<PAGE>
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) September 29, 1998
------------------
PSINet Inc.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
New York 0-25812 16-1353600
- --------------------------------------------------------------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
510 Huntmar Park Drive, Herndon, Virginia 20170
- --------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (703) 904-4100
--------------
N/A
- -----------------------------------------------------------------------
(Former name or former address, if changed since last report)
Exhibit Index appears on page 30
Page 1 of 30
<PAGE>
Item 2. Acquisition or Disposition of Assets.
------------------------------------
On October 1, 1998, PSINet Japan Inc. ("PSINet Japan"), a Japanese
subsidiary of PSINet Inc. (the "Company"), purchased all of the issued and
outstanding shares (the "Shares") of Tokyo Internet Corporation, a Japanese
company ("TI" or "Tokyo Internet"), pursuant to a Share Purchase Agreement dated
as of such date (the "Agreement"), among PSINet Japan, TI and TI's sole
shareholder, SECOM Co., Ltd., a Japanese company (the "Seller"). TI is a
leading Japanese Internet service provider serving businesses, the small-
office/home-office market and individual Internet users in Japan. The aggregate
purchase price was $131.0 million, 80% of which ($104.8 million) was paid to the
Seller at the closing. The remainder of the purchase price ($26.2 million) (the
"Escrow Portion") is being maintained by PSINet Japan as security for the
accuracy and performance of the Seller's representations, warranties, covenants
and agreements made in the Agreement or any document delivered in connection
therewith, until October 1, 2000. In connection with the acquisition, the
Company has guaranteed the payment and performance by PSINet Japan of its
obligations under the Agreement with respect to the Escrow Portion.
The Purchase Price was determined through negotiations between PSINet
Japan and the Seller conducted on an arms' length basis. During such
negotiations, the parties considered, among other things, the present stage of
development of the business and operations of TI, the condition of its assets,
its financial condition, the market for its services and products and its future
business prospects.
The funds used to purchase the Shares were provided by borrowings under
the Credit Agreement dated September 29, 1998 among the Company, the Lenders
party thereto, The Chase Manhattan Bank, as Administrative Agent, Fleet National
Bank, as Syndication Agent, and The Bank of New York, as Documentation Agent,
and by the Company's working capital.
In connection with the acquisition of Tokyo Internet, the Company also
made payments of (Yen) 899 million (U.S. $6.6 million at an exchange rate of
(Yen)135.95: U.S. $1.00 as of October 1, 1998) in respect of the repayment of
certain indebtedness of Tokyo Internet and (Yen) 90.6 million (U.S. $666,000 at
such exchange rate) to certain Tokyo Internet directors and employees for
retirement benefits, as well as an additional payment to the Seller of $1.3
million in consideration of the Seller's participation in a strategic alliance
and other services.
Through its acquisition of the Shares, the Company indirectly acquired
the machinery, equipment and other physical property owned or leased by TI.
Such machinery, equipment and other physical property are used by TI in
connection with its business of providing Internet and Internet-related services
and products. The Company intends to continue the use of such machinery,
equipment and other physical property in connection with the operation of such
business.
In accordance with Rule 3-05 of Regulation S-X, the financial statements
of Tokyo Internet, a significant subsidiary, are being filed herewith.
Item 5. Other Events.
------------
New Credit Facility
- -------------------
On September 29, 1998, the Company entered into a new senior secured credit
facility, pursuant to which The Chase Manhattan Bank ("Chase") is acting as
administrative agent, to replace the Company's existing bank credit
arrangements in the United States (the "Credit
Page 2 of 30
<PAGE>
Facility"). The Credit Facility is a secured revolving credit facility in the
aggregate principal amount of $110.0 million and has a final maturity date of
September 29, 2001.
Interest. Borrowings under the Credit Facility bear interest, at the
Company's option, at (i) the London interbank offered rate for deposits in U.S.
Dollars for the relevant period multiplied by the statutory reserve rate plus
the Applicable Margin ("Eurodollar Rate") or (ii) the higher of Chase's prime
rate or the Federal Funds effective rate plus 1/2 of 1%, plus the Applicable
Margin ("ABR Rate"). The Applicable Margin varies based on the Leverage Ratio
as of the most recent determination date. Currently, the Applicable Margin is
1.75% for ABR Rate borrowings and 2.75% for Eurodollar Rate borrowings.
Covenants. The Credit Facility contains covenants and provisions that
restrict, among other things, the Company and its subsidiaries' ability to: (i)
make dividends and distributions on, and redemptions and repurchases of, capital
stock and other similar payments; (ii) make prepayments, redemptions and
repurchases of indebtedness; (iii) incur liens and enter into sale-leaseback
transactions; (iv) make certain loans and investments; (v) incur additional
indebtedness and certain contingent obligations; (vi) effect certain mergers,
acquisitions and asset sales; (vii) engage in certain transactions with
affiliates; (viii) effect certain changes in business conducted by the Company;
and (ix) amend and waive certain debt and other agreements. The Credit Facility
also requires the satisfaction of certain financial covenants, including a
minimum annual consolidated revenue test, a minimum debt-to-annualized adjusted
revenue ratio, a minimum aggregate balance of nonrestricted cash and available
borrowings and a minimum EBITDA test. In addition, the Credit Facility requires
a reduction in the maximum amount of availability and prepayments (if required
as a result of such reduction) equal to the net proceeds received from certain
asset sales aggregating more than $5 million and from certain casualty events.
Capitalized terms used herein but not otherwise defined herein have the
definitions ascribed to them in the Credit Agreement, attached hereto as Exhibit
2.2. The foregoing summary of the Credit Facility does not purport to be
complete and is qualified in its entirety by reference to the Credit Agreement
and related documents filed herewith, which are incorporated herein by
reference.
Netherlands Acquisition
- -----------------------
On October 6, 1998, the Company acquired all of the outstanding shares of
The Unix Group B.V., a Dutch holding company ("Unix"), for an aggregate purchase
price of 15,329,750 Dutch Guilders (U.S. $8.3 million at an exchange rate of
Dutch Guilders 1.83654 : U.S. $1.00 as of October 6, 1998). As a result of the
acquisition of Unix, the Company individually acquired all of the shares of
Internet Exchange Europe B.V. ("IXE"), a Unix subsidiary which is the first
commercial top-level Internet service provider in Holland to maintain its own
Internet backbone, and of Unix Support Netherland B.V. ("USN"), a Unix
subsidiary which is a well-known provider of Internet services, including Web
hosting and maintenance, security and other customized solutions, to businesses.
Under Rule 3-05 of Regulation S-X, the financial statements of Unix are
not required to be filed herewith.
Page 3 of 30
<PAGE>
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
a. Financial statements of businesses acquired.
Tokyo Internet Corporation
- --------------------------
Audited Financial Statements
Report of Independent Accountants
Balance Sheets as of March 31, 1996, 1997 and 1998
Statement of Operations and Undisposed Deficit for the years ended March 31,
1996, 1997 and 1998
Notes to the Financial Statements
b. Pro forma financial information.
Unaudited Pro Forma Consolidated Financial Information
Unaudited Pro Forma Consolidated Statement of Operations for the year ended
December 31, 1997
Unaudited Pro Forma Consolidated Statement of Operations for the six months
ended June 30, 1998
Notes to Unaudited Pro Forma Consolidated Statements of Operations
Unaudited Pro Forma Consolidated Balance Sheet as of June 30, 1998
Notes to Unaudited Pro Forma Consolidated Balance Sheet
c. Exhibits.
Exhibit Number Exhibit Name
-------------- ------------
Exhibit 2.1 Share Purchase Agreement dated as of October 1, 1998,
among PSINet Japan Inc., a subsidiary of the Company,
Tokyo Internet Corporation and Secom Co., Ltd.
Exhibit 2.2 Credit Agreement dated September 29, 1998 among the
Company, the Lenders party thereto, The Chase Manhattan
Bank, as Administrative Agent, Fleet National Bank, as
Syndication Agent, and The Bank of New York, as
Documentation Agent.
Page 4 of 30
<PAGE>
Exhibit 2.3 Guarantee Agreement dated September 29, 1998 among each
of the subsidiaries of the Company party thereto and
The Chase Manhattan Bank.
Exhibit 2.4 Pledge Agreement dated September 29, 1998 among the
Company, each subsidiary of the Company party thereto
and The Chase Manhattan Bank.
Exhibit 2.5 Security Agreement dated September 29, 1998 among the
Company, each subsidiary of the Company party thereto
and The Chase Manhattan Bank.
Exhibit 23.1 Consent of Price Waterhouse.
Page 5 of 30
<PAGE>
TOKYO INTERNET CORPORATION
--------------------------
FINANCIAL STATEMENTS
--------------------
FOR THE YEARS ENDED MARCH 31, 1996, 1997 AND 1998
-------------------------------------------------
Page 6 of 30
<PAGE>
Report of Independent Accountants
---------------------------------
September 30, 1998
To the Board of Directors
of Tokyo Internet Corporation
We have audited the accompanying balance sheets of Tokyo Internet Corporation
(the "Company") as of March 31, 1996, 1997 and 1998 and the related statements
of operations and undisposed deficit for the years then ended, all expressed in
Japanese yen. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company as of March 31,
1996, 1997 and 1998 and the results of its operations for the years then ended,
in conformity with accounting principles generally accepted in Japan applied on
a consistent basis.
Accounting principles generally accepted in Japan vary in certain important
respects from accounting principles generally accepted in the United States. The
application of the latter would have affected the determination of the net loss
expressed in Yen for each of the two years in the period ended March 31, 1998
and the determination of shareholders' equity and financial position also
expressed in Yen at March 31, 1997 and 1998 to the extent summarized in Note 4
to the financial statements.
/s/ Price Waterhouse, Tokyo
Page 7 of 30
<PAGE>
TOKYO INTERNET CORPORATION
--------------------------
BALANCE SHEETS
--------------
ASSETS
------
<TABLE>
<CAPTION>
(In thousands of yen)
As of March 31
----------------------------------------
1996 1997 1998
---------- ---------- ------------
<S> <C> <C> <C>
Current assets:
Cash on hand and in banks (Y) 78,462 (Y) 72,339 (Y) 136,605
Accounts receivable - trade 138,899 492,681 893,692
Accounts receivable - other - - 19,565
Merchandise 1,080 5,128 -
Advance payment - 35,440 28,358
Prepaid expenses 9,676 10,712 11,333
Other current assets 6,984 3,608 1,566
Bad debt reserve (9,180) (25,411) (154,607)
---------- ---------- ------------
Total current assets 225,921 594,497 936,512
---------- ---------- ------------
Fixed assets:
Tangible fixed assets - net
Building and facilities 13,984 33,954 44,202
Machinery - 27,251 27,385
---------- ---------- ------------
Total tangible fixed assets - net 13,984 61,205 71,587
---------- ---------- ------------
Intangible fixed assets:
Telephone rights 60,235 122,396 133,225
Software assets - 17,868 36,003
Goodwill - 59,051 44,288
---------- ---------- ------------
Total intangible fixed assets 60,235 199,315 213,516
---------- ---------- ------------
Investments & other assets:
Investment securities - - 25,000
Lease deposits 16,599 40,112 41,185
Long-term prepaid expenses 18,598 53,515 7,109
---------- ---------- ------------
Total investments & other assets 35,197 93,627 73,294
---------- ---------- ------------
Total fixed assets 109,416 354,147 358,397
---------- ---------- ------------
Deferred assets:
Stock issue expenses 1,232 616 2,436
Business commencement expenses 30,091 20,060 10,030
Organization expenses 804 536 268
---------- ---------- ------------
Total deferred assets 32,127 21,212 12,734
---------- ---------- ------------
Total assets (Y)367,464 (Y)969,856 (Y)1,307,643
========== ========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 8 of 30
<PAGE>
TOKYO INTERNET CORPORATION
--------------------------
BALANCE SHEETS
--------------
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
(In thousands of yen)
As of March 31
--------------------------------------------
1996 1997 1998
----------- ------------ -------------
LIABILITIES
-----------
<S> <C> <C> <C>
Current liabilities:
Short-term borrowings (Y) - (Y) 869,000 (Y) 800,000
Accounts payable - other 116,378 176,135 219,265
Income tax payable 483 816 3,239
Consumption tax payable - 51,728 93,750
Accrued expenses 17,812 44,331 23,646
Advance received 2,440 8,229 5,567
Deposit received 8,930 17,274 6,565
----------- ------------ -------------
Total current liabilities 146,043 1,167,513 1,152,032
----------- ------------ -------------
Non-current liabilities:
Guarantee deposit received 1,296 8,363 1,296
Accrued severance indemnities 75 249 676
----------- ------------ -------------
Total non-current liabilities 1,371 8,612 1,972
----------- ------------ -------------
Total liabilities 147,414 1,176,125 1,154,004
----------- ------------ -------------
SHAREHOLDERS' EQUITY
--------------------
Capital stock 480,000 730,000 1,204,500
----------- ------------ -------------
Deficit:
Undisposed deficit (259,950) (936,269) (1,050,861)
[Net loss for the year included in the line above] [208,084] [676,319] [114,592]
----------- ------------ -------------
Total shareholders' equity (deficit) 220,050 (206,269) 153,639
----------- ------------ -------------
Total liabilities and shareholders' equity (Y) 367,464 (Y) 969,856 (Y) 1,307,643
=========== ============ =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 9 of 30
<PAGE>
TOKYO INTERNET CORPORATION
--------------------------
STATEMENTS OF OPERATIONS AND UNDISPOSED DEFICIT
-----------------------------------------------
<TABLE>
<CAPTION>
(In thousands of yen)
For the year ended March 31
------------------------------------------
1996 1997 1998
---------- ------------ ------------
<S> <C> <C> <C>
Ordinary income and expenses:
Operating income and expenses -
Operating income:
Net sales (Y)774,059 (Y)3,173,672 (Y)5,348,391
Operating expenses:
Cost of sales 506,579 2,551,528 4,033,904
Selling, general and administrative expenses 465,427 1,291,929 1,291,251
---------- ------------ ------------
972,006 3,843,457 5,325,155
---------- ------------ ------------
Operating (profit) loss 197,947 669,785 (23,236)
---------- ------------ ------------
Non-operating income and expenses -
Non-operating income:
Interest income and dividends 308 121 389
Other 1,492 11,267 22,084
---------- ------------ ------------
1,800 11,388 22,473
---------- ------------ ------------
Non-operating expenses:
Interest expense 349 5,988 7,905
Amortization of deferred assets 10,914 10,914 12,132
Other 140 188 9,848
---------- ------------ ------------
11,403 17,090 29,885
---------- ------------ ------------
Ordinary (profit) loss 207,550 675,487 (15,824)
---------- ------------ ------------
Special gain and loss -
Provision for bad debts: - - 127,176
---------- ------------ ------------
Loss before income taxes 207,550 675,487 111,352
Corporate and inhabitant taxes 534 832 3,240
---------- ------------ ------------
Net loss for the year 208,084 676,319 114,592
Accumulated deficit brought forward 51,866 259,950 936,269
---------- ------------ ------------
Undisposed deficit (Y)259,950 (Y) 936,269 (Y)1,050,861
========== ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 10 of 30
<PAGE>
TOKYO INTERNET CORPORATION
--------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
The balance sheets and the statements of operations and undisposed deficit are
prepared in conformity with accounting principles generally accepted in Japan.
1. Significant accounting policies:
-------------------------------
(1) The valuation basis and valuation method of inventories -
-------------------------------------------------------
Merchandise is stated at cost determined by the first-in first-out method.
(2) The method of depreciation -
--------------------------
Tangible fixed assets are depreciated based on the declining-balance method in
accordance with the Japanese corporate tax regulations.
Intangible fixed assets are amortized based on the straight-line method in
accordance with the Japanese corporate tax regulations.
Deferred assets are amortized based on the straight-line method in accordance
with the Japanese Commercial Code.
(3) The basis for recognition of provisions -
---------------------------------------
In order to provide for expected future losses, bad debt reserve is provided for
the expected uncollectable amount of individual receivable balances plus the
maximum deductible amount allowed under the Japanese corporate tax regulations.
Accrued severance indemnities are provided for the maximum deductible amount
allowed under the Japanese corporate tax regulations in order to provide for
expected future retirement benefit payments.
(4) Matters related to restriction of dividends -
-------------------------------------------
The excess prescribed in Paragraph 4, Clause 1, Article 290 of the Commercial
Code amounts to (Y)10,030 thousand - 1998, ((Y)30,090 thousand - 1996, (Y)20,060
thousand - 1997).
Page 11 of 30
<PAGE>
2. Notes to the balance sheets:
---------------------------
(1) Accumulated depreciation of tangible fixed assets is (Y)2,803 thousand,
(Y)10,943 thousand and (Y)32,558 thousand as of March 31, 1996, 1997 and
1998, respectively.
(2) Balances with the Company's majority shareholder -
------------------------------------------------
<TABLE>
<CAPTION>
(In thousands of yen)
1996 1997 1998
--------- ---------- ----------
<S> <C> <C> <C>
Accounts receivable - trade (Y) 34 (Y) 911 (Y) 28,685
Other current assets 62 - 167
Lease deposits 50 50 50
Short-term borrowings - 869,000 800,000
Accounts payable - other 11,376 24,271 17,203
</TABLE>
(3) Net loss per share -
------------------
(In yen)
1996 1997 1998
------------ ------------ ---------
(Y)29,936.57 (Y)60,077.02 (Y)951.31
3. Notes to the statements of operations and undisposed deficit:
------------------------------------------------------------
Transactions with the Company's majority shareholder -
- ----------------------------------------------------
<TABLE>
<CAPTION>
(In thousands of yen)
1996 1997 1998
-------- -------- ---------
<S> <C> <C> <C>
Sales (Y)2,834 (Y)1,543 (Y)27,985
Purchases 71,698 10,762 1,909
Transactions other than operating
activities (interest expense) - 12,817 19,755
</TABLE>
4. Summary of principal differences between generally accepted accounting
-------------------------------------------------------------------------
principles in Japan and the United States:
-----------------------------------------
The financial statements of the Company are prepared in accordance with
accounting principles generally accepted in Japan ("Japanese GAAP"), which in
the case of the Company differ in the following material respects from those
generally accepted in the United States ("U.S. GAAP"). The principal differences
applicable to the financial statements and their effects on net loss, assets,
liabilities and shareholders' equity are summarized below.
Page 12 of 30
<PAGE>
(1) Statement of cash flows -
-----------------------
Under Japanese GAAP, a statement of cash flows is not required as part of the
basic financial statements.
Under U.S. GAAP, a statement of cash flows is required as part of the basic
financial statements, and cash and cash equivalents include highly liquid
investments that generally have original maturities at the time of purchase of
three months or less.
(2) Valuation of inventories -
------------------------
Under Japanese GAAP, inventories can be stated at cost, the policy followed by
the Company, or at the lower of cost or market.
U.S. GAAP requires all inventories to be valued at the lower of cost or market.
(3) Valuation of securities -
-----------------------
Under Japanese GAAP, investments in marketable securities, as well as
non-marketable securities, can be stated at cost. The Company's non-marketable
security is stated at cost. However, when significant impairment of value has
been deemed permanent, cost is appropriately reduced.
Under U.S. GAAP, investments in debt securities and equity securities that have
readily determinable fair values, except for investments accounted for using the
equity method, are to be classified in three categories and accounted for as
follows:
(a) Debt securities that the enterprise has the positive intent and ability to
hold to maturity are classified as held-to-maturity securities and reported
at amortized cost. Unrealized holdings gains and losses are not reported in
the financial statements until realized or until a decline in fair value
below cost is deemed to be other than temporary.
(b) Debt and marketable equity securities that are acquired and held
principally for the purpose of selling them in the near term are classified
as trading securities and reported at fair value, with unrealized gains and
losses included in earnings.
(c) Debt and equity securities not classified as either held-to-maturity
securities or trading securities are classified as available-for-sale
securities and reported at fair value, with unrealized gains and losses
excluded from earnings and reported in a separate component of
shareholders' equity.
(4) Deferred assets -
---------------
The Company has deferred stock issue expenses, business commencement expenses
and organization expenses which are amortized over five years as permitted under
Japanese GAAP.
Page 13 of 30
<PAGE>
Under U.S. GAAP, startup costs such as business commencement expenses and
organization expenses are to be expensed as incurred under the circumstances
that future gross profit sufficient to absorb these startup costs is not
anticipated. Stock issue costs are to be netted against the stock issuance
proceeds.
