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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
July 7, 1999
SHARED TECHNOLOGIES CELLULAR, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
Delaware 1-13732 06-386411
(State of incorporation) (Commission File No.) (IRS Employer Identification No.)
</TABLE>
100 Great Meadow Road, Suite 104
Wethersfield, Connecticut 06109
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (860) 258-2500
(Former name or former address, if changed since last report.)
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ITEM 5. OTHER EVENTS.
On July 7, 1999, Shared Technologies Cellular, Inc. (the "Company") entered
into a $10 million two-year revolving credit facility with State Street Bank and
Trust Company (the "Bank"). Advances under the loan are to be used for working
capital and general corporate purposes. The loan is secured by substantially all
of the Company's assets.
In connection with the loan, the Company issued to the Bank a ten-year
warrant for the purchase of 150,000 shares of its Common Stock at an exercise
price of $10 per share, subject to certain adjustments. The warrant is
redeemable by the Bank any time after the third anniversary for a minimum
redemption price of $200,000.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(c) Exhibits.
Exhibit No. Description
4.1 Loan Agreement dated as of July 7, 1999 by and between Shared
Technologies Cellular, Inc. and State Street Bank and Trust
Company.
4.2 Security Agreement and Assignment dated as of July 7, 1999 by
and between Shared Technologies Cellular, Inc. and State
Street Bank and Trust Company.
4.3 Warrant to Purchase Common Stock of Shared Technologies
Cellular, Inc. issued to State Street Bank and Trust Company
dated as of July 7, 1999.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: July 16, 1999 SHARED TECHNOLOGIES CELLULAR, INC.
By:\s\ Vincent DiVincenzo
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Name: Vincent DiVincenzo
Title: Chief Financial Officer
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LOAN AGREEMENT
THIS LOAN AGREEMENT is entered into as of the 7th day of July, 1999
between SHARED TECHNOLOGIES CELLULAR, INC., a corporation organized under the
laws of the State of Delaware, with its principal place of business at 100 Great
Meadow Road, Suite 104, Wethersfield, Connecticut 06109 (the "Borrower"); and
STATE STREET BANK AND TRUST COMPANY, a Massachusetts trust company with its
principal place of business at 225 Franklin Street, Boston, Massachusetts 02110
(the "Lender").
RECITALS:
WHEREAS, Borrower has requested that the Lender make available to
Borrower a Revolving Credit Loan Facility in the principal amount of Ten Million
Dollars ($10,000,000.00). The Lender is willing to provide, on a secured basis,
such loan facility to the Borrower, subject to the terms and conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing, and for other good
and valuable consideration, the Lender and the Borrower hereby agree as follows:
ARTICLE 1. DEFINITIONS
1.1 TERMS.
As used in this Agreement, the following terms hall have the meanings
set out respectively after each such term (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):
"Advance" shall have the meaning set forth in SECTION 2.1(a) hereof.
"Affiliate" shall mean, as applied to any Person, the spouse of such
Person, any relative of such Person within the third degree, any member,
director, officer, stockholder, warrant holder, or general partner of such
Person, any corporation, association, firm or other entity of which such Person
is a member, director, officer, stockholder, or general partner, and any other
Person directly or indirectly controlling, controlled by or under direct or
indirect common control with such Person, including but not limited to the
Principals and others determined by the Lender.
"Agreement" shall mean this Loan Agreement, as the same may be amended
from time to time by the parties hereto.
"Authorizations" shall have the meaning set forth at SECTION 3.7
hereof.
"Borrower" shall have the meaning set forth in the Preamble hereto.
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"Borrowing Base" shall have the meaning set forth at SECTION 2.1 (a)
hereof.
"Borrowing Base Certificate" shall mean a certificate in the form of
EXHIBIT B hereto.
"Borrowing Certificate" shall mean a written request for an Advance in
the form of EXHIBIT A hereto.
"Business Day" shall mean a day that commercial banks in the City of
Boston, Massachusetts, are open for the conduct of regular banking business.
"Call Centers" shall mean Borrower's facilities at which Borrower
monitors its businesses.
"Capital Expenditure" means all expenditures paid or incurred by
Borrower and/or Guarantor in respect of (i) the acquisition, construction,
improvement or replacement of land, buildings, machinery, equipment or any other
fixed assets or leaseholds to the extent such expenditures have been or should
be, in accordance with GAAP, capitalized on the books of the Borrower and/or
Guarantor, and (ii) to the extent related to and not included in (i) above,
materials, contract labor and direct labor, to the extent such expenditures have
been or should be, in accordance with GAAP, capitalized on the books of the
Borrower and/or Guarantor. Where a fixed asset is acquired by a lease which is
required to be capitalized pursuant to Statement of Financial Accounting
Standards Number 13 or any successor thereto, the amount required to be
capitalized in accordance therewith shall be considered to be a Capital
Expenditure in the year such asset is first leased.
"Capital Lease" shall mean a lease of property that is required to be
recorded as a liability on the lessee's balance sheet under GAAP, with the
amount of a Capital Lease to be deemed to be the amount of the liability so
recorded.
"CERCLA" shall mean the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. Section 9600 et seq., as amended and
in effect from time to time.
"Closing Date" shall mean the date set forth at the beginning of this
Agreement.
"Code" shall mean the Internal Revenue Code of 1986, as amended and in
effect.
"Collateral" shall have the meaning set forth in SECTION 2.8 hereof.
"Commitment Fee" shall have the meaning set forth at SECTION 2.2
hereof.
"Commitment Termination Date" shall mean July 6, 2001.
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"Compliance Certificate" shall mean the certificate required by SECTION
4.1(b)(xiv) and SECTIONS 5.4(a) and 5.4(b) hereof, in the form of EXHIBIT C
annexed hereto.
"Controlled Group" shall mean all members of a controlled group of
corporations and all trades or businesses (whether or not incorporated) under
common control which, together with the Borrower or any of its subsidiaries, are
treated as a single employer under Section 414 of the Code.
"Contingent Obligations", as applied to any Person, shall mean any
direct or indirect liability, contingent or otherwise, of that Person (x) with
respect to any indebtedness, lease, dividend, letter of credit or other
obligation of another if the primary purpose or intent thereof by the Person
incurring the Contingent Obligation is to provide assurance to the obligee of
such obligations of another that such obligation of another will be paid or
discharged, or that any agreements relating thereto will be complied with, or
that the holders of such obligation will be protected (in whole or in part)
against loss in respect thereof, (y) in support of any letter of credit issued
for the account of that Person or for which that Person is otherwise liable for
reimbursement thereof, or (z) under interest rate protection or other hedging
agreements. The amount of any Contingent Obligation shall be equal to the amount
of the obligation so guaranteed or otherwise supported, or, in the case of
interest rate protection or other hedging agreements, the then fair market value
of such agreements.
"Current Assets" shall mean Borrower's and Guarantor's combined cash
and cash equivalents, inventory and Receivables, excluding intercompany
receivables and Receivables more than 90 days past due.
"Current Liabilities" shall mean Borrower's and Guarantor's accounts
payable and accrued expenses, and current maturities of long-term debt,
excluding intercompany accounts payable.
"Current Ratio" shall mean the ratio of Current Assets to Current
Liabilities (exclusive of Telecom Taxes payable).
"Default Rate" shall have the meaning set forth in SECTION 2.6 hereof.
"Eligible Accounts Receivable shall mean a Receivable which is
acceptable to the Lender in its sole and reasonable discretion, but at least is
continuously in compliance with all of the following:
(a) The Receivable is an account which arose in the ordinary
course of the business of Borrower or Guarantor from or in connection
with a bona fide sale of goods or rendition of services, performed in
accordance with an order or contract, oral or written, wherein all
obligations of the Borrower or Guarantor regarding the
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shipment or delivery of such goods to the customer have been satisfied
or the services have been performed for the customer; no material part
of such goods has been returned, rejected, lost or damaged; the
Receivable is not evidenced by chattel paper or an instrument of any
kind; and the customer is not insolvent or the subject of any
bankruptcy or insolvency proceeding of any kind;
(b) The rights of the Borrower and Guarantor in and to the
Receivable and the proceeds thereof are not subject to any assignment,
claim, lien, security interest or other encumbrance other than liens in
favor of the Lender;
(c) The Receivable is not disputed nor subject to offset,
credit allowance, contra account or adjustment by the customer, except
discounts and allowances for prompt payment disclosed to the Lender;
(d) The customer is not located in the State of New Jersey or
the Borrower has filed a Notice of Business Activities Report with the
New Jersey Division of Taxation for the then current year;
(e) The Receivable does not arise out of a transaction with an
employee, officer, agent, director, stockholder, affiliate, or
subsidiary of the Borrower, or any person which, directly or
indirectly, controls or is controlled by, or is under common control
with, the Borrower, as determined by the Lender;
(f) The Rental Accounts Receivable has been due and payable
for thirty (30) days or less from the due date prescribed by the terms
of the sale and the Prepaid Accounts Receivable has been due and
payable for sixty (60) days or less from the due date prescribed by the
terms of the sale; and
(g) The financial condition of the customer is satisfactory to
the Lender in its sole and reasonable discretion; and
(h) The Receivables are not from customers located outside of
the United States, provided, however, that Receivables generated from
foreign rental customers who utilize a credit card for payment of the
Receivable, which may or may not be drawn on a foreign bank, shall be
deemed to be Eligible Accounts Receivable.
"Environmental Requirement" shall mean all applicable present and
future statutes, regulations, rules, ordinances, codes, licenses, permits,
orders, approvals, plans, authorizations, policies and similar items of all
governmental agencies, departments, commissions, boards, bureaus or
instrumentalities of the United States, states and political subdivisions
thereof and all applicable judicial, administrative and regulatory decrees,
judgments and orders, relating to the protection of human health or the
environment.
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"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended.
"Event of Default" shall have the meaning set forth at SECTION 7.1
hereof.
"Facility Fee" shall have the meaning set forth at SECTION 2.2 hereof.
"Fiscal Quarter" shall mean each quarterly period ending on March 31,
June 30, September 30 and December 31 in each year.
"GAAP" shall mean generally accepted accounting principles set forth in
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as may be approved by a significant segment of
the accounting profession, which are applicable to the circumstances as of the
date of determination.
"Guarantor" shall mean The Cellular Hotline, Inc., a Missouri
corporation.
"Guaranty" shall have the meaning set forth at SECTION 2.7 hereof.
"Hazardous Materials" shall mean any flammable explosives, radioactive
materials, hazardous waste, toxic substances or related materials, including,
without limitation, asbestos, polychlorinated biphenyls, urea formaldehyde,
radon, and any substance defined as or included in the definition of (a) any
"hazardous waste" as defined by Resource Conservation and Recovery Act of 1976,
as amended from time to time, and regulations promulgated thereunder; (b) any
"hazardous substance" as defined by CERCLA, and regulations promulgated
thereunder; (c) any "toxic substance" as defined by the Toxic Substance Control
Act, as amended from time to time, and the regulations promulgated thereunder;
(d) any petroleum product; and (e) any other substance, pollutant, contaminant,
chemical or industrial toxic or hazardous substance or waste, including, without
limitation, hazardous materials, within the meaning of any other applicable
federal, state or local law, regulation, ordinance or requirement (including
consent decrees and administrative orders) relating to or imposing liability or
standards of conduct concerning any hazardous, toxic or dangerous waste,
substance or material, all as amended or hereafter amended.
"Indebtedness" shall mean as to any Person at any date (without
duplication): (1) any indebtedness or liability of such Person for borrowed
money, or for the deferred purchase price of property or services (including
trade obligations); (2) obligations of such Person as lessee under Capital
Leases and under any lease or similar assignment that cannot be canceled by such
Person and has a term of more than one (1) year from the
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date of determination; (3) current liabilities of such Person in respect of
unfunded vested benefits under any pension plan or similar plan of such Person
or maintained by such Person; (4) obligations of such Person under letters of
credit issued for the account of such Person; (5) obligations secured by any
Lien on property owned by such Person, whether or not the obligations have been
assumed or guaranteed by such Person; (6) guarantees by such Person of
Indebtedness of another Person other than guarantees of collection or deposit in
the ordinary course of business; and (7) reimbursement obligations of any Person
(whether contingent or otherwise) in respect of letters of credit, bankers,
acceptances, surety or other bends and similar instruments.
"Investments" shall mean any payment of money or property to a Person
in exchange for an equity interest or evidence of indebtedness of such Person or
in exchange for any right to acquire an equity interest or evidence of
indebtedness of such Person.
"Leasehold Mortgage" shall have the meaning set forth at SECTION 2.8
hereof.
"Legal Requirement" shall mean any requirement imposed upon the Lender
by any law of the United States of America or by any regulation, order,
interpretation, ruling or official directive (whether or not having the force of
law) of the Board of Governors of the Federal Reserve System, the Federal
Deposit Insurance Corporation, or any other board or governmental or
administrative agency of the United States of America, or any political
subdivision of any thereof.
"Lender" shall mean State Street Bank and Trust Company, a
Massachusetts trust company, and its successors and assigns.
"Lien" shall mean any mortgage, deed of trust, pledge, security
interest, hypothecation, assignment, deposit arrangement, encumbrance, lien
(statutory or other), preference, priority, or other security agreement or
preferential arrangement, charge, or encumbrance of any kind or nature
whatsoever (including, without limitation, any conditional sale or other title
retention agreement), any financing lease having substantially the same economic
effect as any of the foregoing, and the filing of any financing statement or
similar notice of security interest under the Uniform Commercial Code or
comparable law of any jurisdiction to evidence any of the foregoing.
"Loan" shall mean the Revolving Credit Loan.
"Loan Documents" means this Agreement, the Note, the Security
Documents, the Guaranty, the Warranty and any other security agreement, pledge
agreement, collateral assignment, mortgage or guaranty executed and delivered by
the Borrower and the Guarantor in connection herewith or pursuant hereto.
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"Material Contracts" shall mean those contracts described in SECTION
3.8 hereof and on Schedule 3.8 (b) hereto.
"Net Income [Net Loss]" shall mean Borrower's and Guarantor's
consolidated net income, [net loss] determined in accordance with GAAP and shall
reflect all costs and expenditures under GAAP other than expenditures properly
classified as Capital Expenditures.
"Net Proceeds" shall mean the gross cash proceeds received by the
Borrower or Guarantor from the sale or other disposition of assets, other than
assets sold in the ordinary course of business, less actual selling expenses and
attorneys' fees incurred in connection therewith and good faith estimated taxes
payable as a result thereof, and other reasonable amounts agreed to by the
Lender in its reasonable judgment that are incurred in connection with such
sale; provided, that in the event that the actual taxes paid in respect of any
such sale or other disposition are less than the good faith estimated taxes at
the time of such sale, "Net Proceeds" shall be deemed to include such difference
on the date payment of such taxes is due.
"Note" shall mean the Promissory Note in the principal amount of
$10,000,000.00, evidencing Borrower's obligation to repay the Revolving Credit
Loan, to be issued by the Borrower to the Lender on the Closing Date in the form
of EXHIBIT D, duly executed with all blanks appropriately completed.
"Obligations" shall mean all liabilities, obligations and indebtedness
of the Borrower and the Guarantor under this Agreement, the Security Documents
and the Note, whether now existing or hereafter arising, specifically including,
without limitation, all obligations to reimburse costs of the Lender under
SECTION 9.2 hereof, all liabilities and obligations under standby letters of
credit issued by the Lender for the account of the Borrower, and any overdrafts
on account(s) of the Borrower or the Guarantor at the Lender.
"Participant" shall have the meaning set forth at SECTION 8.3 hereof.
"Payment Event of Default shall have the meaning set forth at SECTION
7.1(b) hereof.
"Permitted Acquisitions" shall mean acquisitions of assets or capital
stock of any Person approved in writing by the Lender and shall include, without
limitation, the acquisition of Retail Cellular, Inc.
"Permitted Indebtedness" shall mean existing indebtedness on terms and
conditions acceptable to Lender, as described in SECTION 6.1(e) hereto.
"Permitted Investments" shall mean (a) investments in property to be
used by the Borrower in the ordinary course of business; (b) current assets
arising from the sale or
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furnishing of goods and services in the ordinary course of business; (c)
investments (of one year or less) in direct or guaranteed obligations of the
United States, or any department or agency thereof; (d) investments (of 90 days
or less) in certificates of deposit of the Lender or of national banks having
capital, surplus and undivided profits in excess of $500,000,000; (e)
investments (of 90 days or less) in commercial paper given the highest rating by
Standard and Poor's Bond Rating Index or by Moody's Investor Service or by
another similar nationally recognized investment rating service; and (f)
advances to employees in the ordinary course of business for the payment of
reasonable bona fide, properly documented business expenses to be incurred on
behalf of the Borrower not exceeding $5,000 in the aggregate at any one time;
and "Permitted Investments" shall include, without limitation, the Borrower's
loan in the original principal amount of Five Hundred Thousand Dollars
($500,000.000) to Retail Distributors, Inc.
"Person" shall mean a corporation, an association, a general or limited
partnership, a joint venture, a trust, an organization, any business entity, a
natural person or any government or agency or political subdivision thereof.
"Plan" means an employee pension benefit plan which is covered by Title
IV of ERISA or subject to the minimum funding standards under Section 412 of the
Code as to which the Borrower or any member of the Controlled Group may have any
liability.
"Prepaid Lines" shall mean Borrower's and Guarantor's prepaid or debit
cellular phone service lines with Borrower's and Guarantor's customers.
"Prime Rate" shall mean the rate of interest announced by the Lender
from time to time in Boston, Massachusetts as its "prime rate".
"Principals" shall mean Anthony D. Autorino and Vincent DiVincenzo.
"Properties" shall have the meaning set forth at SECTION 3.17.
"Projections" shall have the meaning set forth at SECTION 3.1(b)
hereof.
"Purchaser" shall have the meaning set forth at SECTION 8.4 hereof.
"Quarterly Date" shall mean each March 31, June 30, September 30 and
December 31.
"Receivables" means all of the Borrower's and Guarantor's now owned and
hereafter acquired rights to payment for goods sold or leased or for services
rendered, and all proceeds of any of the foregoing, including but not limited to
the following:
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a) "Rental Accounts Receivables", which shall mean those
Receivables arising from rentals of cellular phones to Borrower's and
Guarantor's customers; and
b) "Prepaid Accounts Receivables", which shall mean those
Receivables arising from Borrower's and Guarantor's program for
activation/prepayment of cellular phone accounts.
"Regulation G" shall mean Regulation G of the Board of Governors of the
Federal Reserve System as from time to time in effect and any successor thereto
or other regulation or official interpretation of said Board of Governors
relating to reserve requirements applicable to member banks of the Federal
Reserve System.
"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 thereto
or other regulation or official interpretation of said Board of Governors
relating to the extension of credit by banks for the purpose of purchasing or
carrying margin stocks applicable to member banks of the Federal Reserve System.
"Restricted Payment" shall mean any dividend, distribution, or other
payment, direct or indirect, by the Borrower, in cash, property, securities or
other assets, to Borrower's or Guarantor's shareholders, to Guarantor or any
other Affiliate of the Borrower, including, without limitation, management fees,
advances, distributions, reimbursements, dividends, payments of interest or
principal, and payments for the purpose of purchasing, retiring or redeeming any
ownership or other equity interests in the Borrower or Guarantor or making any
distribution or return of capital in respect of such interests; provided that
any payment of Premiums (as defined in the Series C Convertible Preferred
Stock's Certificate of Designations, Preferences and Rights) upon the conversion
of any Series C Convertible Preferred Stock shall not be deemed a Restricted
Payment so long as:
(A) such payment is made in share of the Borrower's common stock; or
(B) (1) no Event of Default has occurred prior to any such payment, and
(2) no Event of Default would occur as a result of such payment, and
(3) Borrower has unused availability under the Revolving Credit Loan of
at least Five Hundred Thousand Dollars ($500,000.00); and
provided further that no payment made to (x) a holder of the Borrower's
Convertible 5% Notes, or (y) Retail Distributors, Inc. ("RDI") under the Stock
Purchase Agreement, Services Agreement or Consulting Agreement, each to be
entered into with RDI, shall be deemed to be a Restricted Payment.
"Revolving Credit Commitment" shall mean $10,000,000.00.
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"Revolving Credit Loan" shall mean the loan to the Borrower described
in SECTION 2.1(a) hereof.
"SEC" shall mean the Securities and Exchange Commission.
"Security Agreements" shall have the meaning set forth at SECTION
2.8(a) hereof.
"Security Documents" shall have the meaning set forth at SECTION 2.8(b)
hereof.
"Stockholder's Equity" shall mean at any time the sum of the following
amounts from the Borrower's and Guarantor's consolidated balance sheet prepared
in accordance with GAAP:
(i) the par or stated value of all outstanding capital stock;
(ii) capital surplus; and
(iii) retained earnings.
"Telecom Taxes" shall mean any taxes, interest and penalties, owed by
Borrower or Guarantor to federal, state and local taxing authorities for the
Borrower's and the Guarantor's telecommunications business or has been described
by the Borrower as "Telecom Taxes" in any financial statements delivered to the
Lender.
"Unmatured Default" means an event which but for the lapse of time or
the giving of notice, or both, would constitute an Event of Default.
"Warrant" shall mean the detachable warrant as described in SECTION 2.9
hereof in the form of EXHIBIT E attached hereto.
1.2 ACCOUNTING TERMS.
Unless otherwise specified herein, all accounting terms used herein
shall be interpreted, all accounting determinations hereunder shall be made, and
all financial statements required to be delivered hereunder shall be prepared,
in accordance with GAAP, applied on a basis consistent (except for changes
concurred with by the Borrower's independent public accountants) with the most
recent financial statements of the Borrower delivered to the Lender. The parties
hereto further agree that in the event that any change in accounting principles
from those used in the preparation of the financial statements of the Borrower
for the year ended December 31, 1998, hereafter occasioned by the promulgation
of rules, regulations, pronouncements and opinions by or required by the
Financial Accounting Standards Board or the Accounting Principles Board of the
American Institute of Certified Public Accountants (or successors thereto or
agencies with similar
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functions) results in any change in the method of calculation of financial
covenants, standards or terms found in this Agreement, the parties hereto agree
to enter into negotiations to amend the financial covenants, terms or standards
contained in this Agreement to equitably reflect such change in accounting
principles with the desired result that the criteria for evaluating the
Borrower's financial condition shall be the same after such change as if such
change had not been made. If the parties cannot agree on such an amendment as
contemplated under the immediately preceding sentence, then the financial
covenants shall be computed without giving effect to such change in accounting
principles.
1.3 OTHER TERMS. The words "hereof", "herein", and "hereunder" and
words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of this Agreement.
ARTICLE 2. THE LOAN.
2.1 REVOLVING CREDIT LOAN.
(a) Loan. Subject to the terms of this Agreement, the Lender agrees to
make advances to the Borrower (each such advance being referred to herein as an
"Advance" and all such Advances being collectively referred to herein as the
"Revolving Credit Loan") from time to time from the Closing Date through and
including the Commitment Termination Date in an aggregate principal amount not
to exceed the lesser of:
i) 70% of Eligible Receivables, plus, through September
30, 1999, $2,000,000.00; or
ii) the amount of the Revolving Loan Commitment;
provided that notwithstanding the foregoing, the Lender shall have no obligation
to make an Advance if an Event of Default exists or would result therefrom.
