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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): December 7, 1998
SMARTALK TELESERVICES, INC.
(Exact name of registrant as specified in its charter)
California 0-21579 95-4502740
(State or other jurisdiction (Commission (I.R.S. Employer Identification No.)
of incorporation) File Number) 43016-3566
5080 Tuttle Crossing Boulevard (Zip Code)
Dublin, Ohio
(Address of Principal Executive
Offices)
Registrant's telephone number, including area code: (614) 789-8500
No change
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(Former name or former address, if changed since last report)
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<PAGE>
Item 5 -- Other Events.
On Monday, December 7, 1998, SmarTalk TeleServices, Inc. (the "Company")
announced that it reached an agreement with Fletcher International Limited
("Fletcher") for a $25 million secured term loan facility, maturing January 31,
1999. The Company expects to access up to $10 million of the facility over the
next month, subject to the satisfaction of customary conditions to draw down.
The Company can access up to an additional $15 million from the facility over
various periods, subject to the discretion of the lender. The Company plans to
use the financing for general corporate purposes.
An affiliate of Fletcher currently is a shareholder of the Company. In
connection with the financing transaction, the Company has granted Fletcher the
right to acquire, upon satisfaction of applicable notice periods, up to
approximately an additional 15% of the common stock of the Company.
Certain statements made herein that are not historical in nature are
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 including the Company's plans and ability to
access various amounts of the credit facility. Investors are cautioned that all
forward-looking statements involve risks and uncertainties that could cause
actual results to differ materially from those expressed in such forward-looking
statements. These risks include the risk that actual amounts accessed under the
facility depend upon the Company's satisfaction of various conditions detailed
in the provisions of the credit agreement including, under certain
circumstances, the lender's discretion. Investors who seek more information
about the Company's business and relevant risk factors may wish to review the
Company's SEC reports, including, without limitation, its Annual Report on Form
10-K for 1997 and its Quarterly Reports on Form 10-Q, as each of such documents
may be amended.
The foregoing is a summary of the transactions described. Reference is made
to the exhibits filed herewith for a complete text of the documents summarized
above which exhibits are incorporated by reference herein in their entirety.
Item 7 -- Financial Statements, Pro Forma Financial Information and Exhibits
(c) The Exhibits furnished in accordance with Item 601 of
Regulation S-K are:
10.1 Credit Agreement, dated as of December 4, 1998, between the
Company and Fletcher, as lender.
10.2 Pledge and Security Agreement, dated as of December 4, 1998,
among the Company, its subsidiaries listed therein, and
Fletcher.
10.3 Promissory Note, dated as of December 4, 1998, made by the
Company in favor of Fletcher.
10.4 Investment Rights Agreement, dated as of December 4, 1998,
between the Company and Fletcher.
99.1 Press Release of the Company, dated December 7, 1998.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: December 8, 1998
SMARTALK TELESERVICES, INC.
(Registrant)
/s/ Thaddeus Bereday
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Thaddeus Bereday
Thaddeus Bereday
Vice President and General Counsel
<PAGE>
Exhibit Index
(c) The Exhibits furnished in accordance with Item 601 of
Regulation S-K are:
10.1 Credit Agreement, dated as of December 4, 1998, between
SmarTalk Teleservices, Inc. (the "Company") and
Fletcher International Limited ("Fletcher"), as lender.
10.2 Pledge and Security Agreement, dated as of December 4,
1998, among the Company, its subsidiaries listed
therein, and Fletcher.
10.3 Promissory Note, dated as of December 4, 1998, made by
the Company in favor of Fletcher.
10.4 Investment Rights Agreement, dated as of December 4,
1998, between the Company and Fletcher.
99.1 Press Release of the Company, dated December 7, 1998.
CREDIT AGREEMENT
DATED AS OF DECEMBER 4, 1998
BETWEEN
SMARTALK TELESERVICES, INC.,
as Borrower
AND
FLETCHER INTERNATIONAL LIMITED,
as Lender
<PAGE>
TABLE OF CONTENTS
Page
SECTION 1.DEFINITIONS1
1.1 Certain Defined Terms1
1.2 Accounting Terms; Utilization of GAAP for Purposes of Calculations Under
Agreement.17
1.3 Other Definitional Provisions17
SECTION 2.AMOUNTS AND TERMS OF COMMITMENTS AND LOANS17
2.1 Commitments; Loans17
2.2 Interest on the Loans19
2.3 Commitment Fee.20
2.4 Repayments, Prepayments and Reductions in Commitments; General Provisions
Regarding Payments20
2.5 Use of Proceeds22
2.6 Increased Costs.23
2.7 Taxes23
SECTION 3.CONDITIONS TO LOANS24
3.1 Conditions to Loans24
3.2 Conditions to All Loans28
3.3 Sole Discretion of the Lender29
SECTION 4.REPRESENTATIONS AND WARRANTIES29
4.1 Organization, Powers, Qualification, Good Standing, Business and
Subsidiaries29
4.2 Authorization of Borrowing, etc.30
4.3 Financial Condition; Projections31 4.4 No Material Adverse Change32
4.5 Title to Properties; Liens; Real Property; Intellectual Property32
4.6 Litigation; Adverse Facts33
4.7 Payment of Taxes33
4.8 Performance of Agreements; Materially Adverse Agreements34
4.9 Governmental Regulation34
4.10 Securities Activities34
4.11 Employee Benefit Plans34
4.12 Certain Fees35
4.13 Environmental Matters35
4.14 Employee Matters36
4.15 Inactive Subsidiaries.37
4.16 [RESERVED]37
4.17 Disclosure37
4.18 Year 2000 Problems37
SECTION 5.AFFIRMATIVE COVENANTS38
5.1 Financial Statements; Collateral Reports and Other Reports38
5.2 Corporate Existence44
5.3 Payment of Taxes and Claims; Tax Consolidation44
5.4 Maintenance of Properties; Insurance44
5.5 Inspection; Lender Meeting45
5.6 Compliance with Laws, etc.45
5.7 Environmental Disclosure and Inspection45
5.8 The Company's Remedial Action Regarding Hazardous Materials47
5.9 Collateral Matters47
5.10 Further Assurances47
5.11 [RESERVED]47
5.12 Use of Proceeds.48
5.13 Cure of Defaults.48
SECTION 6.NEGATIVE COVENANTS48
6.1 Indebtedness.48
6.2 Liens and Related Matters49
6.3 Investments.50
6.4 Capital Expenditures50
6.5 Restricted Junior Payments51
6.6 Restriction on Fundamental Changes; Asset Sales51
6.7 Sale or Discount of Receivables51
6.8 Transactions with Shareholders and Affiliates51
6.9 Conduct of Business52
6.10 Amendments or Waivers of Certain Agreements52
6.11 Fiscal Year52
SECTION 7.EVENTS OF DEFAULT52
7.1 Failure to Make Payments When Due53
7.2 Default in Other Agreements53
7.3 Breach of Certain Covenants53
7.4 Breach of Warranty53
7.5 Other Defaults Under Loan Documents54
7.6 Involuntary Bankruptcy; Appointment of Receiver, etc.54
7.7 Voluntary Bankruptcy; Appointment of Receiver, etc.54
7.8 Judgments and Attachments55
7.9 Dissolution55
7.10 Employee Benefit Plans55
7.11 Change in Control55
7.12 Failure of Security55
SECTION 8.[RESERVED]56
SECTION 9.MISCELLANEOUS56
9.1 [RESERVED]56
9.2 Expenses56
9.3 Indemnity57
9.4 Set-Off; Security Interest in Deposit Accounts58
9.5 [RESERVED]58
9.6 Amendments and Waivers58
9.7 Independence of Covenants58
9.8 Notices58
9.9 Survival of Representations, Warranties and Agreements59
9.10 Failure or Indulgence Not Waiver; Remedies Cumulative59
9.11 Marshalling; Payments Set Aside59
9.12 Severability60
9.13 [RESERVED]60
9.14 Maximum Amount60
9.15 Headings61
9.16 Applicable Law61
9.17 Successors and Assigns61
9.18 Consent to Jurisdiction and Service of Process61
9.19 Waiver of Jury Trial62
9.20 [RESERVED]63
9.21 Counterparts; Effectiveness63
SMARTALK TELESERVICES, INC.
CREDIT AGREEMENT
This CREDIT AGREEMENT is dated as of December 4, 1998 and entered into by
and among SMARTALK TELESERVICES, INC., a California corporation (the "Company"),
and FLETCHER INTERNATIONAL LIMITED, a Cayman Islands company (the "Lender").
R E C I T A L S
WHEREAS, the Company desires that the Lender extend certain credit
facilities to the Company hereunder, the proceeds of which will be used to
provide financing for working capital and other general corporate purposes for
the Company and its Subsidiaries, all subject to the terms and conditions
contained herein; and
WHEREAS, the Lender is willing to make such credit facilities available
upon and subject to the terms and conditions contained herein;
NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, the parties hereto hereby agree as
follows:
SECTION 1.
DEFINITIONS
1.1 Certain Defined Terms.
The following terms used in this Agreement shall have the following
meanings:
"Accommodation Obligation" means any direct, indirect, contingent or
non-contingent guaranty or obligation for the Indebtedness of another,
except endorsements in the ordinary course of business.
"Accounts" means any and all rights of the Company to payment for
goods sold, including accounts, contract rights, general intangibles and
any and all such rights evidenced by chattel paper, instruments or
documents, whether due or to become due and whether or not earned by
performance, and whether now or hereafter acquired or arising in the future
and any proceeds arising therefrom or relating thereto.
"Affiliate" means, as applied to any Person, any other Person directly
or indirectly controlling, controlled by, or under common control with,
that Person; provided, however, the Lender shall not be considered an
Affiliate of the Company under this Agreement. For the purposes of this
definition, "control" (including, with correlative meanings, the terms
"controlling", "controlled by" and "under common control with"), as applied
to any Person, means either (a) the power, directly or indirectly, to vote
5% or more of the securities having ordinary voting power for the election
of directors (or persons performing similar functions) of such Person, or
(b) the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of that Person, whether
through the ownership of voting securities or by contract or otherwise.
"Agreement" means this Credit Agreement dated as of the date hereof,
as it may be amended, restated, supplemented or otherwise modified from
time to time.
"Applicable Laws" means, collectively, all statutes, laws, rules,
regulations, ordinances, decisions, writs, judgments, decrees, and
injunctions of any Governmental Authority affecting the Company or any of
its Subsidiaries or any Collateral or any of their other assets, whether
now or hereafter enacted and in force, and all Governmental Authorizations
relating thereto.
"Asset Sale" means any sale, lease or other disposition (including any
such transaction effected by way of merger or consolidation) by the Company
or any of its Subsidiaries of any asset, including without limitation any
sale-leaseback transaction, but excluding (i) dispositions of inventory and
used, surplus or worn out equipment in the ordinary course of business,
(ii) dispositions to a wholly-owned Subsidiary, (iii) cash payments
otherwise permitted under this Agreement, or (iv) any other disposition
made in the ordinary course of the business of the Company or its
Subsidiaries.
"Bankruptcy Code" means Title 11 of the United States Code entitled
"Bankruptcy", as now and hereafter in effect, or any successor statute.
"Blocked Account" has the meaning as defined in Section 3.1B.
"Business Day" means a day other than a Saturday, Sunday or other day
on which commercial banks in New York City are authorized or required by
law to close.
"Capital Expenditures" for a period means the sum of all expenditures
capitalized for financial statement purposes in accordance with GAAP
(whether payable in cash or other property or accrued as a liability),
including the capitalized portion of capital leases. Capital Expenditures
shall exclude proceeds of a Casualty Loss applied to the repair or
replacement of the property affected by the Casualty Loss.
"Capital Lease" means, as applied to any Person, any lease of any
property (whether real, personal or mixed) by that Person as lessee that,
in conformity with GAAP, is or should be accounted for as a capital lease
on the balance sheet of that Person.
"Capital Stock" means any and all shares, interests, participations or
other equivalents (however designated) of capital stock of a corporation,
any and all equivalent ownership interests in a Person (other than a
corporation), including, without limitation, partnership interests and
membership interests, and any and all warrants, rights or options to
purchase or other arrangements or rights to acquire any of the foregoing.
"Cash" means money, currency or a credit balance in a Deposit Account.
"Cash Equivalents" means (i) marketable securities issued or directly
and unconditionally guaranteed by the United States Government or issued by
any agency thereof and backed by the full faith and credit of the United
States, in each case maturing within one year from the date of acquisition
thereof; (ii) marketable direct obligations issued by any state of the
United States of America or any political subdivision of any such state or
any public instrumentality thereof maturing within one year from the date
of acquisition thereof and, at the time of acquisition, having the highest
rating obtainable from either Standard & Poor's, a division of the
McGraw-Hill Companies, Inc. ("S&P"), or Moody's Investors Service, Inc.
("Moody's"); (iii) commercial paper maturing no more than one year from the
date of creation thereof and, at the time of acquisition, having a rating
of at least A-1 from S&P or at least P-1 from Moody's; (iv) certificates of
deposit or bankers' acceptances maturing within one year from the date of
acquisition thereof and, at the time of acquisition, having a rating of at
least A-1 from S&P or at least P-1 from Moody's, issued by any commercial
bank organized under the laws of the United States of America or any state
thereof or the District of Columbia having unimpaired capital and surplus
of not less than $500,000,000 (each such commercial bank being herein
called a "Cash Equivalent Bank"); and (v) Eurodollar time deposits having a
maturity of less than one year purchased directly from any Cash Equivalent
Bank (provided such deposit is with such Cash Equivalent Bank or any other
Cash Equivalent Bank).
"Casualty Loss" means (i) the loss, damage, or destruction of any
asset owned or used by the Company or any of its Subsidiaries, (ii) the
condemnation, confiscation, or other taking, in whole or in part, of any
such asset, or (iii) the diminishment of such asset so as to render use for
its intended purpose impracticable or unreasonable.
"Cleanup" means all actions required to: (1) cleanup, remove, treat or
remediate Hazardous Materials in the indoor or outdoor environment; (2)
prevent the Release of Hazardous Materials so that they do not migrate,
endanger or threaten to endanger public health or welfare or the indoor or
outdoor environment; (3) perform pre-remedial studies and investigations
and post-remedial monitoring and care; or (4) respond to any government
requests for information or documents in any way relating to cleanup,
removal, treatment or remediation or potential cleanup, removal, treatment
or remediation of Hazardous Materials in the indoor or outdoor environment.
"Closing Date" means the date hereof or such earlier date requested by
the Company on which the conditions precedent set forth in Section 3 shall
be satisfied.
"Collateral" means all of the properties and assets in which Liens are
purported to be granted pursuant to the Collateral Documents.
"Collateral Documents" means the Security Agreement, the Lockbox
Agreement and any other documents, instruments or agreements delivered by
the Company and its Subsidiaries pursuant to this Agreement or any of the
other Loan Documents in order to grant or perfect liens on any assets of
the Company and its Subsidiaries as security for all or any of the
Obligations.
"Collections" means all cash, funds, checks, notes, instruments and
any other form of remittance tendered by account debtors in payment of
Accounts.
"Commitments" means the commitments of the Lender to make Loans as set
forth in subsection 2.1A of this Agreement.
"Company" has the meaning assigned to that term in the Preamble to
this Agreement.
"Compliance Certificate" means a certificate substantially in the form
of Exhibit IV annexed hereto delivered to the Lender by the Company
pursuant to subsection 5.1(iv).
"Contingent Obligation" means, as applied to any Person, any direct or
indirect liability, contingent or otherwise, of that Person (i) with
respect to any Indebtedness, lease, dividend or other obligation of another
if the primary purpose or intent thereof by the Person incurring the
Contingent Obligation is to provide assurance to the obligee of such
obligation of another that such obligation of another will be paid or
discharged, or that any agreements relating thereto will be complied with,
or that the holders of such obligation will be protected (in whole or in
part) against loss in respect thereof, (ii) with respect to any letter of
credit issued for the account of that Person or as to which that Person is
otherwise liable for reimbursement of drawings, or (iii) under Interest
Rate Agreements or other Hedge Agreements. Contingent Obligations shall
include, without limitation, (a) the direct or indirect guaranty,
endorsement (otherwise than for collection or deposit in the ordinary
course of business), co-making, discounting with recourse or sale with
recourse by such Person of the obligation of another, (b) the obligation to
make take-or-pay or similar payments if required regardless of
non-performance by any other party or parties to an agreement, and (c) any
liability of such Person for the obligation of another through any
agreement (contingent or otherwise) (X) to purchase, repurchase or
otherwise acquire such obligation or any security therefor, or to provide
funds for the payment or discharge of such obligation (whether in the form
of loans, advances, stock purchases, capital contributions or otherwise) or
(Y) to maintain the solvency or any balance sheet item, level of income or
financial condition of another if, in the case of any agreement described
under subclauses (X) or (Y) of this sentence, the primary purpose or intent
thereof is as described in the preceding sentence. The amount of any
Contingent Obligation shall be equal to the amount of the obligation so
guaranteed or otherwise supported or, if less, the amount to which such
Contingent Obligation is specifically limited.
"Continuing Director" shall mean, as of any date of determination, any
member of the Board of Directors of the Company who was a member of such
Board of Directors on the Closing Date or any future member of the Board of
Directors approved by a majority of Continuing Directors.
"Contractual Obligation" means, as applied to any Person, any
provision of any indenture, mortgage, deed of trust, contract, undertaking
or other agreement or instrument to which such Person is a party or to
which such Person or any of its assets is subject.
"Debt Incurrence" means any incurrence by the Company or any of its
Subsidiaries of any Indebtedness, other than the Indebtedness permitted
under Section 6.1.
"Default" means a condition or event that, after notice or after any
applicable grace period has lapsed, or both, would constitute an Event of
Default.
"Deposit Account" means a demand, time, savings, passbook or like
account with a bank, savings and loan association, credit union or like
organization, other than an account evidenced by a negotiable certificate
of deposit.
"Dollars" and the sign "$" mean the lawful money of the United States
of America.
"Employee Benefit Plan" means any "employee benefit plan" as defined
in Section 3(3) of ERISA which is subject to ERISA and which is maintained
or contributed to by the Company or any of its ERISA Affiliates.
"Environmental Claim" means any claim, action, cause of action,
investigation or notice (written or oral) by any Person alleging potential
liability (including, without limitation, potential liability for
investigatory costs, Cleanup costs, governmental response costs, natural
resources damages, property damages, personal injuries, or penalties)
arising out of, based on or resulting from (a) the presence, or Release of
any Hazardous Materials at any location, whether or not owned, leased or
operated by the Company, or (b) circumstances forming the basis of any
violation, or alleged violation, of any Environmental Law.
"Environmental Laws" means all federal, state, local and foreign laws
and regulations relating to pollution or protection of human health or the
environment, including without limitation, laws relating to Releases or
threatened Releases of Hazardous Materials or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, Release,
disposal, transport or handling of Hazardous Materials and all laws and
regulations with regard to recordkeeping, notification, disclosure and
reporting requirements respecting Hazardous Materials, and all laws
relating to the management or use of natural resources.
"Environmental Liabilities" means all liabilities, obligations,
responsibilities, obligations to conduct Cleanup, and all Environmental
Claims pending or threatened against the Company or any of its Subsidiaries
or against any Person whose liability for any Environmental Claim the
Company or any of its Subsidiaries may have retained or assumed either
contractually or by operation of law, arising from (a) environmental,
health or safety conditions, (b) the presence, Release or threatened
Release of Hazardous Materials at any location, whether or not owned,
leased or operated by the Company or its Subsidiaries, or (c) circumstances
forming the basis of any violation, or alleged violation, of any
Environmental Law.
"Equity Issuance" means the issuance of any equity securities by the
Company or any of its Subsidiaries, but excluding equity securities issued
to the Company or any Subsidiary and equity securities issued pursuant to
employee stock options.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and any successor statute.
"ERISA Affiliate" means, as applied to any Person, (i) any corporation
which is a member of a controlled group of corporations within the meaning
of Section 414(b) of the Internal Revenue Code of which that Person is a
member; (ii) any trade or business (whether or not incorporated) which is a
member of a group of trades or businesses under common control within the
meaning of Section 414(c) of the Internal Revenue Code of which that Person
is a member; and (iii) solely for purposes of obligations under Section 412
of the Internal Revenue Code or under the applicable sections set forth in
Section 414(t)(2) of the Internal Revenue Code, any member of an affiliated
service group within the meaning of Section 414(m) or (o) of the Internal
Revenue Code of which that Person, any corporation described in clause (i)
above or any trade or business described in clause (ii) above is a member.
"ERISA Event" means (i) a "reportable event" within the meaning of
Section 4043(c) of ERISA and the regulations issued thereunder with respect
to any Pension Plan (excluding those for which the provision for 30-day
notice to the PBGC has been waived by regulation or with respect to which
no penalty will be assessed by the PBGC for failure to satisfy such notice
requirements); (ii) the failure to meet the minimum funding standard of
Section 412 of the Internal Revenue Code with respect to any Pension Plan
(whether or not waived in accordance with Section 412(d) of the Internal
Revenue Code) or the failure to make by its due date a required installment
under Section 412(m) of the Internal Revenue Code with respect to any
Pension Plan or the failure to make any required contribution to a
Multiemployer Plan; (iii) the provision by the administrator of any Pension
Plan pursuant to Section 4041(a)(2) of ERISA of a notice of intent to
terminate such plan in a distress termination described in Section 4041(c)
of ERISA; (iv) the withdrawal by the Company or any of its ERISA Affiliates
from any Pension Plan with two or more contributing sponsors or the
termination of any such Pension Plan resulting, in either case, in
liability pursuant to Section 4063 or 4064 of ERISA, respectively; (v) the
institution by the PBGC of proceedings to terminate any Pension Plan
pursuant to Section 4042 of ERISA; (vi) the imposition of liability on the
Company or any of its ERISA Affiliates pursuant to Section 4062(e) or 4069
of ERISA or by reason of the application of Section 4212(c) of ERISA; (vii)
the withdrawal by the Company or any of its ERISA Affiliates in a complete
or partial withdrawal (within the meaning of Sections 4203 and 4205 of
ERISA) from any Multiemployer Plan resulting in withdrawal liability
pursuant to Section 4201 of ERISA, or the receipt by the Company or any of
its ERISA Affiliates of written notice from any Multiemployer Plan that it
is in reorganization or insolvency pursuant to Section 4241 or 4245 of
ERISA, or that it intends to terminate or has terminated under Section 4042
of ERISA or under Section 4041A of ERISA if such termination would result
in liability to the Company or any of its ERISA Affiliates; (viii) the
imposition on the Company or any of its ERISA Affiliates of fines,
penalties or taxes under Chapter 43 of the Internal Revenue Code or under
Section 409 or 502(c), (i) or (l) or 4071 of ERISA in respect of any
Employee Benefit Plan; (ix) the disqualification by the Internal Revenue
Service of any Pension Plan (or any other Employee Benefit Plan intended to
be qualified under Section 401(a) of the Internal Revenue Code) under
Section 401(a) of the Internal Revenue Code, or the determination by the
Internal Revenue Service that any trust forming part of any Pension Plan
fails to qualify for exemption from taxation under Section 501(a) of the
Internal Revenue Code; or (x) the imposition of a Lien pursuant to Section
401(a)(29) or 412(n) of the Internal Revenue Code or pursuant to ERISA with
respect to any Pension Plan.
"Event of Default" means each of the events set forth in Section 7.
"Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, and any successor statute.
"Facilities" means any and all real property (including, without
limitation, all buildings, fixtures or other improvements located thereon)
now, hereafter or heretofore owned, leased, operated or used by the Company
or any of its Subsidiaries (but only as to portions of buildings actually
leased or used) or any of their respective predecessors or any of their
respective Affiliates that are directly or indirectly controlled by the
Company.
"Fiscal Quarter" means a fiscal quarter of a Fiscal Year.
"Fiscal Year" means the fiscal year of the Company and its
Subsidiaries ending on December 31 of each calendar year.
"Funding Date" means the date of the funding of a Loan.
"GAAP" means, subject to the limitations on the application thereof
set forth in subsection 1.2, generally accepted accounting principles set
forth in opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as may be approved by a significant segment
of the accounting profession, in each case as the same are applicable to
the circumstances as of the date of determination and specifically, terms
used herein applicable to the Company and its Subsidiaries defined by
reference to GAAP shall give effect to the subtraction of minority
interests.
"Governmental Authority" means any nation or government, any state or
any political subdivision of any of the foregoing and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of
or pertaining to government.
"Governmental Authorization" means any permit, license, authorization,
plan, directive, consent order or consent decree of or from any
Governmental Authority.
"Hazardous Materials" means all substances defined as Hazardous
Substances, Oils, Pollutants or Contaminants in the National Oil and
Hazardous Substances Pollution Contingency Plan, 40 C.F.R. ss. 300.5, or
defined as such by, or regulated as such under, any Environmental Law.
"Hedge Agreements" means all interest rate swaps, caps or collar
agreements or similar arrangements entered into by the Company or any of
its Subsidiaries providing for protection against fluctuations in interest
rates or currency exchange rates or the exchange of nominal interest
obligations, either generally or under specific contingencies.
"Indebtedness" means, as applied to any Person, (i) all indebtedness
for borrowed money, (ii) that portion of obligations with respect to
Capital Leases that is properly classified as a liability on a balance
sheet in conformity with GAAP, (iii) notes payable and drafts accepted
representing extensions of credit whether or not representing obligations
for borrowed money (other than current accounts payable incurred in the
ordinary course of business and accrued expenses incurred in the ordinary
course of business), (iv) any obligation owed for all or any part of the
deferred purchase price of property or services (excluding any such
obligations incurred under ERISA and current trade payables incurred in the
ordinary course of business), (v) all obligations evidenced by notes,
bonds, debentures or other similar instruments, (vi) all indebtedness
created or arising under any conditional sale or other title retention
agreement with respect to any property or assets acquired by such Person
(even though the rights and remedies of the seller or the Lender under such
agreement in the event of default are limited to repossession or sale of
such property or assets), (vii) all obligations, contingent or otherwise,
as an account party under acceptance, letter of credit or similar
facilities to the extent not reflected as trade liabilities on the balance
sheet of such Person in accordance with GAAP, (viii) all obligations,
contingent or otherwise, to purchase, redeem, retire or otherwise acquire
for value any Capital Stock, (ix) all guarantee obligations in respect of
obligations of the kind referred to in clauses (i) through (viii) above,
and (x) all indebtedness secured by any Lien on any property or asset owned
or held by that Person regardless of whether the indebtedness secured
thereby shall have been assumed by that Person or is nonrecourse to the
credit of that Person. Obligations under Hedge Agreements, including
Interest Rate Agreements, constitute Contingent Obligations and not
Indebtedness (except, for purposes of Section 7, such obligations shall
constitute Indebtedness).
"Indemnitee" has the meaning assigned to that term in subsection 9.3.
"Initial Loan" has the meaning assigned to that term in subsection
2.1B.
"Interest Payment Date" means the first Business Day of each calendar
month.
"Interest Rate" initially means (i) for the Initial Loan, twelve
percent (12%) per annum; (ii) after the next Loan is made hereunder,
thirteen and one half percent (13 1/2%) per annum on such second Loan and
all outstanding Loans; (iii) after the next Loan is made hereunder, fifteen
percent (15%) per annum on such third Loan and all outstanding Loans; (iv)
after the next Loan is made hereunder, sixteen and one half percent (16
1/2%) per annum on such fourth Loan and all outstanding Loans; and (v)
after the next Loan is made hereunder, eighteen percent (18%) per annum on
such fifth Loan and all outstanding Loans.
"Insolvency Event" means, with respect to any Person, the occurrence
of any of the following: (i) a voluntary or involuntary petition for
bankruptcy or other relief under the Bankruptcy Code or any similar
statute, (ii) an assignment for the benefit of creditors, (iii) failure,
suspension of business operations, or insolvency, (iv) appointment of a
receiver or trustee, or (v) failure to pay debts generally as they become
due. "Interest Rate Agreement" means any interest rate swap agreement,
interest rate cap agreement, interest rate collar agreement or other
similar agreement or arrangement designed to hedge the Company or any of
its Subsidiaries against fluctuations in interest rates.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended to the date hereof and from time to time hereafter and any
successor statute.
"Investment" means all expenditures made and all liabilities incurred
(contingently or otherwise) for or in connection with the acquisition of
stock or Indebtedness of, or for loans, advances, or capital contributions
or transfers of property to, any Person or in respect of any Accommodation
Obligations. In determining the aggregate amount of any Investment
outstanding at any particular time, (i) the amount of any Investment
represented by a guaranty shall be taken at not less than the principal
amount of the obligations guaranteed pursuant to the terms of such
guarantee and still outstanding; (ii) there shall be deducted in respect of
each such Investment any amount received as a return of capital (but only
by repurchases, redemption, retirement, repayment, liquidating dividend or
liquidating distribution); (iii) there shall not be deducted in respect of
any Investment any amounts received as earnings on such Investment, whether
as dividends, interest or otherwise; and (iv) there shall not be deducted
from the aggregate amount of Investments any decrease in the market value
thereof.
"Investment Rights Agreement" means the Investment Rights Agreement of
the Company in the form of Exhibit VII annexed hereto.
"Lender" means Fletcher International Limited.
"Lien" means any lien, mortgage, pledge, assignment, security
interest, fixed or floating charge or encumbrance of any kind (including
any conditional sale or other title retention agreement, any lease in the
nature thereof, and any agreement to give any security interest) and any
option, trust or deposit or other preferential arrangement having the
practical effect of any of the foregoing.
"Loan" or "Loans" means, as the context requires, one or more of the
Loans.
"Loan Commitment" means an aggregate of $25,000,000, subject to
subsection 3.3.
"Loan Documents" means this Agreement, the Notes, the Subsidiary
Guaranty, the Investment Rights Agreement and the Collateral Documents.
"Loans" means the Loans made by the Lender pursuant to subsection
2.1A. "Lockbox Agreement" means the Lockbox Agreement executed and
delivered by the Company, the Lender and the Lockbox Bank on the Closing
Date, substantially in the form of Exhibit VI annexed hereto, as such
Lockbox Agreement may be amended, restated, supplemented or otherwise
modified from time to time.
"Lockbox Bank" has the meaning assigned to that term in Section 3.1B.
"Margin Stock" has the meaning assigned to that term in Regulation U
of the Board of Governors of the Federal Reserve System as in effect from
time to time.
"Material Adverse Effect" means (i) a material adverse effect upon the
business, operations, properties, assets, condition (financial or
otherwise) or prospects of the Company and its Subsidiaries, taken as a
whole, (ii) the material impairment of the ability of the Company to
perform the Obligations, (iii) a material adverse effect upon the legality,
validity, binding effect or enforceability against the Company of any Loan
Document to which it is a party, or (iv) a material adverse effect upon the
rights, remedies and benefits available to, or conferred upon, the Lender
under any Loan Document.
"Material Contracts" means any or all of the following, as the context
may require: (i) any Security issued by the Company or any of its
Subsidiaries, (ii) any material indenture, mortgage, deed of trust,
contract, undertaking, agreement or other instrument to which the Company
or any of its Subsidiaries is a party or by which it or any of its
properties is bound or to which it or any of its properties is subject and
(iii) any other document, agreement or instrument that is material to the
operation or business of the Company and its Subsidiaries.
"Maturity Date" means January 31, 1999.
"Multiemployer Plan" means a "multiemployer plan", as defined in
Section 4001(a)(3) of ERISA which is subject to Title IV of ERISA, to which
the Company or any of its ERISA Affiliates is contributing or to which the
Company or any of its ERISA Affiliates has an obligation to contribute.
"Net Cash Proceeds" means, with respect to any transaction , an amount
equal to the cash proceeds received by the Company or any of its
Subsidiaries from or in respect of such transaction (including any cash
proceeds received as income or other proceeds or any non-cash proceeds of
such transaction), less (i) any expenses (including commissions) reasonably
incurred by the Company or its Subsidiaries in respect of such transaction;
(ii) the amount of any Indebtedness secured by a Lien on a related asset
and discharged from the proceeds of such transaction; (iii) any taxes paid
or payable by the Company or its Subsidiaries with respect to such
transaction (as reasonably estimated by the Company's chief financial
officer in good faith); and (iv) appropriate amounts, reasonably determined
by the Company in accordance with GAAP, as a reserve against any
liabilities retained by such party with respect to such transaction.
"Notes" means the promissory notes of the Company issued pursuant to
subsection 2.1E on the Closing Date.
"Notice of Borrowing" means a notice in the form of Exhibit I annexed
hereto delivered by the Company to the Lender pursuant to subsection 2.1B
with respect to a proposed borrowing.
"Obligations" means all obligations of every nature of the Company
from time to time owed to the Lender under the Loan Documents, whether for
principal, interest, fees, expenses, indemnification or otherwise.
"Officer's Certificate" means, with respect to any Person, a
certificate executed on behalf of such Person (x) if such Person is a
partnership or limited liability company, by its chairman of the Board (if
an officer) or chief executive officer or by the chief financial officer of
its general partner or managing member or other Person authorized to do so
by its Organizational Documents, (y) if such Person is a corporation, on
behalf of such corporation by its chairman of the board (if an officer) or
chief executive officer or its chief financial officer or vice president,
and (z) if such person is the Company, a Responsible Officer; provided that
every Officer's Certificate with respect to the compliance with a condition
precedent to the making of any Loans hereunder shall include (i) a
statement that the officer or officers making or giving such Officer's
Certificate have read such condition and any definitions or other
provisions contained in this Agreement relating thereto, (ii) a statement
that, in the opinion of the signer or signers, they have made or have
caused to be made such examination or investigation as is necessary to
enable them to express an informed opinion as to whether or not such
condition has been complied with, and (iii) a statement as to whether, in
the opinion of the signer or signers, such condition has been complied
with.
"Organizational Authorizations" means, with respect to any Person,
resolutions of its Board of Directors, general partners or members of such
Person, and such other Persons, groups or committees (including, without
limitation, managers and managing committees), if any, required by the
Organizational Certificate or Organization Documents of such Person to
authorize or approve the taking of any action or the entering into of any
transaction.
"Organizational Certificate" means, with respect to any Person, the
certificate or articles of incorporation, partnership or limited liability
company or any other similar or equivalent organizational, charter or
constitutional certificate or document filed with the applicable
Governmental Authority in the jurisdiction of its incorporation,
organization or formation, which, if such Person is a partnership or
limited liability company, shall include such certificates, articles or
other certificates or documents in respect of each partner or member of
such Person.
"Organizational Documents" means, with respect to any Person, the
by-laws, partnership agreement, limited liability company agreement,
operating agreement, management agreement or other similar or equivalent
organizational, charter or constitutional agreement or arrangement, which,
if such Person is a partnership or limited liability company, shall include
such by-laws, agreements or arrangements in respect of each partner or
member of such Person.
"PBGC" means the Pension Benefit Guaranty Corporation established
pursuant to Section 4002 of ERISA (or any successor thereto).
"Pension Plan" means any Employee Benefit Plan, other than a
Multiemployer Plan, which is subject to Title IV of ERISA.