(5) Accounting for income taxes -
---------------------------
Under Japanese GAAP, income taxes are principally provided for based on taxable
income for the period, determined in accordance with applicable tax laws.
Deferred tax accounting may be applied only in consolidated financial
statements; however, it is not mandatory and has not been adopted by the
Company.
U.S. GAAP requires that deferred income taxes be recognized for temporary
differences between the tax basis of the assets or liabilities and the reported
amount in the financial statements and for tax loss carry-forwards which are
permitted to be carried forward to offset taxable income over the next five
years under Japanese Income Tax Law. A valuation allowance is provided for the
deferred tax assets if it is more likely than not that these assets will not be
realized.
(6) Capital leases -
--------------
Under Japanese GAAP, for finance leases where ownership is not deemed to be
transferred from lessor to lessee, the lessee may choose not to capitalize the
leased asset and may account for the lease in a manner similar to operating
leases. The Company's policy is to account for such leases in a manner similar
to operating leases.
U.S. GAAP requires leases which transfer essentially all the risks and rewards
of ownership in the leased assets from the lessor to lessee to be capitalized.
(7) Accrued compensated absences -
----------------------------
Under Japanese GAAP, accrued compensated absences are normally not recognized
for future absences due to the fact that such accruals do not meet the
conditions for provisions. The Company does not recognize such accrued
compensated absences.
U.S. GAAP requires that accrued compensated absences be recognized as earned by
employees.
(8) Accrued severance indemnities -
-----------------------------
The Company maintains a severance indemnity plan which provides for payments to
certain employees upon termination of employment. This defined benefit plan is
not funded. The Company has recorded a liability, as allowed under Japanese
GAAP, equal to 40% of the amount which would be paid if all eligible employees
terminated their employment on the balance sheet date.
Page 14 of 30
<PAGE>
U.S. GAAP requires pension costs to be actuarially computed and charged to
expense as stipulated by Statement of Financial Accounting Standards No. 87,
"Employers' Accounting for Pensions." Due to the small number of employees and
short average service period of employees, the Company's liability for severance
indemnities under U.S. GAAP would not be significantly different from the amount
recorded under Japanese GAAP.
(9) Accounting for business combinations -
------------------------------------
At the time of its November 1996 business combination with Secom Internet K.K.,
both the Company and Secom Internet K.K. were controlled by Secom Corporation.
The Company has accounted for this business combination under purchase
accounting, which is allowed by Japanese GAAP.
Under U.S. GAAP, such a transfer of ownership among companies under common
control is accounted for at historical cost in a manner similar to that in
pooling of interests accounting.
If U.S. GAAP as indicated above were employed by the Company, the net loss, loss
per share, assets, liabilities and shareholders' equity would be adjusted as
follows:
(a) Statement of operations:
-----------------------
<TABLE>
<CAPTION>
(In thousands of yen)
For the year ended For the year ended
March 31, 1997 March 31, 1998
------------------ ------------------
<S> <C> <C>
Net loss under Japanese GAAP (Y) 676,319 (Y) 114,592
Adjustments:
Deferred assets (10,914) (12,132)
Leases capitalized as assets 2,947 873
Deferred tax assets (364,670) (57,440)
Valuation allowance for deferred tax assets 364,670 57,440
Accrued compensated absences 636 (70)
Accounting for business combinations (21,887) (14,763)
------------ -----------
Net loss under U.S. GAAP (Y) 647,101 (Y) 88,500
============ ===========
(In yen)
Net loss per share under U.S. GAAP (Y)57,484.32 (Y)4,220.31
============ ===========
</TABLE>
Page 15 of 30
<PAGE>
(b) Balance sheet:
--------------
<TABLE>
<CAPTION>
(In thousands of yen)
As of March 31, 1997 As of March 31, 1998
-------------------- --------------------
<S> <C> <C>
Total assets under Japanese GAAP (Y) 969,856 (Y)1,307,643
Adjustments:
Deferred assets (21,212) (12,734)
Deferred tax assets 507,263 449,823
Valuation allowance for deferred tax assets (507,263) (449,823)
Goodwill (59,051) (44,288)
Tangible fixed assets - net 780,184 969,711
Unrealized loss on marketable securities - (13,285)
------------- ------------
Total assets under U.S. GAAP (Y)1,669,777 (Y)2,207,047
============= ============
Total shareholders' equity (deficit) under
Japanese GAAP
((Y) 206,269) (Y) 153,639
Adjustments:
Deferred assets (21,212) (12,734)
Goodwill (59,051) (44,288)
Tangible fixed assets - net (4,806) (5,679)
Deferred tax assets 507,263 449,823
Valuation allowance for deferred tax assets (507,263) (449,823)
Accrued compensated absences (1,114) (1,044)
Unrealized loss on marketable securities - (13,285)
------------- ------------
Total shareholders' equity
(deficit) under U.S. GAAP ((Y) 292,452) (Y) 76,609
============= ============
</TABLE>
Page 16 of 30
<PAGE>
(10) Statements of cash flows under U.S. GAAP -
------------------------------------------
<TABLE>
<CAPTION>
(In thousands of yen)
Year ended March 31
1997 1998
------------ ------------
<S> <C> <C>
Cash flow from operating activities:
Net loss under U.S. GAAP (Y) (647,101) (Y)( 88,500)
Adjustments to reconcile net loss to net cash
provided by (used for) operating activities:
Depreciation and amortization 176,315 336,869
Loss on disposal of intangible assets - 15,097
Provision for bad debts 16,175 129,196
Increase in accounts receivable (343,280) (401,011)
(Increase) decrease in inventories (4,048) 5,128
Decrease (increase) in prepaid expenses and other
current assets 25,430 (11,062)
Increase in accounts payable - other 59,757 43,130
Increase in other current liabilities 88,700 10,319
Decrease in non-current liabilities (7,554) (6,640)
------------ ------------
Net cash provided by (used for) operating
activities (635,606) 32,526
------------ ------------
Cash flows from investing activities:
Purchase of property and equipment (55,409) (32,005)
Purchase of investment securities - (25,000)
Cash arising from acquisition of
Secom Internet K.K. 118,985 -
Purchase of telephone rights (61,841) -
Capitalized software development costs (52,559) -
Increase in lease deposits (23,513) -
Other - 1,272
------------ ------------
Net cash used for investing activities (74,337) (55,733)
------------ ------------
Cash flows from financing activities:
Proceeds from short-term borrowings 869,000 181,000
Repayment of short-term borrowings - (250,000)
Principal payments under capital lease obligations (165,180) (314,373)
Issuance of common stock - 470,846
------------ ------------
Net cash provided by financing activities 703,820 87,473
------------ ------------
Net increase (decrease) in cash and cash equivalents (6,123) 64,266
Cash and cash equivalents at beginning of period 78,462 72,339
------------ ------------
Cash and cash equivalents at end of period (Y) 72,339 (Y) 136,605
============ ============
Supplemental schedule of non-cash investing and financing activities
Increase in lease assets and obligations under capital lease
arrangements (Y) 504,773 (Y) 672,181
============ ============
</TABLE>
Page 17 of 30
<PAGE>
(11) Statements of changes in shareholders' equity (deficit) under U.S. GAAP -
-------------------------------------------------------------------------
<TABLE>
<CAPTION>
(In thousands of yen)
Capital Stock
---------------------------
Unrealized Total
Loss on Shareholders'
Outstanding Undisposed Marketable Equity
Shares Value Deficit Securities (Deficit)
----------- ----- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Balance, March 31, 1996 9,600 (Y) 478,152 (Y)( 292,565) (Y) - (Y) 185,587
------ ------------ ------------- ---------- -----------
Issuance of common stock for
acquisition of Secom
Internet K.K. 5,000 169,062 - 169,062
-
Net loss - - (647,101) - (647,101)
------ ------------ ------------- ---------- -----------
Balance, March 31, 1997 14,600 647,214 (939,666) - (292,452)
------ ------------ ------------- ---------- -----------
Issuance of common stock 9,490 470,846 - - 470,846
Unrealized loss on marketable
securities (13,285) (13,285)
Net loss - - (88,500) - (88,500)
------ ------------ ------------- ---------- -----------
Balance, March 31, 1998 24,090 (Y)1,118,060 (Y)(1,028,166) (Y)(13,285) (Y) 76,609
====== ============ ============= ========== ===========
</TABLE>
Page 18 of 30
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following businesses have been acquired on the dates indicated:
<TABLE>
<CAPTION>
Name of Company Location Date of Closing
- ---------------------------------------------------------------------------------
<S> <C> <C>
Serveur Telematique Internet S.A France October 1997
(doing business as "Calvacom")
Internet Prolink S.A. ("Iprolink") Switzerland January 1998
iSTAR internet inc. ("iSTAR") Canada February 1998
ioNET, Inc. ("ioNET") (1) U.S.A. June 1998
LinkAge Online Limited ("LinkAge") (1) Hong Kong June 1998
INTERACTIVE NETWORX GmbH
("INX") (1) Germany June 1998
Interlog Internet Services Inc. ("Interlog") Canada July 1998
Rimnet Corporation ("Rimnet") (1) Japan August 1998
Inet, Inc. ("Inet") Korea September 1998
Tokyo Internet Corporation ("Tokyo Internet") Japan October 1998
The Unix Group B.V. ("Unix") The Netherlands October 1998
</TABLE>
(1) In accordance with S-X Rule 3-05(b)(2)(i), financial statements for a
substantial majority of individually insignificant acquired businesses have
previously been provided in the Company's Current Report on Form 8-K as filed
with the Commission on September 15, 1998.
The following Unaudited Pro Forma Consolidated Balance Sheet at June
30, 1998 presents, on a pro forma basis, the Company's consolidated financial
position assuming the acquisitions of Tokyo Internet, Rimnet, Inet and Interlog
and the incurrence of the $110,000,000 principal amount senior secured credit
facility (the "Credit Facility") used to finance the acquisition of Tokyo
Internet had been consummated on June 30, 1998. The following Unaudited Pro
Forma Consolidated Statements of Operations for the year ended December 31, 1997
and the six months ended June 30, 1998 (collectively with the Unaudited Pro
Forma Consolidated Balance Sheet, the "Pro Forma Financial Information")
present, on a pro forma
Page 19 of 30
<PAGE>
basis, the Company's consolidated results of operations assuming (i) the
acquisitions of iSTAR, ioNET, LinkAge, INX, Rimnet, Iprolink, Inet, Interlog,
CalvaCom and Tokyo Internet, (ii) the entering into the Credit Facility and the
draw down of $110 million thereunder (iii) the issuance by the Company of
10,229,789 shares of common stock to IXC Internet Services, Inc. ("IXC") and
(iv) the issuance of $600,000,000 principal amount 10% Senior Notes due 2005
("the 10% Senior Notes") had each occurred on January 1, 1997.
Each of the acquisitions has been accounted for as a purchase business
combination and, accordingly, the purchase price has been allocated to tangible
assets acquired and liabilities assumed, based upon their respective fair
values, with the excess allocated to intangible assets to be amortized over the
estimated economic lives of the intangible assets from the respective dates of
acquisition. The consolidated retained deficit reflected in the Unaudited Pro
Forma Consolidated Balance Sheet does not reflect any expense related to
intangible assets attributable to the value of purchased in-process research and
development associated with the acquisitions of Tokyo Internet, Rimnet, Inet and
Interlog. The Company has undertaken studies to determine the allocation of the
total purchase price of these acquisitions to the various assets acquired,
including in-process research and development and the liabilities assumed. The
portion of the purchase price allocated to in-process research and development
will be recognized in the historical financial statements in the period in which
the acquisitions occurred. Such amounts related to these acquisitions may be
material. The expense related to in-process research and development is not
reflected in the Unaudited Pro Forma Consolidated Statements of Operations
because such expense will not have a continuing impact.
The Pro Forma Financial Information is not intended to be indicative of the
results which would actually have been obtained had the transactions described
above occurred on the dates indicated or which may be obtained in the future.
The pro forma adjustments are based upon available information and assumptions
that the Company believes are reasonable in the circumstances. The Pro Forma
Financial Information should be read in conjunction with the Company's
Consolidated Financial Statements and notes thereto included in the Company's
Annual Report on Form 10-K for its fiscal year ended December 31, 1997 as filed
with the Securities and Exchange Commission (the "Commission"), the financial
statements of Tokyo Internet included elsewhere in this Form 8-K, and the
financial statements of iSTAR, ioNET, LinkAge, INX and Rimnet included in the
Company's Current Report on Form 8-K as filed with the Commission on September
15, 1998.
Page 20 of 30
<PAGE>
PSINET INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended December 31, 1997
(In thousands of U.S. dollars, except per share amounts)
<TABLE>
<CAPTION>
Tokyo iSTAR Tokyo
PSINet Internet internet Other Internet Other Pro
Inc.(1) Corporation(2) inc.(3) Acquisitions(4) Adjustments(5) Adjustments(5) Forma(6)
------- -------------- -------- --------------- -------------- -------------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue................................. $ 121,902 $ 43,342 $ 29,338 $ 60,072 $ 254,654
--------- --------- --------- --------- ---------
Operating cost and expenses:
Data communications and operations... 94,363 29,738 31,561 38,621 194,283
Sales and marketing.................. 25,831 4,653 8,406 7,149 46,039
General and administrative........... 22,947 5,687 9,082 14,294 52,010
Depreciation and amortization........ 28,347 2,654 5,799 3,387 $ 13,500(2a) $ 13,457(2a) 67,144
Intangible asset write-down.......... - - 12,570 - 12,570
--------- --------- --------- --------- --------- -------- ---------
Total operating costs and expenses 171,488 42,732 67,418 63,451 13,500 13,457 372,046
--------- --------- --------- --------- --------- -------- ---------
Profit (loss) from operations........... (49,586) 610 (38,080) (3,379) (13,500) (13,457) (117,392)
Interest expense........................ (5,362) (296) (1,016) (1,742) (9,452)(2b) (62,750)(2b) (80,618)
Interest income......................... 3,059 3 8 143 3,213
Other income (expense).................. 110 (932) - (3,798) (4,620)
Gain on sale of subsidiary.............. 5,701 - - - 5,701
--------- --------- --------- --------- --------- -------- ---------
Loss before taxes....................... (46,078) (615) (39,088) (8,776) (22,952) (76,207) (193,716)
Income tax benefit (expense)............ 476 (26) (541) (91)
--------- --------- --------- --------- --------- -------- ---------
Net loss................................ (45,602) (641) (39,088) (9,317) (22,952) (76,207) (193,807)
--------- --------- --------- --------- --------- -------- ---------
Return to preferred shareholders........ (411) - - - (411)
--------- --------- --------- --------- --------- -------- ---------
Net loss available to common
shareholders......................... $(46,013) $ (641) $ (39,088) $ (9,317) $ (22,952) $(76,207) $(194,218)
========= ======== ========= ========= ========= ======== =========
Basic and diluted loss per share........ $ (1.14) $ (3.84)
========= =========
Shares used in computing basic and
diluted loss per share (in thousands) 40,306 10,230(2c) 50,536
========= ====== ======
</TABLE>
(1) Reflects the audited consolidated results of operations of the Company for
the year ended December 31, 1997.
(2) Amounts have been derived from the consolidated results of operations of
Tokyo Internet for the twelve month period ended March 31, 1998 prepared in
accordance with accounting principles generally accepted in the United
States. Certain amounts have been reclassified to conform with the
Company's presentation.
(3) Amounts have been derived from the unaudited consolidated results of
operations of iSTAR for the twelve months ended November 30, 1997 prepared
in accordance with accounting principles generally accepted in the United
States. Certain amounts have been reclassified to conform with the
Company's presentation.
(4) Amounts have been derived from the unaudited results of operations of
CalvaCom for the ten months ended October 31, 1997, Iprolink for twelve
months ended December 31, 1997, ioNET for the twelve months ended December
31, 1997, LinkAge for the twelve months ended December 31, 1997, INX for
the twelve months ended December 31, 1997, Rimnet for the twelve months
ended September 30, 1997, Inet for the twelve months ended December 31,
1997 and Interlog for the twelve months ended December 31, 1997. Amounts
have been developed in accordance with accounting principles generally
accepted in the United States. The results of operations of CalvaCom from
November 1, 1997 to December 31, 1997 are included in the Company's audited
results of operations for the year ended December 31, 1997.
(5) See Notes to Unaudited Pro Forma Consolidated Statements of Operations
(Note 2--Pro Forma Adjustments).
(6) Reflects the results of operations of the Company, on a pro forma basis,
assuming (i) the acquisitions of Tokyo Internet, iSTAR, CalvaCom, Iprolink,
ioNET, LinkAge, INX, Rimnet, Inet and Interlog, (ii) entering into the
Credit Facility and the draw down of $110 million thereunder, (iii) the
issuance by the Company of the 10% Senior Notes, and (iv) the issuance by
the Company of 10,229,789 shares of common stock to IXC had each been
consummated on January 1, 1997.
See notes to Pro Forma Financial Information.
Page 21 of 30
<PAGE>
PSINET INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1998
(In thousands of U.S. dollars, except per share amounts)
<TABLE>
<CAPTION>
Tokyo Other
PSINet Tokyo Internet iSTAR Other Internet Adjust- Pro
Inc.(1) Corporation(2) internet inc.(3) Acquisitions(4) Adjustments(5) ments(5) Forma(6)
-------- -------------- --------------- --------------- -------------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue.............. $ 98,182 $21,332 $2,031 $27,308 $148,853
Operating cost and expenses:
Data communications and operations... 78,609 14,269 4,038 20,859 117,775
Sales and marketing.................. 23,219 1,936 914 2,887 28,956
General and administrative........... 17,872 2,366 815 6,631 27,684
Depreciation and amortization........ 22,354 1,494 487 1,651 $6,750(2d) $5,178(2d) 37,914
Charge for acquired in-process R&D... 27,000 - - - 27,000
-------- -------------- --------------- ----------- ------- ------ --------
Total operating costs and expenses.. 169,054 20,065 6,254 32,028 6,750 5,178 239,329
-------- -------------- --------------- ----------- ------- ------ --------
Profit (loss) from operations........... (70,872) 1,267 (4,223) (4,720) (6,750) (5,178) (90,476)
Interest expense........................ (19,471) (133) (169) (1,170) (4,726)(2e)(16,858)(2e) (42,527)
Interest income......................... 6,644 11 - 47 6,702
Other income (expense).................. 1,004 (236) - (689) 79
-------- -------------- --------------- ----------- ------- ------ ---------
Income (loss) before taxes.............. (82,695) 909 (4,392) (6,532) (11,476) (22,036) (126,222)
Income tax benefit (expense)............ (29) (19) - (101) (149)
-------- -------------- --------------- ----------- ------- ------ ---------
Net income (loss)....................... (82,724) 890 (4,392) (6,633) (11,476) (22,036) (126,371)
-------- -------------- --------------- ----------- ------- ------ ---------
Return to preferred shareholders........ (1,545) - - - (1,545)
-------- -------------- --------------- ----------- ------- ------ ---------
Net loss available to common
shareholders......................... $(84,269) $ 890 $(4,392) $(6,633) $(11,476) $(22,036) $(127,916)
======== ============== =============== =========== ======= ====== ========
Basic and diluted loss per share........ $(1.76) $(2.51)
======== ========
Shares used in computing basic and
diluted loss per share in thousands.. 47,854 3,125 50,979
======== ====== ========
</TABLE>
(1) Reflects the unaudited consolidated results of operations of the Company for
the six months ended June 30, 1998.
(2) Amounts have been derived from the unaudited consolidated results of
operations of Tokyo Internet for the six months ended June 30, 1998 prepared
in accordance with accounting principles generally accepted in the United
States. Certain amounts have been reclassified to conform with the Company's
presentation. Included in the results of operations for the six months ended
June 30, 1998 are revenues of $11,479 and net income of $1,149 related to
the three months ended March 31, 1998. Such amounts are also included in the
results of Tokyo Internet for the twelve months ended March 31, 1998.
(3) Amounts have been derived from the unaudited consolidated results of
operations of iSTAR for the one month ended January 31, 1998 prepared in
accordance with accounting principles generally accepted in the United
States. Certain amounts have been reclassified to conform with the Company's
presentation.
