UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
January 10, 1997
-----------------------------------------------
Date of Report (Date of earliest event reported)
SA TELECOMMUNICATIONS, INC.
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Exact Name of Registrant as Specified in its Charter)
Delaware 0-18048 75-2258519
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(State or Other (Commission (IRS Employer
Jurisdiction of File Number) Identification No.)
Incorporation)
1600 Promenade Center, 15th Floor
Richardson, TX 75080
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(Address of Principal Executive Offices) (Zip Code)
(972) 690-5888
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(Registrant's Telephone Number, Including Area Code)
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(Former Name or Former Address, If Changed Since Last Report)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On January 10, 1997 (the "Closing Date"), SA
Telecommunications, Inc., a Delaware corporation (the "Company")
purchased all of the issued and outstanding capital stock (the
"Addtel Stock") of Addtel Communications, Inc., a California
corporation ("Addtel"), pursuant to the terms of the Stock Purchase
Agreement by and among the Company, Addtel, Charles Tony Lonstein,
Aviram Lonstein, Daniel G. Lonstein and David R. Lonstein, the
shareholders of Addtel. Addtel is a switchless reseller of long
distance services based in Glendale, California. The Company
intends to continue to provide long distance services through
Addtel in addition to its other existing operating
telecommunications subsidiaries.
The aggregate purchase price paid for the Addtel Stock (the
"Initial Purchase Price") was $9.5 million, subject to a potential
downward adjustment (the "Adjustment") to be computed not later
than June 9, 1997. The Initial Purchase Price included aggregate
consideration of $2 million contractually allocated to
Nonsolicitation Agreements of the Addtel shareholders, of which an
aggregate of $500,000 cash was paid on the Closing Date and $1.5
million was held in escrow by the Company for satisfaction of the
Adjustment and any indemnity claims of the Company; however, the
shareholders of Addtel are jointly and severally liable to satisfy
any such liabilities beyond the amount held in escrow. The $7.5
million remainder of the Initial Purchase Price was paid in cash on
the Closing Date. The Adjustment equals the amount by which (1)
total liabilities of Addtel on the Closing Date minus $1,175,747.33
exceeds (2) the sum of (a) cash and certain cash equivalents on the
Closing Date and (b) net billed accounts receivable and properly
accrued but unbilled accounts receivable of Addtel as of the
Closing Date which are subsequently collected within 120 days of
the Closing Date. The terms of the Stock Purchase Agreement were
determined by arms length negotiation among the parties.
In order to fund the portion of the Initial Purchase Price
paid at closing, the Company used the remaining proceeds of the
Company's 10% Convertible Notes issued in August 1996.
Addtel's wholesale revenue produces a substantially lower
gross profit margin than its retail revenue. The Company is
evaluating methods of enhancing its margin on this wholesale
revenue while protecting the interests of its wholesale clientele.
The dollar amount of the Company's consolidated gross margin is
expected to increase as a result of the acquisition; however, gross
margin as a percentage of revenue will be adversely affected by the
blending of Addtel's lower margin wholesale revenue into the
Company's total revenue base.
Prior to the consummation of the transactions contemplated by
the Stock Purchase Agreement, no material relationship existed
between the Company, any officer, director or affiliate of the
Company or any associate of any such officer or director and Addtel
or the shareholders of Addtel. After the acquisition, the
shareholders will hold the following positions with Addtel: Aviram
Lonstein as President, Daniel G. Lonstein and David R. Lonstein as
Vice Presidents and Charles Tony Lonstein as an employee.
ITEM 5. OTHER EVENTS.
On January 9, 1996, the Company completed a Line of Credit
arrangement with Greyrock Business Credit, a division of
NationsCredit Commercial Corporation ("Greyrock"). The line of
credit has a maximum availability of $10 million, with borrowings
based on 80% of eligible accounts receivable and inventory, other
than receivables arising from telecommunications services
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rendered to customers which are billed to the customers by a
regional Bell operating company, a Bell operating company, a local
exchange company, a credit card company, or a provider of local
telephone services. The borrowings are secured by all of the assets
of the Company and its subsidiaries and the stock of the Company's
subsidiaries. The line of credit matures December 31, 1997 and
automatically renews for successive additional one year terms
unless either party elects to terminate by giving written notice to
the other not less than 60 days prior to the next maturity date.
The borrowings bear interest at a floating rate of 2.5% above
the reference rate of Bank of America NT & SA, provided that the
interest rate is not less than 9% per annum. Interest is payable
monthly and to the extent that accrued interest does not equal
$10,000 per month, the Company is required to pay an unused line of
credit fee of such difference. The initial borrowing by the
Company under this facility aggregated $1.6 million principal
amount on January 9, 1997.
The agreements regarding the line of credit contain covenants
which, among other matters, limit the ability of the Company and
its subsidiaries to (1) merge, consolidate and acquire or sell
assets, (2) incur indebtedness outside the ordinary course of
business which would have a material adverse effect on the Company
and its subsidiaries taken as a whole or on the prospect of
repayment of the obligations under the line of credit, (3) pay
dividends other than stock dividends and certain dividends with
respect to the Company's Series A Cumulative Convertible Preferred
Stock, and (4) redeem, purchase or acquire its capital stock.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND
EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
It is impracticable to provide the financial statements
of the business acquired and described in Item 2 above at this
time. The Company intends to prepare the required financial
statements and file same as an amendment to this Form 8-K as
soon as practicable, but not later than March 11, 1997.
(b) PRO FORMA FINANCIAL INFORMATION.
It is impracticable to provide the pro forma financial
information required pursuant to Article 11 of Regulation S-X
with respect to the transaction described in Item 2 above at
this time. The Company intends to prepare the required pro
forma financial statements and file same as an amendment to
this Form 8-K as soon as practicable, but not later than March
11, 1997.
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(c) EXHIBITS.
Exhibit No. Document Description
2.1 Stock Purchase Agreement dated as of January
10, 1997 among SA Telecommunications, Inc.,
Addtel Communications, Inc., Charles Tony
Lonstein, Aviram Lonstein, Daniel G. Lonstein
and David R. Lonstein*
10.1 Loan and Security Agreement dated December 26,
1996 among Greyrock Business Credit and SA
Telecommunications, Inc., U.S. Communications,
Inc., Long Distance Network, Inc., and
Southwest Long Distance Network, Inc.*
10.2 Schedule to Loan and Security Agreement*
10.3 Cross-Corporate Continuing Guaranty dated
December 26, 1996 of SA Telecommunications,
Inc., U.S. Communications, Inc., Long Distance
Network, Inc., and Southwest Long Distance
Network, Inc.*
10.4 Continuing Guaranty dated December 26, 1996 of
North American Telecommunications Corporation,
Baltic States and CIS Ventures, Inc., CIS
Intelligence Information Services, Inc. and
Uniquest Communications, Inc.*
10.5 Pledge Agreement dated as of December 26, 1996
between Greyrock Business Credit and SA
Telecommunications, Inc.*
10.6 Pledge Agreement dated as of December 26, 1996
between Greyrock Business Credit and U.S.
Communications, Inc.*
10.7 Security Agreement dated December 26, 1996
among Greyrock Business Credit and North
American Telecommunications Corporation,
Baltic States and CIS Ventures, Inc., CIS
Intelligence Information Services, Inc. and
Uniquest Communications, Inc.*
23.1 Consent of Price Waterhouse LLP**
___________
* Filed herewith
** To be filed by amendment
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, the Registrant has duly caused this report to be
signed on its behalf by the undersigned hereunto duly authorized.
SA TELECOMMUNICATIONS, INC.
DATE: January 21, 1997 By: /s/ J. David Darnell
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J. David Darnell
Vice President-Finance and
Chief Financial Officer
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EXHIBIT INDEX
EXHIBIT DOCUMENT DESCRIPTION
N0.
2.1 Stock Purchase Agreement dated as of January 10, 1997
among SA Telecommunications, Inc., Addtel Communications,
Inc., Charles Tony Lonstein, Aviram Lonstein, Daniel G.
Lonstein and David R. Lonstein*
10.1 Loan and Security Agreement dated December 26, 1996 among
Greyrock Business Credit and SA Telecommunications, Inc.,
U.S. Communications, Inc., Long Distance Network, Inc.,
and Southwest Long Distance Network, Inc.*
10.2 Schedule to Loan and Security Agreement*
10.3 Cross-Corporate Continuing Guaranty dated December 26,
1996 of SA Telecommunications, Inc., U.S. Communications,
Inc., Long Distance Network, Inc., and Southwest Long
Distance Network, Inc.*
10.4 Continuing Guaranty dated December 26, 1996 of North
American Telecommunications Corporation, Baltic States
and CIS Ventures, Inc., CIS Intelligence Information
Services, Inc. and Uniquest Communications, Inc.*
10.5 Pledge Agreement dated as of December 26, 1996 between
Greyrock Business Credit and SA Telecommunications, Inc.*
10.6 Pledge Agreement dated as of December 26, 1996 between
Greyrock Business Credit and U.S. Communications, Inc.*
10.7 Security Agreement dated December 26, 1996 among
Greyrock Business Credit and North American
Telecommunications Corporation, Baltic States and CIS
Ventures, Inc., CIS Intelligence Information Services,
Inc. and Uniquest Communications, Inc.*
23.1 Consent of Price Waterhouse LLP**
____________
* Filed herewith
** To be filed by amendment
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EXHIBIT 2.1
STOCK PURCHASE AGREEMENT
BY AND AMONG
SA TELECOMMUNICATIONS, INC.,
ADDTEL COMMUNICATIONS, INC.
AVIRAM LONSTEIN,
CHARLES TONY LONSTEIN,
DANIEL G. LONSTEIN AND
DAVID R. LONSTEIN
EFFECTIVE AS OF NOVEMBER 1, 1996
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STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement ("Agreement") is made as of
January 10, 1997, by and among SA Telecommunications, Inc., a
Delaware corporation ("Purchaser"), Addtel Communications, Inc., a
California corporation (the "Company"), and Aviram Lonstein,
Charles Tony Lonstein, Daniel G. Lonstein, and David R. Lonstein,
the holders of an aggregate of 100% of the issued and outstanding
shares of capital stock of the Company (individually a
"Shareholder" and collectively the "Shareholders").
WHEREAS, pursuant to that certain Letter of Intent dated as of
November 27, 1996 by and among the parties hereto (the "Letter of
Intent"), the Shareholders contracted to sell and Purchaser
contracted to buy, all of the issued and outstanding shares of
capital stock of the Company (the "Shares") in accordance with the
terms therein expressed and subject to the execution of definitive
agreements setting forth such terms; and
WHEREAS, Purchaser desires to purchase, and the Shareholders
desire to sell, all of the Shares in accordance with the terms
hereof.
NOW, THEREFORE, in consideration of the mutual benefits to be
derived and the representations and warranties, conditions and
promises herein contained, and other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, and intending to be legally bound hereby, the parties
hereto hereby agree as follows:
ARTICLE 1. GENERAL
SECTION 1.1 DEFINITIONS. Unless otherwise stated in this
Agreement, the following terms shall have the following meanings,
and other terms shall have the meaning assigned to such terms
elsewhere in this Agreement (all such definitions to be equally
applicable to both the singular and plural forms of any of the
terms herein defined):
AFFILIATE shall mean any Person that, directly or indirectly,
controls, or is controlled by or under common control with, another
Person. For the purposes of this definition, "control" (including
the terms "controlled by" and "under common control with"), as used
with respect to any Person, means the power to direct or cause the
direction of the management and policies of such Person, directly
or indirectly, whether through the ownership of voting securities
or by contract or otherwise.
ANNIVERSARY DATE shall mean January 10, 1998, SIX MONTH
ANNIVERSARY DATE shall mean July 10, 1997, and EIGHTEEN MONTH
ANNIVERSARY DATE shall mean July 10, 1998.
AGREED AMOUNT shall mean $1,175,747.33.
ARBITRATION shall mean a proceeding brought pursuant to
Section 9.9 hereof which settles disputes concerning this
Agreement.
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AUDIT BID AMOUNT shall mean $15,000.
BUSINESS shall mean the business of the Company as conducted
in the normal course prior to the date hereof, including without
limitation the business of marketing, selling and providing long
distance telephone service (on a wholesale and retail basis).
BUSINESS DAY shall mean any day other than a Saturday, Sunday
or a day on which the commercial banking institutions in Dallas,
Texas are authorized to be closed.
CASH AND CASH EQUIVALENTS shall mean the sum of (a) amount of
cash in all bank accounts of the Company on the Closing Date and
(b) the deposits and prepayments existing on the Closing Date
listed on "Exhibit E" hereto to the extent such amounts have either
been converted into cash or are not subject to forfeiture, dispute
or offset 150 days from the Closing Date with respect to actions or
events occurring prior to the Closing Date.
CLOSING DATE shall mean the date on which the Purchaser
purchases and receives the Shares (and not the Effective Date),
which date shall be the date after which the conditions set forth
in Article V hereof are satisfied or such other day prior to
January 15, 1997 as the Company and Purchaser shall mutually agree.
CLOSING DATE ACCOUNTS RECEIVABLE shall mean billed accounts
receivable and properly accrued but unbilled accounts receivable of
the Company as of the Closing Date.
CODE shall mean the Internal Revenue Code of 1986, as amended,
and the rules and regulations promulgated thereunder, all as the
same shall be in effect at the time.
COLLECTED ACCOUNTS RECEIVABLE shall mean net Closing Date
Accounts Receivable subsequently collected within (a) 120 days
after the Closing Date for accounts receivable of the Company
billed as of the Closing Date and (b) 120 days after the Closing
Date for properly accrued but unbilled accounts receivable of the
Company as of the Closing Date and so reflected in the Debt
Adjustment Calculation.
COMMISSION shall mean the Securities and Exchange Commission.
COMMON STOCK shall mean the common stock, par value $.50 per
share of the Company.
COMPANY'S STANDARD ACCOUNTING PRACTICES shall mean those
accounting practices used by the Company when preparing all
unaudited Financial Statements, including Balance Sheets, Income
Statements, Statements of Cash Flows, and Statements of Stockholder
Equity. In general, the Company's Standard Accounting Practices
include, but are not limited to, the following principles and
procedures: (i) No footnotes have been appended to the Financial
Statements, (ii) Revenue has been recognized upon completion of the
telephone calls, (iii) Unbilled revenue has been recorded at
month's end as accrued but unbilled revenue, (iv) Carrier costs
have been generally recorded to the periods in which such revenues
were recognized, (v) Depreciation and Amortization calculations
were generally in accordance with U.S. Federal Tax calculations,
(vi) Cash receipts have
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generally been applied against the oldest open Accounts Receivable
invoice, (vii) Bad Debt allowances have been generally calculated
based on the Company's historical Bad Debt experience, (viii) All
Tax returns are Compilations, and no Review or Audit has been
undertaken except for the Audited Financial Statements dated May
31, 1996, and (ix) The accounting practices employed have generally
been applied on a systematic and rational basis, with the intent to
fairly present the financial condition of the Company.
CONTRACT OR AGREEMENT shall mean any contract, agreement,
understanding, lease, sublease, license, sublicense, distribution
agreement, promissory note, evidence of indebtedness, indenture,
instrument, mortgage, insurance policy, annuity or other binding
commitment, whether written or oral, and shall include any proposal
or other offer to any Person to enter into any of the foregoing.
DEBT ADJUSTMENT shall mean a decrease in the Initial Purchase
Price in an amount equal to the amount, if any, by which (a) Total
Liabilities of the Company as of the Closing Date reduced by Agreed
Amount exceeds (b) the sum of (i) Cash and Cash Equivalents and
(ii) Collected Accounts Receivable.
DEBT ADJUSTMENT DATE shall mean the date which is 170 days
after the Closing Date.
DISCLOSURE SCHEDULE or SCHEDULES shall mean the schedules to
this Agreement delivered by the Shareholders and/or the Company to
Purchaser which are approved by Purchaser (with reservation of all
rights with respect thereto) and incorporated by reference to the
Section of this Agreement to which each such schedule relates.
DISPUTED DEBT ADJUSTMENT shall mean that portion of the Debt
Adjustment, if any, which Shareholders have disputed pursuant to
Section 1.5 hereof.
EBITDA shall mean earnings before interest, taxes,
depreciation, amortization, nonrecurring charges and other income
(expense) determined in accordance with GAAP.
EFFECTIVE DATE shall mean November 1, 1996.
ERISA shall mean the Employee Retirement Income Security Act
of 1974, as amended.
GAAP shall mean generally accepted accounting principles
applied on a consistent basis.
INDEBTEDNESS shall mean with respect to any Person, without
duplication, and whether or not contingent, (a) all indebtedness of
such Person for borrowed money which is evidenced by a note, bond,
debenture or similar instrument, (b) all obligations of such Person
in respect of letters of credit or bankers' acceptance issued or
created for the account of such Person, (c) all liabilities secured
by any consensual Lien (including capital leases and Liens arising
in connection with purchase money debt) on any property owned by
such Person even if such Person has not assumed or otherwise become
liable for the payment thereof to the extent of the lesser of the
amount of the debt secured thereby or the value of the property
subject to such Lien, (d) any capital stock 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
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obligation or otherwise, or is redeemable at the sole option of the
holder thereof, (e) to the extent not otherwise included, any
guarantee of such Person of any other Person's indebtedness or
other obligations described in (a) through (d) in this definition;
provided, however, that Indebtedness shall not include trade
payables (including without limitation, obligations under third
party accounts receivable billing agreements) incurred in the
ordinary course of business and payable in accordance with
customary practices and non-interest bearing installment
obligations and accrued liabilities incurred in the ordinary course
of business.
INVESTOR NOTES shall mean the 16 promissory notes payable by
the Company to the Persons and in the original principal amounts
listed on "Exhibit D" hereto.
LETTER AGREEMENT shall mean that certain letter agreement
among Purchaser, the Company and the Shareholders dated as of
January 10, 1997.
LIEN shall mean all mortgages, deeds of trust, claims, liens,
security interests, pledges, hypothecations, conditional sale
contracts, claims, rights of first refusal, options, charges,
liabilities, obligations, agreements, privileges, liberties,
easements, rights-of-way, powers of attorney, limitations,
reservations, restrictions and other encumbrances of any kind.
MATERIAL ADVERSE EFFECT shall mean any (a) change, development
or effect (individually or in the aggregate) in the general
affairs, management, business, goodwill, results of operations,
condition (financial or otherwise), assets, liabilities or
prospects (whether or not the result thereof would be covered by
insurance) that would be material and adverse to the Company (or
such other parties as the context requires), or (b) fact or
development that would (individually or in the aggregate), after
giving effect to the Transactions, impair the Company's (or such
other parties, as the context requires) ability or obligations to
perform on a timely basis any obligations such Person has under the
Operative Documents or in the ordinary course of its business.
NAMED DEBTORS shall mean World X Change Communications, Star
Telecommunications and JD Services.
NONSOLICITATION AGREEMENTS shall mean the Nonsolicitation
Agreements in the form of "Exhibit A" hereto, to be executed by
each of the Shareholders at the Closing.
OPERATIVE DOCUMENTS shall mean this Agreement, the
Nonsolicitation Agreements, the Pledge Agreement, the Letter
Agreement, and all other Contracts or Agreements, documents, and
certificates executed and delivered by or on behalf of the Company,
the Shareholders, Purchaser or USC at or before the Closing
pursuant to this Agreement.
ORDER shall mean any order, writ, injunction, decree,
judgment, award or determination of any Tribunal.
PERMITS shall mean all permits, authorizations, certificates,
approvals, registrations, variances, exemptions, rights-of-way,
franchises, privileges, immunities, grants, ordinances, licenses
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and other rights of every kind and character (a) under any (1)
federal, state, local or foreign statute, ordinance or regulation,
(2) Order or (3) contract with any Tribunal or (b) granted by any
Tribunal.
PERSON shall mean an individual, partnership, association,
joint venture, limited liability company, corporation, trust,
unincorporated organization or Tribunal.
PLEDGE AGREEMENT shall mean the Pledge Agreement executed
between the Shareholder Agent and Purchaser at Closing, in
substantially the form of "Exhibit B" hereto.
PLEDGED STOCK shall mean 500,000 shares of Common Stock,
$.0001 par value, of Purchaser, issued by Purchaser to USC.
PRIMARY JURISDICTIONS shall mean Arizona, California Colorado,
Florida, Illinois, New Jersey, Nevada, Oregon, Texas, Washington,
and Utah.
PRODUCTS shall mean all products manufactured, produced,
licensed, marketed or distributed by the Company.
REAL PROPERTY shall mean the real property owned by the
Company, if any.
SETTLEMENT DATE shall mean the later to occur of (a) 170 days
after the Closing Date or (b) the date on which Purchaser and the
Shareholders reach agreement on the Debt Adjustment Calculation in
accordance with Section 1.5 hereof.
SHAREHOLDER AGENT shall mean Charles Tony Lonstein acting as
agent and duly qualified attorney in fact for all such Shareholders
for purposes of this Agreement.
SHAREHOLDER PERCENTAGES shall mean the percentages set forth
beside each Shareholder's name as follows: Aviram Lonstein 15%,
Charles Tony Lonstein 55%, Daniel R. Lonstein 15%, and David G.
Lonstein 15%.
SUBSIDIARY shall mean with respect to any corporation shall
mean any other corporation of which at least a majority of the
securities having by their terms ordinary voting power to elect a
majority of the Board of Directors of such other corporation is at
the time directly or indirectly owned or controlled by such first
corporation, or by such first corporation and one or more of its
Subsidiaries.
TAXES shall mean any federal, state, local, county, or foreign
taxes or similar charges imposed by any Tribunal (including without
limitation, estimated or actual income, franchise, gross receipts,
sales, ad valorem, occupation, windfall profits, environmental,
customs duties, social security, unemployment, disability,
withholding, excise, use, transfer, payroll, real or personal
property, value added, alternative, occupancy or other taxes,
assessments, fees, levies, imposts, duties, deductions or other
charges of any nature whatsoever (including, without limitation,
interest and penalties) imposed by any law, rule or regulation.
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TAX OBLIGATIONS shall mean any Taxes which are attributable or
relating to the assets or the Business of the Company for any
periods ending on or before the Closing Date or which may be
applicable because of the transactions contemplated hereby.
TAX RETURNS shall mean all reports, elections, declarations,
claims for refund, estimates, information statements and returns
(including schedules and attachments thereto) relating to or
required to be filed in connection with, any Taxes pursuant to
statutes, rules, and regulations of any Tribunal.
TOTAL LIABILITIES shall mean all liabilities (accrued or
otherwise) of the Company on the Closing Date computed in
accordance with GAAP (including without limitation the following
accrued liabilities as of the Closing Date: payroll, unpaid
vacation, sick pay and severance pay for employees, Taxes, carrier
fees, accounting, legal and consulting fees and expenses, rent, the
fees and expenses of Maverick other than the success fee).
TRANSACTION OR TRANSACTIONS shall mean the acquisition of
stock, performance of covenants, and transactions contemplated
hereby in each case as contemplated by this Agreement.
TRIBUNAL shall mean any government, arbitration panel, court
or any federal, state, municipal or other governmental department,
commission, board, bureau, agency, authority or instrumentality,
domestic or foreign.
UNDISPUTED DEBT ADJUSTMENT shall mean the amount equal to the
difference between the Debt Adjustment, if any, and the Disputed
Debt Adjustment.
UNDISPUTED ESCROW AMOUNT shall mean that portion of the Escrow
Amount not subject to an unresolved Claimed Amount.
USC shall mean U.S. Communications, Inc., a Texas corporation
and wholly owned Subsidiary of Purchaser.
WHOLESALE BAD DEBT shall mean all billed accounts receivable
of the Company on October 31, 1996 related to the Company's
wholesale long distance business from (a) wholesale account debtors
other than the Named Debtors and (b) from the Named Debtors which
remain uncollected by the Company on the 61st date after billing.
SECTION 1.2 PREVIOUS AGREEMENT. The parties hereto
expressly acknowledge, confirm and agree that the Letter of Intent
has been replaced in its entirety by this Agreement and is without
any further force or effect whatsoever.
SECTION 1.3 AGREEMENT TO SELL. Subject to the terms and
conditions of the Operative Documents, at the Closing, the
Shareholders shall sell, transfer and deliver to Purchaser, and
Purchaser shall purchase, all of the Shares.
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SECTION 1.4 PURCHASE PRICE. The aggregate purchase price
for Shares (the "Purchase Price") shall equal $9,500,000 (the
"Initial Purchase Price"), subject to reduction by the Debt
Adjustment. The Initial Purchase Price includes the aggregate
consideration of $2,000,000 to be received pursuant to the terms of
the Nonsolicitation Agreements (the "Nonsolicitation Fee"), with an
aggregate of $500,000 of such Nonsolicitation Fee being payable at
Closing, and the remaining $1,500,000 to be held in escrow (the
"Escrow Amount") pursuant to the escrow provisions specified below,
with such amounts being subject to reduction by the Debt
Adjustment. The Initial Purchase Price, subject to the Debt
Adjustment, shall be allocated among the Shareholders in accordance
with the Shareholder Percentages as follows:
<TABLE>
<CAPTION>
NAME OF SHAREHOLDER NONSOLICITATION FEE REMAINDER OF PURCHASE
PAYABLE AT CLOSING HELD IN ESCROW PRICE PAYABLE AT CLOSING
<S> <C> <C> <C>
Aviram Lonstein $ 75,000 $ 225,000 $1,125,000
Charles Tony Lonstein $ 275,000 $ 825,000 $4,125,000
Daniel G. Lonstein $ 75,000 $ 225,000 $1,125,000
David R. Lonstein $ 75,000 $ 225,000 $1,125,000
--------- ---------- ----------
Total $500,000 $1,500,000 $7,500,000
</TABLE>
SECTION 1.5 DEBT ADJUSTMENT. The Initial Purchase Price
shall be decreased by an amount equal to the Debt Adjustment, if
any. For purposes of determining the Debt Adjustment, not later
than 150 days after the Closing Date, Purchaser shall prepare and
deliver to the Shareholders the calculation of the Debt
Adjustment, showing only the Total Liabilities, Cash and Cash
Equivalents and Collected Accounts Receivable as of the Closing
Date ("Debt Adjustment Calculation"). The parties hereto agree
that the Company shall have expensed fully in the month ending
October 31, 1996 (i) an amount equal to the aggregate of Wholesale
Bad Debt (and the Company's accounts receivable as of October 31,
1996 and thereafter shall not reflect the accounts receivable to
which such Wholesale Bad Debt relates), and (ii) the Audit Bid
Amount. Within 20 days after the receipt by Shareholders of the
Debt Adjustment Calculation, the Shareholder Agent shall notify
Purchaser and the Company of any objections the Shareholders may
have to the Debt Adjustment Calculations, and Purchaser and the
Shareholder Agent will endeavor promptly to discuss and resolve
such objections. In the absence of such objections within such 20
day period, or following resolution of them between Purchaser and
the Shareholder Agent, the Shareholders shall be deemed to have
approved the Debt Adjustment Calculation and agreed to all amounts
set forth therein for purposes of the adjustments to be made
pursuant to this Section 1.5, but subject to any rights of
indemnification which Purchaser may have pursuant hereto with
respect to the accuracy or completeness of the information on the
basis of which the Debt Adjustment Calculations was prepared and
any other rights Purchaser may have under this Agreement. If after
the Debt Adjustment Date, there remain Disputed Debt Adjustment
amounts, and Purchaser and the Shareholder Agent have not mutually
agreed in writing to continue negotiating, such Disputed Debt
Adjustment amounts shall be referred within 15 days to Ernst &
Young or such other independent public accounting firm of national
stature not used by any of the parties hereto or their respective
Affiliates during the prior 2 years as is mutually satisfactory to
Purchaser and the Shareholder Agent for resolution within 30 days
of the submission to such firm. The determination of such firm
with
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respect to the Disputed Debt Adjustment Amounts shall be conclusive
and binding, subject however, to any rights of Purchaser hereunder
with respect to the accuracy or completeness of the information on
the basis of which such calculation was determined. The fees and
expenses of such firm shall be borne equally between Purchaser on
the one hand, and the Shareholders on the other hand, in accordance
with the Shareholder Percentages. Upon the date of the earlier to
occur of resolution of the Disputed Debt Adjustment amounts by (i)
mutual written agreement between Purchaser and the Shareholder
Agent, or (ii) the determination of the independent accounting
firm, the amounts agreed upon or determined shall be appropriately
applied to the Debt Adjustment by each party as if such amounts
were applied to the Debt Adjustment as of the Debt Adjustment Date,
and any amounts due any party hereto shall be paid.
(a) On the Debt Adjustment Date, the Initial Purchase Price
and the Escrow Amount shall be decreased by an amount ("Undisputed
Debt Adjustment") if any, equal to the difference between the Debt
Adjustment, if any, and the Disputed Debt Adjustment, if any as
follows:
(i) The Undisputed Debt Adjustment, if any, shall first
be applied against the portion of the Initial Purchase Price
consisting of the Undisputed Escrow Amount as of the Debt
Adjustment Date. In the event that the Undisputed Escrow
Amount as of the Debt Adjustment Date exceeds the Undisputed
Debt Adjustment, the parties hereto agree that Purchaser shall
be entitled to reduce the Undisputed Escrow Amount held in
escrow by Purchaser as of the Debt Adjustment Date pursuant to
Section 1.7 by the amount of such Undisputed Debt Adjustment
and thereafter such Undisputed Debt Adjustment shall be owned
by Purchaser free of the escrow provisions hereunder.
(ii) In the event that the Undisputed Debt Adjustment
exceeds the Undisputed Escrow Amount on the Debt Adjustment
Date, the Initial Purchase Price shall be reduced by such
excess, and each Shareholder shall pay to Purchaser on the
Debt Adjustment Date a sum ("Debt Adjustment Shortfall") equal
to the product of (a) the amount equal to the Undisputed Debt
Adjustment minus the Undisputed Escrow Amount on the Debt
Adjustment Date and (b) such Shareholder's Shareholder
Percentage; provided, however, that each Shareholder shall be
jointly and severally liable for payment of the entire Debt
Adjustment Shortfall to Purchaser, which amount shall be due
and payable on the Debt Adjustment Date.
(b) For purposes of collection of the Company"s Closing Date
Accounts Receivable for calculation of the Debt Adjustment, the
following procedures shall apply:
(i) All collections during the Settlement Period
received from the account debtors of the Company shall be
applied to the invoice intended to be paid by such account
debtor if such intent can be determined. If such intent
cannot be determined, then payment shall be applied on a
"first in, first out" basis".
(ii) The Company will continue to utilize its standard
credit and collection policies, procedures and practices, but
without responsibility to institute legal or collection
proceedings.
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(c) Upon the later to occur of (i) receipt of full payment of
the Debt Adjustment Shortfall by Purchaser or (ii) the Settlement
Date, Purchaser shall transfer to the Shareholders in accordance
with the Shareholder Percentages the Company's rights to any
Closing Date Accounts Receivable which remain uncollected by the
Company on the 121st day after the Closing Date so that each of the
Shareholders may then take his own steps, including, without
limitation, the use of collection agencies and litigation, to
collect the full unpaid balances thereof in due course.
(d) Upon the date of expiration of the statute of limitations
with respect to any Tax for which there was a related accrued Tax
accrual used in the calculation of the Debt Adjustment Amount ("Tax
Accrual Amount"), or alternatively, the reversal or reduction by
the Company or Purchaser of any Tax Accrual Amount, Purchaser shall
return any Tax Accrual Amount which was reversed or which was not
actually used by Purchaser to pay the related Tax to which such Tax
Accrual Amount relates.
Section 1.6 Closing Deliveries. Without limiting the
deliveries at the Closing set forth in Article 6 hereof, at the
Closing:
(a) each of the Shareholders shall deliver to Purchaser
(i) certificates representing the Shares, endorsed for
transfer to Purchaser, which shall transfer to Purchaser good
title to the Shares, free and clear of all Liens; and (ii)
such other documents, including officer's certificates,
opinions of counsel and other Contracts or Agreements as may
be required by this Agreement or reasonably requested by
Purchaser; and
(b) Purchaser shall execute wire transfers to each of
the Shareholders in the amount specified as "Payable at
Closing" in Section 1.4 hereof to the bank account of a bank
located in the United States specified by such Shareholder in
writing to Purchaser, and shall hold $1,500,000 of the Initial
Purchase Price in escrow as provided in Section 1.4 pursuant
to the terms of Section 1.7 hereof, subject to decrease by the
provisions of Sections 1.5 and 1.7 hereof. Purchaser shall
cause USC to deliver to the Shareholder Agent the Pledged
Stock in accordance with the Pledge Agreement.
SECTION 1.7 ESCROW.
(a) At the Closing, (i) Purchaser shall hold in escrow
the Escrow Amount to satisfy any claims made by Purchaser in
respect of (A) the Debt Adjustment, and (B) any amounts
alleged to be due to Purchaser by Purchaser under Article 8 of
this Agreement ("Claimed Amount") in accordance with Section
1.7(d) below, and Purchaser shall deliver to the Shareholder
Agent a stock certificate representing the Pledged Stock
issued in the name of the Shareholder Agent to hold only in
accordance with the Pledge Agreement. Purchaser shall not be
required to segregate the Escrow Amount from any of its other
funds and may invest the Escrow Amount in any manner Purchaser
may desire.
(b) On the Debt Adjustment Date, Purchaser shall reduce
the Undisputed Escrow Amount by the Undisputed Debt
Adjustment, if any, as provided in Section 1.5 hereof and
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the remaining balance of the Escrow Amount after such
reduction and other distributions provided for herein shall be
referred to as the "Adjusted Escrow Amount".
(c) Purchaser shall be entitled to continue to hold
Claimed Amounts not yet finally resolved in accordance with
Section 1.7(d) and Article 8 hereof and shall be entitled to
distribute to Purchaser free from the escrow provisions of
this Agreement any Claimed Amount finally resolved in
accordance with Section 1.7(d) and Article 8 hereof. Purchaser
shall pay to the Shareholders in accordance with the
Shareholder Percentages to the extent such funds have not
otherwise been distributed as provided herein: (i) on the Six
Month Anniversary Date, 50% of the excess, if any, of the
Adjusted Escrow Amount over the Disputed Debt Adjustment on
such Six Month Anniversary Date; (ii) on the Anniversary Date,
25% of excess, if any, of the Adjusted Escrow Amount over the
Disputed Debt Adjustment on the Anniversary Date; and (iii) on
the Eighteen Month Anniversary Date, the remainder of the
excess of the Adjusted Escrow Amount over the Disputed Debt
Adjustment on the Eighteen Month Anniversary Date. Any
amounts paid to the Shareholders from the Escrow Amount shall
earn simple interest compounded monthly at a per annum rate
equal to the average rate per annum quoted for one year jumbo
certificates of deposit by major banks in New York, New York
as quoted in the southwest edition of THE WALL STREET JOURNAL
on the first and last day of each release period payable on
the date upon which such Escrow Amount is distributed to such
Shareholders. In the event of a failure by Purchaser to make
a scheduled payment from the Escrow Amount according to
Section 1.7 hereof or the failure by the Shareholders to make
a payment to Purchaser according to Section 1.5(a)(ii) hereof
within 5 days, the non-paying party shall be subject to a one-
time penalty of 10% of the amount not paid plus all collection
costs, including reasonable attorney's fees.
(d) At any time on or before the Eighteen Month
Anniversary Date, Purchaser may give the Shareholder Agent
written notice of a claim (a "Notice of Claim") for which
Purchaser is seeking indemnification under Article 8 of this
Agreement from the Escrow Amount stating the dollar amount of
the Escrow Funds claimed as a result of Purchaser's damages
thereof (the "Claimed Amount"). Within 10 Business Days after
a Notice of Claim is given by Purchaser to the Shareholder
Agent, the Shareholder Agent shall have the right to file with
Purchaser written notice that the Shareholders intend to
contest Purchaser's claim. If, within such 10 Business Day
period, Purchaser does not receive such notice from the
Shareholder Agent or receives notice from the Shareholder
Agent that such claim is uncontested, Purchaser may reduce the
Escrow Amount by the Claimed Amount and thereafter Purchaser
shall own such funds free from the escrow provisions
hereunder. If, however, within such 10 Business Day period,
Purchaser shall receive notice from the Shareholder Agent of
the intention of the Shareholders to contest Purchaser's
Notice of Claim and the underlying claim with respect to the
Escrow Funds (a "Contested Claim"), then Purchaser shall
continue to hold the Claimed Amount until the earliest to
occur of: (i) receipt of written notice from the Shareholder
Agent consenting to the release of the Claimed Amount to
Purchaser; (ii) receipt of a written final decision of the
Arbitration Panel pursuant to Section 9.9 directing
disposition of the Claimed Amount after Arbitration; or (iii)
receipt of a written agreement of the Shareholder Agent and
Purchaser, that (A) Purchaser or (B) the Shareholders are
entitled to all or part of the Claimed Amount. Thereupon,
Purchaser shall deliver to the proper party (which may include
Purchaser) the Claimed Amount in
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accordance with clause (i), (ii) or (iii) above. Any Contested
Claim shall be submitted to Arbitration if Purchaser and the
Shareholder Agent are unable to resolve such dispute within 30 days
of the receipt by Purchaser of a Contested Claim unless Purchaser
and the Shareholder Agent mutually agree in writing to extend such
period.
ARTICLE 2. REPRESENTATIONS AND WARRANTIES
OF THE SHAREHOLDERS
Each of the Shareholders, jointly and severally, hereby
represent and warrant to Purchaser that the following are true and
correct as of the date of this Agreement and will be true and
correct (without limitation) through the Closing and as of that
date, regardless of what investigations, if any, Purchaser shall
have made prior hereto or prior to the Closing:
SECTION 2.1 ORGANIZATION; QUALIFICATION. The Company is a
corporation duly organized, validly existing and in good standing
under the laws of the State of California. The Company has the
corporate power and authority to own, operate and lease all of the
properties and assets it now owns, operates and leases and to carry
on its business as now being conducted. The Company is duly
qualified as a foreign corporation and is in good standing to do
business in each jurisdiction in which the property owned, leased
or operated by it or the nature of the business conducted by it
makes such qualification necessary, except where the failure to so
qualify would not have a Material Adverse Effect on the Company.
Section 2.1 of the Disclosure Schedule sets forth a true and
correct list of each jurisdiction in which the Company is qualified
to do business. The Company does not have any employees, maintain
any office, or own or lease any real property in any state that is
not listed on Section 2.1 of the Disclosure Schedule. The Company
has heretofore delivered to Purchaser complete and correct copies
of its Certificate of Incorporation (certified by the Secretary of
State of California) and Bylaws as such are currently in effect.
SECTION 2.2 AUTHORITY. The Company has the corporate power
and authority to execute, deliver and perform the Operative
Documents to which it is a party and to consummate the transactions
contemplated hereby and thereby. The execution and delivery by the
Company and the Shareholders of the Operative Documents, and the
consummation of the transactions contemplated hereby and thereby,
have been duly and validly authorized by the Board of Directors of
the Company and no other corporate proceedings on the part of the
Company or the Shareholders are necessary with respect thereto.
This Agreement has been duly and validly executed and delivered by
the Company and the Shareholders, and constitutes a legal, valid
and binding obligation of the Company and the Shareholders,
enforceable against each of them in accordance with its terms,
except as the same may be limited by bankruptcy, insolvency,
reorganization, moratorium or other laws affecting generally the
enforcement of creditors' rights and by general principles of
equity. The Nonsolicitation Agreement and the Pledge Agreement,
when executed and delivered by each Shareholder who is a party
thereto, will constitute a legal, valid and binding obligation of
such Shareholder, enforceable against such Shareholder in
accordance with their respective terms, except as the same may be
limited by bankruptcy, insolvency, reorganization, moratorium or
other laws affecting generally the enforcement of creditors' rights
and by general principles of equity. Neither any of the
Shareholders nor the Company, is a party to, or subject to, or
bound by, any currently
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existing Order of any Tribunal, or any arbitration award that would
restrict performance by any of the Shareholders or the Company of
this Agreement or any other Operative Documents.
SECTION 2.3 CAPITALIZATION. The authorized capital stock
of the Company consists of 200,000 shares of the Company's Common
Stock. The Shares, consisting of 125,000 shares of such Common
Stock owned by the Shareholders, are all the issued and outstanding
shares of capital stock of the Company and there are no shares held
in treasury of the Company. Each of the Shares is validly issued
and outstanding, fully paid and nonassessable. There are no
options, warrants or other commitments to issue or sell any shares
of capital stock or any securities or obligations convertible into
or exchangeable for, or giving any Person any right to acquire from
the Company, any shares of its capital stock other than the
transactions contemplated hereby. No shares of the Company's
capital stock, including, but not limited to the Common Stock, have
been issued in violation of any preemptive rights or applicable
federal or state securities laws. There are no restrictions,
including but not limited to self-imposed restrictions, on the
retained earnings of the Company or on the ability of the Company
to declare and pay dividends. There are no outstanding obligations
of the Company to repurchase, redeem or otherwise acquire any
capital stock or other securities of the Company. There are no
stock appreciation rights, equity appreciation plans, stock
valuation plans or similar Contracts or Agreements or arrangements
pursuant to which any Person shall have the right to receive any
money or property with respect to the equity securities, capital
structure or shareholders equity, or any increase in the value of
any of them, of the Company.
SECTION 2.4 INVESTMENTS. The Company does not, directly or
indirectly, own or control any equity or debt interest or any form
of proprietary interest in any Person, or any right or option to
acquire any such interest in any such Person. None of Sellers or
any of their relatives or Affiliates own, directly or indirectly,
any interest in any Person which is a competitor, customer or
supplier of the Company or which otherwise has business dealings
with the Company.
SECTION 2.5 GOVERNMENTAL CONSENTS AND APPROVALS. The
execution, delivery and performance by the Company and each of the
Shareholders of the Operative Documents to which each such Person
is a party and the consummation of the transactions contemplated
thereby by the Company and each of the Shareholders requires no
consent, approval, order or authorization of, action by or in
respect of, or registration or filing with, (a) any Tribunal in the
Primary Jurisdictions, other than as set forth on Section 2.5 of
the Disclosure Schedule or (b) any Tribunal in jurisdictions other
than the Primary Jurisdictions except as set in the Letter
Agreement.
SECTION 2.6 NO VIOLATIONS. The execution, delivery and
performance of the Operative Documents by the Company and each of
the Shareholders to which such Person is a party, the consummation
by the Company and each of the Shareholders of the transactions
contemplated thereby or compliance by the Company and each of the
Shareholders with any of the provisions thereof does not and will
not (a) conflict with or result in any breach or violation of any
provision of the Certificate of Incorporation or Bylaws of the
Company, (b) result in a default, or give rise to any right of
termination, cancellation or acceleration or loss of any benefit
(with or without the giving of notice or lapse of time or both), or
require the consent, approval, waiver or other action by any Person
under any of the terms, conditions or provisions of Contract or
Agreement or obligation to which any Shareholder or the Company is
a party or by which any Shareholder or the Company
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may be bound, (c) result in the creation or imposition of any Lien
on any of the property of any Shareholder or the Company, or (d)
except for the regulatory approvals disclosed pursuant to Section
2.5(a) and (b), violate any Order, statute, rule or regulation
applicable to any Shareholder or the Company or any of its
properties or assets.
SECTION 2.7 FINANCIAL STATEMENTS.
(a) The following unaudited financial statements of the
Company have heretofore been delivered to Purchaser: (i) the
federal income tax returns within which are included the
balance sheet of the Company as of May 31, 1996 (the "Annual
Balance Sheet") and the statements of operations and of
stockholder's equity for each of the one year periods ended
May 31, 1995, May 31, 1994 and May 31, 1993 and a statement of
cash flows for the Company as of May 31, 1996 and May 31,
1995, together with any related notes and schedules, (such
balance sheets, the related statements of operations, of
stockholder's equity and of cash flows, and the related notes
and schedules being hereinafter together referred to as the
"Annual Financial Statements"); (ii) the unaudited balance
sheets of the Company as of October 31, 1996, November 30,
1996 and December 31, 1996 and the related unaudited
statements of operations, of stockholder's equity and of cash
flows for the periods then ended (such balance sheets, the
related statements of operations, of stockholder's equity and
of cash flows, being hereinafter together referred to as the
"Interim Financial Statements").
(b) The Annual Financial Statements and the Interim
Financial Statements (collectively, the "Financial
Statements"), including the related notes and schedules, have
been prepared from the books and records of the Company which
accurately reflect the transactions of the Company. The
Financial Statements are true, complete and correct, were
prepared in accordance with the Company's Standard Accounting
Practices, subject to normal recurring year-end audit
adjustments with respect to the Interim Financial Statements.
The Financial Statements present fairly the financial position
of the Company as of the dates of such statements. The trade
accounts and other receivables of the Company which are
classified as current assets on the balance sheets of the
Company in the Interim Financial Statements have arisen from
bona fide transactions in the ordinary course of business, are
true and correct and are valid and enforceable claims subject
to no right of offset or counterclaim and are collectible
within 120 days following the Closing Date at the face amount
thereof net of any amounts for bad debt related to such
account for which Purchaser has received credit in the Debt
Adjustment. There have been no write-ups of any assets (other
than inventory) included in such Financial Statements.
(c) Except as set forth in Section 2.29(d)(i) of the
Disclosure Schedule, the Company has no liabilities
(contingent or otherwise) other than: (i) those set forth or
reserved against in the balance sheet of the Company as of
December 31, 1996, and (ii) those incurred since December 31,
1996 in the ordinary course of business and consistent with
past practices. The Company has no Indebtedness other than
disclosed on Section 2.29(d)(ii) of the Disclosure Schedule.
There are no receivables of the Company owed by Affiliates of
the Company which are not disclosed in the Interim Financial
Statements and listed on Schedule 2.32 of the Disclosure
Schedule.
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(d) The Company's books of account have been kept
accurately in the ordinary course of business, the
transactions entered therein represent bona fide transactions,
and the revenues, expenses, assets and liabilities of the
Company have been properly recorded in such books. The
Company has adequately funded all accrued employee benefit
costs and such funding is reflected in the Interim Financial
Statements.