"Permitted Encumbrances" means the following types of Liens:
(i) Liens for taxes, assessments or governmental charges or
claims the payment of which is not, at the time, required by
subsection 5.3;
(ii) statutory Liens of landlords, statutory Liens of
carriers, warehousemen, mechanics and materialmen and other Liens
imposed by law (other than any such Lien imposed pursuant to
Section 401(a)(29) or 412(n) of the Internal Revenue Code or by
ERISA) incurred in the ordinary course of business for sums not
yet delinquent or being contested in good faith pursuant to
appropriate proceedings, if such reserve or other appropriate
provision, if any, as shall be required by GAAP shall have been
made therefor;
(iii) Liens incurred or deposits made in the ordinary course
of business in connection with workers' compensation,
unemployment insurance and other types of social security, or to
secure the performance of tenders, statutory obligations, surety
and appeal bonds, bids, leases, government contracts, trade
contracts, performance and return-of-money bonds and other
similar obligations (exclusive of obligations for the payment of
borrowed money or other Indebtedness);
(iv) any attachment or judgment Lien not constituting an
Event of Default under subsection 7.8, so long as such Lien could
not reasonably be expected to have a Material Adverse Effect;
(v) leases or subleases granted to others (in the ordinary
course of business consistent with past practices) not
interfering in any material respect with the ordinary conduct of
the business or operations of the Company or any of its
Subsidiaries;
(vi) easements, rights-of-way, restrictions, minor defects,
encroachments or irregularities in title and other similar
charges or encumbrances not interfering in any material respect
with the ordinary conduct of the business of the Company or any
of its Subsidiaries;
(vii) any (a) interest or title of a lessor or sublessor
under any Capital Lease permitted by subsection 6.1(iii) or any
operating lease not prohibited by this Agreement, (b) restriction
or encumbrance that the interest or title of such lessor or
sublessor may be subject to, or (c) subordination of the interest
of the lessee or sublessee under such lease to any restriction or
encumbrance referred to in the preceding clause (b);
(viii) Liens arising from filing UCC financing statements
relating solely to leases permitted by this Agreement;
(ix) Liens in favor of customs and revenue authorities
arising as a matter of law to secure payment of customs duties in
connection with the importation of goods;
(x) deposits in the ordinary course of business to secure
liabilities to insurance carriers, lessors, utilities and other
service providers; and
(xi) bankers liens and rights of setoff with respect to
customary depository arrangements entered into in the ordinary
course of business.
"Person" means and includes natural persons, corporations, limited
partnerships, limited liability companies, general partnerships, joint
stock companies, joint ventures, associations, companies, trusts, banks,
trust companies, land trusts, business trusts or other organizations,
whether or not legal entities, and governments and agencies and political
subdivisions thereof and any other entities of whatever nature.
"Projections" has the meaning assigned to that term in subsection
4.3B.
"Recovery Event" means the receipt by the Company or any of its
Subsidiaries of any insurance or condemnation proceeds payable (i) by
reason of theft, physical destruction or damage or any other similar event
with respect to any properties or assets of the Company or any of its
Subsidiaries, (ii) by reason of any condemnation, taking, seizing or
similar event with respect to any properties of the Company or any of its
Subsidiaries and (iii) under any policy of insurance.
"Register" has the meaning assigned to that term in subsection 2.1D.
"Release" means any release, spill, emission, leaking, pumping,
pouring, injection, escaping, deposit, disposal, discharge, dispersal,
dumping, leaching or migration of Hazardous Materials into the indoor or
outdoor environment (including, without limitation, the abandonment or
disposal of any barrels, containers or other closed receptacles containing
any Hazardous Materials), or into or out of any property, including the
movement of any Hazardous Material through the air, soil, surface water,
groundwater or property.
"Responsible Officer" means the chief executive officer, president,
general counsel or chief financial officer of the Company, but in any
event, with respect to financial matters, the chief financial officer or
treasurer of the Company.
"Restricted Junior Payment" means (i) any dividend or other
distribution, direct or indirect, on account of any shares of any class of
stock of the Company now or hereafter outstanding, except a dividend
payable solely in shares of that class of stock to the holders of that
class, (ii) any redemption, retirement, sinking fund or similar payment,
purchase or other acquisition for value, direct or indirect, of any shares
of any class of stock of the Company now or hereafter outstanding, and
(iii) any payment made to retire, or to obtain the surrender of, any
outstanding warrants, options or other rights to acquire shares of any
class of stock of the Company now or hereafter outstanding.
"Securities" means any stock, shares, partnership interests, voting
trust certificates, certificates of interest or participation in any
profit-sharing agreement or arrangement, options, warrants, bonds,
debentures, notes, or other evidences of indebtedness, secured or
unsecured, convertible, subordinated or otherwise, or in general any
instruments commonly known as "securities" or any certificates of interest,
shares or participations in temporary or interim certificates for the
purchase or acquisition of, or any right to subscribe to, purchase or
acquire, any of the foregoing.
"Security Agreement" means the Security Agreement entered into by and
between the Company and the Lender on and as of the Closing Date,
substantially in the form of Exhibit III annexed hereto, as such Security
Agreement may heretofore have been or hereafter may be amended, restated,
supplemented or otherwise modified from time to time.
"Securities Act" means the Securities Act of 1933, as amended from
time to time, and any successor statute.
"Subsidiary" means, with respect to any Person, any corporation,
partnership, association, joint venture or other business entity of which
more than 50% of the total voting power of shares of stock or other
ownership interests entitled (without regard to the occurrence of any
contingency) to vote in the election of the Person or Persons (whether
directors, managers, trustees or other Persons performing similar
functions) having the power to direct or cause the direction of the
management and policies thereof is at the time owned or controlled,
directly or indirectly, by that Person or one or more of the other
Subsidiaries of that Person or a combination thereof.
"Subsidiary Guaranty" means the Subsidiary Guaranty entered into by
and between the Subsidiaries of the Company and the Lender on and as of the
Closing Date, substantially in the form of Exhibit VIII annexed hereto, as
such Subsidiary Guaranty may heretofore have been or hereafter may be
amended, restated, supplemented or otherwise modified from time to time.
"Tax" or "Taxes" means any present or future tax, levy, impost, duty,
charge, fee, deduction or withholding of any nature and whatever called, by
whomsoever, on whomsoever and wherever imposed, levied, collected, withheld
or assessed; provided that "Tax on the overall net income" of a Person
shall be construed as a reference to a tax imposed by the jurisdiction in
which that Person's principal office is located or in which that Person is
deemed to be doing business on all or part of the net income, profits or
gains of that Person (whether worldwide, or only insofar as such income,
profits or gains are considered to arise in or to relate to a particular
jurisdiction, or otherwise).
"Terms of Subordination" has the meaning assigned to that term in
Subsection 3.1Q.
"Unfunded Current Liability" means, with respect to any Pension Plan,
the amount, if any, by which the actuarial present value of the accumulated
plan benefits under such Pension Plan as of the close of its most recent
plan year exceeds the fair market value of the assets allocable thereto,
each determined in accordance with Statement of Financial Accounting
Standards No. 87, based upon the actuarial assumptions used by such Pension
Plan's actuary in the most recent annual valuation of such Pension Plan.
"Year 2000 Problems" means limitations in the capacity or readiness to
handle date information (including, without limitation, calculations based
on date information) for the Year 1999 or years beginning January 1, 2000
of any of the hardware, firmware or software systems ("Systems") associated
with information processing and delivery, operations or services (e.g.,
security and alarms, elevators, communications, and HVAC), including,
without limitation, equipment containing embedded microchips, operated by,
provided to or otherwise reasonably necessary to the business or operations
of the Company and its Subsidiaries.
1.2 Accounting Terms; Utilization of GAAP for Purposes of Calculations Under
Agreement.
Except as otherwise expressly provided in this Agreement, all accounting
terms not otherwise defined herein shall have the meanings assigned to them in
conformity with GAAP. Financial statements and other information required to be
delivered by the Company to the Lender pursuant to clauses (i), (ii), (iii) and
(xiii) of subsection 5.1 shall be prepared in accordance with GAAP (except, with
respect to interim financial statements, normal year-end audit adjustments and
the absence of explanatory footnotes) as in effect at the time of such
preparation (and delivered together with the reconciliation statements provided
for in subsection 5.1(v)). Calculations in connection with the definitions,
covenants and other provisions of this Agreement shall utilize accounting
principles and policies in conformity with those used to prepare the financial
statements referred to in subsection 4.3A.
1.3 Other Definitional Provisions.
References to "Sections" and "subsections" shall be to Sections and
subsections, respectively, of this Agreement unless otherwise specifically
provided. Any of the terms defined in subsection 1.1 may, unless the context
otherwise requires, be used in the singular or the plural, depending on the
reference. The words "includes," "including" and similar forms used in any Loan
Document shall be construed as if followed by the words "without limitation."
SECTION 2.
AMOUNTS AND TERMS OF COMMITMENTS AND LOANS
2.1 Commitments; Loans.
A. Commitments. Subject to the terms and conditions of this Agreement and
in reliance upon the representations and warranties of the Company and its
Subsidiaries set forth herein and in the other Loan Documents, the Lender hereby
agrees to make the Loans described in this subsection. Subject to the terms and
conditions of the Agreement, the Lender agrees to lend to the Company from time
to time during the period from the Closing Date to but excluding the Maturity
Date an aggregate amount not exceeding the Loan Commitment, to be used for the
purposes identified in subsection 2.5A. The Lender's Loan Commitment shall
expire on the Maturity Date and all Loans and all other amounts owed hereunder
with respect to the Loans and the Loan Commitments shall be paid in full no
later than that date.
B. Borrowing Mechanics. Subject to the requirements of subsection 3.1Q, on
the Closing Date the Company may request that the Lender make a loan of
$5,000,000 and thereafter once a week for the next two calendar weeks the
Company may request that the Lender make two additional installments of
$2,500,000 each (such three installments to be collectively known as the
"Initial Loan"). After January 1, 1999, the Company may request one additional
Loan each week, subject to the terms and conditions hereof in an amount no
greater than $3,750,000. Loans may only be requested once a week. Whenever the
Company desires that the Lender make Loans it shall deliver to the Lender a
Notice of Borrowing no later than 12:00 Noon (New York time), at least three (3)
Business Days in advance of the proposed Funding Date. The Notice of Borrowing
shall specify (i) the proposed Funding Date (which shall be a Business Day) and
(ii) the amount of Loan requested. In lieu of delivering the above-described
Notice of Borrowing, the Company may give the Lender telephonic notice by the
required time of any proposed borrowing under this subsection 2.1B; provided
that such notice shall be promptly confirmed in writing by delivery of a Notice
of Borrowing to the Lender on or before the applicable Funding Date.
The Lender shall not incur any liability to the Company in acting upon any
telephonic notice referred to above that the Lender believes in good faith to
have been given by a duly authorized officer or other person authorized to
borrow on behalf of the Company or for otherwise acting in good faith under this
subsection 2.1B, and upon funding of a Loan by the Lender in accordance with
this Agreement pursuant to any such telephonic notice the Company shall have
effected Loans hereunder.
The Company shall notify the Lender prior to the funding of any Loans in
the event that any of the matters to which the Company is required to certify in
the applicable Notice of Borrowing are no longer true and correct as of the
applicable Funding Date, and the acceptance by the Company of the proceeds of
any Loans shall constitute a re-certification by the Company, as of the
applicable Funding Date, as to the matters to which the Company is required to
certify in the applicable Notice of Borrowing.
C. Disbursement of Funds. No later than 2:00 p.m. (New York time) on the
applicable Funding Date, upon satisfaction of the conditions precedent specified
in subsections 3.1 and 3.2, the Lender shall make the proceeds of the Loan
available to the Company by causing an amount of same day funds equal to the
Loan to be credited to the account of the Company at the account designated by
the Company.
D. The Register.
(i) The Lender shall maintain, at its address referred to in
subsection 9.8, a register for the recordation of the Loans from time to
time (the "Register"). The Register shall be available for inspection by
the Company at any reasonable time and from time to time upon reasonable
prior notice.
(ii) The Lender shall record in the Register the Commitments and the
outstanding Loans from time to time and each repayment or prepayment in
respect of the principal amount of the outstanding Loans. Any such
recordation shall be conclusive and binding on the Company and the Lender,
absent manifest error; provided that failure to make any such recordation,
or any error in such recordation, shall not affect the Company's
Obligations in respect of the applicable Loans.
(iii) The Company hereby designates the Lender to serve as the
Company's agent solely for purposes of maintaining the Register as provided
in this subsection 2.1D, and the Company hereby agrees that, to the extent
the Lender serves in such capacity, the Lender and its officers, directors,
employees, agents and affiliates shall constitute Indemnitees for all
purposes under subsection 9.3.
E. Notes. The Company shall execute and deliver on the Closing Date to the
Lender a Note substantially in the form of Exhibit II annexed hereto,
respectively, to evidence the Lender's Loans in the principal amount of the
Lender's Loans and with other appropriate insertions. The Notes and the
Obligations evidenced thereby shall be governed by, subject to and benefit from
all of the terms and conditions of this Agreement and the other Loan Documents
and shall be secured by the Collateral.
2.2 Interest on the Loans.
A. Rate of Interest. Each Loan shall bear interest on the unpaid principal
amount thereof from the date made to maturity (whether by acceleration or
otherwise) at a rate equal to the Interest Rate.
B. [RESERVED]
C. Interest Payments. Subject to the provisions of subsection 2.2E, accrued
interest on each Loan shall be payable in arrears on each Interest Payment Date,
upon any prepayment of that Loan (to the extent accrued on the amount being
prepaid) and at maturity (including final maturity, by acceleration or
otherwise).
D. [RESERVED]
E. Post-Default Interest. Upon the occurrence and during the continuation
of any Default, the outstanding principal amount of all Loans and, to the extent
permitted by Applicable Law, any interest payments thereon not paid when due and
any fees and other amounts then due and payable hereunder, shall thereafter bear
interest (including post-petition interest in any proceeding under the
Bankruptcy Code, or other applicable bankruptcy or insolvency laws) payable upon
demand at a rate that is five percent (5%) per annum in excess of the Interest
Rate. Payment or acceptance of the increased rates of interest provided for in
this subsection 2.2E is not a permitted alternative to timely payment and shall
not constitute a waiver of any Default or otherwise prejudice or limit any
rights or remedies of the Lender.
F. Computation of Interest. Interest on Loans shall be computed on the
basis of a 365 or 366-day year, as applicable, and for the actual number of days
elapsed in the period during which it accrues. In computing interest on any
Loan, the date of the making of such Loan shall be included, and the date of
payment of such Loan shall be excluded; provided that if a Loan is repaid on the
same day on which it is made, one day's interest shall be paid on that Loan.
2.3 Commitment Fee.
The Company agrees to pay to the Lender commitment fees with respect to the
Loans for the period from and including the date hereof to and excluding the
Maturity Date, equal to the sum of the average of the daily excess of the Loan
Commitments over the sum of the aggregate principal amount of Loans outstanding
multiplied by 1.0% per annum. The foregoing commitment fees shall be calculated
on the basis of a 360-day year and the actual number of days elapsed and shall
be payable in arrears on the Maturity Date.
2.4 Repayments, Prepayments and Reductions in Commitments; General Provisions
Regarding Payments.
A. Scheduled Payments of Loans. The Company shall repay all outstanding
Loans on the Maturity Date.
B. Prepayments and Reductions in Commitment.
(i) Voluntary Prepayments. The Company may at any time and from time
to time prepay, without premium or penalty, the Loans on any Business Day
in whole or in part in an aggregate minimum amount of $500,000 and integral
multiples of $250,000 in excess of that amount. Notice of prepayment having
been given as aforesaid, the Loans shall become due and payable on the
prepayment date specified in such notice and in the aggregate principal
amount specified therein. Once repaid, Loans may not be reborrowed.
(ii) Mandatory Prepayments.
(a) On the Maturity Date, the Loan Commitment of the Lender shall
automatically reduce to zero and may not be reinstated. The Company
may reduce or terminate the Loan Commitment at any time and from time
to time in whole or in part. Each such reduction must be in an amount
not less than $5,000,000 (and in increments of $1,000,000 thereafter).
If the Company seeks to reduce the Commitment to an amount less than
$1,000,000, then the Loan Commitment shall be reduced to zero and this
Agreement shall be terminated. Once reduced, no portion of the Loan
Commitment shall be reinstated.
(b) The Loans shall be prepaid in the manner provided in
subsection 2.4B from time to time to the extent necessary so that the
aggregate principal amount of all Loans outstanding shall not at any
time exceed the Commitments then in effect.
(c) The Company shall, immediately upon receipt of the Net Cash
Proceeds of any Asset Sale, Debt Incurrence, Equity Issuance and
Recovery Event prepay the Loans in an amount equal to the amount of
such Net Cash Proceeds.
C. Application of Proceeds of Collateral. All proceeds received by the
Lender, as the case may be, in respect of any sale of, collection from, or other
realization upon all or any part of the Collateral under any Collateral Document
may, in the discretion of the Lender, be held by the Lender as Collateral for,
and/or (then or at any time thereafter) applied in full or in part by the Lender
against, the applicable Secured Obligations (as defined in such Collateral
Document) in the following order of priority:
(a) to the payment of all costs and expenses of such sale,
collection or other realization, including without limitation
reimbursement of reasonable out-of-pocket expenses including
reasonable fees of counsel, and all other reasonable liabilities and
advances made or incurred by the Lender in connection therewith, and
all amounts for which the Lender is entitled to indemnification under
such Collateral Document and all advances made by the Lender
thereunder for the account of the Company, and to the payment of all
reasonable costs and expenses paid or incurred by the Lender in
connection with the exercise of any right or remedy under such
Collateral Document, all in accordance with the terms of this
Agreement and such Collateral Document;
(b) thereafter, to the extent of any excess proceeds, to the
payment of all other such Secured Obligations; and
(c) thereafter, to the extent of any excess proceeds, to the
payment to or upon the order of the Company or to whosoever may be
lawfully entitled to receive the same or as a court of competent
jurisdiction may direct.
D. General Provisions Regarding Payments.
(i) Manner and Time of Payment. All payments by the Company of
principal, interest, fees and other Obligations hereunder and under the
Notes shall be made in same day funds and without defense, setoff or
counterclaim, free of any restriction or condition, and delivered to the
Lender not later than 12:00 Noon (New York time) on the date due at the
account of the Lender; funds received by the Lender after that time on such
due date shall be deemed to have been paid by the Company on the next
succeeding Business Day.
(ii) Application of Payments to Principal and Interest. All payments
in respect of the principal amount of any Loan shall include payment of
accrued interest on the principal amount being repaid or prepaid, and all
such payments (and in any event any payments made in respect of any Loan on
a date when interest is due and payable with respect to such Loan) shall be
applied to the payment of interest before application to principal.
(iii) Payments on Business Days. Except if expressly provided
otherwise, whenever any payment to be made hereunder shall be stated to be
due on a day that is not a Business Day, such payment shall be made on the
next succeeding Business Day and such extension of time shall be included
in the computation of the payment of interest hereunder or of the
commitment fees hereunder, as the case may be.
(iv) Notation of Payment. The Lender agrees that before disposing of
any Note held by it, or any part thereof, the Lender will make a notation
thereon of all Loans evidenced by that Note and all principal payments
previously made thereon and of the date to which interest thereon has been
paid; provided that the failure to make (or any error in the making of) a
notation of any Loan made under such Note shall not limit or otherwise
affect such disposition or the obligations of the Company hereunder or
under such Note with respect to any Loan or any payments of principal or
interest on such Note.
2.5 Use of Proceeds.
A. Loans. The proceeds of all Loans shall be applied by the Company for
working capital and general corporate purpose of the Company and its
Subsidiaries. The proceeds of the Loans shall not be used, directly or
indirectly, to purchase the stock or assets of any corporation, partnership or
other entity.
B. Compliance With Laws. The Company undertakes that no portion of the
proceeds of any Loans shall be used by the Company or any of its Subsidiaries in
any manner which would be illegal under, or which would cause the invalidity or
unenforceability (in each case in whole or in part) of any Loan Document under,
any Applicable Law.
C. Margin Regulations. Without limiting the generality of subsection 2.5B,
no portion of the proceeds of any borrowing under this Agreement shall be used
by the Company or any of its Subsidiaries in any manner that might cause the
borrowing or the application of such proceeds to violate Regulation U,
Regulation T or Regulation X of the Board of Governors of the Federal Reserve
System or any other regulation of such Board or to violate the Exchange Act, in
each case as in effect on the date or dates of such borrowing and such use of
proceeds.
2.6 Increased Costs.
In the event that the Lender shall have determined (which determination
shall, absent manifest error, be final and conclusive and binding upon all
parties hereto) at any time, that the relevant Interest Rate applicable to the
Loans shall not represent the effective cost to the Lender for funding or
maintaining Loans, or the Lender shall incur increased costs or reductions in
the amounts received or receivable hereunder in respect of any Loan, in any such
case because of (x) any change since the date of this Agreement in any
applicable law or governmental rule, regulation, guideline or order or any
interpretation thereof and including the introduction of any new law or
governmental rule, regulation, guideline or order, whether or not having the
force of law and whether or not failure to comply therewith would be unlawful,
and/or (y) other reasonable circumstances affecting the Lender, then, and in any
such event, the Lender shall, promptly after making such determination, give
notice (by telephone confirmed in writing) to the Company of such determination.
Thereafter, the Company shall pay to the Lender, upon the Lender's delivery of
written demand therefor to the Company, such additional amounts (in the form of
an increased rate of interest, or a different method of calculating interest, or
otherwise, as the Lender in its sole discretion shall determine) as shall be
required to compensate the Lender for such increased costs or reduction in
amounts received or receivable hereunder.
2.7 Taxes.
A. Payments to Be Free and Clear. All sums payable by the Company under
this Agreement and the other Loan Documents shall (except to the extent required
by law) be paid free and clear of, and without any deduction or withholding on
account of, any Tax (other than a Tax on the overall net income of the Lender)
imposed, levied, collected, withheld or assessed by or within the United States
of America or any political subdivision in or of the United States of America or
any other jurisdiction from which a payment is made by or on behalf of the
Company.
B. Withholding of Taxes. If the Company or any other Person is required by
law to make any deduction or withholding on account of any such Tax from any sum
paid or payable by the Company to the Lender under any of the Loan Documents:
(a) The Company shall notify the Lender of any such requirement
or any change in any such requirement as soon as the Company becomes
aware of it;
(b) The Company shall pay any such Tax before the date on which
penalties attach thereto, such payment to be made (if the liability to
pay is imposed on the Company) for its own account or (if that
liability is imposed on the Lender) on behalf of and in the name of
the Lender;
(c) the sum payable by the Company in respect of which the
relevant deduction, withholding or payment is required shall be
increased to the extent necessary to ensure that, after the making of
that deduction, withholding or payment, the Lender receives on the due
date a net sum equal to what it would have received had no such
deduction, withholding or payment been required or made; and
(d) within 30 days after paying any sum from which it is required
by law to make any deduction or withholding, and within 30 days after
the due date of payment of any Tax which it is required by clause (b)
above to pay, the Company shall deliver to the Lender evidence
satisfactory to the other affected parties of such deduction,
withholding or payment and of the remittance thereof to the relevant
taxing or other authority;
provided that no such additional amount shall be required to be paid to the
Lender under clause (c) above except to the extent that any change after the
Closing Date in any such requirement for a deduction, withholding or payment as
is mentioned therein shall result in an increase in the rate of such deduction,
withholding or payment from that in effect at the date of this Agreement in
respect of payments to the Lender.
SECTION 3.
CONDITIONS TO LOANS
The obligation of the Lender to make any Loans hereunder is subject to the
satisfaction of the following conditions.
3.1 Conditions to Loans.
The obligations of the Lender to make the Loans are, in addition to the
conditions precedent specified in subsection 3.2, subject to prior or concurrent
satisfaction of the following conditions:
A. Company Documents. On or before the Closing Date, each of the Company
and its Subsidiaries shall deliver or cause to be delivered to the Lender the
following, each, unless otherwise noted, dated the Closing Date:
(i) Certified copies of its Certificate of Incorporation, together
with a good standing certificate from the Secretary of State of the state
of its incorporation, each state in which it is qualified as a foreign
corporation to do business, each dated a recent date prior to the Closing
Date;
(ii) Copies of its Bylaws, certified as of the Closing Date by its
corporate secretary or an assistant secretary;
(iii) Resolutions of its Board of Directors approving and authorizing
the execution, delivery and performance of this Agreement and the other
Loan Documents to which it is a party or by which it or its assets may be
bound as of the Closing Date, certified as of the Closing Date by its
corporate secretary or an assistant secretary as being in full force and
effect without modification or amendment;
(iv) Incumbency certificates of its officers executing this Agreement
and the other Loan Documents to which it is a party as of the Closing Date;
(v) Executed originals of this Agreement and the other Loan Documents
to which it is a party; and
(vi) Such other documents as the Lender may reasonably request.
B. Collection of Accounts. The Company shall instruct all account debtors
on the Accounts of the Company to remit all Collections to the account specified
on Schedule 3.1B (the "Blocked Account") at the financial institution specified
on such Schedule or such other financial institution reasonably acceptable to
the Lender (the "Lockbox Bank"). The Company, the Lender and the Lockbox Bank
shall enter into an agreement substantially in the form of Exhibit VI (the
"Lockbox Agreement"). All Collections and other amounts received by the Company
from any account debtor shall upon receipt be deposited into the Blocked
Account. Termination of such arrangements shall be subject to approval by the
Lender. The Lender shall not be entitled to deliver a Redirection Notice (as
defined in the Lockbox Agreement) to the Lockbox Bank until the occurrence of an
Event of Default. Subject to the terms of this Agreement and the Lockbox
Agreement, the Company hereby agrees that all payments received by the Lender,
whether by cash, check, wire transfer or any other instrument, made to such
Blocked Account or otherwise received by the Lender and whether on the Accounts
or as proceeds of other Collateral or otherwise will be sole and exclusive
property of the Lender.
C. Necessary Consents. The Company shall have obtained all consents of
Governmental Authorities and other Persons necessary in connection with the
continued operation of the business conducted by the Company and its
Subsidiaries, and each of the foregoing shall be in full force and effect and in
form and substance reasonably satisfactory to the Lender.
D. Perfection of Security Interests. The Company shall have taken or caused
to be taken such actions in such a manner so that the Lender has a valid and
perfected first priority security interest in the Collateral. Such actions shall
include, without limitation, the delivery to the Lender of (a) the Collateral
Documents, (b) the results of a recent search, by a Person satisfactory to the
Lender, of all effective UCC financing statements and all judgment and tax lien
filings which may have been made with respect to any personal property of the
Company, together with copies of all such filings disclosed by such search, (c)
Uniform Commercial Code financing statements executed by the Company as to all
such Collateral granted by the Company for all jurisdictions as may be necessary
or desirable to perfect the Lender's security interest in such Collateral, and
(d) evidence reasonably satisfactory to the Lender that all other filings,
recordings and other actions the Lender deems necessary or advisable to
establish, preserve and perfect the Liens granted to the Lender in personal
property shall have been made.
E. [RESERVED]
F. Opinions of Company's Counsel. The Lender and its counsel shall have
received originally executed copies of one or more favorable written opinions of
the general counsel and special New York counsel for the Company, in form and
substance reasonably satisfactory to the Lender and its counsel, dated as of the
Closing Date and setting forth substantially the matters in the opinions
designated in Exhibit V and otherwise reasonably satisfactory to the Lender.
G. Fees and Expenses. The Company shall have paid to the Lender the fees
payable on the Closing Date referred to in subsection 2.3 and any expenses owing
to any Person by the Company as of the Closing Date.
H. Financial Statements. On or before the Closing Date, the Lender shall
have received from the Company the financial information and projections
described in subsection 4.3 hereof, together with supporting documentation in
respect thereof, all in form and substance satisfactory to Lender.
I. Evidence of Insurance. The Lender shall have received satisfactory
certificates of insurance with respect to each of the insurance policies
required pursuant to subsection 5.4, and the Lender shall be satisfied with the
nature and scope of these insurance policies.
J. Environmental. (i) The Lender shall have received information in form,
scope and substance reasonably satisfactory to the Lender with respect to all
Environmental Liabilities to which the Company may be subject, and (ii) the
Lender shall be reasonably satisfied that the amount and nature of any such
Environmental Liabilities and the plans of the Company with respect thereto,
could not be reasonably expected to have a Material Adverse Effect.
K. No Material Adverse Effect. (i) After the date of the funding of the
Initial Loan, since September 30, 1998, (x) no Material Adverse Effect (in the
sole opinion of the Lender) shall have occurred, and (y) there shall not have
been any material adverse change, or any event, condition (financial or
otherwise) or development that could have a material adverse change, in or
affecting the general affairs, industry, management, condition, financial
position, prospects, shareholders equity or results of operations of Company,
(ii) any information submitted to Lender shall not have been inaccurate,
incomplete or misleading in any respect, which the Lender, in its good faith
judgment, deems to be material and adverse, and (iii) there shall not have
occurred or become known to the Lender any event or events, adverse condition or
change that, individually or in the aggregate, could have a Material Adverse
Effect.
L. Corporate and Capital Structure, Ownership, Management, Etc.
(i) Corporate Structure. The corporate organizational structure of the
Company shall be as set forth on Schedule 3.1L annexed hereto.
(ii) Capital Structure and Ownership. The capital structure and
ownership of the Company shall be as set forth on Schedule 3.1L annexed
hereto.
(iii) Management; Employment Contracts. The management structure of
the Company shall be as set forth on Schedule 3.1L annexed hereto. The
Lender shall have received copies of, and shall be reasonably satisfied
with the form and substance of, any and all employment contracts with
senior management of the Company.
M. Representations and Warranties; Performance of Agreements. The Company
shall have delivered to the Lender an Officer's Certificate, in form and
substance satisfactory to the Lender, to the effect that the representations and
warranties in Section 4 hereof are true and correct in all material respects on
and as of the Closing Date, to the same extent as though made on and as of that
date and that the Company shall have performed in all material respects all
agreements and satisfied all conditions which this Agreement provides shall be
performed or satisfied by them on or before the Closing Date.
N. Completion of Proceedings. All corporate and other proceedings taken or
to be taken in connection with the transactions contemplated hereby and all
documents incidental thereto shall be satisfactory in form and substance to the
Lender and its counsel, and the Lender and such counsel shall have received all
such counterpart originals or certified copies of such documents, instruments
and legal opinions as the Lender may reasonably request.
O. No Litigation. Except as otherwise disclosed to the Lender pursuant to
Schedule 3.1(O) or in the Company's securities law filings, there shall be no
litigation or administrative proceedings or other legal or regulatory
developments, actual or threatened, that, singly or in the aggregate, could have
a Material Adverse Effect.
P. Investment Rights Agreement. The Company shall have executed and
delivered the Investment Rights Agreement
Q. Additional Debt. In order to borrow more than an aggregate amount of
$10,000,000 under this Agreement, the Company shall have borrowed $3,000,000
from another source, which debt may rank pari passu with the debt borrowed under
this Agreement.
R. Subsidiary Guaranty. All Subsidiaries of the Company shall have executed
a copy of the Subsidiary Guaranty which is attached hereto as Exhibit VIII.
3.2 Conditions to All Loans.
The obligations of the Lender to make Loans on each Funding Date are
subject to the following further conditions precedent:
A. The Lender shall have received before that Funding Date, in accordance
with the provisions of subsection 2.1B, an originally executed Notice of
Borrowing, in each case signed by the chief executive officer or the chief
financial officer of the Company or by any executive officer of the Company
designated by any of the above-described officers on behalf of the Company in a
writing delivered to the Lender.
B. As of that Funding Date:
(i) The representations and warranties contained herein and in the
other Loan Documents shall be true and correct in all material respects on
and as of that Funding Date to the same extent as though made on and as of
that date, except to the extent such representations and warranties
specifically relate to an earlier date, in which case such representations
and warranties shall have been true and correct in all material respects on
and as of such earlier date;
(ii) No event shall have occurred and be continuing or would result
from the consummation of the borrowing contemplated by such Notice of
Borrowing that would constitute a Default or Event of Default;
(iii) The Company shall have performed in all material respects all
agreements and satisfied all conditions which this Agreement and the other
Loan Documents provide shall be performed or satisfied by it on or before
that Funding Date;
(iv) No order, judgment or decree of any court, arbitrator or
governmental authority shall purport to enjoin or restrain the Lender from
making the Loan to be made by it, on that Funding Date;
(v) The making of the Loans requested on such Funding Date shall not
violate any law including, without limitation, Regulation T, Regulation U
or Regulation X of the Board of Governors of the Federal Reserve System;
(vi) There shall not be pending or, to the knowledge of the Company,
threatened, any action, suit, proceeding, Environmental Claim, governmental
investigation or arbitration against or affecting the Company or any of its
Subsidiaries or any property of the Company or any of its Subsidiaries that
has not been disclosed by the Company in writing and that is required to be
so disclosed pursuant to subsection 4.6, 4.13 or 5.1(xi) prior to the
making of the last preceding Loans, and there shall have occurred no
development not so disclosed in any such action, suit, proceeding,
Environmental Claim, governmental investigation or arbitration so disclosed
that, in either event, in the good faith opinion of the Lender, would be
expected to have a Material Adverse Effect; and no injunction or other
restraining order shall have been issued and no hearing to cause an
injunction or other restraining order to be issued shall be pending or
noticed with respect to any action, suit or proceeding seeking to enjoin or
otherwise prevent the consummation of, or to recover any damages or obtain
relief as a result of any of the transactions contemplated by this
Agreement, including the making of Loans hereunder;
(vii) Neither the Company nor its Subsidiaries shall have any Hedge
Agreements in effect;
(viii) Except for the funding of the Initial Loan, for each of the
fifteen days prior to any Funding Date the daily volume weighted average
per share price of the common stock of the Company shall be at or above
$5.00 as determined by Bloomberg, L.P.;
(ix) Except for the funding of the Initial Loan, the cash flow of the
Company for the fourth quarter of 1998 (as determinable after January 1,
1999) shall match or be more positive than the Projections which the
Company has delivered to the Lender prior to the Closing Date;
(x) The shareholder's equity of the Company as applied on a consistent
basis with GAAP shall be greater than $150,000,000; and
(xi) Except for the funding of the Initial Loan, the value of the
Collateral shall be greater than $28,000,000, as determined by the Lender
in its reasonable discretion.
3.3 Sole Discretion of the Lender. Notwithstanding anything to the contrary
herein, after the Initial Loan is made hereunder, the availability of the Loan
Commitment and the making of any subsequent Loans shall be made in the sole
discretion of the Lender.
SECTION 4.
REPRESENTATIONS AND WARRANTIES
In order to induce the Lender to enter into this Agreement and to make the
Loans, the Company represents and warrants to the Lender, on the date of this
Agreement, on the Closing Date and on each Funding Date, that the following
statements are true and correct.
4.1 Organization, Powers, Qualification, Good Standing, Business and
Subsidiaries.
