SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
Commission file number 0-24061
US LEC Corp.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
56-2065535
(I.R.S. Employer Identification No.)
<TABLE>
<S> <C>
Transamerica Square, 401 North Tryon Street, Suite 1000 Charlotte, North Carolina 28202
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(Address of principal executive offices) (Zip Code)
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(704) 319-1000
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes ( X ) No ( )
- --------------------------------------------------------------------------------
As of August 13, 1999, there were 10,352,025 shares of Class A Common Stock and
17,075,270 shares of Class B Common Stock outstanding.
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US LEC CORP.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED):
Condensed Consolidated Statements of Operations - Three and six month
periods ended June 30, 1999 and 1998
Condensed Consolidated Balance Sheets - June 30, 1999 and December 31, 1998
Condensed Consolidated Statements of Cash Flows - Six month periods ended
June 30, 1999 and 1998
Condensed Consolidated Statement of Stockholders' Equity - Six months
ended June 30, 1999
Notes to Condensed Consolidated Financial Statements
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
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US LEC CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
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THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
1999 1998 1999 1998
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<S> <C> <C> <C> <C>
Revenue, Net $ 43,553 $ 18,348 $ 79,765 $ 31,978
Cost of Services 18,702 7,537 34,463 14,010
------------- ------------- ------------- -------------
Gross Margin 24,851 10,811 45,302 17,968
Selling, General and Administrative Expenses 11,806 5,747 21,472 10,173
Depreciation and Amortization 2,676 925 4,997 1,367
------------- ------------- ------------- -------------
Earnings from Operations 10,369 4,139 18,833 6,428
Other (Income) Expense
Interest Income (318) (679) (774) (729)
Interest Expense 677 83 1,168 223
------------- ------------- ------------- -------------
Earnings Before Income Taxes 10,010 4,735 18,439 6,934
Provision for Income Taxes 4,035 1,905 7,449 2,785
------------- ------------- ------------- -------------
Net Earnings $ 5,975 $ 2,830 $ 10,990 $ 4,149
============= ============= ============= =============
Net Earnings Per Common Share:
Basic $ 0.22 $ 0.11 $ 0.40 $ 0.18
============= ============= ============= =============
Diluted $ 0.21 $ 0.11 $ 0.39 $ 0.18
============= ============= ============= =============
Weighted Average Number of Shares Outstanding:
Basic 27,427 25,548 27,425 23,135
============= ============= ============= =============
Diluted 28,381 26,082 28,292 23,573
============= ============= ============= =============
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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US LEC CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
JUNE 30, DECEMBER 31,
1999 1998
---------------- ------------------
ASSETS
Current Assets
Cash and cash equivalents $ 13,547 $ 41,965
Restricted cash 1,167 1,167
Accounts receivable (net of allowance of $26,071 at
June 30,1999 and $12,024 at December 31, 1998) 130,809 66,214
Prepaid expenses and other assets 1,130 2,838
---------------- ------------------
Total current assets 146,653 112,184
Property and Equipment, Net 73,007 56,219
Other Assets 2,946 1,800
---------------- ------------------
Total Assets $ 222,606 $ 170,203
================ ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 21,783 $ 13,509
Deferred revenue 1,155 829
Accrued network costs 22,266 9,866
Deferred income taxes 10,538 7,108
Accrued expenses - other 8,237 4,657
---------------- ------------------
Total current liabilities 63,979 35,969
---------------- ------------------
Deferred Income Taxes 4,548 1,259
Long-Term Debt 30,000 20,000
Stockholders' Equity
Common stock-Class A, $.01 par value (72,925 authorized
shares, 10,352 outstanding at June 30, 1999) 103 103
Common stock-Class B, $.01 par value (17,075 authorized
shares, 17,075 outstanding at June 30, 1999) 171 171
Additional paid-in capital 106,812 106,800
Retained earnings 16,993 5,901
---------------- ------------------
Total stockholders' equity 124,079 112,975
---------------- ------------------
Total Liabilities and Stockholders' Equity $ 222,606 $ 170,203
================ ==================
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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US LEC CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS) (UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
1999 1998
------------------ ------------
OPERATING ACTIVITIES
Net earnings $ 10,990 $4,149
------------------ ------------
Adjustments to reconcile net earnings to net cash used in operating
activities:
Depreciation and amortization 4,997 1,367
Accounts receivable allowance 14,047 -
Stock compensation - 75
Deferred compensation 102 57
Deferred income taxes 7,449 -
Changes in assets and liabilities which provided (used) cash:
Accounts receivable (78,643) (22,827)
Prepaid expenses and other assets 904 (305)
Accounts payable 7,317 729
Deferred revenue 326 (869)
Accrued network costs 12,400 8,001
Accrued expenses - other 2,714 3,206
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Total adjustments (28,387) (10,566)
------------------ ------------
Net cash used in operating activities (17,397) (6,417)
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INVESTING ACTIVITIES
Purchase of property and equipment (20,870) (25,373)
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Net cash used in investing activities (20,870) (25,373)
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FINANCING ACTIVITIES
Proceeds from public stock offering - 87,614
Proceeds from exercise of stock options and warrants 31
Proceeds from long-term debt 10,000 -
Payment of loan fees (182) -
------------------ ------------
Net cash provided by financing activities 9,849 87,614
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NET DECREASE IN CASH AND CASH EQUIVALENTS (28,418) 55,824
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 41,965 3,189
------------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD 13,547 $59,013
================== ============
SUPPLEMENTAL CASH FLOW DISCLOSURES
Cash Paid for Interest $ 1,004 $ 505
================== ============
Cash Paid for Taxes $ - $1,860
================== ============
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(IN THOUSANDS)
(UNAUDITED)
CLASS A CLASS B ADDITIONAL RETAINED
COMMON STOCK COMMON STOCK PAID-IN CAPITAL EARNINGS TOTAL
---------------------------------------------------------------- ---------------
BALANCE, DECEMBER 31, 1998 $ 103 $ 171 $ 106,800 $ 5,901 $ 112,975
Exercise of stock options and warrants - - 31 - 31
Tax effect related to warrants and options - - (19) - (19)
Unearned Compensation - Stock Options - - 102 102
Net earnings - - - 10,990 10,990
--------------- ---------------- ----------------- -------------- ---------------
BALANCE, JUNE 30, 1999 $ 103 $ 171 $ 106,812 $ 16,993 $ 124,079
=============== ================ ================= ============== ===============
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SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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US LEC CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited condensed consolidated financial statements
of US LEC Corp. and its subsidiaries ("US LEC" or the "Company") have been
prepared in accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
notes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments considered
necessary for a fair presentation for the periods indicated have been included.
Operating results for the three and six month periods ended June 30, 1999 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 1999. The balance sheet at December 31, 1998 has been
derived from the audited balance sheet at that date, but does not include all of
the information and notes required by generally accepted accounting principles
for complete financial statements. The accompanying financial statements should
be read in conjunction with the audited consolidated financial statements and
related notes thereto included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1998, which is on file with the U.S. Securities and
Exchange Commission (the "SEC"). Certain amounts in the 1998 financial
statements have been reclassified to conform to the 1999 presentation.
2. RESTRICTED CASH
The restricted cash balance as of June 30, 1999 and December 31, 1998
serves as collateral for letters of credit related to certain office leases.
3. EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
Earnings per common and common equivalent share are based on net income
divided by the weighted average common shares outstanding during the period.
Outstanding options and warrants are included in the calculation of dilutive
earnings per common share to the extent they are dilutive. The Company's basic
and diluted weighted average number of shares (in thousands of shares) for the
three and six month periods ended June 30, 1999 and 1998 were as follows:
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THREE MONTHS SIX MONTHS
ENDED JUNE 30 ENDED JUNE 30
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Basic Weighted Average Number of Shares Outstanding 27,427 25,548 27,425 23,135
Diluted Stock Options 696 188 614 84
Diluted Stock Warrants 258 346 253 354
------ ------ ------ ------
Diluted Weighted Average Number of Shares Outstanding 28,381 26,082 28,292 23,573
====== ====== ====== ======
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4. INCOME TAXES
Income taxes are provided for temporary differences between the tax and
financial accounting basis of assets and liabilities using the liability method.
The tax effects of such differences, as reflected in the balance sheet, are at
the enacted tax rates expected to be in effect when the differences reverse.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
5. LONG-TERM DEBT
On June 30, 1999 the Company amended the existing senior secured loan
agreement with General Electric Capital Corporation and First Union National
Bank to increase the amount available under the loan agreement from $50.0
million to $75.0 million. The credit facility is now comprised of (i) a $50.0
million revolving credit facility with a term of one year and an option to
convert into a seven-year term loan on the termination date and (ii) a $25.0
million reducing revolving credit facility with a six-year term. The interest
rate for the facility is a floating rate based, at the Company's option, on a
base rate (as defined in the loan agreement) or the London Interbank Offered
Rate, plus a specified margin. The amount outstanding under the credit facility
at June 30, 1999 was $30.0 million. Advances under the agreement as of June 30,
1999 bear interest at an annual rate of approximately 8.8%. The credit facility
is subject to certain financial covenants, the most significant of which relate
to the maintenance of levels of revenue, earnings and debt ratios. The credit
facility is secured by a pledge of the capital stock of the Company's principal
operating subsidiaries and a security interest in a substantial portion of the
Company's and its operating subsidiaries' equipment, receivables, leasehold
improvements and general intangibles. Proceeds from the credit facility will be
used to fund capital expenditures and working capital requirements and for other
general corporate purposes.
6. COMMITMENTS AND CONTINGENCIES
DISPUTED RECIPROCAL COMPENSATION REVENUES - A majority of the Company's
revenue is derived from reciprocal compensation amounts due from incumbent local
exchange carriers ("ILECs"), principally BellSouth Telecommunications, Inc.
("BellSouth"). In August 1997, BellSouth notified the Company and other
competitive local exchange carriers ("CLECs") that it considered traffic
terminated to Internet Service Providers ("ISPs") to be interstate traffic, and
therefore not subject to reciprocal compensation, and that BellSouth would not
pay (or bill) reciprocal compensation under interconnection agreements for this
traffic. BellSouth is disputing the portion of reciprocal compensation billed by
the Company related to the transport and termination of local traffic from its
customers to enhanced service providers, including ISPs and information service
providers (collectively referred to as "Disputed Reciprocal Compensation"). The
Company recorded Disputed Reciprocal Compensation revenue of approximately $42
million, $23 million and $45 million) for fiscal 1998 and the three and six
months ended June 30, 1999, net of a $12 million, $8 million and $14 million
allowance, respectively. Management believes that the Company has earned and is
legally entitled to this revenue and payments are due from BellSouth pursuant to
the interconnection agreements that BellSouth has with the Company.
On February 26, 1998, following a petition by the Company, the North
Carolina Utilities Commission (the "NCUC") ordered BellSouth to bill and pay for
all such traffic (the "NCUC Order"). Following motions filed by BellSouth, the
NCUC stayed enforcement of its order until June 1, 1998. On April 27, 1998,
BellSouth filed a petition for judicial review of the NCUC Order and an action
for declaratory judgment and other relief (including a request for an additional
stay) with the United States District Court for the Western District of North
Carolina ("U.S. District Court") pending determination of certain related issues
by the Federal Communications Commission ("FCC"). This action was filed against
the Company and the NCUC. In June 1999, the U.S. District Court dismissed
BellSouth's petition without prejudice and remanded back to the NCUC for
further review. Following the U.S District Court's remand, on June 22, 1999, the
NCUC denied BellSouth's request for a further stay of the NCUC Order. On July
16, 1999, the Company received an $11.2 million payment from BellSouth for a
portion of the Disputed Reciprocal Compensation earned from North Carolina
operations, and subject to the NCUC Order.
Other than denying BellSouth's request for a further stay, the only
action taken by the NCUC with respect to the remand from the U.S. District Court
is that the NCUC filed with the U.S. Fourth Circuit Court of Appeals (the "4th
Circuit") a notice of appeal of the U.S. District Court's order that rejected
the NCUC's claims, including its claim that the 11th Amendment to the United
States Constitution bars BellSouth from making the NCUC a party to our
proceeding in the federal courts. The Company has also filed a notice of appeal
and the United States Justice Department has indicated it will intervene in the
appeal. As of the date of this filing, no action has yet been taken by the 4th
Circuit and no pleadings have been filed by any party in connection with this
appeal.
In February, 1999, the FCC issued a declaratory ruling (the "FCC
Ruling") which concluded that for jurisdictional purposes most calls delivered
to ISPs should be deemed to continue to internet web sites, which are often
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located in other states. Thus, the FCC ruled that such calls are
jurisdictionally "interstate" in nature. However, the FCC further declared that
where parties have previously agreed in interconnection agreements that
reciprocal compensation must be paid for traffic bound for ISPs, the parties
should be bound by those agreements, as interpreted and enforced by state
regulatory bodies. The FCC also recognized that some commissions may reconsider
their decisions in light of its ruling. As noted, the NCUC had ruled on February
26, 1998 in favor of the Company with respect to payment for traffic bound to
ISPs under the Company's existing interconnection agreement with BellSouth. To
date, state regulatory bodies in at least eighteen different states have
considered the effect of the FCC Ruling and have overwhelmingly reaffirmed their
earlier decisions requiring payment of reciprocal compensation for this type of
traffic or for the first time determined that such compensation is due. Included
among these states are Alabama and Florida, both of which are in BellSouth's
operating territory. In this regard, the Alabama Public Service Commission
concluded that the treatment of ISP traffic as local was so prevalent in the
industry at the time BellSouth entered into interconnection agreements with
CLECs that, if it is so intended, BellSouth had an obligation to negate such
local treatment in the agreements by specifically delineating that ISP traffic
was not local traffic subject to the payment of reciprocal compensation. The
Florida Public Service Commission reached a similar conclusion.
On September 14, 1998, the Company filed a complaint with the NCUC
seeking payment of facilities charges, non-ISP based reciprocal compensation and
intraLATA toll termination charges from BellSouth. Also on September 14, 1998,
BellSouth filed a complaint with the NCUC seeking to be relieved from its
obligations under its interconnection agreement with the Company to pay
reciprocal compensation for traffic related to networks including that operated
by Metacomm, LLC ("Metacomm"), a customer of BellSouth and the Company and, as
of June 1998, a related party of the Company. The two proceedings were
consolidated for purposes of discovery, which concluded June 16, 1999, and
hearings have been scheduled in August 1999 with respect to BellSouth's
complaint and October 1999 with respect to US LEC's complaint. These proceedings
primarily involve the treatment of traffic over a network established by
Metacomm and whether, under the interconnection agreements between the Company
and BellSouth and the Telecommunications Act of 1996 (the "Telecom Act"),
BellSouth is required to pay reciprocal compensation to the Company for traffic
associated with this network, or whether BellSouth has breached its
interconnection agreements with the Company by failing to pay reciprocal
compensation for this traffic, as well as other compensation owed to the
Company.
The NCUC proceedings, filed September 14, 1998, primarily involve
issues relating to the interpretation of the Company's interconnection
agreements with BellSouth. BellSouth claims principally that the traffic on
Metacomm's network is in the nature of that provided by an ISP, and in addition,
that the traffic does not qualify for reciprocal compensation because it does
not constitute "telecommunications" subject to the reciprocal compensation
payment provisions of the Telecom Act and the interconnection agreements with
BellSouth. In addition, in BellSouth's recent filings with the NCUC, it has
identified other issues on which it bases its claim that the traffic on the
Metacomm network is not compensable, including (1) that the Company agreed to
share reciprocal compensation with Metacomm, (2) that, as disclosed in the
Company's Form 10-Q for the period ended June 30, 1998, Richard T. Aab, the
largest shareholder of the Company and the Chairman of its Board of Directors,
acquired a controlling interest in Metacomm, (3) that some of the reciprocal
compensation has been billed on an "always-on" basis even though there is no
measurement of the amount of data transversing the network that is originated by
customers of Metacomm, and (4) that a portion of the billed traffic includes
traffic during periods when Metacomm had not yet connected customers to its
network or when customers of Metacomm may not have been sending data over the
network.
It is the Company's understanding that Metacomm is engaged in the
business of developing and operating a high-speed, always-on data network in
North Carolina and its network provides users with continuous access to data,
wide area network services, software applications and other services, including
access to the Internet. In the course of the these proceedings, the Company
concluded, based on positions taken and information provided by Metacomm, that
Metacomm's related traffic should not be considered to be solely ISP traffic
because its network provides additional services and functions to users.
Notwithstanding this determination, the Company believes BellSouth will continue
to contend the Disputed Reciprocal Compensation related to the Metacomm network
traffic is subject, in the first instance, to the resolution of the ISP issue.
The Company has recorded approximately $50 million, $26 million and $50 million
of
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gross revenue, before allowances and before late payment charges, for fiscal
1998 and the three and six months ended June 30, 1999, respectively, related to
reciprocal compensation revenue generated as a result of Metacomm network
traffic.
When the Metacomm network was originally developed, the Company agreed
to pay Metacomm commissions equal to a specified percentage of the reciprocal
compensation the Company receives from ILEC's for the network traffic. The
Company recorded approximately $20 million, $10 million and $20 million for
fiscal 1998 and the three and six months ended June 30, 1999, respectively, in
reciprocal compensation commission expense earned by Metacomm, which is included
in cost of services in the accompanying financial statements. As of June 30,
1999, the Company had a liability to Metacomm in the amount of $14.1 million,
which is recorded in accrued network costs in the accompanying financial
statements. The Company and Metacomm are parties to agreements by which
commissions earned by Metacomm related to reciprocal compensation are not
payable until the related reciprocal compensation is collected from the ILEC.
However, in fiscal 1998 and the three and six months ended June 30, 1999, the
Company paid Metacomm $8.3 million, $3.0 million and $6.3 million prior to
collecting the earned reciprocal compensation from BellSouth. These payments are
subject to a repayment agreement if the related reciprocal compensation is
ultimately not collected from BellSouth.
The Company believes that calls to establish, maintain and manage data
network connections and intra-network communications generated by data
processing routers, which are necessary to maintain the functionality and
integrity of the Metacomm network, are within the definition of
"telecommunications" under the Telecom Act and constitute compensable traffic
subject to reciprocal compensation under the interconnection agreements the
Company has with BellSouth. The Company also believes that the issues raised by
BellSouth as additional bases for nonpayment do not excuse BellSouth from its
obligation to pay reciprocal compensation under its interconnection agreement
with the Company. Accordingly, the Company intends to defend vigorously against
BellSouth's claims and to prosecute vigorously its claims against BellSouth in
the above proceedings.
As noted above, on July 16, 1999, the Company received a payment of
$11.2 million from BellSouth representing a portion of the amounts due the
Company for ISP reciprocal compensation in North Carolina. In making the
payment, BellSouth stated that it was for ISP traffic the NCUC had ordered it to
pay for in February 1998, including late fees, and that it was reserving all of
its appeal rights with respect to the payment. BellSouth also stated that this
payment did not include any amounts at issue in its September 14, 1998 NCUC
proceeding. This partial payment did not cover all outstanding amounts the
Company claims are due from BellSouth in North Carolina and other states the
Company serves. For example, while the Company has outstanding amounts due from
BellSouth for ISP traffic in Tennessee, Georgia and Florida, BellSouth has not
paid these amounts, presumably because no orders specific to US LEC have been
entered by state commissions in those states directing BellSouth to pay the
Company. However, state commissions in these states have issued rulings in favor
of other competitive carriers and as discussed above, the state commissions in
Florida and Alabama have made rulings subsequent to the FCC Ruling. To address
this issue, the Company has filed the following additional actions against
BellSouth related to delinquent reciprocal compensation payments, none of which
involve Metacomm or any similar network:
o On July 2, 1999, the Company filed a complaint against BellSouth
before the Florida Public Service Commission ("FLPSC").
o On July 1, 1999, the Company filed a complaint against BellSouth
before the Georgia Public Service Commission ("GAPSC").
o On August 6, 1999, the Company filed a complaint against BellSouth
before the Tennessee Regulatory Authority ("TRA").
The proceedings before the FLPSC, the GPSC and the TRA are all in early
stages and have not been scheduled for hearing dates.
Management believes that the Company will ultimately obtain favorable
results in the state proceedings described above before the NCUC, FLPSC, GAPSC
and the TRA; however, BellSouth may elect to initiate additional
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proceedings (by way of appeal or otherwise) challenging amounts owed to the
Company. If a decision adverse to the Company is issued in any of these
proceedings by any of the state commissions, and in particular the NCUC, or by
the FCC, or in any appeal or review of a favorable decision by the U.S. District
Court, state commissions, or the FCC, or if either the FCC or any of the
applicable state commissions were to alter its view of reciprocal compensation,
such an event could have a material adverse effect on the Company's operating
results and financial condition. The Company's trade accounts receivable as of
June 30, 1999 included approximately $113 million of earned but uncollected
Disputed Reciprocal Compensation (before a $26 million allowance and before late
payment charges) of which approximately $100 million was generated as a result
of traffic related to the Metacomm network.
In June 1999, the Company adopted an existing agreement to extend local
interconnection with BellSouth replacing the previous interconnection agreement,
which expired on June 15, 1999. The adopted interconnection agreement with
BellSouth is scheduled to terminate on December 31, 1999. The Company's ability
to obtain favorable terms for interconnection following December 31, 1999 will
depend on a number of factors, including decisions of the FCC and state
regulatory authorities. However, the Company intends to pursue such agreements
vigorously and does not anticipate any interruption in interconnection service.
7. STOCKHOLDERS' EQUITY
INITIAL PUBLIC OFFERING -- In the second quarter of 1998, US LEC
completed an offering of 6.3 million shares of Class A Common Stock (the "Equity
Offering"). The net proceeds to the Company from the Equity Offering were
approximately $87.1 million, after deducting underwriting discounts and
commissions of $6.6 million and offering expenses of $1.1 million.
STOCK OPTIONS -- The Company adopted the US LEC Corp. Omnibus Stock
Plan (the "Plan") in January 1998. At the Annual Meeting of the Stockholders
held on April 20, 1999, the Company's stockholders voted to amend the Plan to
increase the number of Class A Common Stock reserved for issuance under the
Plan from 1.3 million to 2.0 million shares. On May 7, 1999, the Company filed
a registration statement on Form S-8 to register these additional .7 million
shares of Class A Common Stock reserved for issuance under the Plan. As of June
30, 1999, the Company had granted stock options, net of forfeitures, to
purchase an aggregate of 1.3 million shares of Class A Common Stock.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Except for historical information, this report contains forward-looking
statements subject to uncertainties and risks, and as a result, US LEC's actual
results may differ materially from those discussed here. These uncertainties and
risks include among others, the demand for US LEC's services, the ability of the
Company to successfully attract and retain personnel, competition, issues
related to Year 2000, uncertainties regarding its dealings with ILECs, other
telecommunications carriers and facility providers, regulatory uncertainties,
reliance on leased transmission capacity and the cost of that capacity, the need
to finance operations and future capital expenditures, the possibility of an
adverse decision related to reciprocal compensation owed to the Company by
BellSouth Telecommunications, Inc. ("BellSouth"), as well as the Company's
ability to successfully initiate operations in additional markets. These and
other applicable risks are described in the Company's Annual Report on Form 10-K
for the year ended December 31, 1998 and other filings with the SEC.
OVERVIEW
US LEC is a rapidly growing competitive local exchange carrier ("CLEC")
that provides local, long distance and enhanced telecommunications services to
its customers. The Company primarily serves telecommunication-intensive
customers including businesses, universities, financial institutions, hospitals,
hotels, Internet Service Providers ("ISPs") and government agencies. US LEC was
founded in June 1996 after passage of the Telecommunications Act of 1996
("Telecom Act"), which enhanced the competitive environment for local exchange
services. US LEC initiated service in North Carolina in March 1997, becoming one
of the first CLECs in North Carolina to provide switched local exchange
services. US LEC currently provides local, long-distance and enhanced services
to customers in selected markets in North Carolina, Florida, Georgia, Tennessee,
Virginia and Alabama. In addition, US LEC is currently certified to provide
telecommunications services in South Carolina, Washington, D.C., Pennsylvania
and Maryland. US LEC's network is currently comprised of fourteen Lucent 5ESS(R)
Any Media(TM) switches located in Charlotte, Raleigh/Durham, Greensboro/Winston
Salem, Atlanta, Memphis, Nashville, Knoxville, Orlando, Miami, Tampa/St.
Petersburg, Jacksonville, Norfolk/Virginia Beach, Richmond and Birmingham, in
addition to its Alcatel MegaHub(R) 600ES switch in Charlotte. US LEC currently
plans to establish switch sites in additional markets during 1999, including
Philadelphia, Northern Virginia and Baltimore. As of June 30, 1999 the Company
had 302,682 Equivalent Access Lines in service. See below for a detailed
explanation of how the Company calculates Equivalent Access Lines.
RESULTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 1999 COMPARED WITH THE THREE AND SIX MONTHS
ENDED JUNE 30, 1998
Net revenue increased to $43.6 million for the quarter ended June 30,
1999 from $18.3 million for the quarter ended June 30, 1998. For the six months
ended June 30, 1999 and 1998, revenue was $79.8 million and $32.0 million,
respectively. The significant increase in revenue resulted from the Company's
expansion into new markets, an increase in the total number of customers in
existing markets and an increase in telecommunications traffic on its network.
The Company's core business revenue continued to grow, as well as the revenue
related to reciprocal compensation. Core business revenue, or revenue other than
reciprocal compensation, increased to $15.0 million for the quarter ended June
30, 1999 from $6.7 million for the quarter ended June 30, 1998. For the six
months ended June 30, 1999 and 1998, core business revenue was $26.5 million and
$11.6 million, respectively. Reciprocal compensation revenue increased to $28.6
million for the quarter ended June 30, 1999 from $11.6 million for the quarter
ended June 30, 1998, net of an $8.0 million and $0 million allowance,
respectively. For the six months ended June 30, 1999 and 1998, reciprocal
compensation revenue was $53.2 million and $20.4 million, net of a $14.0 million
and $0 allowance, respectively. Given that no near term resolution of the
reciprocal compensation issue is expected, the Company recorded an $8.0 million
allowance against reciprocal compensation revenue and related receivables during
the quarter ended June 30, 1999 bringing the allowance for the six months ended
June 30, 1999 to $14.0 million and the total allowance to $26.0 million at June
30, 1999. Unless otherwise specified, the results of operations reflected in
this report are net of these and other normal operating adjustments. The
allowance was made for the uncertainty associated with the current judicial and
regulatory proceedings related to reciprocal compensation revenue, and does not
reflect a change in the Company's commitment to pursue the matter to a
successful conclusion. (See also DISPUTED RECIPROCAL COMPENSATION REVENUES
appearing below for
12
<PAGE>
a further discussion related to reciprocal compensation and other disputed
amounts due from BellSouth).
Billable minutes of use ("MOUs") were approximately 6.60 billion in the
second quarter of 1999 compared to 1.96 billion in the second quarter of 1998.
Year-to-date MOUs were 12.42 billion in the six month period ended June 30, 1999
compared to 3.31 billion in the six month period ended June 30, 1998. Billable
trunks increased by 42,087 to 58,959 at June 30, 1999 compared to 16,872
billable trunks at June 30, 1998. Equivalent Access Lines ("EALs") increased
from 102,762 at June 30, 1998 to 302, 682 at June 30, 1999. Equivalent Access
Lines is a term used by US LEC to quantify the size of its network. During 1998,
the Company modified the ratio of lines per trunk used in calculating EALs,
which are based on the number of customer lines and trunks and the utilization
of those lines and trunks during the "busy hour". The "busy hour" refers to the
hour of the day when line usage is at its highest level. The Company calculates
its EALs by multiplying the number of its trunks in service by five and adding
to the result the number of its separate access lines in service. The decision
of what multiplier to use is based on management's experience, which now
indicates that the typical business access line is in use for approximately 400
seconds during the busy hour (or approximately 11.1% of capacity during the busy
hour) and a typical business trunk is in use for approximately 2,000 seconds
during the busy hour (or approximately 55.6% of capacity during the busy hour)
or approximately five times use during the busy hour of a typical business line.
Beginning in the third quarter of 1998, management changed the multiplier that
it uses in the calculation of EALs from six to five in order to reflect changes
in the usage of its network.
Cost of services is comprised primarily of leased transport, facility
installation, commissions and usage charges. Cost of services increased from
$7.5 million, or 41% of revenue, for the quarter ended June 30, 1998, to $18.7
million, or 43% of 0revenue, for the quarter ended June 30, 1999 and from $14.0
million, or 44% of revenue, to $34.5 million, or 43% of revenue, for the
comparable six month year-to-date periods. The increase in cost of services was
primarily a result of the increase in the size of US LEC's network, increased
usage by its customers and increased commissions due to reciprocal compensation.
Selling, general and administrative expenses for the second quarter
1999 increased to $11.8 million, or 27% of revenue, compared to $5.7 million, or
31% of revenue for the second quarter 1998. These expenses increased to $21.5
million for the first six months of 1999, or 27% of revenue, compared to $10.2
million, or 32% of revenue for the comparable period in 1998. These increases
were primarily a result of costs associated with developing and expanding the
infrastructure of the Company as it expands into new markets, such as expenses
associated with personnel, sales and marketing, occupancy, administration and
billing as well as legal expenses associated with the BellSouth litigation.
Depreciation and amortization for the three and six months ended June
30, 1999 increased to $2.7 million from $0.9 million and to $5.0 million from
$1.4 million, respectively, over the comparable 1998 periods due to the increase
in depreciable assets in service related to US LEC's network expansion.
Depreciation and amortization will continue to increase in conjunction with
spending on capital asset deployment related to US LEC's network expansion.
Interest income for the three and six months ended June 30, 1999 was
$.3 million and $.8 million, respectively, compared to interest income of $.7
million for both the three and six months ended June 30, 1998.
Interest expense for the three and six months ended June 30, 1999 was
$.7 million and $1.2 million, respectively, compared to interest expense of $.1
million and $.2 million for the three and six months ended June 30, 1998,
respectively. This increase in interest expense was primarily due to borrowings
under the Company's credit facility.
Provision for income taxes for the three and six months ended June 30,
1999 was $4.0 million and $7.4, respectively, compared to $1.9 million and $2.8
million for the three and six months ended June 30, 1998, respectively. Income
taxes were based on an effective tax rate of approximately 40%.
As a result of the foregoing, net income for the three and six months
ended June 30, 1999 amounted to $6.0 million, or $.21 per share (diluted), and
$11.0 million, or $.39 per share (diluted), respectively, compared to net income
of $2.8 million, or $.11 per share (diluted), and $4.1 million, or $.18 per
share (diluted) for the three and six months ended June 30, 1998, respectively.
13
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
US LEC's business is capital intensive and its operations require
substantial capital expenditures for the purchase and installation of network
switches, related electronic equipment and facilities. The Company's cash
capital expenditures were $20.9 million and $25.3 million for the six months
ended June 30, 1999 and 1998, respectively. The Company anticipates that it will
have substantial capital requirements in connection with its planned expansion
into additional locations during 1999 and beyond. On June 30, 1999, the Company
amended the existing senior secured loan agreement with General Electric Capital
Corporation and First Union National Bank to increase the amount available under
the loan agreement from $50.0 million to $75.0 million. As of June 30, 1999, the
outstanding amount under the loan agreement was $30.0 million; therefore, $45.0
million is available to borrow under the Loan Agreement. Funding for expansion
beyond the Company's planned network deployment in 1999 may require additional
financing unless the Company receives payment of a significant portion of the
outstanding receivable due from BellSouth. There can be no assurance that the
Company will receive such payments from BellSouth nor can there be assurance
that the Company will be able to secure additional financing in amounts or under
terms acceptable to the Company.
Cash used in operating activities was approximately $17.4 million for
the six months ended June 30, 1999 compared to $6.4 million during the
comparable 1998 period. The increase in cash used in operating activities was
primarily due to a $41.8 million increase related to accounts receivable (net of
a $14.0 million receivable allowance) offset by increases in net income of $6.8
million, depreciation of $3.6 million, accounts payable of $6.5 million, accrued
network cost of $4.4 million, deferred revenue of $1.2 million and an increase
in deferred taxes of $7.4 million. The majority of the Company's accounts
receivable at June 30, 1999 represented amounts due from BellSouth for
reciprocal compensation, facility charges, toll and other charges. Although in
July 1999, the Company received a payment of $11.2 million from BellSouth
representing a portion of the amounts due the Company for reciprocal
compensation in North Carolina, management expects receivables due from
BellSouth to continue to increase until the judicial and regulatory proceedings
with BellSouth are resolved. (See DISPUTED RECIPROCAL COMPENSATION REVENUES
appearing below for a further discussion related to reciprocal compensation and
other disputed amounts due from BellSouth). The increase in depreciation was due
to the increase in depreciable assets in service related to US LEC's network
expansion. The increase in accounts payable, accrued network cost and deferred
revenue was related to the continued expansion of the Company. The increase in
deferred taxes was due to timing differences between book and tax income as of
June 30, 1999.
Cash used in investing activities decreased to $20.9 million for the
six months ended June 30, 1999 from $25.4 million during the six months ended
June 30, 1998. The investing activities are related to purchases of switching
and related telecommunications equipment, office equipment and leasehold
improvements associated with the Company's expansion into additional locations
and markets during 1999.
Cash provided by financing activities decreased to $9.8 million for the
six months ended June 30, 1999 from $87.6 million during the first six months of
1998. The decrease was primarily due to the $87.1 million of net proceeds from
the Equity Offering in 1998 partially offset by $10.0 of borrowing under the
Company's credit facility in 1999, both of which are discussed above.
DISPUTED RECIPROCAL COMPENSATION REVENUES
A majority of the Company's revenue is derived from reciprocal
compensation amounts due from incumbent local exchange carriers ("ILECs"),
principally BellSouth Telecommunications, Inc. ("BellSouth"). In August 1997,
BellSouth notified the Company and other competitive local exchange carriers
("CLECs") that it considered traffic terminated to Internet Service Providers
("ISPs") to be interstate traffic, and therefore not subject to reciprocal
compensation, and that BellSouth would not pay (or bill) reciprocal compensation
under interconnection agreements for this traffic. BellSouth is disputing the
portion of reciprocal compensation billed by the Company related to the
transport and termination of local traffic from its customers to enhanced
service providers, including ISPs and information service providers
(collectively referred to as "Disputed Reciprocal Compensation"). The Company
recorded Disputed Reciprocal Compensation revenue of approximately $42 million,
$23 million and $45 million) for fiscal 1998 and the three and six months ended
June 30, 1999, net of a $12 million, $8 million and $14 million allowance,
respectively. Management believes that the Company has earned and is legally
entitled to this revenue and payments are due from BellSouth pursuant to the
interconnection agreements that BellSouth has with the Company.
On February 26, 1998, following a petition by the Company, the North
Carolina Utilities Commission (the
14
<PAGE>
"NCUC") ordered BellSouth to bill and pay for all such traffic (the "NCUC
Order"). Following motions filed by BellSouth, the NCUC stayed enforcement of
its order until June 1, 1998. On April 27, 1998, BellSouth filed a petition for
judicial review of the NCUC Order and an action for declaratory judgment and
other relief (including a request for an additional stay) with the United States
District Court for the Western District of North Carolina ("U.S. District
Court") pending determination of certain related issues by the Federal
Communications Commission ("FCC"). This action was filed against the Company and
the NCUC. In June 1999, the U.S. District Court dismissed BellSouth's petition
without prejudice and remanded back to the NCUC for further review. Following
the U.S District Court's remand, on June 22, 1999, the NCUC denied BellSouth's
request for a further stay of the NCUC Order. On July 16, 1999, the Company
received an $11.2 million payment from BellSouth for a portion of the Disputed
Reciprocal Compensation earned from North Carolina operations, and subject to
the NCUC Order.
Other than denying BellSouth's request for a further stay, the only
action taken by the NCUC with respect to the remand from the U.S. District Court
is that the NCUC filed with the U.S. Fourth Circuit Court of Appeals (the "4th
Circuit") a notice of appeal of the U.S. District Court's order that rejected
the NCUC's claims, including its claim that the 11th Amendment to the United
States Constitution bars BellSouth from making the NCUC a party to our
proceeding in the federal courts. The Company has also filed a notice of appeal
and the United States Justice Department has indicated it will intervene in the
appeal. As of the date of this filing, no action has yet been taken by the 4th
Circuit and no pleadings have been filed by any party in connection with this
appeal.
In February, 1999, the FCC issued a declaratory ruling (the "FCC
Ruling") which concluded that for jurisdictional purposes most calls delivered
to ISPs should be deemed to continue to internet web sites, which are often
located in other states. Thus, the FCC ruled that such calls are
jurisdictionally "interstate" in nature. However, the FCC further declared that
where parties have previously agreed in interconnection agreements that
reciprocal compensation must be paid for traffic bound for ISPs, the parties
should be bound by those agreements, as interpreted and enforced by state
regulatory bodies. The FCC also recognized that some commissions may reconsider
their decisions in light of its ruling. As noted, the NCUC had ruled on February
26, 1998 in favor of the Company with respect to payment for traffic bound to
ISPs under the Company's existing interconnection agreement with BellSouth. To
date, state regulatory bodies in at least eighteen different states have
considered the effect of the FCC Ruling and have overwhelmingly reaffirmed their
earlier decisions requiring payment of reciprocal compensation for this type of
traffic or for the first time determined that such compensation is due. Included
among these states are Alabama and Florida, both of which are in BellSouth's
operating territory. In this regard, the Alabama Public Service Commission
concluded that the treatment of ISP traffic as local was so prevalent in the
industry at the time BellSouth entered into interconnection agreements with
CLECs that, if it is so intended, BellSouth had an obligation to negate such
local treatment in the agreements by specifically delineating that ISP traffic
was not local traffic subject to the payment of reciprocal compensation. The
Florida Public Service Commission reached a similar conclusion.
