UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ________________________ to ___________________
Commission File Number: 1-10726
WINSTAR COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3585278
- ------------------------------ -------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
230 Park Ave., New York, NY 10169
(Address of principal executive offices)
(212) 687-7577
(Registrant's telephone number)
-----------------------
(Former name, former address and former fiscal year end
if changed since last report)
Indicate by checkmark whether the registrant: (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No _
State the number of shares outstanding of each of the issuer's classes of common
stock, as of October 31, 1996: 28,324,025
<PAGE>
FORM 10-Q
WINSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
<TABLE>
<C> <C>
PAGE
PART I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance
Sheets - September 30, 1996 (unaudited) and
December 31, 1995............................................... 3
Unaudited Condensed Consolidated Statements
of Operations - three and nine months ended
September 30, 1996 and 1995..................................... 4
Unaudited Condensed Consolidated Statements
of Cash Flows - nine months ended
September 30, 1996 and 1995.................................. 5
Notes to Condensed Consolidated
Financial Statements......................................... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations................ 11
PART II. Other Information................................................... 18
Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
Signatures ............................................................... 19
</TABLE>
<PAGE>
WinStar Communications, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
<TABLE>
<S> <C> <C>
September 30, December 31,
1996 1995
(unaudited)
ASSETS
Current assets
Cash and cash equivalents $ 54,467,888 $138,105,824
Short term investments 108,510,243 73,594,849
------------ -------------
Cash, cash equivalents and short term investments 162,978,131 211,700,673
Investments in equity securities 1,068,800 6,515,250
Accounts receivable, net 14,750,130 8,683,860
Notes receivable 218,818 199,635
Inventories 12,450,043 7,391,686
Prepaid expenses and other current assets 15,242,599 3,568,448
------------ -------------
Total current assets 206,708,521 238,059,552
Property and equipment, net 44,162,410 15,898,005
Notes receivable 333,778 3,488,948
Investments and advances 399,729 322,733
Licenses, net 12,885,294 12,556,281
Intangible assets, net 10,271,905 3,033,505
Deferred financing costs 10,896,527 10,525,301
Other assets 2,499,988 1,478,530
------------- -------------
Total assets $288,158,152 $285,362,855
============ ============
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
Current liabilities
Loans payment $ 1,839,404 $ 8,287,461
Accounts payable and accrued expenses 32,855,042 13,513,369
Current portion of capitalized lease obligations 1,803,591 1,355,255
------------- -------------
Total current liabilities 36,498,037 23,156,085
Senior notes payable 170,356,225 153,971,508
Convertible notes payable 85,178,112 76,985,754
Other notes payable 10,680,478 3,416,288
Long-term portion of capitalized lease obligations 5,980,970 6,081,299
------------- -------------
Total liabilities 308,693,822 263,610,934
------------ ------------
Commitments and contingencies
Stockholders' (deficit) equity
Preferred stock -- 688,900
Common stock, par value $.01; authorized 75,000,000
shares, issued 28,290,525 and 29,707,792, outstanding
28,290,525 and 27,201,029, respectively 282,906 297,079
Additional paid in capital 70,501,060 103,836,510
Accumulated deficit (91,338,436) (41,311,075)
------------- ------------
(20,554,470) 63,511,414
Less: Treasury stock -- (39,677,743)
Deferred compensation -- (1,100,000)
Unrealized gain (loss) on long-term investments 18,800 (981,750)
-------------- -------------
Total stockholders' (deficit) equity (20,535,670) 21,751,921
--------------- ------------
Total liabilities and stockholders' (deficit) equity $ 288,158,152 $ 285,362,855
============ ============
See notes to condensed consolidated financial statements
</TABLE>
3
<PAGE>
WinStar Communications, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(unaudited)
<TABLE>
For the three months ended For the nine months ended
September 30, September 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $17,297,046 $ 8,185,150 $ 47,980,633 $ 20,624,996
Cost of sales 10,626,146 5,593,340 28,273,656 14,626,073
----------- ------------- -------------- -------------
Gross profit 6,670,900 2,591,810 19,706,977 5,998,923
Selling, general and administrative
expenses 19,736,343 5,073,119 47,741,812 12,039,179
Depreciation and amortization 919,575 220,993 1,754,540 382,304
-------------- ------------- -------------- -------------
Operating loss (13,985,018) (2,702,302) (29,789,375) (6,422,560)
Other expense (income)
Interest expense 9,373,652 439,338 27,388,356 869,266
Interest income (2,516,547) (198,099) (8,174,077) (492,210)
Amortization of intangibles 295,625 221,181 762,193 370,086
Equity in loss of AGT -- 120,557 -- 1,224,309
------------------ ------------- ---------------- -------------
Net loss before income taxes (21,137,748) (3,285,279) (49,765,847) (8,394,011)
Income taxes 74,627 -- 261,514 --
-------------- -------------- -------------- --------
Net loss $(21,212,375) $(3,285,279) $(50,027,361) $(8,394,011)
============ =========== ============ ===========
Net loss per share $ (0.75) $ (0.14) $ (1.81) $ (0.40)
============== ============ ============== =============
Weighted average shares outstanding 28,133,129 23,042,007 27,691,452 21,222,182
============== =========== ============== ============
See notes to condensed consolidated financial statements
</TABLE>
4
<PAGE>
WinStar Communications, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
For the nine months ended
September 30,
1996 1995
<S> <C> <C>
Cash flows from operating activities
Net loss $ (50,027,361) $ (8,394,011)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 3,742,118 560,872
Amortization of licenses and intangibles 759,659 370,338
Provision for doubtful accounts 1,066,748 503,513
Equity in unconsolidated results of AGT -- 1,208,537
Non cash interest expense 24,630,478 --
Other -- 86,584
Increase in operating assets:
Accounts receivable (2,814,522) (779,402)
Inventories (3,881,615) (2,834,681)
Prepaid expenses and other current assets (12,658,451) (659,133)
Other assets (983,723) (91,841)
Increase in accounts payable and accrued
expenses 11,664,993 2,949,556
------------- ------------
Net cash used in operating activities (28,501,676) (7,079,668)
------------- ------------
Cash flows from investing activities:
Investments in and advances to AGT -- (7,285,542)
Increase in short-term and other investments, net (28,468,394) (764,089)
Collections of notes receivable 140,602 1,183,859
Increase in notes receivable (763,498) (1,641,553)
Purchase of property and equipment, net (29,718,743) (4,590,765)
License acquisition costs (731,682) (358,704)
Cash acquired through acquisitions 96,154 319
Other -- 294,736
----------------- --------------
Net cash used in investing activities (59,445,561) (13,161,739)
------------- -------------
Cash flows from financing activities:
Proceeds from notes payable -- 7,505,800
Proceeds from loans payable, net 73,921 1,386,995
Debt financing costs (969,842) --
Net proceeds from equity transactions 5,492,179 11,514,257
Proceeds from equipment lease financing 966,325 5,343,000
Payment of capital lease obligations (1,253,282) (389,794)
------------- -------------
Net cash provided by financing activities 4,309,301 25,360,258
-------------- -----------
Net increase (decrease) in cash and cash equivalents (83,637,936) 5,118,851
Cash and cash equivalents at beginning of period 138,105,824 5,287,188
------------- ------------
Cash and cash equivalents at end of period 54,467,888 10,406,039
Short-term investments at end of period 108,510,243 783,611
------------ -------------
Cash, cash equivalents and short term investments at end of period $162,978,131 $ 11,189,650
============ ============
See notes to condensed consolidated financial statements
5
</TABLE>
<PAGE>
WINSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Three and Nine Months Ended September 30, 1996
(unaudited)
1. Basis of Presentation
WinStar Communications, Inc. is a national local communications company, serving
business customers, long distance carriers, fiber-based competitive access
providers, mobile communications companies, local telephone companies, and other
customers with broadband local communications needs. The Company provides its
Wireless Fiber services using its licenses in the 38 GHz spectrum. The Company
also provides long distance services and various information services and
entertainment content. In addition, the Company operates a non-strategic
consumer products company with distribution through retailers in the United
States and Canada.
The Company operates its businesses through a variety of wholly-owned
subsidiaries. The condensed consolidated financial statements presented herein
include the accounts of WinStar and its operating subsidiaries, WinStar
Wireless, WinStar Telecom, WinStar Gateway, WinStar New Media, and WinStar
Global Products (collectively, the "Company"). All material inter-company
transactions and accounts have been eliminated in consolidation. The accounts
have been prepared by the Company without audit. However, the foregoing
statements contain all adjustments (consisting only of normal recurring
adjustments) which are, in the opinion of the Company's management, necessary to
present fairly the financial position of the Company as of September 30, 1996,
the statements of operations of the Company for the three and nine months ended
September 30, 1996 and 1995, and the statements of cash flows of the Company for
the nine months ended September 30, 1996 and 1995.
Certain information and footnote disclosures normally included in financial
statements have been condensed or omitted pursuant to the rules and regulations
of the Securities and Exchange Commission. These condensed consolidated
financial statements should be read in conjunction with the financial statements
and notes thereto included in the Company's transition report on Form 10-KSB for
the ten month fiscal period ended December 31, 1995.
The Company changed its fiscal year end from February 28 to December 31,
effective January 1, 1996. Accordingly, the unaudited financial statements for
the three and nine months ended September 30, 1995 have been restated to reflect
this change.
The results of operations for the three and nine months ended September 30, 1996
are not necessarily indicative of the results of operations for the year ending
December 31, 1996.
2. Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents. Cash equivalents
consist of money market fund investments, short-term certificates of deposit,
and commercial paper.
6
<PAGE>
WINSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Three and Nine Months Ended September 30, 1996
(unaudited)
3. Short Term Investments
Short term investments are widely diversified and principally consist of
certificates of deposit and money market deposits, U.S. government or government
agency securities, commercial paper rated "A-l/P-1" or higher, and municipal
securities rated "A" or higher, in each case with an original maturity of
greater than three and less than six months. Short term investments are
considered held-to-maturity and are stated at amortized cost which approximates
fair value.
4. Acquisitions
A) Acquisition of Avant-Garde
Avant-Garde Telecommunications, Inc. ("AGT") was a privately held
company which held 30 millimeter wave radio licenses granted by the
Federal Communications Commission in September 1993. Through July 17,
1995, the Company owned 49% of AGT and accounted for its investment in
AGT under the equity method. For the period from July 1, 1995 to July
17, 1995, and the period from January 1, 1995 to July 17, 1995, AGT had
net losses of approximately $161,000 and $1,960,000, respectively. On
July 17, 1995, pursuant to the terms of a merger agreement, the Company
exchanged 1,275,000 shares of its common stock, valued at $5,100,000 as
of such date, for the 51% of AGT that it did not already own. AGT was
then merged into a wholly-owned subsidiary of the Company.
The acquisition of AGT has been treated as a "purchase" for purposes of
generally accepted accounting principles, with the purchase price
allocated based on fair value of the assets acquired and liabilities
assumed, including approximately $12,600,000 allocated to the licenses
acquired. The amount allocated to licenses is being amortized over 40
years in accordance with industry practice. The accounts of AGT have
been consolidated into the Company's financial statements as of the
date of the acquisition.
7
<PAGE>
WINSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Three and Nine Months Ended September 30, 1996
(unaudited)
<TABLE>
Unaudited pro forma results of operations, which reflect the completed
merger of AGT into the Company as if the merger occurred as of January
1, 1995 are as follows:
<S> <C> <C>
For the For the
three months nine months
ended ended
September 30, September 30,
1995 1995
------------------------ -------------------------
Net sales $ 8,185,000 $ 20,628,000
Net loss (3,392,000) (9,209,000)
Net loss per share $ (0.14) $ (0.42)
</TABLE>
B) Acquisition of Local Area Telecommunications, Inc.
In April 1996, a subsidiary of the Company entered into a purchase
agreement to acquire certain assets of Local Area Telecommunications,
Inc. ("Locate"), comprising its business as a competitive access
provider of local digital microwave distribution services and
facilities. Consummation of the purchase was subject to certain closing
conditions including consent of the Federal Communications Commission
and certain state agencies to the transfer of control of, or the
assignment of, certain licenses and other authorizations to conduct
business, which were obtained, and the transaction was completed in
October 1996. The purchase price for such assets was $17,500,000, which
was paid in the form of a promissory note due six months after closing
and bearing interest at the annual rate of eight percent. The Company
may convert the note, in whole but not in part, at its election, into
that number of shares of common stock of the Company ("Common Stock")
equal to (a) the principal amount and all accrued and unpaid interest
on the note divided by (b) the average closing price of the Common
Stock for the five days ending on the date on which the Company gives
written notice of its decision to convert the note.
In April 1996, the Company and Locate also entered into a service
agreement whereby the Company performed certain consulting and related
services for Locate. The Company earned fees from Locate under this
agreement of $221,000 and $351,000 for the three and nine months ended
September 30, 1996. This agreement was terminated at the closing of the
acquisition described above.
8
<PAGE>
WINSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Three and Nine Months Ended September 30, 1996
(unaudited)
C) Agreement to Acquire Milliwave Limited Partnership
In June 1996, a subsidiary of the Company entered into certain
agreements with Milliwave Limited Partnership ("Milliwave") whereby the
Company would acquire Milliwave for a purchase price of $40 million in
cash and 3.4 million shares of the Company's common stock (which had an
aggregate market value of $85 million based on a $25 per share market
price at the time the agreements were executed). The number of shares
to be issued in connection with the acquisition is subject to upward or
downward adjustment depending on the market price of the Company's
common stock at the time the transaction is closed, subject to certain
limitations. The acquisition is subject to certain regulatory
approvals, and is expected to be consummated between now and the end of
1997. The agreements provide for the Company to assist in managing and
developing licenses currently owned and controlled by Milliwave during
an interim period prior to the consummation of the acquisition of
Milliwave by the Company.
D) Other Acquisitions
In April 1996, Non Fiction Films, Inc., a wholly-owned subsidiary of
the Company, acquired 80% of the outstanding common stock of Fox Lorber
Associates, Inc. ("Fox/Lorber"), an independent distributor of films,
entertainment series and documentaries in television and home video
markets. The purchase price, aggregating approximately $1,470,000,
consisted of cash, common stock of the Company, and promissory notes.
In April 1996, WinStar New Media converted $970,000 principal amount of
loans (plus accrued interest) outstanding to The Winning Line, Inc.
("TWL") into a 65% equity interest in TWL, which was increased to 80%
in August 1996. TWL operates the SportsFan Radio Network ("SportsFan").
SportsFan is a multi-media sports programming and production company
which provides live sports programming to more than 500 sports and talk
format radio stations across the United States.
The acquisitions have been treated as purchases for generally accepted
accounting principles, with the purchases allocated based on the fair
market value of the assets acquired and liabilities assumed, including
approximately $7.1 million allocated to goodwill, which is being
amortized over 20 years. The accounts of the acquired entities have
been consolidated into the Company's financial statements as of the
respective dates of acquisition. Pro forma financial information for
these acquisitions is not presented herein since they are not material
to the Company's financial statements.
9
<PAGE>
WINSTAR COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
For the Three and Nine Months Ended September 30, 1996
(unaudited)
In June 1996, a wholly-owned subsidiary of the Company entered into an
agreement to acquire the outstanding equity interests of a company
which is the holder of three 38 GHz licenses providing for 100 MHz of
bandwidth in each of Baltimore, Dallas and Philadelphia. The
acquisition is subject to obtaining applicable regulatory approvals and
is expected to be consummated once the required regulatory approvals
have been received.
E) Litigation
WinStar Gateway occasionally receives inquiries from state authorities
with respect to consumer complaints concerning the provision of
telecommunications services, including allegations of unauthorized
switching of long distance carriers and misleading marketing. The
Company believes such inquiries are common in the long distance
industry and addresses such inquiries in the ordinary course of
business. In April 1996, an action was commenced against WinStar
Gateway by several named plaintiffs on behalf of themselves and other
similarly situated Alabama residents alleging the unauthorized
switching of long distance service and deceptive marketing practices
conducted in that state.
The Company does not believe that the resolution of these matters
individually or collectively will have a material adverse effect on the
Company, its financial condition or its results of operations.
F) Commitments
As of September 30, 1996, the Company has commitments during the next
year (i) to purchase $26 million of telecommunications capital
equipment, (ii) to pay approximately $41 million in cash (plus 3.4
million shares of its Common Stock) upon consummation of the Milliwave
and other acquisitions, and (iii) to pay $17.5 million in cash or
Common Stock upon maturity of the notes issued in connection with the
Locate acquisition.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Company Overview
The Company is the largest holder of 38 GHz licenses in the United States. It
utilizes this special position to provide local and long distance
telecommunications services in the United States. As a complement to its
telecommunications operations, the Company produces and distributes information
and entertainment content. The Company also operates a non-strategic consumer
products company with distribution through national retailers in the United
States and Canada.
The Company is quickly becoming an integrated provider of bundled
telecommunications services to small and medium-sized business customers. In
connection with this effort, the Company recently commenced the rollout of its
local exchange services as a value-added, economical alternative to the local
exchange carriers ("LECs"), particularly through the exploitation of the
Company's Wireless Fiber capabilities, in the 41 major markets in which the
Company has 4 or more channels under its 38 GHz licenses. The Company sells
local, long distance, Internet access services and other services in these
markets primarily through a direct sales force to small and medium-sized
businesses. In addition, the Company is beginning to provide information and
entertainment content to its customers, including an Internet delivered network
of services targeted primarily to the Company's business telecommunications
customers.
The Company also provides Wireless Fiber-based dedicated local access services
to enable other carriers to expand their networks or meet end user demand via
the Company's digital wireless capacity in the 38 GHz portion of the radio
spectrum. Wireless Fiber services currently are marketed in most major
metropolitan areas to incumbent local exchange carriers, long distance carriers,
fiber-based competitive access providers, CLECs, cellular or specialized mobile
radio services, cable companies, Internet service providers, value-added
resellers and systems integrators.
The Company expects revenue to grow substantially over the next several years as
it focuses on building market share and customer relationships. Historically,
substantially all of the Company's revenues have been generated through sales of
residential long distance telecommunications, information and entertainment
content, and consumer products. This revenue mix is now shifting as a result of
the above described activities towards the Company's primary target. The Company
expects the shift in revenue mix to become more pronounced in the next few
quarters as the Company's revenues from its CLEC activities and the sale of 38
GHz services to other carriers grow. In addition, revenues from the residential
long distance business will continue to decline due to the Company's decision to
withdraw from actively selling to that market segment.
Revenues from the Company's primary businesses have already started to grow as a
result of increased carrier sales driven in part by capacity constraints caused
by increasing data driven telecommunications usage and as a result of the early
success of the Company's CLEC business.
11
<PAGE>
During the three months ended September 30, 1996, the Company launched its CLEC
offering in New York City. The Company has introduced its local
telecommunications services in five additional markets in the last several
months and currently plans to offer services in over 16 major markets by the end
of 1997. The Company is installing its own switches and is utilizing its
Wireless Fiber capacity, together with facilities leased or purchased from other
carriers, to originate and terminate local switched telecommunications traffic
in its major markets. The Company plans to provide such service in all 41 of its
licensed areas over the next three years.
The Company has also accelerated the expansion of its Wireless Fiber-based
wholesale business. This business will serve a significant portion of the local
access needs of the Company's CLEC business, including backbone interconnections
of hub, main switch and local node sites, and the origination and termination of
local traffic for the Company's local exchange customers. The Company has signed
master service agreements with a number of large industry customers, including
recent agreements with Pacific Bell and ACSI, each of which have forecasted
demand for several thousand T-1 and DS-3 circuits to be provided by WinStar.
In connection with the Company's rollout of its local communications services,
the Company is continuing to acquire and develop its business information
services. One of the Company's goals in this area is to make available an
Internet delivered group of targeted services for the small to medium-sized
business market. It is currently anticipated that this offering, which will be
sold through the Company's direct sales force, will be structured as tiered
channels of licensed and customized information, which will serve as a one stop,
easy to use desktop information resource for its business customers.
Results of Operations
Three Months Ended September 30, 1996 Compared to Three Months Ended September
30, 1995
Net sales for the three months ended September 30, 1996 increased by $9,112,000,
or 111%, to $17,297,000 from $8,185,000 for the three months ended September 30,
1995. This increase was attributable to increased revenues generated by the
Company's telecommunications and information services segments.
Telecommunications services revenues increased by $4,140,000 to $7,384,000. The
Company's revenues from carrier sales at WinStar Wireless increased to
$1,792,000, from $30,000 for the same quarter in 1995. WinStar Wireless derived
a significant amount of revenue from the Company's systems integration business,
with Milliwave being the largest customer in the third quarter. Revenues from
the Company's pre-launch start-up direct sales efforts at WinStar Telecom were
$84,000 for the quarter, but are expected to increase rapidly as the Company
expands the rollout of its local telecommunications services in New York and its
other major markets. At the end of the third quarter, the New York sales effort
had already signed over 130 commercial customers, representing a backlog of
orders which are expected to generate annualized revenues for WinStar of
approximately $5 million.
12
<PAGE>
Residential long distance revenues through WinStar Gateway Network increased by
$2,295,000 to $5,509,000 for the three months ended September 30, 1996, compared
with $3,214,000 for the three months ended September 30, 1995, but decreased by
$4,563,000 from $10,072,000 for the three months ended June 30,1996. The Company
is focusing on the sale of long distance services to small and medium-sized
business customers as part of its CLEC rollout and is no longer actively
marketing long distance services to residential customers. As a result, it is
allowing its revenues from residential long distance service to decline through
attrition, as it focuses on its core business.
Revenues from the information services segment through WinStar New Media
increased by $3,318,000 to $4,056,000, due to the continued growth of this
segment internally and through acquisitions.
During the three months ended September 30, 1996, operations of the Company's
CLEC business advanced on many fronts, including the addition of personnel,
regulatory authorizations in several states, negotiation of interconnect and
resale agreements with other local carriers, and new relationships with
equipment vendors. The Company established sales and marketing offices in six
cities. Its first switch was installed and is operating in New York City.
Switches for four additional cities will be installed by the Company over the
next several months. The Company also will begin an advertising campaign in New
York City on November 17, 1996, targeting small and medium-sized businesses.
WinStar Wireless, the Company's carrier sales subsidiary, has seen a significant
increase in demand, has recently signed master service agreements with Pacific
Bell and ACSI, and is currently negotiating with other regional Bell operating
companies and other potential carrier customers. In part, this increase in
demand is the result of local network capacity constraint which is an indirect
result of growing online and Internet usage. Pacific Bell and ACSI, for example,
have each forecasted demand for several thousand T-1 and DS-3 circuits to be
provided by WinStar Wireless.
Gross profit for the three months ended September 30, 1996 increased by
$4,079,000, or 157%, to $6,671,000. Gross profit as a percentage of net sales
increased to 38.6% compared with 31.7% for the three months ended September 30,
1995. This increase in profit margin was primarily attributable to improving
margins in both the telecommunications and information services businesses.
The Company expects gross profit to continue to increase as the Company's
local telecommunications business expands, as it did this quarter (38.6%)
as compared with last year (31.7%). However, fluctuations in gross profit
margin are anticipated to continue during the rollout of the CLEC business.
The gross profit margin of this business will initially be lower as the
Company enters each city as a reseller. When the Company's local exchange
switches are installed and in operation, such margins are expected to
increase. The Company's carrier sales business is expected to have a
positive impact on margins as revenues increase. Long distance margins are
expected to be lower in the near term due to the Company's shift in its
long distance marketing strategy. While these decreased long distance
margins may have a greater effect on the Company's overall gross profit
margin in the near term, (e.g. the telecommunications margin decrease from
47.9% in the second quarter to 43.2% in the third quarter is directly
attributable to the Company's withdrawal from residential marketing
efforts), the impact of the consumer long distance business on margins is
expected to decrease as the Company begins providing more switched long
distance service to a greater number of commercial customers and as
revenues from other business segments increase. The gross profit margins at
the Company's information services and consumer products segments fluctuate
from quarter to quarter based on seasonality and product mix.
13
<PAGE>
Selling, general and administrative expenses increased by $14,663,000 to
$19,736,000, or 114% of net sales, for the three months ended September 30,
1996, from $5,073,000, or 62% of net sales, for the comparable period of the
prior year. Compared with the three months ended June 30, 1996, selling, general
and administrative expenses increased by $1,922,000, from $17,814,000, or 110%
of net sales. Selling, general and administrative expense increases are and will
continue to be related predominantly to growth in the Company's sales,
marketing, network and software engineering and related technical and support
personnel in connection with its accelerated rollout of its CLEC operations and
growth in its other telecommunications businesses.
For the reasons noted above, the Company's EBITDA loss for the three months
ended September 30, 1996 was $13,065,000 compared with $2,481,000 for the three
months ended September 30, 1995 and the Company's operating loss was
$13,985,000, compared with $2,702,000 for the three months ended September 30,
1995.
Interest expense for the three months ended September 30, 1996 was $9,374,000
compared with $439,000 for the three months ended September 30, 1995. The
increase was primarily attributable to $8,461,000 in interest accreted on the
Company's senior and convertible notes payable issued in the Company's October
1995 Debt Placement, which is not payable in cash until after 1999. Interest
income for the three months ended September 30, 1996 increased by $2,319,000 to
$2,517,000, from $198,000 for the three months ended September 30, 1995. The
increase is attributable to short-term investment earnings on the proceeds of
the 1995 Debt Placement, which raised net proceeds of approximately
$214,000,000.
For the reasons noted above, the net loss for the three months ended September
30, 1996 was $21,212,000, compared with a net loss of $3,285,000 for the three
months ended September 30, 1995.
Nine Months Ended September 30, 1996 Compared to Nine Months Ended September 30,
1995
The Company has experienced and expects to continue to experience rapid revenue
growth for the next several years. Net sales for the nine months ended September
30, 1996 increased by $27,356,000, or 133%, to $47,981,000 from $20,625,000 for
the nine months ended September 30, 1995. This increase was attributable to
increased revenues generated by the Company's telecommunications and information
services segments. Telecommunications services revenues increased by $20,161,000
to $27,958,000. The Company's revenues from WinStar Wireless increased to
$2,131,000 from $90,000 for same period in 1995. WinStar Wireless derived a
significant portion of its revenue from the Company's systems integration
business, with Milliwave being the largest customer. Revenues at WinStar Telecom
remain insignificant for the period ($103,000), but are expected to increase
rapidly as the Company expands the provision of its local telecommunications
services in New York and other cities.
14
<PAGE>
Residential long distance revenues through WinStar Gateway Network increased by
$18,017,000 to $25,724,000 for the nine months ended September 30, 1996. The
Company is currently focusing on the sale of long distance services to small and
medium-sized business customers through its CLEC sales force and is allowing its
revenues from residential long distance services to decline through attrition,
as it focuses on its core business.
Revenues from the information services segment through WinStar New Media
increased by $4,689,000 to $7,479,000, due to continued growth of this segment
internally and through acquisition.
Gross profit for the nine months ended September 30, 1996 increased by
$13,708,000, or 228.0%, to $19,707,000. Gross profit as a percentage of net
sales increased to 41.0% compared with 29.0% for the same period of 1995. This
increase was primarily attributable to improving margins in the
telecommunications and information services businesses. The gross profit margin
in the telecommunications businesses increased from 25.6% in 1995 to 45.8% in
1996 for the reasons set forth earlier.
Selling, general and administrative expenses increased by $35,703,000 to
$47,742,000, or 99% of net sales, for the nine months ended September 30, 1996,
from $12,039,000, or 58% of net sales, for the comparable period of the prior
year. Selling, general and administrative expense increases are and will
continue to be generated predominantly from telecommunications segments as the
Company continues to hire sales, marketing, network and software engineering,
and related technical and support personnel in connection with accelerated
rollout of its CLEC operations and growth in its other telecommunications
businesses.
For the reasons noted above, the EBITDA loss for the nine months ended September
30, 1996 was $28,035,000 compared with $6,040,000 for the nine months ended
September 30, 1995 and the operating loss was $29,789,000, compared with
$6,423,000 for the nine months ended September 30, 1995.
Interest expense for the nine months ended September 30, 1996 was $27,388,000
compared with $869,000 for the same period in 1995. The increase was primarily
attributable to $24,577,000 in interest accreted on the Company's senior and
convertible notes payable issued in the October 1995 Debt Placement, which is
not payable in cash until after 1999. Interest income for the nine months ended
September 30, 1996 increased by $7,682,000 to $8,174,000, from $492,000 for the
nine months ended September 30, 1995. The increase is attributable to short-term
investment earnings on the proceeds of the 1995 Debt Placement, which raised
net proceeds of $214,000,000.
For the reasons noted above, the net loss for the nine months ended September
30, 1996 was $50,027,000, compared with a net loss of $8,394,000 for the nine
months ended September 30, 1995.
15
<PAGE>
Liquidity and Capital Resources
The Company has incurred significant operating and net losses, due in large part
to the development of its telecommunications services business, and anticipates
that such losses will continue as the Company accelerates its growth strategy.
Historically, the Company has funded its operating losses and capital
expenditures through public and private offerings of debt and equity securities
and from credit and lease facilities. Cash used to fund negative EBITDA during
the nine months ended September 30, 1996 was $28.0 million. In October 1995, the
Company raised net proceeds of approximately $214 million from the placement of
debt securities (the "1995 Debt Placement") to fund the expansion of its
wholesale telecommunications business. Cash payment of interest expense on such
debt is not required to begin until October 2000. At September 30, 1996 and
December 31, 1995, working capital was $170 million and $215 million,
respectively, including cash, cash equivalents and short term investments of
$163 million and $212 million, respectively.
The passage of the Telecommunications Act in February 1996
resulted in opportunities that motivated the Company to
accelerate the development and expansion of its
telecommunications businesses. To capitalize on these
opportunities, the Company has expanded and accelerated its
capital expenditure program. Capital expenditures for the three
and nine months ended September 30, 1996, and the ten months
ended December 31, 1995 were $19.3 million, $29.7 million and
$8.7 million, respectively. Prior to enactment of the
Telecommunications Act, the Company's planned capital
expenditures for 1996 and 1997 were expected to be $36 million
and $52 million, respectively. As a result of the acceleration of
the development and expansion of the Company's telecommunications
business, the Company's current plans are for capital
expenditures of approximately $50 million and $200 million for
1996 and 1997, respectively, which are expected to be funded, in
part, by equipment financing arrangements.
A significant portion of the Company's increased capital requirements will
result from the roll- out of the Company's CLEC business on a nationwide basis.
The Company is building a direct sales force, has opened sales offices in nine
major cities, and is in the process of expanding into other metropolitan areas.
Additionally, the Company is in the process of ordering and installing switching
and other network equipment to be placed in its key markets. Accordingly, the
Company expects that its working capital requirements, capital expenditure
needs, and selling, general and administrative expenses may continue to increase
as this expansion takes place, and that such increases may require the Company
to continue to seek additional capital.
The Company has two working capital facilities with a total of $8.3 million
outstanding thereunder as of September 30, 1996, with terms expiring in 1998 and
1999.
As of September 30, 1996, the Company has commitments during the next year (i)
to purchase $26 million of telecommunications capital equipment, (ii) to pay an
aggregate of approximately $41 million in cash (plus 3.4 million shares of its
Common Stock) upon consummation of the Milliwave and other acquisitions, and
(iii) to pay $17.5 million in cash or Common Stock upon maturity of the notes
issued in connection with the Locate acquisition.
16
<PAGE>
The proceeds of the Company's 1995 Debt Placement are being used principally to
fund the capital expenditures and operating losses resulting from the
accelerated development and expansion of the Company's telecommunications
businesses. Management believes that the Company's capital needs will continue
to be significant and the Company continues to actively seek additional sources
of capital, which may include equity and debt financings, sales of nonstrategic
assets and other financing arrangements. The Company anticipates that it will be
able to obtain sufficient capital to implement its growth strategy, but there
can be no assurance of this or, if such financing is available, that the Company
will be able to obtain it on acceptable terms. Failure to obtain additional
financing, if needed, could result in the delay or abandonment of some or all of
the Company's expansion plans, which could have a material adverse effect on the
Company's business and could adversely affect the Company's ability to service
its debt and the value of its Common Stock.
Forward Looking Statements
When used in this Form 10-Q and in future filings by the Company
with the Securities and Exchange Commission, in the Company's
press releases and in oral statements made with the approval of
an authorized executive officer of the Company, the words or
phrases "will likely result", and "the Company expects", "will
continue", "is anticipated", "estimated", "project", or "outlook"
or similar expressions (including confirmations by an authorized
executive officer of the Company of any such expressions made by
a third party with respect to the Company) are intended to
identify "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. The Company
wishes to caution readers not to place undue reliance on any such
forward-looking statements, each of which speak only as of the
date made. Such statements are subject to certain risks and
uncertainties that could cause actual results to differ
materially from historical earnings and those presently
anticipated or projected. Such risks and other aspects of the
Company's business and operations are described in the Company's
Registration Statement on Form S-3 (No. 333-6073). The Company
has no obligation to publicly release the result of any revisions
which may be made to any forward-looking statements to reflect
anticipated or unanticipated events or circumstances occurring
after the date of such statements.
Wireless Fiber is a service mark of WinStar Communications, Inc.
17
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<S> <C>
10.79 Amended and Restated Credit and Security Agreement among WinStar Global Products,
Inc., IBJ Schroder Bank & Trust Company, as lender, and IBJ Schroder Bank
& Trust Company, as agent
10.80 Pledge Agreement by WinStar Global Products, Inc. in favor of IBJ Schroder
Bank & Trust Company, as agent
10.81 Subordination Agreement between WinStar Communications, Inc. and IBJ
Schroder Bank & Trust Company, as agent
10.82 Amended and Restated Guaranty between WinStar Communications, Inc. and
IBJ Schroder Bank & Trust Company, as agent
10.83 First Supplemental Indenture (Senior Notes) between WinStar Communications,
Inc. and United States Trust Company of New York, as trustee
10.84 First Supplemental Indenture (Convertible Notes) between WinStar
Communications, Inc. and United States Trust Company of New York, as
trustee
27.1 Financial Data Schedule
</TABLE>
(a) Reports on Form 8-K
None.
18
<PAGE>
SIGNATURES
In accordance with requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
WinStar Communications, Inc.
Registrant
By: /s/William J. Rouhana, Jr.
William J. Rouhana, Jr.
Chief Executive Officer, Director, and
Chairman of the Board of Directors Dated: November 14, 1996
By: /s/Fredric E. von Stange
Fredric E. von Stange
Director, Executive Vice President, Chief
Financial Officer (and principal accounting
officer) Dated: November 14, 1996
19
<PAGE>
AMENDED AND RESTATED
CREDIT AND SECURITY AGREEMENT
among
WINSTAR GLOBAL PRODUCTS, INC.,
(formerly known as Beauty Labs, Inc.)
IBJ SCHRODER BANK & TRUST COMPANY,
and
IBJ SCHRODER BANK & TRUST COMPANY,
as the Agent
Dated as of
August 9, 1996
(Originally Executed and Delivered by Beauty Labs, Inc. and
Century Business Credit Corporation as of August 5, 1994)
<PAGE>
AMENDED AND RESTATED
CREDIT AND SECURITY AGREEMENT
TABLE OF CONTENTS
Preamble..................................................... 1
ARTICLE 1. DEFINITIONS
Section 1.01 Certain Defined Terms.................. 1
Section 1.02 Accounting Terms....................... 23
Section 1.03 Discretion............................. 23
ARTICLE 2. THE CREDIT FACILITIES
Section 2.01 The Credit Facilities.................. 24
Section 2.02 Revolving Loans; Procedures for
Borrowings............................. 24
Section 2.03 Rate of Interest; Calculation
of Interest............................ 25
Section 2.04 Indemnity Losses....................... 26
Section 2.05 Mandatory Prepayments.................. 27
Section 2.06 Optional Prepayments of the Revolving
Loans.................................. 27
Section 2.07 Payments............................... 28
Section 2.08 Revolving Loans in Payment of
Article 2 Obligations.................. 29
Section 2.09 Use of Loan Proceeds................... 29
Section 2.10 Fees................................... 29
Section 2.11 Increased Costs........................ 30
Section 2.12 Subordination.......................... 31
Section 2.13 Non-Receipt of Funds by Agent.......... 31
ARTICLE 2A. LETTERS OF CREDIT FACILITY
Section 2A.01 Letters of Credit..................... 32
Section 2A.02 Reimbursement Obligation.............. 33
Section 2A.03 Letter of Credit Fees................. 33
Section 2A.04 General Instructions; Limitation
on Responsibility..................... 34
Section 2A.05 Reimbursement Obligation
Absolute.............................. 34
Section 2A.06 Non-Conforming Documents.............. 35
Section 2A.07 Cash Collateral Account............... 35
ARTICLE 3. SECURITY INTERESTS
Section 3.01. Grant of Security Interest............ 37
Section 3.02. Security for Obligations.............. 39
Section 3.03. Borrower Remains Liable............... 40
i
<PAGE>
ARTICLE 4. REPRESENTATIONS AND WARRANTIES
General Representations
Section 4.01 Organization and Powers................ 40
Section 4.02 Power and Authorization................ 41
Section 4.03 Permits; Compliance with Laws.......... 41
Section 4.04 No Legal Bar........................... 42
Section 4.05 Litigation............................. 42
Section 4.06 Solvency............................... 42
Section 4.07 Assets and Properties.................. 42
Section 4.08 The Collateral......................... 43
Section 4.09 Capitalization and Corporate
Structure.............................. 43
Section 4.10 No Default............................. 44
Section 4.11 No Secondary Liabilities............... 44
Section 4.12 Taxes.................................. 44
Section 4.13 Financial Statements and
Condition.............................. 45
Section 4.14 Compliance with ERISA.................. 45
Section 4.15 Retiree Health and Life
Insurance Benefits..................... 46
Section 4.16 Intellectual Property.................. 46
Section 4.17 Environmental Matters.................. 47
Section 4.18 Correct Information.................... 48
Section 4.19 Investment Company Act................. 48
Section 4.20 Margin Regulations..................... 48
Section 4.21 Subsequent Funding Representations
and Warranties......................... 49
Section 4.22 Labor Relations........................ 49
Section 4.23 Leases................................. 49
Section 4.24 Insurance.............................. 49
Section 4.25 Customers and Suppliers................ 50
Section 4.26 OSHA Matters........................... 50
Section 4.27 Bank Accounts.......................... 51
Representations Concerning the Collateral
Section 4.28 Collateral: Instruments, etc........... 51
Section 4.29 Receivables............................ 51
Section 4.30 Name................................... 51
ARTICLE 5. CONDITIONS PRECEDENT AND SUBSEQUENT
Section 5.01 Conditions Precedent to Initial
Funding................................ 51
Section 5.02 Conditions Precedent to Initial
and Subsequent Fundings................ 54
ii
<PAGE>
ARTICLE 6. AFFIRMATIVE COVENANTS
Section 6.01 Maintenance of Corporate
Existence and Properties............... 55
Section 6.02 Insurance.............................. 56
Section 6.03 Punctual Payment....................... 57
Section 6.04 Payment of Liabilities................. 57
Section 6.05 Compliance with Laws................... 57
Section 6.06 Payment of Taxes, Etc.................. 57
Section 6.07 Financial Statements and Other
Information............................ 58
Section 6.08 Accounts and Reports................... 61
Section 6.09 Inspection; Audit...................... 61
Section 6.10 Auditors............................... 61
Section 6.11 ERISA.................................. 61
Section 6.12 Bank Accounts; Lockbox................. 62
Section 6.13 UCC Filings............................ 62
Section 6.14 Inventory Confirmations; Processor
Agreements & Mortgagee Consents........ 63
ARTICLE 7. NEGATIVE COVENANTS
Section 7.01 Indebtedness........................... 63
Section 7.02 Liens.................................. 64
Section 7.03 Investments............................ 64
Section 7.04 Contingent Obligations................. 64
Section 7.05 Fundamental Changes.................... 64
Section 7.06 Disposition of Assets.................. 65
Section 7.07 Sales and Leasebacks................... 65
Section 7.08 Issuances and Disposition of
Securities............................. 65
Section 7.09 Dividends and Redemptions.............. 66
Section 7.10 Amendment of Certain Agreements........ 66
Section 7.11 Transactions with Affiliates and
Certain Other Persons.................. 66
Section 7.12 Management............................. 67
Section 7.13 Certain Other Transactions............. 67
Section 7.14 Fiscal Year............................ 67
Section 7.15 Formula Amount......................... 67
Section 7.16 ERISA.................................. 67
Section 7.17 Regulations G, T, U and X.............. 67
Section 7.18 Subsidiaries........................... 68
Section 7.19 Post-Closing Items..................... 68
ARTICLE 8. COVENANTS CONCERNING COLLATERAL
Section 8.01 Maintenance and Sale of Collateral..... 68
Section 8.02 Taxes.................................. 68
Section 8.03 Collections and Verifications.......... 69
Section 8.04 Power of Attorney...................... 70
Section 8.05 Further Assurances..................... 70
iii
<PAGE>
ARTICLE 9. FINANCIAL COVENANTS
Section 9.01 Interest Coverage Ratio................ 71
Section 9.02 Maximum Leverage Ratio................. 72
Section 9.03 Minimum Inventory Turn Ratio........... 72
Section 9.04 Maximum Capital Expenditures........... 72
Section 9.05 Current Ratio.......................... 75
ARTICLE 10. EVENTS OF DEFAULT
Section 10.01 Events of Default..................... 73
Section 10.02 Remedies Upon an Event of
Default............................... 73
ARTICLE 11. THE AGENT
Section 11.01 Appointment, Powers and Immunities
of Agent............................... 76
Section 11.02 Reliance by Agent...................... 77
Section 11.03 Defaults............................... 78
Section 11.04 Rights of Agent as a Bank.............. 78
Section 11.05 Indemnification of Agent............... 78
Section 11.06 Documents.............................. 79
Section 11.07 Non-Reliance on Agent and Other
Banks.................................. 79
Section 11.08 Failure of Agent to Act................ 79
Section 11.09 Resignation or Removal of Agent........ 80
Section 11.10 Amendments Concerning Agency
Function............................... 80
Section 11.11 Liability of Agent..................... 80
Section 11.12 Transfer of Agency Function............ 80
Section 11.13 Withholding Taxes...................... 81
ARTICLE 12. MISCELLANEOUS
Section 12.01 Notices................................ 81
Section 12.02 Survival of this Agreement............. 82
Section 12.03 Indemnity.............................. 82
Section 12.04 Costs, Expenses and Taxes.............. 83
Section 12.05 Further Assurances..................... 85
Section 12.06 Amendment and Waiver................... 85
Section 12.07 Remedies Cumulative.................... 86
Section 12.08 Marshalling; Recourse to Security;
Payments Set Aside..................... 86
Section 12.09 Dominion Over Cash; Setoff............. 87
Section 12.10 Binding Effect......................... 88
Section 12.11 Applicable Law......................... 88
Section 12.12 Consent to Jurisdiction and Service
of Process; Waiver of Jury Trial....... 88
Section 12.13 Performance of Obligations............. 88
Section 12.14 Assignments, Participations............ 89
Section 12.15 Construction........................... 89
Section 12.16 Entire Agreement....................... 90
iv
<PAGE>
Section 12.17 Severability........................... 90
Section 12.18 Execution of Counterparts.............. 90
Section 12.19 Limitation of Liability................ 90
Section 12.20 Publicity.............................. 90
TESTIMONIUM
EXHIBITS:
- -----------
Exhibit 2.02(b)(i) Form of Notice of Revolving Loan
Borrowing
Exhibit 2.02(b)(ii) Form of Revolving Note
Exhibit 2.06 Form of Notice of Optional Prepayment
Exhibit 5.01(c)(i) Form of Assignment of Leases
Exhibit 5.01(c)(ii) Form of Estoppel Letters
Exhibit 5.01(c)(iii) Form of Guaranty
Exhibit 5.01(c)(iv) Form of Subordination Agreement
Exhibit 5.01(c)(v) Form of Processor Agreements
Exhibit 5.01(c)(vi) Form of Inventory Confirmations
Exhibit 5.01(c)(vii) Form of Assignment and Sale Agreement
Exhibit 5.01(c)(viii) Form of Pledge Agreement
Exhibit 5.01(f) Form of Opinion of Counsel
Exhibit 5.01(k) Form of Formula Availability Certificate
SCHEDULES:
- ---------
Schedule 4.03 Permits
Schedule 4.05 Litigation
Schedule 4.08 Principal Offices & Location of Inventory
Schedule 4.09 Capitalization of the Borrower
Schedule 4.12 Taxes
Schedule 4.13 Financial Statements
Schedule 4.15 Health and Life Insurance Benefits
Schedule 4.16 Intellectual Property
Schedule 4.17 Environmental Matters
Schedule 4.23 Landlords, Leases and Leased Properties
Schedule 4.24 Insurance Policies
Schedule 4.25 Customers and Suppliers
Schedule 4.26 OSHA Matters
Schedule 4.27 Bank Accounts
Schedule 7.01 Existing Indebtedness
Schedule 7.02 Existing Liens
Schedule 7.19 Post-Closing Items
v
<PAGE>
CREDIT AGREEMENT
THIS AMENDED AND RESTATED CREDIT AGREEMENT dated as of August 9, 1996
among WINSTAR GLOBAL PRODUCTS, INC., a Delaware corporation (the "Borrower") as
borrower, IBJ SCHRODER BANK & TRUST COMPANY, a New York banking corporation as a
lender ("IBJS"; a "Bank", and collectively with any and all other lenders
hereunder, the "Banks"), and IBJ SCHRODER BANK & TRUST COMPANY, as agent for the
Banks (in such capacity, together with its successors in such capacity, the
"Agent"),
W I T N E S S E T H:
WHEREAS, the Borrower (then known as Beauty Labs, Inc.) and Century
Business Credit Corporation (the "Assigning Lender") entered into a Loan and
Security Agreement, dated as of August 5, 1994 (as heretofore amended, the
"Assigned Agreement");
WHEREAS, the Assigning Lender, pursuant to the Assignment and Sale
Agreement of even date herewith did assign, transfer and sell the Assigned
Indebtedness to the Agent, on behalf of the Banks;
WHEREAS, the Borrower, the Agent and the Banks wish to amend certain
terms of the Assigned Indebtedness, and to restate such amended Assigned
Indebtedness;
WHEREAS, the Borrower has requested that the Banks (as of the Closing
Date, IBJS being the sole Bank) extend certain financial accommodations to the
Borrower in connection with (i) the assigning of the Assigned Indebtedness to
the Agent, and (ii) the working capital needs of the Borrower; and
WHEREAS, the Agent and Banks are willing to extend the financial
accommodations contemplated hereby to the Borrower on the terms and conditions
of this Agreement;
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein contained and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
ARTICLE 1. DEFINITIONS
Section 1.01. Certain Defined Terms. As used in this Agreement, the
following terms shall have the following meanings:
"Accounts Receivable" or "Accounts" shall have the meaning given in
Section 3.01 hereto.