SECTION 2.8 TITLE TO AND CONDITION OF ASSETS AND
PROPERTY. The Company has good and marketable title to any and all
assets reflected in the Interim Financial Statements currently
owned and used in the operation of its business, and such assets
are free and clear of all Liens. Section 2.8(a) of the Disclosure
Schedule further sets forth a true and complete description of all
real and tangible personal property currently leased or otherwise
occupied or used but not owned by the Company, true, correct and
complete copies of which leases and other Contracts or Agreements,
including all amendments and modifications thereto have heretofore
been delivered to the Company. Each of the leases is a valid and
binding obligation of the parties thereto and neither the Company
nor the lessor thereunder is in default under, and no condition
exists that with notice or lapse of time or both would constitute
a default under any such lease. The Company enjoys peaceful and
undisturbed possession under all such leases. The Company does not
own any Real Property or any interest therein other than the real
property leases listed in Schedule 2.8(a) of the Disclosure
Schedule. All personal property not set forth in Section 2.8(a) of
the Disclosure Schedule and reflected on the Financial Statements
is owned by the Company. Except as listed in Section 2.8(b) of the
Disclosure Schedule, all property owned or leased by the Company
and reflected on the Financial Statements or located on the
premises of the Company is in good operating condition and repair,
ordinary wear and tear excepted, is suitable for the use to which
the same is customarily put, is free from defects other than minor
defects that do not interfere with or detract from the use or value
thereof and is merchantable and not obsolete and is of a quality
and quantity presently usable in the ordinary course of the
operation of the Business of the Company and is all of the assets
currently used or needed in said Business. Except as set forth in
Section 2.8(c) of the Disclosure Schedule, the buildings,
structures, improvements, assets and operations of the Company
conform with all applicable restrictive covenants, deeds, leases,
and restrictions and all applicable federal, state and local laws,
ordinances, rules and regulations, including, but not limited to,
those relating to zoning and working conditions.
SECTION 2.9 LITIGATION. Except as disclosed in Section 2.9
of the Disclosure Schedule, there is no action, order, claim, suit,
proceeding, litigation, investigation, inquiry, review or notice
("Proceeding") pending or threatened against, relating to or
affecting the Company or its properties or assets or any officer or
director of the Company relating to the Company, at law or in
equity, before any Tribunal nor is there any basis for asserting
the foregoing. None of the Proceedings listed on Section 2.9 of
the Disclosure Schedule would, if determined adversely to the
Company, individually or in the aggregate have a Material Adverse
Effect. Neither the Company nor any of its properties or assets is
specifically by name, subject to any currently existing Order.
Except as disclosed in Section 2.9 of the Disclosure Schedule, the
Company is not subject to any currently existing Proceeding by any
Tribunal. There is no basis for the assertion of any Proceeding by
any Tribunal or any Person regarding any violation of federal or
state securities laws. There are no Proceedings pending or, to the
knowledge of any Shareholder, threatened against the Company or any
Shareholder, whether at law or in equity and whether civil or
criminal in nature, before any
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Tribunal nor are there any Orders of any such Tribunal outstanding
against the Company or any Shareholder which, in either case, seek
specifically to prohibit, restrict, or delay consummation of the
transactions contemplated hereby or fulfillment of any of the
conditions upon the obligations of the Shareholders or the Company
under this Agreement.
SECTION 2.10 ABSENCE OF CHANGES. Except as set forth in
Section 2.10 of the Disclosure Schedule, since May 31, 1996, the
Business of the Company has been operated in the ordinary course
consistent with past practice and there has not been (a) any
material adverse change in the Business, operations, properties,
condition (financial or otherwise), prospects, assets or
liabilities (contingent or otherwise) of the Company; (b) any
dividend declared or paid or distribution made on the capital stock
of the Company, or any capital stock thereof redeemed or
repurchased; (c) any incurrence of long-term Indebtedness or
unusual increase in the current liabilities of the Company; (d) any
salary, bonus or compensation increases to any officers, employees
or agents of the Company; (e) any pending or threatened labor
disputes or other labor problems against or affecting the Company;
(f) any transaction or Contract or Agreement, or amendment or
termination of any transaction or Contract or Agreement by the
Company, except normal transactions or Contracts or Agreements
consistent in nature and scope with prior practices and entered
into in the ordinary course of business consistent with past
practices, (g) any mortgage, sale, transfer, distribution or other
disposition of any assets by the Company, except in the ordinary
course of business consistent with past practices, (h) any theft,
damage, destruction or loss by the Company to or of any of its
assets except to the extent that any asset damaged, destroyed or
lost has been repaired or replaced, (i) any capital expenditures
for additions to property, plant or equipment in excess of $5,000,
(j) any grant or credit to any customer or distributor on terms
materially more favorable than the terms on which credit has been
extended to such customer or distributor in the past nor changed
the terms of any credit previously extended, (k) any change in the
accounting methods or practices followed by the Company or any
change in the depreciation or amortization policies or rates
heretofore adopted; or (l) any other change in the nature of, or
the manner of conducting, the Business of the Company, other than
changes that neither have had, nor reasonably may be expected to
have, a Material Adverse Effect on the Business of the Company.
SECTION 2.11 UNDISCLOSED LIABILITIES; COMMITMENTS. Except
as disclosed in Section 2.11(a) of the Disclosure Schedule, the
Company has no Indebtedness, liabilities or obligations, whether
accrued, absolute, contingent or otherwise, and whether due or to
become due, and there is no basis for the assertion against the
Company of any such Indebtedness, liability or obligation, that
were not accrued or reserved against in the Financial Statements.
Except as set forth in Section 2.11(b) of the Disclosure Schedule,
the Company has performed all Contracts or Agreements to which the
Company is a party, and there is not under any such Contracts or
Agreements any existing default or event of default or event which
with notice or lapse of time or both would constitute a default.
SECTION 2.12 ENVIRONMENTAL MATTERS. Except as set forth on
Section 2.12 of the Disclosure Schedule, the Company has duly
complied with, and its Business, operations, assets, equipment,
leaseholds and other facilities are in compliance with, the
provisions of all federal, state and local environmental, health
and safety laws, codes and ordinances and all rules and regulations
promulgated thereunder, governing (a) air emissions, (b) discharges
to surface water or ground
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water, (c) solid or liquid waste disposal, (d) the use, storage,
generation, handling, transport, discharge, release, or disposal of
toxic or hazardous substances or wastes, or (e) other
environmental, health or safety matters, including, without
limitation, the Comprehensive Environmental Response Compensation
and Liability Act of 1980, 42 U.S.C. Sections 601 et seq., as
amended, the Resource Conservation and Recovery Act, 42 U.S.C.
Sections 6901 et seq., as amended, the Federal Water Pollution
Control Act, 33 U.S.C. Sections 1251 et seq., as amended, the Clean
Air Act, 42 U.S.C. Sections 7401 et seq., as amended, the
Occupational Safety and Health Act of 1970, as amended ("OSHA"),
the Safe Drinking Water Act, as amended, the Toxic Substances
Control Act, as amended, the Superfund Amendments and
Reauthorization Act of 1986, as amended, and other environmental
conservation or protection laws. There is no Proceeding pending or
threatened against the Company relating to the environment nor is
there a basis for the assertion against the Company of any
Proceeding. The Company has not received notice of, nor knows of,
any past, present or future events, conditions, facts,
circumstances, activities, practices, incidents, actions or plans
that may interfere with or prevent compliance or continued
compliance or that might constitute a violation of any federal,
state or local environmental, health or safety laws, codes or
ordinances, and any rules or regulations promulgated thereunder,
which relate to the use, ownership or occupancy of the property or
the operation of the Business of the Company.
SECTION 2.13 PENSION MATTERS. The Company has never
maintained or contributed to any defined benefit pension plans (as
defined in Section 3(2) of ERISA or any multiemployer plans (as
defined in Section 3(37)(A) of ERISA). Each employee benefit plan
(as defined in Section 3(3) of ERISA) (each, an "Employee Benefit
Plan" or "Plan") maintained for employees of the Company or to
which the Company has contributed and any related trust agreement,
annuity contract or any other funding or implementing instrument
complies currently and has complied in the past, as to form,
operation and administration, with the provisions of ERISA, as
amended, and all other applicable laws, rules and regulations and
with the Code where required in order to be tax-qualified under
Section 401(a) or 403(a) and 501(a) of the Code, and no event has
occurred that may give rise to disqualification of any such Plan
under said Sections. All necessary Tribunal approvals for the
Employee Benefit Plans have been obtained. Each Employee Benefit
Plan that is subject thereto meets and has met at all times the
minimum funding standards of Section 302 of ERISA, Section 412 of
the Code and any other applicable law, and no accumulated funding
deficiency, whether or not waived, exists with respect to any such
Plan. Each Employee Benefit Plan that is an employee pension
benefit plan (as defined in Section 3(2)(A) of ERISA) has been duly
authorized by the Board of Directors of the Company and a favorable
determination as to the qualification under the Code of each such
employee pension benefit plan has been made by the Internal Revenue
Service. The Company has delivered to Purchaser the following
documents as in effect on the date hereof: (A) true, correct and
complete copies of each Plan, including all amendments thereto,
which is an employee pension benefit or welfare benefit plan
(within the meaning of Sections 3(1) or 3(2) of ERISA), and in the
case of any unwritten Plans, descriptions thereof, (B) with respect
to any Plans or Plan amendments described in the foregoing clause
(A), (i) the most recent determination letter issued by the
Internal Revenue Service after September 1, 1974, if any, (ii) all
trust agreements or other funding Contracts or Agreements,
including insurance contracts, and (iii) the most recent actuarial
valuations, annual reports, summary plan descriptions, employee
handbooks or other descriptive materials supplied and employee or
retiree summaries of material modifications and summary annual
reports, if any. With respect to any Plan, no prohibited
transaction (within the
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meaning of Section 406 of ERISA and/or Section 4975 of the Code)
exists which could subject the Company to any liability or civil
penalty assessed pursuant to Section 502(i) of ERISA or a Tax
imposed by Section 4975 of the Code. Neither the Company nor any
of its Affiliates, nor any administrator or fiduciary of any Plan
(or agent of any administrator or fiduciary of any Plan (or agent
of any of the foregoing) has engaged in any transaction or acted or
failed to act in a manner which is likely to subject the Company to
any liability for a breach of fiduciary or other duty under ERISA
or any other applicable law. The transactions contemplated by this
Agreement will not be, or cause any, prohibited action or
transaction.
There are no pending claims, investigations or causes of
action ("Claims") and, to the best of each Shareholder's knowledge,
no such Claims are planned or threatened, against any Employee
Benefit Plan or fiduciary of any such plan by any participant,
beneficiary or Tribunal with respect to the qualification or
administration of any such Employee Benefit Plan. Neither the
Company nor any of the Shareholders has made, nor will any of them
or any of the Company's employees or representatives make prior to
the Closing Date, any representation to or Contract or Agreement
with, any of the Company, the Company's employees or any of the
Shareholders (whether written or oral) with respect to (i) the
provisions of any employee benefits other than those provided under
any Employee Benefit Plan disclosed to Purchaser on Schedule 2.13
of the Disclosure Schedule, or (ii) the continuation of any
benefits beyond the Closing Date under any Employee Benefit Plan.
All filings required by ERISA and the Code as to each Plan have
been timely filed and all notices and disclosures to participants
required by ERISA or the Code have been timely provided. Each Plan
to which ERISA Sections 601 through 609 and Section 4980B of the
Code apply has been administered in compliance with such Sections.
The Company has made or shall make full and timely payment of all
amounts which are required under the terms of the Plans to be paid
as a contribution to each such Plan with respect to the period from
the end of the last plan year ending before the date of this
Agreement to the Closing Date. The Company does not have any
unfunded obligations with respect to any Plan. All contributions
made to or accrued with respect to all Employee Benefit Plans are
deductible under Section 404 or 162 of the Code. No amounts, nor
any assets or any Employee Benefit Plan are subject to Tax as
unrelated business taxable income under Section 511, 512, or 419A
of the Code. No facts exist which could result in a material
increase in premium costs of Plans for which benefits are insured
or a material increase in benefit costs of Plans which provide self
insured benefits. No Plan provides (or has any obligation or
commitment to provide) health, medical, disability, life or other
similar benefits with respect to any current or former employees
(or beneficiary thereof) of the Company beyond their retirement or
other termination of service (other than coverage mandated by Title
I, Subtitle B, Part 6 of ERISA, which coverage is fully paid by the
former employee or his dependents). There are no Contracts or
Agreements which will provide payments to any officer, employee,
shareholder, or highly compensated individual of the Company which
will be "parachute payments" under Section 280G of the Code that
are nondeductible to the Company or subject to Tax under Section
4999 of the Code. All group health plans of the Company and each
of its Affiliates have been operated in compliance with the group
health plan continuation coverage requirements of Part 6 of
Subtitle B of Title I of ERISA and Section 4980B of the Code.
SECTION 2.14 LABOR MATTERS. Except as set forth in Section
2.14 of the Disclosure Schedule, the Company has no obligations,
contingent or otherwise, under any employment or consulting
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Contract or Agreement, or collective bargaining agreement or other
Contract or Agreement with a labor union or other labor or employee
group. There are no efforts presently being made or threatened by
or on behalf of any labor union with respect to the employees of
the Company. The Company is in compliance with all federal, state
or other applicable laws, domestic or foreign, regarding employment
and employment practices, terms and conditions of employment and
wages and hours, and have not and are not engaged in any unfair
labor practice. No unfair labor practice complaint against the
Company is pending or threatened before the National Labor
Relations Board. There is no labor strike, dispute, slowdown or
stoppage pending or threatened against or involving the Company.
No representation question exists respecting the employees of the
Company. No employment-related grievance or internal or informal
complaint or liability with respect to the termination of any
employee, consultant or agent exists. No arbitration proceeding
arising out of or under any collective bargaining agreement is
pending and no claim therefor has been asserted. No collective
bargaining agreement is currently being negotiated by the Company,
and the Company has not experienced any labor difficulty. There
has not been any adverse change and none of the Shareholders has
any present knowledge that there will be any adverse change in
relations with employees of the Company as a result of any
announcement or consummation of the transactions contemplated by
this Agreement. No employee of the Company is in violation of any
term of any employment contract, or any other Contract or Agreement
with or any restrictive covenant or any other common law obligation
to a former employer relating to the right of any such employee to
be employed by the Company because of the nature of the business
conducted or to be conducted by the Company or to the use of trade
secrets or proprietary information of others, and the employment of
the Company's employees does not subject the Company to liability
in connection with such covenants or Contracts or Agreements.
There is neither pending nor threatened Proceedings with respect to
any Contract or Agreement, covenant or obligation referred to above
nor is there any basis for asserting the foregoing.
SECTION 2.15 TAXES. Except as listed on Section 2.15(a) of
the Disclosure Schedule or the Letter Agreement, all Taxes that are
due and payable by the Company have been timely paid, and the
Company has timely filed (and, through the Closing Date, will
timely file) all foreign, federal, state, county, local and other
Tax Returns required by law to be filed by the Company. All such
Tax Returns are true, complete and correct in all respects for the
periods covered thereby. The Company is not delinquent in the
payment of any Tax, there is no Tax deficiency asserted against the
Company, and there is no unpaid assessment, proposal for additional
Taxes, deficiency or delinquency in the payment of any of the Taxes
of the Company or any violation of any federal, state, local or
foreign law that could be asserted by any Tax Tribunal. There are
no Tax liens upon any properties or assets of the Company. Except
as set forth on Section 2.15(b) of the Disclosure Schedule, no
Internal Revenue Service, state or local, audit, investigation or
Proceeding of the Company is pending or threatened, and the results
of any completed audits are properly reflected in the Financial
Statements. The Company has not granted any extension to any Tax
Tribunal of the limitation period during which any Tax liability
may be asserted. The Company has not committed any violation of
any federal, state, county, local or foreign Tax laws. All monies
required for the payment of Taxes not yet due and payable with
respect to the operations of the Company through and including the
Closing Date have been approved, reserved against and entered upon
the books and Financial Statements. All monies required to be
withheld by the Company from employees or collected from customers
for Taxes, and the portion of any such Taxes to be paid by the
Company
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to the appropriate Tax Tribunals or set aside in accounts for such
purpose have been approved, reserved against and entered upon the
books and Financial Statements. The provisions for Taxes shown on
the Interim Financial Statements will be adequate to cover the
liability of the Company for Tax Obligations to the Closing Date.
SECTION 2.16 INVENTORY. No item included in the
inventories, materials or supplies of the Company is pledged as
collateral or held on consignment from others. All such inventory
items are standard quality goods saleable in the ordinary course of
business.
SECTION 2.17 PROPRIETARY RIGHTS. The Company owns or
validly licenses the right to use all technology, proprietary
information, know-how, ideas (patented or unpatented), data,
licenses, customer lists, processes, formulas, trade secrets,
telephone numbers, computer software, computer programs, designs,
inventions, trademarks, trademark registrations and applications
therefor, registered and common law copyrights, and registered
copyright applications, trade names (whether or not registered or
registrable), service marks, service mark registrations and
applications therefor (collectively, the "Proprietary Rights")
necessary to conduct the Business of the Company as such Business
is presently being conducted, including without limitation the
trademark "International Advantage." The Company is not currently
using the trade names "La Conexion Directa" and "1-800 Conexion,"
which are owned by Charles Tony Lonstein. Section 2.17(a) of the
Disclosure Schedule sets forth a complete and correct list
(including without limitation, where applicable, registration
numbers and dates of filing, renewal and termination, license
and/or royalty Contracts or Agreements) of all Proprietary Rights.
No consent or approval of any third party will be required for the
use of the Proprietary Rights by the Company after the consummation
of the transactions contemplated hereby and the transactions
hereunder will not result in any breach of any Contract or
Agreement relating to any Proprietary Rights. No claim or
opposition has been asserted by any Person to the ownership of or
the Company's right to use any of the Proprietary Rights or
challenging or questioning the validity or effect of any Contract
or Agreement relating thereto, and there is no valid basis for any
such claim or assertion. The Company has ownership of, or valid
licenses to use all of, the Proprietary Rights. Each of the
Proprietary Rights is valid and subsisting, has not been cancelled,
abandoned or otherwise terminated and, if applicable, has been duly
asserted, registered and filed. The Proprietary Rights owned by
the Company are owned free and clear of all Liens. The Company has
taken all reasonable steps to establish and preserve its ownership
of all Proprietary Rights. The Company's use of the Proprietary
Rights will not, and the conduct of the Business as presently
conducted does not, infringe on or violate the rights of any other
Person. No Proceedings have been instituted, are pending or are
threatened that challenge or oppose the rights of the Company with
respect to any of the Proprietary Rights. The Company has not
received any notice or inquiry from any Person of any alleged
infringement by the Company. The Company has not given and is not
bound by any Contract or Agreement of indemnification in connection
with any Proprietary Rights or product or service sold or performed
by the Company. Neither the Company nor any Shareholder is aware of
any infringement by others of the Company's Proprietary Rights.
Set forth in Section 2.17(b) of the Disclosure Schedule is a list
of all confidentiality Contracts or Agreements entered into by the
Company relating to the Proprietary Rights and all such contracts
are in full force and effect. No Person has been or is authorized
to use or copy any of the Company's computer software, computer
programs, computer systems, mailing or customer lists (or any part
thereof), and, to the knowledge of the Company and the
Shareholders, no such use or copying has
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occurred or is occurring. All software owned by the Company is
listed in Section 2.17(c) of the Disclosure Schedule, and except as
disclosed in Section 2.17(c) of the Disclosure Schedule and
performs in accordance with industry standards.
SECTION 2.18 SURETY OBLIGATIONS. The Company is not
obligated as surety or indemnitor under any surety, performance,
completion or similar bond or other Contract or Agreement issued
and has not entered into any Contract or Agreement to assure
payment, performance or completion of performance of any
undertaking or obligation of any Person.
SECTION 2.19 NO BROKERS. Neither the Company nor any of the
Shareholders has employed any broker, agent or finder or incurred
any liability for any brokerage fees, commissions or finders' fees
in connection with the transactions contemplated hereby, except the
success fee of Maverick Management Group ("Maverick"), which is the
sole obligation of the Shareholders.
SECTION 2.20 RECORDS. The minute books, books of account,
stock record books and other records of the Company, all of which
have been made available to Purchaser, contain accurate and
complete records of all corporate actions of the stockholders and
Boards of Directors (and committees thereof) since the
incorporation of the Company.
SECTION 2.21 COMPLIANCE WITH LAW; CONDUCT. The Company has
not violated or failed to comply with any statute, law, ordinance,
regulation, rule or order of any foreign, federal, state or local
government or any other Tribunal or any judgment, order, writ,
injunction or decree of any court, applicable to its Business or
operation, except where such violations or failure to comply would
not have a Material Adverse Effect on the Company. The Company's
Business is conducted in conformity with all applicable foreign,
federal, state and local governmental and regulatory requirements.
The Company has all Permits from governmental agencies required to
conduct its Business as then and are now contemplated to be
conducted except for those Permits which if not obtained would not
individually or in the aggregate have a Material Adverse Effect on
the Company.
SECTION 2.22 REGULATORY COMPLIANCE. Section 2.22 of the
Disclosure Schedule set forth a list of each of the states in which
the Company is engaged in its Business in which states
certification is required and has been obtained and in which states
certification is not required. Except as set forth in the Letter
Agreement, the Company is in compliance with all state and federal
rules and regulations applicable to the Business, including, but
not limited to, those regulations governing the provision of
operator assisted telecommunications services conducted as a pass
through service for AT&T Communications, Inc., including, but not
limited to, the requirements set forth under 47 C.F.R. Section
64.703 - 64.707, and the terms and conditions within each order
granting jurisdictional authority and all related tariffs, and has
timely and completely filed all reports and other documents
required by each state listed on Section 2.22 of the Disclosure
Schedule or any Tribunal of such state to maintain its authority to
provide telecommunications services in such state.
SECTION 2.23 INVESTMENT COMPANY ACT; ETC. The Company is
not an "investment company" or a company "controlled" by an
"investment company" within the meaning of the Investment Company
Act of 1940, as amended, or an "investment adviser" within the
meaning of the Investment Advisers Act of 1940, as amended.
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SECTION 2.24 PUBLIC UTILITY HOLDING COMPANY ACT. The
Company is not a "public utility," a "holding company," an
"affiliate" of a "holding company" or a "subsidiary company" of a
"holding company," within the meaning of the Public Utility Holding
Company Act of 1935, as amended, or a "public utility" within the
meaning of the Federal Power Act, as amended.
SECTION 2.25 INSURANCE. Contained in Section 2.25 of the
Disclosure Schedule is a complete and accurate description of all
insurance maintained by the Company with respect to the assets,
properties and business of the Company. All of the insurable
properties of the Company are insured for their benefit under valid
and enforceable policies, issued by insurers rated B+ or better.
The insurance maintained by the Company is in amounts and of a
nature as is customarily maintained by Persons conducting
operations similar to those of the Company. None of such insurance
coverage will terminate on consummation of the transactions
contemplated hereby.
SECTION 2.26 INSTRUMENTS IN FULL FORCE AND EFFECT;
POSSESSION UNDER LEASES. Section 2.26 of the Disclosure Schedule
contains a complete and accurate list of all material Contracts or
Agreements and obligations, (including, without limitation,
agreements with carriers supplying long distance services to the
Company ("Carrier Agreements"), licenses, royalties, operating and
capital leases, assignments and similar Contracts or Agreements) of
the Company (the "Material Contracts"). Except as set forth on
Section 2.26 of the Disclosure Schedule, all Carrier Agreements
with the Company shall be terminable by the Company upon not more
than thirty days written notice without premium or penalty. The
Material Contracts are valid, binding and in full force and effect
against the Company and have not been amended or supplemented in
any manner or respect except as disclosed in Section 2.26 the
Disclosure Schedule. Except as specifically disclosed in Section
2.26 of the Disclosure Schedule, there are no defaults by the
Company thereunder and neither the Company nor any Shareholder know
of any defaults thereunder by any other party thereto, and no event
has occurred that with the lapse of time or action or inaction by
any party thereto would result in a violation thereof or a default
thereunder.
SECTION 2.27 RECEIVABLES. The Section 2.27(a) of the
Disclosure Schedule contains a complete and accurate list of all
the Company's accounts receivable (including aged accounts
receivable, loan receivables and advances) as of October 31, 1996,
November 30, 1996 and December 31, 1996 showing the name of each
account debtor and the amount due from each by invoice number and
date. All of such accounts receivables and all account receivables
since the date thereof have arisen in the ordinary course of
business for Products delivered or services rendered. Neither the
Company nor any Shareholder is aware of any event or condition with
respect to a specific customer that causes it to believe that any
such receivable will not be collected in full in due course without
resort to litigation and will not be subject to counterclaim or
setoff. Except as set forth in Section 2.27(b) of the Disclosure
Schedule, the write-offs for doubtful accounts reflected on the
various Financial Statements were or will be, as the case may be,
determined in accordance with the Company's Standard Accounting
Practices and past practice consistently applied and adequately
provide for all uncollectible receivables.
SECTION 2.28 ACCOUNTS PAYABLE. Section 2.28 of the
Disclosure Schedule contains a complete and accurate list of all
the Company's aged accounts payable at October 31, 1996,
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November 30, 1996 and December 31, 1996, showing the name of each
account creditor and the amount due to each by invoice number and
date.
SECTION 2.29 ITEMS REFLECTED IN THE DISCLOSURE SCHEDULE.
Section 2.29 of the Disclosure Schedule contains a complete and
accurate list or brief description of (a) all current or pending
Contracts or Agreements (of real or personal property), between
the Company and any Person that involve, in the aggregate, the
payment or receipt by the Company of more than $5,000, which cannot
be cancelled without penalty upon thirty days' notice; (b) all
employee benefit programs (including but not limited to medical,
profit-sharing or pension plans), employee bonus and incentive
compensation arrangements and accrued and unused vacation time as
of October 31, 1996, of the Company and through the Closing Date;
(c) any compensation, noncompetition, severance, or consulting
Contracts or Agreements between the Company and any of the
Company's employees, consultants or agents at present and any
consulting Contracts or Agreements between the Company and any
consultants for the previous two fiscal years; (d) all Contracts or
Agreements relating to the borrowing of money by the Company or the
direct or indirect guaranty by the Company of any third Person, (e)
the number and job category of all current employees of the
Company, including with respect to key employees, their names, date
of employment, current compensation (including sales commissions)
and date and amount of last increase in compensation; (f) all
capital assets of the Company with a book value greater than $200,
setting forth any Liens or restrictions thereon; (g) federal and
state income Tax Returns for the last three fiscal years; (h) a
list of all Contracts or Agreements for which consents of any
private Persons or public authorities would be required (citing the
section(s) thereof requiring such consents) for the consummation of
the transactions contemplated hereby, or for the preventing of any
termination of any material right, privilege, Contract or Agreement
of, or any loss or disadvantage to, the Company or Purchaser upon
consummation of the transactions contemplated hereby; (i) all
Permits relating to any of the Company's operations and all tariffs
filed by the Company; (j) any Contracts or Agreements of the
Company with any of its competitors; (k) the ten largest customers
of the Company and the ten largest suppliers to the Company for the
fiscal year ended May 31, 1996, and for the period from June 1,
1996 to December 31, 1996; (l) all financing statements filed or
signed which list the Company as a debtor (naming such secured
party, date and place of filing, and identification of the Contract
or Agreement to which such financing statement relates); (m) all
current trade-out arrangements between the Company and any Person;
and (n) the CIC Codes and Access Codes of the Company. The Company
has not received notice, or has knowledge or reason to believe,
that any retail customer who produced monthly revenue to the
Company in November 1996 in excess of $10,000 is seeking or
presently intends to seek to terminate or diminish its relationship
with the Company.
SECTION 2.30 BANK ACCOUNTS; POWERS OF ATTORNEY. Section
2.30 of the Disclosure Schedule completely and accurately lists the
name of each bank, brokerage firm or other financial institution in
which the Company has an account or possesses a safe deposit box
and sets forth the amount and nature of all cash and cash
equivalents contained therein at December 31, 1996. Section 2.30
of the Disclosure Schedule also completely and accurately lists the
names of all Persons authorized to draw thereon, or to have access
thereto or to authorize transactions therein, and the names of all
parties, if any, holding powers of attorney from the Company with
respect thereto or with respect to any
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other matter, and the account number of any such account. The
Company does not maintain any securities or commodity trading
account or other brokerage account.
SECTION 2.31 PRODUCT AND SERVICE WARRANTIES. There is no
claim against or liability of the Company on account of Product or
service warranties or with respect to the manufacture, sale,
license or lease of Products or performance of services, and except
as disclosed in Section 2.31 of the Disclosure Schedule, there is
no basis for any such claim on account of Products heretofore
manufactured, sold or leased or services performed.
SECTION 2.32 TRANSACTIONS WITH AFFILIATES. Except as set
forth in Section 2.32 of the Disclosure Schedule, the Company has
not engaged in any loans, Contracts or Agreements, or other
transactions with any Shareholder, director, officer or key
employee of the Company, or any member of any such individual's
immediate family or any other Affiliate of the Company. As of the
Closing Date, all advances or loans made by the Company to any
stockholder, officer, director, employee, Affiliate or agent of the
Company will have been repaid in full, with accrued interest to the
date of repayment.
SECTION 2.33 CORRUPT PRACTICES. Since the inception of the
Company, there have been no violations of the Foreign Corrupt
Practices Act or any similar state or federal statute relating to
bribery or similar offenses by the Company or any of their agents.
Neither the Company nor any officer, director, employee or agent of
the Company (or any Person acting on behalf of any of the
foregoing) has since the date of Company's incorporation, given or
agreed to give any gift or similar benefit of more than nominal
value to any customer, supplier, governmental employee or official,
or any other Person who is or may be in a position to help or
hinder the Company or assist the Company in connection with any
actual or proposed transaction, which gift or similar benefit, if
not given in the past, would have a Material Adverse Effect, or
which would subject the Company to penalty in any private or
governmental litigation or Proceeding.
SECTION 2.34 ABSENCE OF BAD DEBT OR UNCOLLECTIBLE ACCOUNTS.
At October 31, 1996 and at the date of each subsequent balance
sheet included in the Interim Financial Statements, the Company had
no bad debt or uncollectible account which has not been revealed
and written off in the Financial Statements.
SECTION 2.35 NO DEFAULT. The Company is not in default
under, and no condition exists that with notice or lapse of time or
both would constitute a default under (a) its respective
Certificate of Incorporation or Bylaws; (b) any Contract or
Agreement or evidences of Indebtedness for borrowed money to which
the Company is a party or by which the Company or any of its assets
bound; or (c) any Order of any Tribunal.
SECTION 2.36 COPIES OF DOCUMENTS; ACCURACY OF INFORMATION
FURNISHED. The Company or the Shareholders have delivered or made
available to Purchaser complete and accurate copies of all
documents listed on the Disclosure Schedule and all other
information requested for deciding whether to consummate the
transactions hereby. All of the exhibits and schedules provided by
the Company or the Shareholders are true, correct and complete in
all material respects and no written representation, warranty or
statement made by the Company or the Shareholders in or pursuant to
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this Agreement contains or will contain any untrue statement of a
material fact or omits or will omit to state any material fact to
make such representation, warranty or statement not misleading to
Purchaser who are seeking complete and accurate information with
respect to the Company.
SECTION 2.37 TITLE TO SHARES. The Shareholders are the
lawful owners of the number of shares of Company's Common Stock set
forth below:
Charles Tony Lonstein 68,750
Aviram Lonstein 18,750
Daniel G. Lonstein 18,750
David R. Lonstein 18,750
The Shareholders are the sole holders and owners (beneficially and
of record) of all of the Company's Common Stock. Each of the
Shareholders holds good, valid and indefeasible title to such
Shares. The Shareholders each possess full authority and legal
right to sell, transfer and assign the entire legal and beneficial
ownership of the Shares issued to each of them, free and clear of
all Liens, Contracts or Agreements with respect to voting or the
purchase or sale of securities, preemptive rights, proxies or
other interests of any nature of any Person ("Restrictions").
There are no outstanding rights or obligations granted by any of
the Shareholders to purchase or acquire any of the Shares except
pursuant to this Agreement. Upon the transfer of the Shares to
Purchaser hereunder at Closing, Purchaser will own the entire legal
and beneficial interest in the Shares free and clear of all
Restrictions.
SECTION 2.38 DISCLOSURE.
(a) No representation or warranty of any of the
Shareholders or the Company contained in this Agreement or
statement in the Disclosure Schedule contains any untrue
statement or omits to state a material fact necessary in order
to make the statements herein or therein, in light of the
circumstances under which they were made, not misleading.
(b) There is no fact known to Shareholders or the
Company which has specific application to the Company and
which could have a Material Adverse Effect but which has not
been set forth in this Agreement or the Disclosure Schedule
hereto.
(c) The disclosures in the Disclosure Schedule attached
hereto shall relate only to the representations and warranties
in the Section of this Agreement to which they expressly
relate and to no other representation or warranty in this
Agreement.
(d) In the event of any inconsistency between the
statements in the body of this Agreement and those in the
Disclosure Schedule attached hereto (other than an exception
expressly set forth as such in the Disclosure Schedule in
relation to a specifically identified representation or
warranty), those in this Agreement shall control.
SECTION 2.39 NO SOLICITATION. Since November 27, 1996,
neither the Company or any of its officers, directors nor any of
the Shareholders have, or have permitted any of their respective
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agents or representatives (including, without limitation,
investment bankers, attorneys and accountants), directly or
indirectly to (a) solicit, initiate or encourage submission of
proposals or offers by, or (b) furnish any information with respect
to or otherwise cooperate in any way with, or participate in any
discussions or negotiations with, any Person (other than Purchaser)
with respect to any proposal regarding the acquisition or purchase
of all or a material portion of the assets of, or any equity
interest in the Company or any business combination with the
Company.
ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF PURCHASER
Except as set forth in the disclosure schedule delivered to
the Company and the Shareholders by Purchaser contemporaneously
with the execution hereof (the "Purchaser Disclosure Schedule"),
Purchaser hereby represents and warrants to the Company and each of
the Shareholders as follows, regardless of what investigations, if
any, the Company or the Shareholders shall have made prior hereto:
SECTION 3.1 ORGANIZATION; QUALIFICATION. Purchaser is a
corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware. Purchaser has full
corporate power and authority to own and lease all of the
properties and assets it now owns and leases and to carry on its
business as now being conducted.
SECTION 3.2 AUTHORITY RELATIVE TO THIS AGREEMENT.
Purchaser has the corporate power and authority to execute, deliver
and perform this Agreement and the other Operative Documents to
which it is a party and to consummate the transactions contemplated
hereby and thereby. USC has the corporate power and authority to
execute, deliver and perform the Pledge Agreement and to consummate
the transactions contemplated thereby. The execution and delivery
by Purchaser and USC of the Operative Documents to which it is a
party, and the consummation of the transactions contemplated hereby
and thereby, have been duly and validly authorized by the Board of
Directors of Purchaser and USC, respectively, and no other
corporate proceedings on the part of Purchaser or USC are necessary
with respect thereto. This Agreement has been duly and validly
executed and delivered by Purchaser and constitutes a legal, valid
and binding obligation of Purchaser, enforceable against it in
accordance with its terms, except as enforcement hereof may be
limited by bankruptcy, insolvency, fraudulent conveyance,
moratorium or other similar laws affecting enforcement of
creditors' rights generally. The Pledge Agreement, when executed
and delivered by USC, will constitute a legal, valid and binding
obligation of USC, enforceable against USC in accordance with its
terms, except as enforcement hereof may be limited by bankruptcy,
insolvency, fraudulent conveyance, moratorium or other similar laws
affecting enforcement of creditors' rights generally. As of the
date hereof, to Purchaser's knowledge and except as contemplated by
this Agreement, Purchaser is not prohibited by any Tribunal or
Contract or Agreement from acquiring the Company.
SECTION 3.3 INVESTMENT. Purchaser is acquiring the Shares
for its investment only and not with a view to the public
distribution or resale thereof or any interest therein in violation
of the Securities Act of 1933 (the "Securities Act") or any other
applicable federal laws or regulations. Purchaser is familiar with
the meaning of the foregoing representation and fully understands
the restrictions and limitations that are imposed thereby. The
Shareholders have disclosed to Purchaser, and Purchaser understands
and agrees, that Purchaser must bear the economic risk of its
investment
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in the Shares for an indefinite period of time because the Shares
have not been registered under the Securities Act or any state blue
sky law, and therefore, cannot be sold unless subsequently
registered under the Securities Act and applicable state blue sky
laws (or unless an exemption from such registration is available).
Purchaser is able and prepared to bear the economic risks of
investing in and holding the Shares for an indefinite period of
time. At all times during this transaction and at the date of this
Agreement, Purchaser has such knowledge and experience in financial
and business matters that it is capable of evaluating the merits
and risk of the investment in the Shares. Purchaser has had access
to such financial and other information and has been afforded the
opportunity to ask such questions of the Shareholders and
representatives of the Company (and has received answers and/or
representations in this Agreement with respect thereto) as it deems
necessary in connection with its decision to purchase the Shares.
Nothing in this Section 3.3 shall eliminate or affect the right of
Purchaser to indemnity under Article 8 of this Agreement.
SECTION 3.4 NON-CONTRAVENTION. Neither the execution nor
delivery of this Agreement by Purchaser, nor the consummation by
Purchaser of the transactions contemplated hereby, will (i) violate
any provision of the Certificate of Incorporation or bylaws of
Purchaser or (ii) assuming the representations and warranties of
the Shareholders set forth in Article II hereof are true and
correct, the Company is in compliance with all applicable laws,
rules and regulations regarding its Business, and assuming that
the Company has no Indebtedness, (A) violate, or result with the
passage of time in a violation of, any provision of any mortgage,
lien, lease, agreement, license or instrument to which Purchaser is
a party or to which it is subject, except such violations which
would not have a Material Adverse Effect on the Company and its
subsidiaries taken as a whole, (B) result in the acceleration of,
entitle any party to accelerate any obligation under, or result in
the creation or imposition of any claim, lien, pledge, security
interest, restriction or other encumbrance upon any of the property
of Purchaser (other than the security interest of Greyrock Business
Credit in the assets and stock of the Company upon acquisition by
Purchaser of the Shares) pursuant to any provision of any mortgage,
lien, lease, agreement, license or instrument to which Purchaser is
a party or to which Purchaser is subject, or (C) other than any
regulatory approvals required in connection with the transfer of
ownership the Company from the Shareholders to Purchaser, violate
any judgement, order, writ, injunction, decree, regulation or rule
of any court or governmental authority applicable to Purchaser or
its assets.
SECTION 3.5 NO BROKERS. Purchaser has not employed any broker
or finder or incurred any liability for any brokerage fees,
commissions or finder's fees in connection with the transactions
contemplated hereby.
SECTION 3.6 PROCEEDINGS. There are no Proceedings pending or,
to the knowledge of Purchaser, threatened against Purchaser,
whether at law or in equity and whether civil or criminal in
nature, before any Tribunal nor are there any Orders of any such
Tribunal outstanding against Purchaser which, in either case, seek
specifically to prohibit, restrict, or delay consummation of the
transactions contemplated hereby or fulfillment of any of the
conditions upon the obligations of the Purchaser under this
Agreement.
SECTION 3.7 DISCLOSURE. Purchaser has previously furnished
to the Shareholders copies of the following reports and/or filings
of Purchaser: Annual Report on Form 10-KSB for the year ended
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December 31, 1995, definitive proxy statement dated April 25, 1995,
Quarterly Reports on Form 10-QSB for the quarters ended March 31,
1996, June 30, 1996 (as amended by Form 10Q-SB/A filed with the
Commission on August 29, 1996), Current Reports on Form 8-K dated
February 29, 1996, May 23, 1996, June 24, 1996, July 29, 1996, and
December 10. 1996 (the "SEC Filings"). None of the SEC Filings at
the time of filing contained any untrue statement of a material
fact or omitted to state a material fact necessary to make the
statements therein, in light of the circumstances under which they
were made, not misleading.
ARTICLE 4. ADDITIONAL AGREEMENTS
SECTION 4.1 INVESTIGATION OF BUSINESS AND PROPERTIES. No
investigations by the Purchaser or its employees, representatives
or agents shall reduce or otherwise affect the obligation or
liability of the Company or any of the Shareholders with respect to
any representations, warranties, covenants or agreements made
herein or in an Exhibit, Schedule or other certificate, Contract or
Agreement or document (including the Disclosure Schedule), executed
or delivered in connection with this Agreement.
SECTION 4.2 CONFIDENTIALITY. Each party agrees with
respect to all technical, commercial and other information that is
furnished or disclosed by the other parties, including, but not
limited to, information regarding such party's (and its
Subsidiaries' and Affiliates') organization, personnel, business
activities, customers, subscribers, policies, assets, finances,
costs, sales, revenues, technology, rights, obligations,
liabilities and strategies (the "Information"), that, unless and
until the transactions contemplated hereby shall have been
consummated, (a) such Information is confidential and/or
proprietary to the furnishing/disclosing party and entitled to and
shall receive treatment as such by the receiving party; (b) the
receiving party will hold in confidence and not disclose or use
(except in respect of the transactions contemplated hereby) any
such Information, treating such Information with the same degree of
care and confidentiality as it accords its own confidential and
proprietary information; provided, however, that the receiving
party shall not have any restrictive obligation with respect to any
Information that (i) is contained in a printed publication
available to the general public, (ii) is or becomes publicly known
through no wrongful act or omission of the receiving party, or
(iii) is known by the receiving party without any proprietary
restrictions by the furnishing/disclosing party at the time of
receipt of such Information; and (c) all such Information furnished
to a party by another, unless otherwise specified in writing, shall
remain the property of the furnishing/disclosing party and, in the
event this Agreement is terminated, shall be returned to it,
together with any and all copies made thereof, upon request for
such return by it (except for documents submitted to a governmental
agency with the consent of the furnishing/disclosing party or upon
subpoena and that cannot be retrieved with reasonable effort), and
each party shall confirm in writing to the others compliance with
any such request. Each party hereto acknowledges that the remedy
at law for any breach by a party of its obligations under this
section is inadequate and that the other parties shall be entitled
to equitable remedies, including injunctive relief, in the event of
breach by any other party.
SECTION 4.3 INVESTIGATION OF FINANCIAL STATEMENTS. The
Company agrees to give, and agrees to cause its independent
certified public accountants to give, such assistance to the
independent certified public accountants of Purchaser, and to
employees or representatives of
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Purchaser as it may reasonably request in connection with their
review of the Financial Statements. Such review shall specifically
include, without limitation, the right to examine any notes and
work papers related thereto.
SECTION 4.4 AGREEMENT TO CONSUMMATE. Subject to the terms
and conditions herein provided, each of the parties hereto agrees
to use commercially reasonable efforts to do all things necessary,
proper or advisable under applicable laws and regulations to
consummate and make effective, as soon as reasonably practicable,
the transactions contemplated by this Agreement, including, but not
limited to, the obtaining of all consents, authorizations, orders
and approvals of any Tribunal required in connection therewith and
initiating or defending any legal action that is necessary or
appropriate to permit the transactions contemplated hereby to be
consummated. At any time after the Closing Date, if any further
action is necessary, proper or advisable to carry out the purposes
of this Agreement, then, as soon as is reasonably practicable, each
party to this Agreement shall take, or cause its proper officers to
take, such action. No party to this Agreement shall take or cause
to be taken any action that would cause the representations or
warranties expressed herein to be untrue or incorrect on the
Closing Date.
SECTION 4.5 NOTICE. The Company and the Shareholders shall
promptly give notice to Purchaser upon becoming aware of the
occurrence or failure to occur, or the impending or threatened
occurrence or failure to occur, of any event that would cause or
constitute, any of their representations or warranties being or
becoming untrue. Purchaser will promptly give notice to the
Company and the Shareholders upon becoming aware of the occurrence
or failure to occur, of any event that would cause or constitute,
any of their representations or warranties being or becoming
untrue.
SECTION 4.6 PUBLIC ANNOUNCEMENTS. The Shareholders shall
not make any public statement with respect to this Agreement or the
transactions contemplated hereby on behalf of themselves or the
Company without prior consent and approval of the content thereof
by Purchaser; provided, however, that any Shareholder shall be
permitted to disclose this transaction and the contents hereof to
any governmental agencies seeking such information from Shareholder
as an individual and not as a representative of the Company as such
Shareholder's legal counsel shall deem necessary to comply with
applicable law.
ARTICLE 5. CONDITIONS PRECEDENT TO CLOSING
SECTION 5.1 GENERAL CONDITIONS. Consummation of the
Transactions shall be subject to the fulfillment at the Closing
Date of each of the following conditions:
(a) NO INJUNCTION. No court having jurisdiction shall
have issued, to the knowledge of Purchaser, the Company or any
Shareholder, an injunction preventing the consummation of the
Transaction that shall not have been stayed or dissolved at
the Closing Date.
(b) PROCEEDINGS. All proceedings taken or to be taken
in connection with the transactions contemplated hereby, and
all documents incident thereto shall be reasonably
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satisfactory in form and substance to the parties and their
counsel, and the parties and their counsel shall have received
all such counterpart originals or certified or other copies of
such documents as the parties or their counsel may reasonably
request.
(c) OTHER AGREEMENTS. The appropriate Persons shall
have executed the Nonsolicitation Agreements, and the Pledge
Agreement.
SECTION 5.2 CONDITIONS TO CLOSING IN FAVOR OF THE
COMPANY. Consummation of the Transactions shall be subject to the
fulfillment, to the satisfaction of the Company, or written waiver,
at or before the Closing Date, of each of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES OF PURCHASER. The
representations, warranties and statements of Purchaser
contained in this Agreement, the exhibits hereto and the
Purchaser Disclosure Schedule, shall be complete and accurate
as of the date of this Agreement and shall also be complete
and accurate at and as of the Closing Date, except for changes
contemplated by this Agreement, as if made on the Closing
Date; and Purchaser shall have performed or complied with all
agreements and covenants required by this Agreement to be
performed or complied with by them at or prior to the Closing
Date.
