SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to _______________
Commission file number 0-23683
USN COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
Delaware 36-3947804
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
10 South Riverside Plaza, Suite 2000, Chicago, Illinois 60606
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (312) 906-3600
N/A
(Former name, former address and former fiscal year, if
changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports) and (2) has
been subject to such filing requirements for the past 90 days. Yes [X]
No [ ]
As of November 15, 1998, there were 23,565,514 shares outstanding
of the registrant's Common Stock, par value $.01 per share.
Exhibit Index is on page 24.
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
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USN COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in thousands, except per share data)
September 30, December 31,
1998 1997
------------- -----------
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 12,135 $ 87,454
Marketable equity securities - 8,181
Accounts receivable, net of allowance for doubtful accounts of
$13,897 at 1998 and $4,537 at 1997 57,286 23,917
Inventory 1,256 -
Other current assets 3,001 1,444
--------- ---------
Total current assets 73,678 120,996
Property and equipment-net 41,560 16,802
Goodwill, net of accumulated amortization of $2,035 at 1998 47,946 -
Other assets 52,246 33,402
--------- ---------
Total assets $ 215,430 $ 171,200
LIABILITIES, REDEEMABLE PREFERRED STOCK AND
COMMON STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $ 49,791 $ 20,485
Accrued expenses and other liabilities 21,161 7,179
Capital lease obligations and notes payable 529 559
--------- ----------
Total current liabilities 71,481 28,223
14 5/8% Senior Discount Notes, net of Original Issue Discount 143,093 105,486
14% Senior Discount Notes, net of Original Issue Discount 13,877 35,790
9% Convertible Subordinated Discount Notes, net of Original Issue 32,966 30,868
Discount
9% Consent Convertible Notes, net of Original Issue Discount 10,646 -
Capital lease obligations and notes payable 447 556
--------- -----------
Total liabilities 272,510 200,923
REDEEMABLE PREFERRED STOCK:
9% Cumulative Convertible Pay-In-Kind Preferred Stock:
par value $1; 30,000 shares authorized at 1997;
10,920 shares outstanding at December 31,1997 - 11
9% Cumulative Convertible Pay-In-Kind Preferred Stock, Series
A: par value $1; 150,000 shares authorized at 1997; 45,209
shares outstanding at December 31, 1997 - 45
Accumulated unpaid dividends - 1,516
Additional paid-in-capital - 55,705
--------- ------------
Total redeemable preferred stock - 57,277
COMMON STOCKHOLDERS' DEFICIT:
Common stock, $.01 par value, 100,000,000 shares authorized at
September 30, 1998 and 30,000,000 shares authorized at December
31, 1997; 23,534,444 and 7,282,511 shares issued at
September 30, 1998 and December 31, 1997, respectively 235 73
Additional paid-in capital 260,122 74,642
Treasury stock, 10,000 shares (1) (1)
Accumulated other comprehensive income:
Unrealized gain on available-for-sale securities - 8,181
Accumulated deficit (317,436) (169,895)
--------- ------------
Total common stockholders' deficit (57,080) (87,000)
--------- -------------
TOTAL LIABILITIES, REDEEMABLE PREFERRED STOCK, AND
COMMON STOCKHOLDERS' DEFICIT $ 215,430 $ 171,200
--------- -------------
See Notes to Condensed Consolidated Financial Statements.
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USN COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(Dollars in thousands, except per share data)
Three Months Ended September 30,
--------------------------------
1998 1997
-------- ---------
<S> <C> <C>
NET SERVICE REVENUE $ 51,884 $ 15,277
COST OF SERVICES 42,245 13,463
-------- --------
Gross profit 9,639 1,814
EXPENSES:
Sales and marketing 28,141 15,752
General and administrative 42,332 11,869
-------- ---------
OPERATING LOSS (60,834) (25,807)
OTHER INCOME (EXPENSE):
Interest income 579 874
Interest expense (7,586) (4,444)
Other income (149) 2
--------- ---------
Other income (expense) - net (7,156) (3,568)
--------- ---------
NET LOSS $ (67,990) $ (29,375)
========== =========
ACCUMULATED PREFERRED DIVIDENDS - $ 552
========== =========
NET LOSS TO COMMON SHAREHOLDERS - BASIC AND
DILUTED $ (67,990) $ (29,927)
--------- ---------
NET LOSS PER COMMON SHARE - BASIC AND DILUTED $ (2.90) $ (4.15)
========= ==========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING -
BASIC AND DILUTED 23,473,205 7,212,511
========== =========
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
USN COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(Dollars in thousands, except per share data)
Nine Months Ended September 30,
-------------------------------
1998 1997
-------- --------
<S> <C> <C>
NET SERVICE REVENUE $ 133,937 $ 26,998
COST OF SERVICES 107,483 23,983
--------- --------
Gross profit 26,454 3,015
EXPENSES:
Sales and marketing 79,530 43,087
General and administrative 86,738 26,882
--------- ---------
OPERATING LOSS (139,814) (66,954)
OTHER INCOME (EXPENSE):
Interest income 3,373 1,884
Interest expense (22,092) (8,573)
Realized gain on sale of marketable securities 11,714 -
Other income (143) 5
--------- ----------
Other income (expense) - net (7,148) (6,684)
--------- ----------
NET LOSS $ (146,962) $ (73,638)
========== ===========
ACCUMULATED PREFERRED DIVIDENDS $ 579 $ 1,012
========== ==========
NET LOSS TO COMMON SHAREHOLDERS - BASIC AND
DILUTED $ (147,541) $ (74,650)
---------- ----------
NET LOSS PER COMMON SHARE - BASIC AND DILUTED $ (7.23) $ (10.37)
========== ==========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING -
BASIC AND DILUTED 20,409,175 7,198,177
=========== ===========
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
USN COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF REDEEMABLE PREFERRED STOCK (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND YEAR ENDED DECEMBER 31, 1997
(Dollars in thousands)
Series A
9% PIK 9% PIK Accumulated Additional
Preferred Preferred Unpaid Paid-in
Stock Stock Dividends Capital Total
--------- ---------- ----------- ----------- ------
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1996 $10 $225 $9,810 $10,045
Issuance of 920 shares of 9% PIK Preferred Stock as -
payment of dividends 1 (920) 919
Issuance of 45,209 shares of Series A 9% PIK
Preferred Stock $45 45,164 45,209
Costs incurred related to issuance of Series A 9% (188) (188)
PIK Preferred Stock
Accumulated dividends on 9% PIK Preferred Stock 941 941
Accumulated dividends on Series A 9% PIK Preferred 1,270 1,270
Stock --------- ---------- ----------- ----------- --------
BALANCE, DECEMBER 31, 1997 11 45 1,516 55,705 57,277
--------- ---------- ----------- ----------- --------
Accumulated dividends on 9% PIK
Preferred Stock 114 114
Accumulated dividends on Series A 9%
PIK Preferred Stock 465 465
Conversion of 9% PIK and Series A 9%
PIK Preferred Stock to common stock (11) (45) (2,095) (55,705) (57,856)
--------- ---------- ----------- ----------- --------
BALANCE, SEPTEMBER 30, 1998 $- $- $- $ - $-
--------- ---------- ----------- ----------- --------
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
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USN COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY (DEFICIT) (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND YEAR ENDED DECEMBER 31, 1997
(Dollars in thousands)
Accumulated
Additional Common Other Accumu-
Common Paid-in Stock Held Comprehensive lated
Stock Capital In Treasury Income Deficit Total
------- ---------- ----------- ------------- ------- --------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1996 $ 72 $ 54,115 $ (1) $ (57,791) $ (3,605)
Issuance of 97,251 shares of common stock 1 531 532
Compensation expense on stock options 644 644
Issuance of stock warrants 19,352 19,352
Accumulated dividends on 9% PIK Preferred
Stock (941) (941)
Accumulated dividends on Series A 9% PIK (1,271) (1,271)
Preferred Stock
Comprehensive income (loss):
Net loss (109,892) (109,892)
Other comprehensive income (loss), net of tax:
Unrealized gain of available-for-sale $8,181 8,181
securities ---------
Comprehensive loss (101,711)
------- ---------- ----------- ------------- --------- ---------
BALANCE, DECEMBER 31, 1997 73 74,642 (1) 8,181 (169,895) (87,000)
------- ---------- ----------- ------------- --------- ---------
Issuance of 8,628,861 shares of common stock 86 137,975 138,061
Costs incurred related to issuance of stock (10,764) (10,764)
Accumulated dividends on 9% PIK Preferred (114) (114)
Stock
Accumulated dividends on Series A 9% PIK (465) (465)
Preferred Stock
Conversion of 9% PIK and Series A 9% PIK
Preferred Stock to common stock 61 57,795 57,856
Issuance of 1,492,897 shares of common stock
upon exercise of warrants and options 15 15 30
Compensation expense on stock options 459 459
Comprehensive income (loss):
Net loss (146,962) (146,962)
Other comprehensive income (loss), net of tax:
Unrealized gain on available-for-sale 3,533 3,533
securities
Realized gain on sale of marketable (11,714) (11,714)
---------
securities Comprehensive loss (155,143)
------- ---------- ----------- ------------- --------- ---------
BALANCE, SEPTEMBER 30, 1998 $ 235 $ 260,122 $ (1) $ - $ (317,436) $ (57,080)
------- ---------- ----------- ------------- --------- ---------
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
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USN COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in thousands)
Three Months Ended September 30,
--------------------------------
1998 1997
----------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $ (67,990) $ (29,375)
Adjustments to reconcile net loss to net cash flows from
operating activities:
Depreciation and amortization 4,751 871
Non-cash interest on debt obligations 7,542 4,374
Provision for losses on accounts receivable 14,695 1,691
Stock compensation award expense 113 173
Changes in:
Accounts receivable (13,517) (9,107)
Other assets 2,741 151
Accounts payable 15,455 7,544
Accrued expenses 4,628 3,362
Net cash flows from operating activities (31,582) (20,316)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (12,398) (2,900)
Deposits (64) 41
Net cash flows from investing activities (12,462) (2,859)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 10 -
Issuance of preferred stock - 30,209
Costs incurred related to issuance of stock - (218)
Proceeds from Senior Notes - 100,001
Debt acquisition costs - (4,437)
Repayment of capital lease obligations and notes payable (203) (156)
Net cash flows from financing activities (193) 125,399
NET DECREASE IN CASH (44,237) 102,224
CASH AND CASH EQUIVALENTS - Beginning of period 56,372 15,720
CASH AND CASH EQUIVALENTS - End of period $ 12,135 $ 117,944
SUPPLEMENTAL CASH FLOW INFORMATION:
-
Declared dividends $ 552
$ 58 $ 483
Capital lease obligations incurred
Cash paid for interest $ 38 $ 47
Cash paid for income taxes - -
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
USN COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in thousands)
Nine Months Ended September 30,
-------------------------------
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $ (146,962) $ (73,638)
Adjustments to reconcile net loss to net cash flows from
operating activities:
Depreciation and amortization 11,426 2,525
Non-cash interest on debt obligations 21,953 8,457
Provision for losses on accounts receivable 19,059 2,658
Stock compensation award expense 459 472
Gain on sale of marketable securities (11,714) -
Changes in:
Accounts receivable (45,941) (15,099)
Other assets (949) (695)
Accounts payable 24,203 9,360
Accrued expenses 10,602 8,139
------------ -----------
Net cash flows from operating activities (117,864) (57,821)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (29,763) (10,071)
Proceeds from sale of marketable securities 11,714 -
Purchase of subsidiary, net of cash acquired (69,054) -
Deposits (7,181) 58
------------ -----------
Net cash flows from investing activities (94,284) (10,013)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 138,091 4
Issuance of preferred stock - 30,209
Costs incurred related to issuance of stock (10,764) (218)
Proceeds from Consent Convertible Notes 10,000 -
Proceeds from Senior Notes - 100,001
Debt acquisition costs - (4,437)
Repayment of capital lease obligations and notes payable (498) (599)
------------ -----------
Net cash flows from financing activities 136,829 124,960
------------ -----------
NET DECREASE IN CASH (75,319) 57,126
CASH AND CASH EQUIVALENTS - Beginning of period 87,454 60,818
------------ -----------
CASH AND CASH EQUIVALENTS - End of period $ 12,135 $ 117,944
============ ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Conversion of preferred stock to common stock $ 57,856 -
============ ===========
Declared dividends $ 579 $ 1,012
============ ===========
Capital lease obligations incurred $ 346 $928
============ ===========
Issuance of stock warrants - $19,352
------------ -----------
Dividends paid in kind - $ 920
------------ -----------
Cash paid for interest $ 91 $92
------------ -----------
Cash paid for income taxes - -
============ ===========
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
USN COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The unaudited, condensed consolidated financial statements of USN
Communications, Inc. (the "Company") included herein have been prepared in
accordance with the rules and regulations of the Securities and Exchange
Commission. The interim financial statements reflect all adjustments,
consisting only of normal recurring adjustments, which are, in the opinion
of management, necessary for a fair presentation of the results for the
interim periods presented. The condensed consolidated financial statements
should be read in conjunction with the consolidated financial statements
and notes thereto included in the Company's latest annual report on Form
10-K. The results of operations for the interim periods should not be
considered indicative of results to be expected for the full year.
2. NEW ACCOUNTING PRONOUNCEMENTS
On January 1, 1998, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 130 "Reporting Comprehensive Income",
which establishes standards for reporting and display of comprehensive
income and its components. Other comprehensive income consists solely of
unrealized and realized gains on available-for-sale securities.
Additionally in 1998, the Company adopted SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information" and
SFAS No. 132, "Employers' Disclosure about Pensions and Other
Postretirement Benefits." These statements have no impact on the results of
operations, financial position or cash flows of the Company.
In June 1998, the Financial Accounting Standards Board issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities,"
("SFAS 133"), effective for all fiscal quarters of fiscal years beginning
after June 15, 1999. It establishes accounting and reporting standards for
derivative instruments and for hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair
value. The Company is evaluating SFAS 133 to determine its impact on the
consolidated financial statements.
3. ACCOUNTS RECEIVABLE
Accounts receivable consists of the following (in thousands):
September December 31,
30, 1998 1997
--------- ------------
Billed $51,605 $10,790
Unbilled 19,578 17,664
--------- ------------
Gross accounts receivable 71,183 28,454
Allowance for doubtful accounts (13,897) (4,537)
--------- ------------
Net accounts receivable $57,286 $23,917
========= ============
Unbilled accounts receivable comprises access charges, features
and usage for revenue earned but not yet billed to customers. A majority of
the unbilled accounts receivable were billed within 30 days after the
quarter.
4. PRIVATE PLACEMENT OFFERINGS
In August 1997, in connection with the 1997 private placement
offering, the Company issued an option to the holders of the 14% Senior
Discount Notes due 2003 (the "14% Senior Notes") to purchase $13.0 million
aggregate principal amount at maturity of the Company's 9% Consent
Convertible Subordinated Discount Notes due 2006 ("Consent Notes") for an
aggregate purchase price of $10 million and convertible into common stock
at a conversion price of $10.121 per share based on accreted value at the
time of conversion. Pursuant to the option, which was exercised by the
holders in October 1997, the Consent Notes were sold in January 1998 at a
price of $767.90 per $1,000 face amount. These notes will accrete interest
at an annual rate of 9%, compounded semiannually, until January 13, 2001.
Thereafter interest will be paid semiannually in arrears in cash.
In March 1998, the holders of the 14% Senior Notes exchanged $31.5
million aggregate principal amount at maturity of the Company's 14% Senior
Notes for $33.6 million aggregate principal amount at maturity of the
Company's 14 5/8% Senior Discount Notes due 2004 (the "14 5/8% Senior
Notes").
5. CHANGES IN EQUITY
In February 1998, the Company issued and sold 8,600,000 shares of
Common Stock (of which 600,000 shares were sold pursuant to the exercise of
the underwriters' over-allotment option) in its initial public offering for
net proceeds of approximately $127.0 million. In March 1998, the Company
issued and sold 28,861 additional shares pursuant to the exercise of the
underwriters' over-allotment option for net proceeds of $0.4 million. In
conjunction with the initial public offering, all of the Company's
outstanding 9% Cumulative Convertible Pay-In-Kind Preferred Stock ("9%
Preferred Stock") and 9% Cumulative Convertible Pay-In-Kind Preferred
Stock, Series A ("Series A Preferred Stock"), including dividends accrued
through the conversion date, were converted to 6,130,175 shares of Class A
Common Stock. At the time of the initial public offering, all of the shares
of the Company's Class A Common Stock were converted to an equal number of
the Company's newly created common stock.
In August 1998, the Company adopted a Stockholder Rights Plan
pursuant to which rights were distributed as a dividend at a rate of one
Right for each share of Common Stock held by stockholders of record on
August 24, 1998. The Rights are exercisable 10 days after certain events
involving the acquisition of 15% or more of the Company's outstanding
common stock or the commencement of a tender or exchange offer for at least
15% of the common stock, subject to certain exceptions. Upon the occurrence
of such an event, each Right, unless redeemed by the Company, entitles the
holder to receive, upon exercise and payment of the exercise price, common
stock equal to twice the exercise price of the Right. The initial exercise
price of a Right is $50, subject to adjustment. There are 1,000,000 shares
of preferred stock reserved for issuance upon exercise of the Rights.
In the nine months ending September 30, 1998, the Company issued
1,492,897 shares of Common Stock in conjunction with the exercise of
Warrants and stock options.
6. ACQUISITION
On February 20, 1998, the Company used a portion of the net
proceeds from its initial public offering to acquire all of the outstanding
capital stock of Hatten Communications Holding Company, Inc., a Connecticut
corporation ("Hatten Communications" now known as USN Wireless, Inc.),
pursuant to a Stock Purchase Agreement dated January 7, 1998, for
approximately $69.1 million, net of cash acquired, including the repayment
of approximately $14.0 million of existing indebtedness and the payment of
certain fees and expenses.
The acquisition was recorded under the purchase method of
accounting, and accordingly, the results of operations of Hatten
Communications have been included in the consolidated financial statements
since the date of acquisition. The purchase price has been allocated to
assets acquired and liabilities assumed based on their fair market value at
the date of the acquisition as summarized below (in thousands):
Current assets $8,317
Long-term assets 1,291
Intangible assets 17,961
Goodwill 49,981
Current liabilities (8,496)
----------
Purchase price $69,054
==========
Goodwill of approximately $50.0 million is being amortized on a
straight-line basis over 15 years. Additionally, the fair market value
ascribed to the acquired customer list of $15.0 million, included in
intangible assets, is being amortized on a straight-line basis over 5
years.
The following table reflects unaudited pro forma combined results
of operations of the Company and Hatten Communications on the basis that
the acquisition had taken place on January 1, 1997 (in thousands, except
per share data):
Pro Forma Nine Months Ended
September 30,
---------------------------
1998 1997
----------- -----------
Net service revenue $140,035 $56,817
Net loss to common shareholders $ (144,268) $(81,312)
Net loss per common share - basic and diluted $ (7.07) $ (11.30)
Weighted average common shares outstanding 20,409 7,198
7. SUBSEQUENT EVENT
On November 18, 1998, the Company received approximately $10
million in cash in exchange for the issuance and sale of a $10 million 17%
Senior Secured Note ("17% Note") due January 15, 1999. Interest is payable
upon the maturity of the 17% Note. The 17% Note is secured by a first
priority lien on substantially all assets of the Company, including the
Company's accounts receivable and the stock of the Company's directly owned
subsidiaries.
8. FUTURE OPERATING PLANS
The Company has substantial current and ongoing cash needs with
respect to both its operations and the maturity of the 17% Note on January
15, 1999. The absence of additional capital infusions will result in the
Company's inability to meet its obligations as they come due and raise
substantial doubt about the Company's ability to continue as a going
concern. The Company has engaged BT Alex. Brown Incorporated to advise the
Company on strategic alternatives available to it, including the potential
sale of the Company or its assets. In addition, the Company has engaged
Daniels & Associates, L.P. ("Daniels") to explore the potential sale of the
Company's USN Wireless, Inc. subsidiary. There can be no assurance that any
such transaction or transactions will be concluded or, if concluded, that
such transaction or transactions can be done on terms favorable to the
Company's stockholders or creditors. In the absence of any such transaction,
sources of funding could include public offerings or private placements of
equity and/or debt securities or additional capital contributions from new or
existing investors in the Company. There can be no assurance that any such
additional financing will be available to the Company or, if available,
that it can be obtained on a timely basis and within limitations contained
in the indentures with respect to the Company's 14% Senior Notes and
14-5/8% Senior Notes. Failure by the Company to address its cash needs
would have a material adverse effect on the Company's results of operations
and financial condition.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
The Company offers a bundled package of telecommunications products,
including local and long distance telephony, voicemail, paging,
teleconferencing, and other enhanced and value-added telecommunications
services. As discussed in more detail below, the Company has recently taken
actions to reduce its costs, including the elimination of its customer
acquisition direct sales force. Previously, the Company had focused its
operations on the acquisition of a large number of customers and on
maintaining strong customer relationships through a direct sales approach
and telemarketing and with scaleable, high-volume provisioning and other
systems and responsive customer care. This has enabled the Company to
maintain strategic flexibility in its service offerings, including the
development of facilities-based services, as the Company determines is
appropriate and subject to the Company's ability to obtain capital to
develop and implement such services. The Company has substantial current
and ongoing cash needs which, if unmet, would have a material adverse
effect on the Company's results of operations and financial condition. See
"Liquidity and Capital Resources."
The Company entered into the first total service resale agreement
with Ameritech Corporation for local services in November 1995, and entered
into a comprehensive local resale agreement in July 1996 with NYNEX
Corporation (now Bell Atlantic Corporation). The Company also consummated
various other agreements in 1996 with certain carriers for the resale of
long distance and enhanced and other value-added services. The Company
commenced the marketing and provisioning of services under those agreements
during the latter half of 1996. The Company has continued to develop
additional services to meet the needs of its target market through the
acquisition of Hatten Communications in February 1998. Hatten
Communications (now known as USN Wireless, Inc.) resells wireless
communications services, including cellular and paging.
The Company has experienced significant growth, which has been
funded primarily with capital contributions, sales of preferred stock and
by the proceeds from the private placement or public offering of debt and
equity securities. As a result of adverse capital market conditions, the
sources of capital historically used to fund the Company's growth have not
been available. Accordingly, the Company has taken actions to reduce costs.
On August 10, 1998, the Company reduced its headcount by 260 employees and
closed 6 sales offices. On November 3, 1998, the Company implemented an
additional reduction of approximately 650 positions or 46% of its
workforce. As a result, the Company has eliminated its customer acquisition
direct sales force and various other positions generally tied to turning up
new customers and is consolidating operations into 11 main facilities
located in cities serving over 80% of the Company's current customers. In
addition, the Company has discontinued its telemarketing efforts. In
connection with the headcount reduction programs, a charge of $3.0 million
was recorded in the third quarter and an additional charge is expected to
be recorded in the fourth quarter for severance and facilities closing
costs. Additionally, third quarter bad debt expense increased $13.0 million
from the same quarter last year and increased $12.8 million from the second
quarter of 1998. This increase is a result of writing off $9.1 million of
accounts determined to be uncollectible in the third quarter and
establishing a higher level of reserve for other delinquent accounts
determined to be at risk.
The Company's net service revenue consists primarily of sales
revenue from telecommunications resale services net of certain adjustments,
including credits and allowances. The Company bills its subscribers for
local, long distance and other service usage based on the type of service
utilized, the number, time and duration of calls, the geographic location
of the terminating phone numbers and the applicable rate plan in effect at
the time of the call.
Cost of service includes the cost of local, long distance and
other services charged by carriers for recurring charges, per minute usage
charges and feature charges, as well as the cost of fixed facilities for
dedicated services and special regional calling plans.
Sales and marketing expense consists of the costs of providing
sales and other support services for customers including salaries of sales
force personnel. General and administrative expense consists of the costs
of the billing and information systems and personnel required to support
the Company's operations and growth as well as bad debts and the
amortization of organization costs and intangible assets, other than
deferred financing costs, the amortization of which is included in interest
expense. Depreciation is allocated throughout sales and marketing expense
and general and administrative expense based on asset usage.
The Company has experienced significant growth in its access lines
in service and has consistently reported that growth on the basis of
certain operational measurements. The number of lines which the Company has
sent electronically to and received by its carriers, reduced by the number
of lines disconnected by the carriers and electronically confirmed to the
Company, form the basis for provisioned lines in service. Using these
measurements, the number of access lines in service at September 30, 1998
was approximately 310,000.
The Company defines an access line as a landline telephone
connection between a customer purchasing local telephone services and the
Company, with no multipliers used for trunk ratios; each DS-0 line counts
as a single access line. The definition does not include DID extensions,
long distance PICs, cellular telephone connections or calling cards.
In the Company's comparison of access lines in service to the
number of access lines billed by local service carriers to the Company, the
Company has assigned 24,495 lines to a category of unreconciled lines.
9,216 of these lines are from the Bell Atlantic region and 15,279 of these
lines are from the Ameritech region. The Company continues to pursue the
reconciliation of these lines.
Results of Operations
Three Months Ended September 30, 1998 Compared to Three Months Ended
September 30, 1997
Net service revenue increased to $51.9 million for the three
months ended September 30, 1998 from $15.3 million for the three months
ended September 30, 1997. The increase in net service revenue was due
primarily to the substantial increase in the Company's installed base and
the corresponding increase in the customer base in the Company's geographic
markets as well as the acquisition of Hatten Communications which increased
revenues by $12.0 million.
Gross profit increased to $9.6 million for the three months ended
September 30, 1998 from $1.8 million for the three months ended September
30, 1997. The gross margin percentage was 18.6% for the third quarter of
1998, up from 11.9% for the third quarter of 1997. The increase in gross
profit is attributable to the above mentioned increase in customer base,
improvements in the Company's billing systems and revenue assurance
processes and the acquisition of Hatten Communications. The gross margin
percentage dropped from the second quarter 1998 margin of 22.2% due to
higher costs associated with deferring certain vendor payments and revenue
reductions resulting from a decision not to bill customers for certain
charges. Excluding the impact of these two factors, the Company's third
quarter margin would have been 22.3%.
Sales and marketing expenses increased 79% from $15.8 million for
the three months ended September 30, 1997 to $28.1 million for the three
months ended September 30, 1998. Of the $12.3 million increase, $2.1
million related to the aforementioned restructuring charge as a result of
the workforce reduction that occurred in the third quarter. The remaining
$10.2 million increase was due primarily to an increase from a year ago in
the number of sales and marketing employees from approximately 530 at
September 30, 1997 to approximately 698 at September 30, 1998 to support
the growth in the customer base. This increase in headcount resulted in
increases to salaries and benefits of approximately $4.6 million, facility
and office related expenses of approximately $1.2 million, and recruitment
costs of approximately $0.9 million. Additionally, mass marketing expenses
increased approximately $2.0 million related to the Company's telemarketing
strategy.
General and administrative expenses increased 257% to $42.3
million for the three months ended September 30, 1998 versus $11.9 million
for the three months ended September 30, 1997. The third quarter
restructuring charge represented $0.9 million of the $30.4 million
increase. Additionally, third quarter bad debt expense increased $13.0
million from the same quarter last year as a result of writing off $9.1
million of accounts determined to be uncollectible in the third quarter and
establishing a higher level of reserve for other delinquent accounts
determined to be at risk. The amortization of goodwill and other intangible
assets related to the 1998 acquisition of Hatten Communications contributed
an additional $1.8 million of expense. The remaining increase of $14.7
million was due primarily to an increase in the number of operations and
administrative employees from approximately 320 at September 30, 1997 to
approximately 712 at September 30, 1998 to support the growth in the
customer base. This increase in headcount resulted in increases to salaries
and benefits of approximately $6.4 million and facility related costs of
approximately $3.3 million. The Company also incurred professional fees of
approximately $2.9 million.
Interest and other income decreased to $0.4 million for the three
months ended September 30, 1998 from $0.9 million for the three months
ended September 30, 1997 due primarily to a significantly lower average
cash balance.
Interest expense increased to $7.6 million for the three months
ended September 30, 1998 from $4.4 million for the three months ended
September 30, 1997. This increase was due primarily to interest expense
attributable to the 14 5/8% Senior Notes issued in August 1997 and the
Consent Notes issued in January 1998.