"Affiliate" shall mean any Person that, directly or indirectly, owns or
controls, on an aggregate basis, including all beneficial ownership and
<PAGE>
ownership or control as a trustee, guardian or other fiduciary, at least 5% of
the outstanding capital stock or membership interests having ordinary voting
power to elect a majority of the board of directors or board of managers, as the
case may be (irrespective of whether, at the time, capital stock of any other
class or classes of such Person shall have or might have voting power by reason
of the happening of any contingency) of any other Person (including, without
limitation, the Borrower) or that is controlled by or is under common control
with such other Person or any 5% stockholder of such other Person. For purposes
of this definition, "control" of a Person shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of its management and
policies, whether through the ownership of voting capital stock or membership
interests, by contract or otherwise, and the terms "controlled" and "common
control" shall have correlative meanings. In no event shall any Bank Party be
deemed to be an Affiliate of the Borrower.
"Agent" shall mean IBJS, when acting in its capacity as the Agent under
this Agreement and any of the Related Documents, and any successor thereto.
"Agent's Office" shall mean the Agent's principal office at One State
Street, New York, New York 10004.
"Agreement" and "Credit Agreement" shall mean this Amended and Restated
Credit Agreement, as the same from time to time may be amended, modified,
supplemented, extended or restated.
"Applicable Revolving Margin" shall mean, with respect to any Revolving
Loan, three-quarters of one percent (0.75%) per annum.
"Assigned Indebtedness" shall mean the indebtedness of the Borrower
(formerly known as Beauty Labs, Inc.) owing to the Assigning Lender, as
evidenced by the Assigned Agreement, and all documents entered into in
connection therewith.
"Assigning Lender" shall mean Century Business Credit Corporation, and
its successors and assigns.
"Assignment and Sale Agreement" shall mean the Assignment and Sale
Agreement of the Assigning Lender in the form of Exhibit 5.01(c)(vii) hereof, as
the same from time to time may be amended, modified, supplemented or extended.
"Assignment of Leases" shall mean the Assignment of Lessee's Interest
in Leases dated as of the Closing Date between the Borrower and the Agent, on
behalf of the Banks, in the form of Exhibit 5.01(c)(i) hereto, as the same may
from time to time be amended, modified, supplemented or extended, wherein the
2
<PAGE>
Borrower assigns to the Agent, on behalf of the Banks, as additional security
for the Obligations of the Borrower, all of its rights under the Leases as
lessee.
"Authorized Person" shall mean any Vice President or President of the
Borrower, or such other individual designated in writing by the Borrower as
being authorized by the Borrower to provide any of the Bank Parties with any and
all notices required to be made hereunder by the Borrower; which authorizations
shall remain in full force and effect, and may be conclusively relied on by such
Bank Party in all circumstances, until such Bank Party actually receives a
written notice from the Borrower stating otherwise.
"Available Revolving Commitment" shall mean, as at any date at which
the same is to be determined, the lesser of (A) the Revolving Commitment or (B)
the amount of the Formula Amount then in effect (disregarding for purposes of
such determination the actual aggregate principal amount of any Revolving Loans
or Letters of Credit then outstanding) minus the actual aggregate principal
amount of any Revolving Loans then outstanding minus the face amount of Letters
of Credit then outstanding.
"Bank" or "Banks" shall have the meaning given to it in the preamble of
this Agreement, and its successors, participants and assigns.
"Bank Parties" shall mean the Agent and each of the Banks.
"Bankruptcy Code" shall mean Title 11 of the United States Code
(11 U.S.C. 101 et seq.), as amended from time to time, and any successor
statute.
"Base Rate" shall mean, for any day, the per annum fluctuating rate of
interest equal to the interest rate announced by the Agent as its Dollar base
rate from time to time in New York, New York.
"Borrower" shall mean Winstar Global Products, Inc., a Delaware
corporation, and its successors and assigns.
"Borrowing Date" shall mean with respect to any Revolving Loan, the
Business Day on which the Banks make such Revolving Loan pursuant to the terms
of this Agreement.
"Business Day" shall mean any day other than a Saturday or Sunday or
any other day on which banks in New York, New York are authorized or required by
law to close.
"Capital Asset" shall mean any asset of the Borrower that is intended
by the Borrower to be used or usable in subsequent Fiscal Years and is properly
classifiable as property, plant or equipment, and all renewals, improvements and
replacements thereto (including capitalized maintenance costs), the cost of
which may not be deducted in its entirety from income in the year of
acquisition, in accordance with GAAP.
3
<PAGE>
"Capital Expenditures" shall mean, for any period for which the same is
to be determined, the aggregate amount of any expenditures incurred, paid or
accrued by the Borrower for Capital Assets, plus the aggregate amount of
Capitalized Lease Obligations first incurred for such period, determined in
accordance with GAAP.
"Capitalized Lease" shall mean a lease of, or other agreement conveying
the right to use, real or personal property, or both, which obligation is, or in
accordance with GAAP (including, without limitation, Statement of Financial
Accounting Standards No. 13 of the Financial Accounting Standards Board) is
required to be, classified and accounted for as a capital lease on a balance
sheet of the Borrower.
"Capitalized Lease Obligations" shall mean the obligations of the
Borrower, as lessee, to pay rent or other amounts under all Capitalized Leases
and, for purposes of this Agreement, the amount of such obligations shall be the
aggregate capitalized amount thereof determined in accordance with GAAP
(including, without limitation, Statement of Financial Accounting Standards No.
13 of the Financial Accounting Standards Board).
"Cash Collateral Account" shall have the meaning given in Section 2A.07
hereto.
"Cash Equivalents" shall mean (a) securities issued or directly and
fully guaranteed or insured by the United States of America or any agency or
instrumentality thereof (provided, that the full faith and credit of the United
States of America is pledged in support thereof) having maturities of not more
than twelve months after the date of acquisition, (b) commercial paper of a
domestic issuer with maturities of twelve months or less rated at least "A-1" by
Standard & Poor's Corporation or "P-1" by Moody's Investor's Service, Inc., and
(c) time deposits, certificates of deposit and bankers' acceptances of IBJS or
any other commercial bank organized under the laws of the United States of
America, any state thereof, the District of Columbia or any foreign bank or its
branches or agencies (provided, however, that such deposits with foreign banks
or its branches or agencies are fully protected against currency fluctuations if
they have a term of more than ten days) which has a combined capital and surplus
of at least $250,000,000, in each case with maturities of not more than twelve
months from the date of acquisition.
"Change in Control" shall mean (a) the occurrence of any event (whether
in one or more transactions) which results in either (i) a transfer of control
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of the Borrower or (ii) the Guarantor holding less than 100 per cent of the
outstanding capital stock of the Borrower, or (b) any merger or consolidation of
or with the Borrower other than a merger with a Subsidiary in which the Borrower
is the surviving entity or sale of all or substantially all of the property or
assets of the Borrower. For purposes of this definition, "control of the
Borrower" shall mean the power, direct or indirect, as determined in the
reasonable discretion of the Agent, to control the election of directors of such
Borrower or to direct or cause the direction of the management and policies of
such Borrower by contract or otherwise.
"Closing Date" shall mean the date on which this Agreement is signed by
all parties hereto.
"Collateral" shall mean all property and interest in property in or
against which the owner thereof shall have granted, or purported to have
granted, a security interest or Lien in favor of the Bank Parties under this
Agreement and the Related Documents as security for the Obligations of the
Borrower to the Bank Parties and, if such owner is a Person other than the
Borrower, for such owner's obligations to the Bank Parties.
"Commitment Expiration Date" shall mean August 8, 1999.
"Commitment Period" shall mean the period commencing on the date hereof
and ending on the Commitment Expiration Date.
"Consolidated Amortization Expense" of any Person shall mean, for any
period, the amortization expense of such Person and its Subsidiaries for such
period, determined on a consolidated basis in accordance with GAAP.
"Consolidated Current Assets" of any Person shall mean, at the date of
determination, all assets of such Person and its Subsidiaries which would,
determined on a consolidated basis in accordance with GAAP, be classified on a
consolidated balance sheet as current assets.
"Consolidated Current Liabilities" of any Person shall mean, at the
date of determination, all liabilities of such Person and its Subsidiaries which
would, determined on a consolidated basis in accordance with GAAP, be classified
on a consolidated balance sheet as current liabilities.
"Consolidated Deferred Tax Liabilities" of any Person shall mean, for
any period, the deferred income tax expenses of such Person and its Subsidiaries
for such period which were not actually paid in such period, determined on a
consolidated basis in accordance with GAAP.
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<PAGE>
"Consolidated Depreciation Expenses" of any Person shall mean, for any
period, the depreciation expenses of such Person and its Subsidiaries for such
period, determined on a consolidated basis in accordance with GAAP.
"Consolidated EBITDA" of any Person shall mean for any period, the sum
of following, each calculated on a consolidated basis for such period (i)
Consolidated Net Income, plus (ii) Consolidated Interest Expenses, plus (iii)
Consolidated Income Tax Expenses, plus (iv) Consolidated Amortization Expenses,
which were deducted in determining Consolidated Net Income, plus (v)
Consolidated Depreciation Expenses, which were deducted in determining
Consolidated Net Income, plus (vi) all minority interest expense to the extent
required by GAAP to be deducted in determining Consolidated Net Income.
"Consolidated Income Tax Expenses" of any Person shall mean, for any
period, the aggregate of the income tax expenses of such Person and its
Subsidiaries for such period, determined on a consolidated basis in accordance
with GAAP.
"Consolidated Interest Expenses" of any Person shall mean, for any
period, the interest expenses incurred, accrued or paid of such Person and its
Subsidiaries for such period on the aggregate principal amount of their
Indebtedness, determined on a consolidated basis in accordance with GAAP.
"Consolidated Net Income" of any Person shall mean, for any period
taken as one accounting period, the net income (or loss) of such Person and its
Subsidiaries for such period after eliminating all intercompany items,
determined on a consolidated basis in accordance with GAAP, provided, however,
that there shall be excluded (i) the income (or loss) of such Person or any of
its Subsidiaries in which any other Person (other than such Person or any of its
other Subsidiaries) has a joint interest, except to the extent of the amount of
dividends or other distributions actually paid to such Person or any of its
Subsidiaries by such other Person during such period, (ii) except to the extent
includible pursuant to the foregoing clause (i), the income (or loss) of any
Person accrued prior to the date it becomes a Subsidiary of such Person or is
merged into or consolidated with such Person or any of its Subsidiaries or that
Person's assets are acquired by such Person or any of its Subsidiaries, and
(iii) any extraordinary gains or losses and gains or losses from sales of assets
(other than sales of Inventory in the ordinary course of business), determined
in accordance with GAAP.
"Consolidated Net Worth" of any Person shall mean, for any period, the
excess of (i) Consolidated Total Assets over (ii) Consolidated Total
Liabilities.
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"Consolidated Total Assets" of any Person shall mean, at the date of
determination, all assets of such Person and its Subsidiaries which would,
determined on a consolidated basis in accordance with GAAP, be classified on a
consolidated balance sheet as an asset.
"Consolidated Total Liabilities" of any Person shall mean, at the date
of determination, all liabilities of such Person and its Subsidiaries which
would, determined on a consolidated basis in accordance with GAAP, be classified
on a consolidated balance sheet as a liability.
"Customary Permitted Liens" shall mean:
(a) Liens (other than any Lien imposed under Environmental Laws or
ERISA) arising as a matter of law to secure payment of taxes, assessments or
charges owing to any governmental authority but which are not yet due or which
are being contested in good faith by appropriate proceedings or other
appropriate actions and with respect to which adequate reserves or other
appropriate provisions are being maintained in accordance with GAAP;
(b) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, materialmen and other Liens (other than any Lien imposed under
Environmental Laws or ERISA) imposed by law, created in the ordinary course of
business and for amounts not yet due (or which are being contested in good faith
by appropriate proceedings or other appropriate actions which are sufficient to
prevent imminent foreclosure of such Liens, are promptly instituted and
diligently conducted) and with respect to which adequate reserves or other
appropriate provisions are being maintained in accordance with GAAP, and in the
case of landlords with respect to which landlord waivers in form and substance
acceptable to the Agent have been obtained;
(c) Liens (other than any Lien imposed under Environmental Laws or
ERISA) incurred or deposits made in the ordinary course of business (including,
without limitation, security deposits for leases, surety bonds and appeal bonds)
in connection with workers' compensation, unemployment insurance and other types
of social security benefits or to secure the performance of tenders, bids,
contracts (other than for the repayment or guarantee of borrowed money or
purchase money obligations), statutory obligations and other similar obligations
or arising as a result of progress payments under government contracts;
(d) easements (including, without limitation, reciprocal easement
agreements and utility agreements), rights-of-way, covenants, consents,
reservations, encroachments, minor defects or irregularities in title,
variations and other restrictions, charges or encumbrances (whether or not
recorded) affecting the use of real property, which individually or in the
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<PAGE>
aggregate do not or are not reasonably likely to have a material adverse effect
on the conduct of the Borrower of its business or on the use of such real
property or on the value to or marketability by the Borrower of its interest in
such real property; and
(e) extensions, renewals or replacements of any Lien referred to in
clauses (a) through (d) above; provided, however, that (i) in the case of
paragraphs (a) through (d) above, the principal amount of the obligation secured
thereby is not increased, except as otherwise permitted by such paragraphs in
the first instance, and (ii) any such extension, renewal or replacement is
limited to the property originally encumbered thereby.
"Default" shall mean any event which is, or with the lapse of time or
giving of notice, or both, would be, an Event of Default.
"Dollars" and "$" shall mean lawful money of the United States of
America. Any reference in this Agreement to payment in "Dollars" or "$" shall
mean payment in Dollar funds immediately available for use by the Banks in New
York, New York.
"Eligible Accounts Receivable" shall mean, with respect to the Borrower,
as at any date on which the same is to be determined, all Accounts Receivable of
the Borrower created in the ordinary course of business arising out of the sale
of goods or rendition of services by the Borrower which are, and at all times
shall continue to be, acceptable to the Agent in all respects. Standards of
eligibility may be fixed and revised from time to time by the Agent in the
Agent's sole discretion without limiting the generality of the foregoing.
Without limitation of the immediately preceding sentence, an Account Receivable
shall in no event be deemed to be an Eligible Account Receivable unless such
Account Receivable:
(a) is an Account Receivable to which the Borrower has lawful and
absolute title and the full and unqualified right to assign and grant a security
interest therein to the Agent, for the benefit of the Banks,
(b) is covered by the security interest granted hereby and in which the
Agent, on behalf of the Banks, has a perfected first security interest,
(c) is payable to the Borrower at any principal office identified in
Schedule 4.08 hereto,
(d) arises in the normal course of the business of the Borrower,
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(e) is evidenced by invoices or other documentation in form acceptable
to the Agent, and
(f) has been outstanding since the date of the invoice no more than one
hundred and fifty (150) days;
But shall not mean any Account Receivable of the Borrower:
(a) which is subject to any offset or other defense on the part of the
account debtor thereon or to any claim on the part of such account debtor
denying liability thereunder,
(b) which is collectible on a cash-on-delivery basis,
(c) which is subject to any Lien except for the security interest
granted in favor of the Agent, for the benefit of the Banks, pursuant hereto,
(d) which has remained unpaid for a period of more than sixty (60) days
after the date such Account Receivable is due and payable pursuant to the terms
of the relevant invoice,
(e) which, if arising in connection with the sale of goods, the subject
goods shall not have been shipped or delivered to the account debtor or the
services giving rise to such Account Receivable have not been performed by the
Borrower and accepted by the account debtor or the Account Receivable does not
represent a final sale, and, in all cases, when shipped or delivered, the
subject goods shall not have been shipped or delivered to the account debtor
thereon (A) on consignment, (B) on a sale-on-approval or sale-or-return basis,
or (C) subject to any other repurchase or return agreement (not including any
ordinary product warranties) and no material part of the subject goods shall
have been repossessed, returned, rejected, lost or damaged,
(f) which has arisen out of any transaction with an employee, officer,
director, stockholder, Subsidiary or Affiliate of the Borrower,
(g) which is not denominated in Dollars,
(h) which is an Account Receivable on which the account debtor is
insolvent or the subject of any bankruptcy or insolvency proceeding of any kind,
except as accepted by the Agent in its sole discretion,
(i) which is an Account Receivable on which the account debtor is
located outside of the United States of America, other than any such Account
Receivable either (a) backed by an irrevocable commercial letter of credit
issued to the Borrower by a bank or other financial institution acceptable to
the Agent or (b) accepted by the Agent in its sole discretion,
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<PAGE>
(j) which is an Account Receivable on which the account debtor is the
United States of America, or any department, body, agency, subdivision or
instrumentality thereof; provided, however, that such Account Receivable will
become an Eligible Accounts Receivable so long as (i) the Agent has provided
written consent to the Borrower, given in the Agent's sole discretion, that it
will deem such Account Receivable an Eligible Account Receivable, and (ii) all
requirements and provisions of the Claims Act, have been complied with so that
the Agent, on behalf of the Banks, has a perfected, first priority security
interest in such Accounts Receivable,
(k) if more than 50 per cent of the aggregate of all Accounts
Receivable owed by the account debtor would be disqualified as "Eligible
Accounts Receivable", for any reason, including without limitation aging,
(l) if any covenant, representation or warranty contained in this
Agreement or the Related Documents with respect to such Account Receivable has
been breached,
(m) the Borrower has made any agreement with an account debtor for any
deduction therefrom, except for discounts or allowances made in the ordinary
course of business for prompt payment, all of which discounts or allowances are
explicitly reflected in the calculation of the face value of each respective
invoice related thereto;
(n) shipment of the merchandise or the rendition of services has not
been completed, or all supporting documentation has not been placed in the file
concerning the account debtor;
(o) the account debtor thereon is the Borrower's creditor or supplier;
(p) should the Agent establish a credit limit for an account debtor, if
the aggregate Account Receivables owed by the subject account debtor exceeds
such credit limit for such account debtor as the same may be in good faith
established by the Agent, in the reasonable exercise of its discretion, but only
to the extent that such aggregate Account Receivables are in excess of such
limit; or
(q) any Account Receivable specified to the Borrower by the Agent as
ineligible because of the unsatisfactory credit worthiness of the account debtor
thereon or another circumstance that would materially adversely affect the
collectability of such Account Receivable.
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For all purposes of this Agreement, the amount of each Eligible Account
Receivable shall be deemed to be the invoice amount thereof, less unearned
customer deposits, taxes charged thereon and cash, trade and other discounts and
allowances, and less any reserves with respect thereto which may from time to
time be established by the Agent.
"Eligible Inventory" shall mean, with respect to the Borrower, as at any
date on which the same is to be determined, all Inventory of the Borrower in
good saleable condition which is not, in the commercially reasonable opinion of
the Agent, obsolete or unmerchantable and is, and at all times shall continue to
be, acceptable to the Agent in all respects. Standards of eligibility may be
fixed and revised from time to time by the Agent in the Agent's commercially
reasonable discretion. Without limiting the generality of the foregoing,
Inventory shall in no event be deemed to be Eligible Inventory unless such
Inventory:
(a) is covered by the security interest granted hereby and in which the
Agent, on behalf of the Banks, has a perfected first security interest,
(b) is (i) raw material which has not been declared ineligible raw
material, which ineligibility shall be determined by the Agent from time to time
in its sole discretion or (ii) a completed and finished product, in good
condition, meets all material applicable standards imposed by any governmental
authority and is either currently useable or currently saleable in the normal
course of the business of the Borrower,
(c) is subject to no Lien, other than the security interest granted in
favor of the Agent, on behalf of the Banks, pursuant to this Agreement, and
(d) is located at a manufacturing facility or other facility owned,
leased or used by the Borrower and identified in Schedule 4.08 hereto, or
otherwise at any facility consented to in writing by the Agent;
But shall not include:
(a) ineligible raw materials and finished goods, as determined from
time to time in the Bank's sole discretion,
(b) items that have been consigned to the Borrower or are otherwise in
the Borrower's custody or possession,
(c) any Inventory consisting of work-in-process or which is otherwise
unfinished, or
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(d) any Inventory which otherwise meets the standards of eligibility
set forth in this definition but which has been in the Borrower's possession
more than one year.
In each case, the value of Inventory shall be calculated on the basis
of the lower of the Borrower's cost utilizing FIFO (first-in-first-out) method
or market value, less any reserves which may from time to time be established by
the Agent.
"Environmental Claim" means any third party (including, without
limitation, governmental authorities and employees) action, lawsuit,
investigation, claim, proceeding, order, decree, consent agreement, notice of
violation or other legal proceeding (collectively, an "Action") which seeks to
impose liability for (i) pollution, contamination, protection, cleanup,
restoration, destruction, loss or injury to or of the air, surface water,
groundwater, land (including, without limitation, surface and subsurface strata)
or other natural resources; (ii) solid, gaseous or liquid Waste generation,
handling, transportation, treatment, processing, cleanup, storage, disposal,
recycling, or reclamation; (iii) exposure to pollutants, contaminants, hazardous
materials, hazardous substances, toxic materials or substances, or Wastes; (iv)
the manufacture, generation, processing, distribution, use, treatment, storage,
disposal, transport, recycling, reclamation, or handling of chemical substances,
pollutants, contaminants, hazardous materials, hazardous substances, toxic
materials or substances, (v) Wastes or (vi) noise. An "Environmental Claim"
includes, but is not limited to, a common law action, as well as a legal
proceeding initiated or brought by any federal, state or local executive,
legislative, judicial, regulatory or administrative agency, board or authority
or any third party to issue, modify, adopt, terminate or enforce the provisions
of an Environmental Permit or to modify, adopt, terminate or enforce a
Requirement of Environmental Law, to the extent that such a proceeding attempts
to redress violations or alleged violations of the applicable Environmental
Permit or Requirement of Environmental Law.
"Environmental Laws" shall mean any federal, state, local and foreign
laws, regulations, codes, ordinances, plans, orders, decrees, judgments,
injunctions, notices or demand letters issued, promulgated or entered thereunder
by any governmental authority or subdivision thereof relating to pollution or
protection of the environment, including, without limitation, laws relating to
reclamation of land or waterways and laws relating to emissions, discharges,
releases or threatened releases of pollutants, contaminants, hazardous
materials, hazardous substances, toxic materials or substances, or Wastes into
the environment or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
pollutants, contaminants, hazardous materials, hazardous substances, toxic
materials or substances, or Wastes, including, without limitation, the Clean Air
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Act, as amended, the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980 ("CERCLA"), as amended, the Federal Water Pollution
Control Act, as amended, the Resource Conservation and Recovery Act of 1976
("RCRA"), as amended, 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.
"Environmental Liabilities" means all costs arising from or related to
any Environmental Claim, Environmental Permit or Requirement of Environmental
Law (including, without limitation, all costs arising under any theory or
process of recovery or relief, at law or in equity), whether based on
negligence, strict liability, RCRA, CERCLA or otherwise, including, but not
limited to: remedial, removal, response, restoration, abatement, investigative,
monitoring, personal injury, death and property damage costs, and any other
related costs, expenses, losses, damages, penalties, fines, liabilities and
obligations, including, without limitation, attorneys' fees, court costs, and
interest paid or accrued.
"Environmental Matters" means any and all matters relating to any
Requirement of Environmental Law, Environmental Claim or Environmental Permit.
"Environmental Permit" means any permit, license, notice, order,
approval or other authorization under any applicable law, rule, regulation or
other requirement of the United States or of any state, municipality or other
subdivision thereof relating to (i) pollution or protection of the environment,
including, without limitation, all laws, rules, regulations or other
requirements relating to emissions, discharges, releases or threatened releases
of pollutants, contaminants, hazardous materials, hazardous substances, toxic
materials or substances, or Wastes into or on the air, surface water,
groundwater or land (including, without limitation, surface and subsurface
strata), or (ii) the manufacture, generation, processing, distribution, use,
treatment, storage, disposal, transport, recycling, reclamation, or handling of
chemical substances, pollutants, contaminants, hazardous materials, hazardous
substances, toxic materials or substances, or Wastes.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended from time to time, and any successor statute.
"ERISA Affiliate" shall mean each Person (as defined in Section 3(9) of
ERISA) that is a member of any "controlled group" (as defined in Section
4001(14) of ERISA) that includes the Borrower.
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"ERISA Termination Event" means (a) any Reportable Event, (b) the
withdrawal of the Borrower or any of its ERISA Affiliates from a Plan during a
Plan year in which it was a "substantial employer" as defined in Section
4001(a)(2) of ERISA, (c) the filing of a notice of intent to terminate a Plan or
to treat any Plan amendment as a termination under Section 4041 of ERISA, (d)
any Plan amendment or the occurrence of any event that constitutes a "partial
termination" (within the meaning of Section 411(d)(3) of the IRC) with respect
to any Plan, (e) the institution of proceedings to terminate a Plan or the
appointment of a trustee by the PBGC pursuant to Section 4044 of ERISA or (f)
any event or condition that might constitute grounds under Section 4042 of ERISA
for the termination of, or the appointment of a trustee to administer, any Plan.
"Estoppel Letter" shall mean the Landlord Waiver and Estoppel
Certificate dated as of the Closing Date made by each Landlord in favor of the
Agent, on behalf of the Banks, in the form of Exhibit 5.01(c)(ii) hereto, as the
same may from time to time be amended, modified, supplemented or extended.
"Event of Default" shall mean any event specified as such in Section
10.01 hereof.
"Fiscal Quarter" shall mean each of the four periods of three months of
each year, ending on the last day of each June, September, December and March,
which in the aggregate constitute a Fiscal Year.
"Fiscal Year" shall mean each fiscal year ending on December 31.
"Formula Amount" shall mean as at any date at which the same is to be
determined, an amount equal to the sum of (a) 85 per cent of the amount of
Eligible Accounts Receivable of the Borrower as at such date, plus (b) the
lesser of (i) 50 per cent of the value of Eligible Inventory or (ii) $4,500,000,
plus (c) from the period commencing March 1 of each year through January 31 of
each year, $3,000,000 (the Overadvance"); and minus such reserve as deemed
necessary or appropriate by the Agent to reflect any contingencies, or the
consequences of any breach or contravention of laws, including without
limitation, Environmental Laws and laws related to OSHA, by the Borrower. The
Agent may, in its sole discretion, at any time or times upon three Business
Days' prior notice to the Borrower, increase or decrease the ratio of its
advances against Eligible Accounts Receivable or Eligible Inventory, or both,
and, in the event that any such ratio shall be decreased for any reason, such
decrease shall become effective immediately for purposes of calculating the
maximum amount of new Revolving Loans and Letters of Credit hereunder and the
maximum amount of Revolving Loans and Letters of Credit which may be outstanding
hereunder. The Borrower acknowledges that such changes in the ratio of
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advances against Eligible Accounts Receivable and Eligible Inventory may require
the immediate prepayment of Revolving Loans by the Borrower, and/or the
placement of funds in the Cash Collateral Account with respect to outstanding
Letters of Credit.
"Formula Availability Certificate" shall have the meaning given to it
in Section 5.01(k) hereof.
"Funded Indebtedness" shall mean for any Person, (i) all indebtedness
of such Person for borrowed money, whether or not evidenced by bonds,
debentures, notes or similar instruments (including, without limitation, the
Obligations, as the case may be), (ii) all Capitalized Lease Obligations, (iii)
all obligations, contingent or otherwise, with respect to the face amount of all
letters of credit (whether or not drawn) and banker's acceptances issued for the
account of such Person, (iv) all obligations of such Person to pay the deferred
purchase price of property or services, and (v) all liabilities secured by any
mortgage, pledge or lien existing on property owned or acquired subject to such
mortgage, pledge or lien, whether or not the liability secured thereby shall
have been assumed. Notwithstanding the foregoing, "Funded Indebtedness" shall
not include current trade accounts payable or accrued expenses, operating lease
obligations, customer deposits and deferred liabilities other than for borrowed
money, all incurred and continuing in the ordinary course of business.
"GAAP" shall mean generally accepted accounting principles (i) in the
United States of America as in effect from time to time set forth in the
opinions and pronouncements of the Accounting Principles Board and the American
Institute of the Certified Public Accountants and the statements and pronounce-
ments of the Financial Accounting Standards Board, or in such other statements
by such other entity as may be in general use by significant segments of the
accounting profession, which are applicable to the circumstances as of the date
of determination, (ii) which are consistently applied in form and substance.
"Guarantor" shall mean Winstar Communications, Inc., a Delaware
corporation, and its successors and assigns.
"Guaranty" shall mean the Guaranty dated as of the Closing Date made by
the Guarantor in favor of the Agent, on behalf of the Banks, in the form of
Exhibit 5.01(c)(iii) hereto, as the same may from time to time be amended,
modified, supplemented or extended.
"Indebtedness" shall mean (without duplication), with respect to any
Person, all obligations, contingent and otherwise, which, in accordance with
GAAP, would be included in determining total liabilities as shown on the
liabilities side of a balance sheet of such Person as at any date at which
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<PAGE>
the amount thereof is to be determined, but in any event and as well including,
the Revolving Notes, all other amounts due under this Agreement, all guarantees,
endorsements (other than endorsements for collection or deposits in the ordinary
course of business) and all other contingent obligations whether or not in
respect of any Indebtedness of others, deferred taxes and accrued obligations,
all liabilities secured by any mortgage, pledge or lien existing on property
owned or acquired subject to such mortgage, pledge or lien, whether or not the
liability secured thereby shall have been assumed, and all lease obligations,
including, without limitation, Capitalized Lease Obligations.
"Initial Borrowing Date" shall mean the first Borrowing Date on which
any Revolving Loan is made hereunder, but shall in no event be more than 10
Business Days after the Closing Date.
"Inne Dispensables" shall mean Inne Dispensables, Inc., a New York
corporation, and its successors and assigns.
"Intellectual Property" means, as to any Person, that Person's Patents
and Patent Applications, Trademarks, licenses and brand names, and including,
without limitation, all logos and designs, trade secrets, technical information,
engineering procedures, designs, know-how and processes, formulas, information,
proprietary rights and processes, software, copyrights, and other intellectual
property, and all options and agreements relating to the above.
"Interest Coverage Ratio" shall mean for such Person, for any period
for which the same is to be determined, the ratio of (a) its Consolidated EBITDA
for such period, to (b) the Consolidated Interest Expense of such Person for
such period, determined in accordance with GAAP.
"Inventory" shall have the meaning given in Section 3.01(b) hereof.
"Inventory Confirmations" shall mean the Inventory Confirmations from
time to time delivered by the Borrower to the Agent, in the form of Exhibit
5.01(c)(vi) hereto, as the same may from time to time be amended, modified or
supplemented.
"Inventory Turn Ratio" shall mean, for such Person, for any period for
which the same is to be determined, the ratio of (a) the aggregate cost of goods
sold during such period to (b) the average amount of Inventory held during such
period, determined on a first-in, first-out basis; in each case determined on a
consolidated basis in accordance with GAAP.
"IRC" shall mean the Internal Revenue Code of 1986, as amended from
time to time, and any successor statute.
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"Landlords" shall mean the entities named as such on Schedule 4.23
attached hereto.
"Leases" shall mean the leases named as such on Schedule 4.23 attached
hereto.
"Leased Properties" shall mean the properties named as such on Schedule
4.23 attached hereto.
"Letters of Credit" shall have the meaning given in Section
2A.01 hereof.
"Letter of Credit Commitment" shall mean $250,000.
"Leverage Ratio" shall mean for any Person, on any date for which the
same is to be determined, the ratio of (a) Consolidated Total Liabilities of
such Person and its Subsidiaries, determined on a consolidated basis in
accordance with GAAP, to (b) its Consolidated Net Worth of such Person and its
Subsidiaries, determined on a consolidated basis in accordance with GAAP.
"Lien" shall mean, with respect to any Person, (a) any lien (including,
without limitation, any statutory lien), mortgage, hypothecation, privilege,
security interest, pledge, encumbrance, charge (general or special, floating or
fixed) or conditional sale or other title retention arrangement (including,
without limitation, the rights of a lessor under a capital lease to the property
leased thereunder) or other security interest of any kind upon any property or
assets of any character of such Person, whether now owned or hereafter acquired
by such Person, or upon the income or profits therefrom, (b) the transfer,
pledge or assignment by such Person of any of its property or assets for the
purpose of subjecting the same to the payment of any indebtedness of such Person
or others in priority to the payment by such Person of its general creditors,
(c) any sale, assignment, pledge or other transfer by such Person of its
accounts receivable, contract rights, general intangibles or chattel paper with
recourse, and (d) any agreement to give or do any of the foregoing.
"Lockbox Agreement" shall have the meaning given in Section 6.12 hereto.
"Material Adverse Change" of such Person means a material adverse
change in the business, condition (financial or otherwise), assets, properties
or operations of such Person.
"Material Adverse Effect" means any set of circumstances or events
which (i) would have any material adverse effect whatsoever upon the validity or
enforceability of this Agreement, the Revolving Notes or any other Related
Document, (ii) is or would reasonably be expected to have a material adverse
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effect on the business, condition (financial or other), assets, properties or
operations of the Borrower or its Subsidiaries, as the case may be and as
applicable, (iii) would materially impair the Borrower's or its Subsidiaries'
ability to fulfill their respective obligations under the terms and conditions
of this Agreement or the other Related Documents to which they are a party
thereto or (iv) would materially impair the Bank's rights in or to, or have a
material adverse effect, on the Collateral.
"Memoranda of Lease" shall mean each Memorandum of Lease describing the
Leases and recorded in the appropriate filing offices.
"Mortgagee Consents" shall mean Mortgagee Consent Letters between the
Agent, on behalf of the Banks, in respect of Leased Property, and each future
mortgagee of each Leased Property, each in the form and substance satisfactory
to the Agent, as may be requested by the Agent, as the same may from time to
time be amended, modified, supplemented or extended.
"Notice of Borrowing" shall mean any one or more of a Notice of
Revolving Credit Borrowing.
"Notice of Optional Prepayment" shall have the meaning given to it in
Section 2.06 hereof.
"Notice of Revolving Credit Borrowing" shall have the meaning given to
it in Section 2.02(b)(i) hereof.
"Obligations" shall mean, as to the Borrower, all liabilities,
obligations and indebtedness of the Borrower to the Bank Parties of any and
every kind and nature (including, without limitation, principal payments,
interest, charges, expenses, attorneys' fees, maintenance, commitment and other
fees and other sums chargeable to the Borrower by the Bank Parties and future
advances made to or for the benefit of such Person), whether arising under this
Agreement, under any of the Related Documents, under any refinancing or
modification of the credit facilities provided under this Agreement or any of
the Related Documents, pursuant to any arrangement, agreement or understanding
hereafter between the Borrower and the Bank Parties or otherwise, or acquired by
the Banks from any other source, whether now or hereafter owing, arising, due or
payable from the Borrower to the Bank Parties, whether before or after the
filing of a proceeding under the Bankruptcy Code by or against the Borrower,
regardless of how evidenced, created, incurred, acquired or owing, whether
primary, secondary, direct, contingent, fixed or otherwise, including, without
limitation, obligations or guarantees of performance or payment.
"OSHA" shall mean the Occupational Safety and Health Act of 1970, as
amended, and any federal, state, local and foreign laws, regulations, codes,
ordinances, plans, orders, decrees, judgments, injunctions, notices or demand
letters issued, promulgated or entered thereunder by any governmental authority
or subdivision thereof relating to worker health and safety or public health and
safety.
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"OSHA Claim" means any third party (including, without limitation,
governmental authorities and employees) action, lawsuit, investigation, claim,
proceeding, order, decree, consent agreement, notice of violation or other legal
proceeding (collectively, an "OSHA Action") under OSHA.
"OSHA Liabilities" means all costs arising from or related to any OSHA
Claim, OSHA Permit or Requirement of OSHA Law (including, without limitation,
all costs arising under any theory or process of recovery or relief, at law or
in equity), whether based on negligence, strict liability or otherwise,
including, but not limited to: remedial, removal, response, restoration,
abatement, investigative, monitoring, personal injury, death and property damage
costs, and any other related costs, expenses, losses, damages, penalties, fines,
liabilities and obligations, including, without limitation, attorneys' fees,
court costs, and interest paid or accrued.
"OSHA Matters" means any and all matters relating to any Requirement of
OSHA Law, OSHA Claim or OSHA Permit.
"OSHA Permit" means any permit, license, notice, order, approval or
other authorization under any applicable law, rule, regulation or other
requirement of the United States or of any state, municipality or other
subdivision thereof relating to safety and health.
"Overadvance" shall have the meaning given in the definition
of Formula Amount.
"Patents and Patent Applications" means, as to any Person, all of such
Person's right, title and interest in and to all of its now owned or existing
and filed and hereinafter acquired or arising and filed patents and patent
applications, inventions and improvements thereto, and (i) the reissues,
divisions, continuations, renewals, extensions, and continuations-in-part
thereof, (ii) all income, royalties, damages and payments now or hereafter due
and/or payable under or with respect thereto, including without limitation
damages and payments for past or future infringements thereof, (iii) the right
to sue for past, present and future infringements thereof, (iv) all rights
corresponding thereto throughout the world, and (v) all right as licensor or
licensee with respect to any of the foregoing.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any
successor thereto.
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"Permits" shall have the meaning set forth in Section 4.03 hereof.
"Person" shall mean an individual, partnership, corporation, business
trust, joint stock company, trust, unincorporated association, joint venture,
governmental authority or other entity of whatever nature.
"Plan" shall mean any "Employee Benefit Plan" (as defined in Section
3(3) of ERISA) as covered by any provision of ERISA and as maintained, or
otherwise contributed to, or at any time during the five calendar year period
immediately preceding the date of this Agreement was maintained or otherwise
contributed to, by the Borrower or any ERISA Affiliate of the Borrower for the
benefit of the respective employees of the Borrower or an ERISA Affiliate of the
Borrower.
"Pledge Agreement" shall mean the Pledge Agreement delivered by the
Borrower to the Agent, on behalf of the Banks, in the form of Exhibit
5.01(c)(viii) hereto, as the same may from time to time be amended, modified,
supplemented or extended.
"Processor Agreements" shall mean each Processor Agreement delivered by
the Borrower to the Agent, on behalf of the Banks, with respect to each
third-party holding Inventory of the Borrower in the form of Exhibit 5.01(c)(v)
hereto, as the same may from time to time be amended, modified, supplemented or
extended.
"Projections" shall mean the consolidated financial projections for a
two year period prepared by the Borrower and heretofore delivered to the Agent.
"Prohibited Transaction" shall mean any "prohibited transaction"
(within the meaning of Section 406 of ERISA or Section 4975 of the IRC) with
respect to any Plan for which transaction no statutory exemption is not
available.