On September 14, 1998, the Company filed a complaint with the NCUC
seeking payment of facilities charges, non-ISP based reciprocal compensation and
intraLATA toll termination charges from BellSouth. Also on September 14, 1998,
BellSouth filed a complaint with the NCUC seeking to be relieved from
its obligations under its interconnection agreement with
the Company to pay reciprocal compensation for traffic related to networks
including that operated by Metacomm, LLC ("Metacomm"), a customer of BellSouth
and the Company and, as of June 1998, a related party of the Company. The two
proceedings were consolidated for purposes of discovery, which concluded
June 16, 1999, and hearings have been scheduled in August 1999 with respect to
BellSouth's complaint and October 1999 with respect to US LEC's complaint. These
proceedings primarily involve the treatment of traffic over a network
established by Metacomm and whether, under the interconnection agreements
between the Company and BellSouth and the Telecommunications Act of 1996 (the
"Telecom Act"), BellSouth is required to pay reciprocal compensation to the
Company for traffic associated with this network, or whether BellSouth has
breached its interconnection agreements with the Company by failing to pay
reciprocal compensation for this traffic, as well as other compensation owed to
the Company.
The NCUC proceedings, filed September 14, 1998, primarily involve
issues relating to the interpretation of the Company's interconnection
agreements with BellSouth. BellSouth claims principally that the traffic on
Metacomm's network is in the nature of that provided by an ISP, and in addition,
that the traffic does not qualify for reciprocal compensation
15
<PAGE>
because it does not constitute "telecommunications" subject to the reciprocal
compensation payment provisions of the Telecom Act and the interconnection
agreements with BellSouth. In addition, in BellSouth's recent filings with the
NCUC, it has identified other issues on which it bases its claim that the
traffic on the Metacomm network is not compensable, including (1) that the
Company agreed to share reciprocal compensation with Metacomm, (2) that, as
disclosed in the Company's Form 10-Q for the period ended June 30, 1998, Richard
T. Aab, the largest shareholder of the Company and the Chairman of its Board of
Directors, acquired a controlling interest in Metacomm, (3) that some of the
reciprocal compensation has been billed on an "always-on" basis even though
there is no measurement of the amount of data transversing the network that is
originated by customers of Metacomm, and (4) that a portion of the billed
traffic includes traffic during periods when Metacomm had not yet connected
customers to its network or when customers of Metacomm may not have been sending
data over the network.
It is the Company's understanding that Metacomm is engaged in the
business of developing and operating a high-speed, always-on data network in
North Carolina and its network provides users with continuous access to data,
wide area network services, software applications and other services, including
access to the Internet. In the course of the these proceedings, the Company
concluded, based on positions taken and information provided by Metacomm, that
Metacomm's related traffic should not be considered to be solely ISP traffic
because its network provides additional services and functions to users.
Notwithstanding this determination, the Company believes BellSouth will continue
to contend the Disputed Reciprocal Compensation related to the Metacomm network
traffic is subject, in the first instance, to the resolution of the ISP issue.
The Company has recorded approximately $50 million, $26 million and $50 million
of gross revenue, before allowances and before late payment charges, for fiscal
1998 and the three and six months ended June 30, 1999, respectively, related to
reciprocal compensation revenue generated as a result of Metacomm network
traffic.
When the Metacomm network was originally developed, the Company agreed
to pay Metacomm commissions equal to a specified percentage of the reciprocal
compensation the Company receives from ILEC's for the network traffic. The
Company recorded approximately $20 million, $10 million and $20 million for
fiscal 1998 and the three and six months ended June 30, 1999, respectively, in
reciprocal compensation commission expense earned by Metacomm, which is included
in cost of services in the accompanying financial statements. As of June 30,
1999, the Company had a liability to Metacomm in the amount of $14.1 million,
which is recorded in accrued network costs in the accompanying financial
statements. The Company and Metacomm are parties to agreements by which
commissions earned by Metacomm related to reciprocal compensation are not
payable until the related reciprocal compensation is collected from the ILEC.
However, in fiscal 1998 and the three and six months ended June 30, 1999, the
Company paid Metacomm $8.3 million, $3.0 million and $6.3 million prior to
collecting the earned reciprocal compensation from BellSouth. These payments are
subject to a repayment agreement if the related reciprocal compensation is
ultimately not collected from BellSouth.
The Company believes that calls to establish, maintain and manage data
network connections and intra-network communications generated by data
processing routers, which are necessary to maintain the functionality and
integrity of the Metacomm network, are within the definition of
"telecommunications" under the Telecom Act and constitute compensable traffic
subject to reciprocal compensation under the interconnection agreements the
Company has with BellSouth. The Company also believes that the issues raised by
BellSouth as additional bases for nonpayment do not excuse BellSouth from its
obligation to pay reciprocal compensation under its interconnection agreement
with the Company. Accordingly, the Company intends to defend vigorously against
BellSouth's claims and to prosecute vigorously its claims against BellSouth in
the above proceedings.
As noted above, on July 16, 1999, the Company received a payment of
$11.2 million from BellSouth representing a portion of the amounts due the
Company for ISP reciprocal compensation in North Carolina. In making the
payment, BellSouth stated that it was for ISP traffic the NCUC had ordered it to
pay for in February 1998, including late fees, and that it was reserving all of
its appeal rights with respect to the payment. BellSouth also stated that this
payment did not include any amounts at issue in its September 14, 1998 NCUC
proceeding. This partial payment did not cover all outstanding amounts the
Company claims are due from BellSouth in North Carolina and other states the
Company serves. For example, while the Company has outstanding amounts due from
BellSouth for ISP traffic in Tennessee, Georgia and Florida, BellSouth has not
paid these amounts, presumably because no orders specific to US LEC have been
entered by state commissions in those states directing BellSouth to pay the
Company. However, state commissions in
16
<PAGE>
these states have issued rulings in favor of other competitive carriers and as
discussed above, the state commissions in Florida and Alabama have made
rulings subsequent to the FCC Ruling. To address this issue, the Company
has filed the following additional actions against BellSouth related to
delinquent reciprocal compensation payments, none of which involve Metacomm or
any similar network:
o On July 2, 1999, the Company filed a complaint against BellSouth
before the Florida Public Service Commission ("FLPSC").
o On July 1, 1999, the Company filed a complaint against BellSouth
before the Georgia Public Service Commission ("GAPSC").
o On August 6, 1999, the Company filed a complaint against BellSouth
before the Tennessee Regulatory Authority ("TRA").
The proceedings before the FLPSC, the GPSC and the TRA are all in early
stages and have not been scheduled for hearing dates.
Management believes that the Company will ultimately obtain favorable
results in the state proceedings described above before the NCUC, FLPSC, GAPSC
and the TRA; however, BellSouth may elect to initiate additional proceedings (by
way of appeal or otherwise) challenging amounts owed to the Company. If a
decision adverse to the Company is issued in any of these proceedings by any of
the state commissions, and in particular the NCUC, or by the FCC, or in any
appeal or review of a favorable decision by the U.S. District Court, state
commissions, or the FCC, or if either the FCC or any of the applicable state
commissions were to alter its view of reciprocal compensation, such an event
could have a material adverse effect on the Company's operating results and
financial condition. The Company's trade accounts receivable as of June 30, 1999
included approximately $113 million of earned but uncollected Disputed
Reciprocal Compensation (before a $26 million allowance and before late payment
charges) of which approximately $100 million was generated as a result of
traffic related to the Metacomm network.
In June 1999, the Company adopted an existing agreement to extend local
interconnection with BellSouth replacing the previous interconnection agreement,
which expired on June 15, 1999. The adopted interconnection agreement with
BellSouth is scheduled to terminate on December 31, 1999. The Company's ability
to obtain favorable terms for interconnection following December 31, 1999 will
depend on a number of factors, including decisions of the FCC and state
regulatory authorities. However, the Company intends to pursue such agreements
vigorously and does not anticipate any interruption in interconnection service.
YEAR 2000 READINESS DISCLOSURE
Many computer systems may experience difficulty processing dates beyond
the year 1999 and will need to be modified prior to the Year 2000. Failure to
make such modifications could result in system failures or miscalculations
causing a disruption of operations. No piece of equipment or software, owned or
maintained by the Company predates August 1996, with the majority of all
technology purchases concentrated in the period following March 1997. Since all
of its internal systems are relatively new and there were no legacy systems to
integrate, the Company believes that it does not face material Year 2000 issues
that may afflict many technology owners and that its internal software and
hardware systems will function properly in all material respects with regard to
Year 2000 issues. In addition, Year 2000 issues are also addressed as the
Company's network and internal systems are upgraded in the normal course of
business. As of June 30, 1999, the Company's costs expended towards Year 2000
compliance has been minimal and it does not expect its additional expenditures
directly related to Year 2000 compliance cost to exceed $100 thousand.
Management continually reassesses the status of the Company's Year 2000
compliance efforts.
The Company began conducting verification testing of all its internal
information technology and information systems in 1998. The testing is a
multi-phased process which includes, but is not limited to, setting the system
clocks to simulate several key dates and times in the Year 2000, then performing
daily activities. The infrastructure, servers and
17
<PAGE>
workstations, as well as software systems are being tested and validated using
this process. The Company's internal information technology and systems, based
on manufacturer supplied information, are 97 % compliant at this time, with 100%
compliance of all internal systems expected by the end of August 1999. The core
of the Company's telecommunication operations, the Lucent Technologies 5ESS(R)
Any Media(TM) switch, is fully compliant at this time, as is other
telecommunications systems owned by the Company. The services and facilities
vendors to the Company are partially compliant with majority of these companies
anticipating full compliance in the third quarter of 1999. While the Company has
no control over vendors of telecommunications systems and facilities, based on
information provided to the Company, we anticipate these vendors will be Year
2000 compliant by the end of 1999.
The Company has assessed the building access, security, and related
issues at all of its switch locations. Each switch site is accessible by manual
methods in the event of building systems failure. Further, each US LEC switch
site was built with a Year 2000 compliant uninterruptible power supply and a
back up generator. The Company's corporate office and network operations center
has received assurances from the building management that all systems within
these buildings are Year 2000 compliant. The Company's supporting services are
centralized at the corporate offices. The Year 2000 status of the sales offices
for the remaining US LEC locations is currently being evaluated with no issues
noted to date.
The Company (as are all other telecommunications providers) is heavily
dependent on the public switched network, over which the Company has little
control. The Company cannot give comfort on the status of the public switched
network or other telecommunications carriers and facility providers (such as
local exchange carriers ("LECs") competitive access providers ("CAPs") or
interexchange carriers ("IXCs")).
While management believes that its internal hardware and software
applications are Year 2000 compliant in all material respects, there can be no
absolute assurance until the Year 2000 dates occur that all systems will then
function adequately. The Company is monitoring all key vendors and suppliers for
Year 2000 compliance by various methods including, but not limited to, gathering
information from a detailed survey sent by the Company, public domain websites,
public service commission filings, and SEC filings. While most of the Company's
significant suppliers and vendors have advised the Company that they are or
anticipate being Year 2000 compliant, if the software applications of other
LECs, long distance carriers, IXCs, CAPs, or others on whose services the
Company depends are not Year 2000 compliant, a material adverse effect on the
Company's financial condition and results of operations could result. The
Company is not aware of any significant vendor who may be unable to provide
services to the Company as a result of Year 2000 non-compliance. The Company has
developed Year 2000 contingency plans, in conjunction with its disaster recovery
plans, in the event of a Year 2000 related failure including if its suppliers
and vendors are not Year 2000 compliant, but there can be no assurance that the
contingency plan will avoid service disruptions related to Year 2000 issues.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
US LEC is exposed to various types of market risk in the normal course
of business, including the impact of interest rate changes on its investments
and debt. As of June 30, 1999, investments consisted primarily of institutional
money market funds. All of the Company's long-term debt consists of variable
rate instruments with interest rates that are based on a floating rate which, at
the Company's option, is determined by either a base rate or the London
Interbank Offered Rate, plus, in each case, a specified margin.
Although US LEC does not currently utilize any interest rate management
tools, it is evaluating the use of derivatives such as, but not limited to,
interest rate swap agreements to manage its interest rate risk. As the Company's
investments are all short-term in nature and its long-term debt is at variable
short-term rates, management believes the carrying values of the Company's
financial instruments approximate fair values.
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<PAGE>
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
US LEC is not currently a party to any material legal proceedings,
other than the NCUC, FLPSC, GAPSC and TRA proceedings related to reciprocal
compensation and other amounts due from BellSouth. Note 6 to the Company's
condensed consolidated statements included elsewhere in this report is
incorporated by reference into the Company's response to this item.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
RECENT SALES OF UNREGISTERED SECURITIES
None during the quarter ended June 30, 1999.
USE OF PROCEEDS FROM REGISTERED SECURITIES
On February 13, 1998, US LEC filed a registration statement with the
SEC to register up to 6,325,000 shares of its Class A Common Stock (the "Common
Stock") for sale by the Company. In April and May 1998, the Company completed an
offering of these 6,325,000 shares (the "Equity Offering"). The net proceeds to
the Company from the Equity Offering were approximately $87.1 million, after
deducting underwriting discounts and commissions of $6.6 million and offering
expenses of $1.1 million. The Company has used such net proceeds as follows: (i)
$64.3 million for the purchase of property and equipment, (ii) $3.8 million to
repay indebtedness to two stockholders, including accrued interest (iii) $1.3
million for payment of debt issuance fees and (iv) $17.7 million for general
corporate purposes necessitated by the inability of the Company to collect the
majority of the earned but unpaid amounts due from BellSouth for reciprocal
compensation (see note 6 to the Company's condensed consolidated statements
included elsewhere in this report).
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of the Stockholders of US LEC Corp. was held on
April 20, 1999. At the Annual Meeting, two matters were considered, acted upon
and approved: (1) the election of two Directors for a one-year term and until
their successors are duly elected and qualified and (2) an amendment to the US
LEC Corp. 1998 Omnibus Stock Plan to increase the number of shares of Class A
Common Stock reserved for issuance under the plan from 1,300,000 to 2,000,000.
Indicated below are the total votes in favor of each director nominee
and the total votes withheld:
<TABLE>
<CAPTION>
VOTES *
-------------------------------------------
NOMINEE COMMON STOCK FOR WITHHELD AUTHORITY
------------------------------- ----------------------------- ----------------- -------------------------
<S> <C> <C> <C>
David Flaum Class A 8,924,017 16,722
Class B 170,752,700 0
----------- -----------
Total 179,676,717 16,722
Steven Schoonover Class A 8,923,917 16,822
Class B 170,752,700 0
----------- -----------
Total 179,676,617 16,822
</TABLE>
19
<PAGE>
Indicated below are the total votes in favor the amendment to the US
LEC Corp. 1998 Omnibus Stock Plan, the total votes against the amendment and the
total votes abstaining:
<TABLE>
<CAPTION>
VOTES *
-------------------------------------------------------
COMMON STOCK FOR AGAINST ABSTAINED
---------------------------- ------------------- ------------------- ---------------
<S> <C> <C> <C>
Class A 4,976,766 838,025 51,458
Class B 170,752,700 0 0
----------- ----------- ----------
Total 175,729,466 838,025 51,548
</TABLE>
* Each share of Class A Common Stock has one vote and each share of
Class B Common Stock has 10 votes on all matters on which holders of Class A
Common Stock are entitled to vote.
ITEM 5. OTHER INFORMATION
Amended and Restated Loan and Security Agreement
On June 30, 1999, US LEC Corp. amended and restated the existing credit
facility with General Electric Capital Corporation, as Administrative Agent,
Co-Arranger and Lender, and First Union National Bank, as Syndication Agent,
Co-Arranger and Lender to increase the amount available under the credit
facility from $50.0 million to $75.0 million. The credit facility is now
comprised of (i) a $50.0 million revolving credit facility with a term of one
year and an option to convert into a seven-year term loan on the termination
date and (ii) a $25.0 million revolving credit facility with a six-year term.
The interest rate for the facility is a floating rate based, at the Company's
option, on a base rate (as defined in the loan agreement) or the London
Interbank Offered Rate, plus a specified margin. Initial advances under the
amended facility bear interest at the rate of approximately 8.8%. The credit
facility is secured by a pledge of the capital stock of the Company's principal
operating subsidiaries and a security interest in a substantial portion of the
Company's and its operating subsidiaries' equipment, receivables, leasehold
improvements and general intangibles. Proceeds from the credit facility will be
used to fund capital expenditures and working capital requirements and for other
general corporate purposes.
<TABLE>
<CAPTION>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<S> <C> <C> <C> <C>
(a) Exhibits:
EXHIBIT NO. DESCRIPTION
10.1 Amended and Restated Loan and Security Agreement, dated as
of June 30, 1999, among US LEC Corp., certain operating
subsidiaries of US LEC Corp., General Electric Capital
Corporation and First Union National Bank
11.1 Statement Regarding Computation of Earnings per Share*
27 Financial Data Schedule (For SEC use only)
* Incorporated by reference to the Company's Condensed Consolidated
Statements of Operations appearing in Part I of this report.
(b) Form 8-K:
None during the quarter ended June 30, 1999.
</TABLE>
20
<PAGE>
SIGNATURES
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 thereunto duly authorized.
US LEC Corp.
By:_______________________
Michael K. Robinson
Executive Vice President and Chief Financial Officer
21
EXHIBIT 10.1
===============================================================================
AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
Dated as of June 30, 1999
among
US LEC CORP.,
as Guarantor and Borrower Representative,
CERTAIN OPERATING SUBSIDIARIES OF US LEC CORP.,
as Borrowers,
THE LENDERS PARTY HERETO,
GENERAL ELECTRIC CAPITAL CORPORATION,
as Administrative Agent, Co-Arranger and Lender,
and
FIRST UNION CAPITAL MARKETS CORP.,
as Syndication Agent and Co-Arranger
===============================================================================
<PAGE>
TABLE OF CONTENTS
Page
-----
ARTICLE 1: DEFINITIONS................................................1
1.1 Certain Definitions........................................1
1.2 Accounting Principles; Subsidiaries.......................18
1.3 UCC Terms.................................................18
1.4 General Construction; Captions............................19
1.5 References to Documents and Laws..........................19
ARTICLE 2: LOANS.....................................................19
2.1 Facility A................................................19
2.2 Facility B................................................19
2.3 Notes.....................................................20
2.4 Letters of Credit.........................................20
2.5 Reliance on Notices; Appointment of Borrower
Representative............................................20
2.6 Procedures for Borrowing..................................21
2.7 Facility B Loan Amortization..............................21
2.8 Reduction of Facility A Commitment........................21
2.9 Maturity..................................................21
2.10 Prepayments; Commitment Reductions........................22
2.11 Interest and Applicable Margins...........................23
2.12 Payments..................................................25
2.13 Application and Allocation of Payments....................25
2.14 Loan Account and Accounting...............................26
2.15 Indemnity.................................................26
2.16 Access....................................................27
2.17 Taxes.....................................................28
2.18 Capital Adequacy; Increased Costs; Illegality.............28
2.19 Use of Proceeds...........................................30
2.20 Fees......................................................30
2.21 Expenses..................................................30
ARTICLE 3: ASSIGNMENT AND PARTICIPATIONS; APPOINTMENT OF
ADMINISTRATIVE AGENT......................................31
3.1 Assignment and Participations.............................31
3.2 Appointment of Administrative Agent.......................33
3.3 Administrative Agent's Reliance, Etc......................33
3.4 GECC and Affiliates.......................................34
3.5 Lender Credit Decision....................................34
3.6 Indemnification...........................................34
3.7 Successor Administrative Agent............................35
3.8 Set Off and Sharing of Payments...........................35
3.9 Advances; Payments; Non-Funding Lenders; Information;
Actions in Concert........................................36
3.10 Syndication Agent.........................................38
ARTICLE 4: COLLATERAL AND SECURITY AGREEMENT.........................38
4.1 Grant of Security Interest................................38
4.2 Regulatory Authorizations.................................39
4.3 Priority of Security Interests............................40
4.4 Pledge Agreements.........................................40
i
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TABLE OF CONTENTS
Page
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4.5 Further Documentation; Pledge of Instruments..............40
4.6 Accounts, Etc.............................................40
4.7 Further Identification of Collateral......................40
4.8 Remedies..................................................41
4.9 Standard of Care..........................................41
4.10 Advances to Protect Collateral............................41
4.11 License to Use............................................41
4.12 Benefit of Lenders........................................41
4.13 Release of Collateral.....................................41
ARTICLE 5: REPRESENTATIONS AND WARRANTIES............................42
5.1 Organization and Qualification............................42
5.2 Authority and Authorization...............................42
5.3 Execution and Binding Effect..............................42
5.4 Governmental Authorizations...............................42
5.5 Regulatory Authorizations.................................42
5.6 Agreements and Other Documents............................43
5.7 Absence of Conflicts......................................43
5.8 No Restrictions...........................................43
5.9 Government Contracts......................................43
5.10 Financial Statements; Business Plan.......................43
5.11 Financial Accounting Practices............................44
5.12 Deposit and Disbursement Accounts.........................44
5.13 Insurance.................................................44
5.14 Accurate and Complete Disclosure..........................44
5.15 No Event of Default; Compliance with Material Agreements..44
5.16 Labor Matters.............................................44
5.17 Litigation................................................45
5.18 Rights to Property........................................45
5.19 Year 2000 Problem.........................................45
5.20 Taxes.....................................................45
5.21 No Material Adverse Change................................46
5.22 Solvency..................................................46
5.23 No Regulatory Event.......................................46
5.24 Trade Relations...........................................46
5.25 No Brokerage Fees.........................................46
5.26 Margin Stock; Regulation U................................46
5.27 Investment Company; Public Utility Holding Company........46
5.28 Personal Holding Company; Subchapter S....................46
5.29 Securities Act, Etc.......................................46
5.30 ERISA.....................................................46
5.31 Intellectual Property.....................................47
5.32 Environmental Warranties..................................47
5.33 Security Interests........................................47
5.34 Place of Business.........................................47
5.35 Location of Collateral....................................47
5.36 Validity of Contracts and Accounts........................47
5.37 No Defaults Under Contracts or Accounts...................48
ii
<PAGE>
TABLE OF CONTENTS
Page
----
5.38 Subsidiaries..............................................48
5.39 Assumed Names.............................................48
5.40 Pledge Agreements; Registration of Pledge.................48
5.41 Transactions with Affiliates..............................48
ARTICLE 6: CONDITIONS TO EFFECTIVENESS...............................48
6.1 Closing Certificates......................................48
6.2 Opinions of Counsel.......................................49
6.3 Closing Documents.........................................49
6.4 No Material Adverse Change................................50
6.5 No Existing Default or Event of Default...................50
6.6 Payment of Expenses.......................................50
ARTICLE 7: CONDITIONS OF LENDING.....................................50
7.1 Conditions to Each Borrowing Date.........................50
7.2 Affirmation of Representations and Warranties.............51
7.3 Deadline for Funding Conditions...........................51
ARTICLE 8: AFFIRMATIVE COVENANTS.....................................52
8.1 Reporting and Information Requirements....................52
8.2 Other Notices.............................................53
8.3 Notice of Pension-Related Events..........................53
8.4 Inspection Rights.........................................54
8.5 Preservation of Corporate Existence and Qualification.....54
8.6 Continuation of Business..................................54
8.7 Insurance.................................................54
8.8 Payment of Taxes, Charges, Claims and Current
Liabilities...............................................56
8.9 Financial Accounting Practices............................56
8.10 Compliance with Laws......................................57
8.11 Use of Proceeds...........................................57
8.12 Government Authorizations; Regulatory Authorizations,
Etc.......................................................57
8.13 Contracts and Franchises..................................57
8.14 Site Leases and Consents..................................57
8.15 Financial Covenants.......................................57
8.16 Patent, Trademark and Copyright Collateral................58
8.17 Sites.....................................................58
8.18 Certain Notices...........................................59
8.19 Management Team...........................................59
8.20 Enforcement of Contracts..................................59
8.21 Legal Fee Reserve.........................................59
8.22 Subordinated Loans........................................59
8.23 Liens on After-Acquired Property..........................59
8.24 Year 2000 Compliance......................................59
8.25 Post-Closing Items........................................60
8.26 Further Assurances........................................60
ARTICLE 9: NEGATIVE COVENANTS........................................60
9.1 Indebtedness..............................................60
9.2 Restrictions on Liens and Sale of Collateral..............60
9.3 Limitation on Contingent Obligations......................61
iii
<PAGE>
TABLE OF CONTENTS
Page
----
9.4 Prohibition of Mergers, Acquisitions, Name, Office or
Business Changes, Etc.....................................61
9.5 Limitation on Equity Payments.............................62
9.6 Prohibition on Sale or Issuance of Stock..................62
9.7 Limitation on Investments, Advances and Loans.............62
9.8 Capital Expenditures......................................62
9.9 Limitation on Leases......................................63
9.10 Transactions with Affiliates..............................63
9.11 Extension of Accounts.....................................63
9.12 Assumed Names.............................................63
9.13 Subsidiaries..............................................63
ARTICLE 10: EVENTS OF DEFAULT AND REMEDIES............................63
10.1 Events of Default.........................................63
10.2 Remedies..................................................66
10.3 Waivers by Loan Parties...................................67
10.4 Exercise of Rights........................................67
10.5 Rights of Secured Party...................................67
10.6 Additional Remedies.......................................67
10.7 Application of Proceeds...................................69
10.8 Discontinuance of Proceedings.............................69
10.9 Power of Attorney.........................................69
10.10 Regulatory Matters........................................70
ARTICLE 11: JOINT AND SEVERAL OBLIGATIONS; GUARANTY...................71
11.1 Guaranty..................................................71
11.2 Waivers by Loan Parties...................................72
11.3 Benefit of Guaranty.......................................72
11.4 Subordination of Subrogation, Etc.........................72
11.5 Election of Remedies......................................72
11.6 Limitation................................................73
11.7 Contribution with Respect to Guaranty Obligations.........73
11.8 Liability Cumulative......................................74
ARTICLE 12: GENERAL CONDITIONS/MISCELLANEOUS..........................74
12.1 Amendments, Modifications and Waivers.....................74
12.2 Advances Not Implied Waivers..............................75
12.3 Business Day..............................................75
12.4 Records...................................................75
12.5 Notices...................................................75
12.6 FCC and PUC Approval......................................76
12.7 Lenders Sole Beneficiary..................................76
12.8 Lender's Review of Information............................77
12.9 No Joint Venture..........................................77
12.10 Severability..............................................77
12.11 Rights Cumulative.........................................77
12.12 Duration; Survival........................................77
12.13 Governing Law.............................................77
12.14 Counterparts..............................................77
iv
<PAGE>
TABLE OF CONTENTS
Page
----
12.15 Successors and Assigns....................................77
12.16 Disclosures and Confidentiality...........................78
12.17 Jurisdiction and Venue....................................79
12.18 Jury Waiver...............................................80
12.19 Limitation on Liability...................................80
12.20 Schedules, Exhibits and Annexes...........................80
12.21 Agreement to Govern.......................................80
12.22 Entire Agreement..........................................80
v
<PAGE>
ANNEXES TO LOAN AND SECURITY AGREEMENT
Annex I Letters of Credit
Annex II Initial Commitments; Addresses of Lenders
Annex III Closing Checklist
SCHEDULES TO LOAN AND SECURITY AGREEMENT
Schedule 1 Borrower Information and Certain Defined Terms
Schedule 2.7 Facility B Loan Amortization Schedule
Schedule 2.8 Scheduled Reductions of Facility A Commitment
Schedule 2.11 Applicable Margins
Schedule 2.20 Commitment Fees
Schedule 3.9 Wire Instructions
Schedule 5.4 Required Consents
Schedule 5.5 Regulatory Authorizations
Schedule 5.6 Agreements and Other Documents
Schedule 5.8 Restrictions on Indebtedness
Schedule 5.9 Government Contracts
Schedule 5.10 Financial Statements; Business Plan
Schedule 5.12 Deposit and Disbursement Accounts
Schedule 5.13 Existing Insurance
Schedule 5.16 Labor Matters
Schedule 5.17 Litigation
Schedule 5.18 Site and Site Leases; Real Property; Equipment Location
Schedule 5.31 Intellectual Property
Schedule 5.33 Security Interests--Recordings and Filings
Schedule 5.34 Place of Business
Schedule 5.35 Location of Collateral
Schedule 5.39 Assumed Names
Schedule 5.41 Transactions with Affiliates
Schedule 7.1 Post-Closing Items
Schedule 8.7 Required Insurance
Schedule 8.15 Financial Covenants
Schedule 9.1 Permitted Debt
Schedule 9.2 Liens
EXHIBITS TO LOAN AND SECURITY AGREEMENT
Exhibit A-1 Form of Facility A Note
Exhibit A-2 Form of Facility B Note
Exhibit B Form of Borrowing Certificate
Exhibit C Form of Notice of Conversion/Continuation
Exhibit D Form of Opinion of Counsel to Loan Parties
Exhibit E Form of Opinion of Regulatory Counsel to Loan Parties
Exhibit F Form of Landlord Waiver and Consent
Exhibit G Form of Assignment Agreement
Exhibit H Form of Administrative Questionnaire
Exhibit I Form of Additional Borrower Assumption
Exhibit J Form of Pledge Agreement
vi
<PAGE>
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT ("Agreement") is dated as of June 30,
1999, by and among the entity or entities which are described on Schedule 1 or
may become a party hereto pursuant to an Additional Borrower Assumption as
herein provided (individually a "Borrower" and collectively, "Borrowers"); US
LEC CORP., a Delaware corporation ("Holdings"), as Guarantor and Borrower
Representative; GENERAL ELECTRIC CAPITAL CORPORATION, a New York corporation (in
its individual capacity, "GECC"), as Lender and as administrative agent for
Lenders (in that latter capacity, "Administrative Agent"); FIRST UNION NATIONAL
BANK, as Lender; FIRST UNION CAPITAL MARKETS CORP. (in its individual capacity,
"FUCMC"), as syndication agent (in that latter capacity, "Syndication Agent");
and the other Lenders party hereto from time to time.
B A C K G R O U N D:
1. Borrowers (other than US LEC of Alabama Inc. and US LEC of Georgia
Inc.), Holdings, Lenders, Administrative Agent and Syndication Agent are parties
to the Loan and Security Agreement, dated as of December 30, 1998 (the "Existing
Loan Agreement").
2. The parties to the Existing Loan Agreement desire to amend and restate
the Existing Loan Agreement in its entirety as of the Effective Date in the
manner and on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained and intending to be legally bound hereby, the parties
hereto agree as follows:
ARTICLE 1: DEFINITIONS
1.1 Certain Definitions. Certain terms are defined on Schedule 1. In addition to
other words and terms defined in the preamble hereof or elsewhere in this
Agreement, or on the Schedules, the following words and terms shall have the
following meanings unless the context otherwise clearly requires:
"Accounts": as defined in Section 4.1(a).
"Additional Borrower": as defined in Section 6.3(c).
"Additional Borrower Assumption": as defined in Section 9.13.
"Advance": any Facility A Advance or Facility B Advance, as the
context may require.
"Affected Lender": as defined in Section 2.18(d).
"Affiliate": with respect to any Person, (a) each Person that, directly or
indirectly, owns or controls, whether beneficially, or as a trustee, guardian or
other fiduciary, five percent (5%) or more of the Stock having ordinary voting
power in the election of directors of such Person, (b) each Person that
controls, is controlled by or is under common control with such Person, (c) each
of such Person's officers, directors, joint venturers and partners and (d) in
the case of individuals, the immediate family members, spouses and lineal
descendants of individuals who are Affiliates of any Borrower. For the purposes
of this definition, "control" of a Person shall
<PAGE>
mean the possession, directly or indirectly, of the power to direct or cause the
direction of its management or policies, whether through the ownership of voting
securities, by contract or otherwise; provided, however, that the term
"Affiliate" shall specifically exclude, in the case of any Loan Party,
Administrative Agent and each Lender.
"Applicable Base Margin": the per annum interest rate margin from time to
time in effect and payable in addition to the Base Rate applicable to the Base
Rate Loans, as determined by reference to Schedule 2.11.
"Applicable L/C Margin": the per annum fee, from time to time in effect,
payable with respect to outstanding Letter of Credit Obligations as determined
by reference to Schedule 2.11.
"Applicable LIBOR Margin": the per annum interest rate from time to time
in effect and payable in addition to the LIBOR Rate applicable to LIBOR Loans,
as determined by reference to Schedule 2.11.
"Applicable Margins": the Applicable L/C Margin, the Applicable Base
Margin, and the Applicable LIBOR Margin, collectively.
"Asset Disposition": means any sale or other disposition, or series of
sales or other dispositions (including by merger or consolidation, and whether
by operation of law or otherwise), made on or after the date hereof by any Loan
Party or any of its Subsidiaries to any Person of (i) all or substantially all
of the outstanding Stock of any of its Subsidiaries, (ii) all or substantially
all of its assets or the assets of any division of any Borrower or any of its
Subsidiaries or (iii) any other asset or assets which, when taken together with
all sales or other dispositions of assets not covered by the foregoing clauses
(i) and (ii), yield proceeds or involve assets having a fair market value in
excess of $100,000 in any twelve-month period.
"Assignment Agreement": as defined in Section 3.1(a).
"Base Rate": for any day, a floating rate equal to the higher of (i) the
rate publicly quoted from time to time by The Wall Street Journal as the "base
rate on corporate loans at large U.S. money center commercial banks" (or, if The
Wall Street Journal ceases quoting a base rate of the type described, the
highest per annum rate of interest published by the Board of Governors of the
Federal Reserve System in Federal Reserve statistical release H.15 (519)
entitled "Selected Interest Rates" as the Bank prime loan rate or its
equivalent), and (ii) the Federal Funds Rate plus fifty (50) basis points per
annum. Each change in any interest rate provided for in this Agreement based
upon the Base Rate shall take effect at the time of such change in the Base
Rate.
"Base Rate Loan": a Loan or portion thereof bearing interest by
reference to the Base Rate.
"Borrower Representative": US LEC Corp. in its capacity as
representative and agent of Borrowers.
"Borrowers": as defined in Schedule 1 and any other subsidiary of
Holdings that becomes a Borrower as herein provided.
"Borrowing Certificate": a certificate substantially in the form of
Exhibit B.
2
<PAGE>
"Borrowing Date": any Business Day on which an Advance is made or a
Letter of Credit Obligation is incurred.
"Business Day": a day other than a Saturday, Sunday or other day on which
commercial banks in New York, New York or Charlotte, North Carolina are
authorized or required by law to close.
"Business Plan": Loan Parties' business plan, including pro forma
projections, as described in, and attached to, Schedule 5.10, as updated upon
the request of Administrative Agent at the direction of Requisite Lenders or as
required herein; provided, however, that each such update shall be acceptable to
Requisite Lenders, which acceptance shall not be unreasonably withheld.
"Capital Expenditures": for any period, (a) the additions to property,
plant and equipment and other capital expenditures (including all systems and
development expenditures related to the build-out of the Networks) of Loan
Parties that are (or would be) set forth in a consolidated statement of cash
flows of Loan Parties for such period prepared in accordance with GAAP;
provided, however, that no consideration paid for or expenditure related to the
acquisition of any license and no capitalized interest shall be treated as a
Capital Expenditure nor shall expenditures of proceeds of insurance settlements,
condemnation awards and other like settlements in respect of lost, destroyed,
damaged or condemned property, plant or equipment, to the extent that such
expenditures are made to repair or replace such property or to acquire other
property, plant and equipment useful in the business within twelve (12) months
of receipt of such proceeds, be deemed Capital Expenditures and (b) Capital
Lease Obligations incurred by Loan Parties during such period.
"Capital Lease": with respect to any Person, any lease of any property
(whether real, personal or mixed) by such Person as lessee that, in accordance
with GAAP, would be required to be classified and accounted for as a capital
lease on a balance sheet of such Person.
"Capital Lease Obligation": with respect to any Capital Lease of any
Person, the amount of the obligation of the lessee thereunder that, in
accordance with GAAP, would appear on a balance sheet of such lessee in respect
of such Capital Lease.
"Cash": at any time, the cash, cash equivalents or marketable investment
grade securities held by any Loan Party free of any claims or encumbrances other
than those created by the Loan Documents.
"Cash Flow": during any fiscal period of Loan Parties, the sum of (i) net
income (or loss) (which may be a positive or negative number) for such period,
plus (ii) all non-cash items deducted in determining such net income (or loss),
minus (iii) all non-cash items added in determining such net income (or loss)
during such period.
"Cash Interest Coverage Ratio": [(a) until the Loan Parties report
positive EBITDA for [each of] four (4) consecutive Fiscal Quarters [considered
as a single accounting period], the product of EBITDA for the two (2) most
recent Fiscal Quarters ending on or prior to such date multiplied by
two (2) divided by Interest Expense (excluding any portion thereof not paid in
cash) for the most recent four (4) consecutive Fiscal Quarters ending on or
prior to such date and (b) thereafter,] EBITDA for any period of four (4)
consecutive Fiscal Quarters divided by Interest Expense (excluding any portion
thereof not paid in cash) for such period.
3
<PAGE>
"Change of Board": an occurrence whereupon, at any time, fewer than
one-half of the directors comprising the board of directors of Holdings shall
include members of a group consisting of any of the current chief executive
officer, the president, any current or future Class B directors, any existing
Board members and replacement or additional directors nominated or supported by
one-half or more of the members of the foregoing group.
"Change of Control": an occurrence whereupon both of the following exist:
(i) the failure of the Permitted Holders, in the aggregate, to own or control,
directly or indirectly, stock of Holdings representing either 25% or more of the
voting capital stock of Holdings or more than any other Person or group, within
the meaning of Regulation 13D under the Securities Exchange Act of 1934 and (ii)
a Change of Board shall occur.
"Charges": all federal, state, county, city, municipal, local, foreign or
other governmental taxes (including taxes owed to the PBGC at the time due and
payable), levies, assessments, charges, liens, claims or encumbrances upon or
relating to (a) the Collateral, (b) the Obligations, (c) the employees, payroll,
income or gross receipts of any Loan Party, (d) any Loan Party's ownership or
use of any properties or other assets, or (e) any other aspect of any Loan
Party's business.
"Closing Checklist": the schedule, including all appendices, exhibits or
schedules thereto, listing certain documents and information to be delivered in
connection with this Agreement, the other Loan Documents and the transactions
contemplated thereunder, substantially in the form attached hereto as Annex III.