(4) Amounts have been derived from the unaudited results of operations of ioNET
for the six months ended June 30, 1998, LinkAge for the six months ended
June 30, 1998, INX for the five months ended May 31, 1998, Rimnet for the
six months ended March 31, 1998, Inet for the six months ended June 30, 1998
and Interlog for the six months ended March 31, 1998. Amounts have been
developed in accordance with accounting principles generally accepted in the
United States. The results of operations of iSTAR, Iprolink, ioNET, LinkAge
and INX are included in the Company's unaudited results of operations for
the six months ended June 30, 1998 from their respective dates of
acquisition.
(5) See Notes to Unaudited Pro Forma Consolidated Statements of Operations (Note
2--Pro Forma Adjustments).
(6) Reflects the results of operations of the Company, on a pro forma basis,
assuming (i) the acquisitions of Tokyo Internet, iSTAR, Iprolink, ioNET,
LinkAge, INX, Rimnet, Inet and Interlog, (ii) the entering into the Credit
Facility and the draw down of $110 million thereunder, (iii) the issuance by
the Company of the 10% Senior Notes, and (iv) the issuance by the Company of
10,229,789 shares of common stock to IXC, had each been consummated on
January 1, 1997.
See notes to Pro Forma Financial Information.
Page 22 of 30
<PAGE>
PSINET INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
STATEMENTS OF OPERATIONS
For the Year Ended December 31, 1997 and the
Six Months Ended June 30, 1998
Note 1--Basis of Presentation
The Unaudited Pro Forma Consolidated Statements of Operations do not give effect
to any potential cost savings and synergies that could result from the
acquisitions included therein.
Management believes that the assumptions used in preparing the Unaudited Pro
Forma Consolidated Statements of Operations provide a reasonable basis for
presenting all of the significant effects of the acquisitions included therein,
that the pro forma adjustments give appropriate effect to those assumptions and
that the pro forma adjustments are properly applied in the Unaudited Pro Forma
Consolidated Statements of Operations.
Note 2--Pro Forma Adjustments
The pro forma adjustments outlined below present separate adjustments related to
the acquisition of Tokyo Internet and the adjustments related to the other
transactions reflected in the Unaudited Pro Forma Consolidated Statement of
Operations. Additional information related to the other transactions is included
in the Company's Current Report on Form 8-K filed with the Commission on
September 15, 1998.
The purchase price has been allocated to tangible assets acquired and
liabilities assumed, based upon their respective fair values, with the excess
allocated to intangible assets to be amortized over the estimated economic lives
of the intangible assets from the respective dates of acquisition.
The Company has undertaken studies by an independent third party to determine
the allocation of the total purchase price of Tokyo Internet, Rimnet, Inet and
Interlog. For purposes of this Pro Forma Financial Information, the Company has
attributed the excess of the purchase price over the acquired net tangible
assets for Tokyo Internet of $135,000,000 to goodwill with a ten year useful
life. The Company has attributed the excess of the purchase price over the
acquired net tangible assets for Rimnet, Inet and Interlog of $69,100,000 to
goodwill with a ten year useful life. To the extent that a portion of the
purchase price of these acquisitions is allocated to other intangible assets
with a shorter useful life than ten years, the adjustment for amortization
expense for the twelve months ended December 31, 1997 and for the six months
ended June 30, 1998 would be higher. To the extent that a portion of the
purchase price is allocated to in-process research and development, a charge,
which may be material, would be recognized in the Company's consolidated
operating results in the period in which the acquisitions occurred, and the
adjustment for amortization expense reflected in the Pro Forma Financial
Information would be lower. The expense related
Page 23 of 30
<PAGE>
to purchased in-process research and development has not been reflected in the
accompanying Unaudited Pro Forma Consolidated Statement of Operations because
the charge will not have a continuing impact.
For the Year Ended December 31, 1997
(a) Reflects the increase in depreciation and amortization resulting from
the allocation of the purchase price to the acquired net tangible and
intangible assets (principally tradename, customer relationships,
goodwill, assembled workforce and existing technology) relating to the
acquisitions included therein. The assigned lives of the acquired
intangible assets range from one to ten years.
(in thousands of U.S. dollars)
Tokyo Internet Others
--------------- ------
Depreciation $ - $ 776
Amortization 13,500 12,681
------ ------
$13,500 $13,457
====== ======
(b) Reflects the following (tabular amounts in thousands of U.S. dollars):
Tokyo Internet Adjustments:
Interest expense on the $110,000,000
principal amount of indentures
under the Credit Facility......................... $8,816
Amortization of deferred financing
costs associated with the $110,000,000
senior secured Credit Facility................... 636
------
$9,452
======
Other Adjustments:
Interest expense on the $600,000,000
principal amount 10% Senior Notes
from January 1, 1997 -
December 31, 1997................................. $60,000
Amortization of deferred financing costs
associated with the 10% Senior Notes from
January 1, 1997 - December 31, 1997............... 2,750
-------
$62,750
=======
(c) Reflects the adjustment to weighted average shares assuming the issuance of
10,229,789 shares of common stock to IXC had occurred on January 1, 1997.
Page 24 of 30
<PAGE>
Note 2--Pro Forma Adjustments (continued)
For the Six Months Ended June 30, 1998
(d) Reflects the increase in depreciation and amortization resulting from
the allocation of the purchase price to the acquired net tangible and
intangible assets (principally tradename, customer relationships,
goodwill, assembled workforce and existing technology) relating to the
acquisitions included therein. The assigned lives of the acquired
intangible assets range from one to ten years.
(in thousands of U.S. dollars)
Tokyo Internet Others
-------------- ------
Depreciation $ - $ 65
Amortization 6,750 5,113
----- -----
$6,750 $5,178
===== =====
(e) Reflects the following (tabular amounts in thousands of U.S. dollars):
Tokyo Internet
Interest expense on the $110,000,000 principal amount
of indentures under
the Credit Facility................................ $ 4,408
Amortization of deferred financing costs associated
with the $110,000 senior secured
Credit Facility.................................... 318
-------
$ 4,726
=======
Others
Interest expense on the $600,000,000 principal amount
10% Senior Notes from January 1, 1998 - April 10, 1998
(date of issuance of Senior Notes).................. $16,500
Amortization of deferred financing costs associated with
the 10% Senior Notes from January 1, 1998 -
April 10, 1998 (date of issuance of Senior Notes)... 687
Interest expense avoided through assumed repayment of the
$20,000,000 Acquisition Credit Facility from the
proceeds of the 10% Senior Notes offering.
The Acquisition Credit Facility was incurred in
conjunction with the 10% acquisition of iSTAR
in February 1998 and repaid from the proceeds of
the Senior Notes in April 1998...................... (329)
-------
$16,858
=======
Page 25 of 30
<PAGE>
Note 3--Basic and Diluted Loss per Share
Basic and diluted loss per share are computed using net loss available to common
shareholders divided by the weighted average number of shares of the Company's
common stock that were outstanding during the periods presented and assumes that
the issuance of 10,229,789 shares of common stock to IXC had occurred on January
1, 1997. As all common stock equivalents and contingently issuable shares are
antidilutive, basic and diluted loss per share are the same for all periods
presented.
Note 4--Intangible Asset Write-Down
During the twelve months ended November 30, 1997, iSTAR wrote-off $12.6 million
related to the permanent impairment of certain intangible assets, mainly
customer lists and goodwill, which resulted from iSTAR's acquisitions of
consumer-oriented ISPs and Internet-oriented professional service companies. In
accordance with guidelines of the Commission, this non-recurring charge has not
been eliminated from the Unaudited Pro Forma Consolidated Statement of
Operations for the year ended December 31, 1997.
Page 26 of 30
<PAGE>
PSINET INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
As of June 30, 1998
(In thousands of U.S. dollars)
<TABLE>
<CAPTION>
Tokyo Tokyo
Internet Other Internet Other
PSINet Inc. Corporation Acquisitions Adjustments Adjustments Pro Forma
(1) (2) (3) (4) (4) (5)
----------- ----------- ------------ ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................ $ 124,535 $ 646 $ 1,705 $ (6,806) $(53,000) $ 67,080
Restricted cash and short-term
investments............................ 143,154 - 303 143,457
Short-term investments................... 246,018 - 243 246,261
Accounts receivable, net................. 20,839 5,114 4,684 30,637
Notes receivable......................... 1,779 - 69 1,848
Prepaid expenses......................... 4,127 258 93 4,478
Other current assets..................... 7,602 340 1,123 9,065
--------- ------- -------- -------- -------- ---------
Total current assets................. 548,054 6,358 8,220 (6,806) (53,000) 502,826
Property and equipment, net.............. 171,526 6,922 10,842 189,290
Goodwill and other intangibles, net...... 50,297 1,198 325 135,000 69,100 255,920
Other assets and deferred charges........ 24,897 414 3,689 1,910 30,910
--------- ------- -------- -------- -------- ---------
Total assets............................. $ 794,774 $14,892 $ 23,076 $130,104 $ 16,100 $ 978,946
========= ======= ======== ======== ======== =========
LIABILITIES AND
SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Lines of credit and short-term debt...... $ 3,818 $ 1,918 $ 5,884 $ 11,620
Current portion of long-term debt........ 46,667 5,454 6,556 58,677
Trade accounts payable................... 43,579 669 44,248
Accrued payroll and related
expenses............................... 6,834 - 29 6,863
Other accounts payable and
accrued liabilities.................... 24,958 789 5,683 $ 22,001 $ 9,839 63,270
Deferred revenue......................... 6,695 - 1,116 7,811
--------- ------- -------- -------- -------- ---------
Total current liabilities............ 132,551 8,161 19,937 22,001 9,839 192,489
Long-term debt........................... 659,559 6,321 9,381 108,500 783,761
Other liabilities........................ 3,772 13 19 3,804
--------- ------- -------- -------- -------- ---------
Total liabilities........................ 795,882 14,495 29,337 130,501 9,839 980,054
--------- ------- -------- -------- -------- ---------
Shareholders' equity (deficit):
Preferred stock.......................... - - - -
Convertible preferred stock.............. 28,477 - - 28,477
Common stock............................. 513 10,221 7,140 (10,221) (7,140) 513
Capital in excess of par value........... 398,083 - 63 (63) 398,083
Treasury stock........................... (2,005) - - (2,005)
Retained earnings (deficit).............. (246,919) (9,338) (15,368) 9,338 15,368 (246,919)
Accumulated other comprehensive
income............................... 3,462 (486) 1,904 486 (1,904) 3,462
Bandwidth asset to be delivered
under IRU agreement.................... (182,719) - - (182,719)
--------- ------- -------- -------- -------- ---------
Total shareholders' equity (deficit)..... (1,108) 397 (6,261) (397) 6,261 (1,108)
--------- ------- -------- -------- -------- ---------
Total liabilities and shareholders'
equity (deficit)....................... $ 794,774 $14,892 $ 23,076 $130,104 $ 16,100 $ 978,946
========= ======= ======== ======== ======== =========
</TABLE>
(1) Reflects the unaudited consolidated financial position of the Company as of
June 30, 1998
(2) Reflects the unaudited financial position of Tokyo Internet as of June 30,
1998.
(3) Reflects the unaudited financial position of Rimnet as of March 31, 1998,
Inet as of June 30, 1998 and Interlog as of March 31, 1998.
(4) See Notes to Unaudited Pro Forma Consolidated Balance Sheet (Note 2--Pro
Forma Adjustments).
(5) Reflects the consolidated financial position of the Company, on a pro forma
basis, assuming the acquisitions of Tokyo Internet, Rimnet, Inet and
Interlog had been consummated on June 30, 1998.
See notes to Pro Forma Financial Information.
Page 27 of 30
<PAGE>
PSINET INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
As of June 30, 1998
Note 1--Basis of Presentation
Management believes that the assumptions used in preparing the Unaudited Pro
Forma Consolidated Balance Sheet provide a reasonable basis for presenting all
of the significant effects of the acquisitions of Tokyo Internet, Rimnet, Inet
and Interlog, that the pro forma adjustments give appropriate effect to those
assumptions and that the pro forma adjustments are properly applied in the
Unaudited Pro Forma Consolidated Balance Sheet.
Note 2--Pro Forma Adjustments
Reflects the acquisitions of Tokyo Internet, Rimnet, Inet and Interlog including
(i) cash paid at closing, (ii) incurrence of $110,000,000 principal amount
senior secured credit facility used to finance the acquisition of Tokyo
Internet, (iii) goodwill adjustment as discussed below, (iv) estimated
additional consideration to be paid at a future date and acquisition costs and
(v) the elimination of the equity accounts of the acquired companies.
The Company has undertaken studies by an independent third party to determine
the allocation of the total purchase price of Tokyo Internet, Rimnet, Inet and
Interlog. For purposes of this Unaudited Pro Forma Consolidated Financial
Information, the Company has attributed the excess of the purchase price over
the acquired net tangible assets of Tokyo Internet of $135,000,000 to goodwill
with a ten year useful life. The Company has attributed the excess of the
purchase price over the acquired net tangible assets for Rimnet, Inet and
Interlog of $69,100,000 to goodwill with a ten year useful life. To the extent
that a portion of the purchase price is allocated to in-process research and
development, a charge against operating results, which may be material, would be
recognized in the period in which the acquisitions occurred with a corresponding
decrease in the recorded amount of goodwill.
Page 28 of 30
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: October 16, 1998 PSINET INC.
By:/s/ Edward D. Postal
--------------------
Edward D. Postal
Senior Vice President and
Chief Financial Officer
Page 29 of 30
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Number Exhibit Name Location
- --------------------------- ---------------------------------------- ------------------------
<S> <C> <C>
Exhibit 2.1 Share Purchase Agreement dated as of Filed herewith
October 1, 1998, among PSINet Japan
Inc., a subsidiary of the Company,
Tokyo Internet Corporation and Secom
Co., Ltd.
Exhibit 2.2 Credit Agreement dated September 29, Filed herewith
1998 among the Company, the Lenders
party thereto, The Chase Manhattan
Bank, as Administrative Agent, Fleet
National Bank, as Syndication Agent,
and The Bank of New York, as
Documentation Agent
Exhibit 2.3 Guarantee Agreement dated September 29, Filed herewith
1998 among each of the subsidiaries of
the Company party thereto and The Chase
Manhattan Bank
Exhibit 2.4 Pledge Agreement dated September 29, Filed herewith
1998 among the Company, each subsidiary
of the Company party thereto and The
Chase Manhattan Bank
Exhibit 2.5 Security Agreement dated September 29, Filed herewith
1998 among the Company, each subsidiary
of the Company party thereto and The
Chase Manhattan Bank
Exhibit 23.1 Consent of Price Waterhouse Filed herewith
</TABLE>
Page 30 of 30
<PAGE>
EXHIBIT 2.1
EXECUTION COPY
SHARE PURCHASE AGREEMENT
DATED AS OF OCTOBER 1, 1998
AMONG
PSINET JAPAN INC.
TOKYO INTERNET CORPORATION
AND
SECOM CO., LTD.
KELLEY DRYE & WARREN LLP
NEW YORK AND HONG KONG
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
<S> <C>
1. Purchase and Sale of the Company Shares.............................................. 1
1.1. Purchase and Sale of the Company Shares........................................ 1
1.2. Consideration.................................................................. 1
1.3. PSINet Guarantee............................................................... 2
2. Closing.............................................................................. 2
3. Documents To Be Delivered at the Closing............................................. 2
3.1. Documents To Be Delivered to the Buyer by the Company and the Seller........... 2
3.2. Documents To Be Delivered to the Company and the Seller by the Buyer........... 5
3.3. Meetings to be Convened prior to the Closing................................... 6
4. Representations and Warranties by the Company and the Seller......................... 6
4.1. Ownership; Transfer of the Company Shares...................................... 6
4.2. Authority...................................................................... 6
4.3. Approvals...................................................................... 7
4.4. No Brokers..................................................................... 7
4.5. Organization, Etc.............................................................. 7
4.6. Capital Stock.................................................................. 7
4.7. Subsidiaries................................................................... 7
4.8. Financial Statements........................................................... 8
4.9. Absence of Certain Changes..................................................... 8
4.10. Tax Returns, Taxes............................................................. 9
4.11. Non-Contravention.............................................................. 10
4.12. Title to and Condition of the Assets of the Company............................ 10
4.13. Litigation..................................................................... 11
4.14. Employee Benefit Plans and Other Arrangements.................................. 12
4.15. Contracts...................................................................... 12
4.16. Insurance...................................................................... 13
4.17. Trademarks, Etc................................................................ 13
4.18. Transactions with Interested Persons........................................... 14
4.19. Compliance with Laws, etc...................................................... 14
4.20. No Undisclosed Liabilities, Etc................................................ 14
4.21. Environmental Matters.......................................................... 15
4.22. Governmental Authorizations and Regulations.................................... 15
4.23. Accounting Practices........................................................... 15
4.24. Minute Books................................................................... 16
4.25. Employee Matters............................................................... 16
4.26. Year 2000 Compliance........................................................... 16
4.27. Banks, Powers of Attorney...................................................... 16
4.28. No Restrictions on Execution................................................... 16
4.29. No Commission Payment.......................................................... 16
</TABLE>
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<TABLE>
<S> <C>
4.30. Confidentiality Agreement..................................................... 17
4.31. Disclosure.................................................................... 17
4.32. Solvency...................................................................... 17
4.33. No Known Predecessor Company Liability........................................ 17
5. Representations and Warranties of the Buyer to the Company and the Seller............ 17
5.1. Authority for Agreements...................................................... 17
5.2. Non-Contravention............................................................. 18
5.3. Approvals..................................................................... 18
5.4. No Brokers.................................................................... 18
5.5. Organization.................................................................. 18
6. Covenants of the Company and the Seller.............................................. 18
6.1 Access, Information and Documents............................................. 18
6.2. Conduct of Business Pending Closing........................................... 19
6.3. Consents and Approvals........................................................ 20
6.4. Public Disclosures; Confidential Material..................................... 20
6.5. Liability for Taxes........................................................... 21
6.6. Non-Competition............................................................... 21
6.7 Migration of Existing Competing Business...................................... 22
6.8. Consents to Leases, Contracts................................................. 22
6.9. Closing Balance Sheet......................................................... 22
6.10. Preparation of Certain Financial Statements................................... 22
6.11. Further Assurances............................................................ 23
6.12. Broker's Fees................................................................. 23
6.13. Share Purchases by the Seller................................................. 23
6.14. Consulting Agreements......................................................... 23
6.15. Services Agreements........................................................... 23
6.16. Execution of Transaction Documents............................................ 23
7. Covenants of the Buyer............................................................... 23
7.1. Consents and Approvals........................................................ 23
7.2. Further Assurances............................................................ 24
7.3. Repayment of Seller's Loans................................................... 24
7.4. Collection of Accounts Receivable............................................. 24
7.5. Public Disclosures; Confidential Material..................................... 24
7.6. Retirement Benefit Payment.................................................... 24
8. Conditions Precedent to the Seller's Obligation to Sell the Company Shares........... 24
8.1. The Buyer's Performance....................................................... 24
8.2. Consents and Approvals........................................................ 24
8.3. No Legal Impediment........................................................... 25
9. Conditions Precedent to the Buyer's Obligation to Purchase the Company Shares........ 25
9.1. The Company's and the Seller's Performance.................................... 25
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
9.2. Consents and Approvals......................................................... 25
9.3. No Legal Impediment............................................................ 25
9.4. Physical Properties............................................................ 25
9.5. Due Diligence.................................................................. 25
10. Termination........................................................................... 26
10.1. Termination by the Buyer....................................................... 26
10.2. Termination by the Company or the Seller....................................... 26
10.3. Effect of Termination.......................................................... 26
11. Indemnification....................................................................... 26
11.1. Indemnification of the Buyer and the Company................................... 26
11.2. Indemnification of the Seller.................................................. 26
11.3. Limitation on Indemnification.................................................. 27
11.4. Set-Off Right of Buyer......................................................... 27
11.5. Survival of Representations, Warranties, Covenants and Indemnification......... 27
11.6. Seller's Waiver of Subrogation, Contribution and Indemnification Claims........ 28
11.7. General Waiver of Claims....................................................... 28
12. Miscellaneous......................................................................... 28
12.1. Complete Agreement; Amendments; Waivers........................................ 28
12.2. Language and Counterparts...................................................... 28
12.3. Successors and Assigns......................................................... 29
12.4. Governing Law; Arbitration..................................................... 29
12.5. Notices........................................................................ 29
12.6. Expenses....................................................................... 31
12.7. Headings; Form of Words........................................................ 31
12.8. Severability................................................................... 31
12.9 Materiality of Representations and Warranties.................................. 31
</TABLE>
Exhibits
--------
Exhibit A The Consulting Agreement
Exhibit B-1 The Services Agreement (SECOM Co., Ltd.)