"Pro Rata Share" shall mean with respect to each Bank for purposes of
this Agreement a fraction, the numerator of which is such Bank's portion of the
Revolving Commitment and the denominator of which is the total of all the Banks'
portions of the Revolving Commitment.
"Regulations D, G, T, U and/or X" shall mean Regulations D, G, T, U
and/or X of the Board of Governors of the Federal Reserve System, as in effect
from time to time.
"Regulatory Change" shall mean the introduction of, or any change in,
United States federal, state or local laws or regulations (including Regulation
D) or treaties or foreign laws or regulations after the date of this Agreement
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or the adoption or making after such date of any interpretations, directives,
guidelines or requests applying generally to a class of banks, including the
Banks, of or under any United States federal, state, or local rules or
regulations or any treaties or foreign laws or regulations (whether or not
having the force of law) by any court or governmental or monetary authority
charged with the interpretation or administration thereof.
"Related Documents" shall mean, collectively, this Agreement, the
Revolving Notes, the Lockbox Agreement, the Assignment of Leases, the Estoppel
Letter, the Processor Agreements, the Leases, the Pledge Agreement, the
Memoranda of Lease, the Assignment and Sale Agreement, the Guaranty, the
Subordination Agreement, the Inventory Confirmations, the Mortgagee Consents (to
the extent executed and delivered) and any Subsidiary Guaranties, Subsidiary
Pledge Agreements or Subsidiary Security Agreements.
"Reportable Event" shall mean any "reportable event" described in
Section 4043(b) of ERISA with respect to which the 30 day notice requirement set
forth in Section 4043(a) of ERISA has not been waived by the PBGC that occurs or
has occurred in connection with any Plan.
"Required Banks" shall mean at any time the Banks holding at least
sixty-six and two-thirds percent (66 2/3%) of the Revolving Commitment.
"Requirements of Environmental Law" shall mean any and all requirements
imposed by and provisions of any law, rule, regulation, order, decision or
decree of any federal, state or local executive, legislative, judicial,
regulatory or administrative agency, board or authority which relate to (i)
pollution, contamination, protection, cleanup, restoration, destruction, loss or
injury to or of the air, surface water, groundwater, land (including, without
limitation, surface and subsurface strata) or other natural resources; (ii)
solid, gaseous or liquid Waste generation, handling, transportation, treatment,
processing, clean up, storage, disposal, recycling, or reclamation; (iii)
exposure to pollutants, contaminants, hazardous materials, hazardous substances,
toxic materials or substances, or Wastes; (iv) the manufacture, generation,
processing, distribution, use, treatment, storage, disposal, transport,
recycling, reclamation or handling of chemical substances, pollutants,
contaminants, hazardous materials, hazardous substances, toxic materials or
substances, or Wastes; or (v) noise.
"Requirements of OSHA Law" shall mean any and all requirements imposed
imposed by and provisions of any law, rule, regulation, order, decision or
decree of any federal, state or local executive, legislative, judicial,
regulatory or administrative agency, board agency, board or authority which
relate to the safety or health of employees (other than social security laws).
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"Revolving Commitment" shall mean each Bank's Pro Rata Share of the
Revolving Loans prior to the Commitment Expiration Date up to the maximum
aggregate principal amount equal to $12,000,000 at any time outstanding.
"Revolving Loans" shall mean the Revolving Loans made pursuant to
Section 2.02(a) hereof.
"Revolving Notes" shall mean the revolving promissory notes of the
Borrower evidencing the Revolving Loan delivered pursuant to Section 2.02(b)(ii)
hereof, as the same from time to time may be amended, modified, supplemented or
extended.
"Securities" shall mean all shares, options, membership interests,
partnership interests, participations or other equivalents (regardless of how
designated) of or in a corporation or equivalent entity, whether voting or
non-voting, including, without limitation, common stock, preferred stock,
warrants, convertible debentures and all agreements, instruments and documents
convertible, in whole or in part, into any one or more of or all of the
foregoing.
"Subordination Agreement" shall mean the Subordination Agreement as of
the Closing Date made by the Guarantor in favor of the Agent, on behalf of the
Banks, in the form of Exhibit 5.01(c)(iv) hereto, as the same may from time to
time be amended, modified, supplemented or extended.
"Subsidiary" shall mean, with respect to any Person, any corporation or
equivalent entity of which more than 50% of the outstanding Securities having
ordinary voting power to elect a majority of the Board of Directors, managers or
equivalent positions of such corporation or equivalent entity is at the time
directly or indirectly owned by such Person, or by one or more other
Subsidiaries of such Person.
"Subsidiary Guaranty" shall mean the guaranty of each Subsidiary to
which the Required Banks consent, delivered pursuant to Section 7.18 hereof, as
the same may from time to time be extended, amended, modified or supplemented.
"Subsidiary Pledge Agreement" shall mean the pledge of stock and/or
membership interests, as the case may be, of each Subsidiary to which the
Required Banks consent, delivered pursuant to Section 7.18 hereof, as the same
may from time to time be extended, amended, modified or supplemented.
"Subsidiary Security Agreement" shall mean the security agreement of
each Subsidiary to which the Required Banks consent, delivered pursuant to
Section 7.18 hereof, as the same may from time to time be extended, amended,
modified or supplemented.
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"Trademarks" means, as to any Person, all of such Person's right, title
and interest in and to all of its now owned or existing, and hereafter acquired
or arising, trademarks, service marks, trademark or service mark registrations,
trade names, trademark rights, trade name rights and trademark or service mark
applications, and all derivations thereof, and (i) the divisions, continuations
and renewals thereof and amendments thereto, (ii) all income, royalties, damages
and payments now or hereafter due and/or payable with respect thereto,
including, without limitation, damages and payment for past or future
infringements thereof, (iii) the right to sue for past, present and future
infringements thereof, (iv) all rights corresponding thereto throughout the
world, (v) all rights as licensor or licensee with respect to any of the
foregoing, and (vi) together in each case with the goodwill (including, without
limitation, goodwill symbolized by trademarks, trade names and service marks) of
such Person's business connected with the use of, and symbolized by any of the
foregoing.
"Transaction Costs" shall mean the fees, costs and expenses payable by
the Borrower pursuant to this Agreement or in connection herewith, whether
payable on or after the Closing Date; in each case including, without
limitation, attorney's fees and expenses.
"Waste" or "Wastes" means any material or substance that is defined,
identified or regulated as a waste, solid waste or hazardous waste pursuant to
any applicable federal, state or local law, rule, regulation, order, decision or
decree, including, without limitation, Section 1004 of the RCRA. As used in this
Agreement the phrase "pollutants, contaminants, hazardous materials, hazardous
substances, toxic materials or substances, or Wastes", includes, without
limitation, in each instance, asbestos, polychlorinated biphenyls, radioactive
materials, oil, petroleum, petroleum products and waste oils.
Section 1.02. Accounting and Banking Terms. All accounting and banking
terms not specifically defined herein shall be construed in the case of
accounting terms, in accordance with GAAP and, in the case of banking terms, in
accordance with general practice among commercial banks in New York, New York.
Section 1.03. Discretion. Whenever it is provided in this Agreement or
in any of the Related Documents that the Bank Parties may take any action or
fail or refuse to take action in their discretion or sole discretion, the Bank
Parties shall exercise such discretion or sole discretion in a commercially
reasonable manner.
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ARTICLE 2. THE CREDIT FACILITIES
Section 2.01. The Credit Facilities. At all times prior to the
Commitment Expiration Date (or earlier termination of the Commitment Period
hereunder), subject to the terms and conditions hereinafter set forth, the Banks
agree to make the following credit facilities available to the Borrower:
(a) Revolving Credit Facility. A revolving credit facility under which
the Borrower may request Revolving Loans from time to time on any Business Day
during the Commitment Period, in an aggregate principal amount which, together
with the then outstanding aggregate principal amount of Revolving Loans and the
face amount of any outstanding Letters of Credit, would not exceed at any time
the Available Revolving Commitment. The amount available for Revolving Loans at
any time shall be determined in accordance with Section 2.02 hereof.
Section 2.02. Revolving Loans; Procedures for Borrowings.
(a) Subject to the terms and conditions hereof, the Banks agree to make
Revolving Loans to the Borrower from the Agent's Office from time to time during
the Commitment Period as provided in this Agreement in an aggregate principal
amount at any one time outstanding, which will not exceed (i) the Revolving
Commitment less the then outstanding face amount of any Letters of Credit, or
(ii) if less, the Formula Amount less the then outstanding face amount of any
Letters of Credit. The Borrower may use the Revolving Commitment during the
Commitment Period by borrowing, repaying Revolving Loans in whole or in part and
reborrowing Revolving Loans; provided, however, that the aggregate principal
amount of the Revolving Loans at any one time outstanding plus the then
outstanding face amount of any Letters of Credit shall not exceed the Available
Revolving Commitment. The Revolving Loans shall mature no later than the
Commitment Expiration Date and bear interest for the period from the respective
Borrowing Dates thereof to the date of payment in full thereof on the unpaid
principal amount thereof from time to time outstanding at the applicable
interest rates per annum determined and payable as specified in Section 2.03
hereof.
(b)(i) Each Revolving Loan shall be made on request, given by an
Authorized Person of the Borrower to the Agent not later than 11:00 a.m. (New
York City time) on the requested Borrowing Date. Each such notice shall be made
by telephone, telecopy, telex or cable, confirmed immediately in writing, should
the Agent request, by delivery of a Notice of Revolving Credit Borrowing, in the
form of Exhibit 2.02(b)(i) hereto, specifying therein (A) the requested
Borrowing Date, and (B) the aggregate amount of the Revolving Loans therein
requested to be made, which, together with the then outstanding aggregate
principal amount of Revolving Loans and the then outstanding face amount of any
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Letters of Credit, shall not be greater than the Available Revolving Commitment.
Each Notice of Revolving Credit Borrowing shall be irrevocable and shall bind
the Borrower to borrow in accordance with such notice. The Agent will promptly
notify each Bank of receipt by the Agent of a Notice of Revolving Credit
Borrowing relating to the Revolving Loans and of the contents thereof. Not later
than 1:00 P.M. (New York time) on the Borrowing Date, each Bank will make
available to the Agent at the Agent's Office in immediately available funds such
Bank's Pro Rata Share of such Revolving Loan. Upon fulfillment of the applicable
conditions set forth in Article 5 hereof, and after the Agent's receipt of such
funds relating to such Revolving Loan, the Agent will make such Revolving Loan
available to the Borrower in immediately available funds by crediting the amount
thereof to the Borrower's account with the Agent or by disbursing such proceeds
as the Borrower may otherwise instruct the Agent in writing.
(ii) The obligations of the Borrower to pay the principal of and
interest on all Revolving Loans shall be evidenced by a Revolving Note in favor
of each Bank duly executed and delivered by the Borrower in the form of Exhibit
2.02(b)(ii) hereto. At the time of each Revolving Loan, and upon each payment of
principal of each Revolving Loan, each Bank shall, and is hereby authorized to,
make a notation on the schedule annexed to and constituting a part of the
Revolving Notes of the Borrower to which such Revolving Loan is being made, and
any such notation shall be conclusive and binding for all purposes absent
manifest error; provided, however, that failure by such Bank to make any such
notation shall not affect the obligations of the Borrower under such Revolving
Note or this Agreement.
Section 2.03. Rate of Interest; Calculation of Interest. (a) Each
Revolving Loan shall bear interest on the unpaid principal amount thereof from
the date such Revolving Loan is extended to the Borrower until such principal
amount is paid in full at a rate or rates per annum determined in accordance
with this Section 2.03. The Borrower shall pay interest on the unpaid amount of
each Revolving Loan at the applicable rates per annum set forth below:
(i) Revolving Loans. Each Revolving Loan shall bear interest at a rate
per annum equal to the sum of (A) the Base Rate in effect from time to time,
plus the Applicable Revolving Margin, payable monthly, in arrears, on the first
Business Day of each such month, commencing with the first of such dates to
occur after the date of such Revolving Loan and ending on the date the principal
amount of such Revolving Loan shall be paid or prepaid, to the extent of the
interest accrued on the principal amount of such Revolving Loan so paid or
prepaid.
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(ii) Default Rate. From and after the occurrence of any Event of
Default hereunder, and for so long as such Event of Default shall continue
(after as well as before judgment), the unpaid principal amount of each
Revolving Loan and any other amount then due and payable but not yet paid
hereunder shall bear interest at a rate per annum equal to the interest rate
then in effect as calculated pursuant to clause (i) above plus two percent (2%)
per annum, payable on demand. Overdue interest shall be compounded and bear
interest, to the extent permitted by law, on each date for payment of interest
on Revolving Loans hereunder.
(b) Interest shall be calculated on the daily outstandings on a basis
of a 360-day year for the actual number of days elapsed. Any change in the
interest rate on the Revolving Loans shall become effective as of the opening of
business on the day on which such change in the Base Rate becomes effective. The
Agent shall, as soon as practicable, notify the Borrower of the effective date
and the amount of each such change in the Base Rate; provided, however, that any
failure by the Agent to give the Borrower any such notice shall not affect the
application of such change in the Base Rate. Each determination of an interest
rate by the Agent pursuant to any provision of this Agreement shall be, absent
manifest error, presumed to be correct.
(c) Anything herein to the contrary notwithstanding, the obligations of
the Borrower under this Agreement and the Revolving Notes shall be subject to
the limitation that payments of interest shall not be required to the extent
that receipt thereof would be contrary to provisions of law applicable to the
Banks limiting rates of interest which may be charged or collected by such Bank.
Section 2.04. Indemnity Losses. The Borrower hereby agrees to indemnify
to indemnify the Bank Parties and to reimburse and hold the Bank Parties
harmless from any loss, liability, cost or actual out-of-pocket expense
(including, without limitation, reasonable attorney's fees and expenses for the
Agent incurred in connection with any action or proceeding between the Borrower
and any Bank Party or between any Bank Party and any third party or otherwise)
that the Bank Parties may sustain or incur as a consequence of (a) a default by
the Borrower in the payment of principal of, or interest on, any Revolving Loan,
or any reimbursement obligation with respect to a Letter of Credit, (b) a
default by the Borrower in borrowing (or in fulfilling on or before the
requested Borrowing Date the applicable conditions set forth in Article 5 hereof
with respect to such borrowing), or (c) a default by the Borrower in making any
prepayment after notice thereof has been given in accordance with Section 2.06
or 2.07 hereof; including, but not limited to, all losses provided, that the
Borrower shall only be liable under this Section 2.04 with respect to the fees
and disbursements of counsel to the Agent and shall have no obligation under
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this Section 2.04 to pay for any fees and disbursements of counsel to any other
Bank Party. The Agent shall deliver to the Borrower a certificate as to the
amount of such loss, liability, cost or expense, which certificate shall be
conclusive in absence of manifest error. This covenant shall survive payment of
the Revolving Loans and termination of this Agreement as to claims arising prior
to the indefeasible payment in full of the Revolving Loans.
Section 2.05. Mandatory Prepayments. (a) Revolving Loans. If at any
time the aggregate unpaid principal amount of the Revolving Loans outstanding
plus the face amount of Letters of Credit outstanding exceeds the Available
Revolving Commitment, the Borrower shall immediately repay such Revolving Loans,
without premium or penalty, in a principal amount at least equal to such excess,
together with accrued interest on the amount prepaid to the date of repayment,
and/or place monies in the Cash Collateral Account to the extent of such excess.
Prepayments of Revolving Loans pursuant to this subsection may be reborrowed as
Revolving Loans in accordance with the terms hereof.
(b) Asset Sales. The Borrower shall apply all net proceeds of any
asset sales as a mandatory prepayment of the Revolving Loans, without penalty or
premium.
Section 2.06. Optional Prepayments of the Revolving Loans. (a) Optional
Prepayments of the Revolving Loans. (i) The Borrower may voluntarily prepay any
Revolving Loan in whole at any time or in part from time to time, with accrued
interest to the date of such prepayment on the amount prepaid but without
premium or penalty; provided, however, that if any such prepayment shall be made
with the proceeds, or as a result, of any debt financing (A) prior to the first
anniversary of the Closing Date, a prepayment fee of two percent (2%) of the
amount so prepaid shall be paid by the Borrower, or (B) on or after the first
anniversary of the Closing Date and prior to the second anniversary of the
Closing Date, a prepayment fee of one percent (1%) of the amount so prepaid
shall be paid by the Borrower, in each case concurrently therewith. Each such
notice shall be made by an Authorized Person of the Borrower by telephone,
telecopy, telex or cable, confirmed immediately in writing, should the Agent
request, by delivery of a Notice of Optional Prepayment, substantially in the
form of Exhibit 2.06 hereto, specifying therein (i) the proposed date of such
prepayment, (ii) the aggregate amount and type of Revolving Loan(s) therein
proposed to be prepaid, (iii) whether the Revolving Commitment is proposed to be
permanently reduced, and (iv) the source of such funds and the amount of
prepayment penalty, if any, that will be due and owing. Each Notice of Optional
Prepayment shall be irrevocable and shall bind the Borrower to make such
prepayment in accordance with such notice.
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(ii) The Borrower may, upon at least five Business Days' prior written
notice to the Agent as provided in Section 2.06(a)(i) hereof, elect to terminate
or permanently reduce the Revolving Commitment not more than once during any
Fiscal Quarter in an amount not less than $250,000 with such additional
increments in integral multiples of $50,000; provided, however, that if any such
termination or permanent reduction shall be made (A) prior to the first
anniversary of the Closing Date, a prepayment fee of two percent (2%) shall be
imposed upon the amount so terminated or reduced, or (B) on or after the first
anniversary of the Closing Date and prior to the second anniversary of the
Closing Date, a prepayment fee one percent (1%) shall be imposed upon the amount
so terminated or reduced, in each case concurrently therewith; and provided,
further, that (I) any reduction of the Revolving Commitment shall be accompanied
by prepayment of Revolving Loans and/or the payment of monies to the Cash
Collateral Account, together with accrued interest on the amount prepaid to the
date of such prepayment, to the extent (if any) that the aggregate principal
amount of the Revolving Loans then outstanding plus the face amount of Letters
of Credit then outstanding exceeds the amount of the Revolving Commitment as
then reduced, and (II) any such termination of the Revolving Commitment shall be
accompanied by prepayment in full of all Revolving Loans then outstanding and
cash collateralization of all outstanding Letters of Credit, together with
accrued interest thereon to the date of such prepayment and any unpaid
commitment fee then accrued under Section 2.10 hereof. Each Notice of Optional
Prepayment shall be irrevocable and shall bind the Borrower to make such
prepayment in accordance with such notice.
Section 2.07. Payments. All payments (including prepayments) to be made
by the Borrower under this Agreement shall be made to the Agent at the Agent's
Office in New York, New York, in Dollars and in immediately available funds. The
Agent will promptly thereafter cause to be distributed to each Bank such Bank's
Pro Rata Share of the payments of principal and interest in like funds for the
account of such Bank's applicable lending office. All payments to be made
hereunder by the Borrower shall be made without setoff, counterclaim or defense.
If any payment hereunder becomes due and payable on a day other than a Business
Day, such payment shall be extended to the next succeeding Business Day and,
with respect to payments of principal, interest thereon shall be payable at the
applicable rate during such extension. The Borrower hereby authorizes the Agent
to charge any account of the Borrower maintained at any office of the Agent with
the amount of any principal, interest, fees, expenses or other monetary
obligations of the Borrower hereunder, including, without limitation, attorney's
fees and expenses, and including principal and interest payable under any
Revolving Note when it becomes due and payable under the terms hereof or
thereof. Promptly upon the Agent's charging any account of the Borrower pursuant
to the preceding sentence, the Agent shall give the Borrower notice thereof.
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Section 2.08. Revolving Loans in Payment of Article 2 Obligations. The
Borrower hereby authorizes the Banks to make Revolving Loans to the Borrower and
to use the proceeds thereof to pay any amount owed by the Borrower under this
Article 2 if the Borrower fails to pay such amount when due, and the Agent
agrees to notify the Borrower of the making of any such Revolving Loan. Any such
Revolving Loan shall be made in the minimum amount necessary and without regard
to the requirements of Section 2.02(b)(i) hereof with respect to Notices of
Revolving Credit Borrowing.
Section 2.09. Use of Revolving Loan Proceeds. The Borrower shall use
the proceeds of the Revolving Loans to enable the Agent to purchase the Assigned
Indebtedness and to provide the continuing working capital requirements of the
Borrower and its Subsidiaries.
Section 2.10. Fees. (a) Commitment Fee. The Borrower agrees to pay the
Banks a non-refundable commitment fee from and including the date hereof to the
Commitment Expiration Date, computed at the rate of one-quarter of one percent
(0.25%) per annum on the average daily amount by which the Revolving Commitment
exceeds the aggregate unpaid principal amount of the Revolving Loans outstanding
payable quarterly, in arrears, on the first Business Day of each Fiscal Quarter,
commencing with the first such day following the Closing Date, and ending on the
Commitment Expiration Date. Such fee shall be calculated on the basis of a
360-day year and actual days elapsed.
(b) Collateral Maintenance Fee. The Borrower shall pay the Agent (i) a
collateral maintenance fee of $1,500 per month, payable in advance on the
Initial Borrowing Date and on each month thereafter, plus (ii) $600 per man-day
and all expenses for any audits conducted by the Agent, on behalf of the Banks,
at its discretion.
(d) Closing Fees (i) (A) the Borrower and the Bank Parties hereby
acknowledge that the Borrower has paid the Agent a deposit fee of $40,000 and a
commitment fee of $30,000 in connection with the commitment letter dated July
30, 1996, between the Borrower and the Agent, (B) the Borrower will pay the
Agent a non-refundable closing fee of $60,000, payable on the date hereof, which
deposit fee and commitment fee, less expenses, will be credited to such closing
fee on the Closing Date.
(ii) the Borrower will pay the Agent, on behalf of the Banks,
closing expenses equal to (i) all reasonable costs and expenses up to the date
hereof, in connection with the preparation, execution, delivery, filing, and
recording of this Agreement, each of the Related Documents, and any other
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documents, instruments or agreements which may be delivered in connection with
this Agreement, including, without limitation, the reasonable fees and
out-of-pocket expenses of counsel for the Bank Parties, and local counsel who
may be retained by said counsel, with respect thereto and with respect to
advising the Bank Parties as to their rights and responsibilities under this
Agreement, and (ii) all costs and expenses up to the date hereof in connection
with the audit, appraisal, valuation, investigation, and the creation,
perfection, priority or protection of the Banks' Liens against the Collateral,
including, without limitation, all costs and expenses (A) to pay or discharge
taxes, liens, security interests or other encumbrances levied, placed or
threatened against the Collateral and (B) for title and lien searches, filing
and recording fees and taxes, duplication costs and corporate search fees.
Section 2.11. Increased Costs. If any Regulatory Change:
(a) subjects the Bank Parties to any tax of any kind whatsoever with
respect to this Agreement, any Revolving Note, or any Revolving Loan or changes
the basis of taxation of payments to the Bank Parties of principal, interest,
commitment fees, or any other amount payable hereunder in any of the foregoing
(except for changes in the rate of tax on the overall net income of the Bank
Parties);
(b) imposes, modifies or holds applicable to the Banks (or any
corporation controlling the Banks) any reserve or capital adequacy requirements
or liquidity ratios or requires the Banks or any corporation controlling the
Banks) to make special deposits against or in respect of assets or liabilities
of, deposits with or for the account of, or credit extended by, the Banks; or
(c) imposes on the Bank Parties any other condition affecting this
Agreement, the Revolving Notes or the Revolving Loans;
and the result of any of the foregoing is (i) to increase the cost to the Banks
of making or maintaining Revolving Loans therein or to reduce any amount
received or receivable by the Banks hereunder, (ii) to require the Banks (or any
corporation controlling the Banks) to make any payment to any fiscal, monetary,
regulatory or other authority calculated on or by reference to any amount
received or receivable by any Bank under this Agreement or the Revolving Notes,
or (iii) to reduce the rate of return on any Bank's capital as a consequence of
its obligations hereunder to a level below that which such Bank could have
achieved but for such adoption, change or compliance (taking into consideration
such Bank's policies with respect to capital adequacy), in any case by an amount
deemed by such Bank to be
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deemed by such Bank to be material, then, in any such case, the Borrower shall
promptly pay such Bank (or such corporation controlling such Bank), on its
written demand, any additional amount necessary to compensate such Bank (or such
corporation) for such additional cost, reduced amount receivable or reduction in
rate of return with respect to this Agreement, the Revolving Notes or the
Revolving Loans, together with interest on such amount from the date demanded
until payment in full thereof at the rate per annum applicable to Revolving
Loans, calculated on the basis of a 360-day year for the actual days elapsed. If
the Banks becomes entitled to claim any additional amount pursuant to this
Section 2.11, the Agent shall promptly submit to the Borrower a certificate as
to any additional amount payable pursuant to the first sentence of this Section
2.11, which amount shall be, absent manifest error, presumed to be correct;
provided, however, that the determination thereof is made on a reasonable basis.
In determining such amount, the Banks shall use any reasonable averaging and
attribution methods. The Agent shall submit to the Borrower a certification of
the methods of calculation of such amount.
Section 2.12. Subordination. Notwithstanding any provision contained
in this Agreement to the contrary, the Indebtedness evidenced by the Revolving
Notes shall not (a) be subordinated to claims of any trade creditors of the
Borrower or (b) be subordinated in right of payment to the payment of any
existing or future Indebtedness of the Borrower.
Section 2.13. Non-Receipt of Funds by Agent. (a) Unless the Agent shall
have received notice from a Bank prior to the date on which such Bank is to
provide funds to the Agent for a Revolving Loan to be made by such Bank that
such Bank will not make available to the Agent such funds, the Agent may assume
that such Bank has made such funds available to the Agent on the date of such
Revolving Loan in accordance with Section 2.02(b) hereof. If and to the extent
such Bank shall not have made such funds available to the Agent, such Bank
agrees to repay the Agent forthwith on demand such corresponding amount together
with interest thereon, for each day from the date such amount is made available
to the Borrower until the date such amount is paid to the Agent, at the
customary rate set by the Agent for the correction of errors among banks until
the completion of three (3) Business Days and thereafter at the Base Rate. If
such Bank shall repay to the Agent such corresponding amount, such amount so
repaid shall constitute such Bank's Revolving Loan for purposes of this
Agreement.
(b) Unless the Agent shall have received notice from the Borrower prior
to the date on which any payment is due to any Bank hereunder that the Borrower
will not make such payment in full, the Agent may assume that the Borrower has
made such payment in full to the Agent on such date and the Agent in its sole
discretion may, but shall not be obligated to, in reliance upon such assumption,
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cause to be distributed to each Bank on such due date an amount equal to the
amount then due such Bank. If and to the extent the Borrower shall not have so
made such payment in full to the Agent, each Bank shall repay to the Agent
forthwith on demand such amount distributed to such Bank together with interest
thereon, for each day from the date such amount is distributed to such Bank
until the date such Bank repays such amount to the Agent, at the customary rate
set by the Agent for the correction of errors among banks until the completion
of three (3) Business Days and thereafter at the Base Rate.
ARTICLE 2A. LETTERS OF CREDIT FACILITY
Section 2A.01. Letters of Credit. (a) Provided that no Default or
Events of Default has occurred and is continuing or would occur after giving
effect to the issuance of any Letters of Credit and subject to the terms and
conditions of this Agreement, the Agent agrees to issue documentary letters of
credit, in form and substance satisfactory to the Agent (collectively, the
"Letters of Credit"), for the account of the Borrower from time to time during
the Commitment Period; provided, however, that (i) the aggregate face amount of
all outstanding Letters of Credit shall not exceed the Letter of Credit
Commitment, (ii) the sum of the aggregate face amount of all outstanding Letters
of Credit and the aggregate principal amount of the Revolving Loans then
outstanding shall not exceed the lesser of the Formula Amount or the Revolving
Commitment and (iii) each Letter of Credit shall have a term equal to twelve
months or less. The beneficiaries under the Letters of Credit are hereinafter
referred to as the "Beneficiaries".
(b) Each Letter of Credit shall (i) provide for the payment of drafts,
presented for honor thereunder by the Beneficiary in accordance with the terms
thereof, at sight when accompanied by the documents specified by such Letter of
Credit, (ii) have an expiration date not later than the earlier of (A) one year
after the date of issuance of such Letter of Credit (subject to renewal as the
Agent may agree and provide for in such Letter of Credit) and (B) the Commitment
Expiration Date, and (iii) otherwise be in form and substance satisfactory to
the Agent. Drawings under the Letters of Credit shall be payable solely in
accordance with the terms thereof.
(c) The Borrower shall give the Agent at least three Business Days'
notice of each request for the issuance of a Letter of Credit, specifying the
Beneficiary, the amount and the expiration date thereof and such other
documents, statements, certificates and information as the Agent may reasonably
request.
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(d) The Agent and the Borrower may from time to time enter into
agreements with respect to the issuance of letters of credit, which agreement
shall govern this Article 2A.
Section 2A.02. Reimbursement Obligation. The Borrower hereby agrees to
reimburse the Agent for any amount paid by the Agent on drafts or demands for
payment drawn or made or purporting to be drawn or made under the Letters of
Credit (the Borrower's obligations so to reimburse the Agent hereinafter called
the "LOC Reimbursement Obligation"). Each LOC Reimbursement Obligation owing to
the Agent shall automatically be converted into, and shall be deemed to have
been paid with the proceeds of a Revolving Loan made by the Agent on the date
such LOC Reimbursement Obligation arises, whether or not an Event of Default or
Default then exists or would be caused thereby, which Revolving Loan shall be
subject to the prepayment provisions of this Agreement; provided, however, that
upon the occurrence and during the continuation of an Event of Default the Agent
may require, by a notice to the Borrower, immediate payment to the Cash
Collateral Account of the amount of the LOC Reimbursement Obligation which would
then exist if all outstanding Letters of Credit were drawn upon at that time.
Any LOC Reimbursement Obligation which is not paid when due or converted into a
Revolving Loan in accordance with the terms hereof shall bear interest, payable
on demand, for each day on which said LOC Reimbursement Obligation remains
unpaid, at a rate per annum equal to the interest rate borne by Revolving Loans,
or if the Borrower is in default under the provisions of this sentence of
Section 2A.02 at the default rate stated in Section 2.03(a)(ii) hereof. Amounts
not paid to the Cash Collateral Account when due and payable shall bear interest
at the default rate stated in Section 2.03(a)(ii) hereof. The Borrower's
obligations to reimburse the Agent in accordance with the terms hereof for all
payments made by the Agent under each Letter of Credit and to pay interest on
the unpaid amount of each LOC Reimbursement Obligation shall be absolute,
irrevocable and unconditional under any and all circumstances whatsoever and
shall not be terminated for any reason whatsoever.
Section 2A.03. Letter of Credit Fees. As consideration for the issuance
of the Letters of Credit, the Borrower shall pay to the Agent, a non-refundable
and non-rebateable fee on the face amount of all Letters of Credit at a rate per
annum equal to (x) 0.250 percent for each ninety (90) day period or portion
thereof that such Letter of Credit is outstanding, payable in advance upon the
issuance of such Letter of Credit and on the first Business Day of each
consecutive following 90 day period (the "LOC Utilization Fee"), and (y) the
fees customarily charged by the Bank for issuing and negotiating similar letters
of credit. The LOC Utilization Fee shall be calculated on the basis of a year of
360 days for the actual number of days elapsed from the issuance of the Letters
of Credit to the expiration date of each.
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Section 2A.04. General Instructions: Limitation on Responsibility. The
Borrower hereby agrees that:
(a) The Agent may accept or pay, as complying with the terms of a
Letter of Credit, any drafts or other documents otherwise in order which may be
signed or issued by a trustee in bankruptcy, debtor-in-possession, assignee for
the benefit of creditors, liquidator, receiver, successor or other legal
representative of the party who is authorized under such Letter of Credit to
draw or issue any drafts or other documents; and
(b) The Agent may, without limiting any other provisions of this
Agreement, (i) accept documents of any character which comply with the
provisions, definitions, interpretations and practices contained in The Uniform
Customs and Practice for Documentary Credits (1993 Revision), International
Chamber of Commerce Publication No. 500 (and any subsequent revision thereof
adhered to by the Bank on the date such Letter of Credit is issued), or, as to
matters not governed by such Uniform Customs and Practice for Documentary
Credits, the laws of the State of New York, and (ii) accept or pay any draft
dated on or before the expiration of any time limit expressed in a Letter of
Credit, regardless of when drawn and when or whether negotiated.
Section 2A.05. Reimbursement Obligation Absolute. The Borrower's
obligations to pay the full amount of each LOC Reimbursement Obligation, or to
discharge the same with the proceeds of a borrowing hereunder, is absolute and
unconditional, under all circumstances whatsoever, and shall not be affected by:
(a) any lack of validity or enforceability of any Letter of Credit; or
(b) any lack of validity or enforceability of this Agreement, any
Revolving Note or any other Related Document; or
(c) any amendment or waiver of, or any consent to departure from this
Agreement, any Revolving Note or any other Related Document; or
(d) any exchange, release or non-perfection of any Collateral or any
release of any pledgor or guarantor; or
(e) the existence of any claim, setoff, defense or other right which
the Borrower may have at any time against a Beneficiary, any transferee of a
Letter of Credit (or any Person for whom any such transferee may be acting), the
Agent, any Bank or any other Person, whether in connection with such Letter of
Credit, this Agreement, any Related Document, the transactions contemplated
herein or any unrelated transaction; or
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(f) any statement or any other document (including insurance), or
endorsements thereof, presented under a Letter of Credit proving to be forged,
fraudulent, invalid or uncollectible in any respect or any statement therein
being untrue or inaccurate in any respect whatsoever (except for the Bank's
gross negligence or wilful misconduct); or
(g) any irregularity in the transactions with respect to which a
Letter of Credit is issued, including, without limitation, any fraud by a
Beneficiary; or
(h) any breach of contract among the Agent, any Bank or the Borrower
and a Beneficiary or any other third party; or
(i) the consequences of compliance with laws, orders, regulations or
customs in effect in places of negotiation or payment of drafts under a Letter
of Credit; or
(j) the failure of drafts to bear reference or adequate references to a
Letter of Credit, or failure of any Person to surrender a Letter of Credit or
failure of any Person to note the amount of any draft of a Letter of Credit, or
forward documents as may be required by the terms of a Letter of Credit (each of
which requirements the Borrower hereby waives even if included in such Letter of
Credit); or
(k) any errors, omissions, interruptions or delays in transmission or
delivery of any messages, however sent and whether plain or in code or cipher,
or errors in translation or in interpretation of technical or other terms; or
(l) any failure by the Agent or any Bank to honor any of its
obligations hereunder to make Revolving Loans, except as constitutes gross
negligence or wilful misconduct; or
(m) without limiting the foregoing, any act or omission other than such
constituting the Agent's gross negligence or wilful misconduct.
Section 2A.06. Non-Conforming Documents. In case of any variation
between the documents called for by a Letter of Credit or the Borrower's
instructions and documents accepted by the Agent, the Borrower shall be
conclusively deemed to have waived any right to object to such variation with
respect to any action of the Agent relating to such documents, and to have
ratified and approved such action as having been taken at the Borrower's
direction, unless the Agent has acted in bad faith or with gross negligence.
Section 2A.07. Cash Collateral Account. (a) At the Agent's request
upon the issuance of Letters of Credit and in accordance with the terms hereof,
the Borrower will establish and maintain with the Agent, at the Agent's Lending
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Office (or at such other location as the Agent shall specify), a demand deposit
or money market account (the "Cash Collateral Account") under the sole control
and dominion of the Agent in which shall be deposited and held all amounts
required hereunder to be deposited hereunder in the Cash Collateral Account. The
Borrower shall not be entitled to any amounts deposited in the Cash Collateral
Account prior to the later of the Commitment Expiration Date, the expiration of
the Letters of Credit and the payment in full of the Revolving Loans and all LOC
Reimbursement Obligations, except as provided in (b) and (c) below. The Borrower
hereby pledges and assigns to the Agent and hereby grants to the Agent a first
priority Lien and a continuing security interest in, the funds held in the Cash
Collateral Account from time to time, and all securities and instruments in
which such funds are invested to secure all obligations of the Borrower to the
Agent hereunder.
(b) If any Letter of Credit is to be outstanding on the day after the
Commitment Expiration Date, the Borrower shall deposit in the Cash Collateral
Account an amount equal to (i) the aggregate amount then outstanding under the
Letters of Credit plus (ii) the LOC Utilization Fees for the period that such
Letters of Credit may remain outstanding.
(c) In addition to amounts otherwise required to be deposited in the
Cash Collateral Account, there shall be deposited in the Cash Collateral Account
from time to time any payment received therefor by the Agent pursuant to Section
2.05 hereof (such payment being hereinafter referred to as the "Excess
Prepayment"). Following the making of an Excess Prepayment, if and when, after
the repayment in full of the Revolving Loans pursuant to Section 2.05, the
aggregate face amount of any Letters of Credit outstanding should be less than
the Available Revolving Commitment, the Agent shall, upon the request of the
Borrower, release from the Cash Collateral Account that portion of the Excess
Prepayment paid pursuant to Section 2.05.
(d) The funds in the Cash Collateral Account shall be invested and
reinvested by the Agent in an interest-bearing time deposits issued by the
Agent. So long as no Default or Event of Default shall have occurred and shall
then be continuing, the Agent shall remit to the Borrower on the last Business
Day of each month all interest received by the Agent during such month from
investments of the funds in the Cash Collateral Account.
(e) Any cash deposited in the Cash Collateral Account prior to the
Commitment Expiration Date shall be applied in accordance with paragraph (c)
above. Any such cash on deposit in the Cash Collateral Account after the
Commitment Expiration Date and the indefeasible payment in full of the Revolving
Loans and any cash deposited in the Cash Collateral Account in accordance with
the provisions of paragraph (b) above shall be held for, and applied to, the
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reimbursement of any drawing made under the Letters of Credit, and to the
payment of all LOC Reimbursement Obligations and LOC Utilization Fees
outstanding. After the expiration of the Letters of Credit and the indefeasible
payment of all LOC Reimbursement Obligations and LOC Utilization Fees, any
remaining cash contained in the Cash Collateral Account shall be paid to the
Agent and any surplus after the indefeasible cash payment in full of all of the
Obligations and the other Related Documents shall be paid over to the Borrower
or to whomsoever may be lawfully entitled to receive such surplus.
ARTICLE 3. SECURITY INTERESTS
Section 3.01. Grant of Security Interest. The Borrower, to secure the
Obligations (as said term is defined in Section 3.02 hereof), hereby assigns,
pledges and grants to the Agent, for the benefit of the Banks, a continuing
first and prior security interest in all of its rights, title and interests in
and to all of the following property of the Borrower whether now owned or
existing or hereafter acquired or arising and regardless of where located and
all proceeds, products and substitutions thereof (all of the same being herein
collectively referred to as the "Collateral"):
(a) ACCOUNTS: All present and future accounts, receivables,
contract rights, including, but not limited to, the Borrower's rights
(including, without limitation, any and all rights to receive any payments)
under any and all leases and/or agreements to which the Borrower is a party,
chattel paper, instruments, documents, general intangibles and other rights to
payment of any kind now or hereafter existing arising out of or in connection
with the sale or lease of goods, merchandise or inventory or the rendering of
services, including, without limitation, those which are not evidenced by
instruments or chattel paper and whether or not they have been earned by
performance; all proceeds of any letters of credit or insurance policies on
which the Borrower is now (or may hereafter be) named as beneficiary; all claims
against any third parties for advances or other financial accommodations or any
other obligations whatsoever owing to the Borrower; all rights now or hereafter
existing in and to all security agreements, leases, documents of title and other
contracts securing, evidencing or otherwise relating to any such accounts,
contract rights, chattel paper, instruments, documents, general intangibles,
other rights of payment or proceeds or to any such claims against third parties,
together with all rights in any returned or repossessed goods, merchandise and
inventory and all right, title, security and guaranties with respect to each of
the foregoing, including, without limitation, any right of stoppage in transit
(any and all such accounts, contract rights, chattel paper, instruments,
documents, rights of payment, proceeds, claims and rights being hereinafter
referred to as the "Accounts").
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(b) INVENTORY: All goods, merchandise and other personal
property furnished or to be furnished under any contract of service or intended
for sale or lease, including, without limitation whole goods, spare parts,
components, supplies, materials and consigned goods; all raw materials,
work-in-process, finished goods or materials or supplies of any kind, nature or
description, used or consumed in the Borrower's businesses or which might be
used in connection with the manufacture, assembling, packing, shipping,
advertising, selling or finishing of such goods, merchandise and personal
property; all returned or repossessed goods; and all documents of title or
documents evidencing the same; in each instance whether now owned or hereafter
acquired by the Borrower and wherever located, whether in the possession of the
Borrower or of a bailee or other Person for sale, storage, transit, processing,
use or otherwise (all of the foregoing, collectively, being the "Inventory");
(c) EQUIPMENT: All machinery, equipment and fixtures,
including, without limitation, all manufacturing, assembling, packaging,
distribution, selling, data processing and office equipment, all furniture,
furnishings, appliances, trade fixtures, tools, tooling, molds, vehicles,
vessels and all other goods of every type and description (other than
Inventory), and all parts thereof and all accessions thereto, and all
substitutions therefor and replacements thereof, in each instance whether now
owned or hereafter acquired by the Borrower and wherever located (all of the
foregoing, collectively, being the "Equipment");
(d) GENERAL INTANGIBLES: All rights, interests, choses in
action, causes of actions, claims and all other intangible property of the
Borrower of every kind and nature (other than Accounts) in each instance whether
now owned or hereafter acquired by the Borrower, including, without limitation,
all corporate and other business records; all Revolving Loans, royalties, and
other obligations receivable; all trademarks, non-compete agreements, service
marks, trademark applications, patents, patent applications, tradenames,
fictitious names, inventions, designs, trade secrets, computer programs,
software, printouts and other computer materials, goodwill, registrations,
copyrights, copyright applications, permits, licenses, franchises, customer
lists, credit files, correspondence, and advertising materials; all customer and
supplier contracts, firm sale orders, rights under license and franchise
agreements, and other contracts and contract rights; all interests in
partnerships, and joint ventures; all tax refunds and tax refund claims; all
right, title and interest under leases, subleases, licenses and concessions and
other agreements relating to real or personal property; all payments due or made
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to the Borrower in connection with any requisition, confiscation, condemnation,
seizure or forfeiture of any property by any Person or governmental authority;
all deposit accounts (general or special) with any bank or other financial
institution; all credits with and other claims against third parties (including
carriers and shippers); all rights to indemnification; all reversionary
interests in pension and profit sharing plans and reversionary, beneficial and
residual interest in trusts; all proceeds of insurance of which the Borrower is
a beneficiary; and all letters of credit, guaranties, liens, security interests
and other security held by or granted to the Borrower; and all other intangible
property, whether or not similar to the foregoing; in each instance, whether now
or hereafter existing and however and wherever arising and all renewals thereof
(all of the foregoing, collectively, being the "General Intangibles");
(e) CHATTEL PAPER, INSTRUMENTS AND DOCUMENTS: All chattel
paper, all instruments, all bills of lading, warehouse receipts and other
documents of title and documents, in each instance whether now owned or
hereafter acquired by the Borrower; and
(f) OTHER PROPERTY: All property or interests in property now
owned or hereafter acquired by the Borrower which now may be owned or hereafter
may come into the possession, custody or control of any Bank Party, or any agent
or affiliate of the Bank, in any way or for any purpose (whether for
safekeeping, deposit, custody, pledge, transmission, collection or otherwise);
and all rights and interests of the Borrower, now existing or hereafter arising
and however and wherever arising, in respect of any and all (i) notes, drafts,
letters of credit, stocks, bonds, and debt and equity securities, whether or not
certificated (other than the capital stock of the Borrower), and warrants,
options, puts and calls and other rights to acquire or otherwise relating to the
same; (ii) money; (iii) proceeds of Revolving Loans, advances and other
financial accommodations, including, without limitation, Revolving Loans,
advances and other financial accommodations, made or extended under this
Agreement; and (iv) insurance proceeds and books and records relating to any of
the Collateral covered by this Agreement; together, in each instance, with all
accessions and additions thereto, substitutions therefor, and replacements,
proceeds and products thereof.