"Co-Arrangers": GECC and FUCMC.
"Code": the Internal Revenue Code of 1986, as amended from time to
time.
"Collateral": as defined in Section 4.1.
"Commitment Fees": as defined in Section 2.20(a).
"Commitments": the Facility A Commitment and the Facility B
Commitment, collectively. The initial Commitments of Lenders are set forth
on Annex II.
"Commitment Termination Date": the Facility A Commitment Termination
Date or the Facility B Commitment Termination Date, as the context may
require.
"Communications Law": any and all of (i) the Telecommunications Act of
1996, the Communications Act of 1934, any similar or successor federal statute
to either and the rules and regulations of the FCC thereunder; and (ii) any
state law governing the provision of telecommunications services and the rules
and regulations of the PUC, all as the same may be in effect from time to time.
"Contingent Obligation": as to any Person, any obligation of such Person
guaranteeing, directly or indirectly, any Indebtedness, leases, dividends or
other obligations ("primary obligations") of any other Person (the "primary
obligor") in any manner, whether directly or indirectly, including, without
limitation, any obligation of such Person, whether or not contingent, (a) to
purchase any such primary obligation or any property constituting direct or
indirect security therefor, (b) to advance or supply funds (i) for the purchase
or payment of any such primary
4
<PAGE>
obligation or (ii) to maintain working capital or equity capital of the primary
obligor or otherwise to maintain the net worth or solvency of the primary
obligor, (c) to purchase property, securities or services primarily for the
purpose of assuring the owner of any such primary obligation of the ability of
the primary obligor to make payment of such primary obligation or (d) otherwise
to assure or hold harmless the owner of such primary obligation against loss in
respect thereof.
"Contracts": as defined in Section 4.1(b).
"Current Assets": with respect to any Person, all current assets of
such Person as of any date of determination calculated in accordance with
GAAP, but excluding Indebtedness due from Affiliates.
"Current Liabilities": with respect to any Person, all liabilities which
should, in accordance with GAAP, be classified as current liabilities, and in
any event shall include all Indebtedness payable on demand or within one year
from any date of determination without any option on the part of the obligor to
extend or renew beyond such year, all accruals for federal or other taxes based
on or measured by income and payable within such year, and the current portion
of long-term debt required to be paid within one year, but excluding, in the
case of Borrowers, the aggregate outstanding principal balances of the Loans.
"Default": any of the conditions or occurrences specified in
Section 10.1, whether or not any requirement for the giving of notice, the
lapse of time, or both, or any other condition has been satisfied.
"Default Rate": as defined in Section 2.11(d).
"Disqualified Stock": means any Stock of Holdings which, by its terms (or
by the terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is
exchangeable for Indebtedness, or is redeemable at the option of the holder
thereof, in whole or in part, on or prior to the first anniversary of the
Facility B Loan Maturity Date.
"EBITDA": for any period, the sum of consolidated net income (excluding
extraordinary gains and losses and any income and related expenses derived from
sources which are disputing amounts payable to any Loan Party with respect to
reciprocal compensation related to internet service providers and related
facility charges), depreciation, amortization, Interest Expense and tax expense
for Loan Parties.
"Effective Date": the date on which the conditions set forth in
Article 6 are satisfied or waived with consent of all Lenders.
"ERISA": the Employee Retirement Income Security Act of 1974, as
amended from time to time, and any successor statute.
"Environmental Laws": all applicable federal, state, local and foreign
laws, statutes, ordinances, codes, rules, standards and regulations, now or
hereafter in effect, and in each case as amended or supplemented from time to
time, and any applicable judicial or administrative interpretation thereof,
including any applicable judicial or administrative order, consent decree, order
or judgment, imposing liability or standards of conduct for or relating to the
regulation and
5
<PAGE>
protection of human health, safety, the environment and natural resources
(including ambient air, surface water, groundwater, wetlands, land surface or
subsurface strata, wildlife, aquatic species and vegetation). Environmental Laws
include the Comprehensive Environmental Response, Compensation, and Liability
Act of 1980 (42 U.S.C. ss.ss. 9601 et seq.) ("CERCLA"); the Hazardous Materials
Transportation Authorization Act of 1994 (49 U.S.C. ss.ss. 5101 et seq.); the
Federal Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. ss.ss. 136 et
seq.); the Solid Waste Disposal Act (42 U.S.C. ss.ss. 6901 et seq.); the Toxic
Substance Control Act (15 U.S.C. ss.ss. 2601 et seq.); the Clean Air Act (42
U.S.C. ss.ss. 7401 et seq.); the Federal Water Pollution Control Act (33 U.S.C.
ss.ss. 1251 et seq.); the Occupational Safety and Health Act (29 U.S.C. ss.ss.
651 et seq.); and the Safe Drinking Water Act (42 U.S.C. ss.ss. 300(f) et seq.);
each as from time to time amended, and any and all regulations promulgated
thereunder, and all analogous state, local and foreign counterparts or
equivalents and any transfer of ownership notification or approval statutes.
"Environmental Liabilities": with respect to any Person, all liabilities,
obligations, responsibilities, response, remedial and removal costs,
investigation and feasibility study costs, capital costs, operation and
maintenance costs, losses, damages, punitive damages, property damages, natural
resource damages, consequential damages, treble damages, costs and expenses
(including all fees, disbursements and expenses of counsel, experts and
consultants), fines, penalties, sanctions and interest incurred as a result of
or related to any claim, suit, action, investigation, proceeding or demand by
any Person, whether based in contract, tort, implied or express warranty, strict
liability, criminal or civil statute or common law, including any arising under
or related to any Environmental Laws, Environmental Permits, or in connection
with any Release or threatened Release or presence of a Hazardous Material
whether on, at, in, under, from or about or in the vicinity of any real or
personal property.
"Environmental Permits": all permits, licenses, authorizations,
certificates, approvals or registrations required by any Governmental
Authority under any Environmental Laws.
"Equipment": as defined in Section 4.1(c).
"Equity Payment": any distribution of earnings or capital, or any
redemption or other payment in respect of stock, membership interests,
partnership interests or other equity interests, including options and warrants,
either directly or indirectly, whether in cash or property or in obligations of
any Loan Party.
"Event of Default": any of the events specified in Section 10.1; provided,
however, that any requirement for the giving of notice, the lapse of time, or
both, or any other condition, under Section 10.1 or otherwise, has been
satisfied.
"Excess Cash Flow": without duplication, with respect to any Fiscal Year
of Loan Parties, consolidated net income plus (a) depreciation, amortization and
Interest Expense to the extent deducted in determining consolidated net income,
plus decreases or minus increases (as the case may be) (b) in Working Capital,
minus (c) Interest Expense paid or accrued (excluding any original issue
discount, interest paid in kind or amortized debt discount, to the extent
included in determining Interest Expense) and scheduled principal payments paid
or payable in respect of Indebtedness permitted hereunder to be incurred, plus
or minus (as the case may be), (d) extraordinary gains or losses which are cash
items not included in the calculation of net income, minus (e) Capital
Expenditures for such Fiscal Year permitted hereunder, plus (f) taxes deducted
in determining consolidated net income to the extent not paid for in cash. For
purposes
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of this definition, "Working Capital" means Current Assets (exclusive of Cash)
less Current Liabilities.
"Existing Facility A Loan": as defined in Section 2.1(b).
"Existing Facility B Loan": as defined in Section 2.2(b).
"Existing Loan Agreement": as defined in the recitals to this
Agreement.
"Facility A Advance": any advance made pursuant to Section 2.1(a).
"Facility A Commitment": (a) as to any Lender, the aggregate commitment of
such Lender to make its Pro Rata Share of Facility A Advances and/or incur
Letter of Credit Obligations hereunder or in the most recent Assignment
Agreement executed by such Lender and (b) as to all Lenders, the aggregate
commitment of all Lenders to make Facility A Advances and/or incur Letter of
Credit Obligations, which aggregate commitment shall be Twenty-Five Million
Dollars ($25,000,000) on the date hereof, as such amount may be adjusted, if at
all, from time to time in accordance with this Agreement.
"Facility A Commitment Termination Date": the earliest of (a) the sixth
anniversary of the Effective Date, (b) the date of termination of Lenders'
obligations to make Advances and/or incur Letter of Credit Obligations or permit
existing Loans to remain outstanding pursuant to Section 10.2(b), and (c) the
date of indefeasible prepayment in full by Borrowers of the Facility A Loans and
the cancellation and return (or stand-by guarantee) of all Letters of Credit or
the cash collateralization of all Letter of Credit Obligations pursuant to Annex
I and the permanent reduction of the Facility A Commitment to zero dollars ($0).
"Facility A Loan": at any time, the sum of (i) the aggregate amount of
Facility A Advances outstanding to Borrowers plus (ii) the aggregate outstanding
balance of all Letter of Credit Obligations incurred on behalf of Borrowers.
Unless the context otherwise requires, references to the outstanding principal
balance of the Facility A Loan shall include the outstanding balance of Letter
of Credit Obligations.
"Facility A Note": as defined in Section 2.3(a).
"Facility B Advance": any Advance made pursuant to Section 2.2(a).
"Facility B Commitment": (a) as to any Lender, the aggregate commitment of
such Lender to make its Pro Rata Share of the Facility B Advances hereunder or
in the most recent Assignment Agreement executed by such Lender and (b) as to
all Lenders, the aggregate commitment of all Lenders to make the Facility B
Advances, which aggregate commitment shall be Fifty Million Dollars
($50,000,000) on the date hereof, as such amount may be adjusted, if at all,
from time to time in accordance with this Agreement.
"Facility B Commitment Termination Date": the earliest of (a) the first
anniversary of the Effective Date, (b) the date of termination of Lenders'
obligations to make the Facility B Advances or permit the Facility B Loan to
remain outstanding pursuant to Section 10.2(b) and (c) the date of permanent
cancellation or reduction of the Facility B Commitment to zero dollars ($0).
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"Facility B Loan": at any time, the aggregate amount of Facility B
Advances outstanding to Borrowers.
"Facility B Loan Maturity Date": the earlier of (a) the eighth anniversary
of the date hereof and (b) the date of termination of Lenders' obligations to
permit the Facility B Loan to remain outstanding pursuant to Section 10.2(b).
"Facility B Note": as defined in Section 2.3(b).
"FCC": the Federal Communications Commission of the United States of
America, and any successor, in whole or in part, to its jurisdiction.
"Federal Funds Rate": shall mean, for any day, a floating rate equal to
the weighted average of the rates on overnight Federal funds transactions among
members of the Federal Reserve System, as determined by Administrative Agent.
"Fee Letter": as defined in Section 2.20(b).
"Fees": any and all fees payable to Administrative Agent or any Lender
pursuant to this Agreement or any of the other Loan Documents.
"Financial Statements": the consolidated income statements, statements
of cash flows and balance sheets of Loan Parties delivered in accordance with
this Agreement.
"Fiscal Quarter": any of the quarterly accounting periods of Loan
Parties ending on March 31, June 30, September 30 and December 31 of each
year.
"Fiscal Year": any of the annual accounting periods of Loan Parties
ending on December 31 of each year.
"Fixed Charges": the sum, for any period, of (i) Total Debt Service,
(ii) Capital Expenditures and (iii) cash taxes.
"Fixed Charges Coverage Ratio": [(a) until the Loan Parties report
positive EBITDA for [each of] four (4) consecutive Fiscal Quarters [considered
as a single accounting period], the product of EBITDA for the two (2) most
recent Fiscal Quarters ending on or prior to such date multiplied by
two (2) divided by Fixed Charges for the most recent four (4) consecutive
Fiscal Quarters ending on or prior to such date and (b) thereafter,] EBITDA for
any period of four (4) consecutive Fiscal Quarters divided by Fixed Charges for
such period.
"GAAP": subject to Section 1.2, generally accepted accounting principles
in the United States of America (as such principles may change from time to
time) applied on a consistent basis (except for changes in application in which
the Loan Parties' independent certified public accountants concur), applied both
to classification of items and amounts.
"General Intangibles": as defined in Section 4.1(d).
"Governmental Actions": actions by any Governmental Authority.
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"Governmental Authority": the federal government, any state or political
subdivision thereof, any city or municipal entity, and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"Guaranties": collectively, the Holdings Guaranty and any other
guaranty executed by any Guarantor in favor of Secured Parties in respect of
the Obligations.
"Guarantors": Holdings and any existing or future Subsidiary of Holdings
which is not a Borrower and which executes a guaranty or other similar agreement
in favor of Secured Parties in respect of the Obligations.
"Hazardous Material": any substance, material or waste which is regulated
by, or forms the basis of liability now or hereafter under, any Environmental
Laws, including any material or substance which is (a) defined as a "solid
waste," "hazardous waste," "hazardous material," "hazardous substance,"
"extremely hazardous waste," "restricted hazardous waste," "pollutant,"
"contaminant," "hazardous constituent," "special waste," "toxic substance" or
other similar term or phrase under any Environmental Laws or (b) petroleum or
any fraction or by-product thereof, asbestos, polychlorinated biphenyls ("PCBs")
or any radioactive substance.
"Holdings": as defined in the recitals to this Agreement.
"Holdings Guaranty": the Guaranty of Holdings, pursuant to Article 11.
"Holdings Pledge Agreement": the Pledge Agreement, dated December 30,
1998, executed by Holdings pursuant to which all of the Stock of all Borrowers
described on Schedule I on the date hereof, except for US LEC of Alabama Inc.,
is pledged to Administrative Agent on behalf of Secured Parties.
"Indebtedness": as to any Person, at a particular time, (a) indebtedness
for borrowed money or for the deferred purchase price of property or services in
respect of which such Person is liable, contingently or otherwise, as obligor,
guarantor or otherwise, or in respect of which such Person otherwise assures a
creditor against loss, (b) obligations under leases which shall have been or
should be, in accordance with GAAP, recorded as Capital Leases in respect of
which obligations such Person is liable, contingently or otherwise, as obligor,
guarantor or otherwise, or in respect of which obligations such Person assures a
creditor against loss, (c) obligations of such Person to purchase or repurchase
accounts receivable, chattel paper or other payment rights sold or assigned by
such Person, (d) indebtedness or obligations of such Person under or with
respect to letters of credit, notes, bonds or other debt instruments (other than
letters of credit that are cash collateralized) and (e) all obligations of such
Person under any interest rate swap, cap or collar agreement or other similar
agreement or arrangement designed to alter the risks of that Person arising from
fluctuations in interest rates, in each case whether contingent or matured.
"Interest Expense": for any period, the aggregate amount of interest,
hedging costs and fees (excluding closing fees) paid or payable during such
period by the Loan Parties in respect of Total Debt.
"Interest Payment Date": (a) as to any Base Rate Loan, the last Business
Day of each Fiscal Quarter to occur while such Loan is outstanding, (b) as to
any LIBOR Loan, the last day of the applicable LIBOR Period; provided, however,
that in the case of any LIBOR Period greater than three (3) months in duration,
interest shall be payable at three-month intervals and on the last
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day of such LIBOR Period; and provided, further, that, in addition to the
foregoing, each of (x) the date upon which all of the Commitments have been
terminated and the Loans have been paid in full and (y) the Commitment
Termination Date shall be deemed to be an "Interest Payment Date" with respect
to any interest which is then accrued under this Agreement.
"Inventory": as defined in Section 4.1(e).
"Landlord Consent": a consent substantially in the form of Exhibit F or in
other form acceptable to Requisite Lenders executed by the owner/landlord,
sublessor and/or licensor (including carriers) of any real property where any of
the Collateral is or is to be located.
"Law": any law (including common law), constitution, statute, regulation,
rule, ordinance, order, injunction, writ, decree or award of any governmental
body or court of competent jurisdiction or of any arbitrator (including but not
limited to ERISA, the Code, the UCC, any applicable tax law, product safety law,
occupational safety or health law, Communications Law, Environmental Law and/or
securities laws).
"L/C Sublimit": as defined in Annex I.
"Lenders": GECC, First Union National Bank and, if either such Lender
shall decide to assign all or any portion of the Obligations, such term shall
include such assignee and any subsequent assignee of any assignee.
"Letter of Credit Obligations": all outstanding obligations incurred by
Administrative Agent or Lenders at the request of Borrower Representative,
whether direct or indirect, contingent or otherwise, due or not due, in
connection with the issuance of a reimbursement agreement or guaranty by
Administrative Agent or purchase by Lenders of a participation as set forth in
Annex I with respect to any Letter of Credit. The amount of such Letter of
Credit Obligations shall equal the maximum amount which may be payable by
Administrative Agent or Lenders thereupon or pursuant thereto.
"Letters of Credit": commercial or standby letters of credit issued for
the account of any Borrower by any L/C Issuer for which Administrative Agent and
Lenders have incurred Letter of Credit Obligations.
"LIBOR Business Day": a Business Day on which banks in the city of
London are generally open for interbank or foreign exchange transactions.
"LIBOR Loan": a Loan or any portion thereof bearing interest by
reference to the LIBOR Rate.
"LIBOR Period": with respect to any LIBOR Loan, each period commencing on
a LIBOR Business Day selected by Borrower Representative pursuant to this
Agreement and ending one, two, three or six months thereafter, as selected by
Borrower Representative's irrevocable notice to Administrative Agent as set
forth in Section 2.11(e); provided, however, that the foregoing provision
relating to LIBOR Periods is subject to the following:
(a) if any LIBOR Period would otherwise end on a day that is not a
LIBOR Business Day, such LIBOR Period shall be extended to the next succeeding
LIBOR Business Day unless the result of such extension would be to carry such
LIBOR Period into another calendar
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month in which event such LIBOR Period shall end on the immediately preceding
LIBOR Business Day;
(b) any LIBOR Period pertaining to a LIBOR Loan that begins on the
last LIBOR Business Day of a calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at the end of such LIBOR
Period) shall end on the last LIBOR Business Day of a calendar month;
(c) Borrower Representative shall select LIBOR Periods so as not to
require a payment or prepayment of any LIBOR Loan during a LIBOR Period for such
Loan; and
(d) Borrower Representative shall select LIBOR Periods so that there
shall be no more than six (6) separate LIBOR Loans in existence at any one time.
"LIBOR Rate": for each LIBOR Period, a rate of interest determined by
Administrative Agent equal to:
(a) the offered rate for deposits in United States Dollars for the
applicable LIBOR Period which appears on Telerate Page 3750 as of 11:00
a.m., London time, on the second full LIBOR Business Day next preceding
the first day of each LIBOR Period (unless such date is not a Business
Day, in which event the next succeeding Business Day will be used);
divided by
(b) a number equal to 1.0 minus the aggregate (but without
duplication) of the rates (expressed as a decimal fraction) of reserve
requirements in effect on the day which is two (2) LIBOR Business Days
prior to the beginning of such LIBOR Period (including basic,
supplemental, marginal and emergency reserves under any regulations of the
Board of Governors of the Federal Reserve System or other governmental
authority having jurisdiction with respect thereto, as now and from time
to time in effect) for Eurocurrency funding (currently referred to as
"Eurocurrency liabilities" in Regulation D of such Board) which are
required to be maintained by a member bank of the Federal Reserve System.
If such interest rates shall cease to be available from Telerate News
Service, the LIBOR Rate shall be determined from such financial reporting
service or other information as shall be mutually acceptable to Administrative
Agent and Borrower Representative.
"Lien": any mortgage, pledge, hypothecation, lien (statutory or other),
judgment lien, security interest, security agreement, charge or other
encumbrance, or other security arrangement of any nature whatsoever, including,
without limitation, any installment contract, conditional sale or other title
retention arrangement, any sale of accounts receivable or chattel paper, and any
assignment, deposit arrangement or lease intended as, or having the effect of,
security and the filing of any financing statement under the UCC or comparable
law of any jurisdiction.
"Loan Documents": this Agreement, the Notes, the Security Documents, the
Guaranties, the Fee Letter, all other filings and all other agreements,
instruments, documents and certificates identified in the Closing Checklist
executed and delivered to, or in favor of, Administrative Agent and/or Lenders
and including all other pledges, powers of attorney, consents, assignments,
contracts, notices, filings and all other written matter whether heretofore, now
or hereafter executed by or on behalf of any Loan Party, or any employee of any
Loan Party, and delivered to
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Administrative Agent or any Lender in connection with this Agreement or the
transactions contemplated hereby. Any reference in this Agreement or any other
Loan Document to a Loan Document shall include all appendices, exhibits or
schedules thereto, and all amendments, restatements, supplements or other
modifications thereto, and shall refer to such Agreement as the same may be in
effect at any and all times such reference becomes operative.
"Loan Parties": the Borrowers, Holdings and each other Guarantor.
"Loans": the Facility A Loan and the Facility B Loan.
"Loss of Key Management": an occurrence whereupon, at any time, either one
of the Permitted Holders shall cease to be an officer or director of Holdings
and Holdings fails to designate within thirty (30) days therefrom a replacement
as an officer or director in his stead or provide a plan to designate such
replacement which is reasonably acceptable to Requisite Lenders.
"Markets": as defined in Schedule 1.
"Material Adverse Effect" or "Material Adverse Change": a material adverse
effect on or material adverse change in (i) a material portion of the
Collateral, (ii) the business, financial or other condition, prospects or
projections of Holdings and its Subsidiaries taken as a whole from that
reflected in the Business Plan, (iii) the ability of any Loan Party to perform
its obligations under this Agreement, the Notes, the other Loan Documents or the
System Agreements or (iv) Administrative Agent's or Lenders' ability to enforce
the rights and remedies granted under this Agreement or the other Loan
Documents, in all cases whether attributable to a single circumstance or event
or an aggregation of circumstances or events.
"Maximum Lawful Rate": as defined in Section 2.11(f).
"Network": a fiber optic transmission and communications system
operated by a Loan Party, including all Equipment related thereto.
"Non-Funding Lender": as defined in Section 3.9(a)(ii).
"Notes": the Facility A Notes and the Facility B Notes, collectively.
"Notice of Conversion/Continuation": as defined in Section 2.11(e).
"Obligations": all loans, advances, debts, liabilities and obligations for
the performance of covenants, tasks or duties or for payment of monetary amounts
(whether or not such performance is then required or contingent, or such amounts
are liquidated or determinable) owing by any Loan Party to Administrative Agent
or any Lender, and all covenants and duties regarding such amounts, of any kind
or nature, present or future, whether or not evidenced by any note, agreement or
other instrument, arising under this Agreement or any of the other Loan
Documents. This term includes all principal, interest (including all interest
which accrues after the commencement of any case or proceeding in bankruptcy
after the insolvency of, or for the reorganization of, any Loan Party, whether
or not allowed in such proceeding), Letter of Credit Obligations, Fees,
expenses, attorneys' fees and any other sum chargeable to any Loan Party under
this Agreement or any of the other Loan Documents.
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"Organizational Documents": with respect to a corporation, the articles of
incorporation and by-laws of such corporation; with respect to a partnership,
the certificate of partnership (or limited partnership, as applicable) and
partnership agreement, together with the analogous documents for any corporate
or partnership general partner; and in any case, any other document governing
the formation and conduct of business by such entity.
"Other Lender": as defined in Section 3.9(d).
"PBGC": the Pension Benefit Guaranty Corporation established under
Title IV of ERISA or any other governmental agency, department or
instrumentality succeeding to its functions.
"Permits": all consents, licenses, notices, approvals, authorizations,
filings, orders, registrations, and permits required by any Governmental
Authority for the construction and operation of a Network (excluding Regulatory
Authorizations), issued or obtained as and when required in accordance with all
Requirements of Law.
"Permitted Acquisition": a Telecommunications Acquisition which
satisfies the following conditions:
(a) no Default or Event of Default exists, both immediately before
and after giving effect to such acquisition;
(b) not later than fifteen (15) days prior to the completion of such
acquisition, Holdings shall have provided Lenders with information and financial
analysis (including purchase price and historical and projected revenue, cash
flow and cost reductions) regarding such acquisition, demonstrating to the
reasonable satisfaction of the Lenders, after giving pro forma effect to such
acquisition, (i) compliance with Schedule 8.15 and (ii) during Stage II, a Total
Leverage Ratio of at least 0.50 less than the Total Leverage Ratio set forth in
Schedule 8.15 for the most recently ended Fiscal Quarter;
(c) the total amount expended by the Loan Parties for any single
acquisition or series of related acquisitions, if payable in Cash or
Disqualified Stock and completed during a period when the Senior Leverage Ratio
is greater than or equal to 4.0x, shall not exceed $5,000,000 or, until the
Termination Date, $10,000,000 in the aggregate with all other acquisitions; and
(d) the total amount expended by the Loan Parties for any single
acquisition or series of related acquisitions, if payable in Cash or
Disqualified Stock and completed during a period when the Senior Leverage Ratio
is less than 4.0x, shall not exceed $10,000,000.
"Permitted Debt": (i) the Obligations, (ii) existing Indebtedness
(including existing letters of credit not to exceed $1,500,000 and their
subsequent renewal) specified on Schedule 9.1 and any refinancings thereof on
terms that in the aggregate are not less favorable to Loan Parties, (iii)
Indebtedness incurred for the purposes specified on Schedule 9.1 up to an
aggregate of $1,750,000 and any refinancings thereof on terms that in the
aggregate are not less favorable to Loan Parties, (iv) Permitted Subordinated
Debt, (v) inter-company Indebtedness between Loan Parties and (vi) interest rate
protection agreements in connection with Indebtedness permitted hereunder.
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"Permitted Encumbrances": the Liens permitted under Section 9.2.
"Permitted Holders": the present chief executive officer of Holdings
and the present president of Holdings.
"Permitted Subordinated Debt": Indebtedness in an amount not greater than
$150,000,000 that (i) does not require any payment of principal until twelve
(12) months after the Facility B Loan Maturity Date, (ii) is issued on market
terms prevailing at the time and (iii) is subordinated on terms reasonably
acceptable to Requisite Lenders to the Indebtedness created hereunder or
pursuant to any other Loan Document.
"Person": any individual, sole proprietorship, partnership, joint venture,
trust, unincorporated organization, association, corporation, limited liability
company, institution, public benefit corporation, other entity or government
(whether federal, state, county, city, municipal, local, foreign, or otherwise,
including any instrumentality, division, agency, body or department thereof).
"Plan": any employee pension benefit plan to which Section 4021 of ERISA
applies and (i) which is maintained for employees of any Loan Party or (ii) to
which any Loan Party made, or was required to make, contributions at any time
within the preceding five (5) years.
"Pledge Agreement(s)": the Holdings Pledge Agreement and any other pledge
agreement, substantially in the form of Exhibit J, executed by any Loan Party
pledging any stock or membership or ownership interests to Administrative Agent
on behalf of Secured Parties.
"Proceeds": as defined in Section 4.1(f).
"Projections": the Loan Parties' forecasted consolidated (a) balance
sheets; (b) profit and loss statements (which also were provided on a
consolidating basis); and (c) cash flow statements, all prepared on a Subsidiary
by Subsidiary basis, together with appropriate supporting details and a
statement of underlying assumptions.
"Pro Rata Share": (a) with respect to all matters relating to any Lender,
the percentage obtained by dividing (i) the Commitment of such Lender by (ii)
the aggregate Commitments of all Lenders and (b) with respect to all Loans on
and after the Commitment Termination Date, the percentage obtained by dividing
(i) the aggregate outstanding principal balance of the Loans held by that Lender
by (ii) the outstanding principal balance of the Loans held by all Lenders.
"PUC": the public utilities commission for the state or any other
jurisdiction in which all or any portion of a Network is located, or any
successor agency, and any successor, in whole or in part, to its functions or
jurisdictions, and any other Persons specified on Schedule 1.
"Quarterly Revenues": for any Fiscal Quarter, revenues for such quarter
(other than revenues derived from sources which are disputing amounts payable to
any Loan Party with respect to reciprocal compensation related to internet
service providers and related facility charges) that are received from any third
party entity which is not an Affiliate of any Loan Party or the principal
shareholders of such Loan Party.
"Regulatory Authorizations": all approvals, authorizations, licenses,
filings, notices, registrations, consents, permits, exemptions, registrations,
qualifications, designations,
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declarations, or other actions or undertakings now or hereafter made by, to or
in respect of any telecommunications Governmental Authority, including any
certificates of public convenience and all grants, approvals, licenses, filings
and registrations from or to the FCC or PUC or under any Communications Law
necessary in order to enable any Loan Party to provide telecommunications
service of the type provided or proposed to be provided by such Loan Party and
any authorizations specified on Schedule 1.
"Regulatory Event": any of the following events: (i) any Lender becomes
subject to regulation as a "carrier," a "telephone company," a "common carrier,"
a "public utility" or otherwise under any applicable law or governmental
regulation, federal, state or local, solely as a result of the transactions
contemplated by this Agreement and the other Loan Documents, or (ii) any Loan
Party becomes subject to regulation by any Governmental Authority in any way
that is materially different from the regulation existing at the date hereof and
that could reasonably be expected to have a Material Adverse Effect, or (iii)
the FCC or any PUC issues an order revoking, denying or refusing to renew, or
recommending the revocation, denial or non-renewal of, any Regulatory
Authorization that could reasonably be expected to have a Material Adverse
Effect.
"Release": any release, threatened release, spill, emission, leaking,
pumping, pouring, emitting, emptying, escape, injection, deposit, disposal,
discharge, dispersal, dumping, leaching or migration of Hazardous Material in
the indoor or outdoor environment, including the movement of Hazardous Material
through or in the air, soil, surface water, ground water or property.
"Replacement Lender": as defined in Section 2.18(d).
"Reportable Event": (i) a reportable event described in Section 4043 of
ERISA and regulations thereunder, (ii) a withdrawal by a substantial employer
from a Plan to which more than one employer contributes, as referred to in
Section 4063(b) of ERISA, or (iii) a cessation of operations at a facility
causing more than twenty percent (20%) of Plan participants to be separated from
employment, as referred to in Section 4062(f) of ERISA.
"Required Consents": the Governmental Authority approvals or consents of
other Persons required with respect to each Loan Party's execution, delivery and
performance of this Agreement and the other Loan Documents, as defined in
Schedule 5.4.
"Requirement of Law": as to any Person, the Organizational Documents of
such Person, and any law, treaty, rule or regulation, or determination of an
arbitrator or a court or other Governmental Authority, in each case applicable
to or binding upon such Person or any of its properties or transactions or to
which such Person or any of its property or transactions is subject, including
all applicable common law and equitable principles, all provisions of all
applicable state and federal constitutions, statutes, rules, regulations and
orders of governmental bodies, all Permits or Regulatory Authorizations issued
to Borrower, all Communications Laws and all Environmental Laws.
"Requisite Lenders": (a) Lenders having more than sixty-six and two-thirds
percent (66-2/3%) of the Commitments of all Lenders or (b) if the Commitments
have been terminated, more than sixty-six and two-thirds percent (66-2/3%) of
the aggregate outstanding amount of all Loans; provided, however, that at such
time as there are five (5) or more Lenders, such percentage shall be reduced to
fifty percent (50%).
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"Responsible Officer": of a Person, the chief executive officer, the
president, the general counsel, the chief financial officer or the director
of treasury operations of such Person.
"Secured Parties": Administrative Agent and Lenders.
"Security Documents": this Agreement, the Pledge Agreements, the Landlord
Consents, all financing statements, and any other documents granting,
evidencing, or perfecting any security interest or Lien with respect to or
securing any of the Obligations.
"Senior Debt": all Indebtedness, guarantees and liabilities secured by
liens on property of Loan Parties, other than Permitted Subordinated Debt.
"Senior Debt to Total Capitalization": Senior Debt, at any date,
divided by Total Capitalization at the same date.
"Senior Leverage Ratio": for any period, Senior Debt as of any date
divided by the product of (i) EBITDA for the two (2) most recent Fiscal Quarters
ending on or prior to such date multiplied by (ii) two (2).
"Site Leases": collectively, all leases, subleases, tower leases,
co-location agreements, license agreements, easements, use agreements,
privileges, access agreements, right-of-way agreements and all other agreements
relating to the use by any Loan Party of any Site.
"Site(s)": any site where Equipment with a cost of more than $100,000
is located.
"Software" and "Software Licenses": any software now or hereafter
owned by, or licensed to, any Loan Party or with respect to which such Loan
Party has or may have license or use rights.
"Solvent": with respect to any Person on a particular date, that on such
date (a) the fair value of the property of such Person is greater than the total
amount of liabilities, including contingent liabilities, of such Person; (b) the
present fair salable value of the assets of such Person is not less than the
amount that will be required to pay the probable liability of such Person on its
debts as they become absolute and matured; (c) such Person does not intend to,
and does not believe that it will, incur debts or liabilities beyond such
Person's ability to pay as such debts and liabilities mature; and (d) such
Person is not engaged in a business or transaction, and is not about to engage
in a business or transaction, for which such Person's property would constitute
an unreasonably small capital. The amount of contingent liabilities (such as
litigation, guarantees and pension plan liabilities) at any time shall be
computed as the amount which, in light of all the facts and circumstances
existing at the time, represents the amount which can be reasonably be expected
to become an actual or matured liability.
"Stage 1": the period of time from the Effective Date until the
Termination Date unless, on or prior to March 31, 2001, Borrower Representative
submits Financial Statements and compliance certificates pursuant to Section 8.1
reflecting (i) positive EBITDA for [each of] the previous two (2) consecutive
Fiscal Quarters [considered as a single accounting period] and (ii) Total
Leverage Ratio not greater than 10.0x, in which event the period shall be from
the Effective Date until the date of such delivery.
"Stage 2": the period immediately following the end of Stage 1.
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"Stock": all shares, options, warrants, general or limited partnership or
membership interests or other equivalents (regardless of how designated) of or
in a corporation, partnership, limited liability company or equivalent entity,
whether voting or nonvoting, including common stock, preferred stock or any
other "equity security" (as such term is defined in Rule 3a11-1 of the General
Rules and Regulations promulgated by the Securities and Exchange Commission
under the Securities Exchange Act of 1934, as amended).
"Subsidiary": with respect to any Person, (a) any corporation of which an
aggregate of more than fifty percent (50%) of the outstanding Stock having
ordinary voting power to elect a majority of the board of directors of such
corporation (irrespective of whether, at the time, Stock of any other class or
classes of such corporation shall have or might have voting power by reason of
the happening of any contingency) is at the time, directly or indirectly, owned
legally or beneficially by such Person and/or one or more Subsidiaries of such
Person, or with respect to which any such Person has the right to vote or
designate the vote of fifty percent (50%) or more of such Stock, whether by
proxy, agreement, operation of law or otherwise, and (b) any partnership or
limited liability company in which such Person and/or one or more Subsidiaries
of such Person shall have an interest (whether in the form of voting or
participation in profits or capital contribution) of more than fifty percent
(50%) or of which any such Person is a general partner or may exercise the
powers of a general partner.
"System Agreements": any and all agreements and documents executed by or
delivered by or to any Loan Party at any time in connection with any Network or
its acquisition, construction or operation, including all management and
maintenance agreements, agreements for storage or warehousing of Collateral,
Site Leases and interconnection agreements.
"Taxes": taxes, levies, imposts, deductions, Charges or withholdings, and
all liabilities with respect thereto, excluding taxes imposed on or measured by
the net income of Administrative Agent or a Lender by the jurisdiction under
which Administrative Agent or any Lender is organized or from which it makes the
Advances or any political subdivision of either thereof.
"Telecommunications Acquisition": the acquisition of a Telecommunications
Business effected by (i) a merger with a Loan Party in which the Loan Party is
the surviving entity, (ii) an acquisition of assets by a Loan Party, (iii) an
acquisition of Stock by Holdings or (iv) a merger of a newly created
wholly-owned first tier Subsidiary of Holdings into another Person, which, upon
the merger, becomes a wholly-owned Subsidiary of Holdings and either a Borrower
or a Guarantor.
"Telecommunications Business": the business of primarily (i) transmitting,
or providing services relating to the transmission of voice, fax, video or data
through owned or leased transmission facilities or the provision of Internet
related services ("Telecommunications Services"), (ii) creating, developing or
marketing communications related network equipment, software and other devices
for use in a Telecommunications Services, (iii) owning, developing or operating
assets related to Telecommunications Services, (iv) owning, developing or
operating back-office or support systems related to Telecommunications Services
or (v) evaluating, participating or pursuing any other activity or opportunity
that is primarily related to those identified in clause (i), (ii), (iii) or (iv)
above.
"Termination Date": the date on which the Loans have been indefeasibly
repaid in full and all other amounts then due and payable under this Agreement
or any of the other Loan
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Documents have been indefeasibly paid in full and Letter of Credit Obligations
have been cash collateralized, canceled or backed by stand-by letters of credit
in accordance with Annex I, and no Borrower shall have any further right to
borrow any monies under this Agreement.
"Total Capitalization": for Loan Parties taken as a whole, Total Debt plus
paid-in-capital (including preferred stock but excluding additional equity
issued as pay-in-kind dividends on issued and outstanding equity securities) and
excluding any accumulated deficits resulting from operations.
"Total Debt": all Indebtedness, guarantees and liabilities secured by
liens on property of Loan Parties.
"Total Debt to Total Capitalization": Total Debt, at any date, divided
by Total Capitalization as of the same date.
"Total Debt Service": the sum, for any period, of: (i) mandatory
principal payments on Total Debt and (ii) Interest Expense (excluding any
portion thereof not paid in cash).
"Total Leverage Ratio": for any period, Total Debt as of any date divided
by the [product of (i) EBITDA for the two (2) most recent Fiscal Quarters ending
on or prior to such date multiplied by (ii) two (2)].
"UCC": the Uniform Commercial Code as the same may from time to time be in
effect in the State of New York or the Uniform Commercial Code of another
jurisdiction, to the extent it may be required to apply to any item or items of
Collateral.