Notwithstanding the foregoing, initial availability for Advances under the Loan
shall be limited as follows:
1) for the first thirty (30) days after the date
hereof, availability under the Revolving Loan Commitment shall
not exceed $3,000,000.00; and
2) after the first thirty (30) days after the date
hereof, the availability under the Revolving Loan Commitment
shall not exceed $5,000,000.00 until the Borrower provides
evidence to the Lender that Borrower has 70,000 Prepaid Lines.
When the Borrower has complied with the requirements set out in Subsections 1)
and 2) above, then, subject to the Borrower's compliance with the terms of this
SECTION 2.1(a) and
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so long as Borrower is in full compliance with the terms of this Agreement,
Borrower shall be entitled to borrow the full amount of the Revolving Credit
Commitment. The formula and conditions provided in this SECTION 2.1 (a) for the
making of Advances are collectively referred to herein as the "Borrowing Base".
(b) Use of Proceeds. The proceeds of the Loan shall be used by the
Borrower for (i) working capital and general corporate purposes; (ii) Permitted
Acquisitions and (iii) standby letters of credit not to exceed $1,000,000.00 in
the aggregate for periods not to exceed one (1) year, to be evidenced by
Borrower's execution of the Lender's standard letter of credit agreements upon
terms and conditions mutually agreed upon between Lender and Borrower. The
Lender shall have no obligation to make any Advance for acquisitions of any
nature if it has not approved the applicable acquisition contemplated by the
Borrower.
(c) Note. The Borrower's obligation to repay the Loan shall be
evidenced by the Note and this Agreement, and shall bear interest, mature and be
payable as set forth in this Agreement and the Note.
(d) Advances. Advances shall be made by the Lender at the Borrower's
request. If, upon the Lender's receipt of the Borrowing Base Certificate from
Borrower for the four (4) week period during which the Advance was made, the
Lender determines either that: (i) the Borrower utilized the proceeds of the
Advance for purposes which are not permitted by this Agreement; or (ii) the
aggregate outstanding Advances exceed the Borrowing Base availability, or (iii)
the Advance resulted in or otherwise effected a violation of any of the
financial covenants set forth in ARTICLE VI and ARTICLE VII of this Agreement,
or (iv) an Event of Default, or an event which upon notice or lapse of time or
both would constitute an Event of Default, has occurred and is continuing under
the Loan Agreement, then the Borrower shall immediately repay to the Lender the
amount of the Advances which exceeds the Borrowing Base as well as the amount of
the Advances which was utilized for purposes not permitted by this Agreement.
Each request for Advance which is not for working capital or
for general corporate purposes shall be in the form attached hereto as EXHIBIT A
(a "Borrowing Certificate"). The Lender shall inform the Borrower within three
(3) Business Days after it receives such a request which is not for working
capital or general corporate purposes whether it approves the Borrower's
proposed use of the Advance. If it approves the use of the Advance, the Lender
shall make the requested Advance available to the Borrower on the date approved
by the Lender.
(e) Liquidity Management Control System. The Borrower shall maintain a
minimum balance of Ten Thousand Dollars ($10,000.00) with the Bank's Liquidity
Management Control System Account. If at any time the balance in said account is
less than Ten Thousand Dollars ($10,000.00) the Bank shall be entitled to
immediate fund
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same by an automatic advance under the Revolving Credit Loan, without any
further authorization from the Borrower. The Borrower shall pay to the Bank a
monthly fee of Seven Hundred Fifty Dollars ($750.00) for the LMCS (sweep
product) for this account.
2.2 COMMITMENT FEE AND FACILITY FEE.
(a) Commitment Fee. In addition to all other sums due hereunder and
under the Note, the Borrower shall pay to the Lender on each Quarterly Date
beginning June 30, 1999 and continuing through the Commitment Termination Date,
a fee (the "Commitment Fee") equal to three-quarters of one percent (3/4%) per
annum on the average daily unused portion of the Revolving Credit Commitment.
The Commitment Fee shall be calculated on the basis of the actual number of days
elapsed over a 360 day year, and shall be payable in arrears.
(b) Facility Fee. On the Closing Date, the Borrower shall pay a fee
(the "Facility Fee") to the Lender in the amount of Seventy-five Thousand
Dollars ($75,000.00) in consideration of the time and expense incurred by the
Lender in investigating the transactions contemplated hereby.
2.3 PAYMENTS UNDER THE NOTE; NO DEDUCTIONS.
(a) All payments made by the Borrower of principal of, and interest on,
the Note, and other sums and charges payable hereunder, shall be made to the
Lender at its office set forth above, or by debiting by the Lender of the demand
deposit account(s) in the name of the Borrower at the Lender, or in such other
reasonable manner as may be designated by the Lender in writing to the Borrower,
and in any event shall be made in immediately available funds. The Borrower
hereby irrevocably authorizes the Lender to so debit any one or more of its
demand deposit account(s) for such payments.
(b) The Borrower's obligation to make all payments provided for in this
Agreement and the Note shall be unconditional. Each such payment shall be made
without deduction for any claim, defense or offset of any type, including,
without limitation, any withholdings and other deductions on account of income
or other taxes and regardless of whether any claims, defenses or offsets of any
type exist.
2.4 PREPAYMENT.
(a) Optional Prepayments; Reborrowing; Final Payment. The Borrower may
from time to time prepay the Loan, without penalty except as set forth in
SECTION 2.4(e) hereof. The Borrower may borrower, repay, and reborrow hereunder,
subject to the terms of SECTION 2.1(a) hereof, from the date hereof to and
including the Commitment Termination Date. Notwithstanding anything herein to
the contrary, all outstanding
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amounts of Revolving Credit Loan shall be paid in full on the Commitment
Termination Date.
(b) Mandatory Prepayment of Loan. If the Obligations at any time exceed
the availability under the Loan, as described in SECTION 2.1(a), then the Loan
shall be repaid immediately by Borrower to reduce the outstandings under the
Loan so that the Obligations does not exceed the available Revolving Credit
Commitment, subject to Borrower's compliance with SECTION 2.1(a) hereof.
(c) Mandatory Prepayments From Insurance Proceeds. The Borrower shall,
from time to time until payment in full of the Loan, within 10 days following
the receipt of any payment of proceeds of any insurance policy on account of
each separate loss, damage or injury in excess of Fifty Thousand Dollars
($50,000.00) to any tangible property, pay such proceeds to the Lender. Such
amounts shall be advanced by the Lender to the Borrower as needed for the repair
or replacement of such property upon delivery to the Lender of evidence
satisfactory to the Lender of such expenditure or commitment, unless the Lender
in its reasonable judgment decides that repair or replacement of the damaged
property is not feasible in a reasonable period of time, in which event the
Lender may apply such proceeds to the repayment of the Note.
(d) Mandatory Prepayments From Net Proceeds. Within five (5) Business
Days after the closing of the sale or other disposition of any asset or assets
of Borrower (excluding the sale of inventory in the ordinary course of business)
to any Person from which Borrower derives Net Proceeds, the Borrower shall
notify the Lender, and unless the Lender directs otherwise, the Borrower shall
make a mandatory prepayment of the Loan in an amount equal to 100% of such Net
Proceeds, which prepayments shall be accompanied by a certificate duly executed
by an officer of Borrower certifying the amount of Net Proceeds and evidencing
in reasonable detail the computations made in determining the amount of Net
Proceeds.
(e) Prepayment Fee. If the Loan is cancelled or completely prepaid
within eighteen (18) months of the Closing Date, the Borrower shall pay to the
Lender on the date of cancellation or prepayment a prepayment fee of two percent
(2%) of the Revolving Credit Commitment (the "Prepayment Fee"), provided,
however, if prepayment is from proceeds of the sale of all assets or stock of
Borrower, then no Prepayment Fee shall be required.
2.5 RATE OF INTEREST. Interest on the Loan shall accrue at a rate per
annum equal to the Prime Rate (with such interest rate changing on the effective
date of each change in the Prime Rate).
2.6 DEFAULT RATE OF INTEREST.
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<PAGE> 15
Notwithstanding SECTION 2.5 hereof, if an Event of Default shall have
occurred and remains outstanding and not waived or cured for sixty (60) days
after the occurrence of the Event of Default, then, in such event, to the extent
permitted by law, the interest rate applicable to the Loan (the "Default Rate")
shall be two percent (2%) in excess of the Prime Rate. Such Default Rate in each
case shall continue in effect until six (6) months after all such Events of
Default are cured or waived.
2.7 GUARANTY. The repayment of the Loan shall be guaranteed by the
Guarantor, as evidenced by that certain duly executed guaranty in form and
substance satisfactory to the Lender and its counsel ("Guaranty").
2.8 SECURITY FOR THE OBLIGATIONS.
(a) The Obligations shall at all times be secured by the following
agreements, in each case in form and substance satisfactory to the Lender and
its counsel:
(i) first priority perfected security interests in all of the
tangible and intangible personal property of the Borrower and the
Guarantor, whether now owned or hereafter acquired by the Borrower and
the Guarantor, or in which the Borrower and the Guarantor may now have
or hereafter acquire an interest, pursuant to a Security and Assignment
Agreement between the Lender and Borrower and pursuant to a Security
and Assignment Agreement between the Lender and the Guarantor
(collectively, the "Security Agreements");
(ii) first priority perfected leasehold mortgages or deeds of
trust (collectively, the "Leasehold Mortgages") with respect to all
real estate leases in which the Borrower now has or may in the future
have an interest in Maryland Heights, Missouri, and Hartford,
Connecticut, and Wethersfield, Connecticut, including, without
limitation, all locations where Borrower maintains a Calling Station;
(iii) the Guaranty;
(iv) first priority perfected security interests in all
patents, trademarks and copyrights of each of Borrower and Guarantor,
whether now owned or hereafter acquired by Borrower or Guarantor,
pursuant to Security Agreements -- Patents, Trademarks and Copyrights,
between the Lender and each of the Borrower and the Guarantor
(collectively, the "Intellectual Property Security Agreements");
(v) Collateral Assignment of all Material Contracts of each of
the Borrower and Guarantor, whether now owned or hereafter acquired by
each of the Borrower and the Guarantor or in which the Borrower and the
Guarantor may now have or hereinafter acquire an interest, pursuant to
Conditional Assignment of Licenses and
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<PAGE> 16
Material Contracts between the Lender and each of the Borrower and the
Guarantor (collectively, the "Conditional Assignments");
(vi) Consent, duly executed, of each of MCI Telecommunications
Corporation, WorldCom Technologies, Inc., and Shared Technologies
Fairchild, Inc. to the Conditional Assignments;
(vii) Assignment of Borrower's Proof of Claim in Bankruptcy
Proceedings of SmarTalk TeleServices, Inc., in form and substance
appropriate for filing with the applicable United States Bankruptcy
Court (the "Conditional Assignment of Proof of Claim");
(viii) landlord's waivers and consents in form satisfactory to
the Lender by which owners of real estate leased by the Borrower in
Maryland Heights, Missouri, and Wethersfield and Hartford, Connecticut,
shall consent to the assignment of the leases to the Lender, shall
disclaim any right to levy on the Collateral installed on the leased
premises, and shall grant to the Lender a right of entry to remove such
Collateral in case of an Event of Default; and
(ix) such financing statements, assignments, agreements to
assign, and other instruments as the Lender may reasonably request in
connection with any of the foregoing.
(b) All agreements and instruments described or contemplated in SECTION
2.7 and this SECTION 2.8, including the Security Agreements, Intellectual
Property Security Agreements, the Conditional Assignments, Conditional
Assignment of Proof of Claim, the Guaranty, the Leasehold Mortgages, together
with any and all other agreements and instruments heretofore or hereafter
securing any of the Obligations, are sometimes hereinafter collectively referred
to as the "Security Documents", and the term "Collateral" as used herein shall
be deemed to include the assets of the Borrower and the Guarantor, any lease of
real property covered by any leasehold mortgage or deed of trust, and any
mortgage delivered or required to be delivered hereunder. The Borrower shall
take such further action and execute such additional documents as may be
necessary from time to time to enable the Lender to obtain and maintain the
security interests, liens and other rights and benefits contemplated by this
SECTION 2.8.
2.9 WARRANT. As part of the consideration for the Loan, the Borrower
shall execute and deliver to the Lender the Warrant in the form of EXHIBIT E
attached hereto, which shall evidence the Borrower's obligation with respect to
one hundred fifty thousand (150,000) shares of the common stock of the Borrower
at a current price of $10.00, exercisable for ten (10) years from the date of
issue and containing a net issuance provision with a put right after the third
(3rd) anniversary hereof. The put is to be the greater of the then market value
or Two Hundred Thousand Dollars ($200,000.00).
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<PAGE> 17
2.10 INDEMNIFICATION.
(a) In the event that at any time after the date of this Agreement any
change in any Legal Requirement shall, in the opinion of the Lender, require
that the unfunded portion of the Revolving Credit Commitment be treated as an
asset or otherwise be included for purposes of calculating the appropriate
amount of capital or equity to be maintained by the Lender or any corporation
controlling the Lender, and such Legal Requirement shall have the effect of
reducing the rate of return on the Lender's or such corporation's capital or
equity, as the case may be, as a consequence of the Lender's obligations
hereunder, to a level below that which the Lender or such corporation, as the
case may be, would have achieved but for such Legal Requirement (taking into
account the Lender's or such corporation's policies, as the case may be, with
respect to capital adequacy) by an amount deemed by the Lender to be material,
and provided that the Lender imposes a similar requirement on a substantial
portion of those of its borrowers whose loans are of a size and nature similar
to the Loan to the Borrower hereunder, then from time to time, following written
notice by the Lender to the Borrower of such Legal Requirement as provided in
SUBSECTION (b) of this SECTION 2.10, within forty-five (45) days after demand
therefor by the Lender, the Borrower shall pay to the Lender such additional
amount or amounts as will compensate the Lender or such corporation, as the case
may be, for the reduction described in this SUBSECTION (a) as if such reduction
had not occurred.
(b) If the Lender becomes entitled to claim any additional amounts
pursuant to this SECTION 2.10, it shall promptly notify the Borrower of the
event giving rise to such entitlement. A certificate setting forth in reasonable
detail the computation of the effect on the Lender described in subsection (a)
above and the computation of any additional amounts payable pursuant to this
SECTION 2.10 shall be delivered to the Borrower by the Lender promptly after
such additional amounts are initial incurred and shall be conclusive in the
absence of manifest error. The covenants contained in this Section shall survive
until the Loan is paid in full.
(c) The Lender will not charge the Borrower under this SECTION 2.10
unless the Lender assesses similar charges against a majority of its customers
who have outstanding loan commitments.
ARTICLE 3. REPRESENTATIONS AND WARRANTIES
In order to induce the Lender to enter into this Agreement and to make
the Loan, the Borrower represents and warrants to the Lender (which
representations and warranties shall survive the delivery of the Note and the
making of the Loan and shall be deemed to be restated each time an advance of
the Loan is requested by the Borrower) that:
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<PAGE> 18
3.1 FINANCIAL STATEMENTS; SEC FILINGS.
(a) The Borrower has delivered to the Lender audited financial
statements of the Borrower as at December 31, 1995, December 31, 1996, December
31, 1997 and December 31, 1998. Said financial statements have been prepared in
accordance with GAAP consistently applied, and fairly present the financial
condition of the Borrower at the dates thereof and the results of the Borrower's
operations for the periods covered thereby. Except as set forth in said balance
sheets, the Borrower has no material long-term liabilities or other material
forward or long-term commitments. Since December 31, 1998, there has been no
material adverse change in the condition of the Borrower, financial or
otherwise.
(b) The Borrower has heretofore furnished to the Lender a financial
forecast through December 31, 2001 (the "Projections"), which Projections
contain projected revenues and operating expenses. The Borrower has prepared the
Projections in good faith on the basis of reasonable and prudent assumptions and
believes the financial projections set forth therein to be reasonable in light
of information known to the Borrower as of the Closing Date. To the best of the
Borrower's knowledge, based on information known to the Borrower as of the
Closing Date, such Projections do not omit to state any material fact known to
the Borrower as of the Closing Date necessary in order to make such Projections
not misleading.
(c) The Borrower has delivered to the Lender copies of the Borrower's:
March 31, 1999 10-Q Quarterly Report; Proxy Statement for its 1999 Annual
Meeting dated as of April 30, 1999; and Amended 10-K Annual Report. Said
Statements and Reports have been prepared and filed by Borrower in accordance
with applicable federal laws, rules and regulations.
3.2 ORGANIZATION OF BORROWER.
Borrower (i) is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware (ii) has the power and
authority to own its properties and to carry on its business as now being
conducted and as presently contemplated, (iii) is duly qualified to transact
business in every jurisdiction where the nature of its activities requires such
qualification, and (iv) has the power and authority to execute, deliver and
perform its obligations under this Agreement, the Note, the Security Documents
and under all other documents, agreements and instruments executed by it in
connection with any of the foregoing.
3.3 AUTHORIZATION. The execution, delivery and performance by the
Borrower of its obligations under the Loan Documents have been duly authorized
by all requisite corporate action of the Borrower and its officers, directors
and stockholders. Except as set forth in Schedule 3.3 annexed hereto, neither
the execution and performance of this
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Agreement, nor the borrowings hereunder, nor the execution and delivery of any
of the Loan Documents will violate (i) to the knowledge of the Borrower, after
the Borrower's exercise of reasonable due diligence, any provision of law, (ii)
any material order, judgment or decree of any court or other agency of
government applicable to the Borrower, (iii) the corporate charter or the bylaws
of Borrower, or (iv) any material indenture, agreement or other instrument to
which the Borrower is a party, or by which the Borrower is bound. Except as set
forth in Schedule 3.3 annexed hereto, the execution, performance and delivery by
the Borrower of its obligations under the Loan Documents will not be in conflict
with, result in a breach of, or constitute (with due notice or lapse of time or
both) a default under any such material indenture, agreement or instrument, or
(except as may be permitted by this Agreement) result in the creation or
imposition of any lien, charge or encumbrance of any nature whatsoever upon any
of the property or assets of the Borrower pursuant to any such material
indenture, agreement or instrument. To the knowledge of the Borrower, after the
Borrower's exercise of reasonable due diligence, the Loan Documents constitute
the legal, valid and binding obligations of the Borrower, and are enforceable in
accordance with their respective terms, except as such enforcement may be
limited by bankruptcy, insolvency, moratorium and similar laws affecting
creditors' rights generally.
3.4 NO CONSENT REQUIRED. Except as set forth on Schedule 3.4 annexed
hereto, the Borrower is not required to obtain any order, consent, approval or
authorization of, or presently required to make any declaration or filing with,
any governmental authority or other Person, as a condition to the execution,
delivery and performance of any of the Loan Documents or the granting of the
security interests in the Collateral. Except as stated in such schedule, all
orders, consents, approvals and authorizations described in such Schedule 3.4
have been duly granted and are in full force and effect on the date hereof.
3.5 LITIGATION. Except as described on Schedule 3.5 attached hereto,
there is no action, suit or proceeding at law or in equity or by or before any
governmental instrumentality or other agency (including any arbitration board or
tribunal) now pending or, to the knowledge of the Borrower, threatened against
or affecting the Borrower (nor to Borrower's knowledge does any basis exist for
such an action, suit or proceeding) (a) which, if adversely determined, would
have a material adverse effect on the business, operations, properties, assets
or condition, financial or otherwise, of the Borrower, or (b) which questions
the validity of any of the Loan Documents, or any action taken or to be taken
pursuant thereto.
3.6 NO ENCUMBRANCES OR DEFAULTS. Except as set forth on Schedule 3.6
hereto, the Borrower is not a party to any agreement or instrument or subject to
any corporate, contractual or other restriction which would materially and
adversely affect its business or its ability to perform its obligations under
the Loan Documents. There is no default by the Borrower in the performance,
observance or fulfillment of any of the material
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obligations, covenants or conditions contained in any material agreement or
instrument to which it is a party.
3.7 GOVERNMENTAL LICENSES AND CONTRACTS. Schedule 3.7 attached hereto
lists all material franchises, licenses, consents, permits, approvals and
authorizations of local, state and federal public or governmental bodies which
as of the Closing Date are necessary with respect to the conduct by the Borrower
of its business as presently conducted and as contemplated to be conducted in
the future as of the Closing Date (all such franchises, licenses, consents,
permits, approvals and authorizations being hereinafter referred to as the
"Authorizations"). Unless otherwise indicated on Schedule 3.7, the Borrower has
heretofore furnished to the Lender true and accurate copies of each such
Authorization listed on Schedule 3.7. All such Authorizations have been obtained
and are in full force and effect without any modification, amendment or
revocation which would materially adversely affect the conduct of business of
the Borrower, and are duly issued in the name of, or validly assigned to, the
Borrower. The Borrower has full power and authority to operate thereunder and is
in material compliance with all of the terms, provisions and requirements of
each of said Authorizations. To the knowledge of the Borrower, none of the
Authorizations are the subject of a pending action to modify, amend, terminate
or renew an Authorization, and the Borrower has no reason to believe that any of
the Authorizations will be revoked or materially and adversely modified, or will
not be renewed in the ordinary course. Schedule 3.7 also lists the expiration
date of each Authorization obtained by the Borrower.
3.8 OTHER MATERIAL AGREEMENTS.
(a) The Borrower has entered into all necessary contracts and
agreements for the conduct of its business as presently conducted, including,
without limitation, all necessary reseller agreements, distribution agreements,
activation agreements, and all necessary agreements for the use of telephone
lines and other communications facilities used by it (collectively, the
"Material Contracts").
(b) Schedule 3.8(b) attached hereto accurately and completely lists all
material agreements to which the Borrower is a party. All of the foregoing
agreements are valid, subsisting and in full force and effect and neither the
Borrower nor, to the best knowledge of the Borrower, any other parties thereto
are in material default thereunder. True and complete copies of all such
agreements, if any, have been delivered by the Borrower to the Lender.
3.9 REAL ESTATE; PERSONAL PROPERTY.
(a) The Borrower validly leases, or holds valid easements with respect
to, all real estate used by it in connection with its business, including all
real estate at which the Call Stations are located. True and accurate copies of
all of the Borrower's leases, easements,
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and other agreements existing as of the Closing Date for the use of real
property have been furnished to the Lender, and all such agreements are in full
force and effect, without any modification, amendment or termination which would
materially adversely affect the financial condition of the Borrower, and no
material default exists under any of the foregoing. Schedule 3.9 accurately and
completely lists all such leases and easements.
(b) To the best knowledge of the Borrower, the Borrower's use of real
estate does not violate any building codes, zoning restrictions or other laws or
regulations governing land use, or any law or Environmental Requirement.
(c) The Borrower has good title to all of its properties and assets,
free and clear of all Liens, except for Liens in favor of the Lender and Liens
securing Permitted Indebtedness.
3.10 CALL CENTERS; OPERATING AREA.
The Borrower operates its business from two (2) Call Centers, one
located at Suite 1100, 100 Constitution Plaza, Hartford, Connecticut 06103, and
the other located at 149 Weldon Parkway, Suite 109, Maryland Heights, Missouri.