Exhibit B-2 The Services Agreement (SECOM LINES K.K.)
Schedules
---------
4.7 Subsidiaries
4.8 Financial Statements
4.9 Absence of Certain Changes
4.10 Tax Returns, Taxes
4.12 Title to and Condition of the Assets of the Company
4.14 Employee Benefit Plans and Other Arrangements
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<PAGE>
4.15 Contracts
4.16 Insurance
4.17 Trademarks
4.20 No Undisclosed Liabilities
4.22 Governmental Authorizations and Regulations
4.26 Year 2000 Compliance
4.27 Banks, Power of Attorney
6.7 Migration of Existing Competing Business
7.3 Repayment of Seller's Loan
11.3 Special Indemnities
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<PAGE>
SHARE PURCHASE AGREEMENT
------------------------
SHARE PURCHASE AGREEMENT (the "Agreement") dated as of the 1st day of
October, 1998 by and among PSINet Japan Inc., a Japanese Kabushiki Kaisha (the
"Buyer"), Tokyo Internet Corporation , a Japanese Kabushiki Kaisha (the
"Company") and SECOM Co., Ltd., a Japanese Kabushiki Kaisha (the "Seller").
WHEREAS, the Seller is the sole shareholder of the Company,
collectively owning 24,090 issued and outstanding ordinary shares, par value
(Yen) 50,000 per share, of the Company representing 100% of the issued and
outstanding share capital of the Company.
WHEREAS, the Buyer desires to purchase from the Seller, and the Seller
desires to sell to the Buyer, 100% of the issued and outstanding share capital
of the Company, all upon the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing premises, the mutual
covenants, agreements, representations, and warranties herein contained, and
other good and valuable consideration, the receipt and legal sufficiency of
which are hereby acknowledged, the parties hereto, intending to be legally
bound, hereby agree as follows:
1. Purchase and Sale of the Company Shares
---------------------------------------
1.1. Purchase and Sale of the Company Shares. Upon the terms and
---------------------------------------
provisions of this Agreement, the Buyer agrees to purchase and accept delivery
from the Seller, and the Seller agrees to sell, assign, transfer, and deliver to
the Buyer, at the Closing provided for in Section 2 hereof, 24,090 ordinary
shares, par value (Yen) 50,000 per share, constituting 100% of the issued and
outstanding share capital of the Company (the "Company Shares"), free and clear
of all liens, claims, charges, restrictions, equities, rights, options, adverse
interests, litigation, or encumbrances of any kind (collectively, "Liens")
together with all rights now and hereafter attaching or accruing thereto.
1.2. Consideration. The aggregate purchase price (the "Purchase
-------------
Price") for the Company Shares shall be U.S. One Hundred Thirty One Million
Dollars (US$ 131,000,000.00). The Purchase Price will be paid by the Buyer to
the Seller as follows:
(a) At the Closing, the Buyer shall pay to the Seller 80% of
the Purchase Price (the "Closing Payment"). The Closing Payment will be
made to the Seller via wire transfer to an account of the Seller with The
Bank of Tokyo-Mitsubishi, Ltd., Shinjuku Shintoshin Branch (Account Number:
0049666) (the "Wire Transfer").
(b) The remaining 20% of the Purchase Price (the "Escrow
Portion"), shall be retained by the Buyer (and bear interest at the
standard United States money market rate earned by PSINet Inc., a New York
corporation ("PSINet"), for overnight
<PAGE>
deposits) as security for the accuracy and performance of the Seller's
representations, warranties, covenants and agreements made in this
Agreement and any document delivered hereunder or in connection herewith
until twenty-four (24) months from the date of the Closing. The Escrow
Portion will be subject to application by the Buyer pursuant to the
provisions of Section 11.4 hereof. The Seller hereby grants the Buyer a
security interest in the Escrow Portion to secure its obligations to the
Buyer under the provisions of Section 11.1 hereof.
1.3 PSINet Guarantee. By its execution of this Agreement in the
----------------
space provided at the end hereof, PSINet hereby (A) guarantees the payment and
performance by the Buyer of its obligations under Section 1.2(b) above with
respect to the Escrow Portion in the event of a failure by the Buyer to first
perform its obligations hereunder after written notice has been given to the
Buyer by the Seller of such failure (the "PSI Guarantee"), subject to all of the
same rights as the Buyer has including, without limitation, pursuant to Section
11.4 hereof, or under applicable law, and (B) represents and warrants to the
Company and the Seller that: (i) it has the power and authority to enter into
and perform the PSI Guarantee; (ii) all corporate action required in order to
approve the execution, delivery and performance of the PSI Guarantee has been
taken; and (iii) the PSI Guarantee is binding upon and enforceable against
PSINet in accordance with its terms, subject to applicable bankruptcy,
insolvency, moratorium, fraudulent conveyance and other similar laws of general
application affecting the rights of creditors and applicable laws, regulations
and principles of equity which may restrict the enforcement of certain equitable
remedies.
2. Closing. The closing of the purchase and sale of the Company
-------
Shares (the "Closing") will take place at the offices of White & Case/Kandabashi
Law Offices located at Kandabashi Park Building, 19-1, Kanda-Nishikicho 1-Chome,
Chiyoda-ku, Tokyo 101-0054, Japan (or at such other place as the parties may
mutually agree) at 10:00 a.m. on October 1, 1998 or at such other time and on
such date as the parties may mutually agree. The date and time of the Closing
are referred to herein as the "Closing Date."
3. Documents To Be Delivered at the Closing.
----------------------------------------
3.1. Documents To Be Delivered to the Buyer by the Company and the
-------------------------------------------------------------
Seller. At the Closing, the Company and the Seller will deliver to the Buyer:
- ------
(a) Against confirmation of the Wire Transfer, the Seller will
deliver to the Buyer certificates for the Company Shares;
(b) Certificates, in form and substance reasonably acceptable to
the Buyer (the "Seller Certificates"), signed and sealed by the respective
Presidents of the Company and the Seller, dated the Closing Date,
accompanied by certificates of the status (Shikaku Shomei) and registered
seals of the respective Presidents (Inkan Shomei) confirming the authority
of the President of the Company and the President of the Seller,
respectively, to seal the Seller Certificates, and certifying and
confirming that: (i) attached thereto are true and complete copies of the
Articles of Incorporation of the Company or the Seller, as the
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<PAGE>
case may be, as in effect as of the Closing Date; (ii) attached thereto is
a true and complete copy of resolutions duly adopted by the Board of
Directors of the Company or the Seller, as the case may be, authorizing the
execution, delivery, and performance of this Agreement (by the Company or
the Seller, as the case may be) and, in the case of the Company, attached
thereto is a true and complete copy of the resolutions duly adopted by the
meeting of the shareholders of the Company approving the matters set forth
in Section 3.3(b) hereof; (iii) in the case of the Company, attached
thereto is a true and complete copy of resolutions duly adopted by the
Board of Directors of the Company approving the transfer of the Company
Shares from the Seller to the Buyer; (iv) such resolutions have not been
modified, rescinded or amended and are in full force and effect; (v)
attached thereto is a true and complete copy of the Commercial Register of
the Company or the Seller, as the case may be, as amended and as in effect
as of September 22, 1998 (except that (x) the resignation of Messrs. Yoichi
Tao, Toshihiro Kiriono, Masashi Shigemori from their respective offices of
Directors and Messrs. Koji Kato, Masamitsu Matsudaira and Shozaburo Ishida
from their respective offices of Statutory Auditors and the election of
Messrs. William L. Schrader, David N. Kunkel and Vincent Gebes as Directors
and Messrs. Tadashi Hashimoto, Emory Donelson and Mitsuru Doi as Statutory
Auditors have not been registered in the Commercial Register of the Company
and (y) the increases in the amount of share capital of the Seller from
(Yen)65,575,440,785 to (Yen)65,689,463,435 and the total number of shares
issued and outstanding from 116,335,924 shares to 116,383,974 shares and
the decrease of the outstanding amount of the 4th Series convertible bonds
from (Yen)308,000,000 to (Yen)80,000,000, all resulting from the conversion
of the 4th Series convertible bonds), there being no change in the matters
registered in the Commercial Register of the Company or the Seller
appearing in the aforesaid copy thereof; and (vi) except as shall be
specifically set forth on an exhibit attached to such Seller Certificates,
(x) the Seller's and the Company's representations and warranties made
hereunder remain true and correct on and as of the Closing Date, as if such
representations and warranties had been made on that date, and (y) the
Company and the Seller have performed in all material respects the terms,
provisions, covenants and conditions required to be performed by them
hereunder at or before the Closing.
(c) Resignations of each of the directors and statutory auditors
of the Company with a written acknowledgment from each that (except as set
out in such acknowledgment) he has no claim whatsoever against the Company
(or its shareholders) whether in respect of compensation or damages or the
payment of any other sum or sums for loss of office or otherwise;
(d) All of the Company's seals of representative directors,
common seals, contracts, books, records, and other data and materials
relating to the Company's operations, including the Company's minute and
share books;
(e) A consulting agreement between the Company and the Seller
with respect to the consulting service to be provided by Masashi Shigemori
substantially in the form attached hereto as EXHIBIT A (the "Consulting
Agreement"), executed by the Seller;
-3-
<PAGE>
(f) Services agreements between the Seller group companies and
the Company, substantially in the forms attached hereto as EXHIBITS B-1
and B-2 (the "Services Agreements"), executed by the relevant Seller group
companies;
(g) The employee list and the list of Seconded Employees
referred to in Section 4.25 hereof;
(h) A true, correct and complete copy of the Company's work
rules;
(i) An unaudited balance sheet of the Company dated no earlier
than twelve (12) days prior to the Closing Date (the "Closing Balance
Sheet") which shall be prepared in accordance with Japanese generally
accepted accounting principles;
(j) Any and all bank passbooks, cards and records of the
Company, unissued promissory notes, checks and similar banking and
financial documents, together with the Company's corporate seal and other
seals or chops (registered or otherwise) used in general corporate
activities and transactions with banks and other financial institutions;
(k) Stock certificates or other documents which evidence the
Company's equity ownership of other companies, institutions or other
entities;
(l) Shareholders Registry Book evidencing the change of the
Shareholder's name appearing therein so as to replace the Seller's name
with the Buyer's name as certified by the representative director of the
Company;
(m) True and correct copies of all contracts, agreements or
similar documentation (the "Documentation") related to any purchase by the
Seller of shares of the Company from its minority shareholders (the
"Minority Shareholders"), such Documentation to state the actual dates of
the Seller's purchase of such shares and the correct amounts that the
Seller agrees to pay to the Minority Shareholders (such purchases shall be
collectively referred to as the "Minority Share Purchase");
(n) An opinion letter addressed to the Buyer and dated the
Closing Date from Tsunematsu Yanase & Sekine, counsel to the Company and
the Seller, in form and substance satisfactory to the Buyer;
(o) A notice, in form and substance acceptable to the Buyer,
from the Seller to the Company terminating the use by the Company of the
Seller's logo (the "Termination Notice");
(p) A letter from Tsunematsu Yanase & Sekine, counsel to the
Company and the Seller, confirming that it has no claim for fees or charges
against the Company or the Buyer for its work related to the transactions
contemplated by this Agreement;
-4-
<PAGE>
(q) A letter from Price Waterhouse, independent auditors to the
Company, confirming that it has no claim for fees or charges against the
Company for its work related to (i) the transactions contemplated by this
Agreement or (ii) the Company Financial Statements (as defined below); and
(r) Such other certificates and documents as the Buyer or its
counsel may reasonably request.
3.2. Documents To Be Delivered to the Company and the Seller by the
--------------------------------------------------------------
Buyer. At the Closing, the Buyer will deliver to the Company and the Seller, as
- -----
applicable, the following:
(a) The Buyer will, against receipt of share certificates for
the Company Shares in accordance with Section 3.1(a) above, have completed
the Wire Transfer to the Seller as of the Closing Date in accordance with
Section 1.2(a) hereof;
(b) A wire transfer to an account of the Seller with The Bank of
Tokyo-Mitsubishi, Ltd., Shinjuku Shintoshin Branch (Account Number:
4335509) for (Yen)899,000,000, in full and final repayment and satisfaction
of those certain loans of the Company each as identified and set forth in
SCHEDULE 7.3;
(c) A wire transfer to an account of the Seller with The Bank of
Tokyo-Mitsubishi, Ltd., Shinjuku Shintoshin Branch (Account Number:
4335509) for (Yen)1,688,847 in full repayment of the retirement benefit for
certain employees of the Seller working at the Company ("Seconded
Employees") as set forth in SCHEDULE 4.14 hereto;
(d) A bank cashier's check for (Yen)40,004,700 in the payment of
retirement allowance to Mr. Yoichi Tao, together with a payment record of
withholding tax on such retirement allowance;
(e) A bank cashier's check for (Yen)25,003,300 in the payment of
retirement allowance to Mr. Toshihiro Kirino, together with a payment
record of withholding tax on such retirement allowance;
(f) A bank cashier's check for (Yen)7,482,000 in the payment of
retirement allowance to Mr. Toru Takahashi, together with a payment record
of withholding tax on such retirement allowance;
(g) A bank cashier's check for (Yen)1,971,200 in the payment of
retirement allowance to Mr. Tatsuya Nakajima, together with a payment
record of withholding tax on such retirement allowance;
(h) An opinion letter addressed to the Seller and dated the
Closing Date from the Japanese counsel to the Buyer in form and substance
satisfactory to the Seller;
-5-
<PAGE>
(i) The Consulting Agreement, executed by the Company;
(j) The Services Agreements, executed by the Company; and
(k) Such other certificates and documents as the Seller or its
counsel may reasonably request.
3.3. Meetings to be Convened prior to the Closing.
--------------------------------------------
(a) On September 30, 1998, the Board of Directors of the Company
shall hold a meeting at which the transfer of the Company Shares to the
Buyer shall be approved in accordance with Section 8 of the Articles of
Incorporation.
(b) Immediately before the Closing, the meeting of the
shareholders of the Company shall be held at which (i) there shall be
submitted and accepted the resignation of directors and statutory auditors
referred to in Section 3.1 (c), and (ii) such persons as the Buyer may
nominate shall be elected as directors and statutory auditors of the
Company.
4. Representations and Warranties by the Company and the Seller.
------------------------------------------------------------
Each of the Company and the Seller, jointly and severally, represents and
warrants to the Buyer that, as of the date of this Agreement and as of the
Closing Date:
4.1. Ownership; Transfer of the Company Shares. The Company Shares
-----------------------------------------
are duly authorized, validly issued, fully paid and non-assessable. The Seller
owns the Company Shares free and clear of all Liens. The Seller has (subject to
the approval of the Board of Directors of the Company referred to in Section
3.3(a) hereof) the right, power, and authority to sell all of the Company Shares
as provided herein, and upon such sale, the Buyer will receive good and valid
title to all of the Company Shares, free and clear of all Liens. The
certificates for the Company Shares will be, when delivered to the Buyer, in
proper form for transfer. The Minority Share Purchase was completed in full
conformity and compliance with Japanese law. The shares purchased by the Seller
as part of the Minority Share Purchase may be lawfully sold by the Seller to the
Buyer at the Closing as contemplated by this Agreement and, upon Closing, all
such shares will be legally registered in the name of the Buyer as the sole
owner of such shares in the Company's Shareholders Registry Book.
4.2. Authority. The Seller is a corporation duly organized and
---------
validly existing under the laws of Japan. The Seller has all necessary
corporate power and authority to own and dispose of the Company Shares. Each of
the Company and the Seller has the legal capacity, right, power and authority to
execute and deliver this Agreement and the other agreements and documents
contemplated by this Agreement (all such agreements and documents will be known
hereafter as the "Transaction Documents" regardless of which party is required
to execute or deliver any such agreement or document and such reference will
refer to a document executed by a respective party to whom the reference
relates) to which the Company or the Seller is a party, as the case may be, and
to carry out its obligations hereunder and thereunder. The execution,
-6-
<PAGE>
delivery, and performance of this Agreement and each such Transaction Document
to which the Company or the Seller is a party and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by the
Board of Directors of the Company and by the Board of Directors of the Seller,
respectively, and no other proceeding, authorization or approval on the part of
the Company or the Seller is necessary to authorize the execution and delivery
of this Agreement or any such Transaction Document or the performance by the
Company or the Seller (except for the approval referred to Section 3.3(a)
hereof) of any of the transactions contemplated hereby or thereby. This
Agreement and each such Transaction Document have been duly executed and
delivered on behalf of the Company and the Seller, and when executed and
delivered by all required parties thereto, will be legal, valid, and binding
obligations of the Company and the Seller in accordance with their respective
terms subject to applicable bankruptcy, insolvency, moratorium, fraudulent
conveyance and other similar laws of general application affecting the rights of
creditors and applicable laws and regulations and principles of equity which may
restrict the enforcement of certain equitable remedies.
4.3. Approvals. No consent, approval, order, or authorization of, or
---------
registration, declaration, or filing with, any governmental authority is
required in connection with (i) the execution and delivery of this Agreement and
the Transaction Documents, by either the Company or the Seller, (ii) the
consummation of the transactions contemplated hereby or thereby, or (iii) the
conduct by the Company of its business following the Closing. No consent of any
third party is necessary to permit the consummation of the transactions
contemplated hereby or thereby.
4.4. No Brokers. All negotiations relating to this Agreement and the
----------
Transaction Documents, and the transactions contemplated hereby and thereby,
have been carried on by the Company and the Seller without the intervention of
any person or firm in such manner as to give rise to any valid claim against any
of the parties hereto for a brokerage commission, finder's fee or similar
compensation.
4.5. Organization, Etc. The Company is a corporation duly organized
-----------------
and validly existing under the laws of Japan, and has all requisite corporate
right, power and authority to own or lease and to operate its properties and to
carry on its business as now being conducted. The Company has delivered to the
Buyer complete and correct copies of the Articles of Incorporation, and all
amendments thereto, of the Company. There is no jurisdiction where the failure
of the Company to be qualified or licensed to do business as a foreign
corporation in such jurisdiction would have a material adverse effect on the
Company or its business now being conducted.
4.6. Capital Stock. (a) The Company's authorized share capital
-------------
consists of 38,400 shares which may be issued with a par value of (Yen) 50,000
per share or without a par value; (b) the only issued and outstanding shares are
24,090 ordinary shares of the Company with a par value of (Yen) 50,000 per share
(constituting the Company Shares) which are owned beneficially and of record by
the Seller; (c) there are no outstanding subscriptions, options, conversion
rights, warrants, or other agreements or commitments of any nature whatsoever
(either firm or conditional) obligating the Company to issue, deliver, sell, or
cause to be issued, delivered, or
-7-
<PAGE>
sold, any additional ordinary shares of the Company, or obligating the Company
to grant, extend, or enter into any such agreement or commitment; and (d) there
are no rights of first refusal, pre-emptive rights, or other similar agreements
obligating the Company to offer any shares of its share capital to any person
and none of the Company Shares were issued in violation of any pre-emptive or
similar rights. There are no dividends due to be paid or in arrears with respect
to any of the share capital of the Company.
4.7. Subsidiaries. Except as set forth in SCHEDULE 4.7 hereto, the
------------
Company does not own, directly or indirectly, capital stock or any equity
interest of any other corporation or other entity and is not a partner in any
partnership, a member of any limited liability company or a participant in any
joint venture.
4.8. Financial Statements. The Company has delivered to the Buyer
--------------------
true, complete and correct copies of (a) the Company's audited balance sheet and
income statements (collectively the "Audited Financials") for the year ended
March 31, 1998 which balance sheet and income statement are accompanied by the
opinion thereon of Price Waterhouse, certified public accountants, (b) the
Company's unaudited balance sheets and income statements (collectively the
"Unaudited Financials") for the fiscal years ended March 31, 1996 and 1997, and
(c) the Company's audited balance sheet and income statement for the three (3)
months ended June 30, 1998 and unaudited balance sheet and income statement for
the two (2) months ended August 31, 1998 (collectively, the "Interim
Financials"). Except as set forth in SCHEDULE 4.8, the Audited Financials, the
Unaudited Financials and the Interim Financials (including the Closing Balance
Sheet of the Company to be delivered to the Buyer pursuant to Section 6.9
hereof when so delivered) (collectively the "Company Financial Statements") are
correct and complete, are in accordance with the books and records of the
Company, have been prepared in accordance with generally accepted accounting
principles in Japan consistently applied throughout the periods indicated, and
present fairly the financial position of the Company at the dates indicated and
the results of operations for the periods indicated. The Unaudited Financials
were prepared in accordance with Japanese law for statutory audits. Except as
set forth in SCHEDULE 4.8, the allocated costs set forth in the Company's income
statements included in the Company Financial Statements accurately reflect the
ongoing operating cost structure of the business and have been derived from
arms-length transactions. The exceptions to the preceding sentence (set forth
in SCHEDULE 4.8) have not had a material adverse effect on the Company.