As a result of the factors described above, the Company had a net
loss of $68.0 million for the three months ended September 30, 1998
compared to a net loss of $29.4 million for the three months ended
September 30, 1997. Net loss per common share for the third quarter of 1998
was $2.90 compared to $4.15 for the third quarter of 1997. The third
quarter 1998 EBITDA was a negative $56.1 million versus a negative $24.9
million in the third quarter of 1997.
Nine Months Ended September 30, 1998 Compared to Nine Months Ended
September 30, 1997
Net service revenue increased to $133.9 million for the nine
months ended September 30, 1998 from $27.0 million for the nine months
ended September 30, 1997. The increase in net service revenue is
attributable to the above mentioned increase in customer base as well as
the acquisition of Hatten Communications in the first quarter, which added
$28.8 million to net service revenue.
Gross profit increased to $26.5 million for the nine months ended
September 30, 1998 from $3.0 million for the nine months ended September
30, 1997. The gross margin percentage was 19.8% for the first nine months
of 1998, up from 11.2% for the first nine months of 1997. The increase in
gross profit is attributable to the above mentioned increase in customer
base, improvements in the Company's billing systems and revenue assurance
processes, as well as the acquisition of Hatten Communications in the first
quarter of 1998. The gross margin percentage dropped from the June 1998
year-to-date margin of 20.5% due to due to higher costs associated with
deferring certain vendor payments and revenue reductions resulting from a
decision not to bill customers for certain charges. Excluding the impact of
these two factors, the Company's September 1998 year-to-date margin would
have been 21.2%.
Sales and marketing expenses increased 85%, from $43.1 million for
the nine months ended September 30, 1997 to $79.5 million for the nine
months ended September 30, 1998. Of the $36.4 million increase, $2.1
related to the restructuring charge taken in the third quarter. The
remaining $34.3 increase was due primarily to the increased headcount from
a year ago in the number of sales and marketing employees to support the
growth in the customer base. This increase in headcount resulted in
increases to salaries and benefits of approximately $20.8 million, facility
related expenses of approximately $3.8 million, travel and training costs
of approximately $2.8 million, and recruitment costs of approximately $2.6
million. Additionally, mass marketing expenses increased approximately $4.1
million related to the Company's telemarketing strategy. These increases
were offset by a decrease of $1.7 million in advertising costs.
General and administrative expenses increased 223% to $86.7
million for the nine months ended September 30, 1998 versus $26.9 million
for the nine months ended September 30, 1997. The third quarter
restructuring charge represented $0.9 million of the $59.8 million
increase. Additionally, third quarter bad debt expense increased $13.0
million from the same quarter last year as a result of writing off $9.1
million of accounts determined to be uncollectible in the third quarter and
establishing a higher level of reserve for other delinquent accounts
determined to be at risk. The amortization of goodwill and other intangible
assets related to the 1998 acquisition of Hatten Communications contributed
an additional $3.9 million of expense. The remaining increase of $42.0
million was due primarily to an increase from a year ago in the number of
operations and administrative employees to support the growth in the
customer base. This increase in headcount resulted in increases to salaries
and benefits of approximately $14.7 million, facility related costs of
approximately $6.9 million, travel and training costs of approximately $1.8
million and recruitment costs of $1.8 million. The Company also incurred
professional fees of approximately $6.2 million and billing costs of
approximately $3.7 million.
Interest and other income increased to $14.9 million for the nine
months ended September 30, 1998 from $1.9 million for the nine months ended
September 30, 1997 due primarily to a gain on the sale of marketable
securities in the second quarter of 1998.
Interest expense increased to $22.1 million for the nine months
ended September 30, 1998 from $8.6 million for the nine months ended
September 30, 1997. This increase was due primarily to interest expense
attributable to the 14 5/8% Senior Notes issued in August 1997 and the
Consent Notes issued in January 1998.
As a result of the factors described above, the Company had a net
loss of $147.0 million for the nine months ended September 30, 1998
compared to a net loss of $73.6 million for the nine months ended September
30, 1997. Net loss per common share for the nine months ended September 30,
1998 was $7.23 compared to $10.37 for the nine months ended September 30,
1997. EBITDA for the first nine months of 1998 was a negative $128.4
million versus a negative $64.4 million in the first nine months of 1997.
Liquidity and Capital Resources
Since inception, the Company has funded its operations primarily
through proceeds from the issuance of debt and equity securities. As of
September 30, 1998, the Company had cash and cash equivalents of $12.1
million and working capital of $2.2 million. The Company's operating
activities utilized cash of approximately $31.6 million and $117.9 million
for the three and nine month periods ended September 30, 1998,
respectively, and $20.3 million and $57.8 million for the three and nine
month periods ended September 30, 1997, respectively.
The Company's investing activities for the three months ended
September 30, 1998 of $12.5 million consist primarily of $12.4 million for
the purchase of property and equipment related to the development of
systems infrastructure and the increase in computer equipment and office
buildouts. Investing activities for the nine months ended September 30,
1998 consist of $69.1 million for the purchase of Hatten Communications,
property and equipment purchases of $29.8 million related to the areas
mentioned above, and cash utilized for deposits related to sales office
expansions totaling $7.2 million, offset by $11.7 million in proceeds from
the sale of marketable securities. For the three and nine month periods
ended September 30, 1997, the Company's investing activities consisted of
$2.9 million and $10.1 million, respectively, of property and equipment
purchases for sales office expansions in the Company's geographic markets.
The Company's financing activities utilized $193,000 for the three
month period ended September 30, 1998 and generated $136.8 million for the
nine month period ended September 30, 1998. In January 1998, the Company
issued $13.0 million aggregate principal amount at maturity of Consent
Notes for an aggregate purchase price of $10.0 million. In February 1998,
the Company issued and sold 8,600,000 shares of Common Stock (of which
600,000 shares were sold pursuant to the exercise of the underwriters'
over-allotment option) in its initial public offering for net proceeds of
approximately $127.0 million. In March 1998, the Company issued and sold
28,861 additional shares pursuant to the exercise of the underwriters'
over-allotment option for net proceeds of $0.4 million. Cash generated from
financing activities for the three and nine month periods ended September
30, 1997 of approximately $125.4 million and $125.0 million, respectively,
related primarily to the August 1997 private placement of 14 5/8% Senior
Notes, which raised net proceeds of $96.5 million and sales of the
Company's Series A Preferred Stock for $30.2 million.
On November 18, 1998, the Company issued and sold to Merrill Lynch
Global Allocation Fund, Inc. ("MLGAF") a $10.0 million 17% Senior Secured
Note due January 15, 1999 (the "17% Note"). Interest on the 17% Note,
together with a facility fee of $500,000, is payable in cash at maturity.
The 17% Note is secured by a first priority lien on substantially all
assets of the Company, including the Company's accounts receivable and the
stock of the Company's directly owned subsidiaries. MLGAF is the holder of
all of the Company's 14% Senior Notes, 9% Convertible Subordinated Discount
Notes due 2004 and Consent Notes. In addition, MLGAF is a substantial
holder of 14-5/8% Senior Notes and Warrants to purchase Common Stock.
The Company has substantial current and ongoing cash needs with
respect to both its operations and the maturity of the 17% Note on January
15, 1999. The absence of additional capital infusions will result in the
Company's inability to meet its obligations as they come due and raise
substantial doubt about the Company's ability to continue as a going
concern. The Company has engaged BT Alex. Brown Incorporated to advise the
Company on strategic alternatives available to it, including the potential
sale of the Company or its assets. In addition, the Company has engaged
Daniels to explore the potential sale of the Company's USN Wireless, Inc.
subsidiary. There can be no assurance that any such transaction or
transactions will be concluded or, if concluded, that such transaction
or transactions can be done on terms favorable to the Company's stockholders
or creditors. In the absence of any such transaction, sources of funding
could include public offerings or private placements of equity and/or debt
securities or additional capital contributions from new or existing
investors in the Company. There can be no assurance that any such additional
financing will be available to the Company or, if available, that it can
be obtained on a timely basis and within limitations contained in the
indentures with respect to the Company's 14% Senior Notes and 14-5/8% Senior
Notes. Failure by the Company to address its cash needs would have a material
adverse effect on the Company's results of operations and financial
condition.
Year 2000
Many currently installed computer systems and software products
are coded to accept only two digit entries in the date field. Beginning in
the year 2000, these date fields will need to accept four digit entries to
distinguish twenty-first century dates from twentieth-century dates. As a
result, over the next two years, computer systems and/or software used by
many companies may need to be upgraded to comply with such "Year 2000"
requirements. Significant uncertainty exists in the software industry
concerning the potential effects associated with such compliance.
The Company utilizes both information technology and
non-information technology (i.e. embedded technology such as
microcontrollers). It also both purchases third-party hardware and software
products and develops software internally. Currently, the Company does not
purchase or develop any software or hardware unless it is certified to be
Year 2000 compliant.
The Company is conducting a comprehensive review of its computer
systems to ensure that all such systems are, or prior to the end of 1999
will be, Year 2000 compliant. The Company's plan for its Year 2000 project
includes the following phases: (i) identification of all potential Year
2000 systems, (ii) assessment of each system to determine if any Year 2000
issues exist, (iii) evaluation of potential solutions, (iv) selection of
corrective action, and (v) implementation of such corrective action, which
includes internal testing and third-party verification. The Company has
completed the identification and assessment phases for all information
technology and non-information technology hardware. The Company has
completed approximately 38% of its evaluation phase and has selected and
taken corrective action for approximately 19% of its systems. The Company
has also completed its internal testing for approximately 10% of its
systems. This process is also utilized, to the extent necessary, as part of
its normal internal software development and/or purchase process.
The Company expects to complete all of the phases of the process
described above and that all of its computer systems will be fully Year
2000 compliant before the end of 1999. However, there can be no assurance
that such process will be completed prior to such date, or prior to the
Year 2000, or that any problems will be properly identified and, if
identified, that they will be adequately corrected. Any failure by the
Company to properly assess and correct Year 2000 computer problems could
have a material adverse effect on its business, financial condition and
results of operations.
In addition to assessing its own systems, the Company is
conducting an external review of its vendors and suppliers, including
equipment and systems providers and other telecommunications service
providers, to determine their vulnerability to Year 2000 problems and any
potential impact on the Company. In particular, the Company may experience
problems to the extent that telecommunications carriers whose services are
resold by the Company are not Year 2000 compliant. If such problems arise,
they could have a material adverse effect on the Company's business,
financial condition and results of operation. In the event that the
Company's telecommunications providers are not Year 2000 compliant, the
Company does not have a contingency plan in place to address such
situation.
The Company is currently in the process of selecting a third-party
verification vendor in order to have independent verification of the Year
2000 readiness of all of its internally developed and purchased computer
systems. A failure of the Company's computer systems or the failure of the
Company's vendors to effectively upgrade their software and systems for
transition to the Year 2000 could have a material adverse effect on the
Company's business, financial position and results of operations.
To date, the Company has expended approximately $275,000 on its
effort to become Year 2000 compliant. The Company estimates that it will
incur additional costs between $150,000 and $300,000 to become Year 2000
compliant, although the Company's evaluation of the Year 2000 problem is
not yet complete and actual costs may be significantly higher. Costs
associated with software modification are expensed by the Company when
incurred.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This document includes "forward-looking statements" within the
meaning of Section 27A of the Securities Act and Section 21E of the
Exchange Act, including statements containing the words "believes,"
"anticipates, "expects" and words of similar import. All statements other
than statements of historical facts regarding the Company or any of the
transactions described herein are forward-looking statements. Although the
Company believes that the expectations reflected in such forward-looking
statements are reasonable, it can give no assurance that such expectations
will prove to have been correct. Actual results may differ materially from
those projected in forward-looking statements. The Company believes that
its primary risk factors include, but are not limited to: the number and
size of competitors in its markets; access to capital; law and regulatory
policy; dependence on technology and third parties, including provisioning
and billing systems and services; and the mix of products and services
offered in its target markets. The Company undertakes no obligation to
update publicly any forward-looking statements whether as a result of new
information, future events or otherwise. Any statements should be evaluated
in light of these important factors.
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Ronald Glotzer v. USN Communications, Inc., et al., Case Number 98
CIV 8088, filed in the United States District Court for the Southern
District of New York on November 12, 1998. Class action complaint brought
against the Company, certain of the Company's current and former officers
and directors and the managing underwriters of the Company's initial public
offering, alleging violation of certain provisions of the Securities Act of
1933 in connection with the Company's initial public offering and seeking
rescission, damages and other fees and costs. The Company intends to
vigorously defend the case.
Ronald Kassover v. USN Communications, Inc., et al., Case Number
98 Civ. 8250, filed in the United States District Court for the Southern
District of New York on November 19, 1998. Class action complaint brought
against the Company, certain of the Company's current and former officers
and directors and the managing underwriters of the Company's initial public
offering, alleging violation of certain provisions of the Securities Act of
1933 and the Securities Exchange Act of 1934 and seeking damages and other
fees and costs. The Company intends to vigorously defend the case.
From time to time the Company is party to routine litigation and
proceedings in the ordinary course of its business. The Company and its
subsidiaries continue to participate in regulatory proceedings before the
FCC and state regulatory agencies concerning the authorization of services
and the adoption of new regulations.
Item 2. CHANGES IN SECURITIES
None.
Item 3. DEFAULTS UPON SENIOR SECURITIES
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Item 5. OTHER INFORMATION
The Company has received notifications from Nasdaq advising the
Company of its non-compliance with listing criteria as a result of the
Company's failure to maintain a minimum bid price of $5.00 with respect to
its Common Stock and to maintain a sufficient market value of the public
float. Nasdaq has further advised the Company that if the Company is not
compliant with the $5.00 bid price requirement or has not requested a
hearing with Nasdaq by December 28, 1998, Nasdaq will delist the Common
Stock at the open of business on December 30, 1998.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1. Note Purchase Agreement dated as of November 18, 1998 between the
Company and MLGAF.
10.2. Security Agreement dated as of November 18, 1998 from the Company to
MLGAF.
27. Financial Data Schedule
(b) Reports on Form 8-K
Form 8-K dated August 10, 1998 to report the adoption of a
Stockholder Rights Plan.
Form 8-K dated November 18, 1998 to report the issuance and sale
of the 17% Note.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
USN COMMUNICATIONS, INC.
(Registrant)
Date: November 20, 1998 /s/ ROBERT E. THOMPSON
-----------------------------------------
Vice President and Acting Chief Financial
Officer (Duly authorized officer and
principal financial officer of the registrant)
INDEX TO EXHIBITS
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- -------- -------------------
10.1 Note Purchase Agreement dated as of November 18, 1998 between
the Company and MLGAF.
10.2 Security Agreement dated as of November 18, 1998 from the Company
to MLGAF.
27 Financial Data Schedule
EXHIBIT 10.1
USN COMMUNICATIONS, INC.
$10,000,000
17.00% SENIOR SECURED NOTES DUE JANUARY 15, 1999
-------------------------------
NOTE PURCHASE AGREEMENT
-------------------------------
Dated as of November 18, 1998
TABLE OF CONTENTS
PAGE
1. AUTHORIZATION OF NOTES.............................................1
2. SALE AND PURCHASE OF NOTES.........................................1
3. CLOSING............................................................1
4. CONDITIONS TO CLOSING..............................................2
4.1 Representations and Warranties..............................2
4.2 Performance; No Default.....................................2
4.3 Documents Required..........................................2
4.4 Opinion of Counsel..........................................4
4.5 Purchase Permitted by Applicable Law, Etc...................4
4.6 Consents and Approvals......................................5
4.7 Payment of Special Counsel Fees.............................5
4.8 Changes in Corporate Structure..............................5
4.9 Proceedings and Documents...................................5
4.10 No Material Adverse Change..................................5
4.11 Litigation..................................................6
4.12 Capital Structure...........................................6
4.13 Due Diligence...............................................6
4.14 WorldCom....................................................6
4.15 Engagements.................................................6
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY......................7
5.1 Organization; Power and Authority...........................7
5.2 Authorization, Enforceability, Etc..........................7
5.3 Organization and Ownership of Shares of
Subsidiaries; Affiliates....................................7
5.4 Financial Statements........................................8
5.5 Compliance with Laws, Other Instruments, Etc................9
5.6 Governmental Authorizations, Etc...........................10
5.7 Litigation.................................................10
5.8 Taxes......................................................10
5.9 Title to Property; Leases..................................11
5.10 Licenses, Permits, Etc.....................................11
5.11 Security Interests, Etc....................................12
5.12 Compliance with ERISA......................................12
5.13 Private Offering by the Company............................14
5.14 Use of Proceeds; Margin Regulations........................14
5.15 Status Under Certain Statutes..............................15
5.16 Foreign Assets Control Regulations, Communications
Act, Etc...................................................15
5.17 Environmental Matters......................................16
5.18 No Burdensome Agreements...................................17
5.19 Existing Indebtedness; Future Liens........................17
5.20 Employee Contracts.........................................17
5.21 Material Contracts.........................................18
5.22 Accounts...................................................18
6. REPRESENTATIONS OF THE PURCHASER..................................18
6.1 Purchase for Investment....................................18
6.2 Accredited Investor........................................18
6.3 Source of Funds............................................18
7. PAYMENTS AND PREPAYMENTS..........................................19
7.1 Required Payments..........................................19
7.2 Optional Prepayments.......................................19
7.3 Allocation of Partial Prepayments..........................19
7.4 Maturity; Surrender, Etc...................................20
8. AFFIRMATIVE COVENANTS.............................................20
8.1 Financial and Business Information.........................20
8.2 Compliance with Law........................................22
8.3 Maintenance of Insurance...................................23
8.4 Maintenance of Properties..................................23
8.5 Payment of Taxes and Claims; Performance of Material
Obligations................................................23
8.6 Preservation of Corporate Existence, Etc...................24
8.7 Maintenance of Books and Records; Inspection...............24
8.8 Use of Proceeds............................................25
8.9 Capital Stock..............................................25
8.10 Full Cooperation...........................................25
8.11 Obligations with respect to Stock and Assets of
Subsidiaries...............................................25
8.12 Payment of Fees............................................25
8.13 Performance of Material Contracts..........................25
8.14 Accounts...................................................26
8.15 Reports....................................................26
8.16 UCC Searches...............................................26
9. NEGATIVE COVENANTS................................................26
9.1 Limitations on Transactions with Affiliates................26
9.2 Limitations on Liens.......................................27
9.3 Limitations on Indebtedness................................27
9.4 Limitations on Lease Obligations...........................27
9.5 Limitations on Mergers, Consolidations, Sales of
Assets, Etc................................................28
9.6 Limitations on Dividends and Other Payment
Restrictions Affecting Subsidiaries........................28
9.7 Limitations on Prepayments of Indebtedness, Etc............28
9.8 Limitations on Negative Pledges............................29
9.9 Limitations on Changes in Fiscal Year......................29
9.10 Limitations on Speculative Real Estate Investments.........30
9.11 Limitation on Investments..................................30
9.12 Limitation on Asset Purchases..............................30
9.13 Limitation on Capital Stock................................30
9.14 Limitation on Termination of Licenses......................30
9.15 Limitation on Line of Business.............................30
9.16 Limitation on Termination of Employer Plans................30
9.17 Limitation on Investment Company Act.......................31
9.18 Limitations on Amendment, Etc. of Material Contracts.......31
9.19 Limitation on Press Releases...............................31
9.20 Limitation on Creation of Subsidiaries.....................31
9.21 Limitations on Employment Contracts........................31
9.22 Limitation on Sale and Leaseback Transactions..............32
10. [Intentionally Omitted.]..........................................32
11. EVENTS OF DEFAULT.................................................32
11.1 Events of Default..........................................32
11.2 Acceleration...............................................35
11.3 Other Remedies.............................................35
11.4 Rescission.................................................35
11.5 Restoration of Rights and Remedies.........................36
11.6 No Waivers or Election of Remedies, Expenses, Etc..........36
12. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES.....................36
12.1 Registration of Notes......................................36
12.2 Transfer and Exchange of Notes.............................37
12.3 Replacement of Notes.......................................37
13. PAYMENTS ON NOTES.................................................37
14. EXPENSES, ETC.....................................................38
14.1 Transaction Expenses.......................................38
14.2 Indemnity..................................................38
14.3 Survival...................................................40
15. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT......40
16. AMENDMENT AND WAIVER..............................................40
16.1 Requirements...............................................40
16.2 Solicitation of Holders of Notes...........................41
16.3 Binding Effect, Etc........................................41
16.4 Notes Held by Company, Etc.................................42
17. NOTICES...........................................................42
18. REPRODUCTION OF DOCUMENTS.........................................42
19. CONFIDENTIAL INFORMATION..........................................43
20. SUBSTITUTION OF PURCHASER.........................................43
21. MISCELLANEOUS.....................................................44
21.1 Successors and Assigns.....................................44
21.2 Payments Due on Non-Business Days..........................44
21.3 Satisfaction Requirement...................................44
21.4 Severability...............................................44
21.5 Construction...............................................45
21.6 Computation of Time Periods................................45
21.7 Counterparts...............................................45
21.8 Governing Law; Submission to Jurisdiction, Etc.............45
SCHEDULES
Schedule I - Defined Terms
Schedule 4.6 - Consents and Approvals
Schedule 4.8 - Changes in Corporate Structure
Schedule 5.3 - Subsidiaries of the Company
Schedule 5.7 - Disclosed Litigation
Schedule 5.10 - Licenses, Permits, etc.
Schedule 5.15 - SEC Filings
Schedule 5.18 - Burdensome Agreements
Schedule 5.19 - Outstanding Indebtedness at Closing Date
Schedule 5.20 - Employment Agreements
Schedule 5.21 - Material Contracts
Schedule 5.22 - Accounts
Schedule 9.1 - Transactions with Affiliates
Schedul- 9.2(ii) - Existing Liens
Schedule 9.4 - Obligations as Lessee
Schedule 9.11 - Existing Investments
Schedule 9.14 - Termination of Licenses
EXHIBITS
Exhibit A - Form of Note
Exhibit B - Form of Security Agreement
USN COMMUNICATIONS, INC.
10 SOUTH RIVERSIDE PLAZA, SUITE 2000
CHICAGO, ILLINOIS 60606
17.00% Senior Secured Notes due January 15, 1999
As of November 18, 1998
MERRILL LYNCH GLOBAL ALLOCATION FUND, INC.
Ladies and Gentlemen:
USN Communications, Inc., a Delaware corporation (the
"COMPANY"), agrees with you as follows:
1. AUTHORIZATION OF NOTES.
The Company will authorize the issue and sale of $10,000,000
aggregate principal amount of their 17.00% Senior Secured Notes due January
15, 1999 (together with the Notes delivered pursuant to Section 2 of this
Agreement and any such Notes issued in substitution or exchange therefor
pursuant to Section 12 of this Agreement, the "Notes"). Each of the Notes
shall be in substantially the form of Exhibit A attached hereto, with such
amendments, supplements and other modifications thereto, if any, as shall
be approved from time to time by you and the Company. Capitalized terms
used in this Agreement shall have the meanings specified in Schedule I
attached hereto; and references to a "Schedule" or an "Exhibit" are, unless
otherwise specified herein, to a Schedule or an Exhibit attached to this
Agreement.
2. SALE AND PURCHASE OF NOTES.
The Company will issue and sell to you and, subject to the
terms and conditions of this Agreement, you will purchase from the Company,
at the Closing provided for in Section 3, Notes in the aggregate principal
amount of $10,000,000.
3. CLOSING.
The sale and purchase of the Notes to be purchased by you
shall occur at the offices of McDermott, Will & Emery, 227 West Monroe
Street, Chicago, Illinois 60606, at 11:30 A.M. (Chicago time), at a closing
(the "CLOSING") on November 18, 1998 or on such other Business Day
thereafter on or prior to November 18, 1998 as may be agreed upon among the
Company and you (the "CLOSING DATE"). At the Closing, the Company will
deliver to you the Notes to be purchased by you in the form of a single
Note (or such greater number of Notes in denominations of at least $500,000
or integral multiples of $100,000 in excess thereof as you may request)
dated the Closing Date and registered in your name (or in the name of your
nominee), against delivery by you to the Company or its order of
immediately available funds in the amount of the aggregate purchase price
therefor by wire transfer of immediately available funds for the account of
the Company to Harris Trust and Savings Bank, Account No. 432-329-1. If at
the Closing the Company shall fail to tender such Notes to you as provided
above in this Section 3 or any of the conditions specified in Section 4
shall not have been fulfilled to your satisfaction, you shall, at your
election, be relieved of all further obligations under this Agreement,
without hereby waiving any rights you may have by reason of such failure or
such nonfulfillment.
4. CONDITIONS TO CLOSING.
Your obligation to purchase and pay for the Notes to be sold
to you at the Closing is subject to the fulfillment to your satisfaction,
prior to or at the Closing, of the following conditions:
4.1 REPRESENTATIONS AND WARRANTIES.
The representations and warranties of the Company contained
in this Agreement and in each of the other Note Documents shall be complete
and correct when made and at the time of the Closing, before and after
giving effect to the issue and sale of the Notes and to the application of
the proceeds therefrom as contemplated by Section 5.14.
4.2 PERFORMANCE; NO DEFAULT.
The Company shall have performed and complied with all
agreements and conditions contained in this Agreement and the other Note
Documents required to be performed or complied with by it prior to or at
the Closing and, after giving effect to the issue and sale of the Notes and
to the application of the proceeds therefrom as contemplated by Section
5.14, no Default or Event of Default shall have occurred and be continuing.
4.3 DOCUMENTS REQUIRED.
You shall have received the following documents, each dated
as of the Closing Date (except as otherwise specified below) and in the
form of the respective Exhibit attached hereto, if any, or otherwise in
form and substance satisfactory to you:
(a) Security Agreement. A security agreement, in
substantially the form of Exhibit B attached hereto (as amended,
supplemented or otherwise modified hereafter from time to time in
accordance with the terms hereof and thereof, the "SECURITY
AGREEMENT"), duly executed by the Company together with:
(i) certificates representing the Pledged Shares
referred to therein accompanied by undated stock powers
executed in blank,
(ii) Uniform Commercial Code financing statements, duly
executed by the Company under the Uniform Commercial Code of
the State of Illinois, and each other jurisdiction required
to cover the Collateral described in the Security Agreement
(it being agreed that the Company will file such financing
statements as soon as practicable after the date hereof),
(iii) evidence of the completion or other arrangements
reasonably satisfactory to Purchaser, of all other recordings
and filings of or with respect to the Security Agreement that
you may deem necessary or desirable in order to perfect and
protect the Liens created thereby, and
(iv) evidence that all other action that you may deem
necessary or desirable in order to perfect and protect the
first priority liens and security interests created under the
Security Agreement has been taken.
(b) Note. A Note or Notes, in substantially the form of
Exhibit A attached hereto, duly executed by the Company.
(c) Corporate and Similar Documentation.
(i) A copy of the charter of the Company and its direct
Subsidiaries and each amendment thereto, certified (as of a
date reasonably near the Closing Date) by the Secretary of
State of the jurisdiction of its incorporation as being a
true and correct copy thereof.
(ii) A copy of a certificate of the Secretary of State
of the jurisdiction of incorporation of each of the Company
and its direct Subsidiaries, dated reasonably near the
Closing Date, listing the charter of the Company and each of
its Subsidiaries and each amendment thereto on file in his
office and certifying that (A) such amendments are the only
amendments to the Company's or such Subsidiary's charter on
file in his office, (B) the Company and such Subsidiaries
have paid all franchise taxes to the date of such certificate
and the Company and such Subsidiaries are duly incorporated
and in good standing under the laws of the State of the
jurisdiction of its incorporation.
(iii) A copy of a certificate dated reasonably near the
Closing Date of the Secretary of State, of each jurisdiction
in which the Company is qualified as a foreign corporation,
stating that the Company or is duly qualified and in good
standing as a foreign corporation in such State and have
filed all annual reports required to be filed to the date of
such certificate.
(iv) A copy of a certificate dated reasonably near the
Closing Date or oral confirmation of the Secretary of State
of the jurisdiction of incorporation of each direct
Subsidiary of the Company stating that such direct Subsidiary
is duly qualified and in good standing in such State and has
filed all annual reports required to be filed to the date of
such certificate.