Borrower maintains sales offices at the locations listed on Schedule 3.10.
3.11 CUSTOMER CONTRACTS.
The Borrower has heretofore delivered to the Lender true and complete
copies of representative samples of forms of customer contracts presently in
force, and copies of representative samples of contracts and agreements under
which it provides service to its customers.
3.12 QUALITY OF SYSTEMS. The Borrower's Call Stations have been and, to
the extent it will be installed after the date hereof, will be, constructed in
accordance with industry standards at the time of installation. The Borrower's
Call Stations have the present capacity to service at least 500,000 customers.
3.13 INDEBTEDNESS AND LIENS. The Borrower does not have any
Indebtedness except for Indebtedness permitted by SECTION 6.1 hereof, and there
are no Liens on any of the assets of the Borrower, except Liens permitted by
SECTION 6.2 hereof. The Borrower have no material Contingent Obligations except
as set forth on Schedule 3.13.
3.14 TAXES. As of the Closing Date, the Borrower has: (a) filed all tax
returns required by law to be filed; and (b) with the exception of Telecom
Taxes, paid all taxes, assessments and other governmental charges levied upon
its properties, assets and income, other than those not yet delinquent. As of
the Closing Date, there are no material
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<PAGE> 22
unpaid assessments for additional taxes and to the best of the Borrower's
knowledge there is no basis therefor.
3.15 COMPLIANCE WITH APPLICABLE LAWS. The Borrower is in compliance in
all material respects with all applicable Federal, state and local laws,
including all laws, rules and regulations governing the provision of long
distance telephone service, activation of accounts and rentals of portable
cellular telephones.
3.16 ENVIRONMENTAL COMPLIANCE.
(a) The Borrower has no knowledge that any of the real property leased,
controlled or operated by the Borrower (the "Properties") fails to comply with
all Environmental Requirements.
(b) Neither the Borrower, nor to the best of the Borrower's knowledge,
any previous owner, tenant, occupant or user of any of the Properties or any
other person, has engaged in or permitted any operations or activities upon any
of the Properties for the purpose of the handling, manufacture, treatment,
storage, use, generation, release, discharge, refining, dumping or disposal of a
material amount of any Hazardous Materials the removal of which is required or
the maintenance of which by the Borrower is prohibited or penalized under any
Environmental Requirement.
(c) To the best of the Borrower's knowledge, no Hazardous Material has
been or is currently located in, on, under or about any of the Properties in a
manner which materially violates any Environmental Requirement or which requires
cleanup or corrective action of any kind under any Environmental Requirement.
(d) No notice of violation, lien, complaint, suit, order or other
notice of communication concerning any alleged violation of any Environmental
Requirement in, on, under or about any of the Properties has been received by
the Borrower or, to the best of the Borrower's knowledge, any prior owner or
occupant of any of the Properties which has not been fully satisfied and
complied with in a timely fashion so as to bring such Property into full
compliance with all Environmental Requirements.
(e) The Borrower duly holds all permits and licenses, if any, required
under any Environmental Requirement to be issued to it by any governmental
authority on account of any or all of its activities on any of the Properties
and is in full compliance with the terms and conditions of such permits and
licenses. To the best of the Borrower's knowledge, no change in the facts or
circumstances reported or assumed in the application for or granting of any such
permits or licenses exists, which if reported or discovered would result in the
revocation of such permits or licenses; and such permits and licenses are in
full force and effect.
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<PAGE> 23
(f) No portion of any of the Properties has been listed, designated or
identified in the National Priorities List (NPL) or the CERCLA information
system (CERCLIS), both as published by the United States Environmental
Protection Agency, or any similar list of sites published by any Federal, state
or local authority proposed for or requiring cleanup, or remedial or corrective
action under any Environmental Requirement.
3.17 INVESTMENTS; INVESTMENT COMPANY. The Borrower has no Investments
other than Permitted Investments. The Borrower is not an "investment company",
or a company "controlled" by an "investment company", as such terms are defined
in the Investment Company Act of 1940, as amended.
3.18 FEDERAL RESERVE SYSTEM REGULATIONS. The Borrower does not own and
has no present intention of acquiring, any "margin security" within the meaning
of Regulation G (12 CFR Part 207), or any "margin stock" within the meaning of
Regulation U (12 CFR Part 221), of the Board of Governors of the Federal Reserve
System (herein called "margin security" and "margin stock"). None of the
proceeds of the Loan will be used, directly or indirectly, by the Borrower for
the purpose of purchasing or carrying, or for the purpose of reducing or
retiring any indebtedness which was originally incurred to purchase or carry,
any margin security or margin stock or for any other purpose which might
constitute the transactions contemplated hereby a "purpose credit" within the
meaning of said Regulation G or Regulation U, or cause this Agreement to violate
any other regulation of the Board of Governors of the Federal Reserve System or
the Securities Exchange Act of 1934, as amended, or any rules or regulations
promulgated under any of such statutes. Neither the consummation of the Loan
hereunder, nor the use, directly or indirectly, of all or any portion of the
proceeds thereof, will violate or result in a violation of any provision of any
applicable statute, regulation or order of, or any restriction imposed by, the
United States of America or by any authorized official, board, department,
instrumentality or agency thereof relating to the control of foreign or overseas
lending or investment.
3.19 ERISA COMPLIANCE. Except as set forth on Schedule 3.19, the
Borrower has no pension, profit sharing or other similar plan covered by ERISA
providing for a program of deferred compensation to any employee. To the
knowledge of the Borrower, after the Borrower's exercise of reasonable due
diligence, the Borrower is in material compliance with the requirements of
ERISA.
3.20 SOLVENCY OF BORROWER. Entering into this Agreement, making and
delivering the Note and the borrowings under this Agreement, do not and will not
render the Borrower insolvent; the Borrower is not contemplating either the
filing of a petition under any state or federal bankruptcy or insolvency laws or
the liquidating of all or a major portion of its property, and the Borrower has
no knowledge of any person contemplating the filing of any such petition against
it or any of its assets; and after giving effect to the transactions
contemplated by this Agreement the Borrower is and will be able to pay its debts
as such
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<PAGE> 24
debts become due and will have and continue to have capital sufficient to carry
on its business as presently conducted and as presently contemplated to be
conducted.
3.21 NO MISSTATEMENTS. No statement of fact made by or on behalf of the
Borrower in this Agreement or in any certificate or schedule furnished by the
Borrower to the Lender pursuant hereto, or otherwise delivered by the Borrower
to the Lender, or in any reports or filings delivered by Borrower to the SEC or
to Borrower's shareholders, contains any untrue statement of a material fact.
There is no fact presently known to the Borrower which has not been disclosed to
the Lender which materially affects adversely, nor as far as the Borrower can
foresee, will materially affect adversely the property, business, operations or
condition (financial or otherwise) of the Borrower.
3.22 YEAR 2000 MATTERS.
Any reprogramming required to permit the proper functioning (but only to
the extent that such proper functioning would otherwise be impaired by the
occurrence of the year 2000) in and following the year 2000 of computer systems
and other equipment containing embedded microchips, in either case owned or
operated by the Borrower or any of its Affiliates or used or relied upon in the
conduct of their business (including any such systems and other equipment
supplied by others or with which the computer systems the Borrower or any of its
Affiliates interface), and the testing of all such systems and other equipment
as so reprogrammed, will be completed by July 1, 1999. The costs to the Borrower
and its Affiliates that have not been incurred as of the date hereof:
a) for such reprogramming and testing; and
b) for the other reasonably foreseeable consequences to them of
any improper functioning of other computer systems and
equipment containing embedded microchips due to the occurrence
of the year 2000,
could not reasonably be expected to result in a Default or Event of Default.
Except for any reprogramming referred to above, the computer systems of the
Borrower and its Affiliates are, and with ordinary course upgrading and
maintenance will continue for the term of this Agreement to be, sufficient for
the conduct of their business as currently conducted. Borrower represents only
that it is compliant, that it is monitoring the compliance of its business
partners and it has no reason to believe that they will not become compliant on
a timely basis.
3.23 PATENTS, TRADEMARKS, ETC.
All of the Borrower's owned or licensed franchises, patents, domain
names, web sites, patent licenses, copyrights, trademarks, service marks, trade
names, licenses and permits, and applications for any of the foregoing, and all
rights with respect to the
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<PAGE> 25
foregoing, necessary for the conduct of its business substantially as the same
are now conducted, without any known conflict with any rights of others, are
described on Schedule 3.23 attached hereto, subject to the rights of third
parties under the agreements listed on Schedule 3.23.
3.24 LABOR RELATIONS; EMPLOYEES.
Except as described on Schedule 3.24, there are no collective
bargaining agreements currently in effect between the Borrower and any labor
unions or organizations representing any of the employees of the Borrower.
Except as described in Schedule 3.24 hereto, the Borrower has not made any
promises or commitments of any kind for: (i) any employment or labor agreement;
(ii) any agreement, arrangement or policy that contains or involves any
severance pay or supplemental employment liabilities or obligations, including
any bonus, deferred compensation, pension, stock option, profit-sharing,
incentive compensation, fringe benefit or retirement plan or other arrangement;
or (iii) any personnel-related agreement, guarantee or indemnification which
involves, singly or in the aggregate, a potential significant liability. There
is neither pending nor, to the Borrower's knowledge, threatened any labor
dispute, strike or work stoppage. There is not now pending or, to the Borrower's
knowledge, threatened any charge or complaint against the Borrower by the
National Labor Relations Board, the Department of Labor or any other federal,
state or local labor or employment agency or any representative thereof. There
are no arrearage in the payment of any wages, withholding or Social Security
taxes, unemployment insurance premiums, or other similar obligations of the
Borrower.
ARTICLE 4. CONDITIONS OF MAKING THE LOAN.
4.1 CONDITIONS TO LENDER'S OBLIGATIONS.
The Lender shall have no obligation to make the initial Advance unless
the following conditions are satisfied:
(a) Representations and Warranties. The representations and warranties
set forth in ARTICLE III hereof and in the Security Documents shall be true and
correct, and the Borrower shall have performed all obligations which were to
have been performed by it hereunder on or prior to the Closing Date;
(b) Delivery of Documents. The Borrower shall have delivered, or caused
to be delivered to the Lender, the following fully executed documents:
(i) this Agreement;
(ii) the Note;
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<PAGE> 26
(iii) to the extent not previously delivered to the Lender,
the Security Documents, together with any other documents required by
the terms thereof; provided, however, that the Landlord's Consents and
Waivers may be delivered after the Closing Date so long as the status
of the delivery thereof is reasonably satisfactory to the Lender and so
long as said Landlord's Consents and Waivers are delivered on or before
July 31, 1999, otherwise failure to deliver same shall constitute an
Event of Default hereunder; the Lender further agrees to hold the
Leasehold Mortgages in escrow, unrecorded, until such time as the
Borrower delivers the Landlord's Consents and Waivers and provided
further that if Borrower is unable to deliver the Landlord's Consents
and Waivers as required hereunder, then the Lender shall return the
Leasehold Mortgages to the Borrower;
(iv) the Guaranty;
(v) a certificate of the Secretary of Borrower certifying to
(1) the adoption of resolutions by its Board of Directors (and, if
necessary, its stockholders) authorizing the execution, delivery and
performance by Borrower of this Agreement, the Note, and the Security
Documents, and the borrowings thereunder; (2) Borrower's bylaws; and
(3) officers of Borrower and their signatures;
(vi) a copy of Borrower's Articles of Incorporation certified
as of a recent date as true and correct by the Secretary of State of
Delaware;
(vii) a certificate of valid existence for the Borrower issued
by the Secretaries of State of Missouri and Delaware;
(viii) to the extent not previously delivered to the Lender,
the certificates of insurance required by SECTION 5.9 hereof and flood
insurance determination;
(ix) to the extent not previously delivered, any lease
assignments and leasehold mortgages;
(x) to the extent not previously delivered, true and correct
copies of all Authorizations, material consents, contracts, licenses,
permits, instruments and other documents of the Borrower, including
those listed in Schedules 3.7, 3.8, and 3.9;
(xi) the favorable written opinion of counsel for the Borrower
dated the date of this Agreement in form and substance satisfactory to
counsel to the Lender;
(xii) the Projections;
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<PAGE> 27
(xiii) Borrowing Base Compliance Certificate in the form of
EXHIBIT B attached hereto completed as of the date of the Closing and
further completed as of immediately after the disbursements requested
in connection with the Closing;
(xiv) A completed financial compliance covenant showing that
the Borrower satisfies the covenants set forth at SECTIONS 5.6 THROUGH
5.10 hereof at Closing, in the form of EXHIBIT C annexed, and
(xv) such further supporting documents as the Lender may
reasonably request.
(c) Facility Fee. The Borrower shall have paid the Facility Fee
concurrently with the consummation of the transactions contemplated by this
Agreement and all other expenses required to be paid on the Closing Date;
(d) Results of Searches. The Lender shall have received written results
of searches of the records of the filing offices in each jurisdiction where the
Borrower and/or the Guarantor maintains an office, which searches confirm that,
as of a date as close to the date hereof as practicable, except as specifically
permitted by this Agreement, there are no financing statements, assignments or
notices of tax Liens or litigation on file against or with respect to any assets
of the Borrower or the Guarantor;
(e) Other Matters. All legal matters incident to the transactions
contemplated hereby shall be satisfactory to counsel for the Lender;
(f) 10-Q Quarterly Report. The Borrower shall have delivered to the
Lender a copy of the Borrower's 10-Q Quarterly Report, as filed with the SEC,
for the Fiscal Quarter ending March 31, 1999.
(g) Shareholders' Approval of Convertible Preferred Stock Offering. The
Borrower's shareholders have approved the issuance of 20% or more of the
outstanding shares of the Borrower's Common Stock upon the conversion of the
Series C Convertible Preferred Stock of the Company and the exercise of certain
Warrants to purchase Common Stock of the Borrower by the holder thereof, arising
out of the Borrower's $15,000,000.00 Convertible Preferred Stock Offering
entered into as of February 5, 1999; and
(h) SEC Approval. The SEC shall have approved the Borrower's Proxy
Statement for its 1999 Annual Meeting, dated as of July 7, 1999 (and the
Borrower has delivered a copy of the SEC approved Proxy Statement to the Lender)
and the SEC shall have cleared the Borrower's Form 10-K Annual Report as
amended.
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<PAGE> 28
4.2 ADDITIONAL CONDITIONS TO LENDER'S OBLIGATION TO MAKE ANY SUBSEQUENT
ADVANCES UNDER THE LOAN. The Lender shall have no obligation to make any
subsequent Advance of the Loan unless all conditions set forth at SECTION 4.1
have been satisfied, and, in addition, the following conditions are satisfied:
(a) the provisions of SECTION 2.1(a) shall have been met;
(b) The Borrower shall have delivered to the Lender a Borrowing
Certificate in the form of EXHIBIT A annexed hereto for all Advances which are
not for working capital or general corporate purposes; and
(c) The Lender shall have a first priority security interest in the
assets, if any, proposed to be acquired with the proceeds of the advance.
ARTICLE 5. AFFIRMATIVE COVENANTS.
The Borrower covenants and agrees that, from the date hereof and until
payment in full of the principal of, and interest on, the Note, and the payment
of all other Obligations, the Borrower will and Borrower will cause the
Guarantor to:
5.1 MAINTENANCE OF PROPERTIES.
(a) Do or cause to be done all things necessary to preserve, renew and
keep in full force and effect its legal existence, and all material rights,
distributor agreements, licenses, permits, and Authorizations and Material
Contracts; (b) comply in all material respects with all material agreements to
which either of them is a party, the violation of which could have a material
adverse effect upon the Borrower and the Guarantor; (c) at all times maintain,
preserve and protect its trade names and preserve all the remainder of its
material properties used or useful in the conduct of its business and keep the
same in good repair, working order and condition; and (d) from time to time,
make, or cause to be made, all needful and proper repairs, renewals,
replacements, betterments and improvements thereto, so that the business carried
on in connection therewith may be properly and advantageously conducted at all
times.
5.2 COMPLIANCE WITH LAWS. Comply in all material respects with all
applicable local, state and federal laws and regulations, whether now in effect
or hereafter enacted or promulgated by any governmental authority.
Notwithstanding the foregoing, neither this SECTION 5.2 nor SECTION 5.1 above
shall require the Borrower or the Guarantor to comply with laws, rules or
regulations while the Borrower or the Guarantor, as the case may be, is in good
faith contesting its obligation to do so by appropriate proceedings promptly
initiated and diligently conducted, and the Borrower has set aside on its books
such reserves as are required by GAAP and are deemed adequate by the Borrower
and its independent accountants, and provided further that none of the
Borrower's property is
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<PAGE> 29
seized or attached in connection therewith. Borrower will file with the SEC in a
timely matter any and all reports and other documents required of the Borrower
under the Security Exchange Act of 1934, as amended and as required under the
Securities Act of 1933, as amended.
5.3 PAYMENT OF TAXES; DEBTS. Except as provided in SECTION 5.19 hereof,
pay and discharge as they become due all of its Indebtedness and all taxes,
assessments and governmental charges or levies imposed upon it or upon its
income and profits or upon any of its property, real, personal or mixed, or upon
any part thereof, before the same shall become in default, as well as all lawful
claims for labor, materials and supplies or otherwise, which, if unpaid, might
become a lien or charge upon such properties or any part thereof, unless the
Borrower or the Guarantor is contesting any such Indebtedness, levies, taxes,
assessments, claims or charges in good faith and has set aside on its books any
reserves required by GAAP in respect thereof; provided, however, that in any
event all such Indebtedness, claims, levies and charges shall be paid before any
property of the Borrower and the Guarantor is seized or attached in respect
thereof.
5.4 REPORTS TO LENDER. Furnish to the Lender:
(a) Within ninety (90) days of the end of each fiscal year:
consolidated and consolidating balance sheets and statements of income, retained
earnings and surplus, and a statement of cash flows, together with supporting
schedules, setting forth in each case in comparative form the corresponding
figures for the preceding fiscal year, in each case with an unqualified audited
opinion by Rothstein, Kass & Co. of Roseland, New Jersey, or a certified public
accountant selected by the Borrower and reasonably acceptable to the Lender, the
form of opinion to be also reasonably satisfactory to the Lender, showing the
Borrower's and the Guarantor's financial condition at the close of such fiscal
year, and the results of operations during such year, and containing a statement
to the effect that such accountants have examined the provisions of this
Agreement and that, to the best of its knowledge, no covenant default has
occurred under any of SECTIONS 5.6 THROUGH 5.13 hereof (or, if such event has
occurred, a statement that a covenant default has occurred; provided however,
that in issuing such statement, the accountants shall not be required to exceed
the scope of normal auditing procedures conducted in connection with its opinion
referred to above. Said financial statements shall be accompanied by a
certificate in the form of EXHIBIT C attached hereto (the "Compliance
Certificate") properly completed by the president or chief financial officer of
Borrower. Along with such annual financial statements, the Borrower shall also
deliver to the Lender a management letter to the Borrower from its accountants.
(b) Within forty-five (45) days after the end of each Fiscal Quarter:
unaudited balance sheets and statements of income, retained earnings and
surplus, and statements of cash flow and sources and uses of funds for such
Fiscal Quarter, together with supporting schedules setting forth in each case in
comparative form the corresponding
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<PAGE> 30
figures for the preceding fiscal period of the same duration in the prior fiscal
year, in each case prepared by the Borrower and certified by the president or
chief financial officer of Borrower, such balance sheets to be as of the close
of such Fiscal Quarter, and such statements of Borrower's and Guarantor's
income, retained earnings, cash flow and sources and uses of funds to be for the
Fiscal Quarter then ended and for the period from the beginning of the then
current fiscal year to the end of such Fiscal Quarter (in each case subject to
normal audit and year-end adjustments) and to include a comparison of actual
results to those set forth in the Projections for such periods. Said financial
statements shall be accompanied by:
(i) a Compliance Certificate issued by the president or chief
financial officer of Borrower and the Guarantor in the form attached
hereto as EXHIBIT C;
(ii) a statement to the effect that no Event of Default, nor
any Unmatured Default, has occurred, without having been waived in
writing; or if there shall have been an Event of Default not previously
waived in writing pursuant to the provisions hereof or an Unmatured
Default, such certificate shall disclose the nature thereof.
(c) Within thirty (30) days after the end of each month:
(i) an unaudited statement of Borrower's and Guarantor's
profit of and loss for such month and for the year-to-date period ended
at the end of such month; and
(ii) a certificate of the chief operating officer or chief
financial officer of the Borrower and Guarantor setting forth the
following information in reasonable detail with respect to such month:
showing cancellations and credits, accounts receivable aging and the
year to date activity report; and
(iii) Borrower's and Guarantor's accounts receivable reporting
and aging; and
(iv) a Certificate of the chief operating officer or chief
financial officer of the Borrower and Guarantor setting forth the
Borrowing Base as of the end of said two weeks in the form of EXHIBIT B
annexed hereto; and
(d) At least thirty (30) days before the end of each fiscal year, a
budget for the ensuing year projecting Borrower's and Guarantor's expected
revenues, expenses, Net Income, and Capital Expenditures.
(e) Annually, no later than September 30 of each year, beginning
September 30, 1999, and at such other times as requested by the Lender,
Borrower's and Guarantor's
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Federal Tax Returns in such detail as the Lender may require, and certified as
complete by the Borrower and the Guarantor.
(f) Promptly after the sending or filing thereof, as the case may be,
copies of any proxy statements, financial statements or reports which the
Borrower has made available to its shareholders and copies of any regular,
periodic and special reports or registration statements which the Borrower files
with the Securities and Exchange Commission or any governmental authority which
may be substituted therefor, or any national securities exchange; and
(g) Promptly, from time to time, such other information regarding its
operations, assets, business, affairs and financial condition, as the Lender may
reasonably request.
5.5 INSPECTION BY LENDER. Permit agents or representatives of the
Lender to inspect, at reasonable hours and upon reasonable notice, its books and
records and to make abstracts or reproductions thereof; such inspections to be
conducted quarterly at the Borrower's expense.