4.9. Absence of Certain Changes. Except as set forth in SCHEDULE 4.9
--------------------------
hereto, since August 31, 1998 there have been no material adverse changes in the
assets, liabilities, properties, business, condition (financial or otherwise) or
prospects of the Company, and the Company has not:
(a) issued or sold any shares, notes, bonds, or other
securities, or any option to purchase the same, or entered into any
agreement with respect thereto;
(b) declared, set aside, or made any dividend or other
distribution on its share capital or redeemed, purchased, or acquired any
shares thereof, or entered into any agreement in respect of the foregoing;
-8-
<PAGE>
(c) amended its Articles of Incorporation;
(d) other than in the ordinary course of business (i) purchased,
sold, assigned, or transferred any material tangible or intangible assets
or property (including cash and cash equivalents); (ii) mortgaged, pledged,
granted, or suffered to exist any Lien on any material tangible or
intangible assets or properties, except for Liens for taxes not yet due; or
(iii) waived any rights of material value or canceled any material debts or
claims;
(e) incurred any material obligation or liability (absolute or
contingent), except current liabilities and obligations incurred in the
ordinary course of business, or paid any material liability or obligation
(absolute or contingent) other than current liabilities and obligations
incurred in the ordinary course of business;
(f) increased, or become obligated to increase, the compensation
or other benefits payable to any director or employee of the Company or any
relative of any such director or employee, or paid any bonus, granted any
severance or termination pay, or entered into any employment agreement or
other agreement (written or oral) with any employee (except as may be
effected in accordance with the terms of this Agreement);
(g) incurred any damage, destruction, or similar loss, whether
or not covered by insurance, materially affecting the businesses or
properties of the Company;
(h) entered into any transaction other than in the ordinary
course of business (except as may be effected in accordance with the terms
of this Agreement);
(i) suffered any strike or other labor trouble materially and
adversely affecting its business, operations, or prospects;
(j) made or permitted any material amendment or termination of
any material contract, agreement, or license to which it is a party other
than in the ordinary course of business;
(k) made any change in its accounting methods or practices with
respect to its condition, operations, business, properties, assets, or
liabilities;
(l) (except pursuant to the Termination Notice) abandoned or
disposed of any material trade secret, trademark, tradename, trademark
application, tradename application, or any other intellectual property;
(m) suffered any loss of employees or customers that materially
and adversely affects its business, operations, or prospects; or
-9-
<PAGE>
(n) written off any accounts receivable in the aggregate in
excess of 10,000,000.
4.10. Tax Returns, Taxes. The Company has filed with the appropriate
------------------
governmental agencies all tax returns and reports, including but not limited to
reports of corporate tax, income taxes, withholding taxes, consumption taxes,
property and other taxes, assessments, fees, levies or governmental charges
(collectively, "Taxes"), required to be filed in connection with or affecting
the Company, its operations and its business, and has paid the Taxes shown on
its returns or otherwise assessed, levied and due and payable by the Company,
including related penalties and/or interest, if any, to the extent that such
Taxes, penalties and/or interest have become due. There is no question known to
the Company or the Seller relating to any such return or report that, if
determined adversely to the Company, would result in the assertion of any
deficiency for any tax or interest, improper filing or penalties. There is no
liability known to the Company or the Seller for any Taxes due or owing from any
predecessor company to or any company merged with the Company. Except as set
forth in SCHEDULE 4.10, neither the National Tax Administration Agency of Japan
nor any other taxing authority or agency is now asserting or, to the best of the
Company's and the Seller's knowledge, after due inquiry, is threatening to
assert, against the Company any deficiency or claim for additional Taxes or
interest thereon or improper filing penalties. The Company has not been granted
any waiver of any statute of limitation with respect to, or been granted any
extension of a period for the assessment of, any Japanese or foreign tax. The
liabilities for Taxes reflected in the balance sheet of the Company as of August
31, 1998 (and on any balance sheet of the Company furnished by the Company or
the Seller delivered prior to the Closing, for periods subsequent to August 31,
1998, including, without limitation, the Closing Balance Sheet), are adequate to
cover all Taxes due and payable or accruable (including interest and penalties,
if any, thereon), except for de minimis exceptions only.
4.11. Non-Contravention. Subject to the approval of the Board of
-----------------
Directors as referred to in Section 3.3(a) hereof, the execution and delivery of
this Agreement and the Transaction Documents and the consummation of the
transactions contemplated hereby and thereby will not (a) violate any provision
of the Articles of Incorporation of the Company; (b) violate any material
provision of, or result in the breach or the acceleration of, or entitle any
party to accelerate (whether after the giving of notice or lapse of time or
both), any material obligation under, any note, bond, indenture, deed of trust,
contract, commitment, arrangement, mortgage, lien, lease, agreement, license,
instrument, order, arbitration award, judgment, or decree to which any of the
Company or the Seller are a party or by which it is bound; (c) result in the
creation or imposition of any material Lien upon any property of the Company; or
(d) violate or conflict with any other material restriction or any law, statute,
regulation, ordinance, decree, judgment or rule to which any of the Company or
the Seller or any property of any of the Company or the Seller is subject.
4.12. Title to and Condition of the Assets of the Company.
---------------------------------------------------
-10-
<PAGE>
(a) The Company has good title to all assets owned by it, free
and clear of all Liens. The assets reflected in the Interim Financials
(and on any balance sheet of the Company furnished by the Company or the
Seller delivered prior to the Closing, for periods subsequent to August 31,
1998, including, without limitation, the Closing Balance Sheet), constitute
all of the tangible assets and properties that the Company owns, uses, or
holds in connection with its respective business, and the conduct of such
business as a going concern and, except for additions or dispositions in
the ordinary course of business, include all tangible properties and assets
used in such business as being conducted. The facilities, machinery,
furniture, office, and other equipment of the Company that are used in its
respective business are in good operating condition and repair, subject
only to the ordinary wear and tear of that business, and are sufficient to
operate the business of the Company. Neither the Company nor any property
or asset owned or leased by it is in violation of any applicable ordinance,
regulation, or building, zoning, environmental or other law in respect
thereof, the violation of which will have a material adverse effect on the
financial condition, the conduct of the business or the ownership or use of
any of the properties or assets of the Company.
(b) The Company does not own any real estate. SCHEDULE 4.12
hereto sets forth all personal property having a book value of (Yen)
200,000 or more and real estate leased to the Company and specifies, in the
case of real estate, the location of each property, the use of the facility
thereon, the name of the owner or the name of the lessor and the
approximate square meters (tsubo) of floor area. Each lease of the Company
from the Seller or any affiliate of the Seller which is a sublease is
permitted by the head lease. The Company has delivered to the Buyer a copy
of each lease by which the Company acquired its interest in the personal
property described in SCHEDULE 4.12 hereto, all of which documents are true
and complete copies thereof as in effect on the date hereof. The Company
has not received any written notice from any governmental agency, board,
bureau, body, department, or authority of any Japanese or foreign
jurisdiction, which materially restricts the use of any of the real estate
described in SCHEDULE 4.12 hereto. The execution and delivery of this
Agreement and the Transaction Documents and the consummation of the
transactions contemplated hereby and thereby will not result in a breach of
any lease agreement (whether for personal or real property) to which the
Company is a party nor restrict, terminate or otherwise adversely affect
any of the Company's rights for the use of personal or real property under
any lease described in SCHEDULE 4.12 hereto. There is no easement, right-
of-way agreement, license, sublease, occupancy agreement, or like
instrument with respect to any of the real estate described in SCHEDULE
4.12 hereto which would have a material adverse effect on the Company's use
of such real estate. To the best of the Company's and the Seller's
knowledge, after due inquiry, each lease pursuant to which the Company
leases any real or personal property is in full force and effect and is
valid and enforceable in accordance with its terms. There is not under any
such lease any material default by the Company, or any event that with
notice or lapse of time or both would constitute such a material default by
the Company. To the best of the Company's and the Seller's knowledge,
after due inquiry, there is not under any such lease any material default
by any other party
-11-
<PAGE>
thereto or any event that with notice or lapse of time or both would
constitute such a material default thereunder by such party.
4.13. Litigation.
----------
(a) There are no actions, suits, proceedings, investigations,
or inquiries pending or, to the best of the Company's and the Seller's
knowledge, after due inquiry, threatened against or affecting the business,
operations, financial condition, assets, or prospects of the Company in any
court, arbitration tribunal, or before any national, municipal, or other
governmental department, commission, board, bureau or agency.
(b) The Company is not in default in respect of any judgment,
order, writ, injunction, or decree of any court or any Japanese or other
governmental department, commission, board, bureau or agency.
(c) There are no actions, suits, proceedings, investigations,
or inquiries pending or, to the best of the Company's and the Seller's
knowledge, after due inquiry, threatened against the Company or the Seller
in any court or before any Japanese or other governmental department,
commission, board, bureau or agency that reasonably could be expected to
have an adverse effect on the Company's or the Seller's right or ability to
execute and deliver this Agreement or the Transaction Documents or
consummate the transactions contemplated hereby or thereby.
4.14. Employee Benefit Plans and Other Arrangements
---------------------------------------------
(a) Employee Plans Generally. Except as set forth in SCHEDULE
------------------------
4.14 hereto, the Company does not make any contributions to, and has not
been obligated by law or agreement to establish, maintain, sponsor, or make
any contributions to (i) any employee pension or welfare benefit plan; (ii)
any formal or informal severance plan or arrangement; or (iii) any other
deferred compensation, bonus, stock option, stock purchase, revenue
sharing, retirement insurance, or other employee benefit plan, agreement,
fund, or arrangement, whether or not set forth in writing, providing
benefits of economic value to any employee, former employee, or present or
former beneficiary, dependent, or assignee other than regular salary,
wages, or commissions paid substantially concurrently with the performance
of the services for which they are paid (individually or together referred
to as "Plan" or "Plans"). Except for (x) the Company's obligation to
contribute to certain national pension, health and unemployment insurance
schemes set out in SCHEDULE 4.14 and (y) certain amounts listed on SCHEDULE
4.14 for payments due by the Company to the Seller for retirement benefits
for the Seconded Employees to be paid by the Company at Closing, there is
no accrued pension or similar retirement benefit for or due to any employee
or Seconded Employee required to be paid by the Company upon retirement or
termination of any such employee or Seconded Employee.
(b) Plan Documents. Prior to the Closing, the Company will have
--------------
delivered to the Buyer a copy of each instrument constituting each Plan or
a part of each
-12-
<PAGE>
Plan, as applicable, including without limitation, any informal policy
statements or guidelines setting forth provisions of the Plan. The Company
has not promised or negotiated any benefit or benefit changes which are not
reflected in such instruments.
(c) Contributions and Funding. Except for those listed on
-------------------------
SCHEDULE 4.14, the Company is not obligated to make any contributions or
payments in respect of any Plan prior to the Closing Date; and there is no
amount of contribution or payments which have accrued under the Plans.
(d) Compliance with Applicable Law. The Company has maintained
------------------------------
each Plan according to and in compliance with applicable law without any
violation thereof. There are no pending or, to the best of the Company's
and the Seller's knowledge, after due inquiry, threatened claims, suits or
other proceedings by present or former employees of the Company, Plan
participants, beneficiaries or spouses of any of the above, or any other
person or entity involving any Plan or any rights or benefits thereunder.
4.15. Contracts.
---------
(a) SCHEDULE 4.15 (a) hereto contains a complete and correct
list of all agreements, contracts, and commitments of every type to which
the Company is a party or by which it or any of its assets is bound, (i)
the terms of which involve payments, receipts or potential liabilities by
or of the Company of more than U.S. Twenty Five Thousand Dollars
(US$25,000.00), or the Japanese Yen equivalent thereof as of the date of
making this representation, in a given year or per year, including without
limitation, leases of telecommunications circuit lines, leases of real
property or personal property, agreements, orders and commitments for
capital expenditures, and leases of computers, machinery and equipment, and
(ii) all indentures, security agreements, instruments relating to the
borrowing of money or evidencing credit or relating to the purchase or sale
of shares or other securities, employment agreements, consulting
agreements, license agreements, interconnection agreements, distribution
agreements, reseller agreements, contracts with any governmental authority
and contracts not made in the ordinary course of business (the
"Contracts").
(b) The Buyer has been given access to complete and correct
copies of all Contracts, together with all amendments and side letters
thereto. The Contracts are valid, binding and in full force and effect (as
to third parties, to the best knowledge of the Company and the Seller,
after due inquiry), the Contracts are enforceable by the Company in
accordance with their terms, and all parties to the Contracts have, in all
material respects, performed all obligations required to be performed by
them to date, and the Company is not, and no other party is (other than
customers who are overdue in payments to the Company, which overdue
payments are not, in the aggregate, material in amount), in material
default thereunder.
(c) No agreement, contract, or commitment to which the Company
is a party or by which it or any of its assets is bound purports to limit
its freedom to compete
-13-
<PAGE>
in any line of business or with any person or entity. The Company does not
have any outstanding power of attorney granted to any person or entity.
(d) The Company is not a party to any contract that materially
and adversely affects its condition (financial or otherwise), operations
(present or prospective), business (present or prospective), properties,
assets, or liabilities.
4.16. Insurance. The Company maintains insurance against risks which
---------
may arise in the conduct of the business in which it is engaged. All of the
Company's insurance policies covering such risks are listed on SCHEDULE 4.16
hereto, are in full force and effect, all premiums due thereon have been paid,
and the Company has complied in all material respects with the provisions of
such policies. The Company has not made a claim under any such insurance policy
where the value of any such claim exceeded the Japanese Yen equivalent of U.S.
Twenty Five Thousand Dollars (US$ 25,000.00).
4.17. Trademarks, Etc. SCHEDULE 4.17 hereto contains a complete and
---------------
accurate list (including registration numbers and dates of filing, renewal, and
termination) of all trademarks, patents, tradenames, material trade secrets,
material copyrights, domain names, service marks, licenses, all registrations
and applications for any of the foregoing, and other intellectual property and
proprietary rights and know-how (whether or not subject to statutory
registration or protection) owned or used by the Company or in which the Company
has an interest (whether licensed to or by the Company) (collectively, the
"Intellectual Property"). To the best of the Company's and the Seller's
knowledge, after due inquiry: (a) all of the Intellectual Property is valid and
is owned (or legally used) by the Company, free and clear of all Liens; (b) none
of the Company's rights in or use of such Intellectual Property infringes on the
rights of others or has been, or is currently being, or threatened to be,
challenged; (c) all of the Intellectual Property registrations have been duly
issued and have not been canceled, abandoned, or otherwise terminated; (d) all
of the Intellectual Property applications (other than those for copyrights
relating to software) have been duly filed with the appropriate authorities; (e)
no consents or approvals of any person owning Intellectual Property are
necessary for the transactions contemplated by this Agreement and the
Transaction Documents; and (f) the execution of this Agreement and the
Transaction Documents and consummation of the transactions contemplated hereby
and thereby will not conflict with or impair such Intellectual Property. The
Company owns or has the right to use all of the Intellectual Property necessary
to conduct its operations and business and the Company does not know of any
claim, or any basis for any claim, that it has infringed any intellectual
property of any other person or that any other person has infringed any of the
Intellectual Property. Except as set forth in SCHEDULE 4.17 hereto, no third
party has been permitted or licensed to use any of the Intellectual Property or
been granted any option thereto, and no royalties or other fees are payable to
any third party with respect to any of the Intellectual Property.
4.18. Transactions with Interested Persons. Neither the Company nor,
------------------------------------
to the best of the Company's or the Seller's knowledge, after due inquiry, any
employee or director of, or seconded to, the Company (or immediate family member
thereof), owns, directly or indirectly, on an individual or joint basis, an
interest of 5% or more in, or serves as an officer, director,
-14-
<PAGE>
employee, consultant, contractor, or agent, of or to, any competitor or supplier
of the Company or any person or entity who or that has a contract or arrangement
with the Company; and (b) no employee or director of, or seconded to, the
Company (or immediate family member thereof) has entered into any agreement,
contract or commitment of any type with the Company, including without
limitation, agreements and instruments relating to the lending of money to the
Company, leases of property to the Company or rental of equipment or machinery
by the Company.
4.19. Compliance with Laws, etc. The Company has complied with and
-------------------------
is in compliance with all Japanese and foreign statutes, laws, ordinances,
regulations, rules, permits, judgments, orders, or decrees applicable to it or
any of its properties, assets, operations, and business, and there does not
exist any basis for any claim of default under or violation of any such statute,
law, ordinance, regulation, rule, permit, judgment, order, or decree, where the
failure to be in compliance or where the claim of default would have a material
adverse effect on the Company or its business.
4.20. No Undisclosed Liabilities, Etc. Except as set forth in
-------------------------------
SCHEDULE 4.20 hereto or as reflected on the Closing Balance Sheet:
(a) The Company has not incurred any material liability or
obligation (absolute, accrued, contingent, or otherwise) of any nature
(other than liabilities and obligations incurred in the ordinary course of
business) that has not been properly reflected or reserved against in the
Closing Balance Sheet;
(b) To the best of the Company's and the Seller's knowledge,
after due inquiry, the Company does not have any material amount of
accounts receivable that are uncollectible, and the frequency and amounts
of payments received by the Company with respect to the accounts receivable
reflected on the balance sheet of the Company as at August 31, 1998
referred to in Section 4.8 hereof and the Closing Balance Sheet do not, in
retrospect, render inadequate the reserve for uncollectible accounts set
forth on such balance sheets. All accounts receivable of the Company
represent sales actually made or services actually performed in the
ordinary and usual course of the Company's business consistent with past
practice. As at August 31, 1998, as of the date of this Agreement and as
of the Closing Date, each account receivable of the Company was, is and
will be, respectively, valid and collectible in full net of any respective
reserves shown on the Company Financial Statements (which reserves are
adequate and calculated consistent with past practice) within ninety (90)
days after the day on which it first became due and payable and there is no
material contest, claim or right of set-off contained in any agreement
(written or otherwise) asserted by any account debtor relating to the
amount or validity of such account or any note evidencing the same; and
(c) The inventories reflected on the balance sheet of the
Company as at August 31, 1998 referred to in Section 4.8 hereof and the
Closing Balance Sheet and those inventories owned by the Company on the
date hereof are in good, merchantable, usable and working condition; there
are no obsolete or discontinued items reflected on
-15-
<PAGE>
such balance sheet; and the Company has the proper amount of inventories to
conduct its business consistent with past practice.
4.21. Environmental Matters. The Company is now and has been at all
---------------------
times in full compliance with any and all applicable laws and regulations
pertaining to the regulation and protection of the environment and the health
and safety of the public where the failure to so comply would have a material
adverse effect on the Company.
4.22. Governmental Authorizations and Regulations. SCHEDULE 4.22
-------------------------------------------
hereto lists all licenses, franchises, permits, and other governmental
authorizations held by the Company material to the conduct of its respective
business. Such licenses, franchises, permits, and other governmental
authorizations are valid, and the Company has not received any notice that any
governmental authority intends to cancel, terminate, suspend, modify, revoke, or
not renew any such license, franchise, permit, or other governmental
authorization. The Company has the benefit of all material licenses, permits
and authorizations which are necessary for the conduct of the currently
conducted business of the Company.
4.23. Accounting Practices. The Company makes and keeps accurate
--------------------
books and records reflecting its total asset value and maintains internal
accounting controls that provide reasonable assurance that (a) transactions are
executed with management's authorization and (b) transactions are recorded as
necessary to permit preparation of the Company's financial statements and to
maintain accountability for the assets and liabilities of the Company.
4.24. Minute Books. The Company's minute books contain complete and
------------
accurate records of all meetings and other corporate actions of its shareholders
and Board of Directors. There are no committees of the Board of Directors.