(d) Secretary's Certificate. A certificate from the secretary
or an assistant secretary (or a person performing similar functions)
of the Company certifying:
(i) copies of the resolutions of the board of directors
(or persons performing similar functions) of the Company
approving this Agreement, the Notes and each of the other
Note Documents to which it is or is to be a party, and of all
documents evidencing other necessary corporate or other
necessary action and governmental approvals, if any, with
respect thereto,
(ii) the names and true signatures of the officers of
the Company authorized to sign this Agreement, the Notes and
each of the other Note Documents to which it is or is to be a
party and the other agreements, instruments and other
documents to be delivered hereunder and thereunder, and
(iii) such other matters relating to the existence and
good standing of the Company, the corporate and other
necessary authority for, and the validity of, each of the
Note Documents to which it is or is to be a party and any
other matters relevant thereto.
(e) Officer's Certificate. An Officer's Certificate
certifying that the conditions specified in Sections 4.1 and 4.2
have been fulfilled.
(f) Insurance. Copies of all insurance policies or
certificates of insurance of the Company evidencing liability and
casualty insurance meeting the requirements of Section 8.3.
(g) Material Contracts. Certified copies of all Material
Contracts of the Company and its Subsidiaries.
(h) Additional Documentation. Such other documents,
agreements or information as you may reasonably request.
4.4 OPINION OF COUNSEL.
You shall have received a favorable opinion, dated the
Closing Date, from Skadden, Arps, Slate, Meagher & Flom (Illinois), counsel
for the Company, in form and substance acceptable to you, and addressing
such other matters incident to the Transaction and the other transactions
contemplated hereby as you or your counsel may reasonably request (and the
Company hereby instructs its counsel to deliver such opinion to you).
4.5 PURCHASE PERMITTED BY APPLICABLE LAW, ETC.
The purchase of and any payment for the Notes to be purchased
by you at the Closing (a) shall be permitted by the applicable laws,
statutes, rules, tariffs and regulations, including, without limitation,
the Communications Act, FCC Rules and those relating to copyright of each
jurisdiction to which you are subject, (b) shall not violate any applicable
law, statute, rule or regulation (including, without limitation, Regulation
T, Regulation U, or Regulation X) and (c) shall not subject you to any tax,
penalty or liability under or pursuant to any applicable law, statute, rule
or regulation. You shall have received an Officer's Certificate on or prior
to the Closing Date, dated the Closing Date, certifying such matters of
fact as you may reasonably specify to enable you to determine whether such
purchase and payment are so permitted.
4.6 CONSENTS AND APPROVALS.
Except as set forth on Schedule 4.6, all orders, consents and
approvals licenses, validations of any Governmental Authority or public
body or authority or any subdivision thereof and any other third party
(including, but not limited to, Subsidiaries of the Company) including any
radio, television or other license, Permit, certificate or approval granted
or issued by the FCC or any other Governmental Authority (including any
licenses or permits issued by the FCC) (except for filings to perfect
security interests granted pursuant to this Agreement or any other Note
Document) necessary in connection with any aspect of the Transaction or
this Agreement or any other Note Document shall have been obtained (without
the imposition of any conditions that are not acceptable to you) and shall
remain in full force and effect; and all applicable waiting periods shall
have expired without any action being taken by any competent authority.
4.7 PAYMENT OF SPECIAL COUNSEL FEES.
Without limiting the provisions of Section 14.1, the Company
shall have paid on or before the Closing the reasonable fees, charges and
disbursements of McDermott, Will & Emery in connection with the
Transaction.
4.8 CHANGES IN CORPORATE STRUCTURE.
Except as specified in Schedule 4.8 attached hereto, neither
the Company nor any of its Subsidiaries shall have changed its jurisdiction
of incorporation or been a party to any merger or consolidation and shall
not have succeeded to all or any substantial part of the liabilities of any
other entity, at any time following the date of the most recent audited
consolidated financial statements of the Company and its Subsidiaries
referred to in Section 5.4(a).
4.9 PROCEEDINGS AND DOCUMENTS.
All corporate and other proceedings in connection with the
Transaction and the other transactions contemplated hereby and all
documents and instruments incident to the Transaction and such other
transactions shall be satisfactory to you and your special counsel, and you
and your special counsel shall have received all such counterpart originals
or certified or other copies of such documents as you or they may
reasonably request.
4.10 NO MATERIAL ADVERSE CHANGE.
(a) In your reasonable judgment, before giving effect to the
Transaction, there shall have occurred no Material Adverse Change
(or development involving a prospective Material Adverse Change)
since December 31, 1997, except as otherwise disclosed to you in
writing prior to the Closing Date.
(b) No material adverse change (or development involving a
prospective Material Adverse Change) shall have occurred in the loan
syndication or financial capital market conditions generally from
those in effect on the date hereof which could reasonably be
expected to adversely affect the consummation of the transactions
contemplated hereunder and thereunder.
4.11 LITIGATION.
Except as disclosed on Schedule 5.7, there shall exist no
action, suit, investigation, litigation or proceeding or counterclaim
affecting the Company or any of its Subsidiaries pending or threatened by
or before any court or governmental, administrative or regulatory agency or
authority, domestic or foreign, seeking to obtain, or having resulted in
the entry of, any judgment, order or injunction that (a) would restrain,
prohibit or impose adverse conditions on your ability to purchase the
Notes, (b) could be reasonably likely to have a Material Adverse Effect, or
(c) could purport to affect the legality, validity or enforceability of
this Agreement or any of the Note Documents.
4.12 CAPITAL STRUCTURE.
You shall be satisfied with the corporate and legal structure
and capitalization of the Company and each of its Subsidiaries, including
the terms and conditions of the charter, bylaws and each class of capital
stock of the Company and each of its Subsidiaries and of each agreement or
instrument relating to such structure or capitalization.
4.13 DUE DILIGENCE.
You shall have completed a due diligence investigation of the
Company and its Subsidiaries in scope and with results, satisfactory to you
and you shall have been given such access to the management, records, books
of account, contracts and properties of the Company and its Subsidiaries
and shall have received such financial, business and other information
regarding the Company and its Subsidiaries as you shall have requested.
4.14 WORLDCOM.
The Company shall have delivered a copy of letters from Klett
Lieber Rooney & Schorling setting forth an agreement between the Company
and MCI WorldCom, which letters shall be in form and substance satisfactory
to you.
4.15 ENGAGEMENTS.
The Company shall have (a) delivered to you an engagement
letter engaging the services of a nationally recognized investment bank in
scope and substance satisfactory to you in your sole discretion and (b)
provided evidence acceptable to you in your sole discretion of the
continued engagement of Jay Alix & Associates.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to you that:
5.1 ORGANIZATION; POWER AND AUTHORITY.
The Company and each of its Subsidiaries are corporations
duly organized, validly existing and in good standing under the laws of
their respective jurisdictions of incorporation, and are duly qualified as
a foreign corporation and are in good standing in each other jurisdiction
in which the ownership, lease or operation of their respective property and
assets or the conduct of their respective businesses requires such
qualification, other than in any such jurisdiction in which the failure to
be so qualified or in good standing could not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect. The
Company and each of its Subsidiaries have all corporate and other necessary
power and authority, and the legal right, to own or to hold under lease the
properties they purport to own or hold under lease and to transact the
business they transact and propose to transact. The Company and each of its
Subsidiaries has all corporate and other necessary power and authority, and
the legal right, to execute and deliver each of the Note Documents to which
it is or is to be a party, and to perform its obligations thereunder and to
consummate the Transaction. All of the outstanding capital stock of the
Company and each of its Subsidiaries has been validly issued, is fully paid
and non-assessable.
5.2 AUTHORIZATION, ENFORCEABILITY, ETC.
This Agreement and each of the other Note Documents have been
duly authorized by all necessary corporate action (including, without
limitation, all necessary shareholder action) on the part of the Company.
This Agreement has been, and each of the other Note Documents, when
delivered hereunder, will have been duly executed and delivered by the
Company. This Agreement constitutes, and each of the other Note Documents,
when delivered hereunder will constitute, the legal, valid and binding
obligation of the Company, enforceable against such party in accordance
with its terms, except as such enforceability may be limited by (a) the
effect of applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting the enforcement of creditors' rights generally
and (b) general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
5.3 ORGANIZATION AND OWNERSHIP OF SHARES OF SUBSIDIARIES; AFFILIATES.
(a) Schedule 5.3 attached hereto sets forth (i) all of the
Subsidiaries of the Company as of the Closing Date, showing, as to
each such Subsidiary, the correct name thereof, the jurisdiction of
its incorporation and the percentage of shares of each class of its
capital stock or similar equity interests or membership interests
outstanding as of the Closing Date that are owned by the Company
and/or one or more of its Subsidiaries.
(b) All of the outstanding shares of capital stock or similar
equity interests of each Subsidiary referred to in Schedule 5.3
attached hereto as being owned by the Company and/or one or more of
its Subsidiaries have been validly issued, are fully paid and
nonassessable and are owned by the Company and/or one or more of its
Subsidiaries free and clear of all Liens, except for the Liens
created under the Collateral Documents and Liens disclosed on
Schedule 9.2(ii).
(c) Neither the Company nor any Subsidiary is a party to or
otherwise subject to any legal restriction or any agreement (other
than the Collateral Documents and customary limitations imposed by
corporate law statutes) restricting the ability of such Subsidiary
to pay dividends out of profits or make any other similar
distributions of profits to the Company or any of its Subsidiaries
that owns shares of capital stock of or similar equity interests in
such Subsidiary.
5.4 FINANCIAL STATEMENTS.
(a) The audited consolidated balance sheet of the Company and
its Subsidiaries as of December 31, 1997 and the audited
consolidated statements of earnings and cash flows of the Company
and its Subsidiaries for the fiscal years ended December 31, 1997
and December 31, 1996, in each case including the related schedules
and notes, copies of each of which have previously been furnished to
you, (i) have been audited by Deloitte & Touche LLP, (ii) have been
prepared in accordance with GAAP consistently applied throughout the
periods covered thereby and (iii) present fairly (on the basis
disclosed in the footnotes to such financial statements) in all
material respects the consolidated financial condition, results of
operations and cash flows of the Company and its Subsidiaries as of
such dates and for such periods.
(b) The unaudited consolidating balance sheet of the Company
and its Subsidiaries as of September 30, 1998 and the unaudited
consolidated statements of earnings and cash flows of the Company
and its Subsidiaries for the nine months ended September 30, 1998 in
each case including the related schedules and notes, copies of each
of which have previously been furnished to you, (i) have been
prepared in accordance with GAAP consistently applied throughout the
periods covered thereby and (ii) present fairly in all material
respects the consolidated financial condition, results of operations
and cash flows of the Company and its Subsidiaries as of such dates
and for such periods subject to normal year-end adjustments.
(c) Since September 30, 1998, except as otherwise disclosed
to you in writing prior to the Closing Date there has been no sale,
transfer or other disposition by the Company or any of its
Subsidiaries of any material part of the business or property and
assets of the Company and its Subsidiaries, taken as a whole, except
for sales of inventory and other assets in the ordinary course of
business, and no purchase or other acquisition by any of them of any
business or property or assets (including, without limitation, any
shares of capital stock of any other Person) material in relation to
the consolidated financial condition of the Company and its
Subsidiaries taken as a whole, except for purchases of raw
materials, inventory and other property and assets in the ordinary
course of business, in each case, which is not reflected in the
financial statements referred to in this Section 5.4 or in the notes
thereto and has not otherwise been disclosed in writing to the
Purchasers on or prior to the date of this Agreement.
(d) Since September 30, 1998, except as otherwise disclosed
to you in writing prior to the Closing Date, there has been (i) no
change in the condition (financial or otherwise), operations,
business, assets, liabilities or properties of the Company and its
Subsidiaries, taken as a whole, and (ii) no development or event
relating to or affecting the Company or any of its Subsidiaries
that, either individually or in the aggregate, could reasonably be
expected to have a Material Adverse Effect.
5.5 COMPLIANCE WITH LAWS, OTHER INSTRUMENTS, ETC.
(a) Except as set forth on Schedule 4.6, the execution,
delivery and performance by the Company of each of the Note
Documents to which it is or is to be a party and the consummation of
the Transaction and the other transactions contemplated hereby do
not and will not (i) contravene the Company's charter or bylaws (or
equivalent organizational documents), (ii) violate any law, statute,
rule regulation or tariff, including without limitation, applicable
state laws, the Communications Act and those relating to copyright,
or any order, writ, judgment, injunction, decree, determination or
award in any manner that, either individually or in the aggregate,
could reasonably be expected to have a Material Adverse Effect,
(iii) conflict with or result in the breach of, or constitute a
default under, any contract, loan agreement, indenture, including,
without limitation, mortgage, deed of trust, lease or other
instrument binding on or affecting any the Company, any of its
Subsidiaries, or any of their properties in any manner that, either
individually or in the aggregate, could reasonably be expected to
have a Material Adverse Effect, or (iv) except for the Liens created
under the Collateral Documents, result in or require the creation or
imposition of any Lien upon or with respect to any of the properties
or revenues of the Company or any of its Subsidiaries. Neither the
Company nor any of its Subsidiaries is in violation of any law,
rule, regulation, order, writ, judgment, injunction, decree,
determination or award or in breach of any such contract, loan
agreement, indenture, mortgage, deed of trust, lease or other
instrument referred to in the immediately preceding sentence, the
violation or breach of which, either individually or in the
aggregate, could reasonably be expected to have a Material Adverse
Effect.
(b) Except as disclosed on Schedule 4.6, all Certificates and
FCC Licenses are in full force and effect and there are no pending
or threatened complaints, investigations, inquiries or proceedings
by or before the FCC or other Governmental Authority or any actions
or events that (i) could reasonably be expected to result in the
revocation, cancellation, material adverse modification or
non-renewal of any Certificate or FCC License or the imposition of a
material fine or forfeiture, or (ii) otherwise result in a Material
Adverse Change.
(c) Except as set forth on Schedule 4.6, all material reports
and other documents required to be filed with the FCC or other
Governmental Authority with respect to the tariffs, Certificates and
FCC Licenses have been timely filed. Notwithstanding anything
contained herein to the contrary, to the knowledge of the Company,
except as set forth on Schedule 4.6, there have been no failures to
make filings with the FCC or any Governmental Authority at any time
that would reasonably be likely to have a Material Adverse Effect,
or would reasonably be likely to result in the imposition of a
material fine or forfeiture, including copyright filings, extension
requests, and reports required by Sections 21.11(a), 21.911 and
21.920 of the FCC Rules.
5.6 GOVERNMENTAL AUTHORIZATIONS, ETC.
Except as set forth on Schedule 4.6, no order, consent,
approval, license, validation or authorization of, or registration, filing
or declaration with, or any exemption by any Governmental Authority or
public body or authority or any subdivision thereof or any other third
party including any radio, television or other license, Permit, certificate
or approval granted or issued by the FCC or any other Governmental
Authority (except for filings to perfect the security interests granted
pursuant to this Agreement or any other Note Document) is required for (a)
the due execution, delivery, recordation, filing or performance by the
Company or any of its Subsidiaries of this Agreement or any other Note
Document to which it is or is to be a party, or for the consummation of any
aspect of the Transaction or the other transactions contemplated hereby,
(b) the grant by the Company or any of its Subsidiaries of the Liens
granted by it pursuant to the Collateral Documents or (c) the perfection or
maintenance of the Liens created under the Collateral Documents (including
the first priority nature thereof), except for the filing of the financing
statements or the equivalent thereof referred to in Section 4.3(a).
5.7 LITIGATION.
(a) Except as disclosed in Schedule 5.7, there are no
actions, suits, investigations or proceedings pending or, to the
best knowledge of the Company, threatened against or affecting the
Company or any of the Subsidiaries or any property or revenues of
the Company or any of its Subsidiaries in any court or before any
arbitrator of any kind or before or by any Governmental Authority
that (i) either individually or in the aggregate, could reasonably
be expected to have a Material Adverse Effect or (ii) purport to
adversely affect this Agreement, any of the other Note Documents,
the Transaction or any of the other transactions contemplated
hereby.
(b) Except as disclosed in Schedule 5.7, neither the Company
nor any Subsidiary is in default under any term of any agreement or
instrument to which it is a party or by which it is bound, or any
order, judgement, decree or ruling of any court, arbitrator or
Governmental Authority or is in violation of any applicable law,
ordinance, rule or regulation (including without limitation
Environmental Laws) of any Governmental Authority, which default or
violation, individually or in the aggregate, could reasonably be
expected to have a Material Adverse Effect.
5.8 TAXES.
(a) The Company and each of its Subsidiaries have filed or
caused to be filed all United States federal income tax returns and
all other tax returns that are required to have been filed in any
jurisdiction, and have paid all taxes shown to be due and payable on
such returns and all taxes shown to be due and payable on any
assessments of which the Company or any such Subsidiary, as the case
may be, has received notice and all other taxes, assessments,
levies, fees and charges imposed upon it or any of its properties,
assets, income or franchises, to the extent such taxes, assessments,
levies, fees and charges have become due and payable and before they
have become delinquent, except for any tax, assessment, levy, fee or
charge (i) the amount of which is not, either individually or in the
aggregate, Material or (ii) the amount, applicability or validity of
which is being contested in good faith and by appropriate
proceedings and with respect to which the Company or such
Subsidiary, as the case may be, has established adequate reserves in
accordance with GAAP. Neither the Company nor any of its
Subsidiaries knows of any basis for any other tax, assessment, levy,
fee or charge that, either individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect.
(b) The charges, accruals and reserves on the books of the
Company and its Subsidiaries in respect of federal, state, local,
foreign or other taxes for all fiscal periods through September 30,
1998 are adequate.
(c) The United States federal income tax liabilities of the
Company and its Subsidiaries have been determined by the Internal
Revenue Service and paid, or the time for audit has expired, for all
fiscal years of the Company through the fiscal year ended 1994.
(d) Neither the Company nor any of its Subsidiaries has
entered into an agreement or waiver or been requested to enter into
an agreement or waiver extending any statute of limitations relating
to the payment or collection of taxes of the Company or any of its
Subsidiaries, or is aware of any circumstances that would cause the
taxable years or other taxable periods of the Company or any of its
Subsidiaries not to be subject to the normally applicable statute of
limitations. Neither the Company nor any of its Subsidiaries has
provided, with respect to itself or to any property held by it, any
consent under Section 341 of the Internal Revenue Code.
5.9 TITLE TO PROPERTY; LEASES.
The Company and each of its Subsidiaries has good and
sufficient title to, or a valid and enforceable leasehold interest in, all
of the Collateral owned by them and all of their other respective property
and assets that, either individually or in the aggregate, are Material. in
each case free and clear of all Liens other than the Liens expressly
permitted under this Agreement. All leases under which the Company or any
of its Subsidiaries are a lessor or a lessee that, either individually or
in the aggregate, are Material are valid and subsisting and are in full
force and effect in all material respects.
5.10 LICENSES, PERMITS, ETC.
Except as disclosed in Schedule 5.10 attached hereto:
(a) the Company and each of its Subsidiaries own or possess
all licenses (other than FCC Licenses), permits, certificates,
franchises, authorizations, consents and approvals and all patents,
copyrights, service marks, trademarks and trade names, or rights
thereto, that are necessary to own or lease and operate their
respective properties and assets and to transact their respective
businesses as now conducted or as proposed to be conducted and,
either individually or in the aggregate, are Material. Except as set
forth in Schedule 5.7 attached hereto, no claim of any Person is
pending or, to the best knowledge of the Company, is threatened
challenging the use of any such license, permit, certificate,
franchise, authorization, consent, approval, patent, copyright,
service mark, trademark, trade name or other right, or the validity
or effectiveness thereof, except for any such claim that, either
individually or in the aggregate, could not reasonably be expected
to have a Material Adverse Effect;
(b) no product of the Company or any of its Subsidiaries
infringes on any license, permit, franchise, authorization, consent,
approval, patent, copyright, service mark, trademark, trade name or
other right owned by any other Person, except for any such
infringement that, either individually or in the aggregate, could
not reasonably be expected to have a Material Adverse Effect; and
(c) to the best knowledge of the Company, there is no
Material violation by any Person of any right of the Company or any
of its Subsidiaries with respect to any license, permit, franchise,
authorization, consent, approval, patent, copyright, service mark,
trademark, trade name or other right owned or used by the Company or
any such Subsidiary, except for any such violation that, either
individually or in the aggregate, could not reasonably be expected
to have a Material Adverse Effect.
5.11 SECURITY INTERESTS, ETC.
The Collateral Documents (upon the filing of the financing
statements and delivery of the stock certificates) will create a valid and
perfected first priority lien on and security interest in the Collateral
(of the type subject to Articles 8 or 9 of the Uniform Commercial Code) in
your favor, securing the payment of all of the Secured Obligations, and all
of the shares of capital stock of each of the Subsidiaries of the Company
that are purported to comprise part of the Collateral have been delivered
to you, together with undated stock powers executed in blank, and, upon the
filing of the financing statements, all filings and other actions necessary
or desirable to perfect and protect such lien and security interest will
have been duly made or taken and will be in full force and effect.
5.12 COMPLIANCE WITH ERISA.
(a) The Company and each ERISA Affiliate have operated and
administered each Plan in compliance with its terms and with the
provisions of ERISA and all other applicable laws, except to the
extent such noncompliance, either individually or in the aggregate,
has not resulted in and could not reasonably be expected to result
in a Material Adverse Effect.
(b) During the immediately preceding five-year period: (i) no
Termination Event has occurred or could reasonably be expected to
occur with respect to any Plan that has resulted in or could
reasonably be expected to result in any Material liability of the
Company or any ERISA Affiliate to a Plan or to the PBGC; (ii) no
"accumulated funding deficiency" (as such term is defined in Section
302 of ERISA and Section 412 of the Internal Revenue Code), whether
or not waived, has occurred with respect to any Plan; and (iii) no
Lien in favor of the PBGC or a Plan has arisen or could reasonably
be expected to arise on account of any Plan.
(c) Neither the Company nor any ERISA Affiliate has incurred
any liability pursuant to Title I or IV or ERISA or the penalty or
excise tax provisions of the Internal Revenue Code relating to
employee benefit plans (as defined in Section 3 of ERISA), and no
event, transaction or condition has occurred or exists that could
reasonably be expected to result in the incurrence of any such
liability by the Company or any ERISA Affiliate, or in the
imposition of any Lien on any of the rights, properties or assets of
the Company or any ERISA Affiliate, in either case pursuant to Title
I or IV of ERISA or to such penalty or excise tax provisions or to
Section 401(a)(29) or 412 of the Internal Revenue Code that, either
individually or in the aggregate, could reasonably be expected to
have a Material Adverse Effect.
(d) The present value of all "benefit liabilities" under all
of the Plans (other than Multiemployer Plans), determined as of the
end of each such Plan's most recently completed plan year on the
basis of the actuarial assumptions specified for funding purposes in
such Plan's most recent actuarial valuation report, whether or not
vested, did not exceed the aggregate current value of the assets of
all such Plans allocable to such benefit liabilities by more than
$1,000,000 in the aggregate.
(e) Neither the Company nor any ERISA Affiliate has incurred
or, to the best knowledge of the Company, could reasonably be
expected to incur any Withdrawal Liability in respect of any
Multiemployer Plan or any Multiple Employer Plan. Neither the
Company nor any ERISA Affiliate would become subject to any
Withdrawal Liability if the Company or any such ERISA Affiliate were
to withdraw completely from all Multiemployer Plans and all Multiple
Employer Plans as of the most recently completed valuation date.
Neither the Company nor any ERISA Affiliate has been notified that
any Multiemployer Plan is in reorganization (within the meaning of
Section 4241 of ERISA), is insolvent (within the meaning of Section
4245 of ERISA) or is being terminated (within the meaning of Title
IV of ERISA), and no Multiemployer Plan is, to the best knowledge of
the Company, reasonably expected to be in reorganization, insolvent
or terminated.
(f) No prohibited transaction (within the meaning of Section
406 of the Internal Revenue Code) or breach of fiduciary
responsibility has occurred with respect to any Plan which has
subjected or may subject the Company or any ERISA Affiliate to any
liability under Section 406, 409, 502(i) or 502(l) of ERISA or
Section 4975 of the Internal Revenue Code, or under any agreement or
other instrument pursuant to which the Company or any ERISA
Affiliate has agreed or is required to indemnify any Person against
any such liability.
(g) None of the execution and delivery of this Agreement, the
issuance and sale of the Notes hereunder or the consummation of any
aspect of the Transaction will involve any transaction that is
subject to the prohibitions of Section 406 of ERISA or in connection
with which a tax could be imposed pursuant to Section 4975 of the
Internal Revenue Code. The representation by the Company in the
first sentence of this Section 5.12(g) is made in reliance upon and
is subject to (i) the accuracy of your representation in Section 6.3
as to the sources of the funds used to pay the purchase price of the
Notes to be purchased by you and (ii) the assumption, made solely
for the purpose of making such representation, that Department of
Labor Interpretive Bulletin 75-2 with respect to prohibited
transactions remains valid in the circumstances of the transactions
contemplated herein.
5.13 PRIVATE OFFERING BY THE COMPANY.
(a) Neither the Company nor any Person acting on its behalf
has directly or indirectly offered the Notes or any similar
securities for sale to, or solicited any offer to buy any of the
same from, or otherwise approached or negotiated in respect thereof
with, any Person other than you. Neither the Company nor any Person
acting on its behalf has taken, or will take, any action that would
subject the issuance and sale of the Notes to the registration
requirements of Section 5 of the Securities Act.
(b) Neither the Company nor any Person acting on its behalf
has directly or indirectly offered or sold the Notes by any form of
general solicitation or general advertising (including, without
limitation, any advertisement, article, notice or other
communication published in any newspaper, magazine or similar media
or any broadcast over television or radio or any seminar or meeting
whose attendees have been invited by any form of general
solicitation or general advertising).
5.14 USE OF PROCEEDS; MARGIN REGULATIONS.
(a) The proceeds from the sale of the Notes shall be used for
general corporate purposes of the Company consistent with the sixty
day cash flow presentations, dated November 12, 1998, previously
provided to you.
(b) No part of the proceeds from the sale of the Notes will
be used, directly or indirectly, for the purpose of purchasing or
carrying any "margin stock" (within the meaning of Regulation U) or
for the purpose of purchasing, carrying or trading in any securities
under such circumstances as to involve the Company in a violation of
Regulation X or to involve any broker or dealer in a violation of
Regulation T. Upon your request, the Company will furnish you with a
statement to the foregoing effect in conformity with the
requirements of FR Form U-1 referred to in Regulation U. No
indebtedness being reduced or retired out of the proceeds of the
Notes was or will be incurred for the purpose of purchasing or
carrying any "margin stock" (within the meaning of Regulation U) or
any "margin security" (within the meaning of Regulation T). Margin
stock does not constitute more than 25 % of the value of the
consolidated property and assets of the Company and its
Subsidiaries. None of the transactions contemplated by this
Agreement (including, without limitation, the direct and indirect
use of proceeds of the Notes) will violate or result in a violation
of the Securities Act or the Exchange Act or any of the rules and
regulations promulgated thereunder or Regulation T, Regulation U or
Regulation X.
5.15 STATUS UNDER CERTAIN STATUTES.
(a) Neither the Company nor any of its Subsidiaries is
subject to regulation under the Investment Company Act of 1940, as
amended, the Public Utility Act of 1935, as amended, or the Federal
Power Act, as amended.
(b) Neither the Company nor any of its Subsidiaries is an
"investment company," or an "affiliated person" of, or "promoter" or
"principal underwriter" for, an "investment company" (each as
defined in the Investment Company Act of 1940, as amended). Neither
the sale and purchase of the Notes nor the application of the
proceeds therefrom or repayment thereof by the Company, nor the
consummation of the Transaction or any of the other transactions
contemplated hereby, will violate any provision of such Act or any
rule, regulation or order of the Securities and Exchange Commission
thereunder.
(c) Neither the Company nor any of its Subsidiaries is a
"holding company", or a "subsidiary company" of a "holding company,"
or an "affiliate" of a "holding company" or of a "subsidiary
company" of a "holding company" (each within the meaning of the
Public Utility Holding Company Act of 1935, as amended).
(d) Except as set forth on Schedule 5.15 hereto, the Company
and each of its Subsidiaries are current with all reports and
documents, if any, required to be filed with any federal or state
securities commission or similar agency and are in full compliance
with all applicable rules and regulations of such commissions,
except where the failure to so comply, either individually or in the
aggregate, could not reasonably be expected to have a Material
Adverse Effect.
5.16 FOREIGN ASSETS CONTROL REGULATIONS, COMMUNICATIONS ACT, ETC.
(a) Neither the issue and sale of the Notes by the Company
nor the use of the proceeds therefrom will violate the Trading with
the Enemy Act, as amended, or any of the foreign assets control
regulations of the United States Treasury Department (31 CFR,
Subtitle B, Chapter V, as amended) or any enabling legislation or
executive order relating thereto.