Section 3.02. Security for Obligations. This Agreement secures the full
and prompt payment and performance of (a) all obligations and liabilities of the
Borrower to the Bank Parties now or hereafter existing under this Agreement, the
Revolving Notes and any other Related Document to which it is a party, and any
other future Revolving Loan, issuance of a Letter of Credit, advance or
financial accommodation made by the Banks in favor of the Borrower or any other
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Person whose indebtedness to the Banks is guaranteed by the Borrower, whether
for principal, interest, fees, indemnification, expenses or otherwise, and (b)
all other obligations, liabilities, covenants and duties owing to the Bank
Parties from or by the Borrower of any kind or nature, present or future,
whether or not evidenced by any note, guaranty or other instrument, whether
arising under this Agreement or any of the other Related Documents or under any
other agreement, instrument or document, whether or not for the payment of
money, whether direct or indirect (including those acquired by assignment),
absolute or contingent, due or to become due, now existing or hereafter arising
and however acquired (all such obligations and liabilities described in the
foregoing clauses (a) and (b) above being hereinafter collectively referred to
as the "Obligations"). The Borrower and the Bank Parties agree that they intend
the security interest hereby granted to attach upon the execution of this
Agreement.
Section 3.03. Borrower Remains Liable. Anything herein to the contrary
notwithstanding, (a) the Borrower shall remain liable under any contracts and
agreements included in the Collateral to the extent set forth therein to perform
all of its duties and obligations thereunder to the same extent as if this
Agreement had not been executed, (b) the exercise by the Bank Parties of any of
the rights hereunder shall not release the Borrower from any of its duties or
obligations under any contracts and agreements included in the Collateral, and
(c) the Bank Parties shall have no obligation or liability under any contracts
and agreements included in the Collateral by reason of this Agreement, nor shall
the Bank Parties be obligated to perform any of the obligations or duties of the
Borrower thereunder or to take any action to collect or enforce any claim for
payment assigned hereunder.
ARTICLE 4. REPRESENTATIONS AND WARRANTIES
In order to induce the Banks to enter into this Agreement and to extend
the financial accommodations hereunder, the Borrower represents and warrants to
the Bank Parties on the Initial Borrowing Date, unless otherwise specified,
that:
General Representations
Section 4.01. Organization and Powers. (a) Each of the Borrower and the
Guarantor is a corporation, duly organized and validly existing and in good
standing under the laws of the State of Delaware. Each of the Borrower and the
Guarantor is duly qualified to do business as a foreign corporation or entity
and is in good standing in each jurisdiction (other than the state of its
incorporation or organization) in which the conduct of its business or the
ownership or operation of its properties or assets makes such qualification
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necessary, except where the failure to so qualify would not have a Material
Adverse Effect. Each of the Borrower and the Guarantor has full power and
authority to own its properties and assets and carry on its business as now
conducted.
Section 4.02. Power and Authorization. Each of the Borrower and the
Guarantor has full power, right and legal authority to execute, deliver and
perform its obligations under this Agreement, the Revolving Notes and such of
the other Related Documents to which it is a party. Each of the Borrower and the
Guarantor has taken all corporate and other actions necessary to authorize the
execution and delivery of, and the performance of its obligations under such
documents and to make borrowings by the Borrower under this Agreement, as the
case may be. This Agreement, the Revolving Notes and such of the other Related
Documents to which it is a party, constitute legal, valid and binding
obligations of the Borrower enforceable against each a party thereto in
accordance with their respective terms subject to the effect of any applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization or moratorium or
similar laws affecting the rights of creditors generally, and to general
principles of equity. No consent of any Person, and no consent, license,
approval or authorization, or registration or declaration with, any governmental
authority, bureau or agency, which has not been obtained, taken or made (other
than the financing statements and filings required to be filed pursuant to this
Agreement and the Related Documents, which have been delivered to the Agent for
filing on the Closing Date, is required in connection with the execution,
delivery or performance by the Borrower or the Guarantor of this Agreement, the
Revolving Notes or the other Related Documents to which it is a party, or the
making of borrowings by the Borrower under this Agreement.
Section 4.03. Permits; Compliance with Laws. Schedule 4.03 hereto sets
forth all permits, licenses and governmental franchises and other authorizations
(collectively, the "Permits") issued or anticipated to be issued to the Borrower
by the appropriate federal, state and local regulatory bodies, including,
without limitation, the current status and requirements of each such anticipated
Permit and the expected date of receipt of each such anticipated Permit, except
for such Permits, the absence of which would not have a Material Adverse Effect.
The Permits constitute all permits necessary to own and operate the Borrower's
businesses as presently being conducted and as contemplated to be conducted
immediately after the Closing Date hereof, except for such Permits the absence
of which would not have a Material Adverse Effect. All such Permits are valid
and subsisting and in full force and effect. There are no proceedings pending,
or, to the Borrower's knowledge, threatened, that seek the revocation,
cancellation, suspension or any adverse modification of any Permit. The Borrower
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is in compliance in all material respects with the terms of such Permits. The
Borrower is not in violation of any statute, law, ordinance, governmental rule
or regulation (including environmental laws) or any judgment, order or decree
(federal, state, local or foreign) to which it is subject, except for violations
which would not have a Material Adverse Effect.
Section 4.04. No Legal Bar. The execution, delivery and performance by
the Borrower of this Agreement, the Revolving Notes and such of the other
Related Documents to which it is a party, and the making of borrowings hereunder
by the Borrower, do not and will not (i) violate or contravene any provisions of
any existing law, statute, rule, regulation or ordinance or the certificate of
incorporation or by-laws of the Borrower, (ii) violate or contravene any
provision of any order or decree of any court, governmental authority, bureau or
agency to which the Borrower or any of its properties or assets are subject, or
(iii) violate or contravene any provision of any mortgage, indenture, security
agreement, contract, undertaking or other agreement or instrument to which the
Borrower is a party or which purports to be binding upon it or any of its
properties or assets, or (iv) result in the creation or imposition of any Lien,
charge or encumbrance on, or security interest in, any of the properties of the
Borrower (other than as created pursuant to this Agreement and the Related
Documents) pursuant to the provisions of any mortgage, indenture, security
agreement, contract, undertaking or other agreement or instrument.
Section 4.05. Litigation. Except as disclosed in Schedule 4.05 hereto,
no litigation or administrative proceeding of or before any court or
governmental body or agency is now pending, nor, to the knowledge of the
Borrower, is any such litigation or proceeding now threatened, against the
Borrower or any of its properties, involving an individual claim in excess of
$50,000 or claims in the aggregate in excess of $100,000, nor, to the knowledge
of the Borrower, is there a valid basis for the initiation of any such
litigation or proceeding.
Section 4.06. Solvency. Immediately after giving effect to the
financing transactions contemplated hereby, the Borrower is solvent. For
purposes of this Section 4.06, the term "solvent" shall mean that, at the time
of said determination, (i) the fair value of the Borrower's assets exceeds the
aggregate sum of its liabilities (including, without limitation, contingent
liabilities), (ii) the Borrower is able to pay its debts as they mature, (iii)
the property owned by the Borrower has a value in excess of the total aggregate
sum required to pay its debts, and (iv) the Borrower has capital sufficient to
carry on its business.
Section 4.07. Assets and Properties. The Borrower has good title to
all of its assets (tangible and intangible) owned by it, and all such assets
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are owned free and clear of all Liens other than (i) Customary Permitted Liens,
(ii) Liens in favor of the Bank Parties, (iii) Liens disclosed in Schedule 7.02
hereto, and (iv) as expressly permitted pursuant to the terms of this Agreement.
Substantially all of the assets and properties owned by, leased to or used by
the Borrower are in adequate operating condition and repair, ordinary wear and
tear excepted, and are free and clear of any known defects, except such defects
as do not interfere, in any material respect, with the continued use thereof in
the conduct of normal operations, and are able to serve the function for which
they are currently being used. The assets owned by, leased to or used by the
Borrower constitute all of the material assets used in the conduct of the
Borrower's businesses as presently conducted and as contemplated hereby to be
conducted immediately after the Closing Date, and neither this Agreement nor any
Related Document, nor any transaction contemplated under any such agreement,
will adversely affect, in any material respect, any right, title or interest of
the Borrower in and to any of such assets.
Section 4.08. The Collateral. The chief places of business and chief
executive offices of the Borrower, and the offices where the Borrower keeps its
records concerning its Accounts Receivable, and each location where the Borrower
keeps any of the Collateral are located at the addresses specified in Schedule
4.08 hereto. The Borrower owns the Collateral in which it has granted a security
interest in favor of the Bank Parties pursuant to this Agreement and the Related
Documents, free and clear of any Lien, security interest charge or encumbrance,
except as otherwise expressly permitted hereunder. All financing statements and
filings required to be filed have been delivered to the Agent for filing, and
all other steps required to be taken, pursuant to this Agreement and the Related
Documents have been taken, so that upon filing in the proper offices within the
United States as noted on the face thereon the Bank Parties shall have a valid,
perfected, first priority continuing and enforceable security interest in and
Lien on the Collateral and such security interest and Lien ranks prior to any
other security interest in or Lien upon the Collateral.
Section 4.09. Capitalization and Corporate Structure. The authorized
capital stock of the Borrower is as stated on Schedule 4.09 hereto, and as of
the Closing Date all issued and outstanding shares are validly issued, fully
paid and nonassessable, and owned as set forth on Schedule 4.09 hereto. There
are no outstanding subscriptions, warrants, options, convertible securities or
other rights (contingent or other), or commitments therefor, to subscribe for,
purchase or acquire any such capital stock or to pay any dividends on any such
capital stock. The Borrower has no Subsidiaries, other than Inne Dispensables,
nor is it a partner in any partnership, joint venture or other similar entity.
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Section 4.10. No Default. The Borrower is not in default in any respect
in the payment or material performance (i) of any of its material obligations
for the payment of money, or (ii) under any material franchise, license or
leasehold interest and no Default has occurred and is continuing.
Section 4.11. No Secondary Liabilities. There are no outstanding
contracts of guaranty or suretyship made by the Borrower, nor is the Borrower
subject to any other material contingent liability or obligation required to be
shown on the financial statements of the Borrower, except (a) as shown on such
financial statements referred to in Section 4.13 hereof, and (b) the endorsement
of negotiable instruments for deposit or collection or similar transactions in
the ordinary course of business. To the knowledge of the Borrower, the Borrower
is not a party to any materially burdensome contract or agreement, or subject to
any charter or other corporate restriction, which will remain in effect after
the Initial Borrowing Date adversely affecting in any material manner its
management, business, assets, properties, operations, prospects or condition
(financial or other).
Section 4.12. Taxes. The Borrower has timely filed, or caused to be
filed, all federal, state, local and foreign tax returns that are required to be
filed by it and has paid, or caused to be paid, all taxes, assessments, interest
and penalties thereon, on or before the due dates thereof. Except to the extent
that reserves, determined in accordance with GAAP, therefor are reflected in the
most recent consolidated financial statements of the Borrower: (a) there are no
federal, state or local tax liabilities of the Borrower due or to become due for
any tax year ended on or prior to the date of the balance sheet included in the
most recent consolidated financial statements of the Borrower, whether incurred
in respect of or measured by the income of such entity, which are not properly
reflected in such balance sheet, and (b) there are no material claims pending
or, to the knowledge of the Borrower, proposed or threatened against the
Borrower for past federal, state or local taxes, except those, if any, as to
which proper reserves, determined in accordance with GAAP, are reflected in such
most recent financial statements. All such tax reports or returns fairly reflect
the taxes of the Borrower for the periods covered thereby. There are no material
tax deficiencies or delinquencies asserted against the Borrower, and there are
no unpaid assessments, proposals for additional taxes, deficiencies or
delinquencies in the payment of any of the taxes of the Borrower or any
violations of any federal, state, local or foreign tax laws that, to the
knowledge of the Borrower, could reasonably be asserted by any taxing authority.
Except as set forth on Schedule 4.12 hereto, no Internal Revenue Service or
other tax audit of the Borrower has occurred, is pending or, to the knowledge of
the Borrower, threatened, and the results of any completed audits are properly
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reflected in the financial statements. The Borrower has not been granted any
extension by any taxing authority of the limitation period during which any tax
liability may be asserted. All monies required to be withheld by the Borrower
from employees or collected from customers for income taxes, social security and
unemployment insurance taxes and sales, excise and use taxes, and the portion of
any such taxes to be paid by the Borrower to governmental agencies or set aside
in accounts for such purpose have been so paid or set aside, or such monies will
be paid within 60 days of being due and payable, or such monies have been
approved, reserved against and entered upon the books and financial statements
of the Borrower.
Section 4.13. Financial Statements and Condition. The unaudited
consolidated financial statements of the Borrower as of December 31, 1995, and
as of June 30, 1996 for the first six months, complete and accurate copies of
each of which are attached hereto as Schedule 4.13, each (i) present fairly the
financial position of the Borrower and its Subsidiaries on a consolidated and
consolidating basis as of the dates of said statements, and the results of
operations of the Borrower and its Subsidiaries for the periods covered by said
statements of earnings are in accordance with GAAP, except as disclosed therein,
(ii) have been prepared in conformity in all material respects with GAAP,
subject, in the case of the six month statements, only to normal year-end
adjustments consistent with past practices, with respect to historical interim
periods, (iii) disclose all liabilities, direct and contingent, required to be
shown in accordance with such principles. In the opinion of the Borrower, the
Projections reflect the reasonable estimates of the Borrower and its
Subsidiaries on the date made and on the Closing Date of the results of
operations and other information projected therein, and were prepared in good
faith, and on estimates, information and assumptions which are reasonable in the
business judgment of the Borrower in light of current conditions on the date
made and on the date hereof; provided, however, that there can be no assurance
that circumstances may not occur that will modify actual financial results. As
of December 31, 1995, there were no material obligations or liabilities, direct
or indirect, fixed or contingent, which are not reflected in such financial
statements and that are required to be so reflected thereon under GAAP. No
Material Adverse Change has occurred since December 31, 1995.
Section 4.14. Compliance with ERISA. Each Plan that is intended to be
"qualified" within the meaning of Section 401(a) of the IRC either (i) has been
determined by the Internal Revenue Service to be so qualified and each trust
created thereunder has been determined by the Internal Revenue Service to be
tax-exempt under Section 501(a) of the IRC or (ii) has been or will be timely
submitted to the Internal Revenue Service for such determinations, and the
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Borrower has no knowledge of any fact that would indicate that the qualified
status of any such Plan, or the tax-exempt status of any trust created
thereunder, has been materially adversely affected. No "accumulated funding
deficiency" (within the meaning of Section 302 of ERISA or Section 412 of the
IRC) or "waived funding deficiency" (within the meaning of Section 303 of ERISA
or Section 412 of the IRC) has been incurred by any Plan, and the Borrower has
not contemplated or sought to obtain any variance from the minimum funding
standard pursuant to Section 412(d) of the IRC. No Reportable Event or
Prohibited Transaction has occurred with respect to any Plan. There are no
"multiemployer plans" (within the meaning of Section 3(37) of ERISA) which are
"pension plans" (within the meaning of Section 3(2) of ERISA) that are
maintained, or otherwise contributed to, or have ever been maintained or
otherwise contributed to, by the Borrower. The Borrower has not incurred any
liability under Title IV of ERISA arising in connection with the termination of,
or withdrawal from, any Plan covered or previously covered by Title IV of ERISA
nor is there any outstanding liability or obligation to the PBGC (other than for
premiums). Each Plan has been maintained since the date of its adoption in
substantial compliance with its terms and with the requirements prescribed by
any and all statutes, orders, rules and regulations that are applicable to such
Plan, including without limitation funding requirements. No Plan is currently
under investigation, audit or review by the Internal Revenue Service or any
other federal or state agency and, to the knowledge of the Borrower no such
investigation, audit or review is contemplated or under consideration. No Plan
has any liability for federal, state, local or foreign taxes, and no material
claims, suits, actions or proceedings (except those submitted in the ordinary
course of administration) are currently pending against any Plan.
Section 4.15. Retiree Health and Life Insurance Benefits. Except as
described in Schedule 4.15, no retiree health or retiree life insurance benefits
are provided under the terms of any Plan that is maintained, or otherwise
contributed to, by the Borrower for the benefit of employees (including, without
limi-
tation, any retired employees), except as may be required by law.
Section 4.16. Intellectual Property. The Borrower possesses all of its
Intellectual Property required, necessary or desirable to conduct its business
as now operated or as contemplated hereunder to be operated (i) without conflict
with or infringement upon any valid rights of others, and (ii) which are owned
by the Borrower free and clear of any and all Liens or claims, other than in
favor of the Bank Parties or as permitted under Section 7.02 hereof. A summary
of each such right is listed in Schedule 4.16 hereto. Except as disclosed in
Schedule 4.16, the Borrower has not received any written notice, nor has any
officer received any other form of notice, of infringement upon or conflict with
the asserted rights of others. Except as set forth on Schedule 4.16 hereto,
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there are no outstanding options, licenses, or agreements of any kind relating
to the foregoing, nor is the Borrower bound by or a party to any option, license
or agreement of any kind with respect to the patents, patent rights, copyrights,
trade secrets, information, proprietary rights and processes of any other Person
or entity. No stockholder, member, director, officer or employee of the Borrower
has any interest in any such patents, patent rights, trademarks, trademark
rights, trade names, trade name rights, copyrights, trade secrets, information,
proprietary rights and processes.
Section 4.17. Environmental Matters. Except as disclosed in Schedule
4.17 hereto, the Borrower and each parcel of real property owned or leased by it
are in material compliance with all Environmental Laws and Requirements of
Environmental Law; there are no conditions existing currently or, to the
knowledge of the Borrower, likely to exist that would subject the Borrower to
damages, penalties, injunctive relief or cleanup costs in an aggregate amount
exceeding $50,000 under any Environmental Matters or assertions thereof, or
which require or are likely to require cleanup, removal, remedial action or
other response pursuant to Environmental Laws by the Borrower; the Borrower is
not a party to any Environmental Claim or litigation or administrative
proceedings involving an individual claim in excess of $50,000 or claims in the
aggregate in excess of $50,000, nor so far as is known by the Borrower, is any
such litigation or administrative proceeding threatened against the Borrower,
which asserts or alleges that the Borrower has violated or is violating
Environmental Laws or Environmental Permits in any material respect or that the
Borrower is required to clean up, remove or take remedial or other responsive
action due to the disposal, depositing, storage, discharge, leaking or other
release of any hazardous substances or materials; neither the Borrower nor any
parcel of real property owned or leased by it is subject to any Environmental
Claim or judgment, decree, order or citation related to or arising out of
Environmental Matters involving an individual claim in excess of $50,000 or
claims in the aggregate in excess of $50,000 and the Borrower has not been named
or listed as a potentially responsible party by any governmental authority in a
matter arising under any Environmental Matters involving an individual claim in
excess of $50,000 or claims in the aggregate in excess of $50,000; the Borrower
has obtained all Environmental Permits from governmental authorities required
under Environmental Laws relative to each parcel of real property owned or
leased by it; the Borrower is in compliance in any material respect with all
terms and conditions of Environmental Permits, and is also in compliance in all
material respects with all other limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules and timetables
contained in any federal, state or local law or any regulations, code, plan,
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order, decree or judgment relating to public health and safety, worker health
and safety and pollution or protection of the environment or any notice or
demand letter issued, entered, promulgated or approved thereunder, except where
the failure to so comply would not have a Material Adverse Effect; the Borrower
has not received notice (whether written or oral) specifying that certain facts,
events or conditions interfere with or prevent continued compliance with or give
rise to any liability involving an individual claim in excess of $50,000 or
claims in the aggregate in excess of $50,000 under any law, common law or
regulation, related to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling, or the emission, discharge,
release or threatened release into the environment, of any pollutant,
contaminant, or hazardous or toxic material or waste; and there are not now, nor
to the knowledge of the Borrower have there ever been, materials stored,
spilled, deposited, treated, recycled or disposed of on, under or at any parcel
of real property owned or leased by the Borrower, or stored, spilled, deposited,
treated, recycled or disposed of at the direction of the Borrower present in
soils or ground water, that would require cleanup, removal or some other
remedial action under Environmental Laws.
Section 4.18. Correct Information. The information, exhibits and
reports furnished in writing by, or on behalf of, the Borrower to the Bank
Parties in connection with the negotiation and preparation of this Agreement and
the other Related Documents are true and correct, in all material respects, and
do not contain any omissions or misstatements of fact that would make the
statements contained therein misleading or incomplete in any material respect,
which omissions or misstatements reflect facts or circumstances which could
have, individually or in the aggregate, a Material Adverse Effect. There is no
fact now known to the Borrower that has not been disclosed to the Bank Parties
that materially adversely affects the management, business, assets, properties,
operations or condition (financial or other) of the Borrower.
Section 4.19. Investment Company Act. The Borrower 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 subject to any
other statute that regulates the incurring of indebtedness for borrowed money.
Section 4.20. Margin Regulations. The Borrower is not engaged in the
business of extending credit for the purpose of purchasing or carrying "margin
stock" or "margin securities" (within the meaning of Regulation U), none of the
Obligations or liabilities of the Borrower are secured, directly or indirectly,
by "margin stock" or "margin securities", and no part of the proceeds of any
extension of credit hereunder will be used for the purpose, whether immediate,
incidental or ultimate, of purchasing or carrying any margin stock" or "margin
securities", or in a manner which would breach of contravene any of Regulations
G, T, U, or X.
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Section 4.21. Subsequent Funding Representations and Warranties. In
order to induce the Banks to make any Revolving Loans after the Initial
Borrowing Date, the Borrower hereby represents and warrants that, on and as of
the date of the making of each Revolving Loan (a) the representations and
warranties set forth in this Article 4 are true and correct as if made on and as
of such date, except for changes which occur and which are not prohibited by the
terms of this Agreement, (b) except as disclosed in Schedule 4.05 hereto and any
updates delivered to the Bank Parties on and as of the date of the making of
each such Revolving Loan, no litigation or administrative proceeding of or
before any court or governmental body or agency is now pending, nor, to the
knowledge of the Borrower, is any such litigation or proceeding now threatened,
against the Borrower or any of its properties, involving an individual claim in
excess of $50,000 or claims in the aggregate in excess of $50,000, nor, to the
knowledge of the Borrower, is there a valid basis for the initiation of any such
litigation or proceeding, and (c) except as disclosed in Schedule 4.26 hereto
and any updates delivered to the Bank Parties on and as of the date of the
making of each such Revolving Loan, no OSHA Claim, OSHA Action or OSHA Matter is
now pending, nor, to the knowledge of the Borrower, is any such OSHA Claim, OSHA
Action or OSHA Matter now threatened, against the Borrower or any of its
properties, involving an individual claim in excess of $50,000 or claims in the
aggregate in excess of $50,000, nor, to the knowledge of the Borrower, is there
a valid basis for the initiation of any such OSHA Claim, OSHA Action or OSHA
Matter.
Section 4.22. Labor Relations. The Borrower is not a party to any
collective bargaining agreement. There are no lockouts, strikes, labor disputes
or other material controversies pending between the Borrower and any of its
employees, which in the aggregate, might have a Material Adverse Effect.
Section 4.23. Leases. The Leases listed on Schedule 4.23, complete and
correct copies of which have been delivered to the Agent, are the only leases of
real property under which the Borrower is a lessee. The Borrower enjoys peaceful
and undisturbed possession under the Leases, such Leases are valid and
subsisting and are not in default in any material respect, nor has the Borrower
received any written notice of its default under the Leases.
Section 4.24. Insurance. Schedule 4.24 hereto sets forth a summary of
all insurance policies maintained by the Borrower as of the Closing Date. The
insurance maintained by the Borrower is in amounts and of a nature as is
customarily maintained by Persons conducting operations similar to that of the
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Borrower and is with insurance carriers who are rated by A. M. Best Company's
Rating Service as "A" or better or are otherwise satisfactory to the Agent.
Section 4.25. Customers and Suppliers. Set forth on Schedule 4.25
hereto is a list of the 10 largest customers and suppliers of the Borrower as of
the Closing Date for the six months ended June 30, 1996. Except as disclosed
therein, no customer or supplier listed on Schedule 4.25 has, as of the Closing
Date, canceled or otherwise terminated or decreased materially, or threatened to
cancel or otherwise terminate or limit materially, its relationship with the
Borrower. To the knowledge of the Borrower, the relationships with the customers
and suppliers listed on Schedule 4.25 have, as of the Closing Date, been entered
into and are conducted in the ordinary course of business and will not be
adversely affected by the transactions contemplated hereby.
Section 4.26. OSHA Matters. Except as disclosed in Schedule 4.26
hereto, the Borrower is in material compliance with all OSHA Laws and
Requirements of OSHA Law; there are no conditions existing currently or likely
to exist that would subject the Borrower to damages, penalties, injunctive
relief or costs in excess of $50,000 or claims in an aggregate amount exceeding
$100,000 under any OSHA Matters or assertions thereof, or which require or are
likely to require cleanup, removal, remedial action or other response pursuant
to OSHA Laws by the Borrower; the Borrower is not a party to any OSHA Claim or
litigation or administrative proceedings involving an individual claim in excess
of $50,000 or claims in the aggregate in excess of $100,000, nor so far as is
known by the Borrower, is any such litigation or administrative proceeding
threatened against the Borrower, which asserts or alleges that the Borrower has
violated or is violating OSHA Laws or OSHA Permits in any material respect or
that the Borrower is required to clean up, remove or take remedial or other
responsive action; the Borrower is not subject to any OSHA Claim or judgment,
decree, order or citation related to or arising out of OSHA Matters involving an
individual claim in excess of $50,000 or claims in the aggregate in excess of
$100,000; the Borrower is in compliance in any material respect with all terms
and conditions of OSHA Permits, and is also in compliance in all material
respects with all other limitations, restrictions, conditions, standards,
prohibitions, requirements, obligations, schedules and timetables contained in
any federal, state or local law or any regulations, code, plan, order, decree or
judgment relating to public health and safety, worker health and safety or any
notice or demand letter issued, entered, promulgated or approved thereunder,
except where the failure to so comply would not have a Material Adverse Effect.
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Section 4.27. Bank Accounts. Schedule 4.27 hereto lists, as of the
Closing Date and immediately prior thereto, all of the bank, brokerage and other
accounts where the Borrower maintains any of its assets on deposit, for
safekeeping or as collateral, whether in the form of cash, Cash Equivalents,
marketable securities or otherwise.
Representations Concerning the Collateral
Section 4.28. Collateral: Instruments, Etc. (a) None of the Collateral
is evidenced by a promissory note or other instrument, except such promissory
notes or other instruments as have been delivered to the Agent hereunder or will
be delivered to the Agent prior to the Initial Borrowing Date under the Credit
Agreement.
Section 4.29. Receivables. All Receivables (i) represent complete bona
fide transactions which require no further act under any circumstances on the
Borrower's part to make such Receivables payable by the account debtors, (ii) to
the best of the Borrower's knowledge, are not subject to any present, future or
contingent offsets or counterclaims, and (iii) do not represent consignment
sales, guaranteed sales, sale or return or other similar understanding or
obligations of any Affiliate or Subsidiary of the Borrower.
Section 4.30. Name. The correct name of the Borrower is as stated at
the head of this Agreement and, except as set forth on Schedule 4.08 attached
hereto and made a part hereof, the Borrower has no other corporate name or
fictitious name and has not, during the immediately preceding five (5) years,
been known under or used any other corporate or fictitious name.
ARTICLE 5. CONDITIONS PRECEDENT AND SUBSEQUENT
Section 5.01. Conditions Precedent to Initial Funding. The obligations
of the Banks to make any Revolving Loan to the Borrower on the Initial Borrowing
Date are subject to the fulfillment of the following conditions precedent. The
Agent shall have received on or before the Initial Borrowing Date each of the
following documents and instruments, each dated such date, in form and substance
satisfactory to the Agent:
(a) a certificate of the Secretary of the Borrower dated the Closing
Date, certifying that (i) attached thereto are true and complete copies of the
resolutions of the board of directors of the Borrower authorizing the execution,
delivery and performance by the Borrower of this Agreement and the Related
Documents to which it is a party, and (ii) said resolutions are all the
resolutions adopted by the board of directors of the Borrower in connection with
the transactions contemplated thereby and are in full force and effect without
modification as of such date;
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(b) (i) a copy of the Certificate of Incorporation of the Borrower
certified as of a recent date by the Secretary of State of Delaware; (ii) a
certificate of said Secretary of State as to the due organization, corporate
existence and good standing of the Borrower as of a recent date; (iii)
certificates of good standing of the Secretary of State of each jurisdiction in
which the Borrower is qualified to do business; and (iv) a certificate of the
Secretary or Assistant Secretary of the Borrower dated the Closing Date,
certifying (A) that attached thereto is a true and complete copy of the
Certificate of Incorporation and By-laws as in effect on the date of such
certification, (B) that its Certificate of Incorporation has not been amended
since the date of the last amendment thereto indicated in the certificate of the
Secretary of State furnished pursuant to clause (i) above, and (C) as to the
incumbency and signatures of each of its officers executing this Agreement and
the Related Documents to which it is a party;
(c) this Agreement, the Revolving Notes, the Assignment of Leases, the
Leases, the Memorandum of Lease, the Estoppel Letters, the Subordination
Agreement, the Guaranty, the Inventory Confirmations, the Processor Agreements,
the Assignment and Sale Agreement and any other Related Documents duly executed
by all the parties thereto (other than the Bank Parties);
(d) evidence that all actions necessary or, in the opinion of the Agent
and its counsel, desirable, to create and perfect the security interests and
other Liens granted under this Agreement and the Related Documents, have been
duly taken and that there are no security interests senior to the security
interests granted in favor of the Bank Parties;
(e) receipt of all appropriate Uniform Commercial Code, tax lien and
judgment searches, dated as of a date that is within a recent date of the
Closing Date;
(f) an opinion of Graubard Mollen & Miller, counsel to the Borrower, or
other counsel satisfactory to the Agent, substantially in the forms of Exhibit
5.01(f) hereto;
(g) such consents, approvals or acknowledgments with respect to such of
the transactions hereunder as may be necessary or as the Agent or its counsel
may deem appropriate;
(h) Intentionally Omitted.
(i) the Borrower shall have delivered to the Agent the financial
statements and Projections set forth in Section 4.13 hereof;
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(j) the Borrower shall have delivered to the Agent a condensed pro
forma consolidated balance sheet as of the Closing Date reflecting the Revolving
Loans;
(k) a Formula Availability Certificate, in substantially the form of
Exhibit 5.01(k) hereto, showing that, after giving effect to the consummation of
all transactions contemplated by this Agreement and the payment of all
Transaction Costs, and after subtracting trade payables 60 days or more past
due, all checks issued but not yet paid, and any uncovered book overdrafts, the
Available Revolving Commitment is not less than $850,000;
(l) a certificate showing that, at the time of the Closing Date and
after giving effect to the consummation of all other transactions contemplated
by this Agreement, (i) the representations and warranties contained in this
Agreement and in the other Related Documents shall be true and correct on and as
of such date, before and after giving effect to the initial funding hereunder
and to the application of the proceeds therefrom, as though made on or as of
such date; and (ii) before and after giving effect to the initial funding
hereunder, no Event of Default or Default shall have occurred or would result in
such Default or Event of Default; and the Agent shall have received a
certificate of the Borrower signed on its behalf by its president or chief
financial officer that (A) each of the Financial Covenants contained in Article
9 is complied with by the Borrower, and calculating such covenants (as of the
financial statements of the Borrower dated as of June 30, 1996) (B) no Material
Adverse Change has occurred since December 31, 1995, (C) no material litigation
or administrative proceeding of or before any court or governmental body or
agency is pending or threatened against the Borrower or any of its properties
other than as disclosed in Schedule 4.05 hereto, (D) the Borrower is in
compliance with all pertinent federal, state and local laws, rules and
regulations, including, without limitation, those with respect to ERISA, OSHA
and all Environmental Laws, except where the violation of which would not have a
Material Adverse Effect, and (E) showing a breakdown of all of the uses of
proceeds of the Revolving Loans and Transaction Costs, which allocation is
satisfactory to the Agent;
(m) evidence that the Borrower has taken all actions necessary to open
the bank accounts with the Agent referred to in Section 6.12 hereof;
(n) evidence that, as of the Closing Date, the Borrower has paid all
past and current premiums due and payable on its existing insurance policies,
together with all loss payee/additional insured endorsements, duly executed,
required under Section 6.02 hereof to be delivered on or before the Closing
Date;
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(o) evidence that the Agent and its counsel or accountants shall have
completed their business and legal due diligence investigation (including,
without limitation, their OSHA due diligence, as requested by the Agent and
review of all material contract, including, but not limited to, vendor supply
agreements) of the Borrower to the Agent's satisfaction; and the Agent shall not
have discovered any fact, which in its reasonable determination would make the
consummation of the transactions contemplated by this Agreement or the other
Related Documents not in its best interest;
(p) a description of the organizational structure and capitalization of
the Borrower, which structure and capitalization shall be satisfactory to the
Agent in all respects, which shall be set forth on Schedule 4.09;
(q) evidence that all of the Borrower's existing Indebtedness has been
satisfied in full, except for any Indebtedness set forth on Schedule 7.01
hereto;
(r) payment in full of all amounts then due and payable under the terms
of this Agreement, and (ii) all of the Agent's out-of-pocket expenses
(including, without limitation, the reasonable fees and disbursements of the
Agent's counsel); and
(s) such other and further documents as the Agent and its counsel may
have reasonably requested and all legal matters incident to this Agreement, the
transactions contemplated hereby and the Revolving Loans shall be reasonably
satisfactory to the Agent and its counsel.
Section 5.02. Conditions Precedent to Initial and Subsequent Fundings.
The obligation of the Banks to make or continue any Revolving Loan (including
any Revolving Loans to be made on the Initial Borrowing Date) shall be subject
to the fulfillment of the following conditions precedent on or before the
relevant Borrowing Date:
(a) the Agent shall have received notice by the Borrower (by telephone
or telecopy) and if requested by the Agent, a Notice of Borrowing required by
Section 2.02(b);
(b) (i) in the case of the funding of a new Revolving Loan, the
representations and warranties set forth in Section 4.21 hereof and in the other
Related Documents shall be true and correct on and as of such Borrowing Date as
though made on and as of such date, (ii) in the case of the funding of a new
Revolving Loan, the Borrower shall then be in compliance with all the terms and
provisions of this Agreement and the Revolving Notes and the other Related
Documents to which it is a party, (iii) no Event of Default or Default shall
have occurred and be continuing, and (iv) the Agent, as of the Initial Borrowing
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Date and thereafter at the discretion of the Agent, shall have received a
certificate of the Borrower signed on its behalf by its president or its chief
financial officer to such effect;
(c) the Agent shall have received, as of the Initial Borrowing Date
only (if it is different from the Closing Date), the legal opinion of counsel to
the Borrower, in form and substance satisfactory to the Agent, as to the
continuing accuracy of prior opinions, and as to any other matters on which the
Agent may reasonably request a legal opinion;
(d) in the case of the funding of a Revolving Loan, the Agent shall
have received from the Borrower a consolidated and consolidating Formula
Availability Certificate, substantially in the form of Exhibit 5.01(k) hereto,
having as its determination date the last day of the month immediately preceding
the month in which date of funding occurs;
(e) in the case of the funding of a new Revolving Loan, the Agent shall
have received all fees payable pursuant to this Agreement; and
(f) the Agent shall have received such other and further documents,
certificates, reports and other information with respect to the Borrower as the
Agent may reasonably request.
ARTICLE 6. AFFIRMATIVE COVENANTS
The Borrower hereby covenants and agrees that, from and after the date
of execution of this Agreement and so long as any amount may be borrowed
hereunder or is otherwise due to the Banks under this Agreement or any Related
Document is not indefeasibly repaid in full, the Borrower shall comply with each
of the following covenants:
Section 6.01. Maintenance of Corporate Existence and Properties. The
Borrower shall, and will cause its Subsidiaries to, do or cause to be done all
things necessary to preserve and keep in full force and effect its legal
existences and all of its other rights, franchises and Intellectual Property,
and comply with all laws applicable to it; continue to conduct its businesses
substantially as now and proposed to be conducted; and at all times, maintain,
preserve and protect all franchises and Intellectual Property, and preserve all
the remainder of its properties in use or useful in the conduct of its business
and keep the same in good repair, working order and condition and from time to
time make, or cause to be made, all necessary and proper repairs, renewals and
replacements, betterments and improvements thereto so that the business carried
on in connection therewith may be properly conducted at all times.
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Section 6.02. Insurance. (a) The Borrower will, and will cause its
Subsidiaries to, maintain or cause to be maintained, at its own expense, with
financially sound and reputable insurers, who are rated by A. M. Best Company's
Rating Service as "A" or higher or, as to workers' compensation or similar
insurance, in an insurance fund or by self-insurance authorized by the laws of
the jurisdiction in question, insurance with respect to its properties and
business against loss or damage of the kinds customarily insured against by
corporations of established reputation engaged in the same or similar businesses
and similarly situated, of such type and in such amounts including appropriate
deductible levels as are customarily carried under similar circumstances by such
other corporations. Each policy for (i) liability insurance shall provide for
all losses to be paid on behalf of the Agent and the Borrower as their
respective interests may appear and with all reimbursements being paid directly
to the Person who shall have incurred liability covered by such insurance, and
(ii) property damage/casualty insurance which shall (A) not later than the
Initial Borrowing Date, name the Agent as the first loss payee and additional
insured party thereunder (without any representation or warranty by or
obligation upon the Agent), (B) provide that there shall be no recourse against
the Agent for payment of premiums or other amounts with respect thereto, and (C)
provide that at least thirty (30) days' prior written notice of material
amendment, material modification, cancellation, termination or of lapse shall be
given to the Agent and each Bank by the insurer. For all property
damage/casualty insurance, the Borrower will, and will cause its Subsidiaries
to, use its best efforts to have the insurer(s) agree that any loss thereunder
shall be payable to the Agent notwithstanding any action, inaction or breach of
representation or warranty by the Borrower or any Subsidiary. Not later than
five (5) Business Days prior to the renewal, replacement or material
modification of any policy or program, the Borrower shall deliver or cause to be
delivered to the Agent, in such reasonable detail as the Agent may request, a
schedule setting forth for each such policy or program: (i) the amount of such
policy, (ii) the risks and amounts (with deductibles) insured against by such
policy, (iii) the name of the insurer and each insured party under such policy,
and (iv) the policy number of such policy. The Borrower will, and will cause its
Subsidiaries to, if so requested by the Agent, deliver to the Agent the original
policy, and duplicate policies to each Bank, of such insurance and, as often as
the Agent may reasonably request, a report of a reputable insurance broker with
respect to such insurance. Further, the Borrower will, and will cause its
Subsidiaries to, at the request of the Agent, duly execute and deliver
instruments of assignment of such insurance policies to comply with the
requirements of this Section 6.02 and cause the respective insurers to
acknowledge notice of such assignment.
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(b) The Borrower will, and will cause each Subsidiary to, use all and
any insurance proceeds from property damage/casualty insurance or condemnation
awards it receives to restore or replace such property as soon as practicable;
provided, however, that in the event that (i) a Default or Event of Default has
occurred and is continuing, or (ii) no Default or Event of Default has occurred
and is continuing and the individual or aggregate amount of any and all such
insurance proceeds or condemnation awards exceeds $250,000, then the Borrower
will, and will cause such Subsidiary to, not restore or replace such property
without the prior written consent of the Agent given in its reasonable
discretion, and absent such consent, such insurance proceeds or condemnation
awards shall forthwith be paid to the Agent and applied to the permanent
reduction of the Obligations of the Borrower then outstanding, without penalty
or premium, in such order as the Agent shall determine.
(c) Promptly upon an officer of the Borrower obtaining knowledge of the
occurrence of any damage to, or loss or taking of, any of the property of the
Borrower or its Subsidiaries in excess of $100,000, the Borrower will, and will
cause such Subsidiary to, provide to the Agent written notice (or telephone
notice promptly confirmed in writing) thereof and a description of the property
damaged, lost or taken.
Section 6.03. Punctual Payment. The Borrower shall duly and punctually
pay the principal of and interest on the Revolving Notes and any other amount
due under this Agreement or any of the Related Documents to which it is a party,
including, without limitation, the amounts payable under Section 2.10.
Section 6.04. Payment of Liabilities. The Borrower will, and will cause
its Subsidiaries to, pay and discharge in the ordinary course of business, where
applicable, all of their respective obligations and liabilities (including,
without limitation, tax liabilities and other governmental charges), except
where the same may be contested in good faith by appropriate proceedings, and
maintain in accordance with GAAP appropriate reserves for any of the same.
Section 6.05. Compliance with Laws. The Borrower will, and will cause
its Subsidiaries to, observe and comply with all applicable material laws,
statutes, rules, regulations or other requirements having the force of law,
including, without limitation, all Environmental Laws and OSHA.