5.6 MINIMUM PREPAID LINES.
Maintain minimum Prepaid Lines commencing April, 1999, as follows, to
be tested as follows:
<TABLE>
<CAPTION>
Time Period Minimum Prepaid Lines
----------- ---------------------
<S> <C>
As of April 30, 1999 33,000
As of May 31, 1999 37,000
As of June 30, 1999 45,000
As of August 30, 1999 70,000
As of September 30, 1999 100,000
As of the last day of each To increase by an additional 75,000
Fiscal Quarter thereafter Prepaid Lines per Fiscal Quarter
</TABLE>
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<PAGE> 32
5.7 MINIMUM CURRENT RATIO. Maintain at all times a minimum Current
Ratio, to be tested as follows:
<TABLE>
<CAPTION>
Time Period Minimum Current Ratio
----------- ---------------------
<S> <C>
June, 1999 0.25 : 1.00
July, 1999 0.30 : 1.00
August, 1999 0.35 : 1.00
September, 1999 0.40 : 1.00
October, 1999 0.50 : 1.00
November, 1999 0.60 : 1.00
December, 1999 0.65 : 1.00
Fiscal Quarter ending March 31, 2000 0.90 : 1.00
Commencing Fiscal Quarter ending
June 30, 2000, and thereafter 1.00 : 1.00
</TABLE>
5.8 MINIMUM NET INCOME. Maintain minimum Net Income for each Fiscal
Quarter, commencing with the Fiscal Quarter ending September 30, 1999, to be
tested quarterly as follows:
<TABLE>
<CAPTION>
Time Period Minimum Net Income
----------- ------------------
<S> <C>
October 1, 1999 through
December 31, 1999 $500,000.00
Each Fiscal Quarter thereafter $600,000.00
</TABLE>
5.9 MAXIMUM NET LOSS. Not permit maximum Net Loss to exceed the
following amounts, to be tested quarterly:
<TABLE>
<CAPTION>
Time Period Maximum Monthly Loss
----------- --------------------
<S> <C>
Fiscal Quarter ending
June 30, 1999 $ 3,600,000.00
Fiscal Quarter ending
September 30, 1999 $ 1,800,000.00
Fiscal Quarter ending
December 30, 1999 and
each Fiscal Quarter thereafter $0
</TABLE>
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<PAGE> 33
5.10 MINIMUM INCREASE TO STOCKHOLDER'S EQUITY. Maintain for each Fiscal
Quarter commencing with the quarter ending December 30, 1999, a minimum increase
to Stockholder's Equity as follows, to be tested quarterly:
<TABLE>
<CAPTION>
Time Period Minimum Increase to Stockholder's Equity
----------- ----------------------------------------
<S> <C>
Fiscal Quarter ending
December 31, 1999 and
Each Fiscal Quarter thereafter $ 500,000.00
</TABLE>
5.11 REDUCTION OF TELECOM TAXES. Use its best efforts to reduce
Borrower's and Guarantor's combined outstanding Telecom Taxes due and payable,
to be reported on by Arthur Andersen LLP on a fiscal quarterly basis, in a
report reasonable satisfactory to the Lender in form and substance, which report
shall include, at a minimum, a statement of the aggregate outstanding Telecom
Taxes as of the end of such fiscal quarter and a statement of the aggregate
payments made by each of Borrower and Guarantor to reduce Telecom Taxes during
such fiscal quarter.
5.12 BANK ACCOUNTS. Maintain a depository account at the Lender and
maintain sufficient balances on the date payments are due to permit payment in
full by the Borrower of all obligations when due under the Note and this
Agreement, as authorized by the provisions of SECTION 2.3.
5.13 CASUALTY AND LIABILITY INSURANCE. Maintain or cause to be
maintained property and casualty insurance on its Call Centers and other
equipment with such carriers and in such amounts and on such other terms as
shall be customarily carried by comparable companies and satisfactory to the
Lender in its reasonable judgment, including, without limitation, all insurance
required by the Authorizations and Material Contracts, but in any event in the
amount approximately equal to or greater than the replacement cost of its Call
Centers. The Borrower shall also carry public general comprehensive liability
insurance and errors and omissions insurance in a manner and with companies
reasonably satisfactory to the Lender and customarily carried by comparable
companies in the Borrower's business; but in any event such general
comprehensive liability policies shall have a single limit of liability in an
amount not less than $1,000,000 for each occurrence and $5,000,000 in aggregate,
and such errors and omissions policies shall have a single limit of liability in
an amount not less than $1,000,000 per occurrence and $1,000,000 in aggregate.
The Borrower shall also carry business interruption insurance in amounts and
with companies satisfactory to the Lender in its reasonable judgment. The Lender
shall be named as loss payee and additional insured, as applicable, under all
such policies, and all such policies, or certificates evidencing the same, shall
include a clause prohibiting cancellation or alteration of the policy without
thirty (30) days' prior written notice to the Lender. Certificates evidencing
such insurance coverage, and
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<PAGE> 34
stating that the insurer has waived its subrogation rights against the Lender,
shall be delivered to the Lender prior to the making of the Loan.
5.14 ADDITIONAL INTERESTS IN REAL PROPERTY. Forthwith upon the
acquisition by Borrower of any real property or of any leasehold or other
interest therein, the Borrower shall (a) execute and deliver to the Lender a
mortgage, collateral assignment, or other appropriate security instrument, in
form suitable for recording and otherwise in form and substance satisfactory to
the Lender, such as to grant to the Lender a lien respecting such real property
(including any improvements thereon) or interest therein subject only to
encumbrances permitted under SECTION 6.2 hereof; and (b) cause to be executed
and delivered to the Lender a consent and waiver in form suitable for recording
and otherwise in form and substance satisfactory to the Lender, signed by each
mortgagee other than the Lender in the case of a fee interest and by each owner
or lessor in the case of a leasehold or other interest, whereby such person
consents to the installation of Collateral on the premises, agrees that any
Collateral installed will remain personal property regardless of the manner of
installation, disclaims any title to the Collateral by reason of its
installation, waives its right to levy upon the same, subordinates to the Lender
any security interest in the Collateral claimed by such person, agrees that the
Lender may remove Collateral from or dispose of Collateral on the premises, and
grants the Lender a right of entry to do so.
5.15 NOTICE OF ADVERSE CHANGES AND OTHER MATTERS. The Borrower will
promptly notify the Lender within ten (10) days of the occurrence of (i) any
development, including, without limitation, developments relating to the
Authorizations and Material Contracts, which would materially adversely affect
the business of the Borrower or the Guarantor, its properties or affairs, or the
ability of the Borrower or the Guarantor to perform its obligations under this
Agreement, the Security Documents or the Note, (ii) any material adverse change
in the condition of the Borrower or the Guarantor, financial or otherwise, (iii)
the institution of proceedings against the Borrower or the Guarantor in any
court or before any governmental body which, if adversely determined, would have
a material adverse effect upon the Borrower and the Guarantor, and (iv) the
occurrence of any Event of Default as defined in ARTICLE VII hereof, and the
occurrence of any Unmatured Default.
5.16 COMPLIANCE WITH ENVIRONMENTAL LAWS.
(a) The Borrower and the Guarantor shall comply in all respects with
all Environmental Requirements and will not generate, store, handle, process,
dispose of or otherwise use and will not permit any subtenant or sublessee of
Borrower to generate, store, handle, process, dispose of or otherwise use
Hazardous Materials in, on, under or about any Property in a manner that could
lead or potentially lead to imposition on the Borrower or any lender or any of
the Properties of any liability or lien of any nature whatsoever under any
Environmental Requirement.
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<PAGE> 35
(b) The Borrower shall notify the Lender promptly in the event of any
spill or other release of any Hazardous Material in, on, under or about any of
the Properties which is required to be reported to a governmental authority
under any Environmental Requirement, will promptly forward to the Lender copies
of any notices received by the Borrower relating to any alleged violation of any
Environmental Requirement and will promptly pay when due any fine or assessment
against the Lender, the Borrower or the Guarantor or any of the Properties
relating to any Environmental Requirement.
(c) If at any time it is determined that:
(i) the operation or use of any of the Properties by
the Borrower or the Guarantor violates any applicable
Environmental Requirement, or
(ii) that there is any Hazardous Material located in,
on, under or about the Property which under any Environmental
Requirement requires special handling by the Borrower or the
Guarantor in collection, treatment, storage or disposal or any
other form of cleanup or remedial or corrective action,
the Borrower shall within thirty (30) days after receipt of notice thereof from
a governmental authority (or such other time period as may be specified in the
notice sent by such governmental authority) or from the Lender take, at its sole
cost and expense, such actions as may be necessary to fully comply in all
respects with all Environmental Requirements, provided, however, that if such
compliance cannot reasonably be completed within such thirty (30) day period,
the Borrower shall commence such necessary action within such thirty (30) day
period and shall thereafter diligently and expeditiously comply with all
Environmental Requirements.
(d) If a lien is filed against any Property by any governmental
authority resulting from the need to expend or the actual expending of monies
arising from an action or omission, whether intentional or unintentional, of the
Borrower or for which the Borrower is responsible, resulting in the releasing,
spilling, leaking, leaching, pumping, emitting, pouring, emptying or dumping of
any Hazardous Material, then the Borrower will, within thirty (30) days from the
date that the Borrower is first given notice that such lien has been placed
against the Property either (a) pay the claim and remove the lien or (b) furnish
a cash deposit, bond or such other security with respect thereto as is
satisfactory in all respects to the Lender in its reasonable judgment and is
sufficient to effect a complete discharge of such lien on the Property.
5.17 FURTHER ASSURANCES. The Borrower and the Guarantor will take any
action reasonably requested by the Lender to cause the Lender to enjoy the
rights of the Lender under this Agreement and the Security Documents including,
if requested by the Lender, executing written confirmations of the security
interests, pledges and guarantees under the Security Documents.
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<PAGE> 36
5.18 MANAGEMENT. Antonio D. Autorino will be Chairman and Chief
Operating Officer, and Vincent DiVincenzo will be Chief Financial Officer of the
Borrower unless either individual resigns or retires and a substitute therefor
is chosen by the Borrower with comparable qualifications, experience and
reputation within the Borrower's business reasonably acceptable to the Lender
and commences management of the Borrower within ninety (90) days after such
cessation.
5.19 PAYMENT OF TELECOM TAXES. The Borrower and the Guarantor will
continue to accrue, in accordance with their historical practice, state and
local Telecom Taxes based on known rates depending upon the site of origination,
and to the extent unpaid the Borrower and Guarantor will accrue related interest
on said Telecom Taxes. The Borrower and Guarantor will continue to utilize
Arthur Andersen to approach the taxing authorities, in accordance with their
historical procedure, to make arrangements for payment of outstanding taxes in
the manner in which Borrower and Guarantor have done historically.
5.20 YEAR 2000 MATTERS. The Borrower will deliver to the Lender any
documentation which the Lender may reasonably require to evidence the Borrower's
and its material vendors' compliance with Year 2000 requirements.
5.21 CALCULATION OF FINANCIAL COVENANTS. Notwithstanding anything to
the contrary in this Agreement, the calculation of any financial covenant as set
forth in this ARTICLE V shall not take into account any effect of either (a) the
payment of Premiums with respect to the Borrower's Series C Preferred Stock, or
(b) the Warrant.
ARTICLE 6. NEGATIVE COVENANTS
The Borrower covenants and agrees that, until payment in full of the
Note and payment of all other Obligations, unless the Lender shall otherwise
consent in writing, it will not, and will not permit Guarantor to do so,
directly or indirectly:
6.1 INDEBTEDNESS. Incur, create, assume, become or be liable in any
manner with respect to, or permit to exist, any Indebtedness or liability
(including Capital Lease obligations), except:
(a) Indebtedness to the Lender under the Loan Documents;
(b) Indebtedness with respect to trade obligations and other normal
accruals in the ordinary course of business not yet due and payable, or with
respect to which it is contesting in good faith the amount or validity thereof
by appropriate proceedings, and then only to the extent they have set aside on
its books adequate reserves therefor and only so long as no property of the
Borrower or the Guarantor is seized or attached in satisfaction of or as
security for the Indebtedness;
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<PAGE> 37
(c) Indebtedness with respect to Capital Leases and/or purchase money
security interests in an aggregate amount not exceeding One Hundred Thousand
Dollars ($100,000.00) outstanding at any one time;
(d) Current liabilities of the Borrower and the Guarantor (other than
for borrowed money) and/or obligations of the Borrower and the Guarantor in
respect of performance bonds provided on behalf of the Borrower or the
Guarantor, in each case incurred in the ordinary course of business and in
accordance with customary industry practice; and
(e) Permitted Indebtedness, as approved by the Lender, as described on
SCHEDULE 6.1(e) hereto.
6.2 LIENS. Create, incur, assume or suffer to exist any Liens on any of
its assets, now or hereafter owned, other than:
(a) Liens in favor of the Lender;
(b) Liens securing the payment of taxes, and other government charges,
either not yet due or the validity of which is being contested in good faith by
appropriate proceedings, and as to which it shall have set aside on its books
adequate reserves;
(c) deposits under worker's compensation, unemployment insurance and
social security laws, or to secure statutory obligations, or to secure surety or
other similar bonds that the Borrower is required to obtain in the ordinary
course of business;
(d) purchase money security interests and leasehold interests under
Capital Leases as permitted by and as limited in amount by SECTION 6.1(c)
hereof; and
(e) Liens securing indebtedness permitted by SECTION 6.1, as listed on
SCHEDULE 6.2(e) hereto.
6.3 GUARANTEES. Except as otherwise explicitly permitted by this
Agreement, guarantee, endorse or otherwise in any way become or be responsible
for obligations of any other Person, whether by agreement to purchase the
Indebtedness of any other Person, or agreement for the furnishing of funds to
any other Person, through purchase of goods, supplies or services, or by way of
stock purchase, capital contribution, advance or loan, for the purpose of paying
or discharging any indebtedness or obligation of such other Person, or
otherwise, except endorsements on negotiable instruments for collection in the
ordinary course of business.
6.4 SALE OF ASSETS. Sell, lease, transfer or otherwise dispose of its
properties, assets, rights or licenses other than inventory sold in the ordinary
course of business.
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6.5 SALE AND LEASEBACK. Enter into any arrangement, directly or
indirectly, with any Person whereby the Borrower or the Guarantor shall sell or
transfer any property, real, personal or mixed, used or useful in its business,
whether now owned or hereafter acquired, and thereafter rent or lease such
property.
6.6 INVESTMENTS. Purchase or otherwise acquire or hold Investments or
make loans or advances to, or enter into any arrangement for the purpose of
providing funds or credit to, any other Person, except Permitted Investments.
6.7 REORGANIZATION; NAME CHANGE; REDEMPTIONS. Dissolve, liquidate,
consolidate with or merge with, or except as permitted by SECTION 6.10 hereof
otherwise acquire all or substantially all of the assets or properties of, any
other corporation, partnership, business, firm, or other Person, amend its
Articles of Incorporation in any way that could have a material adverse effect
upon the business of the Borrower or the Guarantor or upon the Lender's rights
hereunder or under any Security Document; or make any change in its legal name
or the names under which it conducts business; or redeem any of its shares of
capital stock.
6.8 RESTRICTED PAYMENTS. Directly or indirectly declare, order, pay or
make any Restricted Payment or set aside any sum of property therefor.
6.9 TRANSACTIONS WITH AFFILIATES. Enter into any transaction,
including, without limitation, the purchase, sale or exchange of property or
assets or the rendering of any service, with or to any Affiliate of the
Borrower, except in the ordinary course of business and pursuant to the
reasonable requirements of the Borrower's business and upon fair and reasonable
terms not less favorable to the Borrower than would be obtained in a comparable
arm's-length transaction with a third party other than such Affiliate.
6.10 ACQUISITIONS; OFFICES. Acquire assets other than routine purchases
of equipment and supplies in the ordinary course of business and acquisitions
funded by the Loan; or without the prior written consent of the Lender open any
office other than its sales offices and Call Stations listed on Schedule 3.10
attached hereto.
6.11 OTHER BUSINESSES. Engage, directly or indirectly, in any business
other than rental of short-term portable cellular rentals, prepaid or debit
cellular services and the provision of activation services, and related
communications products and services.
6.12 SALE OF ACCOUNTS RECEIVABLE. Sell, assign, discount or dispose in
any way of any accounts receivable, promissory notes or trade acceptances held
by the Borrower or the Guarantor, with or without recourse, except for
collection (including endorsements) and write-offs in the ordinary course of
business.
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6.13 PENSION PLANS. Except for existing plans described on Schedule
3.20, enter into or otherwise adopt any pension, profit sharing or other similar
plan covered by ERISA providing for a program of deferred compensation to any
employee.
ARTICLE 7. EVENTS OF DEFAULT.
7.1 EVENTS OF DEFAULT. The happening of any of the following events
shall constitute an "Event of Default":
(a) if any material representation or warranty made herein, or in any
report, certificate, financial statement or other instrument furnished by the
Borrower or Guarantor in connection with this Agreement, or the borrowing
hereunder, shall prove to have been false or misleading when made in any
material respect;
(b) if a default occurs in the payment of:
(i) any interest on the Note, or
(ii) any fee required to be paid under this Agreement, or
(iii) any installment of the principal of the Note or any
other Obligations,
in any such case whether at the due date thereof or at a date fixed for
prepayment or by acceleration or otherwise and such default continues for five
(5) days (a "Payment Event of Default");
(c) if a default occurs in the due observance or performance of any
covenant, condition or agreement contained in any of SECTIONS 5.6 THROUGH 5.13
hereof or in ARTICLE VI hereof;
(d) if a default occurs in the due observance or performance of any
covenant, condition or agreement on the part of the Borrower or the Guarantor to
be observed or performed pursuant to the terms of this Agreement (excluding
those specified in subparagraph (c) above) or pursuant to the terms of the
Security Documents and such default shall continue unremedied for thirty (30)
days after the earlier of (i) notice thereof by the Lender to the Borrower or
the Guarantor or (ii) discovery of such default by the Borrower or the
Guarantor; if such default, provided, however, if cannot be cured within thirty
(30) days, then Borrower or Guarantor shall diligently undertake to cure and
complete as soon as possible provided the cure period will not exceed ninety
(90) days without the Lender's prior written consent;
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<PAGE> 40
(e) if a default occurs in the payment or performance of any other
obligation or liability of either the Borrower or the Guarantor to the Lender,
and such default continues past any applicable cure period;
(f) if a default occurs with respect to any Indebtedness of Borrower or
Guarantor to any Person other than the Lender exceeding Fifty Thousand Dollars
($50,000.00) in aggregate principal amount if the effect of such default is to
accelerate the maturity of such Indebtedness or to permit the holder thereof to
cause such Indebtedness to become due prior to the stated maturity thereof,
provided that it shall not be an Event of Default if such obligation is being
contested in good faith by the Borrower or Guarantor by appropriate proceedings,
and the Borrower or Guarantor has set aside adequate reserves with respect
thereto or such default is waived by the holder thereof;
(g) if Borrower, the Guarantor, or any other Person liable in whole or
in part for payment of the Obligations shall (i) except at the request of the
Lender, apply for or consent to the appointment of a receiver, trustee,
custodian or liquidator of it or any of its property, (ii) admit in writing its
inability to pay its debts as they mature, (iii) make a general assignment for
the benefit of creditors, (iv) be adjudicated bankrupt or insolvent or be the
subject of an order for relief under Title 11 of the United States Code or (v)
file a voluntary petition in bankruptcy, or a petition or an answer seeking
reorganization or an arrangement with creditors or to take advantage (as a
debtor) of any bankruptcy, reorganization, insolvency, readjustment of debt,
dissolution or liquidation law or statute, or an answer admitting the material
allegations of a petition filed against it in any proceeding under any such law
or if corporate action shall be taken for the purpose of effecting any of the
foregoing;
(h) an involuntary case in respect of the Borrower or the Guarantor
under the federal bankruptcy laws, as now or hereafter constituted, or any other
applicable federal or state bankruptcy, insolvency or other similar law which is
not vacated or dismissed within thirty (30) days of the entry thereof, or there
shall be entered a decree or order in respect of the Borrower or the Guarantor
appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator
(or similar official) of the Borrower or the Guarantor or for any substantial
part of the property of the Borrower or the Guarantor or there shall be entered
a decree or order in respect of the Borrower or the Guarantor ordering the
winding-up or liquidation of the Borrower's or the Guarantor's affairs (any of
the foregoing petitions being hereinafter referred to as an "Involuntary
Petition");
(i) a voluntary case commenced by the Borrower or the Guarantor under
the federal bankruptcy laws, as now constituted or hereafter amended, or any
other applicable federal or state bankruptcy, insolvency or other similar law,
or it shall consent to the appointment of or taking possession by a receiver,
liquidator, assignee, trustee, custodian, sequestrator (or other similar
official) of the Borrower or the Guarantor or for any substantial part of their
respective property, or the failure of the Borrower or the Guarantor
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<PAGE> 41
generally to pay their respective debts as such debts become due in the ordinary
course, or the making of a general assignment for the benefit of creditors, or
the taking of corporate action by the Borrower or the Guarantor in furtherance
of any of the foregoing;
(j) if a final judgment is rendered for the payment of money in excess
of $50,000 against Borrower or the Guarantor, and the same shall remain
undischarged, unbonded or uninsured for a period of thirty (30) consecutive
days, during which period execution has not been effectively stayed;
(k) if there occurs any attachment of any deposits or other property of
Borrower or the Guarantor in the hands or possession of the Lender, or if there
occurs any attachment of any other property of the Borrower or the Guarantor in
an amount exceeding Fifty Thousand Dollars ($50,000) which shall not be
discharged or effectively stayed within thirty (30) days of the date of such
attachment;
(l) if Borrower or the Guarantor shall lose, fail to keep in force,
suffer the termination, suspension or revocation of or terminate, forfeit or
suffer a material adverse amendment to any material Authorization, the loss,
termination, amendment, suspension or revocation of which would have a material
adverse effect on the operations of the Borrower or the Borrower's or the
Guarantor's ability to perform its obligations under this Agreement or the Note
which circumstance shall continue for a period of thirty (30) days after the
Borrower or the Guarantor discovers such circumstance; or Borrower or Guarantor
shall suffer a material adverse change in its operations, finances or business
as determined by the Lender in its sole discretion reasonably exercised; or
(m) termination of the Prepaid Cellular Reseller Agreement dated as of
February 19, 1999 between Borrower and MCI Telecommunications Corporation and
WorldCom Technologies, Inc.;
(n) if the Borrower's capital stock is delisted with Nasdaq or any
other national securities exchange; or
(o) if the SEC or the Federal Communications Commission commences
investigation of Borrower and such investigation is not terminated in Borrower's
favor within ninety (90) days of the commencement thereof.
7.2 EFFECT OF EVENT OF DEFAULT. If any Event of Default occurs, then at
any time thereafter during the continuance of such Event of Default, the Note
and any and all other Obligations shall, at the option of the Lender, become
immediately due and payable (except that upon the occurrence of an Event of
Default described in paragraph (g) or (h) of SECTION 7.1 of this ARTICLE VII,
the Note shall become immediately due and payable without any action on the part
of the Lender), both as to principal and interest, without presentment, demand,
protest or notice of any kind, all of which are hereby expressly
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waived, anything contained herein or in the Note or other evidence of such
indebtedness to the contrary notwithstanding. In the event of an acceleration of
the Borrower's indebtedness hereunder as a result of the filing of an
Involuntary Petition as specified in paragraph (h) of SECTION 7.1 of this
ARTICLE VII, such acceleration shall be rescinded and the Event of Default shall
be deemed not to have occurred, and the Borrower's rights hereunder reinstated,
if, within sixty (60) days following the filing of such Involuntary Petition,
such Involuntary Petition shall have been dismissed or stayed unless said stay
is lifted or expires by its terms (in which event such acceleration shall be
revived), and there shall exist no other Event of Default under this Agreement.
