ERISA, (f) the partial or complete withdrawal within themeaning of Sections 4203 and 4205 of ERISA, of Borrower, any of its Subsidiariesor ERISA Affiliates from a Multiemployer Plan, or (g) providing any security toany Plan under Section 401(a)(29) of the IRC by Borrower or its Subsidiaries orany of their ERISA Affiliates.

"Event of Default" has the meaning set forth in Section 8.---------------- ---------

"Exchange Act" means the Securities Exchange Act of 1934, as------------

amended, and any successor statute thereto.

"FEIN" means Federal Employer Identification Number.----



"Foothill" means Foothill Capital Corporation, a California--------

corporation.

"Foothill Loans" has the meaning set forth in Section 2.1(f).-------------- --------------

"Funding Date" means the date on which a Borrowing occurs.------------

"GAAP" means generally accepted accounting principles as in----

effect from time to time in the United States, consistently applied.

"General Intangibles" means all of Borrower's present and-------------------

future general intangibles and other personal property (including contractrights, rights arising under common law, statutes, or regulations, choses orthings in action, goodwill, Permits, patents, trade names, trademarks,servicemarks, copyrights, blueprints, drawings, purchase orders, customer lists,monies due or recoverable from pension funds, route lists, rights to payment andother rights under any royalty or licensing agreements, infringement claims,computer programs, information contained on computer disks or tapes, billingsoftware, programs, source codes and systems (in whatever media or form they maynow or hereafter exist), literature, reports, catalogs, deposit accounts,insurance premium rebates, tax refunds, and tax refund claims), other thangoods, Accounts, and Negotiable Collateral.

"Governing Documents" means, with respect to any Person, the-------------------

certificate or articles of incorporation, by-laws, or other organizational orgoverning documents of such Person.

"Governmental Authority" means any nation or government, any----------------------

state, province, or other political subdivision thereof, any central bank (orsimilar monetary or regulatory authority) thereof, any entity exercisingexecutive, legislative, judicial, regulatory or administrative functions of orpertaining to government, and any corporation or other entity owned orcontrolled, through Stock or capital ownership or otherwise, by any of theforegoing.

"Guaranty Agreements" means, collectively, any and all of the-------------------

guaranty agreements with respect to the Obligations which are, or are to be,executed by a Guarantor in

10

favor of Agent for the benefit of the Lender Group, as required from time totime by Agent, in form and substance satisfactory to Agent, in each case as thesame may be amended, modified, restated, supplemented, increased, renewed,extended, substituted for or replaced from time to time.

"Guarantor" means all holding companies and parent companies---------

of Borrower, including, but not limited to CCI and all subsidiaries of CCI andall subsidiaries of Borrower, including, but not limited to, CCC and WAI, andeach other Person who may hereafter guarantee payment or performance of thewhole or any part of the Obligations.

"Hazardous Materials" means (a) substances that are defined-------------------

or listed in, or otherwise classified pursuant to, any applicable laws orregulations as "hazardous substances," "hazardous materials," "hazardouswastes," "toxic substances," or any other formulation intended to define, list,or classify substances by reason of deleterious properties such as ignitability,corrosivity, reactivity, carcinogenicity, reproductive toxicity, or "EPtoxicity", (b) oil, petroleum, or petroleum derived substances, natural gas,natural gas liquids, synthetic gas, drilling fluids, produced waters, and otherwastes associated with the exploration, development, or production of crude oil,natural gas, or geothermal resources, (c) any flammable substances or explosivesor any radioactive materials, and (d) asbestos in any form or electricalequipment that contains any oil or dielectric fluid containing levels ofpolychlorinated biphenyls in excess of 50 parts per million.

"Indebtedness" means: (a) all obligations of Borrower or CCI,------------

or any of their respective Subsidiaries, for borrowed money, (b) all obligationsof Borrower or CCI, or any of their respective Subsidiaries, evidenced by bonds,debentures, notes, or other similar instruments and all reimbursement or otherobligations of Borrower in respect of letters of credit, bankers acceptances,interest rate swaps, or other financial products, (c) all obligations of



Borrower or CCI, or any of their respective Subsidiaries, under capital leases,(d) all obligations or liabilities of others secured by a Lien on any propertyor asset of Borrower or CCI, or any of their respective Subsidiaries,irrespective of whether such obligation or liability is assumed, and (e) anyobligation of Borrower or CCI, or any of their respective Subsidiaries,guaranteeing or intended to guarantee (whether guaranteed, endorsed, co-made,discounted, or sold with recourse to Borrower or CCI, or any of their respectiveSubsidiaries) any indebtedness, lease, dividend, letter of credit, or otherobligation of any other Person.

"Indemnified Liabilities" has the meaning set forth in-----------------------

Section 11.3.------------

"Indemnified Person" has the meaning set forth in Section------------------ -------

11.3.----

"Initial Advance Effective Date" means the date of the first------------------------------

Advance made or the first Letter of Credit issued under this Agreement followingthe satisfaction, or waiver in writing by Agent, of all of the conditionscontained in Section 3.1, all of the conditions contained in Section 3.2 and all

----------- -----------of the conditions contained in Section 3.3.

-----------

"Insolvency Proceeding" means any proceeding commenced by or---------------------

against any Person under any provision of the Bankruptcy Code or under any otherbankruptcy or

11

insolvency law, assignments for the benefit of creditors, formalor informal moratoria, compositions, extensions generally with creditors, orproceedings seeking reorganization, arrangement, or other similar relief.

"Intangible Assets" means, with respect to any Person, that-----------------

portion of the book value of all of such Person's assets that would be treatedas intangibles under GAAP.

"Intellectual Property" has the meaning ascribed thereto in---------------------

Section 5.16.------------

"Inventory" means all present and future inventory in which---------

Borrower has any interest, including goods held for sale or lease or to befurnished under a contract of service and all of Borrower's present and futureraw materials, work in process, finished goods, and packing and shippingmaterials, wherever located.

"Inventory Line Conditions" means all of the following: (I)-------------------------

Agent shall have received and reviewed a current appraisal of Borrower'sInventory prepared by an appraiser acceptable to Agent in Agent's solediscretion and such appraisal shall be in form and substance acceptable toAgent, in Agent's reasonable discretion; (II) Agent shall have reviewedBorrower's accounting system and Borrower's perpetual inventory accountingsystem shall be acceptable to Agent, in Agent's discretion, and (III) Agentshall have received and reviewed a current audit of Borrower's perpetualinventory accounting system performed by Foothill's auditors and the results ofsuch audit shall be acceptable to Agent, in Agent's discretion.

"Inventory Reserves" means reserves (determined from time to------------------

time by Agent in its discretion) for the estimated reclamation claims of unpaidsellers of Inventory sold to Borrower.

"Investment Property" means all of a Person's present and-------------------

hereafter acquired securities, whether certified or uncertified, securityentitlements, securities accounts, commodity contracts and commodity accounts,together with all "investment property" as that term is defined in Section 9115of the Code, together with all components thereof, other than the UnsecuredNotes Cash Collateral.

"IRC" means the Internal Revenue Code of 1986, as amended,---



and the regulations thereunder.

"L/C" has the meaning set forth in Section 2.2(a).--- --------------

"L/C Guaranty" has the meaning set forth in Section 2.2(a).------------ --------------

"Legal Requirements" means all applicable international,------------------

foreign, federal, state, and local laws, judgments, decrees, orders, statutes,ordinances, rules, regulations, or Permits.

12

"Lender" and "Lenders" have the respective meanings set forth------ -------

in the preamble to this Agreement, and shall include any other Person made aparty to this Agreement in accordance with the provisions of Section 15.1

------------hereof.

"Lender Group" means, individually and collectively, each of------------

the individual Lenders and Agent.

"Lender Group Expenses" means all: costs or expenses---------------------

(including taxes, and insurance premiums) required to be paid by Borrower underany of the Loan Documents that are paid or incurred by the Lender Group;reasonable fees or charges paid or incurred by the Lender Group in connectionwith the Lender Group's transactions with Borrower, including, fees or chargesfor photocopying, notarization, couriers and messengers, telecommunication,public record searches (including tax lien, litigation, and UCC (or equivalent)searches and including searches with the patent and trademark office, thecopyright office, or the department of motor vehicles), filing, recording,publication, appraisal (including periodic Collateral appraisals), real estatesurveys, real estate title policies and endorsements, and environmental audits;costs and expenses incurred by Agent in the disbursement of funds to Borrower(by wire transfer or otherwise); customary charges paid or incurred by Agentresulting from the dishonor of checks; reasonable costs and expenses paid orincurred by the Lender Group to correct any default or enforce any provision ofthe Loan Documents, or in gaining possession of, maintaining, handling,preserving, storing, shipping, selling, preparing for sale, or advertising tosell the Collateral, or any portion thereof, irrespective of whether a sale isconsummated; reasonable costs and expenses paid or incurred by Agent inexamining the Books; costs and expenses of third party claims or any other suitpaid or incurred by the Lender Group in enforcing or defending the LoanDocuments or in connection with the transactions contemplated by the LoanDocuments or the Lender Group's relationship with Borrower (or any of itsSubsidiaries party to one or more Loan Documents); and the Lender Group'sreasonable attorneys fees and expenses incurred in advising, structuring,drafting, reviewing, administering, amending, terminating, enforcing (includingattorneys fees and expenses incurred in connection with a "workout," a"restructuring," or an Insolvency Proceeding concerning Borrower), defending, orconcerning the Loan Documents, irrespective of whether suit is brought.

"Lender-Related Persons" means, with respect to any Lender,----------------------

such Lender, together with such Lender's Affiliates, and the officers,directors, employees, counsel, agents, and attorneys-in-fact of such Lender andsuch Lender's Affiliates.

"Letter of Credit" means an L/C or an L/C Guaranty, as the----------------

context requires.

"Letter of Credit Usage" means the sum of (a) the undrawn----------------------

amount of Letters of Credit, plus (b) the amount of unreimbursed drawings under----

Letters of Credit.

"Lien" means any interest in property securing an obligation----

owed to, or a claim by, any Person other than the owner of the property, whethersuch interest shall be based on the common law, statute, or contract, whethersuch interest shall be recorded or perfected, and whether such interest shall becontingent upon the occurrence of some future event or events or the existenceof some future circumstance or circumstances, including the lien or securityinterest

13



arising from a mortgage, deed of trust, encumbrance, pledge, hypothecation,assignment, deposit arrangement, security agreement, adverse claim or charge,conditional sale or trust receipt, or from a lease, consignment, or bailment forsecurity purposes and also including reservations, exceptions, encroachments,easements, rights-of-way, covenants, conditions, restrictions, leases, and othertitle exceptions and encumbrances affecting Real Property.

"Loan Account" has the meaning set forth in Section 2.10.------------ ------------

"Loan Documents" means this Agreement, the Security--------------

Agreements, the Disbursement Letter, the Letters of Credit, the LockboxAgreements, the Intercreditor Agreements, any note or notes executed by Borrowerand payable to the Lender Group, and any other agreement entered into, now or inthe future, in connection with this Agreement.

"Loan Party" means Borrower and each Guarantor.----------

"Lockbox Account" shall mean a depositary account established---------------

pursuant to one of the Lockbox Agreements.

"Lockbox Agreements" means those certain Lockbox Operating------------------

Procedural Agreements and those certain Depository Account Agreements, in formand substance satisfactory to Agent, each of which is among Borrower, Agent, andone of the Lockbox Banks.

"Lockbox Banks" means Norwest Bank, N.A., or such other banks-------------

as may be agreed to by Borrower and Foothill from time to time.

"Lockboxes" has the meaning set forth in Section 2.7.--------- -----------

"Material Adverse Change" means (a) a material adverse change-----------------------

in the business, prospects, operations, results of operations, assets,liabilities or condition (financial or otherwise) of Borrower and the Guarantorstaken as a whole, (b) the material impairment of Borrower's ability to performits obligations under the Loan Documents to which it is a party or of the LenderGroup to enforce the Obligations or realize upon the Collateral, (c) a materialadverse effect on the value of the Collateral or the amount that the LenderGroup would be likely to receive (after giving consideration to delays inpayment and costs of enforcement) in the liquidation of the Collateral, or (d) amaterial impairment of the priority of the Agent's Liens with respect to theCollateral.

"Maximum Revolving Amount" means $50,000,000.------------------------

"Multiemployer Plan" means a "multiemployer plan" (as defined------------------

in Section 4001(a)(3) of ERISA) to which Borrower, any of its Subsidiaries, orany ERISA Affiliate has contributed, or was obligated to contribute, within thepast six years.

"Negotiable Collateral" means all of a Person's present and---------------------

future letters of credit, notes, drafts, instruments, Investment Property,documents, personal property leases

14

(wherein such Person is the lessor), chattel paper, and the Books relating toany of the foregoing, other than the Unsecured Notes Cash Collateral.

"Obligations" means all loans, Advances, debts, principal,-----------

interest (including any interest that, but for the provisions of the BankruptcyCode, would have accrued), contingent reimbursement obligations under anyoutstanding Letters of Credit, premiums (including Early Termination Premiums),liabilities (including all amounts charged to Borrower's Loan Account pursuanthereto), obligations, fees, charges, costs, or Lender Group Expenses (includingany fees or expenses that, but for the provisions of the Bankruptcy Code, wouldhave accrued), lease payments, guaranties, covenants, and duties owing byBorrower to the Lender Group of any kind and description (whether pursuant to orevidenced by the Loan Documents or pursuant to any other agreement between theLender Group and Borrower, and irrespective of whether for the payment ofmoney), whether direct or indirect, absolute or contingent, due or to become



due, now existing or hereafter arising, and including any debt, liability, orobligation owing from Borrower to others that the Lender Group may have obtainedby assignment or otherwise, and further including all interest not paid when dueand all Lender Group Expenses that Borrower is required to pay or reimburse bythe Loan Documents, by law, or otherwise.

"Orderly Liquidation Value of Eligible Inventory" shall mean-----------------------------------------------

the orderly liquidation value of Inventory which otherwise constitutes EligibleInventory, as determined by an appraiser satisfactory to Agent, in its solediscretion, and pursuant to an appraisal satisfactory to Agent, in itsreasonable discretion.

"Overadvance" has the meaning set forth in Section 2.5.----------- -----------

"Participant" has the meaning set forth in Section 15.1(e).----------- ---------------

"Pay-Off Letter" means a letter, in form and substance--------------

reasonably satisfactory to Agent, from Existing Lender respecting the amountnecessary to repay in full all of the obligations of Borrower owing to ExistingLender and obtain a termination or release of all of the Liens existing in favorof Existing Lender in and to the properties or assets of Borrower.

"PBGC" means the Pension Benefit Guaranty Corporation as----

defined in Title IV of ERISA, or any successor thereto.

"Permits" of a Person shall mean all rights, franchises,-------

permits, bonds, authorities, licenses, certificates of approval orauthorizations, including licenses and other authorizations issuable by aGovernmental Authority, which pursuant to applicable Legal Requirements arenecessary to permit such Person lawfully to conduct and operate its business ascurrently conducted and to own and use its assets.

"Permitted Acquisition" means an acquisition by Borrower or---------------------

any other Loan Party of substantially all of the assets of another Person, or anacquisition by Borrower or any other Loan Party of all or substantially all ofthe Stock of another Person, as long as:

15

(a) no Default of Event of Default shall have occurred and becontinuing or would result from the consummation of the proposed acquisition,

(b) the assets being acquired, or the Person whose Stock isbeing acquired, as the case may be, are useful in or engaged in, as applicable,the business conducted by Borrower as of the Closing Date or a businessreasonably related thereto,

(c) Borrower shall have provided to Agent (i) written noticeof the acquisition and a summary of the material terms and conditions of theacquisition at least 10 Business Days prior to the consummation of suchacquisition, (ii) copies of the current drafts of the documentation pertainingto the acquisition as and when prepared, and (iii) copies of substantially finaldrafts of the documentation pertaining to the acquisition at least 1 BusinessDay prior to the date that the acquisition is consummated;

(d) Borrower has provided Agent with written confirmation,supported by reasonably detailed calculations, that on a pro forma basis created

--- -----by adding the historical combined financial statements of Borrower (includingthe combined financial statements of any other Person or assets that were thesubject of a prior Permitted Acquisition during the relevant period) to thehistorical consolidated financial statements of the Person to be acquired (orthe historical financial statements related to the assets to be acquired)pursuant to the proposed acquisition (adjusted to eliminate expense items thatwould not have been incurred and include income items that would have beenrecognized, in each case, if the combination had been accomplished at thebeginning of the relevant period; such eliminations and inclusions to besatisfactory to Agent), Borrower would have been in compliance with each of thefinancial covenants in Section 7.20 hereof for the 12 months ending as of the

------------fiscal quarter ended immediately prior to the proposed date of consummation ofsuch proposed acquisition for which there are available financial statements,

(e) Borrower shall have delivered to Agent any and allsecurity agreements, guarantees, UCC-1 financing statements, fixture filings,and other documentation requested by Agent in order to include the newly



acquired assets within the Collateral each duly executed by Borrower, the otherLoan Parties and such other Persons formed, acquired or pertaining to suchacquisition as may be required by Agent,

(f) no Loan Party shall incur, assume or otherwise becomeliable for any indebtedness or other liabilities in connection with or resultingfrom such acquisition which would cause or result in (i) Borrower's failure tocomply with Section 7.20 on a pro-forma basis as if such Permitted Acquisition

------------was consummated on the last day of the immediately preceding calendar quarter,or (ii) the creation or existence of any Lien other than a Permitted Lien; and

(g) immediately upon the consummation of such acquisition andafter giving effect to the payment of all purchase consideration payable inconnection therewith, Borrower shall have not less than $50,000,000 ofAvailability and unrestricted immediately available cash on hand.

16

"Permitted Liens" means (a) Liens held by Agent for the---------------

benefit of the Lender Group, (b) Liens for unpaid taxes that either (i) are notyet due and payable or (ii) are the subject of Permitted Protests, (c) Liens setforth on Schedule P-1, (d) the interests of lessors under operating leases,

------------purchase money Liens of lessors under capital leases and purchase money Liensarising after the Closing Date solely for the acquisition of fixed assets to theextent that the acquisition or lease of the underlying asset is permitted underSection 7.21 and so long as the Lien only attaches to the asset purchased or------------acquired and only secures the purchase price of the asset, (e) Liens arising byoperation of law in favor of warehousemen, landlords, carriers, mechanics,materialmen, laborers, or suppliers, incurred in the ordinary course of businessof Borrower and not in connection with the borrowing of money, and which Lienseither (i) are for sums not yet due and payable, or (ii) are the subject ofPermitted Protests, (f) Liens arising from deposits made in connection withobtaining worker's compensation or other unemployment insurance, (g) Liens ordeposits to secure performance of bids, tenders, or leases (to the extentpermitted under this Agreement), incurred in the ordinary course of business ofBorrower and not in connection with the borrowing of money, (h) Liens arising byreason of security for surety or appeal bonds in the ordinary course of businessof Borrower, (i) Liens of or resulting from any judgment or award thatreasonably could not be expected to result in a Material Adverse Change and asto which the time for the appeal or petition for rehearing of which has not yetexpired, or in respect of which Borrower is in good faith prosecuting an appealor proceeding for a review and in respect of which a stay of execution pendingsuch appeal or proceeding for review has been secured, (j) with respect to anyReal Property, easements, rights of way, zoning and similar covenants andrestrictions, and similar encumbrances that customarily exist on properties ofPersons engaged in similar activities and similarly situated and that in anyevent do not materially interfere with or impair the use or operation of theCollateral by Borrower or the value of any of the Agent's Liens thereon ortherein for the benefit of the Lender Group, or materially interfere with theordinary conduct of the business of Borrower, (k) Liens on fixed assets acquiredby Borrower in a Permitted Acquisition securing indebtedness permitted underSection 7.1(f), provided that such Liens (I) were not created in connection with--------------such Permitted Acquisition, (II) attach only to the fixed assets purchased oracquired with the proceeds of the indebtedness which were in existence prior tothe consummation of the Permitted Acquisition, and (III) secure no Indebtednessother than the purchase price of such fixed assets, and (l) during only theperiod prior to the Initial Advance Effective Date, the Liens of DeutscheFinancial Services Corporation disclosed on the UCC financing statements namingDeutsche Financial Services Corporation as secured party which are listed onExhibit 3.2(e) attached hereto and made a part hereof.-------------

"Permitted Protest" means the right of Borrower to protest-----------------

any Lien other than any such Lien that secures the Obligations, tax (other thanpayroll taxes or taxes that are the subject of a United States federal taxlien), or rental payment, provided that (a) a reserve with respect to suchobligation is established on the books of Borrower in an amount that isreasonably satisfactory to Agent, (b) any such protest is instituted anddiligently prosecuted by Borrower in good faith, and (c) Agent is satisfiedthat, while any such protest is pending, there will be no impairment of theenforceability, validity, or priority of any of the Agent's Liens in and to theCollateral.

17

"Person" means and includes natural persons, corporations,------



limited liability companies, limited partnerships, general partnerships, limitedliability partnerships, joint ventures, trusts, land trusts, business trusts, orother organizations, irrespective of whether they are legal entities, andgovernments and agencies and political subdivisions thereof.

"Personal Property Collateral" means all Collateral other----------------------------

than the Real Property.

"Plan" means any employee benefit plan, program, or----

arrangement maintained or contributed to by Borrower or with respect to which itmay incur liability.

"Pro Rata Share" means, with respect to a Lender, a fraction--------------

(expressed as a percentage), the numerator of which is the amount of suchLender's Commitment and the denominator of which is the aggregate amount of theCommitments.

"Qualifying Lease Financing Transfers" means the following------------------------------------

transfers by CCC or Borrower, as the case may be, in the ordinary course of itsbusiness for value to third party financing sources that are not an Affiliate ofany Loan Party: (i) transfers by CCC of voice and data communications equipmentlease agreements originated by CCC, as lessor thereunder, entered into withlessees thereunder which are not an Affiliate of any Loan Party, provided thatthe goods which are the subject of such lease agreements shall not constituteEligible Inventory and that the rights to payment under such lease agreementsshall not constitute Eligible Accounts, and (ii) transfers by Borrower in theordinary course of its business of its Enterprise Management Services (f/k/aEnterprise Network Services) agreements originated by Borrower, as the serviceprovider thereunder, with customers which are not an Affiliate of any LoanParty, provided that such agreements shall be in substantially the form whichhas been provided by Borrower to Agent and that the rights to payment under suchagreements shall not constitute Eligible Accounts.

"Real Property" means any estates or interests in real-------------

property now owned or hereafter acquired by Borrower.

"Reference Rate" means the variable rate of interest, per--------------

annum, most recently announced by Wells Fargo Bank, N.A., or any successorthereto, as its "base rate," irrespective of whether such announced rate is thebest rate available from such financial institution.

"Renewal Date" has the meaning set forth in Section 3.5.------------ -----------

"Reportable Event" means any of the events described in----------------

Section 4043(c) of ERISA or the regulations thereunder other than a ReportableEvent as to which the provision of 30 days notice to the PBGC is waived underapplicable regulations.

"Required Lenders" means, at any time, Lenders whose Pro Rata----------------

Shares aggregate 51% or more of the Commitments, or, if the Commitments havebeen terminated irrevocably, 51% of the Obligations then outstanding.

18

"Retiree Health Plan" means an "employee welfare benefit-------------------

plan" within the meaning of Section 3(1) of ERISA that provides benefits toindividuals after termination of their employment, other than as required bySection 601 of ERISA.

"Revolving Facility Usage" means, as of any date of determination,------------------------

the sum of (a) the aggregate amount of Advances outstanding, plus (b) the Letter----

of Credit Usage.

"SCM" means, collectively, Sandler Capital Management, a New---

York corporation.

"SEC" means the United States Securities and Exchange---

Commission and any successor Federal agency having similar powers.



"Security Agreements" means, collectively, any and all of the-------------------

security agreements, guaranties, pledges, mortgages, deeds of trust,assignments, stock pledge agreements and such other agreements, documents andinstruments, in form and substance satisfactory to Agent, which are, or are tobe, executed by Borrower, CCI and/or any one or more of the Subsidiaries andAffiliates of either of them in favor of Agent and/or the Lenders as may berequired from time to time by Agent to provide Agent for the benefit of theLender Group with Liens upon all of the assets and properties of Borrower, CCIand each of the Subsidiaries and Affiliates of either of them and as securityfor the payment and performance in full of the Obligations, in each case as thesame may be amended, modified, restated, supplemented, increased, renewed,extended, substituted for or replaced from time to time.

"Securities Account" means a "securities account" as that------------------

term is defined in Section 8501 of the Code.

"Series B Preferred Stock" means the Series B Senior------------------------

Cumulative Convertible Preferred Stock, no par value, of CCI.

"Settlement" has the meaning set forth in Section 2.1(h)(i).---------- -----------------

"Settlement Date" has the meaning set forth in Section--------------- -------

2.1(h)(i).---------

"Solvent" means, with respect to any Person on a particular-------

date, that on such date (a) at fair valuations, all of the properties and assetsof such Person are greater than the sum of the debts, including contingentliabilities, of such Person, (b) the present fair salable value of theproperties and assets of such Person is not less than the amount that will berequired to pay the probable liability of such Person on its debts as theybecome absolute and matured, (c) such Person is able to realize upon itsproperties and assets and pay its debts and other liabilities, contingentobligations and other commitments as they mature in the normal course ofbusiness, (d) such Person does not intend to, and does not believe that it will,incur debts beyond such Person's ability to pay as such debts mature, and (e)such Person is not engaged in business or a transaction, and is not about toengage in business or a transaction, for which such Person's

19

properties and assets would constitute unreasonably small capital after givingdue consideration to the prevailing practices in the industry in which suchPerson is engaged. In computing the amount of contingent liabilities at anytime, it is intended that such liabilities will be computed at the amount that,in light of all the facts and circumstances existing at such time, representsthe amount that reasonably can be expected to become an actual or maturedliability.

"Stock" means all shares, options, warrants, interests,-----

participations, or other equivalents (regardless of how designated) of or in acorporation or equivalent entity, whether voting or nonvoting, including commonstock, preferred stock, or any other "equity security" (as such term is definedin Rule 3a11-1 of the General Rules and Regulations promulgated by the SEC underthe Exchange Act).

"Stock Pledge Agreements" means, collectively, (a) a stock-----------------------

pledge agreement, in form and substance satisfactory to Agent, executed by CCIin favor of Agent for the benefit of the Lenders, pursuant to which CCI grantsto Agent for the benefit of the Lenders a first priority Lien and securityinterest in all of the shares of capital stock of Borrower and CCC, and (b) astock pledge agreement, in form and substance satisfactory to Agent, executed byBorrower in favor of Agent for the benefit of the Lenders, pursuant to whichBorrower grants to Agent for the benefit of the Lenders a first priority Lienand security interest in all of the shares of stock of WAI and all of the sharesowned by Borrower of stock of Cavion Technologies, Inc., a Colorado corporation

"Subsidiary" of a Person means a corporation, partnership,----------

limited liability company, or other entity in which that Person directly orindirectly owns or controls the shares of Stock or other ownership interestshaving ordinary voting power to elect a majority of the board of directors (orappoint other comparable managers) of such corporation, partnership, limitedliability company, or other entity.

"Tangible Net Worth" means, as of any date of determination,



------------------the difference of (a) Borrower's total stockholder's equity (including for thispurpose the Series B Preferred Stock, no par value, of CCI), minus (b) the sum

-----of: (i) all Intangible Assets of Borrower, (ii) all of Borrower's prepaidexpenses, and (iii) all amounts due to Borrower from Affiliates.

"TPG" means TPG Partners III, L.P., a Delaware limited---

partnership, T3 Partners, L.P., a Delaware limited partnership, and theirrespective Affiliates.

"Unsecured Notes" means those certain 13% unsecured notes in---------------

the aggregate original principal amount of $160,000,000 dated as of April 2,1998, and maturing on April 1, 2008, issued under the Unsecured Notes Indenture,as amended, modified, renewed or restated from time to time.

"Unsecured Notes Cash Collateral" means all of CCI's right,-------------------------------

title and interest in and to (i) all securities, assets and property held in orcredited to account number 1180808511 of CCI maintained with Norwest BankColorado, N.A., whose office is located at 1740 Broadway, Denver, Colorado80274-8685, which account contains only the portion of the

20

cash proceeds from the initial sale of the Unsecured Notes that are restrictedby the terms of the Unsecured Notes Indenture for the payment of interest on theUnsecured Notes and proceeds thereof (the "Unsecured Notes Cash CollateralAccount"), (ii) any certificates or other evidence of ownership representing anyproperty in the Unsecured Notes Cash Collateral Account and (iii) all productsand proceeds of any of the foregoing, including, without limitation, alldividends, interest, principal payments, cash options, warrants, rights,instruments, subscriptions and other property or proceeds from time to timereceived, receivable or otherwise distributed or distributable in respect of orin exchange for any or all of the securities and cash held in or credited to theUnsecured Notes Cash Collateral Account and any other property held in orcredited thereto.