1.2 Accounting Principles; Subsidiaries. Except as otherwise provided in
this Agreement, all computations and determinations as to accounting or
financial matters and all financial statements to be delivered pursuant to this
Agreement shall be made and prepared in accordance with GAAP (including
principles of consolidation where appropriate), consistently applied, and all
accounting or financial terms shall have the meanings ascribed to such terms by
GAAP. If at any time a Loan Party has any Subsidiaries, all accounting and
financial terms herein shall be deemed to include references to consolidated and
consolidating principles, and covenants, representations and agreements with
respect to a Loan Party and its properties and activities shall be deemed to
refer to such Loan Party and its consolidated Subsidiaries collectively. For
purposes of Section 8.15, GAAP shall be determined on the basis of such
principles in effect on the date of the most recent annual audited Financial
Statements provided hereunder (or if prior to delivery of the first such annual
audited Financial Statements hereunder, then on a basis consistent with the
annual audited Financial Statements referenced in Section 5.10); provided,
however, that if due to a change in application of GAAP or the rules promulgated
with respect thereto, (i) Borrower Representative shall object to determination
of compliance with the financial covenants in Section 8.15 on such basis or (ii)
Administrative Agent or Requisite Lenders shall object to determination of
compliance therewith on such basis within thirty (30) days after delivery of
such Financial Statements, then such calculations shall be made on a basis
consistent with the most recent Financial Statements delivered as to which no
such objection shall have been made.
1.3 UCC Terms. Except as otherwise provided or amplified (but not
limited) herein, terms used in this Agreement that are defined in the UCC shall
have the same meanings herein.
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1.4 General Construction; Captions. All definitions and other terms used
in this Agreement shall be equally applicable to the singular and plural forms
thereof, and all references to any gender shall include all other genders. The
words "hereof," "hereto," "herein" and "hereunder" and words of similar import
when used in this Agreement shall refer to this Agreement as a whole and not to
any particular Article, Section, subsection or clause in this Agreement.
References herein to an Exhibit, Schedule, Article, Section, subsection or
clause refer to the appropriate Exhibit, Schedule, Article, Section, subsection
or clause in this Agreement unless otherwise specified. The word "including"
shall have the meaning represented by the phrase "including, without
limitation." The captions and table of contents in this Agreement and the other
Loan Documents are for convenience only, and in no way limit or amplify the
provisions hereof.
1.5 References to Documents and Laws. All defined terms and references in
this Agreement or the other Loan Documents with respect to any agreements,
notes, instruments, certificates or other documents shall be deemed to refer to
such documents and to any amendments, modifications, renewals, extensions,
replacements, restatements, substitutions and supplements of and to such
documents. All references to Laws shall include any amendments thereof and any
successor statutes and regulations.
ARTICLE 2: LOANS
2.1 Facility A.
(a) Subject to the terms and conditions hereof, each Lender agrees to
make available from time to time until the Facility A Commitment Termination
Date its Pro Rata Share of all Facility A Advances. The Pro Rata Share of any
Lender of the Facility A Loan shall not at any time exceed such Lender's
Facility A Commitment. The obligations of each Lender hereunder shall be several
and not joint. Until the Facility A Commitment Termination Date, Borrowers may
from time to time borrow, repay and reborrow under this Section 2.1.
(b) To the extent the "Facility A Loan" under the Existing Loan
Agreement (the "Existing Facility A Loan") is outstanding on the Effective Date,
such Existing Facility A Loan shall be deemed a Facility A Advance made on the
Effective Date by each Lender in accordance with its Facility A Commitment on
the Effective Date.
2.2 Facility B.
(a) Subject to the terms and conditions hereof, each Lender agrees to
make available from time to time until the Facility B Commitment Termination
Date its Pro Rata Share of all Facility B Advances. The Pro Rata Share of any
Lender of the Facility B Loan shall not at any time exceed such Lender's
Facility B Commitment. The obligations of each Lender hereunder shall be several
and not joint. Until the Facility B Commitment Termination Date, Borrowers may
from time to time borrow, repay and reborrow under this Section 2.2. After the
Facility B Commitment Termination Date, amounts repaid or prepaid may not be
reborrowed under this Section 2.2.
(b) To the extent the "Facility B Loan" under the Existing Loan
Agreement (the "Existing Facility B Loan") is outstanding on the Effective Date,
such Existing Facility B Loan shall be deemed a Facility B Advance made on the
Effective Date by each Lender in accordance with its Facility B Commitment on
the Effective Date.
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2.3 Notes.
(a) Borrowers shall execute and deliver to each Lender a note to
evidence the Facility A Commitment of that Lender. Each note shall be in the
principal amount of the Facility A Commitment of the applicable Lender, dated
the Effective Date, and substantially in the form of Exhibit A-1 (each a
"Facility A Note" and, collectively, the "Facility A Notes"). Each Facility A
Note shall represent the obligation of each Borrower to pay the amount of each
Lender's Facility A Commitment or, if less, the applicable Lender's Pro Rata
Share of the aggregate unpaid principal amount of all Facility A Advances to
such Borrower together with interest thereon as prescribed in Section 2.11.
(b) Borrowers shall execute and deliver to each Lender a note to
evidence the Facility B Commitment of that Lender. Each note shall be in the
principal amount of the Facility B Commitment of the applicable Lender, dated
the Effective Date, and substantially in the form of Exhibit A-2 (each a
"Facility B Note" and, collectively, the "Facility B Notes"). Each Facility B
Note shall represent the obligation of each Borrower to pay the amount of each
Lender's Facility B Commitment or, if less, the applicable Lender's Pro Rata
Share of the aggregate unpaid principal amount of all Facility B Advances to
such Borrower together with interest thereon as prescribed in Section 2.11.
2.4 Letters of Credit. Subject to and in accordance with the terms and
conditions contained herein and in Annex I, Borrower Representative shall have
the right to request, and Lenders agree to incur, or purchase participations in,
Letter of Credit Obligations for the account of Borrowers.
2.5 Reliance on Notices; Appointment of Borrower Representative.
Administrative Agent and each Lender shall be entitled to rely upon, and shall
be fully protected in relying upon, any Borrowing Certificate, Notice of
Conversion/Continuation or similar notice believed by Administrative Agent or
such Lender to be genuine. Administrative Agent and each Lender may assume that
each Person executing and delivering such a notice was duly authorized, unless
the responsible individual acting thereon for Administrative Agent or such
Lender has actual knowledge to the contrary. Each Borrower hereby designates
Holdings as its representative and agent on its behalf for the purposes of
issuing Borrowing Certificates and Notices of Conversion/Continuation, giving
instructions with respect to the disbursement of the proceeds of the Loans,
selecting interest rate options, requesting Letters of Credit, giving and
receiving all other notices and consents hereunder or under any of the other
Loan Documents and taking all other actions (including in respect of compliance
with covenants) on behalf of any Borrower or Borrowers under the Loan Documents
(Holdings, in that capacity, being "Borrower Representative"). Holdings hereby
accepts such appointment. Administrative Agent and each Lender may regard any
notice or other communication pursuant to any Loan Document from Borrower
Representative as a notice or communication from all Borrowers, and may give any
notice or communication required or permitted to be given to any Borrower or
Borrowers hereunder to Borrower Representative on behalf of such Borrower or
Borrowers. Each Borrower agrees that each notice, election, representation and
warranty, covenant, agreement and undertaking made on its behalf by Borrower
Representative shall be deemed for all purposes to have been made by such
Borrower and shall be binding upon and enforceable against such Borrower to the
same extent as if the same had been made directly by such Borrower.
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2.6 Procedures for Borrowing.
(a) Borrowing Certificates. To request a Facility A Advance or a
Facility B Advance hereunder, Borrower Representative shall send to
Administrative Agent a completed Borrowing Certificate at least three (3)
Business Days prior to the requested Borrowing Date for LIBOR Loans and one (1)
Business Day prior to the requested Borrowing Date for Base Rate Loans. Each
Borrowing Certificate shall specify therein (i) the requested Borrowing Date,
(ii) the aggregate amount of such Advance, (iii) the amount thereof, if any,
requested to be LIBOR Loans and (iv) the initial LIBOR Period or Periods for any
such LIBOR Loans. The Loans shall be made as Base Rate Loans unless (subject to
Section 2.18) the Borrowing Certificate specifies that all or a portion thereof
shall be LIBOR Loans. All LIBOR Loans shall comply with Section 2.11(e).
Each Borrowing Certificate shall be irrevocable and binding on
Borrowers. In the case of any requested Advance which the related Borrowing
Certificate specifies is to be comprised of LIBOR Loans, Borrowers shall,
jointly and severally, indemnify each Lender against any loss, cost or expense
incurred by such Lender as a result of any failure to fulfill on or before the
date specified in such Borrowing Certificate for such requested Advance the
applicable conditions set forth in Article 7, including any loss (including loss
of anticipated profits), cost or expense incurred by reason of the liquidation
or reemployment of deposits or other funds acquired by such Lender to fund any
LIBOR Loan to be made by such Lender as part of such requested Advance when such
LIBOR Loan, as a result of such failure, is not made on such date.
(b) Lender's Obligation. The failure of any Lender to make the Advance
to be made by it as part of any Loan shall not relieve any other Lender of its
obligation, if any, hereunder to make its Advance on such Borrowing Date, but no
Lender shall be responsible for the failure of any other Lender to make the
Advance to be made by such other Lender on the Borrowing Date.
(c) Advances. Each Advance (other than the last Advance) shall be in
an aggregate principal amount of not less than $1,000,000 and integral multiples
of $100,000 in excess thereof. No amount may be borrowed hereunder on or after
the Commitment Termination Date applicable to the proposed Advance.
2.7 Facility B Loan Amortization. The Facility B Loan shall be amortized
according to Schedule 2.7.
2.8 Reduction of Facility A Commitment. The Facility A Commitment shall
be permanently reduced according to the reduction schedule set forth on Schedule
2.8 (and the Facility A Commitment of each Lender shall be reduced by its Pro
Rata Share of such reduction).
2.9 Maturity.
(a) The entire unpaid balance of the aggregate Facility A Loan and all
other non-contingent Obligations shall be immediately due and payable in full in
immediately available funds on the Facility A Commitment Termination Date, if
not sooner paid in full pursuant to Section 2.10.
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(b) The entire unpaid balance of the aggregate Facility B Loan and all
other non-contingent Obligations shall be immediately due and payable in full in
immediately available funds on the Facility B Loan Maturity Date, if not sooner
paid in full pursuant to Section 2.10.
2.10 Prepayments; Commitment Reductions.
(a) Voluntary Prepayments.
(i) Borrowers may, at their option, at any time and from time to
time, in whole or in part, voluntarily prepay all or part of any Loan upon three
(3) Business Days' prior written notice to Administrative Agent, specifying the
date and amount of prepayment, in a minimum amount of $1,000,000, plus all
accrued but unpaid interest thereon and any LIBOR funding breakage costs in
accordance with Section 2.15(b). Such notice shall be irrevocable and the
principal amount specified in such notice shall be due and payable on the date
specified together with accrued interest on the amount prepaid.
(ii) Borrowers may, at their option, at any time, permanently
reduce from time to time or terminate the Facility A Commitment or the Facility
B Commitment; provided, however, that neither the Facility A Commitment nor the
Facility B Commitment shall be reduced to an amount less than the outstanding
principal amount of the Facility A Loan or the Facility B Loan, respectively.
(b) Mandatory Prepayments.
(i) Asset Dispositions. In the event of receipt by any Loan
Party of proceeds of any Asset Disposition (including condemnation proceeds)
that are not used within one hundred eighty (180) days of receipt to acquire
property, plant or equipment or a Regulatory Authorization, Borrowers shall
prepay the Loans within such one hundred eighty (180) day period in an amount
equal to all such proceeds, net of (A) commissions and other reasonable and
customary transaction costs, fees and expenses properly attributable to such
transaction and payable by such Loan Party in connection therewith (in each
case, paid to non-Affiliates), (B) transfer taxes and (C) an appropriate reserve
for income taxes in accordance with GAAP in connection therewith. Any such
prepayment shall be applied in accordance with clause (c) of this Section 2.10.
(ii) Sale or Issuance of Stock. No later than the Business Day
following the receipt by Holdings of any proceeds from a sale or issuance of
Stock by Holdings (other than from the exercise of options granted pursuant to
equity-based compensation arrangements or from the exercise of currently
outstanding warrants), Borrowers shall prepay the Loans in an amount equal to
all such proceeds, net of underwriting discounts and commissions and other
reasonable costs paid to non-Affiliates in connection therewith. Any such
prepayment shall be applied in accordance with clause (c) of this Section 2.10.
(iii) Excess Cash Flow. Borrowers shall prepay the Loans, in an
amount equal to fifty percent (50%) of Excess Cash Flow for each such Fiscal
Year commencing with the Fiscal Year ended December 31, 2001, which payment
shall be made on the earlier of the date which is ten (10) days after (A) the
date on which Holdings' annual audited Financial Statements for the immediately
preceding Fiscal Year are delivered pursuant to Section 8.1 or (B) the date on
which such annual audited Financial Statements were required to be delivered
pursuant to Section 8.1.
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(c) Application of Mandatory Prepayments. Any prepayments made by
Borrowers pursuant to clause (b) of this Section 2.10 above shall be applied as
follows: first, to Fees and reimbursable expenses of Administrative Agent then
due and payable pursuant to any of the Loan Documents; second, to interest then
due and payable on the Facility B Loan; third, to prepay the scheduled
installments of the Facility B Loan in inverse order of maturity until such Loan
shall have been prepaid in full and, for any such prepayments before the
Facility B Commitment Termination Date, the Facility B Commitment shall be
reduced pro tanto; fourth, to interest then due and payable on the Facility A
Advances; fifth, to the principal balance of the Facility A Advances outstanding
until the same shall have been paid in full; sixth to any Letter of Credit
Obligations of Borrowers to provide cash collateral therefor in the manner set
forth in Annex I, until all such Letter of Credit Obligations have been fully
cash collateralized in the manner set forth in Annex I.
2.11 Interest and Applicable Margins.
(a) Borrowers shall pay interest to Administrative Agent, for the
ratable benefit of Lenders in accordance with the various Loans being made by
each Lender, in arrears on each applicable Interest Payment Date, at the
following rates: (i) the Base Rate plus the Applicable Base Margin per annum or
(ii) at the election of Borrower Representative and, if permitted herein, the
applicable LIBOR Rate plus the Applicable LIBOR Margin per annum, based on the
aggregate amount of Loans outstanding from time to time.
The Applicable Base Margin and Applicable LIBOR Margin will be 2.75%
and 3.75% per annum, respectively, as of the date hereof. The Applicable Margins
will be adjusted (up or down) prospectively on a quarterly basis as determined
by Loan Parties' consolidated financial performance, commencing with the first
day of the first calendar month that occurs more than five (5) days after the
first day of Stage 2; provided, however, that in the case of LIBOR Loans such
adjustments may not be made before the end of a LIBOR Period. Adjustments in
Applicable Margins will be determined by reference to Schedule 2.11.
All adjustments in the Applicable Margins in Stage 2 will be
implemented quarterly, on a prospective basis, for the period commencing at
least five (5) days after the date of delivery pursuant to Section 8.1 of the
quarterly unaudited or annual audited (as applicable) Financial Statements of
Loan Parties evidencing the need for an adjustment. Concurrently with the
delivery of those Financial Statements, Borrower Representative shall deliver to
Administrative Agent a certificate, signed by its chief financial officer,
setting forth in reasonable detail the basis for the continuance of, or any
change in, the Applicable Margins. Failure to timely deliver such Financial
Statements shall, in addition to any other remedy provided for in this
Agreement, result in an increase in the Applicable Margins to the highest level
set forth in Schedule 2.11 until the first day of the first calendar month
following the delivery of those Financial Statements demonstrating that such an
increase is not required. If an Event of Default shall have occurred or be
continuing at the time any reduction in the Applicable Margins is to be
implemented, that reduction shall be deferred until the first day of the first
calendar month following the date on which such Event of Default is waived or
cured.
(b) If any payment on any Loan becomes due and payable on a day other
than a Business Day, the maturity thereof will be extended to the next
succeeding Business Day (except as set forth in the definition of LIBOR Period)
and, with respect to payments of principal, interest thereon shall be payable at
the then applicable rate during such extension.
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(c) All computations of Fees calculated on a per annum basis and of
interest shall be made by Administrative Agent on the basis of a three hundred
sixty (360) day year, in each case for the actual number of days occurring in
the period for which such interest and Fees are payable. The Base Rate shall be
determined each day based upon the Base Rate as in effect each day. Each
determination by Administrative Agent of an interest rate and Fees hereunder
shall be conclusive, absent manifest error.
(d) As long as an Event of Default shall have occurred and be
continuing under Section 10.1(a), (j) or (k) or as long as any other Event of
Default shall have occurred and be continuing at the election of Requisite
Lenders confirmed by written notice to Borrower Representative, the interest
rates applicable to the Loans and the Letter of Credit Fees shall be increased
by two percent (2%) per annum above the rates of interest or the rate of such
Fees otherwise applicable hereunder ("Default Rate"), and all outstanding
Obligations shall bear interest at the Default Rate applicable to such
Obligations. Interest and Letter of Credit Fees at the Default Rate shall accrue
from the initial date of such Event of Default until that Event of Default is
cured or waived and shall be payable upon demand.
(e) As long as no Default or Event of Default shall have occurred and
be continuing, Borrower Representative shall have the option to (i) request that
any Advances be made as a LIBOR Loan, (ii) convert at any time all or any part
of outstanding Loans from Base Rate Loans to LIBOR Loans, (iii) convert any
LIBOR Loan to a Base Rate Loan, subject to payment of LIBOR funding breakage
costs in accordance with Section 2.15(b) if such conversion is made prior to the
expiration of the LIBOR Period applicable thereto, or (iv) continue all or any
portion of any Loan as a LIBOR Loan upon the expiration of the applicable LIBOR
Period and the succeeding LIBOR Period of that continued Loan shall commence on
the last day of the LIBOR Period of the Loan to be continued. Any Loan to be
made or continued as, or converted into, a LIBOR Loan must be in a minimum
amount of $1,000,000 and integral multiples of $100,000 in excess of such
amount. Any such election must be made by 11:00 a.m. (New York time) on the
third (3rd) Business Day prior to (1) the date of any proposed Advance which is
to bear interest at the LIBOR Rate, (2) the end of each LIBOR Period with
respect to any LIBOR Loans to be continued as such or (3) the date on which
Borrower Representative wishes to convert any Base Rate Loan to a LIBOR Loan for
a LIBOR Period designated by Borrower Representative in such election. If no
election is received with respect to a LIBOR Loan by 11:00 a.m. (New York time)
on the third (3rd) Business Day prior to the end of the LIBOR Period with
respect thereto (or if an Event of Default shall have occurred and be
continuing), that LIBOR Loan shall be converted to a Base Rate Loan at the end
of its LIBOR Period. Borrower Representative must make such election by notice
to Administrative Agent in writing, by telecopy or overnight courier. In the
case of any conversion or continuation, such election must be made pursuant to a
written notice (a "Notice of Conversion/Continuation") in the form of Exhibit C.
(f) Notwithstanding anything to the contrary set forth in this Section
2.11, if a court of competent jurisdiction determines in a final order that the
rate of interest payable hereunder exceeds the highest rate of interest
permissible under law (the "Maximum Lawful Rate"), then so long as the Maximum
Lawful Rate would be so exceeded, the rate of interest payable hereunder shall
be equal to the Maximum Lawful Rate; provided, however, that if at any time
thereafter the rate of interest payable hereunder is less than the Maximum
Lawful Rate, Borrowers shall continue to pay interest hereunder at the Maximum
Lawful Rate until such time as the total interest received by Administrative
Agent, on behalf of Lenders, is equal to the total interest which would have
been received had the interest rate payable hereunder been (but for the
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operation of this paragraph) the interest rate payable since the date hereof as
otherwise provided in this Agreement. Thereafter, interest hereunder shall be
paid at the rate(s) of interest and in the manner provided in Sections 2.11(a)
through (e) above unless and until the rate of interest again exceeds the
Maximum Lawful Rate, and at that time this paragraph shall again apply. In no
event shall the total interest received by any Lender pursuant to the terms
hereof exceed the amount which such Lender could lawfully have received had the
interest due hereunder been calculated for the full term hereof at the Maximum
Lawful Rate. If the Maximum Lawful Rate is calculated pursuant to this
paragraph, such interest shall be calculated at a daily rate equal to the
Maximum Lawful Rate divided by the number of days in the year in which such
calculation is made. If, notwithstanding the provisions of this Section 2.11(f),
a court of competent jurisdiction shall finally determine that a Lender has
received interest hereunder in excess of the Maximum Lawful Rate, Administrative
Agent shall, to the extent permitted by applicable law, promptly apply such
excess in the order specified in Section 2.13 and thereafter shall refund any
excess to Borrowers or as a court of competent jurisdiction may otherwise order.
2.12 Payments. All payments and prepayments to be made in respect of
principal, interest or other amounts due from Borrowers hereunder or under any
other Loan Document shall be payable on or before 1:00 p.m., New York time, on
the day when due, without presentment, demand, protest or notice of any kind,
all of which are hereby expressly waived, and an action therefor shall
immediately accrue. Such payments shall be made to Administrative Agent at
Administrative Agent's office at 10 Riverview Drive, Danbury, Connecticut 06810,
Attn: TFS/US LEC Portfolio Manager or such other location specified in writing
by Administrative Agent, in immediately available funds, without set off,
recoupment, counterclaims or any other deduction of any nature. Payments
received after 1:00 p.m., New York time, on any Business Day shall be deemed to
have been received on the following Business Day.
2.13 Application and Allocation of Payments.
(a) As long as no Default or Event of Default shall have occurred and
be continuing, (i) payments matching specific scheduled payments then due shall
be applied to those scheduled payments; (ii) voluntary prepayments shall be
applied as determined by Borrower Representative; and (iii) mandatory
prepayments shall be applied as set forth in Section 2.10(c). All payments and
prepayments applied to a particular Loan shall be applied ratably to the portion
thereof held by each Lender as determined by its Pro Rata Share. As to each
other payment, and as to all payments made when an Event of Default shall have
occurred and be continuing or following the Commitment Termination Date, each
Borrower hereby irrevocably waives the right to direct the application of any
and all payments received from or on behalf of such Borrower, and each Borrower
hereby irrevocably agrees that Administrative Agent shall have the continuing
exclusive right to apply any and all such payments against the Obligations of
Borrowers as Administrative Agent may deem advisable notwithstanding any
previous entry by Administrative Agent in the Loan Account or any other books
and records. In the absence of a specific determination by Requisite Lenders
with respect thereto, payments shall be applied to amounts then due and payable
in the following order: (1) to Fees and Administrative Agent's and Lenders'
expenses reimbursable hereunder; (2) to interest on the Loans, ratably in
proportion to the interest accrued as to each Loan; (3) to principal payments on
the Loans and to provide cash collateral for Letter of Credit Obligations in the
manner described in Annex I, ratably to the aggregate, combined principal
balance of the Loans and outstanding Letter of Credit Obligations; and (4) to
all other Obligations including expenses of Lenders to the extent reimbursable
under Section 2.21.
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(b) Administrative Agent is authorized to, and at its sole election
may, charge to the Facility A Loan balance on behalf of each Borrower and cause
to be paid all Fees, expenses, Charges, costs (including insurance premiums in
accordance with Section 8.7(a)) and interest and principal, other than principal
of the Facility A Loan, owing by Borrowers under this Agreement or any of the
other Loan Documents if and to the extent Borrowers fail to promptly pay any
such amounts as and when due, even if such charges would cause the balance of
the aggregate Facility A Loan to exceed the Facility A Commitment. At
Administrative Agent's option and to the extent permitted by law, any charges so
made shall constitute part of the Facility A Loan hereunder.
2.14 Loan Account and Accounting. Administrative Agent shall maintain a
loan account (the "Loan Account") on its books to record: all Advances, all
payments made by Borrowers, and all other debits and credits as provided in this
Agreement with respect to the Loans or any other Obligations. All entries in the
Loan Account shall be made in accordance with Administrative Agent's customary
accounting practices as in effect from time to time. The balance in the Loan
Account, as recorded on Administrative Agent's most recent printout or other
written statement, shall, absent manifest error, be presumptive evidence of the
amounts due and owing to Administrative Agent and Lenders by Borrowers;
provided, however, that any failure to so record or any error in so recording
shall not limit or otherwise affect any Borrower's duty to pay the Obligations.
Administrative Agent shall render to Borrower Representative a monthly
accounting of transactions with respect to the Loans setting forth the balance
of the Loan Account. Unless Borrower Representative notifies Administrative
Agent in writing of any objection to any such accounting (specifically
describing the basis for such objection), within thirty (30) days after the date
thereof, each and every such accounting shall (absent manifest error) be deemed
final, binding and conclusive upon Borrowers in all respects as to all matters
reflected therein. Only those items expressly objected to in such notice shall
be deemed to be disputed by Borrowers. Notwithstanding any provision herein
contained to the contrary, any Lender may elect (which election may be revoked)
to dispense with the issuance of Notes to that Lender and may rely on the Loan
Account as evidence of the amount of Obligations from time to time owing to it.
2.15 Indemnity.
(a) Each Loan Party that is a signatory hereto shall jointly and
severally indemnify and hold harmless each of Administrative Agent, Syndication
Agent, Lenders and their respective Affiliates, and each such Person's
respective officers, directors, employees, attorneys, agents and representatives
(each, an "Indemnified Person"), from and against any and all suits, actions,
proceedings, claims, damages, losses, liabilities and expenses (including
reasonable attorneys' fees and disbursements and other costs of investigation or
defense, including those incurred upon any appeal) which may be instituted or
asserted against or incurred by any such Indemnified Person as the result of
credit having been extended, suspended or terminated under this Agreement and
the other Loan Documents and the administration of such credit, and in
connection with or arising out of the transactions contemplated hereunder and
thereunder and any actions or failures to act in connection therewith, including
any and all Environmental Liabilities and legal costs and expenses arising out
of or incurred in connection with disputes between or among any parties to any
of the Loan Documents (collectively, "Indemnified Liabilities"); provided,
however, that no such Loan Party shall be liable for any indemnification to an
Indemnified Person to the extent that any such suit, action, proceeding, claim,
damage, loss, liability or expense results from that Indemnified Person's gross
negligence or willful misconduct
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or material and knowing breach of its obligations and this Agreement. NO
INDEMNIFIED PERSON SHALL BE RESPONSIBLE OR LIABLE TO ANY OTHER PARTY TO ANY LOAN
DOCUMENT, ANY SUCCESSOR, ASSIGNEE OR THIRD PARTY BENEFICIARY OF SUCH PERSON OR
ANY OTHER PERSON ASSERTING CLAIMS DERIVATIVELY THROUGH SUCH PARTY, FOR INDIRECT,
PUNITIVE, EXEMPLARY OR CONSEQUENTIAL DAMAGES WHICH MAY BE ALLEGED AS A RESULT OF
CREDIT HAVING BEEN EXTENDED, SUSPENDED OR TERMINATED UNDER ANY LOAN DOCUMENT OR
AS A RESULT OF ANY OTHER TRANSACTION CONTEMPLATED HEREUNDER OR THEREUNDER.
(b) To induce Lenders to provide the LIBOR Rate option on the terms
provided herein, if (i) any LIBOR Loans are repaid in whole or in part prior to
the last day of any applicable LIBOR Period (whether that repayment is made
pursuant to any provision of this Agreement or any other Loan Document or is the
result of acceleration, by operation of law or otherwise); (ii) any Borrower
shall default in payment when due of the principal amount of or interest on any
LIBOR Loan; (iii) any Borrower shall default in making any borrowing of,
conversion into or continuation of LIBOR Loans after Borrower Representative has
given notice requesting the same in accordance herewith; or (iv) any Borrower
shall fail to make any prepayment of a LIBOR Loan after Borrower Representative
has given a notice thereof in accordance herewith, Borrowers shall jointly and
severally indemnify and hold harmless each Lender from and against all losses,
costs and expenses resulting from or arising from any of the foregoing. Such
indemnification shall include any loss (including loss of margin) or expense
arising from the reemployment of funds obtained by it or from fees payable to
terminate deposits from which such funds were obtained. For the purpose of
calculating amounts payable to a Lender under this subsection, each Lender shall
be deemed to have actually funded its relevant LIBOR Loan through the purchase
of a deposit which bears interest at the LIBOR Rate in an amount equal to the
amount of that LIBOR Loan and having a maturity comparable to the relevant LIBOR
Period; provided, however, that each Lender may fund each of its LIBOR Loans in
any manner it sees fit, and the foregoing assumption shall be utilized only for
the calculation of amounts payable under this subsection. This covenant shall
survive the termination of this Agreement and the payment of the Notes and all
other amounts payable hereunder. As promptly as practicable under the
circumstances, each Lender shall provide Borrower Representative with its
written calculation of all amounts payable pursuant to this Section 2.15, and
such calculation shall be presumed correct (absent manifest error) and shall be
binding on the parties hereto unless Borrower Representative shall object in
writing within thirty (30) Business Days of receipt thereof, specifying the
basis for such objection in detail.
2.16 Access. Each Loan Party which is a party hereto shall, during normal
business hours, from time to time upon one (1) Business Day's prior notice as
frequently as Administrative Agent determines to be appropriate: (a) provide
Administrative Agent, each initial Lender and any of their officers, employees
and agents access to the properties, facilities, advisors and employees
(including officers) of such Loan Party and to the Collateral, (b) permit
Administrative Agent, each initial Lender and any of their officers, employees
and agents, to inspect, audit and make extracts from such Loan Party's books and
records and (c) permit Administrative Agent, each initial Lender and their
officers, employees and agents, to inspect, review, evaluate and make test
verifications and counts of the Accounts, Equipment, Inventory and other
Collateral of such Loan Party. If a Default or Event of Default shall have
occurred and be continuing or if access is necessary to preserve or protect the
Collateral as determined by Administrative Agent, each such Loan Party shall
provide such access to Administrative Agent and to each Lender at all
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times and without advance notice. Furthermore, as long as any Event of Default
shall have occurred and be continuing, each such Loan Party shall provide
Administrative Agent and each Lender with access to their suppliers and
customers. Each Loan Party shall make available to Administrative Agent, each
initial Lender and their respective counsel, as quickly as is possible under the
circumstances, originals or copies of all books and records which Administrative
Agent may request. Each Loan Party shall deliver any document or instrument
necessary for Administrative Agent or each initial Lender, as it may from time
to time request, to obtain records from any service bureau or other Person which
maintains records for such Loan Party, and shall maintain duplicate records or
supporting documentation on media, including computer tapes and discs owned by
such Loan Party. Any Lender or its representatives (other than any Person in the
telecommunications business), upon request by such Lender to Administrative
Agent, may accompany Administrative Agent on any such visit.
2.17 Taxes.
(a) Any and all payments by Borrowers hereunder (including any
payments made pursuant to Article 11 or under any other Loan Document) shall be
made, in accordance with this Section 2.17, free and clear of and without
deduction for any and all present or future Taxes. If any Borrower shall be
required by law to deduct any Taxes from or in respect of any sum payable
hereunder (including any sum payable pursuant to Article 11 or under any other
Loan Document), (i) the sum payable shall be increased as much as shall be
necessary so that after making all required deductions (including deductions
applicable to additional sums payable under this Section 2.17) Administrative
Agent or Lenders, as applicable, receive an amount equal to the sum they would
have received had no such deductions been made, (ii) such Borrower shall make
such deductions, and (iii) such Borrower shall pay the full amount deducted to
the relevant taxing or other authority in accordance with applicable law. Within
thirty (30) days after the date of any payment of Taxes, Borrower Representative
shall furnish to Administrative Agent the original or a certified copy of a
receipt evidencing payment thereof.
(b) Each Loan Party that is a signatory hereto shall jointly and
severally indemnify and, within ten (10) days of demand therefor, pay
Administrative Agent and each Lender for the full amount of Taxes (including any
Taxes imposed by any jurisdiction on amounts payable under this Section 2.17)
paid by Administrative Agent or such Lender, as appropriate, and any liability
(including penalties, interest and expenses) arising therefrom or with respect
thereto, whether or not such Taxes were correctly or legally asserted.
2.18 Capital Adequacy; Increased Costs; Illegality.
(a) If any Lender shall have determined that any law, treaty,
governmental (or quasi-governmental) rule, regulation, guideline or order
regarding capital adequacy, reserve requirements or similar requirements or
compliance by any Lender with any request or directive regarding capital
adequacy, reserve requirements or similar requirements (whether or not having
the force of law), in each case, adopted after the date hereof, from any central
bank or other Governmental Authority increases or would have the effect of
increasing the amount of capital, reserves or other funds required to be
maintained by such Lender and thereby reducing the rate of return on such
Lender's capital as a consequence of its obligations hereunder, then Borrowers
shall from time to time upon demand by such Lender made within ninety (90) days
of the occurrence thereof (with a copy of such demand to Administrative Agent)
pay to Administrative Agent, for the account of such Lender, additional amounts
sufficient to compensate such Lender for such reduction. A certificate as to the
amount of that reduction and showing the basis of the
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computation thereof submitted by such Lender to Borrower Representative and to
Administrative Agent shall, absent manifest error, be final, conclusive and
binding for all purposes.
(b) If, due to either (i) the introduction of or any change in any law
or regulation (or any change in the interpretation thereof) or (ii) the
compliance with any guideline or request from any central bank or other
Governmental Authority (whether or not having the force of law), in each case
adopted after the date hereof, there shall be any increase in the cost to any
Lender of agreeing to make or making, funding or maintaining any Loan, then
Borrowers shall from time to time, upon demand by such Lender (with a copy of
such demand to Administrative Agent), pay to Administrative Agent for the
account of such Lender additional amounts sufficient to compensate such Lender
for such increased cost. A certificate as to the amount of such increased cost,
submitted to Borrower Representative and to Administrative Agent by such Lender,
shall be conclusive and binding on Borrowers for all purposes, absent manifest
error. Each Lender agrees that, as promptly as practicable after it becomes
aware of any circumstances referred to above which would result in any such
increased cost, but in any event within ninety (90) days thereof, the affected
Lender shall, to the extent not inconsistent with such Lender's internal
policies of general application, use reasonable commercial efforts to minimize
costs and expenses incurred by it and payable to it by Borrowers pursuant to
this Section 2.18(b).
(c) Notwithstanding anything to the contrary contained herein, if the
introduction of or any change in any law or regulation (or any change in the
interpretation thereof) shall make it unlawful, or any central bank or other
Governmental Authority shall assert that it is unlawful, for any Lender to agree
to make or to make or to continue to fund or maintain any LIBOR Loan, then,
unless that Lender is able to make or to continue to fund or to maintain such
LIBOR Loan at another branch or office of that Lender without, in that Lender's
opinion, adversely affecting it or its Loans or the income obtained therefrom,
on notice thereof and demand therefor by such Lender to Borrower Representative
through Administrative Agent, (i) the obligation of such Lender to agree to make
or to make or to continue to fund or maintain LIBOR Loans shall terminate and
(ii) Borrowers shall forthwith prepay in full all outstanding LIBOR Loans owing
by such Borrower to such Lender, together with interest accrued thereon, unless
Borrower Representative on behalf of Borrowers, within five (5) Business Days
after the delivery of such notice and demand, converts all such Loans into a
Loan bearing interest based on the Base Rate.
(d) Replacement of Lender in Respect of Increased Costs. Within
fifteen (15) days after receipt by Borrower Representative of written notice and
demand from any Lender (an "Affected Lender") for payment of additional amounts
or increased costs as provided in Section 2.17, 2.18(a) or 2.18(b), Borrower
Representative may, at its option, notify Administrative Agent and such Affected
Lender of its intention to replace the Affected Lender. As long as no Default or
Event of Default shall have occurred and be continuing, Borrower Representative,
with the consent of Administrative Agent, may obtain, at Borrowers' expense, a
replacement Lender ("Replacement Lender") for the Affected Lender, which
Replacement Lender must be satisfactory to Administrative Agent. If Borrowers
obtain a Replacement Lender within ninety (90) days following notice of their
intention to do so, the Affected Lender must sell and assign its Loans and
Commitments to such Replacement Lender for an amount equal to the principal
balance of all Loans held by the Affected Lender and all accrued interest and
Fees with respect thereto through the date of such sale; provided, however, that
Borrowers shall have reimbursed such Affected Lender for the additional amounts
or increased costs that it is entitled to receive under this Agreement through
the date of such sale and assignment.
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Notwithstanding the foregoing, Borrowers shall not have the right to
obtain a Replacement Lender if the Affected Lender rescinds its demand for
increased costs or additional amounts within fifteen (15) days following its
receipt of Borrowers' notice of intention to replace such Affected Lender.
Furthermore, if Borrowers give a notice of intention to replace and do not so
replace such Affected Lender within ninety (90) days thereafter, Borrowers'
rights under this Section 2.18(d) shall terminate and Borrowers shall promptly
pay all increased costs or additional amounts demanded by such Affected Lender
pursuant to Sections 2.17(a), 2.18(a) and 2.18(b).
2.19 Use of Proceeds.
(a) Borrowers shall utilize the proceeds of the Facility B Loan solely
for the financing of the acquisition, construction or improvement of
telecommunication asset or assets which are an integral part of a Network in a
Market or any assets (not including any leasehold improvements except those
leasehold improvements expended during the initial buildout of each switch site
and related off-site sales office) which are at all times located at a Site or
sales office in a Market.
(b) Borrowers shall utilize the proceeds of the Facility A Loan for
Permitted Acquisitions, working capital or general corporate purposes.
2.20 Fees.
(a) Borrower shall pay to Administrative Agent, for the ratable
benefit of Lenders, the fees described on Schedule 2.20 in connection with this
Agreement (the "Commitment Fees").
(b) Borrowers shall pay to GECC and FUCMC, individually, additional
Fees, the amount and dates of payment of which are embodied in a separate
agreement among Holdings, GECC and FUCMC (the "Fee Letter").