(b) Each license, permit and other authority issued, granted,
approved or otherwise authorized by the FCC or any state regulatory
authority for the benefit of the Company or any of its Subsidiaries
is in good standing unimpaired by any act or omission of the Company
or any of its Subsidiaries or any of their respective officers,
directors, employees or agents. None of the Company or any of its
Subsidiaries is the subject of any outstanding citation, order or
investigation by the FCC or any state regulatory authority that
could reasonably be expected to result in any termination or
forfeiture of any FCC License, any Certificate or any monetary
forfeiture or could result in any other Material Adverse Effect and,
to the knowledge of the Company, no such citation, order or
investigation is contemplated by the FCC or any state regulatory
authority. The Company and its Subsidiaries have filed all reports
and applications required to be filed by the FCC or the
Communications Act or any state regulatory authority, except where
the failure to file could not result in any termination, forfeiture
or Material Adverse Effect, and have paid all fees required to be
paid by the FCC or the Communications Act or any state regulatory
authority.
5.17 ENVIRONMENTAL MATTERS.
(a) The operations and properties (whether owned or leased)
of the Company and each of its Subsidiaries comply with all
Environmental Laws and Environmental Permits, and all necessary
Environmental Permits have been obtained and are in effect for all
of the operations and properties of the Company and each such
Subsidiary, except to the extent that the failure to so comply or to
obtain such Environmental Permit, either individually or in the
aggregate, could not reasonably be expected to have a Material
Adverse Effect. All past noncompliance with any such Environmental
Laws or Environmental Permits has been resolved without ongoing
Material obligations or costs to the Company or any of its
Subsidiaries. No circumstances exist that, either individually or in
the aggregate, could reasonably be expected to (i) form the basis of
an Environmental Action against the Company or any of its
Subsidiaries, or any of their respective properties, that, either
individually or in the aggregate, could have a Material Adverse
Effect or (ii) cause any such property to be subject to any
restrictions on ownership, occupancy, use or transferability under
any Environmental Law.
(b) None of the properties owned or operated by the Company
or any of its Subsidiaries is listed or proposed for listing on the
NPL or on the CERCLIS or any analogous foreign, state or local list
or, to the best knowledge of the Company, is adjacent to any such
property; there are no and never have been any underground or
aboveground storage tanks or any surface impoundments, septic tanks,
pits, sumps or lagoons in which Hazardous Materials are being or
have been treated, stored or disposed of on any property owned or
operated by the Company or any of its Subsidiaries or, to the best
knowledge of the Company, on any property formerly owned or operated
by the Company or any of its Subsidiaries; there is no asbestos or
asbestos-containing material on any property owned or operated by
the Company or any of its Subsidiaries; and Hazardous Materials have
not been released, discharged or disposed of on any property owned
or operated by the Company or any of its Subsidiaries in any manner
that, either individually or in the aggregate, could reasonably be
expected to have a Material Adverse Effect.
(c) Neither the Company nor any of its Subsidiaries is
undertaking, nor has any of them completed, either individually or
together with other potentially responsible parties, any
investigation or assessment or remedial or response action relating
to any actual or threatened release, discharge or disposal of
Hazardous Materials at any site, location or operation, either
voluntarily or pursuant to the order of any Governmental Authority
or the requirements of any Environmental Law, excluding, however,
any such release, discharge or disposal the consequences of which,
either individually or in the aggregate, could not reasonably be
expected to have a Material Adverse Effect; and all Hazardous
Materials generated, used, treated, handled or stored at, or
transported to or from, any property owned or operated by the
Company or any of its Subsidiaries have been disposed of in a manner
that does not violate or, to the best knowledge of the Company,
could not reasonably be expected to give rise to liability under,
any applicable Environmental Law, except to the extent that such
generation, use, treatment, handling, storage or transportation,
either individually or in the aggregate, could not reasonably be
expected to have a Material Adverse Effect.
(d) Neither the Company nor any of its Subsidiaries has
received any notice from any Governmental Authority regarding any
violation or alleged violation of, noncompliance or alleged
noncompliance with, or liability or potential liability under or in
respect of, any Environmental Law or Environmental Permit by it or
any of its Subsidiaries, nor does the Company or any of its
Subsidiaries have knowledge or reason to believe that any such
notice will be received or is being threatened, except for any such
notice or threatened notice that, either individually or in the
aggregate, could not reasonably be expected to have a Material
Adverse Effect.
5.18 NO BURDENSOME AGREEMENTS.
Neither the Company nor any of its Subsidiaries is a party to
any indenture, loan or credit agreement, lease or other agreement or
instrument or subject to any law, rule, regulation or statute or any
charter or corporate or other similar restriction that, either individually
or in the aggregate, could reasonably be expected to have a Material
Adverse Effect, except as has been disclosed to you in writing prior to the
date of this Agreement.
5.19 EXISTING INDEBTEDNESS; FUTURE LIENS.
(a) Schedule 5.19 sets forth a complete and correct list of
all outstanding Indebtedness of the Company and its Subsidiaries as
of the Closing Date. Except as set forth in Schedule 5.19, neither
the Company nor any of its Subsidiaries is in default and no waiver
of default is currently in effect in the payment of any principal or
interest on any Indebtedness of the Company or any such Subsidiary
and, except as set forth in Schedule 5.19, no event or condition
exists with respect to any Indebtedness of the Company or any such
Subsidiary that would permit (or that with notice or the lapse of
time, or both, would permit) one or more Persons to cause such
Indebtedness to become due and payable before its stated maturity or
before its regularly scheduled dates of payment.
(b) Neither the Company nor any of its Subsidiaries has
agreed or consented to cause or permit in the future (upon the
happening of a contingency or otherwise) any of its property or
assets, whether now owned or hereafter acquired, to be subject to a
Lien not expressly permitted under Section 9.2.
5.20 EMPLOYEE CONTRACTS.
There are no employment agreements or other compensation
arrangements (including the setting of targets for the payment of bonuses)
with any officer of the Company or any of its Subsidiaries except as
disclosed in Schedule 5.20 hereto.
5.21 MATERIAL CONTRACTS.
Set forth on Schedule 5.21 is a complete and accurate list of
all Material Contracts of the Company. Each such Material Contract has been
duly authorized, executed and delivered by all parties thereto, has not
been amended or otherwise modified, is in full force and effect and is
binding upon and enforceable against all parties thereto in accordance with
its terms, and, to the Company's knowledge, except as set forth on Schedule
5.21, there exists no default under any Material Contract by any party
thereto, except where the failure of the foregoing would not have a
Material Adverse Effect.
5.22 ACCOUNTS.
Neither the Company nor any of its Subsidiaries has any
deposit accounts or other checking or operating accounts other than the
accounts listed on the attached Schedule 5.22.
6. REPRESENTATIONS OF THE PURCHASER.
6.1 PURCHASE FOR INVESTMENT.
You represent that you are purchasing the Notes for your own
account or for one or more separate accounts maintained by you or for the
account of one or more pension or trust funds and not with a view to the
distribution thereof; provided that the disposition of your or their
property shall at all times be within your or their control. You understand
that the Notes have not been registered under the Securities Act and may be
resold only if registered pursuant to the provisions of the Securities Act
or if an exemption from registration is available, except under
circumstances where neither such registration or such an exemption is
required by applicable law, and that the Company is not required to
register the Notes.
6.2 ACCREDITED INVESTOR.
You are an "accredited investor" (as defined in Rule 501 of
Regulation D under the Securities Act) and by reason of your business and
financial experience, and the business and financial experience of those
Persons retained by you to advise you with respect to your investment in
the Notes, you, together with such advisors, have such knowledge,
sophistication and experience in business and financial matters as to be
capable of evaluating the merits and risks of the prospective investment,
are able to bear the economic risk of such investment and, at the present
time, are able to afford a complete loss of such investment. You are not
purchasing the Notes in reliance upon any investigation made by any other
Person.
6.3 SOURCE OF FUNDS.
You represent that at least one of the following statements
is an accurate representation as to each source of funds (a "FUNDS SOURCE")
to be used by you to pay the purchase price of the Notes to be purchased by
you hereunder:
(a) the Funds Source constitutes assets of an "investment
fund" (within the meaning of Part V of the QPAM Exemption) managed
by a "qualified professional asset manager" or "QPAM" (within the
meaning of Part V of the QPAM Exemption), no employee benefit plan's
assets that are included in such investment fund, when combined with
the assets of all other employee benefit plans established or
maintained by the same employer or by an affiliate (within the
meaning of Section V(c)(1) of the QPAM Exemption) of such employer
or by the same employee organization and managed by such QPAM,
exceed 20% of the total client assets managed by such QPAM, the
conditions of Parts l(c) and l(g) of the QPAM Exemption are
satisfied, neither the QPAM nor a person controlling or controlled
by the QPAM (applying the definition of "control" in Section V(e) of
the QPAM Exemption) owns more than a 5% interest in the Company and
(i) the identity of such QPAM and (ii) the names of all employee
benefit plans the assets of which are included in such investment
fund have been disclosed to the Company in writing pursuant to this
Section 6.3(a); and
(b) the Funds Source does not include assets of any employee
benefit plan, other than a plan exempt from the coverage of ERISA.
7. PAYMENTS AND PREPAYMENTS.
7.1 REQUIRED PAYMENTS.
The aggregate outstanding principal amount of the Notes,
together with all interest accrued and unpaid thereon and the Facility Fee,
shall be due and payable by the Company on the Maturity Date. Upon and
during the continuance of an Event of Default, the Company shall pay
interest at the Default Rate.
7.2 OPTIONAL PREPAYMENTS.
(a) The Company may, at its option, upon notice as provided
in Section 7.2(b), prepay at any time all, or from time to time any
part of, the Notes, in an aggregate principal amount of not less
than $250,000 or integral multiples of $50,000 in excess thereof
(or, if less, the remaining aggregate principal amount of the Notes
outstanding at such time), at 100% of the aggregate principal amount
of the Notes so prepaid.
(b) The Company will give each holder of Notes written notice
of each optional prepayment under this Section 7.2 not less than 1
day and not more than 10 days prior to the date fixed for such
prepayment. Each such notice shall specify the date fixed for such
prepayment, the aggregate principal amount of the Notes to be
prepaid on such date, the principal amount of each Note held by such
holder to be prepaid, and the interest to be paid on the prepayment
date with respect to such principal amount being prepaid and shall
state that such prepayment is to be made pursuant to this Section
7.2.
7.3 ALLOCATION OF PARTIAL PREPAYMENTS.
In the case of each partial prepayment of the Notes, the
principal amount of the Notes to be prepaid shall be allocated (in integral
multiples of $1,000) among all of the Notes at the time outstanding in
proportion, as nearly as practicable, to the respective unpaid principal
amounts thereof not theretofore called for prepayment.
7.4 MATURITY; SURRENDER, ETC.
In the case of each prepayment of Notes pursuant to this
Section 7, the principal amount of each Note to be prepaid shall mature and
become due and payable on the date fixed for such prepayment, together with
interest on such principal amount accrued to such date. From and after such
date, unless the Company shall fail to pay such principal amount when so
due and payable, as aforesaid, interest on such principal amount shall
cease to accrue. Any Note paid or prepaid in full shall be surrendered to
the Company and cancelled and shall not be reissued, and no Note shall be
issued in lieu of any prepaid or repurchased principal amount of any Note.
8. AFFIRMATIVE COVENANTS.
From the date of this Agreement and, thereafter, so long as
any of the Notes shall be outstanding, the Company will perform and comply
with each of the following covenants:
8.1 FINANCIAL AND BUSINESS INFORMATION.
The Company will furnish to each holder of Notes without cost
to you:
(a) Requested Information. With reasonable promptness, any
information relating to the financial condition, business,
operations, assets, liabilities or properties of the Company or any
of its Subsidiaries, including but not limited to information
regarding FCC activity or state regulatory activity or relating to
the ability of the Company or any of its Subsidiaries to perform its
obligations under any of the Note Documents to which it is a party
as from time to time may be reasonably requested by any such holder
of Notes which is an Institutional Investor, including, without
limitation, all monthly bank statements of the Company and its
Subsidiaries and any reports from financial advisors, investment
bankers or consultants to the Company or its Subsidiaries including,
without limitation, reports of Jay Alix & Associates.
(b) Auditor's Reports. Promptly upon receipt thereof, copies
of all "management letters" or other written reports submitted to
the Company or any of its Subsidiaries by any independent certified
public accountants of the Company or any such Subsidiary in
connection with each annual, interim or special audit of its
financial statements made by such accountants (including, without
limitation, any commitment letter submitted by such accountants to
management of the Company or any such Subsidiary in connection with
their annual audit and any reports addressing internal accounting
controls of the Company or any such Subsidiary submitted by such
accountants), and, promptly upon completion thereof, copies of any
response report from the Company or any such Subsidiary to such
accountants.
(c) SEC and Other Reports. Promptly upon transmission or
receipt thereof, (i) copies of any filings and registrations with,
and any reports or notices to or from, the Securities and Exchange
Commission, or any successor agency, and copies of all financial
statements, proxy statements, notices and reports that the Company
or any of its Subsidiaries shall send to a holder of any
Indebtedness owed by the Company or any of its Subsidiaries in its
capacity as such a holder, (ii) copies of all press releases and
other statements made available by the Company or any of its
Subsidiaries to the public concerning developments that are
Material, (iii) upon your reasonable request, all reports and
written information to and from the United States Environmental
Protection Agency, or any state or local agency responsible for
environmental matters, the United States Occupational Health and
Safety Administration, or any state or local agency responsible for
health and safety matters, or any successor agencies or authorities
to any of the foregoing, concerning environmental, health or safety
matters and (iv) all reports and applications required to be filed
with the FCC or any state regulatory authority for which the failure
to file could have a Material Adverse Effect.
(d) Notice of Default, Etc. Promptly, and in any event within
five days after a Responsible Officer obtains knowledge thereof,
notice of the occurrence of each Default or Event of Default or any
event, development or occurrence that, either individually or in the
aggregate, could reasonably be expected to have a Material Adverse
Effect continuing on the date of such statement, setting forth in
reasonable detail the nature of such Default, Event of Default or
event, development or occurrence and the action that the Company or
its Subsidiaries have taken or propose to take with respect thereto.
(e) Material Adverse Change. Promptly after the occurrence
thereof, notice of a Material Adverse Change or the occurrence of a
development which could reasonably be expected to result in such
Material Adverse Change.
(f) Litigation. Promptly after the commencement thereof,
notice of all actions, suits, investigations and proceedings in any
court or before any arbitrator or before or by any Governmental
Authority binding on or affecting the Company or any of its
Subsidiaries or any of their respective properties of the type
described in Section 5.7 which would reasonably be expected to have
a Material Adverse Effect.
(g) ERISA Matters. Promptly, and in any event within five
days after a Responsible Officer becomes aware of any of the
following, a written notice setting forth the nature thereof and the
action, if any, that the Company or any ERISA Affiliate proposes to
take with respect thereto:
(i) Any event or condition, including, but not limited
to, any Reportable Event, that constitutes, or could
reasonably be expected to result in, a Termination Event;
(ii) With respect to any Multiemployer Plan, the receipt
of any notice as prescribed in ERISA or otherwise of any
Withdrawal Liability assessed against the Company or any
ERISA Affiliate, or of a determination that any Multiemployer
Plan is in reorganization or insolvent (both within the
meaning of Title IV of ERISA);
(iii) The taking by the PBGC of steps to institute, or
the threatening by the PBGC of the institution of,
proceedings under Section 4042 of ERISA for the termination
of, or the appointment of a trustee to administer, any Plan,
or the receipt by the Company or any ERISA Affiliate of a
notice from a Multiemployer Plan that such action has been
taken by the PBGC with respect to such Multiemployer Plan;
(iv) The failure to make full payment on or before the
due date (including extensions thereof) of all amounts that
the Company or any ERISA Affiliate is required to contribute
to each Plan pursuant to its terms and as required to meet
the minimum funding standard set forth in ERISA and the
Internal Revenue Code with respect thereto;
(v) Any change in the funding status of any Plan that
could reasonably be expected to have a Material Adverse
Effect; or
(vi) Any event, transaction or condition not otherwise
described in this Section 8.1(g) that could result in the
incurrence of any liability by the Company or any ERISA
Affiliate pursuant to Title I or IV of ERISA or the penalty
or excise tax provisions of the Internal Revenue Code
relating to employee benefit plans, or in the imposition of
any Lien on any of the rights, properties or assets of the
Company or any ERISA Affiliate pursuant to Title I or IV of
ERISA or such penalty or excise tax provisions, if such
liability or Lien, taken together with any other such
liabilities or Liens then existing, could reasonably be
expected to have a Material Adverse Effect.
Promptly upon your reasonable request, such additional information
concerning any Plan as you may have reasonably requested, including,
but not limited to, copies of each annual report/return (Form 5500
series) and all schedules and attachments thereto required to be
filed with the Department of Labor and/or the Internal Revenue
Service pursuant to ERISA and the Internal Revenue Code,
respectively. for each "plan year" (within the meaning of Section
3(39) of ERISA).
8.2 COMPLIANCE WITH LAW.
The Company will and will cause its Subsidiaries to comply
with all laws, ordinances, rules, regulations, including, without
limitation, the Communications Act, FCC Rules, any state regulatory
requirements and those relating to copyright and orders to which each of
them and their properties are subject and all applicable restrictions
imposed on each of them and their properties by any Governmental Authority
(including, without limitation, all Environmental Laws), and will obtain
and maintain in effect all licenses, certificates, permits, franchises,
consents and other authorizations of any Governmental Authority or public
body or authority or any subdivision thereof or any other third party
including any radio, television or other license, Permit, certificate or
approval granted or issued by the FCC or any other Governmental Authority
(except for filings to perfect security interest granted pursuant to this
Agreement or any other Note Document) necessary for the ownership or
leasing and operation of their respective properties or the conduct of
their respective businesses, in each case to the extent necessary to ensure
that any noncompliance with such laws, ordinances, rules, regulations or
orders or any failure to obtain or maintain in effect such licenses,
certificates, permits, franchises, consents and other authorizations,
either individually or in the aggregate, could not reasonably be expected
to have a Material Adverse Effect.
8.3 MAINTENANCE OF INSURANCE.
The Company will and will cause its Subsidiaries to at all
times to maintain, with financially sound and reputable insurers, insurance
with respect to their respective properties and businesses against such
casualties and contingencies, of such types, on such terms and in such
amounts (including deductibles, co-insurance and self-insurance, if
adequate reserves are maintained with respect thereto) as is customary in
the case of entities of established reputations engaged in the same or a
similar business and similarly situated or as may otherwise be required by
applicable law, including, without limitation, workers' compensation
insurance, liability insurance and casualty insurance.
8.4 MAINTENANCE OF PROPERTIES.
The Company will and will cause its Subsidiaries maintain and
keep, or cause to be maintained and kept, their respective properties and
assets, owned or leased, used or useful in the conduct of its business,
that, either individually or in the aggregate, are Material in good repair,
working order and condition (other than ordinary wear and tear and as a
result of casualty and condemnation), so that the business carried on in
connection therewith may be properly conducted in all material respects at
all times.
8.5 PAYMENT OF TAXES AND CLAIMS; PERFORMANCE OF MATERIAL OBLIGATIONS.
(a) The Company will and will cause its Subsidiaries to pay
and discharge, and maintain appropriate reserves in respect of, all
taxes, assessments and governmental charges or levies imposed upon
them or any of their properties, assets, income or franchises, to
the extent such taxes, assessments, charges or levies have become
due and payable and before they have become delinquent and all
claims for which sums have become due and payable that have or might
by law become a Lien upon any property or assets of the Company or
any of its Subsidiaries or any part thereof; provided, however, that
neither the Company nor any of its Subsidiaries shall be required to
pay or to discharge any such tax, assessment, charge, levy or claim
that is being contested in good faith and by appropriate proceedings
and as to which adequate reserves are being maintained in accordance
with GAAP, unless and until any Lien resulting therefrom attaches to
its property and assets and becomes enforceable against its other
creditors.
(b) The Company will and will cause its Subsidiaries to
perform all of its obligations under the terms of each contract,
loan agreement, indenture, mortgage, deed of trust, lease or other
instrument binding on or affecting it, except where the failure to
so perform could not, either individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.
(c) The Company will and will cause each of its Subsidiaries
to pay when due all rents and other amounts payable under any leases
to which the Company or any of its Subsidiaries is a party or by
which any of its properties and assets are bound, except where the
failure to so pay could not, either individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect.
8.6 PRESERVATION OF CORPORATE EXISTENCE, ETC.
Except as permitted by Section 9.5 hereof, the Company will
and will cause each of its Subsidiaries to at all times preserve and keep
in full force and effect (i) its corporate existence and its Material
rights (charter and statutory) and (ii) the corporate existence of each of
its Subsidiaries and all Material permits, licenses, approvals, rights,
privileges and franchises thereof.
8.7 MAINTENANCE OF BOOKS AND RECORDS; INSPECTION.
(a) The Company will and will cause each of its Subsidiaries
to keep proper records and books of account in which full, true and
correct entries in conformity with generally accepted accounting
principles in effect from time to time in the United States of
America consistently applied or as otherwise required by applicable
rules and regulations of any governmental agency or regulatory
authority having jurisdiction over the Company and its Subsidiaries
and all requirements of law shall be made of all financial
transactions and all of the assets and businesses of the Company and
each such Subsidiary (including, without limitation, the
establishment and maintenance of adequate and appropriate reserves).
(b) The Company will and will cause each of its Subsidiaries
to permit each holder of Notes that is an Institutional Investor and
any of the agents or representatives thereof:
(i) No Default. If no Default or Event of Default has
occurred and is continuing, at the expense of the Company and
upon reasonable prior written notice to the Company, at any
reasonable time and from time to time (as often as may be
reasonably requested), to visit and inspect any of the
offices and properties, and to examine and make copies of and
abstracts from the records and books of account, of the
Company and/or any of its Subsidiaries, and to discuss the
affairs, finances and accounts of the Company or any such
Subsidiary, as the case may be, with, and be advised as to
the same by, their officers or directors and with or by their
independent certified public accountants (and by this Section
8.7(b)(i) the Company authorizes said accountants to discuss
the affairs, finances and accounts of the Company and its
Subsidiaries with such Persons).
(ii) Default. If a Default or Event of Default has
occurred and is continuing, at the expense of the Company and
without prior notice, at any time and from time to time (as
often as may be requested), to visit and inspect any of the
offices or properties, and to examine and make copies of and
abstracts from the records and books of account, of the
Company and/or any of its Subsidiaries, and to discuss the
affairs, finances and accounts of the Company or any such
Subsidiary, as the case may be, with, and be advised as to
the same by, their officers or directors and with or by their
independent public accountants (and by this Section
8.7(b)(ii) the Company authorizes said accountants to discuss
the affairs, finances and accounts of the Company and its
Subsidiaries with such Persons).
8.8 USE OF PROCEEDS.
The Company will use the proceeds of the issue and sale of
the Notes solely for the purposes set forth in Section 5.14(a).
8.9 CAPITAL STOCK.
The Company will at all times be the direct, legal and
beneficial owner of 100% of the outstanding capital stock of each of its
directly owned Subsidiaries as set forth in Schedule 5.3, and the indirect
legal and beneficial owner of 100% of the outstanding capital stock of each
of its indirectly owned Subsidiaries free and clear of any lien, security
interest, option or other charge or encumbrance, except for Permitted Liens
described in clause (a) of the definition of Permitted Liens, Liens created
by this Agreement or the Collateral Documents and except as a result of
sales of stock in accordance with Section 9.5.
8.10 FULL COOPERATION.
The Company agrees that, at all times, it will cooperate
fully with you and provide all information reasonably requested by you in
connection with any refinancing of the Notes or the other Indebtedness of
the Company, including information, term sheets, drafts of agreements with
strategic partners, lenders, acquirers or equity investors.
8.11 OBLIGATIONS WITH RESPECT TO STOCK AND ASSETS OF SUBSIDIARIES.
The Company will cause all of the shares of capital stock of each
direct Subsidiary of the Company, now or hereafter owned by the Company to
be pledged to you pursuant to the terms and conditions of the Security
Agreement or a security agreement in substantially the form of Exhibit B
attached hereto and otherwise in form and substance reasonably acceptable
to you. In furtherance of the foregoing provisions of this Section 8.11,
the Company agrees that at the time that any Person becomes a direct
Subsidiary, the Company shall so notify you and shall take such steps as
are necessary to cause 100% (or, if less, the full amount owned, directly
or indirectly, by the Company), of the shares of capital stock of such
Person to be delivered to you (together with undated stock powers executed
in blank.
8.12 PAYMENT OF FEES.
The Company will pay the Facility Fee on the Maturity Date.
8.13 PERFORMANCE OF MATERIAL CONTRACTS.
The Company will and will cause each of its Subsidiaries to
perform and observe all of the terms and provisions of each Material
Contract to be performed or observed by it, maintain each such Material
Contract in full force and effect, enforce each such Material Contract in
accordance with its terms, take all such action to such end as may be from
time to time requested by the Purchaser and, upon request of the Purchaser,
make to each other party to each such Material Contract such demands and
requests for information and reports or for actions as the Company is
entitled to make under such Material Contract, and cause each of its
Subsidiaries to do so except, in any case, where the failure to do so,
either individually or in the aggregate could not reasonably be expected to
have a Material Adverse Effect.
8.14 ACCOUNTS.
The Company shall instruct each bank listed on Schedule 5.22
to transfer funds to the Account at the end of each Business Day, in same
day funds, in an amount equal to the credit balance of the account at such
bank; provided, that the Company shall not be required to cause the
transfer of the funds in the accounts of Connecticut Telephone.
8.15 REPORTS.
Whether or not the Company is subject to Section 13(a) or
Section 15(d) of the Exchange Act, or any successor provision thereto, the
Company shall file with the Commission the annual reports, quarterly
reports and other documents which the Company would have been required to
file with the Commission pursuant to Section 13(a) or Section 15(d) of the
Exchange Act or any successor provision thereto if the Company were subject
thereto, such documents to be filed with the Commission on or prior to the
respective dates (the "REQUIRED FILING DATES") by which the Company would
have been required to file them.
8.16 UCC SEARCHES.
The Company shall deliver (a) state level lien searches
covering the Company in each jurisdiction where it has offices or assets
within ten (10) days of the date hereof and (b) county lien searches
covering the foregoing jurisdictions as soon as practicable after the date
hereof.
9. NEGATIVE COVENANTS.
From the date of this Agreement and, thereafter, so long as
any of the Notes shall be outstanding, the Company will perform and comply
with each of the following covenants:
9.1 LIMITATIONS ON TRANSACTIONS WITH AFFILIATES.
Except as otherwise permitted in this Agreement, the Company
will not and will not permit any of its Subsidiaries to directly or
indirectly enter into or engage in any transaction or series of related
transactions (including, without limitation, the purchase, lease, sale or
exchange of property or assets of any kind or the rendering of any service)
with any of its Affiliates other than Connecticut Telephone that is not a
wholly owned Subsidiary of the Company, except in the ordinary course and
pursuant to the reasonable requirements of the Company's or such
Subsidiary's business and upon fair and reasonable terms no less favorable
to the Company or such Subsidiary than would be obtainable in a comparable
arm's-length transaction with a Person not an Affiliate thereof, provided
that the foregoing restrictions of this Section 9.1 shall not apply (a) to
any tax sharing agreements in existence on the date of closing and approved
by the Purchaser and (b) to any transactions described on Schedule 9.1
hereto.
9.2 LIMITATIONS ON LIENS.
The Company will not and will not permit any of its
Subsidiaries to (a) create, incur, assume or suffer to exist any Lien on or
with respect to any of its property or assets of any character (including,
without limitation, accounts), whether now owned or hereafter acquired, (b)
sign or file or suffer to exist under the Uniform Commercial Code or any
similar statute of any jurisdiction, an effective financing statement (or
the equivalent thereof) that names the Company or any of its Subsidiaries
as debtor, (c) sign or suffer to exist any security agreement authorizing
any secured party thereunder to file such financing statement (or the
equivalent thereof), or (d) assign any accounts or other right to receive
income; including, however, from the operation of the foregoing
restrictions the following:
(i) Permitted Liens;
(ii) Liens existing on the date of this Agreement and
described in Schedule 9.2(ii) attached hereto; and
(iii) Liens created by this Agreement or that otherwise
secure the payment of the Notes.