4.25. Employee Matters. The Company has delivered to the Buyer a
----------------
list of the name, title, and current monthly base salary or hourly rate of each
person employed by the Company on October 1, 1998 or seconded to the Company on
September 1, 1998, together with a statement of the full amount and nature of
any other remuneration, whether in cash or kind, paid to each such person during
the 1997 calendar year and during the 1998 calendar year through August 1, 1998.
The Company will furnish an updated copy of such list at the Closing which will
reflect any material changes in such information occurring between August 1,
1998 and the Closing Date. The Company is not in violation of any law dealing
with employment matters where the failure to be in compliance would have a
material adverse effect on the Company or its business. The Company is not
liable for any unpaid wages, vacation pay, bonuses, or commissions, or for any
material Tax, penalty, assessment, or forfeiture for failure to comply with any
employer/employee matter. There are no strikes, lockouts, work stoppages,
slowdowns, jurisdictional disputes, material grievances, material arbitrations,
or organizing activities occurring or threatened with respect to the Company.
The Company is not a party to any collective bargaining agreement.
4.26. Year 2000 Compliance. Except as set forth in SCHEDULE 4.26, to
--------------------
the best of the Company's and the Seller's knowledge, after due inquiry, the
hardware, software,
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<PAGE>
firmware, middleware and other information technology owned or used by the
Company in its business is designed to be used prior to, during and after the
calendar year 2000 A.D., and such information technology used during each such
time period will accurately receive, provide and process date/time data
(including, but not limited to, calculating, comparing and sequencing) from,
into and between the twentieth and twenty-first centuries, including the years
1999 and 2000, and leap year calculations and will not malfunction, cease to
function, or provide invalid or incorrect results as a result of date/time data,
to the extent that other information technology, used in combination with the
information technology being acquired by the Buyer, properly exchanges date/time
data with it.
4.27. Banks, Powers of Attorney. SCHEDULE 4.27 hereto contains a
-------------------------
correct and complete list setting forth the name of each bank in which the
Company has an account or safe deposit box, the names of all persons authorized
to draw thereon or to have access thereto, and the names of each person holding
a banking power of attorney from the Company.
4.28. No Restrictions on Execution. The Company and the Seller are
-----------------------------
under no legal, contractual or other prohibition from executing and entering
into this Agreement or any Transaction Document and the performance of their
respective obligations hereunder or thereunder will not violate, or constitute a
default under, any agreement, obligation or other commitment of the Company or
the Seller, and will not give rise to any claim by any third party or parties
against the Buyer, its affiliates or subsidiaries.
4.29. No Commission Payment. Neither the Company nor the Seller, or
----------------------
any directors, employees, agents, consultants or any other persons or entities
acting on its or their behalf, have made, offered or provided any gift,
entertainment, payment, loan or other consideration for the purpose of
influencing the procurement of any favorable action or treatment by any
government authority, regulator or office, or any official or employee thereof,
in any way relating to the business of the Company.
4.30. Confidentiality Agreement. Neither the Company nor the Seller
-------------------------
is a party to any confidentiality agreement the terms of which will have a
material adverse effect on the obligations, operations or business of the
Company, the Buyer or the parent company of the Buyer, PSINet Inc., after the
Closing Date.
4.31. Disclosure. No representation or warranty by the Seller or the
----------
Company in this Agreement or any Transaction Document and no statement contained
in any exhibit, list, certificate, document or schedule delivered or to be
delivered pursuant to this Agreement or the Transaction Documents, contains or
will contain any untrue statement of a material fact or omits or will omit any
material fact necessary in order to make the statements contained therein in
light of the circumstances under which they were made not misleading. The
Seller and the Company have disclosed to the Buyer all material facts pertaining
to the transactions contemplated by this Agreement.
4.32. Solvency. Each of the Company and the Seller is on the date
--------
hereof, and immediately prior to the Closing Date will be, Solvent. "Solvent"
shall mean, in respect of an
-17-
<PAGE>
entity, that (i) the fair value of its property is in excess of the total amount
of its debts and (ii) it is able to pay its debts as they mature.
4.33. No Known Predecessor Company Liabilities. To the best of the
----------------------------------------
Seller's knowledge, after due inquiry, there are no liabilities owed or owing,
arising out of or resulting from any act or omission by or liability of SECOM
Internet Service K.K. ("SECOM Internet") or K.K. Seychell Holiday ("Seychell"),
or the predecessor company or companies of SECOM Internet and Seychell,
respectively, prior to February 21, 1997 (the "Prior Merger Liabilities").
5. Representations and Warranties of the Buyer to the Company and the
------------------------------------------------------------------
Seller. The Buyer represents and warrants to the Company and the Seller that,
- ------
as of the date hereof and as of the Closing Date:
5.1. Authority for Agreements. The Buyer has the power and authority
------------------------
to execute this Agreement and the Transaction Documents and to carry out its
obligations hereunder and thereunder. The execution, delivery, and performance
of this Agreement and the Transaction Documents and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by the
Board of Directors of the Buyer, and no other proceeding, authorization or
approval on the part of the Buyer is necessary to authorize the execution and
delivery of this Agreement and the Transaction Documents by the Buyer or the
performance by the Buyer of any of the transactions contemplated hereby and
thereby. When executed and delivered by the Buyer and all required parties
thereto, this Agreement and the Transaction Documents will be binding upon and
enforceable against the Buyer in accordance with their respective terms subject
to applicable bankruptcy, insolvency, moratorium, fraudulent conveyance and
other similar laws of general application affecting the rights of creditors and
applicable laws and regulations and principles of equity which may restrict the
enforcement of certain equitable remedies.
5.2. Non-Contravention. The execution and delivery of this Agreement
-----------------
and the Transaction Documents and the consummation of the transactions
contemplated hereby and thereby will not, (a) violate any provision of the
Articles of Incorporation of the Buyer; (b) violate any material provision of,
or result in the breach or the acceleration of, or entitle any party to
accelerate (whether after the giving of notice or lapse of time or both), any
material obligation under, any contract, commitment, arrangement, mortgage,
lien, lease, agreement, license, instrument, order, arbitration award, judgment,
or decree to which the Buyer is a party or by which it is bound; (c) result in
the creation or imposition of any material Lien upon any property of the Buyer;
or (d) violate or conflict with any other material restriction or any law,
statute, regulation, ordinance, or rule to which the Buyer or its property is
subject.
5.3. Approvals. No consent, approval, order, or authorization of, or
---------
registration, declaration, or filing with, any governmental authority is
required in connection with the execution and delivery of this Agreement and the
Transaction Documents by the Buyer or the consummation of the transactions
contemplated hereby and thereby, except that a report on acquisition of the
Company Shares must be filed by the Buyer (through The Bank of Japan) with
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<PAGE>
the Minister of Finance and the other competent Ministers within fifteen (15)
days after the Closing Date under the Foreign Exchange and Foreign Trade Law of
Japan.
5.4. No Brokers. The Buyer is not a party to any agreement with any
----------
finder or broker, or in any way obligated to any finder or broker for any
commissions, fees or expenses, in connection with the origin, negotiation,
execution or performance of this Agreement.
5.5. Organization. The Buyer is a corporation duly organized and
------------
validly existing under the laws of Japan, and has all requisite corporate power
and authority to own or lease and to operate its properties and to carry on its
business as now being conducted.
6. Covenants of the Company and the Seller. The Company and the
---------------------------------------
Seller, jointly and severally, covenant and agree that:
6.1 Access, Information and Documents. Pending the Closing, the
---------------------------------
Company and the Seller will give to the Buyer and to its agents and
representatives (including, but not limited to, accountants, lawyers, and
appraisers) full and complete access to any and all of the properties, assets,
books, records, and other documents of the Company to enable the Buyer to make
such examination of the business, properties, assets, books, records, and other
documents of the Company as the Buyer may determine, and the Company and the
Seller will furnish to the Buyer such information and copies of such documents
and records as the Buyer will reasonably request. As part of such examination
the Buyer may make such inquiries of such persons having business relationships
with the Company as the Buyer will determine and the Company and the Seller will
cooperate fully with the Buyer in connection therewith, provided that the
Company is given reasonable prior notice of all such persons to which the Buyer
intends to make inquiries and the Company consents to such inquiries.
6.2. Conduct of Business Pending Closing. From the date hereof until
-----------------------------------
the Closing, except (i) as consented to by the Buyer in writing, (ii) as agreed
to in paragraph 12 of the LOI (as defined herein) or (iii) as contemplated by
this Agreement:
(a) The Company will maintain itself at all times as a
corporation duly organized and validly existing under the laws of the
Japan;
(b) The Company will carry on its business and operations
substantially in the manner carried on as of the date hereof and the
Company will not engage in any activity or transaction or make any
commitment to purchase or spend, other than in the ordinary course of its
business as heretofore conducted, or repay any indebtedness (including, but
not limited to, operating or capital lease obligations) except in
accordance with the scheduled payment terms thereof, or enter into any new
indebtedness for borrowed money or the deferred purchase of assets or
services or any operating or capital lease arrangements;
(c) The Company will not declare, authorize or pay any
distribution or dividend to its shareholders and the Company will not
grant, issue, redeem, purchase, or
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<PAGE>
otherwise acquire, or agree to grant, issue, redeem, purchase, or otherwise
acquire, any shares of its stock or other securities (including, without
limitation, stock options);
(d) Except as set forth in SCHEDULE 4.9 (f)-(1), (f)-(2),
(f)-(3) AND (f)-(4) hereof, the Company will not pay or obligate itself to
pay any compensation, commission, or bonus to any director, employee, or
independent contractor as such, except for the regular compensation and
commissions payable to such director, employee, or independent contractor
at the rate in effect on the date of this Agreement or otherwise in the
ordinary course of business, and will not hire any employee or independent
contractor;
(e) The Company will continue to carry all of its existing
insurance;
(f) Each of the Company and the Seller will use its best efforts
to preserve the business organization of the Company intact, to keep
available to the Buyer the services of the Company's employees and
independent contractors and to preserve for the Buyer the Company's
relationships with suppliers, licensees, distributors, and customers and
others having business relationships with the Company;
(g) The Company will not, and will not obligate itself to, sell
or otherwise dispose of or pledge or otherwise encumber any of its
properties or assets except in the ordinary course of business and the
Company will maintain its facilities, machinery, and equipment in good
operating condition and repair, subject only to ordinary wear and tear;
(h) The Company will not enter into any agreement or
understanding with any employee, director, or shareholder of the Company or
any affiliate of any of the foregoing where the value of any such items
taken together would, in the aggregate, exceed the Japanese Yen equivalent
of U.S. Fifty Thousand Dollars (U.S.$ 50,000.00) as of the date of the
execution of this Agreement;
(i) The Company will not engage in any activity or transaction
other than in the ordinary course of its business as heretofore conducted;
(j) The Company will not take any action after the date hereof
which would cause any representation or warranty contained in this
Agreement to be or become incorrect; and
(k) Without limiting the foregoing, the Company will consult
with the Buyer regarding all significant developments, transactions, and
proposals relating to its business prior to taking any action.
6.3. Consents and Approvals. Each of the Company and the Seller will
----------------------
use its best efforts to obtain prior to the Closing all consents,
authorizations, and approvals under all statutes, laws, ordinances, regulations,
rules, judgments, decrees, and orders of any court or
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<PAGE>
governmental agency, board, bureau, body, department, or authority or of any
other person required to be obtained by the Company or the Seller in connection
with the execution, delivery, and performance of this Agreement, the Transaction
Documents, and the consummation of the transactions contemplated hereby and
thereby.
6.4. Public Disclosures; Confidential Material.
-----------------------------------------
(a) Prior to and after the Closing Date, neither the Company nor
the Seller will issue any press release or make any other public
disclosures concerning this transaction or the contents of this Agreement
without the prior written consent of the Buyer.
(b) The Company and the Seller will, and will instruct all of
their employees, representatives, agents, and affiliates to, treat all
Confidential Material confidentially and not disclose it except in
accordance herewith; provided, that (i) any Confidential Material may be
disclosed to such party's agents who need to have access to such
information and are directed by such party to treat such Confidential
Material confidentially; (ii) Confidential Material may be disclosed
without liability hereunder to the extent required by law or by the order
or decree of any court or other governmental authority; provided, however,
that the party legally compelled to disclose the Confidential Material will
provide the Buyer with prompt notice of that fact so that the Buyer may
attempt to obtain a protective order or other appropriate remedy.
For purposes of this section, the term "Confidential Material"
will be defined to mean all information relating to the Company and its
operations or to this Agreement, the Transaction Documents and the transactions
contemplated hereby and thereby, except to the extent that such information
shall have become public knowledge other than by breach of this Agreement by the
Seller or the Company.
6.5. Liability for Taxes. The Seller shall be responsible for all
-------------------
securities transaction taxes arising out of or in connection with the
consummation of the transactions contemplated hereby. The Seller represents and
warrants that the Company has accrued on the Closing Balance Sheet for all
Taxes, and any interest, penalty, or expenses of the Company incurred thereon,
with respect to the period ending on the Closing Date. The Seller hereby
indemnifies and holds the Buyer harmless from and against Taxes the liability
for which arises as a result of an audit or other inquiry by any governmental
authority prior to or following the Closing Date relating to any tax period
ending on or before the Closing Date to the extent not accrued on the Closing
Balance Sheet, any liability relating to the failure of the Company on or prior
to the Closing Date to collect or withhold and pay Taxes when due or any failure
to accrue Taxes or related amounts pursuant to the previous sentence. Such
indemnification shall begin from dollar one without regard to the threshold set
forth in Section 11.3. The rights of the Buyer under this Section 6.5 shall be
in no way diminished by disclosure on any disclosure schedule.
6.6. Non-Competition. In consideration of the Buyer entering into
---------------
this Agreement, the Seller, and any affiliate thereof, covenants and agrees that
for a period of two (2)
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<PAGE>
years after the Closing Date it will not, without the prior written consent of
the Buyer or in accordance with Section 6.7 hereof:
(a) Directly or indirectly, engage in, own, control, or make a
significant non-controlling investment in, any "Competing Business" as
defined below within the "Restricted Area." For purposes of this Section
6.6, the term "Restricted Area" will mean the countries and regions of
Japan, Hong Kong, Taiwan, Macau, People's Republic of China, Singapore and
Korea. Notwithstanding anything contained in this Section 6.6 (a), the
Seller will be permitted to engage, directly or indirectly, in its Secure
Server Service ("Secure Server Service" shall mean security, certification
or authentication services through any communication infrastructure
(whether its own or otherwise),
For purposes of this SECTION 6.6, the term "Competing Business" will mean:
(i) any Internet Protocol connection services;
(ii) any Web hosting services (Web hosting services mean
services which enable the users to make an access, through the
Internet, to the user's homepages and other contents stored in servers
shared among the users, but exclude any services of creation of
homepages of customers and other kinds of contents stored in servers
and any modification thereof); or
(iii) any collocation services providing network housing
facilities as Internet service provider;
(b) Directly or indirectly solicit or employ any person who at
such time is employed by the Company or the Buyer (or their affiliates), or
encourage or induce any employee of the Company or the Buyer (or their
affiliates) to leave such employment; or
(c) Directly or indirectly, divert or attempt to divert from the
Company or the Buyer (or their affiliates) any customer or client of the
Company or the Buyer (or their affiliates).
6.7 Migration of Existing Competing Business.
-----------------------------------------
(a) The Seller hereby represents and warrants that the only
business activities conducted by it and its affiliates comprising
"Competing Business" as of the date hereof are the activities set forth on
SCHEDULE 6.7 conducted by the entities therein listed which are all
affiliates of the Seller (the "Competing Entities"). The Seller further
represents and warrants that the aggregate revenue from Competing Business
derived by the Competing Entities as of the close of the Seller's last
fiscal year is less than 300,000,000 per year (the "Limit").
(b) The Seller covenants and agrees that, during the period of
nine (9) months after the Closing Date (the "Transfer Period"), (i) it will
use commercially
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<PAGE>
reasonable efforts to transfer to the Company every customer provided with
Competing Business by a Competing Entity, (ii) it will not permit aggregate
revenue received by it and its affiliates (including the Competing
Entities) derived from the Competing Business to exceed the Limit, and
(iii) it will not permit the aggregate number of customers for which it and
its affiliates (including the Competing Entities)
provide Competing Business to be greater than 110% of such number as of the
Closing Date.
(c) The Seller covenants and agrees that, at or by the end of
the Transfer Period, neither it nor any of its affiliates (including the
Competing Entities) will engage in any Competing Business; provided,
---------
however, that a Competing Entity may engage in a Competing Business if such
-------
Competing Business is conducted through an exclusive wholesale contract
with the Company (such contract to be in form and substance satisfactory to
the Company). The Seller further covenants and agrees that from and after
the Closing Date for a period of three (3) years, it and its affiliates
(including the Competing Entities) will use commercially reasonable efforts
to encourage customers and business partners to use the Company as their
exclusive Internet service provider.
6.8. Consents to Leases, Contracts. With respect to all leases,
-----------------------------
licenses and other contracts and instruments and rights of the Company which
require the consent of a third party by reason of the transactions provided for
herein, the Company or the Seller will use their best efforts to obtain or cause
to be obtained such consents.
6.9. Closing Balance Sheet. At the Closing, the Company will deliver
---------------------
to the Buyer the Closing Balance Sheet.
6.10. Preparation of Certain Financial Statements. After the Closing,
-------------------------------------------
(i) the Seller shall reasonably cooperate with and assist the Buyer (or its
affiliates) and Price Waterhouse LLP, its independent public accountants, in the
compilation and preparation of such financial statements, financial statement
schedules and other financial information relating to the Company's business
which the Buyer (or its affiliates) may be required to include in any
registration statement, report or other document which the Buyer (or its
affiliates) may file with the Securities and Exchange Commission ("SEC"), NASDAQ
or any other applicable regulatory authority, (ii) the Seller shall direct Price
Waterhouse, the Company's independent public accountants prior to the Closing,
to cooperate with auditors for the Buyer (or its affiliates) and use their
commercially reasonable best efforts to obtain promptly for such auditors, upon
its request, any consent, report, opinion or letter of Price Waterhouse required
to be filed by the Buyer (or its affiliates) under applicable regulations of the
SEC, NASDAQ, or any other applicable regulatory authority in connection
therewith.
6.11. Further Assurances. The Company and the Seller agree to do or
------------------
cause to be done such further acts and things and deliver or cause to be
delivered to the Buyer such additional assignments, agreements, powers, and
instruments as the Buyer may reasonably require to carry into effect the
purposes of this Agreement and the Transaction Documents or to
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<PAGE>
better assure and confirm unto the Buyer its rights, powers, and remedies
hereunder and thereunder.
6.12. Broker's Fees. The Seller shall be responsible for all fees of
--------------
any broker, finder or agent engaged by the Company, the Seller or any
shareholder of the Company (other than the Buyer) in connection with the
transactions contemplated by this Agreement or any Transaction Document. In the
event of any valid claim against any of the parties hereto for a brokerage
commission, finder's fee or similar compensation owed by the Company or the
Seller, the Seller, and not the Company, will pay the fees of any finders or
brokers at or prior to Closing.
6.13. Share Purchases by the Seller. The Seller will pay each of the
-----------------------------
Minority Shareholders for the Minority Share Purchase an amount for their shares
equal to the price per share to be received by the Seller under this Agreement.
6.14. Consulting Agreement. At the Closing, the Seller and the
--------------------
Company will enter into the Consulting Agreement.
6.15. Services Agreements. At the Closing, the Seller and the
-------------------
Company will enter into the Services Agreements.
6.16. Execution of Transaction Documents. The Seller will use its
----------------------------------
best efforts to ensure the completion and execution of the Transaction
Documents.
7. Covenants of the Buyer.
----------------------
7.1. Consents and Approvals. The Buyer will use its commercially
----------------------
reasonable efforts to obtain prior to the Closing all consents, authorizations,
and approvals under all statutes, laws, ordinances, regulations, rules,
judgments, decrees, and orders of any court or governmental agency, board,
bureau, body, department, or authority or of any other person required to be
obtained by the Buyer in connection with the execution, delivery, and
performance of this Agreement, the Transaction Documents, and the consummation
of the transactions contemplated hereby and thereby.