A. Organization and Powers. The Company and each of its Subsidiaries which
is a corporation are duly organized, validly existing and in good standing under
the laws of their respective states of organization. Each Subsidiary of the
Company which is a partnership or limited liability company is a duly organized
and validly existing limited partnership or limited liability company under the
laws of its jurisdiction of formation and is in good standing in such
jurisdiction. The Company and each of its Subsidiaries has all requisite
corporate, partnership or limited liability company (as applicable) power and
authority to own and operate their respective properties and to carry on their
respective business as now conducted and as proposed to be conducted, and the
Company and each of its Subsidiaries has all requisite corporate, partnership or
limited liability company (as applicable) power and authority to enter into the
Loan Documents, to carry out the transactions contemplated thereby and, in the
case of the Company, to issue and pay the Notes.
B. Qualification and Good Standing. The Company and each of its
Subsidiaries are qualified or authorized to do business and in good standing in
every jurisdiction where their respective assets are located and wherever
necessary to carry out their respective businesses and operations, except in
jurisdictions where the failure to be so qualified or in good standing has not
had and will not have a Material Adverse Effect.
C. Conduct of Business. The Company and its Subsidiaries are engaged only
in the businesses permitted to be engaged in pursuant to subsection 6.9.
4.2 Authorization of Borrowing, etc.
A. Authorization of Borrowing. The execution, delivery and performance of
the Loan Documents and the issuance, delivery and payment of the Notes have been
duly authorized by all necessary corporate and/or partnership (as applicable)
action on the part of the Company.
B. No Conflict. After giving effect to the consummation of the transactions
contemplated hereby to occur on the Closing Date, the execution, delivery and
performance by the Company of the Loan Documents, the issuance, delivery and
payment of the Notes and the consummation of the transactions contemplated by
the Loan Documents do not and will not (i) violate any provision of any law or
any governmental rule or regulation applicable to the Company, the
Organizational Certificate or any other Organizational Documents of the Company
or any order, judgment or decree of any court or other agency of government
binding on the Company, (ii) conflict with, result in a breach of or constitute
(with due notice or lapse of time or both) a default under any Contractual
Obligation of the Company, (iii) result in or require the creation or imposition
of any Lien upon any of the properties or assets of the Company (other than any
Liens created under any of the Loan Documents in favor of the Lender), or (iv)
require any approval of stockholders, partners or members or any approval or
consent of any Person under any Contractual Obligation of the Company, except
for such approvals or consents which will be obtained on or before the Closing
Date and have been disclosed in writing to the Lender.
C. Governmental Consents. The execution, delivery and performance by the
Company of the Loan Documents, the issuance, delivery and payment of the Notes
and the consummation of the transactions contemplated by the Loan Documents do
not and will not require any registration with, consent or approval of, or
notice to, or other action to, with or by, any federal, state or other
governmental authority or regulatory body except to the extent obtained on or
before the Closing Date.
D. Binding Obligation. Each of the Loan Documents has been duly executed
and delivered by the Company and is the legally valid and binding obligation of
the Company, enforceable against the Company in accordance with its respective
terms, except as may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws relating to or limiting creditors' rights generally
or by equitable principles relating to enforceability.
E. Collateral Documents. The security interests created in favor of the
Lender under the Collateral Documents will at all times from and after the
Closing Date constitute, as security for the obligations purported to be secured
thereby, a legal, valid and enforceable security interest in and first priority
perfected Lien on all of the Collateral referred to therein in favor of the
Lender. The Company has good title to its respective Collateral. No consents,
filings or recordings are required in order to perfect (or maintain the
perfection or priority of) the security interests purported to be created by any
of the Collateral Documents, other than such as have been obtained and which
remain in full force and effect and other than the filing of Uniform Commercial
Code Financing Statements delivered to the Lender for filing but not yet filed,
and the periodic filing of Uniform Commercial Code continuation statements in
respect of Uniform Commercial Code financing statements filed by or on behalf of
the Lender.
F. Absence of Third-Party Filings. Except for Permitted Encumbrances and
except as set forth on Schedule 6.2 annexed hereto, no effective UCC financing
statement, fixture filing or other instrument similar in effect covering all or
any part of the Collateral is on file in any filing or recording office.
G. Margin Regulations. Neither the making of the Loans nor the pledge of
the Collateral pursuant to the Collateral Documents violates Regulation T,
Regulation U or Regulation X of the Board of Governors of the Federal Reserve
System.
4.3 Financial Condition; Projections.
A. Financial Statements. The Company has heretofore delivered to the
Lender, at the Lender's request, the following financial statements and
information with respect to the Company, pro forma quarterly consolidated
balance sheets of the Company as at September 30, 1998, together with a related
pro forma consolidated statements of income, operations, stockholder's equity
and cash flows for the Fiscal Quarter then ended, together will all supporting
documentation for any of the foregoing reasonably requested by the Lender. All
such statements are in material compliance with Regulation S-X of the Securities
Act, as interpreted by the staff of the Securities and Exchange Commission, for
a public offering registered under the Securities Act, and were prepared in
conformity with GAAP and fairly present, in all material respects, the financial
position of the entities described in such financial statements as at the
respective dates thereof and the results of operations and cash flows (on a
consolidated basis) of the entities described therein for each of the periods
then ended, subject, in the case of any such unaudited financial statements, to
changes resulting from audit and normal year-end adjustments and the absence of
footnote disclosure required in accordance with GAAP. The Company does not have
any Contingent Obligation, contingent liability or liability for taxes,
long-term lease or unusual forward or long-term commitment that is not reflected
in the financial statements referred to in the preceding clauses of this
subsection, the most recent financial statements delivered pursuant to
subsection 5.1 or the notes thereto and which in any such case is material in
relation to the business, operations, properties, assets, or financial condition
of the Company.
B. Projections. On and as of the Closing Date, the projections of the
Company delivered to the Lender with the Officer's Certificate on the Closing
Date (the "Projections") are based on good faith estimates and assumptions made
by the management of the Company, it being recognized, however, that projections
as to future events are not to be viewed as facts and that the actual results
during the period or periods covered by the Projections may differ from the
projected results and that the differences may be material. Notwithstanding the
foregoing, as of the Closing Date, management of the Company believed that the
Projections were reasonable and attainable.
4.4 No Material Adverse Change.
After the date of the funding of the Initial Loan, except, in any case, as
disclosed to the Lender in writing prior to the Closing Date, no event or change
has occurred that has caused or evidences or could reasonably be expected to
cause, either in any case or in the aggregate, a Material Adverse Effect.
4.5 Title to Properties; Liens; Real Property; Intellectual Property.
A. Title to Properties; Liens. After giving effect to the transactions
contemplated hereby, the Company has good and marketable title in all of their
respective properties and assets reflected in the financial statements referred
to in subsection 4.3 or in the most recent financial statements delivered
pursuant to subsection 5.1, except for assets disposed of since the date of such
financial statements in the ordinary course of business or as otherwise
permitted under subsection 6.7 and except for such defects that neither
individually nor in the aggregate could reasonably be expected to have a
Material Adverse Effect. Except as permitted by this Agreement, all such
properties and assets are free and clear of Liens.
B. Intellectual Property. The Company and its Subsidiaries own or have the
valid right to use all trademarks and service marks, trade names, patents,
copyrights, trade secrets and technology used in or necessary to conduct the
Company's and its Subsidiaries' business (collectively, the "Intellectual
Property"), free and clear of any and all Liens other than Permitted
Encumbrances. All registrations therefor are in full force and effect and are
valid and enforceable. The conduct of the Company's and its Subsidiaries'
business as currently conducted, including, but not limited to, all products,
processes or services, made, offered or sold by the Company and its
Subsidiaries, does not infringe upon, violate, misappropriate or dilute any
intellectual property of any third party which infringement, violation,
misappropriation or dilution could reasonably be expected to have a Material
Adverse Effect. To the best of the Company's and its Subsidiaries' knowledge, no
third party is infringing upon the Intellectual Property in any material
respect. There is no pending or to the best of the Company's and its
Subsidiaries' knowledge, threatened claim or litigation contesting the Company's
right to own or use any material Intellectual Property or the validity or
enforceability thereof.
4.6 Litigation; Adverse Facts.
Except as set forth in Schedule 4.6, there is no action, suit, proceeding,
arbitration or governmental investigation (whether or not purportedly on behalf
of the Company or any of its Subsidiaries) at law or in equity or before or by
any federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, pending or, to
the knowledge of the Company (after due inquiry), threatened against or
affecting the Company or any of its Subsidiaries or any property of the Company
or any of its Subsidiaries that, either individually or in the aggregate
together with all other such actions, proceedings and investigations, has had,
or could reasonably be expected to result in, a Material Adverse Effect. Neither
the Company nor any of its Subsidiaries is (i) in violation of any Applicable
Law that has had, or could reasonably be expected to result in, a Material
Adverse Effect or (ii) subject to or in default with respect to any final
judgment, writ, injunction, decree, rule or regulation of any court or any
federal, state, municipal or other governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, that has had, or could
reasonably be expected to result in, a Material Adverse Effect.
4.7 Payment of Taxes.
Except to the extent permitted by subsection 5.3, all material tax returns
and reports of the Company and its Subsidiaries required to be filed by any of
them have been timely filed and are true, correct and complete in all material
respects, and all material taxes, assessments, fees and other governmental
charges upon the Company and its Subsidiaries and upon their respective
properties, assets, income, businesses and franchises which are due and payable
have been paid when due and payable. Neither the Company nor any of its
Subsidiaries knows of any proposed tax assessment against the Company or any of
its Subsidiaries other than those which are being actively contested by the
Company or such Subsidiary in good faith and by appropriate proceedings and for
which reserves or other appropriate provisions, if any, as may be required in
conformity with GAAP shall have been made or provided therefor.
4.8 Performance of Agreements; Materially Adverse Agreements.
Except, in any case, as disclosed in writing to the Lender on or prior to
the Closing Date:
A. Neither the Company nor any of its Subsidiaries is in default in the
performance, observance or fulfillment of any of the obligations, covenants or
conditions contained in any of its Contractual Obligations, and no condition
exists that, with the giving of notice or the lapse of time or both, would
constitute such a default, except where the consequences, direct or indirect, of
such default or defaults, if any, would not have a Material Adverse Effect.
B. Neither the Company nor any of its Subsidiaries is a party to or is
otherwise subject to any agreement or instrument or any charter or other
internal restriction which has had, or could reasonably be expected (based upon
assumptions that are reasonable at the time made) to result in, individually or
in the aggregate, a Material Adverse Effect.
4.9 Governmental Regulation.
Neither the Company nor any of its Subsidiaries is subject to regulation
under the Public Utility Holding Company Act of 1935, the Federal Power Act, the
Interstate Commerce Act or the Investment Company Act of 1940 or under any other
federal or state statute or regulation which may limit its ability to incur
Indebtedness or which may otherwise render all or any portion of the Obligations
unenforceable.
4.10 Securities Activities.
Neither the Company nor any of its Subsidiaries is engaged principally, or
as one of its important activities, in the business of extending credit for the
purpose of purchasing or carrying any Margin Stock.
4.11 Employee Benefit Plans.
A. The Company and each of its ERISA Affiliates are in compliance with all
applicable provisions and requirements of ERISA with respect to each Employee
Benefit Plan, and have performed all their obligations under each Employee
Benefit Plan, except to the extent that any non-compliance with ERISA or any
such failure to perform would not result in material liability of the Company or
any of its ERISA Affiliates.
B. No ERISA Event has occurred which has resulted or is reasonably likely
to result in any material liability of the Company or any of its ERISA
Affiliates to the PBGC or to any other Person.
C. Except to the extent required under Section 4980B of the Internal
Revenue Code and/or Section 601 of ERISA, neither the Company nor any of its
Subsidiaries maintains or contributes to any employee welfare benefit plan (as
defined in Section 3(1) of ERISA) that provides health or welfare benefits
(through the purchase of insurance or otherwise) for any retired or former
employees of the Company or any of its Subsidiaries other than as set forth on
Schedule 4.11 annexed hereto.
D. No Pension Plan has an Unfunded Current Liability in an amount that
would have a Material Adverse Effect.
E. As of the most recent valuation date for each Multiemployer Plan for
which the actuarial report is available, the potential liability of the Company,
its Subsidiaries and their respective ERISA Affiliates for a complete withdrawal
from such Multiemployer Plan (within the meaning of Section 4203 of ERISA), when
aggregated with such potential liability for a complete withdrawal from all
Multiemployer Plans, based on information available pursuant to Section 4221(e)
of ERISA, could not reasonably be expected to have a Material Adverse Effect.
4.12 Certain Fees.
No broker's or finder's fee or commission will be payable with respect to
this Agreement or any of the loan transactions contemplated hereby, and the
Company hereby indemnifies the Lender against, and agrees that it will hold the
Lender harmless from, any claim, demand or liability for any such broker's or
finder's fees alleged to have been incurred in connection herewith or therewith
and any expenses (including reasonable fees, expenses and disbursements of
counsel) arising in connection with any such claim, demand or liability.
4.13 Environmental Matters.
(i) The Company, each of its Subsidiaries and, to the knowledge of the
Company (after due inquiry), each of the tenants under any leases or
occupancy agreements affecting any portion of the Facilities, are in
compliance with all applicable Environmental Laws (which compliance
includes, but is not limited to, the possession by the Company, each of its
Subsidiaries and each of such tenants of all permits and other Governmental
Authorizations required under applicable Environmental Laws, and compliance
with the terms and conditions thereof), except where failure to be in
compliance would not have a Material Adverse Effect. Neither the Company
nor any of its Subsidiaries, nor, to the knowledge of the Company (after
due inquiry), any of the tenants under any leases or occupancy agreements
affecting any portion of the Facilities has received any communication
(written or oral), whether from a Governmental Authority, citizens group,
employee or otherwise, alleging that the Company, any of its Subsidiaries,
or any such tenants is not in such compliance, and there are no past or
present (or to the best knowledge of the Company, future) actions,
activities, circumstances conditions, events or incidents that may prevent
or interfere with such compliance in the future.
(ii) There is no Environmental Claim pending or threatened against the
Company or any of its Subsidiaries or, to the best knowledge of the
Company, against any Person whose liability for any Environmental Claim the
Company or any of its Subsidiaries has or may have retained or assumed
either contractually or by operation of law which would have a Material
Adverse Effect.
(iii) There are no past or present (or to the best knowledge of the
Company, future) actions, activities, circumstances, conditions, events or
incidents, including, without limitation, the Release or presence of any
Hazardous Material which could form the basis of any Environmental Claim
against the Company or any of its Subsidiaries, or to the best knowledge of
the Company, against any Person whose liability for any Environmental Claim
the Company or any of its Subsidiaries has or may have retained or assumed
either contractually or by operation of law which would have a Material
Adverse Effect.
(iv) The Company and its Subsidiaries have not, and to the best
knowledge of the Company, no other Person has placed, stored, deposited,
discharged, buried, dumped or disposed of Hazardous Materials or any other
wastes produced by, or resulting from, any business, commercial or
industrial activities, operations or processes, on, beneath or adjacent to
any property currently or formerly owned, operated or leased by the Company
or any of its Subsidiaries, except for inventories of such substances to be
used, and wastes generated therefrom, in the ordinary course of business of
the Company and its Subsidiaries (which inventories and wastes, if any,
were and are stored or disposed of in accordance with applicable
Environmental Laws and in a manner such that there has been no Release of
any such substances).
(v) No Lien in favor of any Person relating to or in connection with
any Environmental Claim has been filed or has been attached to any
Facility.
(vi) Without in any way limiting the generality of the foregoing none
of the Facilities contain any: underground storage tanks; asbestos;
polychlorinated biphenyls; underground injection wells; radioactive
materials; or septic tanks or waste disposal pits in which process
wastewater or any Hazardous Materials have been discharged or disposed.
4.14 Employee Matters.
There is no strike, work stoppage or other condition relating to the
Company's employees in existence or threatened involving the Company or any of
its Subsidiaries that could reasonably be expected to have a Material Adverse
Effect.
4.15 Inactive Subsidiaries.
The Subsidiaries of the Company listed on Schedule 4.15 hereto are inactive
and have no material assets.
4.16 [RESERVED]
4.17 Disclosure.
The representations and warranties of the Company contained in the Loan
Documents and all information contained in any other document, certificate or
written statement furnished to the Lender by or on behalf of the Company for use
in connection with the transactions contemplated by this Agreement or any other
Loan Document, when taken together, do not contain any untrue statement of a
material fact or omit to state a material fact (known to the Company, in the
case of any document not furnished by it) necessary in order to make the
statements contained herein or therein not misleading in light of the
circumstances in which the same were made.
4.18 Year 2000 Problems.
The Company has (i) engaged in a process of assessment of the existence of
the Year 2000 Problems reasonably appropriate to the scope and complexity of
their respective Systems; (ii) adopted and are successfully implementing a plan
of correction ("Plan of Correction") which, the Company reasonably believes will
result in a substantial elimination of Year 2000 Problems (and, in any event,
all Year 2000 Problems which could reasonably be expected to have a Material
Adverse Effect) which might have a Material Adverse Effect and, in the case of
all Systems (as defined in the definition of Year 2000 Problems) critical to the
business or operations of the Company and its Subsidiaries, elimination in all
material respects of Year 2000 Problems prior to any processing failure of a
System or Systems due to Year 2000 Problems which might have a Material Adverse
Effect; (iii) adopted and are successfully implementing validation procedures
calculated to test on an ongoing basis the sufficiency of the Plan of
Correction, its implementation, and the correction of Year 2000 Problems in
substantially all Systems and all Systems critical to the business or operations
of the Company and its Subsidiaries; and (iv) adopted and are successfully
implementing policies and procedures requiring regular reports to, and
monitoring by, senior management of the Company concerning the foregoing
matters.
The Company reasonably believes that, as relating to the Company and each
of its Subsidiaries, individually and taken as a whole, (x) the assessment and
correction of Year 2000 Problems, including, without limitation, the Plan of
Correction, and the testing of all Systems and the correction of Year 2000
Problems, in each case, which, individually or in the aggregate, if not
corrected could reasonably be expected to have a Material Adverse Effect, will
be completed on or prior to December 31, 1998, (y) a Material Adverse Effect
will not occur as a result of any Year 2000 Problem, and (z) the aggregate costs
and expenses incurred and reasonably expected to be incurred in connection with
the assessment and correction of Year 2000 Problems, including, without
limitation, the Plan of Correction, and the testing and monitoring of all
Systems and the correction of Year 2000 Problems, could not reasonably be
expected to have a Material Adverse Effect.
SECTION 5.
AFFIRMATIVE COVENANTS
The Company covenants and agrees that, so long as any of the Commitments
hereunder shall remain in effect and until payment in full of all of the Loans
and other Obligations, unless the Lender shall otherwise give prior written
consent, the Company shall perform, and shall cause each of its Subsidiaries, as
applicable, to perform, all covenants in this Section 5.
5.1 Financial Statements; Collateral Reports and Other Reports.
The Company will maintain, and cause each of its Subsidiaries to maintain,
a system of accounting established and administered in accordance with sound
business practices to permit preparation of financial statements in conformity
with GAAP. The Company will deliver to the Lender:
(i) Monthly Financials: as soon as available and in any event within
thirty (30) days after each calendar month-end commencing with the calendar
month ending November 30, 1998, or in the case of the third month of any
fiscal quarter, within forty-five (45) days after the end of such month,
(a) the consolidated and consolidating balance sheets of the Company and
its Subsidiaries as at the end of each fiscal month and the related
consolidated and consolidating statements of income, and consolidated
statement of cash flows of the Company and its Subsidiaries for such month
and for the period from the beginning of the then current Fiscal Year to
the end of such month, setting forth, in the case of statements of income
only, in comparative form the corresponding figures for the corresponding
periods of the previous fiscal year and the corresponding figures from the
consolidated plan and financial forecast for the current Fiscal Year
delivered pursuant to subsection 5.1(xiii), all prepared in accordance with
GAAP and in reasonable detail and certified by the chief financial officer
of the Company that they fairly present, in all material respects, the
financial condition of the Company and its Subsidiaries as at the dates
indicated and the results of their operations and their cash flows for the
periods indicated, subject to changes resulting from audit and normal
year-end adjustments; and (b) a narrative report describing the operations
of the Company and its Subsidiaries taken as a whole in the form prepared
for presentation to senior management for such month and for the period
from the beginning of the then current Fiscal Year to the end of such
month;
(ii) Quarterly Financials: as soon as available and in any event
within forty-five (45) days after the end of each Fiscal Quarter commencing
with the Fiscal Quarter ending September 30, 1998, (a) the consolidated and
consolidating balance sheets of the Company and its Subsidiaries as at the
end of such Fiscal Quarter and the related consolidated and consolidating
statements of income and consolidated statement of cash flows of the
Company and its Subsidiaries for such Fiscal Quarter and for the period
from the beginning of the then current Fiscal Year to the end of such
Fiscal Quarter, setting forth, in the case of statements of income only, in
comparative form the corresponding figures for the corresponding periods of
the previous fiscal year and the corresponding figures from the
consolidated plan and financial forecast for the current Fiscal Year
delivered pursuant to subsection 5.1(xiii), all prepared in accordance with
the GAAP and in reasonable detail and certified by the chief financial
officer of the Company that they fairly present, in all material respects,
the financial condition of the Company and its Subsidiaries as at the dates
indicated and the results of their operations and their cash flows for the
periods indicated, subject to changes resulting from audit and normal
year-end adjustments, and (b) a narrative report describing the operations
of the Company and its Subsidiaries taken as a whole in the form prepared
for presentation to senior management for such Fiscal Quarter and for the
period from the beginning of the then current Fiscal Year to the end of
such Fiscal Quarter;
(iii) Year-End Financials: as soon as available and in any event
within ninety (90) days after the end of each Fiscal Year, (a) the
consolidated and consolidating balance sheets of the Company and its
Subsidiaries as at the end of such Fiscal Year and the related consolidated
and consolidating statements of income and consolidated statement of cash
flows of the Company and its Subsidiaries for such Fiscal Year, setting
forth, in the case of statements of income only, in comparative form the
corresponding figures for the previous fiscal year and the corresponding
figures from the consolidated plan and financial forecast delivered
pursuant to subsection 5.1(xiii) for the Fiscal Year covered by such
financial statements, all prepared in accordance with the GAAP and in
reasonable detail and certified by the chief financial officer of the
Company that they fairly present, in all material respects, the financial
condition of the Company and its Subsidiaries as at the dates indicated and
the results of their operations and their cash flows for the periods
indicated, (b) a narrative report describing the operations of the Company
and its Subsidiaries taken as a whole in the form prepared for presentation
to senior management for such Fiscal Year, and (c) in the case of such
consolidated financial statements, a report thereon of independent
certified public accountants of recognized national standing selected by
the Company and reasonably satisfactory to the Lender, which report shall
be unqualified as to going concern and scope of audit, and shall state that
such consolidated financial statements fairly present, in all material
respects, the consolidated financial position of the Company and its
Subsidiaries as at the dates indicated and the results of their operations
and their cash flows for the periods indicated in conformity with GAAP
applied on a basis consistent with prior years (except as otherwise
disclosed in such financial statements) and that the audit by such
accountants in connection with such consolidated financial statements has
been made in accordance with generally accepted auditing standards;
(iv) Officer's and Compliance Certificates: together with each
delivery of financial statements of the Company and its Subsidiaries
pursuant to subdivisions (ii) and (iii) above, (a) an Officer's Certificate
of the Company stating that the signer has reviewed the terms of this
Agreement and has made, or caused to be made under his or her supervision,
a review in reasonable detail of the transactions and condition of the
Company and its Subsidiaries during the accounting period covered by such
financial statements and that such review has not disclosed the existence
during or at the end of such accounting period, and that the signer did not
have knowledge of the existence as at the date of such Officer's
Certificate, of any condition or event that constitutes an Default or Event
of Default, or, if any such condition or event existed or exists,
specifying the nature and period of existence thereof and what action the
Company has taken, is taking and proposes to take with respect thereto; and
(b) a Compliance Certificate demonstrating in reasonable detail compliance
during and at the end of the applicable accounting periods with the
restrictions contained in Section 6;
(v) Reconciliation Statements: if, as a result of any change in
accounting principles and policies from those used in the preparation of
the audited financial statements referred to in subsection 4.3, the
consolidated financial statements of the Company and its Subsidiaries
delivered pursuant to subdivisions (i), (ii), (iii) or (xiii) of this
subsection 5.1 will differ in any material respect from the consolidated
financial statements that would have been delivered pursuant to such
subdivisions had no such change in accounting principles and policies been
made, then (a) together with the first delivery of financial statements
pursuant to subdivision (i), (ii), (iii) or (xiii) of this subsection 5.1
following such change, consolidated financial statements of the Company and
its Subsidiaries for (y) the current Fiscal Year to the effective date of
such change and (z) the two (2) full fiscal years immediately preceding the
Fiscal Year in which such change is made, in each case prepared on a pro
forma basis as if such change had been in effect during such periods, and
(b) together with each delivery of financial statements pursuant to
subdivision (i), (ii), (iii) or (xiii) of this subsection 5.1 following
such change, a written statement of the chief accounting officer or chief
financial officer of the Company setting forth the differences which would
have resulted if such financial statements had been prepared without giving
effect to such change, if reasonably requested by the Lender;
(vi) Accountants' Certification: together with each delivery of
consolidated financial statements of the Company and its Subsidiaries
pursuant to subdivision (iii) above, a written statement by the independent
certified public accountants giving the report thereon (a) stating that
their audit has included a reading of the terms of this Agreement and the
other Loan Documents as they relate to the conditions set forth in
subsection 3.2B and accounting matters, and (b) stating whether, in
connection with their audit examination, any condition or event, insofar as
such condition or event relates to the conditions set forth in subsection
3.2B or accounting matters, that constitutes an Default or Event of Default
has come to their attention and, if such a condition or event has come to
their attention, specifying the nature and period of existence thereof;
provided that such accountants shall not be liable by reason of any failure
to obtain knowledge of any such Default or Event of Default that would not
be disclosed in the course of their audit examination;
(vii) Accountants' Reports: promptly upon receipt thereof (unless
restricted by applicable professional standards), copies of all reports
submitted to the Company by a national independent certified public
accountants in connection with each annual, interim or special audit of the
financial statements of the Company and its Subsidiaries made by such
accountants, including, without limitation, any comment letter submitted by
such accountants to management in connection with their annual audit;
(viii) SEC Filings and Press Releases: promptly upon their becoming
available, copies of (a) all financial statements, reports, notices and
proxy statements sent or made available generally by the Company to its
security holders, (b) all regular and periodic reports and all registration
statements (other than on Form S-8 or a similar form) and prospectuses, if
any, filed by the Company or any of its Subsidiaries with any securities
exchange or with the Securities and Exchange Commission or any governmental
or private regulatory authority, and (c) all press releases and other
statements made available generally by the Company or any of its
Subsidiaries to the public concerning material developments in the business
of the Company or any of its Subsidiaries;
(ix) Events of Default, etc.: promptly upon any officer of the Company
obtaining knowledge (a) of any condition or event that constitutes a
Default or an Event of Default, (b) that any Person has given any notice to
the Company or any of its Subsidiaries or taken any other action with
respect to a claimed default or event or condition of the type referred to
in subsection 7.2, (c) of any condition or event that would be required to
be disclosed in a current report filed by the Company with the Securities
and Exchange Commission on Form 8-K (Items 1, 2, 4, 5 and 6 of such Form as
in effect on the date hereof) if the Company were required to file such
reports under the Exchange Act, or (d) of the occurrence of any event or
change that has caused or evidences or could be reasonably expected to
cause, either in any case or in the aggregate, a Material Adverse Effect,
an Officer's Certificate specifying the nature and period of existence of
such condition, event or change, or specifying the notice given or action
taken by any such Person and the nature of such claimed Default, Event of
Default, default, event or condition, and what action the Company (or
applicable Subsidiary) has taken, is taking and proposes to take with
respect thereto;
(x) Litigation or Other Proceedings: (a) promptly upon any officer of
the Company obtaining knowledge of (X) the institution of, or threat of,
any action, suit, proceeding (whether administrative, judicial or
otherwise), Environmental Claim, governmental investigation or arbitration
against or affecting the Company or any of its Subsidiaries or any property
of the Company or any of its Subsidiaries (collectively, "Proceedings") not
previously disclosed in writing by the Company to the Lender or (Y) any
material development in any Proceeding that, in any case:
(a) if adversely determined, has a reasonable possibility of
giving rise to a Material Adverse Effect; or
(b) seeks to enjoin or otherwise prevent the consummation of, or
to recover any damages or obtain relief as a result of, the
transactions contemplated hereby;
written notice thereof together with such other information as may be
reasonably available to the Company to enable the Lender and its counsel to
evaluate such matters; and (b) within forty-five (45) days after the end of
each fiscal quarter of the Company, a schedule of all Proceedings involving
an alleged liability of, or claims against or affecting, the Company or any
of its Subsidiaries equal to or greater than $2,500,000 and promptly after
request by the Lender such other information as may be reasonably requested
by the Lender to enable the Lender and its counsel to evaluate any of such
Proceedings;
(xi) ERISA Events: promptly upon the Company becoming aware of the
occurrence of any ERISA Event that would result in a material liability of
the Company or any of its ERISA Affiliates, a written notice specifying the
nature thereof, what action the Company or any of its ERISA Affiliates has
taken, is taking or proposes to take with respect thereto and, when known,
any action taken or threatened by the Internal Revenue Service, the
Department of Labor or the PBGC with respect thereto;
(xii) ERISA Notices: with reasonable promptness, copies of (a) all
written notices received by the Company or any of its ERISA Affiliates from
a Multiemployer Plan sponsor concerning an ERISA Event; and (b) such other
documents or governmental reports or filings relating to any Employee
Benefit Plan as the Lender shall reasonably request;
(xiii) Financial Plans: as soon as practicable and in any event no
later than the beginning of each Fiscal Year, a monthly consolidated and
consolidating plan and financial forecast for the next succeeding Fiscal
Year, including without limitation (a) forecasted consolidated balance
sheet and forecasted consolidated and consolidating statements of income
and consolidated statement of cash flows of the Company and its
Subsidiaries for such Fiscal Year, together with a pro forma Compliance
Certificate for such Fiscal Year and an explanation of the assumptions on
which such forecasts are based, and (b) such other information and
projections as the Lender may reasonably request;
(xiv) Insurance: as soon as practicable and in any event by the last
day of each Fiscal Year, a report in form and substance satisfactory to the
Lender outlining all material insurance coverage maintained as of the date
of such report by the Company and its Subsidiaries and all material
insurance coverage planned to be maintained by the Company and its
Subsidiaries in the immediately succeeding Fiscal Year;
(xv) Environmental Audits and Reports: as soon as practicable
following receipt thereof, copies of all environmental audits and reports,
if any, whether prepared by personnel of the Company or any of its
Subsidiaries or by independent consultants, with respect to environmental
matters at any Facility or which relate to any Environmental Liabilities
which could result in a Material Adverse Effect of which the Company has a
copy;
(xvi) Regulatory Notices: promptly upon receipt, notification of any
non-renewal, cancellation, termination, revocation, suspension, impairment
or material modification of, or of any hearing, proceeding or investigation
regarding, any license held by the Company or any of its Subsidiaries which
is reasonably likely to have a Material Adverse Effect;
(xvii) Material Contracts: promptly after (a) any Material Contract is
terminated or expires or is renewed or is, amended or otherwise modified in
any material manner, (b) any new Material Contract is entered into, or (c)
any material notice or other communication is delivered by any party to any
Material Contract pursuant thereto or in respect thereof, notice and a copy
thereof and, in the case of any such renewal, amendment, other modification
or new Material Contract, a description in reasonable detail of the
material terms thereof;
(xviii) Material Bids: promptly after (a) the Company places a bid
which could result in a Material Contract and (b) the Company receives
notice that it has failed to receive a bid which would have resulted in a
Material Contract, a description in reasonable detail of the material terms
of the bid;
(xix) Merger/Sale Discussions: promptly upon knowledge of any
discussions, negotiations or offers regarding the purchase of all or
substantially all of the stock or assets of the Company, or merger of the
Company with any other entity, notification regarding such discussions,
negotiations or offers together with documentation describing them in
reasonable detail; and
(xx) Other Information: with reasonable promptness, such other
information and data with respect to the Company or any of its Subsidiaries
as from time to time may be reasonably requested by the Lender.
5.2 Corporate Existence.
Except as permitted under subsection 6.6, the Company will, and will cause
each of its Subsidiaries to, at all times preserve and keep in full force and
effect its corporate existence and all rights and franchises material to the
business of the Company and its Subsidiaries (on a consolidated basis).
5.3 Payment of Taxes and Claims; Tax Consolidation.
A. The Company will, and will cause each of its Subsidiaries to, pay all
taxes, assessments and other governmental charges imposed upon it or any of its
properties or assets or in respect of any of its income, businesses or
franchises before any penalty accrues thereon, and all claims (including,
without limitation, claims for labor, services, materials and supplies) for sums
that have become due and payable and that by law have or may become a Lien upon
any of its properties or assets, prior to the time when any penalty or fine
shall be incurred with respect thereto; provided that no such charge or claim
need be paid if being contested in good faith by appropriate proceedings
promptly instituted and diligently conducted and if such reserve or other
appropriate provision, if any, as shall be required in conformity with GAAP
shall have been made therefor.
B. The Company will not, nor will it permit any of its Subsidiaries to,
file or consent to the filing of any consolidated, combined or other similar
income tax return with any Person (other than Subsidiaries of the Company).
5.4 Maintenance of Properties; Insurance.
The Company will, and will cause each of its Subsidiaries to, maintain or
cause to be maintained in good repair, working order and condition, ordinary
wear and tear excepted, all material properties used or useful in the business
of the Company and its Subsidiaries and from time to time will make or cause to
be made all appropriate repairs, renewals and replacements thereof. The Company
will maintain or cause to be maintained, with financially sound and reputable
insurers, insurance with respect to its properties and business and the
properties and businesses of its Subsidiaries against loss or damage of the
kinds and with respect to liability customarily carried or maintained under
similar circumstances by corporations of established reputation engaged in
similar businesses. Each such policy of casualty insurance covering damage to or
loss of property shall name the Lender as additional insured and as the loss
payee thereunder for all losses, each such policy of liability insurance
coverage shall name the Lender as an additional insured, and all such policies
of insurance shall provide for at least thirty (30) days' prior written notice
to the Lender of any modification or cancellation of such policy. 5.5
Inspection; Lender Meeting.
The Company shall, and shall cause each of its Subsidiaries to, permit any
authorized representatives designated by the Lender to visit and inspect any of
the properties of the Company or any of its Subsidiaries, including its and
their financial and accounting records, and to make copies and take extracts
therefrom, and to discuss its and their affairs, finances, strategy and accounts
with its and their officers and independent public accountants. Without in any
way limiting the foregoing, the Company will, upon the request of the Lender,
participate in a meeting of the Lender once during each month to be held at the
Company's corporate offices (or such other location as may be agreed to by the
Company and the Lender) at such time as may be requested by the Lender.
5.6 Compliance with Laws, etc.
The Company shall, and shall cause each of its Subsidiaries to, comply with
the requirements of all applicable laws, rules, regulations and orders of any
governmental authority, noncompliance with which could reasonably be expected to
cause a Material Adverse Effect.