2.21 Expenses. Borrowers shall (a) pay or reimburse Administrative Agent
for all of its reasonable costs, fees, charges and expenses incurred or arising
in connection with the negotiation, review, preparation and execution of this
Agreement, the Loan Documents, any commitment or proposal letter, or any
amendment, supplement, waiver, modification to, or restructuring of this
Agreement, the Obligations or the other Loan Documents, including reasonable
legal fees and disbursements, expenses, document charges and other charges and
expenses of Administrative Agent, (b) pay or reimburse such costs, fees, charges
and expenses of each other Lender party hereto as of the date hereof up to the
sum of Five Thousand Dollars ($5,000), (c) pay or reimburse Administrative Agent
for all of its reasonable costs, fees, charges and expenses incurred in
connection with the administration and syndication of the Loans (including
printing, distribution and bank meetings) and Administrative Agent and each
Lender for the enforcement, protection or preservation of any rights under or in
connection with this Agreement or any other Loan Documents, including reasonable
legal fees and disbursements, audit fees and charges, and all out-of-pocket
expenses, (d) pay, indemnify and hold Lenders harmless from any and all
recording and filing fees and taxes and any and all liabilities with respect to,
or resulting from any delay by any Loan Party in paying, stamp, excise and other
taxes (excluding income and franchise taxes and Taxes of similar nature), if
any, which may be payable or determined to be payable in connection with the
execution and delivery or recordation or filing of, or consummation of any of
the transactions contemplated by, or any amendment, supplement or modification
of, or any waiver or consent under or in respect of, this Agreement and the
other
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Loan Documents. All of the amounts described in this Section are referred
to collectively as the "Lenders' Expenses," shall be payable upon demand, and
shall accrue interest at the interest rate in effect when such demand is made
from five (5) days after the date of demand until paid in full. All Lenders'
Expenses, and interest thereon, shall be part of the Obligations and shall be
secured by the Collateral. The agreements in this Section 2.21 shall survive
repayment of the Obligations. All Lenders' Expenses that are outstanding on any
Borrowing Date shall be paid before or with such advance. If Borrower
Representative has not paid to Lenders the amount of all Lenders' Expenses
billed to Borrowers at least five (5) Business Days before such Borrowing Date,
Lenders shall be authorized to retain from any Advance on such Borrowing Date
the amount of such Lenders' Expenses that remain unpaid. Borrowers' obligation
to pay Lenders' Expenses shall not be limited by any limitation on the amount of
the Commitment that may be designated as available for such purposes, and any
amounts so designated shall be used to pay Lenders' Expenses accrued at the time
of any Advance before any of Borrowers' legal fees or similar expenses.
ARTICLE 3: ASSIGNMENT AND PARTICIPATIONS; APPOINTMENT OF ADMINISTRATIVE AGENT
3.1 Assignment and Participations.
(a) The Loan Parties signatory hereto consent to any Lender's
assignment of, and/or sale of participations in, at any time or times, the Loan
Documents, Loans, Letter of Credit Obligations and any Commitment or of any
portion thereof or interest therein, including any Lender's rights, title,
interests, remedies, powers or duties thereunder, whether evidenced by a writing
or not. Any assignment by a Lender shall (i) require the consent of
Administrative Agent and Borrower Representative (which, in the case of Borrower
Representative, shall not be unreasonably withheld or delayed); provided,
however, that no consent of Borrower Representative shall be required if an
Event of Default shall have occurred and be continuing; (ii) require the
execution of an assignment agreement (an "Assignment Agreement") and the
delivery by the assignee of a completed Administrative Questionnaire,
substantially in the form attached hereto as Exhibit G and Exhibit H,
respectively, and otherwise in form and substance satisfactory to, and
acknowledged by, Administrative Agent; (iii) be conditioned on such assignee
Lender representing to the assigning Lender and Administrative Agent that it is
making the purchase for its own account, for investment purposes and not with a
view to the distribution thereof; (iv) if a partial assignment, be in an amount
at least equal to $5,000,000, be of the same Pro Rata Share of Facility A
Commitment and Facility B Commitment and, after giving effect to any such
partial assignment, the assigning Lender shall have retained Commitments and
Loans in an amount at least equal to $5,000,000; and (v) include a payment to
Administrative Agent of an assignment fee of $3,500 by the assigning Lender. The
failure of Borrower Representative to consent to an assignment to a Person that
is or is an Affiliate of a Person that is engaged in the telecommunications
industry and is a competitor of or supplier to any Loan Party shall not be
deemed unreasonable. In the case of an assignment by a Lender under this Section
3.1, the assignee shall have, to the extent of such assignment, the same rights,
benefits and obligations as it would if it were a Lender hereunder. The
assigning Lender shall be relieved of its obligations hereunder with respect to
its Commitments or assigned portion thereof from and after the date of such
assignment. Each Borrower hereby acknowledges and agrees that any assignment
will give rise to a direct obligation of Borrowers to the assignee and that the
assignee shall be considered to be a "Lender." In all instances, each Lender's
liability to make Loans hereunder shall be several and not joint and shall be
limited to such Lender's Pro Rata Share of the applicable Commitment.
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In the event any Lender assigns or otherwise transfers all or any part of the
Obligations, any such Lender shall so notify Borrower Representative and
Borrowers shall, upon the request of Administrative Agent or such Lender,
execute a new Note in exchange for each Note, if any, or portion thereof being
assigned. Notwithstanding the foregoing provisions of this Section 3.1(a), any
Lender may at any time pledge the Obligations held by it and such Lender's
rights under this Agreement and the other Loan Documents to a Federal Reserve
Bank, and any Lender that is an investment fund may assign the Obligations held
by it and such Lender's rights under this Agreement and the other Loan Documents
to another investment fund managed by the same investment advisor; provided,
however, that no such pledge to a Federal Reserve Bank shall release such Lender
from such Lender's obligations hereunder or under any other Loan Document.
(b) Any participation by a Lender of all or any part of its
Commitments shall be made with the understanding that all amounts payable by
Borrowers hereunder shall be determined as if that Lender had not sold such
participation, and that the holder of any such participation shall not be
entitled to require such Lender to take or omit to take any action hereunder
except actions directly affecting (i) any reduction in the principal amount of,
or interest rate or Fees payable with respect to, any Loan in which such holder
participates, (ii) any extension of the scheduled amortization of the principal
amount of any Loan in which such holder participates or the final maturity date
thereof, and (iii) any release of all or substantially all of the Collateral
(other than in accordance with the terms of this Agreement, the Collateral
Documents or the other Loan Documents). Solely for purposes of Sections 2.15,
2.17, 2.18 and 3.8, each Borrower acknowledges and agrees that a participation
shall give rise to a direct obligation of Borrowers to the participant and the
participant shall be considered to be a "Lender." Except as set forth in the
preceding sentence no Borrower or Loan Party shall have any obligation or duty
to any participant. Neither Administrative Agent nor any Lender (other than
Lender selling a participation) shall have any duty to any participant and may
continue to deal solely with Lender selling a participation as if no such sale
had occurred.
(c) Except as expressly provided in this Section 3.1, no Lender shall,
as between any Loan Party and that Lender, or Administrative Agent and that
Lender, be relieved of any of its obligations hereunder as a result of any sale,
assignment, transfer or negotiation of, or granting of participation in, all or
any part of the Loans, the Notes or other Obligations owed to such Lender.
(d) Each Loan Party executing this Agreement shall assist any Lender
permitted to sell assignments or participations under this Section 3.1 as
reasonably required to enable the assigning or selling Lender to effect any such
assignment or participation, including the execution and delivery of any and all
agreements, notes and other documents and instruments as shall be requested and,
if requested by Administrative Agent, the preparation of informational materials
for, and the participation of management in meetings with, potential assignees
or participants. Each Loan Party executing this Agreement shall certify the
correctness, completeness and accuracy of all descriptions of such Loan Parties
and its affairs contained in any selling materials provided by it and all other
information provided by it and included in such materials, except that any
Projections delivered by such Loan Party shall only be certified by such Loan
Party as having been prepared by it in compliance with the representations
contained in Section 5.10.
(e) A Lender may furnish any information concerning Loan Parties in
the possession of such Lender from time to time to assignees and participants
(including prospective
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assignees and participants). Each Lender shall obtain from assignees or
participants confidentiality covenants substantially equivalent to those
contained in Section 12.16.
(f) So long as no Event of Default shall have occurred and be
continuing, no Lender shall assign or sell participations in any portion of its
Loans or Commitments to a potential Lender or participant if, as of the date of
the proposed assignment or sale, the assignee Lender or participant would be
subject to capital adequacy or similar requirements under Section 2.18(a),
increased costs under Section 2.18(b), an inability to fund LIBOR Loans under
Section 2.18(c), or withholding taxes in accordance with Section 2.17(a).
3.2 Appointment of Administrative Agent. GECC is hereby appointed to act
on behalf of all Lenders as Administrative Agent under this Agreement and the
other Loan Documents. The provisions of this Section 3.2 are solely for the
benefit of Administrative Agent and Lenders and no Loan Party nor any other
Person shall have any rights as a third party beneficiary of any of the
provisions hereof. In performing its functions and duties under this Agreement
and the other Loan Documents, Administrative Agent shall act solely as an agent
of Lenders and does not assume and shall not be deemed to have assumed any
obligation toward or relationship of agency or trust with or for any Loan Party
or any other Person. Administrative Agent shall have no duties or
responsibilities except for those expressly set forth in this Agreement and the
other Loan Documents. The duties of Administrative Agent shall be mechanical and
administrative in nature and Administrative Agent shall not have, or be deemed
to have, by reason of this Agreement, any other Loan Document or otherwise a
fiduciary relationship in respect of any Lender. Neither Administrative Agent
nor any of its Affiliates nor any of their respective officers, directors,
employees, agents or representatives shall be liable to any Lender for any
action taken or omitted to be taken by it hereunder or under any other Loan
Document, or in connection herewith or therewith, except for damages caused by
its or their own gross negligence or willful misconduct.
If Administrative Agent shall request instructions from Requisite Lenders
or all affected Lenders with respect to any act or action (including failure to
act) in connection with this Agreement or any other Loan Document, then
Administrative Agent shall be entitled to refrain from such act or taking such
action unless and until Administrative Agent shall have received instructions
from Requisite Lenders or all affected Lenders, as the case may be, and
Administrative Agent shall not incur liability to any Person by reason of so
refraining. Administrative Agent shall be fully justified in failing or refusing
to take any action hereunder or under any other Loan Document (a) if such action
would, in the opinion of Administrative Agent, be contrary to law or the terms
of this Agreement or any other Loan Document, (b) if such action would, in the
opinion of Administrative Agent, expose Administrative Agent to Environmental
Liabilities or (c) if Administrative Agent shall not first be indemnified to its
satisfaction against any and all liability and expense which may be incurred by
it by reason of taking or continuing to take any such action. Without limiting
the foregoing, no Lender shall have any right of action whatsoever against
Administrative Agent as a result of Administrative Agent acting or refraining
from acting hereunder or under any other Loan Document in accordance with the
instructions of Requisite Lenders or all affected Lenders, as applicable.
3.3 Administrative Agent's Reliance, Etc. Neither Administrative Agent
nor any of its Affiliates nor any of their respective directors, officers,
agents or employees shall be liable for any action taken or omitted to be taken
by it or them under or in connection with this Agreement or the other Loan
Documents, except for damages caused by its or their own gross negligence or
willful misconduct. Without limitation of the generality of the foregoing,
Administrative Agent:
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(a) may treat the payee of any Note as the holder thereof until Administrative
Agent receives written notice of the assignment or transfer thereof signed by
such payee and in form satisfactory to Administrative Agent; (b) may consult
with legal counsel, independent public accountants and other experts selected by
it and shall not be liable for any action taken or omitted to be taken in good
faith by it in accordance with the advice of such counsel, accountants or
experts; (c) makes no warranty or representation to any Lender and shall not be
responsible to any Lender for any statements, warranties or representations made
in or in connection with this Agreement or the other Loan Documents; (d) shall
not have any duty to ascertain or to inquire as to the performance or observance
of any of the terms, covenants or conditions of this Agreement or the other Loan
Documents on the part of any Loan Party or to inspect the Collateral (including
the books and records) of any Loan Party; (e) shall not be responsible to any
Lender for the due execution, legality, validity, enforceability, genuineness,
sufficiency or value of this Agreement or the other Loan Documents or any other
instrument or document furnished pursuant hereto or thereto; and (f) shall incur
no liability under or in respect of this Agreement or the other Loan Documents
by acting upon any notice, consent, certificate or other instrument or writing
(which may be by telecopy, telegram, cable or telex) believed by it to be
genuine and signed or sent by the proper party or parties.
3.4 GECC and Affiliates. With respect to its Commitments hereunder, GECC
shall have the same rights and powers under this Agreement and the other Loan
Documents as any other Lender and may exercise the same as though it were not
Administrative Agent; and the term "Lender" or "Lenders" shall, unless otherwise
expressly indicated, include GECC in its individual capacity. GECC and its
Affiliates may lend money to, invest in, and generally engage in any kind of
business with, any Loan Party, any of their Affiliates and any Person who may do
business with or own securities of any Loan Party or any such Affiliate, all as
if GECC were not Administrative Agent and without any duty to account therefor
to Lenders. GECC and its Affiliates may accept fees and other consideration from
any Loan Party for services in connection with this Agreement or otherwise
without having to account for the same to Lenders. Each Lender acknowledges the
potential conflict of interest between GECC as a Lender holding disproportionate
interests in the Loans and GECC as Administrative Agent.
3.5 Lender Credit Decision. Each Lender acknowledges that it has,
independently and without reliance upon Administrative Agent or any other Lender
and based on the Financial Statements referred to in Section 5.10 and such other
documents and information as it has deemed appropriate, made its own credit and
financial analysis of the Loan Parties and its own decision to enter into this
Agreement. Each Lender also acknowledges that it will, independently and without
reliance upon Administrative Agent or any other Lender and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit decisions in taking or not taking action under this
Agreement. Each Lender acknowledges the potential conflict of interest of each
other Lender as a result of Lenders holding disproportionate interests in the
Loans, and expressly consents to, and waives any claim based upon, such conflict
of interest.
3.6 Indemnification. Lenders agree to indemnify Administrative Agent (to
the extent Administrative Agent is not reimbursed by Loan Parties and without
limiting the obligations of Loan Parties hereunder), ratably according to their
respective Pro Rata Shares, from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever which may be imposed
on, incurred by, or asserted against Administrative Agent in any way relating to
or arising out of this
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Agreement or any other Loan Document or any action taken or omitted by
Administrative Agent in connection therewith; provided, however, that no Lender
shall be liable for any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
resulting from Administrative Agent's gross negligence or willful misconduct.
Without limiting the foregoing, each Lender agrees to reimburse Administrative
Agent promptly upon demand for its ratable share of any out-of-pocket expenses
(including counsel fees) incurred by Administrative Agent in connection with the
preparation, execution, delivery, administration, modification, amendment or
enforcement (whether through negotiations, legal proceedings or otherwise) of,
or legal advice in respect of rights or responsibilities under, this Agreement
and each other Loan Document, to the extent that Administrative Agent is not
reimbursed for such expenses by Loan Parties.
3.7 Successor Administrative Agent. Administrative Agent may resign at
any time by giving not less than thirty (30) days' prior written notice thereof
to Lenders and Borrower Representative. Upon any such resignation, the Requisite
Lenders shall have the right to appoint a successor Administrative Agent. If no
successor Administrative Agent shall have been so appointed by the Requisite
Lenders and shall have accepted such appointment within thirty (30) days after
the resigning Administrative Agent's giving notice of resignation, then the
resigning Administrative Agent may, on behalf of Lenders, appoint a successor
Administrative Agent, which shall be a Lender, if a Lender is willing to accept
such appointment, or otherwise shall be a commercial bank or financial
institution or a subsidiary of a commercial bank or financial institution if
such commercial bank or financial institution is organized under the laws of the
United States of America or of any State thereof and has a combined capital and
surplus of at least $300,000,000. If no successor Administrative Agent has been
appointed pursuant to the foregoing by the 30th day after the date such notice
of resignation was given by the resigning Administrative Agent, such resignation
shall become effective and the Requisite Lenders shall thereafter perform all
the duties of Administrative Agent hereunder until such time, if any, as the
Requisite Lenders appoint a successor Administrative Agent as provided above.
Any successor Administrative Agent appointed by the Requisite Lenders hereunder
shall be subject to the approval of Borrower Representative, such approval not
to be unreasonably withheld or delayed; provided, however, that such approval
shall not be required if a Default or Event of Default shall have occurred and
be continuing. Upon the acceptance of any appointment as Administrative Agent
hereunder by a successor Administrative Agent, such successor Administrative
Agent shall succeed to and become vested with all the rights, powers, privileges
and duties of the resigning Administrative Agent. Upon the earlier of the
acceptance of any appointment as Administrative Agent hereunder by a successor
Administrative Agent or the effective date of the resigning Administrative
Agent's resignation, the resigning Administrative Agent shall be discharged from
its duties and obligations under this Agreement and the other Loan Documents,
except that any indemnity rights or other rights in favor of such resigning
Administrative Agent shall continue. After any resigning Administrative Agent's
resignation hereunder, the provisions of this Section 3.7 shall inure to its
benefit as to any actions taken or omitted to be taken by it while it was
Administrative Agent under this Agreement and the other Loan Documents.
3.8 Set Off and Sharing of Payments. 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,
each Lender and each holder of any Note and each of their respective Affiliates
is hereby authorized at any time or from time to time, without notice to any
Loan Party or to any other Person, any such notice being hereby expressly
waived, to set off and to appropriate and to apply any and all balances held by
it at any of its offices for
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the account of any Borrower or Guarantor (regardless of whether such balances
are then due to such Borrower or Guarantor) and any other properties or assets
at any time held or owing by that Lender, that holder or that Affiliate to or
for the credit or for the account of any Borrower or Guarantor against and on
account of any of the Obligations which are not paid when due. Any Lender or
holder of any Note or any Affiliate of either exercising a right to set off or
otherwise receiving any payment on account of the Obligations in excess of its
Pro Rata Share of the Obligations shall purchase for cash (and the other Lenders
or holders shall sell) such participations in each such other Lender's or
holder's Pro Rata Share of the Obligations as would be necessary to cause such
Lender or holder to share the amount so set off or otherwise received with each
other Lender or holder in accordance with their respective Pro Rata Shares. Each
Loan Party agrees, to the fullest extent permitted by law, that (a) any Lender
or holder may exercise its right to set off with respect to amounts in excess of
its Pro Rata Share of the Obligations and may sell participations in such amount
so set off to other Lenders and holders and (b) any Lender or holder so
purchasing a participation in the Loans made or other Obligations held by other
Lenders or holders may exercise all rights of set off, bankers' lien,
counterclaim or similar rights with respect to such participation as fully as if
such Lender or holder were a direct holder of the Loans and the other
Obligations in the amount of such participation. Notwithstanding the foregoing,
if all or any portion of the set off amount or payment otherwise received is
thereafter recovered from Lender, holder or Affiliate that has exercised the
right of set off, the purchase of participations by that Lender shall be
rescinded and the purchase price restored without interest.
3.9 Advances; Payments; Non-Funding Lenders; Information; Actions in
Concert.
(a) Advances; Payments.
(i) Administrative Agent shall notify Lenders, promptly after
receipt of a Borrowing Certificate and in any event prior to 3:00 p.m. (New York
time) on the date such Borrowing Certificate is received, by telecopy, telephone
or other similar form of transmission. Each Lender shall make the amount of such
Lender's Pro Rata Share of such Advance available to Administrative Agent in
same day funds by wire transfer to Administrative Agent's account as set forth
in Schedule 3.9 not later than 3:00 p.m. (New York time) on the requested
funding date in the case of a Base Rate Loan and not later than 11:00 a.m. (New
York time) on the requested funding date in the case of a LIBOR Loan. After
receipt of such wire transfers (or, in Administrative Agent's sole discretion,
before receipt of such wire transfers), subject to the terms hereof,
Administrative Agent shall make the requested Advance to Borrower Representative
to the account of Borrower Representative specified on Schedule 3.9. All
payments by each Lender shall be made without set off, counterclaim or deduction
of any kind.
(ii) All Payments due hereunder and under the Notes shall be made
to Administrative Agent by wire transfer to the account specified on Schedule
3.9 no later than 1:00 p.m. (New York time) on the date due. Payments received
after such time shall be deemed to have been made on the next Business Day. On
each Business Day that Administrative Agent receives a payment with respect to
the Loans, Administrative Agent will advise each Lender by telephone or telecopy
of the amount of such Lender's Pro Rata Share of principal, interest and Fees
paid for the benefit of Lenders with respect to each applicable Loan. Provided
that such Lender has funded all payments or Advances required to be made by it
and has purchased all participations required to be purchased by it under this
Agreement and the other Loan Documents as of such date, Administrative Agent
will pay to each Lender such Lender's Pro Rata Share of such payment. To the
extent that any Lender (a "Non-Funding Lender") has failed to fund all such
payments and Advances or failed to fund the purchase of all such participations,
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Administrative Agent shall be entitled to set off the funding short-fall against
that Non-Funding Lender's Pro Rata Share of all payments received from
Borrowers. Such payments shall be made by wire transfer to such Lender's account
(as specified by such Lender in Schedule 3.9 or the applicable Assignment
Agreement) not later than 2:00 p.m. (New York time) on the next Business Day
following receipt.
(b) Availability of Lender's Pro Rata Share. Administrative Agent
may assume that each Lender will make its Pro Rata Share of each Advance
available to Administrative Agent on each funding date. If such Pro Rata Share
is not, in fact, paid to Administrative Agent by such Lender when due,
Administrative Agent will be entitled to recover such amount on demand from such
Lender without set off, counterclaim or deduction of any kind. If any Lender
fails to pay the amount of its Pro Rata Share forthwith upon Administrative
Agent's demand, Administrative Agent shall promptly notify Borrower
Representative and Borrowers shall immediately repay such amount to
Administrative Agent. Nothing in this Section 3.9(b) or elsewhere in this
Agreement or the other Loan Documents shall be deemed to require Administrative
Agent to advance funds on behalf of any Lender or to relieve any Lender from its
obligation to fulfill its Commitments hereunder or to prejudice any rights that
any Loan Party may have against any Lender as a result of any default by such
Lender hereunder. To the extent that Administrative Agent advances funds to
Borrowers on behalf of any Lender and is not reimbursed therefor on the same
Business Day as such Advance is made, Administrative Agent shall be entitled to
retain for its account all interest accrued on such Advance until reimbursed by
the applicable Lender.
(c) Return of Payments.
(i) If Administrative Agent pays an amount to a Lender under
this Agreement in the belief or expectation that a related payment has been or
will be received by Administrative Agent from Borrowers and such related payment
is not received by Administrative Agent, then Administrative Agent will be
entitled to recover such amount from such Lender on demand without set off,
counterclaim or deduction of any kind.
(ii) If Administrative Agent determines at any time that any
amount received by Administrative Agent under this Agreement must be returned to
any Borrower or paid to any other Person pursuant to any insolvency law or
otherwise, then, notwithstanding any other term or condition of this Agreement
or any other Loan Document, Administrative Agent will not be required to
distribute any portion thereof to any Lender. In addition, each Lender will
repay to Administrative Agent on demand any portion of such amount that
Administrative Agent has distributed to such Lender, together with interest at
such rate, if any, as Administrative Agent is required to pay to Borrowers or
such other Person, without set off, counterclaim or deduction of any kind.
(d) Non-Funding Lenders. The failure of any Non-Funding Lender to
make any Advance or any payment required by it hereunder shall not relieve any
other Lender (each such other Lender, an "Other Lender") of its obligations to
make such Advance, but neither any Other Lender nor Administrative Agent shall
be responsible for the failure of any Non-Funding Lender to make an Advance or
to purchase a participation required hereunder. Notwithstanding anything set
forth herein to the contrary, a Non-Funding Lender shall not have any voting or
consent rights under or with respect to any Loan Document or constitute a
"Lender" (or be included in the calculation of "Requisite Lenders" hereunder)
for any voting or consent rights under or with respect to any Loan Document.
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(e) Dissemination of Information. Administrative Agent will use
reasonable efforts to provide Lenders with any notice of an Event of Default
received by Administrative Agent from, or delivered by Administrative Agent to,
any Loan Party, with notice of any Event of Default of which Administrative
Agent has actually become aware and with notice of any action taken by
Administrative Agent following any Event of Default; provided, however, that
Administrative Agent shall not be liable to any Lender for any failure to do so,
except to the extent that such failure is attributable to Administrative Agent's
gross negligence or willful misconduct. Lenders acknowledge that each Loan Party
is required to provide Financial Statements and Collateral Reports to Lenders
hereunder and agrees that Administrative Agent shall have no duty to provide the
same to Lenders.
(f) Actions in Concert. Anything in this Agreement to the
contrary notwithstanding, each Lender hereby agrees with each other Lender that
no Lender shall take any action to protect or enforce its rights arising out of
this Agreement or the Notes (including exercising any rights of set off) without
first obtaining the prior written consent of Requisite Lenders, it being the
intent of Lenders that any such action to protect or enforce rights under this
Agreement and the Notes shall be taken in concert and at the direction or with
the consent of Administrative Agent.
3.10 Syndication Agent. The Syndication Agent shall have no duties,
responsibilities or obligations under this Agreement.
ARTICLE 4: COLLATERAL AND SECURITY AGREEMENT
4.1 Grant of Security Interest. To secure the prompt and complete
payment, performance and observance of all of the Obligations (specifically
including each Loan Party's Obligations arising under the provisions of Article
10), each Loan Party hereby grants, assigns, conveys, mortgages, pledges,
hypothecates and transfers to Administrative Agent, for itself and the benefit
of Lenders, a continuing Lien upon all of such Loan Party's right, title and
interest in and to the following kinds and types of property, whether now owned
or hereafter acquired or arising, wherever located, together with all
substitutions therefor and all accessions, replacements and renewals thereof,
and in all proceeds and products thereof (collectively, the "Collateral"):
(a) all existing and future accounts, accounts receivable and
rights to payment and (i) all accounts receivable created by or arising from all
sales or leases of goods or rendition of services by such Loan Party to its
customers or subscribers; (ii) all unpaid seller's rights (including rescission,
replevin, reclamation and stopping in transit) relating to the foregoing or
arising therefrom; (iii) all rights to any goods represented by any of the
foregoing, including returned or repossessed goods; (iv) all reserves and credit
balances arising from any of the foregoing; (v) all guarantees or collateral for
any of the foregoing; and (vi) all insurance policies or rights relating to any
of the foregoing (collectively, "Accounts");
(b) all existing and future instruments, chattel paper, documents
of title, securities, contracts, agreements, licenses, easements, grants and
rights now or hereafter entered into or acquired by such Loan Party, as
modified, replaced or supplemented from time to time, including (i) all capacity
usage agreements and other agreements with carriers, customers or subscribers
which constitute five percent (5%) or more of such Loan Party's revenues, (ii)
all purchase agreements and supply agreements and related warranty rights, (iii)
all operating agreements, (iv) all interconnection agreements, (v) all other
System Agreements and (vi) all insurance policies (collectively, "Contracts");
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(c) all equipment, furniture and fixtures, switches, towers,
electronics, transmitting equipment, software, cabling, hardware, devices and
components now or hereafter owned by such Loan Party, and any and all additions,
substitutions and replacements to or of any of the foregoing, together with all
attachments, components, parts, improvements, upgrades and accessions installed
thereon or affixed thereto (collectively, "Equipment");
(d) all general intangibles and intangible property, including
rights under Contracts, rights to payment of any kind, insurance proceeds and
amounts due under insurance policies, deposit accounts, patent rights,
trademarks, service marks, copyrights, trade names, customer lists, goodwill,
registrations, licenses, license rights, rights in intellectual property,
software, software licenses, computer programming (including source codes,
object codes and all other embodiments of computer programming or information),
tax refunds and benefits, corporate and other business records, refunds and
indemnification rights, all amounts owed at any time to such Loan Party (to the
extent permitted by applicable law in effect at any time and subject to Section
4.2), all rights that such Loan Party may have at any time in any Regulatory
Authorization, including any rights to payment upon any transfer of any
Regulatory Authorization, or any other transfer or transaction intended to
result in a transfer of such a Regulatory Authorization, or the obtaining of FCC
or PUC authority for another Person to operate a telecommunications system in
the area instead of such Loan Party, all rights to receive payment or property
upon any assignment, transfer, sale or surrender of any other Collateral and all
other intangible personal property of such Loan Party of every kind and nature
(collectively, "General Intangibles");
(e) all merchandise, inventory and goods now or hereafter owned
by such Loan Party, together with all goods and materials used or usable in
manufacturing, processing, packaging or shipping such merchandise, inventory and
goods in all states of production, from raw materials through work-in-progress
to finished goods (collectively, "Inventory"); and
(f) all proceeds and products of any of the foregoing, including
(i) any and all proceeds of any insurance, indemnity, warranty or guaranty
payable to such Loan Party from time to time with respect to any of the
Collateral, (ii) any and all payments (in any form whatsoever) made or due and
payable to such Loan Party from time to time in connection with any requisition,
confiscation, condemnation, seizure or forfeiture of all or any part of any
other Collateral by any Governmental Authority (or any Person acting under color
of governmental authority), (iii) any and all other amounts from time to time
paid or payable under or in connection with any other Collateral and (iv) any
and all cash proceeds and non-cash proceeds in the form of Equipment, Inventory,
Contracts, Accounts, General Intangibles, chattel paper, documents, instruments,
securities or other proceeds (collectively, "Proceeds").
4.2 Regulatory Authorizations. Administrative Agent and each Lender
acknowledge and recognize that each Loan Party's assignment of or grant of a
security interest in its Regulatory Authorizations may be subject to
restrictions imposed by the FCC or PUC on such Loan Party's ability to assign
its interest in or transfer control of any Regulatory Authorizations. Likewise,
Administrative Agent and each Lender acknowledge and recognize that each Loan
Party's assignment of or grant of a security interest in any state or local
franchises or licenses may be subject to similar government restrictions. Each
Loan Party acknowledges, however, that the value of the Regulatory
Authorizations is a critical part of the Collateral package, and agrees to use
its best efforts to effect the transfer of such Regulatory Authorizations to
Administrative Agent, on behalf of Lenders, or its designee upon the occurrence
of an Event of Default.
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4.3 Priority of Security Interests. The security interests granted in
Section 4.1 by each Loan Party to Administrative Agent on behalf of Secured
Parties are and shall be continuing and indefeasible first-priority security
interests in the Collateral which may be perfected by filing under the UCC,
subject to no Liens except for Liens permitted under Section 9.2.
4.4 Pledge Agreements. Each Loan Party hereby represents and warrants
that valid, first-priority security interests have been granted by Holdings to
Administrative Agent, on behalf of Secured Parties, pursuant to the Holdings
Pledge Agreement, in 100% of the Stock of each Borrower, together with an
irrevocable proxy to vote such Stock if an Event of Default should occur, and
that all existing stock certificates, warrants and other instruments evidencing
ownership, together with executed blank stock powers, have been delivered to
Administrative Agent on behalf of Secured Parties. Each Loan Party shall also
grant to Administrative Agent on behalf of Secured Parties valid, first-priority
security interests in 100% of the Stock of all other present or future
Subsidiaries of such Loan Party having assets in excess of $100,000 and an
irrevocable proxy to vote such Stock if an Event of Default should occur.
4.5 Further Documentation; Pledge of Instruments. At any time and from
time to time, upon the written request of Administrative Agent or Requisite
Lenders, and at the sole expense of the Loan Parties, each Loan Party shall
promptly execute, deliver and record any documents, instruments, agreements and
amendments, and take all such further action, as Administrative Agent or
Requisite Lenders may reasonably deem desirable in obtaining the full benefits
of this Agreement and of the rights and powers herein granted, including the
filing of any financing statements or amendments under the UCC. Each Loan Party
also hereby authorizes Administrative Agent to file any such financing statement
or amendment thereto, without the signature of such Loan Party, or with a copy
or telecopy of such Loan Party's signature, to the extent permitted by
applicable law, or to execute any financing statement or amendment thereof on
behalf of such Loan Party as such Loan Party's attorney-in-fact. If any amount
payable under or in connection with any of the Collateral shall be or become
evidenced by any promissory note or other instrument or any certificated
securities, such note, instrument or certificate shall be immediately pledged
and delivered to Administrative Agent on behalf of Secured Parties hereunder,
duly endorsed in a manner satisfactory to Administrative Agent or Requisite
Lenders. Each Loan Party shall keep and maintain, at its own cost and expense,
satisfactory and complete records of the Collateral, including a record of any
and all payments received and any and all credits granted with respect to the
Collateral and all other dealings with the Collateral. Each Loan Party shall
mark its books and records pertaining to the Collateral to evidence this
Agreement and the Liens granted hereby. All chattel paper shall be marked with
the following legend: "This writing and the obligations evidenced or secured
hereby are subject to the security interest of General Electric Capital
Corporation, as Administrative Agent, for the benefit of Administrative Agent
and Lenders."
4.6 Accounts, Etc. Each Loan Party shall be entitled to collect any
Accounts and General Intangibles until the occurrence of an Event of Default,
during the continuance of which Administrative Agent or Requisite Lenders may
restrict or terminate such authority. Each Loan Party agrees that, upon the
occurrence of an Event of Default, Administrative Agent on behalf of Secured
Parties shall be entitled to assume any or all of the Contracts, Accounts or
General Intangibles in the place of such Loan Party (without releasing such Loan
Party from liability thereunder).
4.7 Further Identification of Collateral. Each Loan Party shall furnish
to Administrative Agent on behalf of Secured Parties from time to time
statements and schedules
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further identifying and describing the Collateral and each location thereof and
such other reports in connection with the Collateral as Administrative Agent or
Requisite Lenders may reasonably request, all in reasonable detail.
4.8 Remedies. Administrative Agent on behalf of Secured Parties shall
have all the rights and remedies of a secured party under the UCC, and shall be
entitled to exercise any and all remedies available under this Article 4 or
Article 10 or otherwise available at law or in equity upon the occurrence of an
Event of Default. Except as otherwise specifically provided herein, each Loan
Party hereby waives presentment, demand, protest or any notice (to the maximum
extent permitted by applicable law) of any kind in connection with this
Agreement or any Collateral.
4.9 Standard of Care. Administrative Agent shall be deemed to have
exercised reasonable care in the custody and preservation of any of the
Collateral in its possession if it takes such action for that purpose as
Borrower Representative requests in writing, but Administrative Agent's failure
to comply with any such request shall not of itself be deemed a failure to
exercise reasonable care, and no failure of Administrative Agent to preserve or
protect any rights with respect to such Collateral against prior parties, or to
do any act with respect to the preservation of such Collateral not so requested
by Borrower Representative, shall be deemed a failure to exercise reasonable
care in the custody or preservation of such Collateral.
4.10 Advances to Protect Collateral. All insurance expense and all
expenses of protecting, storing, warehousing, insuring, handling, maintaining
and shipping the Collateral (including all rent payable by any Loan Party to any
landlord of any premises where any of the Collateral may be located) and any and
all Taxes shall be borne and paid by such Loan Party. Administrative Agent on
behalf of Secured Parties may (but shall not be obligated to) make advances to
preserve, protect or obtain any of the Collateral, including advances to cure
defaults under any of the Contracts or advances to pay Taxes, insurance and the
like, and all such advances shall become part of the Obligations owing to
Lenders hereunder and shall be payable to Administrative Agent on demand, with
interest thereon from the date of such advance until paid at the Default Rate
applicable to Base Rate Loans in effect on the date of such advance.
4.11 License to Use. Administrative Agent on behalf of Secured Parties is
hereby granted a non-exclusive license or other right to use without charge
during the continuance of an Event of Default any Loan Party's labels, patents,
copyrights, rights of use of any name, trade secrets, trade names, trademarks
and advertising matter, or any tangible or intangible property or rights of a
similar nature, as they pertain to the Collateral, in advertising for sale and
selling any Collateral, and such Loan Party's rights under all licenses and all
franchise agreements shall inure to the benefit of Administrative Agent on
behalf of Secured Parties.
4.12 Benefit of Lenders. All Liens granted or contemplated hereby shall
be for the benefit of Administrative Agent and Lenders, and all Proceeds or
payments realized from the Collateral in accordance herewith shall be applied to
the Obligations in accordance with the terms provided herein.
4.13 Release of Collateral. Upon any sale of assets permitted herein and
application of the proceeds as required by Section 2.10, the Liens granted by
Loan Parties to Administrative Agent for the benefit of Secured Parties shall be
released and Administrative Agent shall, upon request of Borrower
Representative, execute and deliver to Borrower Representative appropriate
executed UCC-3s confirming such release.
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ARTICLE 5: REPRESENTATIONS AND WARRANTIES
Each Loan Party hereby represents and warrants, jointly and severally, to
Administrative Agent and each Lender, with respect to all Loan Parties, as
follows:
5.1 Organization and Qualification. Each Loan Party is duly organized,
validly existing and in good standing under the laws of its state of
organization. Each Loan Party is duly qualified to do business and in good
standing in each jurisdiction in which the failure to receive or retain such
qualification could reasonably be expected to have a Material Adverse Effect. As
to any Loan Party that is a limited liability company, each manager is duly
organized, validly existing, in good standing under the laws of its state of
organization, and duly qualified to do business and in good standing in each
jurisdiction in which the failure to receive or retain such qualification could
reasonably be expected to have a Material Adverse Effect.
5.2 Authority and Authorization. Each Loan Party has all requisite
corporate or limited liability company right, power, authority and legal right
to carry on its business, to own or lease its properties and to execute and
deliver and perform its obligations under this Agreement, to make the borrowings
provided for herein, and to execute and deliver and to perform its obligations
under the Loan Documents. Each Loan Party's execution, delivery and performance
of the Loan Documents have been duly and validly authorized by all necessary
corporate or limited liability company proceedings on the part of each Loan
Party and the manager of any Loan Party that is a limited liability company.
5.3 Execution and Binding Effect. This Agreement, the Notes and all other
Loan Documents have been or will be duly and validly executed and delivered by
each Loan Party, and constitute or, when executed and delivered, will
constitute, the legal, valid and binding obligations of such Loan Party
enforceable in accordance with their respective terms, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
receivership, moratorium or other laws affecting creditors' rights generally.