"Unsecured Notes Indebtedness Limitation" means at any---------------------------------------

particular date the maximum amount of Obligations which may at such time beoutstanding pursuant to this Agreement that constitute "Permitted Indebtedness"(as such term is defined in the Unsecured Notes Indenture) under the UnsecuredNotes Indenture and does not cause or result in a violation of the UnsecuredNotes Indenture or cause or result in any holders of the Unsecured Notes (or anytrustee or agent for the benefit thereof) having the right to demand repayment,repurchase, retirement or redemption thereof or any similar right with respectthereto.

"Unsecured Notes Indenture" means that certain Indenture-------------------------

dated as of April 2, 1998 among CCI and Norwest Bank Colorado, N.A., pursuant towhich the Unsecured Notes have been issued, as amended, modified, renewed orrestated from time to time.

"Voidable Transfer" has the meaning set forth in Section----------------- -------

15.8.----

"WAI" means World Access, Inc., a Colorado corporation.---

1.2 Accounting Terms. All accounting terms not specificallydefined herein shall be construed in accordance with GAAP. When used herein, theterm "financial statements" shall include the notes and schedules thereto.Whenever the term "Borrower" is used in respect of a financial covenant or arelated definition, it shall be understood to mean Borrower on a consolidatedbasis unless the context clearly requires otherwise.

1.3 Code. Any terms used in this Agreement that are defined inthe Code shall be construed and defined as set forth in the Code unlessotherwise defined herein.

1.4 Construction. Unless the context of this Agreement or anyother Loan Document clearly requires otherwise, references to the plural includethe singular, references to the singular include the plural, the term"including" is not limiting, and the term "or" has, except where otherwiseindicated, the inclusive meaning represented by the phrase "and/or." The words"hereof," "herein," "hereby," "hereunder," and similar terms in this Agreementor any other Loan Document refer to this Agreement or any other Loan Documents,as the case may be, as a whole and not to any particular provision of this



Agreement or such other Loan Document, as the case may be. Section, subsection,clause, schedule, and exhibit references herein are to this Agreement unlessotherwise specified. Any reference in this Agreement or in the Loan Documents tothis Agreement or any of

21

the Loan Documents shall include all alterations, amendments, changes,extensions, modifications, renewals, replacements, substitutions, joinders, andsupplements, thereto and thereof, as applicable.

1.5 Schedules and Exhibits. All of the schedules and exhibitsattached to this Agreement shall be deemed incorporated herein by reference.

2. LOAN AND TERMS OF PAYMENT.

2.1 Revolving Advances.

(a) Subject to the terms and conditions of this Agreementand during the term of this Agreement, each Lender agrees to make advances("Advances") to Borrower in an amount at any one time outstanding not to exceedsuch Lender's Pro Rata Share of an amount equal to the least of (i) the MaximumRevolving Amount less the Letter of Credit Usage, or (ii) the Borrowing Base

----less the aggregate amount of all Letter of Credit Usage, or (iii) the Unsecured----Notes Indebtedness Limitation less the Letter of Credit Usage. For purposes of

----this Agreement, "Borrowing Base", as of any date of determination, shall meanthe result of:

(x) the lesser of (i) 85% of Eligible Accounts, less----

the amount, if any, of the Dilution Reserve, and (ii) an amount equalto Borrower's Collections with respect to Accounts for the immediatelypreceding 60 day period, plus

(y) upon and after satisfaction of all of the InventoryLine Conditions in a manner satisfactory to Agent, in its solediscretion, the least of (i) $12,000,000, (ii) 50% of the value ofEligible Inventory less the aggregate amount of the Inventory

----Reserves, (iii) 80% of the Orderly Liquidation Value of the EligibleInventory less the aggregate amount of the Inventory Reserves, and

----(iv) 50% of the amount of credit availability created by clause (x)

----------above, minus

(z) the aggregate amount of reserves, if any,established by Agent under Section 2.1(b).

--------------The Lenders shall have no obligation to make further Advances hereunder to theextent they would cause the outstanding Revolving Facility Usage to exceed theMaximum Revolving Amount.

Amounts borrowed pursuant to this Section 2.1 may be repaid and, subject to the-----------

terms and conditions of this Agreement, reborrowed at any time during the termof this Agreement.

(b) Anything to the contrary in this Section 2notwithstanding, Agent shall have the right to establish reserves against theBorrowing Base in such amounts as Agent, in its reasonable credit judgement(from the perspective of an asset-based lender) shall deem necessary orappropriate, including reserves on account of (A) sums that Borrower is requiredto pay (such as taxes, assessments, insurance premiums, or, in the case ofleased assets, rents or other amounts payable under such leases) and has failedto pay under any Section of this Agreement or any other Loan Document, (B)without duplication of the foregoing, past due or accrued taxes or other

22

governmental charges, including ad valorem, personal property and other taxeswhich, in the reasonable determination of Agent (from the perspective of anasset-based lender), could have a priority superior to the Liens or securityinterests of Agent in any of the Collateral (such as ad valorem taxes or salestaxes where given a priority under applicable law), and (C) without duplicationof the foregoing, amounts owing by Borrower to any Person to the extent securedby a Lien on, or trust over, any of the Collateral, which Lien or trust, in thereasonable determination of Agent (from the perspective of an asset-basedlender), could have a priority superior to the Agent's Liens (such as landlord



liens) in and to such item of Collateral.

(c) Procedure for Borrowing. Each Borrowing shall be made-----------------------

upon Borrower's irrevocable request therefor either delivered in writing or madeby telephone to Agent (which notice must be received by Agent (x) no later than10:00 a.m. (California time) on the Business Day immediately preceding therequested Funding Date if the aggregate amount requested to be borrowed on suchday by Borrower exceeds $5,000,000, and (y) no later than 10:00 a.m. (Californiatime) on the same Business Day as the requested Funding Date if the aggregateamount requested to be borrowed on such day by Borrower is less than $5,000,000)specifying (i) the amount of the Borrowing; and (ii) the requested Funding Date,which shall be a Business Day.

(d) Agent's Election. Promptly after receipt of a requestfor a Borrowing pursuant to Section 2.1(c), Agent shall elect, in its

--------------discretion, (i) to have the terms of Section 2.1(e) apply to such requested

--------------Borrowing, or (ii) to request Foothill to make a Foothill Loan pursuant to theterms of Section 2.1(f) in the amount of the requested Borrowing; provided,

-------------- --------however, that if Foothill declines in its sole discretion to make a Foothill-------Loan pursuant to Section 2.1(f), Agent shall elect to have the terms of Section

-------------- -------2.1(e) apply to such requested Borrowing.-----

(e) Making of Advances.------------------

(i) In the event that Agent shall elect to have theterms of this Section 2.1(e) apply to a requested Borrowing as described in

--------------Section 2.1(d), then promptly after receipt of a request for a Borrowing--------------pursuant to Section 2.1(c), Agent shall notify the Lenders, not later than 1:00

--------------p.m. (California time) on the Business Day immediately preceding the FundingDate applicable thereto, by telecopy, telephone, or other similar form oftransmission, of the requested Borrowing. Each Lender shall make the amount ofsuch Lender's Pro Rata Share of the requested Borrowing available to Agent inimmediately available funds, to such account of Agent as Agent may designate,not later than 10:00 a.m. (California time) on the Funding Date applicablethereto. After Agent's receipt of the proceeds of such Advances, uponsatisfaction of the applicable conditions precedent set forth in Section 3

---------hereof, Agent shall make the proceeds of such Advances available to Borrower onthe applicable Funding Date by transferring same day funds equal to the proceedsof such Advances received by Agent to Borrower's Designated Account; provided,however, that, subject to the provisions of Section 2.1(k), Agent shall not

--------------request any Lender to make, and no Lender shall have the obligation to make, anyAdvance if Agent shall have received written notice from any Lender, orotherwise has actual knowledge, that (1) one or more of the applicableconditions precedent set forth in Section 3 will not be satisfied on the

---------requested Funding Date for the applicable Borrowing unless such condition hasbeen waived, or (2) the requested Borrowing would exceed the Availability ofBorrower on such Funding Date.

23

(ii) Unless Agent receives notice from a Lender on orprior to the Closing Date or, with respect to any Borrowing after the InitialAdvance Effective Date, at least 1 Business Day prior to the date of suchBorrowing, that such Lender will not make available as and when requiredhereunder to Agent for the account of Borrower the amount of that Lender's ProRata Share of the Borrowing, Agent may assume that each Lender has made or willmake such amount available to Agent in immediately available funds on theFunding Date and Agent may (but shall not be so required), in reliance upon suchassumption, make available to Borrower on such date a corresponding amount. Ifand to the extent any Lender shall not have made its full amount available toAgent in immediately available funds and Agent in such circumstances has madeavailable to Borrower such amount, that Lender shall on the Business Dayfollowing such Funding Date make such amount available to Agent, together withinterest at the Defaulting Lenders Rate for each day during such period. Anotice submitted by Agent to any Lender with respect to amounts owing under thissubsection shall be conclusive, absent manifest error. If such amount is so madeavailable, such payment to Agent shall constitute such Lender's Advance on thedate of Borrowing for all purposes of this Agreement. If such amount is not madeavailable to Agent on the Business Day following the Funding Date, Agent will



notify Borrower of such failure to fund and, upon demand by Agent, Borrowershall pay such amount to Agent for Agent's account, together with interestthereon for each day elapsed since the date of such Borrowing, at a rate perannum equal to the interest rate applicable at the time to the Advancescomposing such Borrowing. The failure of any Lender to make any Advance on anyFunding Date shall not relieve any other Lender of any obligation hereunder tomake an Advance on such Funding Date, but no Lender shall be responsible for thefailure of any other Lender to make the Advance to be made by such other Lenderon any Funding Date.

(iii) Agent shall not be obligated to transfer to aDefaulting Lender any payments made by Borrower to Agent for the DefaultingLender's benefit; nor shall a Defaulting Lender be entitled to the sharing ofany payments hereunder. Amounts payable to a Defaulting Lender shall instead bepaid to or retained by Agent. Agent may hold and, in its discretion, re-lend toBorrower the amount of all such payments received or retained by it for theaccount of such Defaulting Lender. Solely for the purposes of voting orconsenting to matters with respect to the Loan Documents and determining ProRata Shares, such Defaulting Lender shall be deemed not to be a "Lender" andsuch Lender's Commitment shall be deemed to be zero (-0-). This section shallremain effective with respect to such Lender until (x) the Obligations underthis Agreement shall have been declared or shall have become immediately due andpayable or (y) the requisite non-Defaulting Lenders and Agent shall have waivedsuch Lender's default in writing. The operation of this section shall not beconstrued to increase or otherwise affect the Commitment of any Lender, orrelieve or excuse the performance by Borrower of its duties and obligationshereunder.

(f) Making of Foothill Loans.-----------------------------

(i) In the event Agent shall elect, with the consent ofFoothill as a Lender, to have the terms of this Section 2.1(f) apply to a

--------------requested Borrowing as described in Section 2.1(d), Foothill as a Lender shall

--------------make an Advance in the amount of such Borrowing (any

24

such Advance made solely by Foothill as a Lender pursuant to this Section 2.1(f)--------------

being referred to as a "Foothill Loan" and such Advances being referred tocollectively as "Foothill Loans") available to Borrower on the Funding Dateapplicable thereto by transferring same day funds to Borrower's DesignatedAccount. Each Foothill Loan is an Advance hereunder and shall be subject to allthe terms and conditions applicable to other Advances, except that all paymentsthereon shall be payable to Foothill as a Lender solely for its own account (andfor the account of the holder of any participation interest with respect to suchAdvance). Subject to the provisions of Section 2.1(k), Agent shall not request

--------------Foothill as a Lender to make, and Foothill as a Lender shall not make, anyFoothill Loan if Agent shall have received written notice from any Lender, orotherwise has actual knowledge, that (i) one or more of the applicableconditions precedent set forth in Section 3 will not be satisfied on the

---------requested Funding Date for the applicable Borrowing unless such condition hasbeen waived, or (ii) the requested Borrowing would exceed the Availability ofBorrower on such Funding Date. Foothill as a Lender shall not otherwise berequired to determine whether the applicable conditions precedent set forth inSection 3 have been satisfied on the Funding Date applicable thereto prior to---------making, in its sole discretion, any Foothill Loan.

(ii) The Foothill Loans shall be secured by theCollateral and shall constitute Advances and Obligations hereunder, and shallbear interest at the rate applicable from time to time to Advances pursuant toSection 2.6 hereof.-----------

(g) Agent Advances.--------------

(i) Subject to the limitations set forth in the provisocontained in this Section 2.1(g), Agent hereby is authorized by Borrower and the

--------------Lenders, from time to time in Agent's sole discretion, (1) after the occurrenceand during the continuance of a Default or an Event of Default, or (2) at anytime that any of the other applicable conditions precedent set forth in Section

-------3 have not been satisfied, to make Advances to Borrower on behalf of the Lenders-that Agent, in its reasonable business judgment, deems necessary or desirable(A) to preserve or protect the Collateral, or any portion thereof, (B) to



enhance the likelihood of repayment of the Obligations, or (C) to pay any otheramount chargeable to Borrower pursuant to the terms of this Agreement, includingLender Group Expenses and the costs, fees, and expenses described in Section 10

----------(any of the Advances described in this Section 2.1(g) being hereinafter referred

--------------to as "Agent Advances"); provided, that the Required Lenders may at any time

--------revoke Agent's authorization contained in this Section 2.1(g) to make Agent

--------------Advances, any such revocation to be in writing and to become effective uponAgent's receipt thereof.

(ii) Agent Advances shall be repayable on demand andsecured by the Collateral, shall constitute Advances and Obligations hereunder,and shall bear interest at the rate applicable from time to time to the Advancespursuant to Section 2.6 hereof.

-----------

(h) Settlement. It is agreed that each Lender's funded----------

portion of the Advances is intended by the Lenders to equal, at all times, suchLender's Pro Rata Share of the outstanding Advances. Such agreementnotwithstanding, Agent, Foothill, and the other Lenders agree (which agreementshall not be for the benefit of or enforceable by Borrower) that in order tofacilitate the administration of this Agreement and the other Loan Documents,settlement among

25

them as to the Advances, the Foothill Loans, and the Agent Advances shall takeplace on a periodic basis in accordance with the following provisions:

(i) Agent shall request settlement ("Settlement") withthe Lenders on a weekly basis, or on a more frequent basis if so determined byAgent, (1) on behalf of Foothill, with respect to each outstanding FoothillLoan, (2) for itself, with respect to each Agent Advance, and (3) with respectto Collections received, as to each by notifying the Lenders by telecopy,telephone, or other similar form of transmission, of such requested Settlement,no later than 2:00 p.m. (California time) on the Business Day immediately priorto the date of such requested Settlement (the date of such requested Settlementbeing the "Settlement Date"). Such notice of a Settlement Date shall include asummary statement of the amount of outstanding Advances, Foothill Loans, andAgent Advances for the period since the prior Settlement Date, the amount ofrepayments received in such period, and the amounts allocated to each Lender ofthe interest, fees, and other charges for such period. Subject to the terms andconditions contained herein (including Section 2.1(e)(iii)): (y) if a Lender's

-------------------balance of the Advances, Foothill Loans, and Agent Advances exceeds suchLender's Pro Rata Share of the Advances, Foothill Loans, and Agent Advances asof a Settlement Date, then Agent shall by no later than 12:00 p.m. (Californiatime) on the Settlement Date transfer in immediately available funds to theaccount of such Lender as such Lender may designate, an amount such that eachsuch Lender shall, upon receipt of such amount, have as of the Settlement Date,its Pro Rata Share of the Advances, Foothill Loans, and Agent Advances; and (z)if a Lender's balance of the Advances, Foothill Loans, and Agent Advances isless than such Lender's Pro Rata Share of the Advances, Foothill Loans, andAgent Advances as of a Settlement Date, such Lender shall no later than 12:00p.m. (California time) on the Settlement Date transfer in immediately availablefunds to such account of Agent as Agent may designate, an amount such that eachsuch Lender shall, upon transfer of such amount, have as of the Settlement Date,its Pro Rata Share of the Advances, Foothill Loans, and Agent Advances. Suchamounts made available to Agent under clause (z) of the immediately precedingsentence shall be applied against the amounts of the applicable Foothill Loan orAgent Advance and, together with the portion of such Foothill Loan or AgentAdvance representing Foothill's Pro Rata Share thereof, shall constituteAdvances of such Lenders. If any such amount is not made available to Agent byany Lender on the Settlement Date applicable thereto to the extent required bythe terms hereof, Agent shall be entitled to recover for its account such amounton demand from such Lender together with interest thereon at the DefaultingLenders Rate.

(ii) In determining whether a Lender's balance of theAdvances, Foothill Loans, and Agent Advances is less than, equal to, or greaterthan such Lender's Pro Rata Share of the Advances, Foothill Loans, and AgentAdvances as of a Settlement Date, Agent shall, as part of the relevantSettlement, apply to such balance the portion of payments actually received ingood funds by Agent or Foothill with respect to principal, interest, feespayable by Borrower and allocable to the Lenders hereunder, and proceeds ofCollateral. To the extent that a net amount is owed to any such Lender aftersuch application, such net amount shall be distributed by Agent or Foothill tothat Lender as part of such next Settlement.



(iii) Between Settlement Dates, Agent, to the extent noAgent Advances or Foothill Loans are outstanding, may pay over to Foothill anypayments received by

26

Agent, that in accordance with the terms of this Agreement would be applied tothe reduction of the Advances, for application to Foothill's Pro Rata Share ofthe Advances. If, as of any Settlement Date, Collections received since the thenimmediately preceding Settlement Date have been applied to Foothill's Pro RataShare of the Advances other than to Foothill Loans or Agent Advances, asprovided for in the previous sentence, Foothill shall pay to Agent for theaccounts of the Lenders, and Agent shall pay to the Lenders, to be applied tothe outstanding Advances of such Lenders, an amount such that each Lender shall,upon receipt of such amount, have, as of such Settlement Date, its Pro RataShare of the Advances. During the period between Settlement Dates, Foothill withrespect to Foothill Loans, Agent with respect to Agent Advances, and each Lenderwith respect to the Advances other than Foothill Loans and Agent Advances, shallbe entitled to interest at the applicable rate or rates payable under thisAgreement on the daily amount of funds employed by Foothill, Agent, or theLenders, as applicable.

(i) Notation. Agent shall record on its books the principal--------

amount of the Advances owing to each Lender, including the Foothill Loans owingto Foothill, and Agent Advances owing to Agent, and the interests therein ofeach Lender, from time to time. In addition, each Lender is authorized, at suchLender's option, to note the date and amount of each payment or prepayment ofprincipal of such Lender's Advances in its books and records, including computerrecords, such books and records constituting rebuttably presumptive evidence,absent manifest error, of the accuracy of the information contained therein.

(j) Lenders' Failure to Perform. All Advances (other than---------------------------

Foothill Loans and Agent Advances) shall be made by the Lenders simultaneouslyand in accordance with their Pro Rata Shares. It is understood that (i) noLender shall be responsible for any failure by any other Lender to perform itsobligation to make any Advances hereunder, nor shall any Commitment of anyLender be increased or decreased as a result of any failure by any other Lenderto perform its obligation to make any Advances hereunder, and (ii) no failure byany Lender to perform its obligation to make any Advances hereunder shall excuseany other Lender from its obligation to make any Advances hereunder.

(k) Optional Overadvances. Any contrary provision of this---------------------

Agreement notwithstanding, if the condition for borrowing under Section 3.2(d)--------------

cannot be fulfilled, the Lenders nonetheless hereby authorize Agent or Foothill,as applicable, and Agent or Foothill, as applicable, may, but is not obligatedto, knowingly and intentionally continue to make Advances (including FoothillLoans) to Borrower such failure of condition notwithstanding, so long as, at anytime, (i) the outstanding Revolving Facility Usage does not exceed the BorrowingBase by more than five percent (5%) and (ii) the outstanding Revolving FacilityUsage (except for and excluding amounts charged to the Loan Account forinterest, fees, or Lender Group Expenses) does not exceed the Maximum RevolvingAmount. The foregoing provisions are for the sole and exclusive benefit ofAgent, Foothill, and the Lenders and are not intended to benefit Borrower in anyway. The Advances and Foothill Loans, as applicable, that are made pursuant tothis Section 2.1(k) shall be subject to the same terms and conditions as any

--------------other Advance or Foothill Loan, as applicable, except that the rate of interestapplicable thereto shall be the rates set forth in Section 2.6(c) hereof without

--------------regard to the presence or absence of a Default or Event of Default; provided,

--------that the Required Lenders may, at any time during the continuance of an Event ofDefault or if Borrower

27

fails to satisfy any other material lending condition, revoke Agent'sauthorization contained in this Section 2.1(k) to make Overadvances (except for

--------------and excluding amounts charged to the Loan Account for interest, fees, or LenderGroup Expenses), any such revocation to be in writing and to become effectiveupon Agent's receipt thereof.

In the event Agent obtains actual knowledge that RevolvingFacility Usage exceeds the amount permitted by the preceding paragraph,regardless of the amount of or reason for such excess, Agent shall notifyLenders as soon as practicable (and prior to making any (or any further)intentional Overadvances (except for and excluding amounts charged to the Loan



Account for interest, fees, or Lender Group Expenses) unless Agent determinesthat prior notice would result in imminent harm to the Collateral or its value),and the Lenders thereupon shall, together with Agent, jointly determine theterms of arrangements that shall be implemented with Borrower intended toreduce, within a reasonable time, the outstanding principal amount of theAdvances to Borrower to an amount permitted by the preceding paragraph. In theevent any Lender disagrees over the terms of reduction and/or repayment of anyOveradvance, the terms of reduction and/or repayment thereof shall beimplemented according to the determination of the Required Lenders.

Each Lender shall be obligated to settle with Agent as provided inSection 2.1(h) for the amount of such Lender's Pro Rata Share of any--------------unintentional Overadvances by Agent reported to such Lender, any intentionalOveradvances made as permitted under this Section 2.1(k), and any Overadvances

--------------resulting from the charging to the Loan Account of interest, fees, or LenderGroup Expenses.

(l) Effect of Bankruptcy. If a case is commenced by or--------------------

against Borrower under the U.S. Bankruptcy Code, or other statute providing fordebtor relief, then, unless otherwise agreed by all Lenders, the Lender Groupshall not make additional loans or provide additional financial accommodationsunder the Loan Documents to Borrower as debtor or debtor-in-possession, or toany trustee for Borrower, nor consent to the use of cash collateral (providedthat the Loan Account shall continue to be charged, to the fullest extentpermitted by law, for accruing interest, fees, and Lender Group Expenses).

2.2 Letter of Credit Subfacility.

(a) Agreement to Cause Issuance; Amounts; Outside Expiration--------------------------------------------------------

Date. Subject to the terms and conditions of this Agreement, Agent agrees to----issue letters of credit for the account of Borrower (each, an "L/C") or to issueguarantees of payment, indemnities, participations and/or undertakings (eachsuch guaranty, indemnity, participation or undertaking, an "L/C Guaranty") withrespect to letters of credit issued by an issuing bank for the account ofBorrower. Agent shall have no obligation to issue a Letter of Credit if any ofthe following would result:

(i) the sum of 100% of the aggregate amount of all Letterof Credit Usage would exceed the Borrowing Base less the amount ofoutstanding Advances; or

28

(ii) the aggregate amount of all Letter of Credit Usagewould exceed the lower of: (x) the Maximum Revolving Amount less the

----amount of outstanding Advances; or (y) $10,000,000; or

(iii) the outstanding Obligations would exceed the MaximumRevolving Amount.

Borrower expressly understands and agrees that Agent shall have no obligation toarrange for the issuance by issuing banks of the letters of credit that are tobe the subject of L/C Guarantees. Borrower and the Lender Group acknowledge andagree that certain of the letters of credit that are to be the subject of L/CGuarantees may be outstanding on the Closing Date or the Initial AdvanceEffective Date. Each Letter of Credit shall have an expiry date no later than60 days prior to the date on which this Agreement is scheduled to terminateunder Section 3.5 (without regard to any potential renewal term) and all such

-----------Letters of Credit shall be in form and substance acceptable to Agent in its solediscretion. If the Lender Group is obligated to advance funds under a Letter ofCredit, Borrower immediately shall reimburse such amount to Agent and, in theabsence of such reimbursement, the amount so advanced immediately andautomatically shall be deemed to be an Advance hereunder and, thereafter, shallbear interest at the rate then applicable to such Advances under Section 2.6.

-----------

(b) Indemnification. Borrower hereby agrees to indemnify,---------------

save, defend, and hold the Lender Group harmless from any loss, cost, expense,or liability, including payments made by the Lender Group, expenses, andreasonable attorneys fees incurred by the Lender Group arising out of or inconnection with any Letter of Credit. Borrower agrees to be bound by the issuingbank's regulations and interpretations of any Letters of Credit guarantied bythe Lender Group and opened to or for Borrower's account or by Agent'sinterpretations of any L/C issued by the Lender Group to or for Borrower'saccount, even though this interpretation may be different from Borrower's own,



and Borrower understands and agrees that the Lender Group shall not be liablefor any error, negligence, or mistake, whether of omission or commission, infollowing Borrower's instructions or those contained in the Letter of Credit orany modifications, amendments, or supplements thereto. Borrower understands thatthe L/C Guarantees may require the Lender Group to indemnify the issuing bankfor certain costs or liabilities arising out of claims by Borrower against suchissuing bank. Borrower hereby agrees to indemnify, save, defend, and hold theLender Group harmless with respect to any loss, cost, expense (includingreasonable attorneys fees), or liability incurred by the Lender Group under anyL/C Guaranty as a result of the Lender Group's indemnification of any suchissuing bank.

(c) Supporting Materials. Borrower hereby authorizes and--------------------

directs any bank that issues a letter of credit guaranteed by the Lender Groupto deliver to Agent all instruments, documents, and other writings and propertyreceived by the issuing bank pursuant to such letter of credit, and to acceptand rely upon Agent's instructions and agreements with respect to all mattersarising in connection with such letter of credit and the related application.Borrower may or may not be the "applicant" or "account party" with respect tosuch letter of credit.

29

(d) Compensation for Letters of Credit. Any and all charges,----------------------------------

commissions, fees, and costs incurred by Agent relating to the letters of creditguaranteed by the Lender Group shall be considered Lender Group Expenses forpurposes of this Agreement and immediately shall be reimbursable by Borrower toAgent.

(e) Cash Collateral. Immediately upon the termination of---------------

this Agreement, Borrower agrees to either (i) provide cash collateral to be heldby Agent in an amount equal to 105% of the maximum amount of the Lender Group'sobligations under Letters of Credit, or (ii) cause to be delivered to Agentreleases of all of the Lender Group's obligations under outstanding Letters ofCredit. At Agent's discretion, any proceeds of Collateral received by Agentafter the occurrence and during the continuation of an Event of Default may beheld as the cash collateral required by this Section 2.2(e).

-------------

(f) Increased Costs. If by reason of (i) any change in any---------------

applicable law, treaty, rule, or regulation or any change in the interpretationor application by any governmental authority of any such applicable law, treaty,rule, or regulation, or (ii) compliance by the issuing bank or Agent with anydirection, request, or requirement (irrespective of whether having the force oflaw) of any governmental authority or monetary authority including, withoutlimitation, Regulation D of the Board of Governors of the Federal Reserve Systemas from time to time in effect (and any successor thereto):

a. any reserve, deposit, or similar requirement is orshall be imposed or modified in respect of any Letters of Credit issuedhereunder, or

b. there shall be imposed on the issuing bank or anyother condition regarding any letter of credit, or Letter of Credit, asapplicable, issued pursuant hereto; and the result of the foregoing is toincrease, directly or indirectly, the cost to the issuing bank or the LenderGroup of issuing, making, guaranteeing, or maintaining any letter of credit, orLetter of Credit, as applicable, or to reduce the amount receivable in respectthereof by such issuing bank or the Lender Group, then, and in any such case,the Lender Group may, at any time within a reasonable period after theadditional cost is incurred or the amount received is reduced, notify Borrower,and Borrower shall pay on demand such amounts as the issuing bank or Agent mayspecify to be necessary to compensate the issuing bank or the Lender Group forsuch additional cost or reduced receipt, together with interest on such amountfrom the date of such demand until payment in full thereof at the rate set forthin Section 2.6(a) or (c)(i), as applicable. The determination by the issuing

------------------------bank or Agent, as the case may be, of any amount due pursuant to this Section

-------2.2(f), as set forth in a certificate setting forth the calculation thereof in------reasonable detail, shall, in the absence of manifest or demonstrable error, befinal and conclusive and binding on all of the parties hereto.