(b) PURCHASER OFFICER'S CERTIFICATES. Purchaser shall
have delivered to the Shareholders a certificate, dated the
Closing Date, of a President or Vice President of Purchaser to
the effect that (a) such Person is familiar with the
provisions of this Agreement and (b) the conditions specified
in Section 5.1 and in Section 5.2(a) have been satisfied in
all material respects.
SECTION 5.3 CONDITIONS TO CLOSING IN FAVOR OF
PURCHASER. Consummation of the Transactions shall be subject to
the fulfillment, to the satisfaction of Purchaser, or its written
waiver, at or before the Closing Date of the following conditions:
(a) COPIES OF RESOLUTIONS OF THE COMPANY. The Company
shall have furnished Purchaser with copies of resolutions duly
adopted by the Board of Directors and Shareholders approving
the execution and delivery of the Operative Documents, and the
consummation of the transactions contemplated thereby,
certified as of the Closing Date by the Secretary or an
Assistant Secretary of the Company.
(b) OPINION OF COUNSEL FOR THE COMPANY AND THE
SHAREHOLDERS. The Company and the Shareholders shall have
furnished Purchaser with an opinion dated the Closing Date of
Nowalsky & Bronston, L.L.P., counsel for the Company and
Shareholders, in form attached hereto as "Exhibit C".
(c) REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND
SHAREHOLDERS. The representations, warranties and statements
of the Company and Shareholders contained in this Agreement,
the exhibits hereto and the Disclosure Schedule shall be
complete and accurate as of the date of this Agreement and
shall also be complete and accurate at and as of the Closing
Date, except for changes contemplated by this Agreement, as if
made at and
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as of the Closing Date; and the Company and each of the
Shareholders shall have performed or complied with all
agreements and covenants required by this Agreement to be
performed or complied with by such Person at or prior to the
Closing Date.
(d) OFFICERS' AND SHAREHOLDERS' CERTIFICATE. The
Company and each of the Shareholders shall have delivered to
Purchaser a certificate, dated the Closing Date (and, with
respect to the Company, signed by the President and Secretary
of such entity) to the effect that (a) they are familiar with
the provisions of this Agreement and (b) the conditions
specified in Section 5.1 and in Section 5.3(c) have been
satisfied.
(e) GOVERNMENTAL CONSENTS, AUTHORIZATIONS, ETC. Except
as provided in the Letter Agreement, all consents,
authorizations, orders or approvals of, and filings or
registrations with, and any permits, licenses or other
authorizations required by, any applicable Tribunal that are
required for or in connection with, the execution and delivery
of this Agreement by Purchaser and the consummation by
Purchaser of the transactions contemplated hereby shall have
been obtained or made.
(f) LEGISLATION. No law or legally binding regulation
shall have been enacted that does or would prohibit, restrict
or delay consummation of the Transactions or any of the
conditions to the consummation of the Transactions or that
does or would have a Material Adverse Effect on the Company.
(g) LITIGATION. There shall be no effective injunction,
writ or preliminary restraining order or any other Order of
any nature issued by a Tribunal of competent jurisdiction
restraining or prohibiting consummation or altering the terms
of any of the transactions provided for herein, or actions
seeking damages based upon the foregoing.
(h) NO ADVERSE CHANGE. There shall have occurred no
adverse change (whether or not covered by insurance) in the
assets or financial condition of the Company since May 31,
1996 or in the information furnished to Purchaser by the
Company or the Shareholders with respect to the Company prior
to the date hereof except as set forth in the Disclosure
Schedule.
(i) PURCHASER'S INVESTIGATION. The investigations by
Purchaser and its representatives in connection with the
proposed Transactions shall not have caused Purchaser, or its
representatives to become aware of any facts or circumstances
(even if such facts or circumstances were previously disclosed
to the Purchaser in the Disclosure Schedule or elsewhere in
the Operative Documents) which relate to the business,
operations, assets, properties, liabilities, financial
conditions, results of operation or affairs of the Company
that, in the sole judgment of Purchaser make it inadvisable
for Purchaser to proceed with the Transactions contemplated by
this Agreement.
(j) INDEBTEDNESS. At Closing, the Company shall have no
Indebtedness of any kind or nature except as disclosed in
Section 2.29(ii) of the Disclosure Schedule.
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(k) AUDITED FINANCIAL STATEMENTS. Purchaser shall have
received revised Annual Financial Statements which have been
audited without qualification and do not show any deviation or
departure from GAAP and such revised Financial Statements for
the year ended (and as of) May 31, 1996. All of the costs
associated with the audit shall be borne by Purchaser except
as reflected by the Audit Bid Amount previously expensed by
the Company. Such revised Annual Financial Statements shall
be found to be satisfactory to Purchaser in its sole and
absolute discretion.
(l) CARRIER AGREEMENTS. Except as set forth on Section
2.26 of the Disclosure Schedule, all Carrier Agreements with
the Company shall be terminable by the Company upon not more
than thirty days written notice without premium or penalty.
(m) CIC CODES AND ACCESS CODES. No Person shall have
the right to terminate the use by the Company of the CIC Codes
and Access Codes upon consummation of the transactions
contemplated hereby.
(n) INVESTOR NOTES. The Company and the Shareholders
shall have delivered to Purchaser (1) an executed release by
each such holder in form and substance satisfactory to
Purchaser which indicates that the Investor Notes are paid in
full, and (2) checks dated January 7, 1997 payable to the
order of each such holder in the full amounts set forth on
"Exhibit D" hereto for mailing by registered mail to such
holders of the Investor Notes.
(o) WHOLESALE BAD DEBT. The Company shall have expensed
fully in the month ended October 31, 1996 an amount equal to
the Wholesale Bad Debt.
(p) LENDER CONSENT. Purchaser shall have received the
consent of Greyrock Business Credit to consummation of the
transactions contemplated by this Agreement, if required.
(r) WORLDCOM. The Company shall have withdrawn its
Motion for Temporary Retraining Order, Preliminary Injunctive
Relief and Complaint No. USDC 96-4108 Sect K. Mag 4 in
accordance with the letter agreement executed by WorldCom,
Inc., the Purchaser and the Company.
ARTICLE 6. CLOSING DATE AND TERMINATION OF AGREEMENT
SECTION 6.1 CLOSING DATE.
(a) Subject to the right of the Purchaser and the
Company to terminate this Agreement pursuant to Article 7
hereof, the closing for the consummation of the transactions
contemplated by this Agreement (the "Closing") shall, unless
another date or place is agreed to in writing by the Company
and Purchaser, take place at the offices of Purchaser at 3:00
p.m. on January 10, 1997 or such later date prior to January
15, 1996 as the parties may agree upon in writing (the
"Closing Date").
(b) At the Closing, the Company and the Shareholders, as
applicable, shall deliver, or cause to be delivered to the
Purchaser, the following:
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(1) the original stock certificates representing
the Shares, together with stock powers duly endorsed in
blank;
(2) the opinion of counsel for the Company and the
Shareholders referred to in Section 5.3(b);
(3) the certificate referred to in Section 5.3(d),
dated as of the Closing Date;
(4) resignations of the directors and officers of
the Company;
(5) good standing certificates (as to valid
existence and franchise tax payments) from the
appropriate governmental authorities in California and
each other jurisdiction listed on Section 2.1 of the
Disclosure Schedule;
(6) the Nonsolicitation Agreements executed by each
of the Shareholders and the Pledge Agreement executed by
the Shareholder Agent;
(7) certified copies of the resolutions of the
Board of Directors, authorizing the execution, delivery
and performance of the Operative Documents;
(8) evidence of the payment in full of the Investor
Notes and the releases executed by each of the holders of
the Investor Notes; and
(9) the corporate minute books, stock transfer
ledgers, blank certificate books and corporate seal of
the Company.
(c) At the Closing, Purchaser shall cause to be
delivered to Shareholders the following:
(1) the certificate referred to in Section 5.2(b)
dated as of the Closing Date;
(2) the Pledge Agreement executed by USC and the
Pledged Shares;
(3) certified copies of the resolutions of the
Board of Directors of Purchaser, authorizing the
execution, delivery and performance of the Operative
Documents;
(4) the amounts of the wire transfers to be made
pursuant to Section 1.6(b) hereof.
ARTICLE 7. AMENDMENT
SECTION 7.1 AMENDMENT. This Agreement and the exhibits and
schedules hereto may be amended by the parties hereto at any time
after the Closing Date; provided, however, that any amendment must
be by an instrument or instruments in writing signed and delivered
on behalf of each of the parties hereto.
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ARTICLE 8. INDEMNIFICATION
SECTION 8.1 INDEMNITY.
(a) Shareholders jointly and severally agree to
indemnify and hold Purchaser, its subsidiaries (including the
Company), and their respective officers, directors, agents,
attorneys and accountants ("Purchaser Indemnitees") harmless
from any and all damages, losses (which shall include any
diminution in value), liabilities (joint or several),
payments, obligations, penalties, claims, litigation, demands,
defenses, judgments, suits, proceedings, costs, disbursements
or expenses (including without limitation, fees, disbursements
and expenses of attorneys, accountants and other professional
advisors and of expert witnesses and costs of investigation
and preparation) of any kind or nature whatsoever
(collectively "Damages"), directly or indirectly resulting
from, relating to or arising out of:
(i) an actual or alleged breach or nonperformance
(partial or total) of or inaccuracy in any representation
or warranty or covenant or agreement of any of
Shareholders or the Company contained in any Operative
Document;
(ii) an actual or alleged breach or nonperformance
(partial or total) by the Company or any of the
Shareholders of any covenant or agreement of any of
Shareholders or the Company (or any Affiliate thereof)
contained in any Operative Document;
(iii) all claims based on any Plans of
whatsoever nature (including all liabilities to any
Person under ERISA and all liabilities to any Tribunal)
or for salary or other compensation, worker's
compensation claims, and benefits attributable to service
or to employment by the Company prior to the Closing;
(iv) the success fee of Maverick and all alleged
claims by any broker or finder against the Company or
Purchaser as a result of an alleged Contract or Agreement
with the Company or the Shareholders in connection with
the transactions contemplated hereby;
(v) all litigation disclosed on Section 2.9 of the
Disclosure Schedule with respect to actions or omissions
of the Company or event occurring prior to the Closing;
(vi) the matters set forth in Section 5 of the
Letter Agreement to the extent set forth therein;
(vii) all other alleged violations of any local,
state, or federal laws, rules or regulations relating to
any aspect of the Company's Business and transfer of
ownership of the Shares where such claims arise out of
circumstances occurring prior to the Closing Date.
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(viii) all alleged violations of any local, state or
federal laws, rules or regulations relating to the
employment relationship (such as the use of independent
contractors, termination of employment, wages, hours,
concerted activity, discrimination, occupational health
and safety and the payment and withholding of Taxes),
where such claims arise out of circumstances occurring
prior to the Closing Date.
(ix) any claims based on the use of scientology
concepts in the Company's employee handbook on or prior
to the Closing Date.
The Company shall have the right to control any defense
of any Claim for which Purchaser may seek indemnification
except for those defenses raised in response to any claim
made by any of the Shareholders.
(b) Subject to Section 8.1(c) hereof, from and after the
Closing Date, Purchaser shall indemnify and hold the
Shareholders and their representatives, officers, directors,
agents, attorneys and accountants ("Seller Indemnitees")
harmless from and against, any and all liability, damage,
loss, cost or expense (including reasonable attorneys fees)
that is based upon or that arises out of any actual or
alleged breach or nonperformance (partial or total) of any
representation or warranty, covenant or agreement of Purchaser
contained in this Agreement or any other Operative Document.
In addition, after the Closing, each Shareholder who serves as
an officer and employee of the Company shall be entitled to
the benefits of the indemnification provisions set forth in
Purchaser's bylaws to the same extent as any other officer and
employee of Purchaser or its subsidiaries is so entitled.
(c) Each Shareholder shall retain liability, and shall
jointly and severally indemnify Purchaser, for the payment of
any Tax liabilities of the Company with respect to its assets
and the conduct of its Business during all periods ending as
of or prior to the Closing.
(d) In order to seek indemnification from the
Shareholders for any amount beyond the amounts held in escrow
pursuant to the provisions of Section 1.5 and Section 1.7
hereof, Purchaser shall give the Shareholder Agent written
notice of a claim (an "Indemnification Notice") that Purchaser
has under Article 8 of this Agreement stating the dollar
amount of the Damages claimed. Within 10 Business Days after
an Indemnification Notice is received by the Shareholder
Agent, the Shareholder Agent shall have the right to file with
Purchaser written notice that the Shareholders intend to
contest Purchaser's claim. If, within such 10 Business Day
period, Purchaser does not receive such notice from the
Shareholder Agent or receives notice from the Shareholder
Agent that such claim is uncontested, Purchaser shall be
entitled to indemnification in the amount of Damages claimed
in the Indemnification Notice without further action
hereunder. If within such 10 Business Day period, Purchaser
shall receive notice from the Shareholder Agent of the
intention of the Shareholders to contest Purchaser's
Indemnification Notice, the Purchaser and Shareholder Agent
shall attempt to reach a mutually satisfactory agreement with
respect to such claim. In the event the Purchaser and
Shareholder Agent shall not reach a mutually satisfactory
agreement with respect to such claim within thirty days of
receipt of the notice
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from the Shareholder Agent to contest Purchaser's
Indemnification Notice, such claim shall be submitted to
Arbitration in accordance with Section 9.9 hereof. In the
event that Purchaser is not paid the entire amount of Damages,
if any, to which Purchaser is entitled with respect to any
claim under Article 8 of this Agreement within 5 days of the
earlier to occur of: (i) receipt of written notice from the
Shareholder Agent consenting to Damages; (ii) receipt of a
written final decision of the Arbitration Panel pursuant to
Section 9.9 directing disposition of a specified amount of
Damages to Purchaser after Arbitration, Purchaser shall be
entitled to receive from the Shareholders, in addition to the
amount of Damages so agreed or awarded, an amount equal to 10%
of the amount not paid as a penalty hereunder.
(e) In order to seek indemnification from
Purchaser, the Shareholder Agent shall give the Shareholder
Agent written notice of a claim (an "Shareholder
Indemnification Notice") that the Shareholders have under
Article 8 of this Agreement stating the dollar amount of the
Damages claimed. Within 10 Business Days after an Shareholder
Indemnification Notice is received by Purchaser, Purchaser
shall have the right to file with the Shareholder Agent
written notice that Purchaser intends to contest claim. If,
within such 10 Business Day period, the Shareholder Agent does
not receive such notice from Purchaser or receives notice from
Purchaser that such claim is uncontested, the Shareholder
Agent on behalf of the Shareholders shall be entitled to
indemnification in the amount of Damages allocated in
accordance with the Shareholder Percentages claimed in the
Indemnification Notice without further action hereunder. If
within such 10 Business Day period, the Shareholder Agent
shall receive notice from Purchaser of the intention of
Purchaser to contest the Shareholder's Indemnification Notice,
the Purchaser and Shareholder Agent shall attempt to reach a
mutually satisfactory agreement with respect to such claim.
In the event the Purchaser and Shareholder Agent shall not
reach a mutually satisfactory agreement with respect to such
claim within thirty days of receipt of the notice from
Purchaser to contest the Shareholder's Indemnification Notice,
such claim shall be submitted to Arbitration in accordance
with Section 9.9 hereof. In the event that the Shareholder
Agent is not paid the entire amount of Damages, if any, to
which the Shareholders are entitled with respect to any claim
under Article 8 of this Agreement within 5 days of the earlier
to occur of: (i) receipt of written notice from Purchaser
consenting to Damages; (ii) receipt of a written final
decision of the Arbitration Panel pursuant to Section 9.9
directing disposition of a specified amount of Damages to the
Shareholder Agent after Arbitration, the Shareholder Agent on
behalf of the Shareholders in accordance with the
Shareholder's Percentages shall be entitled to receive from
Purchaser, in addition to the amount of Damages so agreed or
awarded, an amount equal to 10% of the amount not paid as a
penalty hereunder.
SECTION 8.2 INDEMNIFICATION IF NEGLIGENCE OF INDEMNITEE.
The indemnification provided in this Article 8 shall be applicable
whether or not negligence of the applicable Purchaser Indemnitee or
Seller Indemnitee is alleged or proven.
SECTION 8.3 NO THIRD PARTY BENEFICIARIES. The foregoing
indemnification is given solely for the purpose of protecting the
parties to this Agreement and the Purchaser Indemnitees and the
Seller Indemnitees and shall not be deemed extended to, or
interpreted in a manner to confer any benefit, right or cause of
action upon, any other Person.
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SECTION 8.4 REMEDIES OF PURCHASER. In any proceeding by
Purchaser to assert or prosecute any claims under, or to otherwise
enforce, this Agreement, the Shareholders covenant and agree that
they shall not assert as a defense or bar to recovery by Purchaser,
and hereby waive any right to so assert such defense or bar such
recovery, that (a) prior to Closing, the Company shall have had
knowledge of the circumstances giving rise to the claim being
pursued by it; (b) prior to Closing, the Company engaged in conduct
or took action that caused or brought about the circumstances
giving rise to its claim, or otherwise contributed thereto; or (c)
the Company is estopped from asserting or recovering upon its claim
by reason of having joined in the representations, warranties and
covenants made by the parties in this Agreement; or (d) the
Shareholders have a right of contribution from the Company to the
extent that there is any recovery against them.
ARTICLE 9. GENERAL PROVISIONS AND OTHER AGREEMENTS
SECTION 9.1 NOTICES. All notices and other communications
hereunder shall be in writing and shall be deemed given if and when
delivered personally or transmitted by telex, telecopy or telegram,
mailed by registered or certified mail (return receipt requested)
or sent by a recognized next business day courier to the following
Persons at the following addresses (or at such other address for a
party as shall be specified by like notice):
(a) If to Purchaser:
1600 Promenade Center, 15th Floor
Richardson, Texas 75080
Attention: Jack W. Matz, Jr., Chairman and Chief
Executive Officer
Telecopy: (972) 889-1543
with a copy to:
Lynn H. Johnson, Vice President and General Counsel
at the same address
(b) If to the Company:
143 S. Glendale Ave., Third Floor
Glendale, California 91205
Attention: Aviram Lonstein, President
Telecopy: (818) 265-3027
with a copy to:
Benjamin W. Bronston
Nowalsky & Bronston, L.L.P.
3500 North Causeway Boulevard, Suite 1442
Metairie, Louisiana 70002
Telecopy: (504) 831-0892
36
<PAGE>
(c) If to the Shareholders:
Charles Tony Lonstein
14235 Dickens St. #1
Sherman Oaks, CA 91423
with copies to:
Aviram Lonstein
1714 Gladys Dr.
Glendale, California 91206
Daniel G. Lonstein
444 Piedmont Avenue, #304
Glendale, California 91206
David R. Lonstein
6238 Aura Avenue
Tarzana, California 91335
SECTION 9.2 FEES AND EXPENSES. The Company shall pay all
fees, costs and expenses (including without limitation, those of
accountants, appraisers and attorneys) of the Company and their own
fees, costs and expenses (including without limitation, those of
accountants and attorneys) incurred in connection with or related
to the preparation, negotiation, execution, delivery, satisfaction,
compliance and consummation of this Agreement and the transactions
contemplated hereby and the closing conditions hereunder. Except
as provided in Section 4.3 hereof, Purchaser shall pay its own such
fees, costs and expenses (including without limitation, those of
accountants and attorneys) and the fees of Nowalsky & Bronston,
L.L.P. in connection with the regulatory approvals required in the
Primary Jurisdictions for the change of ownership of the Company.
The Shareholders shall pay the success fee due Maverick.
SECTION 9.3 INTERPRETATION. The headings contained in this
Agreement are for reference purposes only and shall not affect the
meaning or interpretation of this Agreement. Terms such as
"herein," "hereof," "hereinafter" refer to this Agreement as a
whole and not to the particular sentence or paragraph where they
appear, unless the context otherwise requires. Terms used in the
plural include the singular, and vice versa, unless the context
otherwise requires.
SECTION 9.4 COUNTERPARTS. This Agreement may be executed
in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the
same instrument.
SECTION 9.5 MISCELLANEOUS. This Agreement and the
Operative Documents (a) constitutes the entire agreement and
supersedes all other prior Contracts or Agreements, both written
and oral, among the parties, or any of them, with respect to the
subject matter hereof; (b) is not intended to and shall not confer
upon any other Person any rights or remedies hereunder or otherwise
with
37
<PAGE>
respect to the subject matter hereof, except for rights that may
expressly arise as a consequence of the Transaction; (c) shall not
be assigned by operation of law or otherwise; (d) has been drafted
by all of the parties to this Agreement and should not be construed
against any of the parties hereto; and (e) shall be governed in all
respects, including validity, interpretation and effect by the
substantive laws of the State of Texas without regard to conflict
of law provisions.
SECTION 9.6 SURVIVAL. No investigation by the parties
hereto made heretofore or hereafter shall affect the
representations and warranties of the parties that are contained
herein, and each such representation and warranty shall survive
such investigation and the consummation of the transaction
contemplated by this Agreement until the earlier to occur of (i)
the end of the applicable statute of limitations period with
respect to the matter addressed by any other claim for
indemnification hereunder and (ii) January 10, 2000, except (A) as
to matters which notice has been given by Purchaser to the
Shareholder Agent prior to that date, (ii) as to Tax matters, which
shall survive until the running of the applicable statute of
limitations with respect to such Tax matter, and (iii) with
respect to the representations and warranties of the Shareholders
in Section 2.38 which shall survive indefinitely.
SECTION 9.7 INDEPENDENT OBLIGATIONS OF SHAREHOLDERS. Each
of the Shareholders acknowledges and agrees that such Shareholder's
execution hereof constitutes such Shareholder's agreement to be
bound irrespective of any other Shareholder's execution hereof. In
no event shall Purchaser be bound by the terms hereof unless all
Shareholders agree to be bound by the terms hereof. In no event
shall any Shareholder who fails to execute this Agreement be
entitled to any payment hereunder or under any document or
transaction contemplated hereby.
SECTION 9.8 OFFER OF EMPLOYMENT AND SALARY REDUCTION. The
Company and the Shareholders hereby agree that, in the event the
Closing occurs:
(a) the Shareholders shall continue to be employed full-
time by the Company for a period of six full months following
the Closing (the "Employment Period") at the following monthly
salaries with the following titles:
Aviram Lonstein President $10,000
Charles Tony Lonstein Employee $10,000
David G. Lonstein Vice President $ 6,333
Daniel R. Lonstein Vice President $10,000
and the duties and responsibilities of each such Shareholder
shall be decided by the Company's Chairman and Chief Executive
Officer. The parties understand and agree that Charles Tony
Lonstein may resign from employment after providing two weeks
written notice to the Company and Purchaser, and that such
resignation shall not be considered a breach of this Section
9.8.
(b) in the event that EBITDA is not greater or equal to
$100,000 each calendar month during the third through sixth
calendar month following the Closing Date, each such
Shareholder's salary shall be proportionately reduced (based
upon the amount of such
38
<PAGE>
Shareholder's monthly salary) by the amount by which the Company's
monthly EBITDA is less than $100,000; provided, however, in no
event shall a Shareholder's monthly salary be reduced below 65% of
the monthly salary stated above. For purposes of the calculation
of EBITDA, (i) Purchaser will not allocate any costs to the Company
for a method of business not being conducted by the Company on or
prior to Closing, and (ii) Purchaser will not allocate any costs
or expenses of its other operations to the Company.
(c) if a Shareholder does not maintain full-time
employment during the Employment Period for any reason, such
Shareholder's salary shall cease on the date of termination of
such employment; provided however, that the Company shall not
terminate a Shareholder solely for the purpose of reducing
salaries.
SECTION 9.9 ARBITRATION. In the event of any dispute,
controversy or claim of any kind or nature arising under or in
connection with this Agreement (excluding the calculation of the
Debt Adjustment, which shall be resolved in accordance with Section
1.5), the parties are unable to resolve through informal
discussions or negotiations, the parties agree to submit such
dispute, controversy or claim to arbitration in accordance with the
following procedures:
(a) Either the Shareholder Agent or Purchaser may demand
arbitration by giving the other parties written notice to such
effect, which notice will (i) describe, in reasonable detail,
the nature of the dispute, controversy or claim, the amount,
if any, involved and the remedy sought, and (ii) name an
independent arbitrator who is experienced in the resolution of
disputes, controversies or claims of such a nature. In
addition, such party demanding arbitration shall take such
steps as are necessary to commence arbitration proceedings
under the rules of the American Arbitration Association
(including, without limitation, the payment of any
administrative fees provided thereunder). Within 10 Business
days after the other party's receipt of such demand, such
other party will name a second independent arbitrator who is
experienced in the resolution of disputes, controversies or
claims of such a nature. The two arbitrators so named will
promptly select a third neutral arbitrator who is experienced
in the resolution of disputes, controversies and claims of
such a nature. The arbitration will be heard by a panel of
the three arbitrators so chosen (the "Arbitration Panel") in
Dallas, Texas, and the resolution of the dispute, controversy
or claim will be determined by a majority vote of the
Arbitration Panel. The Commercial Arbitration Rules of the
American Arbitration Association will govern the conduct of
the arbitration.
(b) The Arbitration Panel may apportion between the
parties as the Arbitration Panel may deem equitable the fees,
costs and expenses of the arbitration incurred by the parties;
provided, however that Purchaser and the Shareholders,
respectively, shall be responsible for fees and expenses of
the arbitrator selected by the Shareholder Agent, and the fees
and expenses of the third arbitrator shall be borne equally by
Purchaser and the Shareholders, respectively. The Arbitration
Panel may not award interest on any awards made by the
Arbitration Panel.
39
<PAGE>
(c) Any award rendered by the Arbitration Panel will be
final, conclusive and binding upon the parties and any
judgment thereon may be entered and enforced in any court of
competent jurisdiction. Other than actions for temporary and
permanent injunctive relief or specific performance or any
action necessary to enforce the award of the Arbitration
Panel, the provisions of this Section 9.9 will constitute the
exclusive remedy of the parties and a complete defense to any
suit, action or other proceeding instituted in any court or
before any administrative tribunal with respect to any
dispute, controversy or claim arising under or in connection
with this Agreement or the other Contracts or Agreements
contemplated hereby. Notwithstanding any other provision in
this Section 9.9 to the contrary, the Arbitration Panel will
not have the authority to amend the provisions of this Section
9.9 without obtaining the prior written consent of the
Company and Purchaser.
40
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement or have caused this Agreement to be executed by their
duly authorized officers.
SA TELECOMMUNICATIONS, INC.
By: /s/ John H. Nugent
--------------------------------
John H. Nugent
Vice President
ADDTEL COMMUNICATIONS, INC.
By: /s/ Charles Tony Lonstein
--------------------------------
Charles Tony Lonstein
President
SHAREHOLDERS:
/s/ Aviram Lonstein
-----------------------------------
Aviram Lonstein
/s/ Charles Tony Lonstein
------------------------------------
Charles Tony Lonstein
/s/ Daniel G. Lonstein
------------------------------------
Daniel G. Lonstein
/s/ David R. Lonstein
------------------------------------
David R. Lonstein
41
<PAGE>
SPOUSAL CONSENT
The undersigned, in her individual capacity as the spouse of
the Shareholder listed opposite her name, does hereby execute this
Agreement below for the purposes of (i) indicating her
understanding of, and binding her to perform in accordance with the
provisions of this Agreement, (ii) binding her community property
interest, if any, in the Shares now or hereafter owned by her
spouse and (iii) acknowledging that if the Shares owned by her
spouse is community property, it is the special community property
of such spouse, subject to the exclusive control and dominion of
said spouse.
<TABLE>
<CAPTION>
Spouse Shareholder Date
<S> <C> <C>
/s/ Joan Lonstein
- ------------------Joan Lonstein Charles Tony Lonstein January 7, 1997
</TABLE>
State of California
County of Los Angeles
Before me, the undersigned notary, personally appeared Joan
Lonstein, known to me to be the person whose name is subscribed to
the foregoing instrument, and acknowledged to me that she executed
the same for the purposes and consideration therein expressed.
Sworn to and subscribed before me, this 7th day of January,
1997.
[Seal}
/s/ Signature Illegible
- ------------------------
Notary Public
My Commission Expires: 9-3-98
---------
42
<PAGE>
SPOUSAL CONSENT
The undersigned, in her individual capacity as the spouse of
the Shareholder listed opposite her name, does hereby execute this
Agreement below for the purposes of (i) indicating her
understanding of, and binding her to perform in accordance with the
provisions of this Agreement, (ii) binding her community property
interest, if any, in the Shares now or hereafter owned by her
spouse and (iii) acknowledging that if the Shares owned by her
spouse is community property, it is the special community property
of such spouse, subject to the exclusive control and dominion of
said spouse.
<TABLE>
<CAPTION>
Spouse Shareholder Date
<S> <C> <C>
/s/ Ravit Lonstein
- -------------------Ravit Lonstein David R. Lonstein January 7, 1997
</TABLE>
State of California
County of Los Angeles
Before me, the undersigned notary, personally appeared Ravit
Lonstein, known to me to be the person whose name is subscribed to
the foregoing instrument, and acknowledged to me that she executed
the same for the purposes and consideration therein expressed.
Sworn to and subscribed before me, this 7th day of January,
1997.
[Seal}
/s/ Signature Illegible
- ------------------------
Notary Public
My Commission Expires: May 5, 2000
--------------
43
<PAGE>
SPOUSAL CONSENT
The undersigned, in her individual capacity as the spouse of
the Shareholder listed opposite her name, does hereby execute this
Agreement below for the purposes of (i) indicating her
understanding of, and binding her to perform in accordance with the
provisions of this Agreement, (ii) binding her community property
interest, if any, in the Shares now or hereafter owned by her
spouse and (iii) acknowledging that if the Shares owned by her
spouse is community property, it is the special community property
of such spouse, subject to the exclusive control and dominion of
said spouse.
<TABLE>
<CAPTION>
Spouse Shareholder Date
<S> <C> <C>
/s/ Dalit L. Lonstein
- -----------------------Dalit L. Lonstein Daniel G. Lonstein January 7, 1997
</TABLE>
State of California
County of Los Angeles
Before me, the undersigned notary, personally appeared Dalit
L. Lonstein, known to me to be the person whose name is subscribed
to the foregoing instrument, and acknowledged to me that she
executed the same for the purposes and consideration therein
expressed.
Sworn to and subscribed before me, this 7th day of January,
1997.
[Seal}
/s/ Signature Illegible
- ------------------------
Notary Public
My Commission Expires: Feb. 9, 2000
----------------
44
<PAGE>
LIST OF SECTIONS TO DISCLOSURE SCHEDULE
Section 2.1 Foreign Qualification States
Section 2.5 Consents and Approvals of Tribunals
Section 2.8(a) Real Property Owned and Leased; Tangible
Personal Property Leases
Section 2.8(b) Exceptions to Good Operating Condition
Section 2.8(c) Exceptions to Compliance with Laws
Section 2.9 Litigation
Section 2.10 Changes Since Mary 31, 1996
Section 2.11(a) Liabilities and Commitments
Section 2.11(b) Defaults
Section 2.12 Environmental Matters Exceptions
Section 2.13 Employee Benefit Plans
Section 2.14 Labor Matters
Section 2.15(a) Tax Disclosure
Section 2.15 Tax Audits
Section 2.17(a) Proprietary Rights
Section 2.17(b) Confidentiality Agreements
Section 2.17(c) Owned Software
Section 2.22 States in which Is Certification Required and
Is Not Required
Section 2.25 Insurance
Section 2.26 Material Contracts
Section 2.27(a) Accounts Receivable
Section 2.28 Accounts Payable
Section 2.29(a) Agreement Involving $5,000 or more and Not
Terminable in 30 days
Section 2.29(b) Employee Benefit Programs
Section 2.29(c) Compensation, Noncompetition, Severance and
Consulting Agreements
Section 2.29(d) Indebtedness for Borrowed Money and Guarantees
Section 2.29(e) Employees
Section 2.29(f) Capital Assets
Section 2.29(g) Income Tax Returns
Section 2.29(h) All Consents
Section 2.29(i) Permits and Tariffs
Section 2.29(j) Agreements with Competitors
Section 2.29(k) Ten Largest Customers and Suppliers
Section 2.29(l) Financing Statements
Section 2.29(m) Trade-out Arrangements
Section 2.29(n) CIC Codes and Access Codes
Section 2.30 Bank Accounts
Section 2.31 Product and Service Warranties
Section 2.32 Transactions with Affiliates
(i)
<PAGE>
LIST OF EXHIBITS
Exhibit A Form of Nonsolicitation Agreement
Exhibit B Pledge Agreement
Exhibit C Opinion of Counsel for the Company and
Shareholders
Exhibit D Investor Notes Schedule
Exhibit E Deposits and Prepayments Existing on the
Closing Date
Pursuant to Item 601(b)(2) of Regulation S-K, this exhibit omits
certain nonmaterial schedules and exhibits comprising a part of the
original document. The following items have been omitted from this
exhibit: all sections of the Disclosure Schedule, Exhibit C-Opinion
of Counsel for the Company and Shareholders, Exhibit D-Investor
Notes Schedule, and Exhibit E-Deposits and Prepayments Existing on
the Closing Date. The Company agrees to supplementally furnish a
copy of any of the omitted items to the Securities and Exchange
Commission upon request.
<PAGE>
EXHIBIT A
NONSOLICITATION AGREEMENT
This Nonsolicitation Agreement (this "Agreement") is made and
entered into as of January 10, 1997 (the "Effective Date"), by and
between _________________, ("Shareholder"), and SA
Telecommunications, Inc, a Delaware corporation ("Purchaser").
WHEREAS, Shareholder is the holder of certain shares of the
outstanding capital stock of Addtel Communications, Inc., a
California corporation ("Addtel"); and
WHEREAS, in accordance with the terms of that certain Stock
Purchase Agreement dated as of January 10, 1997 by and among
Purchaser, Addtel, the Shareholder and the holders of the remaining
capital stock of Addtel (the "Stock Purchase Agreement"), the
Shareholder, in order to preserve the value and good will of Addtel
and as a material inducement for the closing of the Stock Purchase
Agreement, has agreed to enter into this Agreement.
WHEREAS, Addtel is currently serving customers in the states
of Arizona, California, Connecticut, Colorado, Delaware, District
of Columbia, Florida, Georgia, Illinois, Indiana, Kansas, Kentucky,
Louisiana, Maryland, Massachusetts, Michigan, Minnesota, Missouri,
New Hampshire, New Jersey, New York, Nevada, North Carolina, Ohio,
Oregon, Pennsylvania, Rhode Island, South Carolina, Tennessee,
Texas, Washington, Wisconsin, West Virginia, Utah, Vermont and
Virginia;
WHEREAS, in connection with the Stock Purchase Agreement,
Shareholder has been paid $_____ and is entitled to an additional
$_________ being held in escrow under the Stock Purchase Agreement
subject to adjustments and other distributions as provided in the
Stock Purchase Agreement;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and agreements set forth herein, the parties
hereto agree as follows:
1. DEFINITIONS. Unless otherwise stated in this Agreement,
the following terms shall have the following meanings, and other
capitalized terms used herein and not otherwise defined herein
shall have the meaning ascribed to such terms in the Stock Purchase
Agreement.
AGENTS AND SUBAGENTS shall mean any Person which directly or
indirectly resells the telecommunications services of any of the
Protected Parties on the Effective Date or on the earlier to occur
of the Termination Date or the Six Month Anniversary Date.
COMPETING BUSINESS shall mean any business conducted by a
Person which is engaged in any business of any of the Protected
Parties that such Protected Party is conducting on the Effective
Date.
CUSTOMERS shall mean any Person who has used the
telecommunications services of any of the Protected Parties (1) on
the Effective Date or at any time during the 12 months preceding
the
1
<PAGE>
Effective Date or (2) on the earlier to occur of the Termination
Date or the Six Month Anniversary Date.
CUSTOMER DATA shall mean with respect to any Person, all of
the Person's customer lists, lists of potential customers, sales
records and other customer data (including credit data) relating to
the business of such Person.
EMPLOYEE shall mean any Person (excluding the Shareholder) who
is an active employee of any of the Protected Parties.
PROTECTED PARTIES shall mean Addtel, Purchaser and any of
Purchaser's Affiliates.
RESTRICTED PERIOD shall mean a period beginning on the
Effective Date and ending five years from the Effective Date.
SUPPLIER DATA shall mean with respect to any Person, all of
the Person's supplier lists and publications of potential
suppliers, transmission carriers, switched service providers and
other supplier data relating to the purchase of raw materials,
utilities and other supplies used in connection with the business
of such Person.
TERMINATION DATE shall mean the date upon which Shareholder's
employment with Addtel ceases for any reason.
VENDORS shall mean any Person that furnishes goods or services
to any of the Protected Parties on the Effective Date or on the
earlier to occur of the Termination Date or the Six Month
Anniversary Date.
2. NONSOLICITATION. During the Restricted Period, the
Shareholder hereby agrees that he shall not, directly or
indirectly, solicit or interfere, for the benefit of any Competing
Business, with the Customers, Agents or Subagents, and Employees of
any of the Protected Parties in any county of each state in which
Addtel conducts business on the Effective Date. Without in any
manner limiting the scope of the foregoing provisions, if the
Shareholder engages in any of the following acts, he shall be
considered to have violated this covenant: (a) induces or attempts
to induce any Customer to withdraw, curtail, divert or cancel its
business or any agreements with any of the Protected Parties; (b)
induces or attempts to induce any Employee of any of the Protected
Parties to terminate his or her employment with such Person; (c)
induces or attempts to induce any Vendor providing services on
behalf of any of the Protected Parties to terminate such Vendor's
business relationship with such Protected Party; (d) develops any
materials or rights (whether contractual, property or otherwise)
utilizing the confidential information of any of the Protected
Parties, except for the benefit of the Protected Parties; or (e)
disrupts in any manner whatsoever any existing business
relationship of any of the Protected Parties. For purposes of this
Agreement, confidential information shall exclude general industry
knowledge and know how.
2
<PAGE>
3. CONFIDENTIALITY AND NON-DISCLOSURE. The Shareholder
acknowledges and agrees that he has had and may in the future have
access to certain trade secrets and confidential information of a
proprietary nature to Addtel, including without limitation Customer
Data and Supplier Data. The Shareholder acknowledges and agrees
that all trade secrets and confidential information are valuable
and unique assets of Addtel or its Customers, the confidentiality
of which is essential to Addtel's ability to differentiate its
products and services, to compete and to fulfill its contractual
obligations. The Shareholder also acknowledges and agrees that
Addtel or its Customers will retain a proprietary interest in such
information that will persist beyond termination of his or her
affiliation with Addtel. The Shareholder agrees that he (a) will
not intentionally disclose such information to other parties; (b)
will take reasonable precautions to protect against the inadvertent
disclosure of such information or the theft or misappropriation of
such information by others; and (c) will make no use of such
information except as requested by any of the Protected Parties.
All documentation relating to the trade secrets and confidential
information of Addtel or its Customers shall remain the exclusive
property of Addtel or its Customers and such information shall not
be removed from the premises of Addtel or its Customers without
Purchaser's prior written consent.
4. NO BREACH. Shareholder represents and warrants that the
execution and delivery of this Agreement and his performance and
consummation of the transactions contemplated under this Agreement,
does not and will not, conflict, breach, or constitute a default
under any other agreement, instrument, covenant or restriction that
Shareholder is a party to or otherwise bound by.
5. RELIEF. In the event of breach or threatened breach by
Shareholder of any provision of this Agreement, Purchaser shall be
entitled to (a) relief by temporary restraining order, temporary
injunction, permanent injunction or otherwise, as issued by a court
of law or equity, (b) recovery of all attorneys' fees and costs
incurred by Purchaser in obtaining such relief, and (c) any other
legal and equitable relief to which it may be entitled, including,
but not limited to, any and all monetary damages which Purchaser
may incur as a result of said breach or threatened breach or
violation. Purchaser may pursue any remedy available to it,
including declaratory relief, concurrently or consecutively in any
order as to any breach, violation, or threatened breach or
violation, and the pursuit of one such remedy at any time will not
be deemed an election of remedies or waiver of the right to pursue
any other remedy. Purchaser has the right to pursue partial
enforcement and/or to seek declaratory relief regarding the
enforceable scope of this Agreement without penalty and without
waiving Purchaser's right to pursue any other available remedy
subject to or concurrently with declaratory relief. The covenants
contained in this Agreement are independent, and the existence of
any claim or cause of action of the Shareholder against Purchaser,
whether predicated on this Agreement, the Stock Purchase Agreement
or otherwise, shall not constitute a defense to the enforcement of
this Agreement by Purchaser.
6. EXTENSION OF RESTRICTED PERIOD FOR INJUNCTIVE RELIEF. If
the Shareholder violates the restrictive covenants of Section 1
above and Purchaser brings legal action for injunctive or other
relief under Section 5 above, Purchaser shall not be deprived of
the benefit of the full period of the Restricted Period as a result
of the time involved in obtaining the relief.
3
<PAGE>
7. ILLEGAL, INVALID OR UNENFORCEABLE PROVISIONS. If any
provision of this Agreement is held to be illegal, invalid, or
unenforceable under present or future laws effective during the
term of this Agreement, such provision shall be fully severable;
this Agreement shall be construed and enforced as if such illegal,
invalid, or unenforceable provision had never comprised a part of
this Agreement; and the remaining provisions of this Agreement
shall remain in full force and effect and shall not be affected by
the illegal, invalid, or unenforceable provision or by its
severance from this Agreement. Furthermore, in lieu of each such
illegal, invalid, or unenforceable provision, there shall be added
automatically, as a part of this Agreement, a provision as similar
in terms to such illegal, invalid, or unenforceable provision as
may be possible and be legal, valid and enforceable. Moreover, if
any one or more of the provisions contained in this Agreement
shall, for any reason, be held to be excessively broad as to time
duration, geographical scope, activity, or subject, it shall be
construed, by limiting and reducing it, so as to be enforceable to
the extent compatible with the applicable law as it shall then
appear.
8. DISPUTES. In the event any party hereto seeks any
judicial determination of any of its rights or obligations
contained herein, the prevailing party or parties in such judicial
determination, whether plaintiff or defendant, shall be entitled to
recover damages, reasonable attorneys' fees, court costs and other
reasonable expenses resulting from such judicial determination on
the basis thereof.
This Agreement shall not be subject to Arbitration pursuant to the
provisions of Section 9.9 of the Stock Purchase Agreement.
9. NOTICES. In the event a notice or other document is
required to be sent hereunder, such notice or other document shall
be personally delivered or sent by registered or certified mail,
return receipt requested, to the party entitled to receive such
notice or other document at the address reflected in the Stock
Purchase Agreement.
10. ENTIRE AGREEMENT. This Agreement contains the entire
agreement between the parties hereto with respect to the subject
matter contained herein. This Agreement may be amended from time
to time by an instrument in writing signed by all those who are
parties to this Agreement at the time of such amendment.
11. SUCCESSORS AND ASSIGNS. The terms, provisions and
agreements herein contained shall be binding upon and inure to the
benefit of the parties hereto and their respective heirs, personal
representatives, successors and assigns. Purchaser may assign this
Agreement to any Person without the consent of the Shareholder.
12. WAIVER OF BREACH. The waiver by a party hereto of a
breach of any provision of this Agreement shall not operate or be
construed as a waiver of any subsequent breach by any party.
13. GOVERNING LAW. The Agreement shall be governed in all
respects, including validity, interpretation and effect, by the
substantive laws of the State of Texas without regard to conflict
of law provisions.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the day and year first above written.
__________________________ SA TELECOMMUNICATIONS, INC.
[Name of Shareholder]
BY:__________________________
John Nugent
Vice President
5
<PAGE>
EXHIBIT B
PLEDGE AGREEMENT
This Pledge Agreement dated as of January 10, 1997 (the
"Effective Date") is by and between U.S. Communications, Inc., a
Texas corporation ("Pledgor"), SA Telecommunications, Inc., a
Delaware corporation ("Purchaser"), and Charles Tony Lonstein
("Pledgee"), as agent and attorney in fact for the shareholders
named in that certain Stock Purchase Agreement dated as of January
10, 1997 (the "Stock Purchase Agreement") between Purchaser, Addtel
Communications, Inc., a California corporation, and Shareholder
Agent, Charles Tony Lonstein, Daniel G. Lonstein and David R.
Lonstein (the "Shareholders").
1. THE PLEDGE. Pledgor, for a valuable consideration and in
order to secure the performance of Purchaser's obligations under
the escrow provisions of Section 1.7 of the Stock Purchase
Agreement ("Purchaser's Obligations") does hereby pledge, transfer
and deliver to Pledgee and does hereby grant Pledgee a security
interest (the "Security Interest") in 500,000 shares of Common
Stock, $.0001 par value, of Purchaser ("Pledged Shares"). The
Pledged Shares, when delivered to Pledgee by Pledgor pursuant
hereto, shall be in suitable form for transfer by delivery, or
shall be accompanied by duly executed instruments of transfer or
assignment in blank.
Pledgee is acquiring a security interest in the Pledged Shares
solely for purposes of collateral for Purchaser's Obligations and
for Pledgee's own beneficial account, and not with a view to, or
for resale in connection with, any distribution of the Pledged
Shares. Pledgee understands that the transfer of the Pledged
Shares to Pledgee under this Agreement has not been registered
under the Securities Act of 1933, as amended (the "Securities Act")
or any state securities laws by reason of specific exemptions under
the provisions thereof which depend in part upon the investment
intent of Pledgee and/or the other representations made by Pledgee
in this Agreement. Pledgee understands that Pledgor is relying
upon the representations, covenants and agreements contained in
this Agreement (and any supplemental information) for the purpose
of determining whether this transaction meets the requirements for
such exemptions. Pledgee agrees (a) that Pledgee will not sell,
assign, pledge, give, transfer or otherwise dispose of the Pledged
Shares or any interest therein, or make any offer or attempt to do
any of the foregoing, except pursuant to a registration of the
Pledged Shares under the Securities Act and all applicable state
securities laws or in a transaction which, in the opinion of
counsel satisfactory to Purchaser, is exempt from the registration
provisions of the Securities Act and all applicable state
securities laws; (b) that Purchaser and any transfer agent for the
Pledged Shares shall not be required to give effect to any
purported transfer of any of the Pledged Shares except upon
compliance with the foregoing restrictions; and (c) that a legend
in substantially the following form will be placed on the
certificates representing the Pledged Shares:
The shares represented by this Certificate have not been
registered under the Securities Act of 1933 (the "Act") and
are "restricted securities" as that term is defined in Rule
144 of the Act. The shares may not be offered for sale, sold
or otherwise transferred except pursuant to an effective
registration statement under the Act or pursuant to an
exemption from registration under the Act, the availability of
which is to be established to the satisfaction of
<PAGE>
the Company. The shares represented by this Certificate are
subject to a Voting Agreement, which is on file with the
Company at 1600 Promenade Center, 15th Floor, Richardson,
Texas
Pledgee has not offered or sold any portion of the Pledged Shares
and has no present intention of dividing such Pledged Shares with
others or of reselling or otherwise disposing of any portion of
such Pledged Shares.