7.2. Further Assurances. The Buyer agrees to do or cause to be done
------------------
such further acts and things and deliver or cause to be delivered to the Company
and the Seller such additional assignments, agreements, powers, and instruments
as the Company and the Seller may reasonably require to carry into effect the
purposes of this Agreement and the Transaction Documents or to better assure and
confirm unto the Company and the Seller its or their rights, powers, and
remedies hereunder and thereunder.
7.3. Repayment of Seller's Loans. At the Closing, the Buyer will
---------------------------
repay, or will cause the Company to repay, to the Seller all of the debt
identified and set forth in SCHEDULE 7.3 hereto which is owed to the Seller by
the Company as of the Closing Date.
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<PAGE>
7.4. Collection of Accounts Receivable. The Buyer agrees to use
---------------------------------
commercially reasonable efforts, after the Closing Date, to cause the Company to
use its commercially reasonable efforts to collect, compromise or write-off the
accounts receivable of the Company which accrued prior to the Closing Date, as
reasonably determined by the Company and its independent auditors.
7.5. Public Disclosures; Confidential Material. Prior to the Closing
-----------------------------------------
Date, the Buyer will not issue any press release or make any other public
disclosures concerning this transaction or the contents of this Agreement
without the prior written consent of the Seller.
7.6 Retirement Benefit Payment. At the Closing, the Buyer will pay,
--------------------------
or will cause the Company to repay, to the Seller the accrued retirement
benefits due to the Seconded Employees in the amount set forth in SCHEDULE 4.14.
8. Conditions Precedent to the Seller's Obligation to Sell the
---------------------------- -------------------------------
Company Shares. The obligations of the Seller to sell the Company Shares are,
- --------------
at the option of the Seller, subject to the fulfillment prior to or at the
Closing of the following conditions:
8.1. The Buyer's Performance. There will not be any material error,
-----------------------
misstatement, or omission in the representations and warranties made by the
Buyer in this Agreement; all representations and warranties made by the Buyer
contained in this Agreement or in any written statement delivered by the Buyer
to the Company or the Seller pursuant to this Agreement will be true in all
material respects at and as of the date of this Agreement and the Closing Date
as though such representations and warranties were made at and as of said time,
and the Buyer will have performed and complied in all material respects with all
the terms, provisions, covenants and conditions of this Agreement to be
performed and complied with by the Buyer at or before the Closing. The Seller
will have received from the Buyer at the Closing a certificate in form and
substance acceptable to the Seller, executed by the President of the Buyer,
dated the Closing Date, certifying as to the accuracy of the condition in this
Section 8.1.
8.2. Consents and Approvals. The Company and the Buyer will have
----------------------
obtained all consents, authorizations, and approvals under all statutes, laws,
ordinances, regulations, rules, judgments, decrees, and orders of any court or
governmental agency, board, bureau, body, department, or authority or of any
other person required to be obtained by the Company and the Buyer in connection
with the execution, delivery, and performance of this Agreement, the Transaction
Documents and the consummation of the transactions contemplated hereby and
thereby.
8.3. No Legal Impediment. There will be in effect no injunction,
-------------------
writ, temporary restraining order, or any order of any nature issued by any
court or governmental agency directing that the transactions contemplated by
this Agreement not be consummated and no such injunction, writ or order shall be
threatened.
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<PAGE>
9. Conditions Precedent to the Buyer's Obligation to Purchase the
--------------------------------------------------------------
Company Shares. The obligation of the Buyer to purchase the Company Shares is,
- --------------
at the option of the Buyer, subject to the fulfillment prior to or at the
Closing of the following conditions:
9.1. The Company's and the Seller's Performance. There will not be
------------------------------------------
any material error, misstatement, or omission in the representations and
warranties made by the Company or the Seller in this Agreement; all
representations and warranties made by the Company and the Seller contained in
this Agreement or in any written statement delivered by the Company or the
Seller to the Buyer pursuant to this Agreement will be true in all material
respects at and as of the date of this Agreement and as of the Closing Date as
though such representations and warranties were made at and as of said time, and
the Company and the Seller will have performed and complied in all material
respects with all the terms, provisions, covenants and conditions of this
Agreement to be performed and complied with by the Company or the Seller at or
before the Closing. The Buyer will have received from the Seller and the Company
at the Closing certificates in form and substance acceptable to the Buyer,
executed by the President of the Company and the President of the Seller, dated
the Closing Date, certifying as to the accuracy of the condition in this Section
9.1.
9.2. Consents and Approvals. The Company, the Seller and the Buyer
----------------------
will have obtained all consents, authorizations, and approvals under all
statutes, laws, ordinances, regulations, rules, judgments, decrees, and orders
of any court or governmental agency, board, bureau, body, department, or
authority or of any other person or entity (including without limitation, banks
and other creditors of the Company) required to be obtained by the Company, the
Seller or the Buyer in connection with the execution, delivery and performance
of this Agreement, the Transaction Documents, and the consummation of the
transactions contemplated hereby and thereby.
9.3. No Legal Impediment. There will be in effect no injunction,
-------------------
writ, temporary restraining order, or any order of any nature issued by any
court or governmental agency directing that the transactions contemplated by
this Agreement not be consummated and no such injunction, writ or order shall be
threatened.
9.4. Physical Properties. There will have occurred no material
-------------------
damage to or destruction or loss of (whether or not covered by insurance) any of
the Company's facilities, equipment, or other assets.
9.5. Due Diligence. The Buyer will have to its satisfaction
-------------
completed its due diligence investigation of the Company including, without
limitation, its review of the Closing Balance Sheet.
10. Termination. This Agreement may be terminated as follows:
-----------
10.1. Termination by the Buyer. Prior to Closing, the Buyer may,
------------------------
without liability to the Company or the Seller, terminate this Agreement by
notice to the Company and the Seller (i) in the event of material default or
material breach of this Agreement by the Seller
-26-
<PAGE>
or the Company; or (ii) on or after November 15, 1998 if any of the conditions
precedent to the performance of the Buyer's obligations at the Closing will not
have been fulfilled.
10.2. Termination by the Company or the Seller. Prior to Closing,
----------------------------------------
the Company and the Seller may, without liability to the Buyer, terminate this
Agreement by notice to the Buyer (i) in the event of material default or
material breach of this Agreement by the Buyer, or (ii) on or after November 15,
1998 if any of the conditions precedent to the performance of the Company's or
the Seller's obligations at the Closing will not have been fulfilled.
10.3. Effect of Termination. If this Agreement is terminated, this
---------------------
Agreement will no longer be of any force or effect and there will be no
liability under this Agreement on the part of any party or its respective
directors, officers, or shareholders except, in the case of termination because
of a material default or material breach of this Agreement, the aggrieved party
or parties may recover from the defaulting party damages suffered together with
the amount of expenses reasonably incurred by such aggrieved party or parties in
connection with this Agreement and the transactions contemplated hereby which
the aggrieved party or parties would otherwise have to bear pursuant to Section
12.6 of this Agreement.
11. Indemnification.
---------------
11.1. Indemnification of the Buyer and the Company. From and after
--------------------------------------------
the Closing Date, the Seller will indemnify, defend, and hold harmless the Buyer
and the Company and their respective officers, directors, shareholders,
representatives, agents, and affiliates (collectively, "Buyer Indemnified
Parties") from, against, and in respect of all claims, liabilities, actions,
suits, proceedings, assessments, judgments, losses, damages, costs, and expenses
(including interest, penalties, and reasonable accountants', experts' and
attorneys' fees and disbursements, whether incurred in a third party action or
an action to enforce this provision) (collectively, "Damages"), arising out of,
relating to, or resulting from (i) any inaccuracy or breach of any of the
written representations or warranties of the Company or the Seller made in or
pursuant to this Agreement or the Transaction Documents; (ii) the breach of any
covenant, obligation, or agreement of the Company or the Seller to be performed,
fulfilled, or complied with pursuant to this Agreement or the Transaction
Documents; (iii) the Prior Merger Liabilities; or (iv) any matter set forth on
SCHEDULE 11.3.
11.2. Indemnification of the Seller. From and after the Closing
-----------------------------
Date, the Buyer will indemnify, defend, and hold harmless the Seller and its
officers, directors, shareholders, representatives, agents, and affiliates
(collectively, the "Seller Indemnified Parties") from, against, and in respect
of all Damages arising out of, relating to, or resulting from (i) any inaccuracy
or breach of any of the written representations or warranties of the Buyer made
in or pursuant to this Agreement or the Transaction Documents; or (ii) the
breach of any covenant, obligation, or agreement of the Buyer to be performed,
fulfilled, or complied with pursuant to this Agreement or the Transaction
Documents.
11.3. Limitation on Indemnification. No indemnifying party (the
-----------------------------
"Indemnifying Party") will be obligated to indemnify any other party hereunder
pursuant to the terms hereof
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<PAGE>
(referred to herein as an "Indemnified Party", provided that, for this purpose,
the Seller Indemnified Parties shall be treated as a group and the Buyer
Indemnified Parties shall be treated as a group) until the amount of Damages
suffered by the Indemnified Party exceed Thirty Million Japanese Yen ((Yen)
30,000,000) in the aggregate (the "Indemnification Threshold"). Once Damages
suffered by the Indemnified Party exceed the Indemnification Threshold, however,
the Indemnifying Party will be obligated to indemnify the Indemnified Party for
all amounts of Damages suffered by such Indemnified Party from dollar one (such
that the Indemnification Threshold will not be considered a deductible).
Notwithstanding anything contained herein to the contrary, the Seller shall be
liable for Damages and the Indemnification Threshold shall not apply for any
Damages arising out of (i) breach by the Company or the Seller of the
representations and warranties contained in Sections 4.1 or 4.2 of this
Agreement, (ii) the Prior Merger Liabilities; and (iii) the matters listed on
SCHEDULE 11.3 hereto. Notwithstanding anything contained herein to the contrary,
the Buyer shall be liable for Damages and the Indemnification Threshold shall
not apply for any Damages arising out of breach by the Buyer of the
representations and warranties contained in Section 5.1 of this Agreement.
11.4. Set-Off Right of Buyer. The Buyer shall have the right to set-
----------------------
off against the Escrow Portion (including all interest accrued on such Escrow
Portion) the entire amount of Damages suffered by any Buyer Indemnified Party
for which the Buyer determines in good faith that such Buyer Indemnified Party
is entitled to indemnification from the Seller pursuant to Section 11.1 hereof
subject to Section 11.3 hereof (the "Escrow Portion Set-Off"). The Buyer shall
provide written notice to the Seller within seven (7) days of the date on which
it intends to conduct an Escrow Portion Set-Off setting out in reasonable detail
the amount of Damages which the Buyer intends to set-off and the facts which
have given rise to such Damages and the Seller shall have seven (7) Japanese
banking business days to object in writing to such Escrow Portion Set-off (the
"Set-Off Objection"), in which case the parties shall promptly meet and attempt,
in good faith, to resolve the Set-Off Objection. If the Buyer does not receive
any Set-Off Objection within the time specified, the Buyer will be free to
complete the Escrow Portion Set-Off.
11.5. Survival of Representations, Warranties, Covenants and
------------------------------------------------------
Indemnification. The representations and warranties set forth in this Agreement
- ---------------
will survive the Closing and any investigation at any time made by or on behalf
of the Buyer, the Company or the Seller, as applicable, indefinitely (subject to
applicable statute of limitations) except (a) as to the representations and
warranties in Sections 4.3 through 4.5, inclusive, 4.9, 4.11 through 4.13,
inclusive, 4.15 through 4.33 inclusive, and 5.2 through 5.5, inclusive, which
will expire upon the second anniversary of the Closing Date, and (b) as to any
matter as to which a reasonably specific good faith claim has been submitted in
writing to the Buyer, the Company or the Seller, as applicable, prior to the cut
off date for any such claim specified in this Section 11.5. Unless as otherwise
provided for herein, the covenants set forth herein will survive the Closing.
The representations and warranties of the Seller and the Company shall not be
affected or deemed waived by reason of any investigation made by or on behalf of
the Buyer (including but not limited to by any of their respective advisors,
consultants or representatives) or (other than in respect of disclosures
contained or set forth in the disclosure schedules) by reason of the fact that
the Buyer or any of such advisors, consultants or representatives know or should
have known that any such representation or warranty is or might be inaccurate.
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<PAGE>
11.6. Seller's Waiver of Subrogation, Contribution and
------------------------------------------------
Indemnification Claims. Effective at Closing, the Seller hereby irrevocably
- ----------------------
waives and releases the Company from (a) any claim to or right of subrogation or
contribution against the Company in respect of any claim for breach of a
representation, warranty or covenant made by the Buyer or the Company hereunder
(whether made pursuant to indemnification rights or otherwise); and (b) any
claim to or right of indemnification against the Company arising under the
applicable law, this Agreement or otherwise. Notwithstanding anything contained
in this Agreement to the contrary, the representations, warranties and covenants
of the Company set forth herein will not survive the Closing.
11.7. General Waiver of Claims. If the Seller (or any affiliate of
------------------------
the Seller) has any claims, whether known or unknown, against the Company
arising out of any event occurring or state of facts existing on or prior to the
Closing Date, all such claims, whether or not assigned to any third party, are
hereby released, discharged and waived, except for any amounts payable to the
Seller by the Company pursuant to Section 7.3 and Section 7.6 hereof or any of
the Transaction Documents. Any shareholder agreement between the Company and
the Seller, effective on the Closing Date, is terminated by mutual agreement of
the parties without liability.
12. Miscellaneous.
-------------
12.1. Complete Agreement; Amendments; Waivers. This Agreement, the
---------------------------------------
Transaction Documents, the Consulting Agreement, and the Services Agreements,
together with the exhibits and schedules hereto and thereto, and Paragraphs 3,
11, 12, 14, 16, 17, and 18 of the Letter of Intent (the "LOI") entered into
between the Seller and PSINet Inc., dated August 21, 1998, contains the entire
agreement of the parties with respect to the subject matter hereof and
supersedes all prior agreements and understandings, oral or written, with
respect thereto. This Agreement may be amended only by a written instrument
signed by the parties hereto. No provision of this Agreement may be waived
without a written instrument signed by the waiving party. The failure of any
party to insist, in any one or more instances, on performance of any of the
terms or conditions of this Agreement will not be construed as a waiver or
relinquishment of any rights granted hereunder or of the future performance of
any such term, covenant, or condition, and the obligations of the parties with
respect thereto will continue in full force and effect.
12.2. Language and Counterparts. This Agreement (other than Exhibits
-------------------------
and Schedules hereto) is made in the English language only. This Agreement may
be translated for the purposes of convenience and for application for any
governmental approval(s). If there shall arise any conflict between the English
version and any translation thereof, the English version shall prevail. This
Agreement may be executed in two or more counterparts, each of which will be
deemed an original, but all of which together will constitute one and the same
instrument.
12.3. Successors and Assigns. This Agreement will inure to the
----------------------
benefit of, and be binding upon, the parties hereto and their respective
executors, heirs, and permissible assigns. Neither this Agreement nor any of
the rights or obligations hereunder (or under any document
-29-
<PAGE>
delivered pursuant hereto) may be assigned by a party hereto without the prior
written consent of the other parties, except that the Buyer may assign this
Agreement to any subsidiary or affiliate of PSINet Inc. after the Closing by
prior written notice to the Seller and the Company.
12.4. Governing Law; Arbitration. This Agreement shall be governed
--------------------------
by and construed in accordance with the laws of the State of New York, without
reference to any conflict or choice of laws, rules or principles. All disputes
arising out of or in connection with this Agreement shall be finally settled
under the Rules of Arbitration of the International Chamber of Commerce by one
or more arbitrators appointed in accordance with the said Rules. The arbitration
shall take place in London, England and be conducted in the English language.
12.5. Notices. All notices, claims, requests, demands, and other
-------
communications hereunder will be in writing and will be duly given if: (a)
personally delivered or sent via confirmed telecopy or (b) sent by Federal
Express or other reputable overnight courier (for next business day delivery),
shipping prepaid as follows:
If to the Buyer, to:
PSINet Japan Inc.
Plaza Mikado Bldg.
Third Floor
14-5, Akasaka 2-chome
Minato-ku, Tokyo 107-0052
Japan
Tel: (03)5574-7414
Fax: (03)5574-7413
Attention: Vincent Gebes
Managing Director
with copies to:
PSINet Inc.
510 Huntmar Park Drive
Herndon, VA 20170
U.S.A.
Tel: (703) 904-4100
Fax: (703) 904-4200
Attention: David N. Kunkel, Esq.
Senior Vice President & General Counsel
and
Kelley Drye & Warren LLP
509-10 Tower Two, Lippo Centre
89 Queensway
-30-
<PAGE>
Hong Kong
Tel: (852) 2869-0821
Fax: (852) 2869-0049
Attention: William A. Wilson III, Esq.
If to the Company to:
Tokyo Internet Corporation
Shinjuku Gyoen Bldg., 5F
3-10, Shinjuku 2-chome
Shinjuku-ku, Tokyo 160-0022
Japan
Tel: (03) 3341-6301
Fax: (03) 3341-6305
Attention: Masashi Shigemori, Director
With a copy (pre-Closing) to:
SECOM CO., Ltd.
Shinjuku Nomura Bldg.
26-2, Nishi-Shinjuku 1-chome
Shinjuku-ku, Tokyo 160-0555
Japan
Tel: (03) 5381-4529
Fax: (03) 3344-4641
Attention: Yoichi Tao, Director
If to the Seller to:
SECOM CO., Ltd.
Shinjuku Nomura Bldg.
26-2, Nishi-Shinjuku 1-chome
Shinjuku-ku, Tokyo 160-0555
Japan
Tel: (03) 5381-4529
Fax: (03) 3344-4641
Attention: Yoichi Tao, Director
With a copy (pre-Closing) to:
Tokyo Internet Corporation
Shinjuku Gyoen Bldg., 5F
3-10, Shinjuku 2-chome
Shinjuku-ku, Tokyo 160-0022
-31-
<PAGE>
Japan
Tel: (03) 3341-6301
Fax: (03) 3341-6305
Attention: Masashi Shigemori, Director
or such other address or addresses as the person to whom notice is to be given
may have previously furnished to the others in writing in the manner set forth
above. Notices will be deemed given at the time of personal delivery or
completed telecopy, or, if sent by Federal Express or other reputable overnight
courier one business day after such sending.
12.6. Expenses. No expenses of the Seller or the Company incurred in
--------
connection with the transactions contemplated by this Agreement or any
Transaction Document (including, without limitation, taxes, accounting and legal
fees incurred in connection therewith) shall be deemed a liability of the
Company (or reflected on the Closing Balance Sheet) and the Seller (and not the
Company) shall bear its own expenses and those of the Company with respect to
the foregoing and the Buyer shall bear its own expenses in connection therewith.
12.7. Headings; Form of Words. The headings contained in this
-----------------------
Agreement (including but not limited to the titles of the schedules and exhibits
hereto) have been inserted for the convenience of reference only, and neither
such headings nor the placement of any term hereof under any particular heading
will in any way restrict or modify any of the terms or provisions hereof. Terms
used in the singular will be read in the plural, and vice versa, and terms used
in the masculine gender will be read in the feminine or neuter gender when the
context so requires, and vice versa.
12.8. Severability. The provisions of this Agreement will be deemed
------------
severable, and if any part of any provision is held to be illegal, void,
voidable, invalid, nonbinding, or unenforceable in its entirety or partially or
as to any party, for any reason, such provision may be changed, consistent with
the intent of the parties hereto, to the extent reasonably necessary to make the
provision, as so changed, legal, valid, binding, and enforceable. If any
provision of this Agreement is held to be illegal, void, voidable, invalid,
nonbinding, or unenforceable in its entirety or partially or as to any party,
for any reason, and if such provision cannot be changed consistent with the
intent of the parties hereto to make it fully legal, valid, binding, and
enforceable, then such provisions will be stricken from this Agreement, and the
remaining provisions of this Agreement will not in any way be affected or
impaired, but will remain in full force and effect.
12.9 Materiality of Representations and Warranties. The
---------------------------------------------
representations and warranties contained in Sections 4 and 5 of this Agreement
or in any Transaction Document or any other document delivered to the Buyer or
the Seller and the Company, as the case may be, pursuant to this Agreement are
deemed to be material and the party to whom said representations and warranties
are made is entering into this Agreement relying on such representations and
warranties.
-32-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement in Tokyo, Japan as of the date first above written.
BUYER: PSINET JAPAN INC.
By: /s/ David N. Kunkel, Esq.