Section 6.06. Payment of Taxes, Etc. The Borrower will, and will cause
its Subsidiaries to, pay and discharge all lawful taxes, assessments, and
governmental charges or levies imposed upon it, or upon their respective income
or profits, or upon any of their respective property (including the Collateral),
before the same shall become in default or within 60 days thereafter, as well
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as all lawful claims for labor, materials, and supplies which, if unpaid, might
become a Lien or charge upon such property or any part thereof within 60 days of
such claims being due and payable; provided, however, that no such tax,
assessment, charge, levy or claim need be paid and discharged so long as the
validity thereof shall be contested in good faith by appropriate proceedings and
there shall have been set aside on the books of such Person adequate reserves in
accordance with GAAP applied with respect thereto, but such tax, assessment,
charge, levy or claim shall be paid before the property subject thereto shall be
sold to satisfy any Lien which had attached as security therefor.
Section 6.07. Financial Statements and Other Information.
The Borrower shall furnish to each Bank Party:
(a) within 90 days after the end of each Fiscal Year, audited
consolidated and consolidating balance sheets of the Borrower and its
Subsidiaries as at the end of such Fiscal Year and the related audited
consolidated and consolidating statements of income and changes in financial
position of the Borrower and its Subsidiaries for such Fiscal Year, prepared in
accordance with GAAP, including consolidated and consolidating financial reports
with all related schedules and notes attached thereto, setting forth, in each
case, in comparative form, corresponding figures from the preceding Fiscal Year,
all in reasonable detail, and prepared by, and with an unqualified certification
of, independent public accountants satisfactory to the Agent, accompanied by a
certificate signed by the chief financial officer of the Borrower (A) setting
forth, in each case, in comparative form, corresponding figures for such Fiscal
Year from the annual budget and plan referred to in clause (f) below, all in
reasonable detail, (B) calculating and stating each of the financial covenants
contained in Article 9 hereof and (C) commenting upon the financial statements
to an extent reasonably satisfactory to the Agent, as requested by the Agent;
(b) within 45 days after the end of each Fiscal Quarter (other than the
Fiscal Quarter ending on the last day of the Fiscal Year), quarterly unaudited
consolidated and consolidating balance sheets of the Borrower and its
Subsidiaries as at the end of such Fiscal Quarter and the related unaudited
consolidated and consolidating statements of income and changes in financial
position of the Borrower and its Subsidiaries for such Fiscal Quarter, prepared
in accordance with GAAP (but without footnotes) subject to normal year-end
adjustments, including comparative statements from the prior Fiscal Year, and
accompanied by a certificate signed by the chief financial officer of the
Borrower (i) setting forth in each case, in comparative form, figures for the
corresponding Fiscal Quarter in the annual budget and plan referred to in clause
(f) below and figures for the corresponding Fiscal Quarter in the preceding
Fiscal Year, all in reasonable detail, (ii) calculating and stating each of the
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financial covenants contained in Article 9 hereof, and (iii) commenting upon the
financial statements to an extent reasonably satisfactory to the Agent, as
requested by the Agent, and such other information as the Agent may from time to
time reasonably request;
(c) within 30 days after the end of each month, monthly unaudited
consolidated and consolidating balance sheets of the Borrower and its
Subsidiaries as at the end of such calendar month and the related unaudited
consolidated and consolidating statements of income and changes in financial
position of the Borrower and its Subsidiaries for such calendar month, prepared
in accordance with GAAP (but without footnotes) subject to normal year-end
adjustments, setting forth in each case, in comparative form, figures relating
to figures for the corresponding months in the annual budget and plan referred
to in clause (f) below and the corresponding months in the preceding Fiscal
Year;
(d) immediately upon any revision to any of the financial statements
referred to in clauses (a), (b) or (c) above, such financial statements, as
revised;
(e)(i) within 30 days prior to the end of each Fiscal Year, an annual
updated long-range business and strategic budget and plan, including cash flow
and other financial projections (setting forth in detail the assumptions
therefor) on a quarterly basis for the Borrower and its Subsidiaries for the
immediately following Fiscal Year, and (ii) concurrently with the delivery of
the financial statements referred to in paragraphs (a) and (b) above and with
each monthly report referred to in paragraph (c) above, a written report
summarizing all material variances from such annual updated long-range business
and strategic plans submitted by the Borrower pursuant to clause (i) above and a
discussion and analysis by management of the Borrower with respect to such
variances;
(f) as soon as available, a true copy of any "management letter" or
other communication to the Borrower (or any of its Subsidiaries), its officers
or its Board of Directors by its accountants regarding matters which arose or
were ascertained during the course of the audit and which said accountants
determined ought to be brought to management's attention;
(g) upon the occurrence and continuation of an Event of Default,
appraisals of any of the assets of the Borrower as the Agent may from time to
time request;
(h) immediately upon any executive officer of the Borrower or any of
its Subsidiaries obtaining knowledge (a) of any condition or event which
constitutes a Default or Event of Default, (b) of any condition or event which,
in the opinion of management of the Borrower, would have a Material Adverse
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Effect, (c) that any Person has given any notice to the Borrower or any of its
Subsidiaries or taken any other action with respect to a claimed default or
event or condition of the type referred to in clause (a) of Section 10.01
hereof, or (d) of the institution of any litigation involving claims against the
Borrower and/or any of its Subsidiaries equal to or greater than $50,000 with
respect to any single cause of action or $50,000 with respect to the aggregate
of all causes of action or any adverse determination in any litigation involving
a potential liability to the Borrower and/or any of its Subsidiaries equal to or
greater than $50,000 with respect to any single cause of action or $50,000 with
respect to the aggregate of all causes of action, an officers' certificate
specifying the nature and period of existence of any such condition or event, or
specifying the notice given or action taken by such holder or Person and the
nature of such claimed Default, Event of Default, event or condition, and what
action, if any, the Borrower and/or such Subsidiary has taken, is taking or
proposes to take with respect thereto;
(i) immediately upon any officer of the Borrower becoming aware of the
occurrence of (i) any "reportable event", as such term is defined in Section
4043 of ERISA, in connection with any Plan or trust created thereunder, (ii) an
event requiring the Borrower, its Subsidiaries or any ERISA Affiliate to provide
security to a Plan under Section 401(a)(29) of the IRC, (iii) any "prohibited
transaction" incurred by the Borrower, any of its Subsidiaries or any
"Disqualified Person" (as defined in Section 4975 of the IRC) (other than an
exempt "prohibited transaction"), as such term is defined in section 4975 of the
IRC or in section 406 of ERISA in connection with any Plan or any trust created
thereunder, (iv) the institution of proceedings or the taking or expected taking
of action by the PBGC or the Borrower or any of its Subsidiaries to terminate or
withdraw or partially withdraw from a Multi-employer Plan within the meaning of
Section 4203 or 4205 of ERISA or under Section 4062, 4063 or 4064 of ERISA (in
connection with any Plan or any trust created thereunder), (v) any "accumulated
funding deficiency" within the meaning of Section 412 of the IRC or Section 302
of ERISA, (vi) any employee benefit Plan and trust which is intended to be
qualified within the meaning of Section 401(a) and tax exempt within the meaning
of 501(a) of the IRC, no longer being qualified or tax exempt, (vii) any failure
to comply with Section 4980 of the IRC, (viii) any action which would materially
increase the cost of any employee benefit Plan or (ix) any other action taken by
the Internal Revenue Service, the PBGC or the Department of Labor in connection
with any employee benefit Plan and trust of the Borrower or its Subsidiaries, a
written notice specifying the nature thereof, what action, if any, the Borrower
or any such Subsidiary has taken, is taking or proposes to take with respect
thereto, and, when known, any action taken or threatened by the Internal Revenue
Service or the PBGC with respect thereto; and
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(j) as soon as practicable, such other information concerning the
financial affairs and condition (financial or otherwise) of the Borrower and its
Subsidiaries as any of the Bank Parties may from time to time reasonably
request.
Section 6.08. Accounts and Reports. The Borrower will, and will cause
its Subsidiaries to, keep accurate records and books of account in which
complete, accurate and correct entries will be made of all dealings or
transactions in relation to their respective businesses and affairs, as
applicable, and the Collateral, in all material respects.
Section 6.09. Inspection; Audit. (A) The Borrower shall permit any
authorized representative or agent designated by the Bank Parties to visit,
inspect, audit and make extracts and/or copies of the properties and condition
of the Borrower, including its books of account and accounts receivable, and the
other Collateral, including, but not limited to, management letters prepared by
independent accountants; and to discuss its affairs, finances and accounts with
its officers and independent accountants at such times and as often as may be
requested by the Bank Parties, and to make and obtain such confirmations and
examinations of the books and records of the Borrower as the Bank Parties deem
appropriate (including without limitation by means of verifications from the
Borrower's account debtors). The Borrower will deliver to the Agent any
instrument necessary for the Bank Parties to obtain records from any service
bureau maintaining records for the Borrower.
(B) The Borrower shall provide to the Bank, at the request of
the Agent made in its commercially reasonable discretion from time to time,
environmental audit reports in form and substance satisfactory to the Agent,
provided, that absent an Event of Default existing, no more than one such
environmental audit report per calendar year shall be at the expense of the
Borrower.
Section 6.10. Auditors. The Borrower shall at all times retain a firm
of independent public accountants satisfactory to the Agent, Grant Thornton LLP
being satisfactory, to act as the auditors of such Borrower, including, without
limitation, to perform the auditing functions required under the terms of this
Article 6.
Section 6.11. ERISA. The Borrower will, and will cause its Subsidiaries
to, (a) maintain each Plan so as to satisfy the qualification requirements of
Section 401(a) of the IRC in all material respects, (b) contribute in a timely
manner to each Plan amounts sufficient to satisfy in all material respects, the
minimum funding requirements of Section 302 of ERISA and Section 412 of the IRC
without any application for a waiver from any such funding requirements, (c)
cause each Plan to comply in all material respects with applicable law, (d) pay
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in a timely manner all required premiums to the PBGC, (e) furnish to the Agent
(i) as soon as possible and in any event within 30 days after the Borrower or
such Subsidiary knows thereof, notice of the occurrence or expected occurrence
of any ERISA Termination Event, waiver of the minimum funding requirement for
any Plan or any material Prohibited Transaction with respect to any Plan and, in
addition to each such notice, whichever of the following may be applicable: (A)
a certificate of the Borrower or such Subsidiary signed on its behalf by the
chief executive officer or chief financial officer of the Borrower or such
Subsidiary, as the case may be, setting forth details as to such ERISA
Termination Event, waiver or Prohibited Transaction and the action that the
Borrower and/or such Subsidiary is taking or proposes to take with respect
thereto, together with a copy of any notice of such ERISA Termination Event,
waiver of Prohibited Transaction that may be required to be filed with the PBGC
or the Internal Revenue Service or any other governmental agency, and (B) any
notice delivered by the PBGC evidencing its intent to institute termination
proceedings or any notice to the PBGC that such Plan is to be terminated, as the
case may be; (ii) promptly upon the Agent's request, a copy of each summary
annual report with respect to each Plan; and (iii) promptly upon the Agent's
request, copies of (A) all correspondence with the PBGC, the Secretary of Labor
or any representative of the Internal Revenue Service with respect to any Plan
relating to an actual or threatened change or development that could have a
Material Adverse Effect, and (B) copies of all actuarial valuations received by
the Borrower with respect to any Plan.
Section 6.12. Bank Accounts; Lockbox. (A) The Borrower will, and will
cause its Subsidiaries to, maintain at all times all corporate operating demand
deposit, collection and checking account with the Agent as of the Closing Date,
except for payroll accounts for the Borrower; provided, however, that all
amounts in such payroll accounts are only amounts required by the Borrower to
meet its payroll in the ordinary course of its business, which is consistent
with its past practice. (B) The Borrower, the Agent and the Banks shall enter
into a Lockbox Agreement (the "Lockbox Agreement") in form and substance
satisfactory to the Agent; the Lockbox Agreement will remain continuously in
effect and will provide that all remittances from account debtors of the
Borrower shall be credited to the Borrower's account one (1) Business Day after
the Business Day that the Agent receives such remittances by wire transfer,
electronic depository check or otherwise in immediately available funds. The
Borrower will establish and maintain such lockbox arrangements with the Agent
that are at all times satisfactory in form and substance to the Agent.
Section 6.13. UCC Filings. Within 30 days of the Initial Borrowing Date,
the Borrower shall deliver to the Agent UCC search reports evidencing UCC
filings made in each jurisdiction in which UCC-1s were filed on behalf of the
Bank Parties.
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Section 6.14. Inventory Confirmations, Processor Agreements and
Mortgagee Consents. Within 15 Business Days of the request of the Agent, the
Borrower shall deliver to the Agent fully executed Inventory Confirmations,
Processor Agreements and/or Mortgagee Consents, with respect to such Inventory
locations, third parties and Leased Properties as the Agent shall in its sole
discretion from time to time deem appropriate.
ARTICLE 7. NEGATIVE COVENANTS
The Borrower hereby covenants and agrees that, from and after the date
of execution of this Agreement and so long as any amount may be borrowed
hereunder or is otherwise due to the Banks under this Agreement or any Related
Document is not indefeasibly repaid in full, the Borrower shall comply with each
of the following covenants:
Section 7.01. Indebtedness. The Borrower shall not, and shall not
permit any of its Subsidiaries to, directly or indirectly, create, incur, assume
or otherwise become or remain liable with respect to any Indebtedness other
than:
(a) Indebtedness of the Borrower and its Subsidiaries to the Banks
incurred pursuant to this Agreement or the other Related Documents;
(b) Indebtedness of the Borrower which is secured by the Liens referred
to in Section 7.02(c) hereof and incurred in the normal course of business in
connection with installment purchases or Capitalized Leases of equipment or
fixed assets, in an aggregate amount not exceeding $500,000 at any time
outstanding;
(c) taxes, assessments, and governmental charges with respect to the
Borrower the extent that payment thereof shall not at the time be required to be
made pursuant to the provisions of Section 6.06 hereof;
(d) current trade accounts payable or accrued expenses, operating lease
obligations, customer deposits and deferred liabilities other than for borrowed
money, all incurred and continuing in the ordinary course of business, exclusive
of trade accounts payable and operating lease obligations which remain unpaid
for a period longer than six months after the same shall have become due and
payable, unless they shall be contested in good faith and, where appropriate, by
appropriate proceedings; and
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(e) existing Indebtedness, not otherwise listed in clauses (a) through
(e) above, listed on Schedule 7.01 hereto.
Section 7.02. Liens. The Borrower shall not, and shall not permit any
of its Subsidiaries to, directly or indirectly, create, incur, assume or permit
to exist any Lien on or with respect to any of its property or assets, whether
now owned or hereafter acquired (including the Collateral), except (a) Liens
arising under this Agreement and the Related Documents in favor of the Bank
Parties, (b) Customary Permitted Liens, (c) Liens incurred in connection with
the purchase or acquisition of equipment or fixed assets, as security for the
deferred purchase or acquisition price of such equipment or assets, each of
which Liens shall extend only to the equipment or fixed assets so purchased or
acquired and shall secure only up to 100% of the deferred purchase or
acquisition price thereof; provided, however, that the aggregate amount of all
Indebtedness secured by such Liens shall not exceed at any time the Indebtedness
permitted under Section 7.01(b) hereof minus the aggregate amount of all then
outstanding Capitalized Leases, (d) other existing Liens disclosed on Schedule
7.02 hereto, (e) extensions, renewals or replacements of any Lien referred to in
clauses (a) and (c) above; provided, however, that (i) in the case of clause (c)
above, the principal amount of the obligation secured thereby is not increased
and (ii) any such extension, renewal or replacement is limited to the property
originally encumbered thereby.
Section 7.03. Investments. The Borrower shall not, and shall not permit
any of its Subsidiaries to, directly or indirectly, except as otherwise
expressly permitted by Section 6.11 hereof, purchase or otherwise acquire any
Securities of any Person, or make any direct or indirect Revolving Loan, advance
or other financial accommodation or any capital contribution to any Person, or
make any investment in any Person, except investments in Cash Equivalents.
Section 7.04. Contingent Obligations. The Borrower shall not, and shall
not permit any of its Subsidiaries to, directly or indirectly, create, incur,
assume or otherwise become or remain liable with respect to any contingent
Indebtedness or other obligation or liability of any Person other than, (a)
guaranties resulting from endorsement of negotiable instruments for collection
in the ordinary course of business; and (b) warranties with respect to
performance, and not relating to Indebtedness of any Person, which have been or
are made in the ordinary course of business of such Person to its customers.
Section 7.05. Fundamental Changes. The Borrower shall not, and shall
not permit any of its Subsidiaries to, enter into any merger or consolidation,
or liquidate, wind-up or dissolve, or convey, lease, sell, transfer or otherwise
dispose of, in one transaction or a series of transactions, all or substantially
all of its business, property or assets, whether now or hereafter acquired.
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(b) The Borrower shall not, and shall not permit any of its
Subsidiaries to, purchase or acquire all or substantially all of the business,
properties, assets or Securities of any Person, or create or form any
Subsidiary, without the prior written consent of the Agent.
(c) The Borrower shall not, and shall not permit any of its
Subsidiaries to, change the nature of its respective business as currently
conducted as contemplated hereunder to be conducted or engage in any new
business which is not an integral part of its business as currently conducted.
(d) The Borrower shall not permit Inne Dispensables at any time to fail
to be an inactive corporation, (i) having no assets, other than assets having a
fair market value of less than $10,000, (ii) having no liabilities, except
solely immaterial accrued franchise taxes incurred in maintaining its corporate
existence, and (iii) operating no business; provided that the Agent and the
Banks hereby consent to the merger of Inne Dispensables into the Borrower, with
the Borrower being the surviving corporation, on prior notice to the Agent
pursuant to documentation reasonably satisfactory to Agent.
(e) The Borrower shall not, and shall not permit any of its
Subsidiaries to, permit there to occur a Change in Control.
Section 7.06. Dispositions of Assets. The Borrower shall not, and shall
not permit any of its Subsidiaries to, assign, sell, lease or otherwise dispose
of, whether by sale, merger, consolidation, liquidation, dissolution,
abandonment or otherwise, any of its assets, except dispositions of (a)
Inventory in the ordinary course of business, (b) obsolete, non- functioning or
surplus equipment; provided, however, that the net proceeds of such dispositions
are used solely to purchase replacement or substitute equipment of equal or
greater value.
Section 7.07. Sales and Leasebacks. The Borrower shall not, and shall
not permit any of its Subsidiaries to, become liable directly or indirectly,
with respect to any lease, whether a Capital Lease or any other lease, of any
property (whether real or personal or mixed), whether now owned or hereafter
acquired, which the Borrower has sold or transferred or is to sell or transfer
to any other Person.
Section 7.08. Issuances and Dispositions of Securities. The Borrower
shall not, and shall not permit any of its Subsidiaries to, make any change in
its capital structure or issue any Securities.
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Section 7.09. Dividends and Redemptions. (a) The Borrower shall not,
and shall not permit any of its Subsidiaries to:
(i) declare, pay or make any dividend or other distribution of
assets, properties, cash, rights, obligations or Securities on account of any
shares of its Securities, whether by redemption, purchase, retirement or other
acquisition;
provided that if (i) there does not then exist any Default or Event of
Default, (ii) the dividend, if made, would not give rise to the
occurrence of any Default or Event of Default, (iii) following the
payment of the dividend there would exist no Overadvance and there
would exist under the Formula Amount not less than $850,000 of
availability (i.e. the Formula Amount less Revolving Loans outstanding
less the face amount of Letters of Credit outstanding less trade
payables more than 60 days past due less the amount of checks
outstanding less uncovered book overdrafts), (iv)
INTENTIONALLY OMITTED
, (v) the amount of the dividend is not in
excess of 50 per cent of Consolidated EBITDA for the Fiscal Year for
which such audited financial statements were delivered and (vi) either
(x) there shall have been no Overadvance outstanding in six of the last
12 months, or (y) if there shall have been an Overadvance in six of the
last 12 months, if an Overadvance is thereafter made, the payee of such
dividend shall repay the dividend to the Borrower; then the Borrower
may pay such dividend to the Guarantor.
(ii) make any payment, prepayment or retirement of
Indebtedness of the Borrower or any of its Subsidiaries other than (A) payments
pursuant to this Agreement and the Revolving Notes, (B) mandatory scheduled
payments made in accordance with the terms of such Indebtedness, (C) payments of
trade debt made in the ordinary course of business, and (D) Permitted Payments
as defined in the Subordination Agreement.
(b) The Borrower shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly, purchase, redeem or retire or otherwise
acquire any of its capital stock.
Section 7.10. Amendment of Certain Agreements. The Borrower shall not,
and shall not permit any of its Subsidiaries to make any amendment or
modification to its charter or organizational documents or the Leases, without
the prior written consent of the Agent.
Section 7.11. Transactions with Affiliates and Certain Other Persons.
The Borrower shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, enter into or permit to exist any transaction
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(including, without limitation, the purchase, sale, lease, or exchange of any
property and guarantees and assumptions of obligations of an Affiliate) with any
stockholder, officer, director, employee or Affiliate of the Borrower or such
Subsidiary, other than the payment of salary and other customary compensation
for a similarly situated business of its directors, officers and employees in
the ordinary course of its business.
Section 7.12. Management. [Intentionally Omitted]
Section 7.13. Certain other Transactions. The Borrower shall not, and
shall not permit any of its Subsidiaries to, enter into any transaction that
materially adversely affects the Collateral.
Section 7.14. Fiscal Year. The Borrower shall not, and shall not permit
any of its Subsidiaries to, change its Fiscal Year.
Section 7.15. Formula Amount. The Borrower shall not request the making
of any Revolving Loan or issuance of any Letter of Credit hereunder, which after
giving effect to the making of such Revolving Loan or issuance of such Letter of
Credit, would cause at any time the outstanding aggregate principal amount of
the Revolving Loans plus the face amount of all outstanding Letters of Credit,
to exceed the Available Revolving Commitment; neither shall the Borrower permit
at any time the outstanding aggregate principal amount of the Revolving Loans
plus the face amount of all outstanding Letters of Credit to exceed the
Available Revolving Commitment.
Section 7.16. ERISA. The Borrower shall not, and shall not permit any
of its Subsidiaries to, be or become obligated to PBGC in excess of $100,000 or
be or become obligated to the Internal Revenue Service with respect to excise or
other penalty taxes provided for in Section 4975 of the IRC in excess of
$100,000. The Borrower shall not, and shall not permit any of its Subsidiaries
to, seek any waiver from the minimum funding standard set forth under Section
302 of ERISA or Section 412 of the IRC or engage in any material Prohibited
Transaction with respect to any Plan.
Section 7.17. Regulations G, T, U and X. The Borrower shall not apply,
directly or indirectly, any part of the proceeds of the Revolving Loans for the
purpose, whether immediate, incidental or ultimate, of purchasing or carrying
any "margin security" as defined in Regulation U or for the purpose of reducing
or retiring any Indebtedness which was originally incurred for any such purpose,
or in violation of Regulation G, T, U or X.
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Section 7.18. Subsidiaries. The Borrower shall not, and shall not
permit any of its Subsidiaries to, form any Subsidiary without the prior written
consent of the Required Banks, and any such Subsidiary shall execute and deliver
a Subsidiary Guaranty, Subsidiary Pledge Agreement and Subsidiary Security
Agreement, each in form and substance satisfactory to the Agent.
Section 7.19. Post-Closing Items. The Borrower shall not fail to
complete and perform those items listed on Schedule 7.19 on or before the dates
therein listed.
Section 7.20. Smithtown. The Borrower shall not permit there to be more
than $20,000 of Collateral at its office in Smithtown, New York, without the
prior written consent of the Agent.
ARTICLE 8. COVENANTS CONCERNING COLLATERAL
Section 8.01. Maintenance and Sale of Collateral. (a) The Borrower
shall preserve and maintain the security interest created by this Agreement and
will protect and defend its title to the Collateral so that the security
interest so granted shall be and remain a continuing first and prior perfected
security interest in the Collateral. The Borrower will not create, assume or
suffer to exist any security interest or other lien or encumbrance in the
Collateral except Permitted Liens. The Borrower shall not dispose of any of the
Collateral, whether by sale, lease or otherwise, except for (i) the sale of
Inventory in the ordinary course of business, and (ii) the disposition or
transfer in the ordinary course of business of obsolete or worn- out Equipment,
only to the extent that the proceeds thereof are used to repay the Revolving
Loans, in accordance with Section 2.05(b) hereof.
(b) The Borrower shall maintain books and records pertaining
to the Collateral in such detail, form and scope as the Agent may reasonably
require, marked to evidence the lien of the lien of the Agent in the Collateral.
Section 8.02. Taxes, Etc. The Borrower shall pay all taxes, assessments
and other charges lawfully levied or assessed upon its properties or upon any of
the Collateral when due as and to the extent required by the Credit Agreement.
If any such tax or other charge or assessment remains unpaid after the date
fixed for its payment (except where the same may be contested in good faith by
appropriate proceeding and the Borrower maintains in accordance with generally
accepted accounting principles appropriate reserves for any of the same), or if
any lien shall be claimed which in the Bank's opinion may possibly create a
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valid obligation having priority over the security interest granted hereby, the
Agent, on behalf of the Banks, may pay such taxes, assessments, charges or
claims, without notice to the Borrower, and the amount of such payment shall be
charged to the Borrower and the Borrower shall repay the entire amount of such
payment within five Business Days of its receipt of a notice to do so given by
the Agent. The amount of any payment made pursuant to this Section 8.02 shall
become an obligation of the Borrower secured by the security interest granted
hereby.
Section 8.03. Collection and Verifications of Collateral and Records.
The Agent may at any time verify the Borrower's Receivables utilizing an audit
control company or any other agent of the Bank Parties, which verification may
include direct requests for verifications from the Borrower's customers and
account debtors. At any time following the occurrence and during the
continuation of an Event of Default, in the Agent's sole discretion, the Agent
or the Agent's designee may notify customers or account debtors of the Bank's
security interest in Receivables, collect them directly and charge the
collection costs and expenses the Borrower's account, but, unless and until the
Agent does so or gives the Borrower other instructions, the Borrower shall
collect all Receivables for the Banks, receive all payments thereon for the
Banks' benefit in trust as the Banks' trustee and immediately deliver them to
the Agent, for the benefit of the Banks, in the original form with all necessary
endorsements or, as directed by the Agent, deposit such payments as directed by
the Agent. Promptly after the creation of any Receivables, the Borrower shall
provide the Agent with schedules describing all Receivables created or acquired
by the Borrower and shall execute and deliver confirmatory written assignments
of such Receivables to the Agent, for the benefit of the Banks. The Borrower's
failure to execute and deliver such schedules or written confirmatory
assignments of such Receivables shall not affect or limit the Banks' security
interest or other rights in and to the Receivables. The Borrower shall furnish,
at the Agent's request, copies of contracts, invoices or the equivalent, and any
original shipping and delivery receipts for all merchandise sold or services
rendered and such other documents and information as the Agent may require. The
Borrower shall also provide the Agent on a monthly (within ten (10) days after
the end of each month) or more frequent basis, as requested by the Agent, a
detailed or aged trial balance of all of the Borrower's existing Receivables
specifying the names and balances due for each account debtor and such other
information pertaining to the Receivables as the Agent may request. The Borrower
shall provide the Agent on a monthly (within ten (10) days after the end of each
month), or more frequent basis, as requested by the Agent, a summary report of
the Borrower's current Inventory, certified as fairly presenting the state of
such Inventory by the Borrower's President or Chief Financial Officer, as well
as an aged trial balance of Borrower's existing accounts payable. The Borrower
shall provide the Agent, as requested by the Agent, such other schedules,
documents and/or information regarding the Collateral as the Agent may require.
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Section 8.04. Power of Attorney. The Borrower hereby appoints the
Agent, on behalf of the Banks, or any other Person whom the Agent may designate
as the Borrower's attorney, with power to: (i) endorse the Borrower's name on
any checks, notes, acceptances, money orders, drafts or other forms of payment
or security that may come into the Agent's possession; (ii) sign the Borrower's
name on any invoice or bill of lading relating to any Receivables, drafts
against customers, schedules and assignments of Receivables, notices of
assignment, financing statements and other public records, verifications of
account and notices to or from customers; (iii) verify the validity, amount or
any other matter relating to any Receivable by mail, telephone, telegraph or
otherwise with account debtors; (iv) on or after the occurrence of an Event of
Default, execute customs declarations and such other documents as may be
required to clear Inventory through Customs; (v) do all things necessary to
carry out this Agreement and any Related Document; and (vi) on or after the
occurrence and during the continuation of an Event of Default, notify the post
office authorities to change the address for delivery of the Borrower's mail to
an address designated by the Agent, and to receive, open and dispose of all mail
addressed to the Borrower. The Borrower hereby ramifies and approves all acts of
the attorney. Neither the Bank Parties nor their attorneys will be liable for
any acts or omissions or for any error of judgment or mistake of fact or law.
This power, being coupled with an interest, is irrevocable so long as any
Receivable which is assigned to the Agent on behalf of the Banks or in which the
Agent has a security interest remains unpaid and until the Obligations have been
fully satisfied.
Section 8.05. Further Assurances. (a) The Borrower agrees that from
time to time, at the expense of the Borrower, the Borrower will promptly execute
and deliver all further instruments and documents, and take all further action,
that may be necessary or appropriate, or that the Agent may request, in order to
create, evidence, perfect or preserve any security interest granted or purported
to be granted hereby or to enable the Bank Parties to exercise and enforce its
rights and remedies hereunder with respect to any Collateral. Without limiting
the generality of the foregoing, the Borrower will: (i) at the request of the
Agent, mark conspicuously each chattel paper included in the Collateral and each
of its records pertaining to the Collateral with a legend, in form and substance
satisfactory to the Agent, indicating that such chattel paper is subject to the
security interest granted hereby; (ii) if any account shall be evidenced by a
promissory note or other instrument or chattel paper, deliver and pledge to the
Agent, on behalf of the Banks, hereunder such note, instrument or chattel paper
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duly endorsed and accompanied by duly executed instruments of transfer or
assignment, all in form and substance satisfactory to the Agent; and (iii)
execute and file such financing or continuation statements, or amendments
thereto, and such other instruments or notices, as may be necessary or
desirable, or as the Agent may request, in order to create, evidence, perfect or
preserve the security interests granted or purported to be granted hereby
including, but not limited to, any filing or other action under the Claims Act
necessary to preserve and protect the Bank's security interest in the
Collateral.
(b) The Borrower hereby authorizes the Agent to file one or
more financing or continuation statements, and amendments thereto relative to
all or any part of the Collateral without the signature of the Borrower where
permitted by law. The Borrower hereby agrees that a carbon, photographic,
photostatic or other reproduction of this Agreement or of a financing statement
is sufficient as a financing statement where permitted by law.
(c) The Borrower will furnish to the Agent from time to time,
in addition to the information required to be delivered to the Agent by the
other provisions of this Agreement, such statements and schedules further
identifying and describing the Collateral and such other reports in connection
with the Collateral as the Agent may reasonably request, all in reasonable
detail.
ARTICLE 9. FINANCIAL COVENANTS
The Borrower covenants and agrees that, from and after the date of
execution of this Agreement and so long as any amount may be borrowed hereunder
or is otherwise due to the Banks under this Agreement or any Related Document is
not indefeasibly repaid in full, it shall comply with each of the following
covenants:
Section 9.01. Interest Coverage Ratio. The Interest Coverage Ratio for
the Borrower and its Subsidiaries, on a consolidated basis, shall be equal to or
exceed the minimum ratio set forth below for each consecutive Fiscal Quarter,
ending on the dates specified below, measured as of the last day of such Fiscal
Quarter for the trailing twelve-month period then ended:
Period: Minimum Ratio:
------ -------------
09/30/96 2.0 to 1
12/31/96 2.0 to 1
03/31/97 2.2 to 1
06/30/97 2.6 to 1
09/30/97 2.7 to 1
12/31/97 2.9 to 1
The last day of each Fiscal
Quarter thereafter 2.9 to 1
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Section 9.02. Maximum Leverage Ratio. At any time during each Fiscal
Quarter ending in the periods specified below, the Leverage Ratio of the
Borrower and its Subsidiaries shall not exceed the maximum ratio specified
below, measured as of the last day of each Fiscal Quarter:
Period Ending: Maximum Ratio:
------------- -------------
09/30/96 14.4 to 1
12/31/96 6.4 to 1
03/31/97 6.6 to 1
06/30/97 8.1 to 1
09/30/97 8.3 to 1
12/31/97, and thereafter 3.3 to 1
Section 9.03. Minimum Inventory Turn Ratio. The Inventory Turn Ratio
for Borrower and its Subsidiaries, on a consolidated basis, shall be equal to or
exceed the minimum ratio set forth below for each consecutive Fiscal Quarter,
ending on the dates specified below, measured as of the last day of such Fiscal
Quarter for the trailing twelve-month period then ended:
Period Ending: Minimum Ratio:
------------- -------------
09/30/96 1.4 to 1
12/31/96 1.8 to 1
03/31/97 1.7 to 1
06/30/97 1.4 to 1
09/30/97 1.3 to 1
12/31/97, and thereafter 2.0 to 1
Section 9.04. Maximum Capital Expenditures. During each of the Fiscal
Years specified below, Capital Expenditures shall not exceed in the aggregate
the maximum amount set forth below opposite such Fiscal Year:
Fiscal Year Maximum Amount
----------- --------------
ending 12/31/96 $300,000
ending 12/31/97 and thereafter $600,000
Section 9.05. Current Ratio. The Borrower will not permit the ratio of
its Consolidated Current Assets to its Consolidated Current Liabilities
(excluding all Obligations) at any time prior to December 31, 1997 to be less
than 1.0 to 1, and thereafter to be less than 1.4 to 1.0.
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ARTICLE 10. EVENTS OF DEFAULT
Section 10.01. Events of Default. Each of the following events or
conditions shall constitute an Event of Default under this Agreement:
(a) the Borrower shall fail to pay (i) when due any principal
(including mandatory prepayments) of any Revolving Loan, (ii) when due any
interest on any Revolving Loan, (iii) immediately any Revolving Loans or cash
collateral for the Letters of Credit to the extent in excess of the Formula
Amount, or (iv) within ten Business Days after its due date any other amount due
and payable hereunder or with respect to any Revolving Loan, in each case in the
manner provided herein;
(b) any representation, warranty or statement given in this Agreement
or in any other Related Document by any party thereto or in any certificate,
opinion, report, financial statement or other written statement furnished at any
time pursuant to this Agreement shall prove to be or have been untrue or
misleading in any material respect as of the date on which it is made or deemed
to be made;
(c)(i) the Borrower shall fail to perform, keep or observe in any
respect any covenant or condition contained in Sections 6.02, 6.03, 6.04
(provided such obligations and liabilities referred to in Section 6.04 are
accelerated), 6.09, 6.12 and 6.13 or Articles 7 or 8 hereof, or (ii) the
Borrower shall fail to perform, keep or observe in any respect any other
covenant or condition contained in Article 6 (including Section 6.04 provided
such obligations and liabilities referred to in Section 6.04 are not
accelerated), and such failure shall not be cured to the Agent's reasonable
satisfaction within 10 days after the occurrence of such failure;
(d) the Borrower or any other party to a Related Document shall fail to
perform, keep or observe in any respect any other term, provision, condition,
covenant, waiver, warranty or representation contained in this Agreement or in
any other Related Document to which it is a party that is required to be
performed, kept or observed by the Borrower or any party to a Related Document,
other than the Bank Parties, and the same, if curable, shall not be cured to the
Agent's satisfaction within 30 days after the occurrence of such failure, other
than as a direct consequence of a Bank Party's gross negligence or wilful
misconduct;
(e)(i) the Bank Parties shall not have at any time first priority
perfected liens and security interests in all of the Collateral, (ii) any of the
Related Documents shall at any time for any reason cease to be in full force and
effect or shall be declared to be null and void, or the validity or
enforceability thereof shall be contested by any of the parties thereto (other
than the Bank Parties), or (iii) any of such parties shall deny that it has any
or any further liability or obligation thereunder at a time when it in fact does
have such liabilities or obligations thereunder;
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(f) the Borrower shall fail to (i) pay all or any portion of any Funded
Indebtedness in excess of $50,000 (other than the Obligations) when due (whether
by stated maturity, required prepayment, acceleration, demand or otherwise)
after the expiration of any applicable grace periods, or (ii) perform or observe
any term, covenant or condition to be performed on its part or to be observed
under any agreement or instrument relating to any such Funded Indebtedness, when
required to be performed or observed, or (iii) perform or observe any material
term, covenant or condition to be performed on its part or to be observed under
any purchase or lease agreement, employment agreement, or any other Indebtedness
not included in Clauses (i) and (ii) above or any other material agreement,
document, or instrument (other than this Agreement or in any other Related
Document) to which the Borrower is a party or by which the Borrower is bound
(except to the extent that the Borrower is contesting in good faith in
appropriate proceedings the existence of any such default and appropriate
reserves, in accordance with GAAP, have been established in respect of such
default), and such default has, or if continued would have, a Material Adverse
Effect;
(g) the Borrower permits one or more judgments against it in excess of
$100,000 in the aggregate to remain unstayed, unbonded or not discharged for a
period of more than 40 days, unless such judgment is being contested in good
faith and the Borrower has established reserves in accordance with GAAP that are
satisfactory to the Agent;
(h) any of the operations or business of the Borrower or the Guarantor
is suspended, other than in the ordinary course of its business, for more than
30 days, which has a Material Adverse Effect;
(i) the Borrower or the Guarantor commences any case, proceeding or
other action relating to it in bankruptcy or seeking reorganization,
liquidation, dissolution, winding-up, arrangement, composition, compromise,
readjustment of its debts or any other relief under any bankruptcy, insolvency,
reorganization, liquidation, dissolution, arrangement, composition, compromise,
readjustment of debt or similar act or law of any jurisdiction, now or hereafter
existing, or consents to; approves of, or acquiesces in, any such case,
proceeding or other action, or applies for a receiver, trustee or custodian for
itself or for all or a substantial part of its properties or assets, or makes an
assignment for the benefit of creditors, or fails generally to pay its debts as
they mature or admits in writing its inability to pay its debts as they mature,
or is adjudicated insolvent or bankrupt;
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(j) there is commenced against the Borrower or the Guarantor any case
or proceeding or any other action is taken against the Borrower or the Guarantor
in bankruptcy or seeking reorganization, liquidation, dissolution, winding-up,
arrangement, composition, compromise, readjustment of its debts or any other
relief under any bankruptcy, insolvency, reorganization, liquidation,
dissolution, arrangement, composition, compromise, readjustment of debt or
similar act or law of any jurisdiction, now or hereafter existing; or there is
appointed a receiver, trustee or custodian for the Borrower or Guarantor or for
all or a substantial part of its properties or assets; or there is issued a
warrant of attachment, execution or similar process against any substantial part
of the properties or assets of the Borrower or Guarantor; and any such event
continues for 45 days undismissed, unstayed, unbonded or undischarged;
(k)(i) the Borrower or any of its Subsidiaries engages in any
Prohibited Transaction involving any Plan; (i) any "accumulated funding
deficiency" (as defined in Section 302 of ERISA) that is not waived exists for
more than 30 days with respect to any Plan; (ii) a Reportable Event occurs with
respect to, or proceedings commence to have a trustee appointed, or a trustee is
appointed, to administer or to terminate, any Plan, which Reportable Event or
institution of proceedings is likely to result in the termination of such Plan
for purposes of Title IV of ERISA and, in the case of a Reportable Event, the
continuance of such Reportable Event unremedied for 10 days after notice of such
Reportable Event pursuant to Section 4043(a), (c) or (d) of ERISA is given or
the continuance of such proceedings for 10 days after commencement thereof, as
the case may be; (iii) the Borrower or any of its Subsidiaries fully or
partially withdraws from any multiemployer Plan; provided, however, that any
event or condition described in any of clauses (i) through (iii) of this
paragraph (k) shall not constitute an Event of Default unless such event or
condition, together with all other such events or conditions (if any), is likely
to subject the Borrower to any tax, penalty or other liabilities in the
aggregate material in relation to the management, business, properties, assets,
operations or condition (financial or other) of the Borrower or such Subsidiary;
or (iv) any Plan terminates for purposes of Title IV of ERISA, or PBGC
institutes proceedings for the involuntary termination of any Plan, in either
case, with a vested unfunded liability of $250,000 or more;
(l) there shall occur a cessation of a substantial part of the business
of the Borrower or the Guarantor for a period which significantly affects the
Borrower's or the Guarantor's capacity to continue its respective business; or
the Borrower or Guarantor shall suffer the loss or revocation of any license or
Permit now held or hereafter acquired by the Borrower or Guarantor which is
necessary to the continued or lawful operation of a part of its respective
business that would have a Material Adverse Effect; or the Borrower or Guarantor
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shall be enjoined, restrained or in any way prevented by court, governmental or
administrative order from conducting all or any part of its respective business
affairs for a period of 30 days which would have a Material Adverse Effect; or
any lease or agreement pursuant to which the Borrower leases, uses or occupies
any of its real or personal property shall be canceled or terminated by the
other party to such lease or agreement prior to the expiration of its stated
term which individually or in the aggregate which would have a Material Adverse
Effect; or
(m) the Guarantor shall suffer a Material Adverse Change which, in the
reasonable discretion of the Agent, materially and adversely impairs the ability
of the Guarantor to honor its obligations under the Guaranty.
An Event of Default shall be deemed "continuing" until cured (if
curable) or waived in writing in accordance with Section 12.06 hereof. For
purposes of this Section 10.01 and Section 10.02 hereof, any Event of Default
under Section 10.01(c)(i) hereof shall not be curable.
Section 10.02. Remedies upon an Event of Default. If any Event of
Default shall have occurred and be continuing, the Agent, upon direction of the
Required Banks, or the Required Banks may by notice to the Borrower (i) declare
the Commitment of the Banks to make Revolving Loans hereunder to be terminated,
whereupon the same shall forthwith terminate, and/or (ii) declare the Revolving
Loans, all interest thereon, any accrued and unpaid fees and all other amounts
payable hereunder or in respect of the Revolving Loans to be forthwith due and
payable, whereupon they shall become and be forthwith due and payable, without
presentment, demand, protest, or further notice of any kind, all of which are
hereby expressly waived by the Borrower. Notwithstanding the foregoing, upon the
occurrence of any Event of Default involving the Borrower described in Sections
10.01(i) or (j) above, the commitment of the Banks to make Revolving Loans shall
automatically be terminated and the Revolving Loans, all interest thereon and
all accrued and unpaid fees and all other amounts payable hereunder or in
respect of the Revolving Loans shall immediately become due and payable, without
any requirement on the part of the Required Banks to give notice, or make
declaration, of any kind regarding such Event of Default and without
presentment, demand, protest or any other requirement on the part of the
Required Banks, all of which are hereby expressly waived by the Borrower.