5.4 Governmental Authorizations. Except for the consents identified on
Schedule 5.4 (the "Required Consents"), no authorization, consent, approval,
license, exemption or other action by, and no registration, qualification,
designation, declaration or filing with, any Governmental Authority (other than
the filing of financing statements and continuation statements) is or will be
necessary in connection with the execution and delivery of this Agreement, the
Notes or any other Loan Documents by each Loan Party, consummation by each Loan
Party of the transactions herein or therein contemplated, including obtaining
the Loans and granting security for the Obligations, performance of or
compliance by each Loan Party with the terms and conditions hereof or thereof or
the legality, validity and enforceability hereof or thereof.
5.5 Regulatory Authorizations. Loan Parties hold all authorizations,
permits and licenses required by the FCC or the PUC or any Communications Law
for the conduct of their business as now conducted and as proposed in the
Business Plan to be conducted, and all such Regulatory Authorizations are in
full force and effect, are subject to no further administrative or judicial
review and are therefore final. No Lender, by reason of the execution, delivery
and performance (other than the enforcement of remedies) of any of the Loan
Documents, will be subject to the regulation or control of either the FCC or the
PUC. The Regulatory Authorizations are described on Schedule 5.5.
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5.6 Agreements and Other Documents. As of the date hereof, each Loan
Party has provided to Lenders, accurate and complete copies (or summaries) of
all of the following agreements or documents to which such Loan Party is subject
and each of which is listed on Schedule 5.6: (a) supply agreements and purchase
agreements not terminable by such Loan Party within sixty (60) days following
written notice issued by such Loan Party and involving transactions in excess of
$1,000,000 per annum; (b) any lease of Equipment having a remaining term of one
year or longer and requiring aggregate rental and other payments in excess of
$500,000 per annum; (c) licenses and permits held by such Loan Party, the
absence of which could be reasonably likely to have a Material Adverse Effect;
(d) instruments or documents evidencing Indebtedness of such Loan Party and any
security interest granted by such Loan Party with respect thereto; and (e)
instruments and agreements evidencing the issuance of any equity securities,
warrants, rights or options to purchase equity securities of a Borrower.
5.7 Absence of Conflicts. The execution and delivery of this Agreement,
the Notes and the other Loan Documents, the consummation of the transactions
herein or therein contemplated and the performance of or compliance with the
terms and conditions hereof or thereof by each Loan Party will not (a) violate
any applicable Law; (b) conflict with or result in a breach of or a default
under the Organizational Documents of such Loan Party or any material agreement
or instrument to which such Loan Party is a party or by which such Loan Party or
its properties are bound; or (c) result in the creation or imposition of any
Lien upon any property (now owned or hereafter acquired) of such Loan Party
except as otherwise contemplated by this Agreement.
5.8 No Restrictions. No Loan Party is a party or subject to any contract,
agreement or restriction in its Organizational Documents that materially and
adversely affects its business or the use or ownership of any of its properties
or operation of its business as contemplated in its Business Plan. The Loan
Parties' strategy is to deploy owned switching equipment and to lease
transmission capacity from others. No Loan Party is a party or subject to any
contract or agreement which restricts its right or ability to incur
Indebtedness, other than as set forth on Schedule 5.8, none of which prohibits
such Loan Party's execution of or compliance with this Agreement. No Loan Party
has agreed or consented to cause or permit in the future (upon the happening of
a contingency or otherwise) any of the Collateral, whether now owned or
hereafter acquired, to be subject to a Lien that is not a Permitted Encumbrance.
5.9 Government Contracts. Except as set forth in Schedule 5.9, as of the
date hereof, no Loan Party is a party to any contract or agreement with any
Governmental Authority and no Loan Party's Accounts are subject to the Federal
Assignment of Claims Act, as amended (31 U.S.C. ss. 3727) or any similar state
or local law.
5.10 Financial Statements; Business Plan. Borrower Representative has
furnished to Lenders the most recent annual or quarterly Financial Statements of
Holdings, certified by a Responsible Officer of Holdings, including balance
sheets and related statements of income, retained earnings and cash flow, as
described on Schedule 5.10. Such Financial Statements (including the notes
thereto) present fairly the financial condition of Loan Parties on a
consolidated basis as of the end of such fiscal period and the results of its
operations and the changes in its financial position for the fiscal period then
ended, all in conformity with GAAP applied on a basis consistent with that of
the preceding fiscal period. As of the date hereof, no Loan Party has any
obligation or liability (absolute, contingent, liquidated or unliquidated)
material to Loan Parties taken as a whole, which are required to be disclosed in
financial statements prepared in accordance with GAAP, except for those
reflected in the Financial
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Statements discussed on Schedule 5.10, and since the date hereof has incurred no
such obligation or liability, except as permitted by this Agreement. The
projections and pro forma financial statements delivered by Borrower
Representative to Administrative Agent, on behalf of Lenders, as part of the
Business Plan, a copy of which has been delivered prior to the date hereof, were
prepared in good faith, based on reasonable assumptions.
5.11 Financial Accounting Practices. Loan Parties have made and kept
books, records and accounts which, in reasonable detail, accurately and fairly
reflect their respective transactions and dispositions of their assets, and Loan
Parties maintain a system of internal accounting controls sufficient to provide
reasonable assurances that (a) transactions are executed in accordance with
management's general or specific authorization, (b) transactions are recorded as
necessary (i) to permit preparation of financial statements in conformity with
GAAP and (ii) to maintain accountability for assets, (c) access to assets is
permitted only in accordance with management's general or specific authorization
and (d) the recorded accountability for assets is compared with the existing
assets at reasonable intervals and appropriate action is taken with respect to
any differences.
5.12 Deposit and Disbursement Accounts. Schedule 5.12 lists all banks and
other financial institutions at which any Loan Party maintains deposits and/or
other accounts as of the date hereof, including any disbursement accounts, and
such Schedule correctly identifies the name, address and telephone number of
each depository, the name in which the account is held, a description of the
purpose of the account, and the complete account number.
5.13 Insurance. Schedule 5.13 lists all insurance policies of any nature
maintained, as of the date hereof, for current occurrences by each Loan Party,
as well as a summary of the terms of each such policy.
5.14 Accurate and Complete Disclosure. No representation or warranty made
by any Loan Party in this Agreement or any other Loan Document and no statement
made by any Loan Party in any financial statement, certificate, report, exhibit
or document furnished by such Loan Party to Administrative Agent pursuant to or
in connection with this Agreement (including any filings with the Securities and
Exchange Commission, the FCC or the PUC) is or was false or misleading as of the
date made in any material respect (including by omission of material information
necessary to make such representation, warranty or statement not misleading).
There are no facts that would reasonably be expected to evidence or create a
Material Adverse Effect which have not been set forth in the Financial
Statements referred to in Section 5.10 or otherwise disclosed in writing to
Administrative Agent and Lenders prior to the Effective Date.
5.15 No Event of Default; Compliance with Material Agreements. No event
has occurred and is continuing and no condition exists which constitutes a
Default or an Event of Default. As of the date hereof, no Loan Party is in
violation of any term of any material agreement or instrument to which it is a
party or by which it or its properties are bound that would reasonably be
expected to have a Material Adverse Effect.
5.16 Labor Matters. As of the date hereof, (a) no strikes or other
material labor disputes against any Loan Party are pending or, to any Loan
Party's knowledge, threatened; (b) hours worked by and payment made to employees
of each Loan Party comply with the Fair Labor Standards Act and each other
federal, state, local or foreign law applicable to such matter; (c) all payments
due from any Loan Party for employee health and welfare insurance have been paid
or accrued as a liability on the books of such Loan Party; (d) except as set
forth in
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Schedule 5.16, no Loan Party is a party to or bound by any collective bargaining
agreement, management agreement, consulting agreement or any employment
agreement (and true and complete copies of any agreements described on Schedule
5.16 have been delivered to Administrative Agent and each Lender); (e) there is
no organizing activity involving any Loan Party pending or, to any Loan Party's
knowledge, threatened by any labor union or group of employees; (f) there are no
representation proceedings pending or, to any Loan Party's knowledge, threatened
with the National Labor Relations Board, and no labor organization or group of
employees of any Loan Party has made a pending demand for recognition; and (g)
except as set forth in Schedule 5.16, there are no complaints or charges against
any Loan Party pending or, to the knowledge of the executive officers of
Holdings, threatened to be filed with any Governmental Authority or arbitrator
based on, arising out of, in connection with, or otherwise relating to the
employment or termination of employment by any Loan Party of any individual
which, if adversely determined, could reasonably be expected to have a Material
Adverse Effect.
5.17 Litigation. Except as set forth in Schedule 5.17, there is no
pending action, suit or threatened proceeding by or before any Governmental
Authority against or affecting any Loan Party or any of its properties, rights
or licenses which if adversely decided could reasonably be expected to have a
Material Adverse Effect.
5.18 Rights to Property. Each Loan Party has good and marketable title,
subject only to the Permitted Encumbrances, to the Collateral, to all other
personal and real property purported to be owned by it and to all property
reflected in the most recent balance sheet referred to in Section 5.10 (except
as sold or otherwise disposed of in the ordinary course of business as no longer
used or useful in the conduct of the business). Schedule 5.18 lists as of the
date hereof (i) all Sites and Site Leases, (ii) all other real property owned by
each Loan Party, and (iii) all material Equipment of each Loan Party and its
location or proposed location. Each Loan Party has entered into the Site Leases
described on Schedule 5.18. Such Site Leases are in full force and effect and
are not subject to termination because of default or otherwise.
5.19 Year 2000 Problem. Each Loan Party has a plan and organization in
place to minimize any materially adverse effects on its business operations
caused by the failure of any system or equipment which is material to such Loan
Party's operations to be Year 2000 Compliant. "Year 2000 Compliant" means that
the functionality and the performance of any such system or equipment will not
be adversely affected as a result of the date change from the calendar year 1999
to the calendar year 2000, including leap year calculations, and that, to the
extent applicable to such system's or equipment's normal operation
specifications, such system or equipment will accurately accept, store,
retrieve, calculate, compare and otherwise process dates before and after
January 1, 2000. Each Loan Party is conscientiously implementing such plan. Each
Loan Party will, upon request from Administrative Agent, on behalf of Lenders,
or from Requisite Lenders, provide Administrative Agent or, if so requested,
Lenders with periodic updates on its implementation of such plan.
5.20 Taxes. Each Loan Party's federal tax identification number is set
forth on Schedule 1. All tax returns required to be filed by each Loan Party
have been properly prepared, executed and filed, and all Taxes upon such Loan
Party or upon any of its respective properties, incomes, sales or franchises
which are shown to be due and payable thereon have been paid, other than Taxes
or assessments the validity or amount of which such Loan Party is contesting in
good faith. The reserves and provisions for taxes on the books of each Loan
Party are adequate for all open years and for its current fiscal period.
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5.21 No Material Adverse Change. Since the date of the Financial
Statements referenced in Section 5.10, there has been no Material Adverse
Change.
5.22 Solvency. Both before and after giving effect to (a) the Advances
and Letter of Credit Obligations to be made or extended on the date hereof or
such other date as the Advances and Letter of Credit Obligations requested
hereunder are made or extended, (b) the disbursement of the proceeds of such
Loans pursuant to the instructions of Borrower Representative and (c) the
payment and accrual of all transaction costs in connection with the foregoing,
Loan Parties, taken as a whole, are Solvent.
5.23 No Regulatory Event. No Regulatory Event has occurred and is
continuing.
5.24 Trade Relations. There exists no actual or threatened termination,
cancellation or limitation of, or any modification or change in, the business
relationship between any Loan Party and any customer or supplier that could
reasonably be expected to have a Material Adverse Effect or to prevent Loan
Parties from conducting their business after the consummation of the financing
contemplated by this Agreement in substantially the same manner as is
contemplated in the Business Plan.
5.25 No Brokerage Fees. No brokerage or other fee, commission or
compensation is to be paid by any Loan Party to any Person in connection with
the Loans to be made hereunder except as contemplated herein. Each Loan Party
jointly and severally hereby indemnifies each Indemnified Person against any
claims brought against such Indemnified Person for brokerage fees or commissions
of any Person based on an agreement with such Loan Party and agrees to pay all
expenses incurred by such Indemnified Person in connection with the defense of
any action or proceeding brought to collect any such brokerage fees or
commissions.
5.26 Margin Stock; Regulation U. No Loan Party is engaged principally, or
as one of its important activities, in the business of extending credit for the
purpose of purchasing or carrying margin stock. The making of the Advances and
the use of the proceeds thereof will not violate Regulation U or X of the Board
of Governors of the Federal Reserve System.
5.27 Investment Company; Public Utility Holding Company. No Loan Party is
an "investment company" or a "company controlled by an investment company" or an
"affiliated person" or "promoter" or "principal underwriter" for, an "investment
company," within the meaning of the Investment Company Act of 1940, as amended,
or a "holding company," or a "subsidiary company" of a "holding company," or an
"affiliate" of a "holding company" or of a "subsidiary company" of a "holding
company," within the meaning of the Public Utility Holding Company Act of 1935,
as amended.
5.28 Personal Holding Company; Subchapter S. No Loan Party is a "personal
holding company" as defined in Section 542 of the Code, or a "Subchapter S"
corporation within the meaning of the Code.
5.29 Securities Act, Etc. The Notes are not required to be registered
under the Securities Act of 1933, as amended, or under the securities laws of
any state.
5.30 ERISA. (i) With respect to any Plan, there is no Reportable Event
currently under consideration by the PBGC which may reasonably result in any
material liability to the PBGC with respect to any Plan, (ii) no Plan has been
terminated, (iii) no trustee has been
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appointed by any United States District Court to administer any Plan, (iv) the
PBGC has not instituted proceedings to terminate any Plan or to appoint a
trustee to administer any such Plan, (v) no Loan Party or Affiliate of a Loan
Party has withdrawn, completely or partially, from any Plan and (vi) no Loan
Party or Affiliate of a Loan Party has incurred secondary liability for
withdrawal liability payments under any Plan.
5.31 Intellectual Property. Each Loan Party owns or possesses the right
to use all patents, trademarks, service marks, trade names, copyrights,
know-how, franchises, Software and Software Licenses necessary for the operation
of its business, free from burdensome restrictions that could reasonably be
expected to have a Material Adverse Effect. All such rights are described on
Schedule 5.31.
5.32 Environmental Warranties. Each Loan Party is in compliance with all
Environmental Laws applicable to such Loan Party or its business or to the real
or personal property owned, leased or operated by such Loan Party, except for
such non-compliances as in the aggregate could not reasonably be expected to
have a Material Adverse Effect. No Loan Party has received notice of, or is
aware of, any violation or alleged violation, or any liability or asserted
liability, under any Environmental Law, with respect to such Loan Party or its
business or its premises. The only premises occupied by any Loan Party are
office spaces in multi-tenant commercial office buildings.
5.33 Security Interests. The provisions of Article 4 are effective to
create in favor of Administrative Agent, on behalf of Secured Parties, a legal,
valid and enforceable Lien on or security interest in all of the Collateral,
and, when the recordings and filings described on Schedule 5.33 have been
effected in the public offices listed on said Schedule 5.33, this Agreement will
create a perfected first priority security interest in all right, title, estate
and interest of each Loan Party in the Collateral which may be perfected by
filing, subject to no Liens except for Permitted Encumbrances. All action
necessary or desirable to protect and perfect such security interest in each
item of the Collateral has been duly taken. The recordings and filings shown on
said Schedule 5.33 are all the actions necessary or advisable in order to
establish, protect and perfect the interest of Administrative Agent, on behalf
of Secured Parties, in the Collateral.
5.34 Place of Business. The chief executive office of each Loan Party is
identified on Schedule 5.34. Each Loan Party's principal place of business in
the state(s) where a Site is located is identified on Schedule 5.34. Each Loan
Party's records concerning the Collateral are kept at one or both of these
addresses.
5.35 Location of Collateral. The Collateral is and will be kept at the
locations identified by Loan Party and type of Collateral on Schedule 5.35 or
such other locations as may be permitted under Section 9.4.
5.36 Validity of Contracts and Accounts. Each Contract, General
Intangible and Account is, or will be when it is created, a bona fide, valid and
legally enforceable property or right of a Loan Party and, so far as such Loan
Party knows, of any other party thereto, except for those that do not, in the
aggregate, materially and adversely affect the value of the Collateral. All
consents, licenses, approvals or authorizations of, or declarations with, any
Governmental Authority required in connection with each Loan Party's execution,
delivery or performance of each Contract, General Intangible or Account have
been or will be duly and timely obtained, effected or given and are or will be
in full force and effect except where all failures to do or be so,
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in the aggregate, do not materially and adversely affect the value of the
Collateral. No amount payable under or in connection with any of the Contracts,
General Intangibles or Accounts are evidenced by any chattel paper or any
promissory notes or other instruments that have not been delivered to
Administrative Agent on behalf of Secured Parties.
5.37 No Defaults Under Contracts or Accounts. With respect to each
Contract, Account and General Intangible, no default by any Loan Party or event
which with the giving of notice or the passage of time would be a default has
occurred and, to the knowledge of the executive officers of Holdings, the other
party or parties thereto are not in default thereunder except as referred to in
Section 5.17, and each Loan Party has fully and timely performed all its
material obligations thereunder. Except as referred to in Section 5.17, the
right, title and interest of such Loan Party thereunder is not subject to any
defense, set off, counterclaim or claim, and none of the foregoing been asserted
or alleged against such Loan Party except in respect of such defaults, defenses,
set offs, counterclaims and claims that in the aggregate do not materially
adversely affect the value of the Collateral. Except as referred to in Section
5.17, the amount represented by each Loan Party to Administrative Agent, on
behalf of Lenders, from time to time as owing on any or all Accounts, Contracts
or General Intangibles, will at such time be the correct amount actually and
unconditionally owing by such account debtors thereunder.
5.38 Subsidiaries. No Borrower has any Subsidiaries nor any current plans
to form or acquire any Subsidiary.
5.39 Assumed Names. Except as set forth on Schedule 5.39, no Loan Party
conducts business under any assumed names or trade names, or has conducted
business under any other names, or any assumed names or trade names, at any time
prior to the date hereof.
5.40 Pledge Agreements; Registration of Pledge. The Holdings Pledge
Agreement is effective to grant to Administrative Agent, on behalf of Secured
Parties, a legal, valid and enforceable security interest in 100% of the Stock
of each Borrower, to the extent that such security interests may be created
under Article 8 and/or Article 9 of the UCC. Such security interests constitute
fully perfected, first priority security interests in such Stock and proceeds
thereof, and the security interests of Administrative Agent on behalf of Secured
Parties in Holdings' interests have been duly registered on the books and
records of such Borrower.
5.41 Transactions with Affiliates. No Affiliate and no officer or
director of any Loan Party or any individual related by blood, marriage,
adoption or otherwise to any such Affiliate, officer or director, or any Person
in which any such Affiliate, officer, director or individual related thereto
owns any material beneficial interest, is a party to any agreement, contract,
commitment or transaction with such Loan Party or has any material interest in
any material property used by such Loan Party, except as set forth on Schedule
5.41.
ARTICLE 6: CONDITIONS TO EFFECTIVENESS
This Agreement shall become effective upon satisfaction, or waiver by all
Lenders, of the following conditions:
6.1 Closing Certificates. Administrative Agent and each Lender shall have
received the following certificates, all in form and substance satisfactory to
Administrative Agent and Requisite Lenders and all dated the Effective Date upon
which Administrative Agent may conclusively rely unless and until later
certificates have been furnished to Administrative Agent
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and each Lender: (a) a certificate of each Loan Party signed by a duly
authorized Responsible Officer, certifying as to (i) true copies of
Organizational Documents of such Loan Party in effect on such date; (ii) true
copies of all corporate action (including, without limitation, a corporate
resolution of its board of directors ratifying the Loan Documents, and
authorizing the Obligations and the granting of the liens and security interests
in the Collateral securing the Obligations) taken by such Loan Party relative to
this Agreement, the Note and the other Loan Documents which have been properly
adopted and have not been modified or amended; and (iii) the names, true
signatures and incumbency of the Responsible Officers of such Loan Party
authorized to execute and deliver this Agreement, the Note and the other Loan
Documents; (b) a Certificate of Good Standing (or equivalent certificate) for
such Loan Party and for the managing member of any Loan Party that is a limited
liability company, duly issued by the Secretary of State of each state in which
such Loan Party intends to do business; and (c) a certificate as to such other
matters as Administrative Agent or any Lender shall request.
6.2 Opinions of Counsel. Administrative Agent and each Lender shall have
received the following opinions, all dated the Effective Date and all in form
and substance satisfactory to Administrative Agent and each Lender:
(a) a written opinion of counsel to each Loan Party, substantially in
the form of Exhibit D, as to such matters as shall be required by Administrative
Agent, any Lender or their respective counsel, including the corporate good
standing of such Loan Party, the proper adoption of any corporate resolution
required hereby, the authority of the Person signing for such Loan Party, the
validity, binding nature and enforceability of the Loan Agreement and related
Loan Documents and perfected liens and security interests granted to
Administrative Agent on behalf of Secured Parties by such Loan Party in the
Collateral; and
(b) a written opinion of regulatory counsel for Loan Parties,
substantially in the form of Exhibit E, as to such matters as shall be required
by Administrative Agent and its counsel, including the validity of each Loan
Party's authorizations and approvals, permits or licensing required by the
Federal Communications Commission, the Public Utilities Commission(s) and the
relevant state and local utilities commissions or municipality, and all other
applicable regulatory or governmental bodies.
6.3 Closing Documents. Administrative Agent and Lenders shall have
received the following documents, all in form and substance satisfactory to
Administrative Agent, Lenders and their respective counsel:
(a) Agreement. This Agreement, duly executed by all Loan Parties;
(b) Notes. The Notes, duly executed by all Borrowers, to the order of
each Lender;
(c) Financing Statements. All UCC-1 financing statements necessary to
perfect the Liens granted hereby by any Borrower which was not a party to the
Existing Loan Agreement (each an "Additional Borrower"), duly executed by such
Additional Borrower, and duly recorded in all of the offices identified on
Schedule 5.33;
(d) Pledge Amendment. A Pledge Amendment, substantially in the form
attached to the Holdings Pledge Agreement as Schedule II thereto, duly executed
by Holdings, along with the original pledged stock or membership interest
certificates with executed blank
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stock powers or assignments attached thereto with respect to 100% of the Stock
of any Additional Borrower;
(e) Equipment Room Layout. Detailed equipment room layouts for each
existing Site of each Additional Borrower;
(f) Required Consents. Evidence of each Additional Borrower obtaining
the Required Consents or a certificate of a Responsible Officer of Borrower
Representative;
(g) Fees. The Fees required to be paid on the Effective Date in the
respective amounts specified in Section 2.20 (including the Fees specified in
the Fee Letter);
(h) Pre-Closing Lien Searches. Lien searches from all jurisdictions
reasonably determined by Administrative Agent or any Lender to be appropriate,
effective as of a date reasonably close to the Effective Date, with respect to
each Additional Borrower (under their present names and any previous names),
reflecting no other Liens (other than Permitted Encumbrances) on any of the
Collateral; and
(i) Landlord Consents. Executed Landlord Consents for all Sites of
each Additional Borrower.
6.4 No Material Adverse Change. As of the Effective Date, after giving
effect to any Advances, there shall not have been (i) any litigation commenced
which, if successful, would have a material adverse impact on any Loan Party,
its Subsidiaries, their business or their ability to repay the Loan or which
would challenge the financing contemplated by this Agreement, except those
litigations listed on Schedule 5.17 and (ii) since Holding's last audited
Financial Statements, any material increase in the liabilities, liquidated or
contingent, of any Loan Party and its Subsidiaries or a material decrease in the
assets of any Loan Party and its Subsidiaries.
6.5 No Existing Default or Event of Default. No "Default" or "Event of
Default" under the Existing Loan Agreement is continuing.
6.6 Payment of Expenses. All fees and expenses of Administrative Agent,
Syndication Agent and Lenders reimbursable by Borrowers in connection with the
Existing Loan Agreement shall have been paid.
ARTICLE 7: CONDITIONS OF LENDING
7.1 Conditions to Each Borrowing Date. The obligation of any Lender to
fund any Advance, convert or continue any Loan or portion thereof as a LIBOR
Loan or incur any Letter of Credit Obligation is subject to each Loan Party's
performance of its obligations hereunder and satisfaction of the following
further conditions on the Borrowing Date for any such Advance (including the
Effective Date), the date of such conversion or continuation or the issuance of
such Letter of Credit:
(a) Borrowing Certificate. Administrative Agent shall have received a
duly executed Borrowing Certificate in the form of Exhibit B or a request for a
Letter of Credit pursuant to Annex I.
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(b) No Default or Event of Default. No Default or Event of Default
shall have occurred and be continuing or would exist upon the consummation of
transactions to occur on such Borrowing Date.
(c) Representations and Warranties. The representations and warranties
contained in Article 5 shall be true and correct in all material respects on and
as of such Borrowing Date hereunder both before and after giving effect thereto.
(d) No Regulatory Event. No Regulatory Event (in Requisite Lenders'
reasonable determination) shall have occurred and be continuing or would exist
upon the consummation of transactions to occur on such Borrowing Date.
(e) Expenses. All closing costs and other Administrative Agent's,
Syndication Agent's and Lenders' expenses shall have been paid in full (or shall
be paid first from such Advance as provided in Section 2.13).
(f) Details, Proceedings and Documents. All legal details and
proceedings in connection with the transactions contemplated by this Agreement
shall be reasonably satisfactory to Administrative Agent and Requisite Lenders,
and Administrative Agent and Requisite Lenders shall have received all such
counterpart originals or certified or other copies of such documents and
proceedings in connection with such transactions, in form and substance
reasonably satisfactory to Administrative Agent and Requisite Lenders, as
Administrative Agent and Requisite Lenders may from time to time request.
(g) Post-Closing Items. The post-closing items described on Schedule
7.1 shall have been completed in the time permitted, and each Loan Party shall
have provided Administrative Agent and Requisite Lenders with satisfactory
evidence thereof pursuant to Section 8.25.
7.2 Affirmation of Representations and Warranties. Any Borrowing
Certificate or other request for any Advance or Letter of Credit hereunder shall
constitute a representation and warranty that (a) the representations and
warranties contained in Article 5 are true and correct on and as of the date of
such request with the same effect as though made on and as of the date of such
request and (b) on the date of such request no Default or Event of Default has
occurred and is continuing or exists or will occur or exist after giving effect
to such Advance or issuance of Letter of Credit (for this purpose such Advance
or Letter of Credit being deemed to have been made or issued, as the case may
be, on the date of such request). Failure of Administrative Agent to receive
notice from each Loan Party to the contrary before the applicable Borrowing Date
shall constitute a further representation and warranty by such Loan Party that
(x) the representations and warranties of such Loan Party contained in the first
sentence of this Section 7.2 are true and correct on and as of such Borrowing
Date with the same effect as though made on and as of such Borrowing Date, (y)
on such Borrowing Date, no Default or Event of Default has occurred and is
continuing or exists or will occur or exist after giving effect to such Advance
or issuance and (z) on such Borrowing Date, all conditions set forth in this
Article 7 have been satisfied.
7.3 Deadline for Funding Conditions. No Lender shall have any obligation
to make any Advances hereunder if all of the conditions set forth in Article 6
and in Article 7 have not been fully satisfied or waived by Requisite Lenders
and the first Advance made hereunder, within the period of twelve (12) calendar
months following the date hereof.
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ARTICLE 8: AFFIRMATIVE COVENANTS
Loan Parties hereby jointly and severally agree as to all Loan Parties
to, from and after the date hereof until the Termination Date, keep and perform
fully each and all of the following covenants:
8.1 Reporting and Information Requirements.
(a) Annual Audit Reports. As soon as practicable, and in any event
within ninety (90) days after the close of each Fiscal Year of Holdings,
Borrower Representative shall furnish or cause to be furnished to Administrative
Agent and Lenders audited statements of income, statements of cash flow and
retained earnings for such Fiscal Year and balance sheet as of the close of such
Fiscal Year, and notes to each, all in reasonable detail, and beginning with
Loan Parties' second full Fiscal Year after the date hereof setting forth in
comparative form the corresponding figures for the preceding Fiscal Year, with
such statements and balance sheet to be certified without qualification by
independent certified public accountants of recognized regional or national
standing selected by Borrower Representative and reasonably satisfactory to
Administrative Agent and Requisite Lenders.
(b) Quarterly Reports. Within forty five (45) days after the end of
each Fiscal Quarter, Borrower Representative shall furnish to Administrative
Agent and Lenders (i) unaudited consolidated statements of income, statements of
cash flow and retained earnings for Holdings for such quarter and for the period
from the beginning of Loan Parties' then current Fiscal Year to the end of such
quarter, and an unaudited consolidated balance sheet of Holdings as of the end
of such quarter, all in reasonable detail and certified by a Responsible Officer
of Borrower Representative as presenting fairly the financial position of Loan
Parties as of the end of such quarter and the results of their operations and
the changes in their financial position for such quarter, in conformity with
GAAP (except for accompanying notes thereto), subject to year-end audit
adjustments, (ii) updates of revenues, gross margin and EBITDA of Holdings on a
consolidating basis and (iii) upon request of Administrative Agent or Requisite
Lenders, an aging of accounts payable and accounts receivable.
(c) Compliance Certificates. Within forty-five (45) days after the end
of each Fiscal Quarter, Borrower Representative shall deliver to Administrative
Agent and Lenders a certificate dated as of the end of such Fiscal Quarter,
signed by a Responsible Officer of Borrower Representative (i) stating that as
of the date thereof no Event of Default has occurred and is continuing or
exists, or if an Event of Default has occurred and is continuing or exists,
specifying in detail the nature and period of existence thereof and any action
with respect thereto taken or contemplated to be taken by the applicable Loan
Party; (ii) stating that the signer has personally reviewed this Agreement and
that such certificate is based on an examination made by or under the
supervision of the signer sufficient to assure that such certificate is
accurate; and (iii) calculating and certifying Loan Parties' compliance with the
financial covenants set forth on Schedule 8.15.
(d) Accountants' Certificate. Each set of year-end audited
consolidated Financial Statements and balance sheet delivered pursuant to
Section 8.1(a) shall be accompanied by a certificate or report dated the date of
such statement and balance sheet by the accountants who certified such
statements and balance sheet stating in substance that they have reviewed this
Agreement and that in making the examination necessary for their certification
of such statements
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and balance sheet they did not become aware of any Event of Default or, if they
did become so aware, such certificate or report shall state the nature and
period of existence thereof.
(e) Projections. If requested by Administrative Agent or Requisite
Lenders, Borrower Representative shall deliver to Administrative Agent and
Lenders within thirty (30) days after the beginning of each calendar year
projections of its anticipated income, expenses, cash flow, assets and
liabilities for the next five (5) calendar years prepared in good faith on
assumptions believed by Holdings to be reasonable and in a manner and format
consistent with other Financial Statements provided by Borrower Representative
to Administrative Agent and Lenders.
(f) Other Reports and Information. Upon the request of Administrative
Agent or Requisite Lenders, Borrower Representative shall deliver to
Administrative Agent and Lenders copies of (i) all regular or special reports or
effective registration statements which any Loan Party shall file with
Governmental Authorities, the FCC or the PUC (or any successor thereto) or any
securities exchange, (ii) financial statements, material reports, and other
information distributed by any Loan Party to its creditors or the financial
community in general, and (iii) all press releases issued by or concerning any
Loan Party.
(g) Further Information. Each Loan Party will promptly furnish to
Administrative Agent or any Lender such other information (including any report
by independent auditors) in such form as Administrative Agent or any Lender may
reasonably request.
8.2 Other Notices. Promptly upon a Responsible Officer of any Loan Party
becoming aware of any of the following, Borrower Representative shall give
Administrative Agent and each Lender notice thereof, together with a written
statement of a Responsible Officer of Borrower Representative setting forth the
details thereof and any action with respect thereto taken or contemplated to be
taken by such Loan Party:
(a) a Default or Event of Default;
(b) any Material Adverse Change;
(c) any event or circumstance that could reasonably be expected to
have a Material Adverse Effect or cause a Material Adverse Effect;
(d) any event that could reasonably be expected to constitute a
Regulatory Event;
(e) the commencement, existence or threat of any proceeding by or
before any Governmental Authority against such Loan Party which, if adversely
decided, could reasonably be expected to have a Material Adverse Effect;
(f) such Loan Party's receipt of any notice of violation of, or
liability under, any Environmental Laws affecting such Loan Party or any of its
properties that could reasonably be expected to have a Material Adverse Effect;
or
(g) any Change of Control or Loss of Key Management of Holdings.
8.3 Notice of Pension-Related Events. Each Loan Party shall promptly
furnish Administrative Agent with written notice upon the receipt by such Loan
Party or the
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administrator of any Plan of any notice, correspondence or other communication
from the PBGC, the IRS, the Secretary of Treasury, the Department of Labor, or
any other Person, as the case may be, relating to (i) any Reportable Event, (ii)
any funding deficiency with respect to any Plan, (iii) any liability, either
primary or secondary, with respect to complete or partial withdrawal from any
Plan, (iv) proceedings to terminate any Plan or (v) the appointment of a trustee
for any Plan that could reasonably be expected to have a Material Adverse
Effect. Such notice shall be accompanied by any pertinent documents including
the relevant notice, correspondence or other communication and a statement of a
Responsible Officer of such Loan Party describing the event or the action taken
and the reasons therefor.
8.4 Inspection Rights. To the extent required by Section 2.16, each Loan
Party shall upon reasonable notice permit such persons as Administrative Agent
or any Lender may designate to visit and inspect the Collateral or any other
properties of such Loan Party, to examine its books and records and take copies
and extracts therefrom and discuss its respective affairs with its officers,
employees and independent engineers at such times and as often as Administrative
Agent may reasonably request. Each Loan Party hereby authorizes such officers,
employees and independent engineers to discuss with Administrative Agent or such
Lenders the affairs of such Loan Party.
8.5 Preservation of Corporate Existence and Qualification. Each Loan
Party shall maintain its existence, good standing and rights in full force and
effect in its jurisdiction of organization. Each Loan Party shall qualify to do
business and remain qualified and in good standing and shall obtain all
necessary authorizations to do business in each jurisdiction in which failure to
receive or retain such would have a Material Adverse Effect.
8.6 Continuation of Business. Loan Parties shall continue to engage
solely in the business of providing telecommunications services and shall
acquire and maintain in full force and effect all material rights, privileges,
franchises and licenses necessary therefor (including any license or
authorization required by the FCC or any PUC).
8.7 Insurance.
(a) Loan Parties shall, at their sole cost and expense, provide and
maintain or cause to be maintained at all times insurance in such forms and
covering such risks and hazards and in such amounts and with an insurance
corporation with a Best rating of "A" or above, licensed to do business in the
states where any Network or Loan Party is located, as may be satisfactory to
Administrative Agent, as shown on Schedule 8.7, and otherwise as may be required
by the Security Documents. If any Loan Party at any time or times hereafter
shall fail to obtain or maintain any of the policies of insurance required above
or to pay all premiums relating thereto, Administrative Agent may at any time or
times thereafter obtain and maintain such policies of insurance and pay such
premiums and take any other action with respect thereto which Administrative
Agent deems advisable. Administrative Agent shall have no obligation to obtain
insurance for any Loan Party or pay any premiums therefor. By doing so,
Administrative Agent shall not be deemed to have waived any Default or Event of
Default arising from any Loan Party's failure to maintain such insurance or pay
any premiums therefor. All sums so disbursed, including attorneys' fees, court
costs and other charges related thereto, shall be payable on demand by Loan
Parties to Administrative Agent and shall be additional Obligations hereunder
secured by the Collateral.
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(b) Administrative Agent reserves the right at any time upon any
material change in any Loan Party's risk profile (including any change in the
business conducted by any Loan Party or any laws affecting the potential
liability of such Loan Party) to require additional forms and limits of
insurance to, in Administrative Agent's reasonable opinion, adequately protect
both Administrative Agent's and Lenders' interests in all or any portion of the
Collateral and to ensure that each Loan Party is protected by insurance in
amounts and with coverage customary for its industry. If requested by
Administrative Agent, each Loan Party shall deliver to Administrative Agent from
time to time a report of a reputable insurance broker, satisfactory to
Administrative Agent, with respect to its insurance policies.
(c) Each Loan Party shall cause (i) all general liability and
automobile insurance policies to name Administrative Agent on behalf of Secured
Parties as an additional insured, (ii) all physical damage insurance policies to
contain a lender's or mortgagee's loss payable provision acceptable to
Administrative Agent, (iii) all insurance policies to provide that no
assignment, cancellation, material modification, reduction in amount or adverse
change in coverage thereof shall be effective until at least thirty (30) days
after receipt by Administrative Agent of written notice thereof, (iv) all
insurance policies to insure the interests of Administrative Agent on behalf of
Secured Parties regardless of any breach of or violation by such Loan Party of
any warranties, declarations or conditions contained therein and (v) all
insurance policies to provide that Administrative Agent and Lenders shall have
no obligation or liability for premiums, commissions, assessments or calls in
connection with such insurance. Administrative Agent shall be under no
obligation to verify the adequacy or existence of any insurance coverage. Each
Loan Party shall furnish Administrative Agent copies of, or acceptable
certificates with respect to, all such policies prior to the date hereof, and
shall provide to Administrative Agent, at least thirty (30) days prior to each
policy expiration date, evidence of the insurance being maintained by such Loan
Party in compliance with this Section 8.7(c). Certificates for insurance
required under clause (i) above shall be in ACORD Form 25S (attached to Schedule
8.7), and all certificates shall be satisfactory in form and substance to
Administrative Agent.