If the Company shall create, assume or suffer to exist any Lien upon any of
its property or assets, or the property or assets of any of its
Subsidiaries, whether now owned or hereafter acquired, other than any Liens
expressly permitted under clauses (i) through (iii) of this Section 9.2,
the Company will make or cause to be made effective provision whereby the
Notes and all of the other Obligations of the Company under the Note
Documents will be secured equally and ratably with any and all other
Obligations of the Company and its Subsidiaries secured thereby; provided
that the securing of the Notes and all of the other Obligations of the
Company under the Note Documents equally and ratably with such other
Obligations of the Company and its Subsidiaries will in no way be deemed to
remedy or waive any Default or Event of Default resulting from the
incurrence, assumption, existence or continuation of any such Lien.
9.3 LIMITATIONS ON INDEBTEDNESS.
The Company will not and will not permit any of its
Subsidiaries to create, incur, assume or suffer to exist any Indebtedness
other than:
(a) Indebtedness arising under the Note Documents; and
(b) Indebtedness listed on Schedule 5.19.
9.4 LIMITATIONS ON LEASE OBLIGATIONS.
The Company will not and will not permit any of its
Subsidiaries at any time to create, incur, assume or suffer to exist, any
obligations as lessee for the rental or hire of real or personal property
of any kind under leases or agreements to lease, including, but not limited
to, Capitalized Leases, except as identified on Schedule 9.4.
9.5 LIMITATIONS ON MERGERS, CONSOLIDATIONS, SALES OF ASSETS, ETC.
(a) The Company will not and will not permit any of its
Subsidiaries to merge or consolidate with or into, or convey,
transfer, lease or otherwise dispose (whether in one transaction or
a series of transactions) of its property and assets (whether now
owned or hereafter acquired) to, any Person.
(b) The Company will not and will not permit any of its
Subsidiaries to sell, lease, transfer or otherwise dispose (whether
in one transaction or a series of transactions) of any property and
assets (whether now owned or hereafter acquired), including, without
limitation, pursuant to any sale and leaseback transaction.
9.6 LIMITATIONS ON DIVIDENDS AND OTHER PAYMENT RESTRICTIONS AFFECTING
SUBSIDIARIES.
(a) The Company will not and will not permit any of its
Subsidiaries to declare or pay any dividends, purchase, redeem,
retire or otherwise acquire for value any of its capital stock or
any warrants, rights or options to acquire such capital stock, now
or hereafter outstanding, return any capital to its stockholders as
such, make any distribution of assets, capital stock, warrants,
rights, options, obligations or securities to its stockholders as
such or issue or sell any capital stock or any warrants, rights or
options to acquire such capital stock other than any dividend or
distribution made by a direct or indirect wholly owned Subsidiary of
the Company to its parent corporation.
(b) The Company will not and will not permit any of its
Subsidiaries to directly or indirectly create or otherwise cause,
incur, assume, suffer or otherwise permit to exist or become
effective any consensual encumbrance or restriction of any kind on
the ability of any Subsidiary (i) to pay dividends or to make any
other distribution on any shares of capital stock of (or other
ownership or profit interest in) such Subsidiary owned by the
Company or any of its Subsidiaries, (ii) to pay or to subordinate
any Indebtedness owed to the Company or any of its Subsidiaries,
(iii) to make loans or advances to the Company or any of its
Subsidiaries or (iv) to transfer any of its property or assets to
the Company or any of its Subsidiaries (other than any property or
assets subject to a Lien permitted hereby).
9.7 LIMITATIONS ON PREPAYMENTS OF INDEBTEDNESS, ETC.
If any Default or Event of Default has occurred and is
continuing or would occur, directly or indirectly, as a consequence
thereof, the Company will not and will not permit any of its Subsidiaries
(a) after the issuance thereof, to amend, modify or otherwise change in any
manner (or permit the amendment, modification or other change in any manner
of) any of the terms of any Indebtedness of the Company or any such
Subsidiary if such amendment, modification or change would shorten the
final maturity or average life to maturity of, or require any payment to be
made sooner than originally scheduled on, such Indebtedness, increase the
interest rate applicable thereto or change any subordination provision
thereof, (b) make (or give any notice with respect thereto) any voluntary
or optional payment, prepayment, redemption or acquisition for value of any
Indebtedness (other than the Note or Notes) of the Company or any such
Subsidiary (including, without limitation, by way of depositing money or
securities with the trustee therefor before the date required for the
purpose of paying when due) of any Indebtedness of the Company or any such
Subsidiary, or refund, refinance, replace or exchange any other
Indebtedness for any such Indebtedness or (c) amend, modify or otherwise
change its articles of incorporation or bylaws (or other similar
organizational documents) if such amendment, modification or change, either
individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect.
9.8 LIMITATIONS ON NEGATIVE PLEDGES.
The Company will not permit any of its Subsidiaries to enter into,
assume or suffer or permit to exist any agreement prohibiting, conditioning
or otherwise restricting the creation or assumption of any Lien upon its
properties or assets, whether now owned or hereafter acquired, or requiring
the grant of any assignment or security for such obligation if an
assignment or security is given for some other obligation, other than:
(a) the Note Documents;
(b) in connection with any Indebtedness described on Schedule
5.19 attached hereto to the extent such agreement is in effect on
the date hereof;
(c) any such agreement prohibiting other encumbrances on
specific property and assets of the Company or any of its
Subsidiaries, which encumbrance secures the payment of Indebtedness
incurred solely to acquire, construct or improve such property or
assets or to finance the purchase price therefor and which
Indebtedness is otherwise permitted to be incurred under the terms
of this Agreement;
(d) any agreement setting forth customary restrictions on the
subletting, assignment or transfer of any property or asset that is
a lease, license, conveyance or contract of similar property or
assets;
(e) any restriction or encumbrance with respect to any
Subsidiary of the Company imposed pursuant to an agreement that has
been entered into for the sale, transfer or other disposition of all
or substantially all of the property and assets of such Subsidiary
so long as such sale or disposition is otherwise expressly permitted
under the terms of this Agreement; and
(f) any agreement evidencing Indebtedness outstanding on the
date a Subsidiary of the Company first becomes a Subsidiary of the
Company or any of its Subsidiaries.
9.9 LIMITATIONS ON CHANGES IN FISCAL YEAR.
The Company will not and will not permit any of its
Subsidiaries to change its fiscal year.
9.10 LIMITATIONS ON SPECULATIVE REAL ESTATE INVESTMENTS.
Notwithstanding anything to the contrary set forth in this
Agreement, the Company will not and will not permit any of its Subsidiaries
to acquire, lease, assume or otherwise invest in any real property solely
for investment purposes.
9.11 LIMITATION ON INVESTMENTS.
The Company will not and will not permit any of its
Subsidiaries to make or hold any Investment in any Person other than (i)
purchases of assets permitted under Section 9.12, (ii) Investments in Cash
Equivalents and (iii) existing Investments set forth on Schedule 9.11.
9.12 LIMITATION ON ASSET PURCHASES.
The Company will not and will not permit any of its
Subsidiaries to purchase any assets other than in the ordinary course of
business consistent with past practice.
9.13 LIMITATION ON CAPITAL STOCK.
The Company will not and will not permit any of its
Subsidiaries to (a) purchase, redeem or otherwise acquire for value any
shares of any capital stock or any warrants, rights or options to acquire
any such shares, now or hereafter outstanding, or the voluntary prepayment,
redemption or repurchase in respect of any debt; or (b) issue any capital
stock or any warrants, rights or options to acquire any such capital stock
other than employee stock options issued pursuant to plans approved or to
be approved by the Company's shareholders and other than issuances of
capital stock upon the exercise of warrants and/or conversion of
convertible securities in each case existing as of the date hereof.
9.14 LIMITATION ON TERMINATION OF LICENSES.
Except as disclosed on Schedule 9.14, the Company will not
and will not permit any of its Subsidiaries to lose, fail to hold, or fail
to renew for a full license term, forfeit, revoke, rescind or materially
impair any FCC Licenses or any Certificates, except where such loss,
failure to renew, forfeiture, revocation, recission or impairment could not
be reasonably expected to have a Material Adverse Effect.
9.15 LIMITATION ON LINE OF BUSINESS.
The Company will not and will not permit any of its
Subsidiaries to engage in any line of business other than the business
engaged in by the Company and its Subsidiaries on the date hereof, in a
manner that is consistent with past practice.
9.16 LIMITATION ON TERMINATION OF EMPLOYER PLANS.
The Company will not and will not permit any of its
Subsidiaries to create or otherwise cause to exist or become effective any
consensual risk of termination of any single employer plan or multiemployer
plan by the Pension Benefit Guaranty Corporation if the occurrence of such
event could reasonably be expected to have a Material Adverse Effect.
9.17 LIMITATION ON INVESTMENT COMPANY ACT.
The Company will not and will not permit any of its
Subsidiaries to be or become an investment company subject to the
registration requirements of the Investment Company Act of 1940, as
amended.
9.18 LIMITATIONS ON AMENDMENT, ETC. OF MATERIAL CONTRACTS.
(a) The Company will not and will not permit any of its
Subsidiaries to, at any time cancel or terminate any Material
Contract or consent to or accept any cancellation or termination
thereof, amend, modify or change in any manner, any term or
condition of any Material Contract or give any consent, waiver or
approval thereunder, waive any default under or any breach of any
term or condition of any Material Contract, or agree in any manner
to any other amendment, modification or change of any term or
condition of any Material Contract except where any such amendment,
modification or change is not Material.
(b) The Company will not and will not permit any of its
Subsidiaries to enter into any agreement, commitment or Material
Contract (except such Material Contracts delivered pursuant to
Section 4.3(g)) which may, upon the occurrence or non-occurrence of
any subsequent event or otherwise, require the payment by the
Company of any amount in excess of $150,000 in any one year.
9.19 LIMITATION ON PRESS RELEASES.
The Company will not and will not permit any of its
Subsidiaries to issue a press release or other public disclosure containing
any reference to you or any of your Affiliates without your express written
consent except as otherwise may be required by applicable law.
9.20 LIMITATION ON CREATION OF SUBSIDIARIES.
The Company will not and will not permit any of its
Subsidiaries to create any Subsidiary not in existence on the date hereof.
9.21 LIMITATIONS ON EMPLOYMENT CONTRACTS.
The Company will not and will not permit any of its
Subsidiaries:
(a) to waive, amend, supplement or otherwise modify in any
material respect any employment agreements or compensation
arrangements described in Section 5.20; or
(b) to directly or indirectly enter into or create, incur,
assume or suffer to exist any obligation in connection with any
employment agreement or other compensation arrangement other than
the employment agreements and other compensation arrangements
described in Schedule 5.20; or
(c) to set, determine or otherwise establish any target or
levels for the determination of any bonuses or additional
compensation arrangements other than as provided in the employment
and other compensation arrangements described in Schedule 5.20.
9.22 LIMITATION ON SALE AND LEASEBACK TRANSACTIONS.
The Company shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly, enter into, assume, guarantee or
otherwise become liable with respect to, any Sale and Leaseback
Transaction, unless (a) the Company or such Subsidiary, as the case may be,
receives consideration at the time of such Sale and Leaseback Transaction
at least equal to the Fair Market Value (as evidenced by a Board Resolution
delivered to you) of the Property or assets subject to such transaction;
and (b) the Attributable Indebtedness of the Company or such Subsidiary
with respect thereto is included as Indebtedness and would be permitted to
be incurred under Section 9.3 hereof and any Liens granted thereby would be
permitted under Section 9.2 hereof.
10. [INTENTIONALLY OMITTED.]
11. EVENTS OF DEFAULT.
11.1 EVENTS OF DEFAULT.
An "Event of Default" shall exist if any of the following
conditions or events shall occur and be continuing (each, an "EVENT OF
DEFAULT"):
(a) the Company defaults in the payment of any principal on
any Note when the same becomes due and payable, whether by scheduled
maturity or at a date fixed for prepayment or repurchase or by
declaration, demand or otherwise; or
(b) the Company defaults in the payment of any interest on
any Note, or the Company defaults in the payment of any other amount
owing under any of the Note Documents, when the same becomes due and
payable, whether by scheduled maturity or at a date fixed for
prepayment or repurchase or by declaration, demand or otherwise; or
(c) the Company defaults in the performance of or compliance
with any term, covenant or agreement contained in Section 8.16 or
Section 9 of this Agreement on its part to be performed or complied
with; or
(d) the Company defaults in the performance of or compliance
with any term, covenant or agreement contained in any of the Note
Documents on its part to be performed or complied with and such
default shall remain unremedied for 10 Business Days after the
earlier of the first date on which (i) a Responsible Officer obtains
becomes aware of such default and (ii) the Company receives written
notice of such default from any holder of a Note; or
(e) any representation or warranty made or deemed made by or
on behalf of the Company or any of its Subsidiaries or by any
officer of the Company or any of its Subsidiaries under or in
connection with this Agreement or any other Note Document or in any
writing furnished in connection with the Transaction or any of the
other transactions contemplated hereby proves to have been false or
incorrect in any material respect on the date as of which it was
made or deemed to have been made; or
(f) the Company or any of its Subsidiaries shall fail to pay
any principal of, premium or interest on or any other amount payable
in respect of, any Indebtedness that is outstanding in a principal
or notional amount of at least $500,000 (or the equivalent thereof
in one or more other currencies), either individually or in the
aggregate (but excluding Indebtedness outstanding hereunder), of the
Company and its Subsidiaries, when the same becomes due and payable
(whether by scheduled maturity, required prepayment, acceleration,
demand or otherwise), and such failure shall continue after the
applicable grace period, if any, specified in the agreement or
instrument relating to such Indebtedness; or any other event shall
occur or condition shall exist under any agreement or instrument
evidencing, securing or otherwise relating to any such Indebtedness
and shall continue after the applicable grace period, if any,
specified in such agreement or instrument, if the effect of such
event or condition is to accelerate, or to permit the acceleration
of, the maturity of such Indebtedness or otherwise to cause, or to
permit the holder or holders thereof (or a trustee or agent on
behalf of such holders) to cause such Indebtedness to mature; or any
such Indebtedness shall be declared to be due and payable or
required to be prepaid or redeemed (other than by a regularly
scheduled required prepayment or redemption), purchased or defeased,
or an offer to prepay, redeem, purchase or defease such Indebtedness
shall be required to be made, in each case prior to the stated
maturity thereof; or
(g) the Company or any of its Subsidiaries shall admit in
writing its inability to pay its debts generally, or shall make a
general assignment for the benefit of creditors; or any proceeding
shall be instituted by or against the Company or any of its
Subsidiaries seeking to adjudicate it a bankrupt or insolvent, or
seeking liquidation, winding up, reorganization, arrangement,
adjustment, protection, relief, or composition of it or its debts
under any law relating to bankruptcy, insolvency or reorganization
or relief of debtors, or seeking the entry of an order for relief or
the appointment of a receiver, trustee or other similar official for
it or for any substantial part of its property and assets and, in
the case of any such proceeding instituted against it (but not
instituted by it) that is being diligently contested by it in good
faith, either such proceeding shall remain undismissed or unstayed
for a period of 30 days or any of the actions sought in such
proceeding (including, without limitation, the entry of an order for
relief against, or the appointment of a receiver, trustee, custodian
or other similar official for, it or any substantial part of its
property and assets) shall occur; or the Company or any of its
Subsidiaries shall take any corporate action to authorize any of the
actions set forth above in this Section 11.1(g); or
(h) one or more final judgments or orders for the payment of
money aggregating $500,000 (or the equivalent thereof in one or more
other currencies) or more are rendered against one or more of the
Company and its Subsidiaries and remain unsatisfied and either (i)
enforcement proceedings shall have been commenced by any creditor
upon any such judgment or order or (ii) there shall be a period of
at least 45 days after entry thereof during which a stay of
enforcement of any such judgment or order, by reason of a pending
appeal or otherwise, shall not be in effect; provided, however, that
any such judgment or order shall not give rise to an Event of
Default under this Section 11.1(h) if and for so long as (A) the
amount of such judgment or order is covered by a valid and binding
policy of insurance between the defendant and the insurer covering
full payment thereof and (B) such insurer has been notified, and has
not disputed the claim made for payment, of the amount of such
judgment or order; or
(i) any provision of any Note Document after delivery thereof
pursuant to Section 4 or 8.11 shall for any reason (other than
pursuant to the express terms thereof) cease to be valid and binding
on or enforceable against the Company or any of its Subsidiaries
intended to be a party to it or to give you any of the rights,
powers or privileges purported to be created thereunder, or the
Company shall so state in writing; or
(j) any Collateral Document after delivery thereof pursuant
to Section 4 or 8.11 shall for any reason (other than pursuant to
the terms thereof) cease to create a valid and perfected first
priority lien on and security interest in the Collateral purported
to be covered thereby; or
(k) any Termination Event shall have occurred with respect to
a Plan and the sum (determined as of the date of occurrence of such
Termination Event) of the Insufficiency of such Plan and the
Insufficiency of any and all other Plans with respect to which a
Termination Event shall have occurred and be continuing (or the
liabilities of the Company and the ERISA Affiliates related to such
Termination Event) exceeds an aggregate amount of $250,000 (or the
equivalent thereof in one or more other currencies), or
(l) the Company or any ERISA Affiliate shall have been
notified by the sponsor of a Multiemployer Plan that it has incurred
Withdrawal Liability to such Multiemployer Plan in an amount that,
when aggregated with all other amounts required to be paid to
Multiemployer Plans by the Company and the ERISA Affiliates as
Withdrawal Liability (determined as of the date of such
notification), exceeds $250,000 (or the equivalent thereof in one or
more other currencies); or
(m) the Company or any ERISA Affiliate shall have been
notified by the sponsor of a Multiemployer Plan that such
Multiemployer Plan is in reorganization, is insolvent or is being
terminated, within the meaning of Title IV of ERISA, and, as a
result of such reorganization, insolvency or termination, the
aggregate annual contributions of the Company and the ERISA
Affiliates to all Multiemployer Plans that are in reorganization or
being terminated at such time have been or will be increased over
the amounts contributed to such Multiemployer Plans for the plan
years of such Multiemployer Plans immediately preceding the plan
year in which such reorganization, insolvency or termination occurs
by an amount exceeding $250,000 (or the equivalent thereof in one or
more other currencies); or
(n) any "accumulated funding deficiency" (as defined in
Section 302 of ERISA and Section 412 of the Internal Revenue Code),
whether or not waived, shall exist with respect to one or more Plans
in excess of $ 250,000 (or the equivalent thereof in one or more
other currencies) in the aggregate, or any Lien shall exist on the
property and assets of the Company or any ERISA Affiliate in favor
of the PBGC or a Plan; or
(o) any prohibited transaction (within the meaning of Section
406 of ERISA or Section 4975 of the Internal Revenue Code) or any
breach of fiduciary responsibility shall occur that may subject the
Company or any ERISA Affiliate to any liability under Section 406,
409, 502(i) or 502(i) of ERISA or Section 4975 of the Internal
Revenue Code, or under any agreement or instrument pursuant to which
the Company or any ERISA Affiliate has agreed or is required to
indemnify any Person against such liability; or
(p) there shall occur a Change of Control.
11.2 ACCELERATION.
(a) If an Event of Default with respect to the Company or any
of its Subsidiaries described in Section 11.1(g) shall occur, all of
the Notes then outstanding shall automatically become immediately
due and payable.
(b) If any other Event of Default shall occur and be
continuing, any holder or holders of more than 50% in aggregate
principal amount of the Notes at the time outstanding may at any
time, at its or their option, by notice or notices to the Company,
declare all of the Notes then outstanding to be immediately due and
payable.
Upon any Notes becoming due and payable under this Section
11.2, whether automatically or by declaration, such Notes will forthwith
mature and the entire unpaid principal amount of such Notes, plus all
accrued and unpaid interest thereon and the Facility Fee, shall all be
immediately due and payable, in each and every case without presentment,
demand, protest or further notice of any kind, all of which are hereby
waived by the Company. The Company acknowledges, and the parties hereto
agree, that each holder of a Note has the right to maintain its investment
in the Notes free from repayment by the Company (except as herein
specifically provided for).
11.3 OTHER REMEDIES.
If one or more Events of Default shall occur and be
continuing, and irrespective of whether any Notes have become or have been
declared immediately due and payable under Section 11.2(a), the holder of
any Note at the time outstanding may proceed to protect and enforce the
rights of such holder by an action at law, suit in equity or other
appropriate proceeding, whether for the specific performance of any
agreement contained herein or in any other Note Document, or for an
injunction against a violation of any of the terms hereof or thereof, or in
aid of the exercise of any power granted hereby or thereby or by law or
otherwise.
11.4 RESCISSION.
At any time after any Notes have been declared due and
payable pursuant to Section 11.2(b), the holders of not less than 51% in
aggregate principal amount of the Notes then outstanding, by written notice
to the Company, may rescind and annul any such declaration and its
consequences if (a) the Company has paid all overdue interest on the Notes,
all principal and other amounts on any Notes that are due and payable and
are unpaid other than by reason of such declaration, and all interest on
such overdue principal, and (to the extent permitted by applicable law) any
overdue interest in respect of the Notes, at the Default Rate, (b) all
Defaults and Events of Default, other than nonpayment of amounts that have
become due solely by reason of such declaration, have been remedied or have
been waived pursuant to Section 16, and (c) no judgment or decree has been
entered for the payment of any monies due pursuant hereto, to the Notes or
to any other Note Document. No rescission and annulment under this Section
11.4 will extend to or affect any subsequent Default or Event of Default or
impair any right consequent thereon.
11.5 RESTORATION OF RIGHTS AND REMEDIES.
If any holder of any Note has instituted any proceeding to
enforce any right or remedy under this Agreement or any other Note Document
and such proceeding has been discontinued or abandoned for any reason, or
has been determined adversely to such holder, then, and in each such case,
the Company and the other holders of Notes shall, subject to any
determination in such proceeding, be restored severally and respectively to
their former positions hereunder and, thereafter, all rights and remedies
of the holders of Notes shall continue as though no such proceeding had
been instituted.
11.6 NO WAIVERS OR ELECTION OF REMEDIES, EXPENSES, ETC.
No course of dealing and no delay on the part of any holder
of any Note in exercising any right, power or remedy shall operate as a
waiver thereof or otherwise prejudice such holder's rights, powers or
remedies. No right, power or remedy conferred by this Agreement or by any
other Note Document upon any holder thereof shall be exclusive of any other
right, power or remedy referred to herein or therein or now or hereafter
available at law, in equity, by statute or otherwise. Without limiting the
obligations of each of the Company under Section 14, the Company will pay
to the holder of each Note on demand such further amount as shall be
sufficient to cover all costs and expenses of such holder incurred in any
enforcement or collection under this Section 11, including, without
limitation, reasonable attorneys' fees, expenses and disbursements.
12. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES.
12.1 REGISTRATION OF NOTES.
The Company shall keep at its principal executive office a
register for the registration and registration of transfers of Notes. The
name and address of each holder of one or more Notes, each transfer thereof
and the name and address of each transferee of one or more Notes shall be
registered in such register. Prior to due presentment for registration of
transfer, the Person in whose name any Note shall be registered shall be
deemed and treated as the owner and holder thereof for all purposes hereof,
and the Company shall not be affected by any notice or knowledge to the
contrary. The Company shall give to any holder of a Note that is an
Institutional Investor, promptly upon request therefor, a complete and
correct copy of the names and addresses of all registered holders of Notes.
12.2 TRANSFER AND EXCHANGE OF NOTES.
Upon surrender of any Note at the principal executive office
of the Company for registration of transfer or exchange (and in the case of
a surrender for registration of transfer, duly endorsed or accompanied by a
written instrument of transfer duly executed by the registered holder of
such Note or his attorney duly authorized in writing and accompanied by the
address for notices of each transferee of such Note or part thereof), the
Company shall execute and deliver, at the Company's expense (except as
provided below), one or more new Notes (as requested by the holder thereof)
in exchange therefor, in an aggregate principal amount equal to the unpaid
principal amount of the surrendered Note. Each such new Note shall be
payable to such Person as such holder may request and shall be in
substantially the form of Exhibit A attached hereto. Each such new Note
shall be dated and bear interest from the date to which interest shall have
been paid on the surrendered Note or dated the date of the surrendered Note
if no interest shall have been paid thereon. The Company may require
payment of a sum sufficient to cover any stamp tax or governmental charge
imposed in respect of any such transfer of Notes. Notes shall not be
transferred in denominations of less than $500,000; provided, that, if
necessary to enable the registration of transfer by a holder of its entire
holding of Notes, one Note may be in a denomination of less than $500,000.
Any transferee, by its acceptance of a Note registered in its name (or the
name of its nominee), shall be deemed to have made the representations set
forth in Section 6.1.
12.3 REPLACEMENT OF NOTES.
Upon receipt by the Company of evidence reasonably
satisfactory to it of the ownership of and the loss, theft, destruction or
mutilation of any Note (which evidence shall be, in the case of an
Institutional Investor, notice from such Institutional Investor of such
ownership and such loss, theft, destruction or mutilation), and
(a) in the case of loss, theft or destruction, of indemnity
reasonably satisfactory to it (provided that if the holder of such
Note is, or is a nominee for, an original Purchaser or any other
Institutional Investor, such Person's own unsecured agreement of
indemnity shall be deemed to be satisfactory), or
(b) in the case of mutilation, upon surrender and
cancellation thereof,
the Company, at its own expense, shall execute and deliver, in lieu
thereof, a new Note, dated and blaring interest from the date to which
interest shall have been paid on such lost, stolen, destroyed or mutilated
Note or dated the date of such lost, stolen, destroyed or mutilated Note if
no interest shall have been paid thereon.
13. PAYMENTS ON NOTES.
The Company will pay all sums becoming due on such Note for
principal and interest by the method and at the address specified for such
purpose below your name on the signature page attached hereto, or by such
other method or at such other address as you shall have from time to time
specified to the Company in writing for such purpose, without the
presentation or surrender of such Note or the making of any notation
thereon, except that upon written request of the Company made concurrently
with or reasonably promptly after payment or prepayment in full of any
Note, you shall surrender such Note for cancellation, reasonably promptly
after any such request, to the Company at its principal executive office.
Prior to any sale, transfer or other disposition of any Note held by you or
your nominee, you will, at your election, either endorse thereon the amount
of principal paid thereon and the last date to which interest has been paid
thereon or surrender such Note to the Company in exchange for a new Note or
Notes pursuant to Section 12.2. The Company will afford the benefits of
this Section 13 to any Institutional Investor that is the direct or
indirect transferee of any Note purchased by you under this Agreement and
that has made the same agreement relating to such Note as you have made in
this Section 13.
14. EXPENSES, ETC.
14.1 TRANSACTION EXPENSES.
Whether or not any aspect of the Transaction or any of the
other transactions contemplated hereby are consummated, the Company will
pay all costs and expenses (including reasonable attorneys' fees of a
special counsel, local or other counsel, financial advisors and outside
accountants) incurred by you in connection with the preparation, execution,
delivery and administration of this Agreement, the Notes and the other Note
Documents and in connection with any amendments, waivers or consents under
or in respect of this Agreement, the Notes or any of the other Note
Documents (whether or not such amendment, waiver or consent becomes
effective), including, without limitation: (a) the Facility Fee, (b) the
costs and expenses incurred in enforcing or defending (or determining
whether or how to enforce or defend) any rights under this Agreement, the
Notes or any of the other Note Documents or in responding to any subpoena
or other legal process or informal investigative demand issued in
connection with this Agreement, the Notes or any of the other Note
Documents, or by reason of being a holder of any Note, and (c) the costs
and expenses, including financial advisors' fees, incurred in connection
with the insolvency or bankruptcy of the Company or any of its Subsidiaries
or in connection with any work-out, renegotiating or restructuring of the
Transaction or any of the other transactions contemplated hereby, by the
Notes and by the other Note Documents. The Company further agrees to
indemnify you and each of your transferees from and hold you and each of
them harmless from and against any and all present and future transfer,
stamp, documentary or other similar taxes, assessments or charges made by
any Governmental Authority by reason of the execution, delivery or
performance of this Agreement, any Note or any other Note Document and all
costs, expenses, taxes, assessments and other charges incurred in
connection with any filing or perfection of any lien, pledge or security
interest contemplated by any of the Collateral Documents or any other
document referred to therein. The Company will pay, and will save you and
each other holder of a Note harmless from, all claims in respect of any
fees, costs or expenses, if any, of brokers and finders (other than those
retained by you).