2. VOTING AGREEMENT WITH RESPECT TO PLEDGED SHARES. Pledgee
hereby agrees that during the Voting Term, Jack W. Matz, Jr., or
his nominee, shall have full power and authority to vote the
Pledged Shares, and Pledgee shall have no voting rights whatsoever
with respect to the Pledged Shares. For purposes of this
Agreement, (a) "Voting Term" shall mean a period beginning on the
Effective Date and ending on the earlier to occur of (i) the tenth
anniversary of the Effective Date or (ii) the date of sale by
Pledgee under the Shares in a Permitted Transaction, and a
"Permitted Transaction" shall mean (A) a bona fide broker
transaction in the public market or (B) a private transaction in
which no single purchaser of the any of the Pledged Shares shall
receive a block of more than 25,000 shares of Pledgor's Common
Stock. A counterpart of this Agreement shall be deposited with
Purchaser at its principal offices and shall be subject to the same
rights of examination of any stockholder of Purchaser, in person or
by agent or attorney, as are the books and records of Purchaser.
At all meetings of the stockholders of Purchaser, or with regard to
any action taken pursuant to consent, during the Voting Term, the
Pledged Shares held or owned by Pledgee shall be voted by Jack W.
Matz, Jr., in the manner designated by him. To the extent
necessary for the enforcement hereof, this Agreement shall be
deemed to provide Jack W. Matz, Jr. an irrevocable proxy for the
Voting Term, which such proxy is expressly agreed between the
parties hereto to be coupled with an interest as contemplated by
applicable law. Any share of Purchaser's Common Stock subject to
this Section 2 shall remain so subject, regardless of any
conveyance thereof to any party, during the Voting Term, and any
party proposing to transfer any of the Pledged Shares in a
transaction which is not a Permitted Transaction shall secure a
written agreement from the transferee that such party agrees to be
bound by the terms of this Section 2 in form and substance
satisfactory to Purchaser. Pledgee understands that Purchaser
shall not permit the voting of the Pledged Shares in contravention
of the terms hereof.
3. DEFAULT. The term Event of Default shall mean that the
Arbitration Panel (as defined in the Stock Purchase Agreement)
shall have finally determined in an Arbitration proceeding
conducted in accordance with Section 9.9 of the Stock Purchase
Agreement that Purchaser is obligated to pay the Shareholders an
amount due under Purchaser's Obligations, and Purchaser fails to
pay such amount within five days of the conclusion of such
Arbitration proceedings.
4. REMEDIES UPON EVENT OF DEFAULT. Pledgee understands that
the Pledged Shares are "restricted securities" under applicable
federal securities laws and that the Securities Act and the rules
of the Securities and Exchange Commission (the "Commission")
provide in substance that Pledgee may dispose of the Pledged Shares
only pursuant to an effective registration statement under the
Securities Act or an exemption therefrom, and Pledgee understands
that except as provided on Schedule 1 hereto, neither Purchaser nor
Pledgor has any obligation or intention to register any of the
Pledged Shares issued to Pledgee thereunder, or to take action so
as to permit sales pursuant to the Securities Act (including Rule
144 thereunder). Pledgee understands that Pledgee may not at any
<PAGE>
time demand the purchase by Purchaser, Pledgor, or any shareholder
of Purchaser of the Pledged Shares. If any Event of Default shall
have occurred and be continuing, Pledgee's exclusive remedy
hereunder shall be to sell the Pledged Shares in accordance with
the restrictions specified in this Agreement, PROVIDED, HOWEVER,
that Pledgee shall give Pledgor and Purchaser not less than 30
days' prior written notice of Pledgee's intention to make such
sale, and the time and place of any sale or other intended
disposition of any of the Pledged Shares, and Pledgor or any Person
designated by Pledgor may within such 30 day period purchase such
Pledged Shares from Pledgor for cash at a per share price equal to
the average per share closing price for Purchaser's Common Stock on
the Nasdaq Stock Market's SmallCap Market (or any stock exchange
upon which Purchaser's Common Stock may then be listed) for the
period of five days preceding such sale ("Pledgor's Option"). In
the event that Pledgor's Option is not exercised, Pledgee may
exercise the registration rights provided on Schedule 1 hereto.
5. APPLICATION OF PROCEEDS. The proceeds of any sale of, or
other realization upon, all or any part of the Pledged Shares shall
be applied by Pledgee in the following order or priorities:
FIRST, to pay the expenses of such sale or other
realization, including all expenses, liabilities and advances
incurred or made by Pledgee in such sale;
SECOND, to the payment of all Purchaser's Obligations;
THIRD, to pay to Pledgor or Purchaser (as directed by
Pledgor), or their respective successors or assigns, any
surplus then remaining from such proceeds. As used herein the
term "proceeds" including all cash, securities and other
property received in respect of the Pledged Shares.
6. TERMINATION OF SECURITY INTERESTS; RELEASE OF PLEDGED
SHARES. Upon the performance in full of Purchaser's obligations
under the escrow provisions of Section 1.7 of the Stock Purchase
Agreement, (a) the Security Interests shall automatically terminate
and all rights to the Pledged Shares shall revert to Pledgor, and
(b) Pledgee shall return the Pledged Shares to Pledgor. Upon any
such termination of the Security Interests or release of Pledged
Shares, Pledgee will, at Pledgor's expense, execute and deliver to
Pledgor such documents as Pledgor shall reasonably request to
evidence the termination of the Security Interests or the release
of such Pledged Shares, as the case may be.
7. NOTICES. All notices hereunder shall be in writing and
shall be deemed to have been given or made at the time either
personally delivered or sent by national overnight delivery service
as follows: (a) if to Pledgor and Purchaser to 1600 Promenade
Center, 15th Floor, Richardson, Texas 75080, Attention: Vice
President and General Counsel, and (b) if to Pledgee to: Charles
Tony Lonstein, 14235 Dickens St. #1, Sherman Oaks, CA 91423.
8. WAIVERS, EXCLUSIVE REMEDIES. No failure on the part of
Pledgee to exercise, and no delay in exercising, and no course of
dealing with respect to, any right, power or remedy under this
Agreement shall operate as a waiver thereof; nor shall any single
or partial exercise by Pledgee or Pledgor of any right, power or
remedy under this Agreement preclude any other or further exercise
<PAGE>
thereof. The remedies in this Agreement are exclusive and Pledgee
is not entitled to any other remedies provided by law, in equity or
otherwise.
9. ARBITRATION. All disputes between Pledgor and Pledgee
shall be handled in accordance with the provisions of Section 9.9
of the Stock Purchase Agreement, which provisions are hereby
incorporated by reference in this Agreement.
10. CHANGES IN WRITING. Neither this Agreement nor any
provision hereof may be changed, waived, discharged or terminated
orally, but only a statement in writing signed by the party against
which enforcement of the change, waiver, discharge or termination
is brought.
11. APPLICABLE LAW. This Agreement other than the voting
agreement contained in Section 2 hereof (the "Voting Agreement")
shall be governed by and construed and interpreted in accordance
with the laws of the State of Texas without giving effort to any
conflict of laws principle that might require the application of
law of any other jurisdiction, and the Voting Agreement shall be
governed by and construed and interpreted in accordance with the
General Corporation Law of the State of Delaware.
12. SEVERABILITY. If any provision is invalid or
unenforceable in any jurisdiction, the other provisions hereof
shall remain in full force and effect in such jurisdiction, and the
validity or unenforceability of any provision hereof in any
jurisdiction shall not affect the validity or enforceability of
such provision in any other jurisdiction.
13. COUNTERPARTS. This Agreement may be executed in one or
more counterparts, all of which together shall constitute one and
the same instrument.
<PAGE>
In witness whereof, the undersigned have executed this
Agreement as of the day first above written.
U.S. COMMUNICATIONS, INC. SA TELECOMMUNICATIONS, INC.
By:______________________ By: ____________________________
John Nugent John Nugent
Vice President Vice President
______________________________
Charles Tony Lonstein, as Agent
and Attorney in Fact for Aviram
Lonstein, Charles Tony
Lonstein, Daniel G. Lonstein
and David R. Lonstein
The undersigned hereby agree that Charles Tony Lonstein may act as
Agent and Attorney in Fact for all of the undersigned in connection
with this Agreement.
__________________________ ______________________________
Charles Tony Lonstein Aviram Lonstein
__________________________ ______________________________
Daniel G. Lonstein David R. Lonstein
<PAGE>
Schedule 1
Registration Rights
Subject to the provisions hereof, after receiving a written request
by Pledgee on behalf of all Shareholders issued after an Event of
Default and the expiration of the Pledgor's Option without exercise
(the "Registration Event") in substantially the form attached
hereto as Schedule 2 (the "Demand Notice"), Purchaser shall prepare
and within 60 days of the receipt of the Demand Notice, file a
registration statement (the "Registration Statement") for the
public sale by the Shareholders of the Pledged Shares then owned by
such Shareholders. Purchaser shall use all reasonable efforts to
cause the Registration Statement to become effective as soon as
practicable and to remain effective until the earlier of (i) 90
days from the effective date of such Registration Statement or (ii)
such time as all shares subject to such Registration Statement have
been sold thereunder. The Demand Notice shall be accompanied by a
list of blue sky jurisdictions as Pledgee may reasonably request
and the Company shall use all reasonable efforts to ensure
compliance with applicable blue sky laws in such listed
jurisdictions subject to the limitations set forth herein.
1. Purchaser shall pay all expenses of the registration
hereunder. In no event, however, shall Purchaser pay the
Shareholders' underwriting discounts or commissions or any fees or
costs of counsel to the Shareholders.
2. Purchaser shall supply to Pledgee a reasonable number of
copies of all registration materials and prospectuses. Purchaser
and the Shareholders shall execute and deliver to each other
indemnity agreements which are conventional in registered offerings
of this type. The Shareholders shall reasonably cooperate with
Purchaser in the preparation and filing of the Registration
Statement and appropriate amendments thereto and in connection
therewith provide Purchaser with a representation letter as
requested by Purchaser.
3. Pledgee and the Shareholders may not transfer the registration
rights granted hereunder.
4. Notwithstanding the foregoing, Purchaser shall not be
obligated to effect, or take any action to effect, any such
registration pursuant to the registration rights granted hereunder
in any particular jurisdiction in which Purchaser would be required
to execute a general consent to service of process or otherwise
qualify to do business in effecting such registration,
qualification, or compliance, unless Purchaser has already
consented to service or qualify to do business in such jurisdiction
or in any jurisdiction in which Purchaser is not authorized to
offer or sell its securities.
5. The Registration Statement filed pursuant to the request of
Pledgee may include other securities of Purchaser, with respect to
which registration rights have been granted or may be granted and
may include securities of Purchaser being sold for the account of
Purchaser.
6. Neither Pledgee nor the Shareholders shall have any right to
take any action to restrain, enjoin or otherwise delay any
registration as a result of any controversy that might arise with
respect to the interpretation or implementation of the registration
rights granted herein.
<PAGE>
7. The right to request any such registration shall expire on
that date which is 90 days after the occurrence of the Registration
Event.
8. Pledgee hereby represents and warrants to and covenants with
Purchaser and to each officer, director and agent of Purchaser as
follows:
(a) Pledgee has all requisite authority to enter into
this Agreement on behalf of the Shareholders and to perform
all the obligations required to be performed by Pledgee or the
Shareholders hereunder.
(b) Pledgee is familiar with the business and financial
condition, properties, operations and prospects of Purchaser,
and, at a reasonable time prior to the execution of this
Agreement, has been afforded the opportunity to ask questions
of and receive satisfactory answers from Purchaser and
Purchaser's officers and directors, or other persons acting on
the Purchaser's behalf, concerning the business and financial
condition, properties, operations and prospects of Purchaser
and has asked such questions as Pledgee desires to ask and all
such questions have been answered to the full satisfaction of
Pledgee.
(c) No representations or warranties have been made to
Pledgee or the Shareholders by Purchaser as to the tax
consequences of the pledge of the Pledged Shares pursuant to
this Agreement, or as to profits, losses or cash flow which
may be received or sustained as a result of such pledge.
Pledgee understands and acknowledges that Purchaser has
significant outstanding indebtedness and a significant amount
of Preferred Stock issued to investors which such Preferred
Stock has rights and preferences superior to that of the
Pledged Shares.
<PAGE>
Schedule 2
FORM OF DEMAND NOTICE
VIA FEDERAL EXPRESS
SA Telecommunications, Inc.
1600 Promenade Center, 15th Floor
Richardson, Texas 75080
Attention: General Counsel
The undersigned is the Pledgee under that certain Pledge
Agreement dated as of January 10, 1997 ("Pledge Agreement") among
the undersigned, SA Telecommunications, Inc. ("STEL"), and U.S.
Communications, Inc. All capitalized terms used herein and not
defined shall have the meaning set forth in the Pledge Agreement.
After the occurrence of an Event of Default and the Registration
Event, STEL has agreed to register for resale the Pledged Shares
held by Pledgee upon demand with the Commission. The undersigned
hereby gives written notice to STEL that the Registration Event has
occurred and hereby requests STEL to register the Pledged Shares
with the Commission in accordance with the terms and conditions of
the Pledge Agreement. A list of blue sky jurisdictions is set
forth underneath the undersigned's signature.
______________________________
Charles Tony Lonstein, Individually and
as Agent and Attorney in Fact for
Aviram Lonstein, Charles Tony
Lonstein, Daniel G. Lonstein and David R.
Lonstein
List of blue sky jurisdictions:
California
<PAGE>
Exhibit 10.1
[LOGO]
LOAN AND SECURITY AGREEMENT
BORROWERS: SA TELECOMMUNICATIONS, INC. ("STEL")
U.S. COMMUNICATIONS, INC. ("USCI")
LONG DISTANCE NETWORK, INC. ("LONG DISTANCE")
SOUTHWEST LONG DISTANCE NETWORK, INC. ("SOUTHWEST")
ADDRESS: 1600 PROMENADE CENTER, 15TH FLOOR
RICHARDSON, TEXAS 75080
DATE: DECEMBER 26, 1996
This Loan and Security Agreement is entered into on the above date between
GREYROCK BUSINESS CREDIT, a Division of NationsCredit Commercial Corporation
("GBC"), whose address is 10880 Wilshire Boulevard, Suite 950, Los Angeles, CA
90024 and the borrowers named above (jointly and severally, the "Borrower"),
whose chief executive office is located at the above address ("Borrower's
Address"). The Schedule to this Agreement (the "Schedule") being signed
concurrently is an integral part of this Agreement. (Definitions of certain
terms used in this Agreement are set forth in Section 8 below.)
1. LOANS.
1.1 LOANS. GBC will make loans to Borrower (the "Loans"), in amounts
determined by GBC in its sole discretion, up to the amounts (the "Credit Limit")
shown on the Schedule, provided no Default or Event of Default has occurred and
is continuing. If at any time or for any reason the total of all outstanding
Loans and all other Obligations exceeds the Credit Limit, Borrower shall
immediately pay the amount of the excess to GBC, without notice or demand.
1.2 INTEREST. All Loans and all other monetary Obligations shall bear
interest at the rate shown on the Schedule, except where expressly set forth to
the contrary in this Agreement or in another written agreement signed by GBC and
Borrower. Interest shall be payable monthly, on the last day of the month.
Interest may, in GBC's discretion, be charged to Borrower's loan account, and
the same shall thereafter bear interest at the same rate as the other Loans.
1.3 FEES. Borrower shall pay GBC the fee(s) shown on the Schedule, which are
in addition to all interest and other sums payable to GBC and are not
refundable.
2. SECURITY INTEREST.
2.1 SECURITY INTEREST. To secure the payment and performance of all of the
Obligations when due, Borrower hereby grants to GBC a security interest in all
of Borrower's interest in the following, whether now owned or hereafter
acquired, and wherever located (collectively, the "Collateral"): All Inventory,
Equipment, Receivables, and General Intangibles, including, without limitation,
all of Borrower's Deposit Accounts, all money, all collateral in which GBC is
granted a security interest pursuant to any other present or future agreement,
all property now or at any time in the future in GBC's possession, and all
proceeds (including proceeds of any insurance policies, proceeds of proceeds and
claims against third parties), all products of the foregoing, and all books and
records related to any of the foregoing.
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BORROWER.
In order to induce GBC to enter into this Agreement and to make Loans, Borrower
represents and warrants to GBC as follows, and Borrower covenants that the
following representations will continue to be true, and that Borrower will at
all times comply with all of the following covenants:
3.1 CORPORATE EXISTENCE AND AUTHORITY. Borrower, if a corporation, is and
will continue to be, duly organized, validly existing and in good standing under
the laws of the jurisdiction of its incorporation. Borrower is and will
continue to be qualified and licensed to do business in all jurisdictions in
which any failure to do so would have a material adverse effect on Borrower*.
The execution, delivery and performance by Borrower of this Agreement, and all
other documents contemplated hereby (i) have been duly and validly authorized,
(ii) are enforceable against Borrower in accordance with their terms (except as
enforcement may
-1-
<PAGE>
GREYROCK BUSINESS CREDIT LOAN AND SECURITY AGREEMENT
be limited by equitable principles and by bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to creditors' rights
generally), (iii) do not violate Borrower's articles or certificate of
incorporation, or Borrower's by-laws, or any law or any material agreement or
instrument which is binding upon Borrower or its property, and (iv) do not
constitute grounds for acceleration of any material indebtedness or
obligation under any material agreement or instrument which is binding upon
Borrower or its property*.
*taken as a whole
3.2 NAME; TRADE NAMES AND STYLES. The name of Borrower set forth in the
heading to this Agreement is its correct name. Listed on the Schedule are all
prior names of Borrower and all of Borrower's present and prior trade names*.
Borrower shall give GBC 30 days' prior written notice before changing its name
or doing business under any other name**. Borrower has complied, and will in
the future comply***, with all laws relating to the conduct of business under a
fictitious business name.
*DURING THE PAST EIGHT YEARS
**, EXCEPT THAT, IN THE CASE OF DOING BUSINESS UNDER ANOTHER NAME AS A RESULT
OF AN ACQUISITION, SUCH NOTICE SHALL BE GIVEN BEFORE OR WITHIN 20 DAYS AFTER
SUCH ACQUISITION IS CONSUMMATED
***IN ALL MATERIAL RESPECTS
3.3 PLACE OF BUSINESS; LOCATION OF COLLATERAL. The address set forth in the
heading to this Agreement is Borrower's chief executive office. In addition, *
Borrower has places of business and Collateral is located only at the locations
set forth on the Schedule. Borrower will give GBC at least 30 days prior
written notice before opening any additional place of business, changing its
chief executive office, or moving any of the Collateral to a location other than
Borrower's Address or one of the locations set forth on the Schedule**.
*ON THE DATE HEREOF
**, EXCEPT THAT (I) IN THE CASE OF OPENING ANY ADDITIONAL PLACE OF BUSINESS AS
A RESULT OF AN ACQUISITION, SUCH NOTICE SHALL BE GIVEN BEFORE OR WITHIN 20 DAYS
AFTER SUCH ACQUISITION IS CONSUMMATED, AND (II) NOTICE NEED NOT BE GIVEN OF THE
OPENING OR CHANGING OF SALES OFFICES AT WHICH NO SIGNIFICANT COLLATERAL IS
LOCATED, OR SWITCHES
3.4 TITLE TO COLLATERAL; PERMITTED LIENS. Borrower is now, and will at all
times in the future be, the sole owner of all the Collateral, except for items
of Equipment which are leased by Borrower. The Collateral now is and will
remain free and clear of any and all liens, charges, security interests,
encumbrances and adverse claims, except for Permitted Liens. GBC now has,
and will continue to have, a first-priority perfected and enforceable
security interest in all of the Collateral, subject only to the Permitted
Liens, and Borrower will at all times defend GBC and the Collateral against
all claims of others. Borrower is not and will not become a lessee under any
real property lease pursuant * to which the lessor may obtain any rights in
any of the Collateral and no such lease now prohibits, restrains, impairs or
will prohibit, restrain or impair Borrower's right to remove any Collateral
from the leased premises. Whenever any Collateral is located upon premises
in which any third party has an interest (whether as owner, mortgagee,
beneficiary under a deed of trust, lien or otherwise)**, Borrower shall,
whenever requested by GBC, use its *** best efforts to cause such third party
to execute and deliver to GBC, in form acceptable to GBC, such waivers and
subordinations as GBC shall specify, so as to ensure that GBC's rights in the
Collateral are, and will continue to be, superior to the rights of any such
third party**. Borrower will keep in full force and effect, and will comply
with all the terms of, any lease of real property where any of the Collateral
now or in the future may be located.
*(OTHER THAN LEASES FOR SALES OFFICES OR SWITCHING EQUIPMENT)
**(OTHER THAN A PERMITTED LIEN)
***COMMERCIALLY REASONABLE
3.5 MAINTENANCE OF COLLATERAL. Borrower will maintain the Collateral in good
working condition, ordinary wear and tear excepted *, and Borrower will not use
the Collateral for any unlawful purpose. Borrower will immediately advise GBC
in writing of any material loss or damage to the Collateral.
*(PROVIDED THAT NOTHING HEREIN SHALL PREVENT BORROWER OR ANY OF ITS
SUBSIDIARIES FROM DISCONTINUING THE OPERATION AND MAINTENANCE OF ANY OF ITS
PROPERTIES IF THE SAME IS, IN THE JUDGMENT OF SUCH ENTITY, DESIRABLE IN THE
CONDUCT OF ITS BUSINESS AND WOULD NOT HAVE A MATERIAL ADVERSE EFFECT ON THE
FINANCIAL CONDITION OF BORROWER TAKEN AS A WHOLE)
3.6 BOOKS AND RECORDS. Borrower has maintained and will maintain at
Borrower's Address * complete and accurate books and records, comprising an
accounting system in accordance with generally accepted accounting principles.
*OR AT THE ADDRESSES SET FORTH IN THE SCHEDULE
3.7 FINANCIAL CONDITION, STATEMENTS AND REPORTS. All financial statements now
or in the future delivered to GBC have been, and will be, prepared in conformity
with generally accepted accounting principles * and now and in the future will
completely and fairly reflect the financial condition of Borrower, at the times
and for the periods therein stated. Between the last date covered by any such
statement provided to GBC and the date hereof, there has been no material
adverse change in the financial condition or business of Borrower**. Borrower
is now and will continue to be solvent.
*(EXCEPT THAT ONLY ANNUAL FINANCIAL STATEMENTS WILL CONTAIN FOOTNOTES)
-2-
<PAGE>
GREYROCK BUSINESS CREDIT LOAN AND SECURITY AGREEMENT
**TAKEN AS A WHOLE
3.8 TAX RETURNS AND PAYMENTS; PENSION CONTRIBUTIONS. Borrower has timely
filed, and will timely file, all tax returns and reports required by applicable
law, and Borrower has timely paid, and will timely pay, all applicable taxes,
assessments, deposits and contributions now or in the future owed by Borrower.
Borrower may, however, defer payment of any contested taxes, provided that
Borrower (i) in good faith contests Borrower's obligation to pay the taxes by
appropriate proceedings promptly and diligently instituted and conducted, (ii)
notifies GBC in writing of the commencement of, and any material development in,
the proceedings, and (iii) posts bonds or takes any other steps required to keep
the contested taxes from becoming a lien upon any of the Collateral. Borrower
is unaware of any claims or adjustments proposed for any of Borrower's prior tax
years which could result in additional taxes becoming due and payable by
Borrower. Borrower has paid, and shall continue to pay all amounts necessary to
fund all present and future pension, profit sharing and deferred compensation
plans in accordance with their terms, and Borrower has not and will not withdraw
from participation in, permit partial or complete termination of, or permit the
occurrence of any other event with respect to, any such plan which could result
in any * liability of Borrower**, including any liability to the Pension Benefit
Guaranty Corporation or any other governmental agency.
*MATERIAL
**TAKEN AS A WHOLE
3.9 COMPLIANCE WITH LAW. Borrower has complied, and will comply, in all
material respects, with all provisions of all applicable laws and regulations,
including, but not limited to, those relating to Borrower's ownership of real or
personal property, the conduct and licensing of Borrower's business, and all
environmental matters.
3.10 LITIGATION. Except as disclosed in the Schedule, there is no claim,
suit, litigation, proceeding or investigation pending or (to best of Borrower's
knowledge) threatened by or against or affecting Borrower in any court or before
any governmental agency (or any basis therefor known to Borrower) which may
result, either separately or in the aggregate, in any material adverse change in
the financial condition or business of Borrower*, or in any material impairment
in the ability of Borrower to carry on its business in substantially the same
manner as it is now being conducted. Borrower will promptly inform GBC in
writing of any claim, proceeding, litigation or investigation in the future
threatened or instituted against Borrower involving any single claim of **.
*TAKEN AS A WHOLE
**$200,000 OR MORE, OR INVOLVING $500,000 OR MORE IN THE AGGREGATE
3.11 USE OF PROCEEDS. All proceeds of all Loans shall be used solely for
lawful business purposes.
4. RECEIVABLES.
4.1 REPRESENTATIONS RELATING TO RECEIVABLES. Borrower represents and warrants
to GBC as follows: Each Receivable with respect to which Loans are requested by
Borrower shall, on the date each Loan is requested and made, represent an
undisputed, bona fide, existing, unconditional obligation of the Account Debtor
created by the sale, delivery, and acceptance of goods or the rendition of
services, in the ordinary course of Borrower's business.
4.2 REPRESENTATIONS RELATING TO DOCUMENTS AND LEGAL COMPLIANCE. Borrower
represents and warrants to GBC as follows: All statements made and all unpaid
balances appearing in all invoices, instruments and other documents evidencing
the Receivables are and shall be true and correct and all such invoices,
instruments and other documents and all of Borrower's books and records are and
shall be genuine and in all respects what they purport to be, and all
signatories and endorsers have the capacity to contract. All sales and other
transactions underlying or giving rise to each Receivable shall comply with all
applicable laws and governmental rules and regulations. All signatures and
indorsements on all documents, instruments, and agreements relating to all
Receivables are and shall be genuine, and all such documents, instruments and
agreements are and shall be legally enforceable in accordance with their terms*.
*(EXCEPT AS ENFORCEMENT MAY BE LIMITED BY EQUITABLE PRINCIPLES AND BY
BANKRUPTCY, INSOLVENCY, REORGANIZATION, MORATORIUM OR SIMILAR LAWS RELATING TO
THE RIGHTS OF CREDITORS GENERALLY)
4.3 SCHEDULES AND DOCUMENTS RELATING TO RECEIVABLES. Borrower shall deliver
to GBC transaction reports and loan requests, schedules and assignments of all
Receivables, and schedules of collections, all on GBC's standard forms;
provided, however, that Borrower's failure to execute and deliver the same shall
not affect or limit GBC's security interest and other rights in all of
Borrower's Receivables, nor shall GBC's failure to advance or lend against a
specific Receivable affect or limit GBC's security interest and other rights
therein. Together with each such schedule and assignment, or later if requested
by GBC, Borrower shall furnish GBC with copies (or, at GBC's request, originals)
of all contracts, orders, invoices, and other similar documents, and all
original shipping instructions, delivery receipts, bills of lading, and other
evidence of delivery, for any goods the sale or disposition of which gave rise
to such Receivables, and Borrower warrants the genuineness of all of the
foregoing. Borrower shall also furnish to GBC an aged accounts receivable trial
balance in such form and at such intervals as GBC shall request. In addition,
Borrower shall deliver to GBC the originals of all instruments, chattel paper,
security agreements, guarantees and other documents and property evidencing or
securing any Receivables, immediately upon receipt thereof and in the same form
as received, with all necessary indorsements.
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GREYROCK BUSINESS CREDIT LOAN AND SECURITY AGREEMENT
4.4 COLLECTION OF RECEIVABLES. *
*ALL PROCEEDS OF RECEIVABLES (OTHER THAN EXCLUDED RECEIVABLES) SHALL BE
DEPOSITED BY BORROWER INTO A LOCKBOX ACCOUNT, OR SUCH OTHER "BLOCKED ACCOUNT" AS
GBC MAY REQUIRE (EACH, A "BLOCKED ACCOUNT") PURSUANT TO AN ARRANGEMENT WITH SUCH
BANK AS MAY BE SELECTED BY BORROWER AND BE ACCEPTABLE TO GBC. BORROWER SHALL
ISSUE TO ANY SUCH BANK AN IRREVOCABLE LETTER OF INSTRUCTION DIRECTING SAID BANK
TO TRANSFER SUCH FUNDS SO DEPOSITED TO GBC, EITHER TO ANY ACCOUNT MAINTAINED BY
GBC AT SAID BANK OR BY WIRE TRANSFER TO APPROPRIATE ACCOUNT(S) OF GBC. ALL
FUNDS DEPOSITED IN A BLOCKED ACCOUNT SHALL IMMEDIATELY BECOME THE SOLE PROPERTY
OF GBC AND SHALL BE APPLIED TO THE OBLIGATIONS IN SUCH ORDER AS GBC SHALL
DETERMINE. BORROWER SHALL OBTAIN THE AGREEMENT BY SUCH BANK TO WAIVE ANY OFFSET
RIGHTS AGAINST THE FUNDS SO DEPOSITED. GBC ASSUMES NO RESPONSIBILITY FOR ANY
BLOCKED ACCOUNT ARRANGEMENT, INCLUDING WITHOUT LIMITATION, ANY CLAIM OF ACCORD
AND SATISFACTION OR RELEASE WITH RESPECT TO DEPOSITS ACCEPTED BY ANY BANK
THEREUNDER.
4.5 DISPUTES. Borrower shall notify GBC promptly of all disputes or claims
relating to Receivables on the regular reports to GBC. Borrower shall not
forgive, or settle any Receivable for less than payment in full, or agree to do
any of the foregoing, except that Borrower may do so, provided that: (i)
Borrower does so in good faith, in a commercially reasonable manner, in the
ordinary course of business, and in arm's length transactions, which are
reported to GBC on the regular reports provided to GBC; (ii) no Default or Event
of Default has occurred and is continuing; and (iii) taking into account all
such settlements and forgiveness, the total outstanding Loans and other
Obligations will not exceed the Credit Limit.
4.6 RETURNS. Provided no Event of Default has occurred and is continuing, if
any Account Debtor returns any Inventory to Borrower in the ordinary course of
its business, Borrower shall promptly determine the reason for such return and
promptly issue a credit memorandum to the Account Debtor in the appropriate
amount (sending a copy to GBC). In the event any attempted return occurs after
the occurrence of any Event of Default, Borrower shall (i) not accept any return
without GBC's prior written consent, (ii) hold the returned Inventory in trust
for GBC, (iii) segregate all returned Inventory from all of Borrower's other
property, (iv) conspicuously label the returned Inventory as GBC's property, and
(v) immediately notify GBC of the return of any Inventory, specifying the reason
for such return, the location and condition of the returned Inventory, and on
GBC's request deliver such returned Inventory to GBC.
4.7 VERIFICATION. GBC may, from time to time, verify directly with the
respective Account Debtors the validity, amount and other matters relating to
the Receivables, by means of mail, telephone or otherwise, either in the name of
Borrower or GBC or such other name as GBC may choose, and GBC or its designee
may, at any time, notify Account Debtors that it has a security interest in the
Receivables.
4.8 NO LIABILITY. GBC shall not under any circumstances be responsible or
liable for any shortage or discrepancy in, damage to, or loss or destruction of,
any goods, the sale or other disposition of which gives rise to a Receivable, or
for any error, act, omission, or delay of any kind occurring in the settlement,
failure to settle, collection or failure to collect any Receivable, or for
settling any Receivable in good faith for less than the full amount thereof, nor
shall GBC be deemed to be responsible for any of Borrower's obligations under
any contract or agreement giving rise to a Receivable. Nothing herein shall,
however, relieve GBC from liability for its own gross negligence or willful
misconduct.
5. ADDITIONAL DUTIES OF THE BORROWER.
5.1 INSURANCE. Borrower shall, at all times, insure all of the tangible
personal property Collateral and carry such other business insurance, with
insurers reasonably acceptable to GBC, in such form and amounts as GBC may
reasonably require, and Borrower shall provide evidence of such insurance to
GBC, so that GBC is satisfied that such insurance is, at all times, in full
force and effect. All such insurance policies shall name GBC as an additional
loss payee, and shall contain a lenders loss payee endorsement in form
reasonably acceptable to GBC. Upon receipt of the proceeds of any such
insurance, GBC shall apply such proceeds in reduction of the Obligations as
GBC shall determine in its sole discretion, except that, provided no Default
or Event of Default has occurred and is continuing, GBC shall release to
Borrower insurance proceeds with respect to Equipment *, which shall be
utilized by Borrower for the replacement of the Equipment with respect to
which the insurance proceeds were paid. GBC may require reasonable assurance
that the insurance proceeds so released will be so used. If Borrower fails to
provide or pay for any insurance, GBC may, but is not obligated to, obtain the
same at Borrower's expense. Borrower shall promptly deliver to GBC copies of
all reports made to insurance companies.
*NECESSARY TO CONDUCT BORROWER'S BUSINESS
5.2 REPORTS. Borrower, at its expense, shall provide GBC with the written
reports set forth in the Schedule, and such other written reports with respect
to Borrower (including budgets, sales projections, operating plans and other
financial documentation), as GBC shall from time to time reasonably specify.
5.3 ACCESS TO COLLATERAL, BOOKS AND RECORDS. At reasonable times, and on one
business day's notice, GBC, or its agents, shall have the right to inspect the
Collateral, and the right to audit and copy Borrower's books and records. GBC
shall take reasonable steps to keep confidential all information obtained in any
such inspection or audit, but GBC shall have the right to disclose any such
information to its auditors, regulatory agencies, and attorneys, and pursuant
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GREYROCK BUSINESS CREDIT LOAN AND SECURITY AGREEMENT
to any subpoena or other legal process. The foregoing inspections and audits
shall be at Borrower's expense and the charge therefor shall be $600 per
person per day (or such higher amount as shall represent GBC's then current
standard charge for the same), plus reasonable out-of-pockets expenses.
Borrower shall not be charged more than $5,000 per audit (plus reasonable
out-of-pockets expenses), nor shall audits be done more frequently than four
times per calendar year, provided that the foregoing limits shall not apply
after the occurrence of a Default or Event of Default, nor shall they
restrict GBC's right to conduct audits at its own expense (whether or not a
Default or Event of Default has occurred). Borrower will not enter into any
agreement with any accounting firm, service bureau or third party to store
Borrower's books or records at any location other than Borrower's Address*,
without first obtaining GBC's written consent, which may be conditioned upon
such accounting firm, service bureau or other third party agreeing to give
GBC the same rights with respect to access to books and records and related
rights as GBC has under this Agreement.
*OR ANY OTHER ADDRESS SET FORTH ON THE SCHEDULE
5.4 REMITTANCE OF PROCEEDS. * All proceeds arising from the sale or other
disposition of any Collateral ** shall be delivered, in kind, by Borrower to
GBC in the original form in which received by Borrower not later than the
following business day after receipt by Borrower, to be applied to the
Obligations in such order as GBC shall determine; provided that, if no
Default or Event of Default has occurred and is continuing, and if no term
loan is outstanding hereunder, then Borrower shall not be obligated to remit
to GBC the proceeds of the sale of Equipment which is sold in the ordinary
course of business, in a good-faith arm's length transaction. Borrower shall
not commingle proceeds of Collateral *** with any of Borrower's other funds or
property, and shall hold such proceeds separate and apart from such other
funds and property and in an express trust for GBC. Nothing in this Section
limits the restrictions on disposition of Collateral set forth elsewhere in
this Agreement.
*SUBJECT TO SECTION 4.4,
**(OTHER THAN EXCLUDED RECEIVABLES AND OTHER THAN A SALE WHICH IS PERMITTED BY
SECTION 7 OF THE SCHEDULE AND MADE AT A TIME WHEN NO DEFAULT OR EVENT OF DEFAULT
HAS OCCURRED AND IS CONTINUING)
***WHICH BORROWER IS REQUIRED TO REMIT TO GBC
5.5 NEGATIVE COVENANTS. Except as *, Borrower shall not, without GBC's prior
written consent, do any of the following: (i) merge or consolidate with another
corporation or entity; (ii) acquire any assets, except in the ordinary course of
business; (iii) enter into any other transaction outside the ordinary course of
business; (iv) sell or transfer any Collateral, except that, provided no Default
or Event of Default has occurred and is continuing, Borrower may (a) sell ** in
the ordinary course of Borrower's business; (v) store any Inventory or other
Collateral with any warehouseman or other third party; (vi) sell any Inventory
on a sale-or-return, guaranteed sale, consignment, or other contingent basis;
(vii) make any loans of any money or other assets; (viii) incur any debts,
outside the ordinary course of business, and which would have a material,
adverse effect on Borrower *** or on the prospect of repayment of the
Obligations; (ix) guarantee or otherwise become liable with respect to the
obligations of another party or entity; (x) pay or declare any dividends on
Borrower's stock (except for dividends payable solely in stock of Borrower);
(xi) redeem, retire, purchase or otherwise acquire, directly or indirectly, any
of Borrower's stock; (xii) make any change in Borrower's capital structure which
would have a material adverse effect on Borrower *** or on the prospect of
repayment of the Obligations; or (xiii) dissolve or elect to dissolve****; or
(xiv) agree to do any of the foregoing. *****
*PROVIDED IN SECTION 7 OF THE SCHEDULE
**COLLATERAL (OTHER THAN RECEIVABLES AND GENERAL INTANGIBLES)
***TAKEN AS A WHOLE
****(EXCEPT THAT CIS AND BALTIC AND DIRECT OR INDIRECT SUBSIDIARIES OF LONG
DISTANCE AND USCI MAY BE VOLUNTARILY DISSOLVED WITH 20 DAYS PRIOR WRITTEN NOTICE
TO GBC)
*****GBC SHALL EXECUTE AND DELIVER UCC-2 RELEASES WITH RESPECT TO SALES
PERMITTED UNDER CLAUSE 5.5(iv)(a) ABOVE ON WRITTEN REQUEST BY THE BORROWER.
5.6 LITIGATION COOPERATION. Should any third-party suit or proceeding be
instituted by or against GBC with respect to any Collateral or in any manner
relating to Borrower, Borrower shall, without expense to GBC, make available
Borrower and its officers, employees and agents, and Borrower's books and
records, without charge, to the extent that GBC may deem them reasonably
necessary in order to prosecute or defend any such suit or proceeding.
5.7 NOTIFICATION OF CHANGES. Borrower will promptly notify GBC in writing of
any change in its * officers or directors, the opening of any new bank account
or other deposit account, and any material adverse change in the business or
financial affairs of Borrower**.
*EXECUTIVE
**TAKEN AS A WHOLE
5.8 FURTHER ASSURANCES. Borrower agrees, at its expense, on request by GBC,
to execute all documents and take all actions, as GBC may deem reasonably
necessary or useful in order to perfect and maintain GBC's perfected security
interest in the Collateral, and in order to fully consummate the transactions
contemplated by this Agreement.
5.9 INDEMNITY. BORROWER HEREBY AGREES TO INDEMNIFY GBC AND HOLD GBC HARMLESS
FROM AND AGAINST ANY AND ALL CLAIMS, DEBTS, LIABILITIES, DEMANDS, OBLIGATIONS,
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GREYROCK BUSINESS CREDIT LOAN AND SECURITY AGREEMENT
ACTIONS, CAUSES OF ACTION, PENALTIES, COSTS AND EXPENSES (INCLUDING * ATTORNEYS'
FEES), OF EVERY NATURE, CHARACTER AND DESCRIPTION, WHICH GBC MAY SUSTAIN OR
INCUR BASED UPON OR ARISING OUT OF ANY OF THE OBLIGATIONS, ANY ACTUAL OR ALLEGED
FAILURE TO COLLECT AND PAY OVER ANY WITHHOLDING OR OTHER TAX RELATING TO
BORROWER OR ITS EMPLOYEES, ANY RELATIONSHIP OR AGREEMENT BETWEEN GBC AND
BORROWER, ANY ACTUAL OR ALLEGED FAILURE OF GBC TO COMPLY WITH ANY WRIT OF
ATTACHMENT OR OTHER LEGAL PROCESS RELATING TO BORROWER OR ANY OF ITS PROPERTY,
OR ANY OTHER MATTER, CAUSE OR THING WHATSOEVER OCCURRED, DONE, OMITTED OR
SUFFERED TO BE DONE BY GBC RELATING TO BORROWER OR THE OBLIGATIONS (EXCEPT ANY
SUCH AMOUNTS SUSTAINED OR INCURRED AS THE RESULT OF THE GROSS NEGLIGENCE OR
WILLFUL MISCONDUCT OF GBC OR ANY OF ITS DIRECTORS, OFFICERS, EMPLOYEES, AGENTS,
ATTORNEYS, OR ANY OTHER PERSON AFFILIATED WITH OR REPRESENTING GBC).
NOTWITHSTANDING ANY PROVISION IN THIS AGREEMENT TO THE CONTRARY, THE INDEMNITY
AGREEMENT SET FORTH IN THIS SECTION SHALL SURVIVE ANY TERMINATION OF THIS
AGREEMENT AND SHALL FOR ALL PURPOSES CONTINUE IN FULL FORCE AND EFFECT.
*REASONABLE
6. TERM.
6.1 MATURITY DATE. This Agreement shall continue in effect until the maturity
date set forth on the Schedule (the "Maturity Date"); provided that the Maturity
Date shall automatically be extended, and this Agreement shall automatically and
continuously renew, for successive additional terms of one year each, unless one
party gives written notice to the other, not less than sixty days prior to the
next Maturity Date, that such party elects to terminate this Agreement effective
on the next Maturity Date.
6.2 EARLY TERMINATION. This Agreement may be terminated prior to the Maturity
Date as follows: (i) by Borrower, effective three business days after written
notice of termination is given to GBC; or (ii) by GBC at any time after the
occurrence of an Event of Default*, without notice, effective immediately. If
this Agreement is terminated by Borrower or by GBC under this Section 6.2,
Borrower shall pay to GBC a termination fee (the "Termination Fee") in the
amount shown on the Schedule. The Termination Fee shall be due and payable on
the effective date of termination and thereafter shall bear interest at a rate
equal to the highest rate applicable to any of the Obligations.
*(WHICH HAS NOT BEEN WAIVED IN WRITING BY GBC)
6.3 PAYMENT OF OBLIGATIONS. On the Maturity Date or on any earlier effective
date of termination, Borrower shall pay and perform in full all Obligations,
whether evidenced by installment notes or otherwise, and whether or not all or
any part of such Obligations are otherwise then due and payable. Without
limiting the generality of the foregoing, if on the Maturity Date, or on any
earlier effective date of termination, there are any outstanding letters of
credit issued based upon an application, guarantee, indemnity or similar
agreement on the part of GBC, then on such date Borrower shall provide to GBC
cash collateral in an amount equal to 110% of the face amount of all such
letters of credit plus all interest, fees and costs due or (in GBC's estimation)
likely to become due in connection therewith, to secure all of the Obligations
relating to said letters of credit, pursuant to GBC's then standard form cash
pledge agreement. Notwithstanding any termination of this Agreement, all of
GBC's security interests in all of the Collateral and all of the terms and
provisions of this Agreement shall continue in full force and effect until all
Obligations have been paid and performed in full; provided that, without
limiting the fact that Loans are subject to the discretion of GBC, GBC may, in
its sole discretion, refuse to make any further Loans after termination. No
termination shall in any way affect or impair any right or remedy of GBC, nor
shall any such termination relieve Borrower of any Obligation to GBC, until all
of the Obligations have been paid and performed in full. Upon payment and
performance in full of all the Obligations and termination of this Agreement,
GBC shall promptly deliver to Borrower termination statements, requests for
reconveyances and such other documents as may be reasonably required to
terminate GBC's security interests.