ARTICLE 11. THE AGENT
Section 11.01. Appointment, Powers and Immunities of Agent. Each Bank
hereby irrevocably appoints and authorizes the Agent to act as its agent
hereunder and under any other Related Document with such powers as are
specifically delegated to the Agent by the terms of this Agreement and any other
Related Document, together with such other powers as are reasonably incidental
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thereto. The Agent shall have no duties or responsibilities except those
expressly set forth in this Agreement and any other Related Document, and shall
not by reason of this Agreement be a trustee for any Bank. The Agent shall not
be responsible to the Banks for any recitals, statements, representations or
warranties made by the Borrower or any other party to a Related Document or any
officer or official of the Borrower or such party or any other Person contained
in this Agreement or any other Related Document, or in any certificate or other
document or instrument referred to or provided for in, or received by any of
them under, this Agreement or any other Related Document, or for the value,
legality, validity, effectiveness, genuineness, enforceability or sufficiency of
this Agreement or any other Related Document or any other document or instrument
referred to or provided for herein or therein, for the perfection or priority of
any Lien securing the Obligations or for any failure by the Borrower or any such
party to perform any of its Obligations hereunder or obligations thereunder. The
Agent may employ agents and attorneys-in-fact and shall not be responsible for
the negligence or misconduct of any such agents or attorneys-in-fact selected by
it with reasonable care. The Agent shall advise any agents and attorneys-in-fact
that it employs (other than counsel retained by the Agent on its behalf) that
the Agent is an agent acting on behalf of the Banks; provided, however, that the
Agent shall not be liable to any Bank if it fails to so advise any such agents
and attorneys-in-fact. Neither the Agent nor any of its directors, officers,
employees or agents shall be liable or responsible for any action taken or
omitted to be taken by it or them hereunder or under any other Related Document
or in connection herewith or therewith, except for its or their own gross
negligence or willful misconduct. The Borrower shall pay any fee agreed to by
the Borrower and the Agent with respect to the Agent's services hereunder as set
forth in this Agreement.
Section 11.02. Reliance by Agent. The Agent shall be entitled to rely
upon any other certification, notice or other communication (including any
telex, telegram or cable) believed by it to be genuine and correct and to have
been signed or sent by or on behalf of the proper Person or Persons, and upon
advice and statements of legal counsel, independent accountants and other
experts selected by the Agent. The Agent may deem and treat each Bank as the
holder of the Revolving Loans made by it and participations purchased by it for
all purposes hereof unless and until a notice of the assignment or transfer
thereof satisfactory to the Agent signed by such Bank shall have been furnished
to the Agent, but the Agent shall not be required to deal with any Person who
has acquired a participation in any Revolving Loan. As to any matters not
expressly provided for by this Agreement or any other Related Document, the
Agent shall in
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Agent shall in all cases be fully protected in acting, or in refraining from
acting, hereunder in accordance with instructions signed by the Required Banks,
and such instructions of the Required Banks and any action taken or failure to
act pursuant thereto shall be binding on all of the Banks and any other holder
of all or any portion of any Revolving Loan.
Section 11.03. Defaults. The Agent shall not be deemed to have
knowledge of the occurrence of a Default or Event of Default unless the Agent
has received notice from a Bank or the Borrower specifying such Default or Event
of Default and stating that such notice is a "Notice of Default." In the event
that the Agent receives such a notice of the occurrence of a Default or Event of
Default, the Agent shall give prompt notice thereof to the Banks. The Agent
shall take such action with respect to such Default or Event of Default which is
continuing as shall be directed by the Required Banks; provided, that, unless
and until the Agent shall have received such directions, the Agent may take such
action, or refrain from taking such action, with respect to such Default or
Event of Default as it shall deem advisable in the best interest of the Banks;
and provided, further, that the Agent shall not be required to take any such
action which it determines to be contrary to law.
Section 11.04. Rights of Agent as a Bank. With respect to its Pro Rata
Share of the Revolving Loans provided by it, the Agent in its capacity as a Bank
hereunder shall have the same rights and powers hereunder as any other Bank and
may exercise the same as though it were not acting as the Agent, and the term
"Bank" or "Banks" shall, unless the context otherwise indicates, include the
Agent in its capacity as a Bank. The Agent and its Affiliates may (without
having to account therefor to any Bank) accept deposits from, lend money to (on
a secured or unsecured basis), and generally engage in any kind of banking,
trust or other business with the Borrower or any other party to the Related
Documents (and any of their Affiliates) as if it were not acting as the Agent,
and the Agent may accept fees and other consideration from the Borrower for
services in connection with this Agreement or otherwise without having to
account for the same to the Banks.
Section 11.05. Indemnification of Agent. The Banks agree to indemnify
the Agent (to the extent not reimbursed under Section 12.03 hereof or under the
applicable provisions of any other Related Document, but without limiting the
obligations of the Borrower under Section 12.03 hereof or such provisions), for
its Pro Rata Share of any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind and nature whatsoever which may be imposed on, incurred by or asserted
against the Agent in any way relating to or arising out of this Agreement, any
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other Related Document or any other documents contemplated by or referred to
herein or the transactions contemplated hereby or thereby (including, without
limitation, the costs and expenses which the Borrower is obligated to pay under
Section 12.04 hereof) or under the applicable provisions of any other Related
Document or the enforcement of any of the terms hereof or thereof or of any such
other documents or instruments; provided, that no Bank shall be liable for any
of the foregoing to the extent they arise primarily from the gross negligence or
willful misconduct of the party to be indemnified.
Section 11.06. Documents. The Borrower will forward to the Banks,
promptly after the Agent's receipt thereof, at Agent's request, a copy of each
report, notice or other document required by this Agreement or any other Related
Document to be delivered to the Agent for the Banks.
Section 11.07. Non-Reliance on Agent and Other Banks. Each Bank agrees
that it has, independently and without reliance on the Agent, IBJS or any other
Bank, and based on such documents and information as it has deemed appropriate,
made its own credit analysis of the Borrower and the decision to enter into this
Agreement and that it will, independently and without reliance upon the Agent or
any other Bank, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own analysis and decisions in
taking or not taking action under this Agreement or any other Related Document.
The Agent shall not be required to keep itself informed as to the performance or
observance by the Borrower or any other party to the Related Documents of this
Agreement or any other Related Document or any other document referred to or
provided for herein or therein or to inspect the properties or books of the
Borrower or any other party to the Related Documents. Except for notices,
reports and other documents and information expressly required to be furnished
to the Banks by the Agent hereunder, the Agent shall not have any duty or
responsibility to provide any Bank with any credit or other information
concerning the affairs, financial condition or business of the Borrower or any
other party to the Related Documents (or any of their Affiliates) which may come
into the possession of the Agent or any of its Affiliates. The Agent shall not
be required to file this Agreement, any other Related Document or any document
or instrument referred to herein or therein, for record or give notice of this
Agreement, any other Related Document or any document or instrument referred to
herein or therein, to anyone.
Section 11.08. Failure of Agent to Act. Except for action expressly
required of the Agent hereunder, the Agent shall in all cases be fully justified
in failing or refusing to act hereunder unless it shall have received further
assurances (which may include cash collateral) of the indemnification
obligations of the Banks under Section 11.05 hereof in respect of any and all
liability and expense which may be incurred by it by reason of taking or
continuing to take any such action.
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Section 11.09. Resignation or Removal of Agent. Subject to the
appointment and acceptance of a successor Agent as provided below, the Agent may
resign at any time by giving written notice thereof to the Banks and the
Borrower, and the Agent may be removed at any time with or without cause by the
Required Banks; provided, that the Borrower and the other Banks shall be
promptly notified thereof. Upon any such resignation or removal, the Required
Banks shall have the right to appoint a successor Agent, who shall be any Bank
or any commercial bank organized under the laws of the United Stated of America,
any state thereof, or the District of Columbia, which has a combined capital and
surplus of at least $250,000,000 and an office in New York City. If no successor
Agent shall have been so appointed by the Required Banks and shall have accepted
such appointment within thirty (30) days after the retiring Agent's giving of
notice of resignation or the Required Banks' removal of the retiring Agent, then
the retiring Agent may, on behalf of the Banks, appoint a successor Agent. The
Required Banks or the retiring Agent, as the case may be, shall upon the
appointment of a successor Agent promptly so notify the Borrower and the other
Banks. Upon the acceptance of any appointment as Agent hereunder by a successor
Agent, such successor Agent shall thereupon succeed to and become vested with
all the rights, powers, privileges and duties of the retiring Agent, and the
retiring Agent shall be discharged from its duties and obligations hereunder.
After any retiring Agent's resignation or removal hereunder as Agent, the
provisions of this Article 11 shall continue in effect for its benefit in
respect of any actions taken or omitted to be taken by it while it was acting as
the Agent.
Section 11.10. Amendments Concerning Agency Function. The Agent shall
not be bound by any waiver, amendment, supplement or modification of this
Agreement or any other Related Document which affects its duties hereunder or
thereunder unless it shall have given its prior consent thereto.
Section 11.11. Liability of Agent. The Agent shall not have any
liabilities or responsibilities to the Borrower on account of the failure of any
Bank to perform its obligations hereunder or to any Bank on account of the
failure of the Borrower to perform its Obligations hereunder or under any other
Related Document.
Section 11.12. Transfer of Agency Function. Without the consent of the
Borrower or any Bank, the Agent may at any time or from time to time transfer
its functions as Agent hereunder to any of its offices, wherever located,
provided, that the Agent shall promptly notify the Borrower and the Banks
thereof.
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Section 11.13. Withholding Taxes. Each Bank represents that it is
entitled to receive any payments to be made to it hereunder without the
withholding of any tax and will furnish to the Agent such forms, certifications,
statements and other documents as the Agent may request from time to time to
evidence such Bank's exemption from the withholding of any tax imposed by any
juris-
diction or to enabled the Agent to comply with any applicable laws or
regulations relating thereto. Without limiting the effect of the foregoing, if
any Bank is not created or organized under the laws of the United States of
America or any state thereof, such Bank will furnish to the Agent Form 4224 or
Form 1001 of the Internal Revenue Service, or such other forms, certifications,
statements or documents, duly executed and completed by such Bank as evidence of
such Bank's exemption from the withholding of U.S. tax with respect thereto. The
Agent shall not be obligated to make any payments hereunder to such Bank in
respect of its Pro Rata Share of any Revolving Loan until such Bank shall have
furnished to the Agent the requested form, certification, statement or document.
ARTICLE 12. MISCELLANEOUS
Section 12.01. Notices. All notices hereunder shall be in writing and
shall be conclusively deemed to have been received and shall be effective except
as explicitly noted hereinabove (i) on the day on which delivered if delivered
personally, or transmitted by telex or telegram or telecopier (followed by a
mailed written confirmation), (ii) on the next Business Day if delivered by a
nationally recognized overnight courier (such as Federal Express), or (iii)
three Business Days after the date on which the same is mailed by certified
United States mail, postage prepaid, and shall be addressed:
(a) in the case of the Borrower, to:
Mr. John Todd
Winstar Global Products, Inc.
12 Gardner Road
Fairfield, New Jersey 07004
(Tel.: 201-227-2700)
(Tcp.: 201-882-8932)
With a copy to:
Mr. Fredric E. von Stange
Winstar Communications, Inc.
230 Park Avenue
New York, New York 10169
(Tel.: 212-687-7577)
(Tcp.: 212-867-1565)
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David Alan Miller, Esq.
Graubard Mollen & Miller
600 Third Avenue, 31st Floor
New York, New York 10016
(Tel.: 212-818-8800)
(Tcp.: 212-882-8881)
(b) in the case of the Agent and IBJS, to:
IBJ Schroder Bank & Trust Company
One State Street
New York, New York 10004
Attn: Mr. Wing Louie
Asset-Based Lending Division
(Tel.: 212-858-2000)
(Tcp.: 212-858-2151)
With a copy to:
Pryor, Cashman, Sherman & Flynn
410 Park Avenue
New York, New York 10022
Attn: Lawrence Remmel
(Tel.: 212-326-0881)
(Tcp.: 212-326-0806)
or at such other address as the party giving such notice shall have been advised
of in writing for such purpose by the party to which the same is directed.
Section 12.02. Survival of this Agreement. All covenants, agreements,
representations and warranties made herein, or in the Related Documents or in
any certificate delivered pursuant hereto or thereto shall survive the execution
by the Borrower and delivery to the Banks of this Agreement, the Revolving Notes
and the other Related Documents and the making and repayment of the Revolving
Loans hereunder, and shall continue in full force and effect so long as any
Obligations of the Borrower remain outstanding and unpaid or this Agreement
remains in effect.
Section 12.03. Indemnity. The Borrower agrees to defend, protect,
indemnify and hold harmless the Bank Parties and each of their Affiliates,
officers, directors, employees, agents, attorneys and consultants (collectively
called the "Indemnitees") from and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, claims, costs, expenses
and disbursements of any kind or nature whatsoever (including, without
limitation, the reasonable fees and disbursements of counsel for such
indemnities incurred in connection with any action or proceeding between the
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Borrower and any Indemnitee or between any Indemnitee and any third party or
otherwise, whether or not relating to any investigative, administrative or
judicial proceeding and whether or not such Indemnitees shall be designated a
party thereto), imposed on, incurred by, or asserted against such Indemnitees
(whether direct, indirect, special, consequential, punitive or treble and
whether based on any federal, state or local, or foreign, laws or other
statutory regulations, including, without limitation, Environmental Laws,
securities and commercial laws and regulations, under common law or at equitable
cause, or on contract or otherwise) in any manner relating to or arising out of
this Agreement or any of the Related Documents, or any act, event or transaction
related or attendant thereto or contemplated hereby, or any action or inaction
by any Indemnitee under or in connection therewith, any commitment of the Banks
hereunder, or the making of the Revolving Loans, or the management of such
Revolving Loans, the issuance of, or payment under, the Letters of Credit, or
the use or intended use of the proceeds of any Revolving Loan, advance or other
financial accommodation provided hereunder including, in each such case, any
allegation of any such matters, whether meritorious or not (collectively, the
"Indemnified Matters"); provided, however, that the Borrower shall not have any
obligation to any Indemnitee hereunder with respect to Indemnified Matters
directly caused by or resulting primarily from the willful misconduct or gross
negligence of such Indemnitee. The covenants of the Borrower contained in this
Section 12.03 shall survive the payment in full of all amounts due and payable
under this Agreement or any of the Related Documents and the full satisfaction
of all other Obligations of the Borrower.
Section 12.04. Costs, Expenses and Taxes. (a) The Borrower agrees to
pay on demand (i) all reasonable out-of-pocket costs and expenses incurred by
the Agent in connection with the preparation, execution, delivery, filing,
recording, and administration of this Agreement, each of the Related Documents,
and any other documents, instruments or agreements which may be delivered in
connection with this Agreement (including, without limitation, the reasonable
fees and out-of-pocket expenses of counsel for the Agent, and local counsel who
may be retained by said counsel) with respect thereto and with respect to
advising the Agent as to its rights and responsibilities under this Agree-
ment, (ii) all costs and expenses in connection with the audit, appraisal,
valuation, investigation, and the creation, perfection, priority or protection
of the Bank Parties' Liens against the Collateral, including, without
limitation, all costs and expenses (A) to pay or discharge taxes, Liens,
security interests or other encumbrances levied, placed or threatened against
the Collateral and (B) for title and lien searches, title insurance premiums,
filing and recording fees and taxes, duplication costs and corporate search
fees, (iii) all out-of-pocket costs and expenses in connection with the audits,
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inspections and investigations conducted pursuant to Section 6.09 hereof, and
(iv) all costs and expenses (including, without limitation, the reasonable fees
and expenses of the Agent's counsel) in connection with the enforcement of this
Agreement and each of the Related Documents and such other documents,
instruments or agreements which may be delivered in connection with this
Agreement. Notwithstanding the foregoing, the Borrower shall only be liable
under this Section 12.04 with respect to the fees and disbursements of counsel
to the Agent and shall have no obligation under this Section 12.04 to pay for
any fees and disbursements of counsel to any other Bank Party.
(b) Any and all payments by the Borrower under this Agreement or the
Revolving Notes shall be made free and clear of and without deduction for any
and all present or future taxes, levies, imposts, deductions, charges or
withholdings, and all liabilities with respect thereto, excluding, in the case
of the Banks, taxes imposed on or in respect of its income (all such
non-excluded taxes, levies, imposts, deductions, charges, withholdings, and
liabilities being hereinafter referred to as "Taxes"). If the Borrower shall be
required by law to deduct any Taxes from or in respect of any sum payable
hereunder to the Banks, (i) the sum payable shall be increased as may be
necessary so that, after making all required deductions (including deductions
applicable to additional sums payable under this Section 12.04), the Banks
receive an amount equal to the sum they would have received had no such
deductions been made, (ii) the Borrower shall make such deductions, and (iii)
the Borrower shall pay the full amount deducted to the relevant taxation
authority or other authority in accordance with applicable law.
(c) The Borrower further agrees to pay any present or future stamp or
documentary taxes or any other excise or property taxes, charges, or similar
levies which arise in connection with the execution and delivery of this
Agreement, any of the Related Documents or any of the other instruments,
documents or agreements executed and/or delivered in connection herewith or
therewith, or any payment made hereunder or in connection herewith (hereinafter
collectively referred to as "Other Taxes").
(d) The Borrower shall indemnify the Banks for the full amount of Taxes
and Other Taxes (including, without limitation, any Taxes or Other Taxes imposed
by any jurisdiction on amounts payable by the Borrower under this Section 12.04)
paid by the Banks and any liability (including penalties, interest, and
expenses) arising therefrom or with respect thereto, whether or not such Taxes
or Other Taxes were correctly or legally asserted. This indemnification shall be
made within 30 days from the date the Agent makes written demand therefor. A
certificate as to any additional amount payable to the Banks under this Section
12.04 submitted to the Borrower by the Agent shall show in reasonable detail the
amount payable and the calculations used to determine such amount and shall,
absent manifest error, be final, conclusive and binding upon each of the parties
hereto.
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(e) Without prejudice to the survival of any other agreement of the
Borrower hereunder, the agreements and obligations of the Borrower contained in
this Section 12.04 shall survive the payment in full of all amounts due and
payable under this Agreement or any of the Related Documents and the full
satisfaction of all other Obligations of the Borrower.
Section 12.05. Further Assurances. (a) At any time and from time to
time, upon the request of the Agent, the Borrower shall execute, deliver and
acknowledge, or cause to be executed, delivered and acknowledged, such further
documents and instruments and do such other acts and things as the Agent may
reasonably request in order to effect fully the intent and purposes of this
Agreement and the Related Documents, and any other agreements, instruments and
documents delivered pursuant hereto or in connection with the making of the
Revolving Loans, in proper form for recording and otherwise in form and
substance reasonably satisfactory to the Agent and its counsel.
(b) The Borrower agrees that from time to time, at its expense, it
shall promptly execute and deliver all further instruments and documents, and
take all further action, that may be necessary or appropriate, or that the Agent
may request, in order to create, evidence, perfect or preserve any security
interest granted or purported to be granted hereby or by any Related Document or
to enable the Bank Parties to exercise and enforce their respective rights and
remedies hereunder or under any Related Document with respect to any Collateral.
Section 12.06. Amendment and Waiver. No amendment or waiver of any
provision of this Agreement or any of the Related Documents to which any Bank is
a party, nor any consent to any departure by the Borrower therefrom, shall in
any event be effective unless the same shall be in writing and signed by the
Required Banks, and then such waiver or consent shall be effective only in the
specific instance and for the purpose for which given; provided, however, that
no amendment, waiver or consent, shall, unless in writing and signed by all
Banks do any of the following: (i) increase the Revolving Commitment, (ii)
reduce the principal of, or premiums or interest on, the Revolving Notes or the
commitment fee payable in accordance with Section 2.12 hereunder, (iii) postpone
any date fixed for any payment of principal of, or interest on, the Revolving
Notes or such commitment fee or any other amount due hereunder or under any
Related Document to any Bank, or waive any default in the payment of principal,
interest or any other amount due hereunder or under any Related Document to
which any Bank is a party, (iv) increase the advance rates above those set forth
in the definition of "Formula Amount", (v) change the definition of "Required
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Banks", (vi) release any material portion of the Collateral otherwise than in
accordance with the Related Documents, or (vii) amend this Section 12.06 or any
other provision requiring the consent of all of the Banks. No failure on the
part of the Agent or any Bank to exercise, and no delay in exercising, any right
hereunder shall operate as a waiver thereof or preclude any other or further
exercise thereof or the exercise of any other right. Neither any failure nor any
delay on the part of the Required Banks in exercising any right, power or
privilege hereunder or under any of the Related Documents shall operate as a
waiver thereof, nor shall a single or partial exercise thereof preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege. No notice to or demand on the Borrower in any case shall entitle the
Borrower to any other or further notice or demand in the same, similar or other
circumstances, except as explicitly stated herein.
Section 12.07. Remedies Cumulative. This Agreement, the Related
Documents and the Obligations of the Borrower hereunder and thereunder are in
addition to and not in substitution for any other Obligations of the Borrower or
security interests granted by the Borrower now or hereafter held by the Bank
Parties and shall not operate as a merger of any contract or debt or suspend the
fulfillment of or affect the rights, remedies or powers of the Bank Parties in
respect of any such Obligation or security interest held by the Bank Parties for
the fulfillment thereof. The rights and remedies provided in this Agreement and
in any Related Document are cumulative and not exclusive of any other rights or
remedies provided by law.
Section 12.08. Marshalling, Recourse to Security: Payments Set Aside.
The Banks shall not be under any obligation to marshal any assets in favor of
the Borrower or any other party or against or in payment of any or all of the
Obligations of the Borrower to the Banks hereunder or under the Related
Documents or otherwise. Recourse to security shall not be required at any time.
To the extent that the Borrower makes a payment or payments to the Banks, or any
of the Bank Parties enforce their security interests or exercises its rights of
setoff, and such payment or payments or the proceeds of such enforcement or
setoff or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside and/or required to be repaid to a trustee,
receiver or any other party under any bankruptcy law, state or federal law,
common law or equitable cause, then to the extent of such recovery, the
Obligation or part thereof originally intended to be satisfied, and all Liens,
rights and remedies therefor, shall be revived and reinstated and continued in
full force and effect as if such payment had not been made or such enforcement
or setoff had not occurred.
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Section 12.09. Dominion Over Cash; Setoff. (a) The Agent shall, at all
times, have sole dominion and control over all bank accounts of the Borrower
held by the Agent. The Borrower shall take all action requested from time to
time by the Agent as necessary or appropriate to carry out the provisions of
this Section 12.09(a).
(b) In addition to any rights and remedies of the Banks now or
hereafter provided by law, the Banks shall have the right, without prior notice
to the Borrower, any such notice being ex-
pressly waived by the Borrower to the extent permitted by applicable law, on the
occurrence and during the continuation of any Event of Default to setoff and
apply against any Obligation, whether matured or unmatured, of the Borrower, any
amount owing from the Banks to the Borrower, at or at any time after the
happening of any such Event of Default, and such right of setoff may be
exercised by the Banks against the Borrower or against any trustee in
bankruptcy, debtor-in-possession, assignee for the benefit of creditors,
receiver or execution, judgment or attachment creditor, notwithstanding the fact
that such right of setoff shall not have been exercised by the Banks before the
making, filing or issuance, or service on the Banks of, or of notice of, any
such event or proceeding.
(c) If any Bank (a "Benefitted Bank") at any time shall receive any
payment of all or part of its Loans, or interest thereon, or receive any
Collateral in respect thereof (whether voluntarily or involuntarily, by setoff,
pursuant to events or proceedings of the nature referred to in Sections 10.01(i)
and (j) hereof, or otherwise), in a greater proportion than any such payment to
or Collateral received by any other Bank, if any, in respect of such other
Bank's Loans, or interest thereon, such Benefitted Bank shall purchase for cash
from the other Banks such portion of each such other Bank's Loans, or shall
provide such other Banks with the benefits of any such Collateral, or the
proceeds thereof, as shall be necessary to cause such Benefitted Bank to share
the excess payment or benefits of such Collateral or proceeds ratably with each
of the Banks; and if after taking into account such sharing the Benefitted Bank
continues to have access to additional funds of or Collateral granted by the
Borrower for application on the account of the Obligations debt, then the
Benefitted Bank shall use such funds or collateral to reduce the Obligations of
the Borrower held by it and shall share such payments and the benefits of such
collateral with the other Banks; provided, however, that if all or any portion
of such excess payment or benefits is thereafter recovered from such Benefitted
Bank, such purchase shall be rescinded, and the purchase price and benefits
returned, to the extent of such recovery, but without interest. The Borrower
hereby agrees that each Bank so purchasing a portion of another Bank's Loans may
exercise all rights of payment (including, without limitation, rights of setoff
granted under this Agreement and the Related Documents) with respect to such
portion as fully as if such Bank were the direct holder of such portion.
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Section 12.10. Binding Effect. This Agreement shall become effective
when it shall have been executed by the Borrower and the Bank Parties, and
thereafter shall be binding upon and inure to the benefit of the Borrower and
the Bank Parties and their respective successors and assigns; provided, however,
that the Borrower shall not have the right to assign its rights hereunder or any
interest herein without the prior written consent of the Required Banks.
Section 12.11. Applicable Law. This Agreement and the rights and
obligations of the parties hereunder shall be governed by, and construed and
interpreted in accordance with, the substantive law of the State of New York,
without regard to its choice of law provisions.
Section 12.12. Consent to Jurisdiction and Service of Process; Waiver
of Jury Trial. All judicial proceedings brought against the Borrower with
respect to this Agreement or any Related Document may be brought in any state or
federal court of competent jurisdiction in the State of New York and, by its
execution and delivery of this Agreement, the Borrower accepts, for itself and
in connection with its properties, generally and unconditionally, the exclusive
jurisdiction of the aforesaid courts, and irrevocably agrees to be bound by any
final judgment rendered thereby in connection with this Agreement or any of the
Related Documents from which no appeal has been taken or is available. The
Borrower irrevocably consents to the service of process of any of the
aforementioned courts in any such action or proceeding by the mailing of copies
thereof by registered mail, postage prepaid, to its notice address specified in
Section 12.01 hereof, such service to become effective five (5) days after such
mailing. The Borrower and the Bank Parties hereby knowingly, intentionally and
irrevocably waive (a) trial by jury in any action or proceeding with respect to
this Agreement or any Related Document, and (b) any objection (including,
without limitation, any objection to the laying of venue or based on the grounds
of forum non conveniens) which it may now or hereafter have to the bringing of
any such action or proceeding with respect to this Agreement or any Related
Document in any jurisdiction set forth above. Nothing herein shall affect the
right to serve process in any other manner permitted by law.
Section 12.13. Performance of Obligations. The Borrower acknowledges
and agrees that the Banks may, but shall have no obligation to, make any payment
or perform any act required of the Borrower under this Agreement or any Related
Document or take any other action which the Banks in their discretion deem
necessary or desirable to protect or preserve the Collateral, including, without
limitation, any action to pay or discharge taxes, Liens, security interests or
other encumbrances levied or placed on or threaten to be placed on any
Collateral.
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Section 12.14. Assignment; Participations. (a) This Agreement shall be
binding upon, and shall inure to the benefit of, the Borrower, the Agent, the
Banks and their respective successors and permitted assigns. The Borrower may
not assign or transfer its rights or obligations hereunder. Any Bank may at any
time grant to one or more banks or other institutions (each a "Participant")
participating interests in its portion of the Loans. In the event of any such
grant by a Bank of a participating interest to a Participant, such Bank shall
remain responsible for the performance of its obligations hereunder, and the
Borrower and the Agent shall continue to deal solely and directly with such Bank
in connection with such Bank's rights and obligations hereunder.
(b) Any Bank may at any time assign to one or more banks or other
institutions (each an "Assignee") all, or a proportionate part of all, of its
rights and obligations under this Agreement and its Revolving Notes, and such
Assignee shall assume rights and obligations, pursuant to an Assignment and
Assumption Agree-
ment executed by such Assignee and such Bank, with and subject to the consent of
the Agent. Upon execution and delivery of such instrument and payment by such
Assignee to such Bank of an amount equal to the purchase price agreed between
such Bank and such Assignee, such Assignee shall be a Bank Party to this
Agreement and shall have all the rights and obligations of a Bank as set forth
in such Assignment and Assumption Agreement, and such Bank shall be released
from its obligations hereunder to a corresponding extent, and no further consent
or action by any party shall be required. Upon the consummation of any
assignment pursuant to this Section, a new Revolving Note or Revolving Notes
shall be issued by the Borrower.
(c) Any Bank may at any time assign all or any portion of its rights
under this Agreement and its Revolving Notes to a Federal Reserve Bank. No such
assignment shall release the transferor Bank from its obligations hereunder.
(d) The Borrower agrees to provide all assistance reasonably requested
by a Bank to enable such Bank either to sell participations in or make
assignments of its portion of the Loans as permitted by this Section 12.15.
Section 12.15. Construction. The parties hereto acknowledge that each
party and its counsel have reviewed this Agreement and that the normal rule of
construction to the effect that any ambiguities are to be resolved against the
drafting party shall not be employed in the interpretation of this Agreement or
any of the Related Documents.
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Section 12.16. Entire Agreement. This Agreement, taken together with
all of the Related Documents and all certificates and other documents delivered
by the Borrower to the Bank Parties, embodies the entire agreement and, except
as otherwise contemplated herein, supersedes all prior agreements, written and
oral, relating to the subject matter hereof.
Section 12.17. Severability. Any provision of this Agreement which is
prohibited, unenforceable or not authorized in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition,
unenforceability or non-authorization without invalidating the remaining
provisions hereof or affecting the validity, enforceability or legality of such
provision in any other jurisdiction.
Section 12.18. Execution of Counterparts. This Agreement may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which when taken together shall constitute one and the same
agreement.
Section 12.19. Limitation of Liability. No claim may be made by the
Borrower or any other Person against any Bank Party or their Affiliates,
directors, officers, employees, attorneys or agents for any special, indirect,
consequential, punitive or treble damages in respect of any claim for breach of
contract or any other theory of liability arising out of or related to the
transactions contemplated by this Agreement or any other Related Documents, or
any act, omission or event occurring in connection herewith or therewith; and
the Borrower hereby waives, releases and agrees not to sue upon any claim for
any and all special, indirect, consequential, punitive or treble damages,
whether or not accrued and whether or not known or suspected to exist in its
favor.
Section 12.20. Publicity. The Borrower hereby authorized the Agent to
make appropriate announcements (with the Borrower's prior approval which shall
not be unreasonably withheld), at the expense of the Agent, of the financial
arrangements entered into by and between the Borrower and the Agent, including,
without limitation, announcements which are commonly known as tombstones, in
such publications and to such selected parties as the Agent shall in its sole
and absolute discretion deem appropriate.
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IN WITNESS WHEREOF, the undersigned have caused this Amended and
Restated Agreement to be executed by their respective officers thereunto duly
authorized, as of the date first above written.
WINSTAR GLOBAL PRODUCTS, INC.
(formerly known as Beauty Labs, Inc.)
By: /s/ Richard W. Noble
Richard W. Noble
Vice President
IBJ SCHRODER BANK & TRUST COMPANY
By: /s/ Louis J. De Luca
Louis J. De Luca
Vice President
IBJ SCHRODER BANK & TRUST COMPANY, as Agent
By: /s/ Louis J. De Luca
Louis J. De Luca
Vice President
The undersigned Guarantor hereby affirms and ramifies those representations and
covenants explicitly made on its behalf in the above Amended and Restated
Agreement.
WINSTAR COMMUNICATIONS, INC.
By: /s/Joseph P. Dwyer
Joseph P. Dwyer
Vice President
<PAGE>
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AMENDED AND RESTATED GUARANTY
In consideration of IBJ SCHRODER BANK & TRUST COMPANY, a New York
corporation having an office at One State Street, New York, New York 10004
("IBJS"), as lender, and each other Bank (as defined below, collectively, the
"Banks") heretofore or hereafter granting any Accommodations (as hereinafter
defined) to WINSTAR GLOBAL PRODUCTS, INC., (the "Debtor"), and for other
valuable consideration, the receipt of which is acknowledged, the undersigned,
WINSTAR COMMUNICATIONS, INC., a Delaware corporation having an office at 230
Park Avenue, New York, New York 10169 (the "Guarantor"), agrees with IBJS, as
agent for the Banks (in such capacity, the "Agent") and on behalf of the Banks,
as follows:
1. Nature of Guaranty; Obligation of Guarantor.
(a) The Guarantor hereby guarantees the payment, without any
setoff or other deduction, of all the Obligations (as hereinafter defined)
(including, without limitation, reasonable attorney's fees and expenses) at any
time accrued with respect thereto; provided, however, that, notwithstanding
anything herein to the contrary, such guaranty is limited to $3,000,000 in the
aggregate.
(b) The guaranty made pursuant to Section 1(a) of this Amended
and Restated Guaranty (the "Guaranty") (i) is unconditional, (ii) is a guaranty
of payment and not of collection, (iii) is independent of and in addition to all
Collateral, (iv) is a continuing guaranty, and (v) shall continue in full force
and effect until indefeasible payment in full of the Obligations and all other
amounts payable under this Guaranty, except insofar as this Guaranty is
terminated as provided for in this Guaranty.
(c) The obligation of the Guarantor with respect to the
guaranty made by the Guarantor pursuant to Section 1(a) of this Guaranty shall
be direct, immediate, absolute, irrevocable and unconditional. The Agent, for
the benefit of the Banks, shall have and may always exercise against the
Guarantor, in accordance with the terms hereof, each right and remedy of a
creditor against a principal debtor upon a past due liquidated obligation.
2. Indemnification. The Guarantor hereby agrees to defend, protect,
indemnify and hold harmless the Agent and the Banks and each of their
Affiliates, officers, directors, employees, agents, attorneys and consultants
(collectively called the "Indemnitees") from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments,
<PAGE>
suits, claims, reasonable costs, expenses and disbursements of any kind or
nature whatsoever (including, without limitation, the reasonable fees and
disbursements of counsel for such Indemnitees in connection with any
investigative, administrative or judicial proceeding, whether or not such
Indemnitees shall be designated a party thereto), imposed on, incurred by, or
asserted against such Indemnitees (whether direct, indirect, economic, special,
punitive, treble or consequential and whether based on any Federal, state, local
or foreign laws or other statutory regulations, including, without limitation,
environmental, securities and commercial laws and regulations, under common law
or equitable principles) in any manner relating to or arising out of this
Guaranty, the Credit Agreement (as hereinafter defined) or any of the other
Related Documents (as hereinafter defined), or any act, event or transaction
related or attendant thereto or contemplated hereby, or any action or inaction
by any Indemnitee hereunder or in connection therewith, any commitment of the
Agent or the Banks under the Credit Agreement, or the making of the loans
provided for thereunder, or the management of such loans, or the use or intended
use of the proceeds of such loans, advances or other financial accommodations
provided thereunder including, in each such case, any allegation of any such
matters, whether meritorious or not (collectively, the "Indemnified Matters");
provided, however, that the Guarantor shall not have any obligation to any
Indemnitee hereunder with respect to Indemnified Matters resulting solely from
the gross negligence or willful misconduct of such Indemnitee. The covenants of
the Guarantor contained in this Section 2 shall survive the payment in full of
all amounts due and payable under this Guaranty, the Credit Agreement or any
other Related Documents and the full satisfaction of all other Obligations. Such
indemnification shall not be subject to any limitation as to amount.
3. Obligations Due Hereunder. Upon and at any time and from time to
time after the occurrence and continuation of any Event of Default (as
hereinafter defined) each portion of the Obligations then owing to the Banks
shall, at the sole option of the Banks, become immediately due and payable from
the Guarantor as though the Obligations had become due, without any further
notice, demand, presentment or protest of any kind.
4. Subrogation and Assignment. Subject to the indefeasible payment in
full of all Obligations, the Guarantor shall be subrogated to the Bank's rights
to receive payments or distributions of cash, property or securities of the
Debtor applicable to the Obligations until the principal of and interest on the
amounts paid under this Guaranty shall be paid in full; and, for the purposes of
such subrogation, no payments or distributions to the Agent, for the benefit of
the Banks, of any cash, property or securities to which the Guarantor would be
entitled, except for the provisions of this Guaranty, and no payment over
pursuant to the provisions of this Guaranty to or
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<PAGE>
for the Banks' benefit by the Guarantor, shall, as between the Debtor, its
creditors other than the Agent, the Banks and the Guarantor, be deemed to be a
payment by the Debtor to or on account of the Obligations. Notwithstanding the
foregoing, the Guarantor hereby knowingly, voluntarily and intentionally waives
any rights it may have to be subrogated to the Banks' rights until the latest to
occur of (i) the date all Obligations are finally and irrevocably repaid to the
Banks in full and the Credit Agreement is terminated or (ii) if the Debtor is
subject to a bankruptcy, reorganization or other similar proceeding then two
days beyond that period of time within which an action (whether by adversary
proceeding or otherwise) may be commenced to recover any preferential transfer
or fraudulent conveyance from any transferee; provided, however, if in the event
of such a proceeding the Agent or the Banks are required to pay back any amounts
previously received due to the existence or exercise of the subrogation rights,
the Guarantor will reimburse the Agent, for the benefit of the Banks, for any
such payments promptly upon demand therefor. The Guarantor acknowledges that the
Agent and the Banks have been induced to accept this Guaranty and to enter into
the Credit Agreement and the other Related Documents in part in reliance upon
the provisions of this Section 4.
5. Reinstatement of Obligations. Each or any portion of the Obligations
that is (a) paid by any money received or applied by the Agent or the Banks
(including, but not limited to, any such money constituting, or received or
applied because of the existence of, the Collateral) and later returned by or
otherwise recovered from the Agent or the Banks as a direct or indirect result
of any Claim (as hereinafter defined) or (b) satisfied by the Agent's or Banks'
retention of any Collateral that is later returned by or otherwise recovered
from the Agent or the Banks as a direct or indirect result of any Claim, shall
be reinstated as part of the Obligations for purposes of this Guaranty as of the
date it originally arose and for purposes of each statute of limitations with
respect to any action or other legal proceeding by the Agent or the Banks
against the Guarantor relating to this Guaranty as of the date of such return or
other recovery of such money or Collateral.
6. Payments. All payments due from and to be made by the Guarantor
hereunder shall be made in Immediately Available Funds (as hereinafter defined)
at the office of the Agent in New York as set forth above.
7. Expenses. The Guarantor shall pay to the Agent, for the benefit of
the Banks, on demand each reasonable cost and expense incurred by the Agent and
the Banks in endeavoring to enforce any indebtedness, liability or obligation of
the Guarantor pursuant to this Guaranty or preserve or exercise any right or
remedy against the Guarantor pursuant to this Guaranty (including, but not
limited to, reasonable attorney's fees and
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<PAGE>
expenses); provided, however, that the Guarantor shall not have any obligation
to the Agent or the Banks to pay such costs and expenses if such costs and
expenses were incurred solely due to the Agent's or the Banks' gross negligence
or willful misconduct. Such payment shall not be subject to any limitation as to
amount, other than as set forth in this Section 7.
8. Cumulative Nature and Nonexclusive Exercise of Rights and Remedies.
All rights and remedies of the Agent and the Banks pursuant to this Guaranty or
otherwise shall be cumulative, and no such right or remedy shall be exclusive of
any other such right or remedy. No single or partial exercise by the Agent or
the Banks of any right or remedy pursuant to this Guaranty or otherwise shall
preclude any other or further exercise thereof, or any exercise of any other
such right or remedy, by the Agent, for the benefit of the Banks.
9. Entire Agreement; Modification; Termination; Nonimpairment; Certain
Covenants and Waivers; Effect of and on Other Writings.
(a) This Guaranty, the Credit Agreement and the other Related
Documents contain the entire agreement between the Agent, the Banks and the
Guarantor with respect to the subject matter of this Guaranty, and supersede
each course of dealing or other conduct heretofore pursued, accepted or
acquiesced in, and each oral or written agreement and representation heretofore
made, by the Agent or the Banks with respect thereto, whether or not relied or
acted upon. No modification of this Guaranty agreed to by the Agent, for the
benefit of the Banks, shall be effective unless made in a writing duly executed
by the Agent and the Banks and specifically referring to each provision of this
Guaranty being modified.
(b) The guaranty made pursuant to Section 1(a) of this Guaranty shall not
be modified or terminated as to the Guarantor by, nor shall such guaranty, or
any indebtedness, liability, obligation, right or remedy relating thereto be
impaired, limited or otherwise affected by, (i) any extension of the Obligations
or of any portion thereof, regardless of the length of such extension and
regardless of whether such extension was preceded by another or others, (ii) any
renewal, refinancing, modification, or compromise of, or any grant of any
participation in, the Obligations or any portion thereof, (iii) any modification
or termination of any writing relating to the Obligations, to any portion
thereof or to any Collateral, (iv) any acceptance of any Other Obligor (as
hereinafter defined), (v) any replacement, release or discharge of, or any
modification of any indebtedness, liability or obligation of, any Other Obligor
or any of the Debtor, (vi) any requirement that the Agent or the Banks protect,
secure, perfect or insure any security interests or liens on the Collateral or
(vii) any exercise, delay in the exercise or waiver
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of, any failure to exercise, or any forbearance or other indulgence relating to,
any right or remedy of the Agent, the Banks or other Person (as hereinafter
defined) against the Guarantor or the Debtor or, relating to the Obligations, to
any portion thereof or to the Collateral.
10. Representations and Warranties. The Guarantor hereby
represents and warrants that:
(a) No agreement or other promises with respect to any
limitations on its obligations hereunder have been made to it by the Agent or
the Banks, other than as expressly set forth in this Guaranty.
(b) The execution, delivery and performance by the Guarantor
of this Guaranty does not contravene any law or any contractual restriction
binding on or affecting the Guarantor.
(c) No consent of any Person, and no consent, approval,
authorization, permit or license from any Federal, state or local regulatory
authority, is required to be obtained or made by the Guarantor in connection
with the making or performance of this Guaranty and the transactions
contemplated hereby.
(d) This Guaranty is a legal, valid and binding obli-
gation of the Guarantor enforceable against the Guarantor in accordance with its
terms, except as limited by applicable fraudulent conveyance law or bankruptcy
reorganization, insolvency, moratorium or similar laws affecting the enforcement
of creditors' rights and the availability of equitable remedies (regardless of
whether such enforceability is considered in a proceeding at law or equity).
(e) There is no pending or to the best of its knowledge,
threatened action or proceeding against the Guarantor before any court,
governmental agency or arbitrator, which would adversely affect the ability of
the Guarantor to perform its obligations under this Guaranty.
(f) The Guarantor has the requisite legal capacity to
perform its obligations hereunder and is not in default with
respect hereto.
(g) The granting of the Accommodations by the Banks and the
assumption by the Guarantor of its obligations hereunder will result in a
financial benefit to the Guarantor.
(h) All Obligations payable by the Guarantor hereunder will,
upon demand for payment by the Banks, constitute direct and unconditional
obligations of the Guarantor.