(g) Participations.--------------

(1) Purchase of Participations. Immediately upon--------------------------



issuance of any Letter of Credit in accordance with this Section 2.2, each-----------

Lender shall be deemed to have

30

irrevocably and unconditionally purchased and received without recourse orwarranty, an undivided interest and participation in the credit support orenhancement provided through Agent to such issuer in connection with theissuance of such Letter of Credit, equal to such Lender's Pro Rata Share of theface amount of such Letter of Credit (including, without limitation, allobligations of Borrower with respect thereto, and any security therefor orguaranty pertaining thereto).

(2) Documentation. Upon the request of any Lender,-------------

Agent shall furnish to such Lender copies of any Letter of Credit, reimbursementagreements executed in connection therewith, application for any Letter ofCredit and credit support or enhancement provided through Agent in connectionwith the issuance of any Letter of Credit, and such other documentation as mayreasonably be requested by such Lender.

(3) Obligations Irrevocable. The obligations of each-----------------------

Lender to make payments to Agent with respect to any Letter of Credit or withrespect to any credit support or enhancement provided through Agent with respectto a Letter of Credit, and the obligations of Borrower to make payments toAgent, for the account of the Lenders, shall be irrevocable, not subject to anyqualification or exception whatsoever, including any of the followingcircumstances:

(i) any lack of validity or enforceability of thisAgreement or any of the other Loan Documents;

(ii) the existence of any claim, setoff, defense orother right which Borrower may have at any time against a beneficiary named in aLetter of Credit or any transferee of any Letter of Credit (or any Person forwhom any such transferee may be acting), any Lender, Agent, the issuer of suchLetter of Credit, or any other Person, whether in connection with thisAgreement, any Letter of Credit, the transactions contemplated herein or anyunrelated transactions (including any underlying transactions between Borroweror any other Person and the beneficiary named in any Letter of Credit);

(iii) any draft, certificate or any other documentpresented under the Letter of Credit proving to be forged, fraudulent, invalidor insufficient in any respect or any statement therein being untrue orinaccurate in any respect;

(iv) the surrender or impairment of any security forthe performance or observance of any of the terms of any of the Loan Documents;or

(v) the occurrence of any Default or Event ofDefault.

(g) Recovery or Avoidance of Payments. In the event---------------------------------

any payment by or on behalf of Borrower received by Agent with respect to anyLetter of Credit (or any guaranty by Borrower or reimbursement obligation ofBorrower relating thereto) and distributed by the Agent to the Lenders onaccount of their respective participations therein, is thereafter set aside,avoided or recovered from Agent in connection with any receivership, liquidationor bankruptcy proceeding, the Lenders shall, upon demand by Agent, pay to Agenttheir respective Pro Rata Shares of such

31

amount set aside, avoided or recovered, together with interest at the raterequired to be paid by Agent upon the amount required to be repaid by it.

2.3 [Intentionally Omitted.]

2.4 Payments.

(a) Payments by Borrower.--------------------

(i) All payments to be made by Borrower shall be madewithout set-off, recoupment, deduction, or counterclaim, except as otherwiserequired by law. Except as otherwise expressly provided herein, all payments byBorrower shall be made to Agent for the account of the Lenders at Agent'saddress set forth in Section 12, and shall be made in immediately available



----------funds, no later than 11:00 a.m. (California time) on the date specified herein.Any payment received by Agent later than 11:00 a.m. (California time), at theoption of Agent, shall be deemed to have been received on the following BusinessDay and any applicable interest or fee shall continue to accrue until suchfollowing Business Day.

(ii) Whenever any payment is due on a day other than aBusiness Day, such payment shall be made on the following Business Day, and suchextension of time shall in such case be included in the computation of interestor fees, as the case may be.

(iii) Unless Agent receives notice from Borrower priorto the date on which any payment is due to the Lenders that Borrower will notmake such payment in full as and when required, Agent may assume that Borrowerhas made such payment in full to Agent on such date in immediately availablefunds and Agent may (but shall not be so required), in reliance upon suchassumption, distribute to each Lender on such due date an amount equal to theamount then due such Lender. If and to the extent Borrower has not made suchpayment in full to Agent, each Lender shall repay to Agent on demand such amountdistributed to such Lender, together with interest thereon at the Reference Ratefor each day from the date such amount is distributed to such Lender until thedate repaid.

(b) Apportionment, Application, and Reversal of Payments.Except as otherwise provided with respect to Defaulting Lenders, aggregateprincipal and interest payments shall be apportioned ratably among the Lenders(according to the unpaid principal balance of the Advances to which suchpayments relate held by each Lender) and payments of the fees (other than feesdesignated for Agent's sole and separate account) shall, as applicable, beapportioned ratably among the Lenders. All payments shall be remitted to Agentand all such payments not relating to principal or interest of specificAdvances, or not constituting payment of specific fees, and all proceeds ofAccounts or other Collateral received by Agent, shall be applied, first, to pay

-----any fees, or expense reimbursements then due to Agent from Borrower; second, to

------pay any fees or expense reimbursements then due to the Lenders from Borrower;third, to pay interest due in respect of all Advances (including Foothill Loans-----and Agent Advances); fourth, to pay or prepay principal of Foothill Loans and

------Agent Advances; fifth, ratably to pay principal of the Advances (other than

-----Foothill Loans and Agent Advances); sixth, to be held by Agent as cash

-----collateral in accordance

32

with Section 2.2(e) hereof with respect to unreimbursed obligations in respect--------------

of Letters of Credit; and seventh, ratably to pay any other Obligations due toAgent or any Lender by Borrower.

2.5 Overadvances. If, at any time or for any reason, the amountof Obligations pursuant to Sections 2.1 and 2.2 is greater than either the

--------------------Dollar or percentage limitations set forth in Sections 2.1 or 2.2 (an

-------------------"Overadvance"), Borrower immediately (or in the case of an Overadvance that iscaused by the charging of interest, fees or Lender Group Expenses to the LoanAccount, within 5 Business Days of incurring such Overadvance) shall pay toAgent, in cash, the amount of such excess, which amount shall be used by Agentto reduce the Obligations in accordance with the priority set forth in Section

-------2.4(b).-------

2.6 Interest and Letter of Credit Fees: Rates, Payments, andCalculations.

(a) Interest Rate. Except as provided in clause (c) below,all Obligations (except for the amounts undrawn under Letters of Credit) shallbear interest on the Daily Balance at a per annum rate of one percentage pointabove the Reference Rate.

(b) Letter of Credit Fee. Borrower shall pay Agent, for theratable benefit of the Lender Group a fee (in addition to the charges,commissions, fees, and costs set forth in Section 2.2(d)) equal to 1.5% per

--------------annum times the Daily Balance of the amount of the undrawn Letters of Credit.



(c) Default Rate. Upon the occurrence and during thecontinuation of an Event of Default, (i) all Obligations (except for the amountsundrawn under Letters of Credit) shall bear interest on the Daily Balance at aper annum rate equal to four percentage points above the Reference Rate, and(ii) the Letter of Credit fee provided in Section 2.6(b) shall be increased to

--------------4.5% per annum times the amount of the undrawn Letters of Credit that wereoutstanding during the immediately preceding month.

(d) Minimum Interest. In no event shall the rate of interestchargeable under Section 2.6(a) for any day be less than 8% per annum. To the

--------------extent that interest accrued hereunder at the rate set forth in such sectionwould be less than the foregoing minimum daily rate, the interest ratechargeable hereunder for such day automatically shall be deemed increased to theminimum rate.

(e) Payments. Interest and Letter of Credit fees payable--------

hereunder shall be due and payable, in arrears, on the first day of each monthduring the term hereof. Borrower hereby authorizes Agent, at its option, withoutprior notice to Borrower, to charge such interest and Letter of Credit fees, allLender Group Expenses (as and when incurred), the charges, commissions, fees,and costs provided for in Section 2.2(d) (as and when accrued or incurred), the

--------------fees and charges provided for in Section 2.11 (as and when accrued or incurred),

------------and all installments or other payments due under any Loan Document to Borrower'sLoan Account, which amounts thereafter shall accrue interest at the rate thenapplicable to Advances hereunder. Any interest not paid when due shall becompounded and shall thereafter accrue interest at the rate then applicable toAdvances hereunder.

33

(f) Computation. The Reference Rate as of the date of this-----------

Agreement is 9% per annum. In the event the Reference Rate is changed from timeto time hereafter, the rate of interest provided for in Section 2.6(a) and

--------------Section 2.6(c)(i) and (ii) automatically and immediately shall be increased or--------------------------decreased by an amount equal to such change in the Reference Rate. All interestand fees chargeable under the Loan Documents shall be computed on the basis of a360 day year for the actual number of days elapsed.

(g) Intent to Limit Charges to Maximum Lawful Rate. In noevent shall the interest rates payable under this Agreement, plus any otheramounts paid in connection herewith, exceed the highest rate permissible underany law that a court of competent jurisdiction shall, in a final determination,deem applicable. Borrower and the Lender Group in executing and delivering thisAgreement, intend legally to agree upon the rate or rates of interest and mannerof payment stated within it; provided, however, that, anything contained herein

-------- -------to the contrary notwithstanding, if said rate or rates of interest or manner ofpayment exceeds the maximum allowable under applicable law, then, ipso facto as

---- -----of the date of this Agreement, Borrower is and shall be liable only for thepayment of such maximum as allowed by law, and payment received from Borrower inexcess of such legal maximum, whenever received, shall be applied to reduce theprincipal balance of the Obligations to the extent of such excess.

2.7 Collection of Accounts. Borrower shall at all times maintainlockboxes (the "Lockboxes") and, promptly after the Closing Date, (i) shall, andshall cause each of CCI and the respective Subsidiaries of Borrower and CCI to,instruct all Account Debtors with respect to the Accounts, General Intangibles,and Negotiable Collateral of Borrower or CCI, or any of their respectiveSubsidiaries, as the case may be, to remit all Collections in respect thereof tosuch Lockboxes, and (ii) shall, and shall cause each of CCI and the respectiveSubsidiaries of Borrower and CCI to, deposit all other Collections received byBorrower or CCI, or any of their respective Subsidiaries, from any sourceimmediately upon receipt into the Lockboxes. Borrower, Agent, and the LockboxBanks shall enter into the Lockbox Agreements, which among other things shallprovide for the opening of a Lockbox Account for the deposit of Collections at aLockbox Bank. Borrower agrees that all Collections and other amounts received byBorrower or CCI, or any of their respective Subsidiaries, from any AccountDebtor or any other source immediately upon receipt shall be deposited into aLockbox Account. No Lockbox Agreement or arrangement contemplated thereby shallbe modified by Borrower or CCI, or any of their respective Subsidiaries, withoutthe prior written consent of Agent. Upon the terms and subject to the conditionsset forth in the Lockbox Agreements, all amounts received in each LockboxAccount (a) prior to the Initial Advance Effective Date, as long as no Defaultor Event of Default has occurred which is continuing, shall be wired each



Business Day to the Designated Account, (b) from and after the Initial AdvanceEffective Date, or at any time during which a Default or Event of Default hasoccurred which is continuing, shall be wired each Business Day into an account(the "Agent Account") maintained by Agent at a depositary selected by Agentwhich is a financial institution that is a member of the Federal Reserve Systemand has combined capital and surplus and undivided profits (or any similarcapital concept) of not less than $500,000,000 and whose senior unsecured debtis rated at least "A-1" by Standard and Poor's Ratings Corporation or "P-1" byMoody's Investors Service.

34

2.8 Crediting Payments; Application of Collections. The receiptof any Collections by Agent (whether from transfers to Agent by the LockboxBanks pursuant to the Lockbox Agreements or otherwise) immediately shall beapplied provisionally to reduce the Obligations outstanding under Section 2.1,

-----------but shall not be considered a payment on account unless such Collection item isa wire transfer of immediately available federal funds and is made to the AgentAccount or unless and until such Collection item is honored when presented forpayment. From and after the Closing Date, Agent shall be entitled to chargeBorrower for one Business Day of 'clearance' or 'float' at the rate set forth inSection 2.6(a) or Section 2.6(c)(i), as applicable, on all Collections that are-------------- -----------------received by Borrower, CCI or any other Loan Party, or any of their respectiveSubsidiaries, or Agent (regardless of whether forwarded by the Lockbox Banks toAgent, whether provisionally applied to reduce the Obligations under Section

-------2.1, whether wire transferred or otherwise paid to the Agent Account, or---otherwise). This across-the-board one Business Day clearance or float charge onall Collections is acknowledged by the parties to constitute an integral aspectof the pricing of the Lender Group's financing of Borrower, and shall applyirrespective of the characterization of whether receipts are owned by Borrower,CCI, any other Loan Party, or any of their respective Subsidiaries, or Agent,and whether or not there are any outstanding Advances, the effect of suchclearance or float charge being the equivalent of charging one Business Day ofinterest on such Collections. Should any Collection item not be honored whenpresented for payment, then Borrower shall be deemed not to have made suchpayment, and interest shall be recalculated accordingly. Anything to thecontrary contained herein notwithstanding, any Collection item shall be deemedreceived by Agent only if it is received into the Agent Account on a BusinessDay on or before 11:00 a.m. California time. If any Collection item is receivedinto the Agent Account on a non-Business Day or after 11:00 a.m. California timeon a Business Day, it shall be deemed to have been received by Agent as of theopening of business on the immediately following Business Day. Anythingcontained herein to the contrary notwithstanding, the economic benefit of theone Business Day clearance or float charge provided for in this Section 2.8 is

-----------not for the ratable benefit of the Lenders, but instead shall be for the soleand separate account of Agent.

2.9 Designated Account. Agent, Foothill, and the Lenders areauthorized to make the Advances and the Letters of Credit under this Agreementbased upon telephonic or other instructions received from anyone purporting tobe an Authorized Person, or without instructions if pursuant to Section 2.6(e).

--------------Borrower agrees to establish and maintain the Designated Account with theDesignated Account Bank for the purpose of receiving the proceeds of theAdvances requested by Borrower and made by Agent, Foothill or the Lendershereunder. Unless otherwise agreed by Agent and Borrower, any Advance requestedby Borrower and made hereunder shall be made to the Designated Account. If asthe result of the receipt of any Collections into the Agent Account a creditbalance exists in the Loan Account, such credit balance shall not receiveinterest in favor of Borrower, but shall be returned to Borrower prior to theInitial Advance Effective Date, and thereafter as long as no Default or Event ofDefault has occurred which is continuing, as follows: (i) a credit balance inthe Loan Account which results from a Collection received into the Agent Accounton a Business Day on or before 11:00 a.m. California time shall be forwarded tothe Designated Account on the same Business Day as received; and (ii) a creditbalance in the Loan Account which results from a Collection received into theAgent Account on a non-Business Day

35

or after 11:00 a.m. California time on a Business Day shall be forwarded to theDesignated Account on the immediately following Business Day.

2.10 Maintenance of Loan Account; Statements of Obligations. Agentshall maintain an account on its books in the name of Borrower (the "LoanAccount") on which Borrower will be charged with all Advances made by Agent,Foothill, or the Lenders to Borrower or for Borrower's account, including,



accrued interest, Lender Group Expenses, and any other payment Obligations ofBorrower. In accordance with Section 2.8, the Loan Account will be credited with

-----------all payments received by Agent from Borrower or for Borrower's account,including all amounts received in the Agent Account from any Lockbox Bank. Agentshall render statements regarding the Loan Account to Borrower, includingprincipal, interest, fees, and including an itemization of all charges andexpenses constituting Lender Group Expenses owing, and such statements shall beconclusively presumed to be correct and accurate and constitute an accountstated between Borrower and the Lender Group unless, within 30 days afterreceipt thereof by Borrower, Borrower shall deliver to Agent written objectionthereto describing the error or errors contained in any such statements.

2.11 Fees. Borrower shall pay to Agent for the ratable benefit ofthe Lender Group (except as otherwise indicated) the following fees:

(a) Closing Fee. On the Closing Date, a closing fee of$375,000 less the $187,500 commitment fee heretofore paid by Borrower or CCI toFoothill pursuant to that certain letter agreement dated as of on or about March21, 2000, by and among Foothill, CCI and Borrower;

(b) Unused Line Fee. On the first day of each month afterthe Closing Date during the term of this Agreement, an unused line fee in anamount equal to one quarter of one percent (0.25%) per annum times the AverageUnused Portion of the Maximum Revolving Amount.

(c) Loan Servicing Fee. On the first day of each monthafter the Closing Date during the term of this Agreement, a loan servicing feein an amount equal to $7,500 per month, which amount shall be fully earned andnonrefundable and be payable in arrears on the first day of each month;

(d) Financial Examination, Documentation, and AppraisalFees. Agent's customary fee of $750 per day per examiner, plus Agent'sreasonable out-of-pocket expenses for each financial analysis and examination(i.e., audits) of Borrower performed by personnel employed by Agent; Agent'scustomary one-time electronic reporting setup fee of $3,000, plus Agent'sout-of-pocket expenses relating thereto; the actual charges paid or incurred byAgent if it elects to employ the services of one or more third Persons toperform such financial analyses and examinations (i.e., audits) of Borrower orto appraise the Collateral. Unless a Default has occurred, the number of auditsand appraisals per calendar year for which Borrower shall be responsible forpaying of the above described appraisal fees and out-of-pocket expenses of Agentshall not exceed four.

36

3. CONDITIONS; TERM OF AGREEMENT.

3.1 Conditions Precedent to Closing Date. The Closing Date issubject to the fulfillment, to the satisfaction of Agent and its counsel, ofeach of the following conditions on or before April 28, 2000 (or such earlierdate as may be specified below):

(a) Agent shall have received all financing statements andfixture filings required by Agent, duly executed by Borrower and each of theother Loan Parties;

(b) Agent shall have received each of the followingdocuments, in form and substance satisfactory to Agent, duly executed, and eachsuch document shall be in full force and effect:

i. the Lockbox Agreements;

ii. the Pay-Off Letters executed by each of Goldman SachsCredit Partners, L.P., and its Affiliates under which suchPersons are obligated to deliver to Agent UCC terminationstatements and other documentation evidencing the terminationby each of them of its respective Liens in and to theproperties and assets of Borrower and the other Loan Parties;

iii. the Guaranty Agreements;

iv. the Stock Pledge Agreements;

v. the Security Agreements; and

vi. such other documents as shall be required byAgent;

(c) Agent shall have received a certificate from theSecretary of Borrower and each other Loan Party attesting to the resolutions ofBorrower's and each other Loan Party's Board of Directors authorizing itsexecution, delivery, and performance of this Agreement and the other Loan



Documents to which it is a party and authorizing specific officers of it toexecute the same;

(d) Agent shall have received copies of Borrower's and eachother Loan Party's Governing Documents, as amended, modified, or supplemented tothe Closing Date, certified by the Secretary of Borrower and each other LoanParty, as the case may be;

(e) Agent shall have received a certificate of status withrespect to Borrower and each other Loan Party, dated within 10 days of theClosing Date, such certificate to be issued by the appropriate officer of thejurisdiction of organization of Borrower and each other Loan Party, whichcertificate shall indicate that Borrower and each other Loan Party is in goodstanding in such jurisdiction;

37

(f) Agent shall have received certificates of status withrespect to Borrower and each other Loan Party, each dated within 15 days of theClosing Date, such certificates to be issued by the appropriate officer of thejurisdictions in which its failure to be duly qualified or licensed wouldconstitute a Material Adverse Change, which certificates shall indicate thatBorrower and each other Loan Party is in good standing in such jurisdictions;

(g) [Intentionally omitted];

(h) Agent shall have received an opinion of Borrower'scounsel and each Guarantor's counsel in form and substance satisfactory to Agentin its sole discretion;

(i) Borrower or CCI shall have not less than $125,000,000 ofAvailability and unrestricted immediately available cash on hand after makingthe payments described in Section 7.17(a) and the $187,500 due on the Closing

---------------Date pursuant to Section 2.11(a), as determined by Agent;

---------------

(j) Agent shall have received and reviewed (i) Borrower'sconsolidated December 31, 1999 financial statements prepared by Borrower'saccountants which they are prepared to issue as audited provided that suchfinancial statements would be subject to a going concern qualification, and theresults of such review shall be satisfactory to Agent, and (ii) Borrower'sconsolidated February 29, 2000 financial statements prepared by Borrower'smanagement, and the results of such review shall be satisfactory to Agent, inits sole discretion;

(k) Agent shall have completed its legal due diligence,including a review of material contracts (including the indentures with respectto all material debt), and the results thereof shall be satisfactory to Agent,in its sole discretion;

(l) there shall have been no material adverse change in thebusiness, operations, assets, financial condition or prospects of Borrower andguarantors since December 31, 1999 which is not set forth in Borrower's businessplan and financial projections dated as of February 15, 2000 which Borrowerdelivered to Agent prior to March 21, 2000;

(m) at least $150,000,000 of additional equity capital shallhave been contributed to Borrower or CCI, on terms and conditions and pursuantto documentation mutually acceptable to Borrower and Agent;

(n) Agent and counsel to Agent shall have received andreviewed all documentation relating to the Unsecured Notes, including, withoutlimitation, the Unsecured Notes Indenture, and all of such documentation, andthe terms and provisions of such documentation, including, without limitation,the Unsecured Notes and the Unsecured Notes Indenture, shall be acceptable toAgent and its counsel;

(o) Agent shall have received payment in full in immediatelyavailable funds of all amounts due on the Closing Date pursuant to Section

-------2.11(a);-------

38

(p) Agent shall have received evidence satisfactory to Agentin its sole discretion that the Lien securing any and all present or futureIndebtedness or obligations of any Loan Party to Cisco Systems, Inc., CiscoSystems Capital Corporation or any of their respective Affiliates is limited tothe specific items and property described on Exhibit 3.1(p) attached hereto and

--------------



made a part hereof, and that all security agreements pertaining to suchIndebtedness or other obligations shall have been amended to provide that suchLien is so limited;

(q) Agent shall have received the original stockcertificates evidencing all shares of stock of Cavion Technologies, Inc. ownedor controlled by any Loan Party, together with stock powers covering such sharesduly executed in blank by each Loan Party which owns or controls any suchshares; and

(r) all other documents and legal matters in connection withthe transactions contemplated by this Agreement shall have been delivered,executed, or recorded and shall be in form and substance satisfactory to Agentand its counsel.

3.2 Conditions Precedent to the Initial Advance and Letter ofCredit. The obligation of the Lender Group (or any member thereof) to make theinitial Advance or to issue the initial Letter of Credit is subject to thefulfillment, to the satisfaction of Agent and its counsel, of each of thefollowing conditions on or before the Initial Advance Effective Date (or suchearlier date as may be specified below):

(a) Agent shall have received searches reflecting the filingof all financing statements and fixture filings of Borrower and the other LoanParties required by Agent;

(b) Agent shall have received each of the followingdocuments, in form and substance satisfactory to Agent, duly executed, and eachsuch document shall be in full force and effect:

i. the Disbursement Letter;

ii. the Pay-Off Letter of Deutsche Financial ServicesCorporation and its Affiliates, together with UCCtermination statements and other documentation evidencingthe termination by such Persons of their respective Liens inand to the properties and assets of Borrower and the otherLoan Parties; and

iii. an estoppel letter of Norwest Bank Colorado, N.A.in favor of Agent for the benefit of the Lender Group,pursuant to which such bank agrees that it has no present orfuture Lien on the Collateral other than specificallyidentified deposit accounts at such bank which are consentedto by Agent;

39

(c) Agent shall have received a certificate of insurance,together with the endorsements thereto, as are required by Section 6.10, the

------------form and substance of which shall be satisfactory to Agent and its counsel;

(d) Agent shall have received satisfactory evidence thatall tax returns required to be filed by Borrower and each other Loan Party havebeen timely filed and all taxes upon Borrower and each other Loan Party, or itsrespective properties, assets, income, and franchises (including real propertytaxes and payroll taxes), have been paid prior to delinquency, except such taxesthat are the subject of a Permitted Protest;

(e) Agent shall have received UCC terminations, UCCamendments, UCC releases and other documentation evidencing the termination,amendment and release, as the case may be, of all UCC financing statements andother documents which disclose a Lien on any of the Collateral other than aPermitted Lien as are requested by Agent, including those listed on Exhibit

-------3.2(e) attached hereto and made a part hereof;------

(f) Agent shall have received such Collateral AccessAgreements from lessors, warehousemen, bailees, and other third persons as Agentmay require; and

(g) Agent shall have received and reviewed a current auditof Borrower performed recently by Foothill's auditors, the results of such auditshall be acceptable to Agent, in Agent's discretion, and Agent shall havereceived from Borrower since the date of such audit current collateral reportingacceptable to Agent, in Agent's reasonable discretion.

3.3 Conditions Precedent to all Advances and all Letters ofCredit. The following shall be conditions precedent to all Advances and allLetters of Credit hereunder:

(a) the representations and warranties contained in this



Agreement and the other Loan Documents shall be true and correct in all respectson and as of the date of such extension of credit, as though made on and as ofsuch date (except to the extent that such representations and warranties relatesolely to an earlier date);

(b) no Default or Event of Default shall have occurred andbe continuing on the date of such extension of credit, nor shall either resultfrom the making thereof;

(c) no injunction, writ, restraining order, or other orderof any nature prohibiting, directly or indirectly, the extending of such creditshall have been issued and remain in force by any governmental authority againstBorrower, Agent, the Lender Group, or any of their Affiliates; and

(d) the amount of the Revolving Facility Usage, after givingeffect to the requested Advance or Letter of Credit, shall not exceed theAvailability.

The foregoing conditions precedent are not conditions to each Lender (i)participating in or reimbursing Agent for such Lenders' Pro Rata Share of anydrawings under Letters of Credit as

40

provided herein, or (ii) participating in or reimbursing Foothill or the Agentfor such Lenders' Pro Rata Share of any Foothill Loan or Agent Advance asprovided herein.

3.4 Condition Subsequent. As a condition subsequent to initialclosing hereunder, Borrower shall perform or cause to be performed the following(the failure by Borrower to so perform or cause to be performed constituting anEvent of Default):

(a) within 30 days of the Closing Date, deliver to Agent thecertified copies of the policies of insurance, together with the endorsementsthereto, as are required by Section 6.10, the form and substance of which shall

------------be satisfactory to Agent and its counsel; and

(b) within 10 days of the Closing Date, deliver to Agent UCCamendments and other documentation evidencing the amendment of each UCCfinancing statement and other instrument disclosing a Lien of Cisco Systems,Inc., Cisco Systems Capital Corporation, and any of its respective Affiliates,to limit the Lien disclosed thereby to the specific items and property describedon Exhibit 3.1(p) attached hereto and made a part hereof.

--------------

3.5 Term; Automatic Renewal.

(a) This Agreement shall become effective upon the executionand delivery hereof by Borrower and the Lender Group and shall continue in fullforce and effect for a term ending on the date (the "Renewal Date") that isthree (3) years from the Closing Date and automatically shall be renewed forsuccessive one year periods thereafter, unless sooner terminated pursuant to theterms hereof.

(b) Either party may terminate this Agreement effective onthe Renewal Date or on any one year anniversary of the Renewal Date by givingthe other party at least 90 days prior written notice. The foregoingnotwithstanding, the Lender Group shall have the right to terminate itsobligations under this Agreement immediately and without notice upon theoccurrence and during the continuation of an Event of Default.

3.6 Effect of Termination.

(a) On the date of termination of this Agreement, allObligations (including contingent reimbursement obligations of Borrower withrespect to any outstanding Letters of Credit) immediately shall become due andpayable without notice or demand. No termination of this Agreement, however,shall relieve or discharge Borrower of Borrower's duties, Obligations, orcovenants hereunder or under the other Loan Documents, and Agent's continuingsecurity interests in the Collateral, for the benefit of the Lender Group, shallremain in effect until all Obligations have been fully and finally dischargedand the Lender Group's obligations to provide additional credit hereunder havebeen terminated.

(b) If Borrower has sent a notice of termination pursuant tothe provisions of Section 3.5, but fails to pay the Obligations in full on the

-----------date set forth in said notice,

41



then the Lender Group may, but shall not be required to, renew this Agreementfor an additional term of one year.