5.7 Environmental Disclosure and Inspection.
A. The Company shall, and shall cause each of its Subsidiaries to, exercise
all due diligence in order to comply and cause (i) all tenants under any leases
or occupancy agreements affecting any portion of the Facilities and (ii) all
other Persons on or occupying such property, to comply with all Environmental
Laws, noncompliance with which could reasonably be expected to cause a Material
Adverse Effect.
B. The Company agrees that the Lender may, from time to time, retain, at
the Company's expense, an independent professional consultant reasonably
acceptable to the Company to review any report relating to Hazardous Materials
prepared by or for the Company and to conduct its own investigation of any
Facility currently owned, leased, operated or used by the Company or any of its
Subsidiaries, if (x) an Default or Event of Default shall have occurred and be
continuing, or (y) the Lender reasonably believes (1) that an occurrence
relating to such Facility is likely to give rise to an Environmental Liability
or (2) that a violation of an Environmental Law on or around such Facility has
occurred or is likely to occur, which could, in either such case, result in a
Material Adverse Effect. The Company agrees to use all reasonable efforts to
obtain permission for the Lender's professional consultant to conduct its own
investigation of any such Facility previously owned, leased, operated or used by
the Company or any of its Subsidiaries. The Company shall use its reasonable
efforts to obtain for the Lender and its agents, employees, consultants and
contractors the right, upon reasonable notice to the Company, to enter into or
on to the Facilities currently owned, leased, operated or used by the Company or
any of its Subsidiaries to perform such tests on such property as are reasonably
necessary to conduct such a review and/or investigation. Any such investigation
of any Facility shall be conducted, unless otherwise agreed to by the Company
and the Lender, during normal business hours and, to the extent reasonably
practicable, shall be conducted so as not to interfere with the ongoing
operations at any such Facility or to cause any damage or loss to any property
at such Facility. The Company and the Lender hereby acknowledge and agree that
any report of any investigation conducted at the request of the Lender pursuant
to this subsection 5.7B will be obtained and shall be used by the Lender for the
purposes of the Lender's internal credit decisions, to monitor and police the
Loans and to protect the Lender's security interests, if any, created by the
Loan Documents. The Lender agrees to deliver a copy of any such report to the
Company with the understanding that the Company acknowledges and agrees that (i)
it will indemnify and hold harmless the Lender from any costs, losses or
liabilities relating to the Company's use of or reliance on such report, (ii)
the Lender makes any representation or warranty with respect to such report, and
(iii) by delivering such report to the Company, the Lender is not requiring or
recommending the implementation of any suggestions or recommendations contained
in such report.
C. The Company shall promptly advise the Lender in writing and in
reasonable detail of (i) any Release or threatened Release of any Hazardous
Materials required to be reported to any federal, state, local or foreign
governmental or regulatory agency under any applicable Environmental Laws, (ii)
any and all communications (written or oral) with respect to any pending or
threatened Environmental Claims that have a reasonable possibility of giving
rise to a Material Adverse Effect or with respect to any Release or threatened
Release of Hazardous Materials, (iii) any Cleanup performed by the Company or
any other Person in response to (x) any Hazardous Materials on, under or about
any Facility, the existence of which has a reasonable possibility of resulting
in an Environmental Liability having a Material Adverse Effect, or (y) any
Environmental Liabilities that could have a Material Adverse Effect, (iv) the
Company's discovery of any occurrence or condition on any property that could
cause any Facility or any part thereof to be subject to any restrictions on the
ownership, occupancy, transferability or use thereof under any Environmental
Laws, and (v) any request for information from any governmental agency that
fairly suggests such agency is investigating whether the Company or any of its
Subsidiaries may be potentially responsible for a Release or threatened Release
of Hazardous Materials.
D. The Company shall promptly notify the Lender of (i) any proposed
acquisition of stock, assets, or property by the Company or any of its
Subsidiaries that could reasonably be expected to expose the Company or any of
its Subsidiaries to, or result in, Environmental Liability that could have a
Material Adverse Effect or that could reasonably be expected to have a material
adverse effect on any Governmental Authorization then held by the Company or any
of its Subsidiaries and (ii) any proposed action to be taken by the Company or
any of its Subsidiaries to commence manufacturing, industrial or other similar
operations that could reasonably be expected to subject the Company or any of
its Subsidiaries to additional Environmental Laws, including, without
limitation, Environmental Laws requiring additional environmental permits or
licenses, that are materially different from the Environmental Laws applicable
to the operations of the Company and its Subsidiaries as of the Closing Date.
E. The Company shall, at its own expense, provide copies of such documents
or information as the Lender may reasonably request in relation to any matters
disclosed pursuant to this subsection 5.7.
5.8 The Company's Remedial Action Regarding Hazardous Materials.
The Company shall promptly take, and shall cause each of its Subsidiaries
promptly to take, any and all necessary remedial action in connection with the
presence, handling, storage, use, disposal, transportation or Release or
threatened Release of any Hazardous Materials on, under or affecting any
Facility in order to comply with all applicable Environmental Laws and
Governmental Authorizations unless the failure to so comply could not reasonably
be expected to have a Material Adverse Effect. In the event the Company or any
of its Subsidiaries undertakes any cleanup action with respect to the presence,
Release or threatened Release of any Hazardous Materials on or affecting any
Facility, the Company or such Subsidiary shall conduct and complete such cleanup
action in material compliance with all applicable Environmental Laws, and in
accordance with the policies, orders and directives of all federal, state and
local governmental authorities except when, and only to the extent that, the
Company's or such Subsidiary's liability for such presence, handling, storage,
use, disposal, transportation or Release or threatened Release of any Hazardous
Materials is being contested in good faith by the Company or such Subsidiary.
5.9 Collateral Matters.
The Company shall deliver at least thirty (30) Business Days' prior written
notice to the Lender of any change in the location of the chief executive office
or place of business of the Company or any of its Subsidiaries from the
locations specified in Schedule 5.9. At least twenty (20) Business Days prior to
any such change, the Company shall cause to be executed and delivered to the
Lender any financing statements or other documents required by the Lender, all
in form and substance satisfactory to the Lender.
5.10 Further Assurances.
At any time or from time to time upon the request of the Lender, the
Company will, at its expense, promptly execute, acknowledge and deliver such
further documents and do such other acts and things as the Lender may reasonably
request in order to effect fully the purposes of the Loan Documents and to
provide for payment of the Obligations in accordance with the terms of this
Agreement, the Notes and the other Loan Documents.
5.11 [RESERVED]
5.12 Use of Proceeds.
The proceeds of all Loans shall be applied by the Company for working
capital and general corporate purposes of the Company and its Subsidiaries. The
proceeds of the Loans shall not be used, directly or indirectly, to purchase the
stock or assets of any corporation, partnership or other entity. No portion of
the proceeds of any Loans shall be used by the Company or any of its
Subsidiaries in any manner which would be illegal under, or which would cause
the invalidity or unenforceability (in each case in whole or in part) of any
Loan Document under, any Applicable Law. Without limiting the generality of the
preceding sentence, no portion of the proceeds of any borrowing under this
Agreement shall be used by the Company or any of its Subsidiaries in any manner
that might cause the borrowing or the application of such proceeds to violate
Regulation U, Regulation T or Regulation X of the Board of Governors of the
Federal Reserve System or any other regulation of such Board or to violate the
Exchange Act, in each case as in effect on the date or dates of such borrowing
and such use of proceeds.
5.13 Cure of Defaults.
Within five Business Days of the Closing Date, the Borrower shall have
cured, or obtained waivers of, any defaults under all Material Contracts and
shall promptly have provided Lender with evidence thereof.
SECTION 6.
NEGATIVE COVENANTS
The Company covenants and agrees that, so long as any of the Commitments
hereunder shall remain in effect and until payment in full of all of the Loans
and other Obligations unless the Lender shall otherwise give prior written
consent, the Company shall perform, and shall cause each of its Subsidiaries to
perform, all covenants in this Section 6.
6.1 Indebtedness.
The Company shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, create, incur, assume or guaranty, or otherwise become
or remain directly or indirectly liable with respect to, any Indebtedness or
preferred stock, except:
(i) The Company may become and remain liable with respect to its
Obligations;
(ii) The Company may remain liable with respect to Indebtedness
described in Schedule 6.1 annexed hereto;
(iii) The Company and its Subsidiaries may become and remain liable
with respect to Indebtedness under Capital Leases capitalized on the
consolidated balance sheet of the Company and its Subsidiaries and other
Indebtedness secured by Liens permitted under subsection 6.2A(ii);
provided, that the aggregate amount of all Indebtedness outstanding under
this clause (ii) at any time shall not exceed $4,000,000;
(iv) The Company may become and remain liable with respect to
Indebtedness to any of its Subsidiaries, any Subsidiary may become and
remain liable with respect to Indebtedness to the Company; provided that
all such intercompany Indebtedness owed by the Company to any of its
respective Subsidiaries shall be unsecured and subordinated in right of
payment to the payment in full of the Obligations pursuant to the terms of
the applicable promissory notes or an intercompany subordination agreement
that in any such case, are reasonably satisfactory to the Lender;
(v) The Company and its Subsidiaries may become and remain liable with
respect to the Indebtedness referred to in subsection 3.1Q in an aggregate
principal amount not to exceed at any time outstanding $3,000,000;
(vi) The Company and its Subsidiaries may become and remain liable
with respect to Indebtedness subordinated to the amounts owed to the Lender
under this Agreement pursuant to the terms of subordination attached hereto
as Exhibit IX in an aggregate principal amount not to exceed at any time
outstanding $5,000,000; and
(vii) The Company and its Subsidiaries may become and remain liable
with respect to other Indebtedness in an aggregate principal amount not to
exceed at any time outstanding $100,000.
6.2 Liens and Related Matters
A. Prohibition on Liens. The Company shall not, and shall not permit any of
its Subsidiaries to, directly or indirectly, create, incur, assume or permit to
exist any Lien on or with respect to any property or assets of any kind
(including any document or instrument in respect of goods or accounts
receivable) of the Company or any of its Subsidiaries, whether now owned or
hereafter acquired, or any income or profits therefrom, or file or permit the
filing of, or permit to remain in effect, any financing statement, or other
similar notice of any Lien with respect to any such property, asset, income or
profits under the Uniform Commercial Code of any state or under any similar
recording or notice statute, except:
(i) Permitted Encumbrances;
(ii) Liens described in Schedule 6.2 annexed hereto;
(iii) Liens in favor of the Lender granted pursuant to the Collateral
Documents or granted in favor of the Lender pursuant to subsection 9.4
hereof; and
(iv) Liens on assets of the Company and its Subsidiaries not otherwise
permitted under this subsection 6.2A, securing obligations (other than
Indebtedness) in an aggregate amount not to exceed $100,000 at any time
outstanding.
B. No Further Negative Pledges. Except with respect to specific property
encumbered to secure payment of particular Indebtedness or to be sold pursuant
to an executed agreement with respect to a sale of assets, neither the Company
nor any of its Subsidiaries shall enter into any agreement (other than the Loan
Documents) prohibiting the creation or assumption of any Lien upon any of its
properties or assets, whether now owned or hereafter acquired.
C. No Restrictions on Subsidiary Distributions to the Company or Other
Subsidiaries. The Company will not, and will not permit any of its Subsidiaries
to, create or otherwise cause or suffer to exist or become effective any
consensual encumbrance, limitation or restriction of any kind on the ability of
any such Subsidiary to (i) pay dividends or make any other distributions on any
of such Subsidiary's Capital Stock owned by the Company or any other Subsidiary
of the Company, (ii) repay or prepay any Indebtedness owed by such Subsidiary to
the Company or any other Subsidiary of the Company, (iii) make loans or advances
to the Company or any other Subsidiary of the Company, or (iv) transfer any of
its property or assets to the Company or any other Subsidiary of the Company.
6.3 Investments.
The Company shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, make or own any Investment in any Person, including any
joint venture, except:
(i) The Company may continue to own the Investments owned by it as of
the Closing Date and make and own additional Investments in any Subsidiary;
(ii) The Company and its Subsidiaries may make intercompany loans to
the extent permitted by subsection 6.1(iv);
(iii) The Company and its Subsidiaries may make extensions of trade
credit in the ordinary course of business;
(iv) The Company and its Subsidiaries may make and own Investments in
Cash Equivalents; and
(v) The Company and its Subsidiaries may make Capital Expenditures
permitted by subsection 6.4.
6.4 Capital Expenditures.
The Company and its Subsidiaries shall not make payments for Capital
Expenditures in excess of an aggregate of $3,000,000 per fiscal quarter. To the
extent that all or any portion of such amount is not used in any fiscal quarter,
it may not be carried forward to the immediately following fiscal year to be
used for Capital Expenditures. The Company and its Subsidiaries shall not make
any Capital Expenditures that are not directly related to the business conducted
on the Closing Date by the Company.
6.5 Restricted Junior Payments.
The Company shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, declare, order, pay, make or set apart any sum for any
Restricted Junior Payment; provided that this subsection will not restrict the
ability of the Company to make Restricted Junior Payments to the Lender or any
of its affiliates; provided that, so long as no Default or Event of Default has
occurred and is continuing or would result therefrom, the Company and its
Subsidiaries may repurchase shares of, or options to purchase shares of, Capital
Stock of the Company or any of its Subsidiaries from employees, former
employees, directors or former directors of the Company or any of its
Subsidiaries (or permitted transferees of such employees, former employees,
directors or former directors), pursuant to the terms of the agreements
(including employment agreements) or plans (or amendments thereto) approved by
the Board of Directors under which such individuals purchase or sell or are
granted the option to purchase or sell, shares of such common stock; provided,
further, that the aggregate amount of such repurchases shall not exceed $100,000
in the aggregate.
6.6 Restriction on Fundamental Changes; Asset Sales.
The Company shall not, and shall not permit any of its Subsidiaries to,
alter the corporate, capital or legal structure of the Company or any of its
Subsidiaries, create any new Subsidiaries or enter into any transaction of
merger or consolidation, or liquidate, wind-up or dissolve itself (or suffer any
liquidation or dissolution), or convey, sell, lease, sub-lease, transfer or
otherwise dispose of all or any substantial part of its business or assets,
whether now owned or hereafter acquired, or acquire by purchase or otherwise all
or a substantial part of the business or assets of, or Capital Stock or other
evidence of beneficial ownership of, any Person or any unit or division thereof,
except the Company and its Subsidiaries may acquire inventory, equipment and
other assets in the ordinary course of business.
6.7 Sale or Discount of Receivables.
The Company shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, sell with recourse, or discount or otherwise sell for
less than the face value thereof, any of its notes or accounts receivable.
6.8 Transactions with Shareholders and Affiliates.
The Company shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, enter into or permit to exist any transaction
(including, without limitation, the purchase, sale, lease or exchange of any
property or the rendering of any service) with any holder of 5% or more of any
class of equity Securities of the Company or with any Affiliate of the Company
or of any such holder, on terms that are less favorable to the Company or that
Subsidiary, as the case may be, than those that might be obtained at the time
from Persons who are not such a holder or Affiliate; provided that the foregoing
restriction shall not apply to (i) the Company and any wholly owned Subsidiary
of the Company, and (ii) reasonable and customary fees paid to members of the
boards of directors of the Company and its Subsidiaries.
6.9 Conduct of Business.
The Company shall not, and shall not permit any of its Subsidiaries to,
engage in any business other than (i) the businesses engaged in by the Company
and its Subsidiaries on the Closing Date and (ii) such other lines of business
as may be reasonably related thereto.
6.10 Amendments or Waivers of Certain Agreements.
A. Amendments or Waivers of Certain Agreements and Documents. None of the
Company nor any of its respective Subsidiaries shall agree to any amendment,
restatement, supplement or other modification to, or waive any of its rights
under, any (i) Organizational Certificate or Organizational Document, or (ii)
other Material Contract, if such amendment, restatement, supplement,
modification or waiver could be materially adverse to the Lender.
B. Stock. Neither the Company nor any Subsidiary of the Company shall (i)
amend, restate, supplement or otherwise modify its Certificate of Incorporation
if the effect of such amendment, restatement, supplement or modification is to
provide for the issuance of any preferred stock of the Company or of any of its
Subsidiaries or the filing or amendment of any certificate of designation with
respect thereto or (ii) issue any additional equity interests or securities
which are convertible into equity interests; provided, however, this provision
shall not preclude the operation of any employee stock plans consistent with
past practice.
6.11 Fiscal Year.
Neither the Company nor any of its Subsidiaries shall change its Fiscal
Year-end from December 31.
SECTION 7.
EVENTS OF DEFAULT
If any of the following conditions or events ("Events of Default") shall
occur:
7.1 Failure to Make Payments When Due.
Failure by the Company to pay any installment of principal of any Loan when
due, whether at stated maturity, by acceleration, by notice of prepayment or
otherwise; or failure by the Company to pay any interest on any Loan or any fee
or any other amount due under this Agreement within two (2) days after the date
due; or
7.2 Default in Other Agreements.
Except, in each case, as disclosed in writing to the Lender or as otherwise
disclosed in the Company's securities law filings (in each case on or prior to
the Closing Date): (i) Failure of the Company or any of its Subsidiaries to pay
when due (a) any principal of or interest on any Indebtedness in an individual
principal amount of $100,000 or more or any items of Indebtedness with an
aggregate principal amount of $250,000 or more or (b) any Contingent Obligation
in an individual principal amount of $100,000 or more or any Contingent
Obligations with an aggregate principal amount of $250,000 or more, in each case
beyond the end of any grace period provided therefor; or (ii) breach or default
by the Company or any of its Subsidiaries with respect to any other term of (a)
any evidence of any Indebtedness in an individual principal amount of $100,000
or more or any items of Indebtedness with an aggregate principal amount of
$250,000 or more or any Contingent Obligation in an individual principal amount
of $100,000 or more or any Contingent Obligations with an aggregate principal
amount of $250,000 or more or (b) any loan agreement, mortgage, indenture or
other agreement relating to such Indebtedness or Contingent Obligation(s), or
the occurrence of any other event, condition or circumstance in respect of any
such Indebtedness or Contingent Obligations if in any case under this clause
(ii) the effect of such breach or default or event, condition or circumstance is
to cause, or to permit the holder or holders of that Indebtedness or Contingent
Obligation(s) (or a trustee on behalf of such holder or holders) to cause, that
Indebtedness or Contingent Obligation(s) to become or be declared due and
payable (or redeemable) prior to its stated maturity or the stated maturity of
any underlying obligation, as the case may be (upon the giving or receiving of
notice, lapse of time, both, or otherwise); or
7.3 Breach of Certain Covenants.
Failure of the Company or any of its Subsidiaries to perform or comply with
any term or condition contained in subsection 2.4, 2.5, 5.1 or 5.2 or Section 6
of this Agreement; or
7.4 Breach of Warranty.
Any representation, warranty, certification or other statement made by the
Company or any of its Subsidiaries in any Loan Document or in any statement or
certificate at any time given by the Company or any of its Subsidiaries in
writing pursuant hereto or thereto or in connection herewith or therewith shall
be false in any material respect on the date as of which made; or
7.5 Other Defaults Under Loan Documents.
The Company or any of its Subsidiaries shall default in the performance of
or compliance with any term contained in this Agreement or any of the other Loan
Documents, other than any such term referred to in any other subsection of this
Section 7, and such default shall not have been remedied or waived within thirty
(30) days after the occurrence of such default; or
7.6 Involuntary Bankruptcy; Appointment of Receiver, etc.
(i) A court having jurisdiction in the premises shall enter a decree or
order for relief in respect of the Company or any of its Subsidiaries in an
involuntary case under the Bankruptcy Code or under any other applicable
bankruptcy, insolvency or similar law now or hereafter in effect, which decree
or order is not stayed; or any other similar relief shall be granted under any
applicable federal or state law; or (ii) an involuntary case shall be commenced
against the Company or any of its Subsidiaries under the Bankruptcy Code or
under any other applicable bankruptcy, insolvency or similar law now or
hereafter in effect; or a decree or order of a court having jurisdiction in the
premises for the appointment of a receiver, liquidator, sequestrator, trustee,
custodian or other officer having similar powers over the Company or any of its
Subsidiaries, or over all or a substantial part of its property, shall have been
entered; or there shall have occurred the involuntary appointment of an interim
receiver, trustee or other custodian of the Company or any of its Subsidiaries
for all or a substantial part of its property; or a warrant of attachment,
execution or similar process shall have been issued against any substantial part
of the property of the Company or any of its Subsidiaries, and any such event
described in this clause (ii) shall continue for sixty (60) days unless
dismissed, bonded or discharged; or
7.7 Voluntary Bankruptcy; Appointment of Receiver, etc.
(i) The Company or any of its Subsidiaries shall have an order for relief
entered with respect to it or commence a voluntary case under the Bankruptcy
Code or under any other applicable bankruptcy, insolvency or similar law now or
hereafter in effect, or shall consent to the entry of an order for relief in an
involuntary case, or to the conversion of an involuntary case to a voluntary
case, under any such law, or shall consent to the appointment of or taking
possession by a receiver, trustee or other custodian for all or a substantial
part of its property; or the Company or any of its Subsidiaries shall make any
assignment for the benefit of creditors; or (ii) the Company or any of its
Subsidiaries shall be unable, or shall fail generally, or shall admit in writing
its inability, to pay its debts as such debts become due; or the Board of
Directors of the Company or any of its Subsidiaries (or any committee thereof)
shall adopt any resolution or otherwise authorize any action to approve any of
the actions referred to in clause (i) above or this clause (ii); or
7.8 Judgments and Attachments.
Any money judgment, writ or warrant of attachment or similar process
involving (i) in any individual case an amount in excess of $250,000 or (ii) in
the aggregate at any time an amount in excess of $500,000 (in either case not
adequately covered by insurance as to which a solvent and unaffiliated insurance
the Company has acknowledged coverage) shall be entered or filed against the
Company or any of its Subsidiaries or any of their respective assets and shall
remain undischarged, unvacated, unbonded or unstayed for a period of thirty (30)
days (or in any event later than five days prior to the date of any proposed
sale thereunder); or
7.9 Dissolution.
Any order, judgment or decree shall be entered against the Company or any
of its Subsidiaries decreeing the dissolution or split up of the Company or that
Subsidiary and such order shall remain undischarged or unstayed for a period in
excess of thirty (30) days; or
7.10 Employee Benefit Plans.
There shall occur one or more ERISA Events which individually or in the
aggregate results in or could reasonably be expected to result in a Material
Adverse Effect; or there shall exist an Unfunded Current Liability, individually
or in the aggregate for all Pension Plans (excluding for purposes of such
computation any Pension Plans with respect to which there is no Unfunded Current
Liability), which will have or could reasonably be expected to result in a
Material Adverse Effect; or
7.11 Change in Control.
(a) A majority of the members of the Board of Directors of the Company
shall not be Continuing Directors; or (b) any Person, including a "group"
(within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act) which
includes such Person, shall purchase or otherwise acquire, directly or
indirectly, beneficial ownership of Securities of the Company and, as a result
of such purchase or acquisition, any Person (together with its associates and
Affiliates), shall directly or indirectly beneficially own in the aggregate
Securities representing more than 20% of the combined voting power of the
Company's voting Securities; or
7.12 Failure of Security.
Any Collateral Document shall, at any time, cease to be in full force and
effect (other than by reason of a release of Collateral thereunder in accordance
with the terms hereof or thereof, the satisfaction in full of the Obligations or
any other termination of such Collateral Document in accordance with the terms
hereof or thereof) or shall be declared null and void, or the validity or
enforceability thereof shall be contested in writing by the Company or any of
its Subsidiaries, or the Lender shall not have or shall cease to have a valid
security interest in any Collateral purported to be covered thereby, perfected
and with the priority required by the relevant Collateral Document, for any
reason other than the failure of the Lender to take any action within its
control, subject only to Liens permitted under the applicable Collateral
Documents;
THEN (i) upon the occurrence of any Event of Default described in subsection 7.6
or 7.7 each of (a) the unpaid principal amount of and accrued interest on the
Loans, and (b) all other Obligations shall automatically become immediately due
and payable, without presentment, demand, protest or other requirements of any
kind, all of which are hereby expressly waived by the Company, and the
obligation of the Lender to make any Loan shall thereupon terminate, and (ii)
upon the occurrence and during the continuation of any other Event of Default,
the Lender may, by written notice to the Company, declare all or any portion of
the amounts described in clauses (a) and (b) above to be, and the same shall
forthwith become, immediately due and payable, and the obligation of the Lender
to make any Loan shall thereupon terminate.
SECTION 8.
[RESERVED]
SECTION 9.
MISCELLANEOUS
9.1 [RESERVED]
9.2 Expenses.
Whether or not the transactions contemplated hereby shall be consummated,
the Company agrees to pay promptly (i) all the actual and reasonable costs and
out of pocket expenses of the Lender in connection with the preparation of the
Loan Documents; (ii) all the actual and reasonable costs of furnishing all
opinions by counsel for the Company (including without limitation any opinions
requested by the Lender as to any legal matters arising hereunder) and of the
Company's performance of and compliance with all agreements and conditions on
its part to be performed or complied with under this Agreement and the other
Loan Documents including, without limitation, with respect to confirming
compliance with environmental and insurance requirements; (iii) the reasonable
fees, expenses and disbursements of counsel to the Lender in connection with the
negotiation, preparation, execution and administration of the Loan Documents and
the Loans and any consents, amendments, waivers or other modifications hereto or
thereto and any other documents or matters requested by the Company; (iv) all
other actual and reasonable costs and expenses incurred by the Lender in
connection with the negotiation, preparation and execution of the Loan Documents
and the transactions contemplated hereby and thereby; and (v) after the
occurrence of a Default or Event of Default, all the respective costs and
expenses, including reasonable attorneys' fees and costs of settlement, incurred
by the Lender in enforcing any Obligations of or in collecting any payments due
from the Company hereunder or under the other Loan Documents by reason of such
Default or Event of Default or in connection with any refinancing or
restructuring of the credit arrangements provided under this Agreement in the
nature of a "work-out" or pursuant to any insolvency or bankruptcy proceedings.
9.3 Indemnity.
In addition to the payment of expenses pursuant to subsection 9.2, whether
or not the transactions contemplated hereby shall be consummated, the Company
agrees to defend, indemnify, pay and hold harmless the Lender, and the officers,
directors, employees, agents, attorneys and affiliates of the Lender
(collectively called the "Indemnitees") from and against any and all other
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
claims, costs, expenses and disbursements of any kind or nature whatsoever
(including without limitation the reasonable fees and disbursements of counsel
for such Indemnitees in connection with any investigative, administrative or
judicial proceeding commenced or threatened by any Person, whether or not any
such Indemnitee shall be designated as a party or a potential party thereto),
whether direct, indirect or consequential and whether based on any federal,
state or foreign laws, statutes, rules or regulations (including without
limitation securities and commercial laws, statutes, rules or regulations and
Environmental Laws), on common law or equitable cause or on contract or
otherwise, that may be imposed on, incurred by, or asserted against any such
Indemnitee, in any manner relating to or arising out of this Agreement or the
other Loan Documents or the transactions contemplated hereby or thereby
(including without limitation the Lender's agreement to make the Loans hereunder
or the use or intended use of the proceeds of any of the Loans) or any
Environmental Liabilities that arise from or relate to the management, use,
control, ownership, occupancy or operation of any Facility or assets of the
Company or any of its Subsidiaries (including without limitation, all on-site
and off-site activities involving Hazardous Materials), or the Release or
threatened Release of any Hazardous Materials (or allegations of the same) on or
from any of the Facilities or on or from any other property where Hazardous
Materials are or were (or are or were alleged to be) Released or threatened to
be Released in connection with any of the Facilities or the business of any of
the Company or any of its Subsidiaries, or any predecessor in interest to the
Company or any of its Subsidiaries (collectively called the "Indemnified
Liabilities"); provided that the Company shall not have any obligation to any
Indemnitee hereunder with respect to any Indemnified Liabilities to the extent,
and only to the extent, of any particular liability, obligation, loss, damage,
penalty, claim, cost, expense or disbursement that arose from the gross
negligence or willful misconduct of that Indemnitee as determined by a final
judgment of a court of competent jurisdiction. To the extent that the
undertaking to defend, indemnify, pay and hold harmless set forth in the
preceding sentence may be unenforceable because it is violative of any law or
public policy, the Company shall contribute the maximum portion that it is
permitted to pay and satisfy under applicable law to the payment and
satisfaction of all Indemnified Liabilities incurred by the Indemnitees or any
of them.
9.4 Set-Off; Security Interest in Deposit Accounts.
In addition to any rights now or hereafter granted under applicable law and
not by way of limitation of any such rights, upon the occurrence and during the
continuance of any Event of Default, the Lender is hereby authorized by the
Company at any time or from time to time, without notice to the Company or to
any other Person, any such notice being hereby expressly waived, to set off and
to appropriate and to apply any and all deposits (general or special, including,
but not limited to, Indebtedness evidenced by certificates of deposit, whether
matured or unmatured, but not including trust accounts) and any other
Indebtedness at any time held or owing by the Lender to or for the credit or the
account of the Company against and on account of the obligations and liabilities
of the Company to the Lender under this Agreement, the Notes and participations
therein, including, but not limited to, all claims of any nature or description
arising out of or connected with this Agreement, the Notes and participations
therein or any other Loan Document, irrespective of whether or not (i) the
Lender shall have made any demand hereunder or (ii) the principal of or the
interest on the Loans or any other amounts due hereunder shall have become due
and payable pursuant to Section 7 and although said obligations and liabilities,
or any of them, may be contingent or unmatured.
9.5 [RESERVED]
9.6 Amendments and Waivers.
No amendment, modification, termination or waiver of any provision of this
Agreement or of the Notes, or consent to any departure by the Company or any of
its subsidiaries therefrom, shall in any event be effective without the written
consent of the Lender. Any waiver or consent shall be effective only in the
specific instance and for the specific purpose for which it was given. No notice
to or demand on the Company in any case shall entitle the Company to any other
or further notice or demand in similar or other circumstances. Any amendment,
modification, termination, waiver or consent effected in accordance with this
subsection 9.6 shall be binding upon the Lender and the Company.
9.7 Independence of Covenants.
All covenants hereunder shall be given independent effect so that if a
particular action or condition is not permitted by any of such covenants, the
fact that it would be permitted by an exception to, or would otherwise be within
the limitations of, another such covenant shall not avoid the occurrence of a
Default or Event of Default if such action is taken or condition exists.
9.8 Notices.
Unless otherwise specifically provided herein, any notice or other
communication herein required or permitted to be given shall be in writing and
may be personally served, telecopied, telexed or sent by United States mail or
courier service and shall be deemed to have been given when delivered in person
or by courier service, upon receipt of telecopy or telex, or four Business Days
after depositing it in the United States mail, registered or certified, with
postage prepaid and properly addressed; provided that notices to the Lender
shall not be effective until received. For the purposes hereof, the address of
each party hereto shall be as set forth on Schedule 9.8 attached hereto, or such
other address as shall be designated by such party in a written notice delivered
to the Lender and the Company.
9.9 Survival of Representations, Warranties and Agreements.
A. All representations, warranties and agreements made herein shall survive
the execution and delivery of this Agreement and the making of the Loans
hereunder.
B. Notwithstanding anything in this Agreement or implied by law to the
contrary, the agreements of the Company set forth in subsections 2.6, 2.7, 9.2,
9.3 and 9.4 and the agreements of the Lender set forth in subsection 9.4 shall
survive the payment of the Loans and the termination of this Agreement.
9.10 Failure or Indulgence Not Waiver; Remedies Cumulative.
No failure or delay on the part of the Lender in the exercise of any power,
right or privilege hereunder or under any other Loan Document shall impair such
power, right or privilege or be construed to be a waiver of any default or
acquiescence therein, nor shall any single or partial exercise of any such
power, right or privilege preclude other or further exercise thereof or of any
other power, right or privilege. All rights and remedies existing under this
Agreement and the other Loan Documents are cumulative to, and not exclusive of,
any rights or remedies otherwise available.
9.11 Marshalling; Payments Set Aside.
The Lender shall not be under any obligation to marshal any assets in favor
of the Company or any other party or against or in payment of any or all of the
Obligations. To the extent that the Company makes a payment or payments to the
Lender, or the Lender enforces any security interests or exercise its rights of
setoff, and such payment or payments or the proceeds of such enforcement or
setoff or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside and/or required to be repaid to a trustee,
receiver or any other party under any bankruptcy law, any other state or federal
law, common law or any equitable cause, then, to the extent of such recovery,
the obligation or part thereof originally intended to be satisfied, and all
Liens, rights and remedies therefor or related thereto, shall be revived and
continued in full force and effect as if such payment or payments had not been
made or such enforcement or setoff had not occurred.
9.12 Severability.
In case any provision in or obligation under this Agreement or the Notes
shall be invalid, illegal or unenforceable in any jurisdiction, the validity,
legality and enforceability of the remaining provisions or obligations, or of
such provision or obligation in any other jurisdiction, shall not in any way be
affected or impaired thereby.
9.13 [RESERVED]
9.14 Maximum Amount.
A. It is the intention of the Company and the Lender to conform strictly to
the usury and similar laws relating to interest from time to time in force, and
all agreements between the Loan Parties and their respective Subsidiaries and
the Lender, whether now existing or hereafter arising and whether oral or
written, are hereby expressly limited so that in no contingency or event
whatsoever, whether by acceleration of maturity hereof or otherwise, shall the
amount paid or agreed to be paid in the aggregate to the Lender as interest
(whether or not designated as interest, and including any amount otherwise
designated but deemed to constitute interest by a court of competent
jurisdiction) hereunder or under the other Loan Documents or in any other
agreement given to secure the indebtedness or obligations of the Company to the
Lender, or in any other document evidencing, securing or pertaining to the
indebtedness evidenced hereby, exceed the maximum amount permissible under
applicable usury or such other laws (the "Maximum Amount"). If under any
circumstances whatsoever fulfillment of any provision hereof, or any of the
other Loan Documents, at the time performance of such provision shall be due,
shall involve exceeding the Maximum Amount, then, ipso facto, the obligation to
be fulfilled shall be reduced to the Maximum Amount. For the purposes of
calculating the actual amount of interest paid and/or payable hereunder in
respect of laws pertaining to usury or such other laws, all sums paid or agreed
to be paid to the holder hereof for the use, forbearance or detention of the
indebtedness of the Company evidenced hereby, outstanding from time to time
shall, to the extent permitted by Applicable Law, be amortized, pro-rated,
allocated and spread from the date of disbursement of the proceeds of the Notes
until payment in full of all of such indebtedness, so that the actual rate of
interest on account of such indebtedness is uniform through the term hereof. The
terms and provisions of this subsection shall control and supersede every other
provision of all agreements between the Company or any endorser of the Notes and
the Lender.