7.3 ADDITIONAL REMEDIES. In addition to the foregoing, if any Event of
Default occurs, then at any time thereafter during the continuance of such Event
of Default the Lender is hereby authorized and empowered to exercise any rights
of foreclosure or as otherwise provided for the realization of any security for
the Note covered by any of the Security Documents and all other remedies
available to the Lender under this Agreement or at law or in equity may be
exercised by the Lender at any time and from time to time, whether or not the
indebtedness evidenced by the Note shall be due and payable, and whether or not
the Lender shall have instituted any foreclosure proceedings or other action for
the enforcement of its rights under the Note or any of the Security Documents.
7.4 CONSENT TO RECEIVER. In addition to the foregoing remedies, the
Lender may upon the occurrence and during the continuance of an Event of Default
under clause (b) of SECTION 7.1 above, proceed to protect and enforce its rights
by an action at law, suit in equity or other appropriate proceeding, whether for
the specific performance of any agreement contained in any of the Loan
Documents, or for an injunction against a violation of any of the terms hereof
or thereof. If the Lender applies for the employment of, or taking possession
by, a trustee, receiver, liquidator or other similar official, of the Borrower
to hold or liquidate all or any substantial part of the properties or assets of
the Borrower, the Borrower hereby consents to such appointment and agrees to
execute and deliver any and all documents requested by the Lender relating to
the appointment of such trustee, receiver, liquidator or other similar official
(whether by joining in a petition for the voluntary appointment of such an
official, by entering no contest to a petition for the appointment of such an
official or otherwise, as appropriate under applicable law), sixty (60) days
after the occurrence of a Payment Event of Default. No right conferred upon the
Lender hereby or by any Loan Document or the Note shall be exclusive of any
other right referred to herein or therein or now or hereafter available at law,
in equity, by statute or otherwise.
ARTICLE 8. SETOFF; ASSIGNMENTS; PARTICIPATIONS
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8.1 SETOFF. In addition to, and without limitation of, any rights of
the Lender under applicable law, if any Event of Default occurs and is
continuing, any indebtedness of the Lender to the Borrower (including all
account balances, whether provisional or final and whether or not collected or
available) may be offset and applied toward the payment of the Obligations owing
to the Lender, whether or not the Obligations, or any part thereof, shall then
be due.
8.2 SUCCESSORS AND ASSIGNS. The terms and provisions of the Loan
Documents shall be binding upon and inure to the benefit of the Borrower and the
Lender and their respective successors and assigns, except that the Borrower
shall not have the right to assign its rights or obligations under the Loan
Documents. Any assignee or transferee of the Note agrees by acceptance thereof
to be bound by all the terms and provisions of the Loan Documents. Any request,
authority or consent of any Person, who at the time of making such request or
giving such authority or consent is the holder of the Note, shall be conclusive
and binding on any subsequent holder, transferee or assignee of the Note or of
any note or notes issued in exchange therefor.
8.3 PARTICIPATIONS.
(a) Permitted Participants; Effect. The Lender may, in the ordinary
course of its commercial banking business and in accordance with applicable law,
at any time sell to one or more banks or other entities ("Participants")
participating interests in any Loan owing to the Lender, the Note, or any other
interest of the Lender under the Loan Documents. In the event of any such sale
by the Lender of participating interests to a Participant, the Lender's
obligations under the Loan Documents shall remain unchanged, the Lender shall
remain solely responsible to the other parties hereto for the performance of
such obligations, the Lender shall remain the holder of the Note for all
purposes under the Loan Documents, all amounts payable by the Borrower under
this Agreement shall be determined as if the Lender had not sold such
participating interests, and the Borrower and the Lender shall continue to deal
solely and directly with each other in connection with the Lender's rights and
obligations under the Loan Documents. The Borrower shall not be required to pay
legal fees or other administrative expenses or other costs or expenses of the
Lender or its participants relating to the Participations.
(b) Benefit of Setoff. The Borrower agrees that each Participant of
which the Borrower is notified shall be deemed to have the right of setoff
provided in SECTION 8.1 in respect of its participating interest as if the
amount of its participating interest were owing directly to it as a lender under
the Loan Documents, provided that the Lender shall retain the right of setoff
provided in SECTION 8.1 with respect to the amount of participating interests
sold to each Participant. The Lender agrees to share with each Participant, and
each Participant, by exercising the right of setoff provided in SECTION 8.1
agrees to share with the Lender, any amount received pursuant to the exercise of
its right of setoff.
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8.4 ASSIGNMENTS.
(a) Permitted Assignments. Subject to SECTION 8.4(b) the Lender may, in
the ordinary course of its commercial banking business and in accordance with
applicable law, at any time assign to one or more banks or other entities
("Purchasers") all or any part of its rights and obligations under the Loan
Documents; provided, that any such assignment (other than an assignment to a
Purchaser which is an Affiliate of the Lender) shall be in a minimum amount of
$500,000.
(b) Effect; Effective Date. Upon (i) delivery to the Borrower of a
notice of assignment (a "Notice of Assignment"), identifying the Assignee and
the aggregate principal amount being assigned, such assignment shall become
effective on the effective date specified in such Notice of Assignment. On and
after the effective date of such assignment, such Purchaser shall for all
purposes be a lender party to this Agreement and any other Loan Document
executed by the Lender and shall have all the rights and obligations of the
Lender under the Loan Documents, to the same extent as if it were an original
party hereto, and no further action by the Borrower or the Lender shall be
required to release the transferor Lender with respect to the percentage of the
Loan assigned to such Purchaser. Upon consummation of any assignment to a
Purchaser pursuant to this SECTION 8.4(b), the transferor Lender and the
Borrower shall make appropriate arrangements so that replacement Note(s) are
issued to such transferor Lender and new Note or, as appropriate, replacement
Note, are issued to such Purchaser, in each case in principal amounts reflecting
their respective, portions of the Loan, as adjusted pursuant to such assignment.
8.5 DISSEMINATION OF INFORMATION. The Borrower authorizes the Lender to
disclose to any Participant or Purchaser or any other Person acquiring an
interest in the Loan Documents by operation of law (each a "Transferee") and any
prospective Transferee any and all information in the Lender's possession
concerning the credit-worthiness of the Borrower, provided that such Transferee
is first informed of the confidential nature of such information and
acknowledges such confidentiality, and provided further that information shall
not be disseminated to Persons that the Lender reasonably believes to be actual
competitors of the Borrower.
ARTICLE 9. MISCELLANEOUS
9.1 SURVIVAL OF WARRANTIES. This Agreement and all covenants,
agreements, representations and warranties made herein and in the certificates
delivered pursuant hereto, shall survive the making by the Lender of the Loan
hereunder and the execution and delivery to the Lender of the Note, and shall
continue in full force and effect so long as any of the Note or any other
Obligations are outstanding and unpaid. Whenever in this Agreement any of the
parties hereto is referred to, such reference shall be deemed to include the
successors and assigns of such party; and all covenants, promises and
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agreements in this Agreement contained, by or on behalf of the Borrower or the
Lender, shall inure to the benefit of and be binding upon the successors and
assigns of the Lender.
9.2 EXPENSES; INDEMNIFICATION. The Borrower shall reimburse the Lender
(a) for any reasonable costs and out-of-pocket expenses (including reasonable
attorneys' fees and time charges of attorneys for the Lender) paid or incurred
by the Lender in connection with (i) the preparation, review and execution of
the Loan Documents; and (ii) delivery, amendment and modification of the Loan
Documents; and (b) for any reasonable costs and out-of-pocket expenses
(including reasonable attorneys' fees and time charges of attorneys of the
Lender), paid or incurred by the Lender in connection with the collection of the
Loan and enforcement of the Loan Documents. Expenses to be reimbursed by the
Borrower under this Section include, without limitation, the reasonable cost and
expense of obtaining appraisals of real property owned by the Borrower or
interests in real property owned by the Borrower described in the Security
Documents which appraisals shall be in conformity with the applicable
requirements of any law or any governmental rule, regulation, policy, guideline
or directive (whether or not having the force of law), or any interpretation
thereof, including, without limitation, the provisions of Title XI of the
Financial Institutions Reform, Recovery and Enforcement Act of 1989, as amended,
reformed or otherwise modified from time to time, and any rules promulgated to
implement such provisions.
9.3 NONLIABILITY OF LENDER. The relationship between the Borrower and
the Lender shall be solely that of borrower and lender. The Lender shall not
have any fiduciary responsibilities to the Borrower. The Lender undertakes no
responsibility to the Borrower to review or inform the Borrower of any matter in
connection with any phase of the Borrower's business or operations.
9.4 CHOICE OF LAW. The Loan Documents (other than those containing a
contrary express choice of law provision) shall be construed in accordance with
the internal laws (and not the law of conflicts) of The Commonwealth of
Massachusetts.
9.5 CONSENT TO JURISDICTION. The Borrower hereby irrevocably submits to
the non-exclusive jurisdiction of any United States Federal or Massachusetts
state court sitting in Boston in any action or proceeding arising out of or
relating to any Loan Documents, and the Borrower hereby irrevocably agrees that
all claims in respect of such action or proceeding may be heard and determined
in any such court and irrevocably waives any objection it now or hereafter has
as to the venue of any such suit, action or proceeding brought in such a court
or that such court is an inconvenient forum. Nothing herein shall limit the
right of the Lender to bring proceedings against the Borrower in the courts of
any other jurisdiction.
9.6 WAIVER OF JURY TRIAL. THE BORROWER AND THE LENDER HEREBY WAIVE
TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING,
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DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR
OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY LOAN
DOCUMENT OR THE RELATIONSHIP ESTABLISHED THEREUNDER.
9.7 WAIVERS AND AMENDMENTS. No amendment, modification or waiver of any
provisions of this Agreement, or of the Note, or of the Security Documents shall
be effective unless in writing and executed by the Borrower and the Lender. No
consent to any departure by the Borrower therefrom, shall in any event be
effective unless the same shall be in writing and executed by the Lender, and
then such waiver or consent shall be effective only in the specific instance,
and for the purpose, for which given. No notice to or demand of the Borrower, in
any case, shall entitle the Borrower to any other or future notice or demand in
the same, similar or other circumstances except to the extent provided herein.
9.8 NO IMPLIED WAIVERS. Neither any failure nor any delay on the part
of the Lender in exercising any right, power or privilege hereunder, or under
the Note, or under any other instrument given as security therefor, shall
operate as a waiver thereof, nor shall a single or partial exercise thereof
preclude any other or future exercise, or the exercise of any other right, power
or privilege.
9.9 NOTICES. All notices, requests, demands and other communications
provided for hereunder shall be in writing and shall be either mailed by
certified mail, return receipt requested or delivered by overnight courier
service or facsimile transmission to the applicable party at the following
addresses:
If to the Borrower:
Shared Technologies Cellular, Inc.
100 Great Meadow Road, Suite 104
Weathersfield, Connecticut 06109
Attn: Legal Department
Fax: (860) 258-2513
with a copy to:
Day, Berry & Howard, LLP
260 Franklin Street
Boston, Massachusetts 02110
Attn: Jeffrey A. Clopeck, Esq.
Fax: (617) 345-4745
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<PAGE> 47
If to the Lender:
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
Attn: Michael S. St. Jean, Vice President
Fax: (617) 338-4041
with a copy to:
Amy L. Mower, Esq.
Cameron & Mittleman
56 Exchange Terrace
Providence, Rhode Island 02903
Fax: (401) 331-5787
or, as to each party, at such other address as shall be designated by such
parties in a written notice to the other party complying as to delivery with the
terms of this Section. All such notices, requests, demands and other
communication shall be effective three (3) days after deposited in the U.S. Mail
or, in the case of delivery by courier, on the date of delivery at the address
set forth above.
9.10 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original, but all the
counterparts shall together constitute one and the same instrument. This
Agreement shall become effective when the parties hereto have signed a copy
hereof (whether or not the same or different copies) and shall have delivered
the same to the Lender.
9.11 SAVINGS CLAUSE. Any provision of this Agreement which 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 or affecting the validity or
enforceability of such provision in any other jurisdiction.
9.12 HEADINGS. Article and Section headings in this Agreement are
included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose.
THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK
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IN WITNESS WHEREOF, the Lender and the Borrower have caused this
Agreement to be duly executed by their duly authorized representatives as an
instrument under seal, all as of the day and year first above written.
WITNESS: STATE STREET BANK AND
TRUST COMPANY
\s\ Keisha Macklin By:\s\ Michael S. St. Jean
- ------------------------ -------------------------------------
Michael S. St. Jean, Vice President
SHARED TECHNOLOGIES CELLULAR, INC.
\s\ Sean Hayes By:\s\ Vincent DiVincenzo
- ------------------------ -------------------------------------
Vincent DiVincenzo, Chief Financial
Officer
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<PAGE> 49
EXHIBITS AND SCHEDULES
<TABLE>
<CAPTION>
<S> <C> <C>
Exhibit A - Request for Advance
Exhibit B - Borrowing Base Certificate
Exhibit C - Compliance Certificate
Exhibit D - Promissory Note
Exhibit E - Warrant
Schedule 3.3 - Conflicts
Schedule 3.4 - Required Consents
Schedule 3.5 - Litigation
Schedule 3.6 - Encumbrances, Defaults, Restrictions
Schedule 3.7 - Governmental Licenses and Permits
Schedule 3.8 (b) - Other Material Agreements
Schedule 3.9 - Real Estate
Schedule 3.10 - Sales Office Locations
Schedule 3.13 - Indebtedness and Liens; Contingent Obligations
Schedule 3.19 - Plans covered by ERISA
Schedule 3.23 - Patent, Trademarks, Copyrights, Licenses, Domain Names
Schedule 3.24 - Labor Relations; Employees
Schedule 6.1 (e) - Permitted Indebtedness
Schedule 6.2 (e) - List of liens securing Indebtedness
</TABLE>
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<PAGE> 1
SECURITY AGREEMENT AND ASSIGNMENT
THIS SECURITY AGREEMENT AND ASSIGNMENT (THE "AGREEMENT") is dated as of
July 7, 1999 and is entered into by and among SHARED TECHNOLOGIES CELLULAR,
INC., a corporation organized under the laws of the State of Delaware, with its
principal place of business at 100 Great Meadow Road, Suite 104, Wethersfield,
Connecticut 06109 (the "Debtor") and STATE STREET BANK AND TRUST COMPANY, a
Massachusetts trust company with its principal place of business located at 225
Franklin Street, Boston, Massachusetts 02110 (the "Secured Party").
NOW THEREFORE, in consideration of the provisions herein contained, and
for other good and valuable consideration, the receipt and adequacy of which is
hereby acknowledged, the parties hereto agree as follows:
I. DEFINITIONS
1.1. "ACCOUNTS" shall mean "accounts" within the meaning of SECTION
9-106 of the Code and, to the extent not otherwise included therein, all
Contract Rights, accounts receivable, instruments, documents and chattel paper;
any other obligations or indebtedness owed to the Debtor from whatever sources
arising; all rights of the Debtor to receive any payments in money or kind; all
guarantees of Accounts and security therefor; all cash or non-cash Proceeds of
all of the foregoing; all of the right, title and interest of the Debtor in and
with respect to the goods, services or other property which gave rise to or
which secure any of the accounts and insurance policies and proceeds relating
thereto, and all of the rights of the Debtor as unpaid sellers of goods or
services, including, without limitation, the rights of stoppage in transit,
replevin, reclamation and resale; and all of the foregoing, whether now existing
or hereafter created or acquired.
1.2. "CODE" shall mean the Uniform Commercial Code as the same may be
in effect from time to time in the Commonwealth of Massachusetts.
1.3. "COLLATERAL" shall have the meaning assigned to it in SECTION 2.1
of this Agreement.
1.4. "CONTRACT RIGHTS", shall mean all rights to payment or performance
under a Contract not yet earned by performance and not evidenced by an
instrument or chattel paper, for which monies are due or to become due for
services rendered or goods sold.
1.5. "CONTRACT" OR "CONTRACTS" shall mean all contracts, agreements and
other undertakings of any nature whatsoever pursuant to which the Debtor has
entered into a sale or agreement to sell or provide goods or services now or in
the future, and for which monies are due or to become due.
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1.6. "DEBTOR'S ADDRESS" shall mean any of 100 Great Meadow Road, Suite
104, Wethersfield, Connecticut 06109 and Suite 1100, 100 Constitution Plaza,
Hartford, Connecticut 06103, and 149 Weldon Parkway, Suite 109, Maryland
Heights, Missouri.
1.7. "DOCUMENTS" shall mean "documents" within the meaning of SECTION
9-105(1)(f) of the Code.
1.8. "EQUIPMENT" shall include "equipment" within the meaning of
SECTION 9-109(2) of the Code and, to the extent not otherwise included therein,
all machinery, equipment, furniture, parts, tools and dies, of every kind and
description, of the Debtor now owned or hereafter acquired by the Debtor, and
used or acquired for use in the business(es) of the Debtor, together with all
accessions thereto and all substitutions and replacements thereof and parts
therefor; and all cash or non-cash Proceeds thereof.
1.9. "EVENT OF DEFAULT" shall mean an Event of Default set forth in
SECTION 7.1 hereof.
1.10. "FIXTURES" shall mean "fixtures" within the meaning of SECTION
9-313(1)(a) of the Code and, to the extent not otherwise included therein, all
goods which are so related to particular real estate that an interest in them
arises under real estate law and all accessions thereto, replacements thereof
and substitutions therefor, including, but not limited to, plumbing, heating and
lighting apparatus, mantels, floor coverings, furniture, furnishings, draperies,
screens, storm windows and doors, awnings, shrubbery, plants, boilers, tanks,
machinery, stoves, gas and electric ranges, wall cabinets, appliances, furnaces,
dynamos, motors, elevators and elevator machinery, radiators, blinds and all
laundry, refrigerating, gas, electric, ventilating, air-refrigerating,
air-conditioning, incinerating and sprinkling and other fire prevention or
extinguishing equipment of any kind and nature and any replacements, accessions
and additions thereto, Proceeds thereof and substitutions therefor.
1.11. "GENERAL INTANGIBLES" shall mean "general intangibles" within the
meaning of SECTION 9-106 of the Code and, to the extent they arise from the sale
of goods or services or are used in connection with the production of Inventory,
all tax refunds and other claims of the Debtor against any Governmental
Authority, and all choses in action, assignment of proofs of claim in bankruptcy
proceedings, web sites, domain names, insurance proceeds, goodwill, patents,
copyrights, trademarks, trade names, customer lists, formulae, trade secrets,
all general intangibles and documents and Investment Property, whether now owned
or hereafter acquired, service marks, other intellectual property rights,
permits, rights, franchises, contract rights and other intangible property,
licenses, designs, computer software, research and literary rights, all
instruments, securities, Investment Property, cash and property, owned by the
Debtor or in which the Debtor has an interest, which now or hereafter at any
time are in the possession and control of the Secured Party or are in transit by
mail or carrier to or from the Secured Party
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or are in the possession of any third party acting on behalf of the Secured
Party, without regard to whether the Secured Party received the same in pledge,
for safekeeping, as agent for collection or transmission or otherwise or whether
the Secured Party had conditionally released the same.
1.12. "GOVERNMENTAL AUTHORITY" shall mean any instrumentality
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government, and any corporation or other entity
owned or controlled (through stock or capital ownership or otherwise) by any of
the foregoing.
1.13. "INVENTORY" shall mean "inventory" within the meaning of SECTION
9-109 (4) of the Code, and to the extent not otherwise included therein, all
goods, merchandise and other personal property now owned or hereafter acquired
by the Debtor which are held for sale or lease, or are furnished or to be
furnished under any contract of service or are raw materials, work-in-process,
supplies or materials used or consumed in the Debtor's business(es), and all
products thereof, and all substitutions, replacements, additions or accessions
therefor and thereto; and any cash or non-cash Proceeds of all of the foregoing,
including insurance proceeds.
1.14. "INVESTMENT PROPERTY" shall mean "investment property" within the
meaning of SECTION 9-116 of the Code.
1.15. "LIEN" shall mean any mortgage, pledge, hypothecation,
assignment, security interest, lien, charge or encumbrance, or preference,
priority or other security agreement or preferential arrangement of any kind or
nature whatsoever (including, without limitation, any conditional sale or other
title retention agreement, any financing lease having substantially the same
economic effect as any of the foregoing, and the filing of, or agreement to
give, any financing statement under the Uniform Commercial Code or comparable
law of any jurisdiction).
1.16. "LOAN AGREEMENT" shall mean that certain Loan Agreement of even
date herewith between the Debtor and the Secured Party, as the same may from
time to time be amended.
1.17. "OBLIGATIONS" means all indebtedness, obligations and liabilities
of the Debtor to the Secured Party of every kind and description, direct or
indirect, secured or unsecured, joint or several, absolute or contingent, due or
to become due, whether for payment or performance, now existing or hereafter
arising, regardless of how the same arise or by what instrument, agreement or
book account they may be evidenced, or whether or not evidenced by any
instrument, agreement or book account, including, without limitation, all
obligations of the Debtor under the Loan Agreement and the Note, all
undertakings to take or refrain from taking any action, all indebtedness,
liabilities or obligations owing from the Debtor to others which the Secured
Party may have obtained
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by purchase, negotiation, discount, assignment or otherwise, and all interest,
taxes, fees, charges, expenses and attorneys' fees chargeable to the Debtor or
incurred by the Secured Party under this Agreement, or any other document or
instrument delivered in connection herewith.
1.18. "PERMITTED LIENS" means:
(a) Liens securing the payment of taxes, either (i) not yet
due or (ii) the validity of which is being contested in good faith by
appropriate proceedings, and as to which adequate reserves shall have been set
aside on the Debtor's books;
(b) Liens permitted by the Loan Agreement; and
(c) Liens securing the Debtor's payment and performance in
accordance with the terms of the Note and the Loan Agreement.
1.19. "PROCEEDS" shall mean "proceeds" as defined in the Code and, to
the extent not otherwise included therein, (a) any and all proceeds of any
insurance, indemnity, warranty, guaranty, or other agreement, instrument or
undertaking similar to any of the foregoing, payable to the Debtor or any of
them from time to time with respect to any of the Collateral, (b) any and all
payments (in any form whatsoever) made or due and payable to the Debtor from
time to time in connection with any requisition, confiscation, condemnation,
seizure or forfeiture of all or any part of the Collateral, (c) any and all
other amounts from time to time paid or payable under or in connection with any
of the Collateral, and (d) any products or rents of any of the Collateral.
1.20. "NOTE" shall mean that certain Revolving Credit Note of the
Debtor payable to the order of the Secured Party of even date herewith in the
principal amount of $10,000,000.
1.21. "SECURED PARTY'S ADDRESS" shall mean 225 Franklin Street, Boston,
Massachusetts 02110, Attention: Michael S. St. Jean, Vice President.