14.2 INDEMNITY.
The Company agrees to indemnify the Purchaser and its
affiliates and their respective directors, officers, employees, agents,
attorneys, investment advisors and controlling persons (the Purchaser and
each such person being an "INDEMNIFIED PARTY") from and against any and all
losses, claims, damages and liabilities, joint or several, to which such
Indemnified Party may become subject under any applicable federal or state
law, or otherwise, and related to or arising out of the Notes, the Note
Purchase Agreement, or any other transaction contemplated by this Agreement
and the performance by the Purchaser of the services contemplated by this
Agreement and will reimburse any Indemnified Party for all expenses
(including reasonable counsel fees and expenses) as they are incurred in
connection with the investigation of, preparation for or defense of any
pending or threatened claim or any action or proceeding arising therefrom,
whether or not such Indemnified Party is a party and whether or not such
claim, action or proceeding is initiated or brought by or on behalf of the
Company . The Company will not be liable under the foregoing
indemnification provision to the extent that any loss, claim, damage,
liability or expense is found in a final judgment by a court to have
resulted from the Purchaser's bad faith or gross negligence. The Company
also agrees that no Indemnified Party shall have any liability (whether
direct or indirect, in contract or tort or otherwise) to the Company or its
security holders or creditors related to or arising out of the performance
by the Purchaser of the services contemplated by, this Agreement except to
the extent that any loss, claim, damage or liability is found in a final
judgment by a court to have resulted from the Purchaser's bad faith or
gross negligence.
If the indemnification of an Indemnified Party provided for
in this Agreement is for any reason held unenforceable, the Company agrees
to contribute to the losses, claims, damages and liabilities for which such
indemnification is held unenforceable (a) in such proportion as is
appropriate to reflect the relative benefits to the Company, on the one
hand, and the Purchaser, on the other hand, of the Notes as contemplated by
this Agreement (whether or not the Notes is consummated) or (b) if (but
only if) the allocation provided for in clause (a) is for any reason held
unenforceable, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (a) but also the relative fault of
the Company, on the one hand, and the Purchaser, on the other hand, as well
as any other relevant equitable considerations. The Company agrees that for
the purposes of this paragraph the relative benefits to the Company and the
Purchaser of the Notes as contemplated shall be deemed to be in the same
proportion that the total amount of the Notes, as the case may be, bears to
the fees paid or to be paid to the Purchaser under this Agreement or in
connection with the Notes; provided, however, that, to the extent permitted
by applicable law, in no event shall the Indemnified Parties be required to
contribute an aggregate amount in excess of the aggregate fees actually
paid to the Purchaser under this Agreement or in connection with the Notes.
The Company agrees that, without the Purchaser's prior
written consent, it will not settle, compromise or consent to the entry of
any judgment in any pending or threatened claim, action or proceeding in
respect of which indemnification could be sought under the indemnification
provision of this Agreement (whether or not the Purchaser or any other
Indemnified Party is an actual or potential party to such claim, action or
proceeding), unless such settlement, compromise or consent includes an
unconditional release of each Indemnified Party from all liability arising
out of such claim, action or proceeding.
In the event that an Indemnified Party is requested or
required to appear as a witness in any action brought by or on behalf of or
against the Company or any affiliate of the Company in which such
Indemnified Party is not named as a defendant, the Company agree to
reimburse the Purchaser for all reasonable expenses incurred by it in
connection with such Indemnified Party's appearing and preparing to appear
as such a witness, including, without limitation, the fees and
disbursements of its legal counsel.
14.3 SURVIVAL.
The obligations of the Company under this Section 14 shall
survive the payment or transfer of any Note, the enforcement, amendment or
waiver of any provision of this Agreement, the Notes or any other Note
Document, and the termination of this Agreement and, in respect of any
Person who was at any time a Purchaser or in whose name or for whose
benefit such Person held any Note, the date on which such person no longer
holds, or no longer holds in the name of or for the benefit of such other
Person, any Note.
15. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT.
All representations and warranties contained herein and in
the other Note Documents shall survive the execution and delivery of this
Agreement and the Notes, the purchase or transfer by you of any Note or
portion thereof or interest therein and the payment of any Note, and may be
relied upon by any subsequent holder of a Note, regardless of any
investigation made at any time by or on behalf of you or any other holder
of a Note. All statements contained in any certificate or other instrument
delivered by or on behalf of the Company or any Subsidiary pursuant to this
Agreement or any other Note Document shall be deemed representations and
warranties of each of the Company and its Subsidiaries under this
Agreement. Subject to the immediately preceding sentence, this Agreement,
the Notes and the other Note Documents embody the entire agreement and
understanding between you and the Company and supersede all prior
agreements and understandings relating to the subject matter hereof.
16. AMENDMENT AND WAIVER.
16.1 REQUIREMENTS.
This Agreement and the Notes may be amended, and the
observance of any term hereof or of the Notes may be waived (either
retroactively or prospectively), with (and only with) the written consent
of the Company and the Required Holders, except that (a) no amendment or
waiver of any of the provisions of Section 1, 2, 3, 4, 5, 6 or 20 hereof,
or any defined term (as it is used therein), will be effective as to you
unless consented to by you in writing, and (b) no such amendment or waiver
may, without the written consent of the holder of each Note at the time
outstanding affected thereby:
(i) subject to the provisions of Section 11 relating to
acceleration or rescission, change the amount or time of any
prepayment or repurchase or payment of principal of, or
reduce the rate or change the time of payment or method of
computation of interest on, the Notes;
(ii) change the percentage of the aggregate principal
amount of the Notes the holders of which are required to
consent to any such amendment or waiver;
(iii) subordinate the Notes (or any of them) to any
other obligations of the Company now or hereafter existing;
(iv) reduce or limit the Company's liability with
respect to any Obligations owing to you or any other holder
of any Note;
(v) release a material portion of the Collateral in any
transaction or any series of related transactions;
(vi) permit the creation, incurrence, assumption or
existence of any Lien on a material portion of the Collateral
in any transaction or any series of related transactions to
secure any obligations other than obligations owing to you
and the other holders of Notes under the Note Documents; or
(vii) amend any of Sections 7, 11.1 (a), 11.1(b), any of
11.2 through 11.6, 17 or 19.
16.2 SOLICITATION OF HOLDERS OF NOTES.
(a) Solicitation. The Company will provide each holder of the
Notes (irrespective of the amount of Notes then owned by it at the
time) with sufficient information, sufficiently far in advance of
the date a decision is required, to enable such holder to make an
informed and considered decision with respect to any proposed
amendment, waiver or consent in respect of any of the provisions
hereof or of the other Note Documents. The Company will deliver
executed or true and correct copies of each amendment, waiver or
consent effected pursuant to the provisions of this Section 16 to
each holder of outstanding Notes promptly following the date on
which it is executed and delivered by, or receives the consent or
approval of, the requisite holders of Notes.
(b) Payment. The Company will not directly or indirectly pay
or cause to be paid any remuneration, whether by way of supplemental
or additional interest, fee or otherwise, or grant any security, to
any holder of Notes as consideration for or as an inducement to the
entering into by any holder of Notes or any waiver or amendment of
any of the terms and provisions hereof or of the other Note
Documents, unless such remuneration is concurrently paid, or
security is concurrently granted, on the same terms, ratably to each
holder of Notes then outstanding even if such holder did not consent
to such waiver or amendment.
16.3 BINDING EFFECT, ETC.
Any amendment or waiver consented to as provided in this
Section 16 applies equally to all holders of Notes and is binding upon
them, upon each future holder of any Note and upon the Company without
regard to whether such Note has been marked to indicate such amendment or
waiver. No such amendment or waiver will extend to or affect any
obligation, covenant, agreement, Default or Event of Default not expressly
amended or waived or impair any right consequent thereon. No course of
dealing between the Company and the holder of any Note nor any delay in
exercising any right, power or privilege hereunder or under any other Note
Document shall operate as a waiver of any right of any holder of such Note;
nor shall any single or partial exercise of any such right, power or
privilege preclude any other or further exercise thereof or the exercise of
any other right, power or privilege. The remedies provided under this
Agreement and the other Note Documents are cumulative and not exclusive of
any rights and remedies provided by applicable law.
16.4 NOTES HELD BY COMPANY, ETC.
Solely for the purpose of determining whether the holders of
the requisite percentage of the aggregate principal amount of Notes then
outstanding approved or consented to any amendment, waiver or consent to be
given under this Agreement or any other Note Document, or have directed the
taking of any action provided herein or in any other Note Document to be
taken upon the direction of the holders of a specified percentage of the
aggregate principal amount of Notes then outstanding, Notes directly or
indirectly owned by the Company or any of its Affiliates shall be deemed
not to be outstanding.
17. NOTICES.
All notices and communications provided for hereunder shall
be in writing and delivered (a) by telecopy if the sender on the same day
sends a confirming copy of such notice by a recognized overnight delivery
service (charges prepaid), (b) by registered or certified mail with return
receipt requested (postage prepaid) or (c) by a recognized overnight
delivery service (with charges prepaid). Any such notice must be sent:
(i) if to you or your nominee, to you or it at the
address specified for such communications on the signature
page attached hereto, or at such other address as you or it
shall have specified to the Company in writing;
(ii) if to any other holder of any Note, to such holder
at such address as such other holder shall have specified to
the Company in writing; or
(iii) if to the Company at its address set forth on the
first page of this Agreement (Telecopier No. 312-474-0814) to
the attention of its most senior financial officer, or at
such other address as the Company shall have specified to the
holder of each Note in writing.
All notices and communications provided for under this Section 17 will be
deemed given and effective only when actually received.
18. REPRODUCTION OF DOCUMENTS.
This Agreement, each of the other Note Documents and all
documents relating thereto, including, without limitation, (a) consents,
waivers and modifications of this Agreement or any other Note Document that
may hereafter be executed, (b) documents received by you at the Closing
(except the Notes themselves), and (c) financial statements, certificates
and other information previously or hereafter furnished to you, may be
reproduced by you by any photographic, photostatic, microfilm, microcard,
miniature photographic or other similar process and you may destroy any
original document so reproduced. The Company agrees and stipulates that, to
the extent permitted by applicable law, any such reproduction shall be
admissible in evidence as the original itself in any judicial or
administrative proceeding (whether or not the original is in existence and
whether or not such reproduction was made by you in the regular course of
business) and any enlargement, facsimile or further reproduction of such
reproduction shall likewise be admissible in evidence. This Section 18
shall not prohibit the Company or any other holder of Notes from contesting
any such reproduction to the same extent that it could contest the
original, or from introducing evidence to demonstrate the inaccuracy of any
such reproduction.
19. CONFIDENTIAL INFORMATION.
You hereby agree to maintain the confidentiality of all
Confidential Information in accordance with procedures adopted by you in
good faith to protect confidential information of third parties delivered
to you; provided that you may deliver or disclose Confidential Information
to (a) your directors, officers, employees, agents, attorneys and
affiliates (to the extent such disclosure reasonably relates to the
administration of the investment represented by your Notes), (b) your
counsel or your financial and other professional advisors who agree to hold
confidential the Confidential Information substantially in accordance with
the terms of this Section 19, (c) any other holder of any Note or to the
Agent or any Bank, (d) any Institutional Investor to which you sell or
offer to sell such Note or any part thereof or any participation therein
(if such Person has agreed in writing prior to its receipt of such
Confidential Information to be bound by the provisions of this Section 19),
(e) any Person from which you offer to purchase any security of the Company
(if such Person has agreed in writing prior to its receipt of such
Confidential Information to be bound by the provisions of this Section 19),
(f) any federal or state regulatory authority having jurisdiction over you,
or (g) any other Person to which such delivery or disclosure may be
necessary or appropriate (i) to effect compliance with any law, rule,
regulation or order applicable to you, (ii) in response to any subpoena or
other legal process, (iii) in connection with any litigation to which you,
any other holder of any Note or the Agent are a party or (iv) if an Event
of Default shall have occurred and be continuing, to the extent you may
reasonably determine such delivery and disclosure to be necessary or
appropriate in the enforcement or for the protection of the rights and
remedies under your Notes, this Agreement and the other Note Documents.
Each holder of a Note, by its acceptance of a Note, will be deemed to have
agreed to be bound by and to be entitled to the benefits of this Section 19
as though it were a party to this Agreement. Upon the reasonable request of
the Company in connection with the delivery to any holder of a Note of
information required to be delivered to such holder under this Agreement or
requested by such holder (other than a holder that is a party to this
Agreement or its nominee), such holder will enter into an agreement with
the Company embodying the provisions of this Section 19.
20. SUBSTITUTION OF PURCHASER.
You shall have the right to substitute any one of your
Affiliates as the purchaser of the Notes that you have agreed to purchase
hereunder, by written notice to the Company, which notice shall be signed
by both you and such Affiliate, shall contain such Affiliate's agreement to
be bound by this Agreement and shall contain a confirmation by such
Affiliate of the accuracy with respect to it of the representations set
forth in Section 6. Upon receipt of such notice, wherever the word "you" is
used in this Agreement (other than in this Section 20), such word shall be
deemed to refer to such Affiliate in lieu of you. In the event that such
Affiliate is so substituted as a purchaser hereunder and such Affiliate
thereafter transfers to you all of the Notes then held by such Affiliate,
upon receipt by the Company of notice of such transfer, wherever the word
"you" is used in this Agreement (other than in this Section 20), such word
shall no longer be deemed to refer to such Affiliate, but shall refer to
you, and you shall have all the rights of an original holder of the Notes
under this Agreement.
21. MISCELLANEOUS.
21.1 SUCCESSORS AND ASSIGNS.
All covenants and other agreements contained in this
Agreement by or on behalf of any of the parties hereto bind and inure to
the benefit of their respective successors and assigns (including, without
limitation, any subsequent holder of a Note) whether so expressed or not.
21.2 PAYMENTS DUE ON NON-BUSINESS DAYS.
Anything in this Agreement or the Notes to the contrary
notwithstanding, any payment of principal of or interest on any Note that
is due on a date other than a Business Day shall be made on the next
succeeding Business Day without including the additional days elapsed in
the computation of the items payable on such next succeeding Business Day.
21.3 SATISFACTION REQUIREMENT.
Except as otherwise provided herein, or in any other Note
Document, if any agreement, certificate or other writing, or any action
taken or to be taken, is by the terms of this Agreement or any other Note
Document required to be satisfactory to you or to the Required Holders, the
determination of such satisfaction shall be made by you or the Required
Holders, as the case may be, in the sole and exclusive judgment (exercised
in good faith) of the Person or Persons making such determination.
21.4 SEVERABILITY.
Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall (to the full extent permitted by
law) not invalidate or render unenforceable such provision in any other
jurisdiction.
21.5 CONSTRUCTION.
Each covenant contained herein shall be construed (absent
express provision to the contrary) as being independent of each other
covenant contained herein, so that compliance with any one covenant shall
not (absent such an express contrary provision) be deemed to excuse
compliance with any other covenant. Where any provision herein refers to
action to be taken by any Person, or which such Person is prohibited from
taking, such provision shall be applicable whether such action is taken
directly or indirectly by such Person.
21.6 COMPUTATION OF TIME PERIODS.
In this Agreement, in the computation of periods of time from
a specific date to a later specified date, the word "from" means "from and
including", the word "through" means "through and including", and the words
"to" and "until" each mean "to but not excluding".
21.7 COUNTERPARTS.
This Agreement may be executed in any number of counterparts,
each of which shall be an original but all of which together shall
constitute one instrument. Each counterpart may consist of a number of
copies hereof, each signed by less than all, but together signed by all, of
the parties hereto.
21.8 GOVERNING LAW; SUBMISSION TO JURISDICTION, ETC.
(a) This Agreement shall be governed by, and construed and
enforced in accordance with, the law of the State of Illinois.
(b) Each of the parties hereto hereby irrevocably and
unconditionally submits, for itself and its property, to the
nonexclusive jurisdiction of any Illinois state court or federal
court of the United States of America sitting in Chicago, Illinois,
and any appellate court from any thereof, in any action or
proceeding arising out of or relating to this Agreement, the Notes
or the other Note Documents, or for recognition or enforcement of
any judgment, and each of the parties hereto hereby irrevocably and
unconditionally agrees that all claims in respect of any such action
or proceeding may be heard and determined in any such Illinois state
court or, to the extent permitted by applicable law, in such federal
court. Each of the parties hereto agrees that a final judgment in
any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any
other manner provided by applicable law. Nothing in this Agreement
shall affect any right that any party may otherwise have to bring
any action or proceeding relating to this Agreement or the Notes in
the courts of any jurisdiction.
(c) Each of the parties hereto irrevocably and
unconditionally waives, to the fullest extent it may legally and
effectively do so, any objection that it may now or hereafter have
to the laying of venue of any suit, action or proceeding arising out
of or relating to this Agreement, the Notes or the other Note
Documents in any Illinois state or federal court. Each of the
parties hereto hereby irrevocably waives, to the fullest extent
permitted by applicable law, the defense of an inconvenient forum to
the maintenance of such action or proceeding in any such court.
(d) To the extent that the Company has or hereafter may
acquire any immunity from the jurisdiction of any court or from any
legal process (whether through service or notice, attachment prior
to judgment, attachment in aid of execution, execution or otherwise)
with respect to itself or its property, the Company hereby
irrevocably waives such immunity in respect of its obligations under
this Agreement and the Notes.
(e) THE PARTIES HEREBY IRREVOCABLY WAIVE ALL RIGHT TO TRIAL
BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON
CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO ANY OF
THE NOTE DOCUMENTS, THE TRANSACTIONS CONTEMPLATED THEREBY OR THE
ACTIONS OF THE AGENT OR THE PURCHASER IN THE NEGOTIATION,
ADMINISTRATION, PERFORMANCE OR ENFORCEMENT THEREOF.
If you are in agreement with the foregoing, please sign the
form of agreement on the accompanying counterpart of this Agreement and
return it to the Company, whereupon the foregoing shall become a binding
agreement between you and the Company.
Very truly yours,
Company:
USN COMMUNICATIONS, INC.
By: _____________________________
The foregoing is hereby agreed to
as of the date first above written.
MERRILL LYNCH GLOBAL
ALLOCATED FUND. INC.
By: ______________________________
Name:
Title:
Address for Notices:
Address: 800 Scudders Mill Road
Plainsboro, NJ 08536
Telecopier: (609) 282-6916
Payment Instructions:
Citibank N.A., New York
ABA #021-000-089
Beneficiary Bank A/C#: 09250276
Brown Brothers Harriman & Co.
Beneficiary A/C#: 8116915
Ref: Global Allocation Fund
SCHEDULE I
DEFINED TERMS
As used in this Agreement, the following terms shall have the
respective meanings set forth below (such meanings to be equally applicable
to both the singular and plural forms of the term defined):
"ACCOUNT" means the Concentration Account of the Company at
Harris Trust & Savings Bank Account No. 432-329-1).
"AFFILIATE" means, with respect to any Person, any other
Person that, directly or indirectly, controls, is controlled by or
is under common control with such Person, or is a director or
officer of such Person. For purposes of this definition, the term
"control" (including the terms "controlling", "controlled by" and
"under common control with") of a Person means the possession,
direct or indirect, of the power to vote 5% or more of the Voting
Stock of such Person or to direct or cause the direction of the
management and policies of such Person, whether through the
ownership of Voting Stock, by contract or otherwise. For purposes
hereof, the Purchaser and its Affiliates shall not be considered
Affiliates of the Company.
"BENEFIT LIABILITIES" has the meaning specified in Section 3
of ERISA.
"BUSINESS DAY" means any day other than a Saturday, a Sunday
or a day on which commercial banks in New York, New York, are
required or authorized by law to be closed.
"CAPITALIZED LEASE" means any lease with respect to which the
lessee is required concurrently to recognize the acquisition of an
asset and the incurrence of a liability in accordance with GAAP.
"CASH EQUIVALENTS" means, at any time, (a) any evidence of
Indebtedness with a maturity of 180 days or less 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); (b) certificates of deposit or acceptances with a maturity
of 180 days or less of any financial institution that is a member of
the Federal Reserve System having combined capital and surplus and
undivided profits of not less than $500,000,000; (c) certificates of
deposit with a maturity of 180 days or less of any financial
institution that is not organized under the laws of the United
States, any state thereof or the District of Columbia that are rated
at least A-1 by S&P or at least P-1 by Moody's or at least an
equivalent rating category of another nationally recognized
securities rating agency; (d) repurchase agreements and reverse
repurchase agreements relating to marketable direct obligations
issued or unconditionally guaranteed by the government of the United
States of America or issued by any agency thereof and backed by the
full faith and credit of the United States of America, in each case
maturing within 180 days from the date of acquisition; provided that
the terms of such agreements comply with the guidelines set forth in
the Federal Financial Agreements of Depository Institutions With
Securities Dealers and Others, as adopted by the Comptroller of the
Currency on October 31, 1985.
"CERCLA" means the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended from time to
time.
"CERCLIS" means the Comprehensive Environmental Response,
Compensation and Liability Information System maintained by the U.S.
Environmental Protection
"CERTIFICATES" means any state or federal certificates of
operating authority of the Company or its Subsidiaries.
"CHANGE OF CONTROL" shall be deemed to occur if (a) the sale,
conveyance, transfer or lease (other than to the Company or any
wholly-owned Subsidiary of the Company), whether direct or indirect,
of all or substantially all of the assets of the Company or of the
Company and its Subsidiaries taken as a whole to any "person" or
"group" (within the meaning of Sections 13(d)(3) and 14(d)(2) of the
Exchange Act or any successor provision to either of the foregoing,
including any group acting for the purpose of acquiring, holding or
disposing of securities within the meaning of Rule 13d-5(b)(i) under
the Exchange Act) shall have occurred; or (b) any "person" or
"group" (within the meaning of Sections 13(d)(3) and 14(d)(2) of the
Exchange Act or any successor provision to either of the foregoing,
including any group acting for the purpose of acquiring, holding or
disposing of securities within the meaning of Rule 13d-5(b)(i) under
the Exchange Act), other than any Permitted Holder or Permitted
Holders, becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act) of more than 35 percent of the total voting
power of all classes of the Voting Stock of the Company (including
any warrants, options or rights to acquire such Voting Stock),
calculated on a fully diluted basis, and such voting power
percentage is greater than or equal to the total voting power
percentage then beneficially owned by the Permitted Holders in the
aggregate; or (c) during any period of two consecutive years,
individuals who at the beginning of such period constituted the
board of directors of the Company (together with any new directors
whose election or appointment by such board or whose nomination for
election by the stockholders of the Company was approved by a vote
of a majority of the directors then still in office who were either
directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any
reason to constitute a majority of the board of directors of the
Company then in office.
"CLOSING" has the meaning specified in Section 3.
"CLOSING DATE" has the meaning specified in Section 3.
"COLLATERAL" means all "Collateral" referred to in the
Collateral Documents and all other property and assets that are or
are intended under the terms of the Collateral Documents to be
subject to any Lien in favor of you.
"COLLATERAL DOCUMENTS" means, collectively, the Security
Agreement, each other security or pledge agreement entered into
pursuant to Section 8.11 and each other agreement that creates or
purports to create or perfect a Lien in favor of you.
"COMMUNICATIONS ACT" means the Communications Act of 1934, as
amended, 47 U.S.C. sec. 151 et seq.
"COMPANY" has the meaning specified on page one of this
Agreement.
"CONFIDENTIAL INFORMATION" means information delivered to you
by or on behalf of the Company or any of its Subsidiaries in
connection with this Agreement or the Transaction or the other
transactions contemplated hereby that is proprietary in nature and
that was financial in nature or clearly marked, labeled or otherwise
adequately identified when received by you as being confidential
information of the Company or such Subsidiary, but does not include
any such information that (a) is or was generally available to the
public (other than as a result of a breath of your confidentiality
obligations hereunder), (b) becomes known or available to you on a
nonconfidential basis other than through disclosure by the Company
or any of its Subsidiaries or (c) constitutes financial statements
delivered to you under Section 5.4 or 8.1 that are otherwise
publicly available.
"CONNECTICUT TELEPHONE" means USN Wireless, Inc. and its
Subsidiaries.
"CURRENT VALUE" has the meaning specified in Section 3 of
ERISA.
"DEFAULT" means any Event of Default or any event or
condition that would constitute an Event of Default but for the
requirement that notice be given or time elapse or both.
"DEFAULT RATE" means that rate of interest that is the
greater of 3 % per annum above the rate of interest stated in clause
(a) of the first paragraph of the Notes.
"EMPLOYEE BENEFIT PLAN" has the meaning specified in Section
3 of ERISA.
"ENVIRONMENTAL ACTION" means any action, suit, demand, demand
letter, claim, notice of noncompliance or violation, notice of
liability or potential liability, investigation, proceeding, consent
order or consent agreement relating in any way to any Environmental
Law, any Environmental Permit or any Hazardous Materials or arising
from alleged injury or threat to health, safety or the environment,
including, without limitation, (a) by any Governmental Authority for
enforcement, cleanup, removal, response, remedial or other actions
or damages and (b) by any Governmental Authority or other third
party for damages, contribution, indemnification, cost recovery,
compensation or injunctive relief.
"ENVIRONMENTAL LAW" means any federal, state, local or
foreign statute, law, ordinance, rule, regulation, code, order,
writ, judgment, injunction, decree or judicial, ministerial or
agency interpretation, policy or guidance relating to pollution or
to protection of the environment, health, safety or natural
resources, including, without limitation, those relating to the use,
handling, transportation, treatment, storage, disposal, release or
discharge of Hazardous Materials.
"ENVIRONMENTAL PERMIT" means any permit, approval, license,
identification number or other authorization required under any
Environmental Law.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, and the regulations promulgated
and the rulings issued thereunder from time to time.
"ERISA AFFILIATE" means any Person that for purposes of Title
IV of ERISA is a member of the controlled group of the Company or
any of the Guarantors, or under common control with the Company or
any of the Guarantors, within the meaning of Section 414 of the
Internal Revenue Code.
"EVENT OF DEFAULT" has the meaning specified in Section 11.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended from time to time, and the regulations promulgated and the
rulings issued thereunder from time to time.
"FACILITY FEE" means $500,000 payable to the Purchaser on the
Maturity Date.
"FCC LICENSES" means the aggregate authority granted by, or
documents issued by, the FCC to the Company or any of its
Subsidiaries permitting the Company or any of its Subsidiaries, to
render, provide or engage in telecommunications or
telecommunications service within the jurisdiction of the FCC,
including authority that is the subject of an application or request
filed with the FCC by the Company or any of its Subsidiaries.
"FCC RULES" means Title 47 of the Code of Federal
Regulations, as amended at any time and from time to time, and FCC
decisions issued pursuant to the adoption of such regulations.
"GAAP" means generally accepted accounting principles as in
effect in the United States of America and as are applied in the
financial statements of a Person on a consistent basis.
"GOVERNMENTAL AUTHORITY" means any nation or government, any
state, province or other political subdivision thereof, and any
governmental, executive, legislative, judicial, administrative or
regulatory agency, department, authority, instrumentality,
commission, board or similar body, whether federal, state,
provincial, territorial, local or foreign.
"HAZARDOUS MATERIALS" means (a) petroleum or petroleum
products, byproducts or breakdown products, radioactive materials,
asbestos-containing materials, polychlorinated biphenyis and radon
gas and (b) any other chemicals, materials or substances designated,
classified or regulated as hazardous or toxic or as a pollutant or
contaminant under any Environmental Law.
"HEDGE AGREEMENTS" means interest rate swap, cap or collar
agreements, interest rate future or option contracts, commodity
future or option contracts, currency swap agreements, currency
fixture or option contracts and other similar agreements.
"HOLDER" means, with respect to any Note, the Person in whose
name such Note is registered in the register maintained by the
Company pursuant to Section 11. 1.