(d) If any of the Collateral is partially or totally damaged or
destroyed, Borrower Representative shall give prompt notice to Administrative
Agent, and all insurance proceeds, less the costs of collection thereof, shall
be paid to or retained by Administrative Agent. Settlements, adjustments or
compromises of any claims for loss, damage or destruction to the Collateral
shall be made jointly by Borrower Representative and Administrative Agent as
long as no Event of Default has occurred and is continuing, and otherwise shall
be made solely by Administrative Agent. Each Loan Party hereby authorizes and
directs any affected insurance company to pay such proceeds directly to
Administrative Agent, and to rely on Administrative Agent's statement as to
whether an Event of Default has occurred. Loan Parties shall pay all costs of
collection of insurance proceeds payable on account of such damage or
destruction. If no Event of Default has occurred and is continuing on the date
any Network is partially or totally damaged or destroyed, Administrative Agent
shall make available to Borrower Representative the proceeds of any physical
damage insurance actually paid to Administrative Agent in respect of such damage
or destruction of any of the Collateral (after deducting therefrom any sums
retained by Administrative Agent in reimbursement for costs of collection) to
pay the cost of restoration, and Borrower Representative shall proceed promptly
with the work of restoration of the Collateral and shall pursue the work of
restoration diligently to completion. If any Event of Default has occurred and
is continuing either on the date of such damage or destruction or on the date
such insurance proceeds are paid, or if any Event of Default shall occur prior
to completion of such work of restoration, then Administrative Agent, at its
option, may apply such insurance proceeds
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in payment of any of the Obligations, in such order as set forth in Section
2.10(c). Any insurance proceeds remaining after completion of work or
restoration shall, at Administrative Agent's election, be applied in accordance
with Section 2.10(c), or paid over to Borrower Representative. Upon completion
of any restoration, Borrower Representative shall deliver to Administrative
Agent a certificate stating that the restoration has been duly completed and
accounting for the use of any insurance proceeds in such restoration.
8.8 Payment of Taxes, Charges, Claims and Current Liabilities. Each Loan
Party shall pay or discharge:
(a) on or prior to the date on which penalties thereto accrue, all
taxes, assessments and other government charges or levies imposed upon it or any
of its properties or income (including such as may arise under Section 4062,
Section 4063 or Section 4064 of ERISA, or any similar provision of law);
(b) on or prior to the date when due, all lawful claims of
materialmen, mechanics, carriers, warehousemen and other like persons which
result in creation of a Lien upon any such property;
(c) on or prior to the date when due, all other lawful claims which,
if unpaid, might result in the creation of a Lien upon any such property (other
than Permitted Encumbrances) or which, if unpaid, might give rise to a claim
entitled to priority over general creditors of such Loan Party in a case under
Title 11 (Bankruptcy) of the United States Code, as amended, or in any
insolvency proceeding or dissolution or winding-up involving such Loan Party;
and
(d) all other current liabilities so that none is overdue more than
sixty (60) days.
Notwithstanding the foregoing, each Loan Party shall be entitled to
contest or appeal the requirements of any Law or Governmental Authority or the
payment of any tax, assessment, charge, levy, claim, asserted liability or any
judgment entered against such Loan Party (collectively, in this Section 8.8, the
"requirements"), as long as (i) such requirements are being contested in good
faith by appropriate proceedings diligently conducted; (ii) Borrower
Representative has given Administrative Agent written notice of such
requirements and its intent to contest them, with supporting reasons for such
contest, before the addition of any interest or penalties that may accrue on
such requirements; (iii) such Loan Party maintains adequate cash reserves and
makes other appropriate provisions as may be required by GAAP to provide for any
liability arising from such requirements; (iv) the contesting of, or failure to
comply with, such requirements does not in any way jeopardize such Loan Party's
ability or authority to operate all or any part of its business or the value or
continuing priority of the security interests of Administrative Agent on behalf
of Secured Parties in the Collateral; (v) the contesting of, or failure to
comply with, such requirements does not have a Material Adverse Effect, in the
reasonable determination of Requisite Lenders; and (vi) any foreclosure,
attachment, execution, sale or similar proceeding against such Loan Party or any
of its properties in connection with any such requirements is duly stayed by
posting of a bond or security deposit or by other action sufficient under
applicable law to stay such foreclosure, attachment, execution, sale or other
proceedings.
8.9 Financial Accounting Practices. Each Loan Party shall make and keep
books, records and accounts which, in reasonable detail, accurately and fairly
reflect its transactions and
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dispositions of its assets and maintain a system of internal accounting controls
sufficient to provide reasonable assurances that (a) transactions are executed
in accordance with management's general or specific authorization, (b)
transactions are recorded as necessary (i) to permit preparation of financial
statements in conformity with GAAP and (ii) to maintain accountability for
assets, (c) access to assets is permitted only in accordance with management's
general or specific authorization and (d) the recorded accountability for assets
is compared with the existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
8.10 Compliance with Laws. Each Loan Party shall comply in all respects
with all Laws applicable to such Loan Party, including all Environmental Laws;
provided, however, that such Loan Party shall not be deemed to be in violation
of this Section 8.10 as a result of any failure to comply which would not result
in any liability or exposure to Administrative Agent or Lenders or any fines,
penalties, injunctive relief or other civil or criminal liabilities which, in
the aggregate, could reasonably be expected to have a Material Adverse Effect.
8.11 Use of Proceeds. Each Loan Party shall use the proceeds of Advances
hereunder only as set forth in Section 2.19.
8.12 Government Authorizations; Regulatory Authorizations, Etc. Each Loan
Party shall at all times obtain and maintain in force all Regulatory
Authorizations and all other authorizations, permits, consents, approvals,
licenses, exemptions and other actions by, and all registrations,
qualifications, designations, declarations and other filings with, any
Governmental Authority necessary in connection with execution and delivery of
this Agreement, the Notes or any other Loan Document, consummation of the
transactions herein or therein contemplated, performance of or compliance with
the terms and conditions hereof or thereof or to ensure the legality, validity
and enforceability hereof or thereof.
8.13 Contracts and Franchises. Each Loan Party shall comply with all
agreements or instruments to which it is a party or by which it or any of its
properties (now owned or hereafter acquired) may be subject or bound and shall
maintain any and all franchises it may have or hereafter acquire; provided,
however, that such Loan Party shall not be deemed to be in violation of this
Section 8.13 as a result of any failure to comply with any agreement if such
failure would not have a Material Adverse Effect on Loan Parties taken as a
whole.
8.14 Site Leases and Consents. Each Loan Party shall maintain in force
and renew as necessary all Site Leases and shall obtain such Landlord Consents
as Administrative Agent or Requisite Lenders shall reasonably request to protect
its and their Liens and access to the Collateral. All Site Leases entered into
after the date hereof shall have a term (including automatic renewals and such
Loan Party's unilateral renewal rights) equal to or greater than the term of
this Agreement and shall require that Administrative Agent be given notice of
default and the right to elect to cure defaults and/or assume such agreement
upon such Loan Party's default thereunder or an Event of Default under this
Agreement.
8.15 Financial Covenants. Loan Parties shall comply with the financial
covenants set forth on Schedule 8.15.
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8.16 Patent, Trademark and Copyright Collateral.
(i) Borrower Representative shall notify Administrative Agent
immediately if it knows or has reason to know that any application or
registration relating to any patent, trademark or copyright (now or hereafter
existing) may become abandoned or of any adverse determination or development
(including the institution of, or any such determination or development in, any
proceeding in the United States Patent and Trademark Office, the United States
Copyright Office or any court) regarding any Loan Party's ownership of any
patent, trademark or copyright, its right to register the same, or to keep and
maintain the same.
(ii) In no event shall any Loan Party, either itself or through
any agent, employee, licensee or designee, file an application for the
registration of any patent, trademark or copyright with the United States Patent
and Trademark Office, the United States Copyright Office or any similar office
or agency without giving Administrative Agent prior written notice thereof and,
upon request of Administrative Agent, such Loan Party shall execute and deliver
any and all Patent Security Agreements, Copyright Security Agreements or
Trademark Security Agreements as Administrative Agent may request to evidence
the Lien of Administrative Agent on behalf of Secured Parties on such patent,
trademark or copyright, and the General Intangibles of such Loan Party relating
thereto or represented thereby.
(iii) Each Loan Party shall take all actions necessary or
requested by Administrative Agent to maintain and pursue each application, to
obtain the relevant registration and to maintain the registration of each of the
patents, trademarks and copyrights (now or hereafter existing), including the
filing of applications for renewal, affidavits of use, affidavits of
noncontestability and opposition and interference and cancellation proceedings,
unless the applicable Loan Party shall determine that such patent, trademark or
copyright is not material to the conduct of its business.
(iv) In the event that any of the patent, trademark or copyright
Collateral is infringed upon, or misappropriated or diluted by a third party,
Borrower Representative shall notify Administrative Agent promptly after any
Loan Party learns thereof. Each Loan Party shall, unless such Loan Party shall
reasonably determine that such patent, trademark or copyright Collateral is in
no way material to the conduct of its business or operations, promptly sue for
infringement, misappropriation or dilution and to recover any and all damages
for such infringement, misappropriation or dilution, and shall take such other
actions as Administrative Agent shall deem appropriate under the circumstances
to protect such patent, trademark or copyright Collateral.
8.17 Sites. For all Sites acquired after the date hereof by any Loan
Party at any time (except for leases of retail sales offices with terms shorter
than three years), such Loan Party shall provide to Administrative Agent, all at
such Loan Party's expense and all in form and substance reasonably satisfactory
to Administrative Agent, within twenty (20) days of such Loan Party's
acquisition thereof and before placing any Collateral thereon:
(a) Site Leases. Copies of duly executed counterparts of the Site
Lease; and
(b) Consent. Duly executed Landlord Consent executed by the owner of
such real property.
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8.18 Certain Notices. Borrower Representative shall promptly provide
Administrative Agent and Lenders with written notice and verification in form
and substance satisfactory to Requisite Lenders of each occasion that (i) a
switch is installed and (ii) a switch becomes operational in one of the Markets.
8.19 Management Team. Each Loan Party shall engage and continue to retain
a professional and experienced management staff.
8.20 Enforcement of Contracts. Each Loan Party shall exercise promptly
and diligently its material rights under each Contract, General Intangible
and/or Account (other than any right of termination). Borrower Representative
shall deliver to Administrative Agent copies of all material demands or notices
received by any Loan Party relating in any way to any Contract, General
Intangible and/or Account.
8.21 Legal Fee Reserve. Loan Parties shall maintain a legal fee reserve
adequate to cover current period unpaid litigation expense for all pending
litigation in form, amount and substance satisfactory to Administrative Agent
and Requisite Lenders and, upon request of Administrative Agent or Requisite
Lenders, will provide Administrative Agent and Lenders with a quarterly analysis
evidencing its compliance with this requirement.
8.22 Subordinated Loans. Any and all Indebtedness, loans or advances to
any Loan Party by any other Loan Party shall upon request of Administrative
Agent or Requisite Lenders be subordinated to any and all Obligations of such
Loan Party to Administrative Agent and Lenders upon terms and provisions
reasonably satisfactory to Administrative Agent and Requisite Lender, and each
such other Loan Party shall deliver to Administrative Agent and Lenders a signed
subordination agreement on terms satisfactory to Administrative Agent and
Requisite Lenders.
8.23 Liens on After-Acquired Property. With respect to any assets
acquired after the date hereof of the type defined as Collateral in this
Agreement of each Loan Party or any Subsidiary of Holdings as to which
Administrative Agent on behalf of Secured Parties does not have a perfected
first-priority Lien, such Loan Party shall promptly grant or cause to be
granted, or confirm or evidence the grant herein of, to Administrative Agent on
behalf of Secured Parties a Lien, upon the terms contained herein, on all such
property and interests, free of all other Liens except those permitted under
Section 9.2. Such Loan Party at its own expense, shall (i) prepare, execute,
acknowledge and deliver, or cause the preparation, execution, acknowledgment and
delivery of, and thereafter register, file or record, or cause to be registered,
filed or recorded, in an appropriate governmental office, any document or
instrument deemed by Administrative Agent to be necessary or desirable for the
creation, perfection, renewal and continuation of the foregoing Liens, (ii) pay,
or cause to be paid, all taxes, fees and legal expenses related to such
registration, filing or recording and (iii) deliver to Administrative Agent
resolutions of Board of Directors and opinions of counsel, in form and substance
as may be reasonably acceptable to Administrative agent.
8.24 Year 2000 Compliance. Each Loan Party shall take all actions
necessary and commit adequate resources to assure that computer-based and other
systems of Holdings and its Subsidiaries are able to process dates effectively,
including dates before, on and after January 1, 2000, without experiencing any
disruption or errors that could reasonably be expected to cause a Material
Adverse Effect. At the request of Administrative Agent or Requisite Lenders,
Loan Parties will provide Administrative Agent and Lenders with assurances and
substantiations
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(including but not limited to the results of internal and external audit reports
prepared in the ordinary course of business) reasonably acceptable to
Administrative Agent and Requisite Lenders that Holdings and its Subsidiaries
are taking all reasonable actions to assure the future conduct of its and their
businesses and operations before, on and after January 1, 2000 without
experiencing a disruption or errors that could reasonably be expected to cause a
Material Adverse Effect.
8.25 Post-Closing Items. Each Loan Party shall comply with the
post-closing items set forth on Schedule 7.1 in the time permitted, if any is
indicated, and shall promptly provide Administrative Agent and Requisite Lenders
with evidence thereof in form and substance as may be reasonably acceptable to
Administrative Agent and Requisite Lenders.
8.26 Further Assurances. Each Loan Party executing this Agreement agrees
that it shall and shall cause each other Loan Party to, at such Loan Party's
expense and upon request of Administrative Agent or Requisite Lenders, duly
execute and deliver, or cause to be duly executed and delivered, to
Administrative Agent and Lenders such further instruments and do and cause to be
done such further acts as may be necessary or proper in the reasonable opinion
of Administrative Agent or Requisite Lenders to carry out more effectively the
provisions and purposes of this Agreement or any other Loan Document.
ARTICLE 9: NEGATIVE COVENANTS
Each Loan Party hereby jointly and severally agrees as to all Loan
Parties that, until the Termination Date, no Loan Party shall, without prior
written consent of Requisite Lenders, do or permit to exist any of the
following:
9.1 Indebtedness. Create, incur, assume or suffer to exist at any one
time any Indebtedness, except for Permitted Debt, or purchase, redeem, prepay,
defease or otherwise acquire for value or make any payment on account or in
respect of any principal amount of Permitted Subordinated Debt.
9.2 Restrictions on Liens and Sale of Collateral. Create or suffer to
exist any Lien on the Collateral or on any other property of any Loan Party, or
any part thereof, whether superior or subordinate to the Lien of the Loan
Documents, or assign, convey, sell or otherwise dispose of or encumber its
interest in the Collateral, or any part thereof (including execution of any
lease), or permit any such action to be taken, except for the following
permitted dispositions and encumbrances (the "Permitted Encumbrances"): (i)
Liens and encumbrances in favor of Administrative Agent on behalf of Secured
Parties; (ii) government Liens, including Liens for Taxes not yet due, or which
are being contested in good faith and by appropriate proceedings in accordance
with Section 8.8; (iii) Carriers', warehousemen's, mechanics', materialmen's,
repairmen's or other like Liens arising in the ordinary course of business which
are not overdue for a period of not more than thirty (30) days or which are
being contested in good faith and by appropriate proceedings in accordance with
Section 8.8; (iv) pledges or liens in connection with workers' compensation,
unemployment insurance and other social security legislation; (v) deposits to
secure the performance of bids, trade contracts (other than for borrowed money),
leases, statutory obligations, surety bonds, performance bonds and other
obligations of a like nature incurred in the ordinary course of business; (vi)
easements, rights-of-way, restrictions and other similar encumbrances that are
not substantial in amount, and which do not in any case materially detract from
the value of the property subject thereto or interfere with the ordinary conduct
of the business of such Loan Party; (vii) judgments and judgment liens with
respect to
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which execution has been stayed within ten (10) days by appropriate judicial
proceedings and the posting of adequate security which may not be any of the
Collateral; (viii) specific liens, if any, identified on Schedule 9.2; (ix)
sales and other dispositions of equipment and inventory in the ordinary course
of business for fair value, not exceeding $200,000 per year in the aggregate;
(x) Liens to secure purchase money indebtedness and Capital Leases permitted by
clause (ii) of the definition of Permitted Debt which is secured by only the
property acquired; (xi) cash collateralization of the Letters of Credit
specified on Schedule 9.1; and (xii) certain other Liens as may be permitted
with Requisite Lenders' prior written consent. Any of the foregoing Liens shall
remain "Permitted Encumbrances" as long as they are being contested by such Loan
Party in compliance with Section 8.8. In addition, no Loan Party shall become a
party to any agreement, note, indenture or instrument, or take any other action,
which would prohibit the creation of a Lien on any of its properties or other
assets in favor of Administrative Agent on behalf of Secured Parties, as
additional collateral for the Obligations, except operating leases, Capital
Leases or Licenses which prohibit Liens upon the assets that are subject
thereto.
9.3 Limitation on Contingent Obligations. Agree to, or assume, guarantee,
endorse or otherwise in any way be or become responsible or liable for, directly
or indirectly, any Contingent Obligation except for those created or
contemplated by the Loan Documents or with respect to the obligations of another
Loan Party in the ordinary course of business.
9.4 Prohibition of Mergers, Acquisitions, Name, Office or Business
Changes, Etc.
(a) Enter into, or become the subject of, any transaction of merger,
acquisition or consolidation, except for Permitted Acquisitions, or liquidate,
wind up or dissolve itself (or suffer any liquidation or dissolution), or
convey, sell, lease, transfer or otherwise dispose of, in one transaction or a
series of transactions, all or any substantial part of such Loan Party's
business or assets, whether now owned or hereafter acquired, without Requisite
Lenders' prior written consent.
(b) Change its name, chief executive office, principal place of
business, corporate structure or the location of any Collateral without giving
Administrative Agent and Lenders at least thirty (30) days' advance written
notice of such change, and ensuring that any steps that Administrative Agent or
Requisite Lenders may deem necessary to continue the perfection and priority of
security interests of Administrative Agent on behalf of Secured Parties in the
Collateral shall have been taken.
(c) Change the Fiscal Year end of such Loan Party from December 31,
except with the prior written consent of Requisite Lenders, which consent shall
not be unreasonably withheld.
(d) Amend, restate or otherwise modify, or violate any terms of, its
Organizational Documents in any material respect without the prior written
consent of Requisite Lenders, which consent will not be unreasonably withheld.
(e) Become or agree to become a general or limited partner in any
general or limited partnership, or a member in a limited liability company or a
joint venturer in any joint venture other than a wholly-owned Subsidiary.
(f) Acquire or purchase substantially all of the stock or ownership
interests in, or substantially all of the business, assets, customers or
operations of, any other entity for
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more than $200,000 in one transaction or a series of related transactions,
except for Permitted Acquisitions.
(g) Enter into any new business or make any material change in any of
such Loan Party's business objectives, purposes and operations from those
contemplated in the Business Plan without the prior written consent of Requisite
Lenders.
(h) Establish or seek to establish any Network outside of the Markets.
9.5 Limitation on Equity Payments. In the case of Holdings, make any
Equity Payment and, in the case of any other Loan Party, make any Equity Payment
to a Person other than Holdings, except with respect to Disqualified Stock
issued as consideration for a Permitted Acquisition.
9.6 Prohibition on Sale or Issuance of Stock. Issue any stock, stock
option, warrant, or any other securities other than non-convertible debt
securities, or the right to receive any such security ("equity securities") of
each Loan Party; provided, however, however, that Holdings may issue (i) equity
securities so long as the issuance of such equity securities does not directly
or indirectly cause a Change of Control and (ii) Disqualified Stock as
consideration for a Permitted Acquisition.
9.7 Limitation on Investments, Advances and Loans. Organize, create,
acquire, capitalize or own any Subsidiary having assets of $100,000 or more
except in compliance with Section 9.13 or make or commit to make any advance,
loan, guarantee of any Indebtedness, extension of credit or capital contribution
to, or hold or invest in or purchase or otherwise acquire any stock, bonds,
notes, debentures or other securities of, or make any other investment in, any
Person, including any officer of a Loan Party, any Affiliate of a Loan Party or
any officer of any Affiliate of a Loan Party, except for Permitted Acquisitions,
loans to another Loan Party, travel advances in the ordinary course of business,
relocation loans to employees but not in excess of $250,000 in the aggregate
outstanding at any one time, other loans to any employees of any Loan Party but
in any case in an amount (including principal and interest outstanding) not to
exceed $250,000 in the aggregate at any given time, and Cash.
9.8 Capital Expenditures. Until substantially all the Switches
contemplated by the Business Plan are operating, directly or indirectly make or
commit to make any expenditure in respect of the purchase or other acquisition
(including installment purchases or Capital Leases) of fixed or capital assets,
except for expenditures in accordance with the Business Plan and normal
replacements and maintenance (including capacity expansions and enhancements for
existing Sites) which are properly charged to current operations or expenditures
of Excess Cash Flow not required to prepay the Loans pursuant to Section
2.10(b); provided, however, that Loan Parties may make Capital Expenditures in
addition to those permitted by Section 8.15 (i) in the Fiscal Year ended
December 31, 1999 of up to $25,000,000 and (ii) in the Fiscal Year ended
December 31, 2000 of up to $50,000,000; provided, further, that any Capital
Expenditures made pursuant to the foregoing proviso shall be (i) from the amount
collected in the applicable Fiscal Year on previously disputed amounts payable
to any Loan Party with respect to reciprocal compensation related to internet
service providers and related facility charges and (ii) for the acquisition of
additional fixed or capital assets related to expansion of Loan Parties'
telecommunications business to include additional Sites that are within the
Markets, additional back office equipment related to services, products and
capabilities and/or additional
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telecommunications equipment related to additional services, products and
capabilities within the Markets.
9.9 Limitation on Leases. Enter into any agreement, or be or become
liable under any agreement, not in existence as of the date hereof and reflected
on such Loan Party's financial statements, for the lease, hire or use of any
real or personal property in excess of $100,000 in the aggregate, including
capital or operating leases, except that such Loan Party may, in the ordinary
course of business and on terms standard in the industry, enter into leases or
agreements for office space, vehicles or office equipment and for the location
or storage of Collateral.
9.10 Transactions with Affiliates. Except as described in Schedule 5.41,
enter into any transactions, including any loans or advances, any repayment of
loans or advances, or the purchase, sale or exchange of property or the
rendering of any services, with any Affiliate, or enter into, assume or suffer
to exist any employment or consulting contract with any Affiliate, or otherwise
pay any fees or expenses to, or reimburse or assure any obligation for the
reimbursement of any expenses incurred by, any Affiliate.
9.11 Extension of Accounts. Without Requisite Lenders' prior written
consent, with respect to any material Accounts, General Intangibles or
Contracts, (i) grant any material extension of the time of payment, (ii)
compromise, compound or settle for a material amount less than the full amount
thereof, (iii) release any person liable for the payment thereof, or (iv) allow
any credit or discount whatsoever thereon, other than trade discounts granted in
the normal course of business or discounts, compromises, compounds or
settlements that will not have a Material Adverse Effect.
9.12 Assumed Names. Transact or engage in business under any assumed
name, fictitious name, trade style or "d/b/a" except those identified on
Schedule 5.39.
9.13 Subsidiaries.
Permit or cause any Loan Party to create, organize or acquire a
Subsidiary owning, or any Subsidiary of Holdings that is not already a Borrower
to own, assets of more than $100,000 unless such Subsidiary delivers to
Administrative Agent and Lenders an Additional Borrower Assumption (an
"Additional Borrower Assumption"), substantially in the form of Exhibit I,
pursuant to which such Subsidiary becomes a Borrower, and satisfies the
conditions set forth therein, to the reasonable satisfaction of Requisite
Lenders.
ARTICLE 10: EVENTS OF DEFAULT AND REMEDIES
10.1 Events of Default. An Event of Default shall mean the occurrence or
existence of one or more of the following events or conditions (whatever the
reason for such Event of Default and whether voluntary, involuntary or effected
by operation of Law):
(a) Payment Default. Any Borrower (i) fails to make any payment of
principal of, or interest on, or Fees owing in respect of, the Loans or any of
the other Obligations within two (2) Business Days after such amount becomes due
and payable or (ii) fails to pay or reimburse Administrative Agent or Lenders
for any expense reimbursable hereunder or under any other Loan Document within
ten (10) Business Days following demand for such reimbursement or payment of
expenses.
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(b) False Statement. If any statement, representation or warranty made
or deemed made by any Loan Party in any Loan Document or made in any financial
statement, certificate, report, exhibit or document furnished to Administrative
Agent or any Lender pursuant to any Loan Document, proves to have been untrue,
incomplete, false or misleading in any material respect as of the time when made
or deemed made (including by omission of material information necessary to make
such representation, warranty or statement not misleading).
(c) Immediate Default. Any Loan Party shall fail or neglect to
perform, keep or observe any of the provisions of Sections 8.2, 8.7, 8.11, 8.15,
8.24 and Article 9.
(d) Covenant Defaults. If any Loan Party fails or neglects to perform,
keep or observe any provision of this Agreement, and such default continues for
a period of twenty (20) calendar days after the earlier of such Loan Party's
knowledge thereof or receipt of written notice from Lender thereof, except for
violations of Section 8.8(d), which shall become an Event of Default at the end
of the sixty (60) day period stated therein and except for specific Defaults
listed elsewhere in this Section 10.1, as to which no notice or cure period
shall apply unless specified.
(e) Undischarged Judgments. If one or more judgments for the payment
of money have been entered against Borrower in an amount in excess of $200,000
in the aggregate and such judgment or judgments have remained undischarged and
unstayed for a period of thirty (30) calendar days or, if stayed, all of the
conditions in Section 8.8 have not been satisfied.
(f) Attachments, Etc. If a writ or warrant of attachment, garnishment,
execution, distraint or similar process has been issued against any Loan Party
or any of its properties in an amount in excess of $200,000, which has remained
undischarged and unstayed for a period of thirty (30) consecutive days or, if
stayed, all of the conditions in Section 8.8 have not been satisfied.
(g) Default Under Third Party Agreements. A default or breach occurs
under any other agreement, document or instrument to which any Loan Party is a
party which is not cured within any applicable grace period, and such default or
breach (i) involves the failure to make any payment $200,000 in the aggregate,
or (ii) causes, or permits any holder of such Indebtedness or a trustee to
cause, Indebtedness or a portion thereof in excess of $200,000 in the aggregate
to become due prior to its stated maturity or prior to its regularly scheduled
dates of payment, regardless of whether such default is waived, or such right is
exercised, by such holder or trustee.
(h) Dissolution; Discontinuance of Business, Etc. If any Loan Party
discontinues its usual business, dissolves, has its charter revoked, winds up or
liquidates itself or its business.
(i) Involuntary Bankruptcy or Receivership Proceedings. A case or
proceeding commences against any Loan Party seeking a decree or order in respect
of any Loan Party (i) under Title 11 of the United States Code, as now
constituted or hereafter amended or any other applicable federal, state or
foreign bankruptcy or other similar law, (ii) appointing a custodian, receiver,
liquidator, assignee, trustee or sequestrator (or similar official) for any Loan
Party or of any substantial part of any such Person's assets, or (iii) ordering
the winding-up or liquidation of the affairs of any Loan Party, and such case or
proceeding shall remain undismissed or unstayed
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for sixty (60) days or more or such court shall enter a decree or order granting
the relief sought in such case or proceeding.
(j) Voluntary Bankruptcy. Any Loan Party (i) prepares to file or files
a petition seeking relief under Title 11 of the United States Code, as now
constituted or hereafter amended, or any other applicable federal, state or
foreign bankruptcy or other similar law, (ii) fails to contest in a timely and
appropriate manner or consents to the institution of proceedings thereunder or
to the filing of any such petition or to the appointment of or taking possession
by a custodian, receiver, liquidator, assignee, trustee or sequestrator (or
similar official) of any Loan Party or of any substantial part of any such
Person's assets, (iii) makes an assignment for the benefit of creditors, (iv)
takes any corporate action in furtherance of any of the foregoing or (v) admits
in writing its inability to, or shall be generally unable to, pay its debts as
such debts become due.
(k) Assignments for Benefit of Creditors, Etc. If any Loan Party makes
an assignment for the benefit of creditors, or admits in writing its inability
to pay its debts generally as they become due, or consents to the appointment of
a receiver, trustee or liquidator of itself or of all or any part of its
properties.
(l) Non-compliance with Governmental Requirements. If any Loan Party
fails to comply with any requirement of any Governmental Authority within twenty
(20) calendar days after notice in writing of such requirement shall have been
given to such Loan Party by such Governmental Authority or such longer period of
time permitted by such Governmental Authority and is not being contested by such
Loan Party in compliance with Section 8.8.
(m) Regulatory Authorizations. If any Regulatory Authorization in
connection with this Agreement or any other Loan Document or any such Regulatory
Authorization now or hereafter necessary or advisable to make this Agreement or
any other Loan Documents legal, valid, enforceable and admissible in evidence or
to permit each Loan Party to conduct its business is not obtained or has ceased
to be in full force and effect or has been modified or amended or has been held
to be illegal or invalid or is revoked or terminated, and is not being contested
by such Loan Party in compliance with Section 8.8, and Requisite Lenders have
reasonably determined in good faith (which determination shall be conclusive)
that such event or occurrence may have a Material Adverse Effect.
(n) Damage or Destruction. If the proceeds of any physical damage
insurance actually paid in respect of the partial or total damage or destruction
of any material amount of Equipment are insufficient to cover the cost of the
restoration thereof or if Administrative Agent determines that such damage or
destruction is so extensive that repair or restoration cannot be expected within
a time period short enough to prevent a Material Adverse Effect.
(o) Landlord Consents. If Loan Party fails to provide the Landlord
Consents required hereunder and Requisite Lenders determine in their sole
discretion that such failure results in a material impairment of Lenders'
security for the Loans.
(p) ERISA Defaults. If, with respect to any Plan, (i) there has
occurred a Reportable Event being considered by the PBGC which may reasonably
result in any material liability to the PBGC with respect to any Plan, (ii) a
Plan has been terminated, (iii) a trustee has been appointed by a United States
District Court to administer a Plan, (iv) a PBGC or any other person has
instituted proceedings to terminate a Plan or to appoint a trustee to administer
any
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such Plan, (v) any Loan Party or any Affiliate has withdrawn, completely or
partially, from any Plan, (vi) any Loan Party or any Affiliate has incurred
secondary liability for withdrawal liability payments under any Plan or (vii) a
Plan has failed to meet the minimum funding standards established under the Code
or ERISA.
(q) Defaults Under Other Loan Documents. If any default,
misrepresentation or breach should occur under any Pledge Agreement, Security
Document, Guaranty or other Loan Document and is not cured or waived within the
time permitted therein, or any such Loan Documents should cease to be in full
force and effect, or any Loan Party thereto should assert any unenforceability
of, or deny liability on, or admit inability to perform under, any such Loan
Document.
(r) Security Interest. Any material provision of any Loan Document
shall for any reason cease to be valid, binding and enforceable in accordance
with its terms (or any Loan Party shall challenge the enforceability of any Loan
Document or shall assert in writing, or engage in any action or inaction based
on any such assertion, that any provision of any of the Loan Documents has
ceased to be or otherwise is not valid, binding and enforceable in accordance
with its terms), or any security interest created under any Loan Document shall
cease to be a valid and perfected first priority security interest or Lien
(except as otherwise permitted herein or therein) in any of the Collateral
purported to be covered thereby.
(s) Change of Control, Etc. Any Change of Control or Loss of Key
Management occurs.
10.2 Remedies.
(a) If any Event of Default shall have occurred and be continuing or
if a Default shall have occurred and be continuing and Requisite Lenders shall
have determined not to make any Advances or incur any Letter of Credit
Obligations so long as that specific Default is continuing, Administrative Agent
shall (at the written request of the Requisite Lenders), without notice, suspend
the Commitments with respect to further Advances and/or the incurrence of
further Letter of Credit Obligations, whereupon any further Advances and Letter
of Credit Obligations shall be made or extended (in the sole discretion of the
Requisite Lenders) so long as such Default or Event of Default is continuing. If
any Event of Default shall have occurred and be continuing, Administrative Agent
shall (at the written request of Requisite Lenders), without notice except as
otherwise expressly provided herein, increase the rate of interest applicable to
the Loans and the Letter of Credit Fees to the Default Rate.
(b) If any Event of Default shall have occurred and be continuing,
Administrative Agent shall (at the written request of the Requisite Lenders),
upon notice to Borrower's Representative, (i) terminate the Commitments with
respect to further Advances or the incurrence of further Letter of Credit
Obligations; (ii) declare all or any portion of the Obligations, including all
or any portion of any Loan to be forthwith due and payable, and require that the
Letter of Credit Obligations be cash collateralized as provided in Annex I, all
without presentment, demand, protest or further notice of any kind, all of which
are expressly waived by Borrowers and each other Loan Party; and (iii) exercise
any rights and remedies provided to Administrative Agent on behalf of Secured
Parties under the Loan Documents and/or at law or equity, including all remedies
provided under the Code; provided, however, that upon the occurrence of an Event
of Default specified in Sections 10.1(i), (j) or (k), the Commitments shall
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be immediately terminated and all of the Obligations, including the Loans, shall
become immediately due and payable without declaration, notice or demand by any
Person.
10.3 Waivers by Loan Parties. Except as otherwise provided for in this
Agreement or by applicable law, each Loan Party waives (including for purposes
of Article 11): (a) presentment, demand and protest and notice of presentment,
dishonor, notice of intent to accelerate, notice of acceleration, protest,
default, nonpayment, maturity, release, compromise, settlement, extension or
renewal of any or all commercial paper, accounts, contract rights, documents,
instruments, chattel paper and guaranties at any time held by Administrative
Agent on behalf of Secured Parties on which any Loan Party may in any way be
liable, and hereby ratifies and confirms whatever Administrative Agent on behalf
of Secured Parties may do in this regard, (b) all rights to notice and a hearing
prior to Administrative Agent's taking possession or control of, or to
Administrative Agent's replevy, attachment or levy upon, the Collateral or any
bond or security which might be required by any court prior to allowing
Administrative Agent on behalf of Secured Parties to exercise any of its
remedies, and (c) the benefit of all valuation, appraisal, marshaling and
exemption laws. If any notification of intended disposition of any of the
Collateral is required by law, such notification shall be deemed reasonably and
properly given if given in accordance with Section 12.5 at least ten (10) days
before such disposition.
10.4 Exercise of Rights. Subject to any requirements for FCC, PUC or
other governmental approval upon the occurrence of any Event of Default, the
rights, powers and privileges provided in this Section 10.4 and all other
remedies available to Administrative Agent and Lenders under this Agreement or
by statute or by rule of law may be exercised by Administrative Agent or any
Lender at any time from time to time whether or not the Obligations shall be due
and payable, and whether or not Administrative Agent or any Lender shall have
instituted any foreclosure or other action for the enforcement of this Agreement
or any other Loan Document. No failure to exercise, nor any delay in exercising
on the part of Administrative Agent or any Lender, any right, remedy, power or
privilege hereunder or under any of the other Loan Documents shall operate as a
waiver thereof, nor shall any single or partial exercise of any right, power or
privilege hereunder or thereunder preclude any other or future exercise thereof
or the exercise of any other right, remedy, power or privilege.
10.5 Rights of Secured Party. In addition to all other rights and
remedies granted to it under this Agreement, the other Loan Documents and under
any other instrument or agreement securing, evidencing or relating to any of the
Obligations, if any Event of Default shall have occurred and be continuing,
Administrative Agent may exercise all rights and remedies of a secured party.
10.6 Additional Remedies. Remedies of Administrative Agent and Lenders
upon the occurrence and during the continuance of an Event of Default shall
include, in addition to, and not in lieu of, such remedies as are available at
law or in equity or provided for in any of the Loan Documents, the following:
(a) Foreclosure; Receivership. Administrative Agent shall be entitled
to file one or more suits at law or in equity to collect the Obligations and/or
to foreclose on the Liens on and security interests created by this Agreement or
any other Loan Document. Administrative Agent may apply or require any Loan
Party to apply for any necessary transfers, assignments, orders, consents or
licenses in connection with the operation or abandonment of any Network or any
part thereof, and shall also be entitled as a matter of right and without notice
and without requiring bond (notice and bond being hereby waived), without regard
to the solvency or insolvency of any
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Loan Party at the time of application and without regard to the value of the
Collateral at that time, to have a receiver appointed by a court of competent
jurisdiction in order to manage, protect and preserve the Collateral or any part
thereof and to continue the operation of the business of any Loan Party, and to
collect all revenues and profits thereof and apply the same to the payment of
all expenses and other charges of such receivership until the sale or other
final disposition of the Collateral. Each Loan Party hereby consents to the
appointment of such receiver.
(b) Collection of Accounts, Etc. At any time after the occurrence and
during the continuance of an Event of Default notify account debtors that the
Accounts have been assigned to Administrative Agent on behalf of Secured Parties
and that payments shall be made directly to Administrative Agent on behalf of
Secured Parties. Upon the request of Requisite Lenders at any time after the
occurrence and during the continuance of an Event of Default, Borrowers shall so
notify such account debtors. Upon the occurrence of an Event of Default,
Administrative Agent on behalf of Secured Parties shall be entitled, but not
obligated, to collect, compromise, settle and otherwise act with respect to any
Accounts, Contracts or General Intangibles, and shall be authorized to (i)
endorse checks and other instruments, (ii) communicate directly with any Loan
Party's customers or other obligors to collect payments and/or (iii) bring
actions to enforce such collection, and otherwise take any actions necessary to
collect and recover any amounts owing to such Loan Party. Any amounts so
received by Administrative Agent on behalf of Secured Parties shall be held for
the account of Borrowers and may be applied to the Obligations at Administrative
Agent's option, at the direction of Requisite Lenders, but shall not be deemed
to be payment of the Obligations until so applied. Borrower Representative
shall, at Requisite Lenders' request, deliver to Administrative Agent copies of
all original and other documents evidencing or relating to the Accounts,
Contracts or General Intangibles, including without limitation all original
orders, sublease contracts, invoices, shipping receipts, computer records and
databases.