7. EVENTS OF DEFAULT AND REMEDIES.
7.1 EVENTS OF DEFAULT. The occurrence of any of the following events shall
constitute an "Event of Default" under this Agreement, and Borrower shall give
GBC immediate written notice thereof: (a) Any warranty, representation,
statement, report or certificate made or delivered to GBC by Borrower or any of
Borrower's officers, employees or agents, now or in the future, shall be untrue
or misleading in a material respect*; or (b) Borrower shall fail to pay when due
any Loan or any interest thereon or any other monetary Obligation; or (c) the
total Loans and other Obligations outstanding at any time shall exceed the
Credit Limit; or (d) Borrower shall fail to perform any non-monetary Obligation
which by its nature cannot be cured; or (e) Borrower shall fail to perform any
other non-monetary Obligation, which failure is not cured within 5 business days
after the date performance is due; or (f) any levy, assessment, attachment,
seizure, lien or encumbrance (other than a Permitted Lien) is made on all or any
part of the Collateral which is not cured within 10 days after the occurrence of
the same; or (g) any default or event of default occurs under any obligation
secured by a Permitted Lien, which is not cured within any applicable cure
period or waived in writing by the holder of the Permitted Lien; or (h) Borrower
breaches any material contract or obligation, which has or may reasonably be
expected to have a material adverse effect on Borrower's business or financial
condition**; or (i) dissolution***, termination of existence, insolvency or
business failure of Borrower or any Guarantor; or appointment of a receiver,
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GREYROCK BUSINESS CREDIT LOAN AND SECURITY AGREEMENT
trustee or custodian, for all or any part of the property of, assignment for the
benefit of creditors by, or the commencement of any proceeding by Borrower or
any Guarantor under any reorganization, bankruptcy, insolvency, arrangement,
readjustment of debt, dissolution or liquidation law or statute of any
jurisdiction, now or in the future in effect; or (j) the commencement of any
proceeding against Borrower or any Guarantor under any reorganization,
bankruptcy, insolvency, arrangement, readjustment of debt, dissolution or
liquidation law or statute of any jurisdiction, now or in the future in effect,
which is not cured by the dismissal thereof within 45 days after the date
commenced; or (k) revocation or termination of, or limitation or denial of
liability upon, any guaranty of the Obligations or any attempt to do any of the
foregoing; or (l) revocation or termination of, or limitation or denial of
liability upon, any pledge of any certificate of deposit, securities or other
property or asset pledged by any third party to secure any or all of the
Obligations, or any attempt to do any of the foregoing, or commencement of
proceedings by or against any such third party under any bankruptcy or
insolvency law; or (m) Borrower makes any payment on account of any indebtedness
or obligation which has been subordinated to the Obligations other than as
permitted in the applicable subordination agreement, or if any Person who has
subordinated such indebtedness or obligations terminates or in any way limits or
terminates its subordination agreement; or (n) there shall be a change in the
record or beneficial ownership of an aggregate of more than 20% of the
outstanding shares of stock of Borrower****, in one or more transactions,
compared to the ownership of outstanding shares of stock of Borrower in effect
on the date hereof, without the prior written consent of GBC; or (o) Borrower
shall generally not pay its debts as they become due, or Borrower shall conceal,
remove or transfer any part of its property, with intent to hinder, delay or
defraud its creditors, or make or suffer any transfer of any of its property
which may be fraudulent under any bankruptcy, fraudulent conveyance or similar
law; or (p) there shall be a material adverse change in Borrower's business or
financial condition**. GBC may cease making any Loans hereunder during any of
the above cure periods, and thereafter if an Event of Default has occurred.
*WHEN MADE
**TAKEN AS A WHOLE
***(EXCEPT AS PERMITTED BY SECTION 5.5(xiii))
****(OTHER THAN STEL)
7.2 REMEDIES. Upon the occurrence and during the continuance of any Event of
Default, and at any time thereafter, GBC, at its option, and without notice or
demand of any kind (all of which are hereby expressly waived by Borrower), may
do any one or more of the following: (a) Cease making Loans or otherwise
extending credit to Borrower under this Agreement or any other document or
agreement; (b) Accelerate and declare all or any part of the Obligations to be
immediately due, payable, and performable, notwithstanding any deferred or
installment payments allowed by any instrument evidencing or relating to any
Obligation; (c) Take possession of any or all of the Collateral wherever it may
be found, and for that purpose Borrower hereby authorizes GBC without judicial
process to enter onto any of Borrower's premises without interference to search
for, take possession of, keep, store, or remove any of the Collateral, and
remain on the premises or cause a custodian to remain on the premises in
exclusive control thereof, without charge for so long as GBC deems it reasonably
necessary in order to complete the enforcement of its rights under this
Agreement or any other agreement; provided, however, that should GBC seek to
take possession of any of the Collateral by Court process, Borrower hereby
irrevocably waives: (i) any bond and any surety or security relating thereto
required by any statute, court rule or otherwise as an incident to such
possession; (ii) any demand for possession prior to the commencement of any suit
or action to recover possession thereof; and (iii) any requirement that GBC
retain possession of, and not dispose of, any such Collateral until after trial
or final judgment; (d) Require Borrower to assemble any or all of the Collateral
and make it available to GBC at places designated by GBC which are reasonably
convenient to GBC and Borrower, and to remove the Collateral to such locations
as GBC may deem advisable; (e) Complete the processing, manufacturing or repair
of any Collateral prior to a disposition thereof and, for such purpose and for
the purpose of removal, GBC shall have the right to use Borrower's premises,
vehicles, hoists, lifts, cranes, equipment and all other property without
charge; (f) Sell, lease or otherwise dispose of any of the Collateral, in its
condition at the time GBC obtains possession of it or after further
manufacturing, processing or repair, at one or more public and/or private sales,
in lots or in bulk, for cash, exchange or other property, or on credit, and to
adjourn any such sale from time to time without notice other than oral
announcement at the time scheduled for sale. GBC shall have the right to
conduct such disposition on Borrower's premises without charge, for such time or
times as GBC deems reasonable, or on GBC's premises, or elsewhere and the
Collateral need not be located at the place of disposition. GBC may directly or
through any affiliated company purchase or lease any Collateral at any such
public disposition, and if permissible under applicable law, at any private
disposition. Any sale or other disposition of Collateral shall not relieve
Borrower of any liability Borrower may have if any Collateral is defective as to
title or physical condition or otherwise at the time of sale; (g) Demand payment
of, and collect any Receivables and General Intangibles comprising Collateral
and, in connection therewith, Borrower irrevocably authorizes GBC to endorse or
sign Borrower's name on all collections, receipts, instruments and other
documents, to take possession of and open mail addressed to Borrower and remove
therefrom payments made with respect to any item of the Collateral or proceeds
thereof, and, in GBC's sole discretion, to grant extensions of time to pay,
compromise claims and settle Receivables, General Intangibles and the like for
less than face value; and (h) Demand and receive possession of any of Borrower's
federal and state income tax returns and the books and records utilized in the
preparation thereof or referring thereto. All reasonable attorneys' fees,
expenses, costs, liabilities and obligations incurred by GBC
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GREYROCK BUSINESS CREDIT LOAN AND SECURITY AGREEMENT
with respect to the foregoing shall be added to and become part of the
Obligations, shall be due on demand, and shall bear interest at a rate equal
to the highest interest rate applicable to any of the Obligations. Without
limiting any of GBC's rights and remedies, from and after the occurrence of
any Event of Default, the interest rate applicable to the Obligations shall
be increased by an additional * percent per annum.
*THREE
7.3 STANDARDS FOR DETERMINING COMMERCIAL REASONABLENESS. Borrower and GBC
agree that a sale or other disposition (collectively, "sale") of any Collateral
which complies with the following standards will conclusively be deemed to be
commercially reasonable: (i) Notice of the sale is given to Borrower at least
seven days prior to the sale, and, in the case of a public sale, notice of the
sale is published at least seven days before the sale in a newspaper of general
circulation in the county where the sale is to be conducted; (ii) Notice of the
sale describes the collateral in general, non-specific terms; (iii) The sale is
conducted at a place designated by GBC, with or without the Collateral being
present; (iv) The sale commences at any time between 8:00 a.m. and 6:00 p.m.;
(v) Payment of the purchase price in cash or by cashier's check or wire transfer
is required; (vi) With respect to any sale of any of the Collateral, GBC may
(but is not obligated to) direct any prospective purchaser to ascertain directly
from Borrower any and all information concerning the same. GBC shall be free to
employ other methods of noticing and selling the Collateral, in its discretion,
if they are commercially reasonable.
7.4 POWER OF ATTORNEY. Upon the occurrence and during the continuance of any
Event of Default, without limiting GBC's other rights and remedies, Borrower
grants to GBC an irrevocable power of attorney coupled with an interest,
authorizing and permitting GBC (acting through any of its employees, attorneys
or agents) at any time, at its option, but without obligation, with or without
notice to Borrower, and at Borrower's expense, to do any or all of the
following, in Borrower's name or otherwise, but GBC agrees to exercise the
following powers in a commercially reasonable manner: (a) Execute on behalf of
Borrower any documents that GBC may, in its sole discretion, deem advisable in
order to perfect and maintain GBC's security interest in the Collateral, or in
order to exercise a right of Borrower or GBC, or in order to fully consummate
all the transactions contemplated under this Agreement, and all other present
and future agreements; (b) Execute on behalf of Borrower any document
exercising, transferring or assigning any option to purchase, sell or otherwise
dispose of or to lease (as lessor or lessee) any real or personal property which
is part of GBC's Collateral or in which GBC has an interest; (c) Execute on
behalf of Borrower, any invoices relating to any Receivable, any draft against
any Account Debtor and any notice to any Account Debtor, any proof of claim in
bankruptcy, any Notice of Lien, claim of mechanic's, materialman's or other
lien, or assignment or satisfaction of mechanic's, materialman's or other lien;
(d) Take control in any manner of any cash or non-cash items of payment or
proceeds of Collateral; endorse the name of Borrower upon any instruments, or
documents, evidence of payment or Collateral that may come into GBC's
possession; (e) Endorse all checks and other forms of remittances received by
GBC; (f) Pay, contest or settle any lien, charge, encumbrance, security interest
and adverse claim in or to any of the Collateral, or any judgment based thereon,
or otherwise take any action to terminate or discharge the same; (g) Grant
extensions of time to pay, compromise claims and settle Receivables and General
Intangibles for less than face value and execute all releases and other
documents in connection therewith; (h) Pay any sums required on account of
Borrower's taxes or to secure the release of any liens therefor, or both; (i)
Settle and adjust, and give releases of, any insurance claim that relates to any
of the Collateral and obtain payment therefor; (j) Instruct any third party
having custody or control of any books or records belonging to, or relating to,
Borrower to give GBC the same rights of access and other rights with respect
thereto as GBC has under this Agreement; and (k) Take any action or pay any sum
required of Borrower pursuant to this Agreement and any other present or future
agreements. Any and all reasonable sums paid and any and all reasonable costs,
expenses, liabilities, obligations and reasonable attorneys' fees incurred by
GBC with respect to the foregoing shall be added to and become part of the
Obligations, shall be payable on demand, and shall bear interest at a rate equal
to the highest interest rate applicable to any of the Obligations. In no event
shall GBC's rights under the foregoing power of attorney or any of GBC's other
rights under this Agreement be deemed to indicate that GBC is in control of the
business, management or properties of Borrower.
7.5 APPLICATION OF PROCEEDS. All proceeds realized as the result of any sale
or other disposition of the Collateral shall be applied by GBC first to the
reasonable costs, expenses, liabilities, obligations and attorneys' fees
incurred by GBC in the exercise of its rights under this Agreement, second to
the interest due upon any of the Obligations, and third to the principal of the
Obligations, in such order as GBC shall determine in its sole discretion. Any
surplus shall be paid to Borrower or other persons legally entitled thereto;
Borrower shall remain liable to GBC for any deficiency. If GBC, in its sole
discretion, directly or indirectly enters into a deferred payment or other
credit transaction with any purchaser at any sale of Collateral, GBC shall have
the option, exercisable at any time, in its sole discretion, of either reducing
the Obligations by the principal amount of purchase price or deferring the
reduction of the Obligations until the actual receipt by GBC of the cash
therefor.
7.6 REMEDIES CUMULATIVE. In addition to the rights and remedies set forth in
this Agreement, GBC shall have all the other rights and remedies accorded a
secured party under the California Uniform Commercial Code and under all other
applicable laws, and under any other instrument or agreement now or in the
future entered into between GBC and Borrower, and all of such rights and
remedies are cumulative and none is exclusive. Exercise or partial exercise by
GBC of one or more of its rights or remedies shall not be deemed an election,
nor bar GBC from subsequent exercise or partial exercise of any other rights or
-8-
<PAGE>
GREYROCK BUSINESS CREDIT LOAN AND SECURITY AGREEMENT
remedies. The failure or delay of GBC to exercise any rights or remedies shall
not operate as a waiver thereof, but all rights and remedies shall continue in
full force and effect until all of the Obligations have been fully paid and
performed.
8. DEFINITIONS. As used in this Agreement, the following terms have the
following meanings:
"ACCOUNT DEBTOR" means the obligor on a Receivable.
"AFFILIATE" means, with respect to any Person, a relative, partner,
shareholder, director, officer, or employee of such Person, or any parent or
subsidiary of such Person, or any Person controlling, controlled by or under
common control with such Person.
"AGREEMENT" and "THIS AGREEMENT" means this Loan and Security Agreement and all
modifications and amendments thereto, extensions thereof, and replacements
therefor.
"BUSINESS DAY" means a day on which GBC is open for business.
"CODE" means the Uniform Commercial Code as adopted and in effect in the State
of California from time to time.
"COLLATERAL" has the meaning set forth in Section 2.1 above.
"DEFAULT" means any event which with notice or passage of time or both, would
constitute an Event of Default.
"DEPOSIT ACCOUNT" has the meaning set forth in Section 9105 of the Code.
"ELIGIBLE RECEIVABLES" means unconditional Receivables arising in the ordinary
course of Borrower's business from the completed sale of goods or rendition of
services, which GBC, in its sole judgment, shall deem eligible for borrowing,
based on such considerations as GBC may from time to time deem appropriate. *
*ELIGIBLE RECEIVABLES SHALL NOT INCLUDE EXCLUDED RECEIVABLES (AS DEFINED
BELOW).
"EQUIPMENT" means all of Borrower's present and hereafter acquired machinery,
molds, machine tools, motors, furniture, equipment, furnishings, fixtures, trade
fixtures, motor vehicles, tools, parts, dyes, jigs, goods and other tangible
personal property (other than Inventory) of every kind and description used in
Borrower's operations or owned by Borrower and any interest in any of the
foregoing, and all attachments, accessories, accessions, replacements,
substitutions, additions or improvements to any of the foregoing, wherever
located. *
* "EXCLUDED RECEIVABLES" MEANS RECEIVABLES ARISING FROM TELECOMMUNICATIONS
SERVICES RENDERED TO CUSTOMERS WHICH ARE BILLED TO THE CUSTOMERS BY A REGIONAL
BELL OPERATING COMPANY, A BELL OPERATING COMPANY, A LOCAL EXCHANGE COMPANY, A
CREDIT CARD COMPANY, OR A PROVIDER OF LOCAL TELEPHONE SERVICES.
"EVENT OF DEFAULT" means any of the events set forth in Section 7.1 of this
Agreement.
"GENERAL INTANGIBLES" means all general intangibles of Borrower, whether now
owned or hereafter created or acquired by Borrower, including, without
limitation, all choses in action, causes of action, corporate or other business
records, Deposit Accounts, inventions, designs, drawings, blueprints, patents,
patent applications, trademarks and the goodwill of the business symbolized
thereby, names, trade names, trade secrets, goodwill, copyrights, registrations,
licenses, franchises, customer lists, security and other deposits, rights in
all litigation presently or hereafter pending for any cause or claim (whether in
contract, tort or otherwise), and all judgments now or hereafter arising
therefrom, all claims of Borrower against GBC, rights to purchase or sell real
or personal property, rights as a licensor or licensee of any kind, royalties,
telephone numbers, proprietary information, purchase orders, and all insurance
policies and claims (including life insurance, key man insurance, credit
insurance, liability insurance, property insurance and other insurance), tax
refunds and claims, computer programs, discs, tapes and tape files, claims under
guaranties, security interests or other security held by or granted to Borrower,
all rights to indemnification and all other intangible property of every kind
and nature (other than Receivables).
"GUARANTOR" means any Person who has guaranteed any of the Obligations.
"INVENTORY" means all of Borrower's now owned and hereafter acquired goods,
merchandise or other personal property, wherever located, to be furnished under
any contract of service or held for sale or lease (including all raw materials,
work in process, finished goods and goods in transit), and all materials and
supplies of every kind, nature and description which are or might be used or
consumed in Borrower's business or used in connection with the manufacture,
packing, shipping, advertising, selling or finishing of such goods, merchandise
or other personal property, and all warehouse receipts, documents of title and
other documents representing any of the foregoing.
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<PAGE>
GREYROCK BUSINESS CREDIT LOAN AND SECURITY AGREEMENT
"OBLIGATIONS" means all present and future Loans, advances, debts, liabilities,
obligations, guaranties, covenants, duties and indebtedness at any time owing by
Borrower to GBC, whether evidenced by this Agreement or any note or other
instrument or document, whether arising from an extension of credit, opening of
a letter of credit, banker's acceptance, loan, guaranty, indemnification or
otherwise, whether direct or indirect (including, without limitation, those
acquired by assignment and any participation by GBC in Borrower's debts owing to
others), absolute or contingent, due or to become due, including, without
limitation, all interest, charges, expenses, fees, attorney's fees, expert
witness fees, audit fees, letter of credit fees, loan fees, termination fees,
minimum interest charges and any other sums chargeable to Borrower under this
Agreement or under any other present or future instrument or agreement between
Borrower and GBC.
"PERMITTED LIENS" means the following: (i) purchase money security interests
in specific items of Equipment*; (ii) leases of specific items of Equipment*;
(iii) liens for taxes not yet payable; (iv) additional security interests and
liens which are subordinate to the security interest in favor of GBC and are
consented to in writing by GBC (which consent shall not be unreasonably
withheld); (v) security interests being terminated substantially concurrently
with this Agreement; (vi) liens of materialmen, mechanics, warehousemen,
carriers, or other similar liens arising in the ordinary course of business and
securing obligations which are not delinquent; (vii) liens incurred in
connection with the extension, renewal or refinancing of the indebtedness
secured by liens of the type described above in clauses (i) or (ii) above,
provided that any extension, renewal or replacement lien is limited to the
property encumbered by the existing lien and the principal amount of the
indebtedness being extended, renewed or refinanced does not increase; (viii)
Liens in favor of customs and revenue authorities which secure payment of
customs duties in connection with the importation of goods**. GBC will have the
right to require, as a condition to its consent under subparagraph (iv) above,
that the holder of the additional security interest or lien sign an
intercreditor agreement on GBC's then standard form, acknowledge that the
security interest is subordinate to the security interest in favor of GBC, and
agree not to take any action to enforce its subordinate security interest so
long as any Obligations remain outstanding, and that Borrower agree that any
uncured default in any obligation secured by the subordinate security interest
shall also constitute an Event of Default under this Agreement.
*OR SOFTWARE
**(ix) LIENS INCURRED OR PLEDGES AND DEPOSITS MADE IN THE ORDINARY COURSE OF
BUSINESS IN CONNECTION WITH WORKER'S COMPENSATION, UNEMPLOYMENT INSURANCE AND
OTHER TYPES OF STATUTORY OBLIGATIONS (INCLUDING TO SECURE GOVERNMENT CONTRACTS)
IN THE ORDINARY COURSE OF BUSINESS, (x) ANY INTEREST OR TITLE OF A LESSOR IN
PROPERTY SUBJECT TO ANY LEASE OTHER THAN A CAPITAL LEASE, (xi) LIENS ON EXCLUDED
RECEIVABLES, (xii) SECURITY DEPOSITS MADE IN THE ORDINARY COURSE OF BUSINESS,
(xiii) PURCHASE MONEY SECURITY INTERESTS IN COLLATERAL (OTHER THAN RECEIVABLES,
INVENTORY OR GENERAL INTANGIBLES) WHICH COLLATERAL IS ACQUIRED IN AN
ACQUISITION, MERGER OR CONSOLIDATION, AND WHICH SECURES PART OF THE PURCHASE
PRICE THEREOF, PROVIDED THE HOLDER THEREOF AGREES IN WRITING TO GIVE GBC 30 DAYS
NOTICE AND OPPORTUNITY TO CURE ANY DEFAULT THEREUNDER PRIOR TO TAKING ANY
ENFORCEMENT ACTION WITH RESPECT TO THE SAME, (xiv) LIENS LISTED ON THE UCC
SEARCHES LISTED ON EXHIBIT A HERETO, (xv) THE LIEN OF THE TRUSTEE UNDER SECTION
8.07 OF THAT CERTAIN INDENTURE DATED AS OF AUGUST 12, 1996 BETWEEN STEL AND
UNITED STATES TRUST COMPANY OF NEW YORK, ON ALL MONEY OR PROPERTY HELD OF
COLLECTED BY THE TRUSTEE.
"PERSON" means any individual, sole proprietorship, partnership, joint venture,
trust, unincorporated organization, association, corporation, government, or any
agency or political division thereof, or any other entity.
"RECEIVABLES" means all of Borrower's now owned and hereafter acquired accounts
(whether or not earned by performance), letters of credit, contract rights,
chattel paper, instruments, securities, documents and all other forms of
obligations at any time owing to Borrower, all guaranties and other security
therefor, all merchandise returned to or repossessed by Borrower, and all rights
of stoppage in transit and all other rights or remedies of an unpaid vendor,
lienor or secured party.
OTHER TERMS. All accounting terms used in this Agreement, unless otherwise
indicated, shall have the meanings given to such terms in accordance with
generally accepted accounting principles, consistently applied. All other terms
contained in this Agreement, unless otherwise indicated, shall have the meanings
provided by the Code, to the extent such terms are defined therein.
9. GENERAL PROVISIONS.
9.1 INTEREST COMPUTATION. In computing interest on the Obligations, all
checks, wire transfers and other items of payment received by GBC (including
proceeds of Receivables and payment of the Obligations in full) shall be deemed
applied by GBC on account of the Obligations on the Business Day received by GBC
in immediately available funds. GBC shall not, however, be required to credit
Borrower's account for the amount of any item of payment which is unsatisfactory
to GBC in its discretion, and GBC may charge Borrower's Loan account for the
amount of any item of payment which is returned to GBC unpaid.
9.2 APPLICATION OF PAYMENTS. All payments with respect to the Obligations may
be applied, and in GBC's sole discretion reversed and re-applied, to the
Obligations, in such order and manner as GBC shall determine in its sole
discretion.
9.3 CHARGES TO ACCOUNT. GBC may, in its discretion, require that Borrower pay
monetary Obligations in cash to GBC, or charge them to Borrower's Loan account,
in which event they will bear interest at the same rate applicable to the Loans.
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<PAGE>
GREYROCK BUSINESS CREDIT LOAN AND SECURITY AGREEMENT
9.4 MONTHLY ACCOUNTINGS. GBC shall provide Borrower monthly with an account
of advances, charges, expenses and payments made pursuant to this Agreement.
Such account shall be deemed correct, accurate and binding on Borrower and an
account stated (except for reverses and reapplications of payments made and
corrections of errors discovered by GBC), unless Borrower notifies GBC in
writing to the contrary within * days after each account is rendered,
describing the nature of any alleged errors or admissions.
*NINETY
9.5 NOTICES. All notices to be given under this Agreement shall be in writing
and shall be given either personally or by reputable private delivery service or
by regular first-class mail, or certified mail return receipt requested,
addressed to GBC or Borrower at the addresses shown in the heading to this
Agreement, or at any other address designated in writing by one party to the
other party. All notices shall be deemed to have been given upon delivery in
the case of notices personally delivered, or at the expiration of one business
day following delivery to the private delivery service, or two business days
following the deposit thereof in the United States mail, with postage prepaid.
9.6 SEVERABILITY. Should any provision of this Agreement be held by any court
of competent jurisdiction to be void or unenforceable, such defect shall not
affect the remainder of this Agreement, which shall continue in full force and
effect.
9.7 INTEGRATION. This Agreement and such other written agreements, documents
and instruments as may be executed in connection herewith are the final, entire
and complete agreement between Borrower and GBC and supersede all prior and
contemporaneous negotiations and oral representations and agreements, all of
which are merged and integrated in this Agreement. THERE ARE NO ORAL
UNDERSTANDINGS, REPRESENTATIONS OR AGREEMENTS BETWEEN THE PARTIES WHICH ARE NOT
SET FORTH IN THIS AGREEMENT OR IN OTHER WRITTEN AGREEMENTS SIGNED BY THE PARTIES
IN CONNECTION HEREWITH.
9.8 WAIVERS. The failure of GBC at any time or times to require Borrower to
strictly comply with any of the provisions of this Agreement or any other
present or future agreement between Borrower and GBC shall not waive or diminish
any right of GBC later to demand and receive strict compliance therewith. Any
waiver of any default shall not waive or affect any other default, whether prior
or subsequent, and whether or not similar. None of the provisions of this
Agreement or any other agreement now or in the future executed by Borrower and
delivered to GBC shall be deemed to have been waived by any act or knowledge of
GBC or its agents or employees, but only by a specific written waiver signed by
an authorized officer of GBC and delivered to Borrower. Borrower waives demand,
protest, notice of protest and notice of default or dishonor, notice of payment
and nonpayment, release, notice of intent to accelerate, notice of acceleration,
compromise, settlement, extension or renewal of any commercial paper,
instrument, account, General Intangible, document or guaranty at any time held
by GBC on which Borrower is or may in any way be liable, and notice of any
action taken by GBC, unless expressly required by this Agreement.
9.9 AMENDMENT. The terms and provisions of this Agreement may not be waived
or amended, except in a writing executed by Borrower and a duly authorized
officer of GBC.
9.10 TIME OF ESSENCE. Time is of the essence in the performance by Borrower
of each and every obligation under this Agreement.
9.11 ATTORNEYS FEES AND COSTS. Borrower shall reimburse GBC for all
reasonable attorneys' fees and all filing, recording, search, title insurance,
appraisal, audit, and other reasonable costs incurred by GBC, pursuant to, or in
connection with, or relating to this Agreement (whether or not a lawsuit is
filed), including, but not limited to, any reasonable attorneys' fees and costs
GBC incurs in order to do the following: prepare and negotiate this Agreement
and the documents relating to this Agreement; obtain legal advice in connection
with this Agreement or Borrower; enforce, or seek to enforce, any of its rights;
prosecute actions against, or defend actions by, Account Debtors; commence,
intervene in, or defend any action or proceeding; initiate any complaint to be
relieved of the automatic stay in bankruptcy; file or prosecute any probate
claim, bankruptcy claim, third-party claim, or other claim; examine, audit,
copy, and inspect any of the Collateral or any of Borrower's books and records;
protect, obtain possession of, lease, dispose of, or otherwise enforce GBC's
security interest in, the Collateral; and otherwise represent GBC in any
litigation relating to Borrower. If either GBC or Borrower files any lawsuit
against the other predicated on a breach of this Agreement, the prevailing party
in such action shall be entitled to recover its reasonable costs and attorneys'
fees, including (but not limited to) reasonable attorneys' fees and costs
incurred in the enforcement of, execution upon or defense of any order, decree,
award or judgment. All attorneys' fees and costs to which GBC may be entitled
pursuant to this Paragraph shall immediately become part of Borrower's
Obligations, shall be due on demand, and shall bear interest at a rate equal to
the highest interest rate applicable to any of the Obligations.
9.12 BENEFIT OF AGREEMENT. The provisions of this Agreement shall be binding
upon and inure to the benefit of the respective successors, assigns, heirs,
beneficiaries and representatives of Borrower and GBC; provided, however, that
Borrower may not assign or transfer any of its rights under this Agreement
without the prior written consent of GBC, and any prohibited assignment shall be
void. No consent by GBC to any assignment shall release Borrower from its
liability for the Obligations.
9.13 JOINT AND SEVERAL LIABILITY. If Borrower consists of more than one
Person, their liability shall be joint and several, and the compromise of any
claim with, or the release of, any Borrower shall not constitute a compromise
with, or a release of, any other Borrower.
9.14 LIMITATION OF ACTIONS. Any claim or cause of action by Borrower against
GBC, its directors, officers, employees, agents, accountants or attorneys, based
upon, arising from,
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<PAGE>
GREYROCK BUSINESS CREDIT LOAN AND SECURITY AGREEMENT
or relating to this Loan Agreement, or any other present or future document
or agreement, or any other transaction contemplated hereby or thereby or
relating hereto or thereto, or any other matter, cause or thing whatsoever,
occurred, done, omitted or suffered to be done by GBC, its directors,
officers, employees, agents, accountants or attorneys, shall be barred unless
asserted by Borrower by the commencement of an action or proceeding in a
court of competent jurisdiction by the filing of a complaint within one year
after the first act, occurrence or omission upon which such claim or cause of
action, or any part thereof, is based, and the service of a summons and
complaint on an officer of GBC, or on any other person authorized to accept
service on behalf of GBC, within thirty (30) days thereafter. Borrower
agrees that such one-year period is a reasonable and sufficient time for
Borrower to investigate and act upon any such claim or cause of action. The
one-year period provided herein shall not be waived, tolled, or extended
except by the written consent of GBC in its sole discretion. This provision
shall survive any termination of this Loan Agreement or any other present or
future agreement.
9.15 PARAGRAPH HEADINGS; CONSTRUCTION. Paragraph headings are only used in
this Agreement for convenience. Borrower and GBC acknowledge that the headings
may not describe completely the subject matter of the applicable paragraph, and
the headings shall not be used in any manner to construe, limit, define or
interpret any term or provision of this Agreement. The term "including",
whenever used in this Agreement, shall mean "including (but not limited to)".
This Agreement has been fully reviewed and negotiated between the parties and no
uncertainty or ambiguity in any term or provision of this Agreement shall be
construed strictly against GBC or Borrower under any rule of construction or
otherwise. *
*THIS AGREEMENT MAY BE EXECUTED IN SEPARATE COUNTERPARTS, WHICH TOGETHER SHALL
CONSTITUTE ONE AGREEMENT.
9.16 GOVERNING LAW; JURISDICTION; VENUE. This Agreement and all acts and
transactions hereunder and all rights and obligations of GBC and Borrower shall
be governed by the laws of the State of California. As a material part of the
consideration to GBC to enter into this Agreement, Borrower (i) agrees that all
actions and proceedings relating directly or indirectly to this Agreement shall,
at GBC's option, be litigated in courts located within California, and that the
exclusive venue therefor shall be Los Angeles County; (ii) consents to the
jurisdiction and venue of any such court and consents to service of process in
any such action or proceeding by personal delivery or any other method permitted
by law; and (iii) waives any and all rights Borrower may have to object to the
jurisdiction of any such court, or to transfer or change the venue of any such
action or proceeding.
9.17 MUTUAL WAIVER OF JURY TRIAL. BORROWER AND GBC EACH HEREBY WAIVE THE
RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF,
OR IN ANY WAY RELATING TO, THIS AGREEMENT OR ANY OTHER PRESENT OR FUTURE
INSTRUMENT OR AGREEMENT BETWEEN GBC AND BORROWER, OR ANY CONDUCT, ACTS OR
OMISSIONS OF GBC OR BORROWER OR ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES,
AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH GBC OR BORROWER, IN ALL
OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE.
Borrower:
SA TELECOMMUNICATIONS, INC.
By /s/ J. David Darnell
-------------------------------
Vice President-Finance
U.S. COMMUNICATIONS, INC.
By /s/ J. David Darnell
-------------------------------
Vice President
LONG DISTANCE NETWORK, INC.
By /s/ J. David Darnell
-------------------------------
Vice President
SOUTHWEST LONG DISTANCE NETWORK, INC.
By /s/ J. David Darnell
-------------------------------
Vice President
GBC:
GREYROCK BUSINESS CREDIT,
a Division of NationsCredit Commercial Corporation
By /s/ Ian Schneider
-------------------------------
Title Chief Operating Officer
----------------------------
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<PAGE>
Exhibit 10.2
[LOGO]
SCHEDULE TO
LOAN AND SECURITY AGREEMENT
BORROWERS: SA TELECOMMUNICATIONS, INC. ("STEL")
U.S. COMMUNICATIONS, INC. ("USCI")
LONG DISTANCE NETWORK, INC. ("LONG DISTANCE")
SOUTHWEST LONG DISTANCE NETWORK, INC. ("SOUTHWEST")
DATE: DECEMBER 26, 1996
This Schedule is an integral part of the Loan and Security Agreement between
GREYROCK BUSINESS CREDIT, A DIVISION OF NATIONSCREDIT COMMERCIAL CORPORATION
("GBC") and the above-borrowers (jointly and severally, the "Borrower") of
even date.
==============================================================================
1. CREDIT LIMIT
(Section 1.1): An amount not to exceed the lesser of: (i) $10,000,000 at
any one time outstanding (the "Overall Credit Limit"); or
(ii) 80% of the amount of Borrower's Eligible Receivables
(as defined in Section 8 above). Loans will be made to
each Borrower based on the Eligible Receivables of each
Borrower, subject to the Overall Credit Limit set forth
above for all Loans to all Borrowers combined.
==============================================================================
2. INTEREST.
INTEREST RATE (Section 1.2):
Subject in all respects to Exhibit C hereto, the interest
rate in effect throughout each calendar month during the
term of this Agreement shall be the lesser of (a) the
maximum rate permitted by applicable law, or (b) the
highest "Prime Rate" in effect during such month, plus
2.5% per annum, provided that the interest rate in effect
in each month shall not be less than 9% per annum.
Interest shall be calculated on the basis of a 360-day
year for the actual number of days elapsed. "Prime Rate"
means the actual "Reference Rate" or the substitute
therefor of the Bank of America NT & SA whether or not
that rate is the lowest interest rate charged by said
bank. If the Prime Rate, as defined, is unavailable,
"Prime Rate" shall mean the highest of the prime rates
published in the Wall Street Journal on the first
business day of the month, as the base rate on corporate
loans at large U.S. money center commercial banks.
Interest charged throughout each month shall be based on
the highest Prime Rate in effect during such month.
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<PAGE>
GREYROCK BUSINESS CREDIT SCHEDULE TO LOAN AND SECURITY AGREEMENT
==============================================================================
3. FEES (Section 1.3/Section 6.2):
Loan Fee: $100,000, payable concurrently herewith.
Unused Line Fee: In the event accrued interest in any month is less than
$10,000, Borrower shall pay GBC an unused line fee in
an amount equal to the difference between $10,000 and
interest accrued during such month. The unused line
fee represents compensation to GBC for having Loans
available to Borrower. The unused line fee shall be
payable on the last day of each month and may be charged
by GBC to the Borrower's Loan account.
Termination Fee: $10,000 per month for each month (or portion thereof)
from the effective date of termination to the Maturity
Date; provided that no Termination Fee shall be charged
if termination occurs after the first anniversary of the
date of this Agreement.
NSF Check Charge: $15.00 per item.
Wire Transfers: $15.00 per transfer.
==============================================================================
4. MATURITY DATE
(Section 6.1): DECEMBER 31, 1997, subject to automatic renewal as
provided in Section 6.1 above, and early termination
as provided in Section 6.2 above.
==============================================================================
5. REPORTING.
(Section 5.2):
Borrower shall provide GBC with the following:
1. Annual financial statements (consolidated and
consolidating), as soon as available, and in any event
within 90 days following the end of Borrower's fiscal
year, certified by independent certified public
accountants acceptable to GBC.
2. Quarterly unaudited financial statements (consolidated
and consolidating), as soon as available, and in any
event within 45 days after the end of each fiscal
quarter of Borrower.
3. Monthly unaudited financial statements (consolidated
and consolidating), as soon as available, and in any
event within 45 days after the end of each month.
4. Monthly Receivable agings, aged by invoice date,
within 15 days after the end of each month.
5. Monthly accounts payable agings, aged by invoice date,
and outstanding or held check registers within 15 days
after the end of each month.
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<PAGE>
GREYROCK BUSINESS CREDIT SCHEDULE TO LOAN AND SECURITY AGREEMENT
==============================================================================
6. BORROWER INFORMATION:
PRIOR NAMES OF
BORROWER
(Section 3.2): As set forth in Representations and Warranties
of Borrower dated December 2, 1996 (the
"Representations").
PRIOR TRADE
NAMES OF BORROWER
(Section 3.2): As set forth in the Representations.
EXISTING TRADE
NAMES OF BORROWER
(Section 3.2): As set forth in the Representations.
OTHER LOCATIONS
AND ADDRESSES
(Section 3.3): As set forth in the Representations.
MATERIAL ADVERSE
LITIGATION
(Section 3.10): See Exhibit B
==============================================================================
7. NEGATIVE COVENANTS-EXCEPTIONS:
Notwithstanding the provisions of Section 5.5, the
following shall be permitted:
(a) Mergers and consolidations between two entities
which are both Borrowers, mergers and consolidations
of a subsidiary of a Borrower into such Borrower, and
other mergers and consolidations if a Borrower is the
surviving corporation in such merger.
(b) Sale or transfer of all or substantially all of
the assets of a Borrower to another Borrower.
(c) Acquisitions of assets or business by a Borrower,
provided the assets acquired are not subject to any
liens or encumbrances other than Permitted Liens.
(d) Payment of stock dividends, or issuance of
capital stock, or liens on the treasury or outstanding
capital stock of STEL.
(e) Payment of cash dividends on STEL's Series A
Cumulative Convertible Preferred Stock (the "Preferred
Stock") in an aggregate amount not to exceed $164,000
in any fiscal year of the Borrower (computed on a non-
cumulative basis).
(f) Sale of the international call back business and
related assets (other than any Receivables with
respect to which Loans are outstanding or any customer
lists or other General Intangibles relating thereto),
in a good faith arm's length transaction. GBC shall
execute and deliver UCC-2 releases with respect to
sales permitted under this clause (f) on written
request by the Borrower.
(g) Sale of Collateral as a part of the sale of a
business or line of business, which was acquired after
the date hereof (other than any Receivables with
respect to which Loans are outstanding or any customer
lists or other General Intangibles relating thereto),
in a good faith arm's length transaction. GBC shall
execute and deliver UCC-2
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<PAGE>
GREYROCK BUSINESS CREDIT SCHEDULE TO LOAN AND SECURITY AGREEMENT
releases with respect to sales permitted under this
clause (g) on written request by the Borrower.
(h) Repurchase stock, options or warrants under any
stock option plan in an aggregate amount not to exceed
$500,000 in any fiscal year of the Borrower (computed
on a non-cumulative basis).
(i) Redeem Preferred Stock after July 1, 2000, for an
aggregate amount not to exceed $2,204,000 in any
fiscal year of the Borrower (computed on a non-
cumulative basis).
(j) Guaranty the obligations of any other Borrower or
any subsidiary of any Borrower, or continue in effect
any guarantees in existence on the date of this
Agreement.
(k) Make loans (i) to officers and directors of any
Borrower not exceeding at any one time an aggregate
of $200,000 outstanding, (ii) to employees, officers
and directors of any Borrower arising from the
exercise of options to purchase stock of any Borrower,
provided Borrower does not make any cash advance in
connection therewith, (iii) which are travel advances
to officers and employees in the ordinary course of
business, (iv) which are progress payments, advances
against commissions, prepaid rent or security deposits
in the ordinary course of business, (v) from one
Borrower to another Borrower or to a direct or
indirect subsidiary of a Borrower.
Borrower shall provide GBC with written notice of any
of the actions in clauses (a)-(c) above at least 15
days before taking any such action.
Borrower shall provide GBC with written notice of any
of the actions in clauses (e)-(i) above within 30 days
after taking any such action.
==============================================================================
8. OTHER PROVISIONS:
(1) CORPORATE STRUCTURE. Borrower represents and
warrants that:
(a) STEL is a holding company which owns 100%
of the issued and outstanding shares of
stock of USCI, Long Distance, and North
American.
(b) USCI owns 100% of the issued and
outstanding shares of stock of Southwest
Long Distance Network, Inc. ("Southwest").
(c) STEL also owns 100% of the issued and
outstanding shares of stock of Baltic
States and CIS Ventures, Inc. ("Baltic"),
and CIS Intelligence Information Services,
Inc. ("CIS"), all of which are and shall
continue to be inactive corporations,
without assets, and all of which shall be
dissolved by June 30, 1997. On or before
said date, Borrower shall give GBC evidence
confirming the dissolution of said
corporations.
(d) Baltic also owns 50% of the issued and
outstanding shares of stock of Intertex
Trading Corporation ("Intertex"), which is
and shall continue to be an inactive
corporation, without assets.
(e) STEL also owns 100% of the issued and
outstanding shares of Uniquest
Communications, Inc. ("Unitex").
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<PAGE>
GREYROCK BUSINESS CREDIT SCHEDULE TO LOAN AND SECURITY AGREEMENT
==============================================================================
(2) CONTINUING GUARANTEES. Concurrently, each
Borrower shall execute and deliver Continuing
Guarantees, on GBC's standard form, with respect
to each other Borrower, and Borrower shall cause
North American, Baltic, CIS, and Unitex to
execute and deliver Continuing Guarantees, on
GBC's standard form, with respect to each
Borrower, together with security agreements
granting security interests in all of their
assets to secure said guarantees, on GBC's
standard form. Borrower shall cause all
guarantees referred to in this Section 7(2) to
continue in full force and effect so long as any
Obligations are outstanding and throughout the
term of this Agreement.
(3) FUTURE SUBSIDIARIES. If, in the future any
Borrower directly or indirectly acquires a
subsidiary of which it owns more than 50% of the
outstanding shares (a "Future Subsidiary"),
Borrower shall cause the Future Subsidiary,
simultaneously with, or within 10 Business Days
after its formation or acquisition, to join as an
additional Borrower under this Agreement, subject
to all of the terms and conditions of this
Agreement, provided such Future Subsidiary is
acceptable to GBC.
(4) STOCK PLEDGES. Concurrently, STEL shall execute
and deliver a Stock Pledge Agreement, on GBC's
standard form, with respect to all of the
outstanding stock of USCI, Long Distance, North
American and Unitex. Concurrently, USCI shall
execute and deliver a Stock Pledge Agreement, on
GBC's standard form, with respect to all of the
outstanding stock of Southwest. Borrower shall
cause all stock owned by a Borrower in any Future
Subsidiary to be pledged to GBC pursuant to a
Stock Pledge Agreement, on GBC's standard form,
simultaneously with, or within 10 Business Days
after the formation or acquisition of the Future
Subsidiary. Borrower shall cause all Stock
Pledge Agreements referred to in this Section
7(4) to continue in full force and effect so long
as any Obligations are outstanding and throughout
the term of this Agreement.
Borrower: GBC:
SA TELECOMMUNICATIONS, INC. GREYROCK BUSINESS CREDIT,
a Division of NationsCredit
Commercial Corporation
By J. David Darnell By /s/ Ian Schneider
--------------------------------- ---------------------------------
Vice President-Finance Title Chief Operating Officer
Borrower: Borrower:
U.S. COMMUNICATIONS, INC. LONG DISTANCE NETWORK, INC.
By /s/ J. David Darnell By /s/ J. David Darnell
--------------------------------- ---------------------------------
Vice President Vice President
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<PAGE>
GREYROCK BUSINESS CREDIT SCHEDULE TO LOAN AND SECURITY AGREEMENT
Borrower:
SOUTHWEST LONG DISTANCE NETWORK, INC.
By /s/ J. David Darnell
---------------------------------
Vice President
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<PAGE>
EXHIBIT A
EXISTING LIENS
THOSE SHOWN ON THE FOLLOWING UCC SEARCHES
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<PAGE>
EXHIBIT B
MATERIAL ADVERSE
LITIGATION
1. Silvio Avyam vs. SA Holdings, Inc. and North American Telecommunications
Corporation, Cause No. 95-07136-E, 101st Judicial District Court, Dallas County,
Texas, filed July 20, 1995. This litigation alleges damages in excess of
$1,500,000 for alleged breach of contract, breach of fiduciary duty, conspiracy
and fraud arising out of the termination of the plaintiff's consulting agreement
with North American. The defendants have filed counterclaims and believe they
have meritorious defenses to the claims made. The case is currently in
discovery. A trial date has not yet been set.
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<PAGE>
EXHIBIT C
MAXIMUM INTEREST RATE
(a) Notwithstanding the foregoing provisions of Section 2 of the Schedule
regarding the rates of interest applicable to the Loans, if at any time the
amount of such interest computed on the basis of the interest rate specified
therein (the "Applicable Interest Rate") would exceed the amount of such
interest computed upon the basis of the maximum rate of interest permitted by
applicable state or federal law in effect from time to time hereafter, after
taking into account, to the extent required by applicable law, any and all fees,
payments, charges and calculations provided for in this Agreement or in any
other agreement between Borrower and GBC (the "Maximum Legal Rate"), the
interest payable under this Agreement shall be computed upon the basis of the
Maximum Legal Rate, but any subsequent reduction in the Prime Rate shall not
reduce such interest thereafter payable hereunder below the amount computed on
the basis of the Maximum Legal Rate until the aggregate amount of such interest
accrued and payable under this Agreement equals the total amount of interest
which would have accrued if such interest had been at all times computed solely
on the basis of the Applicable Interest Rate.
(b) No agreements, conditions, provisions or stipulations contained in
this Agreement or any other instrument, document or agreement between the
Borrower and the GBC or default of the Borrower, or the exercise by the GBC of
the right to accelerate the payment of the maturity of principal and interest or
to exercise any option whatsoever contained in this Agreement or any other
agreement between the Borrower and the GBC, or the arising of any contingency
whatsoever, shall entitle the GBC to collect, in any event, interest exceeding
the Maximum Legal Rate and in no event shall the Borrower be obligated to pay
interest exceeding such Maximum Legal Rate and all agreements, conditions or
stipulations, if any, which may in any event or contingency whatsoever operate
to bind, obligate or compel the Borrower to pay a rate of interest exceeding the
Maximum Legal Rate, shall be without binding force or effect, at law or in
equity, to the extent only of the excess of interest over such Maximum Legal
Rate. In the event any interest is charged in excess of the Maximum Legal Rate
("Excess"), the Borrower acknowledges and stipulates that any such charge shall
be the result of an accidental and BONA FIDE error, and such Excess shall be,
first, applied to reduce the principal then unpaid hereunder; second, applied to
reduce the Obligations; and third, returned to the Borrower, it being the
intention of the parties hereto not to enter at any time into a usurious or
otherwise illegal relationship. The Borrower recognizes that, with fluctuations
in the Applicable Interest Rate and the Maximum Legal Rate, such an
unintentional result could inadvertently occur. By the execution of this
Agreement, the Borrower covenants that (i) the credit or return of any Excess
shall constitute the acceptance by the Borrower of such Excess, and (ii) the
Borrower shall not seek or pursue any other remedy, legal or equitable, against
GBC, based in whole or in part upon the charging or receiving of any interest in
excess of the maximum authorized by applicable law. For the purpose of
determining whether or not any Excess has been contracted for, charged or
received by GBC, all interest at any time contracted for, charged or received by
the GBC in connection with this Agreement shall be amortized, prorated,
allocated and spread in equal parts during the entire term of this Agreement.
(c) The provisions of this Exhibit C shall be deemed to be incorporated
into every document or communication relating to the Obligations which sets
forth or prescribes any account, right or claim or alleged account, right or
claim of the GBC with respect to the Borrower (or any other obligor in respect
of Obligations), whether or not any provision of this Exhibit C is referred to
therein. All such documents and communications and all figures set forth
therein shall, for the sole purpose of computing the extent of the liabilities
and obligations of the Borrower (or other obligor) asserted by the GBC
thereunder, be automatically recomputed by any Borrower or obligor, and by any
court considering the same, to give effect to the adjustments or credits
required by this Exhibit C.