"INDEBTEDNESS" means, with respect to any Person (without
duplication):
(a) all indebtedness of such Person for borrowed money;
(b) all Obligations of such Person for the deferred purchase
price of property and assets or services (other than trade payables
that are incurred in the ordinary course of such Person's business
and are not overdue by more than 90 days or were in existence on the
Closing Date);
(c) all Obligations of such Person evidenced by notes, bonds,
debentures or other similar instruments, or upon which interest
payments are customarily made;
(d) all Obligations of such Person created or arising under
any conditional sale or other title retention agreement with respect
to property or assets acquired by such Person, even though the
rights and remedies of the seller or the lender under such agreement
in the event of default are limited to repossession or sale of such
property or assets;
(e) all Obligations of such Person as lessee under
Capitalized Leases;
(f) all Obligations, contingent or otherwise, of such Person
under acceptance, letter of credit or similar facilities;
(g) all Obligations of such Person to purchase, redeem,
retire, defease or otherwise make any payment in respect of any
shares of capital stock of (or other ownership or profit interest
in) such Person or in any other Person, or any warrants, rights or
options to acquire such shares (or such other ownership or profit
interest), other than any such Obligations for accrued and unpaid
dividends thereon;
(h) all Obligations of such Person in respect of Hedge
Agreements, commodities agreements or take-or-pay or other similar
arrangements;
(i) all Obligations of such Person under any synthetic lease,
tax retention operating lease, off-balance sheet loan or similar
off-balance sheet financing if the transaction giving rise to such
Obligation is considered indebtedness for borrowed money for tax
purposes but is classified as an operating lease in accordance with
GAAP;
(j) all Obligations of such Person for production payments
from property operated by or on behalf of such Person and other
similar arrangements with respect to natural resources;
(k) all Indebtedness of other Persons referred to in clauses
(a) through (j) above or clause (l) below guaranteed directly or
indirectly in any manner by such Person, or in effect guaranteed
directly or indirectly by such Person through an agreement (i) to
pay or purchase such Indebtedness or to advance or supply funds for
the payment or purchase of such Indebtedness, (ii) to purchase, sell
or lease (as lessee or lessor) property or assets, or to purchase or
sell services, primarily for the purpose of enabling the debtor to
make payment of such Indebtedness or to assure the holder of such
Indebtedness against loss, (iii) to supply funds to or in any other
manner to invest in the debtor (including any agreement to pay for
property, assets or services irrespective of whether such property
or assets are received or such services are rendered) or (iv)
otherwise to assure a creditor against loss; and
(1) all Indebtedness referred to in clauses (a) through (k)
above of another Person secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be
secured by) any Lien on property or assets (including, without
limitation, accounts and contract rights) owned by such Person, even
though such Person has not assumed or become liable for the payment
of such Indebtedness.
The Indebtedness of any Person shall include (i) all obligations of
any partnership or joint venture of the character described in
clauses (a) through (1) above in which such person is a general
partner or a joint venturer and (ii) all obligations of such Person
of the character described in clauses (a) through (1) above to the
extent such Person remains legally liable in respect thereof
notwithstanding that any such obligation is deemed to be
extinguished under GAAP.
"INDEMNIFIED PARTY" has the meaning specified in Section
14.2.
"INSUFFICIENCY" means, with respect to any Plan, the amount,
if any, of its unfunded benefit liabilities (as defined in Section
4001(a)(18) of ERISA).
"INSTITUTIONAL INVESTOR" means (a) any original purchaser of
a Note, (b) any holder of a Note holding more than 25 % of the
aggregate principal amount of the Notes outstanding on any date of
determination and (c) any bank, trust company, savings and loan
association or other financial institution, any pension plan, any
investment company, any insurance company, any broker or dealer, or
any other similar financial institution or entity, regardless of
legal form.
"INTERNAL REVENUE CODE" means the Internal Revenue Code of
1986, as amended from time to time, and the regulations promulgated
and the rulings issued thereunder from time to time.
"INVESTMENT" means, with respect to any Person, any loan or
advance to such Person, any purchase or other acquisition of any
shares of capital stock (or other ownership or profit interest),
warrants, rights, options, obligations or other securities of such
Person, any capital contribution to such Person or any other
investment in such Person, including, without limitation, any
arrangement pursuant to which the investor incurs Indebtedness of
the types referred to in clause (k) or (1) of the definition of
"Indebtedness" in respect of such Person.
"LEGAL REQUIREMENTS" means all applicable international,
foreign, federal, state, and local laws, judgments, decrees, orders,
statutes, ordinances, rules, regulations, or Permits including the
Communications Act and all orders issued and regulations promulgated
under the Communications Act.
"LIEN" means, with respect to any Person, any mortgage, lien,
pledge, charge, hypothecation, assignment, deposit arrangement,
security interest, encumbrance priority, charge or other preference
of any kind (including, without limitation, any agreement to give
any of the foregoing), or any interest or title of any vendor,
lessor, lender or other secured party to or of such Person under any
conditional sale or other title retention agreement or Capitalized
Lease, upon or with respect to any property or asset of such Person
(including, in the case of shares of capital stock, stockholder
agreements, voting trust agreements and other similar arrangements).
"MATERIAL" means material in relation to the business,
operations, condition (financial or otherwise), assets, liabilities
or properties of the Company and the Guarantors, taken as a whole.
"MATERIAL ADVERSE CHANGE" means any material adverse change
in the business, condition (financial or otherwise), operations,
performance, properties or prospects of the Company or any of its
Subsidiaries taken as a whole.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on
(a) the business, operations, condition (financial or otherwise),
assets, liabilities or properties of the Company and its
Subsidiaries, taken as a whole, (b) the ability of the Company or
its Subsidiaries to perform its obligations under this Agreement or
any other Note Document to which it is or is to be a party or (c)
other than solely as a result of an action or inaction by you, the
rights and remedies afforded to you under this Agreement or any
other Note Document.
"MATERIAL CONTRACT" means, with respect to any Person, each
contract to which such Person is a party involving aggregate
consideration payable to or by such Person of $150,000 or more in
any year or otherwise material to the business, condition (financial
or otherwise), operations, performance, properties or prospects of
such Person.
"MATURITY DATE" means the earlier of January 15, 1999 and the
date the Notes have become or are declared to be immediately due and
payable pursuant to Section 11.
"MULTIEMPLOYER PLAN" means a multiemployer plan (as defined
in Section 4001(a)(3) of ERISA) to which the Company or any ERISA
Affiliate is making or accruing an obligation to make contributions,
or has within any of the preceding five plan years made or accrued
an obligation to make contributions.
"MULTIPLE EMPLOYER PLAN" means a single employer plan (as
defined in Section 4001(a)(15) of ERISA) that (a) is maintained for
employees of the Company or any ERISA Affiliate and at least one
Person other than the Company and the ERISA Affiliates or (b) was so
maintained and in respect of which the Company or any ERISA
Affiliate could have liability under Section 4064 or 4069 of ERISA
in the event such plan has been or were to be terminated.
"NOTE DOCUMENTS" means, collectively, this Agreement, the
Notes, the Collateral Documents and each other agreement evidencing
any Obligation of the Company secured by the Collateral Documents,
in each case as amended, supplemented or otherwise modified
hereafter from time to time in accordance with the terms hereof and
thereof.
"NOTES" has the meaning defined in Section 1.
"NPL" means the National Priorities List under CERCLA.
"OBLIGATION" means, with respect to any Person, any payment,
performance or other obligation of such Person of any kind,
including, without limitation, any liability of such Person on any
claim, whether or not the right of any creditor to payment in
respect of such claim is reduced to judgment, liquidated,
unliquidated, fixed, contingent, matured, disputed, undisputed,
legal, equitable, secured or unsecured, and whether or not such
claim is discharged, stayed or otherwise affected by any proceeding
referred to in Section 11.1(g).
"OFFICER'S CERTIFICATE" means a certificate of a Senior
Financial Officer or of any other officer of the Company whose
responsibilities extend to the subject matter of such certificate.
"PBGC" means the Pension Benefit Guaranty Corporation
referred to and defined in ERISA or any successor thereto.
"PERMITS" of a Person shall mean all rights, franchises,
permits, authorities, licenses, certificates of approval or
authorizations, including licenses and other authorizations issuable
by a Governmental Authority, which pursuant to applicable Legal
Requirements are necessary to permit such Person lawfully to conduct
and operate its business as currently conducted and to own and use
its assets.
"PERMITTED HOLDERS" means J. Thomas Elliott and Ronald W.
Gavillet and Chase Manhattan Bank, CIBC Oppenheimer Corp., John
Hancock Insurance Company, Northwood Capital Partners, LLC,
Northwood Ventures, HarbourVest Partners IV-Direct Fund L.P.,
HarbourVest Partners V-Direct Fund L.P., BT Alex Brown,
Incorporated, Enterprises and the Purchaser and any of their
respective Subsidiaries (or a wholly-owned Subsidiary of the sole
stockholder of any of the foregoing Persons).
"PERMITTED LIENS" means such of the following as to which no
enforcement, collection, execution, levy or foreclosure proceeding
shall have been commenced:
(a) Liens for taxes, assessments and governmental charges or
levies to the extent not otherwise required to be paid under Section
8.5(a);
(b) Liens imposed by law, such as materialmen's, mechanics',
carriers', workmen's, storage and repairmen's Liens and other
similar Liens arising in the ordinary course of business and
securing obligations (other than Indebtedness for borrowed money)
that (i) are not overdue for a period of more than 60 days or (ii)
are being contested in good faith and by proper proceedings and as
to which appropriate reserves are being maintained in accordance
with GAAP;
(c) pledges or deposits to secure obligations incurred in the
ordinary course of business under workers' compensation laws,
unemployment insurance or other similar legislation (other than in
respect of employee benefit plans subject to ERISA) or to secure
public or statutory obligations;
(d) Liens securing the performance of, or payment in respect
of, bids, tenders, government contracts (other than for the
repayment of borrowed money), surety and appeal bonds and other
obligations of a similar nature incurred in the ordinary course of
business;
(e) any interest or title of a lessor or sublessor and any
restriction or encumbrance to which the interest or title of such
lessor or sublessor may be subject that is incurred in the ordinary
course of business and, either individually or when aggregated with
all other Permitted Liens in effect on any date of determination,
could not be reasonably expected to have a Material Adverse Effect;
(f) Liens in favor of customs and revenue authorities arising
as a matter of law or pursuant to a bond to secure payment of
customs duties in connection with the importation of goods;
(g) customary rights of setoff upon deposits of cash in favor
of banks or other depository institutions;
(h) easements, rights of way, zoning restrictions and other
encumbrances on title to real property that do not, either
individually or in the aggregate, render title to the property
encumbered thereby unmarketable or materially and adversely affect
either the use of such property for its present purposes or the
conduct of the business of the Company or any of its Subsidiaries in
the ordinary course;
(i) Liens in favor of the Company on assets of its
Subsidiaries other than Connecticut Telephone; and
(j) second priority Liens on the assets of the Company in
favor of MCI WorldCom on terms and conditions satisfactory to the
Purchaser (it being understood that the Liens in favor of MCI
WorldCom contemplated by the letters referred to in Section 4.14 are
satisfactory to the Purchaser).
"PERSON" means an individual, partnership, corporation
(including a business trust), limited liability company, joint stock
company, trust, unincorporated association, joint venture or other
entity, or a government or any political subdivision or agency
thereof.
"PLAN" means a Single Employer Plan or a Multiple Employer
Plan.
"PLEDGED SHARES" has the meaning specified in the Security
Agreement.
"PRESENT VALUE" has the meaning specified in Section 3 of
ERISA.
"PROPERTY" or "PROPERTIES" means, unless otherwise expressly
stated in this Agreement, real or personal property of any kind,
tangible or intangible, choate or inchoate.
"PURCHASER" means the Merrill Lynch Global Allocation Fund,
Inc., together with successors and assigns.
"QPAM EXEMPTION" means Prohibited Transaction Class Exemption
84-14 issued by the United States Department of Labor.
"REGULATION T" shall mean Regulation T of the Board of
Governors of the Federal Reserve System as from time to time in
effect (and any successor to all or a portion thereof).
"REGULATION U" shall mean Regulation U of the Board of
Governors of the Federal Reserve System as from time to time in
effect (and any successor to all or a portion thereof).
"REGULATION X" shall mean Regulation X of the Board of
Governors of the Federal Reserve System as from time to time in
effect (and any successor to all or a portion thereof).
"REPORTABLE EVENT" means any of the events set forth in
Section 4043(c) of ERISA other than those events as to which the
post-event notice requirement is waived under subsections .13, .14,
.18, .19, or .20 of PBGC Reg. _2615.
"REQUIRED HOLDERS" means, at any time, the holders of at
least a majority in interest of the aggregate principal amount of
all of the Notes outstanding at such time (excluding from any
calculation thereof any Notes then owned or held by the Company or
any of its Subsidiaries or other Affiliates).
"RESPONSIBLE OFFICER" means any Senior Financial Officer and
any other officer of the Company or any of its Subsidiaries
responsible for overseeing the administration of or reviewing
compliance with all or any portion of this Agreement or any other
Note Document.
"SECURED OBLIGATIONS" has the meaning specified in Section 2
of the Security Agreement.
"SECURITIES ACT" means the Securities Act of 1933, as amended
from time to time.
"SECURITY AGREEMENT" has the meaning specified in Section 4.3.
"SENIOR FINANCIAL OFFICER" means the chief financial officer,
the principal accounting officer, the treasurer or the comptroller
of the Company.
"SEPARATE ACCOUNT" has the meaning specified in Section 3 of
ERISA.
"SINGLE EMPLOYER PLAN" means a single employer plan (as
defined in Section 4001(a)(15) of ERISA) that (a) is maintained for
employees of the Company or any ERISA Affiliate and no Person other
than the Company and the ERISA Affiliates or (b) was so maintained
and in respect of which the Company or any ERISA Affiliate could
have liability under Section 4069 of ERISA in the event such plan
has been or were to be terminated.
"SUBSIDIARY" means, with respect to any Person, any
corporation, partnership, joint venture, limited liability company,
trust or estate of which (or in which) more than 50% of:
(a) the issued and outstanding shares of capital stock having
ordinary voting power to elect a majority of the board of directors
of such corporation (irrespective of whether at the time shares of
capital stock of any other class or classes of such corporation
shall or might have voting power upon the occurrence of any
contingency);
(b) the interest in the capital or profits of such
partnership, joint venture or limited liability company; or
(c) the beneficial interest in such trust or estate,
is at the time, directly or indirectly, owned or controlled by such
Person, by such Person and one or more of its other Subsidiaries or
by one or more of such Person's other Subsidiaries.
"TERMINATION EVENT" means:
(a) (i) the occurrence of a reportable event, within the
meaning of Section 4043(c) of ERISA, with respect to any Plan unless
the 30-day notice requirement with respect to such event has been
waived by the PBGC or (ii) the requirements of paragraph (1) of
Section 4043(b) of ERISA (without regard to paragraph (2) of such
Section) are met with a contributing sponsor, as defined in Section
4001(a)(13) of ERISA, of a Plan, and an event described in paragraph
(9), (IO), (II), (I 2) or (1 3) of Section 4043(c) of ERISA would
reasonably be expected to occur with respect to such Plan within the
following 30 days;
(b) the application for a minimum funding waiver with respect
to a Plan;
(c) the provision by the administrator of any Plan of a
notice of intent to terminate such Plan pursuant to Section
4041(a)(2) of ERISA (including any such notice with respect to a
plan amendment referred to in Section 4041(e) of ERISA);
(d) the cessation of operations at a facility of the Company
or any ERISA Affiliate in the circumstances described in Section
4062(e) of ERISA;
(e) the withdrawal by the Company or any ERISA Affiliate from
a Multiple Employer Plan during a plan year for which it was a
substantial employer, as defined in Section 4001(a)(2) of ERISA;
(f) the conditions for the imposition of a lien under Section
302(f) of ERISA shall have been met with respect to any Plan;
(g) the adoption of an amendment to a Plan requiring the
provision of security to such Plan pursuant to Section 307 of ERISA;
or
(h) the institution by the PBGC of proceedings to terminate a
Plan pursuant to Section 4042 of ERISA, or the occurrence of any
event or condition described in Section 4042 of ERISA, that
constitutes grounds for the termination of, or the appointment of a
trustee to administer, a Plan.
"TRANSACTION" means the entering into by the Company of the
Note Documents.
"VOTING STOCK" means shares of capital stock issued by a
corporation, or equivalent interests in any other Person, the
holders of which are ordinarily, in the absence of contingencies,
entitled to vote for the election of directors (or persons
performing similar functions) of such Person, even if the right so
to vote has been suspended by the happening of such a contingency.
"WITHDRAWAL LIABILITY" has the meaning specified in Part I of
Subtitle E of Title IV of ERISA.
"WORLDCOM" means MCI WorldCom.
EXHIBIT 10.2
SECURITY AGREEMENT
Dated as of November 18, 1998
From
USN COMMUNICATIONS, INC.,
the Company
to
MERRILL LYNCH GLOBAL ALLOCATION FUND, INC.
as Purchaser
TABLE OF CONTENTS
Page
----
Section 1. Grant of Security...........................................1
Section 2. Security for Obligations....................................3
Section 3. Grantor Remains Liable......................................3
Section 4. Delivery of Security Collateral.............................3
Section 5. Representations and Warranties..............................4
Section 6. Further Assurances..........................................5
Section 7. As to Equipment and Inventory...............................6
Section 8. Insurance...................................................6
Section 9. Place of Perfection, Records, Collection
of Receivables..............................................7
Section 10. Voting Rights; Dividends; Etc...............................8
Section 11. Transfers and Other Liens; Additional Shares................9
Section 12. The Secured Party Appointed Attorney-in-Fact................9
Section 13. The Secured Party May Perform..............................10
Section 14. The Secured Party's Duties.................................10
Section 15. Remedies...................................................10
Section 16. Registration Rights........................................11
Section 17. Indemnity and Expenses.....................................12
Section 18. Security Interest Absolute.................................12
Section 19. Amendments; Waivers; Etc...................................13
Section 20. Addresses for Notices......................................13
Section 21. Continuing Security Interest, Assignments
under the Note Purchase Agreement..........................13
Section 22. Release and Termination....................................13
Section 23. Execution in Counterparts..................................14
Section 24. Governing Law; Terms.......................................14
Schedule I PLEDGED SHARES..............................................1
Schedule II LOCATIONS OF EQUIPMENT AND INVENTORY........................1
Schedule III TRADE NAMES................................................1
SECURITY AGREEMENT, dated as of November 18, 1998, made by USN
COMMUNICATIONS, INC., a Delaware corporation (the "Grantor") and MERRILL
LYNCH GLOBAL ALLOCATION FUND, INC. (together with its successors and
assigns, the "Secured Party") as purchaser.
(1) The Secured Party has entered into a Note Purchase Agreement
with the Grantor, pursuant to which the Grantor is issuing on the date
hereof $10,000,000 in aggregate principal amount of 17% Senior Secured
Notes due January 15, 1999 (the "Notes"; the terms defined therein and not
otherwise defined herein being used herein as therein defined).
(2) The Grantor is the owner of the shares set forth in Schedule
I hereto and issued by the corporation named therein.
(3) It is a condition precedent to the purchase of the Notes by
the Secured Party under the Note Purchase Agreement that the Grantor shall
have granted the assignment and security interest and made the pledge and
assignment contemplated by this Agreement.
NOW, THEREFORE, in consideration of the premises and in order to
induce the Secured Party to purchase the Notes, the Grantor hereby agrees
with the Secured Party:
Section 1. GRANT OF SECURITY. The Grantor hereby assigns and
pledges to the Secured Party, and hereby grants to the Secured Party for
its benefit, a security interest in, the following (collectively, the
"Collateral"):
(a) all of the Grantor's right, title and interest, whether now
owned or hereafter acquired, in and to all equipment in all of its
forms, wherever located, now or hereafter existing, all fixtures and
all parts thereof and all accessions thereto (any and all such
equipment, fixtures, parts and accessions being the "Equipment");
(b) all of the Grantor's right, title and interest, whether now
owned or hereafter acquired, in and to all inventory in all of its
forms, wherever located, now or hereafter existing (including, but not
limited to, (i) all raw materials and work in process therefor,
finished goods thereof and materials used or consumed in the
manufacture or production thereof, (ii) goods in which the Grantor has
an interest in mass or a joint or other interest or right of any kind
(including, without limitation, goods in which the Grantor has an
interest or right as consignee) and (iii) goods that are returned to
or repossessed by the Grantor), and all accessions thereto and
products thereof and documents therefor (any and all such inventory,
accessions, products and documents being the "Inventory");
(c) all of the Grantor's right, title and interest, whether now
owned or hereafter acquired. in and to all accounts, accounts
receivable, reimbursements, notes, contract rights, lease rights,
chattel paper, instruments, deposit accounts, general intangibles and
other obligations of any kind (including, without limitation, all
intercompany debt owed to the Grantor that is not evidenced by a
promissory note or similar instrument and all telephone accounts and
accounts receivable arising from telecommunication services rendered
to an end user prior to the sale, assignment, or transfer of such
account (collectively, the "End User Accounts") to a regional Bell
operating company, a Bell operating company, local exchange company,
credit card company or provider of local telephone services (each a
"LEC") for billing and collection, and rights in and to any of the
telephone receivables, debts, and other amounts payable to Debtor by
any LEC) and any and all other assets, now or hereafter existing,
whether or not arising out of or in connection with the sale or lease
of goods or the rendering of services and whether or not earned by
performance (including, without limitation, any rights with respect to
workers' compensation or other deposits made by the Grantor and any
rights to receive tax refunds or other refunds, reimbursements and
payments from any federal, state or local government or any political
subdivision, agency or instrumentality thereof), and all rights now or
hereafter existing in and to all security agreements, leases and other
contracts (including without limitation, network contracts, customer
contracts for the furnishing by the Company of telecommunication
services and billing and collection contracts) securing or otherwise
relating to any such accounts, contract rights, chattel paper,
instruments, deposit accounts, general intangibles, obligations or
other assets (any and all such accounts, contract rights, chattel
paper, instruments, deposit accounts, general intangibles and
obligations, to the extent not referred to in clause (d), (e) or (f)
below, being the "Receivables", and any and all such leases, security
agreements and other contracts being the "Related Contracts");
(d) all of the following (the "Security Collateral"):
(i) the shares of stock set forth opposite in Schedule I
hereto and issued by the corporations indicated therein
(collectively referred to herein as the "Initial Pledged Shares",
and together with the shares referred to in clause (iii) below,
the "Pledged Shares"), together with the certificates
representing such Initial Pledged Shares and all dividends, cash,
instruments and other property from time to time received,
receivable or otherwise distributed in respect of or in exchange
for any or all of such Initial Pledged Shares; and
(ii) all additional shares of stock of any issuer of any
Initial Pledged Shares or of any other Subsidiary of the Grantor
or of any other Person from time to time acquired by the Grantor
in any manner, and all additional shares of stock of each other
Subsidiary of the Grantor to the extent required pursuant to
Section 8.11 of the Note Purchase Agreement, together with the
certificates representing such additional shares and all
dividends, cash, instruments and other property from time to time
received, receivable or otherwise distributed in respect of or in
exchange for any or all of such shares;
(e) all of the following (collectively, the "Account Collateral"):
(i) all deposit accounts of the Grantor (including, without
limitation, the "Account"), all funds held therein and all
certificates and instruments, if any, from time to time
representing or evidencing such deposit accounts;
(ii) all notes, certificates of deposit, deposit accounts,
checks and other instruments from time to time hereafter
delivered to or otherwise possessed by the Secured Party for or
on behalf of the Grantor in substitution for or in addition to
any or all of the then existing Account Collateral; and
(iii) all interest, dividends, cash, drafts, rights to
receive payment in money or kind, instruments and other property
from time to time received, receivable or otherwise distributed
in respect of or in exchange for any or all of the then existing
Account Collateral;
(f) customer lists, all documents containing the names,
addresses, telephone numbers, and other information regarding the
Company's customers, subscribers, tapes, programs, printouts, disks,
and other material and documents relating to the recording, billing or
analyzing of any of the foregoing, and any other right to payment; and
(g) all proceeds of any and all of the foregoing Collateral
(including, without limitation, proceeds that constitute property of
the types described in clauses (a) - (f) of this Section 1) and, to
the extent not otherwise included, all (i) payments under insurance
(whether or not the Secured Party is the loss payee thereof), or any
indemnity, warranty or guaranty, payable by reason of loss or damage
to or otherwise with respect to any of the foregoing Collateral and
(ii) cash.
Notwithstanding the foregoing, Collateral shall not include a
grant of any Related Contract or other contract or capital lease if such
grant (i) is prohibited by such contract's terms, (ii) requires
governmental approval, or (iii) would violate any applicable law.
Section 2. SECURITY FOR OBLIGATIONS. This Agreement secures the
payment of all Obligations of the Grantor now or hereafter existing under
the Note Documents, whether direct or indirect, absolute or contingent,
including any extensions, modifications, substitutions, amendments and
renewals thereof whether for principal, interest, premium, penalties, fees,
the Facility Fee, indemnifications, costs, expenses or otherwise (all such
Obligations being the "Secured Obligations"). Without limiting the
generality of the foregoing, this Agreement secures the payment of all
amounts that constitute part of the Secured Obligations and would be owed
by the Grantor to the Secured Party under the Note Documents but for the
fact that they are unenforceable or not allowable due to the existence of a
bankruptcy, reorganization or similar proceeding involving the Grantor.
Section 3. GRANTOR REMAINS LIABLE. Anything herein to the
contrary notwithstanding, (a) the Grantor shall remain liable under the
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
Secured Party of any of the rights hereunder shall not release the Grantor
from any of its duties or obligations under the contracts and agreements
included in the Collateral and (c) the Secured Party shall not have any
obligation or liability under the contracts and agreements included in the
Collateral by reason of this Agreement, nor shall the Secured Party be
obligated to perform any of the obligations or duties of the Grantor
thereunder or to take any action to collect or enforce any claim for
payment assigned hereunder.
Section 4. DELIVERY OF SECURITY COLLATERAL. All certificates or
instruments representing or evidencing Security Collateral or Account
Collateral (and, to the extent requested by the Secured Party, any other
Collateral) shall be delivered to and held by or on behalf of the Secured
Party pursuant hereto and shall be in suitable form for transfer by
delivery, or shall be accompanied by duly executed instruments of transfer
or assignment in blank, all in form and substance satisfactory to the
Secured Party. After the occurrence of an Event of Default and for so long
as it is continuing, the Secured Party shall have the right, at any time in
its discretion and without notice to any Grantor, to transfer to or to
register in the name of the Secured Party or any of its nominees any or all
of the Security Collateral and Account Collateral, subject only to the
revocable rights specified in Section 10(a). In addition, the Secured Party
shall have the right at any time to exchange certificates or instruments
representing or evidencing Security Collateral or Account Collateral for
certificates or instruments of smaller or larger authorized denominations.
Section 5. REPRESENTATIONS AND WARRANTIES. The Grantor represents
and warrants as follows:
(a) All of the Equipment and Inventory are located at the places
specified in Schedule II hereto. The chief place of business and chief
executive office of the Grantor and the office where the Grantor keeps
its records concerning the Receivables, and all originals of all
chattel paper that evidence Receivables, are located at the address
below the Grantor's name on the signature pages hereto. No material
amount of the Receivables is evidenced by a promissory note or other
instrument.
(b) The Grantor is the legal and beneficial owner of the
Collateral of the Grantor free and clear of any Lien, except for the
security interest created by this Agreement and except as permitted
under the Note Purchase Agreement. No effective financing statement or
other instrument similar in effect covering all or any part of the
Collateral is on file in any recording office, except such as may have
been filed in favor of the Secured Party relating to this Agreement or
as permitted by the Note Purchase Agreement. The Grantor has the trade
names listed on Schedule III.
(c) The Pledged Shares have been duly authorized and validly
issued and are fully paid and non-assessable.
(d) The Initial Pledged Shares constitute the percentage of the
issued and outstanding shares of stock of the issuers thereof
indicated on Schedule I.
(e) This Agreement, the pledge of the Security Collateral
pursuant hereto and the pledge and assignment of the Account
Collateral pursuant hereto create a valid and, subject to the filing
of all necessary financing statements and the delivery of the Security
Collateral, perfected first priority security interest in the
Collateral of the type subject to Articles 8 or 9 of the Uniform
Commercial Code, securing the payment of the Secured Obligations, and
all filings and other actions necessary or desirable to perfect and
protect such security interest have been duly taken except as
permitted under the Note Purchase Agreement.