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11. Governing Law; Jurisdiction; Certain Consents and Waivers; Claim. This
Guaranty shall be governed by and con- strued, interpreted and enforced in
accordance with the internal laws of the State of New York, without regard to
principles of conflicts of law. Each action and other legal proceeding re-
lating to this Guaranty commenced by the Agent, for the benefit of the Banks,
may be litigated in any court that is either a court of record of the State of
New York or a court of the United States located in the State of New York. The
Guarantor hereby (i) consents in each action and other legal proceeding relating
to this Guaranty commenced by the Agent, for the benefit of the Banks, to the
personal jurisdiction of any court that is either a court of record of the State
of New York or a court of the United States located in the State of New York,
(ii) waives each objection to the laying of venue of any such action or other
legal proceeding, (iii) waives personal service of process in each such action
and other legal proceeding, (iv) consents to the making of service of process in
each such action and other legal proceeding by overnight courier or registered
mail directed to the Guarantor at the last address of the Guarantor shown in the
records relating to this Guaranty maintained by the Agent, with such service of
process to be deemed complete on the next business day, if sent by overnight
courier, or five business days after the mailing thereof, and (v) WAIVES IN EACH
SUCH ACTION AND OTHER LEGAL PROCEEDING EACH RIGHT TO TRIAL BY JURY AND EACH
RIGHT TO ASSERT ANY COUNTERCLAIM OR SETOFF. THE AGENT AND THE BANKS ALSO HEREBY
WAIVE IN EACH SUCH ACTION AND OTHER LEGAL PROCEEDING EACH RIGHT TO TRIAL BY
JURY. The Guarantor shall give notice to the Agent promptly upon the Guarantor
having actual knowledge of or specific claim against the Agent or the Banks or
their officers, directors, employees, agents, Affiliates or any Person under the
Agent's or Banks' control, by the Guarantor, for any action or failure to act by
the Agent and the Banks, or any officer, director, employee, agent or Affiliate
of the Agent and the Banks, or any Person under the Agent's and the Banks'
control. The failure to disclose any such specific claim within 180 days of such
actual knowledge thereof shall constitute an irrevocable waiver and forgiveness
of such claim by the Guarantor.
12. Limitation of Liability. No claim may be made by the Guarantor or
any other Person against the Agent or the Banks or their Affiliates, directors,
officers, employees, attorneys or agents for any special, indirect,
consequential, punitive or treble damages in respect of any claim for breach of
contract or any other theory of liability arising out of or related to the
transactions contemplated by this Guaranty, the Credit Agreement, or any other
Related Document, or any act, omission or event occurring in connection herewith
or therewith; and the Guarantor hereby waives, releases and agrees not to sue
upon any claim for any and all special, indirect, consequential, punitive or
treble
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<PAGE>
damages, whether or not accrued and whether or not known or suspected to
exist in his favor.
13. Notices. Each notice to, and each demand upon, the Guarantor by the
Agent or the Banks relating to this Guaranty and each notice to, and each demand
upon, the Agent or the Banks by the Guarantor relating to this Guaranty and any
notice to the Agent or the Banks of the bankruptcy, insolvency or consummation
of any other similar proceeding of the Guarantor, shall specifically refer to
this Guaranty, and shall be delivered in person in writing or sent by overnight
courier or registered mail, postage prepaid, to the addresses set forth on the
introductory paragraph herein, with such notice to be deemed complete on the
next business day, if sent by overnight courier, or five business days after the
mailing thereof.
14. Severability. If any provision of this Guaranty shall be prohibited
by or invalid under such law, it shall be deemed modified to conform to the
minimum requirements of the law of the State of New York, or, if for any reason
it is not deemed so modified, it shall be prohibited or invalid only to the
extent of such prohibition or invalidity without the remainder thereof or any
other such provision being prohibited or invalid.
15. Right of Setoff. Upon the occurrence and during the continuance of
any Event of Default which results in any amount becoming due and payable under
the Credit Agreement and upon demand being made by the Agent, for the benefit of
the Banks, on the Guarantor in accordance with the provisions of Section 3 of
this Guaranty, the Agent, for the benefit of the Banks, is hereby authorized at
any time and from time to time, to the fullest extent permitted by law, to
setoff and apply any and all deposits (general or special, time or demand,
provisional or final) at any time held and other indebtedness at any time owing
by the Banks to or for the credit or the account of the Guarantor, against any
and all of the obligations of the Guarantor now or hereafter existing under this
Guaranty. The Agent hereby agrees promptly to notify the Guarantor after any
such setoff and application made by the Agent; provided, however, that the
failure to give such notice shall not affect the validity of such setoff and
application. The rights of the Agent and the Banks under this Section 15 are in
addition to other rights and remedies (including, without limitation, other
rights of setoff) which the Agent and the Banks may have.
16. Successors; Binding Effect; Transfer of Interest. This Guaranty shall
(i) be binding upon the Guarantor and its Successors on a joint and several
basis, and (ii) inure to the benefit of and be enforceable by the Agent and the
Banks and their Successors. Without limiting the generality of the foregoing
clause (ii), the Agent and the Banks may assign or otherwise transfer their
interest hereunder and under the
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documents evidencing the Accommodations to any other person in accordance with
the terms of the Credit Agreement, and such other person shall thereupon become
vested with all the rights in respect thereof granted to the Agent and the Banks
herein or otherwise. The Guarantor may not assign or transfer all or any part of
its rights or obligations under this Guaranty.
17. Definitions. For purposes of this Guaranty:
(a) "Accommodations" means all loans, credits and other
financial accommodations granted by the Banks or their Successors and
participants to the Debtor pursuant to the Credit Agreement.
(b) "Affiliate" has the meaning set forth in the
Credit Agreement.
(c) "Banks" shall mean IBJ Schroder Bank & Trust Company, as a
lender, and each other lender which may hereafter execute and deliver an
instrument of assignment with respect to the Loans as defined under the Credit
Agreement.
(d) "Claim" means any claim, whether asserted affirma-
tively, as a counterclaim, setoff or defense or otherwise and whether now
existing or hereafter arising, for the return or for any other recovery of any
money received or applied by the Agent, for the benefit of the Banks,
(including, but not limited to, any such money constituting, or received or
applied because of the existence of, any Collateral) in payment of the
Obligations or of any portion thereof.
(e) "Collateral" means "Collateral" as defined in the
Credit Agreement.
(f) "Credit Agreement" means the Amended and Restated Credit
and Security Agreement dated as of the date hereof among the Debtor, the Banks
and the Agent, which Credit Agreement amends and restates the Prior Credit
Agreement, as the same may from time to time be amended, extended, supplemented,
restated or otherwise modified or replaced.
(g) "Event of Default" means an Event of Default, as
such term is defined in the Credit Agreement.
(h) "Immediately Available Funds" means lawful money
of the United States of America immediately available for use by
the Banks in New York, New York.
(i) "Obligations" means the Revolving Loans paid by the Agent
and the Banks to the Debtor under or due to the Accommodations constituting
Overadvances under the Credit Agreement, including, but not limited to, with
respect to such
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Revolving Loans constituting Overadvances (A) all extensions, renewals,
refinancings, modifications and replacements of any such indebtedness, liability
or obligation herein described that are made after any assignment or other
transfer thereof, (B) all interest and other charges (including without
limitation reasonable legal fees and expenses) that accrue with respect to any
such indebtedness, liability or obligation described herein or with respect to
any extension, renewal, refinancing, modification or replacement thereof after
any assignment or other transfer thereof and (C) proceeds of each of the
foregoing.
(j) "Other Obligor" means, other than the Debtor or the
Guarantor, any Person who or which is now or hereafter directly or indirectly
liable for the payment of the Obligations or of any portion thereof.
(k) "Person" means any individual, corporation, partnership,
joint venture, trust, unincorporated association, government or political
subdivision or other entity.
(l) "Prior Credit Agreement" means the Loan and Security
Agreement dated as of August 5, 1994 between Century Business Credit Corporation
("Century") and the Debtor, formerly known as Beauty Labs, Inc., as amended from
time to time.
(m) "Related Documents" has the meaning set forth in
the Credit Agreement.
(n) "Successor" means, with respect to any Person, (i) if such
Person is an individual, the estate of such Person, (ii) if such Person is not
an individual, any direct or indirect suc-
cessor of such Person (including, but not limited to, any other corporation into
which such Person is hereafter directly or indirectly merged, consolidated or
otherwise absorbed) or (iii) any other Person to whom or to which all or
substantially all of the assets of such Person are hereafter directly or
indirectly assigned or otherwise transferred.
18. Amended and Restated. This Amended and Restated Guaranty amends and
restates, in its entirety, the Limited Guaranty delivered by the Guarantor to
Century, dated as of August 5, 1994, which Limited Guaranty was assigned to the
Banks by Century.
Dated: August 9, 1996
NOTICE: FOR PURPOSES OF THIS
GUARANTY, "OBLIGATIONS" IS
NOT LIMITED TO PRESENTLY EXIST- WINSTAR COMMUNICATIONS, INC.
ING INDEBTEDNESS, LIABILITIES
AND OBLIGATIONS.
By: Joseph P. Dwyer
Its: Vice President
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ACKNOWLEDGMENT
STATE OF NEW YORK )
): SS.
COUNTY OF )
On the 9th day of August in the year 1996, before me personally
came Joseph P. Dwyer
/ / Individual to me known and known to me to be the person described in
and who executed the above instrument, and she acknowledged to me
that she executed the same.
/ / Partnership to me known and known to me to be a member of the
partnership described in and which executed the above instrument, and
she duly acknowledged to me that she executed the above instrument for
and on behalf of said partnership.
/x / Corporation to me known, who, being by me duly sworn, did depose and
say that he resides at that he is the vice president of the
corporation described in and which executed the above instrument; and
that she signed her name thereto by order of the board of directors of
said corporation.
Notary Public
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SUBORDINATION AGREEMENT
THIS SUBORDINATION AGREEMENT (the "Agreement") is made and entered into
effective as of August 9, 1996, by and among Winstar Communications, Inc., a
Delaware corporation (the "Subordinated Obligee"), and IBJ Schroder Bank & Trust
Company, as agent ("Agent").
Background Information:
A. Winstar Global Products, Inc., a Delaware corporation formerly known
as Beauty Labs Inc. ("Borrower"), and Century Business Credit Corporation
("Century") entered into a Loan and Security Agreement, dated as of August 5,
1994 (the "Original Credit Agreement"). Century assigned its rights therein to
the Agent pursuant to an Assignment and Sale Agreement dated as of August 9,
1996, and the Agent, on behalf of the Agent and those banks named therein, have
amended and restated the Original Credit Agreement, entering into an amended and
restated Credit and Security Agreement, amended and restated as of the date
hereof, providing for the aggregate principal amount of $12,000,000 secured
credit facilities (as amended, restated, replaced or otherwise modified from
time to time, the "Credit Agreement"; all capitalized terms used herein not
otherwise defined shall have the meanings given in the Credit Agreement; the
Agent and the Banks being collectively referred to as the "Senior Lender").
B. Pursuant to the Credit Agreement, the Borrower has and may hereafter
issue the Revolving Notes payable to the order of the Banks (together with any
further amendments or modifications thereto and all replacements, increases,
transfers, exchanges and substitutions thereof and any and all instruments
issued to evidence such debt by the Borrower to the Banks, the "Senior Notes";
the Credit Agreement, the Senior Notes, and the other documents, agreements and
instruments executed in connection therewith, being collectively referred to
herein as the "Senior Loan Documents").
C. The Subordinated Obligee and the Borrower have entered into the
subordinated promissory note dated as of August 9, 1996 (as amended, restated,
replaced or otherwise modified from time to time, the "Subordinated Note")
pursuant to which, among other things, the Subordinated Obligee has provided to
the Borrower the aggregate amount of $3,100,000 of loans (the Subordinated Note
and any agreements and instruments executed or delivered in connection
therewith, being collectively referred to herein as the "Subordinated
Documents").
D. The Borrower may be presently and from time to time hereafter indebted
to the Senior Lender as a result of the advance of monies, the issuance of
letters of credit and/or other extensions of credit by the Senior Lender to the
Borrower
<PAGE>
pursuant to the Senior Loan Documents.
E. The Subordinated Obligee acknowledges that any loan or advance of
monies, issuance of a letter of credit, or other extensions of any financial
accommodation or credit to the Borrower by the Senior Lender is of value to the
Subordinated Obligee.
G. The Subordinated Obligee has agreed to subordinate the payment and
priority of all indebtedness, distributions, dividends and obligations of the
Borrower owed to the Subordinated Obligee pursuant to the Subordinated Documents
to the payment and priority of the Senior Obligations (as defined herein) owed
by the Borrower to the Senior Lender pursuant to the Senior Loan Documents, all
upon the terms and conditions hereinafter set forth.
NOW, THEREFORE, for good and valuable consideration, receipt of which
is hereby acknowledged, and in order to induce the Senior Lender, now or from
time to time hereafter, to make or maintain financial accommodations to or for
the benefit of the Borrower pursuant to the Senior Loan Documents, or to grant
such amendments, renewals, increases or extensions thereof as the Senior Lender
may deem advisable, and to better secure the Senior Lender in respect of the
foregoing, the Subordinated Obligee and Senior Lender hereby agree as follows:
Definitions. In addition to other terms defined herein, as used in this
Agreement, the following terms shall have the meanings set forth below:
"Acceleration Event" means an acceleration of the maturity of
the principal amount of the Senior Obligations (or any portion thereof) prior to
its scheduled maturity date, whether by exercise by the Senior Lender of a right
so to do or automatically pursuant to the terms of the Senior Loan Documents, or
a failure to pay such Senior Obligations at scheduled maturity.
"Senior Obligations" means (a) any and all indebtedness, obligations and
liabilities owing by Borrower whether now existing or hereafter arising or
acquired outright, conditionally, or as collateral security (whether as
principal, interest or otherwise, whether due or not due, direct, indirect,
absolute or contingent and whether or not evidenced by any note, instrument,
reimbursement agreement or writing), without any limitation as to the amount or
terms thereof, to the Senior Lender, including principal of and interest
(including without limitation interest at the rate provided for in the Senior
Loan Documents or other agreement governing or evidencing the Senior
Obligations, both before and after the institution of any bankruptcy,
receivership, insolvency or similar proceeding, even if
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the claim for such interest is not allowed pursuant to the provisions of
applicable law) on the Senior Note (provided, that principal under the Senior
Note which constitutes Senior Obligations shall not exceed $16,000,000 in the
aggregate without the prior consent of the Subordinated Obligee), all other
extensions of credit under or in connection with the Credit Agreement, if any,
or any other agreements governing or evidencing the Senior Obligations and all
fees, expenses, reimbursements, indemnities and other amounts payable under the
Credit Agreement or other agreement governing or evidencing the Senior
Obligations (including without limitation attorneys' fees and expenses incurred
by the Senior Lender, whenever incurred, including without limitation if
incurred in proceedings against the Borrower, the Subordinated Obligee or any
other party) and (b) all renewals, deferrals, amendments, increases provided,
that principal under the Senior Note as so increased which constitutes Senior
Obligations shall not exceed $16,000,000 in the aggregate without the prior
consent of the Subordinated Obligee), modifi-
cations, supplements, extensions, refundings, or refinancings of any of the
indebtedness, obligations or liabilities described in clause (a), including any
evidences of indebtedness issued in exchange therefor, and all other present and
future indebtedness for money borrowed or owed to the Senior Lender.
"Subordinated Default" means any Default or Event of Default
arising under the Subordinated Documents.
"Subordinated Obligations" means any and all indebtedness, obligations,
right to receive dividends and distributions, reimbursement obligations and
liabilities, including any such evidenced by the Subordinated Note or any other
of the Subordinated Documents owing or to be performed by the Borrower or owing,
paid or to be performed by any other person, firm, partnership, corporation or
entity (inbcluding without limitation any guarantor or surety) for the benefit
of the Borrower, whether now existing or hereafter arising or acquired outright,
conditionally, or as collateral security, to the Subordinated Obligee (whether
as principal, interest, dividends or distributions or otherwise, whether due or
not due, direct, indirect, absolute or contingent and whether or not evidenced
by any note, instrument, certificate or writing), including without limitation
any obligation to pay expenses, attorneys' fees, monitoring fees, collection
fees, indemnities, and all registration rights, put rights and all other rights
related to any equity interests held by the Subordinated Obligee.
In this Agreement, "including" is used by way of illustration and not
by way of limitation and the singular includes the plural and conversely.
2. Subordination. (a) The payment and performance of the
Subordinated Obligations is hereby subordinated in right of
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payment to the prior payment in full of the Senior Obligations and, except as
specifically set forth in Sections 3, 4, 5 and 7 below, the Subordinated Obligee
will not ask, demand, sue for, take or receive from or on behalf of the Borrower
(by way of payment, loan, setoff, guaranty or in any other manner) the whole or
any part of the Subordinated Obligations (whether the Subordinated Note shall
have become payable at maturity, by acceleration or otherwise), including,
without limitation, the taking of any negotiable instrument evidencing any
Subordinated Obligation or any security therefor, unless and until all of the
Senior Obligations shall have been fully and finally indefeasibly paid and
satisfied and all financing arrangements constituting the Senior Obligations
among the Borrower and the Senior Lender have been terminated. All liens and
security interests of the Subordinated Obligee, whether now or hereafter arising
and howsoever existing, in any assets of the Borrower or any other assets
securing the Senior Obligations shall be and hereby are subordinated to the
rights and interests of the Senior Lender in those assets. The Subordinated
Obligee shall have no right to possession or control of any such assets or to
foreclose upon any such assets, whether by judicial action or otherwise, unless
and until all of the Senior Obligations shall have been fully and finally
indefeasibly paid and satisfied and all financing arrangements constituting the
Senior Obligations among the Borrower and the Senior Lender have been
terminated.
(b) The Subordinated Obligee shall promptly release and
discharge any lien or security interest it may acquire in any
assets or property of the Borrower.
(c) The Subordinated Obligee acknowledges and agrees that, to the
extent the terms and provisions of this Agreement are inconsistent with the
Subordinated Documents, the terms of this Agreement shall control and the
Subordinated Documents shall be deemed to be subject to this Agreement.
3. Permitted Payments and Actions. (a) Notwithstanding the provisions
of Section 2 of this Agreement, and provided that (i) there shall not then exist
any breach of this Agreement by the Subordinated Obligee which has not been
waived, in a writing signed by the Senior Lender, (ii) there does not then exist
any Default or Event of Default, (iii) the payment described in this Section
3(a), if made, would not give rise to the occurrence of any Default or Event of
Default, (iv) following the payment described in this Section 3(a), if made
(plus any concurrent payment of dividends permitted by Section 7.09 of the
Credit Agreement), there would exist no Overadvance, and there would exist under
the Formula Amount not less than $850,000 of availability (i.e. the Formula
Amount less Loans outstanding less the face amount of Letters of Credit
outstanding less trade payables more than 60 days past due less the amount of
checks outstanding less uncovered book overdrafts), (v) [intentionally
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<PAGE>
omitted],
(vi) the amount of the payment (plus any concurrent payment of dividends
permitted by Section 7.09 of the Credit Agreement) is not in excess of 50 per
cent of Consolidated EBITDA for the fiscal year for which such audited financial
statements were delivered; then the Subordinated Obligee may accept from the
Borrower, payments of interest and principal, on 10 days' notice to the Senior
Lender such payments being "Permitted Payments"); and (vii) either (x) there
shall have been no Overadvance outstanding in six of the last 12 months, or (y)
if there shall have been an Overadvance in six of the last 12 months, if an
Overadvance is thereafter made, the payee of such dividend shall repay the
dividend to the Borrower.
(b) Notwithstanding anything contained herein to the contrary, the
Subordinated Obligee agrees and covenants that in no event shall the
Subordinated Obligee accept payment of any penalty interest, late fees or other
payments representing interest in excess of the rate of interest otherwise
payable under the Subordinated Note until after payment and performance in full
of all of the Senior Obligations.
(c) Provided that no notice pursuant to Section 3(d) is then
outstanding, the Subordinated Obligee shall be permitted to keep and retain any
Permitted Payments received by the Subordinated Obligee from or on behalf of the
Borrower, provided that the Subordinated Obligee has no knowledge that such
payment was made in violation of Section 3(a), provided that if within 91 days
after receipt by the Subordinated Obligee of such payment, the Subordinated
Obligee receives as specified in this Agreement written notice from the Agent or
Borrower to the effect that such payment was made in violation of this
Agreement, the Subordinated Obligee shall pay such amount received over to the
Agent.
(d) Without limiting the restrictions on payments to the Subordinated
Obligee set forth in this Agreement, should the Agent deliver to the
Subordinated Obligee a notice that a Default or Event of Default is then
existing, the Subordinated Obligee shall not accept any direct or indirect
payment or distribution or security or reimbursement or dividend or instrument
or proceeds thereof (including without limitation due to, or paid in accordance
with, guaranties by any Person, or insurance policies, whether policies upon
assets of the Borrower, key-man policies upon officers, employees or directors
of the Borrower, or any other policies) from the Borrower, or on behalf of the
Borrower, on account of the Subordinated Obligations unless and until such
Default or Event of Default shall have been cured or waived, or certified not to
exist, in a writing signed by the Agent or the Senior Obligations shall have
been indefeasibly discharged or paid in full, after which, subject to all of
Section 3 (if applicable), the Borrower may resume making any and all required
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<PAGE>
Permitted Payments (but not premium or accelerated) payments in respect of the
Subordinated Obligations, including any Permitted Payments not paid as scheduled
due to the provisions of this Agreement.
4. Receipt of Payment-in-Kind Notes by the Subordinated Obligee. To the
extent that Scheduled Payments are not made due to the provisions of this
Agreement, the Borrower may deliver to the Subordinated Obligee non-cash
payment-in-kind notes ("PIK's"), in form substantially similar to the
Subordinated Note, in the amount of the deficiency in Scheduled Payments made.
PIK's may be paid, in cash, at such time that such cash payments may be made in
compliance with Section 3 hereof. The parties hereto acknowledge that no PIK's
are provided for at present by the Subordinated Documents, and that there is no
obligation to agree to such PIK's by the Subordinated Obligee.
5. Enforcement Rights. (a) Prior to the indefeasible payment in full of
the Senior Obligations and the termination of all financing arrangements
constituting Senior Obligations among the Borrower and the Senior Lender, the
Subordinated Obligee shall have no right to accelerate or enforce any claim with
respect to the Subordinated Obligations, or otherwise to take any action, either
judicially or through self-help or otherwise (including without limitation the
institution of bankruptcy or insolvency proceedings with respect to the
Borrower), against the Borrower or their property without the Senior Lender's
prior written consent.
(b) Notwithstanding the limitations in subdivision (a) above, the
Subordinated Obligee may take the following actions, and solely the following
actions, to the extent permitted in the Subordinated Documents:
(i) The Subordinated Obligee may, with prior written notice to the
Senior Lender, seek equitable relief to cause the Borrower to perform its
obligations under the Subordinated Documents, to the extent not in contravention
or breach of this Agreement or any of the Senior Loan Documents.
(ii) Upon an Acceleration Event, or a failure to pay the Senior
Obligations in full at maturity, the Subordinated Obligee may accelerate the
Subordinated Obligations, to the extent constituting debt.
(iii) Upon the bankruptcy or insolvency of the Borrower, the
Subordinated Obligee may file as appropriate proofs of claim.
6. Subordinated Obligations Owed Only to the Subordinated
Obligee The Subordinated Obligee warrants and represents that
it has not previously assigned any interest in its Subordinated
Obligations, that no other party owns an interest in its
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<PAGE>
Subordinated Obligations other than itself (whether as joint holders of the
Subordinated Obligations, participants or otherwise) and that the entire
Subordinated Obligations is owing only to it, and covenants that the entire
Subordinated Obligations shall continue to be owing only to it unless assigned
in accordance with, and subject to, the terms of this Agreement.
7. Senior Lender Priority. In the event that any distribution,
division, or application, partial or complete, voluntary or involuntary, by
operation of law or otherwise, of all or any part of the assets of the Borrower
or the proceeds thereof to the creditors of the Borrower or readjustment of the
obligations and indebtedness of the Borrower, whether by reason of liquidation,
bankruptcy, arrangement, receivership, assignment for the benefit of creditors
or any other action or proceeding involving the readjustment of all or any part
of the Senior Obligations or the Subordinated Obligations, or the application of
the assets of the Borrower to the payment or liquidation thereof, or upon the
dissolution or other winding up of the Borrower's business, or upon the sale of
all or substantially all of the Borrower's assets, then, and in any such event,
(a) the Senior Lender shall be entitled to receive payment in full of any and
all of the Senior Obligations then owing prior to the payment of all or any part
of the Subordinated Obligations, and (b) any payment or distribution of any kind
or character, whether in cash, securities or other property, including without
limitation adequate protection payments, which shall be payable or deliverable
upon or with respect to any or all of the Subordinated Obligations shall be paid
or delivered directly to the Senior Lender for application on any of the Senior
Obligations, due or not due, until such Senior Obligations shall have first been
fully paid and satisfied. Notwithstanding any statute, including the Bankruptcy
Code (as hereinafter defined), any rule of law or bankruptcy proceeding to the
contrary, the right of the Senior Lender hereunder to have all of the Senior
Obligations (whether accrued before or after the filing of such bankruptcy
proceeding) paid and satisfied in full prior to the payment of any of the
Subordinated Obligations shall include, without limitation, the right of the
Senior Lender to be paid in full all interest accruing on the Senior Obligations
due to them after the filing of any petition by or against Borrower in
connection with any bankruptcy or similar proceeding or any other proceeding
referred to in this Section 7, prior to the payment of any amounts in respect of
the Subordinated Obligations, including any interest due to the Subordinated
Obligee accruing after such date. Notwithstanding the foregoing, in connection
with a Plan (as defined in Section 8 below), a Subordinated Obligee may receive
debt or equity securities of the Borrower or any successor corporation provided
for by such Plan that are subordinated to the Senior Obligations at least to the
same extent that the Subordinated Documents, and the obligations arising
thereunder, are subordinated to the Senior Obligations
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<PAGE>
pursuant to this Agreement (including at least the same subordination and
limitations on rights of action imposed hereunder; such debt or equity
securities being "Permitted Junior Securities"); provided that if a new
corporation results from such Reorganization, such corporation shall have
assumed all Senior Obligations, not paid in full in cash in connection with such
Plan; provided further that such Permitted Junior Securities received shall be
pledged and the Senior Lender granted a first lien therein, pursuant to
documents in form and substance satisfactory to the Agent, to secure the Senior
Obligations in an amount not reduced by any "cramdown" under the Bankruptcy Code
(as defined below) or other means, other than payment of cash on a
dollar-for-dollar basis.
8. Grant of Authority to Senior Lender; Voting of Proofs of Claim. In
the event of the occurrence of any event described in Section 7 above, if the
Subordinated Obligee does not act within 10 days prior to the last date for
filing claims, the Senior Lender is hereby irrevocably authorized and empowered,
in its sole and absolute discretion, to make and present for and on behalf of
that Subordinated Obligee such proofs of claims against the Borrower on account
of the Subordinated Obligations as the Senior Lender may deem expedient or
proper. Whether proofs of claim with respect to the Subordinated Obligations are
made and presented by Senior Lender or Subordinated Obligee, the Subordinated
Obligee does hereby irrevocably authorize the Senior Lender to vote, and does
hereby assign and transfer to the Senior Lender all rights to vote, any and all
claims in such proceedings related to the Subordinated Obligations, including
without limitation with respect to expressing consent or disapproval to any plan
of reorganization (a "Plan") or other matter put to the Borrower's creditors for
approval. The Senior Lender agrees that should two or more proposed Plans, which
each provide for a payment in full of the Senior Obligations upon confirmation,
be approved by the relevant court, and if such proposed Plans are feasible, and
otherwise satisfactory to the Senior Lender in its reasonable discretion, then
the Senior Lender will vote for such of the proposed Plans as instructed by the
holders of a majority of the claims arising under the Subordinated Obligations.
In all events, the Senior Lender shall have authority to receive and collect any
and all dividends or other payments, distributions or disbursements made in any
such proceedings in whatever form the same may be paid or issued and to apply
the same on account of any of the Senior Obligations, subject to the last
sentence of Section 7 above. To the extent that payments or distributions are
made in property other than cash, the Subordinated Obligee authorize the Senior
Lender to sell such property to such buyers and on such terms as the Senior
Lender, in its sole discretion, shall determine, subject to the last sentence of
Section 7 above. The Subordinated Obligee will execute and deliver to the Senior
Lender such powers of attorney, assignments and other instruments or documents,
including notes and stock certificates (together
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with such assignments or endorsements as the Senior Lender shall deem
necessary), as may be requested from time to time by the Senior Lender in order
to enable the Senior Lender to exercise any and all rights granted hereunder
including the right to collect and receive any and all payments and
distributions which may be payable or deliverable at any time upon or with
respect to the Subordinated Obligations (subject to the last sentence of Section
7), all for the Senior Lender's own benefit. Following the indefeasible payment
in full of the Senior Obligations, the Senior Lender will remit to the
Subordinated Obligee to the extent of the Subordinated Obligee's interest
therein, all dividends or other payments or distributions paid to and held by
the Senior Lender in excess of the Senior Obligations.
9. Payments Received by the Subordinated Obligee. Except for Permitted
Payments received by the Subordinated Obligee pursuant to and in accordance with
the provisions of Section 3 above and for PIK's paid in accordance with Section
4, and as stated in the last sentence of Section 7, should any payment or
distribution or reimbursement or dividend or instrument or proceeds thereof
(including without limitation due to, or paid in accordance with, insurance
policies, whether policies upon assets of the Borrower, key-man policies upon
officers, employees or directors of the Borrower, or any other policies) be
received by the Subordinated Obligee upon or with respect to the Subordinated
Obligations or any other obligations of the Borrower to the Subordinated Obligee
prior to the full and final indefeasible satisfaction of all of the Senior
Obligations and the termination of all financing arrangements among the Borrower
and the Senior Lender, the Subordinated Obligee shall receive and hold the same
in trust, as trustee, for the benefit of the Senior Lender, and shall forthwith
deliver the same to the Agent in precisely the form received (except for the
indorsement or assignment of the Subordinated Obligee where necessary), for
application on any of the Senior Obligations, due or not due, and, until so
delivered, the same shall be held in trust by the Subordinated Obligee as the
property of the Senior Lender. In the event of the failure of the Subordinated
Obligee to make any such indorsement or assignment to the Senior Lender, the
Senior Lender, or any of its officers or employees, is hereby irrevocably
authorized to make the same.
10(A). Instrument Legend. Any instrument evidencing any of the
Subordinated Obligations, or any portion thereof, will, on the date hereof or,
if issued hereafter, not later than the earlier of the issue thereof or the
first transfer of any interest therein, be inscribed with a legend conspicuously
indicating that payment thereof (and security therefor, if any) is subordinated
to the claims of the Senior Lender pursuant to the terms of this Agreement, in
substantially the following form:
"The indebtedness evidenced by this instrument
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(and security therefor, if any should in the future exist) is subordinated to
the prior payment in full and priority of the Senior Obligations (as defined in
the and Subordination Agreement hereinafter referred to) pursuant to, and to the
extent provided in the Subordination Agreement dated as of August 9, 1996 made
by the payee hereunder in favor of the Senior Lender as defined therein."
A copy of any instrument evidencing any of the Subordinated Obligations, or any
portion thereof, which is executed by the Borrower, will be delivered to the
Senior Lender on the date of its execution or within five Business Days
thereafter.
(B) Further Actions. The Subordinated Obligee will, with no charge to the Senior
Lender, and at any time and from time to time, promptly execute and deliver all
further instruments, financing statements and documents, and take all further
action, that may be reasonably necessary or desirable, or that the Senior Lender
may reasonably request, in order to protect, establish or maintain any right,
priority or interest granted or purported to be granted hereby or to enable the
Senior Lender to enforce the rights and remedies afforded to it hereunder.
(C) No Lien or Prior Benefit to Subordinated Obligee. The Subordinated Obligee
hereby covenants and agrees that to the extent it has taken or received any
lien, pledge or security interest, or has received the benefit of any
encumbrance or negative pledge, with respect to any property or rights, whether
real, personal or otherwise, owned, held or controlled by the Borrower or any
Affiliate thereof, then such lien, pledge or security interest in favor of the
Subordinated Obligee shall be assigned to the Senior Lender, and such
Subordinated Obligee shall turn such benefit over to Senior Lender, or if Senior
Lender for any reason has no lien, pledge or security interest in such property
or rights or is not entitled to such benefit, the Subordinated Obligee is acting
on behalf of the Senior Lender, and shall hold any benefit received therefrom in
trust for the Senior Lender, and shall pay over such benefit to the Senior
Lender upon request.
11. Reimbursements for Expenses and Borrowings from Borrower;
Assignment of Claims. Except as permitted in Section 3 hereof, the Subordinated
Obligee agree that until the Senior Obligations have been paid in full and
satisfied and all financing arrangements constituting Senior Obligations between
the Borrower and the Senior Lender have been terminated, the Subordinated
Obligee will not, directly or indirectly, accept or receive the benefit of any
remuneration or reimbursement for expenses from or on behalf of the Borrower,
and will not assign or transfer to others any claim the Subordinated Obligee
have or may have against the Borrower, unless such assignment or transfer
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is made expressly subject to this Agreement.
12. Continuing Nature of Subordination. All rights and
interests of the Senior Lender hereunder, and all agreements and
obligations of the Subordinated Obligee under this Agreement,
shall remain in full force and effect irrespective of:
(a) any lack of validity or enforceability of the Senior
Loan Documents or the Senior Obligations, or any lien purported
to be created thereby;
(b) any change in the time, manner, amount or place of payment of, or
any other term of, all or any of the Senior Obligations, or any other amendment,
increase, modification or supplement to, or renewal, extension, waiver or
termination of, or any consent to departure from, or any other action or
omission in respect of, the Senior Loan Documents;
(c) any failure of any lien purported to be created by the Senior Loan
Documents to be created, to attach to property of the Borrower, or to be
perfected, or any lapse in priority of such lien;
(d) any exchange, release, sale, surrender, or non- perfection, in
whole or in part, of any collateral now or hereafter existing, or any release or
amendment or waiver of or consent to departure from any guaranty, for all or any
of the Senior Obligations;
(e) any exercise or failure to exercise any right, power or
remedy under or in respect of the Senior Loan Documents or the
Senior Obligations;
(f) any action or failure to act, or default by, by the Subordinated
Obligee, under this Agreement, the Subordinated Documents, or any other
agreement or document; or
(g) any other circumstance which might otherwise constitute
a defense available to, or a discharge of, any one or more of the
Subordinated Obligee or a subordinated creditor;
in each case, whether or not the Subordinated Obligee shall have had notice or
knowledge of any of the foregoing and whether or not they shall have consented
or objected thereto. This Agreement shall be effective and may not be terminated
or otherwise revoked by the Subordinated Obligee until the Senior Obligations
shall have been fully discharged by full and final indefeasible payment and all
financing arrangements between the Borrower and the Senior Lender constituting
Senior Obligations have been terminated. This is a continuing agreement of
subordination and the Senior Lender may, subject to the terms hereof, continue,
at any time and without notice to the
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Subordinated Obligee, extend or increase credit or other financial
accommodations and loan monies to or for the benefit of the Borrower on the
faith hereof. Any termination or revocation by the Subordinated Obligee of this
Agreement shall not be effective until accepted and consented to in writing by
the Senior Lender, and in any event shall not affect this Agreement in relation
to (i) any of the Senior Obligations which arose prior to the effective date of
such notice or (ii) any of the Senior Obligations created after that date, if
such Senior Obligations were incurred either through readvances by the Senior
Lender pursuant to the Senior Lender's financing arrangements with the Borrower,
and/or for the purpose of protecting any collateral, including, but not limited
to, all protective advances, costs, expenses, and attorneys' and paralegals'
fees, whensoever made, advanced or incurred by the Senior Lender in connection
with the Senior Obligations. If, in reliance on this Agreement, the Senior
Lender makes loans or other advances to or for the benefit of the Borrower or
takes other action under the Senior Loan Documents after such aforesaid
termination or revocation by the Subordinated Obligee, the rights of the Senior
Lender with respect to such loans, other advances or other actions shall be the
same as if such termination or revocation had not occurred; and, in any event,
no obligation of the Subordinated Obligee hereunder shall be affected pursuant
to this Section 12 by the written revocation of the Subordinated Obligee or any
other subordinated party, pledgor, endorser or guarantor, if any.
13. Subordinated Obligee's Waivers. All of the Senior Obligations shall
be deemed to have been made or incurred in reliance upon this Agreement. The
Subordinated Obligee expressly waive promptness, diligence, all notice of the
acceptance by the Senior Lender of the subordination and other provisions of
this Agreement and all other notices, not specifically required pursuant to the
terms of this Agreement or required by applicable law, whatsoever and any
requirement that the Senior Lender protect, secure, perfect or insure any
security interest or lien on any property subject thereto or exhaust any right
or take any action against the Borrower or any other person or entity or any
collateral, and the Subordinated Obligee expressly waive reliance by the Senior
Lender upon the subordination and other agreements as herein provided. The
Subordinated Obligee agree that the Senior Lender has made no warranties or
representations with respect to the due execution, legality, validity,
completeness or enforceability of the Senior Loan Documents or other agreements
governing or evidencing the Senior Obligations, or the collectability of the
Senior Obligations, or as to the creation, attachment, perfection or priority of
any lien purported to be created by the Senior Loan Documents, that the Senior
Lender shall be entitled to manage and supervise its loans and credit facilities
to the Borrower in accordance with applicable law and the Senior Lender's usual
practices, modified from time to time
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as it deems appropriate under the circumstances, without regard to the existence
of any rights that the Subordinated Obligee may now or hereafter have in or to
any of the assets of the Borrower, and that the Senior Lender shall have no
liability to the Subordinated Obligee, to the fullest extent permitted by law,
arising out of, any and all actions which the Senior Lender, acting in a
commercially reasonable manner, takes or omits to take including actions with
respect to the creation, perfection or continuation of liens or security
interests in any collateral and other security for the Senior Obligations,
actions with respect to the occurrence of an Event of Default or Default under
the Senior Loan Documents, or other agreements governing or evidencing the
Senior Obligations, actions with respect to the foreclosure upon, sale, release,
or depreciation of, or failure to realize upon, any of the collateral and
actions with respect to the collection of any claim for all or any part of the
Senior Obligations from any account debtor, guarantor or any other party) with
respect to the Senior Loan Documents or other agreements governing or evidencing
the Senior Obligations or any other agreement related thereto or to the
collection of the Senior Obligations or the valuation, use, protection or
release of any collateral and/or other security for the Senior Obligations, for
the Subordinated Obligee waive any claim arising therefrom which they may now or
hereafter have against the Senior Lender, to the fullest extent permitted by
law.
14. Bankruptcy Issues. If the Borrower becomes the subject of
proceedings under Title 11 of the United States Code (11 U.S.C. ss. 101 et
seq.), as amended, (the "Bankruptcy Code"), and if the Senior Lender desires to
permit the use of cash collateral or to provide financing to the Borrower under
either Section 363 or Section 364 of the Bankruptcy Code, the Subordinated
Obligee agree that adequate notice of such financing to the Subordinated Obligee
shall have been provided if the Subordinated Obligee receive written notice in
accordance with the Bankruptcy Code. All allocations of payments between the
Senior Lender and the Subordinated Obligee shall continue to be made after the
filing of a petition under the Bankruptcy Code on the same basis that the
payments were to be allocated prior to the date of such filing. The Subordinated
Obligee waives any claim any one or more of them may now or hereafter have
arising out of the Senior Lender's election, in any proceeding instituted under
Chapter 11 of the Bankruptcy Code, of the application of Section 1111(b)(2) of
the Bankruptcy Code, and/or any borrowing or grant of a security interest under
Section 364 of the Bankruptcy Code by the Borrower, as debtors-in-possession. To
the extent that the Senior Lender receives payments on, or proceeds of
collateral for, the Senior Obligations which are subsequently invalidated,
declared to be fraudulent or preferential, set aside and/or required to be
repaid to a trustee, receiver or any other party under any bankruptcy law, state
or federal law, common law, or equitable cause, then, to the extent of such
payment or proceeds
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received, the Senior Obligations, or part thereof, intended to be satisfied
shall be revived and continue in full force and effect as if such payments or
proceeds had not been received by the Senior Lender.
15. Restrictions on Subordinated Obligee. Prior to the indefeasible
payment in full of the Senior Obligations and notwithstanding anything contained
in any agreement, instrument or document executed and delivered in connection
with the Subordinated Obligations to the contrary, and without limitation of the
restrictions on and obligations of the Subordinated Obligee set forth in this
Agreement, the Subordinated Obligee shall not without the prior written consent
of the Senior Lender, do any of the following:
(a) amend, modify, supplement or waive, or agree to any amendment,
modification, supplement or waiver of or to, the Subordinated Obligations or the
Subordinated Documents if such amendment, modification or supplement: amends or
affects the interest rate, principal amount, financial covenants (other than to
make less stringent such covenants), aggregate amount due, maturity, terms of
payment or stated events of default of the Subordinated Obligations; adds or
modifies (adversely to Borrower) any material covenant of Borrower under the
Subordinated Obligations or the Subordinated Documents; or provides additional
collateral (subject to Section 10(C) hereof) for, or modifies (adversely to
Borrower) the rights or remedies of the Subordinated Obligee upon default on,
the Subordinated Obligations. In all events Borrower will provide the Senior
Lender with a copy of each amendment, waiver modification or supplement to the
Subordinated Obligations and the Subordinated Documents within ten Business Days
after execution thereof by Borrower; or
(b) except as expressly permitted by Section 5 hereof, accelerate the
maturity of all or any portion of the Subordinated Obligations, or take any
action towards collection of all or any portion of the Subordinated Documents or
enforcement of any rights, powers or remedies under the Subordinated Documents
or other agreements entered into pursuant thereto, or applicable law, upon the
occurrence of any event of default under and as defined in any of the
Subordinated Documents or any event which, with the passage of time, or giving
of notice, or both, would constitute such a default.
16. Subordinated Obligations Unimpaired; Subrogation.
(a) Nothing contained herein shall impair, as between the Borrower and
the Subordinated Obligee, the obligation of the Borrower, which is absolute and
unconditional, to pay or deliver to the Subordinated Obligee the Subordinated
Obligations, including without limitation the principal of and interest on the
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Subordinated Documents as and when the same shall become due and payable in
accordance with the terms thereof, subject to the rights of the Senior Lender
hereunder.