II. GRANT OF SECURITY INTEREST
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2.1. COLLATERAL AND GRANT OF SECURITY INTEREST. As collateral security
for the payment and performance of all of the Obligations, the Debtor hereby
grants, assigns, conveys, pledges and transfers to the Secured Party a
continuing security interest in the following assets and properties of the
Debtor, any and all substitutions therefor and replacements thereof, and any and
all additions and accessions thereto whether now owned or hereafter acquired by
the Debtor or in which the Debtor may now have or hereafter acquire an interest,
wherever located (all of which are hereinafter collectively referred to as the
"Collateral"):
(a) All Accounts now existing or arising in the future,
whether in the ordinary course of the Debtor's business(es), in connection with
the sale of Inventory or otherwise (including, without limitation, (i) all
monies due and to become due under any Contract or Account, (ii) any damages
arising out of or for a breach or default with respect to any such Contract or
Account, (iii) all other amounts from time to time paid or payable under or in
connection with any such Contract or Account and (iv) the right of the Debtor to
terminate any Contract or to perform and to exercise all remedies thereunder);
and
(b) All Inventory, whether now owned or hereafter acquired;
(c) All Equipment and Fixtures of the Debtor, and all other
tangible property of the Debtor, whether now owned or hereafter acquired, and
wherever located, and all accessions and additions thereto;
(d) All General Intangibles, Documents and Investment
Property, whether now owned or hereafter acquired;
(e) All ledger sheets, files, records, documents and
instruments (including, without limitation, computer programs, tapes and related
data processing software) evidencing an interest in or relating to the foregoing
Collateral; and
(f) All Proceeds of any and all of the foregoing.
2.2. POSSESSION OF THE COLLATERAL. Until the occurrence of an Event of
Default and the expiration of any applicable cure period, the Debtor may have
possession of the Collateral and use the same in any lawful manner not
inconsistent with this Agreement or with the terms or conditions of any policy
of insurance thereon.
III. REPRESENTATIONS AND WARRANTIES
The Debtor hereby represents and warrants to the Secured Party, and
such representations and warranties shall be continuing representations and
warranties so long as any Obligations shall remain outstanding, as follows:
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3.1. TITLE TO COLLATERAL. Except for the security interest granted
hereby and the Permitted Liens, the Debtor has, or in the case of after-acquired
Collateral will have, good and marketable title to the Collateral, free from any
adverse lien, security interest or encumbrance; and the Debtor will defend the
Collateral against all claims and demands of all persons claiming the same or
any interest therein.
3.2. ACCURACY OF STATEMENTS. All warranties, representations,
statements and other information furnished to the Secured Party by or on behalf
of the Debtor are, or will be when the same are made or furnished, accurate and
complete in all material respects.
3.3. LOCATION OF COLLATERAL. The Collateral, to the extent possible, is
or will be kept at the Debtor's business location at the Debtor's Address and
the Debtor will give the Secured Party ten (10) days prior written notice of any
change in, addition to or discontinuance of the location where the Collateral is
kept, and, unless otherwise provided herein, the Debtor will not remove any
Collateral from such locations without the prior written consent of the Secured
Party.
3.4. LANDLORD WAIVERS. If the Collateral or any part thereof has been
attached to real estate prior to the perfection of the security interest granted
hereby, the Debtor will, upon demand of the Secured Party, use their best
efforts to furnish to the Secured Party a disclaimer or disclaimers satisfactory
to the Secured Party and signed by all persons having an interest in such real
estate.
3.5. FINANCING STATEMENTS. Except as disclosed in the schedules to the
Loan Agreement, no financing statement covering any of the Collateral or any of
the proceeds thereof is on file in any public office, except financing
statements in favor of the Secured Party; and, at the request of the Secured
Party, the Debtor will join with the Secured Party in executing one or more
financing statements pursuant to the Code or comparable law of any jurisdiction,
the form and substance of which will be satisfactory to the Secured Party, and
will pay the cost of filing the same in all public offices wherever filing is
deemed by the Secured Party to be necessary or desirable.
3.6. TRADE NAMES. Except as set forth on Schedule 3.6 hereto, the
Debtor: (a) does not utilize any trade names in connection with the operation of
its businesses; and (b) has not changed its name, been the surviving entity in a
merger or acquired any businesses.
3.7. LEGALLY ENFORCEABLE AGREEMENT. To the knowledge of the Debtor,
after the exercise of reasonable due diligence, this Agreement and any document
or instrument delivered in connection herewith, and the transactions
contemplated hereby or thereby, have been duly authorized, executed and
delivered; and this Agreement and such other documents and instruments
constitute valid and legally binding obligations of the Debtor and are
enforceable against the Debtor in accordance with their respective terms, except
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to the extent that such enforcement may be limited by applicable bankruptcy,
insolvency and similar laws affecting creditors' rights generally and except as
certain remedies thereunder may be subject to equitable principles.
IV. GENERAL COVENANTS
The Debtor hereby covenants and agrees that so long as any of the
Obligations remain outstanding:
4.1. SALE OF COLLATERAL. Except as provided in SECTION 5.1.1 hereof,
the Debtor will not sell or offer to sell or otherwise transfer the Collateral
or any interest therein without the prior written consent of the Secured Party.
Notwithstanding the foregoing, and without limitation thereto, the Debtor shall
be entitled to receive any dividends, distributions or other payments to Debtor
pursuant to the SmarTalk Claims (defined in SECTION 6.4 hereof) so long as
Debtor is not in default hereunder and so long as Debtor retains all of such
dividends, distributions or payments for use as working capital in the Debtor's
business.
4.2. INSURANCE. The Debtor shall possess and maintain insurance at all
times as set forth in Section 5.13 of the Loan Agreement.
4.3. TAXES AND ASSESSMENTS. The Debtor will pay promptly when due all
taxes, assessments and governmental charges or levies imposed upon the
Collateral or with respect to its income or the profits therefrom, as well as
all claims thereon of any kind (including claims for labor, materials and
supplies), except that the Debtor shall not be required to pay such charge when
due if:
(a) the validity thereof is being contested in good faith by
appropriate proceedings;
(b) such proceedings do not permit any sale, forfeiture or
loss of any of the Collateral or any interest therein; and
(c) such charge is adequately reserved against in accordance
with generally accepted accounting principles consistently applied.
4.4. DEFENSE OF COLLATERAL. The Debtor will not create, permit or
suffer to exist, and will defend the Collateral against and take such other
action as is necessary to remove, any Lien, claim or right on or to the
Collateral, other than the Lien created hereunder and the Permitted Liens, and
will defend the right, title and interest of the Secured Party in and to any of
the Collateral against the Liens, claims and demands of all other parties.
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4.5. ACCESS. The Secured Party shall, at reasonable times and upon
reasonable notice, have complete access, during normal business hours, to all of
the books, correspondence and records of the Debtor relating to the Collateral.
The Secured Party or its representatives may examine such books, correspondence
and records, take extracts therefrom and make photocopies thereof, and the
Debtor hereby agrees to render to the Secured Party, at the Debtor's cost and
expense, such clerical and other assistance as may be reasonably requested with
regard thereto. The Secured Party and its representatives shall, at reasonable
times and upon reasonable notice, have the right to enter into and upon any
premises where any of the Collateral is located for the purpose of inspecting
the same, observing its use, or otherwise protecting the Secured Party's
interest therein. So long as Debtor is not in default hereunder, such access and
inspections to be conducted quarterly, at Debtor's expense.
4.6. NOTICE OF LOSS OR DEFAULT. The Debtor will immediately notify the
Secured Party of any event causing a substantial loss or diminution in the value
of all or any material part of the Collateral and the amount or an estimate of
the amount of such loss or diminution. The Debtor shall promptly notify the
Secured Party of any condition or event which constitutes, or would constitute
with the passage of time or provision of notice or both, an Event of Default
under this Agreement, and shall promptly inform the Secured Party of any events
or changes in the financial condition of the Debtor occurring since the date of
the last financial statements of the Debtor delivered to the Secured Party,
which, individually or cumulatively when viewed in light of prior financial
statements, may result in a material adverse change in the financial condition
of the Debtor.
4.7. ADDITIONAL INSTRUMENTS. At any time and from time to time upon
request of the Secured Party, the Debtor shall execute and deliver to the
Secured Party, in form and substance satisfactory to the Secured Party, such
documents and chattel paper as the Secured Party shall deem necessary or
desirable to perfect or maintain perfected the security interest of the Secured
Party in the Collateral or which may be necessary to comply with the provisions
of the law of the Commonwealth of Massachusetts or the law of any other
jurisdiction in which the Debtor may then be conducting business or in which any
of the Collateral may be located.
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V. SPECIFIC REPRESENTATIONS, WARRANTIES AND
COVENANTS WITH RESPECT TO THE COLLATERAL
With respect to the Collateral, the Debtor hereby represents, warrants
and covenants with the Secured Party, as follows:
5.1. INVENTORY. As to the Inventory:
5.1.1. The Debtor shall not sell, lease or otherwise transfer any
interest in the Inventory, provided that the Debtor may, until an Event of
Default occurs and any applicable cure period expires, hold, process, sell, use
or consume the Inventory in the ordinary course of its business, provided,
however, that any sale or transfer made in partial or total satisfaction of a
debt shall not be considered in the ordinary course of business.
5.1.2. The Debtor shall keep current stock, cost and sales records of
the Inventory, accurately itemizing and describing the types and quantities of
the Inventory and the cost and selling price thereof; and all books, records and
documents relating to the Inventory are and will be genuine, complete and
correct.
5.1.3. None of the Inventory is or at any time or times hereafter will
be, stored with a bailee or consignee without the prior written consent of the
Secured Party.
5.1.4. The Debtor shall, at the Secured Party's request, deliver to the
Secured Party any and all evidence of ownership of, certificates of title to or
other documents evidencing any interest in, any and all of the Inventory.
5.2. ACCOUNTS. As to the Accounts:
5.2.1. Accounts constituting a portion of the Collateral and all papers
and Documents relating thereto are genuine and in all respects what they purport
to be; the same are valid and subsisting and arise out of bona fide sales of
goods, or out of or for services heretofore rendered by the Debtor to the
account debtors and each of them; and the amount of the Accounts represented by
the Debtor's records as owing by each such account debtor, except for normal
cash discounts, is not disputed, and except for such normal cash discounts, is
not subject to any set-offs, credits, deductions or counter charges. Similar
representations and warranties will be assumed to exist as to Accounts hereafter
arising, except with regard to set-offs, credits, deductions, counter charges
and disputes as to which the Debtor gives prompt written notice to the Secured
Party.
5.2.2. Following the occurrence and during the continuance of an Event
of Default, and following the expiration of any applicable cure period, the
Secured Party shall have the right, in its own name or in the name of the
Debtor, to demand, collect, receive, sue for, compromise and give acquittance
for any and all amounts due or to become due on the
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Accounts constituting a portion of the Collateral and to endorse the name of the
Debtor on all commercial paper given in payment or partial payment thereof, and
in its discretion, to file any claim or take any other action which the Secured
Party may deem necessary or appropriate to protect, preserve and realize upon
its security interest in the Accounts and the Proceeds thereof.
5.2.3. Following the occurrence and during the continuance of an Event
of Default, and following the expiration of any applicable cure period: (i) the
Secured Party shall have the right to notify any and all account debtors to make
payment thereof directly to the Secured Party; but to the extent the Secured
Party does not elect to so notify said account debtors, the Debtor shall
continue to collect the Accounts; and (ii) all proceeds of the Accounts, in
whatever form received by the Debtor, shall be immediately delivered by the
Debtor to the Secured Party in the form received by the Debtor, and until so
delivered, the Debtor agrees that all sums so collected shall be the property of
the Secured Party, held in trust by the Debtor for the Secured Party, and shall
not be commingled with the Debtor's other funds; provided, however, that the
Secured Party, in its discretion and to such extent and for such periods, if
any, as it sees fit, may authorize the Debtor to use or retain some or all of
the sums so collected from such Accounts for other purposes. Proceeds
transmitted to the Secured Party may be handled and administered by the Secured
Party in and through a remittance account or similar mechanism; but the Debtor
hereby acknowledges that the maintenance of such an account is solely for the
convenience of the Secured Party in facilitating its own operations, and that
the Debtor has not and shall not have any right, title or interest in said
account or in the amounts at any time appearing to the credit thereof. Except to
the extent the Secured Party may from time to time in its discretion release
proceeds to the Debtor for use in their respective businesses, all proceeds
received by the Secured Party shall be applied to the due and payable
indebtedness secured hereby, but the Secured Party need not apply nor give
credit for any item included in such proceeds until the Secured Party has
received final payment thereof at its office in cash or solvent credit accepted
by the Secured Party as such.
5.2.4. If any Account arises out of a purchase order or other Contract
with the United States or any other Governmental Authority, which purchase order
or Contract provides for aggregate payments to the Debtor of One Thousand
Dollars ($1,000) or more, the Debtor shall immediately notify the Secured Party
thereof in writing and shall execute any instruments furnished by the Secured
Party and reasonably necessary to provide that: (a) all monies due or to become
due under such purchase order or other Contract shall be assigned to the Secured
Party; and (b) notice of such assignment shall be given to such Governmental
Authority under the Federal Assignment of Claims Act or other applicable law or
regulation.
5.2.5. The Debtor shall provide to the Secured Party, at its request,
from time to time: (a) confirmatory assignment schedules, (b) copies of all
invoices relating to the Accounts, (c) evidence of the shipment or delivery of
the Inventory, and (d) such further
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information and/or schedules as the Secured Party may reasonably require, all in
a form satisfactory to the Secured Party.
5.3. EQUIPMENT. As to the Equipment:
5.3.1. The Debtor shall keep and maintain all Equipment in good
operating condition and repair, shall make all necessary repairs thereto and
replacement of parts thereof so that the value and operating efficiency of such
Equipment shall at all times be maintained and preserved; and the Debtor shall
keep complete and accurate books and records with respect to the Equipment,
including maintenance records.
5.3.2. The Debtor shall deliver to the Secured Party any and all
certificates of title (and any other regulatory evidence of title) to, any and
all of the Equipment.
5.3.3. The Debtor shall not, without the prior written consent of the
Secured Party, sell, offer to sell, lease or in any other manner dispose of any
of the Equipment, other than the sale of obsolete Equipment in the ordinary
course of business.
VI. SECURED PARTY'S APPOINTMENT AS
ATTORNEY-IN-FACT
6.1. APPOINTMENT AND POWERS. The Debtor hereby irrevocably constitutes
and appoints the Secured Party, and any officer or agent thereof, with full
power of substitution, effective upon the occurrence of an Event of Default and
thereafter only so long as the same continues, as its true and lawful
attorney-in-fact with full irrevocable power and authority in the name and stead
of the Debtor or in its own name, from time to time in the Secured Party's
discretion, for the purpose of carrying out the terms of this Agreement, to take
any and all appropriate action and to execute any and all documents and
instruments which may be necessary or desirable to accomplish the purposes of
this Agreement and, without limiting the generality of the foregoing, hereby
gives the Secured Party the power and right, on behalf of the Debtor, after an
Event of Default and acceleration of the obligations under the Loan Agreement
has occurred and, if required under the terms of the Loan Agreement, notice
thereof has been given to the Debtor, to do the following:
(a) To communicate with any party to any Contract or any account
debtor with regard to any aspect of any Contract or Account and to ask, demand,
collect, receive or give acquittances and receipt for any and all monies due or
to become due under any Account or Contract and, in the name of the Debtor or
its own name or otherwise, to take possession of and endorse and collect any
checks, drafts, notes, acceptances or other instruments for the payment of
monies due under any Account or Contract and to file any claim or to take any
other action or proceeding in any court of law or equity or otherwise
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deemed appropriate by the Secured Party for the purpose of collecting any and
all such monies due under any Account or Contract whenever payable;
(b) To pay or discharge taxes, Liens, security interests or
other encumbrances levied or placed on or threatened against the Collateral;
(c) To effect any required repairs to the Collateral;
(d) To obtain any insurance required pursuant to this Agreement
and to pay all or any part of the premiums therefor;
(e) To receive payment of and receipt for any and all monies,
claims and other amounts due or to become due at any time with respect to or
arising out of any Collateral;
(f) To sign and endorse any invoices, freight or express bills,
bills of lading, storage or warehouse receipts, drafts against debtors,
assignments, verifications and notices in connection with Accounts and other
documents relating to the Collateral;
(g) To commence and prosecute any suits, actions or proceedings
at law or in equity in any court of competent jurisdiction to collect the
Collateral or any part thereof and to enforce any other right with respect to
any of the Collateral;
(h) To defend any suit, action or proceeding brought against the
Debtor with respect to any Collateral;
(i) To settle, compromise or adjust any suit, action or
proceeding described in clause (h) above and, in connection therewith, to give
such discharges or releases as the Secured Party may deem appropriate;
(j) Generally, to sell, transfer, pledge, make any agreement
with respect to or otherwise deal with any of the Collateral as fully and
completely as though the Secured Party was the absolute owner thereof for all
purposes, including, without limitation, the execution of assignments, bills of
sale or other instruments of conveyance or transfer with respect to the
Collateral; and
(k) To do, at the Secured Party's option and at the Debtor's
expense, at any time or from time to time, all acts or things which the Secured
Party deems necessary to protect, preserve or realize upon the Collateral and
the security interest granted by this Agreement, all as fully and effectively as
the Debtor might do.
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6.2. IRREVOCABLE POWER OF ATTORNEY. The power of attorney granted under
SECTION 6.1 hereof is a power coupled with an interest and shall be irrevocable
until all Obligations are paid and performed in full.
6.3. THE SECURED PARTY'S LACK OF DUTY. The Debtor hereby agrees that the
powers conferred on the Secured Party hereunder are solely to protect the
Secured Party's interests in the Collateral and shall not impose any duty upon
the Secured Party to exercise any such powers.
6.4. SMARTALK CLAIM. Notwithstanding anything to the contrary in this
Agreement or any other Loan Document (as defined in the Loan Agreement), the
Debtor is expressly authorized hereby, so long as Debtor is not in default under
this Security Agreement, to retain full and complete control over the assertion,
prosecution, negotiation, settlement, compromise, release or other disposition,
whether or not in exchange for consideration, of any and all claims that it now
holds or hereafter may hold against SmarTalk TeleService, Inc. or any of the
other debtors in the jointly administered cases presently pending in the
Bankruptcy Court for the District of Delaware, captioned "In re WorldWide
Direct, Inc., et al.," Case Nos. 99-108 to 99-127, whether or not any such claim
is evidenced by one or more proofs of claim filed with the Bankruptcy Court at
any time, (collectively referred to herein as the "SmarTalk Claim"), and
including without limitation the right to retain and pay reasonable compensation
to counsel and to incur such other reasonable expenses in connection with the
foregoing as may be necessary. Upon request of Debtor in connection with any
disposition of the claim or claims referred to in the preceding sentence, or of
any portion of such claims, so long as Debtor is not in default under this
Security Agreement, Secured Party shall execute such documents and instruments
as may be reasonably be required to evidence its consent thereto, all without
the payment of any other consideration to Secured Party therefor. Debtor
acknowledges and agrees that all of the rights and authority conferred upon in
the preceding sentences are subject to Secured Party's security interest in and
lien upon all such claims and proceeds, if any, therefrom.
VII. EVENTS OF DEFAULT AND ACCELERATION
7.1. EVENTS OF DEFAULT. The occurrence of any Event of Default (as
defined in the Loan Agreement) or the breach of any terms hereunder shall
constitute an Event of Default hereunder.
7.2. ACCELERATION. If any Event of Default shall occur, then or at any
time thereafter while such Event of Default shall continue, the Secured Party
may declare all Obligations to be immediately due and payable, without notice,
protest, presentment or demand, all of which are hereby expressly waived by the
Debtor.
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VIII. REMEDIES
8.1. IN GENERAL. If an Event of Default shall occur and be continuing
and any applicable cure period shall have lapsed and the Secured Party shall
have accelerated the Debtor's obligations under the Loan Agreement:
8.1.1. All payments received by the Debtor under or in connection with
any of the Collateral shall be held by the Debtor in trust for the Secured
Party, shall be segregated from other funds of the Debtor, and shall forthwith,
upon receipt by the Debtor, be turned over to the Secured Party in the same form
as received by the Debtor (duly endorsed by the Debtor to the Secured Party, if
required).
8.1.2. Any and all such payments so received by the Secured Party
(whether from the Debtor or otherwise) may, in the sole discretion of the
Secured Party, be held by the Secured Party as collateral security for, and/or
then or at any time thereafter, applied in whole or in part by the Secured Party
against all or any part of the Obligations, in such order as the Secured Party
shall elect. Any balance of such payments held by the Secured Party and
remaining after payment in full of all of the Obligations shall be paid over to
the Debtor or to whomsoever may be lawfully entitled to receive the same.
8.2. THE SECURED PARTY'S RIGHTS AND REMEDIES UPON ACCELERATION. The
Debtor hereby agrees that if an Event of Default shall occur and be continuing
and the Secured Party shall have accelerated the Debtor's obligations under the
Loan Agreement:
8.2.1. The Secured Party may exercise, in addition to all other rights
and remedies granted to it pursuant to this Agreement and in any other
instrument or agreement securing, evidencing or relating to the Obligations, all
rights and remedies of a Secured Party under the Code or under the applicable
law of any other jurisdiction, including, without limitation, any jurisdiction
where the Collateral may be located.
8.2.2. Without limiting the generality of the foregoing, the Secured
Party, without (to the fullest extent permitted by law) demand of performance or
other demand, advertisement or notice of any kind (except the notice specified
below of the time and place of a public or private sale) to or upon the Debtor
or any other party (all of which demands, advertisements and/or notices are
hereby expressly waived by the debtor, except the notice specified below of the
time and place of a public or private sale), may forthwith collect, receive,
appropriate and realize upon the Collateral or any part thereof and/or may
forthwith sell, lease, assign, give an option or options to purchase or sell or
otherwise dispose of and deliver said Collateral (or contract to do so) or any
part thereof, in one or more parcels at a public or private sale or sales, at
any exchange or broker's board or at any of the Secured Party's offices or
elsewhere, at such prices as it may deem best, for cash or on credit or for
future delivery without assumption of any credit risk.
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8.2.3. The Secured Party shall have the right, upon any such public sale
or sales, and, to the extent permitted by law, upon any such private sale or
sales, to purchase the whole or any part of said Collateral so sold, free of any
right or equity of redemption of the Debtor, which right or equity is hereby
expressly waived and released by the Debtor.
8.2.4. At the Secured Party's request, the Debtor shall assemble the
Collateral and make it available to the Secured Party at a place or places which
the Secured Party shall reasonably select, whether at the Debtor's premises or
elsewhere.
8.2.5. The Secured Party shall retain the net proceeds of the Collateral
arising from any collection, sale, recovery, receipt or appropriation, after the
payment of all expenses of every kind incurred with regard thereto or incidental
to the care, safekeeping or maintenance of any or all of the Collateral or in
any way relating to the rights of the Secured Party hereunder, including
reasonable attorneys' fees and legal expenses, for application by it to the
payment of the Obligations in such order as the Secured Party shall elect and
the Debtor shall remain liable for any deficiency remaining unpaid after such
application. After applying such net proceeds in the manner set forth above, and
after the payment by the Secured Party of any other amount otherwise required to
be paid, the Secured Party shall account for the surplus, if any, to the Debtor.
8.2.6. Unless the Collateral is perishable or threatens to decline
speedily in value or is of the type customarily sold on a recognized market, the
Secured Party must give at least ten (10) days' notice of the time and place of
any public or private sale may take place; the Debtor hereby agrees that such
notice is reasonable notification of such matters and that no notification need
be given by the Secured Party to the Debtor if the Debtor has executed, after
the occurrence of an Event of Default, a statement renouncing or modifying any
right to notification of such sale or other intended disposition.