3.7 Early Termination by Borrower. The provisions of Section 3.5-----------

that allow termination of this Agreement by Borrower only on the Renewal Dateand certain anniversaries thereof notwithstanding, Borrower has the option, atany time upon 90 days prior written notice to Agent, to terminate this Agreementby paying to Agent, for the ratable benefit of the Lender Group, in cash, theObligations (including an amount equal to 105% of the undrawn amount of theLetters of Credit except for such Letters of Credit as are replaced orguaranteed in full by financial institutions acceptable to Agent pursuant todocumentation acceptable to Agent), in full, together with a premium (the "EarlyTermination Premium") equal to (a) if the termination occurs on or before thefirst anniversary of the Closing Date, an amount equal to three percent (3%) ofthe Maximum Revolving Amount, (b) if the termination occurs after the firstanniversary of the Closing Date, but on or before the second anniversary of theClosing Date, an amount equal to one and one-half percent (1.50%), and (c) ifthe termination occurs after the second anniversary of the Closing Date (otherthan during the 30 day period immediately preceding the Renewal Date) an amountequal to one-half of one percent (0.50%) of the Maximum Revolving Amount.

3.8 Termination Upon Event of Default. If the Lender Groupterminates this Agreement upon the occurrence of an Event of Default, in view ofthe impracticability and extreme difficulty of ascertaining actual damages andby mutual agreement of the parties as to a reasonable calculation of the LenderGroup's lost profits as a result thereof, Borrower shall pay to Agent, for theratable benefit of the Lender Group, upon the effective date of suchtermination, a premium in an amount equal to the Early Termination Premium. TheEarly Termination Premium shall be presumed to be the amount of damagessustained by the Lender Group as the result of the early termination andBorrower agrees that it is reasonable under the circumstances currentlyexisting. The Early Termination Premium provided for in this Section 3.8 shall

-----------be deemed included in the Obligations.

4. CREATION OF SECURITY INTEREST.

4.1 Grant of Security Interest. Borrower hereby grants toAgent, for the benefit of the Lender Group, continuing Liens on all right,title, and interest of Borrower in and to all currently existing and hereafteracquired or arising Collateral in order to secure prompt repayment of any andall Obligations and in order to secure prompt performance by Borrower of each ofits covenants and duties under the Loan Documents (the "Agent's Liens"). TheAgent's Liens in and to the Collateral shall attach to all Collateral withoutfurther act on the part of the Lender Group or Borrower. Anything contained inthis Agreement or any other Loan Document to the contrary notwithstanding,except for the sale of Inventory to buyers in the ordinary course of business,the use of Equipment in the ordinary course of business and dispositions ofEquipment that is obsolete or no longer useful in any Loan Party's business tothe extent permitted in Section 7.4 and other dispositions permitted under

-----------Section 7.4 hereof, Borrower has no authority, express or implied, to dispose of-----------any item or portion of the Collateral. Subject to Section 2.4(b), the secured

--------------claims of the Lender Group secured by the Collateral shall be of equal priority,and ratable according to the respective Obligations due each member of theLender Group.

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4.2 Negotiable Collateral. In the event that any Collateral,including proceeds, is evidenced by or consists of Negotiable Collateral,Borrower promptly shall endorse and deliver physical possession of suchNegotiable Collateral to Agent.

4.3 Collection of Accounts, General Intangibles, and NegotiableCollateral. At any time, Agent or Agent's designee may at any time after theoccurrence of an Event of Default which is continuing (a) notify customers orAccount Debtors that the Accounts, General Intangibles, or Negotiable Collateralhave been assigned to Agent for the benefit of the Lender Group, or that Agent,for the benefit of the Lender Group, has a security interest therein and (b)collect the Accounts, General Intangibles, and Negotiable Collateral directlyand charge the collection costs and expenses to the Loan Account. Borroweragrees that it will hold in trust for the Lender Group, as the Lender Group'strustee, any Collections that it receives and immediately will deliver saidCollections to Agent in their original form as received by Borrower.

4.4 Delivery of Additional Documentation Required. At any timeupon the request of Agent, Borrower shall execute and deliver to Agent allfinancing statements, collateral assignments, continuation financing statements,



fixture filings, security agreements, pledges, assignments, mortgages, leaseholdmortgages, deeds of trust, leasehold deeds of trust, endorsements ofcertificates of title, applications for title, affidavits, reports, notices,schedules of accounts, letters of authority, and all other documents that Agentreasonably may request, in form satisfactory to Agent, to perfect and continueperfected the Agent's Liens on the Collateral (whether now owned or hereafterarising or acquired), and in order to consummate fully all of the transactionscontemplated hereby and under the other the Loan Documents; provided, however,that until such time as Agent or the Lenders have accelerated all or any part ofthe Obligations following the occurrence of an Event of Default, Borrower shallnot be required to obtain any Control Agreements for the benefit of Agent orperfect Agent's Liens on any deposit account (other than with respect to theLockbox Accounts and other deposit accounts and/or Securities Accounts which maycontain proceeds of Collateral).

4.5 Power of Attorney. Borrower hereby irrevocably makes,constitutes, and appoints Agent (and any of Agent's officers, employees, oragents designated by Agent) as Borrower's true and lawful attorney, with powerto (a) if Borrower refuses to, or fails timely to execute and deliver any of thedocuments described in Section 4.4, sign the name of Borrower on any of the

-----------documents described in Section 4.4, (b) at any time that an Event of Default has

-----------occurred and is continuing or Agent deems itself insecure, sign Borrower's nameon any invoice or bill of lading relating to any Account, drafts against AccountDebtors, schedules and assignments of Accounts, verifications of Accounts, andnotices to Account Debtors, (c) send requests for verification of Accounts (withrespect to such requests sent prior to the occurrence of an Event of Default,such requests shall be styled in the name of either Borrower or another Personother than Agent) (d) endorse Borrower's name on any Collection item that maycome into the Lender Group's possession, (e) at any time that an Event ofDefault has occurred and is continuing or the Lender Group deems itselfinsecure, notify the post office authorities to change the address for deliveryof Borrower's mail to an address designated by Agent, to receive and open allmail addressed to Borrower, and to retain all mail relating to the Collateraland forward all other mail to Borrower, (f)

43

at any time that an Event of Default has occurred and is continuing or Agentdeems itself insecure, make, settle, and adjust all claims under Borrower'spolicies of insurance and make all determinations and decisions with respect tosuch policies of insurance, and (g) at any time that an Event of Default hasoccurred and is continuing or Agent deems itself insecure, settle and adjustdisputes and claims respecting the Accounts directly with Account Debtors, foramounts and upon terms that Agent determines to be reasonable, and Agent maycause to be executed and delivered any documents and releases that Agentdetermines to be necessary. The appointment of Agent as Borrower's attorney, andeach and every one of Agent's rights and powers, being coupled with an interest,is irrevocable until all of the Obligations have been fully and finally repaidand performed and the Lender Groups' obligations to extend credit hereunder areterminated.

4.6 Right to Inspect. Agent (through any of its officers,employees, or agents) shall have the right, from time to time hereafter toinspect the Books and to check, test, and appraise the Collateral in order toverify Borrower's financial condition or the amount, quality, value, conditionof, or any other matter relating to, the Collateral; provided, however, thatprior to the occurrence on an Event of Default that is continuing, such rightshall be exercisable only during ordinary business hours.

5. REPRESENTATIONS AND WARRANTIES.

In order to induce the Lender Group to enter into this Agreement,Borrower makes the following representations and warranties to the Lender Groupwhich shall be true, correct, and complete in all respects as of the datehereof, and shall be true, correct, and complete in all respects as of theClosing Date, and at and as of the date of the making of each Advance or Letterof Credit made thereafter, as though made on and as of the date of the making ofsuch Advance or Letter of Credit (except to the extent that such representationsand warranties relate solely to an earlier date) and such representations andwarranties shall survive the execution and delivery of this Agreement:

5.1 No Encumbrances. Borrower has good and indefeasible title tothe Collateral, free and clear of Liens except for Permitted Liens.

5.2 Eligible Accounts. The Eligible Accounts are bona fideexisting obligations created by the sale and delivery of Inventory or therendition of services to Account Debtors in the ordinary course of Borrower'sbusiness, unconditionally owed to Borrower without defenses, disputes, offsets,counterclaims, or rights of return or cancellation, except for ordinary productand service warranty claims in the ordinary cause of business which have notbeen asserted by the Account Debtor thereunder and contract terminations in the



ordinary course of business which have not been asserted by the Account Debtorthereunder. The property giving rise to such Eligible Accounts has beendelivered to the Account Debtor, or to the Account Debtor's agent for immediateshipment to and unconditional acceptance by the Account Debtor. Borrower has notreceived notice of actual or imminent bankruptcy, insolvency, or materialimpairment of the financial condition of any Account Debtor regarding anyEligible Account.

5.3 Eligible Inventory. All Eligible Inventory, other thanInventory manufactured or assembled by Persons that are not a Loan Party, is ofgood and merchantable

44

quality, free from defects. To the best of Borrower's knowledge, all EligibleInventory manufactured or assembled by Persons that are not a Loan Party is ofgood and merchantable quality, free from defects.

5.4 Equipment. All of the Equipment is used or held for use inBorrower's business and is fit for such purposes.

5.5 Location of Inventory and Equipment. The Inventory andEquipment are not stored with a bailee, warehouseman, or similar party and arelocated only at the locations identified on Schedule 6.12 or otherwise permittedby Section 6.12.

------------

5.6 Inventory Records. Borrower keeps correct and accuraterecords itemizing and describing the kind, type, quality, and quantity of theInventory, and Borrower's cost therefor.

5.7 Location of Chief Executive Office; FEIN. The chief executiveoffice of Borrower is located at the address indicated in the preamble to thisAgreement and Borrower's FEIN is 84-1387594. The chief executive office of eachof CCI, CCC, and WAI, is located at the same location as Borrower's addressindicated in the preamble to this Agreement, CCI's FEIN is 84-1337265, CCC'sFEIN is 84-1437158, and WAI's FEIN is 84-1301579.

5.8 Due Organization and Qualification; Subsidiaries.

(a) Borrower and each other Loan Party is duly organized andexisting and in good standing under the laws of the jurisdiction of itsincorporation and qualified and licensed to do business in, and in good standingin, any state where the failure to be so licensed or qualified reasonably couldbe expected to constitute a Material Adverse Change.

(b) Set forth on Schedule 5.8, is a complete and accurate------------

description of the authorized capital Stock of Borrower, by class, and, as ofthe Closing Date, a description of the number of shares of each such class thatare issued and outstanding and the number of such shares that are held inBorrower's treasury. All such outstanding shares have been validly issued and,as of the Closing Date, are fully paid, nonassessable shares free of contractualpreemptive rights. The issuance and sale of all such shares have been incompliance with all applicable federal and state securities laws. Other than asdescribed on Schedule 5.8, there are no subscriptions, options, warrants, or

------------calls relating to any shares of Borrower's or any of its Subsidiaries' capitalStock, including any right of conversion or exchange under any outstandingsecurity or other instrument. Except as set forth on Schedule 5.8, neither

------------Borrower nor any of its Subsidiaries is subject to any obligation (contingent orotherwise) to repurchase or otherwise acquire or retire any shares of itscapital Stock or any security convertible into or exchangeable for any of itscapital Stock.

(c) Set forth on Schedule 5.8, is a complete and accurate------------

list of Borrower's and each other Loan Party's direct and indirect Subsidiaries,as of the Closing Date, showing: (i) the jurisdiction of their incorporation;(ii) the number of shares of each class of common and preferred Stock authorizedfor each of such Subsidiaries; and (iii) the number and the percentage of theoutstanding shares of each such class owned directly or indirectly by Borrower

45

and such Loan Party, as the case may be. All of the outstanding capital Stock ofeach such Subsidiary has been validly issued and is fully paid and non-assessable.

(d) Except as set forth on Schedule 5.8, no capital Stock------------



(or any securities, instruments, warrants, options, purchase rights, conversionor exchange rights, calls, commitments or claims of any character convertibleinto or exercisable for capital Stock) of any direct or indirect Subsidiary ofBorrower or any of its Subsidiaries is subject to the issuance of any security,instrument, warrant, option, purchase right, conversion or exchange right, call,commitment or claim of any right, title, or interest therein or thereto.

5.9 Due Authorization; No Conflict.

(a) The execution, delivery, and performance by Borrower andeach other Loan Party of this Agreement and the Loan Documents to which it is aparty have been duly authorized by all necessary corporate action.

(b) The execution, delivery, and performance by Borrower andeach other Loan Party of this Agreement and the Loan Documents to which it is aparty do not and will not (i) violate any provision of federal, state, or locallaw or regulation (including Regulations T, U, and X of the Federal ReserveBoard) applicable to Borrower or such Loan Party, the Governing Documents ofBorrower or such Loan Party, or any order, judgment, or decree of any court orother Governmental Authority binding on Borrower or such Loan Party, as the casemay be, (ii) conflict with, result in a breach of, or constitute (with duenotice or lapse of time or both) a default under any material contractualobligation or material lease of Borrower or such Loan Party, as the case may be,(iii) result in or require the creation or imposition of any Lien of any naturewhatsoever upon any properties or assets of Borrower or such Loan Party, as thecase may be, other than Permitted Liens, or (iv) require any approval ofstockholders or any approval or consent of any Person under any materialcontractual obligation of Borrower or such Loan Party, as the case may be.

(c) Other than the taking of any action expressly requiredunder this Agreement and the Loan Documents, the execution, delivery, andperformance by Borrower and each other Loan Party of this Agreement and the LoanDocuments to which it is a party do not and will not require any registrationwith, consent, or approval of, or notice to, or other action with or by, anyfederal, state, foreign, or other Governmental Authority or other Person.

(d) This Agreement and the Loan Documents to which Borroweris a party, and all other documents contemplated hereby and thereby, whenexecuted and delivered by Borrower will be the legally valid and bindingobligations of Borrower, enforceable against Borrower in accordance with theirrespective terms, except as enforcement may be limited by equitable principlesor by bankruptcy, insolvency, reorganization, moratorium, or similar lawsrelating to or limiting creditors' rights generally.

(e) The Agent's Liens granted by Borrower and/or other LoanParties to Agent, for the benefit of the Lender Group, in and to its propertiesand assets pursuant to this

46

Agreement and the other Loan Documents are validly created, perfected, and firstpriority Liens, subject only to Permitted Liens and except with respect todeposit accounts other than the Lockbox Accounts and other deposit accountswhich may contain proceeds of Collateral.

5.10 Litigation. There are no actions or proceedings pending by oragainst Borrower or any Loan Party before any court or administrative agency andneither Borrower nor any other Loan Party has knowledge or belief of any pendingor threatened litigation, governmental investigations, or claims, complaints,actions, or prosecutions involving Borrower, any other Loan Party or anyguarantor of the Ob ligations, except for: (a) ongoing collection matters inwhich Borrower or such other Loan Party is the plaintiff; (b) matters disclosedon Schedule 5.10; and (c) matters arising after the date hereof which reasonably

-------------could not be expected to result in a Material Adverse Change.

5.11 No Material Adverse Change. All financial statements relatingto Borrower or any guarantor of the Obligations that have been delivered byBorrower to the Lender Group have been prepared in accordance with GAAP (except,in the case of unaudited financial statements, for the lack of footnotes andbeing subject to year-end audit adjustments) and fairly present Borrower's (orsuch guarantor's, as applicable) financial condition as of the date thereof andBorrower's results of operations for the period then ended. There has not been aMaterial Adverse Change with respect to Borrower (or such guarantor, asapplicable) since the date of the latest financial statements submitted to theLender Group on or before the Closing Date.

5.12 No Fraudulent Transfer.

(a) Borrower is Solvent.

(b) No transfer of property is being made by Borrower and noobligation is being incurred by Borrower in connection with the transactions



contemplated by this Agreement or the other Loan Documents with the intent tohinder, delay, or defraud either present or future creditors of Borrower.

5.13 Employee Benefits. None of Borrower, any of its Subsidiaries,any other Loan Party, or any of their ERISA Affiliates maintains or contributesto any Benefit Plan, other than those listed on Schedule 5.13. Borrower, each of

-------------its Subsidiaries, each other Loan Party and each ERISA Affiliate have satisfiedthe minimum funding standards of ERISA and the IRC with respect to each BenefitPlan to which it is obligated to contribute. No ERISA Event has occurred nor hasany other event occurred that may result in an ERISA Event that reasonably couldbe expected to result in a Material Adverse Change. None of Borrower or itsSubsidiaries, any other Loan Party, any ERISA Affiliate, or any fiduciary of anyPlan is subject to any direct or indirect liability in excess of $1,000,000individually or in the aggregate with respect to any Plan under any applicablelaw, treaty, rule, regulation, or agreement. None of Borrower or itsSubsidiaries or any ERISA Affiliate is required to provide security to any Planunder Section 401(a)(29) of the IRC.

5.14 Environmental Condition. None of Borrower's properties orassets has ever been used by Borrower or, to the best of Borrower's knowledge,by previous owners or

47

operators in the disposal of, or to produce, store, handle, treat, release, ortransport, any Hazardous Materials. None of Borrower's properties or assets hasever been designated or identified in any manner pursuant to any environmentalprotection statute as a Hazardous Materials disposal site, or a candidate forclosure pursuant to any environmental protection statute. No Lien arising underany environmental protection statute has attached to any revenues or to any realor personal property owned or operated by Borrower. Except for matters arisingafter the Closing Date which reasonably could not be expected to result in aMaterial Adverse Change, Borrower has not received a summons, citation, notice,or directive from the Environmental Protection Agency or any other federal orstate governmental agency concerning any action or omission by Borrowerresulting in the releasing or disposing of Hazardous Materials into theenvironment.

5.15 Brokerage Fees. No brokerage commission or finders fees hasor shall be incurred or payable in connection with or as a result of Borrower'sobtaining financing from the Lender Group under this Agreement, and Borrower hasnot utilized the services of any broker or finder in connection with Borrower'sobtaining financing from the Lender Group under this Agreement. Agentacknowledges that Agent has not hired any broker that would be entitled to anybrokerage commission or finders fee in connection with the transactionscontemplated herein.

5.16 Permits and other Intellectual Property. Borrower and eachother Loan Party owns or possesses adequate licenses or other rights to use allPermits, patents, patent applications, trademarks, trademark applications,service marks, service mark applications, trade names, copyrights, trade secretsand know-how (collectively, the "Intellectual Property") that are necessary forthe operation of its business as currently conducted. Except for matters arisingafter the Closing Date which reasonably could not be expected to result in aMaterial Adverse Change, no claim is pending or threatened to the effect thatBorrower or any other Loan Party infringes upon, or conflicts with, the assertedrights of any other Person under any Intellectual Property, and to the best ofBorrower's knowledge there is no basis for any such claim (whether pending orthreatened). No claim is pending or threatened to the effect that any materialIntellectual Property owned or licensed by Borrower, or in which Borrowerotherwise has the right to use is invalid or unenforceable by Borrower, and tothe best of Borrower's knowledge there is not basis for any such claim (whetheror not pending or threatened).

5.17 Outstanding Balance of Unsecured Notes. The outstandingbalance owing under the Unsecured Notes and the Unsecured Notes Indenture is atotal of $160,000,000 plus interest which has accrued thereon since October 15,1999 at the rate of 13% per year.

5.18 Filing of Tax Returns and Payment of Taxes. Borrower and eachother Loan Party has timely filed all tax returns required of it and all taxesupon Borrower and each other Loan Party, or its respective properties, assets,income, and franchises (including real property taxes and payroll taxes), havebeen paid prior to delinquency, except such taxes that are the subject of aPermitted Protest.

Borrower may, at any time and from time to time and subject to Section 6.12,------------

amend any one or more of the Schedules referred to in this Section 5 to provide---------

supplemental information that is acceptable to Agent, and any representation orwarranty contained herein which refers to any



48

such Schedule shall, from and after the date of any such amendment, refer tosuch Schedule as so amended; provided, however, that in no event may Borroweramend any such Schedule if such amendment would reflect or evidence a Default orEvent of Default; provided further, however, that no amendment to a Scheduleshall cure any misrepresentation prior thereto, nor shall it in any way affector limit Agent's or any Lender's rights and remedies with respect to any Defaultor Event of Default disclosed thereby or resulting from such misrepresentation.

6. AFFIRMATIVE COVENANTS.

Borrower covenants and agrees that, so long as any credit hereundershall be available and until full and final payment of the Obligations, Borrowershall, and shall cause each Loan Party to, do all of the following:

6.1 Accounting System. Maintain a standard and modern system ofaccounting that enables Borrower and each Loan Party to produce financialstatements in accordance with GAAP, and maintain records pertaining to theCollateral that contain information as from time to time may be requested byAgent. Borrower and each Loan Party also shall keep a modern inventory reportingsystem that shows all additions, sales, claims, returns, and allowances withrespect to the Inventory.

6.2 Collateral Reporting.

(a) Provide Agent, on a weekly basis, Collections reportsspecifying Borrower's, CCI's and each other Loan Party's, and each of theirrespective Subsidiaries', Collections for the immediately preceding calendarweek; and

(b) From and after the Initial Advance Effective Date,provide Agent with the following documents at the following times in formsatisfactory to Agent: (i) on each Business Day, or less frequently if agreed toby Agent, a sales journal, collection journal, and credit register since thelast such schedule and a calculation of the Eligible Accounts component of theBorrowing Base as of such date, (ii) on a monthly basis and, in any event, by nolater than the 15th day of each month during the term of this Agreement, (A) adetailed calculation of the Borrowing Base as of the last day of the immediatelypreceding month, (B) a detailed aging, by total, of the Accounts as of the lastday of the immediately preceding month, together with a reconciliation to thedetailed calculation of the Borrowing Base previously provided to Agent, and (C)a detailed calculation of the Unsecured Notes Indebtedness Limitation, (iii) ona monthly basis and, in any event, by no later than the 15th day of each monthduring the term of this Agreement, a summary aging, by vendor, of Borrower'saccounts payable and any book overdraft as of the last day of the immediatelypreceding month, (iv) on a monthly basis, Inventory reports specifyingBorrower's cost and the wholesale market value of its Inventory by category,with additional detail showing additions to and deletions from the Inventory,(v) upon reasonable request by Agent, notice of all outstanding returns,disputes, or claims, (vi) upon reasonable request, copies of invoices inconnection with the Accounts, customer statements, credit memos, remittanceadvices and reports, deposit slips, shipping and delivery documents inconnection with the Accounts and for Inventory and Equipment acquired byBorrower, purchase orders and invoices, (vii) on a quarterly basis, a

49

detailed list of Borrower's customers, (viii) on a monthly basis, a calculationof the Dilution for the prior month; and (ix) such electronic data or otherreports as to the Collateral or the financial condition of Borrower as Agent mayreasonably request from time to time.

6.3 Financial Statements, Reports, Certificates. Deliver toAgent, with copies to each Lender: (a) as soon as available, but in any eventwithin 30 days after the end of each month during each of CCI's fiscal years, acompany prepared balance sheet, income statement, and statement of cash flowcovering CCI's operations during such period; and (b) as soon as available, butin any event within 90 days after the end of each of CCI's fiscal years,financial statements of CCI and its Subsidiaries for each such fiscal year,audited by independent certified public accountants reasonably acceptable toAgent and certified, without any qualifications, by such accountants to havebeen prepared in accordance with GAAP, together with a certificate of suchaccountants addressed to Agent stating that such accountants do not haveknowledge of the existence of any Default or Event of Default. Such auditedfinancial statements shall include a balance sheet, profit and loss statement,and statement of cash flow and, if prepared, such accountants' letter tomanagement. Borrower agrees to deliver financial statements prepared on aconsolidating basis so as to present Borrower and each such related entityseparately, and on a consolidated basis.



Together with the above, Borrower also shall deliver to Agent,with copies to each Lender, CCI's Form 10-Q Quarterly Reports, Form 10-K AnnualReports, and Form 8-K Current Reports, and any other filings made by CCI withthe SEC, if any, as soon as the same are filed, or any other information that isprovided by CCI to its shareholders, and any other report reasonably requestedby the Lender Group relating to the financial condition of Borrower or any otherLoan Party.

Each month, together with the financial statements providedpursuant to Section 6.3(a), Borrower shall deliver to Agent, with copies to each

--------------Lender, a certificate signed by its chief financial officer to the effect that:(i) all financial statements delivered or caused to be delivered to any one ormore members of the Lender Group hereunder have been prepared in accordance withGAAP (except, in the case of unaudited financial statements, for the lack offootnotes and being subject to year-end audit adjustments) and fairly presentthe financial condition of CCI, (ii) the representations and warranties ofBorrower contained in this Agreement and the other Loan Documents are true andcorrect in all material respects on and as of the date of such certificate, asthough made on and as of such date (except to the extent that suchrepresentations and warranties relate solely to an earlier date), (iii) for eachmonth that also is the date on which a financial covenant in Section 7.20 is to

------------be tested, a Compliance Certificate demonstrating in reasonable detailcompliance at the end of such period with the applicable financial covenantscontained in Section 7.20, and (iv) on the date of delivery of such certificate

------------to Agent there does not exist, to the knowledge of such officer, any conditionor event that constitutes a Default or Event of Default (or, in the case ofclauses (i), (ii), or (iii), to the extent of any non-compliance, describingsuch non-compliance as to which he or she may have knowledge and what actionBorrower has taken, is taking, or proposes to take with respect thereto).

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Borrower shall have issued written instructions to its independentcertified public accountants authorizing them to communicate with Agent and torelease to Agent whatever financial information concerning Borrower that Agentmay request. Borrower hereby irrevocably authorizes and directs all auditors,accountants, or other third parties to deliver to Agent, at Borrower's expense,copies of Borrower's financial statements, papers related thereto (except thataudit workpapers shall not be required to be delivered unless there has occurredan Event of Default which is continuing), and other accounting records of anynature in their possession, and to disclose to Agent any information they mayhave regarding Borrower's business affairs and financial conditions.

6.4 Tax Returns. Deliver to Agent copies of each of Borrower'sfuture federal income tax returns, and any amendments thereto, within 30 days ofthe filing thereof with the Internal Revenue Service.

6.5 [Intentionally Omitted].

6.6 Returns. Cause returns and allowances, if any, as betweenBorrower and its Account Debtors to be on the same basis and in accordance withthe usual customary practices of Borrower, as they exist at the time of theexecution and delivery of this Agreement. If, at a time when no Event of Defaulthas occurred and is continuing, any Account Debtor returns any Inventory toBorrower, Borrower promptly shall determine the reason for such return and, ifBorrower accepts such return, issue a credit memorandum (with a copy to be sentto Agent) in the appropriate amount to such Account Debtor. If, at a time whenan Event of Default has occurred and is continuing, any Account Debtor returnsany Inventory to Borrower, Borrower promptly shall determine the reason for suchreturn and, if Agent consents (which consent shall not be unreasonablywithheld), issue a credit memorandum (with a copy to be sent to Agent) in theappropriate amount to such Account Debtor.

6.7 [Intentionally Omitted.]

6.8 Maintenance of Equipment. Maintain the Equipment in goodoperating condition and repair (ordinary wear and tear excepted), and make allnecessary replacements thereto so that the value and operating efficiencythereof shall at all times be maintained and preserved. Other than those itemsof Equipment that constitute fixtures on the Closing Date, Borrower shall notpermit any item of Equipment to become a fixture to real estate or an accessionto other property, and such Equipment shall at all times remain personalproperty.

6.9 Taxes.

(a) Cause all assessments and taxes, whether real, personal,or otherwise, due or payable by, or imposed, levied, or assessed againstBorrower or any of its property or assets to be paid in full, before delinquencyor before the expiration of any extension period, except to the extent that the



validity of such assessment or tax (other than payroll taxes or taxes that arethe subject of a United States federal tax lien) shall be the subject of aPermitted Protest.

51

(b) Make due and timely payment or deposit of all suchfederal, state, and local taxes, assessments, or contributions required of it bylaw (except for items subject to a Permitted Protest), and will execute anddeliver to Agent, on demand, appropriate certificates attesting to the paymentthereof or deposit with respect thereto.

(c) Make timely payment or deposit of all payroll taxes,excise taxes, withholding taxes and third-party collection taxes required of itby applicable laws, including those laws concerning F.I.C.A., F.U.T.A., statedisability, and local, state, and federal income taxes, and will, upon request,furnish Agent with proof satisfactory to Agent indicating that Borrower has madesuch payments or deposits.

6.10 Insurance.

(a) At its expense, keep the Collateral insured against lossor damage by fire, theft, explosion, sprinklers, and all other special perils,and in such amounts, as are ordinarily insured against by other owners insimilar businesses. Borrower also shall maintain business interruption, publicliability, product liability, and property damage insurance relating toBorrower's ownership and use of the Collateral, as well as insurance againstlarceny, embezzlement, and criminal misappropriation.