(d) If the applicable state or federal law is amended in the future to
allow a greater rate of interest to be charged under this Agreement or any other
Loan Documents that is presently allowed by applicable state or federal law,
then the limitation of interest under this Exhibit C shall be increased to the
maximum rate of interest allowed by applicable state or federal law as amended,
which increase
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GREYROCK BUSINESS CREDIT SCHEDULE TO LOAN AND SECURITY AGREEMENT
- ------------------------------------------------------------------------------
shall be effective hereunder on the effective date of such amendment, and all
interest charges owing to the GBC by reason thereof shall be payable upon
demand.
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<PAGE>
Exhibit 10.3
[LOGO]
CROSS-CORPORATE CONTINUING GUARANTY
BORROWERS: SA TELECOMMUNICATIONS, INC.
U.S. COMMUNICATIONS, INC.
LONG DISTANCE NETWORK, INC.
SOUTHWEST LONG DISTANCE NETWORK, INC.
GUARANTORS: SA TELECOMMUNICATIONS, INC.
U.S. COMMUNICATIONS, INC.
LONG DISTANCE NETWORK, INC.
SOUTHWEST LONG DISTANCE NETWORK, INC.
DATE: DECEMBER 26, 1996
THIS CROSS-CORPORATE CONTINUING GUARANTY is executed by the above-named
guarantors (jointly and severally, the "Guarantor"), as of the above date, in
favor of GREYROCK BUSINESS CREDIT, a Division of NationsCredit Commercial
Corporation ("GBC"), whose address is 10880 Wilshire Boulevard, Suite 950, Los
Angeles, CA 90024 with respect to the Indebtedness of each and all of the
above-named borrowers (jointly and severally, the "Borrower").
1. CONTINUING GUARANTY. Guarantor hereby unconditionally guarantees and
promises to pay on demand to GBC in lawful money of the United States, and to
perform for the benefit of GBC, all of the Borrower's present and future
Indebtedness (as defined below) to GBC.
2. "INDEBTEDNESS." As used in this Guaranty, the term "Indebtedness" is
used in its most comprehensive sense and shall mean and include without
limitation: (a) any and all debts, duties, obligations, liabilities,
representations, warranties and guaranties of Borrower or any one or more of
them, heretofore, now, or hereafter made, incurred, or created, whether
directly to GBC or acquired by GBC by assignment or otherwise, or held by GBC
on behalf of others, however arising, whether voluntary or involuntary, due
or not due, absolute or contingent, liquidated or unliquidated, certain or
uncertain, determined or undetermined, monetary or nonmonetary, written or
oral, and whether Borrower may be liable individually or jointly with others,
and regardless of whether recovery thereon may be or hereafter become barred
by any statute of limitations, discharged or uncollectible in any bankruptcy,
insolvency or other proceeding, or otherwise unenforceable; and (b) any and
all amendments, modifications, renewals and extensions of any or all of the
foregoing, including without limitation amendments, modifications, renewals
and extensions which are evidenced by any new or additional instrument,
document or agreement; and (c) any and all attorneys' fees, court costs, and
collection charges incurred in endeavoring to collect or enforce any of the
foregoing against Borrower, Guarantor, or any other person liable thereon
(whether or not suit be brought) and any other expenses of, for or incidental
to collection thereof.
3. WAIVERS. Guarantor hereby waives: (a) presentment for payment, notice
of dishonor, demand, protest, and notice thereof as to any instrument, and all
other notices and demands to which Guarantor might be entitled, including
without limitation notice of all of the following: the acceptance hereof; the
creation, existence, or acquisition of any Indebtedness; the amount of the
Indebtedness from time to time outstanding; any foreclosure sale or other
disposition of any property which secures any or all of the Indebtedness or
which secures the obligations of any other guarantor of any or all of the
Indebtedness; any adverse change in Borrower's financial position; any other
fact which might increase Guarantor's risk; any default, partial payment or
non-payment of all or any part of the Indebtedness; the occurrence of any
other Event of Default (as hereinafter defined); any and all agreements and
arrangements between GBC and Borrower and any changes, modifications, or
extensions thereof, and any revocation, modification or
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GREYROCK BUSINESS CREDIT CROSS-CORPORATE CONTINUING GUARANTY
-----------------------------------------------------------------------
release of any guaranty of any or all of the Indebtedness by any person
(including without limitation any other person signing this Guaranty); (b) any
right to require GBC to institute suit against, or to exhaust its rights and
remedies against, Borrower or any other person, or to proceed against any
property of any kind which secures all or any part of the Indebtedness, or to
exercise any right of offset or other right with respect to any reserves,
credits or deposit accounts held by or maintained with GBC or any indebtedness
of GBC to Borrower, or to exercise any other right or power, or pursue any
other remedy GBC may have; (c) any defense arising by reason of any disability
or other defense of Borrower or any other guarantor or any endorser, co-maker
or other person, or by reason of the cessation from any cause whatsoever of
any liability of Borrower or any other guarantor or any endorser, co-maker or
other person, with respect to all or any part of the Indebtedness, or by
reason of any act or omission of GBC or others which directly or indirectly
results in the discharge or release of Borrower or any other guarantor or any
other person or any Indebtedness or any security therefor, whether by
operation of law or otherwise; (d) any defense arising by reason of any
failure of GBC to obtain, perfect, maintain or keep in force any security
interest in, or lien or encumbrance upon, any property of Borrower or any
other person; (e) any defense based upon any failure of GBC to give Guarantor
notice of any sale or other disposition of any property securing any or all of
the Indebtedness, or any defects in any such notice that may be given, or any
failure of GBC to comply with any provision of applicable law in enforcing any
security interest in or lien upon any property securing any or all of the
Indebtedness including, but not limited to, any failure by GBC to dispose of
any property securing any or all of the Indebtedness in a commercially
reasonable manner; (f) any defense based upon or arising out of any
bankruptcy, insolvency, reorganization, arrangement, readjustment of debt,
liquidation or dissolution proceeding commenced by or against Borrower or any
other guarantor or any endorser, co-maker or other person, including without
limitation any discharge of, or bar against collecting, any of the
Indebtedness (including without limitation any interest thereon), in or as a
result of any such proceeding; and (g) the benefit of any and all statutes of
limitation with respect to any action based upon, arising out of or related to
this Guaranty. Until all of the Indebtedness has been paid, performed, and
discharged in full, nothing shall discharge or satisfy the liability of
Guarantor hereunder except the full performance and payment of all of the
Indebtedness. If any claim is ever made upon GBC for repayment or recovery of
any amount or amounts received by GBC in payment of or on account of any of
the Indebtedness, because of any claim that any such payment constituted a
preferential transfer or fraudulent conveyance, or for any other reason
whatsoever, and GBC repays all or part of said amount by reason of any
judgment, decree or order of any court or administrative body having
jurisdiction over GBC or any of its property, or by reason of any settlement
or compromise of any such claim effected by GBC with any such claimant
(including without limitation the Borrower), then and in any such event,
Guarantor agrees that any such judgment, decree, order, settlement and
compromise shall be binding upon Guarantor, notwithstanding any revocation or
release of this Guaranty or the cancellation of any note or other instrument
evidencing any of the Indebtedness, or any release of any of the Indebtedness,
and the Guarantor shall be and remain liable to GBC under this Guaranty for
the amount so repaid or recovered, to the same extent as if such amount had
never originally been received by GBC, and the provisions of this sentence
shall survive, and continue in effect, notwithstanding any revocation or
release of this Guaranty. Until all of the Indebtedness has been irrevocably
paid and performed in full, Guarantor hereby expressly and unconditionally
waives all rights of subrogation, reimbursement and indemnity of every kind
against Borrower, and all rights of recourse to any assets or property of
Borrower, and all rights to any collateral or security held for the payment
and performance of any Indebtedness, including (but not limited to) any of the
foregoing rights which Guarantor may have under any present or future document
or agreement with any Borrower or other person, and including (but not limited
to) any of the foregoing rights which Guarantor may have under any equitable
doctrine of subrogation, implied contract, or unjust enrichment, or any other
equitable or legal doctrine. Neither GBC, nor any of its directors, officers,
employees, agents, attorneys or any other person affiliated with or
representing GBC shall be liable for any claims, demands, losses or damages,
of any kind whatsoever, made, claimed, incurred or suffered by Guarantor or
any other party through the ordinary negligence of GBC, or any of its
directors, officers, employees, agents, attorneys or any other person
affiliated with or representing GBC.
4. CONSENTS. Guarantor hereby consents and agrees that, without notice to
or by Guarantor and without affecting or impairing in any way the obligations
or liability of Guarantor hereunder, GBC may, from time to time before or
after revocation of this Guaranty, do any one or more of the following in
GBC's sole and absolute discretion: (a) accelerate, accept partial payments
of, compromise or settle, renew, extend the time for the payment, discharge,
or performance of, refuse to enforce, and release all or any parties to, any
or all of the Indebtedness; (b) grant any other indulgence to Borrower or any
other person in respect of any or all of the Indebtedness or any other matter;
(c) accept, release, waive, surrender, enforce, exchange, modify, impair, or
extend the time for the performance, discharge, or payment of, any and all
property of any kind securing any or all of the Indebtedness or any guaranty
of any or all of the Indebtedness, or on which GBC at any time may have a
lien, or refuse to enforce its rights or make any compromise or settlement or
agreement therefor in respect of any or all of such property; (d) substitute
or add, or take any action or omit to take any action which results in the
release of, any one or more endorsers or guarantors of all or any part of the
Indebtedness, including, without limitation one or more parties to this
Guaranty, regardless of any destruction or impairment of any right of
contribution or other right of Guarantor; (e) amend, alter or change in any
respect whatsoever any term or provision relating to any or all of the
Indebtedness, including the rate of interest thereon; (f) apply any sums
received from Borrower, any other guarantor, endorser, or co-signer, or from
the disposition of any collateral or security, to any indebtedness
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GREYROCK BUSINESS CREDIT CROSS-CORPORATE CONTINUING GUARANTY
-----------------------------------------------------------------------
whatsoever owing from such person or secured by such collateral or security,
in such manner and order as GBC determines in its sole discretion, and
regardless of whether such indebtedness is part of the Indebtedness, is
secured, or is due and payable; (g) apply any sums received from Guarantor or
from the disposition of any collateral or security securing the obligations of
Guarantor, to any of the Indebtedness in such manner and order as GBC
determines in its sole discretion, regardless of whether or not such
Indebtedness is secured or is due and payable. Guarantor consents and agrees
that GBC shall be under no obligation to marshal any assets in favor of
Guarantor, or against or in payment of any or all of the Indebtedness.
Guarantor further consents and agrees that GBC shall have no duties or
responsibilities whatsoever with respect to any property securing any or all
of the Indebtedness. Without limiting the generality of the foregoing, GBC
shall have no obligation to monitor, verify, audit, examine, or obtain or
maintain any insurance with respect to, any property securing any or all of
the Indebtedness.
5. NO COMMITMENT. Guarantor acknowledges and agrees that acceptance by GBC
of this Guaranty shall not constitute a commitment of any kind by GBC to extend
such credit or other financial accommodation to Borrower or to permit Borrower
to incur Indebtedness to GBC.
6. EXERCISE OF RIGHTS AND REMEDIES; FORECLOSURE OF TRUST DEEDS. Guarantor
consents and agrees that, without notice to or by Guarantor and without
affecting or impairing in any way the obligations or liability of Guarantor
hereunder, GBC may, from time to time *, before or after revocation of this
Guaranty, exercise any right or remedy it may have with respect to any or all of
the Indebtedness or any property securing any or all of the Indebtedness or any
guaranty thereof, including without limitation judicial foreclosure, nonjudicial
foreclosure, exercise of a power of sale, and taking a deed, assignment or
transfer in lieu of foreclosure as to any such property, and Guarantor expressly
waives any defense based upon the exercise of any such right or remedy,
notwithstanding the effect thereof upon any of Guarantor's rights, including
without limitation, any destruction of Guarantor's right of subrogation against
Borrower and any destruction of Guarantor's right of contribution or other right
against any other guarantor of any or all of the Indebtedness or against any
other person, whether by operation of Sections 580a, 580d or 726 of the
California Code of Civil Procedure, or any comparable provisions of the laws of
any other jurisdiction, or any other statutes or rules of law now or hereafter
in effect, or otherwise. Without limiting the generality of the foregoing, (a)
Guarantor waives all rights and defenses arising out of an election of remedies
by GBC, even though that election of remedies, such as a nonjudicial foreclosure
with respect to security for any of the Indebtedness, has destroyed the
guarantor's rights of subrogation and reimbursement against the principal by the
operation of Section 580d of the Code of Civil Procedure or otherwise. (b)
Guarantor further waives all rights and defenses arising out of an election of
remedies by GBC, even though that election of remedies, such as a nonjudicial
foreclosure with respect to security for any of the Indebtedness, has destroyed
the guarantor's rights of subrogation, reimbursement and contribution against
any other guarantor of the guaranteed obligation, by the operation of Section
580d of the Code of Civil Procedure or otherwise. (c) Guarantor understands
that if GBC forecloses any present or future trust deed, which secures any or
all of the Indebtedness or which secures any other guaranty of any or all of the
Indebtedness, by nonjudicial foreclosure, Guarantor may, as a result, have a
complete defense to liability under this Guaranty, based on the legal doctrine
of estoppel and Sections 580a, 580d or 726 of the California Code of Civil
Procedure, and GUARANTOR HEREBY EXPRESSLY WAIVES ALL SUCH DEFENSES. (d)
Guarantor understands and agrees that, in the event GBC in its sole discretion
forecloses any trust deed now or hereafter securing any or all of the
Indebtedness, by nonjudicial foreclosure, Guarantor will remain liable to GBC
for any deficiency, even though Guarantor will lose his right of subrogation
against the Borrower, and even though Guarantor will be unable to recover from
the Borrower the amount of the deficiency for which Guarantor is liable, and
even though Guarantor may have retained his right of subrogation against
Borrower if GBC had foreclosed said trust deed by judicial foreclosure as
opposed to nonjudicial foreclosure, and even though absent the waivers set forth
herein Guarantor may have had a complete defense to any liability for any
deficiency hereunder. (e) Guarantor understands and agrees that, in the event
GBC in its sole discretion forecloses any trust deed now or hereafter securing
any other guaranty of any or all of the Indebtedness, by nonjudicial
foreclosure, Guarantor will remain liable to GBC for any deficiency, even though
Guarantor will lose his right of subrogation or contribution against the other
guarantor, and even though Guarantor will be unable to recover from the other
guarantor any part of the deficiency for which Guarantor is liable, and even
though Guarantor may have retained his right of subrogation or contribution
against the other guarantor if GBC had foreclosed said trust deed by judicial
foreclosure as opposed to nonjudicial foreclosure, and even though absent the
waivers set forth herein Guarantor may have had a complete defense to any
liability for any deficiency hereunder.
*AFTER AN EVENT OF DEFAULT WHICH IS CONTINUING
7. ACCELERATION. Notwithstanding the terms of all or any part of the
Indebtedness, the obligations of the Guarantor hereunder to pay and perform all
of the Indebtedness shall, at the option of GBC, immediately become due and
payable, without notice, and without regard to the expressed maturity of any of
the Indebtedness, in the event: (a) Guarantor shall fail to pay or perform when
due any of its obligations under this Guaranty; or (b) any default or event of
default occurs under any present or future loan agreement or other instrument,
document, or agreement between GBC and Borrower or between GBC and Guarantor.
The foregoing are referred to in this Guaranty as "Events of Default".
8. INDEMNITY. Guarantor hereby agrees to indemnify GBC and hold GBC
harmless from and against any and all claims, debts, liabilities, demands,
obligations, actions, causes of action, penalties, costs and expenses
(including
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GREYROCK BUSINESS CREDIT CROSS-CORPORATE CONTINUING GUARANTY
-----------------------------------------------------------------------
without limitation * attorneys' fees), of every nature, character and
description, which GBC may sustain or incur based upon or arising out of any
of the Indebtedness, any actual or alleged failure to collect and pay over any
withholding or other tax relating to Borrower or its employees, any
relationship or agreement between GBC and Borrower, any actual or alleged
failure of GBC to comply with any writ of attachment or other legal process
relating to Borrower or any of its property, or any other matter, cause or
thing whatsoever occurred, done, omitted or suffered to be done by GBC
relating in any way to Borrower or the Indebtedness (except any such amounts
sustained or incurred as the result of the gross negligence or willful
misconduct of GBC or any of its directors, officers, employees, agents,
attorneys, or any other person affiliated with or representing GBC).
Notwithstanding any provision in this Guaranty to the contrary, the indemnity
agreement set forth in this Section shall survive any termination or
revocation of this Guaranty and shall for all purposes continue in full force
and effect.
*REASONABLE
9. SUBORDINATION. *Any and all rights of Guarantor under any and all
debts, liabilities and obligations owing from Borrower to Guarantor, including
any security for and guaranties of any such obligations, whether now existing
or hereafter arising, are hereby subordinated in right of payment to the prior
payment in full of all of the Indebtedness. If any Event of Default has
occurred, Borrower and any assignee, trustee in bankruptcy, receiver, or any
other person having custody or control over any or all of Borrower's property
are hereby authorized and directed to pay to GBC the entire unpaid balance of
the Indebtedness before making any payments whatsoever to Guarantor, whether
as a creditor, shareholder, or otherwise; and insofar as may be necessary for
that purpose, Guarantor hereby assigns and transfers to GBC all rights to any
and all debts, liabilities and obligations owing from Borrower to Guarantor,
including any security for and guaranties of any such obligations, whether now
existing or hereafter arising, including without limitation any payments,
dividends or distributions out of the business or assets of Borrower. Any
amounts received by Guarantor in violation of the foregoing provisions shall
be received and held as trustee for the benefit of GBC and shall forthwith be
paid over to GBC to be applied to the Indebtedness in such order and sequence
as GBC shall in its sole discretion determine, without limiting or affecting
any other right or remedy which GBC may have hereunder or otherwise and
without otherwise affecting the liability of Guarantor hereunder. Guarantor
hereby expressly waives any right to set-off or assert any counterclaim
against Borrower.
*AFTER THE OCCURRENCE AND DURING THE CONTINUANCE OF AN EVENT OF DEFAULT
10. REVOCATION. This is a Continuing Guaranty relating to all of the
Indebtedness, including Indebtedness arising under successive transactions which
from time to time continue the Indebtedness or renew it after it has been
satisfied. The obligations of Guarantor hereunder may be terminated only as to
future transactions and only by giving 90 days' advance written notice thereof
to GBC at its address above by registered first-class U.S. mail, postage
prepaid, return receipt requested. No such revocation shall be effective until
90 days following the date of actual receipt thereof by GBC. Notwithstanding
such revocation, this Guaranty and all consents, waivers and other provisions
hereof shall continue in full force and effect as to any and all Indebtedness
which is outstanding on the effective date of revocation and all extensions,
renewals and modifications of said Indebtedness (including without limitation
amendments, extensions, renewals and modifications which are evidenced by new or
additional instruments, documents or agreements executed after revocation), and
all interest thereon, then and thereafter accruing, and all * attorneys' fees,
court costs and collection charges theretofore and thereafter incurred in
endeavoring to collect or enforce any of the foregoing against Borrower,
Guarantor or any other person liable thereon (whether or not suit be brought)
and any other expenses of, for or incidental to collection thereof.
*REASONABLE
11. INDEPENDENT LIABILITY. Guarantor hereby agrees that one or more
successive or concurrent actions may be brought hereon against Guarantor, in
the same action in which Borrower may be sued or in separate actions, as often
as deemed advisable by GBC. The liability of Guarantor hereunder is exclusive
and independent of any other guaranty of any or all of the Indebtedness
whether executed by Guarantor or by any other guarantor (including without
limitation any other persons signing this Guaranty). The liability of
Guarantor hereunder shall not be affected, revoked, impaired, or reduced by
any one or more of the following: (a) the fact that the Indebtedness exceeds
the maximum amount of Guarantor's liability, if any, specified herein or
elsewhere (and no agreement specifying a maximum amount of Guarantor's
liability shall be enforceable unless set forth in a writing signed by GBC or
set forth in this Guaranty); or (b) any direction as to the application of
payment by Borrower or by any other party; or (c) any other continuing or
restrictive guaranty or undertaking or any limitation on the liability of any
other guarantor (whether under this Guaranty or under any other agreement); or
(d) any payment on or reduction of any such other guaranty or undertaking; or
(e) any revocation, amendment, modification or release of any such other
guaranty or undertaking; or (f) any dissolution or termination of, or
increase, decrease, or change in membership of any Guarantor which is a
partnership. Guarantor hereby expressly represents that it was not induced to
give this Guaranty by the fact that there are or may be other guarantors
either under this Guaranty or otherwise, and Guarantor agrees that any release
of any one or more of such other guarantors shall not release Guarantor from
its obligations hereunder either in full or to any lesser extent.
12. FINANCIAL CONDITION OF BORROWER. Guarantor is fully aware of the
financial condition of Borrower and is executing and delivering this Guaranty at
Borrower's
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GREYROCK BUSINESS CREDIT CROSS-CORPORATE CONTINUING GUARANTY
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request and based solely upon its own independent investigation of all matters
pertinent hereto, and Guarantor is not relying in any manner upon any
representation or statement of GBC with respect thereto. Guarantor represents
and warrants that it is in a position to obtain, and Guarantor hereby assumes
full responsibility for obtaining, any additional information concerning
Borrower's financial condition and any other matter pertinent hereto as
Guarantor may desire, and Guarantor is not relying upon or expecting GBC to
furnish to him any information now or hereafter in GBC's possession concerning
the same or any other matter.
13. REPRESENTATIONS AND WARRANTIES. Guarantor hereby represents and warrants
that (i) it is in Guarantor's direct interest to assist Borrower in procuring
credit, because Borrower is an affiliate of Guarantor, furnishes goods or
services to Guarantor, purchases or acquires goods or services from Guarantor,
and/or otherwise has a direct or indirect corporate or business relationship
with Guarantor, (ii) this Guaranty has been duly and validly authorized,
executed and delivered and constitutes the valid and binding obligation of
Guarantor, enforceable in accordance with its terms, and (iii) the execution and
delivery of this Guaranty does not violate or constitute a default under (with
or without the giving of notice, the passage of time, or both) any order,
judgment, decree, instrument or agreement to which Guarantor is a party or by
which it or its assets are affected or bound.
14. COSTS; INTEREST. Whether or not suit be instituted, Guarantor agrees to
reimburse GBC on demand for all reasonable attorneys' fees and all other
reasonable costs and expenses incurred by GBC in enforcing this Guaranty, or
arising out of or relating in any way to this Guaranty, or in enforcing any of
the Indebtedness against Borrower, Guarantor, or any other person, or in
connection with any property of any kind securing all or any part of the
Indebtedness. Without limiting the generality of the foregoing, and in addition
thereto, Guarantor shall reimburse GBC on demand for all reasonable attorneys'
fees and costs GBC incurs in any way relating to Guarantor, Borrower or the
Indebtedness, in order to: obtain legal advice; enforce or seek to enforce any
of its rights; commence, intervene in, respond to, or defend any action or
proceeding; file, prosecute or defend any claim or cause of action in any action
or proceeding (including without limitation any probate claim, bankruptcy claim,
third-party claim, secured creditor claim, reclamation complaint, and complaint
for relief from any stay under the Bankruptcy Code or otherwise); protect,
obtain possession of, sell, lease, dispose of or otherwise enforce any security
interest in or lien on any property of any kind securing any or all of the
Indebtedness; or represent GBC in any litigation with respect to Borrower's or
Guarantor's affairs. In the event either GBC or Guarantor files any lawsuit
against the other predicated on a breach of this Guaranty, the prevailing party
in such action shall be entitled to recover its attorneys' fees and costs of
suit from the non-prevailing party. All sums due under this Guaranty shall bear
interest from the date due until the date paid at the highest rate charged with
respect to any of the Indebtedness.
15. NOTICES. Any notice which a party shall be required or shall desire to
give to the other hereunder (except for notice of revocation, which shall be
governed by Section 10 of this Guaranty) shall be given by personal delivery or
by telecopier or by depositing the same in the United States mail, first class
postage pre-paid, addressed to GBC at its address set forth in the heading of
this Guaranty and to Guarantor at its address provided by Guarantor to GBC in
writing, and such notices shall be deemed duly given on the date of personal
delivery or one day after the date telecopied or 3 business days after the date
of mailing as aforesaid. GBC and Guarantor may change their address for
purposes of receiving notices hereunder by giving written notice thereof to the
other party in accordance herewith. Guarantor shall give GBC immediate written
notice of any change in its address.
16. CLAIMS. Guarantor agrees that any claim or cause of action by Guarantor
against GBC, or any of GBC's directors, officers, employees, agents, accountants
or attorneys, based upon, arising from, or relating to this Guaranty, or any
other present or future agreement between GBC and Guarantor or between GBC and
Borrower, or any other transaction contemplated hereby or thereby or relating
hereto or thereto, or any other matter, cause or thing whatsoever, whether or
not relating hereto or thereto, occurred, done, omitted or suffered to be done
by GBC, or by GBC's directors, officers, employees, agents, accountants or
attorneys, whether sounding in contract or in tort or otherwise, shall be barred
unless asserted by Guarantor by the commencement of an action or proceeding in
a court of competent jurisdiction within Los Angeles County, California, by the
filing of a complaint within one year after the first act, occurrence or
omission upon which such claim or cause of action, or any part thereof, is based
and service of a summons and complaint on an officer of GBC or any other person
authorized to accept service of process on behalf of GBC, within 30 days
thereafter. Guarantor agrees that such one year period is a reasonable and
sufficient time for Guarantor to investigate and act upon any such claim or
cause of action. The one year period provided herein shall not be waived,
tolled, or extended except by a specific written agreement of GBC. This
provision shall survive any termination of this Guaranty or any other agreement.
17. CONSTRUCTION; SEVERABILITY. The term "Guarantor" as used herein shall be
deemed to refer to all and any one or more such persons and their obligations
hereunder shall be joint and several. As used in this Guaranty, the term
"property" is used in its most comprehensive sense and shall mean all property
of every kind and nature whatsoever, including without limitation real property,
personal property, mixed property, tangible property and intangible property.
If any provision of this Guaranty or the application thereof to any party or
circumstance is held invalid, void, inoperative or unenforceable, the remainder
of this Guaranty and the application of such provision to other parties or
circumstances shall not be affected thereby, the provisions of this Guaranty
being severable in any such instance.
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GREYROCK BUSINESS CREDIT CROSS-CORPORATE CONTINUING GUARANTY
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18. GENERAL PROVISIONS. GBC shall have the right to seek recourse against
Guarantor to the full extent provided for herein and in any other instrument or
agreement evidencing obligations of Guarantor to GBC, and against Borrower to
the full extent of the Indebtedness. No election in one form of action or
proceeding, or against any party, or on any obligation, shall constitute a
waiver of GBC's right to proceed in any other form of action or proceeding or
against any other party. The failure of GBC to enforce any of the provisions of
this Guaranty at any time or for any period of time shall not be construed to be
a waiver of any such provision or the right thereafter to enforce the same. All
remedies hereunder shall be cumulative and shall be in addition to all rights,
powers and remedies given to GBC by law or under any other instrument or
agreement. Time is of the essence in the performance by Guarantor of each and
every obligation under this Guaranty. GBC shall have no obligation to inquire
into the power or authority of Borrower or any of its officers, directors,
employees, or agents acting or purporting to act on its behalf, and any
Indebtedness made or created in reliance upon the professed exercise of any such
power or authority shall be included in the Indebtedness guaranteed hereby.
This Guaranty is the entire and only agreement between Guarantor and GBC with
respect to the guaranty of the Indebtedness of Borrower by Guarantor, and all
representations, warranties, agreements, or undertakings heretofore or
contemporaneously made, which are not set forth herein, are superseded hereby.
No course of dealings between the parties, no usage of the trade, and no parol
or extrinsic evidence of any nature shall be used or be relevant to supplement
or explain or modify any term or provision of this Guaranty. There are no
conditions to the full effectiveness of this Guaranty. The terms and provisions
hereof may not be waived, altered, modified, or amended except in a writing
executed by Guarantor and a duly authorized officer of GBC. All rights,
benefits and privileges hereunder shall inure to the benefit of and be
enforceable by GBC and its successors and assigns and shall be binding upon
Guarantor and its successors and assigns. Section headings are used herein for
convenience only. Guarantor acknowledges that the same may not describe
completely the subject matter of the applicable Section, and the same shall not
be used in any manner to construe, limit, define or interpret any term or
provision hereof.
19. GOVERNING LAW; VENUE AND JURISDICTION. This instrument and all acts and
transactions pursuant or relating hereto and all rights and obligations of the
parties hereto shall be governed, construed, and interpreted in accordance with
the internal laws of the State of California. In order to induce GBC to accept
this Guaranty, and as a material part of the consideration therefor, Guarantor
(i) agrees that all actions or proceedings relating directly or indirectly
hereto shall, at the option of GBC, be litigated in courts located within Los
Angeles County, California, (ii) consents to the jurisdiction of any such court
and consents to the service of process in any such action or proceeding by
personal delivery or any other method permitted by law; and (iii) waives any and
all rights Guarantor may have to transfer or change the venue of any such action
or proceeding.
20. RECEIPT OF COPY. Guarantor acknowledges receipt of a copy of this
Guaranty.
21. MUTUAL WAIVER OF RIGHT TO JURY TRIAL. GBC AND GUARANTOR HEREBY WAIVE THE
RIGHT TO TRIAL BY JURY IN ANY ACTION, CLAIM, LAWSUIT OR PROCEEDING BASED UPON,
ARISING OUT OF, OR IN ANY WAY RELATING TO: (i) THIS GUARANTEE OR ANY SUPPLEMENT
OR AMENDMENT THERETO; OR (ii) ANY OTHER PRESENT OR FUTURE INSTRUMENT OR
AGREEMENT BETWEEN GBC AND GUARANTOR ; OR (iii) ANY BREACH, CONDUCT, ACTS OR
OMISSIONS OF GBC OR GUARANTOR OR ANY OF THEIR RESPECTIVE DIRECTORS, OFFICERS,
EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSON AFFILIATED WITH OR REPRESENTING
GBC OR GUARANTOR; IN EACH OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT
OR TORT OR OTHERWISE.
Guarantor Signature:
SA TELECOMMUNICATIONS, INC.
By /s/ J. David Darnell
-----------------------------------
Title Vice President-Finance
--------------------------------
Guarantor Signature:
U.S. COMMUNICATIONS, INC.
By /s/ J. David Darnell
-----------------------------------
Title Vice President
--------------------------------
Guarantor Signature:
LONG DISTANCE NETWORK, INC.
By /s/ J. David Darnell
-----------------------------------
Title Vice President
--------------------------------
Guarantor Signature:
SOUTHWEST LONG DISTANCE NETWORK, INC.
By /s/ J. David Darnell
-----------------------------------
Title Vice President
--------------------------------
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<PAGE>
Exhibit 10.4
[LOGO]
CONTINUING GUARANTY
BORROWERS: SA TELECOMMUNICATIONS, INC.
U.S. COMMUNICATIONS, INC.
LONG DISTANCE NETWORK, INC.
SOUTHWEST LONG DISTANCE NETWORK, INC.
GUARANTORS: NORTH AMERICAN TELECOMMUNICATIONS CORPORATION
BALTIC STATES AND CIS VENTURES, INC.
CIS INTELLIGENCE INFORMATION SERVICES, INC.
UNIQUEST COMMUNICATIONS, INC.
DATE: DECEMBER 26, 1996
THIS CONTINUING GUARANTY is executed by the above-named guarantor(s) (jointly
and severally, the "Guarantor"), as of the above date, in favor of GREYROCK
BUSINESS CREDIT, A DIVISION OF NATIONSCREDIT COMMERCIAL CORPORATION ("GBC"),
whose address is 10880 Wilshire Boulevard, Suite 950, Los Angeles, CA 90024,
with respect to the Indebtedness of the above-named borrower ("Borrower").
1. CONTINUING GUARANTY. Guarantor hereby unconditionally guarantees and
promises to pay on demand to GBC, at the address indicated above, or at such
other address as GBC may direct, in lawful money of the United States, and to
perform for the benefit of GBC, all Indebtedness of Borrower now or hereafter
owing to or held by GBC. As used herein, the term "Indebtedness" is used in its
most comprehensive sense and shall mean and include without limitation: (a) any
and all debts, duties, obligations, liabilities, representations, warranties and
guaranties of Borrower or any one or more of them, heretofore, now, or hereafter
made, incurred, or created, whether directly to GBC or acquired by GBC by
assignment or otherwise, or held by GBC on behalf of others, however arising,
whether voluntary or involuntary, due or not due, absolute or contingent,
liquidated or unliquidated, certain or uncertain, determined or undetermined,
monetary or nonmonetary, written or oral, and whether Borrower may be liable
individually or jointly with others, and regardless of whether recovery thereon
may be or hereafter become barred by any statute of limitations, discharged or
uncollectible in any bankruptcy, insolvency or other proceeding, or otherwise
unenforceable; and (b) any and all amendments, modifications, renewals and
extensions of any or all of the foregoing, including without limitation
amendments, modifications, renewals and extensions which are evidenced by any
new or additional instrument, document or agreement; and (c) any and all
attorneys' fees, court costs, and collection charges incurred in endeavoring to
collect or enforce any of the foregoing against Borrower, Guarantor, or any
other person liable thereon (whether or not suit be brought) and any other
expenses of, for or incidental to collection thereof. As used herein, the term
"Borrower" shall include any successor to the business and assets of Borrower,
and shall also include Borrower in its capacity as a debtor or debtor in
possession under the federal Bankruptcy Code, and any trustee, custodian or
receiver for Borrower or any of its assets, should Borrower hereafter become the
subject of any bankruptcy or insolvency proceeding, voluntary or involuntary;
and all indebtedness, liabilities and obligations incurred by any such person
shall be included in the Indebtedness guaranteed hereby. This Guaranty is given
in consideration for credit and other financial accommodations which may, from
time to time, be given by GBC to Borrower in GBC's sole discretion, but
Guarantor acknowledges and agrees that acceptance by GBC of this Guaranty shall
not constitute a commitment of any kind by GBC to extend such credit or other
financial accommodation to Borrower or to permit Borrower to incur Indebtedness
to GBC. All sums due under this Guaranty shall bear interest from the date due
until the date paid at the highest rate charged with respect to any of the
Indebtedness.
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GREYROCK BUSINESS CREDIT CONTINUING GUARANTY
- ------------------------------------------------------------------------------
2. WAIVERS. Guarantor hereby waives: (a) presentment for payment, notice of
dishonor, demand, protest, and notice thereof as to any instrument, and all
other notices and demands to which Guarantor might be entitled, including
without limitation notice of all of the following: the acceptance hereof; the
creation, existence, or acquisition of any Indebtedness; the amount of the
Indebtedness from time to time outstanding; any foreclosure sale or other
disposition of any property which secures any or all of the Indebtedness or
which secures the obligations of any other guarantor of any or all of the
Indebtedness; any adverse change in Borrower's financial position; any other
fact which might increase Guarantor's risk; any default, partial payment or non-
payment of all or any part of the Indebtedness; the occurrence of any other
Event of Default (as hereinafter defined); any and all agreements and
arrangements between GBC and Borrower and any changes, modifications, or
extensions thereof, and any revocation, modification or release of any guaranty
of any or all of the Indebtedness by any person (including without limitation
any other person signing this Guaranty); (b) any right to require GBC to
institute suit against, or to exhaust its rights and remedies against, Borrower
or any other person, or to proceed against any property of any kind which
secures all or any part of the Indebtedness, or to exercise any right of offset
or other right with respect to any reserves, credits or deposit accounts held by
or maintained with GBC or any indebtedness of GBC to Borrower, or to exercise
any other right or power, or pursue any other remedy GBC may have; (c) any
defense arising by reason of any disability or other defense of Borrower or any
other guarantor or any endorser, co-maker or other person, or by reason of the
cessation from any cause whatsoever of any liability of Borrower or any other
guarantor or any endorser, co-maker or other person, with respect to all or any
part of the Indebtedness, or by reason of any act or omission of GBC or others
which directly or indirectly results in the discharge or release of Borrower or
any other guarantor or any other person or any Indebtedness or any security
therefor, whether by operation of law or otherwise; (d) any defense arising by
reason of any failure of GBC to obtain, perfect, maintain or keep in force any
security interest in, or lien or encumbrance upon, any property of Borrower or
any other person; (e) any defense based upon any failure of GBC to give
Guarantor notice of any sale or other disposition of any property securing any
or all of the Indebtedness, or any defects in any such notice that may be given,
or any failure of GBC to comply with any provision of applicable law in
enforcing any security interest in or lien upon any property securing any or all
of the Indebtedness including, but not limited to, any failure by GBC to dispose
of any property securing any or all of the Indebtedness in a commercially
reasonable manner; (f) any defense based upon or arising out of any bankruptcy,
insolvency, reorganization, arrangement, readjustment of debt, liquidation or
dissolution proceeding commenced by or against Borrower or any other guarantor
or any endorser, co-maker or other person, including without limitation any
discharge of, or bar against collecting, any of the Indebtedness (including
without limitation any interest thereon), in or as a result of any such
proceeding; and (g) the benefit of any and all statutes of limitation with
respect to any action based upon, arising out of or related to this Guaranty.
Until all of the Indebtedness has been paid, performed, and discharged in full,
nothing shall discharge or satisfy the liability of Guarantor hereunder except
the full performance and payment of all of the Indebtedness. If any claim is
ever made upon GBC for repayment or recovery of any amount or amounts received
by GBC in payment of or on account of any of the Indebtedness, because of any
claim that any such payment constituted a preferential transfer or fraudulent
conveyance, or for any other reason whatsoever, and GBC repays all or part of
said amount by reason of any judgment, decree or order of any court or
administrative body having jurisdiction over GBC or any of its property, or by
reason of any settlement or compromise of any such claim effected by GBC with
any such claimant (including without limitation the Borrower), then and in any
such event, Guarantor agrees that any such judgment, decree, order, settlement
and compromise shall be binding upon Guarantor, notwithstanding any revocation
or release of this Guaranty or the cancellation of any note or other instrument
evidencing any of the Indebtedness, or any release of any of the Indebtedness,
and the Guarantor shall be and remain liable to GBC under this Guaranty for the
amount so repaid or recovered, to the same extent as if such amount had never
originally been received by GBC, and the provisions of this sentence shall
survive, and continue in effect, notwithstanding any revocation or release of
this Guaranty. Until all of the Indebtedness has been irrevocably paid and
performed in full, Guarantor hereby expressly and unconditionally waives all
rights of subrogation, reimbursement and indemnity of every kind against
Borrower, and all rights of recourse to any assets or property of Borrower, and
all rights to any collateral or security held for the payment and performance of
any Indebtedness, including (but not limited to) any of the foregoing rights
which Guarantor may have under any present or future document or agreement with
any Borrower or other person, and including (but not limited to) any of the
foregoing rights which Guarantor may have under any equitable doctrine of
subrogation, implied contract, or unjust enrichment, or any other equitable or
legal doctrine. Neither GBC, nor any of its directors, officers, employees,
agents, attorneys or any other person affiliated with or representing GBC shall
be liable for any claims, demands, losses or damages, of any kind whatsoever,
made, claimed, incurred or suffered by Guarantor or any other party through the
ordinary negligence of GBC, or any of its directors, officers, employees,
agents, attorneys or any other person affiliated with or representing GBC.
3. CONSENTS. Guarantor hereby consents and agrees that, without notice to or
by Guarantor and without affecting or impairing in any way the obligations or
liability of Guarantor hereunder, GBC may, from time to time before or after
revocation of this Guaranty, do any one or more of the following in GBC's sole
and absolute discretion: (a) accelerate, accept partial payments of, compromise
or settle, renew, extend the time for the payment, discharge, or performance of,
refuse to enforce, and release all or any parties to, any or all of the
Indebtedness; (b) grant any other indulgence to Borrower or any other person in
respect of any or all of the Indebtedness or any other matter;
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GREYROCK BUSINESS CREDIT CONTINUING GUARANTY
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(c) accept, release, waive, surrender, enforce, exchange, modify, impair, or
extend the time for the performance, discharge, or payment of, any and all
property of any kind securing any or all of the Indebtedness or any guaranty
of any or all of the Indebtedness, or on which GBC at any time may have a
lien, or refuse to enforce its rights or make any compromise or settlement or
agreement therefor in respect of any or all of such property; (d) substitute
or add, or take any action or omit to take any action which results in the
release of, any one or more endorsers or guarantors of all or any part of the
Indebtedness, including, without limitation one or more parties to this
Guaranty, regardless of any destruction or impairment of any right of
contribution or other right of Guarantor; (e) amend, alter or change in any
respect whatsoever any term or provision relating to any or all of the
Indebtedness, including the rate of interest thereon; (f) apply any sums
received from Borrower, any other guarantor, endorser, or co-signer, or from
the disposition of any collateral or security, to any indebtedness whatsoever
owing from such person or secured by such collateral or security, in such
manner and order as GBC determines in its sole discretion, and regardless of
whether such indebtedness is part of the Indebtedness, is secured, or is due
and payable; (g) apply any sums received from Guarantor or from the
disposition of any collateral or security securing the obligations of
Guarantor, to any of the Indebtedness in such manner and order as GBC
determines in its sole discretion, regardless of whether or not such
Indebtedness is secured or is due and payable. Guarantor consents and agrees
that GBC shall be under no obligation to marshal any assets in favor of
Guarantor, or against or in payment of any or all of the Indebtedness.
Guarantor further consents and agrees that GBC shall have no duties or
responsibilities whatsoever with respect to any property securing any or all
of the Indebtedness. Without limiting the generality of the foregoing, GBC
shall have no obligation to monitor, verify, audit, examine, or obtain or
maintain any insurance with respect to, any property securing any or all of
the Indebtedness.
4. ACCOUNT STATED. GBC's books and records showing the account between it and
the Borrower shall be admissible in evidence in any action or proceeding as
prima facie proof of the items therein set forth. GBC's monthly statements
rendered to the Borrower shall be binding upon the Guarantor (whether or not the
Guarantor receives copies thereof), and shall constitute an account stated
between GBC and the Borrower, unless GBC receives a written statement of the
Borrower's exceptions within 30 days after the statement was mailed to the
Borrower. The Guarantor assumes full responsibility for obtaining copies of
such monthly statements from the Borrower, if the Guarantor desires such copies.
5. EXERCISE OF RIGHTS AND REMEDIES; FORECLOSURE OF TRUST DEEDS. Guarantor
consents and agrees that, without notice to or by Guarantor and without
affecting or impairing in any way the obligations or liability of Guarantor
hereunder, GBC may, from time to time*, before or after revocation of this
Guaranty, exercise any right or remedy it may have with respect to any or all of
the Indebtedness or any property securing any or all of the Indebtedness or any
guaranty thereof, including without limitation judicial foreclosure, nonjudicial
foreclosure, exercise of a power of sale, and taking a deed, assignment or
transfer in lieu of foreclosure as to any such property, and Guarantor expressly
waives any defense based upon the exercise of any such right or remedy,
notwithstanding the effect thereof upon any of Guarantor's rights, including
without limitation, any destruction of Guarantor's right of subrogation against
Borrower and any destruction of Guarantor's right of contribution or other right
against any other guarantor of any or all of the Indebtedness or against any
other person, whether by operation of Sections 580a, 580d or 726 of the
California Code of Civil Procedure, or any comparable provisions of the laws of
any other jurisdiction, or any other statutes or rules of law now or hereafter
in effect, or otherwise. Without limiting the generality of the foregoing, (a)
Guarantor waives all rights and defenses arising out of an election of remedies
by GBC, even though that election of remedies, such as a nonjudicial foreclosure
with respect to security for any of the Indebtedness, has destroyed the
guarantor's rights of subrogation and reimbursement against the principal by the
operation of Section 580d of the Code of Civil Procedure or otherwise. (b)
Guarantor further waives all rights and defenses arising out of an election of
remedies by GBC, even though that election of remedies, such as a nonjudicial
foreclosure with respect to security for any of the Indebtedness, has destroyed
the guarantor's rights of subrogation, reimbursement and contribution against
any other guarantor of the guaranteed obligation, by the operation of Section
580d of the Code of Civil Procedure or otherwise. (c) Guarantor understands
that if GBC forecloses any present or future trust deed, which secures any or
all of the Indebtedness or which secures any other guaranty of any or all of the
Indebtedness, by nonjudicial foreclosure, Guarantor may, as a result, have a
complete defense to liability under this Guaranty, based on the legal doctrine
of estoppel and Sections 580a, 580d or 726 of the California Code of Civil
Procedure, and GUARANTOR HEREBY EXPRESSLY WAIVES ALL SUCH DEFENSES. (d)
Guarantor understands and agrees that, in the event GBC in its sole discretion
forecloses any trust deed now or hereafter securing any or all of the
Indebtedness, by nonjudicial foreclosure, Guarantor will remain liable to GBC
for any deficiency, even though Guarantor will lose his right of subrogation
against the Borrower, and even though Guarantor will be unable to recover from
the Borrower the amount of the deficiency for which Guarantor is liable, and
even though Guarantor may have retained his right of subrogation against
Borrower if GBC had foreclosed said trust deed by judicial foreclosure as
opposed to nonjudicial foreclosure, and even though absent the waivers set forth
herein Guarantor may have had a complete defense to any liability for any
deficiency hereunder. (e) Guarantor understands and agrees that, in the event
GBC in its sole discretion forecloses any trust deed now or hereafter securing
any other guaranty of any or all of the Indebtedness, by nonjudicial
foreclosure, Guarantor will remain liable to GBC for any deficiency, even though
Guarantor will lose his right of subrogation or contribution against the other
guarantor, and even though Guarantor will be unable to recover from the other
guarantor any part of the
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GREYROCK BUSINESS CREDIT CONTINUING GUARANTY
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deficiency for which Guarantor is liable, and even though Guarantor may have
retained his right of subrogation or contribution against the other guarantor
if GBC had foreclosed said trust deed by judicial foreclosure as opposed to
nonjudicial foreclosure, and even though absent the waivers set forth herein
Guarantor may have had a complete defense to any liability for any deficiency
hereunder.