B. If under any circumstances the Lender shall ever receive an amount which
would exceed the Maximum Amount, such amount shall be deemed a payment in
reduction of the principal amount of the Loans and shall be treated as a
voluntary prepayment under subsection 2.4B(i) and shall be so applied in
accordance with subsection 2.4 hereof or if such excessive interest exceeds the
unpaid balance of the Loans and any other indebtedness of the Company in favor
of such Lender, the excess shall be deemed to have been a payment made by
mistake and shall be refunded to the Company.
9.15 Headings.
Section and subsection headings in this Agreement are included herein for
convenience of reference only and shall not constitute a part of this Agreement
for any other purpose or be given any substantive effect.
9.16 Applicable Law.
THIS AGREEMENT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
9.17 Successors and Assigns.
This Agreement shall be binding upon the parties hereto and their
respective successors and assigns and shall inure to the benefit of the parties
hereto and the successors and assigns of the Lender. The Company's rights or
obligations hereunder nor any interest therein may not be assigned or delegated
by the Company without the prior written consent of the Lender.
9.18 Consent to Jurisdiction and Service of Process.
ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST THE COMPANY AND THE LENDER ARISING
OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY
OBLIGATIONS THEREUNDER, MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF
COMPETENT JURISDICTION IN THE STATE, COUNTY AND CITY OF NEW YORK. THE COMPANY
HEREBY IRREVOCABLY DESIGNATES, APPOINTS AND EMPOWERS CT CORPORATION SYSTEM, WITH
OFFICES ON THE DATE HEREOF AT 1633 BROADWAY, NEW YORK, NEW YORK 10019 AS ITS
DESIGNEE, APPOINTEE AND AGENT TO RECEIVE, ACCEPT AND ACKNOWLEDGE FOR AND ON ITS
BEHALF, AND IN RESPECT OF ITS PROPERTY, SERVICE OF ANY AND ALL LEGAL PROCESS,
SUMMONS, NOTICES AND DOCUMENTS WHICH MAY BE SERVED IN ANY SUCH ACTION OR
PROCEEDING. IF FOR ANY REASON SUCH DESIGNEE, APPOINTEE AND AGENT SHALL CEASE TO
BE AVAILABLE TO ACT AS SUCH, THE COMPANY AGREES TO DESIGNATE A NEW DESIGNEE,
APPOINTEE AND AGENT IN NEW YORK CITY ON THE TERMS AND FOR THE PURPOSES OF THIS
PROVISION SATISFACTORY TO THE LENDER UNDER THIS AGREEMENT. THE COMPANY HEREBY
FURTHER IRREVOCABLY WAIVES ANY CLAIM THAT ANY SUCH COURTS LACK JURISDICTION OVER
THE COMPANY, AND AGREES NOT TO PLEAD OR CLAIM, IN ANY LEGAL ACTION OR PROCEEDING
WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT BROUGHT IN ANY OF THE
AFORESAID COURTS, THAT ANY SUCH COURT LACKS JURISDICTION OVER THE COMPANY. THE
COMPANY FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS IN ANY SUCH
ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED
MAIL, POSTAGE PREPAID, TO THE COMPANY, AT ITS ADDRESS FOR NOTICES PURSUANT TO
SECTION 9.8. THE COMPANY HEREBY IRREVOCABLY WAIVES ANY OBJECTION TO SUCH SERVICE
OF PROCESS AND FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN
ANY ACTION OR PROCEEDING COMMENCED HEREUNDER OR UNDER ANY OTHER LOAN DOCUMENT
THAT SERVICE OF PROCESS WAS IN ANY WAY INVALID OR INEFFECTIVE. NOTHING HEREIN
SHALL AFFECT THE RIGHT OF THE LENDER TO SERVE PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST
THE COMPANY IN ANY OTHER JURISDICTION. THE COMPANY HEREBY IRREVOCABLY WAIVES ANY
OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY OF
THE AFORESAID ACTIONS OR PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT BROUGHT IN THE COURTS REFERRED TO ABOVE AND
HEREBY FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH
COURT THAT ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN
BROUGHT IN AN INCONVENIENT FORUM.
9.19 Waiver of Jury Trial.
EACH OF THE PARTIES TO THIS AGREEMENT HEREBY AGREES TO WAIVE ITS RESPECTIVE
RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT
OF THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR ANY DEALINGS BETWEEN
THEM RELATING TO THE SUBJECT MATTER OF THIS LOAN TRANSACTION OR THE
LENDER/BORROWER RELATIONSHIP OR OTHER RELATIONSHIP THAT IS BEING ESTABLISHED.
The scope of this waiver is intended to be all-encompassing of any and all
disputes that may be filed in any court and that relate to the subject matter of
this transaction, including, without limitation, contract claims, tort claims,
breach of duty claims and all other common law and statutory claims. Each party
hereto acknowledges that this waiver is a material inducement to enter into a
business relationship, that each has already relied on this waiver in entering
into this Agreement, and that each will continue to rely on this waiver in their
related future dealings. Each party hereto further warrants and represents that
it has reviewed this waiver with its legal counsel and that it knowingly and
voluntarily waives its jury trial rights following consultation with legal
counsel. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER
ORALLY OR IN WRITING (OTHER THAN BY A MUTUAL WRITTEN WAIVER SPECIFICALLY
REFERRING TO THIS SUBSECTION 9.19 AND EXECUTED BY EACH OF THE PARTIES HERETO),
AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS
OR MODIFICATIONS TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR TO ANY
OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE LOANS MADE HEREUNDER. In the event
of litigation, this Agreement may be filed as a written consent to a trial by
the court.
9.20 [RESERVED]
9.21 Counterparts; Effectiveness.
This Agreement and any amendments, waivers, consents or supplements hereto
or in connection herewith may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed an original, but all such counterparts
together shall constitute but one and the same instrument; signature pages may
be detached from multiple separate counterparts and attached to a single
counterpart so that all signature pages are physically attached to the same
document.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their respective officers thereunto duly
authorized as of the date first written above.
COMPANY: SMARTALK TELESERVICES, INC.
By:____________________________
Name:__________________________
Title:_________________________
LENDER: FLETCHER INTERNATIONAL LIMITED
as Lender
By:____________________________
Name:__________________________
Title:_________________________
By:____________________________
Name:__________________________
Title:_________________________
PLEDGE AND SECURITY AGREEMENT
This PLEDGE AND SECURITY AGREEMENT, dated as of December 4, 1998, is made
by SmarTalk Teleservices, Inc. ("SmarTalk") and the Subsidiaries listed on the
signature page hereto, as Borrower (the "Borrower"), in favor of Fletcher
International Limited, as Secured Party (the "Secured Party").
RECITALS:
WHEREAS, the parties hereto have entered into a Credit Agreement, dated as
of December 4, 1998, between SmarTalk and the Secured Party (said Agreement, as
it may hereafter be amended or otherwise modified from time to time, the "Credit
Agreement");
WHEREAS, pursuant to the Credit Agreement, the Secured Party has agreed to
make extensions of credit to SmarTalk upon the terms and subject to the
conditions set forth therein;
WHEREAS, it is a condition precedent to the obligations of the Secured
Party to extend credit to SmarTalk under the Credit Agreement that the
obligations of SmarTalk thereunder be secured as provided herein;
NOW, THEREFORE, in consideration of the premises and in order to induce the
Secured Party to enter into the Credit Agreement and to make its extensions of
credit to SmarTalk thereunder, and in consideration of other Secured Obligations
hereinafter incurred, the Borrower hereby agrees with the Secured Party, as
follows:
ARTICLE II
DEFINITIONS
2.2 Definitions. Capitalized terms used herein but not otherwise defined
herein shall have the meanings ascribed thereto in the Credit Agreement. The
following terms shall have the following meanings:
"Account Debtor" shall mean the person who is obligated on a
Receivable.
"Accounts" shall mean "accounts" as such term is defined in Section
9-106 of the UCC.
"Agreement" shall mean this Pledge and Security Agreement, as the same
may from time to time be amended, supplemented or otherwise modified.
<PAGE>
"Capital Stock" shall mean any and all shares, interests,
participations or other equivalents (however designated) of capital stock
of a corporation, any and all equivalent ownership interests in a Person
(other than a corporation) and any and all warrants, rights or options to
purchase any of the foregoing.
"Chattel Paper" shall mean "chattel paper" as such term is defined in
Section 9-105(b) of the UCC.
"Collateral" shall have the meaning assigned to it in Section 2
hereof.
"Collateral Account" shall mean the account (which may be a securities
account) maintained pursuant to this Agreement by the Secured Party
entitled "[Wells Fargo Account # 4091382788 ]," and all funds, investment
property and instruments or other items from time to time credited to such
account and all interest thereon.
"Collateral Records" shall mean books, records, computer software,
computer printouts, customer lists, blueprints, technical specifications,
manuals, and similar items which relate to any Collateral other than such
items obtained under license or franchise agreements which prohibit
assignment or disclosure of such items.
"Contracts" shall mean all contracts to which any Borrower now is, or
hereafter will be, bound, or a party, beneficiary or assignee (including
without limitation Copyright Licenses, Patent Licenses, Trademark Licenses
and Trade Secret Licenses), and all other instruments, agreements and
documents executed and delivered with respect to such contracts, and all
revenues, rentals, Proceeds and other sums of money due and to become due
from any of the foregoing, as the same may be modified, supplemented or
amended from time to time in accordance with their terms.
"Copyright Licenses" shall mean all of any Borrower's right, title,
and interest in and to any and all agreements providing for the granting of
any right in or to Copyrights (whether the Borrower is licensee or licensor
thereunder) including, without limitation, each agreement referred to in
Item B of Schedule IV.
"Copyrights" shall mean all of any Borrower's right, title, and
interest in and to all United States and foreign copyrights, all mask works
fixed in semi-conductor chip products (as defined under 17 U.S.C. 901 of
the U.S. Copyright Act), whether registered or unregistered, now or
hereafter in force throughout the world, all registrations and applications
therefor including, without limitation, the registrations and applications
<PAGE>
referred to in Item A of Schedule IV, all rights corresponding thereto
throughout the world, all extensions and renewals of any thereof, the right
to sue for past infringements of any of the foregoing, and all proceeds of
the foregoing, including, without limitation, licenses, royalties, income,
payments, claims, damages, and proceeds of suit.
"Deposit Accounts" shall mean the Collateral Account and any deposit
account, including without limitation, "deposit accounts" as such term is
defined in Section 9-105(e) of the UCC and any other deposit or securities
account, together with any funds, instruments or other items credited to
any such account from time to time, and all interest thereon.
"Documents" shall mean "documents" as such term is defined in Section
9-105(f) of the UCC.
"Equipment" shall mean "equipment" as such term is defined in Section
9-109(2) of the UCC, including, without limitation, machinery,
manufacturing equipment, data processing equipment, computers, office
equipment, furniture, appliances, tools, furnishings, fixtures, vehicles,
motor vehicles, and any manuals, instructions, blueprints, computer
software and similar items which relate to the above, and any and all
additions, substitutions and replacements of any of the foregoing, wherever
located, together with all improvements thereon and all attachments,
components, parts, equipment and accessories installed thereon or affixed
thereto.
"Event of Default" shall have the meaning assigned thereto in the
Credit Agreement.
"Fixtures" shall mean "fixtures" as such term is defined in Section
9-313 of the UCC.
"General Intangibles" shall mean "general intangibles" as such term is
defined in Section 9-106 of the UCC, including, without limitation, rights
to the payment of money (other than Receivables), Trademarks, Copyrights,
Patents and Contracts, licenses including, without limitation, Trademark
Licenses, Copyright Licenses, Patent Licenses and Trade Secret Licenses and
franchises, partnership interests, joint venture interests, federal income
tax refunds, computer software, databases, inventions, designs, Trade
Secrets, goodwill, tradenames, fictitious business names, business names,
company names, business identifiers, trade styles and service marks
(whether or not registered), proprietary rights, customer lists, supplier
and customer contracts, sale orders, correspondence, advertising materials,
payments due in connection with any requisition, confiscation,
condemnation, seizure or forfeiture of any property, reversionary interests
in pension and profit-sharing plans and
<PAGE>
reversionary, beneficial and residual interests in trusts, credits with and
other claims against any Person, together with any collateral for any of
the foregoing and the rights under any security agreement granting a
security interest in such collateral.
"Instruments" shall mean "instruments" as such term is defined in
Section 9-105(1)(i) of the UCC.
"Insurance Policies" shall mean insurance policies, including without
limitation the following insurance policies: attached hereto on Schedule
VII.
"Intellectual Property" shall mean, collectively, the Copyrights, the
Copyright Licenses, the Patents, the Patent Licenses, the Trademarks, the
Trademark Licenses, the Trade Secrets and the Trade Secret Licenses.
"Interest Rate Agreements" shall mean interest rate or currency
protection or hedging arrangements, including without limitation, caps,
collars, floors, forwards and any other similar or dissimilar interest rate
or currency exchange agreements or other interest rate or currency hedging
arrangements (including the Hedge Agreements).
"Inventory" shall mean "inventory" as such term is defined in ss.
9-109(4) of the UCC, including without limitation, all goods (whether such
goods are in the possession of any Borrower or of a bailee or other Person
for sale, lease, storage, transit, processing, use or otherwise and whether
consisting of whole goods, spare parts, components, supplies, materials or
consigned or returned or repossessed goods), including without limitation,
all such goods whether raw, in process or finished, all materials usable in
processing the same and all documents of title covering any inventory,
including but not limited to work in process, materials used or consumed in
Borrower's business, now owned or hereafter acquired or manufactured by any
Borrower and held for sale in the ordinary course of its business; all
present and future substitutions therefor, parts and accessories thereof
and all additions thereto; and all proceeds thereof and products of such
inventory in any form whatsoever.
"Money" shall mean "money" as such term is defined in Section
1-201(24) of the UCC.
"Motor Vehicles" shall mean motor vehicles, tractors, trailers and
other like property, if title thereto is governed by a certificate of title
ownership.
"Patent Licenses" means all of any Borrower's right, title, and
<PAGE>
interest in and to any and all agreements providing for the granting of any
right in or to Patents (whether the Borrower is licensee or licensor
thereunder) including, without limitation, each agreement referred to in
Item D of Schedule IV.
"Patents" means all of any Borrower's right, title, and interest in
and to all United States and foreign patents and applications for letters
patent throughout the world, including, but not limited to each patent and
patent application referred to in Item C of Schedule IV, all reissues,
divisions, continuations, continuations-in-part, and reexaminations of any
of the foregoing, all rights corresponding thereto throughout the world,
and all proceeds of the foregoing including, without limitation, licenses,
royalties, income, payments, claims, damages, and proceeds of suit and the
right to sue for past infringements of any of the foregoing.
"Person" shall mean and include any individual, partnership, joint
venture, firm, corporation, association, trust or other enterprise or any
government or political subdivision or agency, department or
instrumentality thereof.
"Pledged Notes" shall mean any promissory notes listed on Schedule I
hereto, all intercompany notes at any time issued to any Borrower and all
other promissory notes issued or held by any Borrower (other than
promissory notes to be issued in connection with extensions of trade credit
by any Borrower in the ordinary course of business).
"Pledged Stock" shall mean any shares of Capital Stock listed on
Schedule I hereto, together with any other shares, stock certificates,
options or rights of any nature whatsoever in respect of the Capital Stock
of any Person that may be issued or granted to, or held by, any Borrower
while this Agreement is in effect; provided, only the outstanding capital
stock of a foreign controlled corporation possessing up to but not
exceeding 65% of the total voting power of all classes of capital stock of
such foreign controlled foreign corporation entitled to vote shall be
deemed to be pledged hereunder.
"Proceeds" shall mean "proceeds" as such term is defined in Section
9-306(1) of the UCC.
"Receivables" shall mean all rights to payment for goods sold or
leased or services rendered, whether or not earned by performance and all
rights in respect of the Account Debtor, including without limitation, all
such rights in which the Borrower has any right, title or interest by
reason of the purchase thereof by the Borrower, and including without
limitation all such rights constituting or evidenced by any Account,
Chattel Paper, Instrument, General Intangible, note, contract, invoice,
purchase order,
<PAGE>
draft, acceptance, intercompany account, security agreement, or other
evidence of indebtedness or security, together with (a) any collateral
assigned, hypothecated or held to secure any of the foregoing and the
rights under any security agreement granting a security interest in such
collateral, (b) all goods, the sale of which gave rise to any of the
foregoing, including, without limitation, all rights in any returned or
repossessed goods and unpaid seller's rights, (c) all guarantees,
endorsements and indemnifications on, or of, any of the foregoing, and (d)
all powers of attorney for the execution of any evidence of indebtedness or
security or other writing in connection therewith.
"Receivables Records" shall mean (a) all original copies of all
documents, instruments or other writings evidencing the Receivables, (b)
all books, correspondence, credit or other files, records, ledger sheets or
cards, invoices, and other papers relating to Receivables, including
without limitation all tapes, cards, computer tapes, computer discs,
computer runs, record keeping systems and other papers and documents
relating to the Receivables, whether in the possession or under the control
of the Borrower or any computer bureau or agent from time to time acting
for the Borrower or otherwise, (c) all evidences of the filing of financing
statements and the registration of other instruments in connection
therewith and amendments, supplements or other modifications thereto,
notices to other creditors or secured parties, and certificates,
acknowledgments, or other writings, including, without limitation, lien
search reports, from filing or other registration officers, (d) all credit
information, reports and memoranda relating thereto, and (e) all other
written or non-written forms of information related in any way to the
foregoing or any Receivable.
"Secured Obligations" shall mean (a) all obligations, liabilities
(including, without limitation, contingent obligations) and indebtedness of
every nature of the Borrower, now existing or hereafter incurred, arising
under or in connection with the Credit Agreement, any Note, any other
Credit Document or this Agreement; (b) all obligations, liabilities
(including, without limitation, contingent obligations) and indebtedness of
every nature of the Borrower, now existing or hereafter incurred, arising
under or in connection with Hedge Agreements entered into in connection
with the Credit Agreement and prior to the termination thereof; and (c) all
other obligations, liabilities of every kind, nature or description, direct
or indirect, primary or secondary, joint or several, absolute or contingent
of the Borrower to the Secured Party whether due or to become due and
whether now existing or hereafter incurred and whether similar or
dissimilar to the obligations described in clauses (a) and (b) hereof, and
including, without limitation, all consumer or commercial transactions, all
purchase money and nonpurchase money transactions, all overdrafts, all
letters of credit, all lines of credit and all other extensions of credit,
<PAGE>
regardless of how they may be evidenced.
"Secured Party" shall mean Fletcher International Limited.
"Security Collateral" shall mean:
(i) any Pledged Stock and the certificates representing the Pledged
Stock, and all dividends, cash, instruments and other property from time to
time received, receivable or otherwise distributed in respect of or in
exchange for any or all of the Pledged Stock;
(ii) any Pledged Notes and the instruments evidencing the Pledged
Notes, and all interest, cash, instruments and other property from time to
time received, receivable or otherwise distributed in respect of or in
exchange for any or all of the Pledged Notes;
(iii) all additional shares of stock (of any issuer of the Pledged
Stock) from time to time acquired by any Borrower in any manner, and the
certificates representing such additional shares, and all dividends, cash,
instruments and other property from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of such
shares; and
(iv) all additional indebtedness from time to time owed to any
Borrower by any obligor of the Pledged Notes and the instruments evidencing
such indebtedness, and all interest, cash, instruments and other property
from time to time received, receivable or otherwise distributed in respect
of or in exchange for any or all of such indebtedness.
"Trademark Licenses" shall mean all of the Borrower's right, title and
interest in, and to any and all agreements providing for the granting of
any right in or to Trademarks (whether such Borrower is licensee or
licensor thereunder) including, without limitation, any agreement referred
to in Item F of Schedule IV.
"Trademarks" shall mean all of the Borrower's right, title and
interest in, and to all United States and foreign trademarks, trade names,
corporate names, fictitious business names, trade styles, service marks,
certification marks, collective marks, logos, other source or business
identifiers, designs, internet domain names and general intangibles of a
like nature, all registrations and applications for any of the foregoing
including, but not limited to the registrations and applications referred
to in Item E of Schedule IV, all extensions or renewals of any of the
foregoing; rights of publicity and privacy relating to the use of names,
likenesses, signatures and biographical information of real persons; all of
the goodwill
<PAGE>
of the business connected with the use of and symbolized by the foregoing;
the right to sue for past infringement or dilution of any of the foregoing
or for any injury to goodwill, and all proceeds of the foregoing,
including, without limitation, licenses, royalties, income, payments,
claims, damages and proceeds of suit.
"Trade Secret Licenses" shall mean all of the Borrower's right, title
and interest in and to any and all payments providing for the granting of
any right in or to Trade Secrets (whether the Borrower is licensee or
licensor thereunder) including, without limitation, any agreement referred
to in Item G of Schedule IV.
"Trade Secrets" shall mean all of the Borrower's right, title and
interest in and to trade secrets and all other confidential or proprietary
information and know-how now or hereafter owned or used in, or contemplated
at any time for use in, the business of the Borrower (all of the foregoing
being collectively called a "Trade Secret"), whether or not such Trade
Secret has been reduced to a writing or other tangible form, including all
documents and things embodying, incorporating or referring in any way to
such Trade Secret, the right to sue for past infringement of any Trade
Secret and all proceeds of the foregoing, including, without limitation,
licenses, royalties, income, payments, claims, damages and proceeds of
suit.
"UCC" shall mean the Uniform Commercial Code as in effect from time to
time in the State of New York.
ARTICLE IV
GRANT OF SECURITY INTERESTS
4.2 As security for the prompt and complete payment and performance in full
of all the Secured Obligations when due (whether at stated maturity, by
acceleration or otherwise), the Borrower hereby grants to the Secured Party a
security interest in and lien on all of such Borrower's right, title and
interest in, to and under the following, in each case, whether now owned or
existing or hereafter acquired or arising and wherever located (all of which
being hereinafter collectively called the "Collateral"):
(1) all Accounts;
(2) all Chattel Paper;
(3) all Contracts;
<PAGE>
(4) the Collateral Account;
(5) all Collateral Records;
(6) all Deposit Accounts;
(7) all Documents;
(8) all Equipment;
(9) all Fixtures;
(10) all General Intangibles;
(11) all Intellectual Property;
(12) all Interest Rate Agreements;
(13) all Instruments;
(14) all Insurance Policies;
(15) all Inventory;
(16) all Money;
(17) all Motor Vehicles;
(18) all Receivables;
(19) all Receivables Records;
(20) all other tangible and intangible personal property;
(21) all of the Security Collateral; and
(22) all accessions and additions to any or all of the foregoing, all
substitutions and replacements for any or all of the foregoing and all Proceeds
or products of any or all of the foregoing.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
<PAGE>
The Borrower hereby represents and warrants to the Secured Party, which
representations and warranties shall survive execution and delivery of this
Agreement, as follows:
6.2 Credit Agreement Representations and Warranties. Each of the
representations and warranties made by and/or in respect of such Borrower in
Section 4 of the Credit Agreement is true and correct as of the date hereof.
6.4 No Other Liens. (a) Except for the Lien granted to the Secured Party
hereunder, the Borrower owns and, as to all Collateral whether now existing or
hereafter acquired will continue to own, each item of the Collateral pledged by
it free and clear of any and all Liens, rights or claims of all other Persons
other than Permitted Liens, and the Borrower shall defend the Collateral against
all claims and demands of all Persons at any time claiming the same or any
interest therein adverse to the Secured Party.
(b) No effective financing statement or other evidence of lien
covering or purporting to cover any of the Collateral is on file in any public
office other than (i) financing statements filed or to be filed in connection
with the security interests granted to the Secured Party hereunder, (ii)
financing statements for which proper termination statements have been delivered
to the Secured Party for filing and (iii) financing statements filed in
connection with Permitted Liens. The Borrower has not consented to any other
Person other than the Secured Party having "control" (within the meaning of
Section 8-106 of the UCC) over the Collateral Account.
6.6 Perfected Liens; Priority. (a) The security interests in the Collateral
granted to the Secured Party hereunder constitute valid security interests in
the Collateral.
(b) (i) Upon filing financing statements naming the Borrower as
"debtor" and the Secured Party as "secured party" and describing the Collateral
in the filing offices set forth on Schedule V hereto and (ii) to the extent not
subject to Article 9 of the UCC, (x) in the case of Intellectual Property, upon
the recordation of the security interests granted hereunder in Patents,
Trademarks and Copyrights in the applicable patent, trademark and copyright
registries or (y) in the case of the Security Collateral, upon the delivery of
the Security Collateral and Investments to the Secured Party, the security
interests in the Collateral granted to the Secured Party hereunder will
constitute perfected security interests therein superior and prior to all Liens
(other than Permitted Liens), rights or claims of all other Persons.
6.8 Security Collateral. (a) The Pledged Stock has been duly authorized and
validly issued and is fully paid and non-assessable. The Pledged Notes have been
duly authorized, authenticated or issued and delivered, and is the legal, valid
and binding obligation of the issuers thereof, and is not in default.
<PAGE>
(b) The Pledged Stock constitutes the percentage of the issued and
outstanding shares of stock of the respective issuers thereof indicated on
Schedule I. The Pledged Notes are outstanding in the principal amount indicated
on Schedule I.
6.10 Chief Executive Office; Records. The chief executive office of the
Borrower is located at the location specified on Schedule III. The Receivables
Records and all Contracts and Collateral Records are located at the locations
identified on Schedule III as such or at the chief executive office of the
Borrower. All Receivables and Contracts are maintained at and controlled and
directed (including, without limitation, for general accounting purposes) from
the chief executive office of the Borrower or the offices identified on Schedule
III as such.
6.12 Location of Inventory and Equipment. All Inventory and Equipment now
or from time to time included in the Collateral is kept only at the locations
listed on Schedule IV. None of such Inventory or Equipment is in the possession
of an issuer of a negotiable document (as defined in UCC Section 7-104) therefor
or otherwise in the possession of a bailee.
6.14 Receivables. (a) Each Receivable (i) is and will be the legal, valid
and binding obligation of the Account Debtor in respect thereof, representing an
unsatisfied obligation of such Account Debtor, (ii) is and will be enforceable
in accordance with its terms, (iii) is not and will not be subject to any
setoffs, defenses, taxes or counterclaims (except (x) with respect to refunds,
returns and allowances in the ordinary course of business with respect to
damaged merchandise and (y) to the extent that such Receivable may not yet have
been earned by performance) and (iv) is and will be in compliance with all
applicable laws, whether federal, state, local or foreign.
(b) None of the Account Debtors in respect of any Receivable is the
United States Government or an instrumentality thereof.
(c) No Receivables which are evidenced by Chattel Paper require the
consent of the Account Debtor in respect thereof in connection with assignment
hereunder and no other receivable purports to prohibit assignment or require the
consent of the Account Debtor thereunder in connection with assignment.
(d) No Receivables are evidenced by any Instrument or Chattel Paper
which has not been delivered to the Secured Party.
(e) The Borrower has delivered to the Secured Party a complete and
correct copy of each form of document under which a Receivable may arise,
including without limitation, a form of each invoice, security agreement,
contract, master contract, promissory note, order form or similar
<PAGE>
document used by the Borrower in the ordinary course of its business.
The representations and warranties contained in this Section 3.7 shall be
deemed to be repeated by the Borrower as of the time when each Receivable
pledged by it arises.
6.16 Contracts. (a) Each Contract (i) is and will be the legal, valid and
binding obligation of each of the parties thereto, (ii) is and will be
enforceable against each party thereto in accordance with its terms, (iii) is
and will be in full force and effect and is not subject to any setoffs,
defenses, taxes, counterclaims or other claims, nor have any of the foregoing
been asserted or alleged as to any Contract and (iv) is and will be in
compliance with all applicable laws, whether federal, state, local or foreign.
(b) No consent or authorization or filing with or other act by or in
respect of any governmental authority is required in connection with the
execution, delivery, performance, validity or enforceability of any Contract by
any party thereto other than those which have been duly obtained, made or
performed, are in full force and effect and do not subject the scope of any
Contract to any material adverse limitation, either specific or general in
nature.
(c) Neither the Borrower nor any other party to any Contract is in
default or likely to become in default in the performance or observance of any
of the terms thereof.
(d) The Borrower has fully performed all of its obligations under each
Contract to which it is a party.
(e) The Borrower has delivered to the Secured Party a complete and
correct copy of each Contract, including all amendments, supplements and other
modifications thereto.
(f) No payments due the Borrower under any Contract are evidenced by
any Instrument or Chattel Paper which has not been delivered to the Secured
Party.
(g) No party to any Contract is the United States government or an
instrumentality thereof.
(h) Except as set forth in Schedule VI, no Contract prohibits
assignment or requires or purports to require consent of or notice to any Person
in connection with assignment hereunder.
6.18 Farm Products. None of the Collateral constitutes, or is the proceeds
of, Farm Products (as defined in the UCC).
6.20 Fair Labor Standards Act. Any goods now or hereafter
<PAGE>
produced by the Borrower included in the Collateral have been and will be
produced in compliance with the requirements of the Fair Labor Standards Act, as
amended.
6.22 Intellectual Property Collateral. Except as disclosed in Item H of
Schedule IV:
(a) all Intellectual Property is subsisting and has not been adjudged
invalid or unenforceable, in whole or in part, and the Borrower has performed
all acts and has paid all renewal, maintenance and other fees and taxes required
to maintain each and every registration and application of Intellectual Property
Collateral in full force and effect;
(b) all Intellectual Property is valid and enforceable; no holding,
decision or judgment has been rendered in any action or proceeding before any
court or administrative authority challenging the validity or enforceability of
the Borrower's right to register, own or use any Intellectual Property and no
such action or proceeding is pending or, to the best of the Borrower's
knowledge, threatened;
(c) all registrations and applications for Copyrights, Patents and
Trademarks are standing in the name of the Borrower and none of the Trademarks,
Patents, Copyrights or Trade Secret Collateral has been licensed by the Borrower
to any affiliate or third party, except as disclosed in Items B, D, F or G of
Schedule IV;
(d) the Borrower has been using appropriate statutory notice of
registration in connection with its use of registered Trademarks, proper marking
practices in connection with the use of Patents and appropriate notice of
copyright in connection with the publication of Copyrighted works which are
material to the business of the Borrower;
(e) the Borrower uses adequate standards of quality in the
manufacture, distribution and sale of all products sold and in the provision of
all services rendered under or in connection with all Trademark Collateral in
order to protect the value of such Trademarks and has taken all action necessary
to insure that all licensees of any portion of the Trademark Collateral owned by
the Borrower has been used with such adequate standards of quality.
(f) Schedule IV sets forth a true and accurate list of (i) all United
States, state and foreign registrations of and applications for Patents,
Trademarks and Copyrights owned by the Borrower and (ii) all Patent Licenses,
Trademark Licenses and Copyright Licenses material to the business of the
Borrower;
(g) the Borrower is the sole and exclusive owner of the entire
<PAGE>
right, title and interest in and to all Intellectual Property on Schedule IV,
and owns or has the valid right to use all other Intellectual Property used in
or necessary to conduct its business free and clear of all Liens, claims and
encumbrances or licenses, except for Permitted Liens and the licenses set forth
on Schedule IV items B, D, F and G;
(h) the conduct of the Borrower's business does not infringe upon any
trademark, patent, copyright, trade secret or similar intellectual property
right owned or controlled by a third party; and no claim has been made that the
use of any Intellectual Property owned or used by Borrower (or any of its
respective licensees) violates the asserted rights of any third party;
(i) to the best of the Borrower's knowledge, no third party is
infringing in any material respect upon any Intellectual Property owned or used
by Borrower or any of its respective licensees;
(j) no settlement or consents, covenants not to sue, non-assertion
assurances or releases have been entered into by Borrower or to which the
Borrower is bound that adversely affect the Borrower's rights to own or use any
Intellectual Property; and
(k) the Borrower has not made a previous assignment, sale, transfer or
agreement constituting a present or future assignment sale or transfer of any
Intellectual Property that has not been terminated or released. There is no
effective financing statement or other document or instrument now executed or on
file or recorded in any public office, granting a security interest in or
otherwise encumbering any part of the Intellectual Property, other than in favor
of the Secured Party.
<PAGE>
ARTICLE VIII
COVENANTS
The Borrower covenants and agrees with the Secured Party that from and
after the date of this Agreement:
8.2 Further Assurances. At any time and from time to time, upon the request
of the Secured Party and at the sole expense of the Borrower, the Borrower will
promptly and duly execute and deliver any and all such further instruments,
endorsements, powers of attorney and other documents, make such filings, give
such notices and take such further action as the Secured Party may reasonably
deem desirable in obtaining the full benefits of this Agreement and of the
rights, remedies and powers herein granted, including, without limitation, the
following:
(a) the filing of any financing statements, in a form acceptable to
the Secured Party under the Uniform Commercial Code in effect in any
jurisdiction with respect to the liens and security interests granted hereby.
The Borrower also hereby authorizes the Secured Party to file any such financing
statement without the signature of the Borrower to the extent permitted by
applicable law. A photocopy or other reproduction of this Agreement shall be
sufficient as a financing statement and may be filed in lieu of the original to
the extent permitted by applicable law. The Borrower will pay or reimburse the
Secured Party for all filing fees and related expenses;
(b) the recordation of appropriate evidence of the liens and security
interests granted hereunder in the Intellectual Property with any intellectual
property registry in which said Intellectual Property is registered or in which
an application for registration is pending including, without limitation, the
United States Patent and Trademark Office, the United States Copyright Office,
the various Secretaries of State and the foreign counterparts on any of the
foregoing;
(c) will make or reimburse the Secured Party for making all searches
deemed necessary by the Secured Party to establish and determine the priority of
the security interests of the Secured Party or to determine the presence or
priority of other secured parties;
(d) upon request of the Secured Party, cause the Secured Party to be
listed as the lienholder on the certificate of title or ownership covering any
Collateral covered by such a certificate of title or ownership and to deliver
evidence thereof to the Secured Party promptly; and
(e) furnish to the Secured Party from time to time statements and
schedules further identifying and describing the Collateral and such other
<PAGE>
reports in connection with the Collateral as the Secured Party may reasonably
request, all in reasonable detail and in a form satisfactory to the Secured
Party.
8.4 Delivery of Security Collateral. All certificates or instruments
representing or evidencing the Security Collateral shall be delivered to and
held by or on behalf of the Secured Party pursuant hereto and shall be in
suitable form for transfer by delivery or shall be accompanied by duly executed
instruments of transfer or assignment in blank, all in form and substance
satisfactory to the Secured Party. The Secured Party shall have the right, at
any time in its discretion and without notice to the Borrower, to transfer to or
to register in the name of the Secured Party any or all of the Security
Collateral, subject only to the revocable rights specified in Section 6.1(b).
For the better perfection of the Secured Party's rights in and to the Security
Collateral, the Borrower shall forthwith, upon the pledge of any Security
Collateral hereunder, cause such Security Collateral to be registered in the
name of such nominee or nominees as the Secured Party shall direct, subject only
to the revocable rights specified in Section 6.1(b). In addition, the Secured
Party shall have the right at any time to exchange certificates or instruments
representing or evidencing Security Collateral for certificates or instruments
of smaller or larger denominations.