(b) At its expense, obtain and maintain (i) insurance of thetype necessary to insure the Inventory and Equipment, and each location of theLoan Parties, for the full replacement cost thereof, against any loss by fire,lightning, windstorm, hail, explosion, aircraft, smoke damage, vehicle damage,and other risks from time to time included under "special perils coverage"policies, in such amounts as Agent may require, but in any event in amountssufficient to prevent Borrower from becoming a co-insurer under such policies,(ii) combined single limit bodily injury and property damages insurance againstany loss, liability, or damages on, about, or relating to each of the LoanParties' locations, in an amount of not less than $1,000,000 per occurrence and$2,000,000 in the aggregate; and (iii) insurance for such other risks as Agentmay require.

(c) [Intentionally Omitted.]

(d) All such policies of insurance shall be in such form,with such companies, and in such amounts as may be reasonably satisfactory toAgent. All insurance required herein shall be written by companies which have aBest's rating of A for capital and X for financial stability. All hazardinsurance and such other insurance as Agent shall specify, shall contain a Form438BFU (NS) mortgagee endorsement, or an equivalent endorsement satisfactory toAgent, showing Agent as sole loss payee thereof as to all of the Collateralcovered thereby, and shall contain a waiver of warranties. Every policy ofinsurance referred to in this Section 6.10 shall contain an agreement by the

------------insurer that it will not cancel such policy except after 10 days prior writtennotice to Agent if cancellation is for nonpayment of premium and 30 days priorwritten notice to Agent if the cancellation is for any other reason, and thatany loss payable thereunder shall be payable notwithstanding any act ornegligence of Borrower or the Lender Group which might, absent such agreement,result in a forfeiture of all or a part of such insurance payment and

52

notwithstanding (i) occupancy or use of the Real Property for purposes morehazardous than permitted by the terms of such policy, (ii) any foreclosure orother action or proceeding taken by the Lender Group pursuant to the SecurityDocuments upon the happening of an Event of Default, or (iii) any change intitle or ownership of the Collateral. Borrower shall deliver to Agent certifiedcopies of such policies of insurance and evidence of the payment of all premiumstherefor.

(e) Original policies or certificates thereof satisfactoryto Agent evidencing such insurance shall be delivered to Agent prior to theexpiration of the existing or preceding policies. Borrower shall give Agentprompt notice of any loss covered by such insurance which exceeds $100,000individually or collectively with all other related losses. Prior to theoccurrence of an Event of Default which is continuing, Borrower shall have theright to adjust any loss which, (i) individually or collectively with all otherrelated losses, is less than $100,000, (ii) is a property loss to Equipment, or(iii) is a loss covered under Borrower's liability insurance policies. Exceptfor property losses to Equipment and losses covered under Borrower's liabilityinsurance policies, Agent shall have the exclusive right to adjust (A) any loss



which, individually or collectively with all other related losses, is $100,000or greater, and (B) any loss from and after the occurrence of an Event ofDefault which is continuing, in each case without any liability to Borrowerwhatsoever in respect of such adjustments. Borrower shall be permitted todiscuss proposed adjustments of losses with its insurance carriers; provided,however, that (I) Borrower shall not have the authority to agree to or settlewithout Agent's prior written approval any loss which Agent has the exclusiveright to adjust hereunder, and (II) Agent reserves the right to adjust suchlosses independently of Borrower at any time. Any monies received as payment forany loss of or affecting any Collateral under any insurance policy including theinsurance policies mentioned above, shall be paid over to Agent for deposit intothe Agent Account to be applied, subject to the terms of the last sentence ofSection 2.9, to the Obligations in such order or manner as Agent may elect.-----------

(f) Borrower shall not take out separate insurance concurrent in formor contributing in the event of loss with that required to be maintained underthis Section 6.10, unless Agent is included thereon as named insured with theloss payable to Agent under a standard 438BFU (NS) Mortgagee endorsement, or itslocal equivalent. Borrower immediately shall notify Agent whenever such separateinsurance is taken out, specifying the insurer thereunder and full particularsas to the policies evidencing the same, and originals of such policiesimmediately shall be provided to Agent.

6.11 No Setoffs or Counterclaims. Make payments hereunder andunder the other Loan Documents by or on behalf of Borrower without setoff orcounterclaim and free and clear of, and without deduction or withholding for oron account of, any federal, state, or local taxes.

6.12 Location of Inventory and Equipment. Keep the Inventory andEquipment only at the locations identified on Schedule 6.12; provided, however,

------------- -------- -------that Borrower may amend Schedule 6.12 so long as such amendment occurs bywritten notice to Agent not less than 30 days prior to the date on which theInventory or Equipment is moved to such new location, so long as such newlocation is within the continental United States, and so long as, at the time ofsuch

53

written notification, Borrower provides any financing statements or fixturefilings necessary or advisable to perfect and continue perfected the Agent'sLiens on such assets and also provides to Agent a Collateral Access Agreement.

6.13 Compliance with Laws. Comply with the requirements of allapplicable laws, rules, regulations, and orders of any governmental authority,including the Fair Labor Standards Act and the Americans With Disabilities Act,other than laws, rules, regulations, and orders the non-compliance with which,individually or in the aggregate, would not result in and reasonably could notbe expected to result in a Material Adverse Change.

6.14 Employee Benefits.

(a) Cause to be delivered to Agent: (i) promptly, and in anyevent within 10 Business Days after Borrower or any of its Subsidiaries knows orhas reason to know that an ERISA Event has occurred that reasonably could beexpected to result in a Material Adverse Change, a written statement of thechief financial officer of Borrower describing such ERISA Event and any actionthat is being taking with respect thereto by Borrower, any such Subsidiary orERISA Affiliate, and any action taken or threatened by the IRS, Department ofLabor, or PBGC. Borrower or such Subsidiary, as applicable, shall be deemed toknow all facts known by the administrator of any Benefit Plan of which it is theplan sponsor, (ii) promptly, and in any event within 3 Business Days after thefiling thereof with the IRS, a copy of each funding waiver request filed withrespect to any Benefit Plan and all communications received by Borrower, any ofits Subsidiaries or, to the knowledge of Borrower, any ERISA Affiliate withrespect to such request, and (iii) promptly, and in any event within 3 BusinessDays after receipt by Borrower, any of its Subsidiaries or, to the knowledge ofBorrower, any ERISA Affiliate, of the PBGC's intention to terminate a BenefitPlan or to have a trustee appointed to administer a Benefit Plan, copies of eachsuch notice.

(b) Cause to be delivered to Agent, upon Agent's request,each of the following: (i) a copy of each Plan (or, where any such plan is notin writing, complete description thereof) (and if applicable, related trustagreements or other funding instruments) and all amendments thereto, all writteninterpretations thereof and written descriptions thereof that have beendistributed to employees or former employees of Borrower or its Subsidiaries;(ii) the most recent determination letter issued by the IRS with respect to eachBenefit Plan; (iii) for the three most recent plan years, annual reports on Form5500 Series required to be filed with any governmental agency for each BenefitPlan; (iv) all actuarial reports prepared for the last three plan years for eachBenefit Plan; (v) a listing of all Multiemployer Plans, with the aggregate



amount of the most recent annual contributions required to be made by Borroweror any ERISA Affiliate to each such plan and copies of the collective bargainingagreements requiring such contributions; (vi) any information that has beenprovided to Borrower or any ERISA Affiliate regarding withdrawal liability underany Multiemployer Plan; and (vii) the aggregate amount of the most recent annualpayments made to former employees of Borrower or its Subsidiaries under anyRetiree Health Plan.

6.15 Leases. Pay when due all rents and other amounts payableunder any leases to which Borrower is a party or by which Borrower's propertiesand assets are bound, unless such

54

payments are the subject of a Permitted Protest. To the extent that Borrowerfails timely to make payment of such rents and other amounts payable when dueunder its leases, Agent shall be entitled, in its discretion, to reserve anamount equal to such unpaid amounts against the Borrowing Base.

6.16 Broker Commissions. Pay any and all brokerage commission orfinders fees incurred or payable in connection with or as a result of Borrower'sobtaining financing from the Lender Group under this Agreement.

6.17 Certain Notices. Promptly, and in any event within 10Business Days, immediately after Borrower or any other Loan Party becoming awarethereof, notify Agent of (i) any actions or proceedings pending or threatened byor against Borrower or any other Loan Party before any court or administrativeagency and any pending or threatened litigation, governmental investigation, orclaims, complaints, actions or projections involving Borrower or any other LoanParty, (ii) Borrower's, or any other Loan Party's receipt of any summons,citation, notice or directive from the Environmental Protection Agency or anyother federal or state governmental agency concerning any action or omission byBorrower or any other Loan Party resulting in the releasing or disposing ofHazardous Materials and (iii) any claim pending or threatened to the effect thatBorrower or any other Loan Party infringes upon, or conflicts with, the assertedrights of any other Person under any Intellectual Property, which in any suchcase reasonably could be expected to result in a Material Adverse Change.

7. NEGATIVE COVENANTS.

Borrower covenants and agrees that, so long as any credit hereundershall be available and until full and final payment of the Obligations, Borrowerwill not, and will not permit any Loan Party to, do any of the following withoutthe Required Lenders' prior written consent:

7.1 Indebtedness. Create, incur, assume, permit, guarantee, orotherwise become or remain, directly or indirectly, liable with respect to anyIndebtedness, except:

(a) Indebtedness evidenced by this Agreement, together withIndebtedness to issuers of letters of credit that are the subject of L/CGuarantees;

(b) Indebtedness set forth on Schedule 7.1;------------

(c) Indebtedness secured by Permitted Liens;

(d) Indebtedness of Borrower to any of its Subsidiaries andof any Subsidiary of Borrower to Borrower;

(e) Indebtedness of Borrower to any Loan Party and of anyLoan Party to Borrower, provided that at all times during which suchIndebtedness is outstanding Borrower has not less than $50,000,000 ofAvailability and unrestricted immediately available cash on hand and the LoanParty incurring such Indebtedness is Solvent at the time that the same isincurred and after giving effect thereto;

55

(f) Indebtedness of a Loan Party assumed by such Loan Partyin a Permitted Acquisition from the Person the subject of the PermittedAcquisition, provided that such indebtedness existed at the time of thePermitted Acquisition and was not created in contemplation of such PermittedAcquisition;

(g) unsecured Indebtedness of CCI which is not guaranteed orsecured by any other Loan Party or assets thereof, in an aggregate amount whichdoes not exceed $10,000,000 outstanding at any time;

(h) refinancings, renewals, or extensions of Indebtednesspermitted under clauses (b), (c), (d), (e), (f) and (g) of this Section 7.1 (and



-----------continuance or renewal of any Permitted Liens associated therewith) so long as:(i) the terms and conditions of such refinancings, renewals, or extensions donot materially impair the prospects of repayment of the Obligations by Borrower,(ii) the net cash proceeds of such refinancings, renewals, or extensions do notresult in an increase in the aggregate principal amount of the Indebtedness sorefinanced, renewed, or extended, (iii) such refinancings, renewals, refundings,or extensions do not result in a shortening of the average weighted maturity ofthe Indebtedness so refinanced, renewed, or extended, and (iv) to the extentthat Indebtedness that is refinanced was subordinated in right of payment to theObligations, then the subordination terms and conditions of the refinancingIndebtedness must be at least as favorable to the Lender Group as thoseapplicable to the refinanced Indebtedness.

7.2 Liens. Create, incur, assume, or permit to exist, directly orindirectly, any Lien on or with respect to any of its property or assets, of anykind, whether now owned or hereafter acquired, or any income or profitstherefrom, except for Permitted Liens (including Liens that are replacements ofPermitted Liens to the extent that the original Indebtedness is refinanced underSection 7.1(h) and so long as the replacement Liens only encumber those assets--------------or property that secured the original Indebtedness).

7.3 Restrictions on Fundamental Changes.

(a) Enter into any merger, consolidation, reorganization, orrecapitalization, or reclassify its capital Stock, except for (i) a merger intoBorrower of one or more of the other Loan Parties, provided that Borrower is thesole surviving entity and (ii) mergers of Persons the subject of a PermittedAcquisition into Acquisition Sub or Subsidiaries of CCI which are newly-formedfor the purpose of consummating such Permitted Acquisition.

(b) Liquidate, wind up, or dissolve itself (or suffer anyliquidation or dissolution).

(c) Convey, sell, assign, lease, transfer, or otherwisedispose of, in one transaction or a series of transactions, all or anysubstantial part of its property or assets, except for (i) transfers to Borrowerof property or assets by one or more of the other Loan Parties, (ii) sales ofInventory to buyers in the ordinary course of business as currently conductedand (iii) Qualifying Lease Financing Transfers.

56

7.4 Disposal of Assets. Sell, lease, assign, transfer, orotherwise dispose of any of Borrower's properties or assets other than (a) salesof Inventory to buyers in the ordinary course of Borrower's business, (b) salesof Equipment in the ordinary course of Borrower's business that is obsolete orno longer useful in any Loan Party's business, (c) Qualifying Lease FinancingTransfers and (d) as long as no Default or Event of Default has occurred whichis continuing, sales of shares of Stock of Cavion Technologies, Inc.

7.5 Change Name. Change Borrower's name, FEIN, corporatestructure (within the meaning of Section 9402(7) of the Code), or identity, oradd any new fictitious name.

7.6 Guarantee. Guarantee or otherwise become in any way liablewith respect to the obligations of any Person except (i) by endorsement ofinstruments or items of payment for deposit to the account of Borrower or whichare transmitted or turned over to Agent, and (ii) pursuant to the GuarantyAgreements.

7.7 Nature of Business. Make any change in the principal natureof Borrower's business.

7.8 Prepayments and Amendments.

(a) Except in connection with a refinancing permitted bySection 7.1(h) to the extent permitted therein, prepay, redeem, retire, defease,--------------purchase, or otherwise acquire any Indebtedness owing to any Person (including,but not limited to, the Unsecured Notes), prior to the original scheduledmaturity date thereof, other than the Obligations in accordance with thisAgreement, or

(b) Except in connection with a refinancing permitted bySection 7.1(h) to the extent permitted therein, directly or indirectly, amend,--------------modify, alter, increase, or change any of the terms or conditions of (i) anyagreement, instrument, document, indenture, or other writing evidencing orconcerning Indebtedness permitted under Sections 7.1(b), (c), (d), (e), (f) or

-----------------------------------(g) in any manner which creates collateral security for such Indebtedness or



---expands or provides additional collateral security for such Indebtedness, or ifit results in, or reasonably could be executed to result in, a Material AdverseChange, without the prior written consent of Agent, which shall not be withheldunreasonably (except that (A) purchase money financing documentation may bemodified to include purchase money Liens on Equipment acquired with the proceedsof such financing, (B) prior to the Initial Advance Effective Date, the purchasemoney Inventory financing documentation with Deutsche Financial ServicesCorporation may be modified to include purchase money Liens on Inventoryacquired with the proceeds of such financing, and (C) prior to the occurrence ofan Event of Default which is continuing, the documentation evidencing theQualifying Lease Financing Transfers may be modified to include Liens on theleases purchased by the transferees of such leases thereunder (except that thisSection 7.8(b) shall not prohibit the creation of Indebtedness permitted--------------under Section 7.1 and shall not prohibit the creation of Permitted Liens

-----------permitted under Section 7.2), or (ii) the Unsecured Notes or the Unsecured

-----------Notes Indenture, or any agreement, instrument or document pertaining to anyof them.

57

7.9 Change of Control. Cause, permit, or suffer, directly orindirectly, any Change of Control.

7.10 Consignments. Consign any Inventory or sell any Inventory onbill and hold, sale or return, sale on approval, or other conditional terms ofsale.

7.11 Distributions. Make any distribution or declare or pay anydividends (in cash or other property, other than capital Stock) on, or purchase,acquire, redeem, or retire any of Loan Party's capital Stock, of any class,whether now or hereafter outstanding; except that:

(a) any Subsidiary of Borrower may make distributions or paydividends to Borrower;

(b) CCI may repurchase capital Stock of CCI solely inconnection with cashless exercises of options, warrants and other convertiblesecurities,

(c) provided that there has not occurred a Default or Eventof Default which is continuing, and no Default or Event of Default would existafter giving effect thereto or result therefrom, Borrower may make distributionsto CCI (i) to the extent necessary to permit CCI to pay ordinary generaladministrative costs and expenses, (ii) to the extent necessary to permit CCI todischarge the consolidated tax liabilities of CCI attributable to Borrower andthe Subsidiaries of Borrower, (iii) to the extent necessary to permit CCI to paycash in lieu of fractional shares of common stock pursuant to the terms of anyoptions, warrants or other rights to acquire shares of any class of capitalStock of CCI, in an aggregate amount which does not exceed $150,000 in theaggregate during any fiscal year of Borrower; and (iv) to the extent necessaryto permit CCI to pay interest, principal and mandatory repurchases under theUnsecured Notes and the Unsecured Notes Indenture in accordance with the termsthereof, and only to the extent required thereby, as and when the same come due;and

(d) provided that there has not occurred a Default or Eventof Default which is continuing, no Default or Event of Default would exist aftergiving effect thereto or result therefrom, and after giving effect theretoBorrower would have Availability and unrestricted immediately available cash onhand of at least $50,000,000:

(i) CCI may make regularly scheduled ordinarydividend payments on the Series B Preferred Stock, no par value, of CCI, inaccordance with the terms thereof, and only to the extent required thereby, asand when the same come due; and

(ii) Borrower may make distributions to CCI (A)to the extent necessary to permit CCI to pay amounts required for anyrepurchase, redemption or other acquisition or retirement for value of anycapital Stock of CCI or any options or rights to acquire such capital Stockowned by any director, officer or employee of CCI pursuant to any managementequity subscription agreement or similar agreement, or otherwise upon death,disability, retirement or termination of employment or departure from the board,provided that the aggregate price paid

58

for all such repurchased, redeemed, acquired or retired capital Stock of CCI or



options shall not exceed in the aggregate $500,000 in any calendar year.

7.12 Accounting Methods. Modify or change its method of accountingor enter into, modify, or terminate any agreement currently existing, or at anytime hereafter entered into with any third party accounting firm or servicebureau for the preparation or storage of Borrower's accounting records withoutsaid accounting firm or service bureau agreeing to provide Agent informationregarding the Collateral or Borrower's financial condition. Borrower waives theright to assert a confidential relationship, if any, it may have with anyaccounting firm or service bureau in connection with any information requestedby Agent pursuant to or in accordance with this Agreement, and agrees that Agentmay contact directly any such accounting firm or service bureau in order toobtain such information.

7.13 Investments. Directly or indirectly establish, make, acquire,or incur any liabilities (including contingent obligations) for or in connectionwith (a) any Subsidiary or the acquisition of securities (whether debt orequity) of, or other interests in, a Person, (b) loans, advances, capitalcontributions, or investments to or in a Person, or (c) the acquisition of allor substantially all of the properties or assets of a Person; except for (i)Permitted Acquisitions, (ii) investments made by CCI to Borrower, (iii) providedthat there has not occurred a Default or Event of Default which is continuingand no Default or Event of Default would exist after giving effect thereto orresult therefrom, investments made by Borrower or CCI to any Subsidiary ofBorrower, (iv) investments in money market instruments which have an averagematurity of 365 days or less and are rated at least "A-1" by Standard and Poor'sRatings Corporation or "P-1" by Moody's Investors Service, (v) the Indebtednesspermitted under Section 7.1, (vi) loans to employees of any of the Loan Parties

-----------in an aggregate principal amount not to exceed $500,000 in the aggregate at anytime outstanding, (vii) provided that there has not occurred a Default or Eventof Default which is continuing and no Default or Event of Default would existafter giving effect thereto or result therefrom and after giving effect theretoBorrower would have Availability and unrestricted immediately available cash onhand of at least $50,000,000, other investments in an aggregate amount not toexceed $1,000,000, and (viii) Borrower's investment in existence on the date ofthis Agreement of less than 1% of the issued and outstanding common Stock ofCavion Technologies, Inc., a Colorado corporation.

7.14 Transactions with Affiliates. Directly or indirectly enterinto or permit to exist any material transaction with any Affiliate of Borrowerexcept for transactions that are in the ordinary course of Borrower's business,upon fair and reasonable terms, that are fully disclosed to Agent, and that areno less favorable to Borrower than would be obtained in an arm's lengthtransaction with a non-Affiliate; except for (a) any transaction betweenBorrower and any Loan Party in the ordinary course of business, (b) reasonableand customary indemnifications paid to members of the Boards of Directors ofCCI, Borrower and any Subsidiary of Borrower, (c) director, officer and otheremployee of CCI, Borrower and any Subsidiary of Borrower compensation and othercustomary arrangements entered into in the ordinary course of business ascurrently conducted which do not violate Section 7.16 and are approved by the

------------Board of Directors of CCI, (d) the transactions existing on the Closing Datewhich are described on Schedule 7.14, (e) the payments permitted to be paid to

-------------by Borrower to CCI under Section 7.11 above, and (f) loans or advances to

------------

59

officers or employees of any Loan Party for reasonable moving, businessentertainment and business travel expenses, drawing accounts and similarexpenditures made in the ordinary course of business as currently conductedwhich are permitted under Section 7.13.

------------

7.15 Suspension. Suspend or go out of a substantial portion of itsbusiness.

7.16 Compensation. Increase the annual fee or per-meeting feespaid to directors during any year by more than 15% over the prior year; pay oraccrue total cash compensation, during any year, to officers and seniormanagement employees in an aggregate amount in excess of 115% of that paid,accrued or targeted in the prior year.

7.17 Use of Proceeds. Use the proceeds of the Advances madehereunder for any purpose other than (a) on the Initial Advance Effective Date,(i) to repay in full the outstanding principal, accrued interest, and accruedfees and expenses owing to Deutsche Financial Services Corporation, and (ii) topay transactional fees, costs, and expenses incurred in connection with thisAgreement, and (b) thereafter, consistent with the terms and conditions hereof,for its lawful and permitted corporate purposes.



7.18 Change in Location of Chief Executive Office; Inventory andEquipment with Bailees. Relocate its chief executive office to a new locationwithout providing 30 days prior written notification thereof to Agent and solong as, at the time of such written notification, Borrower provides anyfinancing statements or fixture filings necessary to perfect and continueperfected the Agent's Liens and also provides to Agent a Collateral AccessAgreement with respect to such new location. The Inventory and Equipment shallnot at any time on or after the Initial Advance Effective Date be stored with abailee, warehouseman, or similar party without Agent's prior written consentunless such party shall have executed a Collateral Access Agreement in favor ofAgent covering such Inventory and Equipment located at such location.

7.19 No Prohibited Transactions Under ERISA. Directly orindirectly:

(a) engage, or permit any Subsidiary of Borrower to engage,in any prohibited transaction which is reasonably likely to result in a civilpenalty or excise tax described in Sections 406 of ERISA or 4975 of the IRC forwhich a statutory or class exemption is not available or a private exemption hasnot been previously obtained from the Department of Labor;

(b) permit to exist with respect to any Benefit Plan anyaccumulated funding deficiency (as defined in Sections 302 of ERISA and 412 ofthe IRC), whether or not waived;

(c) fail, or permit any Subsidiary of Borrower to fail, topay timely required contributions or annual installments due with respect to anywaived funding deficiency to any Benefit Plan;

60

(d) terminate, or permit any Subsidiary of Borrower toterminate, any Benefit Plan where such event would result in any liability ofBorrower, any of its Subsidiaries or any ERISA Affiliate under Title IV ofERISA;

(e) fail, or permit any Subsidiary of Borrower to fail, tomake any required contribution or payment to any Multiemployer Plan;

(f) fail, or permit any Subsidiary of Borrower to fail, topay any required installment or any other payment required under Section 412 ofthe IRC on or before the due date for such installment or other payment;

(g) amend, or permit any Subsidiary of Borrower to amend, aPlan resulting in an increase in current liability for the plan year such thateither of Borrower, any Subsidiary of Borrower or any ERISA Affiliate isrequired to provide security to such Plan under Section 401(a)(29) of the IRC;or

(h) withdraw, or permit any Subsidiary of Borrower towithdraw, from any Multiemployer Plan where such withdrawal is reasonably likelyto result in any liability of any such entity under Title IV of ERISA;

which, individually or in the aggregate, results in or reasonably would beexpected to result in a claim against or liability of Borrower, any of itsSubsidiaries or any ERISA Affiliate in excess of $250,000.

7.20 Tangible Net Worth. Fail to maintain Tangible Net Worth asof any date set forth below of at least the corresponding amount set forthbelow:

Period Amount------ ------

June 30, 2000 $41,400,000

September 30, 2000 $16,250,000

December 31, 2000 <$6,600,000>

March 31, 2001 <$34,000,000>

June 30, 2001 <$58,800,000>

September 30, 2001 <$76,650,000>

December 31, 2001 <$90,450,000>

March 31, 2002 <$102,000,000>

61



June 30, 2002 and the last day of each September, <$102,000,000>December, March and June thereafter

7.21 Capital Expenditures. Make capital expenditures in anyperiod set forth below in excess of the corresponding amount set forth below:

Period Amount------ ------

January 1, 2000 through December 31, 2000 $56,000,000



Each calendar year commencing on or after $82,000,000January 1, 2002

7.22 Benefit Plans. Directly or indirectly establish, maintainor contribute to any Benefit Plan, except for those described on Schedule 5.13

-------------as the same are in effect on the date of this Agreement.