8.2.7. The Debtor shall pay to the Secured Party, on demand, any and all
expenses, including all reasonable attorneys' fees and legal expenses, incurred
or paid by the Secured Party in protecting or enforcing its rights, powers and
remedies hereunder or under any other agreement between the parties.
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IX. SET-OFF
The Secured Party shall, at all times after the occurrence and during
the continuance of an Event of Default, have the right to set-off, without
notice to the Debtor, any and all deposits or other sums at any time or times
credited by or due from the Secured Party to the Debtor, regardless of whether
the same are held in a special account or other account or represented by a
certificate of deposit (regardless of whether such certificate of deposit is
matured or not). Such deposits and other sums shall at all times constitute
additional security for the Obligations and may be set-off against all or any
part of the Obligations at any time.
X. LIMITATION ON SECURED PARTY'S
DUTY WITH RESPECT TO CARE OF COLLATERAL
The Secured Party shall not have any duty as to any Collateral which is
not in its possession or control.
XI. NOTICES
Any demand or notice required or permitted to be given hereunder shall
be given and shall be deemed effective in accordance with the notice provisions
of the Loan Agreement.
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XII. RELEASE OF SECURITY INTEREST
When the Debtor shall have paid and performed the Obligations in full,
and shall have also paid to the Secured Party all such further sums as may
become due under the terms of this Agreement as hereinafter provided, the
Secured Party shall automatically release to Debtor all right, title and
interest in and to the Collateral. The Secured Party at any time thereafter, at
the request and expense of the Debtor, shall execute such releases and
terminations of the security interest in the Collateral to the Debtor in a form
suitable for recording by Debtor in the respective Connecticut and Missouri
financing statement recording offices.
XIII. GENERAL PROVISIONS
13.1. SEVERABILITY. Any provision of this Security Agreement which 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 not invalidate or render
unenforceable that provision in any other jurisdiction.
13.2. NO WAIVER BY THE SECURED PARTY; CUMULATIVE REMEDIES. The Secured
Party shall not by any act, delay, omission or otherwise be deemed to have
waived any of its rights or remedies hereunder, and no waiver shall be valid
unless in writing and signed by the Secured Party, and then only to the extent
therein set forth. A waiver by the Secured Party of any right or remedy
hereunder on any one occasion shall not be construed as a bar to the exercise of
any right or remedy which the Secured Party would otherwise have had on any
future occasion. No failure to exercise, nor any delay on the part of the
Secured Party in exercising, any right, power or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right, power or privilege hereunder preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies hereunder provided are cumulative and may be exercised singly or
concurrently, and are not exclusive of any rights or remedies provided by law.
None of the terms or provisions of this Agreement may be waived, modified,
amended or supplemented except by an instrument in writing, duly executed by the
Secured Party and the Debtor.
13.3. SUCCESSORS AND ASSIGNS. Each reference herein to the Secured Party
shall be deemed to include its successors and assigns, and each reference to the
Debtor or the Secured Party, and any pronouns referring thereto as used herein,
shall be construed in the masculine, feminine, neuter, singular or plural, as
the context may require, and shall be deemed to include the legal
representatives, successors and assigns of the Debtor, all of whom shall be
bound by the provisions hereof.
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13.4. GOVERNING LAW. This Agreement is delivered in the Commonwealth of
Massachusetts to the Secured Party and the rights, remedies, duties and
obligations of the parties hereto and all provisions hereof shall be governed by
and construed in accordance with the internal laws (and not the law of
conflicts) of the Commonwealth of Massachusetts.
13.5. FURTHER INDEMNIFICATION. The Debtor agrees to pay, and to save the
Secured Party harmless from, any and all liabilities with respect to or
resulting from any delay in paying any and all excise, sales or other taxes
which may be payable or determined to be payable with respect to any of the
Collateral or in connection with any of the transactions contemplated by this
Agreement, provided, however, that Debtor shall not be liable for the Secured
Party's bad faith, gross negligence, or wilful misconduct.
13.6. COMPLETE AGREEMENT. This Agreement contains the entire
understanding between the parties hereto with respect to the transactions
contemplated herein and such understanding shall not be modified except in
writing signed by or in behalf of the parties hereto.
13.7. SECTION HEADINGS. The section headings herein are included for
convenience only and shall not be deemed to be a part of this Agreement.
13.8. ASSIGNMENT BY SECURED PARTY. Subject to the terms of the Loan
Agreement, the Secured Party may, from time to time, without notice to the
Debtor, sell, assign, transfer or otherwise dispose of all or any part of the
Obligations and/or the Collateral therefor. In such event, each and every
immediate and successive purchaser, assignee, transferee or holder of all or any
part of the Obligations and/or the Collateral shall have the right to enforce
this Agreement by legal action or otherwise for its own benefit as fully as if
such purchaser, assignee, transferee or holder were herein by name specifically
given such rights. The Secured Party shall have an unimpaired right to enforce
this Agreement for its benefit with regard to that portion of the Obligations of
the Debtor that the Secured Party has not sold, assigned, transferred or
otherwise disposed of.
13.9 WAIVER OF TRIAL BY JURY. THE DEBTOR, TO THE EXTENT THAT DEBTOR MAY
LAWFULLY DO SO, WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION BROUGHT ON OR
WITH RESPECT TO THIS SECURITY AGREEMENT, THE CREDIT AGREEMENT OR ANY OTHER
AGREEMENTS EXECUTED IN CONNECTION THEREWITH.
13.10 CONSENT TO JURISDICTION. The Debtor, to the extent that it may
lawfully do so, hereby consents to the jurisdiction of the courts of The
Commonwealth of Massachusetts and the United States District Court for the
District of Massachusetts, as well as to the jurisdiction of all courts from
which an appeal may be taken from the aforesaid courts, for the purpose of any
suit, action or other proceeding arising out of any of its obligations
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under or with respect to this Security Agreement and Assignment, and expressly
waives any and all objections it may have as to venue in any of such courts.
IN WITNESS WHEREOF, this Agreement has been executed by the duly
authorized officers of the parties hereto as of the date first above written.
WITNESS: DEBTOR
SHARED TECHNOLOGIES CELLULAR, INC.
\s\ Sean Hayes By:\s\ Vincent DiVincenzo
- ------------------------ -------------------------------------
Vincent DiVincenzo, Chief Financial
Officer
SECURED PARTY
STATE STREET BANK AND
TRUST COMPANY
\s\ Keisha Macklin By:\s\ Michael S. St. Jean
- ------------------------ -------------------------------------
Michael S. St. Jean, Vice President
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<PAGE> 20
SCHEDULE 3.6
TRADE NAMES
ACQUISITIONS (IDENTIFICATION OF SELLER)
WITHIN PRIOR 5 YEARS
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<PAGE> 1
THIS WARRANT AND THE SECURITIES THAT MAY BE ACQUIRED UPON THE EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "FEDERAL ACT"), OR UNDER THE PROVISIONS OF ANY APPLICABLE STATE SECURITIES
LAWS. NEITHER THIS WARRANT NOR THE SECURITIES THAT MAY BE ACQUIRED UPON THE
EXERCISE OF THIS WARRANT MAY BE SOLD, PLEDGED, TRANSFERRED, ASSIGNED OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION
THEREFROM UNDER PROVISIONS OF THE FEDERAL ACT AND ALL APPLICABLE STATE
SECURITIES LAWS, AND IN THE CASE OF ANY EXEMPTION, ONLY IF THE COMPANY HAS
RECEIVED AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH
TRANSACTION DOES NOT REQUIRE REGISTRATION OF THE WARRANT OR SUCH OTHER
SECURITIES.
SHARED TECHNOLOGIES CELLULAR, INC.
COMMON STOCK WARRANT
SHARED TECHNOLOGIES CELLULAR, INC., a Delaware corporation (the
"Company"), hereby certifies that, for good and valuable consideration,
including but not limited to that certain loan relationship between State Street
Bank and Trust Company and the Company ("SSBT") the receipt and sufficiency of
which are hereby acknowledged, SSB INVESTMENTS, INC. ("SSBI") or permitted
assigns (SSBI or such permitted assigns at the time being the registered holder
or holders hereof being hereinafter referred to as "Holder") is entitled,
subject to the terms set forth below, to acquire from the Company, at no charge
or cost to the Holder, at any time or from time to time on or after the date
hereof and prior to 5:00 P.M., Boston time, on the Expiration Date, that number
of aggregate fully paid and non assessable shares of Common Stock of the Company
equal to the Net Number in effect from time to time as calculated in accordance
with the terms of SECTION 1.2 hereof.
The Net Number is based in part on the Base Number of Shares, which is
to be adjusted pursuant to the terms of this Common Stock Warrant. On the date
hereof, and subject to such adjustment, the Base Number of Shares is 150,000.
Certain capitalized terms used herein shall have the meanings set forth
in SECTION 8.
<PAGE> 2
SECTION I. EXERCISE OF WARRANT.
1.1. EXERCISE. This Warrant may be exercised by Holder, in whole or in
part, at any time and from time to time on or before the Expiration Date, AT NO
CHARGE OR COST TO THE HOLDER, by surrender of this Warrant, together with the
form of subscription at the end hereof duly executed by Holder, to the Company
at its principal office. In the event the Warrant is not exercised in full, the
Base Number of Shares shall be reduced by the portion of such previous Base
Number of Shares to which such partial exercise relates, and the Company, at its
expense, shall forthwith issue and deliver to or upon the order of Holder a new
Warrant of like tenor in the name of Holder or as Holder (upon payment by Holder
of any applicable transfer taxes) may request, reflecting such adjusted Base
Number of Shares. Notwithstanding the foregoing, this Warrant may not be
exercised at any one time for fewer than the Net Number of shares of Common
Stock based on 10% (or the remaining balance) of the Base Number of Shares.
1.2 CALCULATION OF NET NUMBER. The aggregate number of shares of Common
Stock with respect to which this Warrant may be exercised from time to time
shall be equal to the Net Number, which shall be calculated in accordance with
the following formula:
Net Number = (A x B) - (A x C)
-----------------
B
Where: A equals the Base Number of Shares then in
effect at the time of such calculation; and
Where: B equals the Market Price then in effect at
the time of such calculation; and
Where: C equals the Base Index then in effect at
the time of such calculation.
Whenever the Base Index is adjusted pursuant to SECTION 2, the Base
Number of Shares shall be adjusted by multiplying such Base Number of Shares
immediately prior to such adjustment by a fraction the numerator of which is the
Base Index prior to such adjustment and the denominator of which is the Base
Index after such adjustment.
1.3 DELIVERY OF STOCK CERTIFICATES. Subject to the terms and conditions
of this Warrant, as soon as practicable after the exercise of this Warrant in
full or in part, and in any event within 10 days thereafter, the Company at its
expense (including, without limitation, the payment by it of any applicable
issue taxes) will cause to be issued in the name of and delivered to Holder, or
as Holder (upon payment by Holder of any applicable transfer taxes) may lawfully
direct, a certificate or certificates for the number of fully paid
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and non assessable shares of Common Stock to which Holder shall be entitled on
such exercise, together with any other stock or other securities and property
(including cash, where applicable) to which Holder is entitled upon such
exercise.
1.4 FRACTIONAL SHARES. This Warrant may not be exercised as to
fractional shares of Common Stock. In the event that the exercise of this
Warrant, in full or in part, would result in the issuance of any fractional
share of Common Stock, then in such event Holder shall be entitled to cash equal
to the Market Price of such fractional share.
SECTION 2. ADJUSTMENT OF BASE INDEX.
2.1. ADJUSTMENT FOR STOCK DIVIDENDS. In case the Company shall pay a
dividend of securities or property (including cash) or make any other
distribution on any class of capital stock of the Company in shares of Common
Stock (other than in connection with the payment of the Premium on the Company's
Series C Convertible Preferred Stock), the Base Index in effect at the close of
business on the date fixed for the determination of stockholders entitled to
receive such dividend or other distribution shall be reduced by multiplying such
Base Index by a fraction of which the numerator shall be the number of shares of
Common Stock outstanding at the close of business on the date fixed for such
determination and the denominator shall be the sum of such number of shares and
the total number of shares of Common Stock constituting such dividend or other
distribution, such reduction to become effective immediately prior to the
opening of business on the day following the date fixed for such determination.
For the purposes of this SECTION 2.1, the number of shares of Common Stock at
any time outstanding shall not include shares held in the treasury of the
Company.
2.2. ADJUSTMENT FOR ISSUANCE OF CERTAIN RIGHTS OR WARRANTS. If the
Company either:
(a) shall issue rights, options or warrants after the date
hereof to any persons (including holders of the Company's capital
stock) entitling them to subscribe for or purchase shares of Common
Stock, or
(b) shall offer after the date hereof for purchase such shares
of Common Stock,
at a price per share less than the Market Price on the date fixed for such
issuance or purchase, then the Base Index in effect at the close of business on
such date shall be reduced by multiplying such Base Index by a fraction of
which:
(i) the numerator shall be (1) the number of shares of Common
Stock outstanding at the close of business on such date plus (2) the
number of shares
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of Common Stock that the aggregate of the offering price of the total
number of shares of Common Stock so offered for subscription or
purchase would purchase at such Market Price; and
(ii) the denominator shall be (1) the number of shares of
Common Stock outstanding at the close of business on such date plus (2)
the number of shares of Common Stock so offered for subscription or
purchase;
such reduction to become effective immediately prior to the opening of business
on the day following such date. For the purposes of this SECTION 2.2, the
issuance of rights, options, or warrants to subscribe for or purchase securities
convertible into Common Stock shall be deemed to be the issuance of rights,
options, or warrants to purchase the number of shares of Common Stock into which
such securities are convertible at an aggregate offering price equal to the
aggregate offering price of such securities plus the minimum aggregate amount
(if any) payable upon conversion of such securities into Common Stock. For the
purposes of this SECTION 2.2, the number of shares of Common Stock at any time
outstanding shall not include shares held in the treasury of the Company.
Notwithstanding the foregoing, subsections (a) and (b) above shall not apply to
the following:
(1) Options granted under stock options plans approved by the
Company's Board of Directors; and
(2) Shares to be issued to Retail Distributors, Inc. ("RDI")
pursuit to a Stock Purchase Agreement dated in 1999; and
(3) Warrants to be issued to RDI pursuant to a Services Agreement
dated in 1999.
2.3. ADJUSTMENT FOR STOCK SUBDIVISIONS AND COMBINATIONS. In case
outstanding shares of Common Stock shall be subdivided into a greater number of
shares of Common Stock, the Base Index in effect at the close of business on the
day upon which such subdivision becomes effective shall be proportionately
reduced and, conversely, in case outstanding shares of Common Stock shall be
combined into a smaller number of shares of Common Stock, the Base Index in
effect at the opening of business on the day upon which such combination becomes
effective shall be proportionately increased, such reduction or increase, as the
case may be, to become effective immediately prior to the opening of business on
the day following the day upon which such subdivision or combination becomes
effective.
2.4 DILUTION IN CASE OF OTHER SECURITIES. In case any other securities
than Common Stock (the "Other Securities") shall be issued or sold by the
Company after the date hereof, or shall become subject to issue, after the date
hereof, upon the conversion or exchange of any securities (or Other Securities)
of the Company (or any other issuer of Other Securities or any other person
referred to in SECTION 5) or to subscription, purchase or other
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<PAGE> 5
acquisition pursuant to any rights or options granted by the Company (or such
other issuer or person), after the date hereof, for a consideration per share of
Common Stock such as to dilute the purchase rights evidenced by this Warrant,
the computations, adjustments and readjustments provided for in this SECTION 2
with respect to the number of shares of Common Stock issuable upon exercise of
this Warrant shall be made as nearly as possible in the manner so provided and
applied to determine the amount of Other Securities from time to time receivable
on the exercise of the Warrant, so as to protect the holders of the Warrant
against the effect of such dilution.
2.5. ADJUSTMENT FOR DISTRIBUTION OF ASSETS. In case the Company shall,
by dividend or otherwise, distribute to all holders of its Common Stock
evidences of its indebtedness or assets (including securities, but excluding any
rights, warrants or Common Stock referred to in SECTION 2.2, any dividend or
distribution paid in cash out of the earned surplus or capital surplus of the
Company, and any dividend or distribution referred to in SECTION 2.1), the Base
Index shall be adjusted so that the same shall equal the price determined by
multiplying the Base Index in effect immediately prior to the close of business
on the date fixed for the determination of stockholders entitled to receive such
distribution by a fraction of which the numerator shall be the Market Price on
the date fixed for such determination less the then fair market value (as
reasonably determined by the Company's Board of Directors) of the portion of the
assets or evidences of indebtedness so distributed (net of the fair market
value, as so determined, of any consideration paid or exchanged with respect
thereto) applicable to one share of Common Stock and the denominator shall be
such Market Price, such adjustment to become effective immediately prior to the
opening of business on the day following the date fixed for the determination of
stockholders entitled to receive such distribution.
2.6. COMPUTATION OF ADJUSTED BASE INDEX. Whenever the Base Index is
adjusted as provided in this SECTION 2:
(a) The Company shall compute the adjusted Base Index to the
nearest one hundredth of a cent in accordance with this SECTION 2 and
shall prepare a certificate signed by the Chief Financial Officer or
the Treasurer of the Company setting forth the adjusted Base Index and
showing in reasonable detail the facts upon which such adjustment is
based, and such certificate shall forthwith be filed at the office
maintained pursuant to SECTION 4.3;
(b) A notice stating that the Base Index has been adjusted and
setting forth the adjusted Base Index shall, as
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soon as practicable after it is required, be mailed to Holder; and
(c) At its option, Holder may confirm the adjustment noted on
the certificate by causing such adjustment to be computed by an
independent certified public accountant at the expense of the Company.
2.7. MINIMUM ADJUSTMENT. No adjustment in the Base Index shall be
required under this SECTION 2 unless such adjustment would require an increase
or decrease of at least one percent in such price; provided, however, that any
adjustments that by reason of this SECTION 2.7 are not required to be made shall
be carried forward and taken into account in any subsequent adjustment. All
calculations under this SECTION 2 shall be made to the nearest one hundredth of
a cent or to the nearest one hundredth of a share as the case may be.
2.8. ACCOUNTANTS' CERTIFICATE AS TO ADJUSTMENTS. In each case of any
adjustment or readjustment in the Base Number of Shares (or other securities)
issuable on the exercise of the Warrant, the Company at its expense will
promptly cause independent certified public accountants of recognized standing
selected by the Company to compute such adjustment or readjustment in accordance
with the terms of the Warrant and prepare a certificate setting forth such
adjustment or readjustment is based, including a statement of (a) the
consideration received or receivable by the Company for any additional shares of
Common Stock (or other securities) issued or sold or deemed to have been issued
or sold, (b) the number of shares of Common Stock (or other securities)
outstanding or deemed to be outstanding, and (c) the Purchase Price and the
number of shares of Common Stock to be received upon exercise of the Warrant, in
effect immediately prior to such issue or sale and as adjusted and readjusted as
provided in the Warrant. The Company will forthwith mail a copy of each such
certificate to each Holder of a Warrant.
SECTION 3. REDEMPTION OF THIS WARRANT.
At the option of Holder, at any time after the third (3rd) anniversary
of the date of this Warrant, the Company shall redeem this Warrant for a price
equal to the GREATER OF:
(i) the number of shares of Common Stock for which
this Warrant is exercisable on the date on which written notice of the
request for redemption is given by the Holder to the Company (the
"Request Date"), multiplied by the Market Price at the close of
business on the business day immediately prior to the Request Date; or
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(ii) The balance of: (x) Two Hundred Thousand Dollars
($200,000.00), minus (y) the product of the number of shares of Warrant
Stock then held times the Market Price, and minus (z) the amount of any
proceeds theretofore received by the Holder from the sales of any
shares of Warrant Stock.
The closing of the redemption shall take place at the principal office of the
Company no later than thirty days following the date of any such notice unless a
different time and/or place is agreed to by the Company and Holder. At the
closing, Holder shall deliver to the Company the Warrant to be redeemed, and the
Company shall deliver to Holder a certified check in the full amount due upon
the redemption.
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SECTION 4. CERTAIN OBLIGATIONS OF THE COMPANY.
4.1. RESERVATION OF STOCK. The Company covenants that it will at all
times reserve and keep available out of its authorized and unissued Common Stock
or out of shares of its treasury stock, solely for the purpose of issue upon
exercise of the purchase rights evidenced by this Warrant, a number of shares of
Common Stock equal to the number of shares of Common Stock issuable hereunder.
The Company will from time to time, in accordance with the laws of the State of
Delaware, take action to increase the authorized amount of its Common Stock if
at any time the number of shares of Common Stock authorized but remaining
unissued and unreserved for other purposes shall be insufficient to permit the
exercise of this Warrant.
4.2. NO VALUATION OR IMPAIRMENT. The Company will not, by amendment of
its Certificate of Incorporation, including, without limitation, amendment of
the par value of its Common Stock, or through reorganization, consolidation,
merger, dissolution, issuance of capital stock or sale of treasury stock
(otherwise than upon exercise of this Warrant) or sale of assets, or by any
other voluntary act or deed, avoid or seek to avoid the material performance or
observance of any of the covenants, stipulations or conditions in this Warrant
to be observed or performed by the Company. The Company will at all times in
good faith assist, insofar as it is able, in the carrying out of all of the
provisions of this Warrant in a reasonable manner and in the taking of all other
action that may be necessary in order to protect the rights of the holder of
this Warrant Against dilution in the manner required by the provisions of this
Warrant.
4.3. MAINTENANCE OF OFFICE. The Company will maintain an office where
presentations and demands to or upon the Company in respect of this warrant may
be made. The Company will give notice in writing to Holder, at the address of
Holder appearing on the books of the Company, of each change in the location of
such office.
SECTION 5 REORGANIZATION, ETC.
5.1 REORGANIZATION, CONSOLIDATION, MERGER. If any spin off, split up,
similar corporate rearrangement, reorganization or reclassification of the
capital stock of the Company, or consolidation or merger of the Company with
another corporation that after the transaction will be required to file reports
with the Securities and Exchange Commission (the "SEC") pursuant to Section 13
or 15 of the Securities Exchange Act of 1934, as amended (a "Public
Corporation"), or sale of all or substantially all of its assets to another
Public Corporation shall be effected, then, as a condition of such
reorganization, reclassification,
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consolidation, merger or sale, lawful and adequate provision shall be made
whereby Holder shall thereafter have the right to receive upon the terms and
conditions herein specified, and, in lieu of the shares of Common Stock of the
Company immediately theretofore receivable upon exercise of this Warrant, such
securities or property as may be issued or payable with respect to or in
exchange for a number of outstanding shares of Common Stock equal to the number
of shares of Common Stock immediately theretofore receivable upon the exercise
of this Warrant had such reorganization, reclassification, consolidation, merger
or sale not taken place, and in any such case appropriate provision shall be
made with respect to the rights and interests of Holder to the end that the
provisions hereof (including, without limitation, provisions for adjustments of
the Base Index and of the number of shares purchasable upon the exercise of this
Warrant) shall thereafter be applicable, as nearly as may be, in relation to any
securities or property thereafter deliverable upon the exercise hereof.