8.6 Change of Chief Executive Office. The Borrower will not move its chief
executive office except to such new location as the Borrower may establish in
accordance with the last sentence of this Section. The originals of all
Receivables Records and Contracts and all Collateral Records will continue to be
kept at such chief executive office or at the locations identified on Schedule
III as such, or at such new locations as the Borrower may establish in
accordance with the last sentence of this Section. All Receivables, Receivables
Records and Contracts of the Borrower will continue to be maintained at and
controlled and directed (including, without limitation, for general accounting
purposes) from, a location identified as such on Schedule III or such new
locations as the Borrower may establish in accordance with the last sentence of
this Section. The Borrower shall not establish a new location for its chief
executive office or such activities (or move any such activities form the
location listed in Schedule III therefor) until (i) it shall have given to the
Secured Party not less than 30 days' prior written notice of its intention to do
so, clearly describing such new location and providing such other information in
connection therewith as the Secured Party may reasonably request and (ii) with
respect to such new location, it shall have taken all action satisfactory to the
Secured Party as the Secured Party may reasonably request, to maintain the
security interest of the Secured Party in the Collateral intended to be granted
hereby at all times fully perfected, with the same or better priority and in
full force and effect.
8.8 Change of Location of Inventory and Equipment. The Borrower agrees that
all Inventory and Equipment now held or subsequently acquired by it shall be
kept at (or shall be in transport to) any one of the locations
<PAGE>
shown on Schedule II or such new location as the Borrower may establish in
accordance with the last sentence of this Section. The Borrower may establish a
new location for Inventory and Equipment only if (i) it shall have given to the
Secured Party not less than 30 days' prior written notice of its intention to do
so, clearly describing such new location and providing such other information in
connection therewith as the Secured Party may reasonably request and (ii) with
respect to such new location, it shall have taken all action satisfactory to the
Secured Party, as the Secured Party may reasonably request, to maintain the
security interest of the Secured Party in the Collateral intended to be granted
hereby at all times fully perfected, with the same or better priority and in
full force and effect.
8.10 Change of Name; Identity or Corporate Structure. The Borrower shall
not change its name (or conduct any significant portion of its business under
any new tradenames), identity or corporate structure until (i) it shall have
given to the Secured Party not less than 30 days' prior written notice of its
intention to do so, clearly describing such new name, identity or corporate
structure or such new trade name and providing such other information in
connection therewith as the Secured Party may reasonably request and (ii) with
respect to such new name, identify or corporate structure or such new trade
name, it shall have taken all action satisfactory to the Secured Party as the
Secured Party may reasonably request, to maintain the security interest of the
Secured Party in the Collateral intended to be granted hereby at all times fully
perfected, with the same or better priority and in full force and effect.
8.12 Delivery of Instruments and Chattel Paper. If any amount payable under
or in connection with any of the Collateral shall be or become evidenced by any
Instrument or Chattel Paper, such Instrument or Chattel Paper shall be
immediately delivered to the Secured Party, duly indorsed in a manner
satisfactory to the Secured Party, to be held as Collateral pursuant to this
Agreement.
8.14 Maintain and Mark Records and Receivables. The Borrower will keep and
maintain at its own cost and expense satisfactory and complete records of the
Collateral, including, but not limited to, the originals of all documentation
with respect to all Receivables and records of all payments received and all
credits granted on the Receivables and all merchandise returned and all other
dealings therewith. The Borrower shall legend, in form and manner reasonably
satisfactory to the Secured Party, all Chattel Paper and other evidence of
Receivables, as well as the Receivables Records, with an appropriate reference
to the fact that the Chattel Paper and all other Receivables have been assigned
to the Secured Party and that the Secured Party has a security interest therein.
8.16 Right of Inspection. The Secured Party shall at all times have full
and free access during normal business hours to all the books, correspondence
and records of the Borrower and the Secured Party and its
<PAGE>
representatives may examine the same, take extracts therefrom and make
photocopies thereof and the Borrower agrees to render to the Secured Party, at
the Borrower's cost and expense, such clerical and other assistance as may be
reasonably requested with regard thereto. The Secured Party and its respective
representatives shall at all times have the right to enter and inspect any
property of the Borrower and enter into and upon any premises where any of the
Inventory or Equipment is located for the purpose of inspecting the same,
observing its use or otherwise protecting its interests therein.
8.18 Insurance. The Borrower shall maintain insurance as required by the
Credit Agreement.
8.20 Receivables. (a) The Borrower shall perform in all material respects
all of its obligations with respect to the Receivables.
(b) The Borrower shall not amend, modify, terminate or waive any
provision of any Receivable in any manner which could reasonably be expected to
materially adversely affect the value of such Receivable as Collateral. Other
than (i) in the ordinary course of business and (ii) while no Default or Event
of Default shall have occurred and be continuing, the Borrower shall not (w)
grant any extension or renewal of the time of payment of any Receivable, (x)
compromise or settle any dispute, claim or legal proceeding with respect to any
Receivable for less than the total unpaid balance thereof, (y) release, wholly
or partially, any Person liable for the payment thereof or (z) allow any credit
or discount thereon.
(c) The Borrower shall use its best efforts (including, without
limitation, prompt and diligent exercise of each material right it may have
under any Receivable (other than any right of termination)) to cause to be
collected from each Account Debtor, as and when due (including, without
limitation, amounts which are delinquent, such amounts to be collected in
accordance with generally accepted lawful collection procedures), any and all
amounts owing under or on account of any Receivable and apply all collected
amounts to the outstanding balance of such Receivable immediately upon receipt
thereof.
8.22 Contracts. (a) The Borrower shall perform in all material respects all
of its obligations under each Contract.
(b) The Borrower shall deliver promptly to the Secured Party a copy of
each material demand, notice or document received by it relating in any way to
any Contract.
(c) Without the prior written consent of the Secured Party, the
Borrower shall not amend, modify, terminate or supplement any provision of any
Contract or compromise or settle any dispute, claim or legal proceeding with
respect to any Contract, in any such case in any manner which could reasonably
be expected to materially adversely affect the value of such Contract as
<PAGE>
Collateral and shall not terminate any Contract. Each such permitted amendment,
modification, termination, supplement, compromise or settlement shall be in
writing, a copy of which shall be delivered promptly to the Secured Party.
(d) The Borrower shall promptly and diligently exercise each material
right it may have under any Contract (except the right of termination). All
costs and expenses in connection therewith, whether incurred by the Borrower or
the Secured Party, shall be borne by the Borrower.
8.24 Warehouse Receipts Non-negotiable. The Borrower agrees that if any
warehouse receipt or receipt in the nature of a warehouse receipt or other
Document is issued with respect to any of its Inventory, such warehouse receipt
or receipt in the nature thereof or other Document shall not be "negotiable" (as
such term is used in Section 7-104 of the UCC or under other relevant law).
8.26 No Impairment. The Borrower will not take or permit to be taken any
action which could impair the Secured Party's rights in the Collateral.
8.28 Limitations on Dispositions of Collateral. The Borrower will not sell,
transfer, lease, license or otherwise dispose of any of the Collateral or any
rights therein or attempt, offer or contract to do so, except as permitted in
the Credit Agreement.
8.30 Intellectual Property.
(a) The Borrower shall not do any act or omit to do any act, whereby
any of the Intellectual Property which is used in or otherwise material to the
business of the Borrower may lapse or become abandoned, dedicated to the public,
or unenforceable, or which would adversely affect the validity, grant, or
enforceability of the security interest granted therein.
(b) The Borrower shall not, with respect to any Trademarks which are
used in or otherwise material to the business of the Borrower, cease the use of
any of such Trademarks or fail to maintain the level of the quality of products
sold and services rendered under any of such Trademark at a level at least
substantially consistent with the quality of such products and services as of
the date hereof, and the Borrower shall take all steps necessary to insure that
licensees of such Trademarks use such consistent standards of quality.
(c) The Borrower shall, within thirty (30) days of the creation or
acquisition of any Copyrightable work which is material to the business of the
Borrower, apply to register the Copyright in the United States Copyright Office;
the Borrower shall, within thirty (30) days of the acquisition of any
registrations or applications for any Patents or Trademarks from any third
party, record its
<PAGE>
interest in the United States Patent and Trademark Office.
(d) The Borrower shall promptly notify the Secured Party if it knows
or has reason to know, that any item of the Intellectual Property that is used
in or otherwise material to its business may become or has become (a) abandoned
or dedicated to the public or placed in the public domain, (b) invalid or
unenforceable or (c) subject to any adverse determination or development
(including the institution of proceedings) in any action or proceeding in the
United States Patent and Trademark Office, the United States Copyright Office
any state registry or international or foreign counterpart of the foregoing or
any court.
(e) The Borrower shall take all reasonable steps in the United States
Patent and Trademark Office, the United States Copyright Office, any state
registry or international or foreign counterpart of the foregoing, to pursue any
application and maintain any registration of each Trademark, Patent or Copyright
owned by the Borrower and used in or otherwise material to its business, which
is now or shall become included in the Intellectual Property including, but not
limited to, those items on Schedule IV Items A, C or E.
(f) In the event that any Intellectual Property owned by or
exclusively licensed to the Borrower is infringed, misappropriated or diluted by
a third party, the Borrower shall promptly take all reasonable actions to stop
such infringement, misappropriation or dilution and protect its exclusive rights
in such Intellectual Property including, but not limited to, the initiation of a
suit to obtain injunctive relief and to recover damages.
(g) The Borrower shall promptly (but in no event more than thirty (30)
days after the Borrower obtains knowledge thereof) report to the Secured Party
(i) the filing of any application to register any Intellectual Property with the
United States Patent and Trademark Office, the United States Copyright Office or
any state registry or international or foreign counterpart of the foregoing
(whether such application is filed by the Borrower or through any agent,
employee, licensee or designee thereof) and (ii) the registration of any
Intellectual Property by any such office. The Borrower hereby authorizes the
Secured Party to modify this Agreement by amending Schedule IV and will
otherwise cooperate with the Secured Party in effecting any such amendment to
include any item of Intellectual Property which shall become part of the
Intellectual Property after the date hereof.
(h) The Borrower shall, promptly upon the reasonable request of the
Secured Party, execute and deliver to the Secured Party any document required to
acknowledge, confirm, register, record or perfect the Secured Party's interest
in any part of the Intellectual Property, whether now owned or hereafter
acquired.
(i) Except with the prior consent of the Secured Party or as
<PAGE>
permitted under the Credit Agreement, the Borrower will not execute and there
will not be on file in any public office, any effective financing statement or
other document or instruments, except financing statements or other documents or
instruments filed or to be filed in favor of the Secured Party and the Borrower
will not sell, assign, transfer, license, grant any option or create or suffer
to exist any Lien upon or with respect to the Intellectual Property, except for
the Lien created by and under this Agreement and the other Loan Documents.
8.32 Notice. The Borrower will advise the Secured Party promptly, in
reasonable detail and in accordance with the provisions hereof (a) of any Lien
(other than Permitted Liens) on, or claim asserted against, any of the
Collateral and (b) of the occurrence of any other event which could reasonably
be expected to have a material adverse effect on the aggregate value of the
Collateral or on the Liens created hereunder.
8.34 Performance by Secured Party of Borrower's Obligations; Reimbursement.
If the Borrower fails to perform or comply with any of its agreements contained
herein, the Secured Party may, without notice to or consent by the Borrower,
perform or comply or cause performance or compliance therewith and the expenses
of the Secured Party incurred in connection with such performance or compliance,
together with interest thereon at a rate per annum 2% above the Interest Rate,
shall be payable by the Borrower to the Secured Party on demand and such
reimbursement obligation shall be secured hereby.
ARTICLE X
SPECIAL PROVISIONS REGARDING
RECEIVABLES AND CONTRACTS
10.2 Borrower Remains Liable under Receivables and Contracts. Anything
herein to the contrary notwithstanding (including, without limitation, the grant
of any rights to the Secured Party), the Borrower shall remain liable under each
of the Receivables and Contracts to observe and perform all the conditions and
obligations to be observed and performed by it thereunder, all in accordance
with the terms of any agreement giving rise to each such Receivable or Contract.
The Secured Party shall have no obligation or liability under any Receivable (or
any agreement giving rise thereto) or Contract by reason of or arising out of
this Agreement or the receipt by the Secured Party of any payment relating to
such Receivable or Contract pursuant hereto, nor shall the Secured Party be
obligated in any manner to perform any of the obligations of the Borrower under
or pursuant to any Receivable (or any agreement giving rise thereto) or under or
pursuant to any Contract, to make any payment, to make any inquiry as to the
nature or the sufficiency of any payment received by it or as to the sufficiency
of any performance by any party under any Receivable (or any agreement giving
<PAGE>
rise thereto) or under any Contract, to present or file any claim, to take any
action to enforce any performance or to collect the payment of any amounts which
may have been assigned to it or to which it may be entitled at any time or
times.
10.4 Notice to Account Debtors and Contracting Parties. At any time after
an Event of Default has occurred and is continuing, the Secured Party may, and
upon request of the Secured Party, the Borrower shall notify Account Debtors and
parties to the Contracts that the Accounts and the Contracts have been assigned
to the Secured Party and that payments in respect thereof shall be made directly
to the Secured Party. The Secured Party may in its own name or in the name of
others, communicate with Account Debtors and parties to the Contracts to verify
with them to the Secured Party's satisfaction the existence, amount and terms of
any Receivables or Contracts.
10.6 Collections on Receivables and Contracts. The Secured Party hereby
authorizes the Borrower to collect the Receivables and Contracts and, at any
time after an Event of Default has occurred and is continuing, the Secured Party
may curtail or terminate said authority and by itself or by its agents, collect
all Receivables and amounts owing under the Contracts. After an Event of Default
has occurred and is continuing, if required by the Secured Party, any payments
of Receivables and Contracts, when collected by the Borrower, shall be forthwith
(and, in any event, within two Business Days) delivered by the Borrower to the
Secured Party in the exact form received, duly indorsed to the Secured Party if
required, for deposit into the Collateral Account, and until so turned over,
shall be held by the Borrower in trust for the Secured Party, segregated from
other funds of the Borrower. All Proceeds, while held by the Secured Party (or
by the Borrower in trust for the Secured Party) shall continue to be Collateral
securing all of the Secured Obligations and shall not constitute payment thereof
until applied as hereinafter provided.
ARTICLE XII
SPECIAL PROVISIONS REGARDING
SECURITY COLLATERAL
12.2 Voting Rights; Dividends; Etc. (a) So long as no Event of Default or
event which, with the giving of notice or the lapse of time or both, would
become an Event of Default, shall have occurred and be continuing:
(i) The Borrower shall be entitled to exercise or refrain from
exercising any and all voting and other consensual rights pertaining to the
Security Collateral or any part thereof, for any purpose not inconsistent
with the terms of this Agreement or the Credit Agreement; provided,
however, that such Borrower shall not exercise or refrain from exercising
any such right if, in the Secured Party's judgment, such action would have
<PAGE>
a material adverse effect on the value of the Security Collateral or any
part thereof, and, provided further, that the Borrower shall give the
Secured Party at least five days' written notice of the manner in which it
intends to exercise or the reasons for refraining from exercising, any such
right;
(ii) The Borrower shall be entitled to receive and retain any and all
dividends and interest paid in respect of the Security Collateral,
provided, however, that any and all
(A) dividends and interest paid or payable other than in cash in
respect of, and instruments and other property received, receivable or
otherwise distributed in respect of, or in exchange for, any Security
Collateral,
(B) dividends and other distributions paid or payable in cash in
respect of any Security Collateral in connection with a partial or
total liquidation or dissolution or in connection with a reduction of
capital, capital surplus or paid-in-surplus, and
(C) cash paid, payable or otherwise distributed in respect of
principal of, or in redemption of, or in exchange for, any Security
Collateral, shall be forthwith delivered to the Secured Party to hold
as Security Collateral and shall, if received by the Borrower, be
received in trust for the benefit of the Secured Party, be segregated
from the other property or funds of the Borrower and be forthwith
delivered to the Secured Party as Security Collateral in the same form
as so received (with any necessary indorsement or assignment); and
(iii) The Secured Party shall execute and deliver (or cause to be
executed and delivered) to the Borrower all such proxies and other
instruments as the Borrower may reasonably request for the purpose of
enabling the Borrower to exercise the voting and other rights which it is
entitled to exercise pursuant to paragraph (i) above and to receive the
dividends or interest payments which it is authorized to receive and retain
pursuant to paragraph (ii) above.
(b) Upon the occurrence and during the continuance of an Event of
Default or an event which, with the giving of notice or the lapse of time or
both, would become an Event of Default:
(i) All rights of the Borrower (x) to exercise or refrain from
exercising the voting and other consensual rights which it would otherwise
be entitled to exercise pursuant to Section 6(a)(i) shall, upon notice to
the Borrower by the Secured Party cease and (y) to receive the
<PAGE>
dividends and interest payments which it would otherwise be authorized to
receive and retain pursuant to Section 6(a)(ii) shall automatically cease
and all such rights shall thereupon become vested in the Secured Party who
shall thereupon have the sole right to exercise or refrain from exercising
such voting and other consensual rights and to receive and hold as Security
Collateral such dividends and interest payments; and
(ii) All dividends and interest payments which are received by the
Borrower contrary to the provisions of paragraph (i) of this Section
6.1(b), shall be received in trust for the benefit of the Secured Party,
shall be segregated from other funds of the Borrower and shall be forthwith
paid over to the Secured Party as Security Collateral in the same form as
so received (with any necessary indorsement).
12.4 Additional Shares. The Borrower agrees that it will (i) cause each
issuer of the Pledged Shares not to issue any stock or other securities in
addition to or in substitution for the Pledged Shares issued by such issuer,
except to the Borrower and (ii) immediately upon its acquisition (directly or
indirectly) thereof, deliver to the Secured Party as additional security
hereunder any and all additional shares of stock or other securities of each
issuer of the Pledged Shares.
ARTICLE XIV
COLLATERAL ACCOUNT
14.2 Collateral Account. There is hereby established with [name of bank]
the Collateral Account. The Collateral Account shall be under the sole and
exclusive dominion and control of the Secured Party and the Borrower shall have
no rights with respect to the Collateral Account, except as specifically set
forth below with regard to determination of the nature of investments to be made
with amounts credited to the Collateral Account. Without limiting the generality
of the foregoing, the Borrower shall have no right of withdrawal or transfer
from the Collateral Account.
14.4 Deposit of Proceeds. There shall be deposited in the Collateral
Account from time to time the cash proceeds (as defined in Section 9-306(1) of
the UCC) of any of the Collateral (including insurance proceeds thereon)
required to be delivered to the Secured Party pursuant hereto. All amounts and
investments and other items credited to the Collateral Account from time to time
shall constitute Collateral hereunder and shall not constitute payment of the
Secured Obligations until applied as hereinafter provided. At any time following
the occurrence and during the continuance of an Event of Default, the Secured
Party may in its discretion apply or cause to be applied (subject to collection)
the balance from time to time outstanding to the credit of the
<PAGE>
Collateral Account to the payment of the Secured Obligations in the manner
specified herein.
14.6 Investment of Balance in Collateral Account. Amounts credited to the
Collateral Account shall be invested from time to time in such Permitted
Investments as the Borrower (or, after the occurrence and during the continuance
of a Default or Event of Default, the Secured Party) shall determine, which
Permitted Investments shall be held in the name and be under the control of the
Secured Party.
ARTICLE XVI
POWER OF ATTORNEY
16.2 Secured Party's Appointment as Attorney-in-Fact. (a) The Borrower
hereby irrevocably constitutes and appoints the Secured Party and any officer or
agent thereof, with full power of substitution, as its true and lawful
attorney-in-fact with full irrevocable power and authority in the place and
stead of the Borrower and in the name of the Borrower or in its own name, from
time to time in the Secured Party's discretion, for the purpose of carrying out
the terms of this Agreement, to take any and all appropriate action and to
execute any and all documents and instruments which may be necessary or
desirable to accomplish the purposes of this Agreement and, without limiting the
generality of the foregoing, the Borrower hereby gives the Secured Party the
power and right, on behalf of the Borrower, without notice to or assent by the
Borrower, to do the following:
(i) in the case of any Receivable, at any time when the authority of
the Borrower to collect the Receivables has been curtailed or terminated
pursuant hereto, or in the case of any other Collateral, at any time when
any Event of Default shall have occurred and be continuing, in the name of
the Borrower or its own name or otherwise, (A) to take possession of and
indorse and collect any checks, drafts, notes, acceptances or other
instruments for the payment of moneys due under or with respect to, any
Collateral; (B) to direct any party liable for any payment under any of the
Collateral to make payment of any and all moneys due or to become due
thereunder directly to the Secured Party or as the Secured Party shall
direct; and (C) to ask or demand for, collect, receive payment of and
receipt for, any and all moneys, claims and other amounts due or to become
due at any time in respect of or arising out of any Collateral;
(ii) to prepare, sign and file any UCC financing statements in the
name of the Borrower as debtor;
<PAGE>
(iii) to prepare, sign, and file for recordation in any intellectual
property registry, appropriate evidence of the lien and security interest
granted herein in the Intellectual Property in the name of the Borrower as
the Borrower;
(iv) to take or cause to be taken all actions necessary to perform or
comply or cause performance or compliance with the terms of this Agreement,
including, without limitation, actions to pay or discharge taxes and Liens
levied or placed on or threatened against the Collateral, to effect any
repairs or obtain any insurance called for by the terms of this Agreement
and to pay all or any part of the premiums therefor and the costs thereof;
(v) upon the occurrence and during the continuance of any Event of
Default (A) to sign and indorse any invoices, freight or express bills,
bills of lading, storage or warehouse receipts, drafts against debtors,
assignments, verifications, notices and other documents in connection with
any of the Collateral; (B) to commence and prosecute any suits, actions or
proceedings at law or in equity in any court of competent jurisdiction to
collect the Collateral or any Proceeds thereof and to enforce any other
right in respect of any Collateral; (C) to defend any suit, action or
proceeding brought against the Borrower with respect to any Collateral; (D)
to settle, compromise or adjust any suit, action or proceeding described in
the preceding clause and, in connection therewith, to give such discharges
or releases as the Secured Party may deem appropriate; and (E) generally,
to sell or transfer and make any agreement with respect to, or otherwise
deal with, any of the Collateral as fully and completely as though the
Secured Party were the absolute owner thereof for all purposes, and to do,
at the Secured Party's option and the Borrower's expense, at any time or
from time to time, all acts and things which the Secured Party deems
necessary to protect, preserve or realize upon the Collateral and the Liens
of the Secured Party thereon and to effect the intent of this Agreement,
all as fully and effectively as the Borrower might do; and
(vi) at any time and from time to time, to execute, in connection with
any foreclosure, any indorsements, assignments or other instruments of
conveyance or transfer with respect to the Collateral.
The Borrower hereby ratifies all that said attorney shall lawfully do or
cause to be done by virtue hereof. This power of attorney is a power coupled
with an interest and shall be irrevocable.
The Borrower hereby acknowledges and agrees that in acting pursuant to this
power-of-attorney, the Secured Party shall be acting in its own interest and the
Borrower acknowledges and agrees that the Secured
<PAGE>
Party shall have no fiduciary duties to the Borrower and the Borrower hereby
waives any claims to the rights of a beneficiary of a fiduciary relationship
hereunder.
(b) No Duty on the Part of Secured Party. The powers conferred on the
Secured Party hereunder are solely to protect the interests of the Secured Party
in the Collateral and shall not impose any duty upon the Secured Party to
exercise any such powers. The Secured Party shall be accountable only for
amounts that it actually receives as a result of the exercise of such powers and
neither it nor any of its officers, directors, employees or agents shall be
responsible to the Borrower for any act or failure to act hereunder, except for
their own gross negligence or willful misconduct.
ARTICLE XVIII
REMEDIES; RIGHTS UPON DEFAULT
18.2 Rights and Remedies Generally. If an Event of Default shall occur and
be continuing, then and in every such case, the Secured Party shall have all the
rights of a secured party under the UCC, shall have all rights now or hereafter
existing under all other applicable laws or in equity and, subject to any
mandatory requirements of applicable law then in effect, shall have all the
rights set forth in this Agreement and all the rights set forth with respect to
the Collateral or this Agreement or in any other agreement between the parties.
No enumeration of rights in this Article or elsewhere in this Agreement or in
any related document or other agreement, shall be deemed to in any way limit the
rights of the Secured Party as described in this Article.
18.4 Collection of Receivables and other Proceeds. If an Event of Default
shall occur and be continuing, in addition to the rights of the Secured Party
specified in Section 5.3 with respect to the collection of Receivables and
Contracts, all Proceeds received by the Borrower consisting of cash, checks and
other near-cash items shall be held by the Borrower in trust for the Secured
Party, segregated from other funds of the Borrower and shall forthwith upon
receipt by the Borrower, be turned over to the Secured Party, in the same form
received by the Borrower (appropriately indorsed or assigned by the Borrower to
the order of the Secured Party or in such other manner as shall be satisfactory
to the Secured Party) for deposit into the Collateral Account.
18.6 Direct Borrower to Dispose of Collateral. If an Event of Default shall
occur and be continuing, the Secured Party may direct the Borrower to sell,
assign or otherwise liquidate or dispose of all, or from time to time any,
portion of the Collateral and the Borrower shall do so, and the Secured Party
may, at its option, take possession of the Proceeds of such Collateral. The
<PAGE>
Secured Party may direct the Borrower to direct that all Proceeds of such
Collateral be paid directly to the Secured Party or may permit the Proceeds of
such Collateral to be paid to the Borrower and, if directed by the Secured
Party, all such Proceeds consisting of cash, checks or near-cash items shall be
held by the Borrower in trust for the Secured Party, segregated from other funds
of the Borrower and shall forthwith upon receipt by the Borrower, be turned over
to the Secured Party, in the same form received by the Borrower (appropriately
indorsed or assigned by the Borrower to the order of the Secured Party or in
such other manner as shall be satisfactory to the Secured Party) for deposit
into the Collateral Account.
18.8 Collateral Account. If an Event of Default shall occur and be
continuing, the Secured Party may liquidate any securities credited to the
Collateral Account (including any Permitted Investments) and apply the proceeds
thereof and any other amounts credited to the Collateral Account to the Secured
Obligations (whether matured or unmatured), in such order as the Secured Party
may elect. Any balance of such Proceeds remaining after the Secured Obligations
have been paid and performed in full, shall be paid over to the Borrower or to
whomsoever may lawfully be entitled to receive the same or as a court of
competent jurisdiction may direct.
18.10 Possession of Collateral. (a) If an Event of Default shall occur and
be continuing: (
i) the Secured Party may, personally or by agents or attorneys,
immediately retake possession of the Collateral (including the originals of all
or any Receivables or Receivables Records) or any part thereof, from the
Borrower or any other Person who then has possession of any part thereof, with
or without notice or judicial process and for that purpose may enter upon the
Borrower's premises where any of the Collateral is located and remove the same
and, the Secured Party may use in connection with such removal, any and all
services, supplies, aids and other facilities of the Borrower; and
(ii) upon five (5) days notice to the Borrower, the Borrower shall, at
its own expense, assemble the Collateral, including, without limitation, the
originals of all Receivables Records (or from time to time any portion thereof)
and make it available to the Secured Party at any place or places designated by
the Secured Party which is reasonably convenient to both parties, whether at the
Borrower's or the Secured Party's premises or elsewhere. The Borrower, shall at
its sole expense, store and keep any Collateral so assembled at such place or
places pending further action by the Secured Party and while the Collateral
shall be so stored and kept, provide such guards and maintenance services as
shall be necessary to protect the same and to preserve and maintain the
Collateral in good condition. The Borrower's obligation so to assemble and
deliver the Collateral is of the essence of this Agreement and, accordingly,
upon application to a court of equity having jurisdiction, the Secured Party
shall be entitled to a decree requiring specific performance by the Borrower of
said
<PAGE>
obligation.
(b) When Collateral is in the Secured Party's possession, (i) the
Borrower shall pay (or reimburse the Secured Party on demand for) all reasonable
expenses (including the cost of any insurance and payment of taxes or other
charges) incurred in the custody, preservation, use or operation of the
Collateral and the obligation to reimburse all such expenses shall be secured
hereby and (ii) the risk of accidental loss or damage shall be on the Borrower
to the extent of any deficiency in any effective insurance coverage.
18.12 Disposition of the Collateral. If an Event of Default shall occur and
be continuing, the Secured Party may sell, assign, lease, license (on an
exclusive or non-exclusive basis) give an option or options to purchase or
otherwise dispose of the Collateral (or contract to do any of the foregoing)
under one or more contracts or as an entirety and without the necessity of
gathering at the place of sale the property to be sold, at public or private
sale or sales, conducted by any Officer, nominee or agent of, or auctioneer or
attorney for, the Secured Party at any location of any third party conducting or
otherwise involved in such sale or any office of the Secured Party or elsewhere
and in general, in such manner, at such time or times and upon such terms and
conditions and at such prices as it may consider commercially reasonable, for
cash or on credit or for future delivery without assumption of any credit risk.
The Secured Party may in its sole discretion restrict prospective bidders as to
their number, nature of their business and investment intention. Any of the
Collateral may be sold, leased, assigned or options or contracts entered to do
so or otherwise disposed of, in the condition in which the same existed when
taken by the Secured Party or after any overhaul or repair which the Collateral
Agent shall determine to be commercially reasonable. To the extent permitted by
applicable law, the Secured Party may bid for and become the purchaser of the
Collateral or any item thereof, offered for sale in accordance with this Section
without accountability to the Borrower (except to the extent of surplus money
received) as provided below. In the payment of the purchase price of the
Collateral, the purchaser shall be entitled to have credit on account of the
purchase price thereof of amounts owing to such purchaser on account of any of
the Obligations and any such purchaser may deliver notes, claims for interest or
claims for other payment with respect to such Obligations in lieu of cash up to
the amount which would, upon distribution of the net proceeds of such sale, be
payable thereon. Such notes, if the amount payable hereunder shall be less than
the amount due thereon, shall be returned to the holder thereof after being
appropriately stamped to show partial payment.
18.14 Registration Rights. If the Secured Party shall determine to exercise
its right to sell all or any of the Security Collateral pursuant to Section 9.6,
the Borrower agrees that, upon request of the Secured Party, the Borrower will,
at its own expense:
<PAGE>
(a) execute and deliver, and cause each issuer of the Security
Collateral contemplated to be sold and the directors and officers thereof to
execute and deliver, all such instruments and documents and do or cause to be
done all such other acts and things, as may be necessary or, in the opinion of
the Secured Party, advisable to register such Security Collateral under the
provisions of the Securities Act of 1933, as from time to time amended (the
"Securities Act"), and to cause the registration statement relating thereto to
become effective and to remain effective for such period as prospectuses are
required by law to be furnished, and to make all amendments and supplements
thereto and to the related prospectus which, in the opinion of the Secured
Party, are necessary or advisable, all in conformity with the requirements of
the Securities Act and the rules and regulations of the Securities and Exchange
Commission applicable thereto;
(b) use its best efforts to qualify the Security Collateral under the
state securities or "Blue Sky" laws and to obtain all necessary governmental
approvals for the sale of the Security Collateral, as requested by the Secured
Party;
(c) cause each such issuer to make available to its security holders,
as soon as practicable, an earning statement which will satisfy the provisions
of Section 11(a) of the Securities Act; and
(d) do or cause to be done all such other acts and things as may be
necessary to make such sale of the Security Collateral or any part thereof valid
and binding and in compliance with applicable law. The Borrower further
acknowledges the impossibility of ascertaining the amount of damages which would
be suffered by the Secured Party or the Secured Party by reason of the failure
by the Borrower to perform any of the covenants contained in this Section and,
consequently, agrees that, if the Borrower shall fail to perform any of such
covenants, it shall pay, as liquidated damages and not as a penalty, an amount
equal to the value of the Security Collateral on the date the Secured Party
shall demand compliance with this Section.
18.16 Recourse. The Borrower shall remain liable for any deficiency if the
proceeds of any sale or other disposition of the Collateral are insufficient to
satisfy the Secured Obligations. The Borrower shall also be liable for all
expenses of the Secured Party incurred in connection with collecting such
deficiency including, without limitation, the fees and disbursements of any
attorneys employed by the Secured Party to collect such deficiency.
18.18 Intellectual Property License. Solely for the purpose of enabling the
Secured Party to exercise rights and remedies under this Article IX, the
Borrower hereby grants to the Secured Party, to the extent it has the right to
do so, an irrevocable, non-exclusive license (exercisable without payment of
royalty or other compensation to the Borrower) to use, operate under, license or
<PAGE>
sublicense any Intellectual Property now owned or hereafter acquired by the
Borrower and wherever the same may be located, subject, in the case of
Trademarks, to sufficient rights to quality control and inspection in favor of
the Borrower to avoid the risk of invalidation of said Trademarks.
18.20 Expenses; Attorneys' Fees. The Borrower shall reimburse the Secured
Party for all its expenses in connection with the exercise of its rights
hereunder, including, without limitation, all reasonable attorneys' fees and
legal expenses incurred by the Secured Party.
18.22 Application of Proceeds. The proceeds of any disposition of
Collateral shall be applied as follows:
(a) to the payment of any and all expenses and fees (including
reasonable attorneys' fees and disbursements) incurred by the Secured Party in
connection with the exercise of its rights and remedies hereunder, including,
without limitation, expenses and fees in connection with obtaining, taking
possession of, removing, holding, insuring, repairing, preparing for sale or
lease, storing and disposing of Collateral;
(b) to the satisfaction of the Secured Obligations (in such order as
the Secured Party may decide);
(c) any other payment of any amount required to be paid by the Secured
Party by law;
(d) the satisfaction of indebtedness secured by any subordinate
security interest in the Collateral if written notification of demand therefor
is received before distribution of the proceeds is completed, but only to the
extent of the proceeds undistributed when such notification is received; and
(e) upon termination of the Commitments and the expiration,
cancellation or return to the issuer thereof undrawn upon of any letters of
credit, to the Borrower or as a court of competent jurisdiction may direct.
18.24 Limitation on Duties Regarding Preservation of Collateral. (a) The
Secured Party's sole duty with respect to the custody, safekeeping and physical
preservation of the Collateral in its possession, under Section 9-207 of the UCC
or otherwise, shall be to deal with it in the same manner as the Secured Party
deals with similar property for its own account.
(b) The Secured Party shall have no obligation to take any steps to
preserve rights against prior parties to any Collateral.
(c) Neither the Secured Party nor any of its directors, officers,
employees or agents shall be liable for failure to demand, collect or
<PAGE>
realize upon all or any part of the Collateral or for any delay in doing so or
shall be under any obligation to sell or otherwise dispose of any Collateral
upon the request of the Borrower or otherwise.