8. EVENTS OF DEFAULT.

Any one or more of the following events shall constitute an event ofdefault (each, an "Event of Default") under this Agreement:

8.1 If Borrower or any other Loan Party fails to pay when due andpayable or when declared due and payable, any portion of the Obligations(whether of principal, interest (including any interest which, but for theprovisions of the Bankruptcy Code, would have accrued on such amounts), fees andcharges due the Lender Group, reimbursement of Lender Group Expenses, or otheramounts constituting Obligations); provided, however, that in the case ofOveradvances that are caused by the charging of interest, fees or Lender GroupExpenses to the Loan Account, such event shall not constitute an Event ofDefault if, within 5 Business Days of incurring such Overadvance, Borrower orany other Loan Party repays, or otherwise eliminates such Overadvance;

8.2 (a) If Borrower or any other Loan Party fails or neglects toperform, keep, or observe any term, provision, condition, covenant, or agreementcontained in Section 6.2 (Collateral Reporting) or Section 6.3 (Financial

----------- -----------Statements, Reports, Certificates) of this Agreement and such failure continuesfor a period of 5 Business Days; (b) If Borrower or any other Loan Party failsor neglects to perform, keep, or observe any term, provision, condition,covenant, or agreement contained in Section 4.4 (Delivery of Additional

-----------Documentation Required), Section 6.4 (Tax Returns), Section 6.6 (Returns),

----------- -----------Section 6.7 (Title to Equipment), Section 6.9 (Taxes), Section 6.12 (Location of----------- ----------- ------------Inventory and Equipment), Section 6.13 (Compliance with Laws), Section 6.14

------------ ------------(Employee Benefits), or Section 6.15 (Leases) of this

------------

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Agreement and such failure continues for a period of 5 Business Days followingthe earlier of (i) the date upon which Borrower or any other Loan Party firstbecame aware of the occurrence of such failure or neglect, or (ii) the date onwhich Borrower is notified in writing of such failure or neglect by Agent or anyof the Lender Group; (c) If Borrower or any other Loan Party fails or neglectsto perform, keep, or observe any term, provision, condition, covenant, oragreement contained in this Agreement or in any of the other Loan Documents(except for any such term, provision, condition, covenant or agreement that isthe subject of subclause (a), (b) or (d) of this Section 8.2 or is the subject

-----------of another provision of this Section 8, in which event such other subclause or

---------provision, as the case may be, shall govern) and such failure continues for aperiod of 15 Business Days (without duplication, and without addition thereto,of any grace periods, cure periods or required notices, if any, provided for insuch Loan Document) following the earlier of (i) the date upon which Borrower orany other Loan Party first became aware of the occurrence of such failure orneglect, or (ii) the date on which Borrower is notified in writing of suchfailure or neglect by Agent or any of the Lender Group; or (d) If Borrower orany other Loan Party fails or neglects to perform, keep, or observe any term,provision, condition, covenant, or agreement contained in any other term,



provision, condition, covenant, or agreement contained in Section 2.7-----------

(Collection of Accounts), Section 2.9 (Designated Account), Section 4.1 (Grant----------- -----------

of Security Interest), Section 4.2 (Negotiable Collateral), Section 4.3----------- -----------

(Collection of Accounts, General Intangibles, and Negotiable Collateral),Section 4.5 (Power of Attorney), Section 4.6 (Right to Inspect), Section 6.10----------- ----------- ------------(Insurance), Section 6.11 (No Setoffs of Counterclaims), Section 6.17 (Certain

------------ ------------Notices), or Section 7 (Negative Covenants) of this Agreement; in each case,

---------other than any such term, provision, condition, covenant, or agreement that isthe subject of another provision of this Section 8, in which event such other

---------provision of this Section 8 shall govern; provided that, during any period of

--------- --------time that any such failure or neglect of Borrower or such other Loan Partyreferred to in this paragraph exists, even if such failure or neglect is not yetan Event of Default by virtue of the existence of a grace or cure period or thepre-condition of the giving of a notice, neither Agent nor any Lender shall berequired during such period to make Advances to Borrower or issue any Letter ofCredit;

8.3 If there is a Material Adverse Change;

8.4 If any material portion of Borrower's or any other LoanParty's properties or assets is attached, seized, subjected to a writ ordistress warrant, or is levied upon, or comes into the possession of any thirdPerson;

8.5 If an Insolvency Proceeding is commenced by Borrower or anyother Loan Party;

8.6 If an Insolvency Proceeding is commenced against Borrower orany other Loan Party and any of the following events occur: (a) Borrower or suchLoan Party consents to the institution of the Insolvency Proceeding against it;(b) the petition commencing the Insolvency Proceeding is not timelycontroverted; (c) the petition commencing the Insolvency Proceeding is notdismissed within 45 calendar days of the date of the filing thereof; provided,

--------however, that, during the pendency of such period, Agent, Foothill, and any-------other member of the Lender Group shall be relieved of its obligation to extendcredit hereunder; (d) an interim trustee is appointed to

63

take possession of all or a substantial portion of the properties or assets of,or to operate all or any substantial portion of the business of, Borrower orsuch Loan Party, as the case may be; or (e) an order for relief shall have beenissued or entered therein;

8.7 If Borrower or any other Loan Party is enjoined, restrained,or in any way prevented by court order from continuing to conduct all or anymaterial part of its business affairs;

8.8 If a notice of Lien, levy, or assessment is filed of recordwith respect to any of Borrower's or any other Loan Party's properties or assetsby the United States Government, or any department, agency, or instrumentalitythereof, or by any state, county, municipal, or governmental agency, or if anytaxes or debts owing at any time hereafter to any one or more of such entitiesbecomes a Lien, whether choate or otherwise, upon any of Borrower's or any otherLoan Party's properties or assets and the same is not paid on the payment datethereof (except to the extent that the same is the subject of a PermittedProtest);

8.9 If a judgment or other claim, in excess of $100,000individually or in the aggregate, becomes a Lien or encumbrance upon anymaterial portion of Borrower's or any other Loan Party's properties or assetsand such Lien or encumbrance remains unpaid or the enforcement or executionthereof is not bonded and stayed in an amount and manner satisfactory to Agent;

8.10 If there is (a) a default in any material agreement to whichBorrower or any other Loan Party is a party with one or more third Persons whichreasonably could be expected to result in a Material Adverse Change, or (b) anydefault under the Unsecured Notes or the Unsecured Notes Indenture which resultsin a right by any one or more Persons, irrespective of whether exercised, toaccelerate the maturity of Borrower's or any other Loan Party's obligationsthereunder or require any payment or redemption thereunder other than regularlyscheduled payments of interest when due in accordance with the terms thereof, or(c) any occurrence or existence of any event or condition which results in aright of any one or more Persons, irrespective of whether exercised, to require



any payment or redemption (other than payments or redemptions payable only inshares of common Stock of CCI or Series B Senior Cumulative ConvertiblePreferred Stock of CCI) on, of or with respect to any shares of the Series BPreferred Stock other than regularly scheduled payments of ordinary dividendswhen due in accordance with the terms thereof;

8.11 If Borrower or any other Loan Party makes any payment onaccount of Indebtedness that has been contractually subordinated in right ofpayment to the payment of the Obligations, except to the extent such payment ispermitted by the terms of the subordination provisions applicable to suchIndebtedness;

8.12 If any material misstatement or misrepresentation exists nowor hereafter in any warranty, representation, certificate, or report made to theLender Group by Borrower any other Loan Party, or any officer, employee, agent,or director of Borrower, or any other Loan Party, or if any such warranty orrepresentation is withdrawn;

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8.13 If the obligation of any guarantor under its guaranty orother third Person under any Loan Document is limited or terminated by operationof law or by the guarantor or other third Person thereunder, or any suchguarantor or other third Person becomes the subject of an Insolvency Proceeding;or

8.14 If there occurs or exists any (a) "Change of Control" as suchterm is defined in the Unsecured Notes Indenture or (b) any "Change of Control"as such term is defined in the Articles of Amendment to the Amended and RestatedArticles of Incorporation of Convergent Communications, Inc. filed with theSecretary of State of the State of Colorado on or about April 18, 2000 whichdesignate the Series B Preferred Stock and have been provided by Borrower toAgent prior to the date of this Agreement.

9. THE LENDER GROUP'S RIGHTS AND REMEDIES.

9.1 Rights and Remedies. Upon the occurrence, and during thecontinuation, of an Event of Default, the Required Lenders (at their electionbut without notice of their election and without demand) may, except to theextent otherwise expressly provided or required below, authorize and instructAgent to do any one or more of the following on behalf of the Lender Group (andAgent, acting upon the instructions of the Required Lenders, shall do the sameon behalf of the Lender Group), all of which are authorized by Borrower:

(a) Declare all Obligations, whether evidenced by thisAgreement, by any of the other Loan Documents, or otherwise, immediately due andpayable;

(b) Cease advancing money or extending credit to or for thebenefit of Borrower under this Agreement, under any of the Loan Documents, orunder any other agreement between Borrower and the Lender Group;

(c) Terminate this Agreement and any of the other LoanDocuments as to any future liability or obligation of the Lender Group, butwithout affecting Agent's rights and security interests, for the benefit of theLender Group, in the Collateral and without affecting the Obligations;

(d) Settle or adjust disputes and claims directly withAccount Debtors for amounts and upon terms which Agent considers advisable, andin such cases, Agent will credit Borrower's Loan Account with only the netamounts received by Agent in payment of such disputed Accounts after deductingall Lender Group Expenses incurred or expended in connection therewith;

(e) Cause Borrower to hold all returned Inventory in trustfor the Lender Group, segregate all returned Inventory from all other propertyof Borrower or in Borrower's possession and conspicuously label said returnedInventory as the property of the Lender Group;

(f) Without notice to or demand upon Borrower or anyguarantor, make such payments and do such acts as Agent considers necessary orreasonable to protect its security interests in the Collateral. Borrower agreesto assemble the Personal Property Collateral if Agent so

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requires, and to make the Personal Property Collateral available to Agent asAgent may designate. Borrower authorizes Agent to enter the premises where thePersonal Property Collateral is located, to take and maintain possession of thePersonal Property Collateral, or any part of it, and to pay, purchase, contest,or compromise any encumbrance, charge, or Lien that in Agent's determination



appears to conflict with the Agent's Liens and to pay all expenses incurred inconnection therewith. With respect to any of Borrower's owned or leasedpremises, Borrower hereby grants Agent a license to enter into possession ofsuch premises and to occupy the same, without charge, for up to 120 days inorder to exercise any of the Lender Group's rights or remedies provided herein,at law, in equity, or otherwise;

(g) Without notice to Borrower (such notice being expresslywaived), and without constituting a retention of any collateral in satisfactionof an obligation (within the meaning of Section 9505 of the Code), set off andapply to the Obligations any and all (i) balances and deposits of Borrower heldby the Lender Group (including any amounts received in the Lockbox Accounts), or(ii) indebtedness at any time owing to or for the credit or the account ofBorrower held by the Lender Group;

(h) Hold, as cash collateral, any and all balances anddeposits of Borrower held by the Lender Group, and any amounts received in theLockbox Accounts, to secure the full and final repayment of all of theObligations;

(i) Ship, reclaim, recover, store, finish, maintain, repair,prepare for sale, advertise for sale, sell (in the manner provided for herein),bill as to and effect collection of the Personal Property Collateral. Borrowerhereby grants to Agent a license and right to use, without charge, Borrower'slabels, patents, copyrights, rights of use of any name, trade secrets, tradenames, trademarks, service marks and advertising matter, or any property of asimilar nature as it pertains to the Personal Property Collateral, in completingproduction of, advertising for sale, selling, billing as to and collection ofany Personal Property Collateral and Borrower's rights under all licenses andall franchise agreements shall inure to the Lender Group's benefit;

(j) Sell the Personal Property Collateral at either a publicor private sale, or both, by way of one or more contracts or transactions, forcash or on terms, in such manner and at such places (including Borrower'spremises) as Agent determines is commercially reasonable. It is not necessarythat the Personal Property Collateral be present at any such sale;

(k) Agent shall give notice of the disposition of thePersonal Property Collateral as follows:

(1) Agent shall give Borrower and each holder of asecurity interest in the Personal Property Collateral who has filed with Agent awritten request for notice, a notice in writing of the time and place of publicsale, or, if the sale is a private sale or some other disposition other than apublic sale is to be made of the Personal Property Collateral, then the time onor after which the private sale or other disposition is to be made;

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(2) The notice shall be personally delivered ormailed, postage prepaid, to Borrower as provided in Section 12, at least 5 days

----------before the date fixed for the sale, or at least 5 days before the date on orafter which the private sale or other disposition is to be made; no notice needsto be given prior to the disposition of any portion of the Personal PropertyCollateral that is perishable or threatens to decline speedily in value or thatis of a type customarily sold on a recognized market. Notice to Persons otherthan Borrower claiming an interest in the Personal Property Collateral shall besent to such addresses as they have furnished to Agent;

(3) If the sale is to be a public sale, Agent alsoshall give notice of the time and place by publishing a notice one time at least5 days before the date of the sale in a newspaper of general circulation in thecounty in which the sale is to be held;

(l) The Lender Group may credit bid and purchase at anypublic sale;

(m) The Lender Group shall have all other rights andremedies available to it at law or in equity pursuant to any other LoanDocuments; and

(n) Any deficiency that exists after disposition of thePersonal Property Collateral as provided above will be paid immediately byBorrower. Any excess will be returned, without interest and subject to therights of third Persons, by Agent to Borrower.

9.2 Remedies Cumulative. The rights and remedies of the LenderGroup under this Agreement, the other Loan Documents, and all other agreementsshall be cumulative. The Lender Group shall have all other rights and remediesnot inconsistent herewith as provided under the Code, by law, or in equity. Noexercise by the Lender Group of one right or remedy shall be deemed an election,and no waiver by the Lender Group of any Event of Default shall be deemed a



continuing waiver. No delay by the Lender Group shall constitute a waiver,election, or acquiescence by it.

10. TAXES AND EXPENSES.

If Borrower fails to pay any monies (whether taxes, assessments,insurance premiums, or, in the case of leased properties or assets, rents orother amounts payable under such leases) due to third Persons, or fails to makeany deposits or furnish any required proof of payment or deposit, all asrequired under the terms of this Agreement, then, to the extent that Agentdetermines that such failure by Borrower could result in a Material AdverseChange, in its discretion and without prior notice to Borrower, Agent may do anyor all of the following: (a) make payment of the same or any part thereof; (b)set up such reserves in Borrower's Loan Account as Agent deems necessary toprotect the Lender Group from the exposure created by such failure; or (c)obtain and maintain insurance policies of the type described in Section 6.10,

------------and take any action with respect to such policies as Agent deems prudent. Anysuch amounts paid by Agent shall constitute Lender Group Expenses. Any suchpayments made by Agent shall not constitute an agreement by the Lender Group tomake similar payments in the future or a waiver by the Lender Group of any Eventof Default under this Agreement. Agent need not inquire as to, or contest the

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validity of, any such expense, tax, or Lien and the receipt of the usualofficial notice for the payment thereof shall be conclusive evidence that thesame was validly due and owing.

11. WAIVERS; INDEMNIFICATION.

11.1 Demand; Protest; etc. Borrower waives demand, protest, noticeof protest, notice of default or dishonor, notice of payment and nonpayment,nonpayment at maturity, release, compromise, settlement, extension, or renewalof accounts, documents, instruments, chattel paper, and guarantees at any timeheld by the Lender Group on which Borrower may in any way be liable.

11.2 The Lender Group's Liability for Collateral. Borrower herebyagrees that: (a) so long as the Lender Group complies with its obligations, ifany, under Section 9207 of the Code, the Lender Group shall not in any way ormanner be liable or responsible for: (i) the safekeeping of the Collateral; (ii)any loss or damage thereto occurring or arising in any manner or fashion fromany cause; (iii) any diminution in the value thereof; or (iv) any act or defaultof any carrier, warehouseman, bailee, forwarding agency, or other Person; and(b) all risk of loss, damage, or destruction of the Collateral shall be borne byBorrower.

11.3 Indemnification. Borrower shall pay, indemnify, defend, andhold the Agent-Related Persons, the Lender-Related Persons with respect to eachLender, each Participant, and each of their respective officers, directors,employees, counsel, agents, and attorneys-in-fact (each, an "IndemnifiedPerson") harmless (to the fullest extent permitted by law) from and against anyand all claims, demands, suits, actions, investigations, proceedings, anddamages, and all reasonable attorneys fees and disbursements and other costs andexpenses actually incurred in connection therewith (as and when they areincurred and irrespective of whether suit is brought), at any time assertedagainst, imposed upon, or incurred by any of them in connection with or as aresult of or related to the execution, delivery, enforcement, performance, andadministration of this Agreement and any other Loan Documents or thetransactions contemplated herein, and with respect to any investigation,litigation, or proceeding related to this Agreement, any other Loan Document, orthe use of the proceeds of the credit provided hereunder (irrespective ofwhether any Indemnified Person is a party thereto), or any act, omission, eventor circumstance in any manner related thereto (all the foregoing, collectively,the "Indemnified Liabilities"). Borrower shall have no obligation to anyIndemnified Person under this Section 11.3 with respect to any Indemnified

------------Liability that a court of competent jurisdiction finally determines to haveresulted from the gross negligence or willful misconduct of such IndemnifiedPerson. This provision shall survive the termination of this Agreement and therepayment of the other Obligations.

12. NOTICES.

Unless otherwise provided in this Agreement, all notices or demands byany party relating to this Agreement or any other Loan Document shall be inwriting and (except for financial statements and other informational documentswhich may be sent by first-class mail, postage prepaid) shall be personallydelivered or sent by registered or certified mail (postage prepaid, returnreceipt requested), overnight courier, or telefacsimile to the relevant party atits address set forth below:

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If to Borrower: CONVERGENT COMMUNICATIONSSERVICES, INC.400 Inverness Drive South, Suite 400Englewood, Colorado 80112Attn: Legal DepartmentFax No. 303.749.2822

with copies to: GIBSON, DUNN & CRUTCHER LLP1801 California Street, Suite 4200Denver, ColoradoAttn: Richard M. Russo, Esq.Fax No. 303.313.2838

If to Agent orthe Lender Groupin care of Agent: FOOTHILL CAPITAL CORPORATION

11111 Santa Monica BoulevardSuite 1500Los Angeles, California 90025-3333Attn: Business Finance Division ManagerFax No. 310.478.9788

with copies to: PATTON BOGGS LLP2001 Ross AvenueSuite 3000Dallas, Texas 75201Attn: James C. Chadwick, Esq.Fax No. 214.758.1550

The parties hereto may change the address at which they are to receive noticeshereunder, by notice in writing in the foregoing manner given to all otherparties. All notices or demands sent in accordance with this Section 12, other

----------than notices by the Lender Group in connection with Sections 9504 or 9505 of theCode, shall be deemed received (a) if delivered in person, when received; (b) ifdelivered by telefacsimile, on the date of transmission, answerback received, iftransmitted on a Business Day before 3:00 p.m. (California time), or, if not, onthe next succeeding Business Day following such transmission, answerbackreceived; (c) if delivered by overnight courier that obtains signed proof ofdelivery, two (2) Business Days after delivery to such courier properlyaddressed; or (d) if by registered or certified mail, upon receipt. Borroweracknowledges and agrees that notices sent by the Lender Group in connection withSections 9504 or 9505 of the Code shall be deemed sent when deposited in themail or personally delivered, or, where permitted by law, transmittedtelefacsimile or other similar method set forth above.

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13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.

THE VALIDITY OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS (UNLESSEXPRESSLY PROVIDED TO THE CONTRARY IN ANOTHER LOAN DOCUMENT IN RESPECT OF SUCHOTHER LOAN DOCUMENT), THE CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOFAND THEREOF, AND THE RIGHTS OF THE PARTIES HERETO AND THERETO WITH RESPECT TOALL MATTERS ARISING HEREUNDER OR THEREUNDER OR RELATED HERETO OR THERETO SHALLBE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OFTHE STATE OF CALIFORNIA.

THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTIONWITH THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE TRIED AND LITIGATEDONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF LOS ANGELES, STATEOF CALIFORNIA, PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY

-------- -------COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT AGENT'S OPTION, IN THE COURTS OFANY JURISDICTION WHERE AGENT ELECTS TO BRING SUCH ACTION OR WHERE SUCHCOLLATERAL OR OTHER PROPERTY MAY BE FOUND. BORROWER AND THE LENDER GROUP WAIVE,TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERTTHE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY

--------------------PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 13.

----------

BORROWER AND THE LENDER GROUP HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURYTRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THELOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDINGCONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW ORSTATUTORY CLAIMS. BORROWER AND THE LENDER GROUP REPRESENT THAT EACH HASREVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIALRIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, ACOPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THECOURT.



14. DESTRUCTION OF BORROWER'S DOCUMENTS.

All documents, schedules, invoices, agings, or other papers deliveredto any one or more members of the Lender Group may be destroyed or otherwisedisposed of by such member of the Lender Group 4 months after they are deliveredto or received by such member of the Lender Group, unless Borrower requests, inwriting, the return of said documents, schedules, or other papers and makesarrangements, at Borrower's expense, for their return.

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15. ASSIGNMENTS AND PARTICIPATIONS; SUCCESSORS.

15.1 Assignments and Participations.

(a) Any Lender may, with the written consent of Agent, assignand delegate to one or more assignees (provided that no written consent of Agentshall be required in connection with any assignment and delegation by a Lenderto an Eligible Transferee) (each an "Assignee") all, or any ratable part of all,of the Obligations, the Commitments and the other rights and obligations of suchLender hereunder and under the other Loan Documents, in a minimum amount of$5,000,000; provided, however, that Borrower and Agent may continue to deal

-------- -------solely and directly with such Lender in connection with the interest so assignedto an Assignee until (i) written notice of such assignment, together withpayment instructions, addresses and related information with respect to theAssignee, shall have been given to Borrower and Agent by such Lender and theAssignee; (ii) such Lender and its Assignee shall have delivered to Borrower andAgent an Assignment and Acceptance ("Assignment and Acceptance") in form andsubstance satisfactory to Agent; and (iii) the assignor Lender or Assignee haspaid to Agent for Agent's sole and separate account a processing fee in theamount of $5,000. Anything contained herein to the contrary notwithstanding, theconsent of Agent shall not be required (and payment of any fees shall not berequired) if such assignment is in connection with any merger, consolidation,sale, transfer, or other disposition of all or any substantial portion of thebusiness or loan portfolio of such Lender.

(b) From and after the date that Agent notifies the assignorLender that it has received an executed Assignment and Acceptance and payment ofthe above-referenced processing fee, (i) the Assignee thereunder shall be aparty hereto and, to the extent that rights and obligations hereunder have beenassigned to it pursuant to such Assignment and Acceptance, shall have the rightsand obligations of a Lender under the Loan Documents, and (ii) the assignorLender shall, to the extent that rights and obligations hereunder and under theother Loan Documents have been assigned by it pursuant to such Assignment andAcceptance, relinquish its rights (except with respect to Section 11.3 hereof)

------------and be released from its obligations under this Agreement (and in the case of anAssignment and Acceptance covering all or the remaining portion of an assigningLender's rights and obligations under this Agreement and the other LoanDocuments, such Lender shall cease to be a party hereto and thereto), and suchassignment shall effect a novation between Borrower and the Assignee.

(c) By executing and delivering an Assignment and Acceptance,the assigning Lender thereunder and the Assignee thereunder confirm to and agreewith each other and the other parties hereto as follows: (1) other than asprovided in such Assignment and Acceptance, such assigning Lender makes norepresentation or warranty and assumes no responsibility with respect to anystatements, warranties or representations made in or in connection with thisAgreement or the execution, legality, validity, enforceability, genuineness,sufficiency or value of this Agreement or any other Loan Document furnishedpursuant hereto; (2) such assigning Lender makes no representation or warrantyand assumes no responsibility with respect to the financial condition ofBorrower or the performance or observance by Borrower of any of its obligationsunder this Agreement or any other Loan Document furnished pursuant hereto; (3)such Assignee

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confirms that it has received a copy of this Agreement, together with such otherdocuments and information as it has deemed appropriate to make its own creditanalysis and decision to enter into such Assignment and Acceptance; (4) suchAssignee will, independently and without reliance upon Agent, such assigningLender or any other Lender, and based on such documents and information as itshall deem appropriate at the time, continue to make its own credit decisions intaking or not taking action under this Agreement; (5) such Assignee appoints andauthorizes Agent to take such action as agent on its behalf and to exercise suchpowers under this Agreement as are delegated to Agent by the terms hereof,together with such powers as are reasonably incidental thereto; and (6) suchAssignee agrees that it will perform in accordance with their terms all of theobligations which by the terms of this Agreement are required to be performed by



it as a Lender.

(d) Immediately upon each Assignee's making its processing feepayment under the Assignment and Acceptance, this Agreement shall be deemed tobe amended to the extent, but only to the extent, necessary to reflect theaddition of the Assignee and the resulting adjustment of the Commitments arisingtherefrom. The Commitment allocated to each Assignee shall reduce suchCommitments of the assigning Lender pro tanto.

--- -----

(e) Any Lender may at any time, with the written consent ofAgent, sell to one or more commercial banks, financial institutions, or otherPersons not Affiliates of such Lender (a "Participant") participating interestsin the Obligations, the Commitment, and the other rights and interests of thatLender (the "originating Lender") hereunder and under the other Loan Documents(provided that no written consent of Agent shall be required in connection withany sale of any such participating interests by a Lender to an EligibleTransferee); provided, however, that (i) the originating Lender's obligations

-------- -------under this Agreement shall remain unchanged, (ii) the originating Lender shallremain solely responsible for the performance of such obligations, (iii)Borrower and Agent shall continue to deal solely and directly with theoriginating Lender in connection with the originating Lender's rights andobligations under this Agreement and the other Loan Documents, (iv) no Lendershall transfer or grant any participating interest under which the Participanthas the sole and exclusive right to approve any amendment to, or any consent orwaiver with respect to, this Agreement or any other Loan Document, except to theextent such amendment to, or consent or waiver with respect to this Agreement orof any other Loan Document would (A) extend the final maturity date of theObligations hereunder in which such Participant is participating; (B) reduce theinterest rate applicable to the Obligations hereunder in which such Participantis participating; (C) release all or a material portion of the Collateral orguaranties (except to the extent expressly provided herein or in any of the LoanDocuments) supporting the Obligations hereunder in which such Participant isparticipating; (D) postpone the payment of, or reduce the amount of, theinterest or fees payable to such Participant through such Lender; or (E) changethe amount or due dates of scheduled principal repayments or prepayments orpremiums; and (v) all amounts payable by Borrower hereunder shall be determinedas if such Lender had not sold such participation; except that, if amountsoutstanding under this Agreement are due and unpaid, or shall have been declaredor shall have become due and payable upon the occurrence of an Event of Default,each Participant shall be deemed to have the right of set-off in respect of itsparticipating interest in amounts owing under this Agreement to the same extentas if the amount of its participating interest were owing directly to it as aLender under this Agreement. The rights of any Participant only shall bederivative through the originating Lender with whom such Participant

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participates and no Participant shall have any direct rights as to the otherLenders, Agent, Borrower, the Collections, the Collateral, or otherwise inrespect of the Obligations. No Participant shall have the right to participatedirectly in the making of decisions by the Lenders among themselves.

(f) In connection with any such assignment or participation orproposed assignment or participation, a Lender may disclose all documents andinformation which it now or hereafter may have relating to Borrower orBorrower's business.

(g) Any other provision in this Agreement notwithstanding, anyLender may at any time create a security interest in, or pledge, all or anyportion of its rights under and interest in this Agreement in favor of anyFederal Reserve Bank in accordance with Regulation A of the Federal Reserve Bankor U.S. Treasury Regulation 31 CFR (S)203.14, and such Federal Reserve Bank mayenforce such pledge or security interest in any manner permitted underapplicable law.

15.2 Successors. This Agreement shall bind and inure to the benefitof the respective successors and assigns of each of the parties; provided,

--------however, that Borrower may not assign this Agreement or any rights or duties-------hereunder without the Lenders' prior written consent and any prohibitedassignment shall be absolutely void ab initio. No consent to assignment by theLenders shall release Borrower from its Obligations. A Lender may assign thisAgreement and the other Loan Documents and its rights and duties hereunder andthereunder pursuant to Section 15.1 hereof and, except as expressly required

------------pursuant to Section 15.1 hereof, no consent or approval by Borrower is required

------------in connection with any such assignment.

16. AMENDMENTS; WAIVERS.



16.1 Amendments and Waivers. No amendment or waiver of any provisionof this Agreement or any other Loan Document, and no consent with respect to anydeparture by Borrower therefrom, shall be effective unless the same shall be inwriting and signed by the Required Lenders (or by Agent at the written requestof the Required Lenders) and Borrower and then any such waiver or consent shallbe effective only in the specific instance and for the specific purpose forwhich given; provided, however, that no such waiver, amendment, or consent

-------- -------shall, unless in writing and signed by all the Lenders and Borrower andacknowledged by Agent, do any of the following:

(a) increase or extend the Commitment of any Lender;

(b) postpone or delay any date fixed by this Agreement or anyother Loan Document for any payment of principal, interest, fees or otheramounts due to the Lenders (or any of them) hereunder or under any other LoanDocument;

(c) reduce the principal of, or the rate of interest specifiedherein on any Loan, or any fees or other amounts payable hereunder or under anyother Loan Document;

(d) change the percentage of the Commitments that is requiredfor the Lenders or any of them to take any action hereunder;

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(f) amend this Section or any provision of the Agreementproviding for consent or other action by all Lenders;

(g) release Collateral other than as permitted by Section 17.11;-------------

(h) increase the sublimit for credit available against EligibleInventory (currently contained in clause (y) of Section 2.1(a));

--------------

(i) change the definition of "Required Lenders";

(j) release Borrower from any Obligation for the payment ofmoney; or

(k) amend any of the provisions of Article 17.----------

and, provided further, however, that no amendment, waiver or consent shall,-------- ------- -------

unless in writing and signed by Agent, affect the rights or duties of Agentunder this Agreement or any other Loan Document; and, provided further, however,

-------- ------- -------that no amendment, waiver or consent shall, unless in writing and signed byFoothill in its individual capacity as a Lender, affect the specific rights orduties of Foothill in its individual capacity as a Lender (as contrasted withrights or duties of Foothill as a member of the Lender Group) under thisAgreement or any other Loan Document. The foregoing notwithstanding, anyamendment, modification, waiver, consent, termination, or release of or withrespect to any provision of this Agreement or any other Loan Document thatrelates only to the relationship of the Lender Group among themselves, and thatdoes not affect the rights or obligations of Borrower, shall not require consentby or the agreement of Borrower.

16.2 No Waivers; Cumulative Remedies. No failure by Agent or anyLender to exercise any right, remedy, or option under this Agreement, any otherLoan Document, or any present or future supplement hereto or thereto, or in anyother agreement between or among Borrower and Agent or any Lender, or delay byAgent or any Lender in exercising the same, will operate as a waiver thereof. Nowaiver by Agent or any Lender will be effective unless it is in writing, andthen only to the extent specifically stated. No waiver by Agent or the Lenderson any occasion shall affect or diminish Agent's and each Lender's rightsthereafter to require strict performance by Borrower of any provision of thisAgreement. Agent's and each Lender's rights under this Agreement and the otherLoan Documents will be cumulative and not exclusive of any other right or remedywhich Agent or any Lender may have.

17. AGENT; THE LENDER GROUP.

17.1 Appointment and Authorization of Agent. Each Lender herebydesignates and appoints Foothill as its agent under this Agreement and the otherLoan Documents and each Lender hereby irrevocably authorizes Agent to take suchaction on its behalf under the provisions of this Agreement and each other LoanDocument and to exercise such powers and perform such duties as are expressly



delegated to it by the terms of this Agreement or any other

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Loan Document, together with such powers as are reasonably incidental thereto.Agent agrees to act as such on the express conditions contained in this Article

-------17. The provisions of this Article 17 are solely for the benefit of Agent and-- ----------the Lenders, and Borrower shall have no rights as a third party beneficiary ofany of the provisions contained herein; provided, however, that certain of the

-------- -------provisions of Section 17.10 hereof also shall be for the benefit of Borrower.