(b) Upon the indefeasible payment in full of all Senior Obligations,
the Subordinated Obligee shall be subrogated to the rights of the Senior Lender
thereafter to receive payments or distributions of assets of the Borrower made
on the Senior Obligations to the extent (and only such extent) that Senior
Lender receives cash, property or securities that would have been distributed or
paid to the Subordinated Obligee but for this Agreement. For the purposes of
such subrogation, no payments or distributions to the Senior Lender of any cash,
property or securities to which the Subordinated Obligee would be entitled
except for the provisions of this Agreement, and no payment over pursuant to the
provisions of this Agreement to the Senior Lender by the Subordinated Obligee,
shall, as between the Borrower and the creditors of Borrower (other than the
Senior Lender and the Subordinated Obligee), be deemed to be a payment by the
Borrower to or on account of the Senior Obligations. Notwithstanding the
foregoing subrogation right, Subordinated Obligee shall not be subrogated to any
of Senior Lender's rights in the collateral security for the Senior Obligations.
17. Senior Lender's Waivers. No waiver shall be deemed to be made by
the Senior Lender, or the Subordinated Obligee, of any of its rights hereunder,
unless the same shall be in writing signed by the Senior Lender or Subordinated
Obligee, respectively, and each waiver, if any, shall be a waiver only with
respect to the specific instance involved and shall in no way impair the rights
of the Senior Lender or the obligations of the Subordinated Obligee to the
Senior Lender, or the rights of the Subordinated Obligee, in any other respect
at any other time.
18. Information Concerning Financial Condition of the Borrower. The
Subordinated Obligee hereby assumes responsibility for keeping themselves
informed of the financial condition of the Borrower, any and all endorsers and
any and all guarantors of the Senior Obligations and of all other circumstances
bearing upon the risk of nonpayment of the Senior Obligations and/or
Subordinated Obligations that diligent inquiry would reveal, and the
Subordinated Obligee hereby agree that the Senior Lender shall have no duty to
advise the Subordinated Obligee of information known to it regarding such
condition or any such circumstances. In the event the Senior Lender in its sole
discretion, undertakes, at any time or from time to time, to provide any such
information to the Subordinated Obligee, the Senior Lender shall be under no
obligation (a) to provide any such information to the Subordinated Obligee on
any subsequent occasion, or (b) to undertake any investigation not a part of the
regular business routine of the Senior Lender and shall be under no obligation
to disclose any information which, pursuant to
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accepted or reasonable commercial finance practices, the Senior Lender wishes to
maintain confidential. The Subordinated Obligee hereby agree that all payments
received by the Senior Lender may be applied, reversed, and reapplied, in whole
or in part, to any of the Senior Obligations, as the Senior Lender, in its sole
discretion, deems appropriate and the Subordinated Obligee assent to any
extension or postponement of the time of payment of the Senior Obligations or to
any other indulgence with respect thereto, to any substitution, exchange or
release of collateral which may at any time secure the Senior Obligations and to
the addition or release of any other party or person primarily or secondarily
liable therefor.
19. No Offset. In the event any one or more of the Subordinated Obligee
at any time purchases goods or services from the Borrower, the Subordinated
Obligee hereby irrevocably agrees that it shall pay for such goods or services
in cash or cash equivalents in accordance with the terms of such purchases and
shall not deduct from or setoff against any amounts billed to it by the Borrower
in connection with such purchases any amounts the Subordinated Obligee's claim
are due to them with respect to the Subordinated Obligations.
20. CONSENT TO JURISDICTION; WAIVERS. THE SUBORDINATED OBLIGEE CONSENTS
TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED AT NEW YORK, NEW YORK,
AND WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON THE SUBORDINATED
OBLIGEE, AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS BE MADE BY REGISTERED
MAIL DIRECTED TO THE SUBORDINATED OBLIGEE AT THE ADDRESSES STATED BELOW AND
SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED THREE DAYS AFTER THE SAME SHALL
HAVE BEEN POSTED AS AFORESAID. THE SUBORDINATED OBLIGEE WAIVES TRIAL BY JURY,
ANY OBJECTION BASED UPON FORUM NON CONVENIENS, AND ANY OBJECTION TO VENUE OF ANY
ACTION INSTITUTED HEREUNDER. NOTHING IN THIS SECTION 20 SHALL AFFECT THE RIGHT
OF THE SENIOR LENDER TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW
OR AFFECT THE RIGHT OF THE SENIOR LENDER TO BRING ANY ACTION OR PROCEEDING
AGAINST THE SUBORDINATED OBLIGEE OR ITS PROPERTY IN THE COURTS OF ANY OTHER
JURISDICTION.
21. Notices. (a) Except as otherwise expressly provided herein and
except as to any service of legal process, any notice required or desired to be
given hereunder shall be in writing and shall be deemed to have been received
upon the earlier of actual receipt by manual delivery or teletransmission or
five days after being mailed by registered mail, postage prepaid, to the party
as set forth below:
(i) if to the Subordinated Obligee at:
Mr. Fredric von Stange
Winstar Communications, Inc.
230 Park Avenue
New York, New York 10169
(Tcp.: 212-867-1565)
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or to such other address as may be given in a notice in
compliance herewith.
(ii) if to the Borrower or Senior Lender, as stated in the Credit Agreement
or to such other address as may be given in a notice in compliance herewith.
(b) Senior Lender and Subordinated Obligee shall give written notice to
the other of the declaration of an event of default with respect to indebtedness
owed by the Borrower to such party relatively concurrently with the delivery of
such notice to the Borrower, as the case may be, provided that the failure to
give such notice shall not offset the provisions of this Agreement or the rights
or remedies of the parties.
22. GOVERNING LAW. THIS AGREEMENT HAS BEEN DELIVERED AND ACCEPTED AT
AND SHALL BE DEEMED TO HAVE BEEN MADE AT NEW YORK, NEW YORK, AND SHALL BE
INTERPRETED, AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO DETERMINED, IN
ACCORDANCE WITH THE LAWS AND DECISIONS OF THE STATE OF NEW YORK, NEW YORK, SHALL
BE IMMEDIATELY BINDING UPON THE SUBORDINATED OBLIGEE AND THEIR RESPECTIVE
SUCCESSORS AND ASSIGNS, AND SHALL INURE TO THE BENEFIT OF THE SENIOR LENDER AND
THEIR RESPECTIVE SUCCESSORS AND ASSIGNS.
23. Severability. Wherever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
24. Counterparts. This Agreement may be executed in any
number of counterparts which, when taken together, shall be
deemed to constitute one and the same instrument.
25. No Third Party Beneficiary. This Agreement is for the sole benefit
of the parties hereto and no other person or entity shall have any rights to
enforce this Agreement nor shall the consent of any such other person or entity
be required in order to amend, modify or terminate this Agreement.
26. Binding Action. Each of the Senior Lender and the
Subordinated Obligee confirms, represents, warrants and agrees
that its officer executing this Agreement is fully and
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irrevocably authorized to act on its behalf in all respects in connection with
this Agreement and the transactions referred to herein and Subordinated Obligee
and Senior Lender, respectively, shall have no obligation to inquire as to such
authority.
27. Lenders' Representations. The Subordinated Obligee and
the Senior Lender hereby represents and warrants to Senior Lender
and Subordinated Obligee, respectively, as follows:
(a) If an entity, it is duly organized and validly existing under the
laws of the State of its organization, and it has full power and authority to
enter into transactions and make legally binding obligations;
(b) The execution and delivery and performance of this Agreement is
authorized by its organizational documents and this Agreement has been duly
authorized, executed and delivered and constitutes its legal and validly binding
agreement enforceable in accordance with these terms, subject to the effect of
bankruptcy, insolvency, reorganization, moratorium and similar laws affecting
the rights and remedies of creditors generally; and
(c) The execution, delivery and performance by it of this Agreement
will not violate, conflict with, require consent, authorization or approval of
any person under (i) any law, statute, rule, regulation court or administrative
order, decree, injunction or judgment applicable to it, (ii) any agreement,
instrument, indenture, security document, franchise, license or permit to which
it is a party or by which it is bound or affected, or (iii) if applicable, under
its organizational documents.
28. Section Titles. The section titles contained in this
Agreement are and shall be without substantive meaning or content
of any kind whatsoever and are not a part of the agreement
between the parties hereto.
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IN WITNESS WHEREOF, this instrument has been signed to be effective as
of the day and year first above written.
SENIOR LENDER:
IBJ SCHRODER BANK & TRUST COMPANY,
As Agent
By: /s/ Louis J. De Luca
Name: Louis J. De Luca
Its: Vice President
SUBORDINATED OBLIGEE
WINSTAR COMMUNICATIONS, INC.
By: /s/ Joseph P. Dwyer
Name: Joseph P. Dwyer
Its: Vice President
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ACKNOWLEDGMENT
Winstar Global Products, Inc. hereby accepts, and acknowledges
receipt of a copy of, the foregoing Subordination Agreement (the "Agreement") as
of August 9, 1996, and agrees that it will not pay or enact any of the
"Subordinated Obligations" (as defined in the Agreement) or grant any security
therefor, except as the Agreement may expressly provide. In the event of an
action by the Borrower causing a breach of any of the provisions in the
Agreement, all of the "Senior Obligations" (as defined in the Agreement) shall,
without presentment, demand, protest or notice of any kind, become immediately
due and payable, unless the Senior Lender shall otherwise elect and give notice
of that election in writing.
WINSTAR GLOBAL PRODUCTS, INC.
By: /s/ Richard Noble
Name: Richard W. Noble
Title: Vice President
<PAGE>
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT dated as of August 9, 1996 made by WINSTAR GLOBAL
PRODUCTS, INC. (the "Pledgor"), in favor of IBJ SCHRODER BANK & TRUST COMPANY, a
New York banking corporation, as agent for the Banks (as defined below) (in such
capacity, together with its successors in such capacity, the "Agent"),
W I T N E S S E T H:
WHEREAS, the Pledgor is the beneficial and record owner of all of the
issued and outstanding shares (the "Shares") of Inne Dispensables, Inc. (the
"Company") held by the Pledgor (the "Pledged Shares"); and
WHEREAS, the Pledgor has entered into an Amended and Restated Credit
Agreement dated as of the date hereof (the "Credit Agreement"; terms used
herein, and not otherwise defined herein, are used with the meanings ascribed to
them in the Credit Agreement) among the Pledgor, IBJ Schroder Bank & Trust
Company, as a lender, and each other lender which may hereafter execute and
deliver an instrument of assignment with respect to the Loans as defined in and
under the Credit Agreement (each a "Bank", and collectively, the "Banks") and
the Agent, pursuant to which the Pledgor has executed a $12,000,000 Revolving
Credit Note dated as of the date hereof in favor of the Banks (the "Note"); and
WHEREAS, as a condition precedent to the Agent and the Banks entering
into the Credit Agreement, the Agent and the Banks have required the Pledgor to
grant, assign and pledge, and the Pledgor has agreed to grant, assign and
pledge, to the Agent, for the benefit of the Banks, a continuing first priority
security interest in and to all its rights, title and interests in the Pledged
Collateral (as hereinafter defined) to secure all of the obligations of the
Pledgor to the Agent and the Banks under the Credit Agreement, the Note and the
other Related Documents.
NOW, THEREFORE, the Pledgor, intending to be bound hereby, in
consideration of the premises hereof, in order to induce the Banks to provide
the Loans under and in accordance with the terms of the Credit Agreement and for
other good and valuable consid-
eration, the receipt and sufficiency of which is hereby acknowledged, hereby
agree with, and for the benefit of, the Agent and the Banks as follows:
SECTION 1. Pledge. The Pledgor hereby pledges and assigns to the Agent,
for the benefit of the Banks, and grants to the Agent, for the benefit of the
Banks, a continuing first and prior security interest in all of its rights,
title and interests in and to the Pledged Shares of the Company, whether now
owned or existing or hereafter acquired or arising, including, without
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limitation, all income, cash, dividends or other distributions received
therefrom, and all proceeds thereof, including, without limitation, proceeds
received from any sale, financing or refinancing above the existing amount of
debt so refinanced, and all products, substitutions, additions, changes and
replacements thereof (all of the same being herein referred to as the "Pledged
Collateral").
SECTION 2. Security for Obligations. This Agreement secures (a) the
indefeasible payment of all liabilities, obligations and indebtedness of any and
every kind and nature heretofore, now or hereafter owing, arising, due or
payable from the Pledgor to the Agent and each Bank pursuant to the Credit
Agreement, the Note and all other Related Documents to which the Pledgor is a
party, however evidenced, created, incurred, acquired or owing, whether for
principal, interest, fees, indemnification, expenses or otherwise, whether
primary or secondary, direct or indirect, joint or several, contingent or fixed,
or otherwise, including, without limitation, obligations of performance, now or
hereafter given by the Pledgor to the Agent and the Banks and whether arising by
book entry, oral agreement or operation of law, (b) all obligations and
liabilities of the Pledgor now or hereafter existing under the this Agreement,
the Credit Agreement or any other Related Document to which it is a party, (all
such obligations and liabilities described in the foregoing clauses (a) and (b)
above being hereinafter collectively referred to as the "Obligations"). The
Pledgor, the Agent and each of the Banks hereby agree that they intend the
security interest hereby granted to attach upon the execution of this Agreement.
SECTION 3. Delivery of Pledged Collateral. (A) Should the Pledged
Collateral at any time be represented or evidenced by a certificate or
instrument, such certificates or instruments shall be delivered to and held by
or on behalf of the Agent pursuant hereto and shall be in suitable form for
transfer by delivery, or shall be accompanied by duly executed instruments of
transfer or assignment in blank, all in form and substance satisfactory to the
Agent. Upon the maturity of the Loans or upon the occurrence and continuation of
an Event of Default under the Credit Agreement and/or the other Related
Documents (any such event being an "Acceleration Default"), the Agent shall have
the right, at any time in its discretion and without notice to the Pledgor, to
transfer to or to register in the name of the Agent or any of its nominees any
or all of the Pledged Collateral. In addition, the Agent shall have the right at
any time to exchange certificates or instruments representing or evidencing the
Pledged Collateral for certificates or instruments of smaller or larger
denominations.
(B) Should the Pledged Collateral at any time not be
represented or evidenced by a certificate or instrument, the
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books and records of the Company shall be marked to reflect the pledge and
security interests granted to the Agent, for the benefit of the Banks, under
this Agreement.
SECTION 4. Representations and Warranties. The Pledgor
hereby represents and warrants to the Agent and each Bank as
follows:
(a) The Pledged Shares have been duly authorized and validly
issued, are fully paid and non-assessable and represent 100% of the issued and
outstanding shares of the Company; and no warrants, subscription rights or
options are outstanding with respect to the shares of the Company.
(b) The Pledgor is the legal and beneficial owner of the
Pledged Collateral, free and clear of any Liens, adverse claims, security
interests, options or other charges or encumbrances, except for the security
interests created by this Agreement.
(c) The pledge of the Pledged Collateral pursuant to this
Agreement creates a valid and perfected continuing first priority security
interest in the Pledged Collateral, securing the indefeasible payment and
performance of the Obligations.
(d) No authorization, consent, approval or other action by,
and no notice to or filing with, any governmental authority, regulatory body or
other Persons is required to be obtained or made by the Pledgor either (i) for
the pledge by the Pledgor of the Pledged Collateral pursuant to this Agreement
or for the execution, delivery or performance of this Agreement by the Pledgor,
or (ii) for the exercise by the Agent of the voting or other rights provided for
in this Agreement or the remedies in respect of the Pledged Collateral pursuant
to this Agreement, subject to applicable state and federal securities laws.
(e) There are no restrictions on the transfer of the Pledged
Collateral, except such, if any, as are imposed by operation of law, and there
are no options, warrants or rights pertaining thereto. The Pledgor has the right
to transfer the Pledged Collateral free of any encumbrances and without the
consent of the creditors of the Pledgor (other than the Agent), any persons or
any governmental agency whatsoever.
(f) Neither the execution or delivery of this Agreement, nor the
consummation of the transactions contemplated hereby, nor the compliance with or
performance of the terms and conditions of this Agreement by the Pledgor is
prevented by, limited by, conflicts with or will result in the breach or
violation of or a default under the terms, conditions or provisions of (i) the
by-laws or the certificate of incorporation of the Pledgor or the Company or any
agreement among the shareholders of the Company,
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(ii) any mortgage, security agreement, indenture, evidence of indebtedness, loan
or financing agreement, trust agreement or other agreement or instrument to
which the Pledgor is a party or by which it is bound, or (iii) any provision of
law, any order of any court or administrative agency or any rule or regulation
applicable to the Pledgor, subject to applicable state and federal securities
laws.
(g) This Agreement constitutes the legal, valid and binding
obligation of the Pledgor, enforceable in accordance with its terms, except as
limited by applicable fraudulent conveyance law or bankruptcy reorganization,
insolvency, moratorium or similar laws affecting the enforcement of creditors'
rights and the availability of equitable remedies (regardless of whether such
enforceability is considered in a proceeding at law or equity)
(h) Any assignee of all or any portion of the Pledged
Collateral is entitled to receive payments with respect thereto without any
defense, counterclaim, setoff, abatement, reduction, recoupment or other claim
arising out of the actions of the Pledgor.
(i) There are no actions, suits or proceedings (whether or not
purportedly on behalf of the Pledgor) pending or, to the best knowledge of the
Pledgor, threatened affecting the Pledgor that involve the Pledged Collateral,
this Agreement, the Credit Agreement, the Note or any of the other Related
Documents.
(j) All consents or approvals, if any, required as a condition
precedent to or in connection with the due and valid execution, delivery and
performance by the Pledgor of this Agreement have been obtained, subject to
applicable state and federal securities laws.
SECTION 5. Further Assurances. The Pledgor hereby agrees that at any
time and from time to time, at its expense, the Pledgor will promptly execute
and deliver all further instruments and documents, and take all further action,
that may be reasonably necessary or desirable, or that the Agent or any Bank may
reasonably request, in order to perfect and protect any security interest
granted or purported to be granted hereby or to enable the Agent or any Bank to
exercise and enforce its rights and remedies hereunder, subject to applicable
state and federal securities laws, with respect to any Pledged Collateral.
SECTION 6. Voting Rights; Distributions, Etc. (a) So long
as no Acceleration Default shall have occurred and be continuing:
(i) The Pledgor shall be entitled to exercise any and all
voting and other consensual rights pertaining to the Pledged Collateral
or any part thereof for any purpose not
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<PAGE>
inconsistent with the terms of this Agreement, the Credit Agreement or
any other Related Document to which the Pledgor is a party; provided,
however, that the Pledgor shall give the Agent and each Bank prior
written notice whenever the Pledgor shall exercise or refrain from
exercising any such voting or other consensual right if such action
would have a material adverse effect on the value of the Pledged
Collateral or any part thereof.
(ii) The Pledgor shall be entitled to receive and retain any
and all income, dividends and interest paid in respect of the Pledged
Collateral; provided, however, that any and all:
(A) income, dividends and distributions paid or
payable other than in cash in respect of, and instruments and
other property received, receivable or otherwise distributed
in respect of, or in exchange for, any Pledged Collateral;
(B) income, dividends and other distributions paid or
payable in cash in respect of any Pledged Collateral in
connection with a partial or total liquidation or dissolution
or in connection with a reduction of contributed capital,
capital surplus or paid-in-surplus; and
(C) cash paid, payable or otherwise distributed in
respect of principal of, or in redemption of, or in exchange
for, any Pledged Collateral,
shall be forthwith delivered to the Agent to hold as, Pledged
Collateral and shall, if received by the Pledgor, be received in trust
for the benefit of the Agent and the Banks, be segregated from the
other property or funds of the Pledgor, and be forthwith delivered to
the Agent as Pledged Collateral in the same form as so received (with
all necessary endorsements).
(iii) The Agent shall execute and deliver (or cause to be
executed and delivered) to the Pledgor all such proxies and other
instruments as the Pledgor may reasonably request for the purpose of
enabling the Pledgor to exercise the voting and other rights which it
is entitled to exercise pursuant to clause (i) above and to receive the
income, dividends or interest payments which it is authorized to
receive and retain pursuant to clause (ii) above.
(b) Upon the occurrence and during the continuance of an
Acceleration Default:
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(i) All rights of the Pledgor to exercise the voting and other
consensual rights which it would otherwise be entitled to exercise
pursuant to Section 6(a)(i) hereof and to receive the income, dividends
and interest payments which they would otherwise be authorized to
receive and retain pursuant to Section 6(a)(ii) hereof shall cease, and
all such rights shall thereupon become vested in the Agent and the
Banks who shall thereupon have the sole right to exercise such voting
and other consensual rights and to receive and hold as Pledged
Collateral such income, dividends and interest payments.
(ii) All income, dividends and interest payments which are
received by the Pledgor contrary to the provisions of clause (i) of
this Section 6(b) shall be received in trust for the benefit of the
Agent and the Banks, shall be segregated from other funds of the
Pledgor and shall be forthwith paid over to the Agent as Pledged
Collateral in the same form as so received (with all necessary
endorsements).
SECTION 7. Transfers and Other Liens; Additional Interests. The Pledgor
hereby agrees that it will not (i) sell or otherwise transfer or dispose of, or
grant any interest in or option with respect to, any of the Pledged Collateral,
or (ii) create or permit to exist any Lien, security interest, or other charge
or encumbrance upon or with respect to any of the Pledged Collateral, except for
the security interests under this Agreement.
SECTION 8. Litigation Respecting the Pledged Collateral. In the event
any action, suit or other proceeding at law, in equity, in arbitration or before
any other authority involving or affecting the Pledged Collateral becomes known
to or is contemplated by the Pledgor, the Pledgor shall give the Agent and the
Banks immediate notice thereof and if the Pledgor is contemplating such action,
suit or other proceeding, the Pledgor shall be required to receive the written
consent of the Agent and any Bank prior to commencing any such action, suit or
other proceeding, which consent shall not be unreasonably withheld or delayed.
SECTION 9. Agent Appointed Attorney-in-Fact. (a) The Pledgor hereby
appoints the Agent (and any officer or agent of the Agent with full power of
substitution and revocation) the Pledgor's true and lawful attorney-in-fact,
coupled with an interest, with full authority in the place and stead of the
Pledgor and in the name of the Pledgor or otherwise, from time to time in the
Agent's discretion to (i) if an Acceleration Default is continuing, take any
action and to execute any instrument which the Agent may deem necessary or
advisable to accomplish the purposes of this Agreement, including, without
limitation, (I) to
6
<PAGE>
receive, endorse and collect all instruments made payable to the Pledgor
representing any income, dividend or other distribution in respect of the
Pledged Collateral or any part or proceeds thereof and to give full discharge
for the same; and (II) to transfer the Pledged Collateral, in whole or in part,
to the name of the Agent or such other Person or Persons as the Agent may
designate; take possession of and endorse any one or more checks, drafts, bills
of exchange, money orders or any other documents received on account of the
Pledged Collateral; collect, sue for and give acquittances for moneys due on
account of the foregoing; withdraw any claims, suits, or proceedings pertaining
to or arising out of the foregoing; take any other action contemplated by this
Agreement; and sign, execute, acknowledge, swear to, verify, deliver, file,
record and publish any one or more of the foregoing, and (ii) at any time
execute and record or file on behalf of the Pledgor any evidence of a security
interest contemplated by this Agreement and any refilings, continuations or
extensions thereof.
(b) The powers of attorney which shall be granted pur-
suant to Section 9(a) hereof and all authority thereby conferred shall be
granted and conferred solely to protect the Agent's and each Bank's interests in
the Pledged Collateral and shall not impose any duty upon the attorney-in-fact
to exercise such powers. Such powers of attorney shall be irrevocable prior to
the indefeasible payment and performance in full of the Obligations and shall
not be terminated prior thereto or affected by any act of the Pledgor or by
operation of law, including, but not limited to, dissolution, death, disability
or incompetency of any Person, the termination of any trust, or the occurrence
of any other event, and if the Pledgor should become bankrupt, insolvent, or
come under the direct regulation of similar laws which affect the rights of
creditors generally or any other event should occur before the indefeasible
payment and performance in full of the Obligations and termination of the Credit
Agreement, the Note and the other Related Documents, such attorney-in-fact shall
nevertheless be fully authorized to act under such powers of attorney as if such
event had not occurred and regardless of notice thereof.
SECTION 10. Agent May Perform. If the Pledgor fails to perform any
agreement contained herein, the Agent or any Bank may itself perform, or cause
performance of, such agreement, and the expenses of the Agent or such Bank
incurred in connection therewith shall be payable by the Pledgor under Section
13 hereof.
SECTION 11. Reasonable Care. The Agent and the Banks shall be deemed to
have exercised reasonable care in the custody and preservation of the Pledged
Collateral in their possession if the Pledged Collateral is accorded treatment
substantially equal to that which the Agent or such Bank accords their own
property, it
7
<PAGE>
being understood that the Agent or such Bank shall not have any responsibility
for (i) ascertaining or taking action with respect to calls, conversions,
exchanges, maturities, tenders or other matters relative to any Pledged
Collateral, whether or not the Agent or any Bank has or is deemed to have
knowledge of such matters, or (ii) taking any necessary steps to preserve rights
against any parties with respect to any Pledged Collateral.
SECTION 12. Remedies Upon Acceleration Default.
(a) If any Acceleration Default shall have occurred
and be continuing:
(i) The Agent may notify the obligors or other
parties, if any, interested in any items of Pledged Col-
lateral of the interests of the Agent or any Bank therein and of any
action proposed to be taken with respect thereto, and inform any of
those parties that all payments otherwise payable to the Pledgor with
respect thereto shall be made by the Agent until all amounts due under
the Credit Agreement, the Note and the other Related Documents have
been indefeasibly paid in full;
(ii) The Agent may exercise in respect of the Pledged
Collateral, in addition to other rights and remedies provided for
herein or otherwise available to it, all the rights and remedies of a
secured party on default under the Uniform Commercial Code (the "Code")
in effect in the State of New York at that time, and the Agent may
also, without notice except as specified below, sell the Pledged
Collateral or any part thereof in one or more parcels at public or
private sale, at any exchange, broker's board or at any of the Agent's
offices or elsewhere, for cash, on credit or for future delivery, and
upon such other terms as the Agent may deem commercially reasonable.
The Pledgor hereby agrees that, to the extent notice of sale shall be
required by law, at least five days' notice to the Pledgor of the time
and place of any public sale or the time after which any private sale
is to be made shall constitute reasonable notification. The Agent shall
not be obligated to make any sale of Pledged Collateral regardless of
notice of sale having been given. The Agent may adjourn any public or
private sale from time to time by announcement at the time and place
fixed therefor, and such sale may, without further notice, be made at
the time and place to which it was so adjourned;
(iii) Any cash held by the Agent as Pledged
Collateral and all cash proceeds received by the Agent in respect of
any sale of, collection from, or other realization upon all or any part
of the Pledged Collateral may, in the discretion of the Agent, be held
by the Agent as
8
<PAGE>
collateral for, and/or then or at any time thereafter applied (after
payment of any amounts payable to the Agent pursuant to Section 13
hereof) in whole or in part by the Agent against, all or any part of
the Obligations in such order as the Agent shall elect. Any surplus of
such cash or cash proceeds held by the Agent and remaining after the
indefeasible payment in full of all the Obligations shall be paid over
to the Pledgor or to whomsoever may lawfully entitled to receive such
surplus; and
(iv) The Agent may otherwise use or deal from time to
time with the Pledged Collateral, in whole or in part, in all respects
as if the Agent were the outright owner thereof.
(b) Except as set forth in Section 12(a)(iii) hereof, the
Agent shall have the sole right to determine the order in which Obligations
shall be deemed discharged by the application of the Pledged Collateral or any
other property or money held hereunder or any amount realized thereon. Any
requirement of reasonable notice imposed by law shall be deemed met if such
notice is in writing and is mailed, teletransmitted or hand delivered to the
Pledgor at least five days prior to the sale, disposition or other event giving
rise to such notice requirement.
(c) The Agent shall collect the cash proceeds received from
any sale or other disposition or from any other source contemplated by and in
accordance with subsection (a) above and shall apply the full proceeds in
accordance with the provisions of this Agreement.
(d) Notwithstanding the foregoing, none of the provi-
sions of this Section 12 shall confer on the Agent any rights or privileges that
are not permissible under applicable law.
(e) In connection with the provisions of this Agree-
ment, the Pledgor from time to time shall promptly execute and deliver, or cause
to be executed and delivered, to the Agent such documents and instruments, shall
join in such notices and shall take, or cause to be taken, such other lawful
actions as the Agent shall deem necessary or desirable to enable it to exercise
any of the rights with respect to the Pledged Collateral granted to it pursuant
to this Agreement.
SECTION 13. Expenses. The Pledgor will, upon demand, pay to the Agent
the amount of all expenses, including the reasonable fees and expenses of its
counsel and of any experts and agents, which the Agent or any Bank may incur in
connection with (i) the perfection, custody or preservation of, or the sale of,
collection from, or other realization upon, any of the Pledged Collateral, (ii)
the exercise or enforcement of any of the rights
9
<PAGE>
of the Agent hereunder, (iii) the failure by the Pledgor to perform or observe
any of the provisions hereof, or (v) any actual or attempted sale, assignment of
rights or interests, or exchange of, or any enforcement, collection, compromise
or settlement respecting the Pledged Collateral or any other property or money
held hereunder, or any other action taken by the Agent or any Bank hereunder
whether directly or as attorney-in-fact pursuant to the power of attorney herein
conferred, and all such expenses shall be deemed a part of the Obligations for
all purposes of this Agreement and the Agent may apply the Pledged Collateral or
any other property or money held hereunder to payment of or reimbursement of
itself for such expenses. The Pledgor shall pay all such expenses on demand,
together with interest thereon from the date the expense is paid or incurred by
the Agent or any Bank at an interest rate equal to that under the Note (computed
on the basis of the actual number of days elapsed over a 360-day year).
SECTION 14. Waivers and Amendments, Etc. The rights and remedies given
hereby are in addition to all others however arising, but it is not intended
that any right or remedy be exercised in any jurisdiction in which such exercise
would be prohibited by law. No action, failure to act or knowledge of the Agent
or any Bank shall be deemed to constitute a waiver of any power, right or remedy
hereunder, nor shall any single or partial exercise thereof preclude any further
exercise thereof or the exercise of any other power, right or remedy. Any waiver
or consent respecting any covenant, representation, warranty or other term or
provision of this Agreement shall be effective only in the specified instance
and for the specific purpose for which given and shall not be deemed, regardless
of frequency given, to be a further or continuing waiver or consent. The failure
or delay of the Agent or any Bank at any time or times to require performance
of, or to exercise their rights with respect to, any representation, warranty,
covenant or other term or provision of this Agreement in no manner shall affect
their rights at a later time to enforce any such provision. No notice to or
demand on a party in any case shall entitle such party to any other or further
notice or demand in the same, similar or other circumstances. Any right or power
of the Agent or any Bank hereunder respecting the Pledged Collateral and any
other property or money held hereunder may at the option of the Agent be
exercised as to all or any part of the same and the term the "Pledged
Collateral" wherever used herein, unless the context clearly requires otherwise,
shall be deemed to mean (and shall be read as) the "Pledged Collateral and any
other property or money held hereunder or any part thereof". This Agreement
shall not be amended nor shall any right hereunder be deemed waived except by a
written agreement expressly setting forth the amendment or waiver and signed by
the party against whom or which such amendment or waiver is sought to be
charged.
10
<PAGE>
SECTION 15. Notices. Any notice or other communication to be given or
made to the Agent and the Banks hereunder shall be sent or otherwise
communicated to the Agent at: IBJ Schroder Bank & Trust Company, One State
Street, New York, New York 10004, attention: Asset-Based Lending Division, with
a copy to Messrs. Pryor, Cashman, Sherman & Flynn, 410 Park Avenue, New York,
New York 10022, attention: Lawrence Remmel, or such other address and/or for
such other attention as may be notified to the Pledgors in accordance with this
Section 15. Any notice or other communication to be given to the Pledgor shall
be sent or otherwise communicated to the Pledgor at: Winstar Global Products,
Inc., 12 Gardner Road, Fairfield, New Jersey 07004, Attention: Richard Noble, or
such other address and/or for such other attention as may be notified to the
Agent in accordance with this Section 15. Any notice or other communication to
be given or made pursuant to this Agreement may be given or made by personal
delivery, or by overnight courier, or by postage prepaid, registered or
certified first class mail, return receipt requested, or by telecopy. All
notices or other communications to be given or made pursuant to this Agreement
shall be deemed to have been given or made when received as established, in the
case of delivery by overnight courier, on the next Business Day and, in the case
of delivery by mail, five Business Days after mailing.
SECTION 16. Continuing Security Interest. This Agreement shall create a
continuing first priority security interest in the Pledged Collateral and shall
(i) remain in full force and effect until the indefeasible payment in full or
performance of the Obligations, (ii) be binding upon the Pledgor, its successors
and assigns and (iii) inure to the benefit of the Agent, the Banks and their
successors, transferees and assigns. Upon the indefeasible payment in full or
performance of the Obligations, the Pledgor shall be entitled to the return,
upon its request and at its expense, of such of the Pledged Collateral as shall
not have been sold or otherwise applied pursuant to the terms of this Agreement.
SECTION 17. Severability. In the event that any provision of this
Agreement shall be determined to be superseded, invalid or otherwise
unenforceable pursuant to applicable law, such determination shall not affect
the validity of the remaining provisions of this Agreement, and the remaining
provisions of this Agreement shall be enforced as if the invalid provision were
deleted.
SECTION 18. Survival of Representations, etc. All
representations, warranties, covenants and other agreements made
herein shall survive the execution and delivery of this Agreement
and shall continue in full force and effect until all amounts due
under the Credit Agreement, the Note and the other Related
Documents have been indefeasibly paid in full. This Agreement
11
<PAGE>
shall remain and continue in full force and effect without regard to any
modification, execution, renewal, amendment or waiver of any provision of any of
the Credit Agreement, the Note and the other Related Documents.
SECTION 19. Termination and Miscellaneous Provisions. This Agreement
shall continue in full force and effect until all of the Obligations shall have
been indefeasibly paid and satisfied. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective
successors, and assigns. Section headings used herein are for convenience only
and shall not affect the meaning or construction of any of the provisions
hereof. This Agreement may be executed in any number of counterparts with the
same effect as if the signatures thereto and hereto were upon the same
instrument.
SECTION 20. Entire Agreement. This Agreement, the Credit Agreement and
the other Related Documents contain the entire agreement of the parties and
supersedes all other agreements, understandings and representations, oral or
otherwise, between the parties with respect to the matters contained herein.
SECTION 21. Governing Law; Terms. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York, without
giving effect to its conflict of laws provisions. Unless otherwise defined
herein or in the Credit Agreement, terms defined in Article 9 of the Uniform
Commercial Code in the State of New York are used herein as therein defined.
12
<PAGE>
IN WITNESS WHEREOF, the Pledgor, and the Agent, on behalf of the Banks,
have each caused this Agreement to be duly executed and delivered as of the date
first above written.
WINSTAR GLOBAL PRODUCTS, INC.
By: /s/ Richard W. Noble
Name: Richard W. Noble
Title: Vice President
IBJ SCHRODER BANK & TRUST COMPANY, as Agent
By: /s/ Louis J. De Luca
Name: Louis J. De Luca
Title: Vice President
13
<PAGE>
The undersigned hereby acknowledges receiving notice of, and consents
to, the foregoing Pledge Agreement and agrees to recognize all of the rights
granted to the Agent and the Banks therein and, to the full extent of its
ability, to take all actions reasonably necessary to effectuate said rights and
the purposes of the Pledge Agreement, as requested by the Agent or any Bank
pursuant to the terms thereof.
Date: August 9, 1996
INNE DISPENSABLES, INC.
By: /s/ Richard W. Noble
Name: Richard W. Noble
Title: Vice President
14
<PAGE>
FIRST SUPPLEMENTAL INDENTURE
(SENIOR NOTES)
FIRST SUPPLEMENTAL INDENTURE (the "First Supplemental
Indenture"), dated as of October 10, 1996 between WinStar Communications, Inc.,
a Delaware corporation, as Issuer (the "Company") and United States Trust
Company of New York, as Trustee (the "Trustee").
W I T N E S S E T H:
WHEREAS, in accordance with Section 9.01 of the Senior Notes
Indenture, dated as of October 23, 1995, between the Company and the Trustee
(the "Indenture"), relating to the Company's 14% Senior Discount Notes due 2005
of the Company (the "Notes"), the Trustee and the Company as of the date hereof
desire to amend the Indenture as herein set forth;
WHEREAS, such amendment will not materially and adversely
affect the rights of any holder of the Notes, or adversely affect the interests
of the holders in any material respect;
WHEREAS, the Board of Directors of the Company has authorized
and approved such amendment to the Indenture; and
WHEREAS, all other things necessary to make this First
Supplemental Indenture a valid supplement to the Indenture according to its
terms and the terms of the Indenture have been done.
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. Certain Terms Defined in the Indenture. All
capitalized terms used herein without definition herein shall have the meanings
ascribed thereto in the Indenture.
SECTION 2. Amendment of Section 4.10(vi). Section 4.10(vi) of
the Indenture is hereby amended as follows:
"(vi) purchase money or other Liens upon equipment or
inventory acquired or held by the Company or any of its
Restricted Subsidiaries taken or obtained by (a) the seller or
lessor of such inventory or equipment to secure all or a part
of the purchase price or lease payments therefor or (b) the
person who makes advances or incurs obligations, thereby
giving value to the Company to enable it to purchase or
acquire rights in such inventory or equipment, to secure the
repayment of all or a part of the advances so made or
obligations so incurred; provided that such Liens do not
extend to or cover any property or assets of the Company or
any Restricted Subsidiary other than the inventory or
equipment acquired; or"
SECTION 3. Governing Law. This First Supplemental Indenture
shall be governed by the laws of the State of New York, excluding (to the extent
permissible by law) any rule of law that would cause the application of the
laws of any jurisdiction other than the State of New York.
<PAGE>
SECTION 4. Counterparts. This First Supplemental Indenture
may be signed in any number of counterparts, each of which shall be an original.
SECTION 5. Ratification. Except as expressly amended hereby,
each provision of the Indenture shall remain in full force and effect and, as
amended hereby, the Indenture is in all respects agreed to, ratified and
confirmed by each of the Company and the Trustee.
IN WITNESS WHEREOF, the parties hereto have caused this First
Supplemental Indenture to be duly executed as of the date first above written.
WINSTAR COMMUNICATIONS, INC.
By: _______________________________
Name:
Title:
UNITED STATES TRUST COMPANY OF NEW YORK
By: _______________________________
Name:
Title:
<PAGE>
FIRST SUPPLEMENTAL INDENTURE
(CONVERTIBLE NOTES)
FIRST SUPPLEMENTAL INDENTURE (the "First Supplemental
Indenture"), dated as of October 10, 1996 between WinStar Communications, Inc.,
a Delaware corporation, as Issuer (the "Company") and United States Trust
Company of New York, as Trustee (the "Trustee").
W I T N E S S E T H:
WHEREAS, in accordance with Section 9.01 of the Convertible
Notes Indenture, dated as of October 23, 1995, between the Company and the
Trustee (the "Indenture"), relating to the Company's 14% Convertible Senior
Subordinated Discount Notes due 2005 of the Company (the "Notes"), the Trustee
and the Company as of the date hereof desire to amend the Indenture as herein
set forth;
WHEREAS, such amendment will not materially and adversely
affect the rights of any holder of the Notes, or adversely affect the interests
of the holders in any material respect;
WHEREAS, the Board of Directors of the Company has authorized
and approved such amendment to the Indenture; and
WHEREAS, all other things necessary to make this First
Supplemental Indenture a valid supplement to the Indenture according to its
terms and the terms of the Indenture have been done.
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. Certain Terms Defined in the Indenture. All
capitalized terms used herein without definition herein shall have the meanings
ascribed thereto in the Indenture.
SECTION 2. Amendment of Section 4.10(vi). Section 4.10(vi) of
the Indenture is hereby amended as follows:
"(vi) purchase money or other Liens upon equipment or
inventory acquired or held by the Company or any of its
Restricted Subsidiaries taken or obtained by (a) the seller or
lessor of such inventory or equipment to secure all or a part
of the purchase price or lease payments therefor or (b) the
person who makes advances or incurs obligations, thereby
giving value to the Company to enable it to purchase or
acquire rights in such inventory or equipment, to secure the
repayment of all or a part of the advances so made or
obligations so incurred; provided that such Liens do not
extend to or cover any property or assets of the Company or
any Restricted Subsidiary other than the inventory or
equipment acquired; or"
SECTION 3. Governing Law. This First Supplemental Indenture
shall be governed by the laws of the State of New York, excluding (to the extent
permissible by law) any rule of law that would cause the application of the
laws of any jurisdiction other than the State of New York.
<PAGE>
SECTION 4. Counterparts. This First Supplemental Indenture
may be signed in any number of counterparts, each of which shall be an original.
SECTION 5. Ratification. Except as expressly amended hereby,
each provision of the Indenture shall remain in full force and effect and, as
amended hereby, the Indenture is in all respects agreed to, ratified and
confirmed by each of the Company and the Trustee.
IN WITNESS WHEREOF, the parties hereto have caused this First
Supplemental Indenture to be duly executed as of the date first above written.
WINSTAR COMMUNICATIONS, INC.
By: _______________________________
Name:
Title:
UNITED STATES TRUST COMPANY OF NEW YORK
By: _______________________________
Name:
Title:
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-START> Jan-01-1996
<PERIOD-END> Sep-30-1996
<CASH> 162,978,131
<SECURITIES> 1,038,800
<RECEIVABLES> 14,750,130
<ALLOWANCES> 0
<INVENTORY> 12,450,083
<CURRENT-ASSETS> 226,930,599
<PP&E> 44,162,410
<DEPRECIATION> 0
<TOTAL-ASSETS> 288,158,152
<CURRENT-LIABILITIES> 36,498,037
<BONDS> 272,195,785
<COMMON> 282,906
0
0
<OTHER-SE> (20,818,576)
<TOTAL-LIABILITY-AND-EQUITY> 288,158,152
<SALES> 0
<TOTAL-REVENUES> 47,980,633
<CGS> 0
<TOTAL-COSTS> 28,273,656
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27,388,356
<INCOME-PRETAX> (49,765,847)
<INCOME-TAX> 261,514
<INCOME-CONTINUING> (50,027,361)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (50,027,361)
<EPS-PRIMARY> (1.81)
<EPS-DILUTED> (1.81)
<FN>
(1) Accounts receivable are net of allowance for doubtful accounts
(2) PP&E are net of accumulated depreciation
(3) Preferred Stock no mandatory and Common stock exclude treasury stock
(4) Certain other equity includes treasury stock
(5) WinStar Global Products' sales (health and beauty aids) are grouped with
"total revenue"
(6) Income taxes reported on income statement are based on capital, therefore
excluded from this line item
</FN>
</TABLE>