(f) No consent of any other Person and no authorization, approval
or other action by, and no notice to or filing with, any governmental
authority or regulatory body or other third party is required either
(i) for the grant by the Grantor of the assignment and security
interest granted hereby, for the pledge by the Grantor of the Security
Collateral pursuant hereto or for the execution, delivery or
performance of this Agreement by the Grantor, (ii) for the perfection
or maintenance of the pledge, assignment and security interest created
hereby (including the first priority nature of such pledge, assignment
or security interest), except for the filing of financing and
continuation statements under the Uniform Commercial Code, which
financing statements have been or will be duly filed or (iii) for the
exercise by the Secured Party of its voting or other rights provided
for in this Agreement or the remedies in respect of the Collateral
pursuant to this Agreement, except as may be required in connection
with the disposition of any portion of the Security Collateral by laws
affecting the offering and sale of securities generally or as
otherwise permitted under the Note Purchase Agreement.
Section 6. FURTHER ASSURANCES.
(a) The Grantor agrees that from time to time, at its own
expense, it will promptly execute and deliver all further instruments
and documents, and take all further action, that may be necessary, or
that the Secured Party may reasonably request, in order to perfect and
protect any pledge, assignment or security interest granted or
purported to be granted hereby or to enable the Secured Party to
exercise and enforce its rights and remedies hereunder with respect to
any Collateral. At the reasonable request of the Secured Party,
without limiting the generality of the foregoing, the Grantor will:
(i) mark conspicuously each document included in the Inventory, each
chattel paper included in the Receivables, each Related Contract and,
at the request of the Secured Party, each of its records pertaining to
the Collateral with a legend, in form and substance satisfactory to
the Secured Party, indicating that such document, chattel paper,
Related Contract or Collateral is subject to the security interest
granted hereby; (ii) if any Collateral shall be evidenced by a
promissory note or other instrument or chattel paper, deliver and
pledge to the Secured Party hereunder such note or instrument or
chattel paper duly endorsed and accompanied by duly executed
instruments of transfer or assignment, all in form and substance
satisfactory to the Secured Party; 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 Secured Party may request, in order to perfect and preserve the
pledge, assignment and security interest granted or purported to be
granted hereby.
(b) The Grantor hereby authorizes the Secured Party to file one
or more financing or continuation statements, and amendments thereto,
relating to all or any part of the Collateral without the signature of
the Grantor where permitted by law. A photocopy or other reproduction
of this Agreement or any financing statement covering the Collateral
or any part thereof shall be sufficient as a financing statement where
permitted by law.
(c) The Grantor will furnish to the Secured Party from time to
time statements and schedules further identifying and describing the
Collateral and such other reports in connection with the Collateral as
the Secured Party may reasonably request, all in reasonable detail.
(d) The Grantor agrees to take any action which the Secured Party
may reasonably request in order to obtain and enjoy the full rights
and benefits granted to the Secured Party by this Agreement and each
other agreement, instrument and document delivered to the Secured
Party in connection herewith or in any document evidencing or securing
the Collateral, including specifically, at the Company's sole cost and
expense, the use of its best efforts to assist in obtaining approval
of the FCC or any other agency or government for any action or
transaction contemplated by this Agreement which is then required by
law, and specifically, without limitation, upon request, to prepare,
sign and file with the FCC or any other agency or government the
assignor's or transferor's portion of any application or applications
for consent to the assignment of any license or franchise or transfer
of control necessary or appropriate under the FCC's or any agency or
government's rules and regulations for approval of (a) any sale or
sales of property constituting the Collateral by the Secured Party on
its behalf, or (b) any assumption by the Secured Party on its behalf
of voting rights or management rights in property constituting the
Collateral affected in accordance with the terms of this Agreement.
Section 7. AS TO EQUIPMENT AND INVENTORY. (a) The Grantor shall
keep the Equipment and Inventory (other than Inventory sold in the ordinary
course of business) at the places therefor specified in Section 5(a) or,
upon prior written notice to the Secured Party, at such other places in a
jurisdiction where all action required by Section 6 shall have been taken
with respect to the Equipment and Inventory.
(b) To the extent required by the Note Purchase Agreement, the
Grantor shall cause the Equipment to be maintained and preserved in the
same condition, repair and working order as when new, ordinary wear and
tear excepted, and in accordance with any manufacturer's manual, and shall
forthwith, or in the case of any loss or damage to any of the Equipment as
quickly as practicable after the occurrence thereof, make or cause to be
made all repairs, replacements and other improvements in connection
therewith that are necessary or desirable to such end. The Grantor shall
promptly furnish to the Secured Party a statement respecting any material
loss or damage to any of the Equipment.
(c) To the extent required by the Note Purchase
Agreement, the Grantor shall pay promptly when due all property and other
taxes, assessments and governmental charges or levies imposed upon, and all
claims (including claims for labor, materials and supplies) against, the
Equipment and Inventory. In producing the Inventory, the Grantor shall
comply in all material respects with all requirements of the Fair Labor
Standards Act.
Section 8. INSURANCE. (a) The Grantor shall, at its own expense,
maintain insurance with respect to the Equipment and Inventory in such
amounts, against such risks, in such form and with such insurers, as shall
be reasonably satisfactory to the Secured Party from time to time and is
customary in the industry. The Grantor shall take all necessary action to
ensure that each policy for liability insurance shall provide for all
losses to be paid on behalf of the Secured Party and the Grantor as their
interests may appear, and each policy for property damage insurance shall
provide for all losses to be paid directly to the Secured Party. The
Grantor shall take all necessary action to ensure that each such policy
shall in addition (i) name such Grantor and the Secured Party as insured
parties thereunder (without any representation or warranty by or obligation
upon the Secured Party) as their interests may appear, (ii) contain the
agreement by the insurer that any loss thereunder shall be payable to the
Secured Party notwithstanding any action, inaction or breach of
representation or warranty by the Grantor, (iii) provide that there shall
be no recourse against the Secured Party for payment of premiums or other
amounts with respect thereto and (iv) provide that at least 10 days' prior
written notice of cancellation or of lapse shall be given to the Secured
Party by the insurer. The Grantor shall, if so requested by the Secured
Party, deliver to the Secured Party original or duplicate policies of such
insurance and, as often as the Secured Party may reasonably request, a
report of a reputable insurance broker with respect to such insurance.
Further, the Grantor shall, at the request of the Secured Party, duly
exercise and deliver instruments of assignment of such insurance policies
to comply with the requirements of Section 6 and cause the insurers to
acknowledge notice of such assignment.
(b) Reimbursement under any liability insurance maintained by any
Grantor pursuant to this Section 8 may be paid directly to the Person who
shall have incurred liability covered by such insurance. In case of any
loss involving damage to Equipment or Inventory when subsection (c) of this
Section 8 is not applicable, the Grantor may make or cause to be made the
necessary repairs to or replacements of such Equipment or Inventory, and
any proceeds of insurance maintained by the Grantor pursuant to this
Section 8 shall be paid to the Grantor as reimbursement for the costs of
such repairs or replacements.
(c) Upon the occurrence and during the continuance of any Default
or the actual or constructive total loss (in excess of $100,000 per
occurrence) of any Equipment or Inventory, all insurance payments in
respect of such Equipment or Inventory shall be paid to and applied by the
Secured Party as specified in Section 15(b).
Section 9. PLACE OF PERFECTION, RECORDS, COLLECTION OF
RECEIVABLES. (a) The Grantor shall keep its chief place of business and
chief executive office and the office where it keeps its records concerning
the Collateral and all originals of all chattel paper that evidence
Receivables, at the location therefor specified in Section 5(a) or, upon 30
days' prior written notice to the Secured Party, at such other locations in
a jurisdiction where all actions required by Section 6 shall have been
taken with respect to the Collateral. The Grantor will hold and preserve
such records and chattel paper and will permit representatives of the
Secured Party at any time during normal business hours to inspect and make
abstracts from such records and chattel paper.
(b) Except as otherwise provided in this subsection (b), the
Grantor shall have the sole right to continue to collect, at its own
expense, all amounts due or to become due the Grantor under the
Receivables. In connection with such collections, the Grantor may take such
action as the Grantor or the Secured Party may deem necessary or advisable
to enforce collection of the Receivables; provided, however, that the
Secured Party shall have the right at any time following the occurrence and
during the continuance of an Event of Default, to notify the Obligors under
any Receivables of the assignment of such Receivables to the Secured Party
and to direct such Obligors to make payment of all amounts due or to become
due to the Grantor thereunder directly to the Secured Party and, upon such
notification and at the expense of the Grantor, to enforce collection of
any such Receivables, and to adjust, settle or compromise the amount or
payment thereof, in the same manner and to the same extent as the Grantor
might have done, and Secured Party also agrees to provide prompt notice (in
advance, if reasonably practicable) of same to Grantor. After receipt by
the Grantor of the notice from the Secured Party referred to in the proviso
to the preceding sentence, and until an Event of Default no longer exists
(i) all amounts and proceeds (including instruments) received by the
Grantor in respect of the Receivables shall be received in trust for the
benefit of the Secured Party hereunder and applied as provided by Section
15(b) and (ii) the Grantor shall not adjust, settle or compromise the
amount or payment of any Receivable, release wholly or partly any Obligor
thereof, or allow any credit or discount thereon.
Section 10. VOTING RIGHTS; DIVIDENDS; ETC. (a) So long as no
Event of Default shall have occurred and be continuing:
(i) The Grantor shall be entitled to exercise any and all
voting and other consensual rights pertaining to the Security
Collateral or any part thereof for any purpose not inconsistent
with the terms of this Agreement or the other Note Documents;
provided, however, that the Grantor shall not exercise or refrain
from exercising any such right if, in the Secured Party's
judgment, such action would have a material adverse effect on the
value of the Security Collateral or any part thereof; and
provided further that the Grantor shall give the Secured Party at
least five days' written notice of the manner in which it intends
to exercise, or the reasons for refraining from exercising, any
such right that could be reasonably expected to have a Material
Adverse Effect.
(ii) The Grantor shall be entitled to receive and retain any
and all dividends and interest paid in respect of the Security
Collateral; provided, however, that any and all
(A) dividends and interest paid or payable other than in
cash in respect of, and instruments and other property received,
receivable or otherwise distributed in respect of, or in exchange
for, any Security Collateral,
(B) dividends and other distributions paid or payable in
cash in respect of any Security Collateral in connection with a
partial or total liquidation or dissolution or in connection with
a reduction of capital, capital surplus or paid-in-surplus and
(C) cash paid, payable or otherwise distributed in respect
of principal of, or in redemption of, or in exchange for, any
Security Collateral shall be, and shall be forthwith delivered to
the Secured Party to hold as, Security Collateral and shall, if
received by the Grantor, be received in trust for the benefit of
the Secured Party, be segregated from the other property or funds
of the Grantor and be forthwith delivered to the Secured Party as
Security Collateral in the same form as so received (with any
necessary endorsement).
(iii) The Secured Party shall execute and deliver (or cause
to be executed and delivered) to the Grantor all such proxies and
other instruments as the Grantor may reasonably request for the
purpose of enabling the Grantor to exercise the voting and other
rights that it is entitled to exercise pursuant to paragraph (i)
above and to receive the dividends or interest payments that it
is authorized to receive and retain pursuant to paragraph (ii)
above.
(b) Upon the occurrence and during the continuance of an Event of
Default:
(i) All rights of the Grantor (x) to exercise or refrain
from exercising the voting and other consensual rights that it
would otherwise be entitled to exercise pursuant to Section
10(a)(i) shall, upon notice to the Grantor by the Secured Party,
cease and (y) to receive the dividends and interest payments that
it would otherwise be authorized to receive and retain pursuant
to Section 10(a)(ii) shall, upon notice from the Secured Party,
automatically cease, and all such rights shall thereupon become
vested in the Secured Party, which shall thereupon have the sole
right to exercise or refrain from exercising such voting and
other consensual rights and to receive and hold as Security
Collateral such dividends and interest payments.
(ii) All dividends and interest payments that are received
by the Grantor contrary to the provisions of paragraph (i) of
this Section 10(b) shall be received in trust for the benefit of
the Secured Party, shall be segregated from other funds of the
Grantor and shall be forthwith paid over to the Secured Party as
Security Collateral in the same form as so received (with any
necessary endorsement).
Section 11. TRANSFERS AND OTHER LIENS; ADDITIONAL SHARES. (a) The
Grantor shall not (i) sell, assign (by operation of law or otherwise) or
otherwise dispose of, or grant any option with respect to, any of the
Collateral, except sales of Inventory in the ordinary course of business,
or (ii) create or suffer to exist any Lien upon or with respect to any of
the Collateral except for the pledge, assignment and security interest
created by this Agreement, except, in each case, as permitted under the
Note Purchase Agreement.
(b) The Grantor shall (i) cause each issuer of the Pledged Shares
not to issue any stock or other securities in addition to or in
substitution for the Pledged Shares issued by such issuer, except to the
Grantor, and (ii) pledge hereunder, immediately upon its acquisition
(directly or indirectly) thereof, any and all additional shares of stock or
other securities.
Section 12. THE SECURED PARTY APPOINTED ATTORNEY-IN-FACT. The
Grantor hereby irrevocably appoints the Secured Party the Grantor's
attorney-in-fact, with full authority in the place and stead of the Grantor
and in the name of the Grantor or otherwise, from time to time in the
Secured Party's discretion, following an Event of Default and until such
Event of Default no longer exists, to take any action and to execute any
instrument that the Secured Party may deem necessary or advisable to
accomplish the purposes of this Agreement, including, without limitation:
(a) to obtain and adjust insurance required to be paid to the
Secured Party pursuant to Section 8,
(b) to ask for, demand, collect, sue for, recover, compromise,
receive and give acquittance and receipts for moneys due and to become
due under or in respect of any of the Collateral,
(c) to receive, indorse and collect any drafts or other
instruments, documents and chattel paper, in connection with clause
(a) or (b) above, and
(d) to file any claims or take any action or institute any
proceedings that the Secured Party may deem necessary or desirable for
the collection of any of the Collateral or otherwise to enforce
compliance with the rights of the Secured Party with respect to any of
the Collateral.
Section 13. THE SECURED PARTY MAY PERFORM. If the Grantor fails
to perform any agreement contained herein, the Secured Party may itself
perform, or cause performance of, such agreement, and the expenses of the
Secured Party incurred in connection therewith shall be payable by the
Grantor under Section 17(b).
Section 14. THE SECURED PARTY'S DUTIES. The powers conferred on
the Secured Party hereunder are solely to protect its interest in the
Collateral and shall not impose any duty upon it to exercise any such
powers. Except for the safe custody of any Collateral in its possession and
the accounting for moneys actually received by it hereunder, the Secured
Party shall have no duty as to any Collateral, as to ascertaining or taking
action with respect to calls, conversions, exchanges, maturities, tenders
or other matters relative to any Security Collateral, whether or not the
Secured Party has or is deemed to have knowledge of such matters, or as to
the taking of any necessary steps to preserve rights against any parties or
any other rights pertaining to any Collateral. The Secured Party shall be
deemed to have exercised reasonable care in the custody and preservation of
any Collateral in its possession if such Collateral is accorded treatment
substantially equal to that which such Grantor accords its own property.
Section 15. REMEDIES. If any Event of Default shall have occurred
and be continuing:
(a) The Secured Party may exercise in respect of the 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 upon default under the Uniform Commercial Code in effect in the
State of Illinois at such time (the "Illinois Uniform Commercial
Code") (whether or not the Illinois Uniform Commercial Code applies to
the affected Collateral) and also may (i) require the Grantor to, and
the Grantor hereby agrees that it will at its expense and upon request
of the Secured Party forthwith, assemble all or part of the Collateral
as directed by the Secured Party and make it available to the Secured
Party at a place to be designated by the Secured Party that is
reasonably convenient to both parties; (ii) without notice except as
specified below, sell the Collateral or any part thereof in one or
more parcels at public or private sale, at any of the Secured Party's
offices or elsewhere, for cash, on credit or for future delivery, and
upon such other terms as the Secured Party may deem commercially
reasonable; (iii) occupy any premises owned or leased by the Grantor
where the Collateral or any part thereof is assembled or located for a
reasonable period in order to effectuate its rights and remedies
hereunder or under law, without obligation to the Grantor in respect
of such occupation; and (iv) exercise any and all rights and remedies
of the Grantor under or in connection the Receivables or otherwise in
respect of the Collateral, including, without limitation, any and all
rights of the Grantor to demand or otherwise require payments of any
amount under the Receivables. The Grantor agrees that, to the extent
notice of sale shall be required by law, at least ten days' notice to
the Grantor 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 Secured Party shall not be obligated to make any
sale of Collateral regardless of notice of sale having been given. The
Secured Party 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.
(b) All cash proceeds received by the Secured Party in respect of
any sale of, collection from, or other realization upon all or any
part of the Collateral may, in the discretion of the Secured Party, be
held by the Secured Party as collateral for, and/or then or at any
time thereafter applied (after payment of any amounts payable to the
Secured Party pursuant to Section 17) in whole or in part by the
Secured Party against, all or any part of the Secured Obligations in
such order as the Secured Party shall elect. Any surplus of such cash
or cash proceeds held by the Secured Party and remaining after payment
in full of all the Secured Obligations shall be paid over to the
Company or to whomsoever may be lawfully entitled to receive such
surplus.
(c) The Secured Party may exercise any and all rights and
remedies of the Grantor otherwise in respect of the Collateral.
(d) Upon notice to the Grantor by the Secured Party, all payments
received by the Grantor in respect of the Collateral shall be received
in trust for the benefit of the Secured Party, shall be segregated
from other funds of the Grantor and shall be forthwith paid over to
the Secured Party in the same form as so received (with any necessary
endorsement).
Section 16. REGISTRATION RIGHTS. If the Secured Party shall
determine to exercise its right to sell all or any of the Security Collateral
pursuant to Section 15, the Grantor agrees that, upon request of the Secured
Party, the Grantor will, at its own expense:
(a) execute and deliver, and cause each issuer of the Security
Collateral contemplated to be sold and the directors and officers
thereof to execute and deliver, all such instruments and documents,
and do or cause to be done all such other acts and things, as may be
necessary or, in the opinion of the Secured Party, advisable to
register such Security Collateral under the provisions of the
Securities Act of 1933, as from time to time amended (the "Securities
Act"), to cause the registration statement relating thereto to become
effective and to remain effective for such period as prospectuses are
required by law to be furnished and to make all amendments and
supplements thereto and to the related prospectus that, in the opinion
of the Secured Party, are necessary or advisable, all in conformity
with the requirements of the Securities Act and the rules and
regulations of the Securities and Exchange Commission applicable
thereto;
(b) use its best efforts to qualify the Security Collateral under
the state securities or "Blue Sky" laws and to obtain all necessary
governmental approvals for the sale of the Security Collateral, as
requested by the Secured Party;
(c) cause each such issuer to make available to its security
holders, as soon as practicable, an earnings statement that will
satisfy the provisions of Section 11(a) of the Securities Act;
(d) provide the Secured Party with such other information and
projections as may be necessary or, in the opinion of the Secured
Party, advisable to enable the Secured Party to effect the sale of
such Security Collateral; and
(e) do or cause to be done all such other acts and things as may
be necessary to make such sale of the Security Collateral or any part
thereof valid and binding and in compliance with applicable law.
The Secured Party is authorized, in connection with any sale of the
Security Collateral pursuant to Section 15, to deliver or otherwise
disclose to any prospective purchaser of the Security Collateral (i) any
registration statement or prospectus, and all supplements and amendments
thereto, prepared pursuant to clause (a) above, (ii) any information and
projections provided to it pursuant to clause (d) above and (iii) any other
information in its possession relating to the Security Collateral.
Section 17. INDEMNITY AND EXPENSES. (a) The Grantor agrees to
indemnify the Secured Party from and against any and all claims, losses and
liabilities growing out of or resulting from this Agreement (including,
without limitation, enforcement of this Agreement), except claims, losses
or liabilities resulting from the Secured Party's bad faith, gross
negligence or willful misconduct as determined by a final judgment of a
court of competent jurisdiction.
(b) The Grantor will upon demand pay to the Secured Party the
amount of any and all reasonable expenses, including the reasonable fees
and expenses of its counsel and of any experts and agents, that the Secured
Party may incur in connection with (i) the administration of this
Agreement, (ii) the custody, preservation, use or operation of, or the sale
of, collection from or other realization upon, any of the Collateral, (iii)
the exercise or enforcement of any of the rights of the Secured Party
hereunder or (iv) the failure by the Grantor to perform or observe any of
the provisions hereof.
Section 18. SECURITY INTEREST ABSOLUTE. The obligations of the
Grantor under this Agreement are independent of the Secured Obligations,
and a separate action or actions may be brought and prosecuted against the
Grantor to enforce this Agreement, irrespective of whether any action is
brought against the Grantor. All rights of the Secured Party and the
pledge, assignment and security interest hereunder, and all obligations of
the Grantor hereunder, shall be absolute and unconditional, irrespective
of:
(a) any lack of validity or enforceability of any Note Document
or any other agreement or instrument relating thereto;
(b) any change in the time, manner or place of payment of, or in
any other term of, all or any of the Secured Obligations or any other
amendment or waiver of or any consent to any departure from any Note
Document;
(c) any taking, exchange, release or non-perfection of any other
collateral, or any taking, release or amendment or waiver of or
consent to departure from any guaranty, for all or any of the Secured
Obligations;
(d) any manner of application of collateral, or proceeds thereof,
to all or any of the Secured Obligations, or any manner of sale or
other disposition of any collateral for all or any of the Secured
Obligations or any other assets of the Grantor or any of its
Subsidiaries;
(e) any change, restructuring or termination of the corporate
structure or existence of the Grantor or any of its Subsidiaries; or
(f) any other circumstance that might otherwise constitute a
defense available to, or a discharge of, the Grantor or a third party
grantor of a security interest.
This Agreement shall continue to be effective or reinstated, as
the case may be, if at any time any payment of any of the Secured
Obligations is rescinded or must otherwise be returned by the Secured Party
or by any other Person upon the insolvency, bankruptcy or reorganization of
the Grantor or otherwise, all as though such payment had not been made.
Section 19. AMENDMENTS; WAIVERS; ETC. No amendment or waiver of
any provision of this Agreement, and no consent to any departure by the
Grantor herefrom, shall in any event be effective unless the same shall be
in writing and signed by the Secured Party, and then such waiver or consent
shall be effective only in the specific instance and for the specific
purpose for which given. No failure on the part of the Secured Party to
exercise, and no delay in exercising, any right hereunder shall operate as
a waiver thereof; nor shall any single or partial exercise of any such
right preclude any other or further exercise thereof or the exercise of any
other right.
Section 20. ADDRESSES FOR NOTICES. All notices and other
communications provided for hereunder shall be in writing (including
telecopier, telegraphic, telex or cable communication) and, mailed,
telegraphed, telecopied, telexed, cabled or delivered if to the Grantor,
addressed to it at the address set forth below on the signature pages
hereof, and if to the Secured Party or, as to any party, at such other
address as shall be designated by such party in a written notice to each
other party complying as to delivery with the terms of this Section. All
such notices and other communications shall, when mailed, telecopied,
telegraphed, telexed or cabled, respectively, be effective when deposited
in the mails, telecopied, delivered to the telegraph company, confirmed by
telex answerback or delivered to the cable company, respectively, addressed
as aforesaid.
Section 21. CONTINUING SECURITY INTEREST, ASSIGNMENTS UNDER THE
NOTE PURCHASE AGREEMENT. This Agreement shall create a continuing security
interest in the Collateral and shall (a) remain in full force and effect
until the later of the payment in full in cash of the principal of the
Notes, accrued interest thereon, and all other Secured Obligations and the
Maturity Date, (b) be binding upon the Grantor, its successors and assigns
and (c) inure, together with the rights and remedies of the Secured Party
hereunder, to the benefit of the Secured Party and its respective
successors, transferees and assigns.
Section 22. RELEASE AND TERMINATION. (a) Upon any sale, lease,
transfer or other disposition of any item of Collateral in accordance with
the terms of the Note Documents the security interest in such collateral
shall automatically be released. In addition, other than sales of Inventory
in the ordinary course of business, the Secured Party will, at the
Grantor's expense, execute and deliver to the Grantor such documents as the
Grantor shall reasonably request to evidence the release of such item of
Collateral from the assignment and security interest granted hereby;
provided, however, that (i) at the time of such release no Default shall
have occurred and be continuing, (ii) the Grantor shall have delivered to
the Secured Party, at least five Business Days prior to the date of the
proposed written release, a written request for release describing the item
of Collateral and the terms of the sale, lease, transfer or other
disposition in reasonable detail, including the price thereof and any
expenses in connection therewith, together with a form of release for
execution by the Secured Party and a certification by the Grantor to the
effect that the transaction is in compliance with the Note Documents and as
to such other matters as the Secured Party may request, (iii) the proceeds
of any such sale, lease, transfer or other disposition required to be
applied in accordance with Sections 7.1 and 7.2 of the Note Purchase
Agreement shall be paid to, or in accordance with the instructions of, the
Secured Party at the closing and (iv) the Secured Party shall have approved
such sale, lease, transfer or other disposition in writing or the same
shall otherwise be permitted by the Note Purchase Agreement.
(b) Upon the later of the payment in full in cash of the
principal of the Notes, accrued interest thereon, and all other Secured
Obligations and the Maturity Date, the pledge, assignment and security
interest granted hereby shall terminate and all rights to the Collateral
shall revert to the Grantor. Upon any such termination, the Secured Party
will, at the Grantor's expense, execute and deliver to the Grantor such
documents as the Grantor shall reasonably request to evidence such
termination. Section 23. EXECUTION IN COUNTERPARTS. This Agreement may be
executed in any number of counterparts, each of which when so executed
shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement. Delivery of any executed counterpart
of a signature page to this Agreement by telecopier shall be effective as
delivery of a manually executed counterpart of this Agreement.
Section 24. GOVERNING LAW; TERMS. This Agreement shall be
governed by and construed in accordance with the laws of the State of
Illinois, except to the extent that the validity or perfection of the
security interest hereunder, or remedies hereunder, in respect of any
particular Collateral are governed by the laws of a jurisdiction other than
the State of Illinois, Unless otherwise defined herein or in the Note
Purchase Agreement, terms used in Article 9 of the Illinois Uniform
Commercial Code are used herein as therein defined.
IN WITNESS WHEREOF, each Grantor has caused this Agreement to be
duly executed and delivered by its officer thereunto duly authorized as of
the date first above written.
USN COMMUNICATIONS, INC.
By_________________________________
Name:______________________________
Title:_____________________________
USN Communications, Inc.
10 South Riverside Plaza
Suite 2000
Chicago, Illinois 60606
Phone: 312/906-3600
Fax: 312/559-8388
SCHEDULE I
PLEDGED SHARES
<TABLE>
<CAPTION>
Percentage
of
Owner Stock Issuer Class of Stock Par Value Stock Certificate Number Outstanding
----- ------------ -------------- --------- No(s). of Shares Shares
----------------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
USN Communications, Inc.
</TABLE>
SCHEDULE II
LOCATIONS OF EQUIPMENT AND INVENTORY
Locations of Equipment:
Locations of Inventory:
SCHEDULE III
TRADE NAMES
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL
INFORMATION EXTRACTED FROM THE UNAUDITED QUARTERLY
FINANCIAL STATEMENTS OF NIAGARA CORPORATION AND
SUBSIDIARIES FOR THE NINE MONTHS ENDED SEPTEMBER
30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-START> JUL-01-1998 JAN-01-1998
<PERIOD-END> SEP-30-1998 SEP-30-1998
<CASH> 12,135 12,135
<SECURITIES> 0 0
<RECEIVABLES> 71,183 71,183
<ALLOWANCES> 13,897 13,897
<INVENTORY> 1,256 1,256
<CURRENT-ASSETS> 73,678 73,678
<PP&E> 51,848 51,848
<DEPRECIATION> 10,288 10,288
<TOTAL-ASSETS> 215,430 215,430
<CURRENT-LIABILITIES> 71,481 71,481
<BONDS> 200,582 200,582
0 0
0 0
<COMMON> 260,356 260,356
<OTHER-SE> (317,436) (317,436)
<TOTAL-LIABILITY-AND-EQUITY> 215,430 215,430
<SALES> 51,884 133,937
<TOTAL-REVENUES> 51,884 133,937
<CGS> 42,245 107,483
<TOTAL-COSTS> 42,245 107,483
<OTHER-EXPENSES> 70,473 166,268
<LOSS-PROVISION> 14,695 19,059
<INTEREST-EXPENSE> 7,586 22,092
<INCOME-PRETAX> (67,990) (146,962)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (67,990) (146,962)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (67,990) (146,962)
<EPS-PRIMARY> (2.90) (7.23)
<EPS-DILUTED> (2.90) (7.23)
</TABLE>