-------------Any provision to the contrary contained elsewhere in this Agreement or in anyother Loan Document notwithstanding, Agent shall not have any duties orresponsibilities, except those expressly set forth herein, nor shall Agent haveor be deemed to have any fiduciary relationship with any Lender, and no impliedcovenants, functions, responsibilities, duties, obligations or liabilities shallbe read into this Agreement or any other Loan Document or otherwise existagainst Agent; it being expressly understood and agreed that the use of the word"Agent" is for convenience only, that Foothill is merely the representative ofthe Lenders, and has only the contractual duties set forth herein. Except asexpressly otherwise provided in this Agreement, Agent shall have and may use itssole discretion with respect to exercising or refraining from exercising anydiscretionary rights or taking or refraining from taking any actions which Agentis expressly entitled to take or assert under or pursuant to this Agreement andthe other Loan Documents. Without limiting the generality of the foregoing, orof any other provision of the Loan Documents that provides rights or powers toAgent, Lenders agree that Agent shall have the right to exercise the followingpowers as long as this Agreement remains in effect: (a) maintain, in accordancewith its customary business practices, ledgers and records reflecting the statusof the Advances and the Letters of Credit, the Collateral, the Collections, andrelated matters; (b) execute or file any and all financing or similar statementsor notices, amendments, renewals, supplements, documents, instruments, proofs ofclaim, notices and other written agreements with respect to the Loan Documents;(c) make Advances and the Letters of Credit, for itself or on behalf of Lendersas provided in the Loan Documents; (d) exclusively receive, apply, anddistribute the Collections as provided in the Loan Documents; (e) open andmaintain such bank accounts and lock boxes as Agent deems necessary andappropriate in accordance with the Loan Documents for the foregoing purposeswith respect to the Collateral and the Collections; (f) perform, exercise, andenforce any and all other rights and remedies of the Lender Group with respectto Borrower, the Obligations, the Collateral, the Collections, or otherwiserelated to any of same as provided in the Loan Documents; and (g) incur and paysuch Lender Group Expenses as Agent may deem necessary or appropriate for theperformance and fulfillment of its functions and powers pursuant to the LoanDocuments.

17.2 Delegation of Duties. Except as otherwise provided in thissection, Agent may execute any of its duties under this Agreement or any otherLoan Document by or through agents, employees or attorneys-in-fact and shall beentitled to advice of counsel concerning all matters pertaining to such duties.Agent shall not be responsible for the negligence or misconduct of any agent orattorney-in-fact that it selects as long as such selection was made incompliance with this section and without gross negligence or willful misconduct.

17.3 Liability of Agent. None of the Agent-Related Persons shall (i)be liable for any action taken or omitted to be taken by any of them under or inconnection with this Agreement or any other Loan Document or the transactionscontemplated hereby (except for its own gross negligence or willful misconduct),or (ii) be responsible in any manner to any of the Lenders for any recital,statement, representation or warranty made by Borrower or any Subsidiary

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or Affiliate of Borrower, or any officer or director thereof, contained in thisAgreement or in any other Loan Document, or in any certificate, report,statement or other document referred to or provided for in, or received by Agentunder or in connection with, this Agreement or any other Loan Document, or thevalidity, effectiveness, genuineness, enforceability or sufficiency of thisAgreement or any other Loan Document, or for any failure of Borrower or anyother party to any Loan Document to perform its obligations hereunder orthereunder. No Agent-Related Person shall be under any obligation to any Lenderto ascertain or to inquire as to the observance or performance of any of theagreements contained in, or conditions of, this Agreement or any other LoanDocument, or to inspect the properties, books or records of Borrower or any ofBorrower's Subsidiaries or Affiliates.

17.4 Reliance by Agent. Agent shall be entitled to rely, and shallbe fully protected in relying, upon any writing, resolution, notice, consent,certificate, affidavit, letter, telegram, facsimile, telex or telephone message,



statement or other document or conversation believed by it to be genuine andcorrect and to have been signed, sent, or made by the proper Person or Persons,and upon advice and statements of legal counsel (including counsel to Borroweror counsel to any Lender), independent accountants and other experts selected byAgent. Agent shall be fully justified in failing or refusing to take any actionunder this Agreement or any other Loan Document unless it shall first receivesuch advice or concurrence of the Lenders as it deems appropriate and until suchinstructions are received, Agent shall act, or refrain from acting, as it deemsadvisable. If Agent so requests, it shall first be indemnified to its reasonablesatisfaction by Lenders against any and all liability and expense that may beincurred by it by reason of taking or continuing to take any such action. Agentshall in all cases be fully protected in acting, or in refraining from acting,under this Agreement or any other Loan Document in accordance with a request orconsent of the Lenders and such request and any action taken or failure to actpursuant thereto shall be binding upon all of the Lenders.

17.5 Notice of Default or Event of Default. Agent shall not bedeemed to have knowledge or notice of the occurrence of any Default or Event ofDefault, except with respect to defaults in the payment of principal, interest,fees, and expenses required to be paid to Agent for the account of the Lenders,except with respect to Events of Default of which Agent has actual knowledge,unless Agent shall have received written notice from a Lender or Borrowerreferring to this Agreement, describing such Default or Event of Default, andstating that such notice is a "notice of default." Agent promptly will notifythe Lenders of its receipt of any such notice or of any Event of Default ofwhich Agent has actual knowledge. If any Lender obtains actual knowledge of anyEvent of Default, such Lender promptly shall notify the other Lenders and Agentof such Event of Default. Each Lender shall be solely responsible for giving anynotices to its Participants, if any. Subject to Section 17.4, Agent shall take

------------such action with respect to such Default or Event of Default as may be requestedby the Required Lenders in accordance with Section 9; provided, however, that

--------- -------- -------unless and until Agent has received any such request, Agent may (but shall notbe obligated to) take such action, or refrain from taking such action, withrespect to such Default or Event of Default as it shall deem advisable.

17.6 Credit Decision. Each Lender acknowledges that none of theAgent-Related Persons has made any representation or warranty to it, and that noact by Agent

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hereinafter taken, including any review of the affairs of Borrower and itsSubsidiaries or Affiliates, shall be deemed to constitute any representation orwarranty by any Agent-Related Person to any Lender. Each Lender represents toAgent that it has, independently and without reliance upon any Agent-RelatedPerson and based on such documents and information as it has deemed appropriate,made its own appraisal of and investigation into the business, prospects,operations, property, financial and other condition and creditworthiness ofBorrower and any other Person (other than the Lender Group) party to a LoanDocument, and all applicable bank regulatory laws relating to the transactionscontemplated hereby, and made its own decision to enter into this Agreement andto extend credit to Borrower. Each Lender also represents that it will,independently and without reliance upon any Agent-Related Person and based onsuch documents and information as it shall deem appropriate at the time,continue to make its own credit analysis, appraisals and decisions in taking ornot taking action under this Agreement and the other Loan Documents, and to makesuch investigations as it deems necessary to inform itself as to the business,prospects, operations, property, financial and other condition andcreditworthiness of Borrower and any other Person (other than the Lender Group)party to a Loan Document. Except for notices, reports and other documentsexpressly herein required to be furnished to the Lenders by Agent, Agent shallnot have any duty or responsibility to provide any Lender with any credit orother information concerning the business, prospects, operations, property,financial and other condition or creditworthiness of Borrower and any otherPerson party to a Loan Document that may come into the possession of any of theAgent-Related Persons.

17.7 Costs and Expenses; Indemnification. Agent may incur and pay LenderGroup Expenses to the extent Agent deems reasonably necessary or appropriate forthe performance and fulfillment of its functions, powers, and obligationspursuant to the Loan Documents, including without limiting the generality of theforegoing, court costs, reasonable attorneys fees and expenses, costs ofcollection by outside collection agencies and auctioneer fees and costs ofsecurity guards or insurance premiums paid to maintain the Collateral, whetheror not Borrower is obligated to reimburse Agent or Lenders for such expensespursuant to the Loan Agreement or otherwise. Agent is authorized and directedto deduct and retain sufficient amounts from Collections to reimburse Agent forsuch out-of-pocket costs and expenses prior to the distribution of any amountsto Lenders. In the event Agent is not reimbursed for such costs and expensesfrom Collections, each Lender hereby agrees that it is and shall be obligated topay to or reimburse Agent for the amount of such Lender's Pro Rata Share



thereof. Whether or not the transactions contemplated hereby are consummated,the Lenders shall indemnify upon demand the Agent-Related Persons (to the extentnot reimbursed by or on behalf of Borrower and without limiting the obligationof Borrower to do so), according to their Pro Rata Shares, from and against anyand all Indemnified Liabilities; provided, however, that no Lender shall be

-------- -------liable for the payment to the Agent-Related Persons of any portion of suchIndemnified Liabilities resulting solely from such Person's gross negligence orwillful misconduct. Without limitation of the foregoing, each Lender shallreimburse Agent upon demand for its ratable share of any costs or out-of-pocketexpenses (including attorneys fees and expenses) incurred by Agent in connectionwith the preparation, execution, delivery, administration, modification,amendment or enforcement (whether through negotiations, legal proceedings orotherwise) of, or legal advice in respect of rights or responsibilities under,this Agreement, any other Loan Document, or any document contemplated by orreferred to herein, to the extent that Agent is not reimbursed for such expensesby or on behalf of Borrower. The

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undertaking in this section shall survive the payment of all Obligationshereunder and the resignation or replacement of Agent.

17.8 Agent in Individual Capacity. Foothill and its Affiliates may makeloans to, issue letters of credit for the account of, accept deposits from,acquire equity interests in and generally engage in any kind of banking, trust,financial advisory, underwriting or other business with Borrower and itsSubsidiaries and Affiliates and any other Person (other than the Lender Group)party to any Loan Documents as though Foothill were not Agent hereunder andwithout notice to or consent of the Lenders. The Lenders acknowledge that,pursuant to such activities, Foothill or its Affiliates may receive informationregarding Borrower or its Affiliates and any other Person (other than the LenderGroup) party to any Loan Documents that is subject to confidentialityobligations in favor of Borrower or such other Person and that prohibit thedisclosure of such information to the Lenders, and the Lenders acknowledge that,in such circumstances (and in the absence of a waiver of such confidentialityobligations, which waiver Agent will use its reasonable best efforts to obtain),Agent shall be under no obligation to provide such information to them. Withrespect to the Foothill Loans and Agent Advances, Foothill shall have the samerights and powers under this Agreement as any other Lender and may exercise thesame as though it were not Agent, and the terms "Lender" and "Lenders" includeFoothill in its individual capacity.

17.9 Successor Agent. Agent may resign as Agent upon 45 days notice tothe Lenders. If Agent resigns under this Agreement, the Required Lenders shallappoint a successor Agent for the Lenders. If no successor Agent is appointedprior to the effective date of the resignation of Agent, Agent may appoint,after consulting with the Lenders, a successor Agent. If Agent has materiallybreached or failed to perform any material provision of this Agreement or ofapplicable law, the Required Lenders may agree in writing to remove and replaceAgent with a successor Agent from among the Lenders. In any such event, upon theacceptance of its appointment as successor Agent hereunder, such successor Agentshall succeed to all the rights, powers and duties of the retiring Agent and theterm "Agent" shall mean such successor Agent and the retiring Agent'sappointment, powers and duties as Agent shall be terminated. After any retiringAgent's resignation hereunder as Agent, the provisions of this Section 17 shall

----------inure to its benefit as to any actions taken or omitted to be taken by it whileit was Agent under this Agreement. If no successor Agent has acceptedappointment as Agent by the date which is 45 days following a retiring Agent'snotice of resignation, the retiring Agent's resignation shall neverthelessthereupon become effective and the Lenders shall perform all of the duties ofAgent hereunder until such time, if any, as the Lenders appoint a successorAgent as provided for above.

17.10 Withholding Tax. (a) If any Lender is a "foreign corporation,partnership or trust" within the meaning of the IRC and such Lender claimsexemption from, or a reduction of, U.S. withholding tax under Sections 1441 or1442 of the IRC, such Lender agrees with and in favor of Agent and Borrower, todeliver to Agent and Borrower:

(i) if such Lender claims an exemption from, or areduction of, withholding tax under a United States tax treaty, properlycompleted IRS Forms 1001 and W-8 before the payment of any interest in the firstcalendar year and before the payment of any interest in each third succeedingcalendar year during which interest may be paid under this Agreement;

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(ii) if such Lender claims that interest paid under thisAgreement is exempt from United States withholding tax because it is effectivelyconnected with a United States trade or business of such Lender, two properly



completed and executed copies of IRS Form 4224 before the payment of anyinterest is due in the first taxable year of such Lender and in each succeedingtaxable year of such Lender during which interest may be paid under thisAgreement, and IRS Form W-9; and

(iii) such other form or forms as may be required underthe IRC or other laws of the United States as a condition to exemption from, orreduction of, United States withholding tax.

Such Lender agrees promptly to notify Agent and Borrower of any change incircumstances which would modify or render invalid any claimed exemption orreduction.

(b) If any Lender claims exemption from, or reduction of,withholding tax under a United States tax treaty by providing IRS Form 1001 andsuch Lender sells, assigns, grants a participation in, or otherwise transfersall or part of the Obligations of Borrower to such Lender, such Lender agrees tonotify Agent of the percentage amount in which it is no longer the beneficialowner of Obligations of Borrower to such Lender. To the extent of suchpercentage amount, Agent will treat such Lender's IRS Form 1001 as no longervalid.

(c) If any Lender claiming exemption from United Stateswithholding tax by filing IRS Form 4224 with Agent sells, assigns, grants aparticipation in, or otherwise transfers all or part of the Obligations ofBorrower to such Lender, such Lender agrees to undertake sole responsibility forcomplying with the withholding tax requirements imposed by Sections 1441 and1442 of the IRC.

(d) If any Lender is entitled to a reduction in the applicablewithholding tax, Agent may withhold from any interest payment to such Lender anamount equivalent to the applicable withholding tax after taking into accountsuch reduction. If the forms or other documentation required by subsection (a)of this Section are not delivered to Agent, then Agent may withhold from anyinterest payment to such Lender not providing such forms or other documentationan amount equivalent to the applicable withholding tax.

(e) If the IRS or any other Governmental Authority of theUnited States or other jurisdiction asserts a claim that Agent did not properlywithhold tax from amounts paid to or for the account of any Lender (because theappropriate form was not delivered, was not properly executed, or because suchLender failed to notify Agent of a change in circumstances which rendered theexemption from, or reduction of, withholding tax ineffective, or for any otherreason) such Lender shall indemnify Agent fully for all amounts paid, directlyor indirectly, by Agent as tax or otherwise, including penalties and interest,and including any taxes imposed by any jurisdiction on the amounts payable toAgent under this Section, together with all costs and expenses (includingattorneys fees and expenses). The obligation of the Lenders under thissubsection shall survive the payment of all Obligations and the resignation orreplacement of Agent.

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17.11 Collateral Matters.

(a) The Lenders hereby irrevocably authorize Agent, at itsoption and in its sole discretion, to release any Lien on any Collateral (i)upon the termination of the Commitments and payment and satisfaction in full byBorrower of all Obligations; (ii) constituting property being sold or disposedof if a release is required or desirable in connection therewith and if Borrowercertifies to Agent that the sale or disposition is permitted under Section 7 of

---------this Agreement or the other Loan Documents (and Agent may rely conclusively onany such certificate, without further inquiry); (iii) constituting property inwhich Borrower owned no interest at the time the security interest was grantedor at any time thereafter; or (iv) constituting property leased to Borrowerunder a lease that has expired or is terminated in a transaction permitted underthis Agreement. Except as provided above, Agent will not execute and deliver arelease of any Lien on any Collateral without the prior written authorization of(y) if the release is of all or substantially all of the Collateral, of all ofthe Lenders, or (z) otherwise, the Required Lenders. Upon request by Agent orBorrower at any time, the Lenders will confirm in writing Agent's authority torelease any such Liens on particular types or items of Collateral pursuant tothis Section 17.11; provided, however, that (1) Agent shall not be required

------------- -------- -------to execute any document necessary to evidence such release on terms that, inAgent's opinion, would expose Agent to liability or create any obligation orentail any consequence other than the release of such Lien without recourse,representation, or warranty, and (2) such release shall not in any mannerdischarge, affect, or impair the Obligations or any Liens (other than thoseexpressly being released) upon (or obligations of Borrower in respect of) allinterests retained by Borrower, including, the proceeds of any sale, all ofwhich shall continue to constitute part of the Collateral.



(b) Agent shall have no obligation whatsoever to any of theLenders to assure that the Collateral exists or is owned by Borrower or is caredfor, protected, or insured or has been encumbered, or that the Agent's Lienshave been properly or sufficiently or lawfully created, perfected, protected, orenforced or are entitled to any particular priority, or to exercise at all or inany particular manner or under any duty of care, disclosure or fidelity, or tocontinue exercising, any of the rights, authorities and powers granted oravailable to Agent pursuant to any of the Loan Documents, it being understoodand agreed that in respect of the Collateral, or any act, omission or eventrelated thereto, subject to the terms and conditions contained herein, Agent mayact in any manner it may deem appropriate, in its sole discretion given Agent'sown interest in the Collateral in its capacity as one of the Lenders and thatAgent shall have no other duty or liability whatsoever to any Lender as to anyof the foregoing, except as otherwise provided herein.

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17.12 Restrictions on Actions by Lenders; Sharing of Payments. (a)Each of the Lenders agrees that it shall not, without the express consent ofAgent, and that it shall, to the extent it is lawfully entitled to do so, uponthe request of Agent, set off against the Obligations, any amounts owing by suchLender to Borrower or any accounts of Borrower now or hereafter maintained withsuch Lender. Each of the Lenders further agrees that it shall not, unlessspecifically requested to do so by Agent, take or cause to be taken any action,including, the commencement of any legal or equitable proceedings, to forecloseany Lien on, or otherwise enforce any security interest in, any of theCollateral the purpose of which is, or could be, to give such Lender anypreference or priority against the other Lenders with respect to the Collateral.

(b) Subject to Section 17.8, if, at any time or times any------------

Lender shall receive (i) by payment, foreclosure, setoff or otherwise, anyproceeds of Collateral or any payments with respect to the Obligations arisingunder, or relating to, this Agreement or the other Loan Documents, except forany such proceeds or payments received by such Lender from Agent pursuant to theterms of this Agreement, or (ii) payments from Agent in excess of such Lender'sratable portion of all such distributions by Agent, such Lender promptly shall(1) turn the same over to Agent, in kind, and with such endorsements as may berequired to negotiate the same to Agent, or in same day funds, as applicable,for the account of all of the Lenders and for application to the Obligations inaccordance with the applicable provisions of this Agreement, or (2) purchase,without recourse or warranty, an undivided interest and participation in theObligations owed to the other Lenders so that such excess payment received shallbe applied ratably as among the Lenders in accordance with their Pro RataShares; provided, however, that if all or part of such excess payment received

-------- -------by the purchasing party is thereafter recovered from it, those purchases ofparticipations shall be rescinded in whole or in part, as applicable, and theapplicable portion of the purchase price paid therefor shall be returned to suchpurchasing party, but without interest except to the extent that such purchasingparty is required to pay interest in connection with the recovery of the excesspayment.

17.13 Agency for Perfection. Agent and each Lender hereby appoints eachother Lender as agent for the purpose of perfecting the Agent's Liens in assetswhich, in accordance with Article 9 of the UCC can be perfected only bypossession. Should any Lender obtain possession of any such Collateral, suchLender shall notify Agent thereof, and, promptly upon Agent's request thereforshall deliver such Collateral to Agent or in accordance with Agent'sinstructions.

17.14 Payments by Agent to the Lenders. All payments to be made by Agentto the Lenders shall be made by bank wire transfer or internal transfer ofimmediately available funds to:

If to Foothill: The Chase Manhattan BankABA # 021-000-021Credit: Foothill Capital CorporationAccount No. 323-266193Re: Convergent Communications

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or pursuant to such other wire transfer instructions as each party may designatefor itself by written notice to Agent. Concurrently with each such payment,Agent shall identify whether such payment (or any portion thereof) representsprincipal, premium or interest on revolving advances or otherwise.

17.15 Concerning the Collateral and Related Loan Documents. Eachmember of the Lender Group authorizes and directs Agent to enter into thisAgreement and the other Loan Documents relating to the Collateral, for the



benefit of the Lender Group. Each member of the Lender Group agrees that anyaction taken by Agent or all Lenders, as applicable, in accordance with theterms of this Agreement or the other Loan Documents relating to the Collateraland the exercise by Agent or all Lenders, as applicable, of their respectivepowers set forth therein or herein, together with such other powers that arereasonably incidental thereto, shall be binding upon all of the Lenders.

17.16 Field Audits and Examination Reports; Confidentiality;Disclaimers by Lenders; Other Reports and Information. By signing thisAgreement, each Lender:

(a) is deemed to have requested that Agent furnish suchLender, promptly after it becomes available, a copy of each field audit orexamination report (each a "Report" and collectively, "Reports") prepared byAgent, and Agent shall so furnish each Lender with such Reports;

(b) expressly agrees and acknowledges that neither Foothillnor Agent (i) makes any representation or warranty as to the accuracy of anyReport, or (ii) shall be liable for any information contained in any Report;

(c) expressly agrees and acknowledges that the Reports are notcomprehensive audits or examinations, that Agent or other party performing anyaudit or examination will inspect only specific information regarding Borrowerand will rely significantly upon Borrower's books and records, as well as onrepresentations of Borrower's personnel;

(d) agrees to keep all Reports and other material, non-publicinformation regarding Borrower and its Subsidiaries and their operations,assets, and existing and contemplated business plans in a confidential manner;it being understood and agreed by Borrower that in any event such Lender maymake disclosures (a) to counsel for and other advisors, accountants, andauditors to such Lender, (b) reasonably required by any bona fide potential

---- ----or actual Assignee, transferee, or Participant in connection with anycontemplated or actual assignment or transfer by such Lender of an interestherein or any participation interest in such Lender's rights hereunder, (c) ofinformation that has become public by disclosures made by Persons other thansuch Lender, its Affiliates, assignees, transferees, or participants, or (d) asrequired or requested by any court, governmental or administrative agency,pursuant to any subpoena or other legal process, or by any law, statute,regulation, or court order; provided, however, that, unless prohibited by

-------- -------applicable law, statute, regulation, or court order, such Lender shall notifyBorrower of any request by any court, governmental or administrative agency, orpursuant to any subpoena or other legal process for

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disclosure of any such non-public material information concurrent with, or wherepracticable, prior to the disclosure thereof; and

(e) without limiting the generality of any otherindemnification provision contained in this Agreement, agrees: (i) to hold Agentand any such other Lender preparing a Report harmless from any action theindemnifying Lender may take or conclusion the indemnifying Lender may reach ordraw from any Report in connection with any loans or other credit accommodationsthat the indemnifying Lender has made or may make to Borrower, or theindemnifying Lender's participation in, or the indemnifying Lender's purchaseof, a loan or loans of Borrower; and (ii) to pay and protect, and indemnify,defend and hold Agent and any such other Lender preparing a Report harmless fromand against, the claims, actions, proceedings, damages, costs, expenses andother amounts (including, attorney costs) incurred by Agent and any such otherLender preparing a Report as the direct or indirect result of any third partieswho might obtain all or part of any Report through the indemnifying Lender.

In addition to the foregoing: (x) Any Lender may from time to time request ofAgent in writing that Agent provide to such Lender a copy of any report ordocument provided by Borrower to Agent that has not been contemporaneouslyprovided by Borrower to such Lender, and, upon receipt of such request, Agentshall provide a copy of same to such Lender promptly upon receipt thereof fromBorrower; (y) To the extent that Agent is entitled, under any provision of theLoan Documents, to request additional reports or information from Borrower, anyLender may, from time to time, reasonably request Agent to exercise such rightas specified in such Lender's notice to Agent, whereupon Agent promptly shallrequest of Borrower the additional reports or information specified by suchLender, and, upon receipt thereof from Borrower, Agent promptly shall provide acopy of same to such Lender; and (z) Any time that Agent renders to Borrower astatement regarding the Loan Account, Agent shall send a copy of such statementto each Lender.

17.17 Several Obligations; No Liability. Notwithstanding thatcertain of the Loan Documents now or hereafter may have been or will be executedonly by or in favor of Agent in its capacity as such, and not by or in favor of



the Lenders, any and all obligations on the part of Agent (if any) to make anycredit available hereunder shall constitute the several (and not joint)obligations of the respective Lenders on a ratable basis, according to theirrespective Commitments, to make an amount of such credit not to exceed, inprincipal amount, at any one time outstanding, the amount of their respectiveCommitments. Nothing contained herein shall confer upon any Lender any interestin, or subject any Lender to any liability for, or in respect of, the business,assets, profits, losses, or liabilities of any other Lender. Each Lender shallbe solely responsible for notifying its Participants of any matters relating tothe Loan Documents to the extent any such notice may be required, and no Lendershall have any obligation, duty, or liability to any Participant of any otherLender. Except as provided in Section 17.7, no member of the Lender Group shall

------------have any liability for the acts or any other member of the Lender Group. NoLender shall be responsible to Borrower or any other Person for any failure byany other Lender to fulfill its obligations to make credit available hereunder,nor to advance for it or on its behalf in connection with its Commitment, nor totake any other action on its behalf hereunder or in connection with thefinancing contemplated herein.

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18. GENERAL PROVISIONS.

18.1 Effectiveness. This Agreement shall be binding and deemedeffective when executed by Borrower and each member of the Lender Group whosesignature is provided for on the signature pages hereof.

18.2 Section Headings. Headings and numbers have been set forthherein for convenience only. Unless the contrary is compelled by the context,everything contained in each section applies equally to this entire Agreement.

18.3 Interpretation. Neither this Agreement nor any uncertainty orambiguity herein shall be construed or resolved against the Lender Group orBorrower, whether under any rule of construction or otherwise. On the contrary,this Agreement has been reviewed by all parties and shall be construed andinterpreted according to the ordinary meaning of the words used so as to fairlyaccomplish the purposes and intentions of all parties hereto.

18.4 Severability of Provisions. Each provision of this Agreementshall be severable from every other provision of this Agreement for the purposeof determining the legal enforceability of any specific provision.

18.5 Amendments in Writing. This Agreement can only be amended by awriting signed by Agent, the requisite Lenders, and Borrower.

18.6 Counterparts; Telefacsimile Execution. This Agreement may beexecuted in any number of counterparts and by different parties on separatecounterparts, each of which, when executed and delivered, shall be deemed to bean original, and all of which, when taken together, shall constitute but one andthe same Agreement. Delivery of an executed counterpart of this Agreement bytelefacsimile shall be equally as effective as delivery of an original executedcounterpart of this Agreement. Any party delivering an executed counterpart ofthis Agreement by telefacsimile also shall deliver an original executedcounterpart of this Agreement but the failure to deliver an original executedcounterpart shall not affect the validity, enforceability, and binding effect ofthis Agreement. The forgoing shall apply to each other Loan Document mutatismutandis.

18.7 Revival and Reinstatement of Obligations. If the incurrence orpayment of the Obligations by Borrower or any guarantor of the Obligations orthe transfer by either or both of such parties to the Lender Group of anyproperty of either or both of such parties should for any reason subsequently bedeclared to be void or voidable under any state or federal law relating tocreditors' rights, including provisions of the Bankruptcy Code relating tofraudulent conveyances, preferences, and other voidable or recoverable paymentsof money or transfers of property (collectively, a "Voidable Transfer"), and ifthe Lender Group is required to repay or restore, in whole or in part, any suchVoidable Transfer, or elects to do so upon the reasonable advice of its counsel,then, as to any such Voidable Transfer, or the amount thereof that the LenderGroup is required or elects to repay or restore, and as to all reasonable costs,expenses, and attorneys fees of the Lender Group related thereto, the liabilityof Borrower or such guarantor automatically shall be

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revived, reinstated, and restored and shall exist as though such VoidableTransfer had never been made.

18.8 Integration. This Agreement, together with the other LoanDocuments, reflects the entire understanding of the parties with respect to thetransactions contemplated hereby and shall not be contradicted or qualified by



any other agreement, oral or written, before the date hereof.

[REMAINDER OF PAGE INTENTIONALLY BLANK]

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to beexecuted.