(c) Segregation of Payments. Upon Administrative Agent's request, at
the direction of Requisite Lenders, following an Event of Default, Borrowers
shall immediately deliver to Administrative Agent on behalf of Lenders all
Proceeds received by any Loan Party, in the form received except for Borrower's
endorsement if required. Alternatively, Administrative Agent may, at the
direction of Requisite Lenders, require Borrowers, at the direction of Requisite
Lenders, to immediately deliver, or may require the delivery of, such Proceeds
to a special bank account or post office box from which only Administrative
Agent on behalf of Secured Parties can withdraw them. In either case, all such
Proceeds and any payments received by any Loan Party under or in connection with
any of the Collateral received by such Loan Party shall be held by Borrowers in
trust for Administrative Agent on behalf of Secured Parties and shall be
segregated from other funds of Borrowers. Any and all such payments so received
by Administrative Agent on behalf of Secured Parties (whether from Borrowers or
otherwise) may, in the sole discretion of Administrative Agent, be held by
Administrative Agent on behalf of Secured Parties as collateral security for,
and/or then or at any time thereafter applied in whole or in part by
Administrative Agent, against all or any part of the Obligations of Loan Parties
in such order as Administrative Agent may determine in its sole discretion. Any
balance of such payments held by Administrative Agent and remaining after
payment in full of all the Obligations shall be paid over to Borrowers or to any
Person lawfully entitled to receive the same.
(d) Right to Cure. If any Loan Party fails in any material respect to
perform or comply with any of its agreements contained herein or in any of the
other Loan Documents or any Contracts, Administrative Agent may take whatever
actions it may deem appropriate to perform
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or comply or otherwise cause performance or compliance with such agreement, all
at the risk, cost and expense of Borrowers.
(e) Set Off. If the unpaid principal amount of the Loans, interest
accrued thereon or any other amount owing by Loan Parties hereunder or under the
Loans shall have become due and payable (by acceleration or otherwise), each
Lender and each Affiliate of a Lender shall have the right, in addition to all
other rights and remedies available to it, without notice to Loan Parties, to
set off against and to appropriate and apply to such due and payable amounts any
debt owing to, and any other funds held in any manner for the account of, any of
the Loan Parties by such Lender or Affiliate. Such right shall exist whether or
not such Lender or Affiliate shall have given notice or made any demand
hereunder or under the Other Loan Documents, whether or not such debt owing to
or funds held for the account of Loan Parties is or are matured or unmatured,
and regardless of the existence or adequacy of any collateral, guaranty or any
other security, right or remedy available to Administrative Agent and Lenders.
Each Loan Party hereby consents to and confirms the foregoing arrangements and
confirms such Lender's and Affiliate's rights of set off.
10.7 Application of Proceeds. Any proceeds of any of the Collateral,
received by Administrative Agent through sale or disposition of the Collateral
or otherwise, may be applied by Administrative Agent toward the payment of the
Obligations, including expenses in connection with the Collateral (including
reasonable fees and legal expenses) in such order of application as
Administrative Agent at the direction of Requisite Lenders may from time to time
elect.
10.8 Discontinuance of Proceedings. If Administrative Agent or any Lender
should proceed to enforce any right or remedy under this Agreement or any other
Loan Document, and then discontinue or abandon such proceeding for any reason,
all rights, powers and remedies of Administrative Agent and Lenders hereunder
shall continue as if no such proceeding had been taken.
10.9 Power of Attorney. For the purpose of carrying out the provisions
and exercising the rights, powers and privileges granted by the Loan Documents,
including this Article 10, each Loan Party hereby irrevocably constitutes and
appoints Administrative Agent for the benefit of Administrative Agent and
Lenders its true and lawful attorney-in-fact to execute, acknowledge and deliver
any instruments and do and perform any acts such as are referred to in the Loan
Documents, including this Article 10, in the name and on behalf of such Loan
Party, from time to time in Administrative Agent's reasonable discretion after
the occurrence and during the continuance of an Event of Default, in accordance
with the Loan Documents and any statute or rule of law. This power of attorney
is a power coupled with an interest and cannot be revoked. Each Loan Party
hereby ratifies all that said attorney-in-fact shall lawfully do or cause to be
done by virtue and in accordance with the terms hereof.
Without limiting the generality of the foregoing, Administrative Agent
may, after the occurrence and during the continuance of an Event of Default, do
the following without notice to or assent by any Loan Party to accomplish the
purposes of this Agreement:
(a) upon failure of such Loan Party to timely pay or discharge taxes
or Liens levied or placed on or threatened against the Collateral, effect any
repairs or any insurance called for by the terms of this Agreement or any other
Loan Document, and pay all or any part of the premiums therefor and the costs
thereof;
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(b) file any application, petition or other request with the FCC, PUC
or any other Governmental Authority for the purpose of obtaining any consent or
approval from or satisfying any filing or notice requirement of any Governmental
Authority in order to effect a sale or transfer of any or all the Collateral, or
a change in control of, or to permit Administrative Agent to complete or
operate, or both, any Network; and
(c) (i) direct any party liable for any payment under any of the
Contracts or Accounts to make payment of any and all monies due and to become
due thereunder directly to Administrative Agent or as Administrative Agent shall
direct; (ii) in the name of such Loan Party or its own name or otherwise, take
possession of and endorse and collect any checks, drafts, notes, acceptances, or
other instruments for the payment of monies due under, or otherwise receive
payment of and receipt for any and all monies, claims and other amounts due and
to become due at any time in respect of or arising out of any Collateral; (iii)
sign and endorse any invoices, freight or express bills, bills of lading,
storage or warehouse receipts, drafts against debtors, assignments,
verifications and notices in connection with Accounts and other documents
relating to the Collateral; (iv) commence and prosecute any suits, actions or
proceedings at law or in equity in any court of competent jurisdiction or before
any arbitrator to collect all or any of the Collateral and to enforce any other
right in respect of any Collateral; (v) defend any suit, action or proceeding
brought against such Loan Party with respect to any Collateral; (vi) settle,
compromise or adjust any suit, action or proceeding described above upon
commercially reasonable terms under the circumstances and, in connection
therewith, give such discharges or releases as Administrative Agent may
reasonably deem appropriate; (vii) cure any default under any Contract and/or
modify and/or assume any such Contract; and (viii) generally sell, use, operate,
transfer, pledge, make any agreement with respect to or otherwise deal with any
of the Collateral as fully and completely as though Administrative Agent were
the absolute owner thereof for all purposes, and, at Administrative Agent's
option and Loan Parties' expense, at any time or from time to time after the
occurrence and during the continuance of an Event of Default, all other acts and
things that Administrative Agent reasonably deems necessary to perfect, preserve
or realize upon the Collateral and Administrative Agent's security interest
therein on behalf of Secured Parties, in order to effect the intent of this
Agreement and the other Loan Documents all as fully and effectively as such Loan
Party might do.
10.10 Regulatory Matters.
(a) Loan Parties' Cooperation; Consents. Notwithstanding any provision
to the contrary contained herein, Administrative Agent and Lenders will not
exercise any right or remedy under this Agreement that requires prior FCC or PUC
approval without first obtaining such approval. If counsel to Administrative
Agent reasonably determines that the consent of the FCC or PUC is required in
connection with any of the actions that may be taken by Administrative Agent in
the exercise of its rights hereunder or under any of the other Loan Documents,
then Loan Parties, at their sole cost and expense, agree to use their best
efforts to secure such consent and to cooperate with Administrative Agent in any
action commenced by Administrative Agent to secure such consent. Upon the
occurrence and during the continuation of an Event of Default the applicable
Borrower shall promptly execute and/or cause the execution of all applications,
certificates, instruments and other documents and papers that may be required in
order to obtain any necessary governmental consent, approval or authorization,
and if such Borrower fails or refuses to execute such documents, the clerk of
the court with jurisdiction may execute such documents on behalf of such
Borrower.
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(b) Loan Parties' Cooperation; Transfers. In connection with the
enforcement by Administrative Agent of any remedies available to it as a result
of any Event of Default and subject to the provisions of Section 10.10(a), Loan
Parties shall join and cooperate fully with Administrative Agent, and with any
receiver or trustee referred to herein and with the successful bidder or bidders
at any foreclosure sale when any of these entities file an application with the
FCC or PUC, or with any necessary federal, state and local governmental
authorities, requesting their prior approval of (i) the operation or abandonment
of all or any portion of the Collateral and (ii) the assignment or transfer to
such entity of all licenses, authorizations and permits issued to any Loan Party
by the FCC, PUC or any such other authorities with respect to Loan Parties'
business and the operation thereof. Loan Parties' cooperation shall include,
without limitation, the furnishing of any information that may be required in
connection with such applications.
(c) Conveyance of Regulatory Authorizations. Subject to any necessary
FCC or PUC approval, each Loan Party agrees to assign, transfer and convey the
Regulatory Authorizations to Administrative Agent (or its designee) upon
Administrative Agent's request following the occurrence of an Event of Default,
to the extent that any such assignment or transfer may be deemed necessary to
allow Administrative Agent to exercise its remedies hereunder or under the Loan
Documents.
(d) Specific Performance. Each Loan Party recognizes that its
Regulatory Authorizations are unique assets that may have to be transferred in
order for Administrative Agent to adequately realize the value of its security
interests. Each Loan Party further recognizes that a violation of this provision
would result in irreparable harm to Administrative Agent and Lenders for which
monetary damages are not readily ascertainable. Therefore, in addition to any
other remedy that may be available to Administrative Agent and Lenders at law or
in equity, Administrative Agent shall have the remedy of specific performance to
enforce the provisions of this section.
ARTICLE 11: JOINT AND SEVERAL OBLIGATIONS; GUARANTY
11.1 Guaranty. Each Borrower hereby agrees that such Borrower is jointly
and severally liable for, and hereby absolutely and unconditionally guarantees
to Administrative Agent and Lenders and their respective successors and assigns,
the full and prompt payment (whether at stated maturity, by acceleration or
otherwise) and performance of, all Obligations owed or hereafter owing to
Administrative Agent and Lenders by each other Borrower; provided, however, that
US LEC of Georgia Inc. shall not be liable for Obligations in excess of
$50,000,000 until all Required Consents have been obtained as required by
Section 8.25, after which the foregoing limitation shall no longer apply. In
addition, Holdings hereby absolutely and unconditionally guarantees to
Administrative Agent and Lenders and their respective successors and assigns,
the full and prompt payment (whether at stated maturity, by acceleration or
otherwise) and performance of all Obligations owed or hereafter owing to
Administrative Agent and Lenders by each Borrower. Each Loan Party agrees that
its guaranty obligation hereunder is a continuing guaranty of payment and
performance and not of collection, that its obligations under this Article 11
shall not be discharged until payment and performance, in full, of the
Obligations has occurred, and that its obligations under this Article 11 shall
be absolute and unconditional, irrespective of, and unaffected by:
(a) the genuineness, validity, regularity, enforceability or any
future amendment of, or change in, this Agreement, any other Loan Document or
any other agreement, document or instrument to which any Loan Party is or may
become a party;
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(b) the absence of any action to enforce this Agreement (including
this Article 11) or any other Loan Document or the waiver or consent by
Administrative Agent and Lenders with respect to any of the provisions thereof;
(c) the existence, value or condition of, or failure to perfect its
Lien against, any security for the Obligations or any action, or the absence of
any action, by Administrative Agent and Lenders in respect thereof (including
the release of any such security);
(d) the insolvency of any Loan Party; or
(e) any other action or circumstances which might otherwise constitute
a legal or equitable discharge or defense of a surety or guarantor.
Each Loan Party shall be regarded, and shall be in the same position, as
principal debtor with respect to the Obligations guaranteed hereunder.
11.2 Waivers by Loan Parties. Each Loan Party expressly waives all rights
it may have now or in the future under any statute, or at common law, or at law
or in equity, or otherwise, to compel Administrative Agent or Lenders to
marshall assets or to proceed in respect of the Obligations guaranteed hereunder
against any other Loan Party, any other party or against any security for the
payment and performance of the Obligations before proceeding against, or as a
condition to proceeding against, such Loan Party. It is agreed among each Loan
Party, Administrative Agent and Lenders that the foregoing waivers are of the
essence of the transaction contemplated by this Agreement and the other Loan
Documents and that, but for the provisions of this Article 11 and such waivers,
Administrative Agent and Lenders would decline to enter into this Agreement.
Without limiting the effect of the foregoing, if and to the extent that North
Carolina law is applicable, the Loan Parties hereby expressly waive the
provisions of N.C. Gen. Stat. ss.ss. 26-7 through 26-9, inclusive.
11.3 Benefit of Guaranty. Each Loan Party agrees that the provisions of
this Article 11 are for the benefit of Administrative Agent and Lenders and
their respective successors, transferees, endorsees and assigns, and nothing
herein contained shall impair, as between any Loan Party and Administrative
Agent or Lenders, the obligations any Loan Party has under the Loan Documents.
11.4 Subordination of Subrogation, Etc. Notwithstanding anything to the
contrary in this Agreement or in any other Loan Document, and except as set
forth in Section 11.7, each Loan Party hereby expressly and irrevocably
subordinates to payment of the Obligations any and all rights at law or in
equity to subrogation, reimbursement, exoneration, contribution, indemnification
or set off and any and all defenses available to a surety, guarantor or
accommodation co-obligor until the Obligations are indefeasibly paid in full in
cash. Each Loan Party acknowledges and agrees that this subordination is
intended to benefit Administrative Agent and Lenders and shall not limit or
otherwise affect such Loan Party's liability hereunder or the enforceability of
this Article 11 and that Administrative Agent, Lenders and their respective
successors and assigns are intended third-party beneficiaries of the waivers and
agreements set forth in this Section 11.4.
11.5 Election of Remedies. If Administrative Agent or any Lender may,
under applicable law, proceed to realize its benefits under any of the Loan
Documents giving Administrative Agent or such Lender a Lien upon any Collateral,
whether owned by any Loan
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Party or by any other Person, either by judicial foreclosure or by non-judicial
sale or enforcement, Administrative Agent or any Lender may, at its sole option,
determine which of its remedies or rights it may pursue without affecting any of
its rights and remedies under this Article 11. If, in the exercise of any of its
rights and remedies, Administrative Agent or any Lender shall forfeit any of its
rights or remedies, including its right to enter a deficiency judgment against
any Loan Party or any other Person, whether because of any applicable laws
pertaining to "election of remedies" or the like, each Loan Party hereby
consents to such action by Administrative Agent or such Lender and waives any
claim based upon such action, even if such action by Administrative Agent or
such Lender shall result in a full or partial loss of any rights of subrogation
which each Loan Party might otherwise have had but for such action by
Administrative Agent or such Lender. Any election of remedies which results in
the denial or impairment of the right of Administrative Agent or any Lender to
seek a deficiency judgment against any Loan Party shall not impair any other
Loan Party's obligation to pay the full amount of the Obligations. In the event
Administrative Agent or any Lender shall bid at any foreclosure or trustee's
sale or at any private sale permitted by law or the Loan Documents,
Administrative Agent or such Lender may bid all or less than the amount of the
Obligations and the amount of such bid need not be paid by Administrative Agent
or such Lender but, at the election of Administrative Agent or such Lender,
shall be credited against the Obligations. The amount of the successful bid at
any such sale, whether Administrative Agent, Lender or any other party is the
successful bidder, shall be conclusively deemed to be the fair market value of
the Collateral and the difference between such bid amount and the remaining
balance of the Obligations shall be conclusively deemed to be the amount of the
Obligations guaranteed under this Article 11, notwithstanding that any present
or future law or court decision or ruling may have the effect of reducing the
amount of any deficiency claim to which Administrative Agent or any Lender might
otherwise be entitled but for such bidding at any such sale.
11.6 Limitation. Notwithstanding any provision herein contained to the
contrary, each Borrower's liability under this Article 11 (which liability is in
any event in addition to amounts for which such Borrower is primarily liable
under Article 2) shall be limited to an amount not to exceed as of any date of
determination the greater of:
(a) the net amount of all Loans advanced to any other Borrower under
this Agreement and then re-loaned or otherwise transferred to, or for the
benefit of, such Borrower; and
(b) the amount which could be claimed by Administrative Agent and
Lenders from such Borrower under this Article 11 without rendering such claim
voidable or avoidable under Section 548 of Chapter 11 of the Bankruptcy Code or
under any applicable state Uniform Fraudulent Transfer Act, Uniform Fraudulent
Conveyance Act or similar statute or common law after taking into account, among
other things, such Borrower's right of contribution and indemnification from
each other Borrower under Section 11.7.
11.7 Contribution with Respect to Guaranty Obligations.
(a) To the extent that any Borrower shall make a payment under this
Article 11 of all or any of the Obligations (other than Loans made to that
Borrower for which it is primarily liable) (a "Guarantor Payment") which, taking
into account all other Guarantor Payments then previously or concurrently made
by any other Borrower, exceeds the amount which such Borrower would otherwise
have paid if each Borrower had paid the aggregate Obligations satisfied by such
Guarantor Payment in the same proportion that such Borrower's "Allocable
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Amount" (as defined below) (as determined immediately prior to such Guarantor
Payment) bore to the aggregate Allocable Amounts of each of Borrowers as
determined immediately prior to the making of such Guarantor Payment, then,
following indefeasible payment in full in cash of the Obligations and
termination of the Commitments, such Borrower shall be entitled to receive
contribution and indemnification payments from, and be reimbursed by, each other
Borrower for the amount of such excess, pro rata based upon their respective
Allocable Amounts in effect immediately prior to such Guarantor Payment.
(b) As of any date of determination, the "Allocable Amount" of any
Borrower shall be equal to the maximum amount of the claim which could then be
recovered from such Borrower under this Article 11 without rendering such claim
voidable or avoidable under Section 548 of Chapter 11 of the Bankruptcy Code or
under any applicable state Uniform Fraudulent Transfer Act, Uniform Fraudulent
Conveyance Act or similar statute or common law.
(c) This Section 11.7 is intended only to define the relative rights
of Borrowers and nothing set forth in this Section 11.7 is intended to or shall
impair the obligations of Borrowers, jointly and severally, to pay any amounts
as and when the same shall become due and payable in accordance with the terms
of this Agreement, including Section 11.1. Nothing contained in this Section
11.7 shall limit the liability of any Borrower to pay the Loans made directly or
indirectly to that Borrower and accrued interest, fees and expenses with respect
thereto for which such Borrower shall be primarily liable.
(d) The parties hereto acknowledge that the rights of contribution and
indemnification hereunder shall constitute assets of Borrowers to which such
contribution and indemnification are owing.
(e) The rights of the indemnifying Borrowers against other Loan
Parties under this Section 11.7 shall be exercisable upon the full and
indefeasible payment of the Obligations and the termination of the Commitments.
11.8 Liability Cumulative. The liability of Borrowers under this Article
11 is in addition to and shall be cumulative with all liabilities of each
Borrower to Administrative Agent and Lenders under this Agreement and the other
Loan Documents to which such Borrower is a party or in respect of any
Obligations or obligation of the other Borrowers without any limitation as to
amount, unless the instrument or agreement evidencing or creating such other
liability specifically provides to the contrary.
ARTICLE 12: GENERAL CONDITIONS/MISCELLANEOUS
The following conditions shall be applicable throughout the term of this
Agreement:
12.1 Amendments, Modifications and Waivers.
(a) No amendment, modification or waiver of any provision of this
Agreement nor consent to any departure by any Loan Party therefrom shall in any
event be effective unless the same shall be in writing and signed by the
Requisite Lenders, and then any such waiver or consent shall be effective only
in the specific instance and for the specific purpose for which given; provided,
however, that no amendment, modification, waiver or consent shall, unless in
writing and signed by each Lender affected thereby, do any of the following: (i)
waive any of the conditions specified in Article 6, except as otherwise provided
therein; (ii) increase the
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Commitments or subject any Lender to any additional obligations; (iii) reduce
the principal of, or interest on, the Loans or any fees or other amounts payable
hereunder; (iv) amend any of the provisions in Article 2; (v) release any
material amount of Collateral except as shall otherwise be provided herein; (vi)
release any Guarantor having a material amount of assets; (vii) amend the
definition of Requisite Lenders; or (viii) amend this Section 12; and provided,
further, that no amendment, modification, waiver or consent shall, unless in
writing and signed by Administrative Agent in addition to Lenders required above
to take such action, affect the rights or duties of Administrative Agent under
this Agreement or the other Loan Documents. No failure on the part of any Lender
or Administrative Agent to exercise, and no delay in exercising, any right
hereunder or under any Loan Document shall operate as a waiver thereof; nor
shall any single or partial exercise of any such right preclude any other or
further exercise thereof or the exercise of any other right.
(b) Administrative Agent, Lenders and Loan Parties recognize that
certain financial covenants set forth in Section 8.15 may need to be adjusted to
permit Loan Parties to remain in compliance therewith upon the issuance of the
full amount of Permitted Subordinated Debt and, accordingly, upon receipt of
notice from Holdings of any proposed issuance of Permitted Subordinated Debt,
agree to negotiate in good faith to adjust the financial covenants set forth in
Section 8.15 to reflect such issuance.
12.2 Advances Not Implied Waivers. No waiver of the requirements
contained in any Loan Document shall be effective unless in writing duly signed
by the required number of Lenders provided for herein. No Advance hereunder
shall constitute a waiver of any of the conditions of Lenders' obligation to
make further Advances. Any Advance made by any Lender and any sums expended by
any Lender pursuant to the Loan Documents shall be deemed to have been made
pursuant to this Agreement, notwithstanding the existence of an uncured Default
or Event of Default. No Advance at a time when an Event of Default exists shall
constitute a waiver of any right or remedy by Administrative Agent or any Lender
existing by reason of such Event of Default, including the right to accelerate
the maturity of the Indebtedness evidenced by the Loan Documents or to foreclose
the Lien on the Collateral or to refuse to make further advances hereunder.
12.3 Business Day. Except as otherwise provided herein, whenever any
payment or action to be made or taken hereunder or under any other Loan Document
shall be stated to be due on a day which is not a Business Day, such payment or
action shall be made or taken on the next Business Day and such extension of
time shall be included in computing interest or fees, if any, in connection with
such payment or action.
12.4 Records. From time to time Administrative Agent may send Borrower
Representative statements of the unpaid principal amount of the Loans, the
unpaid interest accrued thereon, the interest rate or rates applicable to such
unpaid principal amount, the duration of such applicability, and the amount
remaining available on any Commitment, and each statement shall be deemed
correct and conclusively binding on Borrowers (absent manifest error) unless
Borrower Representative notifies Administrative Agent of an error in the
statement in writing within thirty (30) days of the date on which any such
statement is provided to Borrower Representative.
12.5 Notices. All notices, requests, demands, directions and other
communications (collectively, "notices") required under the provisions of this
Agreement or any other Loan Document shall be in writing (including
communication by facsimile transmission) unless
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otherwise expressly permitted hereunder and shall be sent by hand, by registered
or certified mail (return receipt requested), by overnight courier service
(maintaining records of receipt) or by facsimile transmission with confirmation
of receipt, in all cases with charges prepaid, and any such properly given
notice shall be effective upon the earliest of (i) receipt, (ii) when delivered
by hand, (iii) the third Business Day after being mailed, (iv) the following
Business Day if sent by overnight courier service or (v) upon transmission when
sent by facsimile. All notices shall be addressed as follows:
If to any Loan Party, to the Notice Address set forth on Schedule 1, with
copies, if any, as set forth on Schedule 1.
If to Administrative Agent:
General Electric Capital Corporation
10 Riverview Drive
Danbury, Connecticut 06810
Attention: TFS Portfolio Manager
Telecopy: (203) 749-4531
With a copy to: General Electric Capital Corporation
501 Corporate Center Drive
Suite 600
Franklin, Tennessee 37067
Attention: Corporate Counsel
Telecopy: (615) 771-6187
If to any Lender, to the Notice Address set forth on Annex II or in the
Assignment Agreement by which it became a Lender.
All notices shall be sent to the applicable party at the address stated
above or in accordance with the last unrevoked written direction from such party
to the other party hereto, given in accordance with the terms hereof. The giving
of any notice required hereunder may be waived in writing by the party entitled
to receive such notice.
12.6 FCC and PUC Approval. The exercise of any rights or remedies
hereunder or under any other Loan Document by Administrative Agent or any Lender
that may require FCC or PUC approval shall be subject to obtaining such
approval. Pending the receipt of any PUC or FCC approval, no Loan Party shall
delay, hinder, interfere with or obstruct the exercise of Administrative Agent's
or Lenders' rights or remedies hereunder or the obtaining of such approvals.
12.7 Lenders Sole Beneficiary. All conditions of the obligation of Lenders
to make any Advances hereunder are imposed solely and exclusively for the
benefit of Lenders and their respective assigns; no other Person shall have
standing to require satisfaction of such conditions in accordance with their
terms or be entitled to assume that any Lender will refuse to make any Advances
in the absence of strict compliance with any or all such conditions; and no
other Person shall under any circumstances be deemed to be a beneficiary of such
conditions, any or all of which may be freely waived in whole or in part by
Lenders at any time if, in their sole discretion, Lenders deem it advisable to
do so. Each Lender's sole obligation hereunder is to make the Advances if and to
the extent required by this Agreement or any other Loan Document.
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12.8 Lender's Review of Information. Each Loan Party acknowledges and
agrees that any review or analysis by Administrative Agent or any Lender of
financial information, operating information, marketing data or other
information provided to Administrative Agent or such Lender by or on behalf of
such Loan Party at any time is and shall be conducted solely for Administrative
Agent's and such Lender's benefit and internal use and that neither
Administrative Agent nor any Lender is under any duty or obligation to make the
results of such review or analysis available to any Loan Party. No Loan Party is
relying, and will not rely, on Administrative Agent or any Lender for financial
or business advice.
12.9 No Joint Venture. Nothing in this Agreement or any other Loan
Document shall be deemed to constitute any kind of partnership, joint venture or
fiduciary relationship between Administrative Agent, any Lender or any Loan
Party.
12.10 Severability. The provisions of this Agreement are intended to be
severable. Wherever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement or any other Loan Document shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Agreement.
12.11 Rights Cumulative. All rights, powers and remedies herein given to
Administrative Agent and Lenders are cumulative and not alternative and are in
addition to all statutes or rules of law.
12.12 Duration; Survival. All representations and warranties of any Loan
Party contained herein or made in connection herewith shall survive the making
of and shall not be waived by the execution and delivery of this Agreement and
the other Loan Documents, any investigation by Administrative Agent or any
Lender, or the making of any Advances hereunder. All covenants and agreements of
any Loan Party contained herein shall continue in full force and effect from and
after the date hereof so long as it may borrow hereunder and until payment in
full of the Loans, interest thereon, all fees and all other Obligations of
Borrowers. Without limitation, it is understood that all obligations of Loan
Parties to make payments to or indemnify Lenders shall survive the payment in
full of the Loans and of all other Obligations.
12.13 Governing Law. This Agreement, the Notes and each of the other Loan
Documents shall be governed by and construed and enforced in accordance with the
law of the State of New York, except to the extent that the law of jurisdictions
where the Collateral is located may be required to apply to the Collateral.
12.14 Counterparts. This Agreement may be executed in any number of
counterparts (by facsimile transmission or otherwise) and by the different
parties hereto on separate counterparts, each of which, when so executed, shall
be deemed an original, but all such counterparts shall constitute one and the
same instrument.
12.15 Successors and Assigns. This Agreement and the other Loan Documents
shall be binding on and shall inure to the benefit of each Loan Party,
Administrative Agent, Lenders and their respective successors and assigns
(including, in the case of any Loan Party, a debtor-in-possession on behalf of
such Loan Party), except as otherwise provided herein or therein. No Loan Party
may assign, transfer, hypothecate or otherwise convey its rights, benefits,
obligations or duties hereunder or under any of the other Loan Documents without
the prior express written
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consent of Administrative Agent and Lenders. Any such purported assignment,
transfer, hypothecation or other conveyance by any Loan Party without the prior
express written consent of Administrative Agent and Lenders shall be void. The
terms and provisions of this Agreement are for the purpose of defining the
relative rights and obligations of each Loan Party, Administrative Agent and
Lenders with respect to the transactions contemplated hereby and no Person shall
be a third-party beneficiary of any of the terms and provisions of this
Agreement or any of the other Loan Documents.
12.16 Disclosures and Confidentiality.
(a) Each Loan Party agrees that it and each of its Affiliates will
obtain Administrative Agent's written consent before using or generating any
press release, advertisement, publicity materials or other publication in which
the name or logo of Administrative Agent or any Lender or any of their
Affiliates is used or may be reasonably inferred and will not distribute any
such materials in the absence of such prior written approval.
(b) Each Loan Party agrees that it will not, directly or indirectly,
disclose to any third party the terms of this Agreement or the other Loan
Documents or prior or future correspondence relating thereto, or the
transactions contemplated hereby, or any other information regarding
Administrative Agent, any Lender or their Affiliates learned by such Loan Party
during the course of negotiation thereof. The term "third party" shall exclude
only the Loan Parties, their Affiliates and their respective attorney(s) and
certified public accountant(s). This Section 12.16(b) shall not restrict the
disclosure of information if such disclosure is required by law, by order of any
court or by the order, rule or regulation of any administrative agency,
including any requirements of the FCC, any PUC or any state or federal
securities commissions (the "Commissions"); provided, however, that, except for
disclosures required by the FCC, PUC or Commissions, Borrower Representative
shall provide Administrative Agent with advance notice of any such required
disclosure of information so that Administrative Agent or the applicable Lender
may seek an appropriate protective order and/or waive compliance with this
Section 12.16(b). Each Loan Party shall not oppose any action taken by
Administrative Agent or any Lender to obtain an appropriate protective order or
other reliable assurance that the information will be accorded confidential
treatment. The obligations set forth in this Section 12.16(b) shall survive the
termination of this Agreement.
(c) Administrative Agent and each Lender agree to use commercially
reasonable efforts (equivalent to the efforts Administrative Agent or such
Lender applies to maintaining the confidentiality of its own confidential
information) to maintain as confidential all confidential information provided
to them by the Loan Parties and designated as confidential for a period of two
(2) years following receipt thereof, except that Administrative Agent and each
Lender may disclose such information (a) to Persons employed or engaged by
Administrative Agent or such Lender in evaluating, approving, structuring or
administering the Loans and the Commitments; (b) to any bona fide assignee or
participant or potential assignee or participant that has agreed to comply with
the covenant contained in this Section 12.16 (and any such bona fide assignee or
participant or potential assignee or participant may disclose such information
to Persons employed or engaged by them as described in clause (b) above); (c) as
required or requested by any Governmental Authority or reasonably believed by
Administrative Agent or such Lender to be compelled by any court decree,
subpoena or legal or administrative order or process; (d) as, in the opinion of
Administrative Agent's or such Lender's counsel, required by law; (e) in
connection with the exercise of any right or remedy under the Loan Documents or
in connection
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with any litigation to which Administrative Agent or such Lender is a party; or
(f) which ceases to be confidential through no fault of Administrative Agent or
such Lender.
(d) The disclosure of information by any of Administrative Agent,
Lenders or Loan Parties will not be restricted under this Agreement if such
information (i) has been or becomes published or is now, or in the future, in
the public domain through (A) no fault of the parties, (B) disclosure other than
unauthorized disclosure by the party to whom the information is disclosed or (C)
disclosure to third parties by the disclosing party without similar restriction;
(ii) is property (other than proposal letters, commitment letters or other
correspondence between Lenders and Loan Parties) within the legitimate
possession of the receiving party prior to disclosure hereunder; (iii)
subsequent to disclosure hereunder, is lawfully received from a third party
having rights therein without restriction of the third party's or receiving
party's rights to disseminate the information and without notice of any
restriction against its further disclosure; (iv) is disclosed with the written
approval of the other party; or (v) is or becomes publicly available free of any
obligation to keep it confidential.
(e) Each Loan Party authorizes Administrative Agent and each Lender
to discuss with and furnish to any Affiliate of Administrative Agent or such
Lender, any government or self-regulatory agency with jurisdiction over
Administrative Agent or such Lender, any other Governmental Authority or,
subject to such Person's agreeing to this Section 12.16, any assignee,
successor, participant, successor, or prospective assignee, successor or
participant, all financial statements, audit reports and other information
pertaining to such Loan Party and/or its Subsidiaries whether such information
was provided by such Loan Party or prepared or obtained by Administrative Agent,
Lenders or third parties. No representation or warranty is made by
Administrative Agent, Lenders or any of their employees, officers, directors or
agents to any existing or prospective assignee, successor or participant
regarding any audit reports or other analyses of any Loan Party that
Administrative Agent or any Lender may distribute, whether such information was
provided by any Loan Party or prepared or obtained by Administrative Agent,
Lenders or third parties, nor shall Administrative Agent, Lenders or any of
their employees, officers, directors or agents be liable to any Person receiving
a copy of such reports or analyses for any inaccuracy or omission contained in
such reports or analyses or relating thereto.
(f) Every reference in this Agreement to disclosures of any Loan
Party to any Lender or Administrative Agent (except the Business Plan and
financial statements), to the extent that such references refer or are intended
to refer to disclosures at or prior to the execution of this Agreement, shall be
deemed strictly to refer only to written disclosures delivered to Administrative
Agent or Lenders concurrently with the execution of this Agreement and referred
to specifically in the Loan Documents. The parties intend that such disclosures
are to be limited to those presented in an orderly manner at the time of
executing this Agreement and are not to be deemed to include expressly or
impliedly any disclosures that previously may have been delivered from time to
time to Administrative Agent or any Lender, except to the extent that such
previous disclosures are again presented to Administrative Agent or such Lender
in writing concurrently with the execution of this Agreement.
12.17 Jurisdiction and Venue. EACH LOAN PARTY HEREBY IRREVOCABLY CONSENTS
TO THE JURISDICTION OF THE STATE OR FEDERAL COURTS LOCATED IN NEW YORK COUNTY,
CITY OF NEW YORK, NEW YORK FOR ANY SUIT BROUGHT OR ACTION COMMENCED IN
CONNECTION WITH THIS AGREEMENT, THE OTHER LOAN DOCUMENTS OR THE OBLIGATIONS AND
AGREES NOT TO CONTEST VENUE IN ANY SUCH COURTS. In any such litigation, each
Loan Party waives personal service of
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any summons, complaint or other process, and agree that the service thereof may
be made by certified or registered mail directly to Borrower Representative at
its address set forth in Section 12.5. The choice of forum set forth herein
shall not be deemed to preclude the enforcement of any judgment obtained in such
forum or the taking of any action under this Agreement to enforce the same in
any appropriate jurisdiction.
12.18 Jury Waiver. THE PARTIES HERETO HEREBY KNOWINGLY AND WILLINGLY
WAIVE THEIR RIGHTS TO DEMAND A JURY TRIAL IN ANY ACTION OR PROCEEDING INVOLVING
THIS AGREEMENT, ANY OTHER LOAN DOCUMENT, THE OBLIGATIONS OR ANY RELATIONSHIP
AMONG ADMINISTRATIVE AGENT, LENDERS AND ANY LOAN PARTY. EACH LOAN PARTY
REPRESENTS AND WARRANTS THAT IT HAS REVIEWED THE FOREGOING WAIVERS WITH ITS
LEGAL COUNSEL AND HAS KNOWINGLY AND VOLUNTARILY WAIVED ITS JURY TRIAL RIGHTS
FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, THIS
AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
12.19 Limitation on Liability. NONE OF ADMINISTRATIVE AGENT, ANY LENDER
OR ANY LOAN PARTY SHALL HAVE ANY LIABILITY UNDER OR IN CONNECTION WITH THIS
AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS FOR SPECIAL, EXEMPLARY, PUNITIVE,
INCIDENTAL, INDIRECT OR CONSEQUENTIAL DAMAGES OF ANY SORT IN ANY SUIT BROUGHT OR
ACTION COMMENCED IN CONNECTION WITH THIS AGREEMENT, THE OTHER LOAN DOCUMENTS OR
THE OBLIGATIONS AND, EXCEPT TO THE EXTENT PROHIBITED BY LAW, EACH PARTY WAIVES
ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH ACTION ANY SPECIAL,
EXEMPLARY, PUNITIVE, INCIDENTAL, INDIRECT OR CONSEQUENTIAL DAMAGES OF ANY SORT
OTHER THAN ACTUAL DAMAGES.
12.20 Schedules, Exhibits and Annexes. The Schedules, Exhibits and
Annexes attached to this Agreement are an integral part hereof, and are hereby
made a part of this Agreement.
12.21 Agreement to Govern. In case of any conflict between the terms of
this Agreement and any of the other Loan Documents, the terms of this Agreement
shall govern.
12.22 Entire Agreement. This Agreement, the other Loan Documents and
other documents, agreements and certificates executed by the parties
contemporaneously herewith or subsequent hereto constitute the entire agreement
of the parties and supersede all prior understandings and agreements, written or
oral, among the parties hereto relating to the subject matter hereof. No Loan
Party is entering into this Agreement in reliance on statements or
representations made by any Person other than as set forth herein, except for
the Fee Letter.
[SIGNATURE PAGE APPEARS ON THE NEXT PAGE.]
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IN WITNESS WHEREOF, this Agreement has been duly executed as of the date
first above written.
GENERAL ELECTRIC CAPITAL CORPORATION,
as Administrative Agent and a Lender
By: ________________________________
Name: Michael Baum
Title: Vice President - Business
Development
FIRST UNION NATIONAL BANK, as a Lender
By: ___________________________________
Name: JoDell M. Ziegler
Title: Vice President
US LEC CORP, as Borrower Representative
and Guarantor
By: ___________________________________
Name: Michael K. Robinson
Title: Executive Vice President and
Chief Financial Officer
US LEC OF ALABAMA INC.
By: ____________________________________
Name: Michael K. Robinson
Title: Executive Vice President and
Chief Financial Officer
US LEC OF FLORIDA INC.
By: ____________________________________
Name: Michael K. Robinson
Title: Executive Vice President and
Chief Financial Officer
81
<PAGE>
US LEC OF GEORGIA INC.
By: ____________________________________
Name: Michael K. Robinson
Title: Executive Vice President and
Chief Financial Officer
US LEC OF NORTH CAROLINA INC.
By: ___________________________________
Name: Michael K. Robinson
Title: Executive Vice President and
Chief Financial Officer
US LEC OF TENNESSEE INC.
By: ___________________________________
Name: Michael K. Robinson
Title: Executive Vice President and
Chief Financial Officer
US LEC OF VIRGINIA L.L.C.
By: ___________________________________
Name: Michael K. Robinson
Title: Executive Vice President and
Chief Financial Officer
82
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0
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