*AFTER AN EVENT OF DEFAULT WHICH IS CONTINUING
6. ACCELERATION. Notwithstanding the terms of all or any part of the
Indebtedness, the obligations of the Guarantor hereunder to pay and perform all
of the Indebtedness shall, at the option of GBC, immediately become due and
payable, without notice, and without regard to the expressed maturity of any of
the Indebtedness, in the event: * Guarantor shall revoke this Guaranty or
contest or deny liability under this Guaranty. All of the foregoing are
hereinafter referred to as "Events of Default".
*GUARANTOR FAILS TO PAY ANY OF THE INDEBTEDNESS WHEN DUE, OR ANY EVENT OF
DEFAULT OCCURS UNDER ANY PRESENT OR FUTURE LOAN OR OTHER AGREEMENT BETWEEN GBC
AND ANY BORROWER, OR ANY EVENT OF DEFAULT OCCURS UNDER THE SECURITY AGREEMENT OF
EVEN DATE BETWEEN GUARANTOR AND GBC, OR
7. RIGHT TO ATTACHMENT REMEDY. Guarantor agrees that, notwithstanding the
existence of any property securing any or all of the Indebtedness, GBC shall
have all of the rights of an unsecured creditor of Guarantor, including without
limitation the right to obtain a temporary protective order and writ of
attachment against Guarantor with respect to any sums due under this Guaranty.
Guarantor further agrees that in the event any property secures the obligations
of Guarantor under this Guaranty, to the extent that GBC, in its sole and
absolute discretion, determines prior to the disposition of such property that
the amount to be realized by GBC therefrom may be less than the indebtedness of
the Guarantor under this Guaranty, GBC shall have all the rights of an unsecured
creditor against Guarantor, including without limitation the right of GBC, prior
to the disposition of said property, to obtain a temporary protective order and
writ of attachment against Guarantor. Guarantor waives the benefit of Section
483.010(b) of the California Code of Civil Procedure and of any and all other
statutes and rules of law now or hereafter in effect requiring GBC to first
resort to or exhaust all such collateral before seeking or obtaining any
attachment remedy against Guarantor. GBC shall have no liability to Guarantor
as a result thereof, whether or not the actual deficiency realized by GBC is
less than the anticipated deficiency on the basis of which GBC obtains a
temporary protective order or writ of attachment.
8. INDEMNITY. Guarantor hereby agrees to indemnify GBC and hold GBC harmless
from and against any and all claims, debts, liabilities, demands, obligations,
actions, causes of action, penalties, costs and expenses (including without
limitation * attorneys' fees), of every nature, character and description, which
GBC may sustain or incur based upon or arising out of any of the Indebtedness,
any actual or alleged failure to collect and pay over any withholding or other
tax relating to Borrower or its employees, any relationship or agreement between
GBC and Borrower, any actual or alleged failure of GBC to comply with any writ
of at-
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<PAGE>
GREYROCK BUSINESS CREDIT CONTINUING GUARANTY
- ------------------------------------------------------------------------------
tachment or other legal process relating to Borrower or any of its property,
or any other matter, cause or thing whatsoever occurred, done, omitted or
suffered to be done by GBC relating in any way to Borrower or the Indebtedness
(except any such amounts sustained or incurred as the result of the gross
negligence or willful misconduct of GBC or any of its directors, officers,
employees, agents, attorneys, or any other person affiliated with or
representing GBC). Notwithstanding any provision in this Guaranty to the
contrary, the indemnity agreement set forth in this Section shall survive any
termination or revocation of this Guaranty and shall for all purposes
continue in full force and effect.
*REASONABLE
9. SUBORDINATION. *Any and all rights of Guarantor under any and all debts,
liabilities and obligations owing from Borrower to Guarantor, including any
security for and guaranties of any such obligations, whether now existing or
hereafter arising, are hereby subordinated in right of payment to the prior
payment in full of all of the Indebtedness. If any Event of Default has
occurred, Borrower and any assignee, trustee in bankruptcy, receiver, or any
other person having custody or control over any or all of Borrower's property
are hereby authorized and directed to pay to GBC the entire unpaid balance of
the Indebtedness before making any payments whatsoever to Guarantor, whether
as a creditor, shareholder, or otherwise; and insofar as may be necessary for
that purpose, Guarantor hereby assigns and transfers to GBC all rights to any
and all debts, liabilities and obligations owing from Borrower to Guarantor,
including any security for and guaranties of any such obligations, whether now
existing or hereafter arising, including without limitation any payments,
dividends or distributions out of the business or assets of Borrower. Any
amounts received by Guarantor in violation of the foregoing provisions shall
be received and held as trustee for the benefit of GBC and shall forthwith be
paid over to GBC to be applied to the Indebtedness in such order and sequence
as GBC shall in its sole discretion determine, without limiting or affecting
any other right or remedy which GBC may have hereunder or otherwise and
without otherwise affecting the liability of Guarantor hereunder. Guarantor
hereby expressly waives any right to set-off or assert any counterclaim
against Borrower.
*AFTER THE OCCURRENCE AND DURING THE CONTINUANCE OF AN EVENT OF DEFAULT
10. REVOCATION. This is a Continuing Guaranty relating to all of the
Indebtedness, including Indebtedness arising under successive transactions which
from time to time continue the Indebtedness or renew it after it has been
satisfied. Guarantor waives all benefits of California Civil Code Section 2815,
and agrees that the obligations of Guarantor hereunder may not be terminated or
revoked in any manner except by giving 90 days' advance written notice of
revocation to GBC at its address above by registered first-class U.S. mail,
postage prepaid, return receipt requested, and only as to new loans made by GBC
to Borrower more than 90 days after actual receipt of such written notice by
GBC. No termination or revocation of this Guaranty shall be effective until
90 days following the date of actual receipt of said written notice of
revocation by GBC. Notwithstanding such written notice of revocation or any
other act of Guarantor or any other event or circumstance, Guarantor agrees that
this Guaranty and all consents, waivers and other provisions hereof shall
continue in full force and effect as to any and all Indebtedness which is
outstanding on or before the 90th day following actual receipt of said written
notice of revocation by GBC, and all extensions, renewals and modifications of
said Indebtedness (including without limitation amendments, extensions, renewals
and modifications which are evidenced by new or additional instruments,
documents or agreements executed before or after expiration of said 90-day
period), and all interest thereon, accruing before or after expiration of said
90-day period, and all attorneys' fees, court costs and collection charges,
incurred before or after expiration of said 90-day period, in endeavoring to
collect or enforce any of the foregoing against Borrower, Guarantor or any other
person liable thereon (whether or not suit be brought) and any other expenses
of, for or incidental to collection thereof.
11. INDEPENDENT LIABILITY. Guarantor hereby agrees that one or more successive
or concurrent actions may be brought hereon against Guarantor, in the same
action in which Borrower may be sued or in separate actions, as often as deemed
advisable by GBC. The liability of Guarantor hereunder is exclusive and
independent of any other guaranty of any or all of the Indebtedness whether
executed by Guarantor or by any other guarantor (including without limitation
any other persons signing this Guaranty). The liability of Guarantor hereunder
shall not be affected, revoked, impaired, or reduced by any one or more of the
following: (a) the fact that the Indebtedness exceeds the maximum amount of
Guarantor's liability, if any, specified herein or elsewhere (and no agreement
specifying a maximum amount of Guarantor's liability shall be enforceable unless
set forth in a writing signed by GBC or set forth in this Guaranty); or (b) any
direction as to the application of payment by Borrower or by any other party; or
(c) any other continuing or restrictive guaranty or undertaking or any
limitation on the liability of any other guarantor (whether under this Guaranty
or under any other agreement); or (d) any payment on or reduction of any such
other guaranty or undertaking; or (e) any revocation, amendment, modification or
release of any such other guaranty or undertaking; or (f) any dissolution or
termination of, or increase, decrease, or change in membership of any Guarantor
which is a partnership. Guarantor hereby expressly represents that he was not
induced to give this Guaranty by the fact that there are or may be other
guarantors either under this Guaranty or otherwise, and Guarantor agrees that
any release of any one or more of such other guarantors shall not release
Guarantor from his obligations hereunder either in full or to any lesser extent.
-5-
<PAGE>
GREYROCK BUSINESS CREDIT CONTINUING GUARANTY
- ------------------------------------------------------------------------------
12. FINANCIAL CONDITION OF BORROWER. Guarantor is fully aware of the financial
condition of Borrower and is executing and delivering this Guaranty at
Borrower's request and based solely upon his own independent investigation of
all matters pertinent hereto, and Guarantor is not relying in any manner upon
any representation or statement of GBC with respect thereto. Guarantor
represents and warrants that he is in a position to obtain, and Guarantor hereby
assumes full responsibility for obtaining, any additional information concerning
Borrower's financial condition and any other matter pertinent hereto as
Guarantor may desire, and Guarantor is not relying upon or expecting GBC to
furnish to him any information now or hereafter in GBC's possession concerning
the same or any other matter. By executing this Guaranty, Guarantor knowingly
accepts the full range of risks encompassed within a contract of continuing
guaranty, which risks Guarantor acknowledges include without limitation the
possibility that Borrower will incur additional Indebtedness for which Guarantor
will be liable hereunder after Borrower's financial condition or ability to pay
such Indebtedness has deteriorated and/or after bankruptcy or insolvency
proceedings have been commenced by or against Borrower. Guarantor shall have no
right to require GBC to obtain or disclose any information with respect to the
Indebtedness, the financial condition or character of Borrower, the existence of
any collateral or security for any or all of the Indebtedness, the filing by or
against Borrower of any bankruptcy or insolvency proceeding, the existence of
any other guaranties of all or any part of the Indebtedness, any action or non-
action on the part of GBC, Borrower, or any other person, or any other matter,
fact, or occurrence.
13. REPORTS AND FINANCIAL STATEMENTS OF GUARANTOR. Guarantor shall, at its
sole cost and expense, at any time and from time to time, prepare or cause to be
prepared, and provide to GBC upon GBC's request (i) such * financial statements
** and reports concerning Guarantor for such periods of time as GBC may
designate, (ii) any other information concerning Guarantor's business, financial
condition or affairs as GBC may request, and (iii) copies of any and all
foreign, federal, state and local tax returns and reports of or relating to
Guarantor as GBC may from time to time request. Guarantor hereby intentionally
and knowingly waives any and all rights and privileges it may have not to
divulge or deliver said tax returns, reports and other information which are
requested by GBC hereunder or in any litigation in which GBC may be involved
relating directly or indirectly to Borrower or to Guarantor. Guarantor further
agrees immediately to give written notice to GBC of any adverse change in
Guarantor's financial condition and of any condition or event which constitutes
an Event of Default under this Guaranty. All reports and information furnished
to GBC hereunder shall be complete, accurate and correct in all respects.
Whenever requested, Guarantor shall further deliver to GBC a certificate signed
by Guarantor (and, if Guarantor is a partnership, by all general partners of
Guarantor, in their individual capacities, and, if Guarantor is a corporation,
by the president and secretary of Guarantor, in their individual capacities)
warranting and representing that all reports, financial statements and other
documents and information delivered or caused to be delivered to GBC under this
Guaranty, are complete, correct and thoroughly and accurately present the
financial condition of Guarantor, and that there exists on the date of delivery
of said certificate to GBC no condition or event which constitutes an Event of
Default under this Guaranty.
*CONSOLIDATED AND CONSOLIDATING
**OF GUARANTOR AND BORROWERS
14. REPRESENTATIONS AND WARRANTIES. Guarantor hereby represents and warrants
that (i) it is in Guarantor's direct interest to assist Borrower in procuring
credit, because Borrower is an affiliate of Guarantor, furnishes goods or
services to Guarantor, purchases or acquires goods or services from Guarantor,
and/or otherwise has a direct or indirect corporate or business relationship
with Guarantor, (ii) this Guaranty has been duly and validly authorized,
executed and delivered and constitutes the valid and binding obligation of
Guarantor, enforceable in accordance with its terms, and (iii) the execution and
delivery of this Guaranty does not violate or constitute a default under (with
or without the giving of notice, the passage of time, or both) any order,
judgment, decree, instrument or agreement to which Guarantor is a party or by
which it or its assets are affected or bound.
15. COSTS. Whether or not suit be instituted, Guarantor agrees to reimburse
GBC on demand for all reasonable attorneys' fees and all other reasonable costs
and expenses incurred by GBC in enforcing this Guaranty, or arising out of or
relating in any way to this Guaranty, or in enforcing any of the Indebtedness
against Borrower, Guarantor, or any other person, or in connection with any
property of any kind securing all or any part of the Indebtedness. Without
limiting the generality of the foregoing, and in addition thereto, Guarantor
shall reimburse GBC on demand for all reasonable attorneys' fees and costs GBC
incurs in any way relating to Guarantor, Borrower or the Indebtedness, in order
to: obtain legal advice; enforce or seek to enforce any of its rights;
commence, intervene in, respond to, or defend any action or proceeding; file,
prosecute or defend any claim or cause of action in any action or proceeding
(including without limitation any probate claim, bankruptcy claim, third-party
claim, secured creditor claim, reclamation complaint, and complaint for relief
from any stay under the Bankruptcy Code or otherwise); protect, obtain
possession of, sell, lease, dispose of or otherwise enforce any security
interest in or lien on any property of any kind securing any or all of the
Indebtedness; or represent GBC in any litigation with respect to Borrower's or
Guarantor's affairs. In the event either GBC or Guarantor files any lawsuit
against the other predicated on a breach of this Guaranty, the prevailing party
in such action shall be entitled to recover its * attorneys' fees and costs of
suit from the non-prevailing party.
*REASONABLE
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<PAGE>
GREYROCK BUSINESS CREDIT CONTINUING GUARANTY
- ------------------------------------------------------------------------------
16. NOTICES. Any notice which a party shall be required or shall desire to
give to the other hereunder (except for notice of revocation, which shall be
governed by Section 10 of this Guaranty) shall be given by personal delivery or
by telecopier or by depositing the same in the United States mail, first class
postage pre-paid, addressed to GBC at its address set forth in the heading of
this Guaranty and to Guarantor at his address set forth under his signature
hereon, and such notices shall be deemed duly given on the date of personal
delivery or one day after the date telecopied or 3 business days after the date
of mailing as aforesaid. GBC and Guarantor may change their address for
purposes of receiving notices hereunder by giving written notice thereof to the
other party in accordance herewith. Guarantor shall give GBC immediate written
notice of any change in his address.
17. CLAIMS. Guarantor agrees that any claim or cause of action by Guarantor
against GBC, or any of GBC's directors, officers, employees, agents, accountants
or attorneys, based upon, arising from, or relating to this Guaranty, or any
other present or future agreement between GBC and Guarantor or between GBC and
Borrower, or any other transaction contemplated hereby or thereby or relating
hereto or thereto, or any other matter, cause or thing whatsoever, whether or
not relating hereto or thereto, occurred, done, omitted or suffered to be done
by GBC, or by GBC's directors, officers, employees, agents, accountants or
attorneys, whether sounding in contract or in tort or otherwise, shall be barred
unless asserted by Guarantor by the commencement of an action or proceeding in
a court of competent jurisdiction within Los Angeles County, California, by
the filing of a complaint within one year after the first act, occurrence or
omission upon which such claim or cause of action, or any part thereof, is based
and service of a summons and complaint on an officer of GBC or any other person
authorized to accept service of process on behalf of GBC, within 30 days
thereafter. Guarantor agrees that such one year period is a reasonable and
sufficient time for Guarantor to investigate and act upon any such claim or
cause of action. The one year period provided herein shall not be waived,
tolled, or extended except by a specific written agreement of GBC. This
provision shall survive any termination of this Guaranty or any other agreement.
18. CONSTRUCTION; SEVERABILITY. If more than one person has executed this
Guaranty, the term "Guarantor" as used herein shall be deemed to refer to all
and any one or more such persons and their obligations hereunder shall be joint
and several. Without limiting the generality of the foregoing, if more than one
person has executed this Guaranty, this Guaranty shall in all respects be
interpreted as though each person signing this Guaranty had signed a separate
Guaranty, and references herein to "other guarantors" or words of similar effect
shall include without limitation other persons signing this Guaranty. As used
in this Guaranty, the term "property" is used in its most comprehensive sense
and shall mean all property of every kind and nature whatsoever, including
without limitation real property, personal property, mixed property, tangible
property and intangible property. Words used herein in the masculine gender
shall include the neuter and feminine gender, words used herein in the neuter
gender shall include the masculine and feminine, words used herein in the
singular shall include the plural and words used in the plural shall include the
singular, wherever the context so reasonably requires. If any provision of this
Guaranty or the application thereof to any party or circumstance is held
invalid, void, inoperative or unenforceable, the remainder of this Guaranty and
the application of such provision to other parties or circumstances shall not be
affected thereby, the provisions of this Guaranty being severable in any such
instance.
19. GENERAL PROVISIONS. GBC shall have the right to seek recourse against
Guarantor to the full extent provided for herein and in any other instrument or
agreement evidencing obligations of Guarantor to GBC, and against Borrower to
the full extent of the Indebtedness. No election in one form of action or
proceeding, or against any party, or on any obligation, shall constitute a
waiver of GBC's right to proceed in any other form of action or proceeding or
against any other party. The failure of GBC to enforce any of the provisions of
this Guaranty at any time or for any period of time shall not be construed to be
a waiver of any such provision or the right thereafter to enforce the same. All
remedies hereunder shall be cumulative and shall be in addition to all rights,
powers and remedies given to GBC by law or under any other instrument or
agreement. Time is of the essence in the performance by Guarantor of each and
every obligation under this Guaranty. If Borrower is a corporation, partnership
or other entity, Guarantor hereby agrees that GBC shall have no obligation to
inquire into the power or authority of Borrower or any of its officers,
directors, partners, or agents acting or purporting to act on its behalf, and
any Indebtedness made or created in reliance upon the professed exercise of any
such power or authority shall be included in the Indebtedness guaranteed hereby.
This Guaranty is the entire and only agreement between Guarantor and GBC with
respect to the guaranty of the Indebtedness of Borrower by Guarantor, and all
representations, warranties, agreements, or undertakings heretofore or
contemporaneously made, which are not set forth herein, are superseded hereby.
No course of dealings between the parties, no usage of the trade, and no parol
or extrinsic evidence of any nature shall be used or be relevant to supplement
or explain or modify any term or provision of this Guaranty. There are no
conditions to the full effectiveness of this Guaranty. The terms and provisions
hereof may not be waived, altered, modified, or amended except in a writing
executed by Guarantor and a duly authorized officer of GBC. All rights,
benefits and privileges hereunder shall inure to the benefit of and be
enforceable by GBC and its successors and assigns and shall be binding upon
Guarantor and his heirs, executors, administrators, personal representatives,
successors and assigns. Neither the death of Guarantor nor notice thereof to
GBC shall terminate this Guaranty as to his estate, and, notwithstanding the
death of Guarantor or notice thereof to GBC, this Guaranty shall continue in
full force and effect with respect to all Indebtedness, including without
limitation Indebtedness incurred or created after the death of Guarantor and
notice thereof to GBC. Section headings are
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<PAGE>
GREYROCK BUSINESS CREDIT CONTINUING GUARANTY
- ------------------------------------------------------------------------------
used herein for convenience only. Guarantor acknowledges that the same may
not describe completely the subject matter of the applicable Section, and the
same shall not be used in any manner to construe, limit, define or interpret
any term or provision hereof.
20. GOVERNING LAW; VENUE AND JURISDICTION. This instrument and all acts and
transactions pursuant or relating hereto and all rights and obligations of the
parties hereto shall be governed, construed, and interpreted in accordance with
the internal laws of the State of California. In order to induce GBC to accept
this Guaranty, and as a material part of the consideration therefor, Guarantor
(i) agrees that all actions or proceedings relating directly or indirectly
hereto shall, at the option of GBC, be litigated in courts located within Los
Angeles County, California, (ii) consents to the jurisdiction of any such court
and consents to the service of process in any such action or proceeding by
personal delivery or any other method permitted by law; and (iii) waives any and
all rights Guarantor may have to transfer or change the venue of any such action
or proceeding.
21. MUTUAL WAIVER OF RIGHT TO JURY TRIAL. GBC AND GUARANTOR HEREBY WAIVE THE
RIGHT TO TRIAL BY JURY IN ANY ACTION, CLAIM, LAWSUIT OR PROCEEDING BASED UPON,
ARISING OUT OF, OR IN ANY WAY RELATING TO: (i) THIS GUARANTEE OR ANY SUPPLEMENT
OR AMENDMENT THERETO; OR (ii) ANY OTHER PRESENT OR FUTURE INSTRUMENT OR
AGREEMENT BETWEEN GBC AND GUARANTOR ; OR (iii) ANY BREACH, CONDUCT, ACTS OR
OMISSIONS OF GBC OR GUARANTOR OR ANY OF THEIR RESPECTIVE DIRECTORS, OFFICERS,
EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSON AFFILIATED WITH OR REPRESENTING
GBC OR GUARANTOR; IN EACH OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT
OR TORT OR OTHERWISE.
22. RECEIPT OF COPY. Guarantor acknowledges receipt of a copy of this
Guaranty.
Guarantor Signature:
North American Telecommunications Corporation
By /s/ J. David Darnell
--------------------------
Title Vice President
-----------------------
Address: 1600 Promenade Center, 15th Floor
Richardson, Texas 75080
Baltic States and CIS Ventures, Inc.
By /s/ J. David Darnell
--------------------------
Title Vice President
-----------------------
Address: 1600 Promenade Center, 15th Floor
Richardson, Texas 75080
Guarantor Signature:
CIS Intelligence Information Services, Inc.
By /s/ J. David Darnell
--------------------------
Title Vice President
-----------------------
Address: 1600 Promenade Center, 15th Floor
Richardson, Texas 75080
Guarantor Signature:
Uniquest Communications, Inc.
By /s/ J. David Darnell
--------------------------
Title Vice President
-----------------------
Address: 1600 Promenade Center, 15th Floor
Richardson, Texas 75080
-8-
<PAGE>
Exhibit 10.5
[LOGO]
PLEDGE AGREEMENT
(SECURITIES)
PLEDGOR: SA TELECOMMUNICATIONS, INC.
ADDRESS: 1600 PROMENADE CENTER, 15TH FLOOR
RICHARDSON, TEXAS 75080
DATE: DECEMBER 26, 1996
THIS PLEDGE AGREEMENT ("Pledge Agreement"), dated the above date, is
entered into at between GREYROCK BUSINESS CREDIT, a Division of NationsCredit
Commercial Corporation ("GBC"), whose address is 10880 Wilshire Boulevard, Suite
950, Los Angeles, CA 90024, and the pledgor named above ("Pledgor"), whose
address is set forth above.
1. PLEDGE OF SECURITIES. Pledgor shall concurrently deliver to GBC the
stock certificates and other securities listed on Exhibit A hereto, together
with duly executed instruments of assignment thereof to GBC (which, together
with all replacements and substitutions therefor are hereinafter referred to as
the "Securities"). Pledgor hereby pledges to GBC and grants GBC a security
interest in the Securities, and all rights and remedies relating to, or arising
out of, any and all of the foregoing, and all proceeds thereof (collectively,
the "Collateral") to secure the payment and performance of all "Obligations"
(collectively, the "Obligations"), as defined in the Loan and Security Agreement
between GBC and Pledgor and others dated December 26, 1996, and all extensions
and renewals and modifications thereof (the "Loan Agreement"). Any and all
stock dividends, rights, warrants, options, puts, calls, conversion rights and
other securities and any and all property and money distributed or delivered
with respect to the Securities or issued upon the exercise of any puts, calls,
conversion rights, options, warrants or other rights included in or pertaining
to the Securities shall be included in the term "Securities" as used herein and
shall be subject to this Pledge Agreement, and Pledgor shall deliver the same to
GBC immediately upon receipt thereof together with any necessary instruments of
transfer; provided, however, that until an Event of Default (as hereinafter
defined) shall occur, Pledgor may retain any dividends paid in cash or its
equivalent, with respect to any stock included in the Securities and any
interest paid with respect to any bonds, debentures or other evidences of
indebtedness included in the Securities. Pledgor hereby acknowledges that the
acceptance of the pledge of the Securities by GBC shall not constitute a
commitment of any kind by GBC to permit Pledgor to incur Obligations.
2. VOTING AND OTHER RIGHTS. Pledgor shall have the right to exercise all
voting rights with respect to the Securities, provided no Event of Default (as
hereinafter defined) has occurred. Upon the occurrence * of any Event of
Default, GBC shall have the right (but not any obligation) to exercise all
voting rights with respect to the Securities. Provided no Event of Default has
occurred, Pledgor shall have the right to exercise all puts, calls, straddles,
conversion rights, options, warrants, and other rights and remedies with respect
to the Securities, provided Pledgor obtains the prior written consent of GBC
thereto. GBC shall have no responsibility or liability whatsoever for the
exercise of, or failure to exercise, any puts, calls, straddles, conversion
rights, options, warrants, rights to vote or consent, or other rights with
respect to any of the Securities. ** GBC shall have the right from time to
time to transfer all or any part of the Securities to GBC's own name or the
name of its nominee.
*AND DURING THE CONTINUANCE
**UPON THE OCCURRENCE AND DURING THE CONTINUANCE OF AN EVENT OF DEFAULT
3. REPRESENTATIONS AND WARRANTIES. Pledgor hereby represents and
warrants to GBC that Pledgor now has, and throughout the term of this Agreement
will at all times have, good title to the Securities and the other Collateral,
free and clear of any and all security interests, liens and claims of any kind
whatsoever.
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<PAGE>
GREYROCK BUSINESS CREDIT PLEDGE AGREEMENT
-----------------------------------------------------------------------
4. EVENTS OF DEFAULT. If any one or more of the following events shall
occur, any such event shall constitute an Event of Default and Pledgor shall
provide GBC with immediate notice thereof: (a) Any warranty, representation,
statement, report or certificate made or delivered to GBC by Pledgor or any of
Pledgor's officers, employees or agents now or hereafter is incorrect, false,
untrue or misleading in any material respect; or (b) Pledgor shall fail to
promptly pay or perform when due part or all of any of the Obligations, or any
default or event of default shall occur under the Loan Agreement or any other
present or future instrument, document or agreement between GBC and Pledgor.
5. REMEDIES. If an Event of Default shall occur, Pledgor shall give
immediate written notice thereof to GBC. Upon the occurrence * of an Event of
Default, and at any time thereafter, GBC shall have the right, without notice to
or demand upon Pledgor, to exercise any one or more of the following remedies:
(a) accelerate and declare all or any part of the Obligations to be immediately
due, payable and performable, notwithstanding any deferred or installment
payments allowed by any agreement or instrument evidencing or relating to any of
the same; (b) sell or otherwise dispose of the Securities, and other Collateral,
at a public or private sale, for cash, or other property, or on credit, with the
authority to adjourn or postpone any such sale from time to time without notice
other than oral announcement at the time scheduled for sale. GBC may directly
or through any affiliate purchase the Securities, and other Collateral, at any
such public disposition, and if permissible under applicable law, at any private
disposition. Pledgor and GBC hereby agree that it shall conclusively be deemed
commercially reasonable for GBC, in connection with any sale or disposition of
the Securities, to impose restrictions and conditions as to the investment
intent of a purchaser or bidder, the ability of a purchaser or bidder to bear
the economic risk of an investment in the Securities, the knowledge and
experience in business and financial matters of a purchaser or bidder, the
access of a purchaser or bidder to information concerning the issuer of the
Securities, as well as legend conditions and stop transfer instructions
restricting subsequent transfer of the Securities, and any other restrictions or
conditions which GBC believes to be necessary or advisable in order to comply
with any state or federal securities or other laws. Pledgor acknowledges that
the foregoing restrictions may result in fewer proceeds being received upon such
sale then would otherwise be the case. Pledgor hereby agrees to provide to GBC
any and all information ** required by GBC in connection with any sales of
Securities by GBC hereunder. If, after the occurrence of any Event of Default,
Rule 144 promulgated by the Securities and Exchange Commission (or any other
similar rule) is available for use by GBC in connection with the sales of any
Securities hereunder, Pledgor agrees not to utilize Rule 144 in the sale of any
securities held by Pledgor of the same class as the Securities, without the
prior written consent of GBC. Any and all attorneys' fees, expenses, costs,
liabilities and obligations incurred by GBC in connection with the foregoing
shall be added to and become a part of the Obligations and shall be due from
Pledgor to GBC upon demand.
*AND DURING THE CONTINUANCE OF
**REASONABLY
6. REMEDIES, CUMULATIVE; NO WAIVER. The failure of GBC to enforce any of
the provisions of this Agreement at any time or for any period of time shall not
be construed to be a waiver of any such provision or the right thereafter to
enforce the same. All remedies hereunder shall be cumulative and shall be in
addition to all rights, powers and remedies given to GBC by law.
7. TERM. This Agreement and GBC's rights hereunder shall continue in
full force and effect until all of the Obligations have been fully paid,
performed and discharged and the Loan Agreement and all other agreements between
Borrower and GBC have terminated. Upon termination, GBC shall * return the
Collateral to Pledgor, with any necessary instruments of transfer.
*PROMPTLY
8. REVIVOR. If any payment made on any of the Obligations shall for any
reason be required to be returned by GBC, whether on the ground that such
payment constituted a preference or for any other reason, then for purposes of
this Agreement, and notwithstanding any prior termination of this Agreement,
such payment shall be treated as not having been made, and this Agreement shall
in all respects be effective with respect to the Obligations as though such
payment had not been made; and if any of the Collateral has been released or
returned to Pledgor, then Pledgor shall return such Collateral to GBC, to be
held and dealt with in accordance with the terms of this Agreement.
9. GENERAL PROVISIONS. This Agreement and the documents referred to
herein are the entire and only agreements between Pledgor and GBC with respect
to the subject matter hereof, and all representations, warranties, agreements,
or undertakings heretofore or contemporaneously made, with respect to the
subject matter hereof, which are not set forth herein or therein, are superseded
hereby. The terms and provisions hereof may not be waived, altered, modified,
or amended except in a writing executed by Pledgor and GBC. All rights,
benefits and privileges hereunder shall inure to the benefit of and be
enforceable by GBC and its successors and assigns and shall be binding upon
Pledgor and its successors and assigns; provided that Pledgor may not transfer
any of its rights hereunder without the prior written consent of GBC. Paragraph
headings are used herein for convenience only. Pledgor acknowledges that the
same may not describe completely the subject matter of the applicable paragraph,
and the same shall not be used in any manner to construe, limit, define or
interpret any term or provision hereof. Pledgor shall upon demand reimburse GBC
for all reasonable costs, fees and
-2-
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GREYROCK BUSINESS CREDIT PLEDGE AGREEMENT
-----------------------------------------------------------------------
expenses (including without limitation * attorneys' fees, whether or not suit
be brought), which are incurred by GBC in connection with, or arising out of,
this Agreement. This Agreement and all acts and transactions pursuant hereto
and the rights and obligations of the parties hereto shall be governed,
construed, and interpreted in accordance with the internal laws (and not
conflict of laws rules) of the State of California. Pledgor hereby agrees that
all actions or proceedings relating directly or indirectly hereto may, at the
option of GBC, be litigated in courts located within said State, and Pledgor
hereby expressly consents to the jurisdiction of any such court and consents
to the service of process in any such action or proceeding by personal
delivery or by certified or registered mailing directed to Pledgor at its last
address known to GBC.
*REASONABLE
10. MUTUAL WAIVER OF RIGHT TO JURY TRIAL. GBC AND PLEDGOR EACH HEREBY
WAIVE THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING
OUT OF, OR IN ANY WAY RELATING TO: (i) THIS AGREEMENT; OR (ii) ANY OTHER
PRESENT OR FUTURE INSTRUMENT OR AGREEMENT BETWEEN GBC AND PLEDGOR; OR (iii) ANY
CONDUCT, ACTS OR OMISSIONS OF GBC OR PLEDGOR OR ANY OF THEIR DIRECTORS,
OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH GBC
OR PLEDGOR; IN EACH OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT OR TORT
OR OTHERWISE.
PLEDGOR:
SA TELECOMMUNICATIONS, INC.
BY /s/ J. David Darnell
--------------------------------
TITLE Vice President
-----------------------------
GBC:
GREYROCK BUSINESS CREDIT
Division of NationsCredit Commercial Corporation
BY /s/ Ian Schneider
--------------------------------
TITLE Chief Operating Officer
-----------------------------
EXHIBIT A
8,250 shares of the Common Stock of U.S. Communications, Inc.
1,000 shares of the Common Stock of Long Distance Network, Inc.
10,000 shares of the Common Stock of North American Telecommunications
Corporation
1,000 shares of the Common Stock of Uniquest Communications, Inc.
which Pledgor represents and warrants represent 100% of the issued and
outstanding stock of said corporation. Pledgor shall at all times during the
term of this Agreement cause said stock to continue to represent 100% of the
issued and outstanding stock of said corporation.
-3-
<PAGE>
Exhibit 10.6
- ------------------------------------------------------------------------------
[LOGO]
PLEDGE AGREEMENT
(SECURITIES)
PLEDGOR: U.S. COMMUNICATIONS, INC.
ADDRESS: 1600 PROMENADE CENTER, 15TH FLOOR
RICHARDSON, TEXAS 75080
DATE: DECEMBER 26, 1996
THIS PLEDGE AGREEMENT ("Pledge Agreement"), dated the above date, is
entered into at between GREYROCK BUSINESS CREDIT, a Division of NationsCredit
Commercial Corporation ("GBC"), whose address is 10880 Wilshire Boulevard, Suite
950, Los Angeles, CA 90024, and the pledgor named above ("Pledgor"), whose
address is set forth above.
1. PLEDGE OF SECURITIES. Pledgor shall concurrently deliver to GBC the
stock certificates and other securities listed on Exhibit A hereto, together
with duly executed instruments of assignment thereof to GBC (which, together
with all replacements and substitutions therefor are hereinafter referred to as
the "Securities"). Pledgor hereby pledges to GBC and grants GBC a security
interest in the Securities, and all rights and remedies relating to, or arising
out of, any and all of the foregoing, and all proceeds thereof (collectively,
the "Collateral") to secure the payment and performance of all "Obligations"
(collectively, the "Obligations"), as defined in the Loan and Security Agreement
between GBC and Pledgor and others dated December 26, 1996, and all extensions
and renewals and modifications thereof (the "Loan Agreement"). Any and all
stock dividends, rights, warrants, options, puts, calls, conversion rights and
other securities and any and all property and money distributed or delivered
with respect to the Securities or issued upon the exercise of any puts, calls,
conversion rights, options, warrants or other rights included in or pertaining
to the Securities shall be included in the term "Securities" as used herein and
shall be subject to this Pledge Agreement, and Pledgor shall deliver the same to
GBC immediately upon receipt thereof together with any necessary instruments of
transfer; provided, however, that until an Event of Default (as hereinafter
defined) shall occur, Pledgor may retain any dividends paid in cash or its
equivalent, with respect to any stock included in the Securities and any
interest paid with respect to any bonds, debentures or other evidences of
indebtedness included in the Securities. Pledgor hereby acknowledges that the
acceptance of the pledge of the Securities by GBC shall not constitute a
commitment of any kind by GBC to permit Pledgor to incur Obligations.
2. VOTING AND OTHER RIGHTS. Pledgor shall have the right to exercise all
voting rights with respect to the Securities, provided no Event of Default (as
hereinafter defined) has occurred. Upon the occurrence * of any Event of
Default, GBC shall have the right (but not any obligation) to exercise all
voting rights with respect to the Securities. Provided no Event of Default has
occurred, Pledgor shall have the right to exercise all puts, calls, straddles,
conversion rights, options, warrants, and other rights and remedies with respect
to the Securities, provided Pledgor obtains the prior written consent of GBC
thereto. GBC shall have no responsibility or liability whatsoever for the
exercise of, or failure to exercise, any puts, calls, straddles, conversion
rights, options, warrants, rights to vote or consent, or other rights with
respect to any of the Securities. ** GBC shall have the right from time to
time to transfer all or any part of the Securities to GBC's own name or the
name of its nominee.
*AND DURING THE CONTINUANCE
**UPON THE OCCURRENCE AND DURING THE CONTINUANCE OF AN EVENT OF DEFAULT
3. REPRESENTATIONS AND WARRANTIES. Pledgor hereby represents and
warrants to GBC that Pledgor now has, and throughout the term of this Agreement
will at all times have, good title to the Securities and the other Collateral,
free and clear of any and all security interests, liens and claims of any kind
whatsoever.
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<PAGE>
GREYROCK BUSINESS CREDIT PLEDGE AGREEMENT
- ------------------------------------------------------------------------------
4. EVENTS OF DEFAULT. If any one or more of the following events shall
occur, any such event shall constitute an Event of Default and Pledgor shall
provide GBC with immediate notice thereof: (a) Any warranty, representation,
statement, report or certificate made or delivered to GBC by Pledgor or any of
Pledgor's officers, employees or agents now or hereafter is incorrect, false,
untrue or misleading in any material respect; or (b) Pledgor shall fail to
promptly pay or perform when due part or all of any of the Obligations, or any
default or event of default shall occur under the Loan Agreement or any other
present or future instrument, document or agreement between GBC and Pledgor.
5. REMEDIES. If an Event of Default shall occur, Pledgor shall give
immediate written notice thereof to GBC. Upon the occurrence * of an Event of
Default, and at any time thereafter, GBC shall have the right, without notice to
or demand upon Pledgor, to exercise any one or more of the following remedies:
(a) accelerate and declare all or any part of the Obligations to be immediately
due, payable and performable, notwithstanding any deferred or installment
payments allowed by any agreement or instrument evidencing or relating to any of
the same; (b) sell or otherwise dispose of the Securities, and other Collateral,
at a public or private sale, for cash, or other property, or on credit, with the
authority to adjourn or postpone any such sale from time to time without notice
other than oral announcement at the time scheduled for sale. GBC may directly
or through any affiliate purchase the Securities, and other Collateral, at any
such public disposition, and if permissible under applicable law, at any private
disposition. Pledgor and GBC hereby agree that it shall conclusively be deemed
commercially reasonable for GBC, in connection with any sale or disposition of
the Securities, to impose restrictions and conditions as to the investment
intent of a purchaser or bidder, the ability of a purchaser or bidder to bear
the economic risk of an investment in the Securities, the knowledge and
experience in business and financial matters of a purchaser or bidder, the
access of a purchaser or bidder to information concerning the issuer of the
Securities, as well as legend conditions and stop transfer instructions
restricting subsequent transfer of the Securities, and any other restrictions or
conditions which GBC believes to be necessary or advisable in order to comply
with any state or federal securities or other laws. Pledgor acknowledges that
the foregoing restrictions may result in fewer proceeds being received upon such
sale then would otherwise be the case. Pledgor hereby agrees to provide to GBC
any and all information ** required by GBC in connection with any sales of
Securities by GBC hereunder. If, after the occurrence of any Event of Default,
Rule 144 promulgated by the Securities and Exchange Commission (or any other
similar rule) is available for use by GBC in connection with the sales of any
Securities hereunder, Pledgor agrees not to utilize Rule 144 in the sale of any
securities held by Pledgor of the same class as the Securities, without the
prior written consent of GBC. Any and all attorneys' fees, expenses, costs,
liabilities and obligations incurred by GBC in connection with the foregoing
shall be added to and become a part of the Obligations and shall be due from
Pledgor to GBC upon demand.
*AND DURING THE CONTINUANCE OF
**REASONABLY
6. REMEDIES, CUMULATIVE; NO WAIVER. The failure of GBC to enforce any of
the provisions of this Agreement at any time or for any period of time shall not
be construed to be a waiver of any such provision or the right thereafter to
enforce the same. All remedies hereunder shall be cumulative and shall be in
addition to all rights, powers and remedies given to GBC by law.
7. TERM. This Agreement and GBC's rights hereunder shall continue in
full force and effect until all of the Obligations have been fully paid,
performed and discharged and the Loan Agreement and all other agreements between
Borrower and GBC have terminated. Upon termination, GBC shall * return the
Collateral to Pledgor, with any necessary instruments of transfer.
*PROMPTLY
8. REVIVOR. If any payment made on any of the Obligations shall for any
reason be required to be returned by GBC, whether on the ground that such
payment constituted a preference or for any other reason, then for purposes of
this Agreement, and notwithstanding any prior termination of this Agreement,
such payment shall be treated as not having been made, and this Agreement shall
in all respects be effective with respect to the Obligations as though such
payment had not been made; and if any of the Collateral has been released or
returned to Pledgor, then Pledgor shall return such Collateral to GBC, to be
held and dealt with in accordance with the terms of this Agreement.
9. GENERAL PROVISIONS. This Agreement and the documents referred to
herein are the entire and only agreements between Pledgor and GBC with respect
to the subject matter hereof, and all representations, warranties, agreements,
or undertakings heretofore or contemporaneously made, with respect to the
subject matter hereof, which are not set forth herein or therein, are superseded
hereby. The terms and provisions hereof may not be waived, altered, modified,
or amended except in a writing executed by Pledgor and GBC. All rights,
benefits and privileges hereunder shall inure to the benefit of and be
enforceable by GBC and its successors and assigns and shall be binding upon
Pledgor and its successors and assigns; provided that Pledgor may not transfer
any of its rights hereunder without the prior written consent of GBC. Paragraph
headings are used herein for convenience only. Pledgor acknowledges that the
same may not describe completely the subject matter of the applicable paragraph,
and the same shall not be used in any manner to construe, limit, define or
interpret any term or provision hereof. Pledgor shall upon demand reimburse GBC
for all reasonable costs, fees and
-2-
<PAGE>
GREYROCK BUSINESS CREDIT PLEDGE AGREEMENT
- ------------------------------------------------------------------------------
expenses (including without limitation * attorneys' fees, whether or not suit
be brought), which are incurred by GBC in connection with, or arising out of,
this Agreement. This Agreement and all acts and transactions pursuant hereto
and the rights and obligations of the parties hereto shall be governed,
construed, and interpreted in accordance with the internal laws (and not
conflict of laws rules) of the State of California. Pledgor hereby agrees
that all actions or proceedings relating directly or indirectly hereto may,
at the option of GBC, be litigated in courts located within said State, and
Pledgor hereby expressly consents to the jurisdiction of any such court and
consents to the service of process in any such action or proceeding by
personal delivery or by certified or registered mailing directed to Pledgor
at its last address known to GBC.
*REASONABLE
10. MUTUAL WAIVER OF RIGHT TO JURY TRIAL. GBC AND PLEDGOR EACH HEREBY
WAIVE THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING
OUT OF, OR IN ANY WAY RELATING TO: (i) THIS AGREEMENT; OR (ii) ANY OTHER
PRESENT OR FUTURE INSTRUMENT OR AGREEMENT BETWEEN GBC AND PLEDGOR; OR (iii) ANY
CONDUCT, ACTS OR OMISSIONS OF GBC OR PLEDGOR OR ANY OF THEIR DIRECTORS,
OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH GBC
OR PLEDGOR; IN EACH OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT OR TORT
OR OTHERWISE.
EXHIBIT A
1,333 shares of the Common Stock of Southwest Long Distance Network, Inc.
which Pledgor represents and warrants represent 100% of the issued and
outstanding stock of said corporation. Pledgor shall at all times during the
term of this Agreement cause said stock to continue to represent 100% of the
issued and outstanding stock of said corporation.
PLEDGOR:
U.S. COMMUNICATIONS, INC.
BY /s/ J. David Darnell
--------------------------------
TITLE Vice President
-----------------------------
GBC:
GREYROCK BUSINESS CREDIT
Division of NationsCredit Commercial Corporation
BY /s/ Ian Schneider
--------------------------------
TITLE Chief Operating Officer
-----------------------------
-3-
<PAGE>
Exhibit 10.7
[LOGO]
SECURITY AGREEMENT
DEBTORS: NORTH AMERICAN TELECOMMUNICATIONS CORPORATION
BALTIC STATES AND CIS VENTURES, INC.
CIS INTELLIGENCE INFORMATION SERVICES, INC.
UNIQUEST COMMUNICATIONS, INC.
ADDRESS: 1600 PROMENADE CENTER, 15TH FLOOR
RICHARDSON, TEXAS 75080
DATE: DECEMBER 26, 1996
THIS SECURITY AGREEMENT is entered into as of the above date at Los Angeles,
California, between the above-named debtors (jointly and severally, the
"Debtor"), whose chief executive office is set forth above ("Debtor's Address"),
and Greyrock Business Credit, a Division of NationsCredit Commercial Corporation
("GBC"), whose address is 10880 Wilshire Blvd. Suite 950, Los Angeles, CA
90024. Certain capitalized terms used in this Agreement are defined in Section
6 below.
1. DEFINITIONS OF OBLIGATIONS AND COLLATERAL; GRANT OF SECURITY INTEREST.
1.1 OBLIGATIONS. The term "Obligations" as used in this Agreement shall
mean and include each and all of the following: the obligation to pay and
perform when due all indebtedness, liabilities, obligations, guarantees,
covenants, agreements, warranties and representations of Debtor to GBC, whether
heretofore, now or hereafter existing, owing or arising; whether primary,
secondary, direct, absolute, contingent, fixed, secured or unsecured; joint or
several, monetary or non-monetary; and whether created pursuant to, or caused by
Debtor's breach of, this Agreement, or any other present or future agreement or
instrument, or created by operation of law or otherwise. The Obligations
include without limitation the obligations of Debtor under that certain
Continuing Guaranty in favor of GBC with respect to the indebtedness of the
following (jointly and severally, "Borrower"), and all extensions and renewals
thereof:
SA TELECOMMUNICATIONS, INC. ("STEL")
U.S. COMMUNICATIONS, INC. ("USCI")
LONG DISTANCE NETWORK, INC. ("LONG DISTANCE")
SOUTHWEST LONG DISTANCE NETWORK, INC. ("SOUTHWEST")
1.2 COLLATERAL. To secure the payment and performance of all of the
Obligations when due, Debtor hereby grants to GBC a security interest in all of
Debtor's interest in the following, whether now owned or hereafter acquired, and
wherever located (collectively, the "Collateral"): All Inventory, Equipment,
Receivables, and General Intangibles, including, without limitation, all of
Debtor's Deposit Accounts, all money, all collateral in which GBC is granted a
security interest pursuant to any other present or future agreement, all
property now or at any time in the future in GBC's possession, and all proceeds
(including proceeds of any insurance policies, proceeds of proceeds and claims
against third parties), all products of the foregoing, and all books and records
related to any of the foregoing.