CONVERGENT COMMUNICATIONSSERVICES, INC., a Colorado corporation

By: /s/ Brian R. Ervine____________________________________________Brian R. ErvineExecutive Vice President and Chief Financial Officer

FOOTHILL CAPITAL CORPORATION,a California corporation, as Agent for the Lenders

By: /s/ Rhonda Foreman_____________________________________________Rhonda ForemanSenior Vice President

FOOTHILL CAPITAL CORPORATION,a California corporation, as a Lender

By: /s/ Rhonda Foreman_____________________________________________Rhonda ForemanSenior Vice President



EXHIBIT 10.13

SECURED CONTINUING GUARANTY---------------------------

[CONVERGENT COMMUNICATIONS, INC.]

FOR VALUE RECEIVED, and in consideration of any loan or other financialaccommodation heretofore or hereafter at any time made or granted to CONVERGENTCOMMUNICATIONS SERVICES, INC., a Colorado corporation ("Borrower"), by FOOTHILLCAPITAL CORPORATION, a California corporation ("Foothill") and by other lenders(Foothill and such other lenders are hereinafter referred to, individually andcollectively, as "Lenders") which are or become parties to the Loan and SecurityAgreement dated on or about the date hereof (as the same may be amended,restated, supplemented, or otherwise modified from time to time, the "LoanAgreement"), by and among Borrower, Lenders and Foothill as agent for Lenders(Foothill in such capacity being hereinafter referred to as "Agent"), and byAgent, the undersigned, CONVERGENT COMMUNICATIONS, INC., a Colorado corporation("Guarantor") (Guarantor being the legal and beneficial owner of all of theissued and outstanding capital stock of Borrower which due to its closebusiness, financial and ownership relationships with Borrower will receivesignificant benefits from the loans and other financial accommodations made orgranted to Borrower under the Loan Agreement), hereby agrees as follows:

1. Guaranty of Obligations. Guarantor unconditionally, absolutely andirrevocably guarantees the full and prompt payment and performance when due,whether by acceleration or otherwise, and at all times thereafter, of allobligations of Borrower to Lenders and Agent, howsoever created, arising orevidenced, whether direct or indirect, absolute or contingent, or now orhereafter existing or due or to become due under or in connection with the LoanAgreement and each of the documents, instruments and agreements executed anddelivered in connection with the Loan Agreement, as each may be modified,amended, supplemented or replaced from time to time (all such obligations areherein referred to, collectively, as the "Liabilities", and all documentsevidencing or securing any of the Liabilities are herein referred to,collectively, as the "Loan Documents"). This Secured Continuing Guaranty (this"Continuing Guaranty") is a guaranty of payment and performance when due and notof collection.

In the event of any default by Borrower in making payment of, ordefault by Borrower in performance of, any of the Liabilities, Guarantor agreeson demand by Agent to pay and perform all of the Liabilities as are then orthereafter become due and owing or are to be performed under the terms of theLoan Documents. Guarantor further agrees to pay all expenses (includingreasonable attorneys' fees and expenses) paid or incurred by Agent or Lenders inendeavoring to collect the Liabilities, or any part thereof, and in enforcingthis Continuing Guaranty.



2. Security for Continuing Guaranty. This Continuing Guaranty issecured by various deeds of trust and/or mortgages and/or security agreementsand/or pledge agreements and/or assignments executed by Guarantor(collectively, the "Security Document").

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3. [This Paragraph is intentionally omitted.]

4. [This Paragraph is intentionally omitted.]

5. Continuing Nature of Guaranty and Liabilities. This ContinuingGuaranty shall be continuing and shall not be discharged, impaired or affectedby:

a. the insolvency of Guarantor or the payment in full of all of theLiabilities at any time or from time to time;

b. the power or authority or lack thereof of Borrower to incur theLiabilities;

c. the validity or invalidity of any of the Loan Documents or thedocuments securing the same;

d. the existence or non-existence of Borrower as a legal entity;

e. any transfer by Borrower of all or any part of any collateral inwhich Lender has been granted a lien or security interest pursuant to the LoanDocuments;

f. any statute of limitations affecting the liability of Guarantorunder this Continuing Guaranty or the Loan Documents or the ability of Agentor Lenders to enforce this Continuing Guaranty or any provision of the LoanDocuments or the Security Document; or

g. any right of offset, counterclaim or defense of Guarantor,including, without limitation, those which have been waived by Guarantorpursuant to Paragraph 9 hereof.

6. Insolvency of Borrower or Guarantor. Without limiting the generalityof any other provision hereof, Guarantor agrees that, in the event of thedissolution or insolvency of Borrower or Guarantor or the inability of Borroweror Guarantor to pay their respective debts as they mature, or an assignment byBorrower or Guarantor for the benefit of creditors, or the institution of anyproceeding by or against Borrower or Guarantor alleging that Borrower orGuarantor is insolvent or unable to pay their respective debts as they mature,Guarantor will pay to Agent and Lenders forthwith the full amount which would bepayable hereunder by Guarantor if all of the Liabilities were then due andpayable, whether or not such event occurs at a time when any of the Liabilitiesare otherwise due and payable.



7. Payment of the Liabilities. Any amounts received by Agent or Lendersfrom whatever source on account of the Liabilities may be applied by Agent orLenders toward the payment of such of the Liabilities, and in such order ofapplication, as Agent may from time to time elect, and notwithstanding anypayments made by or for the account of Guarantor pursuant to this ContinuingGuaranty.

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Guarantor agrees that, if at any time all or any part of any paymenttheretofore applied by Agent or Lenders to any of the Liabilities is or must berescinded or returned by Agent or Lenders for any reason whatsoever (including,without limitation, the insolvency, bankruptcy or reorganization of Borrower),such Liabilities shall, for the purposes of this Continuing Guaranty and to theextent that such payment is or must be rescinded or returned, be deemed to havecontinued in existence notwithstanding such application by Agent or Lenders, andthis Continuing Guaranty shall continue to be effective or be reinstated, as thecase may be, as to such Liabilities, all as though such application by Agent orLenders had not been made.

8. Permitted Actions of Agent and Lenders. Each of Agent and Lenders mayfrom time to time, in its sole discretion and without notice to Guarantor, takeany or all of the following actions:

a. retain or obtain a security interest in any assets of Borrower orany third party to secure any of the Liabilities or any obligations of Guarantorhereunder;

b. retain or obtain the primary or secondary obligation of anyobligor or obligors, in addition to Guarantor, with respect to any of theLiabilities;

c. extend or renew for one or more periods (whether or not longerthan the original period), alter or exchange any of the Liabilities;

d. waive, ignore or forbear from taking action or otherwiseexercising any of its default rights or remedies with respect to anydefault by Borrower under the Loan Documents;

e. release, waive or compromise any obligation of Guarantor hereunderor any obligation of any nature of any other obligor primarily or secondarilyobligated with respect to any of the Liabilities;

f. release its security interest in, or surrender, release or permitany substitution or exchange for, all or any part of any collateral now or hereafter securing any of the Liabilities or any obligation hereunder, or extend orrenew for one or more periods (whether or not longer than the original period)or release, waive, compromise, alter or exchange any obligations of any natureof any obligor with respect to any such property; and



g. demand payment or performance of any of the Liabilities fromGuarantor at any time or from time to time, whether or not Agent or Lendersshall have exercised any of their rights or remedies with respect to anyproperty securing any of the Liabilities or any obligation hereunder, orproceeded against any other obligor primarily or secondarily liable for paymentor performance of any of the Liabilities.

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9. Specific Waivers. Without limiting the generality of any otherprovision of this Continuing Guaranty, Guarantor hereby expressly waives:

a. notice of the acceptance by Agent and Lenders of this ContinuingGuaranty;

b. notice of the existence, creation, payment, nonpayment,performance or nonperformance of all or any of the Liabilities;

c. presentment, demand, notice of dishonor, protest, notice ofprotest and all other notices whatsoever with respect to the payment orperformance of the Liabilities or the amount thereof or any payment orperformance by Guarantor hereunder;

d. all diligence in collection or protection of or realization uponthe Liabilities or any thereof, any obligation hereunder or any security for orguaranty of any of the foregoing;

e. any right to direct or affect the manner or timing of Agent's orLenders' enforcement of their rights or remedies;

f. all rights and benefits under Section 2809 of the California CivilCode purporting to reduce Guarantor's obligation in proportion to the principalobligation hereby guaranteed, and any defense based on or arising out of anydefense the person or entity primarily liable may have to payment or toperformance of any covenants or obligations;

g. all rights and benefits under Section 2845 of the California CivilCode which, among other things, permits a guarantor or surety to require anycreditor to pursue its debtor, any security which said creditor may hold, orany other remedy before proceeding against Guarantor;

h. any defense, right of set-off or other claim whatsoever (other thanpayment in full and performance in full of all of the Liabilities after anytermination of the Loan Agreement in accordance with the terms of the LoanDocuments) that Borrower or any third party may or might have to the payment orperformance of the Liabilities;

i. any and all defenses which would otherwise arise upon theoccurrence of any event or contingency described in Paragraph 1 hereof or upon



the taking of any action by Agent or Lenders permitted hereunder;

j. any defense, right of set-off, claim or counterclaim whatsoever(other than payment and performance in full of all of the Liabilities after anytermination of the Loan Agreement in accordance with the terms of the LoanDocuments), and any and all other rights, benefits, protections and otherdefenses which Guarantor may have, now or at any time hereafter, to full paymentor performance of the Liabilities pursuant to the terms of this

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Continuing Guaranty, including, without limitation, under California Civil CodeSections2799, 2808, 2809, 2810, 2815, 2819, 2820, 2821, 2822, 2838, 2839, 2845,2847, 2848, 2849, 2850 and 2855, and California Code of Civil ProcedureSections 580a, 580b, 580d, and 726 and all successor sections, and Chapter 2 ofTitle 14 of the California Civil Code; and

k. all other principles or provisions of law, if any, thatconflict with the terms of this Continuing Guaranty, including, withoutlimitation, the effect of any circumstances that may or might constitute alegal or equitable discharge of a guarantor or surety.

10. Irrevocability. Guarantor hereby further waives all rights to revokethis Continuing Guaranty at any time, and all rights to revoke any agreementexecuted by Guarantor at any time to secure the payment and performance ofGuarantor's obligations under this Continuing Guaranty, including, withoutlimitation, the Security Document. Without limiting the generality of thisparagraph, Guarantor hereby specifically waives the provisions of CaliforniaCivil Code Section 2815, and any successor section, with respect to thisContinuing Guaranty and all security for the obligations of Guarantor hereunder.

11. Waiver of Subrogation and Certain Other Rights. Until all of theLiabilities have been finally and indefeasibly paid in full in cash and allobligations of the Lenders and Agent to provide credit accommodations toBorrower shall have terminated, Guarantor hereby waives and shall have no rightof subrogation, reimbursement, exoneration, contribution or indemnity againstBorrower or any other guarantor under Sections 2847, 2848 or 2849 of the CivilCode or any other provision of law, for any reason, including but not limitedto, by reason of any payments made or acts performed by Guarantor in compliancewith the obligations of Guarantor hereunder or any actions taken by Agent orLenders pursuant to this Continuing Guaranty or pursuant to the Loan Documents.

GUARANTOR ACKNOWLEDGES THAT BUT FOR THE FOREGOING WAIVER AND OTHER WAIVERSCONTAINED HEREIN, UPON ANY PAYMENT OF THE LIABILITIES BY GUARANTOR, GUARANTORWOULD HAVE, AMONG OTHER RIGHTS, THE RIGHT UNDER SECTION 2847 OF THE CIVIL CODETO DEMAND REIMBURSEMENT FROM BORROWER FOR SUCH PAYMENT, THE RIGHT UNDER SECTION2848 OF THE CIVIL CODE TO ENFORCE EVERY REMEDY WHICH AGENT OR LENDERS THEN HAVEAGAINST BORROWER AND TO DEMAND CONTRIBUTION BY ANY OTHER GUARANTOR TO THE EXTENTOF RECOVERING SUCH REIMBURSEMENT, AND THE RIGHT UNDER SECTION 2849 OF THE CIVIL



CODE TO THE BENEFIT OF ANY SECURITY FOR THE PERFORMANCE OF THE LIABILITIES HELDBY AGENT OR LENDERS.

Guarantor agrees that nothing contained in this Continuing Guaranty shallprevent Agent or Lenders from suing to collect on the Liabilities or fromexercising concurrently or successively any rights available to them at lawand/or in equity or under any of the Loan Documents, and that the exercise ofany of the aforesaid rights shall not constitute a legal or equitable dischargeof

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Guarantor. Guarantor hereby authorizes and empowers Agent and Lenders toexercise, in their sole discretion, any rights and remedies, or any combinationthereof, which may then be available, since it is the intent and purpose ofGuarantor that the obligations hereunder shall be absolute, independent andunconditional under any and all circumstances.

Notwithstanding any foreclosure of the lien of any deed of trust orsecurity agreement with respect to any or all of any real or personal propertysecured thereby, whether by the exercise of the power of sale contained therein,by an action for judicial foreclosure, or by the acceptance of a deed orpossession of any other collateral in lieu of foreclosure, Guarantor shallremain bound under this Continuing Guaranty. Without limiting the generalityof the foregoing,

(a) Guarantor specifically agrees that upon an Event of Default (asdefined in the Loan Agreement) under the Loan Agreement which is continuing,either Agent or Lenders may elect to nonjudicially or judicially forecloseagainst any real or personal property, or any part thereof, subject to any deedof trust given by Borrower to secure all or any part of the Liabilities, orexercise any other remedy against Borrower, any security for the Liabilities orany other guarantor, even if the effect of that action is to deprive Guarantorof the right to collect reimbursement from the applicable third party for anysums paid to Agent or Lenders hereunder; and

(b) Guarantor hereby waives all rights and benefits under Section580d of the California Code of Civil Procedure stating that no deficiency may berecovered on an obligation secured by a deed of trust on real property if thereal property, or any part thereof, subject to any deed of trust given byBorrower to secure all or any part of the Liabilities, is sold under apower of sale contained therein, and all defenses based on any loss as aresult of any such private sale of Guarantor's right to recover any suchamount from the person or entity primarily liable, whether by right ofsubrogation or otherwise.

GUARANTOR HEREBY ACKNOWLEDGES THAT BUT FOR THE FOREGOING WAIVERS ANDOTHER WAIVERS CONTAINED HEREIN, THE LOSS OF DEFICIENCY RIGHTS AGAINST BORROWERRESULTING FROM A PRIVATE SALE OF ANY REAL PROPERTY UNDER SUCH A DEED OF TRUSTCOULD CREATE A DEFENSE TO PAYMENT BY GUARANTOR HEREUNDER.



12. Subordination. Guarantor hereby subordinates any and allindebtedness of Borrower to Guarantor to the full and prompt payment andperformance of all of the Liabilities. Guarantor agrees that each of Agent andLenders shall be entitled to receive payment of all Liabilities prior toGuarantor's receipt of payment of any amount of any indebtedness of Borrower toGuarantor. Any payments on such indebtedness to Guarantor, if Agent or Lendersso request, shall be collected, enforced and received by Guarantor, in trust,as trustee for Agent and Lenders and shall be paid over to Agent on account ofthe Liabilities, but without reducing or affecting in any manner the liabilityof Guarantor under the other provisions of this Guaranty. Each of Agent andeach Lender is authorized and empowered, but not obligated, in its discretion

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at any time from and after the occurrence of an Event of Default (as defined inthe Loan Agreement) under the Loan Agreement which is continuing, (a) in thename of Guarantor, to collect and enforce, and to submit claims in respect of,indebtedness of Borrower to Guarantor and to apply any amounts received thereonto the Liabilities, and (b) to require Guarantor (i) to collect and enforce, andto submit claims in respect of, any indebtedness of Borrower to Guarantor, and(ii) to pay any amounts received on such indebtedness to Agent for applicationto the Liabilities.

13. Assignment of Agent's or Lenders' Rights. Each of Agent and eachLender may, from time to time, without notice to Guarantor, assign or transferany or all of the Liabilities or any interest therein and, notwithstanding anysuch assignment or transfer of the Liabilities or any subsequent assignment ortransfer thereof, the Liabilities shall be and remain the Liabilities for thepurpose of this Continuing Guaranty. Each and every immediate and successiveassignee or transferee of any of the Liabilities or of any interest thereinshall, to the extent of such party's interest in the Liabilities, be entitled tothe benefits of this Continuing Guaranty to the same extent as if such assigneeor transferee were Agent or such Lender; provided, however, that unless Agent orsuch Lender, as the case may be, shall otherwise consent in writing, each ofAgent and each Lender shall have an unimpaired right, prior and superior to thatof any such assignee or transferee, to enforce this Continuing Guaranty for itsown benefit as to those of the Liabilities which Agent or such Lender, as thecase may be, has not assigned or transferred.

14. Indulgences Not Waivers. No delay in the exercise of any right orremedy shall operate as a waiver thereof, and no single or partial exercise byAgent or Lenders of any right or remedy shall preclude other or furtherexercise thereof or the exercise of any other right or remedy; nor shall anymodification or waiver of any of the provisions of this Continuing Guaranty bebinding upon Agent or Lenders, except as expressly set forth in a writing dulysigned and delivered by Agent and Lenders. No action of Agent or Lenderspermitted hereunder shall in any way affect or impair the rights of Agent andLenders or the obligations of Guarantor under this Continuing Guaranty.



15. Financial Condition of Borrower. Guarantor represents and warrantsthat it is fully aware of the financial condition of Borrower, and Guarantordelivers this Continuing Guaranty based solely upon its own independentinvestigation of Borrower's financial condition and in no part upon anyrepresentation or statement of Agent or Lenders with respect thereto.Guarantor further represents and warrants that it is in a position to andhereby does assume full responsibility for obtaining such additionalinformation concerning Borrower's financial condition as Guarantor may deemmaterial to its obligations hereunder, and Guarantor is not relying upon, norexpecting Agent or Lenders to furnish it any information in Agent's or anyLender's possession concerning Borrower's financial condition or concerningany circumstances bearing on the existence or creation, or the risk ofnonpayment or nonperformance of the Liabilities.

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Guarantor hereby waives any duty on the part of Agent or any Lender todisclose to Guarantor any facts it may now or hereafter know about Borrower,regardless of whether Agent or such Lender has reason to believe that any suchfacts materially increase the risk beyond that which Guarantor intends toassume, or has reason to believe that such facts are unknown to Guarantor.

Guarantor hereby knowingly accepts the full range of risk encompassedwithin a contract of "Continuing Guaranty" which includes, without limitation,the possibility that Borrower will contract for additional indebtedness forwhich Guarantor may be liable hereunder after Borrower's financial condition orability to pay its lawful debts when they fall due has deteriorated.

16. Representations and Warranties. Guarantor represents and warrants toAgent and each Lender that each of the following statements is accurate andcomplete as of the date of this Continuing Guaranty:

a. Guarantor is a corporation duly organized, validly existing andin good standing under the laws of its state of incorporation and is dulyqualified and in good standing in each jurisdiction where the nature of itsbusiness or properties requires such qualification and where the failure toqualify reasonably could be expected to have a material adverse effect on thecondition (financial or otherwise), business, operations, properties orprospects of Borrower and Guarantor taken as a whole (a "Material AdverseEffect");

b. the execution, delivery and performance by Guarantor of thisContinuingGuaranty are within the power of Guarantor and have been dulyauthorized by all necessary corporate action on the part of Guarantor;

c. this Continuing Guaranty has been duly executed and delivered byGuarantor and constitutes a legal, valid and binding obligation of Guarantor,enforceable against Guarantor in accordance with its terms, except as limited



by bankruptcy, insolvency or other laws of general application relating to oraffecting the enforcement of creditors' rights generally;

d. the execution, delivery and performance of this ContinuingGuaranty do not (i) violate any provisions of law or any order of any court orother agency of government (each, a "Requirement of Law"), (ii) contravene anyprovision of Guarantor's Articles or Certificate of Incorporation, Bylaws orany material contract or agreement to which Guarantor is a party or by whichGuarantor or Guarantor's assets are bound (each, a "Contractual Obligation"),or (iii) result in the creation or imposition of any lien, charge orencumbrance of any nature upon any property, asset or revenue of Guarantorexcept Permitted Liens (as defined in the Loan Agreement);

e. all consents, approvals, orders and authorizations of, andregistrations, declarations and filings with, any governmental agency orauthority or other person or entity

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(including, without limitation, the shareholders or partners ofany entity), if any, which are required to be obtained in connection with theexecution and delivery of this Continuing Guaranty or the performance ofGuarantor's obligations hereunder have been obtained, and each is in full forceand effect;

f. Guarantor has paid all taxes and other charges imposed by anygovernmental agency or authority due and payable by Guarantor other than thosewhich are being challenged in good faith by appropriate proceedings and forwhich adequate reserves have been established;

g. Guarantor is not in violation of any Requirement of Law orContractual Obligation other than any violation the consequences of which couldnot reasonably be expected to have a Material Adverse Effect;

h. Guarantor is neither an investment company (as defined in theInvestment Company Act of 1940) nor controlled by an investment company; (i)no litigation, investigation or proceeding of any governmental authority oragency is pending or, to the knowledge of Guarantor, threatened againstGuarantor which reasonably could be expected to have a Material Adverse Effect;and

i. Guarantor owns and controls 100% of the capital stock of Borrowerand due to its close business, financial and ownership relationships withBorrower, Guarantor will receive significant benefits from the loans and otherfinancial accommodations made or granted to Borrower under the Loan Agreement.

j. (a) Guarantor is Solvent (as defined in the Loan Agreement) and(b) no transfer of property is being made by Guarantor and no obligation isbeing incurred by Guarantor in connection with this Continuing Guaranty or



otherwise in connection with the transactions contemplated by the LoanAgreement and the other Loan Documents with the intent to hinder, delay ordefraud either present or future creditors of Guarantor.

17. Guarantor Financial Information. Guarantor will provide Agent inwriting such financial and other information with respect to its assets andliabilities as Agent shall reasonably request from time to time, in formsatisfactory to Agent, within 5 Business Days following the date of suchrequest.

18. Binding Upon Successors. This Continuing Guaranty shall be binding upon Guarantor and its successors and assigns and shall inure to the benefit ofAgent and Lenders and their successors and assigns. All references herein toBorrower shall be deemed to include its successors and assigns, and allreferences herein to Guarantor shall be deemed to include Guarantor andGuarantor's successors and assigns.

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In addition and notwithstanding anything to the contrary contained in thisContinuing Guaranty or in any other document, instrument or agreement between oramong any of Agent, any Lender, Borrower, Guarantor or any third party, theobligations of Guarantor with respect to the Liabilities shall be joint andseveral with any other person or entity that now or hereafter executes aguaranty of any of the Liabilities separate from this Continuing Guaranty.

19. Notices. All notices required or permitted to be given hereunder shallbe in writing and shall be either personally delivered, faxed to the fax numbersprovided herein or sent by United States certified or registered mail, returnreceipt requested, addressed to Guarantor or Agent (including Agent on behalf ofLenders) at their respective addresses stated below or at such other address aseither party hereafter notifies the other party as herein provided. Noticesshall be deemed received on the earlier of (i) the date noted on the returnreceipt as delivered if mail delivery of the notice is successful or the dateinscribed on a confirmation of successful transmission, if sent by facsimile;(ii) the last date of attempted delivery, as noted by the United States PostalService on the envelope containing the notice, if mail delivery is unsuccessful;or (iii) the date of the actual delivery if personally delivered or faxed.

20. Governing Law; Additional Waivers. This Continuing Guaranty has beendelivered and shall be governed by and construed in accordance with the internallaws (as opposed to the conflicts of law provisions) of the State of California.

GUARANTOR HEREBY

(i) WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION TO ENFORCE ORDEFEND ANY MATTER ARISING FROM OR RELATED TO THIS CONTINUING GUARANTY, ANDACKNOWLEDGES THAT AGENT AND LENDERS ALSO WAIVE SUCH RIGHT;



(ii) IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY STATE OR FEDERAL COURTLOCATED IN LOS ANGELES COUNTY, CALIFORNIA, OVER ANY ACTION OR PROCEEDING TOENFORCE OR DEFEND ANY MATTER ARISING FROM OR RELATED TO THIS CONTINUINGGUARANTY;

(iii) IRREVOCABLY WAIVES, TO THE FULLEST EXTENT GUARANTOR MAY EFFECTIVELYDO SO, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF ANY SUCHACTION OR PROCEEDING;

(iv) agrees that a final judgment in any such action or proceeding shallbe conclusive (except to the extent that a stay pending appeal is in effect withrespect thereto) and may be enforced in any other jurisdictions by suit on thejudgment or in any other manner provided by law; and

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(v) agrees not to institute any legal action or proceeding againstAgent or any Lender or any of Agent's or any Lender's directors, officers,employees, agents or property concerning any matter arising out of or relatingto this Continuing Guaranty in any court other than one located in Los AngelesCounty, California (provided, however, that this clause (v) shall notprohibit Guarantor's joinder to or intervention in any legal action orproceeding initiated by Agent or any Lender against Borrower or Guarantorin a court or other than one located in Los Angeles County, California).

Nothing herein shall affect or impair either Agent's or any Lender's rightto serve legal process in any manner permitted by law or either Agent's or anyLender's right to bring any action or proceeding against Guarantor or itsproperty in the courts of any other jurisdiction. Wherever possible eachprovision of this Continuing Guaranty shall be interpreted as to be effectiveand valid under applicable law, but if any provision of this Continuing Guarantyshall be prohibited by or invalid under such law, such provision shall beineffective only to the extent of such prohibition or invalidity, withoutinvalidating the remainder of such provision or the remaining provisions of thisContinuing Guaranty.

21. KNOWING AND EXPLICIT WAIVERS. GUARANTOR ACKNOWLEDGES THAT IT IS FULLYAWARE OF THE SPECIFIC PROVISIONS OF DIVISION THREE, PART 4, TITLE 13 OF THECALIFORNIA CIVIL CODE, INCLUDING SECTIONS 2787 THROUGH 2855, AND OF SECTIONS580A, 580B AND 580D OF THE CALIFORNIA CODE OF CIVIL PROCEDURE, AND THATGUARANTOR'S WAIVERS HEREIN OF ALL RIGHTS, BENEFITS, PROTECTIONS AND DEFENSESTHAT MAY BE AVAILABLE THEREUNDER AND ALL OTHER WAIVERS HEREIN ARE EXPLICIT,KNOWING WAIVERS.

GUARANTOR ACKNOWLEDGES THAT IT HAS EITHER OBTAINED THE ADVICE OF COUNSEL ORHAS HAD THE OPPORTUNITY TO OBTAIN SUCH ADVICE IN CONNECTION WITH THE TERMS ANDPROVISIONS OF THIS CONTINUING GUARANTY. GUARANTOR FURTHER ACKNOWLEDGES THAT BYEXECUTING THIS CONTINUING GUARANTY, IT IS WAIVING CERTAIN RIGHTS AS OTHERWISESET FORTH HEREIN TO WHICH GUARANTOR MAY OTHERWISE BE ENTITLED BY LAW.



THIS CONTINUING GUARANTY CONTAINS THE COMPLETE UNDERSTANDING OF THE PARTIESHERETO WITH RESPECT TO THE SUBJECT MATTER HEREIN. GUARANTOR ACKNOWLEDGES THATIT IS NOT RELYING UPON ANY STATEMENTS OR REPRESENTATIONS OF AGENT OR LENDERS NOTCONTAINED IN THIS CONTINUING GUARANTY AND THAT SUCH STATEMENTS ORREPRESENTATIONS, IF ANY, ARE OF NO FORCE OR EFFECT AND ARE FULLY SUPERSEDED BYTHIS CONTINUING GUARANTY.

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This Continuing Guaranty may only be modified by a writing executed byGuarantor and Agent.

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IN WITNESS WHEREOF, Guarantor has caused this Continuing Guaranty to be dulyexecuted as of the 18th day of April, 2000.

"Guarantor"

CONVERGENT COMMUNICATIONS, INC., a Coloradocorporation

By: /s/ Brian R. Ervine_______________________________________________

Brian R. ErvineExecutive Vice President andChief Financial Officer

Guarantor's Address for Notices:

400 Inverness Drive SouthSuite 400Englewood, Colorado 80112Fax: 303.749.3113

Agent's address for notices:

Foothill Capital Corporation, Agent1111 Santa Monica Boulevard, Suite 1500Los Angeles, California 90025-3333Attn: Business Finance Division ManagerFacsimile No. (310) 575-9623



EXHIBIT 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS----------------------------------

We hereby consent to the incorporation by reference in the RegistrationStatements on Form S-8 (No. 333-95897 and No. 333-96219 of ConvergentCommunications, Inc. of our reports dated March 13, 2000, except for Note 7 asto which the date is March 28, 2000 and Note 1 as to which the date is April 18,2000 relating to the consolidated financial statements and financial statementschedule, which appear in this Form 10-K.


Denver, ColoradoApril 24, 2000