The Company shall not effect any such spin off, split up, similar
corporate rearrangement, reorganization, consolidation, merger or sale unless,
prior to or contemporaneously with the consummation thereof, the successor
corporation (if other than the Company) resulting from such consolidation or
merger or the corporation purchasing such assets shall assume by written
instrument executed and delivered to Holder, the obligation hereunder and become
bound by all the terms hereof to deliver to Holder such securities or property
as, in accordance with the foregoing provisions, Holder may be entitled to
purchase or receive.
5.2. DISSOLUTION. In any event of any dissolution of the Company
following the transfer of all or substantially all of its properties or assets,
the Company, prior to such dissolution, shall at its expense deliver or cause to
be delivered the stock and other securities and property (including cash, where
applicable) receivable by the Holders of the Warrants after the effective date
of such dissolution pursuant to this SECTION 5 to the Holder or Holders of the
Warrants.
5.3. CONTINUATION OF TERMS. Upon any reorganization, consolidation,
merger or transfer (and any dissolution following any transfer) referred to in
this SECTION 5, this Warrant shall continue in full force and effect, subject to
expiration in accordance with SECTION 1.1 hereof, and the terms hereof shall be
applicable to the shares of stock and other securities and property receivable
on the exercise of this Warrant after the consummation of such reorganization,
consolidation or merger or the effective date of dissolution following any such
transfer, as the case may
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be, and shall be binding upon the issuer of any such stock or other securities,
including, in the case of any such transfer, the person acquiring all or
substantially all of the properties or assets of the Company, whether or not
such person shall have expressly assumed the terms of this Warrant as provided
in SECTION 5.1.
SECTION 6. NOTICES OF RECORD DATE.
In the event of:
(a) any taking by the Company of a record of the holders of
any class of securities for the purpose of determining the holders
thereof who are entitled to receive, any dividend or other
distribution, or any right to subscribe for, purchase or otherwise
acquire any shares of stock of any class or any other securities or
property, or to receive any other right; or
(b) any capital reorganization of the Company, any
reclassification of the capital stock of the Company or any transfer of
all or substantially all the assets of the Company to or any
consolidation or merger of the Company with or into any other Person;
or
(c) any voluntary or involuntary dissolution, liquidation or
winding up of the Company,
then, and in each such event, the Company will give to Holder a notice
specifying (i) the date on which any such record is to be taken for the purpose
of such dividend, distribution or right, and stating the amount and character of
such dividend, distribution or right, and (ii) the date on which any such
reorganization, reclassification, transfer, consolidation, merger, dissolution,
liquidation or winding up is to take place, and the time, if any is to be f
fixed, as of which the holders of record of Common Stock for securities or other
property deliverable on such reorganization, reclassification, transfer,
consolidation, merger, dissolution, liquidation or winding up is to take place,
and the time, if any is to be fixed, as of which the holders of record of Common
Stock shall be entitled to exchange their shares of Common Stock for securities
or other property deliverable on such reorganization, reclassification,
transfer, consolidation, merger, dissolution, liquidation or winding up. Such
notice shall be mailed at least 30 days prior to the date specified in such
notice on which any such action is to be taken.
SECTION 7. REGISTRATION RIGHTS.
7.1. GENERAL. For purposes of this SECTION 7, the terms "register,"
"registered," and "registration" refer to a registration effected by preparing
and filing a registration
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<PAGE> 11
statement in compliance with the Federal Act and the declaration or ordering of
effectiveness of such registration statement. The Company represents and
warrants that it has not granted rights to cause the Company to register any of
its securities to anyone, except to the Holder pursuant hereto and such other
persons or entities with the registration rights existing on the date hereof and
described in Schedule 7.1 hereto (the "Existing Registration Rights").
7.2. COMPANY REGISTRATION.
(a) If at any time the Company proposes to register any of its
Common Stock under the Federal Act in connection with the public offering of
such securities for its own account or for the accounts of its shareholders,
solely for cash on a form that would also permit the registration of the Warrant
Stock, the Company shall, each such time, promptly give Holder or any transferee
of registration rights under this SECTION 7 written notice of such proposal.
Upon the written request of any such Holder or Warrant Stock Holder (a "Selling
Holder") given within thirty (30) days after mailing of any such notice by the
Company, the Company shall use its reasonable best efforts to cause to be
registered under the Federal Act all of the Warrant Stock that Selling Holder
has requested be registered; provided that if, in the opinion of the managing
underwriter for an underwritten offering, the registration of all, or part of,
the Warrant Stock which the Holders have requested be included in such offering
would have an adverse effect thereon, then the Company shall be required to
include in the underwriting only that number of Warrant Stock, if any, which the
managing underwriter reasonably believes may be sold without causing such
adverse effect.
(b) If the number of shares to be included in the offering in
accordance with the foregoing is less than the number of shares which the
Holders and the persons or entities listed on Schedule 7.1 as holding Existing
Registration Rights have requested be included (pursuant to the exercise of such
Holder's registration rights, or such persons' or entities' Existing
Registration Rights, as the case may be), the Company shall be entitled to
include all shares which it had intended to register, after which the Holders
shall (subject to any superior rights in favor of persons holding Existing
Registration Rights) be entitled to participate in the underwriting pro rata
with such persons or entities holding Existing Registration Rights, based upon
their respective total owned number of shares of Common Stock.
(c) Notwithstanding the foregoing, the Company may withdraw
any registration statement referred to in this SECTION 7.2 (but not including
any registration statement referred to in SECTION 7.3) without incurring
liability to any Selling Holder on account of such withdrawal.
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7.3. REGISTRATION UPON SELLING HOLDER'S REQUEST.
(a) Each Selling Holder shall have the right, at any time from
and after the third (3rd) anniversary of the date of this Warrant, to request
and require the Company, by written notice to the Company, to register all or
part of the Warrant Stock of such Selling Holder under the Federal Act; provided
that the Company shall not be obligated to register Warrant Shares on more than
one occasion under this Section 7.3.
(b) Upon receipt of any such notice from such Selling Holder,
the Company shall use its reasonable best efforts to cause to be registered
under the Federal Act all of the Warrant Stock that such Selling Holder has
requested be registered; provided that if, in the opinion of the managing
underwriter for an underwritten offering, the registration of all, or part of,
the Warrant Stock which the Holders have requested be included in such offering
would have an adverse effect thereon, then, the Company shall be required to
include in the underwriting only that number of Warrant Stock, if any, which the
managing underwriter reasonably believes may be sold without causing such
adverse effect.
(c) If the number of shares to be included in the offering in
accordance with the foregoing is less than the number of shares which the
Holders and the persons or entities listed on Schedule 7.1 as holding Existing
Registration Rights have requested be included (pursuant to the exercise of such
Holder's registration rights, or such persons, or entities' Existing
Registration Rights, as the case may be), the Holders shall (subject to any
superior rights in favor of persons holding Existing Registration Rights) be
entitled to participate in the underwriting pro rata with such persons or
entities holding Existing Registration Rights, based upon their respective total
ownership of shares of Common Stock.
7.4. OBLIGATIONS OF THE COMPANY. Whenever required hereunder to use
"its reasonable best efforts to effect the registration of any Warrant Stock",
the Company shall, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement
with respect to such Warrant Stock and use its reasonable best efforts
to cause such registration statement to become and remain effective;
provided, however, that in connection with any proposed registration
intended to permit an offering of any securities from time to time
(i.e., a so called "shelf registration"), the Company shall in no event
be obligated to cause any such registration to remain effective for
more than one hundred eighty (180) days.
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<PAGE> 13
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection with such registration statement as may be necessary to
comply with the provisions of the Federal Act with respect to the
disposition of all securities covered by such registration statement.
(c) Furnish to Selling Holder such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Federal Act, and such other documents as it may
reasonably request in order to facilitate the disposition of Warrant
Stock owned by it.
(d) Use its reasonable best efforts to register and qualify
the securities covered by such registration statement under such other
securities or Blue Sky laws of such jurisdictions as shall be
reasonably appropriate for the distribution of the securities covered
by the registration statement, provided that (anything in this section
to the contrary notwithstanding with respect to the bearing of
expenses) if any jurisdiction in which the securities shall be
qualified shall require that expenses incurred in connection with the
qualification of the securities in that jurisdiction be borne by
selling shareholders, then such expenses shall be payable by selling
shareholders pro rata, to the extent required by such jurisdiction.
(e) Provide a transfer agent for the Warrant Stock no later
than the effective date of the first registration of any Warrant Stock.
7.5. FURNISH INFORMATION. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Section that
Selling Holder shall furnish to the Company such information regarding it and
the Warrant Stock held by it and the intended method of disposition of such
securities as the Company shall reasonably request and as shall be required in
connection with the action to be taken by the Company.
7.6. EXPENSES. All expenses incurred in connection with registrations
pursuant to this SECTION 7 (excluding underwriters, discounts and commissions)
including, without limitation, all registration and qualification fees,
printers' and accounting fees, fees and disbursements of counsel for the
Corporation, shall be payable and duly paid by the Company, provided that the
Selling Holder shall be responsible for any fees and disbursements of counsel of
Selling Holder.
7.7. UNDERWRITING REQUIREMENTS. In connection with any offering
involving an underwriting of shares being issued by the Company, the Company
shall not be required under SECTION 7.2 to include any of Selling Holder's
Warrant Stock in such underwriting
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<PAGE> 14
unless Selling Holder accepts the terms of the underwriting as agreed upon
between the Company and the underwriters selected by it (provided such terms are
customary for underwritings of like kind), and then only in such quantity as
will not, in the reasonable opinion of the underwriters, jeopardize the success
of the offering by the Company.
7.8. INDEMNIFICATION. In the event any Warrant Stock is included in a
registration statement as a result of this Section:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Selling Holder, any underwriter, and each
person, if any, who controls such Selling Holder or any such
underwriter within the meaning of the Federal Act, against any losses,
claims, damages or liabilities, joint or several, to which they may
become subject under the Federal Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based on any untrue or alleged untrue statement of
any material fact contained in such registration statement or any other
document, instrument, certificate or filing in connection with the
offering to which such registration statement relates, including,
without limitation, any preliminary prospectus or final prospectus
contained therein or any amendments or supplements thereto, or arise
out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading or arise out of any
violation by the Company of any rule or regulation promulgated under
the Federal Act or state securities (or so called "Blue Sky") laws, or
regulations promulgated thereunder, of any jurisdiction applicable to
the Company and relating to action or inaction required of the Company
in connection with any such registration or such offering; and will
reimburse such Selling Holder, and each such underwriter or controlling
person for any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim,
damage, liability, or action; provided, however, that the Company shall
not be liable in any such case for any such loss, claim, damage,
liability or action to the extent that it arises solely out of or is
based solely upon an untrue statement or alleged untrue statement or
omission or alleged omission made in connection with such registration
statement, document, instrument, certificate, filing, preliminary
prospectus, final prospectus, or amendments or supplements thereto, and
made solely in reliance upon and in conformity with written information
furnished expressly for use in connection with such registration by
such Selling Holder, or any such underwriter or controlling person.
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<PAGE> 15
(b) To the extent permitted by law, each Selling Holder will
indemnify and hold harmless the Company against any losses, claims,
damages or liabilities, to which it may become subject under the
Federal Act or otherwise; insofar as any loss, claim, damage, or
liability arises solely out of or is based solely upon an untrue
statement or alleged untrue statement or omission or alleged omission
made in connection with such registration statement, document,
instrument, certificate, filing, preliminary prospectus, final
prospectus, or amendments or supplements thereto, and made solely in
reliance upon and in conformity with written information furnished
expressly for use in connection with such registration by such Selling
Holder.
(c) Promptly after receipt by a indemnified party under this
SECTION 7.8 of, notice of the commencement of any action, such
indemnified party will, if a claim in respect thereof is to be made
against the indemnifying party under this Section, notify the
indemnifying party in writing of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, to assume the defense thereof
with counsel mutually satisfactory to the parties, but the failure to
notify the indemnifying party Company promptly of the commencement of
any such action will not relieve the indemnifying party of any
liability that it may have to any indemnified party. If any such action
is against both the indemnified party and the indemnifying party and
the indemnified party shall have reasonably concluded that there may be
reasonable defenses available to it that are different from or
additional to those available to the indemnifying party or that its
interests conflict with the interests of the indemnifying party, the
indemnified party shall have the right to select a separate counsel and
to assume such legal defenses and otherwise to participate in the
defense of such action, with the expenses and fees of such separate
counsel and other expenses related to such participation to be
reimbursed by the indemnifying party as incurred.
7.9 REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934. With a view to
making available to Holder the benefits of Rule 144 promulgated under the Act
and any other rule or regulation of the SEC that may at any time permit Holder
to sell securities of the Company to the public without registration, the
Company agrees to use its best efforts to:
(a) make and keep public information available, as those terms
are understood and defined in Rule 144, at all times;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the
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<PAGE> 16
Federal Act and the Securities Exchange Act of 1934, as amended (the
"1934 Act"); and
(c) furnish to any Holder forthwith upon request a written
statement by the Company that it has, complied with the reporting
requirements of Rule 144 and of the Federal Act and the 1934 Act (at
any time after it hat become subject to such reporting requirements), a
copy of the most recent annual or quarterly report of the Company, and
such other reports and documents so filed by the Company as may be
reasonably requested in availing any such Molder to take advantage of
any rule or regulation of the SEC permitting the selling of any such
securities without registration.
7.10 TRANSFER OF REGISTRATION RIGHTS. The registration rights of Holder
may be transferred to any transferee who acquires (otherwise than in a
registered public offering) this Warrant or Warrant Stock, provided, however,
that such rights may be held by no more than ten Persons at any one time and
that the Company is given written notice by Holder at the time of such transfer
stating the name and address of the transferee and identifying the securities
with respect to which the rights are being assigned.
SECTION 8. DEFINITIONS.
As used herein, the following terms, unless the context otherwise
requires, have the following respective meanings:
8.1. The term COMMON STOCK includes the Company's Common Stock, par
value $0.01 per share, and any other securities or rights into which or for
which the Common Stock is converted or exchanged, whether pursuant to a plan of
reclassification, reorganization, consolidation, merger, sale of assets,
dissolution, liquidation, or otherwise.
8.2. The term EXPIRATION DATE shall mean the tenth (10th) anniversary
of the date of this Warrant.
8.3. The term MARKET PRICE shall mean the average of the per share
daily closing prices of Common Stock for the ten (10) consecutive business days
immediately prior to the day in question. The closing price for each day shall
be:
(a) the last reported sales price or, in case no such reported
sale takes place on such day, the average of the reported closing bid
and ask prices, in either case on the principal national securities
exchange on which the Common Stock is listed or admitted to trading or,
if the Common Stock is not listed or admitted to trading on any
national securities exchange, on the National Association of Securities
Dealers Automated Quotation National Market System; or
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<PAGE> 17
(b) if the Common Stock is not listed or admitted to trading
on any national securities exchange or quoted in such National Market
System, the average of the closing bid and asked prices in the
over-the-counter market as furnished by any New York Stock Exchange
member firm reasonably selected from time to time by the Company for
that purpose; or
(c) if the Common Stock is not listed or admitted to trading
on any national securities exchange or quoted on such National Market
System and the average price cannot be determined as contemplated by
clause (b), the fair market value as, reasonably determined in good
faith by the Company's Board of Directors or in any manner reasonably
prescribed by the Company's Board of Directors.
For the purposes of this SECTION 8.3, the term "BUSINESS DAY" shall mean each
Monday, Tuesday, Wednesday, Thursday and Friday, other than any day on which
securities are not traded on such exchange or in such market,
8.4. The term NET NUMBER shall mean the number of fully paid and
non-assessable shares of Common Stock of the Company with respect to which the
Warrant is exercisable, as calculated in accordance with SECTION 1.2 hereof.
8.5. The term BASE INDEX shall mean $10.00 as of the date hereof, to be
adjusted pursuant to SECTION 2.
8.6. The term BASE NUMBER OF SHARES shall mean 150,000 shares as of the
date hereof, to be adjusted pursuant to SECTION 1.2 hereof.
8.7. The term WARRANT STOCK shall mean any equity security issued upon
exercise of this Warrant.
8.8. The term PERSON shall mean an individual, partnership,
corporation, association, trust, joint venture, unincorporated organization or
any government, governmental department or agency or political subdivision
thereof.
SECTION 9. REPLACEMENT OF WARRANTS.
Upon (a) surrender of this Warrant in mutilated form or receipt of
evidence satisfactory to the Company of the loss, theft or destruction of this
Warrant and (b) in the case of any loss, theft or destruction of any Warrant,
receipt of an indemnity agreement or security reasonably satisfactory in form
and amount to the Company, then, in the absence of actual notice to the Company
that this Warrant has been acquired by a bona fide purchaser, the Company, at
its expense, shall execute and deliver, in lieu of this Warrant, a new Warrant
identical in form to this Warrant.
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SECTION 10. REMEDIES.
The Company stipulates that the remedies at law of the Holder in the
event of any breach or threatened breach by the Company of the terms of this
Warrant are not and will not be adequate, and that such terms may be
specifically enforced by a decree for the specific performance of any agreement
contained herein or by an injunction against a breach of any of the terms hereof
or otherwise.
SECTION 11. TRANSFER.
This Warrant and the shares of Common Stock issuable hereunder shall
not be sold, transferred, pledged or hypothecated unless the proposed
disposition is the subject of a currently effective registration statement under
the Federal Act or unless the Company has received any opinion of counsel, in
form and substance reasonably satisfactory to the Company, to the effect that
such registration is not required in connection with such disposition. Subject
to the first sentence of this Section, this Warrant and all rights hereunder are
freely transferable, in whole or in part, but to no more than ten (10)
transferees in the aggregate (including the transferor if it retains a part of
this Warrant), at the office or agency of the Company by the registered holder
thereof in person or by a duly authorized attorney, upon surrender of this
Warrant together with an assignment hereof properly endorsed. Until transfer
hereof on the registration books of the Company, the Company may treat the
existing registered holder hereof as the owner hereof for all purposes. Any
transferee of this Warrant and any rights hereunder, by acceptance thereof,
agrees to assume all of the obligations of Holder and to be bound by all of the
terms and provisions of this Warrant.
SECTION 12. NOTICES.
Where this Warrant provides for notice of any event such notice shall
be given (unless otherwise herein expressly provided) in writing and either (a)
delivered personally, (b) sent by certified, registered or express mail, postage
prepaid, (c) telegraphed or (d) telexed or sent by facsimile transmission, and
shall be deemed given when so delivered personally, telegraphed, telexed, sent
by facsimile transmission (confirmed in writing) or mailed. Notices shall be
addressed, if to Holder, to the address of Holder appearing in the register
referred to in SECTION 11 or, if to the Company, to its office maintained
pursuant to SECTION 4.3.
SECTION 13. MISCELLANEOUS.
(a) This Warrant shall be binding upon the Company and Holder and their
legal representatives, successors and assigns.
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(b) In case any provision of this Warrant shall be invalid, illegal or
unenforceable, or partially invalid, illegal or unenforceable, the provision
shall be enforced to the extent, if any, that it may legally be enforced and the
validity, legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby.
(c) This Warrant and any term hereof may be changed, waived, discharged
or terminated only by a statement in writing signed by the party against which
enforcement of such change, waiver, discharge or termination is sought.
(d) This Warrant shall be governed by, and construed and enforced in
accordance with the laws of The Commonwealth of Massachusetts without regard to
its principles of conflicts of laws.
(e) The headings in this Warrant are for purposes of reference only,
and shall not limit or otherwise affect any of the terms hereof.
(f) This Warrant shall take effect as an instrument under seal.
(g) Reference is made to that certain Loan Agreement of even date
between SSBT and the Company, (the "Loan Agreement"). The Company acknowledges
that SSBT would not have entered into the Loan Agreement but for the execution
and delivery of this Common Stock Warrant.
(h) The provisions of Section 7 shall survive the termination or
expiration of this Warrant and shall continue to be effective with respect to
any Warrant Stock issued.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its duly authorized officer and its corporate seal to be impressed hereon and
attested by its Secretary or Assistant Secretary.
Dated as of July 7, 1999 SHARED TECHNOLOGIES
CELLULAR, INC.
By \s\ Vincent DiVincenzo
-----------------------
Name: Vincent DiVincenzo
Title: Chief Financial Officer
Attest:
\s\ Ismael Pinho (Corporate Seal)
- ----------------
Ass't Secretary
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<PAGE> 20
FORM OF SUBSCRIPTION
(To be signed only on exercise of
Common Stock Warrant)
TO: SHARED TECHNOLOGIES CELLULAR, INC.
The undersigned, the holder of the within Common Stock Warrant, hereby
irrevocably elects to exercise this Common Stock Warrant for, and to receive
thereunder ___________ shares of Common Stock of SHARED TECHNOLOGIES CELLULAR,
INC. (the "Company"), and requests that the certificates for such shares be
issued in the name ______________ of, and delivered to whose address is
_______________________.
Dated: ____________
________________________________________
(Signature must conform in all respects
to name of Holder as specified on the
face of the Warrant)
________________________________________
(Address)
*Insert here the number of shares (all or part of the number
of shares called for in the Common Stock) as to which the Common Stock
Warrant is being exercised without making any adjustment for any other
stock or other securities or property or cash that, pursuant to the
adjustment provisions of the Common Stock Warrant, may be deliverable
on exercise.
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FORM OF ASSIGNMENT
(To be signed only on transfer of
Common Stock Warrant)
For value received, the undersigned hereby sells, assigns, and
transfers unto __________________ of _____________________ the right represented
by the within Common Stock Warrant to receive the Net Number of shares of Common
Stock of SHARED TECHNOLOGIES CELLULAR, INC. to which the within Common Stock
Warrant relates, and appoints_________________, Attorney to transfer such right,
on the books of SHARED TECHNOLOGIES CELLULAR, INC. with full power of
substitution in the premises.
Dated: __________
________________________________________
(Signature must conform in all respects
to name of Holder as specified on the
face of the Warrant)
________________________________________
(Address)
Signed in the presence of: ____________________
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SCHEDULE 7.1
Existing Registration Rights
1. Registration rights in favor of Retail Distributors, Inc. pursuant to a
Registration Rights Agreement to be entered into with RDI.
2. Registration rights in favor of the holders of the Company's Series C
Convertible Preferred Stock and related Warrants to purchase Common
Stock pursuant to a Registration Rights Agreement dated January 28,
1999. A Registration Statement on Form S-3 was filed with the
Securities and Exchange Commission in satisfaction of these rights, but
has not yet been effective by the SEC (the "Pending S-3").
3. Registration rights in favor of the holders of the Company's 5%
Convertible Notes pursuant to the terms of such notes issued in May,
1998. The shares of Common Stock issuable upon conversion of these
notes are included in the Pending S-3.
4. The Company currently has two additional Form S-3 Registration
Statements in effect in satisfaction of registration rights in favor of
the holders of shares of Common Stock and Warrants to purchase Common
Stock that were previously issued by the Company in private placements.
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