18.26 Waiver of Claims. Except as otherwise provided in this Agreement, THE
BORROWER HEREBY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, NOTICE AND
JUDICIAL HEARING IN CONNECTION WITH THE SECURED PARTY'S TAKING POSSESSION OR THE
SECURED PARTY'S DISPOSITION OF ANY OF THE COLLATERAL, INCLUDING, WITHOUT
LIMITATION, ANY AND ALL PRIOR NOTICE AND HEARING FOR ANY PREJUDGMENT REMEDY OR
REMEDIES AND ANY SUCH RIGHT WHICH BORROWER WOULD OTHERWISE HAVE UNDER THE
CONSTITUTION OR ANY STATUTE OF THE STATES OR OF ANY STATE, and the Borrower
hereby further waives, to the extent permitted by law:
(a) all damages occasioned by such taking of possession except any
damages which are the direct result of the Secured Party's gross negligence or
willful misconduct;
(b) all other requirements as to the time, place and terms of sale or
other requirements with respect to the enforcement of the Secured Party's rights
hereunder;
(c) demand of performance or other demand, notice of intent to demand
or accelerate, notice of acceleration presentment, protest, advertisement or
notice of any kind to or upon the Borrower or any other Person; and
(d) all rights of redemption, appraisement, valuation, diligence,
stay, extension or moratorium now or hereafter in force under any applicable law
in order to prevent or delay the enforcement of this Agreement, the absolute
sale of the Collateral or any portion thereof and the Borrower, for itself and
all who may claim under it, insofar as it or they now or hereafter lawfully may,
hereby waives the benefit of all such laws.
18.28 Discontinuance of Proceedings. In case the Secured Party shall have
instituted any proceeding to enforce any right, power or remedy under this
Agreement by foreclosure, sale, entry or otherwise, and such proceeding shall
have been discontinued or abandoned for any reason or shall have been determined
adversely to the Secured Party's_____, then and in every such case the Borrower
and the Secured Party shall be returned to their former positions and rights
hereunder with respect to the Collateral subject to the security interest
created under this Agreement, and all rights, remedies and powers of the Secured
Party shall continue as if no such proceeding had been instituted.
ARTICLE XX
<PAGE>
INDEMNITY
20.2 Indemnity and Expenses. (a) The Borrower agrees to indemnify,
reimburse and hold the Secured Party and its respective officers, directors,
employees, representatives and agents (hereinafter in this Section referred to
individually as "Indemnitee" and collectively as "Indemnitees") harmless from
any and all liabilities, obligations, losses, damages, penalties, claims,
actions, judgments, suits, costs, expenses or disbursements (including
reasonable attorneys' fees and expenses) (for the purposes of this Section the
foregoing are collectively called "expenses") for whatsoever kind or nature
which may be imposed on, asserted against or incurred by any of the Indemnitees
in any way relating to or arising out of this Agreement or the documents
executed in connection herewith or in any other way connected with the
administration of the transactions contemplated hereby or the enforcement of any
of the terms of or the preservation of any rights hereunder or in any way
relating to or arising out of the manufacture, ownership, ordering, purchase,
delivery, control, acceptance, lease, financing, possession, operation,
condition, sale, return or other disposition or use of the Collateral
(including, without limitation, latent or other defects, whether or not
discoverable), the violation of the laws of any country, state or other
governmental body or unit, any tort (including, without limitation, claims
arising or imposed under the doctrine of strict liability, or for or on account
of injury to or the death of any Person (including any Indemnitee), or for
property damage) or any contract claim; provided that no Indemnitee shall be
indemnified pursuant to this Section for expenses to the extent caused by the
gross negligence or wilful misconduct of such Indemnitee. The Borrower agrees
that upon written notice by any Indemnitee of any assertion that could give rise
to an expense, the Borrower shall assume full responsibility for the defense
thereof. Each Indemnitee agrees to use its best efforts to promptly notify the
Borrower of any such assertion of which such Indemnitee has knowledge.
(b) Without limiting the application of clause (a) of this Section,
the Borrower agrees to pay, or reimburse the Secured Party for any and all fees,
costs and expenses of whatever kind or nature incurred in connection with the
creation, preservation or protection of the Secured Party's Liens on, and
security interest for the benefit of the Secured Party in, the Collateral,
including, without limitation, all fees and taxes in connection with the
recording or filing of instruments and documents in public offices, payment or
discharge of any taxes or Liens upon or in respect of the Collateral, premiums
for insurance with respect to the Collateral and all other fees, costs and
expenses in connection with protecting, maintaining or preserving the Collateral
and the Secured Party's interest therein, whether through judicial proceedings
or otherwise, or in defending or prosecuting any actions, suits or proceedings
arising out of or relating to the Collateral.
(c) Without limiting the application of clause (a) or (b) of this
<PAGE>
Section, the Borrower agrees to pay, indemnify and hold each Indemnitee harmless
from and against any expenses which such Indemnitee may suffer, expend or incur
in consequence of or growing out of any misrepresentation by the Borrower in
this Agreement or in any statement or writing contemplated by or made or
delivered pursuant to or in connection with this Agreement.
(d) If and to the extent that the obligations of the Borrower under
this Section are unenforceable for any reason, the Borrower hereby agrees to
make the maximum contribution to the payment and satisfaction of such
obligations which is permissible under applicable law.
20.4 Indemnity Obligations Secured by Collateral; Survival. Any amounts
paid by any Indemnitee as to which such Indemnitee has the right to
reimbursement shall constitute Secured Obligations secured by the Collateral.
The indemnity obligations of the Borrower contained in this Article shall
continue in full force and effect notwithstanding the full payment and
performance of the Secured Obligations and notwithstanding the discharge
thereof.
ARTICLE XXII
MISCELLANEOUS
22.2 Governing Law. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE
LAWS OF THE STATE OF NEW YORK.
22.4 Submission to Jurisdiction. Any legal action or proceeding with
respect to this Agreement and any action for enforcement of any judgment in
respect thereof may be brought in the courts of the State of New York or of the
United States of America for the Southern District of New York and, by execution
and delivery of this Agreement, the Borrower hereby accepts for itself and in
respect of its property, generally and unconditionally, the non-exclusive
jurisdiction of the aforesaid courts and appellate courts from any thereof. The
Borrower irrevocably consents to the service of process out of any of the
aforementioned courts in any such action or proceeding by the mailing of copies
thereof by registered or certified mail, postage prepaid, the Borrower at its
address set forth under its signature below. The Borrower hereby irrevocably
waives any objection which it may now or hereafter have to the laying of venue
of any of the aforesaid actions or proceedings arising out of or in connection
with this Agreement brought in the courts referred to above and hereby further
irrevocably waives and agrees not to plead or claim in any such court that any
such action or proceeding brought in any such court has been brought in an
inconvenient forum. Nothing herein shall affect the right of the Secured Party
to
<PAGE>
serve process in any other manner permitted by law or to commence legal
proceedings or otherwise proceed against the Borrower in any other jurisdiction.
22.6 Waiver of Trial by Jury. TO THE EXTENT PERMITTED BY APPLICABLE LAW,
EACH OF THE BORROWER AND THE SECURED PARTY HEREBY IRREVOCABLY WAIVES ALL RIGHT
OF TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR IN
CONNECTION WITH THIS AGREEMENT OR ANY MATTER ARISING HEREUNDER.
22.8 Limitation of Liability. No claim may be made by the Borrower or any
other Person against the Secured Party or the affiliates, directors, officers,
employees, attorneys or agents of any of them for any special, indirect,
consequential or punitive damages in respect of any claim for breach of contract
or any other theory of liability arising out of or related to the transactions
contemplated by this Agreement or any act, omission or event occurring in
connection therewith; and the Borrower hereby waives, releases and agrees not to
sue upon any claim for any such damages, whether or not accrued and whether or
not known or suspected to exist in its favor.
22.10 Notices. Except as otherwise expressly provided herein, all notices,
requests and demands to or upon the respective parties hereto to be effective
shall be in writing (including by telecopy, telex, or cable communication) and
shall be deemed to have been duly given or made when delivered by hand, or five
days after being deposited in the United States mail, postage prepaid, or, in
the case of telex notice, when sent, answerback received, or, in the case of
telecopy notice, when sent, or, in the case of a nationally recognized overnight
courier service, one Business Day after delivery to such courier service,
addressed, in the case of each party hereto, at its address specified opposite
its signature below, or to such other address as may be designated by any party
in a written notice to the other party hereto, provided that notices and
communications to the Secured Party shall not be effective until received by the
Secured Party.
22.12 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the Borrower, the Secured Party, all future holders of
the Secured Obligations and their respective successors and assigns, except that
the Borrower may not assign or transfer any of its rights or obligations under
this Agreement without the prior written consent of the Secured Party.
22.14 Waivers and Amendments. None of the terms or provisions of this
Agreement may be waived, amended, supplemented or otherwise modified except by a
written instrument executed by the Borrower and the Secured Party, provided that
any provision of this Agreement may be waived by the Secured Party in a written
letter or agreement executed by the Secured Party
<PAGE>
or by telex or facsimile transmission from the Secured Party. Any such
amendment, supplement, modification or waiver shall be binding upon the Borrower
and the Secured Party and all future holders of the Secured Obligations. In the
case of any waiver, the Borrower and the Secured Party shall be restored to
their former position and rights hereunder and under the outstanding Secured
Obligations, and any Default or Event of Default waived shall be deemed to be
cured and not continuing, but no such waiver shall extend to any subsequent or
other Default or Event of Default, or impair any right consequent thereon.
22.16 No Waiver; Remedies Cumulative. No failure or delay on the part of
the Secured Party in exercising any right, power or privilege hereunder and no
course of dealing between the Borrower and the Secured Party shall operate as a
waiver thereof; nor shall any single or partial exercise of any right, power or
privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. A waiver by the Secured Party
of any right or remedy hereunder on any one occasion shall not be construed as a
bar to any right or remedy which the Secured Party would otherwise have on any
future occasion. The rights and remedies herein expressly provided are
cumulative and may be exercised singly or concurrently and as often and in such
order as the Secured Party deems expedient and are not exclusive of any rights
or remedies which the Secured Party would otherwise have whether by agreement or
now or hereafter existing under applicable law. No notice to or demand on the
Borrower in any case shall entitle the Borrower to any other or further notice
or demand in similar or other circumstances or constitute a waiver of the rights
of the Secured Party to any other or further action in any circumstances without
notice or demand.
22.18 Termination; Release. When the Secured Obligations have been
indefeasibly paid and performed in full this Agreement shall terminate and the
Secured Party, at the request and sole expense of the Borrower, will execute and
deliver to the Borrower the proper instruments (including UCC termination
statements) acknowledging the termination of this Agreement, and will duly
assign, transfer and deliver to the Borrower, without recourse, representation
or warranty of any kind whatsoever, such of the Collateral as may be in
possession of the Secured Party and has not theretofore been disposed of,
applied or released.
22.20 Counterparts. This Agreement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument.
22.22 Effectiveness. This Agreement shall become effective on the date on
which the Borrower shall have signed a counterpart hereof and shall have
delivered the same to the Secured Party.
<PAGE>
22.24 Headings Descriptive. The headings of the several Sections and
subsections of this Agreement are inserted for convenience only and shall not in
any way affect the meaning or construction of any provision of this Agreement.
22.26 Severability. In case any provision in or obligation under this
Agreement or the Secured Obligations shall be invalid, illegal or unenforceable
in any jurisdiction, the validity, legality and enforceability of the remaining
provisions or obligations, or of such provision or obligation in any other
jurisdiction, shall not in any way be affected or impaired thereby.
22.28 Survival. All indemnities set forth herein shall survive the
execution and delivery of this Agreement and the making and repayment of the
Secured Obligations.
22.30 Powers Coupled with an Interest. All authorizations and agencies
herein contained with respect to the Collateral are irrevocable and powers
coupled with an interest.
22.32 [RESERVED]
<PAGE>
IN WITNESS WHEREOF, the Borrower and the Secured Party have caused this
Agreement to be duly executed and delivered as of the date first above written.
SMARTALK TELESERVICES, INC.
By________________________
Name:
Title:
[_________________________]
By________________________
Name:
Title:
[_________________________]
By________________________
Name:
Title:
[_________________________]
By________________________
Name:
Title:
FLETCHER INTERNATIONAL LIMITED
By________________________
Name:
Title:
EXHIBIT II
[FORM OF NOTE]
PROMISSORY NOTE
$25,000,000.00 New York, New York
December 4, 1998
FOR VALUE RECEIVED, SMARTALK TELESERVICES, INC., a Delaware Corporation
("Company"), promises to pay to FLETCHER INTERNATIONAL LIMITED ("Payee") or its
assign, the lesser of (x) TWENTY-FIVE MILLION DOLLARS ($25,000,000.00 ) and (y)
the unpaid principal amount of all advances made by Payee to Company as Loans
under the Credit Agreement referred to below at the Maturity Date (as defined in
the Credit Agreement).
Company also promises to pay interest on the unpaid principal amount
hereof, from the date hereof until paid in full, at the rates and at the times
which shall be determined in accordance with the provisions of that certain
Credit Agreement dated as of the date hereof (as it may be amended, restated,
supplemented or otherwise modified from time to time, the "Credit Agreement";
the terms defined therein and not otherwise defined herein being used herein as
therein defined), by and between Company and the Payee.
This Note is issued pursuant to and entitled to the benefits of the Credit
Agreement, to which reference is hereby made for a more complete statement of
the terms and conditions under which the Loans evidenced hereby were made and
are to be repaid.
All payments of principal and interest in respect of this Note shall be
made in lawful money of the United States of America in same day funds at such
place as shall be designated in writing for such purpose in accordance with the
terms of the Credit Agreement. Payee hereby agrees, by its acceptance hereof,
that before disposing of this Note or any part hereof it will make a notation
hereon of all principal payments previously made hereunder and of the date to
which interest hereon has been paid; provided, however, that the failure to make
a notation of any payment made on this Note shall not limit or otherwise affect
the obligations of Company hereunder with respect to payments of principal of or
interest on this Note.
<PAGE>
Whenever any payment on this Note shall be stated to be due on a day which
is not a Business Day, such payment shall be made on the next succeeding
Business Day and such extension of time shall be included in the computation of
the payment of interest on this Note.
This Note is subject to mandatory prepayment as provided in subsection
2.4B(ii) of the Credit Agreement and to prepayment at the option of Company as
provided in subsection 2.4B(i) of the Credit Agreement.
THIS NOTE AND THE RIGHTS AND OBLIGATIONS OF COMPANY AND PAYEE HEREUNDER
SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK.
Upon the occurrence of an Event of Default, the unpaid balance of the
principal amount of this Note, together with all accrued and unpaid interest
thereon, may become, or may be declared to be, due and payable in the manner,
upon the conditions and with the effect provided in the Credit Agreement.
This Note is secured pursuant to the Collateral Documents.
The terms of this Note are subject to amendment only in the manner provided
in the Credit Agreement.
This Note is subject to restrictions on transfer or assignment as provided
in subsection 9.17 of the Credit Agreement.
No reference herein to the Credit Agreement and no provision of this Note
or the Credit Agreement shall alter or impair the obligations of Company, which
are absolute and unconditional, to pay the principal of and interest on this
Note at the place, at the respective times, and in the currency herein
prescribed.
Company promises to pay all costs and expenses, including reasonable
attorneys' fees, all as provided in subsection 9.2 of the Credit Agreement,
incurred in the collection and enforcement of this Note. Company and any
endorsers of this Note hereby consent to renewals and extensions of time at or
after the maturity hereof, without notice, and hereby waive diligence,
presentment, protest, demand and notice of every kind and, to the full extent
permitted by law, the right to plead any statute of limitations as a defense to
any demand hereunder.
<PAGE>
IN WITNESS WHEREOF, Company has caused this Note to be duly executed and
delivered by its officer thereunto duly authorized as of the date and at the
place first written above.
SMARTALK TELESERVICES, INC.
By: __________________________
Name:
Title:
INVESTMENT RIGHTS AGREEMENT
This Investment Rights Agreement (this "Agreement") dated as of December 4,
1998 is entered into by and between SmarTalk TeleServices, Inc., a California
corporation (together with its successors, "SmarTalk"), and Fletcher
International Limited, a company organized under the laws of the Cayman Islands
(together with its successors, "Fletcher").
The parties hereto agree as follows:
1. Purchase and Sale. In consideration of and upon the basis of the
representations, warranties and agreements and subject to the terms and
conditions set forth in this Agreement:
a. [RESERVED].
b. Investment Right.
(i) SmarTalk hereby grants Fletcher the right to purchase ( the
"Investment Rights"), and agrees to sell to Fletcher, at Fletcher's
sole option, newly issued shares of SmarTalk common stock (the "Common
Stock"), no par value, in an aggregate amount equal to the greater of
(x) 6,060,606 and (y) such number which would equal at the time of any
Investment Closing (as defined below) fifteen percent (15%) of the
Common Stock of SmarTalk as determined on a Fully-Diluted basis after
giving effect to Fletcher's exercise of its Investment Rights
hereunder (collectively, such number of shares of Common Stock as
determined pursuant hereto, subject to any adjustments made pursuant
to this Agreement, the "Shares") at a purchase price per Share of
$4.125 (such sum, subject to any adjustments made pursuant to this
Agreement, the "Investment Right Price"). "Fully-Diluted" shall mean,
at any time, the then outstanding Common Stock plus (without
duplication) all shares of Common Stock issuable, whether at such time
or upon the passage of time or the occurrence of future events, upon
the exercise, conversion or exchange of all then-outstanding rights,
warrants, options, convertible securities or exchangeable securities
or indebtedness, or other rights exercisable for or convertible or
exchangeable into, directly or indirectly, Common Stock, and
securities convertible or exchangeable into Common Stock, whether at
the time of issuance or upon the passage of time or the occurrence of
some future event.
(ii) Fletcher shall be entitled to exercise its Investment Rights
hereunder in whole or in part from time to time for a period
commencing on the date of this Agreement and ending on the first
trading day which is five (5) years from the date of this Agreement
(the "Expiration Date"); provided, however, that any exercise
hereunder is subject to Fletcher making available to SmarTalk
$5,000,000 as a Loan (as defined in the Credit Agreement (as defined
below)) pursuant to the Credit Agreement on December 7, 1998.
c. To exercise the Investment Rights, Fletcher shall deliver one or
more written notices in the form attached hereto as Annex A (an "Investment
Notice") to SmarTalk from time to time prior to the Expiration Date. The
date upon which Fletcher causes an Investment Notice to be delivered to
SmarTalk, by hand, facsimile, electronic transmission or otherwise, shall
be the "Notice Date" with respect to such exercise of the Investment
Rights. If the Investment Rights are exercised, such sale shall take place
on an Investment Closing Date (as defined below) upon satisfaction of the
terms and conditions described herein. Upon satisfaction or, if applicable,
waiver of the relevant conditions set forth in Sections 9 and 10 hereof,
the closing of the sale or delivery of Shares (the "Investment Closing")
shall take place three (3) business days following the Notice Date (such
date and time being referred to herein as the "Investment Closing Date").
To the extent such Investment Closing Date occurs after the 3 day period
referred to in the preceding sentence (each day a "Default Day") due to a
failure of the relevant conditions set forth in Sections 9 and 10 hereof on
the part of SmarTalk, Fletcher shall be entitled to receive an amount of
additional shares of Common Stock equal to 10% of the number of Shares
determined pursuant to Section 1.b(i) for each such Default Day at no
additional cost to Fletcher.
d. Notwithstanding anything else contained in this Agreement, solely
in limitation of Fletcher's rights, the aggregate number of Shares issuable
immediately upon exercise of the Investment Rights, together with all
Shares previously issued, shall be less than or equal to the lower of (i)
the Exercisable Number (as defined below) or (ii) the number of shares of
Common Stock otherwise issuable upon the exercise of Investment Rights. Any
Shares not issued as a result of the previous sentence shall be issuable
when and to the extent the Exercisable Number is thereafter increased. The
"Exercisable Number" is initially zero (0) and thereafter may be increased
upon expiration of a sixty-five day period (the "65 Day Notice Period")
after Fletcher delivers a notice (a "65 Day Notice") to SmarTalk
designating an aggregate number of shares of Common Stock in excess of the
then existing Exercisable Number. A 65 Day Notice may be given at any time.
One or more 65 Day Notice(s) may be given from time to time at any time
after the date of this Agreement, provided that any increase in the
Exercisable Number designated by any 65 Day Notice shall be effective only
upon expiration of the 65 Day Notice Period with respect to such 65 Day
Notice.
2. Closing.
a. [RESERVED].
b. At any Investment Closing, the following deliveries shall be made:
(i). Shares. SmarTalk shall deliver the stock certificate(s)
representing the Shares, duly registered on the books of SmarTalk in
the name of Fletcher or its nominee, against payment by Fletcher of
the Investment Right Price (if any) by wire transfer in immediately
available funds, to the account identified in the Investment Notice;
provided, however, that notwithstanding anything to the contrary
herein, Fletcher may set-off against such Investment Right Price any
and all amounts owing to Fletcher under that certain Credit Agreement
dated as of the date hereof between Fletcher and SmarTalk (the "Credit
Agreement") (including without limitation any principal, interest and
accrued fees thereunder).
(ii). Closing Documents. The closing documents required by
Sections 9 and 10 shall be delivered to Fletcher and SmarTalk,
respectively.
(iii). Delivery Notice. An executed copy of the delivery notice
in the form attached hereto as Annex C shall be delivered in
accordance therewith, with a copy delivered to Fletcher.
The foregoing deliveries shall be deemed to occur simultaneously as part of
a single transaction, and no delivery shall be deemed to have been made until
all such deliveries have been made. The original certificates representing the
Shares shall be delivered via Federal Express to Fletcher at the address set
forth in Section 15 hereof, unless Fletcher shall have delivered to SmarTalk a
written notice specifying a different address.
3. Representations and Warranties of SmarTalk. SmarTalk hereby represents
and warrants to Fletcher on the date hereof and on each Investment Closing Date,
if any, as follows:
a. SmarTalk has been duly incorporated and is validly existing in good
standing under the laws of California, or after the date hereof, if another
entity has succeeded SmarTalk in accordance with the terms hereof, under
the laws of one of the United States.
b. The execution, delivery and performance of this Agreement
(including the issuance of the Shares (when and if issued)) by SmarTalk
have been duly authorized by all requisite corporate action and no further
consent or authorization of SmarTalk, its Board of Directors or its
shareholders is required. This Agreement has been duly executed and
delivered by SmarTalk and, when this Agreement is duly authorized, executed
and delivered by Fletcher, will be a valid and binding agreement
enforceable against SmarTalk in accordance with its terms, subject to
bankruptcy, insolvency, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditors' rights generally
and to general principles of equity.
c. SmarTalk has full corporate power and authority necessary to
execute and deliver this Agreement and to perform its obligations hereunder
(including the issuance of the Shares). The transaction evidenced and
contemplated by this Agreement and the issuance of the Shares is a separate
and distinct transaction and shall not be integrated with any other
transaction between Fletcher and SmarTalk.
d. Except as may be required under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), no consent, approval,
authorization or order of any court, governmental agency or other body is
required for execution and delivery by SmarTalk of this Agreement or the
performance by SmarTalk of any of its obligations hereunder other than such
as may already have been received.
e. Except as may be required under the HSR Act, neither the execution
and delivery by SmarTalk of this Agreement nor the performance by SmarTalk
of any of its obligations hereunder:
(1) violates, conflicts with, results in a breach of, or
constitutes a default (or an event which with the giving of notice or
the lapse of time or both would be reasonably likely to constitute a
default) under (A) the Articles of Incorporation or by-laws of
SmarTalk or any of its subsidiaries, (B) any decree, judgment, order,
law, treaty, rule, regulation or determination of which SmarTalk is
aware (after due inquiry) of any court, governmental agency or body,
or arbitrator having jurisdiction over SmarTalk or any of its
subsidiaries or any of their respective properties or assets, (C) the
terms of any bond, debenture, note or any other evidence of
indebtedness, or any agreement, stock option or other similar plan,
indenture, lease, mortgage, deed of trust or other instrument to which
SmarTalk or any of its subsidiaries is a party, by which SmarTalk or
any of its subsidiaries is bound, or to which any of the properties or
assets of SmarTalk or any of its subsidiaries is subject, (D) the
terms of any "lock-up" or similar provision of any underwriting or
similar agreement to which SmarTalk or any of its subsidiaries is a
party or (E) any rules of the National Association of Securities
Dealers, Inc. or the NASDAQ National Market applicable to SmarTalk or
the transactions contemplated hereby; or
(2) results in the creation or imposition of any lien, charge or
encumbrance upon (A) any Share or (B) any of the properties or assets
of SmarTalk or any of its subsidiaries.
f. SmarTalk has validly reserved for issuance to Fletcher (i) the
shares of Common Stock for issuance from time to time as Shares and (ii)
any additional shares of Common Stock as required under this Agreement.
When issued to Fletcher against payment therefor in accordance with the
terms of this Agreement, each Share:
(1) will have been duly and validly authorized, duly and validly
issued, fully paid and non-assessable;
(2) will be free and clear of any security interests, liens,
claims or other encumbrances (other than encumbrances that may be
imposed under federal securities laws); and
(3) will not have been issued or sold in violation of any
preemptive or other similar rights of the holders of any securities of
SmarTalk.
g. SmarTalk satisfies all quantitative maintenance criteria of the
NASDAQ National Market or, after the date hereof, has a valid exemption
from such criteria. Following any Investment Closing, the Shares (when and
if issued) will be, duly listed and admitted for trading on the principal
exchange or market for the Common Stock.
h. On the date hereof, except as disclosed in the schedules to the
Credit Agreement, there is no pending or, to the best knowledge of
SmarTalk, threatened action, suit, proceeding or investigation before any
court, governmental agency or body, or arbitrator having jurisdiction over
SmarTalk or any of its affiliates that would materially affect the
execution by SmarTalk of, or the performance by SmarTalk of its obligations
under, this Agreement, provided, however, that the representations and
warranties contained in this Section 3.1(h) shall not apply to any action,
threatened action, suit, proceeding or investigation initiated by Fletcher.
i. None of SmarTalk's filings with the United States Securities and
Exchange Commission (the "SEC") under the Securities Act of 1933, as
amended (the "Securities Act"), or under Section 13(a) or 15(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), (each an
"SEC Filing") contained any untrue statement of a material fact or omitted
to state any material fact necessary in order to make the statements, in
the light of the circumstances under which they were made, not misleading.
j. Since the date of SmarTalk's most recent SEC Filing, there has not
been, and SmarTalk is not aware of, any development that would require an
amendment to SmarTalk's most recent effective Registration Statement in
order to permit public offers and sales of shares of Common Stock
thereunder.
k. The offer and sale of the Shares to Fletcher pursuant to this
Agreement will, subject to compliance by Fletcher with the applicable
representations and warranties contained in Section 4 hereof and with the
applicable covenants and agreements contained in Section 8 hereof, be made
in accordance with the provisions and requirements of Regulation D
promulgated under the Securities Act of 1933, as amended (the "Securities
Act") and any applicable state law.
l. As of the date hereof, the authorized capital stock of SmarTalk
consists of 100,000,000 shares of Common Stock, and 10,000,000 shares of
preferred stock, no par value, of SmarTalk ("Preferred Stock"). As of
November 30, 1998, (i) 27,607,379 shares of Common Stock (including the
treasury shares described in clause (iii) below) and no shares of Preferred
Stock were issued and outstanding, (ii) less than 10,000,000 shares of
Common Stock were reserved for issuance upon exercise of outstanding stock
options, warrants or other convertible rights and (iii) no shares of Common
Stock were held in the treasury of SmarTalk. All of the outstanding shares
of Common Stock are, and all shares which may be issued pursuant to stock
options, warrants or other convertible rights will be, when issued and paid
for in accordance with the respective terms thereof, duly authorized,
validly issued, fully paid and non-assessable and free of any preemptive
rights in respect thereof. As of the date hereof, except as set forth
above, and except for shares of Common Stock or other securities issued
upon conversion, exchange, exercise or purchase associated with the
securities, options, warrants, rights and other instruments referenced
above, (i) no shares of capital stock or other voting securities of
SmarTalk were outstanding, (ii) no equity equivalents, interests in the
ownership or earnings of SmarTalk or other similar rights were outstanding
and (iii) there were no existing options, warrants, calls, subscriptions or
other rights or agreements or commitments relating to the capital stock of
SmarTalk or any of its subsidiaries or obligating SmarTalk or any of its
subsidiaries to issue, transfer, sell or redeem any shares of capital
stock, or other equity interest in, SmarTalk or any of its subsidiaries or
obligating SmarTalk or any of its subsidiaries to grant, extend or enter
into any such option, warrant, call, subscription or other right, agreement
or commitment. No provision of this Section 3(l) is intended to relate to
any transaction, including but not limited to options traded by third
parties on the Chicago Board of Exchange, in which SmarTalk is not a party
and by which neither SmarTalk nor any of its properties are bound.
3.A Registration Provisions.
a. SmarTalk shall as soon as practicable and in any event in no later
than 30 days from the date of this Agreement and at its own expense, file a
registration statement (the "Registration Statement") under the Securities
Act covering the sale or resale of the sum of all Shares (which for such
purposes shall be deemed to be not less than the number of Shares subject
to the Investment Rights) (each, a "Covered Security"), shall use its best
efforts to cause such Registration Statement to be declared effective not
later than 90 calendar days (the "Required Registration Date") after the
date of this Agreement and shall promptly amend such Registration Statement
from time to time if the maximum number of Shares is greater than the
number of shares of Common Stock registered pursuant to such Registration
Statement, provided that Fletcher shall have provided such information and
cooperation in connection therewith as SmarTalk may reasonably request. If
the Registration Statement has not been declared effective by the Required
Registration Date, the Investment Right Price as determined pursuant to
Section 1.b. for shares of Common Stock issuable upon exercise of the
Investment Rights exercised following the Required Registration Date shall
be reduced by 2.5% for each month (or portion thereof) following the
Required Registration Date that such Registration Statement shall not have
been declared effective.
b. SmarTalk will use its best efforts to: (i) keep such registration
effective until the earlier of (A) the second anniversary of the issuance
of each Covered Security (provided that, Fletcher may freely resell such
Covered Securities), (B) the later of the date all of the Covered
Securities shall have been sold by Fletcher and the Expiration Date or (C)
such time as all of the Covered Securities held by Fletcher can be sold by
Fletcher or any of its affiliates within a three-month period without
compliance with the registration requirements of the Securities Act
pursuant to Rule 144 under the Securities Act ("Rule 144"); (ii) prepare
and file with the SEC such amendments and supplements to the Registration
Statement and the prospectus used in connection with the Registration
Statement (as so amended and supplemented from time to time, the
"Prospectus") as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all Covered Securities by
Fletcher or any of its affiliates; (iii) furnish such number of
Prospectuses and other documents incident thereto, including any amendment
of or supplement to the Prospectus, as Fletcher from time to time may
reasonably request; (iv) cause all Covered Securities to be listed on each
securities exchange and quoted on each quotation service on which similar
securities issued by SmarTalk are then listed or quoted; (v) provide a
transfer agent and registrar for all Covered Securities and a CUSIP number
for all Covered Securities; (vi) otherwise use its best efforts to comply
with all applicable rules and regulations of the SEC; and (vii) file the
documents required of SmarTalk and otherwise use its best efforts to obtain
and maintain requisite blue sky clearance in (A) New York, California and
all other jurisdictions in which any of the shares of Common Stock were
originally sold and (B) all other states specified in writing by Fletcher,
provided, however, that as to this clause (B), SmarTalk shall not be
required to qualify to do business or consent to service of process in any
state in which it is not now so qualified or has not so consented.
c. SmarTalk shall furnish to Fletcher upon request a reasonable number
of copies of a supplement to or an amendment of such Prospectus as may be
necessary in order to facilitate the public sale or other disposition of
all or any of the Covered Securities by Fletcher or any of its affiliates
pursuant to the Registration Statement.
d. With a view to making available to Fletcher and its affiliates the
benefits of Rule 144 and Form S-3 under the Securities Act, SmarTalk
covenants and agrees to: (i) make and keep available adequate current
public information (within the meaning of Rule 144(c)) concerning SmarTalk,
until the earlier of (A) the second anniversary of the issuance of each
Covered Security (provided that, Fletcher may freely resell such Covered
Securities) or (B) such date as all of the Covered Securities shall have
been resold by Fletcher or any of its affiliates; and (ii) furnish to
Fletcher upon request, as long as Fletcher owns any Covered Securities, (A)
a written statement by SmarTalk that it has complied with the reporting
requirements of the Securities Act and the Exchange Act, (B) a copy of the
most recent annual or quarterly report of SmarTalk, and (C) such other
information as may be reasonably requested in order to avail Fletcher and
its affiliates of Rule 144 or Form S-3 with respect to such Covered
Securities.
e. Notwithstanding anything else in this Section 3.A, if, at any time
during which a Prospectus is required to be delivered in connection with
the sale of any Covered Securities, SmarTalk determines in good faith that
a development has occurred or a condition exists as a result of which the
Registration Statement or the Prospectus contains a material misstatement
or omission, SmarTalk will immediately notify Fletcher thereof by telephone
and in writing. Upon receipt of such notification, Fletcher and its
affiliates will immediately suspend all offers and sales of any Covered
Securities pursuant to the Registration Statement. In such event, SmarTalk
will amend or supplement the Registration Statement as promptly as
practicable and will take such other steps as may be required to permit
sales of the Covered Securities thereunder by Fletcher and its affiliates
in accordance with applicable federal and state securities laws. SmarTalk
will promptly notify Fletcher after it has determined in good faith that
such sales have become permissible in such manner and will promptly deliver
copies of the Registration Statement and the Prospectus (as so amended or
supplemented) to Fletcher in accordance with paragraph (b) of this Section
3.A. Notwithstanding the foregoing, (A) under no circumstances shall
SmarTalk be entitled to exercise its right to suspend sales of any Covered
Securities pursuant to the Registration Statement more than two times in
any twelve-month period, (B) the period during which such sales may be
suspended (each a "Blackout Period") shall not exceed thirty days and (C)
no Blackout Period may commence less than 30 days after the end of the
preceding Blackout Period.
Upon the commencement of a Blackout Period pursuant to this Section
3.A, Fletcher will notify SmarTalk of any contracts to sell any Covered
Securities (each a "Sales Contract") that Fletcher or any of its affiliates
has entered into prior to the commencement of such Blackout Period and that
would require delivery of such Covered Securities during such Blackout
Period, which notice will contain the aggregate sale price and volume of
Covered Securities pursuant to such Sales Contract. Upon receipt of such
notice, SmarTalk will immediately notify Fletcher of its election either
(i) to terminate the Blackout Period and, as promptly as practicable, amend
or supplement the Registration Statement or the Prospectus in order to
correct the material misstatement or omission and deliver to Fletcher
copies of such amended or supplemented Registration Statement and
Prospectus in accordance with paragraph (b) of this Section 3.A or (ii) to
continue the Blackout Period in accordance with this paragraph. If SmarTalk
elects to continue the Blackout Period, and Fletcher or any of its
affiliates is therefore unable to consummate the sale of Covered Securities
pursuant to the Sales Contract (such unsold Covered Securities being
hereinafter referred to herein as the "Unsold Securities"), SmarTalk will
promptly indemnify each Fletcher Indemnified Party (as such term is defined
in Section 13 below) against any Proceeding (as such term is defined in
Section 13 below) that each Fletcher Indemnified Party may incur arising
out of or in connection with Fletcher's breach or alleged breach of any
such Sales Contract, and SmarTalk shall reimburse each Fletcher Indemnified
Party for any reasonable costs or expenses (including reasonable legal
fees) incurred by such party in investigating or defending any such
Proceeding (collectively, the "Indemnification Amount"); provided, however,
that each Fletcher Indemnified Party shall take all actions reasonably
necessary or appropriate to mitigate such Indemnification Amount; and
provided further, however, that the Indemnification Amount shall be reduced
by an amount equal to the number of Unsold Securities multiplied by the
difference between (x) the actual per share price received by Fletcher or
any of its affiliates upon the sale of the Unsold Securities (if such sale
occurs within three Trading Days of the end of the Blackout Period) or the
closing sale price of the Common Stock on the NASDAQ National Market or
other national securities exchange on which the Common Stock is then listed
on the third Trading Day after the end of the Blackout Period (if the
Unsold Securities are not sold by Fletcher or any of its affiliates within
three Trading Days of the end of the Blackout Period), and (y) the per
share sale price for the Unsold Securities provided in the Sales Contract.