2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE DEBTOR.
In order to induce GBC to enter into this Agreement, Debtor represents and
warrants to GBC as follows, and Debtor covenants that the following
representations will continue to be true, and that Debtor will at all times
comply with all of the following covenants:
2.1 CORPORATE EXISTENCE AND AUTHORITY. Debtor is and will continue to be,
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation. Debtor is and will continue to be qualified
and licensed to do business in all jurisdictions in which any failure to do so
would have a material adverse effect on Debtor*. The execution, delivery and
performance by Debtor of this Agreement, and all other documents contemplated
hereby (i) have been duly and validly authorized, (ii) are enforceable against
Debtor in accordance with their terms (except as enforcement may be limited by
equitable principles and by bankruptcy, insolvency, reorganization, moratorium
or similar laws relating to creditors' rights generally), (iii) do not violate
Debtor's articles or certificate of incorporation, or Debtor's by-laws, or any
law or any material agreement or instrument which is binding upon Debtor or its
property, and (iv) do not constitute grounds for acceleration of any material
-1-
<PAGE>
GREYROCK BUSINESS CREDIT SECURITY AGREEMENT
------------------------------------------------------------------
indebtedness or obligation under any material agreement or instrument which is
binding upon Debtor or its property*.
*TAKEN AS A WHOLE
2.2 NAME; TRADE NAMES AND STYLES. The name of Debtor set forth in the
heading to this Agreement is its correct name. Listed on the Schedule are
all prior names of Debtor and all of Debtor's present and prior trade names*.
Debtor shall give GBC 30 days' prior written notice before changing its name
or doing business under any other name**. Debtor has complied, and will in
the future comply***, with all laws relating to the conduct of business under
a fictitious business name.
*DURING THE PAST EIGHT YEARS
**, EXCEPT THAT, IN THE CASE OF DOING BUSINESS UNDER ANOTHER NAME AS A RESULT
OF AN ACQUISITION, SUCH NOTICE SHALL BE GIVEN BEFORE OR WITHIN 20 DAYS AFTER
SUCH ACQUISITION IS CONSUMMATED
***IN ALL MATERIAL RESPECTS
2.3 PLACE OF BUSINESS; LOCATION OF COLLATERAL. The address set forth in the
heading to this Agreement is Debtor's chief executive office. In addition, *
Debtor has places of business and Collateral is located only at the locations
set forth on the Schedule. Debtor will give GBC at least 30 days prior written
notice before opening any additional place of business, changing its chief
executive office, or moving any of the Collateral to a location other than
Debtor's Address or one of the locations set forth on the Schedule**.
*ON THE DATE HEREOF
**, EXCEPT THAT (I) IN THE CASE OF OPENING ANY ADDITIONAL PLACE OF
BUSINESS AS A RESULT OF AN ACQUISITION, SUCH NOTICE SHALL BE GIVEN BEFORE OR
WITHIN 20 DAYS AFTER SUCH ACQUISITION IS CONSUMMATED, AND (II) NOTICE NEED
NOT BE GIVEN OF THE OPENING OR CHANGING OF SALES OFFICES AT WHICH NO
SIGNIFICANT COLLATERAL IS LOCATED, OR SWITCHES
2.4 TITLE TO COLLATERAL; PERMITTED LIENS. Debtor is now, and will at all
times in the future be, the sole owner of all the Collateral, except for items
of Equipment which are leased by Debtor. The Collateral now is and will remain
free and clear of any and all liens, charges, security interests, encumbrances
and adverse claims, except for Permitted Liens. GBC now has, and will continue
to have, a first-priority perfected and enforceable security interest in all of
the Collateral, subject only to the Permitted Liens, and Debtor will at all
times defend GBC and the Collateral against all claims of others. Whenever any
Collateral is located upon premises in which any third party has an interest
(whether as owner, mortgagee, beneficiary under a deed of trust, lien or
otherwise)*, Debtor shall, whenever requested by GBC, use its ** efforts
to cause such third party to execute and deliver to GBC, in form acceptable to
GBC, such waivers and subordinations as GBC shall specify, so as to ensure that
GBC's rights in the Collateral are, and will continue to be, superior to the
rights of any such third party. Debtor will keep in full force and effect, and
will comply with all the terms of, any lease of real property where any of the
Collateral now or in the future may be located.
*(OTHER THAN A PERMITTED LIEN)
**COMMERCIALLY REASONABLE
2.5 MAINTENANCE OF COLLATERAL. Debtor will maintain the Collateral in good
working condition, ordinary wear and tear excepted *, and Debtor will not use
the Collateral for any unlawful purpose. Debtor will immediately advise GBC in
writing of any material loss or damage to the Collateral.
*(PROVIDED THAT NOTHING HEREIN SHALL PREVENT DEBTOR OR ANY OF ITS SUBSIDIARIES
FROM DISCONTINUING THE OPERATION AND MAINTENANCE OF ANY OF ITS PROPERTIES IF THE
SAME IS, IN THE JUDGMENT OF SUCH ENTITY, DESIRABLE IN THE CONDUCT OF ITS
BUSINESS AND WOULD NOT HAVE A MATERIAL ADVERSE EFFECT ON THE FINANCIAL CONDITION
OF DEBTOR TAKEN AS A WHOLE)
2.6 BOOKS AND RECORDS. Debtor has maintained and will maintain at Debtor's
Address * complete and accurate books and records, comprising an accounting
system in accordance with generally accepted accounting principles.
*OR AT THE ADDRESSES SET FORTH IN THE SCHEDULE
2.7 FINANCIAL CONDITION, STATEMENTS AND REPORTS. All financial
statements now or in the future delivered to GBC have been, and will be,
prepared in conformity with generally accepted accounting principles * and
now and in the future will completely and fairly reflect the financial
condition of Debtor, at the times and for the periods therein stated.
Between the last date covered by any such statement provided to GBC and the
date hereof, there has been no material adverse change in the financial
condition or business of Debtor**. Debtor is now and will continue to be
solvent.
*(EXCEPT THAT ONLY ANNUAL FINANCIAL STATEMENTS WILL CONTAIN FOOTNOTES)
**TAKEN AS A WHOLE
2.8 TAX RETURNS AND PAYMENTS; PENSION CONTRIBUTIONS. Debtor has timely
filed, and will timely file, all tax returns and reports required by
applicable law, and Debtor has timely paid, and will timely pay, all
applicable taxes, assessments, deposits and contributions now or in the
future owed by Debtor. Debtor may, however, defer payment of any contested
taxes, provided that Debtor (i) in good faith contests Debtor's obligation to
pay the taxes by appropriate proceedings promptly and diligently instituted
and conducted, (ii) notifies GBC in writing of the commencement of, and any
material development in, the proceedings, and (iii) posts bonds or takes any
other steps required to keep the contested taxes from becoming a lien upon
any of the Collateral. Debtor is unaware of any claims or adjustments
proposed for any of Debtor's prior tax years which could result in additional
taxes becoming due and payable by Debtor. Debtor has paid, and shall continue
to pay all amounts necessary to fund all present and future pension, profit
sharing and deferred compensation plans in accordance with their terms, and
Debtor has not and will not withdraw from participation in, permit partial or
complete
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<PAGE>
GREYROCK BUSINESS CREDIT SECURITY AGREEMENT
------------------------------------------------------------------
termination of, or permit the occurrence of any other event with respect to,
any such plan which could result in any * liability of Debtor**, including
any liability to the Pension Benefit Guaranty Corporation or any other
governmental agency.
*MATERIAL
**TAKEN AS A WHOLE
2.9 COMPLIANCE WITH LAW. Debtor has complied, and will comply, in all
material respects, with all provisions of all applicable laws and regulations,
including, but not limited to, those relating to Debtor's ownership of real or
personal property, the conduct and licensing of Debtor's business, and all
environmental matters.
2.10 LITIGATION. Except as disclosed in the Schedule, there is no claim,
suit, litigation, proceeding or investigation pending or (to best of Debtor's
knowledge) threatened by or against or affecting Debtor in any court or before
any governmental agency (or any basis therefor known to Debtor) which may
result, either separately or in the aggregate, in any material adverse change in
the financial condition or business of Debtor*, or in any material impairment in
the ability of Debtor to carry on its business in substantially the same manner
as it is now being conducted. Debtor will promptly inform GBC in writing of any
claim, proceeding, litigation or investigation in the future threatened or
instituted by or against Debtor involving any single claim of **.
*TAKEN AS A WHOLE
**$200,000 OR MORE, OR INVOLVING $500,000 OR MORE IN THE AGGREGATE
3. DUTIES OF THE DEBTOR.
3.1 INSURANCE. Debtor shall, at all times, insure all of the tangible
personal property Collateral and carry such other business insurance, with
insurers reasonably acceptable to GBC, in such form and amounts as GBC may
reasonably require, and Debtor shall provide evidence of such insurance to
GBC, so that GBC is satisfied that such insurance is, at all times, in full
force and effect. All such insurance policies shall name GBC as an additional
loss payee, and shall contain a lenders loss payee endorsement in form
reasonably acceptable to GBC. Upon receipt of the proceeds of any such
insurance, GBC shall apply such proceeds in reduction of the Obligations as
GBC shall determine in its sole discretion, except that, provided no Default
or Event of Default has occurred and is continuing, GBC shall release to
Debtor insurance proceeds with respect to Equipment *, which shall be utilized
by Debtor for the replacement of the Equipment with respect to which the
insurance proceeds were paid. GBC may require reasonable assurance that the
insurance proceeds so released will be so used. If Debtor fails to provide or
pay for any insurance, GBC may, but is not obligated to, obtain the same at
Debtor's expense. Debtor shall promptly deliver to GBC copies of all reports
made to insurance companies.
*NECESSARY TO CONDUCT DEBTOR'S BUSINESS
3.2 REPORTS. Debtor, at its expense, shall provide GBC with the written
reports set forth in the Schedule, and such other written reports with respect
to Debtor (including budgets, sales projections, operating plans and other
financial documentation), as GBC shall from time to time reasonably specify.
3.3 ACCESS TO COLLATERAL, BOOKS AND RECORDS. At reasonable times, and on
one business day's notice, GBC, or its agents, shall have the right to
inspect the Collateral, and the right to audit and copy Debtor's books and
records. GBC shall take reasonable steps to keep confidential all
information obtained in any such inspection or audit, but GBC shall have the
right to disclose any such information to its auditors, regulatory agencies,
and attorneys, and pursuant to any subpoena or other legal process.
3.4 NEGATIVE COVENANTS. Except as *, Debtor shall not, without GBC's prior
written consent, do any of the following: (i) merge or consolidate with
another corporation or entity; (ii) acquire any assets, except in the ordinary
course of business; (iii) enter into any other transaction outside the
ordinary course of business; (iv) sell or transfer any Collateral, except that,
provided no Default or Event of Default has occurred and is continuing, Debtor
may (a) sell ** in the ordinary course of Debtor's business; (v) store any
Inventory or other Collateral with any warehouseman or other third party; (vi)
sell any Inventory on a sale-or-return, guaranteed sale, consignment, or other
contingent basis; (vii) make any loans of any money or other assets; (viii)
incur any debts, outside the ordinary course of business, and which would have
a material, adverse effect on Debtor *** or on the prospect of repayment of
the Obligations; (ix) guarantee or otherwise become liable with respect to the
obligations of another party or entity; (x) pay or declare any dividends on
Debtor's stock (except for dividends payable solely in stock of Debtor); (xi)
redeem, retire, purchase or otherwise acquire, directly or indirectly, any of
Debtor's stock; (xii) make any change in Debtor's capital structure which
would have a material adverse effect on Debtor *** or on the prospect of
repayment of the Obligations; or (xiii) dissolve or elect to dissolve****; or
(xiv) agree to do any of the foregoing. *****
*PROVIDED IN SECTION 4 OF THE SCHEDULE
**COLLATERAL (OTHER THAN RECEIVABLES AND GENERAL INTANGIBLES)
***TAKEN AS A WHOLE
****(EXCEPT THAT CIS AND BALTIC AND DIRECT OR INDIRECT SUBSIDIARIES OF LONG
DISTANCE AND USCI MAY BE VOLUNTARILY DISSOLVED WITH 20 DAYS PRIOR WRITTEN NOTICE
TO GBC)
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GREYROCK BUSINESS CREDIT SECURITY AGREEMENT
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*****GBC SHALL EXECUTE AND DELIVER UCC-2 RELEASES WITH RESPECT TO SALES
PERMITTED UNDER CLAUSE 3.4(iv)(a) ABOVE ON WRITTEN REQUEST BY THE DEBTOR.
3.5 LITIGATION COOPERATION. Should any third-party suit or proceeding be
instituted by or against GBC with respect to any Collateral or in any manner
relating to Debtor, Debtor shall, without expense to GBC, make available Debtor
and its officers, employees and agents, and Debtor's books and records, without
charge, to the extent that GBC may deem them reasonably necessary in order to
prosecute or defend any such suit or proceeding.
3.6 NOTIFICATION OF CHANGES. Debtor will promptly notify GBC in writing of any
change in its * officers or directors, the opening of any new bank account or
other deposit account, and any material adverse change in the business or
financial affairs of Debtor**.
*EXECUTIVE
**TAKEN AS A WHOLE
3.7 FURTHER ASSURANCES. Debtor agrees, at its expense, on request by GBC, to
execute all documents and take all actions, as GBC may deem reasonably necessary
or useful in order to perfect and maintain GBC's perfected security interest in
the Collateral, and in order to fully consummate the transactions contemplated
by this Agreement.
3.8 INDEMNITY. DEBTOR HEREBY AGREES TO INDEMNIFY GBC AND HOLD GBC HARMLESS
FROM AND AGAINST ANY AND ALL CLAIMS, DEBTS, LIABILITIES, DEMANDS, OBLIGATIONS,
ACTIONS, CAUSES OF ACTION, PENALTIES, COSTS AND EXPENSES (INCLUDING * ATTORNEYS'
FEES), OF EVERY NATURE, CHARACTER AND DESCRIPTION, WHICH GBC MAY SUSTAIN OR
INCUR BASED UPON OR ARISING OUT OF ANY OF THE OBLIGATIONS, ANY ACTUAL OR ALLEGED
FAILURE TO COLLECT AND PAY OVER ANY WITHHOLDING OR OTHER TAX RELATING TO DEBTOR
OR ITS EMPLOYEES, ANY RELATIONSHIP OR AGREEMENT BETWEEN GBC AND DEBTOR, ANY
ACTUAL OR ALLEGED FAILURE OF GBC TO COMPLY WITH ANY WRIT OF ATTACHMENT OR OTHER
LEGAL PROCESS RELATING TO DEBTOR OR ANY OF ITS PROPERTY, OR ANY OTHER MATTER,
CAUSE OR THING WHATSOEVER OCCURRED, DONE, OMITTED OR SUFFERED TO BE DONE BY GBC
RELATING TO DEBTOR OR THE OBLIGATIONS (EXCEPT ANY SUCH AMOUNTS SUSTAINED OR
INCURRED AS THE RESULT OF THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF GBC OR
ANY OF ITS DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS, OR ANY OTHER
PERSON AFFILIATED WITH OR REPRESENTING GBC). NOTWITHSTANDING ANY PROVISION IN
THIS AGREEMENT TO THE CONTRARY, THE INDEMNITY AGREEMENT SET FORTH IN THIS
SECTION SHALL SURVIVE ANY TERMINATION OF THIS AGREEMENT AND SHALL FOR ALL
PURPOSES CONTINUE IN FULL FORCE AND EFFECT.
*REASONABLE
4. TERM. This Agreement shall continue in effect until all of the Obligations
have been paid and performed in full and all agreements between GBC and Debtor
have been terminated.
5. EVENTS OF DEFAULT AND REMEDIES.
5.1 EVENTS OF DEFAULT. The occurrence of any of the following events shall
constitute an "Event of Default" under this Agreement, and Debtor shall give GBC
immediate written notice thereof: (a) Any warranty, representation, statement,
report or certificate made or delivered to GBC by Debtor or any of Debtor's
officers, employees or agents, now or in the future, shall be untrue or
misleading in a material respect*; or (b) Debtor shall fail to pay when due any
monetary Obligation; or (c) Debtor shall fail to perform any non-monetary
Obligation which by its nature cannot be cured; or (d) Debtor shall fail to
perform any other non-monetary Obligation, which failure is not cured within 5
business days after the date performance is due; or (e) any levy, assessment,
attachment, seizure, lien or encumbrance (other than a Permitted Lien) is made
on all or any part of the Collateral which is not cured within 10 days after the
occurrence of the same; or (f) any default or event of default occurs under any
obligation secured by a Permitted Lien, which is not cured within any applicable
cure period or waived in writing by the holder of the Permitted Lien; or (g)
Debtor breaches any material contract or obligation, which has or may reasonably
be expected to have a material adverse effect on Debtor's business or financial
condition**; or (h) dissolution ***, termination of existence, insolvency or
business failure of Debtor; or appointment of a receiver, trustee or custodian,
for all or any part of the property of, assignment for the benefit of creditors
by, or the commencement of any proceeding by Debtor under any reorganization,
bankruptcy, insolvency, arrangement, readjustment of debt, dissolution or
liquidation law or statute of any jurisdiction, now or in the future in effect;
or (i) the commencement of any proceeding against Debtor under any
reorganization, bankruptcy, insolvency, arrangement, readjustment of debt,
dissolution or liquidation law or statute of any jurisdiction, now or in the
future in effect, which is not cured by the dismissal thereof within 45 days
after the date commenced; or (j) there shall be a change in the record or
beneficial ownership of an aggregate of more than 20% of the outstanding shares
of stock of Debtor, in one or more transactions, compared to the ownership of
outstanding shares of stock of Debtor in effect on the date hereof, without the
prior written consent of GBC; or (k) Debtor shall generally not pay its debts as
they become due, or Debtor shall conceal, remove or transfer any part of its
property, with intent to hinder, delay or defraud its creditors, or make or
suffer any transfer of any of its property which may be fraudulent under any
bankruptcy, fraudulent conveyance or similar law; or (l) there shall be a
material adverse change in Debtor's business or financial condition**.
*WHEN MADE
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GREYROCK BUSINESS CREDIT SECURITY AGREEMENT
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**TAKEN AS A WHOLE
***(EXCEPT AS PERMITTED BY SECTION 3.4(xiii))
5.2 REMEDIES. Upon the occurrence and during the continuance of any Event of
Default, and at any time thereafter, GBC, at its option, and without notice or
demand of any kind (all of which are hereby expressly waived by Debtor), may do
any one or more of the following: (a) Accelerate and declare all or any part of
the Obligations to be immediately due, payable, and performable, notwithstanding
any deferred or installment payments allowed by any instrument evidencing or
relating to any Obligation; (b) Take possession of any or all of the Collateral
wherever it may be found, and for that purpose Debtor hereby authorizes GBC
without judicial process to enter onto any of Debtor's premises without
interference to search for, take possession of, keep, store, or remove any of
the Collateral, and remain on the premises or cause a custodian to remain on the
premises in exclusive control thereof, without charge for so long as GBC deems
it reasonably necessary in order to complete the enforcement of its rights under
this Agreement or any other agreement; provided, however, that should GBC seek
to take possession of any of the Collateral by Court process, Debtor hereby
irrevocably waives: (i) any bond and any surety or security relating thereto
required by any statute, court rule or otherwise as an incident to such
possession; (ii) any demand for possession prior to the commencement of any suit
or action to recover possession thereof; and (iii) any requirement that GBC
retain possession of, and not dispose of, any such Collateral until after trial
or final judgment; (c) Require Debtor to assemble any or all of the Collateral
and make it available to GBC at places designated by GBC which are reasonably
convenient to GBC and Debtor, and to remove the Collateral to such locations as
GBC may deem advisable; (d) Complete the processing, manufacturing or repair of
any Collateral prior to a disposition thereof and, for such purpose and for the
purpose of removal, GBC shall have the right to use Debtor's premises, vehicles,
hoists, lifts, cranes, equipment and all other property without charge; (e)
Sell, lease or otherwise dispose of any of the Collateral, in its condition at
the time GBC obtains possession of it or after further manufacturing, processing
or repair, at one or more public and/or private sales, in lots or in bulk, for
cash, exchange or other property, or on credit, and to adjourn any such sale
from time to time without notice other than oral announcement at the time
scheduled for sale. GBC shall have the right to conduct such disposition on
Debtor's premises without charge, for such time or times as GBC deems
reasonable, or on GBC's premises, or elsewhere and the Collateral need not be
located at the place of disposition. GBC may directly or through any affiliated
company purchase or lease any Collateral at any such public disposition, and if
permissible under applicable law, at any private disposition. Any sale or other
disposition of Collateral shall not relieve Debtor of any liability Debtor may
have if any Collateral is defective as to title or physical condition or
otherwise at the time of sale; (f) Demand payment of, and collect any
Receivables and General Intangibles comprising Collateral and, in connection
therewith, Debtor irrevocably authorizes GBC to endorse or sign Debtor's name on
all collections, receipts, instruments and other documents, to take possession
of and open mail addressed to Debtor and remove therefrom payments made with
respect to any item of the Collateral or proceeds thereof, and, in GBC's sole
discretion, to grant extensions of time to pay, compromise claims and settle
Receivables, General Intangibles and the like for less than face value; and (h)
Demand and receive possession of any of Debtor's federal and state income tax
returns and the books and records utilized in the preparation thereof or
referring thereto. All reasonable attorneys' fees, expenses, costs, liabilities
and obligations incurred by GBC with respect to the foregoing shall be added to
and become part of the Obligations, shall be due on demand, and shall bear
interest at a rate equal to the highest interest rate applicable to any of the
Obligations.
5.3 STANDARDS FOR DETERMINING COMMERCIAL REASONABLENESS. Debtor and GBC agree
that a sale or other disposition (collectively, "sale") of any Collateral which
complies with the following standards will conclusively be deemed to be
commercially reasonable: (i) Notice of the sale is given to Debtor at least
seven days prior to the sale, and, in the case of a public sale, notice of the
sale is published at least seven days before the sale in a newspaper of general
circulation in the county where the sale is to be conducted; (ii) Notice of the
sale describes the collateral in general, non-specific terms; (iii) The sale is
conducted at a place designated by GBC, with or without the Collateral being
present; (iv) The sale commences at any time between 8:00 a.m. and 6:00 p.m;
(v) Payment of the purchase price in cash or by cashier's check or wire transfer
is required; (vi) With respect to any sale of any of the Collateral, GBC may
(but is not obligated to) direct any prospective purchaser to ascertain directly
from Debtor any and all information concerning the same. GBC shall be free to
employ other methods of noticing and selling the Collateral, in its discretion,
if they are commercially reasonable.
5.4 POWER OF ATTORNEY. Upon the occurrence and during the continuance of any
Event of Default, without limiting GBC's other rights and remedies, Debtor
grants to GBC an irrevocable power of attorney coupled with an interest,
authorizing and permitting GBC (acting through any of its employees, attorneys
or agents) at any time, at its option, but without obligation, with or without
notice to Debtor, and at Debtor's expense, to do any or all of the following, in
Debtor's name or otherwise, but GBC agrees to exercise the following powers in
a commercially reasonable manner: (a) Execute on behalf of Debtor any documents
that GBC may, in its sole discretion, deem advisable in order to perfect and
maintain GBC's security interest in the Collateral, or in order to exercise a
right of Debtor or GBC, or in order to fully consummate all the transactions
contemplated under this Agreement, and all other present and future agreements;
(b) Execute on behalf of Debtor any document exercising, transferring or
assigning any option to purchase, sell or otherwise dispose of or to lease (as
lessor or lessee) any real or personal property which is part of GBC's
Collateral or in which GBC has an interest; (c) Execute on behalf of Debtor, any
invoices relating to any Receivable, any draft against any Account Debtor and
any notice to any Account Debtor,
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GREYROCK BUSINESS CREDIT SECURITY AGREEMENT
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any proof of claim in bankruptcy, any Notice of Lien, claim of mechanic's,
materialman's or other lien, or assignment or satisfaction of mechanic's,
materialman's or other lien; (d) Take control in any manner of any cash or
non-cash items of payment or proceeds of Collateral; endorse the name of
Debtor upon any instruments, or documents, evidence of payment or Collateral
that may come into GBC's possession; (e) Endorse all checks and other forms
of remittances received by GBC; (f) Pay, contest or settle any lien, charge,
encumbrance, security interest and adverse claim in or to any of the
Collateral, or any judgment based thereon, or otherwise take any action to
terminate or discharge the same; (g) Grant extensions of time to pay,
compromise claims and settle Receivables and General Intangibles for less
than face value and execute all releases and other documents in connection
therewith; (h) Pay any sums required on account of Debtor's taxes or to
secure the release of any liens therefor, or both; (i) Settle and adjust, and
give releases of, any insurance claim that relates to any of the Collateral
and obtain payment therefor; (j) Instruct any third party having custody or
control of any books or records belonging to, or relating to, Debtor to give
GBC the same rights of access and other rights with respect thereto as GBC
has under this Agreement; and (k) Take any action or pay any sum required of
Debtor pursuant to this Agreement and any other present or future agreements.
Any and all reasonable sums paid and any and all reasonable costs, expenses,
liabilities, obligations and reasonable attorneys' fees incurred by GBC with
respect to the foregoing shall be added to and become part of the
Obligations, shall be payable on demand, and shall bear interest at a rate
equal to the highest interest rate applicable to any of the Obligations. In
no event shall GBC's rights under the foregoing power of attorney or any of
GBC's other rights under this Agreement be deemed to indicate that GBC is in
control of the business, management or properties of Debtor.
5.5 APPLICATION OF PROCEEDS. All proceeds realized as the result of any sale
or other disposition of the Collateral shall be applied by GBC first to the
reasonable costs, expenses, liabilities, obligations and attorneys' fees
incurred by GBC in the exercise of its rights under this Agreement, second to
the interest due upon any of the Obligations, and third to the principal of the
Obligations, in such order as GBC shall determine in its sole discretion. Any
surplus shall be paid to Debtor or other persons legally entitled thereto;
Debtor shall remain liable to GBC for any deficiency. If GBC, in its sole
discretion, directly or indirectly enters into a deferred payment or other
credit transaction with any purchaser at any sale of Collateral, GBC shall have
the option, exercisable at any time, in its sole discretion, of either reducing
the Obligations by the principal amount of purchase price or deferring the
reduction of the Obligations until the actual receipt by GBC of the cash
therefor.
5.6 REMEDIES CUMULATIVE. In addition to the rights and remedies set forth in
this Agreement, GBC shall have all the other rights and remedies accorded a
secured party under the California Uniform Commercial Code and under all other
applicable laws, and under any other instrument or agreement now or in the
future entered into between GBC and Debtor, and all of such rights and remedies
are cumulative and none is exclusive. Exercise or partial exercise by GBC of
one or more of its rights or remedies shall not be deemed an election, nor bar
GBC from subsequent exercise or partial exercise of any other rights or
remedies. The failure or delay of GBC to exercise any rights or remedies shall
not operate as a waiver thereof, but all rights and remedies shall continue in
full force and effect until all of the Obligations have been fully paid and
performed.
6. DEFINITIONS. As used in this Agreement, the following terms have the
following meanings:
"ACCOUNT DEBTOR" means the obligor on a Receivable.
"AFFILIATE" means, with respect to any Person, a relative, partner,
shareholder, director, officer, or employee of such Person, or any parent or
subsidiary of such Person, or any Person controlling, controlled by or under
common control with such Person.
"AGREEMENT" and "THIS AGREEMENT" means this Security Agreement and all
modifications and amendments thereto, extensions thereof, and replacements
therefor.
"CODE" means the Uniform Commercial Code as adopted and in effect in the State
of California from time to time.
"COLLATERAL" has the meaning set forth in Section 1.2 above.
"DEFAULT" means any event which with notice or passage of time or both, would
constitute an Event of Default.
"DEPOSIT ACCOUNT" has the meaning set forth in Section 9105 of the Code.
"EQUIPMENT" means all of Debtor's present and hereafter acquired machinery,
molds, machine tools, motors, furniture, equipment, furnishings, fixtures, trade
fixtures, motor vehicles, tools, parts, dyes, jigs, goods and other tangible
personal property (other than Inventory) of every kind and description used in
Debtor's operations or owned by Debtor and any interest in any of the foregoing,
and all attachments, accessories, accessions, replacements, substitutions,
additions or improvements to any of the foregoing, wherever located.
"EVENT OF DEFAULT" means any of the events set forth in Section 5.1 of this
Agreement.
"GENERAL INTANGIBLES" means all general intangibles of Debtor, whether now
owned or hereafter created or acquired by Debtor, including, without limitation,
all choses in action, causes of action, corporate or other business records,
Deposit Accounts, inventions, designs, drawings, blueprints, patents, patent
applications, trademarks and the goodwill of the business symbolized thereby,
names, trade names, trade secrets, goodwill, copyrights, registrations,
licenses, franchises, customer lists, security and other deposits, rights in
all litigation presently or hereafter pending for any cause or claim (whether in
contract, tort or otherwise), and all judgments now or hereafter arising
therefrom, all claims of Debtor against GBC, rights to purchase or sell real or
personal property, rights as a licensor or licensee of any
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GREYROCK BUSINESS CREDIT SECURITY AGREEMENT
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kind, royalties, telephone numbers, proprietary information, purchase orders,
and all insurance policies and claims (including life insurance, key man
insurance, credit insurance, liability insurance, property insurance and
other insurance), tax refunds and claims, computer programs, discs, tapes and
tape files, claims under guaranties, security interests or other security
held by or granted to Debtor, all rights to indemnification and all other
intangible property of every kind and nature (other than Receivables).
"INVENTORY" means all of Debtor's now owned and hereafter acquired goods,
merchandise or other personal property, wherever located, to be furnished under
any contract of service or held for sale or lease (including all raw materials,
work in process, finished goods and goods in transit), and all materials and
supplies of every kind, nature and description which are or might be used or
consumed in Debtor's business or used in connection with the manufacture,
packing, shipping, advertising, selling or finishing of such goods, merchandise
or other personal property, and all warehouse receipts, documents of title and
other documents representing any of the foregoing.
"OBLIGATIONS" has the meaning set forth in Section 1 above.
"PERMITTED LIENS" means the following: (i) purchase money security interests
in specific items of Equipment*; (ii) leases of specific items of Equipment*;
(iii) liens for taxes not yet payable; (iv) additional security interests and
liens which are subordinate to the security interest in favor of GBC and are
consented to in writing by GBC (which consent shall not be unreasonably
withheld); (v) security interests being terminated substantially concurrently
with this Agreement; (vi) liens of materialmen, mechanics, warehousemen,
carriers, or other similar liens arising in the ordinary course of business and
securing obligations which are not delinquent; (vii) liens incurred in
connection with the extension, renewal or refinancing of the indebtedness
secured by liens of the type described above in clauses (i) or (ii) above,
provided that any extension, renewal or replacement lien is limited to the
property encumbered by the existing lien and the principal amount of the
indebtedness being extended, renewed or refinanced does not increase; (viii)
Liens in favor of customs and revenue authorities which secure payment of
customs duties in connection with the importation of goods**. GBC will have the
right to require, as a condition to its consent under subparagraph (iv) above,
that the holder of the additional security interest or lien sign an
intercreditor agreement on GBC's then standard form, acknowledge that the
security interest is subordinate to the security interest in favor of GBC, and
agree not to take any action to enforce its subordinate security interest so
long as any Obligations remain outstanding, and that Debtor agree that any
uncured default in any obligation secured by the subordinate security interest
shall also constitute an Event of Default under this Agreement.
*OR SOFTWARE
**(ix) LIENS INCURRED OR PLEDGES AND DEPOSITS MADE IN THE ORDINARY COURSE OF
BUSINESS IN CONNECTION WITH WORKER'S COMPENSATION, UNEMPLOYMENT INSURANCE AND
OTHER TYPES OF STATUTORY OBLIGATIONS (INCLUDING TO SECURE GOVERNMENT CONTRACTS)
IN THE ORDINARY COURSE OF BUSINESS, (x) ANY INTEREST OR TITLE OF A LESSOR IN
PROPERTY SUBJECT TO ANY LEASE OTHER THAN A CAPITAL LEASE, (xi) LIENS ON EXCLUDED
RECEIVABLES, (xii) SECURITY DEPOSITS MADE IN THE ORDINARY COURSE OF BUSINESS,
(xiii) PURCHASE MONEY SECURITY INTERESTS IN COLLATERAL (OTHER THAN RECEIVABLES,
INVENTORY OR GENERAL INTANGIBLES) WHICH COLLATERAL IS ACQUIRED IN AN
ACQUISITION, MERGER OR CONSOLIDATION, AND WHICH SECURES PART OF THE PURCHASE
PRICE THEREOF, PROVIDED THE HOLDER THEREOF AGREES IN WRITING TO GIVE GBC 30 DAYS
NOTICE AND OPPORTUNITY TO CURE ANY DEFAULT THEREUNDER PRIOR TO TAKING ANY
ENFORCEMENT ACTION WITH RESPECT TO THE SAME, (xiv) LIENS LISTED ON THE UCC
SEARCHES LISTED ON EXHIBIT A HERETO.
"PERSON" means any individual, sole proprietorship, partnership, joint venture,
trust, unincorporated organization, association, corporation, government, or any
agency or political division thereof, or any other entity.
"RECEIVABLES" means all of Debtor's now owned and hereafter acquired accounts
(whether or not earned by performance), letters of credit, contract rights,
chattel paper, instruments, securities, documents and all other forms of
obligations at any time owing to Debtor, all guaranties and other security
therefor, all merchandise returned to or repossessed by Debtor, and all rights
of stoppage in transit and all other rights or remedies of an unpaid vendor,
lienor or secured party.
OTHER TERMS. All accounting terms used in this Agreement, unless otherwise
indicated, shall have the meanings given to such terms in accordance with
generally accepted accounting principles, consistently applied. All other terms
contained in this Agreement, unless otherwise indicated, shall have the meanings
provided by the Code, to the extent such terms are defined therein.
7. GENERAL PROVISIONS.
7.1 APPLICATION OF PAYMENTS. All payments with respect to the Obligations may
be applied, and in GBC's sole discretion reversed and re-applied, to the
Obligations, in such order and manner as GBC shall determine in its sole
discretion.
7.2 NOTICES. All notices to be given under this Agreement shall be in writing
and shall be given either personally or by reputable private delivery service or
by regular first-class mail, or certified mail return receipt requested,
addressed to GBC or Debtor at the addresses shown in the heading to this
Agreement, or at any other address designated in writing by one party to the
other party. All notices shall be deemed to have been given upon delivery in
the case of notices personally delivered, or at the expiration of one business
day following delivery to the private delivery service, or two business days
following the deposit thereof in the United States mail, with postage prepaid.
7.3 SEVERABILITY. Should any provision of this Agreement be held by any court
of competent jurisdiction to be void or unenforceable, such defect shall not
affect the remainder of
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this Agreement, which shall continue in full force and effect.
7.4 INTEGRATION. This Agreement and such other written agreements, documents
and instruments as may be executed in connection herewith are the final, entire
and complete agreement between Debtor and GBC and supersede all prior and
contemporaneous negotiations and oral representations and agreements, all of
which are merged and integrated in this Agreement. THERE ARE NO ORAL
UNDERSTANDINGS, REPRESENTATIONS OR AGREEMENTS BETWEEN THE PARTIES WHICH ARE NOT
SET FORTH IN THIS AGREEMENT OR IN OTHER WRITTEN AGREEMENTS SIGNED BY THE PARTIES
IN CONNECTION HEREWITH.
7.5 WAIVERS. The failure of GBC at any time or times to require Debtor to
strictly comply with any of the provisions of this Agreement or any other
present or future agreement between Debtor and GBC shall not waive or diminish
any right of GBC later to demand and receive strict compliance therewith. Any
waiver of any default shall not waive or affect any other default, whether prior
or subsequent, and whether or not similar. None of the provisions of this
Agreement or any other agreement now or in the future executed by Debtor and
delivered to GBC shall be deemed to have been waived by any act or knowledge of
GBC or its agents or employees, but only by a specific written waiver signed by
an authorized officer of GBC and delivered to Debtor. Debtor waives demand,
protest, notice of protest and notice of default or dishonor, notice of payment
and nonpayment, release, compromise, settlement, extension or renewal of any
commercial paper, instrument, account, General Intangible, document or guaranty
at any time held by GBC on which Debtor is or may in any way be liable, and
notice of any action taken by GBC, unless expressly required by this Agreement.
7.6 AMENDMENT. The terms and provisions of this Agreement may not be waived
or amended, except in a writing executed by Debtor and a duly authorized officer
of GBC.
7.7 TIME OF ESSENCE. Time is of the essence in the performance by Debtor of
each and every obligation under this Agreement.
7.8 ATTORNEYS FEES AND COSTS. Debtor shall reimburse GBC for all reasonable
attorneys' fees and all filing, recording, search, title insurance, appraisal,
audit, and other reasonable costs incurred by GBC, pursuant to, or in connection
with, or relating to this Agreement (whether or not a lawsuit is filed),
including, but not limited to, any reasonable attorneys' fees and costs GBC
incurs in order to do the following: prepare and negotiate this Agreement and
the documents relating to this Agreement; obtain legal advice in connection with
this Agreement or Debtor; enforce, or seek to enforce, any of its rights;
prosecute actions against, or defend actions by, Account Debtors; commence,
intervene in, or defend any action or proceeding; initiate any complaint to be
relieved of the automatic stay in bankruptcy; file or prosecute any probate
claim, bankruptcy claim, third-party claim, or other claim; examine, audit,
copy, and inspect any of the Collateral or any of Debtor's books and records;
protect, obtain possession of, lease, dispose of, or otherwise enforce GBC's
security interest in, the Collateral; and otherwise represent GBC in any
litigation relating to Debtor. If either GBC or Debtor files any lawsuit
against the other predicated on a breach of this Agreement, the prevailing party
in such action shall be entitled to recover its reasonable costs and attorneys'
fees, including (but not limited to) reasonable attorneys' fees and costs
incurred in the enforcement of, execution upon or defense of any order, decree,
award or judgment. All attorneys' fees and costs to which GBC may be entitled
pursuant to this Paragraph shall immediately become part of Debtor's
Obligations, shall be due on demand, and shall bear interest at a rate equal to
the highest interest rate applicable to any of the Obligations.
7.9 BENEFIT OF AGREEMENT. The provisions of this Agreement shall be binding
upon and inure to the benefit of the respective successors, assigns, heirs,
beneficiaries and representatives of Debtor and GBC; provided, however, that
Debtor may not assign or transfer any of its rights under this Agreement without
the prior written consent of GBC, and any prohibited assignment shall be void.
No consent by GBC to any assignment shall release Debtor from its liability for
the Obligations.
7.10 JOINT AND SEVERAL LIABILITY. If Debtor consists of more than one Person,
their liability shall be joint and several, and the compromise of any claim
with, or the release of, any Debtor shall not constitute a compromise with, or
a
release of, any other Debtor.
7.11 LIMITATION OF ACTIONS. Any claim or cause of action by Debtor against
GBC, its directors, officers, employees, agents, accountants or attorneys, based
upon, arising from, or relating to this Agreement, or any other present or
future document or agreement, or any other transaction contemplated hereby or
thereby or relating hereto or thereto, or any other matter, cause or thing
whatsoever, occurred, done, omitted or suffered to be done by GBC, its
directors, officers, employees, agents, accountants or attorneys, shall be
barred unless asserted by Debtor by the commencement of an action or proceeding
in a court of competent jurisdiction by the filing of a complaint within one
year after the first act, occurrence or omission upon which such claim or cause
of action, or any part thereof, is based, and the service of a summons and
complaint on an officer of GBC, or on any other person authorized to accept
service on behalf of GBC, within thirty (30) days thereafter. Debtor agrees
that such one-year period is a reasonable and sufficient time for Debtor to
investigate and act upon any such claim or cause of action. The one-year period
provided herein shall not be waived, tolled, or extended except by the written
consent of GBC in its sole discretion. This provision shall survive any
termination of this Agreement or any other present or future agreement.
7.12 PARAGRAPH HEADINGS; CONSTRUCTION. Paragraph headings are only used in
this Agreement for convenience. Debtor and GBC acknowledge that the headings
may not describe completely the subject matter of the applicable paragraph, and
the headings shall not be used in any manner to construe, limit, define or
interpret any term or provision of this Agreement. The term "including",
whenever used in
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this Agreement, shall mean "including (but not limited to)". This Agreement
has been fully reviewed and negotiated between the parties and no uncertainty
or ambiguity in any term or provision of this Agreement shall be construed
strictly against GBC or Debtor under any rule of construction or otherwise.*
*THIS AGREEMENT MAY BE EXECUTED IN SEPARATE COUNTERPARTS, WHICH TOGETHER SHALL
CONSTITUTE ONE AGREEMENT.
7.13 GOVERNING LAW; JURISDICTION; VENUE. This Agreement and all acts and
transactions hereunder and all rights and obligations of GBC and Debtor shall be
governed by the laws of the State of California. As a material part of the
consideration to GBC to enter into this Agreement, Debtor (i) agrees that all
actions and proceedings relating directly or indirectly to this Agreement shall,
at GBC's option, be litigated in courts located within California, and that the
exclusive venue therefor shall be Los Angeles County; (ii) consents to the
jurisdiction and venue of any such court and consents to service of process in
any such action or proceeding by personal delive_ry or any other method
permitted by law; and (iii) waives any and all rights Debtor may have to object
to the jurisdiction of any such court, or to transfer or change the venue of any
such action or proceeding.
7.14 MUTUAL WAIVER OF JURY TRIAL. DEBTOR AND GBC EACH HEREBY WAIVE THE RIGHT
TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF, OR IN
ANY WAY RELATING TO, THIS AGREEMENT OR ANY OTHER PRESENT OR FUTURE INSTRUMENT OR
AGREEMENT BETWEEN GBC AND DEBTOR, OR ANY CONDUCT, ACTS OR OMISSIONS OF GBC OR
DEBTOR OR ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR ANY
OTHER PERSONS AFFILIATED WITH GBC OR DEBTOR, IN ALL OF THE FOREGOING CASES,
WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE.
Debtor: NORTH AMERICAN TELECOMMUNICATIONS CORPORATION
By /s/ J. David Darnell
---------------------------------------------
Title Vice President
------------------------------------------
Debtor: BALTIC STATES AND CIS VENTURES, INC.
By /s/ J. David Darnell
---------------------------------------------
Title Vice President
------------------------------------------
Debtor: CIS INTELLIGENCE INFORMATION SERVICES, INC.
By /s/ J. David Darnell
---------------------------------------------
Title Vice President
------------------------------------------
Debtor: UNIQUEST COMMUNICATIONS, INC.
By /s/ J. David Darnell
---------------------------------------------
Title Vice President
------------------------------------------
GBC: GREYROCK BUSINESS CREDIT,
A DIVISION OF NATIONSCREDIT COMMERCIAL CORPORATION
By /s/ Ian Schneider
---------------------------------------------
Title Chief Operating Officer
------------------------------------------
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SCHEDULE TO SECURITY AGREEMENT
1. PRIOR NAMES OF DEBTOR: As set forth in Representations and Warranties
of STEL dated December 2, 1996 (the "Representations").
2. FICTITIOUS NAMES, TRADE NAMES AND TRADE STYLES OF DEBTOR: As set forth
in the Representations.
3. OTHER ADDRESSES AND OTHER LOCATIONS OF COLLATERAL: As set forth in the
Representations.
4. NEGATIVE COVENANTS-EXCEPTIONS. Notwithstanding the provisions of
Section 3.4, the following shall be permitted:
(a) Mergers and consolidations between two entities which are
both Debtors, mergers and consolidations of a subsidiary of a Debtor
into such Debtor, and other mergers and consolidations if a Debtor or
Borrower is the surviving corporation in such merger.
(b) Sale or transfer of all or substantially all of the assets
of a Debtor to another Debtor or Borrower.
(c) Acquisitions of assets or business by a Debtor, provided the
assets acquired are not subject to any liens or encumbrances other
than Permitted Liens.
(d) Sale of Collateral as a part of the sale of a business or
line of business, which was acquired after the date hereof (other than
any Receivables with respect to which loans by GBC are outstanding or
any customer lists or other General Intangibles relating thereto), in
a good faith arm's length transaction. GBC shall execute and deliver
UCC-2 releases with respect to sales permitted under this clause (d)
on written request by the Debtor.
(e) Sale of the international call back business and related
assets (other than any Receivables with respect to which Loans are
outstanding or any customer lists or other General Intangibles
relating thereto), in a good faith arm's length transaction. GBC
shall execute and deliver UCC-2 releases with respect to sales
permitted under this clause (f) on written request by the Debtor.
(f) Guaranty the obligations of any other Debtor or any Borrower
or any subsidiary of any Debtor or any Borrower, or continue in effect
any guarantees in existence on the date of this Agreement.
(g) Make loans (i) to employees, officers and directors of any
Debtor arising from the exercise of options to purchase stock of any
Debtor, provided Debtor does not make any cash advance in connection
therewith, (ii) which are travel advances to officers and employees in
the ordinary course of business, (iii) which are progress payments,
advances against commissions, prepaid rent or security deposits in the
ordinary course of business, (iv) from one Debtor to another Debtor or
a Borrower or to a direct or indirect subsidiary of a Debtor or
Borrower.
Debtor shall provide GBC with written notice of any of the actions in
clauses (a)-(c) above at least 15 days before taking any such action.
Debtor shall provide GBC with written notice of any of the actions in
clause (d)-(e) above within 30 days after taking any such action.
5. MATERIAL ADVERSE LITIGATION As set forth in the Schedule to the Loan
Agreement between GBC and the Borrower of even date.
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