As used herein, the term "Trading Day" means any day on which SmarTalk's
Common Stock is quoted on the NASDAQ National Market or, if applicable,
other national securities exchange.
4. Representations and Warranties of Fletcher. Fletcher hereby represents
and warrants to SmarTalk on the date hereof and on each Investment Closing Date,
if any, as follows:
a. Fletcher has been duly incorporated and is validly existing in good
standing under the laws of the Cayman Islands, or after the date hereof,
under the laws of the jurisdiction of its organization.
b. The execution, delivery and performance of this Agreement by
Fletcher have been duly authorized by all requisite corporate action and no
further consent or authorization of Fletcher, its Board of Directors or its
stockholders is required. This Agreement has been duly executed and
delivered by Fletcher and, when duly authorized, executed and delivered by
SmarTalk, will be a valid and binding agreement enforceable against
Fletcher in accordance with its terms, subject to bankruptcy, insolvency,
reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights generally and to general
principles of equity.
c. Fletcher understands that no United States federal or state agency
has passed on, reviewed or made any recommendation or endorsement of the
Shares.
d. Subject to Section 3.A hereof, Fletcher understands that the Shares
have not been registered under the Securities Act and may not be re-offered
or resold other than pursuant to registration thereunder or an available
exemption therefrom.
e. Fletcher is an "accredited investor" as such term is defined in
Regulation D promulgated under the Securities Act.
f. Fletcher shall be purchasing the Shares for its own account for
investment only and not with a view to, or for resale in connection with,
the public sale or distribution thereof, except pursuant to sales
registered under the Securities Act.
g. Fletcher understands that the Shares are being or will be offered
and sold to it in reliance on specific exemptions from the registration
requirements of United States federal securities laws and that SmarTalk is
relying on the truth and accuracy of, and Fletcher's compliance with, the
representations, warranties, agreements, acknowledgments and understandings
of Fletcher set forth herein in order to determine the availability of such
exemptions and the eligibility of Fletcher to acquire the Shares.
h. The transactions contemplated by this Agreement are not part of a
plan or scheme on the part of Fletcher, any of its affiliates or any person
acting on its or their behalf to evade the registration requirements of the
Securities Act.
i. As of the date hereof, Fletcher intends to purchase any Additional
Shares within the Investment Purposes Only exemption of the HSR Act, 16
C.F.R Section 802-9 and will take any action required by the HSR Act in
connection with any such purchase.
5. [RESERVED.]
6. Consolidation, Merger, Etc. In case SmarTalk shall be a party to any
transaction providing for (i) any acquisition of SmarTalk by means of merger or
other form of corporate reorganization in which outstanding shares of SmarTalk
are exchanged for securities or other consideration issued, or caused to be
issued, by the acquiring corporation (the "Acquirer") or its subsidiary or (ii)
a sale of all or substantially all of the assets of SmarTalk (on a consolidated
basis) or (iii) any other transaction or series of related transactions by
SmarTalk in which in excess of 50% of SmarTalk's voting power is transferred to
a single entity or group acting in concert (each of the foregoing being referred
to as a "Combination"), Fletcher, at its sole option, may choose to (1) exercise
the Investment Rights (in whole or in part) before the Combination is closed
(the "Combination Closing") or (2) exercise the Investment Rights (in whole or
in part) simultaneously with the Combination Closing, in which event, it shall
receive a number of shares of Acquirer Common Stock (as defined below) on terms
identical to those set forth in Section 1 (and Section 5 and 3.A, if applicable)
and any other consideration that it would have received had it exercised the
Investment Rights immediately prior to the Combination Closing; and (3) with
respect to any portion of the Investment Rights that are not exercised by
Fletcher, Fletcher shall be entitled to purchase from the Acquirer (i) a right
to purchase a number of shares of common stock of the Acquirer equal to the
remaining amount of Shares subject to the Investment Rights (the "Number of
Shares") at a price per share determined by multiplying (a) the Number of Shares
times (b)(x) 4.125 divided by the consideration received in the Combination from
or on behalf of the Acquirer times (y) the market price of Acquirer Common Stock
on the day of the Combination Closing and/or (ii) receive cash in an amount
equal to the Black-Scholes value of the Investment Rights based on the 260-day
volatility as reported by Bloomberg, L.P. and based on the time remaining until
the Expiration Date. The "Acquirer Common Stock" shall mean the class of
publicly traded common stock of the Acquirer having the largest market
capitalization as of the date of the Combination Closing. SmarTalk shall provide
Fletcher with written notice of any proposed Combination as soon as the
existence of a proposed Combination is made public by any person (the
"Combination Notice"). SmarTalk will cause the surviving party in a Combination
to assume all of the obligations of SmarTalk pursuant to this Agreement. It
shall be a condition that all Acquirer common stock issued to Fletcher in any
Combination shall have been registered under the Securities Act.
7. Covenants of SmarTalk. SmarTalk covenants and agrees with Fletcher as
follows:
a. For so long as Fletcher owns any Shares or any Investment Rights
exist, and in any case for a period of 90 days thereafter, SmarTalk will
use its best efforts to (i) maintain the eligibility of the Common Stock
for quotation on the NASDAQ National Market or listing on a national
securities exchange (as defined in the Exchange Act) and (ii) regain the
eligibility of the Common Stock for quotation on the NASDAQ National Market
in the event that the Common Stock is delisted by the NASDAQ National
Market.
b. SmarTalk will provide Fletcher with an opportunity to review and
comment on any public disclosure by SmarTalk of information regarding this
Agreement and the transactions contemplated hereby. Beginning on the date
hereof and for so long as any Investment Rights exist, and in any case for
a period of 90 days thereafter, SmarTalk will (i) promptly notify Fletcher
if there is any public disclosure by SmarTalk of material information
regarding SmarTalk or its financial condition, prospects or results of
operation and (ii) provide Fletcher with copies of all SEC Filings.
c. As soon as such information is available (but in no event later
than December 10, 1998), SmarTalk shall deliver to Fletcher a written
notice stating the number of outstanding shares of Common Stock as of the
date hereof.
d. SmarTalk will make all filings required by law with respect to the
transactions contemplated hereby.
e. SmarTalk will cause the Common Stock issuable as Shares to be duly
listed and admitted for trading on the NASDAQ National Market or, if the
NASDAQ National Market is not then the principal trading market for the
Common Stock, on a national securities exchange (as defined in the Exchange
Act) or the principal exchange or market for the Common Stock.
f. [RESERVED]
g. For a period beginning on the date hereof and ending on the day
which is one year after the date hereof (the "One Year Period"), SmarTalk
will not offer or sell any of its or its subsidiaries' Preferred Stock,
Common Stock or other equity securities (or any securities convertible into
or exchangeable for such Preferred Stock, Common Stock or other equity
securities) in reliance upon Section 4(2) of the Securities Act or
Regulation D promulgated thereunder or under Regulation S promulgated under
the Securities Act (an "Equity Placement"), unless SmarTalk shall have
given Fletcher prior written notice (a "Notice Obligation") of its
intention to engage in any such Equity Placement or other capital raising
transaction in advance of soliciting or negotiating with any prospective
investor and Fletcher has given its written approval thereof (which such
approval shall be in Fletcher's sole discretion); and for one additional
year after the One Year Period SmarTalk shall still have a Notice
Obligation, and the parties hereto shall be obligated to negotiate in good
faith with respect to the terms of any such proposed Equity Placement
before the same shall occur. Except during the five trading days
immediately prior to and following the date hereof and during the three
trading days immediately prior to, and the five trading days immediately
following, any Investment Closing Date, the above restrictions shall not
apply to (i) the sale of 50% or more of the outstanding common stock of a
subsidiary of SmarTalk (other than a sale which would constitute all or
substantially all of the assets of SmarTalk and its subsidiaries), (ii) any
strategic partnership or arrangement or joint venture entered into by
SmarTalk or any of its subsidiaries, (iii) the merger or consolidation of
SmarTalk with or into any other corporation or entity (other than a merger
or consolidation that in substance results in the issuance of SmarTalk's
securities for cash), (iv) any registered, underwritten public offering of
SmarTalk's equity securities, (v) any issuances of Common Stock (including
warrants and options exercisable for or convertible into Common Stock) in
connection with any employee, consultant or director compensation plan or
arrangement, (vi) any acquisition of any other corporation or entity by
SmarTalk or any of its subsidiaries or merger or consolidation of any other
corporation or entity with or into SmarTalk or any of its subsidiaries,
provided such corporation or entity engages in a substantial trade or
business; (vii) any issuance of warrants or other similar instrument with a
fixed exercise price at or above the then current market price in
connection with the offer and sale of non-convertible debt securities by
SmarTalk and (viii) any issuance in connection with bona fide bank or
equipment financing by or on behalf of SmarTalk or any of its subsidiaries.
h. If on any Notice Date, the aggregate number of Shares issuable
pursuant to Investment Rights (without regard to any notice periods), when
added to the aggregate number of Shares previously issued and any other
shares of Common Stock required to be included by NASDAQ, would exceed the
number of shares equal to 20% of the total number of shares of Common Stock
outstanding (adjusted to reflect any split, subdivision, combination or
consolidation of the Common Stock, whether by reclassification,
distribution of a dividend with respect to the outstanding Common Stock
payable in shares of Common Stock, or otherwise, or any recapitalization of
the Common Stock) on the date of this Agreement (the "Original Number") and
such circumstance would require the approval (the "Required Consent") of
the holders of the Common Stock pursuant to the listing requirements or
rules of the NASDAQ National Market (or such other national securities
exchange on which the Common Stock is then listed), SmarTalk (A) shall not
issue shares of Common Stock (the "Issuance Blockage") to the extent that
the total number of shares of Common Stock issued hereunder would exceed
19.9% of the Original Number, and (B) shall use its best efforts to obtain,
within 90 days from the Notice Date, the Required Consent approval for the
issuance of 20% or more of SmarTalk's Common Stock under this Agreement. In
the event the Required Consent is not obtained in accordance with the
preceding sentence, Fletcher shall have the right to convert up to that
amount of the Investment Rights, the exercise of which would result in the
total number of shares issued hereunder to exceed 19.9% of the Original
Number into a note (an "Excess Note") by delivery of an Excess Notice (as
defined below) in an amount equal the product of (x) the positive excess of
the closing price (the "Excess Closing Price") as reported by Bloomberg,
L.P. of the Common Stock on the NASDAQ National Market (or such other
national securities exchange on which the Common Stock is then listed) on
the Excess Notice Date (as defined below) over the applicable Investment
Right Price and (y) the number of shares of Common Stock that would be
issuable in respect of the complete exercise of the Initial Investment
Right but for the Issuance Blockage. All computations in the preceding
sentence with respect to the Investment Right Price and the number of
shares of Common Stock issuable shall be determined as if the Excess Notice
Date were the Notice Date. In addition, in the event the Required Consent
is not obtained and any Excess Note is outstanding, SmarTalk shall not
issue any securities or incur any indebtedness for borrowed money (other
than indebtedness incurred pursuant to a revolving bank credit agreement
("Bank Debt") or in the ordinary course of SmarTalk's business), except in
connection with the repurchase of Excess Notes. The Excess Note(s) shall be
subordinated in right of payment to the Bank Debt, provided that such
subordination shall not affect SmarTalk's obligation to pay such Excess
Note(s) when due. To convert Investment Rights into an Excess Note,
Fletcher shall deliver one or more written notices in the form attached
hereto as Annex D (an "Excess Notice") to SmarTalk from time to time. The
date upon which Fletcher causes an Excess Notice to be delivered to
SmarTalk, by hand, facsimile, electronic transmission or otherwise, shall
be the "Excess Notice Date" with respect to such exercise of the Investment
Rights, which date shall be deemed to be an Investment Closing Date for
purposes of Section 3 hereof. Each Excess Note shall be due and payable 90
days after the date of issuance and bear interest at an interest rate of
15% per annum. Notwithstanding anything else in this section 7(h), if at
any time Fletcher delivers an Investment Notice and SmarTalk is unable to
issue all or any portion of the shares identified therein as a result of
the Issuance Blockage, SmarTalk shall issue to Fletcher an Excess Note in
amount equal to the product of (x) the positive excess of the closing price
as reported by Bloomberg of the Common Stock on the NASDAQ National Market
(or such other national securities exchange on which the Common Stock is
then listed) on the Excess Notice Date over the applicable Investment Right
Price and (y) the number of shares of Common Stock that would be issuable
in respect of such exercise of the Initial Investment Right but for the
Issuance Blockage.
8. Covenants of Fletcher. Fletcher hereby covenants and agrees with
SmarTalk as follows:
a. Neither Fletcher nor any of its affiliates nor any person acting on
its or their behalf will at any time offer or sell any Shares other than
pursuant to registration under the Securities Act or pursuant to an
available exemption therefrom.
b. Fletcher will provide SmarTalk with an opportunity to review and
comment on its filings pursuant to Regulation 13D-G under the Exchange Act
regarding this Agreement and the transactions contemplated hereby.
c. [RESERVED].
8.A. Legend. Subject to Section 3.A., Fletcher understands that the
certificates or other instruments representing the Shares shall bear a
restrictive legend in the following form (and a stop transfer order may be
placed against transfer of such certificates or other instruments):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR
APPLICABLE STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED
IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES
UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS, OR UNLESS
SOLD PURSUANT TO RULE 144 UNDER SAID ACT.
The legend set forth above shall be removed and SmarTalk shall issue a
certificate without such legend to any holder of Shares if, unless otherwise
required by state securities laws, (a) such shares are sold pursuant to an
effective registration statement under the Securities Act, or (b) such holder
provides SmarTalk with assurances reasonably satisfactory to SmarTalk that such
shares may be publicly sold pursuant to Rule 144 (or similar regulation
hereinafter adopted) without restriction.
8.B. Adjustments. In the event that SmarTalk shall declare a dividend or
make a distribution on or with respect to the outstanding shares of its Common
Stock in shares of its Common Stock, subdivide its outstanding shares of Common
Stock into a greater number of shares, or combine its outstanding shares of
Common Stock into a smaller number of shares, then, in each such event, the
number of shares issuable and the per share price stated in this Agreement in
effect at the time of the record date for such dividend or distribution or the
effective date of such subdivision or combination shall be proportionately
adjusted, if necessary, as determined in good faith by the Board of Directors of
SmarTalk, so that Fletcher shall be entitled to receive the aggregate number of
shares of Common Stock that Fletcher would have received immediately following
such action if Fletcher had exercised its rights immediately prior to such
action. Such adjustment shall be made successively whenever any event specified
above shall occur.
9. Conditions Precedent to Fletcher's Obligations. The obligations of
Fletcher hereunder are subject to the performance by SmarTalk of its obligations
hereunder and to the satisfaction of the following additional conditions
precedent, unless expressly waived in writing by Fletcher:
a. On the date hereof and each Investment Closing Date, if any, (i) to
the extent provided in Section 3 hereof, the representations and warranties
made by SmarTalk in this Agreement shall be true and correct, and (ii)
SmarTalk shall have complied fully with all the covenants and agreements in
this Agreement; and Fletcher shall have received on each such date a
certificate of the Chief Executive Officer or the Chief Financial Officer
of SmarTalk dated such date and to such effect.
b. On the date hereof and each Investment Closing Date, if any,
SmarTalk shall have delivered to Fletcher an opinion of the general counsel
reasonably satisfactory to Fletcher, dated the date of delivery, confirming
in substance the matters covered in paragraphs (a), (b), (c), (d), (e),
(f), and (h) of Section 3 hereof.
c. [RESERVED].
d. On each Investment Closing Date, if any, SmarTalk shall have
delivered to Fletcher an opinion of the general counsel reasonably
satisfactory to Fletcher, dated the date of delivery, to the effect that
the offer and sale of the Shares to Fletcher do not require registration
under the Securities Act.
e. In addition, as of each Investment Closing, SmarTalk shall have
delivered an opinion of outside counsel reasonably satisfactory to
Fletcher, dated the date of delivery, confirming in substance the matter
covered in paragraph (d) of this Section 9.
10. Conditions Precedent to SmarTalk's Obligations. The obligations of
SmarTalk hereunder are subject to the performance by Fletcher of its obligations
hereunder and to the satisfaction of the following additional conditions
precedent, unless expressly waived in writing by SmarTalk:
a. On the date hereof and each Investment Closing, if any, (i) the
representations and warranties made by Fletcher in this Agreement shall be
true and correct, and (ii) Fletcher shall have complied fully with all the
covenants and agreements in this Agreement; and SmarTalk shall have
received on each such date a certificate of an appropriate officer of
Fletcher dated such date and to such effect.
11. Fees and Expenses. SmarTalk agrees to pay all expenses incident to the
performance of its obligations hereunder, including, but not limited to the
fees, expenses and disbursements of Fletcher's counsel.
12. Non-Performance.
If, on the date hereof or on any Investment Closing, SmarTalk shall fail to
deliver the Shares to Fletcher required to be delivered pursuant to this
Agreement for any reason other than the failure of any condition precedent to
SmarTalk's obligations hereunder or the failure by Fletcher to comply with its
obligations hereunder, then SmarTalk shall:
a. hold Fletcher harmless against any loss, claim or damage (including
without limitation, incidental and consequential damages) arising from or
as a result of such failure by SmarTalk; and
b. reimburse Fletcher for all of its reasonable out-of-pocket
expenses, including fees and disbursements of its counsel, incurred by
Fletcher in connection with this Agreement and the transactions
contemplated herein and therein;
provided, however, that SmarTalk shall then be under no further liability to
Fletcher except as provided in this Section 12 and Section 13 hereof.
13. Indemnification.
a. Indemnification of Fletcher. SmarTalk hereby agrees to indemnify
Fletcher and each of its officers, directors, employees, agents and
affiliates and each person that controls (within the meaning of Section 20
of the Exchange Act) any of the foregoing persons (each a "Fletcher
Indemnified Party") against any claim, demand, action, liability, damages,
loss, cost or expense (including, without limitation, reasonable legal
fees) (a "Proceeding"), that it may incur in connection with any of the
transactions contemplated hereby arising out of or based upon:
(1) any untrue or alleged untrue statement of a material fact in
an SEC filing or this Agreement by SmarTalk or any of its affiliates
or any person acting on its or their behalf or omission or alleged
omission to state therein or herein any material fact necessary in
order to make the statements, in the light of the circumstances under
which they were made, not misleading by SmarTalk or any of its
affiliates or any person acting on its or their behalf;
(2) any of the representations or warranties made by SmarTalk
herein being untrue or incorrect at the time such representation or
warranty was made; and
(3) any breach or non-performance by SmarTalk of any of its
covenants, agreements or obligations under this Agreement;
and SmarTalk hereby agrees to reimburse each Fletcher Indemnified Party
for any reasonable legal or other expenses incurred by such Fletcher
Indemnified Party in investigating or defending any such Proceeding;
provided, however, that the foregoing indemnity shall not apply to any
Proceeding to the extent that it arises out of or is based upon the
gross negligence or wilful misconduct of Fletcher in connection
therewith. Furthermore, the foregoing indemnity rights will not take
effect unless or until the total amount of the indemnification is
$10,000.
b. Indemnification of SmarTalk. Fletcher hereby agrees to indemnify
SmarTalk and each of its officers, directors, employees, agents and
affiliates and each person that controls (within the meaning of Section 20
of the Exchange Act) any of the foregoing persons (each a "SmarTalk
Indemnified Party") against any Proceeding, that it may incur in connection
with any of the transactions contemplated hereby arising out of or based
upon:
(1) any untrue or alleged untrue statement of a material fact by
Fletcher or any of its affiliates or any person acting on its or their
behalf or omission or alleged omission to state any material fact
necessary in order to make the statements, in the light of the
circumstances under which they were made, not misleading by Fletcher
or any of its affiliates or any person acting on its or their behalf;
(2) any of the representations or warranties made by Fletcher
herein being untrue or incorrect; and
(3) any breach or non-performance by Fletcher of any of its
covenants, agreements or obligations under this Agreement;
and Fletcher hereby agrees to reimburse each SmarTalk Indemnified Party
for any reasonable legal or other expenses incurred by such SmarTalk
Indemnified Party in investigating or defending any such Proceeding;
provided, however, that the foregoing indemnity shall not apply to any
Proceeding to the extent that it arises out of or is based upon the
gross negligence or wilful misconduct of SmarTalk in connection
therewith. Furthermore, the foregoing indemnity rights will not take
effect unless or until the total amount of the indemnification is
$10,000.
c. Conduct of Claims.
(1) Whenever a claim for indemnification shall arise under this
Section, the party seeking indemnification (the "Indemnified Party"),
shall notify the party from whom such indemnification is sought (the
"Indemnifying Party") in writing of the Proceeding and the facts
constituting the basis for such claim in reasonable detail;
(2) Upon delivery of such notice, such Indemnified Party shall
have a duty to take all reasonable steps to mitigate any losses,
liabilities, costs, charges and expenses relating to any such
Proceeding;
(3) Such Indemnifying Party shall have the right to retain the
counsel of its choice in connection with such Proceeding and to
participate at its own expense in the defense of any such Proceeding;
provided, however, that counsel to the Indemnifying Party shall not
(except with the consent of the relevant Indemnified Party) also be
counsel to such Indemnified Party. In no event shall the Indemnifying
Party be liable for fees and expenses of more than one counsel (in
addition to any local counsel) separate from its own counsel for all
Indemnified Parties in connection with any one action or separate but
similar or related actions in the same jurisdiction arising out of the
same general allegations or circumstances; and
(4) No Indemnifying Party shall, without the prior written
consent of the Indemnified Parties (which consent shall not be
unreasonably withheld), settle or compromise or consent to the entry
of any judgment with respect to any litigation, or any investigation
or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever in respect of which
indemnification could be sought under this Section unless such
settlement, compromise or consent (A) includes an unconditional
release of each Indemnified Party from all liability arising out of
such litigation, investigation, proceeding or claim and (B) does not
include a statement as to or an admission of fault, culpability or a
failure to act by or on behalf of any Indemnified Party.
14. Survival of the Representations, Warranties, etc. The respective
representations, warranties, and agreements made herein by or on behalf of the
parties hereto shall remain in full force and effect, regardless of any
investigation made by or on behalf of the other party to this Agreement or any
officer, director or employee of, or person controlling or under common control
with, such party and will survive delivery of and payment for any Shares
issuable hereunder.
15. Notices. All communications hereunder shall be in writing, and
a. if sent to Fletcher, shall be delivered by hand, sent by registered
mail or transmitted and confirmed by facsimile to Fletcher, unless
otherwise notified in writing of a substitute address, at:
Original Copy:
Fletcher International Limited
c/o Midland Bank Trust Corporation (Cayman) Limited
P.O. Box 1109
Mary Street
Grand Cayman, Cayman Islands, B.W.I.
Attn: Pamela Clements
Telephone: (345) 914-7515
Facsimile: (345) 949-7634
with a copy to:
Fletcher Asset Management
22 East 67th Street
New York, NY 10022
Attn: Peter Zayfert
Telephone: (212) 758-7000
Facsimile: (212) 758-7090
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, NY 10022
Attention: Robert A. Copen
Telephone: (212) 735-3536
Facsimile: (212) 735-2000
b. if sent to SmarTalk, shall be delivered by hand, sent by registered
mail or transmitted and confirmed by facsimile to SmarTalk, unless
otherwise notified in writing of a substitute address, at:
SmarTalk TeleServices, Inc.
5080 Tuttle Crossing Blvd.
Dublin, Ohio 43017
Attention: General Counsel
Telephone: (614) 764-2933
Facsimile: (614) 764-4801
with a copy to:
Cadwalader, Wickersham & Taft
100 Maiden Lane
New York, NY 10038
Attention: Lawrence A. Larose
Telephone: (212) 404-6000
Facsimile: (212) 504-6666
To the extent that any funds shall be delivered to SmarTalk by wire
transfer, unless otherwise instructed by SmarTalk, such funds should
be delivered in accordance with the following wire instructions
provided by SmarTalk.
16. Miscellaneous
a. This Agreement may be executed in one or more counterparts and it
is not necessary that signatures of all parties appear on the same
counterpart, but such counterparts together shall constitute but one and
the same agreement.
b. This Agreement shall inure to the benefit of and be binding upon
the parties hereto, their respective successors and assigns and, with
respect to Section 13 hereof, their respective officers, directors,
employees, agents, affiliates and controlling persons, and no other person
shall have any right or obligation hereunder. SmarTalk may not assign this
Agreement. Fletcher may assign any of its rights, in whole or in part, at
its sole discretion (including, without limitation, the Investment Rights).
c. This Agreement shall be governed by, and construed in accordance
with, the internal laws of the State of Delaware, and each of the parties
hereto hereby submits to the non-exclusive jurisdiction of any State or
Federal court in the State of Delaware and any court hearing any appeal
therefrom, over any suit, action or proceeding against it arising out of or
based upon this Agreement (a "Related Proceeding"). Each of the parties
hereto hereby waives any objection to any Related Proceeding in such courts
whether on the grounds of venue, residence or domicile or on the ground
that the Related Proceeding has been brought in an inconvenient forum.
d. This Agreement shall not limit SmarTalk's ability to issue options
under or to enter into, adopt or amend any stock option, bonus, incentive,
deferred compensation, hospitalization, medical insurance, severance or
other plan, fund, program or policy providing director, officer, employee
or similar person benefits maintained or contributed to by SmarTalk in the
ordinary course of business consistent with past practice.
e. This Agreement shall not limit SmarTalk's ability to adopt a
shareholders rights plan or similar agreement or arrangement (any of which,
a "Rights Plan") provided that SmarTalk shall not adopt a Rights Plan
unless in connection therewith SmarTalk delivers to Fletcher a legal
opinion from outside counsel reasonable satisfactory to Fletcher confirming
that no Fletcher Party (as defined below) shall be adversely affected by
such Rights Plan either at such time or with the passage of time, as a
result of its being the beneficial owner of any securities issued or
issuable pursuant to this Agreement (any such securities, "Fletcher
Securities," including any Common Stock which have been or may be issued
upon exercise of the Investment Rights), where a "Fletcher Party" shall
include (i) Fletcher, Fletcher Asset Management, Inc., Polaris Fund, L.P.,
and The Fletcher Fund, L.P., (ii) any affiliate of Fletcher, (iii) any
creditor of Fletcher who acquires Fletcher Securities upon the exercise of
creditor rights in connection with a bona fide credit arrangement, and (iv)
any other person who acquires Fletcher Securities provided that such person
stated or intends to state in a timely fashion in a filing pursuant to
Regulation 13D-G under the Securities Exchange Act of 1934, as amended, or
any successor provision thereto, that such person has acquired such
securities in the ordinary course of business and not with the purpose or
effect of changing or influencing control of SmarTalk, nor in connection
with or as a participant in any transaction having such purpose or effect,
including any transaction subject to Rule 13d-3(b).
SmarTalk shall not take any actions inconsistent with the rights of
Fletcher Parties as of the date hereof.
f. The headings of the sections of this document have been inserted
for convenience of reference only and shall not be deemed to be a part of
this Agreement. This Agreement constitutes the entire agreement and
supersedes all prior agreements and understandings, both written and oral,
between the parties hereto with respect to the subject matter of this
Agreement. This Agreement is not intended to confer upon any person other
than the parties hereto any rights or remedies hereunder or under the terms
of the term sheets between such parties.
17. Time of Essence. Time shall be of the essence in this Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Agreement, all as of the day and year first above written.
SMARTALK TELESERVICES, INC.
By:___________________________
Name:
Title:
FLETCHER INTERNATIONAL LIMITED
By:___________________________
Name:
Title:
By:___________________________
Name:
Title:
<PAGE>
ANNEX A
[FORM OF INVESTMENT NOTICE]
-------------, --
SmarTalk TeleServices, Inc.
[ADDRESS]
Ladies and Gentlemen:
Fletcher International Limited ("Fletcher") hereby elects to exercise the
_________ Right (as defined in the Investment Rights Agreement (the "Agreement")
dated as of December __, 1998 by and between SmarTalk TeleServices, Inc.
("SmarTalk") and Fletcher) and, if applicable, herewith tenders $_________ by
check or wire transfer to the account of SmarTalk as payment for __________
Shares in accordance with the terms of the Agreement. Capitalized terms not
otherwise defined herein shall have the meanings ascribed thereto in the
Agreement.
In accordance with the terms of the Agreement, the Investment Closing shall
be ___________, and the total number of Shares issuable in respect of this
exercise is ________________. Fletcher requests that stock certificates
representing the Shares purchased hereby be registered in the name of Fletcher
and delivered to the following address in accordance with the terms of the
Agreement:
[To Come]
FLETCHER INTERNATIONAL LIMITED
By:___________________________
Name:
Title:
By:___________________________
Name:
Title:
AGREED AND ACKNOWLEDGED:
SMARTALK TELESERVICES, INC.
By:________________________
Name:
Title:
<PAGE>
[ANNEX B RESERVED]
<PAGE>
ANNEX C
[FORM OF SHARE DELIVERY NOTICE]
Fletcher International Limited
c/o Fletcher Asset Management
22 East 67th Street
New York, NY 10021
Attn: Peter Zayfert
Telephone: (212) 758-7000
Facsimile: (212) 758-7090
RE: Investment Rights Agreement (the "Agreement") dated December __ ,
1998 by and between Fletcher International Limited ("Fletcher")
and SmarTalk TeleServices, Inc. ("SmarTalk").
Ladies and Gentlemen:
Attached are copies of the original stock certificates representing the
__________ Shares (as defined in the Agreement) purchased by Fletcher, together
with a copy of the overnight courier air bill which will be used to ship the
certificates. We have the executed originals of the stock certificates and other
documents required to be delivered in connection with the Investment Closing.
Upon our confirmation of the payment of the $_____________ aggregate Investment
Right Price by Fletcher to SmarTalk, if applicable, for the Shares on the Notice
Date, we will send the stock certificates by overnight courier to the following
address:
[INSERT ADDRESS]
and we will send the other original documents by overnight courier to the
following address:
Fletcher International Limited
c/o Midland Bank Trust Corporation (Cayman) Limited
P.O. Box 1109
Mary Street
Grand Cayman, Cayman Islands, B.W.I.
Attn: Pamela Clements
Telephone: (345) 914-7515
Facsimile: (345) 949-7634
with a copy to:
Fletcher International Limited
c/o Fletcher Asset Management
22 East 67th Street
New York, NY 10021
Attn: Peter Zayfert
Telephone: (212) 758-7000
Facsimile: (212) 758-7090
Capitalized terms not otherwise defined in this letter have the meanings
set forth in the Agreement.
Very truly yours,
SMARTALK TELESERVICES, INC.
<PAGE>
ANNEX D
[FORM OF EXCESS NOTES NOTICE]
-------------, --
SmarTalk TeleServices, Inc.
[ADDRESS]
Ladies and Gentlemen:
Fletcher International Limited ("Fletcher") hereby elects to exercise its
right to convert some or all of its Investment Rights (as defined in the
Investment Rights Agreement (the "Agreement") dated as of December __, 1998 by
and between SmarTalk TeleServices, Inc. ("SmarTalk") and Fletcher) and, if
applicable, herewith tenders $_________ by check or wire transfer to the account
of SmarTalk as payment for $ __________ of Excess Notes in accordance with the
terms of the Agreement. Capitalized terms not otherwise defined herein shall
have the meanings ascribed thereto in the Agreement.
In accordance with the terms of the Agreement, the Investment Closing Date
shall be ___________, and the amount of issuable Excess Notes in respect of this
exercise is ________________. Fletcher requests that the Excess Notes be
registered in the name of Fletcher and delivered to the following address in
accordance with the terms of the Agreement:
[To Come]
FLETCHER INTERNATIONAL LIMITED
By:___________________________
Name:
Title:
By:___________________________
Name:
Title:
AGREED AND ACKNOWLEDGED:
SMARTALK TELESERVICES, INC.
By:________________________
Name:
Title:
SmarTalk[tm]
NEWS RELEASE
FOR IMMEDIATE RELEASE
Contact: SmarTalk TeleServices
Pamela Bennett
Manager, Corporate Communications
(614) 789-8650
Fletcher Asset Management
Jonathan Schindel
(212) 284-4800
SMARTALK ANNOUNCES NEW CREDIT FACILITY
Monday, December 7, 1998 (Columbus, Ohio): SmarTalk TeleServices, Inc.
(Nasdaq:SMTK) today announced that it has reached an agreement with Fletcher
International Limited for a $25 million secured term loan facility, maturing
January 31, 1999. The Company expects to access up to $10 million of the
facility over the next month, subject to the satisfaction of customary
conditions to draw down. The Company could access up to an additional $15
million from the facility over various periods, subject to the discretion of the
lender. SmarTalk plans to use the financing for general corporate purposes.
An affiliate of Fletcher Asset Management currently is a shareholder of
SmarTalk. In connection with the financing transaction, SmarTalk has granted
Fletcher the right to acquire, upon satisfaction of applicable notice periods,
up to approximately an additional 15% of the common stock of SmarTalk.
SmarTalk TeleServices, Inc. is a leading provider of prepaid calling
cards and prepaid wireless services. Based in Dublin, Ohio, SmarTalk maintains
distribution agreements with the U.S. Postal Service and leading mass
merchandisers, consumer electronics retailers, supermarkets, hotels, home office
superstores and convenience stores throughout North America and the U.K.
SmarTalk also creates promotional card programs for advertisers and corporate
clients. Visit the SmarTalk website at www.smartalk.com.
Note: Certain statements made herein that are not historical in nature are
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 including the Company's plans and ability to
access various amounts of the credit facility. Investors are cautioned that all
forward-looking statements involve risks and uncertainties that could cause
actual results to differ materially from those expressed in such forward-looking
statements. These risks include the risk that actual amounts accessed under the
facility depend upon the Company's satisfaction of various conditions detailed
in the provisions of the credit agreement including, under certain
circumstances, the lender's discretion. Investors who seek more information
about the Company's business and relevant risk factors may wish to review the
Company's SEC reports, including, without limitation, its Annual Report on Form
10-K for 1997 and its Quarterly Reports on Form 10-Q, as each of such documents
may be amended, and the Form 8-K which the Company is preparing to file with the
SEC, which will include the complete text of the credit agreement.