---------------------------------------------------
Name: David N. Kunkel, Esq.
Title: Attorney-in-fact
THE COMPANY: TOKYO INTERNET CORPORATION
By: /s/ Yoichi Tao
---------------------------------------------------
Name: Yoichi Tao
Title: President and Representative Director
SELLER: SECOM CO., LTD.
By: /s/ Toshitaka Sugimachi
---------------------------------------------------
Name: Toshitaka Sugimachi
Title: President and Representative Director
PSINet has duly executed this Agreement below for the sole purpose of confirming
and evidencing its obligations with respect to the PSI Guarantee as set forth in
Section 1.3 hereof.
PSINET INC.
By: /s/ David N. Kunkel, Esq.
---------------------------------------------------
Name: David N. Kunkel, Esq.
Title Senior Vice President and General Counsel
-33-
<PAGE>
Exhibits and Schedules to the Purchase Agreement have been omitted. The
following is a list of the omitted Exhibits and Schedules which the Company
agrees to furnish supplementally to the Commission upon request:
Exhibits:
--------
Exhibit A The Consulting Agreement
Exhibit B-1 The Services Agreement (SECOM Co., Ltd.)
Exhibit B-2 The Services Agreement (SECOM LINES K.K.)
Schedules:
---------
Schedule 4.7 Subsidiaries
Schedule 4.8 Financial Statements
Schedule 4.9 Absence of Certain Changes
Schedule 4.10 Tax Returns, Taxes
Schedule 4.12 Title to and Condition of the Assets of the Company
Schedule 4.14 Employee Benefit Plans and Other Arrangements
Schedule 4.15 Contracts
Schedule 4.16 Insurance
Schedule 4.17 Trademarks
Schedule 4.20 No Undisclosed Liabilities
Schedule 4.22 Governmental Authorizations and Regulations
Schedule 4.26 Year 2000 Compliance
Schedule 4.27 Banks, Power of Attorney
Schedule 6.7 Migration of Existing Competing Business
Schedule 7.3 Repayment of Seller's Loan
Schedule 11.3 Special Indemnities
-39-
<PAGE>
EXHIBIT 2.2
EXECUTION COPY
================================================================================
CREDIT AGREEMENT
dated as of
September 29, 1998
among
PSINET INC.
The Lenders Party Hereto
and
THE CHASE MANHATTAN BANK,
as Administrative Agent
FLEET NATIONAL BANK,
as Syndication Agent
and
THE BANK OF NEW YORK,
as Documentation Agent
_________________________
CHASE SECURITIES INC.,
as Advisor, Arranger and Book Manager
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I
Definitions
-----------
SECTION 1.01. Defined Terms............................................... 1
SECTION 1.02. Classification of Loans and Borrowings...................... 25
SECTION 1.03. Terms Generally............................................. 25
SECTION 1.04. Accounting Terms; GAAP...................................... 25
ARTICLE II
The Credits
-----------
SECTION 2.01. Revolving Commitments....................................... 26
SECTION 2.02. Loans and Borrowings........................................ 26
SECTION 2.03. Requests for Borrowings..................................... 27
SECTION 2.04. Letters of Credit........................................... 28
SECTION 2.05. Funding of Borrowings....................................... 33
SECTION 2.06. Interest Elections.......................................... 34
SECTION 2.07. Termination and Reduction of Revolving Commitments.......... 36
SECTION 2.08. Repayment of Loans; Evidence of Debt........................ 36
SECTION 2.09. Prepayment of Loans......................................... 37
SECTION 2.10. Fees........................................................ 39
SECTION 2.11. Interest.................................................... 40
SECTION 2.12. Alternate Rate of Interest.................................. 41
SECTION 2.13. Increased Costs............................................. 42
SECTION 2.14. Break Funding Payments...................................... 43
SECTION 2.15. Taxes....................................................... 44
SECTION 2.16. Payments Generally; Pro Rata Treatment; Sharing of Setoffs.. 45
SECTION 2.17. Mitigation Obligations; Replacement of Lenders.............. 47
ARTICLE III
Representations and Warranties
------------------------------
SECTION 3.01. Organization; Powers........................................ 50
SECTION 3.02. Authorization; Enforceability............................... 50
SECTION 3.03. Governmental Approvals; No Conflicts........................ 51
SECTION 3.04. Financial Condition; No Material Adverse Change............. 51
<PAGE>
2
SECTION 3.05. Properties.................................................. 52
SECTION 3.06. Litigation and Environmental Matters........................ 53
SECTION 3.07. Compliance with Laws and Agreements......................... 53
SECTION 3.08. Investment and Holding Company Status....................... 53
SECTION 3.09. Taxes....................................................... 53
SECTION 3.10. ERISA....................................................... 54
SECTION 3.11. Disclosure.................................................. 54
SECTION 3.12. Subsidiaries................................................ 54
SECTION 3.13. Insurance................................................... 54
SECTION 3.14. Labor Matters............................................... 55
SECTION 3.15. Solvency.................................................... 55
SECTION 3.16. FCC Compliance.............................................. 55
SECTION 3.17. Licenses.................................................... 56
SECTION 3.18. No Burdensome Restrictions.................................. 56
SECTION 3.19. Security Documents.......................................... 57
SECTION 3.20. Federal Regulations......................................... 58
SECTION 3.21. Environmental Matters....................................... 58
SECTION 3.22. Year 2000................................................... 59
ARTICLE IV
Conditions
----------
SECTION 4.01. Effective Date.............................................. 59
SECTION 4.02. Each Credit Event........................................... 63
ARTICLE V
Affirmative Covenants
---------------------
SECTION 5.01. Financial Statements and Other Information.................. 64
SECTION 5.02. Notices of Material Events.................................. 66
SECTION 5.03. Information Regarding Collateral............................ 66
SECTION 5.04. Existence; Conduct of Business.............................. 67
SECTION 5.05. Payment of Obligations...................................... 67
SECTION 5.06. Maintenance of Properties................................... 68
SECTION 5.07. Insurance................................................... 68
SECTION 5.08. Casualty and Condemnation................................... 69
SECTION 5.09. Books and Records; Inspection and Audit Rights.............. 70
SECTION 5.10. Compliance with Laws........................................ 70
SECTION 5.11. Use of Proceeds and Letters of Credit....................... 71
SECTION 5.12. Assets Acquired by Foreign Subsidiaries with Proceeds;
Pledge of Intercompany Notes............................... 71
SECTION 5.13. Additional Subsidiaries and Significant Subsidiaries........ 71
<PAGE>
3
SECTION 5.14. Completion of Perfection Certificate........................ 72
SECTION 5.15. Further Assurances.......................................... 72
ARTICLE VI
Negative Covenants
------------------
SECTION 6.01. Indebtedness; Certain Equity Securities..................... 73
SECTION 6.02. Liens....................................................... 76
SECTION 6.03. Sale and Lease-Back Transactions............................ 78
SECTION 6.04. Fundamental Changes......................................... 77
SECTION 6.05. Investments, Loans, Advances, Guarantees and Acquisitions... 78
SECTION 6.06. Asset Sales................................................. 80
SECTION 6.07. Hedging Agreements.......................................... 82
SECTION 6.08. Restricted Payments; Certain Payments of Indebtedness....... 82
SECTION 6.09. Transactions with Affiliates................................ 86
SECTION 6.10. Restrictive Agreements...................................... 87
SECTION 6.11. Amendment of Material Documents............................. 88
SECTION 6.12. Financial Covenants......................................... 88
ARTICLE VII
Events of Default
-----------------
ARTICLE VIII
The Administrative Agent
------------------------
ARTICLE IX
Miscellaneous
-------------
SECTION 9.01. Notices..................................................... 95
SECTION 9.02. Waivers; Amendments......................................... 96
SECTION 9.03. Expenses; Indemnity; Damage Waiver.......................... 98
SECTION 9.04. Successors and Assigns...................................... 100
SECTION 9.05. Survival.................................................... 103
SECTION 9.06. Counterparts; Integration; Effectiveness.................... 103
SECTION 9.07. Severability................................................ 104
SECTION 9.08. Right of Setoff............................................. 104
SECTION 9.09. Governing Law; Jurisdiction; Consent to Service of Process.. 104
SECTION 9.10. WAIVER OF JURY TRIAL........................................ 105
SECTION 9.11. Headings.................................................... 105
SECTION 9.12. Confidentiality............................................. 106
<PAGE>
4
SCHEDULES:
Schedule 2.01 -- Commitments
Schedule 3.05 -- Real Property
Schedule 3.06 -- Litigation and Environmental Matters
Schedule 3.18 -- Burdensome Restrictions
Schedule 6.02 -- Existing Liens
Schedule 6.10 -- Existing Restrictions
EXHIBITS:
Exhibit A -- Form of Assignment and Acceptance
Exhibit B -- Form of Opinion of Borrower's Counsel
Exhibit C -- Form of Guarantee Agreement
Exhibit D -- Form of Pledge Agreement
Exhibit E -- Form of Security Agreement
Exhibit F -- Form of Indemnity, Subrogation and Contribution Agreement
<PAGE>
CREDIT AGREEMENT dated as of
September 29, 1998, among PSINET Inc., the
LENDERS party hereto, THE CHASE MANHATTAN
BANK, as Administrative Agent, FLEET NATIONAL
BANK, as Syndication Agent, and THE BANK OF
NEW YORK, as Documentation Agent.
The parties hereto agree as follows:
ARTICLE I
Definitions
-----------
SECTION 1.01. Defined Terms. As used in this Agreement, the following
-------------
terms have the meanings specified below:
"ABR", when used in reference to any Loan or Borrowing, refers to
---
whether such Loan, or the Loans comprising such Borrowing, are bearing interest
at a rate determined by reference to the Alternate Base Rate.
"Adjusted LIBO Rate" means, with respect to any Eurodollar Borrowing
------------------
for any Interest Period, an interest rate per annum (rounded upwards, if
necessary, to the next 1/16 of 1%) equal to (a) the LIBO Rate for such Interest
Period multiplied by (b) the Statutory Reserve Rate.
"Administrative Agent" means The Chase Manhattan Bank, in its capacity
--------------------
as administrative agent for the Lenders hereunder.
"Administrative Questionnaire" means an Administrative Questionnaire
----------------------------
in a form supplied by the Administrative Agent.
"Affiliate" means, with respect to a specified Person, another Person
---------
that directly, or indirectly through one or more intermediaries, Controls or is
Controlled by or is under common Control with the Person specified.
"Alternate Base Rate" means, for any day, a rate per annum equal to
-------------------
the greater of (a) the Prime Rate in effect on such day or (b) the Federal Funds
Effective Rate in effect on such day plus 1/2 of 1%. Any change in the Alternate
Base Rate due to a change in the Prime Rate or the Federal Funds Effective Rate
shall be effective from and including the effective date of such change in the
Prime Rate or the Federal Funds Effective Rate, respectively.
<PAGE>
2
"Annualized Adjusted Revenue" means, Consolidated Revenue for the most
---------------------------
recent fiscal quarter for which financial statements have been delivered
pursuant to Section 5.01(a) or (b), adjusted to give pro forma effect to any
acquisitions completed during or after such fiscal quarter, multiplied by four.
"Applicable Margin" means, for any day, with respect to any ABR Loan
-----------------
or Eurodollar Loan, as the case may be, the applicable rate per annum set forth
below under the caption "ABR Margin" or "Eurodollar Margin", as the case may be,
based upon the Leverage Ratio as of the most recent determination date:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
ABR Eurodollar
Leverage Ratio Margin Margin
==================================================================
<S> <C> <C>
Category 1 Greater than 5.00 to 1.00 1.75% 2.75%
- ------------------------------------------------------------------
Category 2 Less than 5.00 to 1.00 but 1.50% 2.50%
greater than 4.00 to 1.00
- ------------------------------------------------------------------
Category 3 Equal to or less than 4.00 1.25% 2.25%
to 1.00
- ------------------------------------------------------------------
</TABLE>
For purposes of the foregoing, (i) the Leverage Ratio shall be
determined as of the end of each fiscal quarter of the Borrower's fiscal year
based upon the Borrower's consolidated financial statements delivered pursuant
to Section 5.01(a) or (b) and (ii) each change in the Applicable Margin
resulting from a change in the Leverage Ratio shall be effective during the
period commencing on and including the date of delivery to the Administrative
Agent of such consolidated financial statements indicating such change and
ending on the date immediately preceding the effective date of the next such
change; provided that the Leverage Ratio shall be deemed to be in Category 1 (A)
--------
at any time that an Event of Default has occurred and is continuing or (B) if
the Borrower fails to deliver the consolidated financial statements required to
be delivered by it pursuant to Section 5.01(a) or (b), during the period from
the expiration of the time for delivery thereof until such consolidated
financial statements are delivered.
"Applicable Percentage" means, with respect to any Lender, the
---------------------
percentage of the total Revolving Commitments represented by such Lender's
Revolving Commitment. If the Revolving Commitments have terminated or expired,
the
<PAGE>
3
Applicable Percentages shall be determined based upon the Revolving Commitments
most recently in effect, giving effect to any assignments.
"Applicable Rate" means, for any day, with respect to any commitment
---------------
fees payable hereunder, the applicable rate per annum set forth below under the
caption "Revolving Commitment Fee Rate" based upon the percentage of the
commitments which are used on such date:
<TABLE>
<CAPTION>
==================================================================
Drawn Revolving Commitments Revolving
--------------------------- ---------
as a Percentage of Commitment
------------------ ----------
Total Revolving Commitments Fee Rate
--------------------------- --------
------------------------------------------------------------------
<S> <C>
Category 1
----------
Less than 25% .875%
------------------------------------------------------------------
Category 2
----------
Greater than or equal to 25% but .6875%
less than 50%
------------------------------------------------------------------
Category 3
----------
Greater than or equal to 50% .50%
==================================================================
</TABLE>
"Assignment and Acceptance" means an assignment and acceptance entered
-------------------------
into by a Lender and an assignee (with the consent of any party whose consent is
required by Section 9.04), and accepted by the Administrative Agent, in the form
of Exhibit A or any other form approved by the Administrative Agent.
"Board" means the Board of Governors of the Federal Reserve System of
-----
the United States of America.
"Borrower" means PSINet Inc., a New York corporation.
--------
"Borrowing" means (a) Loans of the same Type made, converted or
---------
continued on the same date and, in the case of Eurodollar Loans, as to which a
single Interest Period is in effect or (b) a Swingline Loan.
"Borrowing Request" means a request by the Borrower for a Borrowing in
-----------------
accordance with Section 2.03.
"Borrowing Rights Agreement" means the Rights Agreement dated as of
--------------------------
May 8, 1996, between the Borrower and First Chicago Trust Company of New York,
as in effect on the date of this Agreement (as amended, from time to time, to
<PAGE>
4
the extent that such amendment has been determined by the Board of Directors of
the Borrower, in good faith, not to adversely affect the Lenders).
"Business Day" means any day that is not a Saturday, Sunday or other
------------
day on which commercial banks in New York City are authorized or required by law
to remain closed; provided that, when used in connection with a Eurodollar Loan,
--------
the term "Business Day" shall also exclude any day on which banks are not open
------------
for dealings in dollar deposits in the London interbank market.
"Capital Lease Obligations" of any Person means the obligations of
-------------------------
such Person to pay rent or other amounts under any lease of (or other
arrangement conveying the right to use or agreement of substantially similar
effect) real or personal property, or a combination thereof, which obligations
are required to be classified and accounted for as capital leases on a balance
sheet of such Person under GAAP, and the amount of such obligations shall be the
capitalized amount thereof determined in accordance with GAAP.
"Change in Control" means (a) the acquisition of ownership, directly
-----------------
or indirectly, beneficially or of record, by any Person or group (within the
meaning of the Securities Exchange Act of 1934 and the rules of the Securities
and Exchange Commission thereunder as in effect on the date hereof), other than
IXC, IXC Communications, Inc. or any controlled affiliate thereof, in any case
pursuant to the issuance by the Borrower of shares of capital stock in
satisfaction of any obligations of the Borrower under the terms of the IXC
Agreement, of shares representing more than 25% of the aggregate ordinary voting
power represented by the issued and outstanding capital stock of the Borrower;
or (b) occupation of a majority of the seats (other than vacant seats) on the
board of directors of the Borrower by Persons who were neither (i) nominated by
the board of directors of the Borrower nor (ii) appointed by directors so
nominated.
"Change in Law" means (a) the adoption of any law, rule or regulation
-------------
after the date of this Agreement, (b) any change in any law, rule or regulation
or in the interpretation or application thereof by any Governmental Authority
after the date of this Agreement or (c) compliance by any Lender or the Issuing
Bank (or, for purposes of Section 2.15(b), by any lending office of such Lender
or by such Lender's or the Issuing Bank's holding company, if any) with any
request, guideline or directive (whether or not
<PAGE>
5
having the force of law) of any Governmental Authority made or issued after the
date of this Agreement.
"Code" means the Internal Revenue Code of 1986, as amended from time
----
to time.
"Collateral" means any and all "Collateral", as defined in any
----------
applicable Security Document.
"Collateral Agent" has the meaning assigned to such term in the
----------------
Security Agreement.
"Consolidated EBITDA" means, for any period, Consolidated Net Income
-------------------
for such period, plus, without duplication and to the extent deducted from
revenues in determining Consolidated Net Income for such period, the sum of (a)
the aggregate amount of Consolidated Interest Expense, net of any interest
income, for such period, (b) the aggregate amount of letter of credit fees paid
during such period, (c) the aggregate amount of income tax expense for such
period, (d) all amounts attributable to depreciation and amortization for such
period, (e) compensation expense resulting from the issuance of capital stock,
stock options or stock appreciation rights issued to employees, including
officers of the Borrower or any Subsidiaries, or the exercise of such options or
rights, in each case to the extent the obligation (if any) associated therewith
is not paid in cash by the Borrower or any Affiliate of the Borrower and
compensation expense resulting from the repurchase of any such capital stock,
options and rights, (f) all adjustments resulting from foreign currency
translations, (g) all extraordinary charges during such period and (h) all other
non-cash charges during such period, and minus, without duplication and to the
extent added to revenues in determining Consolidated Net Income for such period,
the sum of (i) all extraordinary gains during such period and (ii) all other
non-cash gains during such period, all as determined on a consolidated basis
with respect to the Borrower and the Subsidiaries in accordance with GAAP.
"Consolidated Income Tax Expense" of any Person means, for any period, the
-------------------------------
provision for Federal, state, local and foreign income taxes of such Person and
its consolidated subsidiaries for such period as determined in accordance with
GAAP.
"Consolidated Interest Expense" means, for any period, the interest
-----------------------------
expense, both expensed and capitalized (including the interest component in
respect of Capital Lease Obligations), accrued or paid by the Borrower and the
<PAGE>
6
Subsidiaries during such period, determined on a consolidated basis in
accordance with GAAP.
"Consolidated Net Income" means, for any period, net income or loss of
-----------------------
the Borrower and the Subsidiaries for such period, determined on a consolidated
basis in accordance with GAAP, provided that there shall be excluded from such
--------
net income or loss (a) the income of any Person which is not a Subsidiary in
which any other Person (other than the Borrower or any of the Subsidiaries or
any director holding qualifying shares in compliance with applicable law) has a
joint interest, except to the extent the amount of dividends or other
distributions actually paid to the Borrower or any of the Subsidiaries by such
Person during such period and (b) the income (or loss) of any Person accrued
prior to the date it becomes a Subsidiary or is merged into or consolidated with
the Borrower or any of the Subsidiaries or the date that Person's assets are
acquired by the Borrower or any other Subsidiaries.
"Consolidated Operating Cash Flow" means, with respect to any period,
--------------------------------
Consolidated Net Income for such period increased (without duplication), to the
extent deducted in calculating such Consolidated Net Income, by (a) Consolidated
Income Tax Expense for such period, (b) Consolidated Interest Expense for such
period and (c) depreciation, amortization and any other non-cash items for such
period (other than any non-cash item which requires the accrual of, or a reserve
for, cash charges for any future period) of the Borrower and any Subsidiary,
including, without limitation, amortization of capitalized debt issuance costs
for such period, all of the foregoing determined on a consolidated basis in
accordance with GAAP, minus non-cash items to the extent they increase
Consolidated Net Income (including the partial or entire reversal of reserves
taken in prior periods) for such period.
"Consolidated Revenue" means for any period, the revenues of the
--------------------
Borrower and the Subsidiaries for such period determined on a consolidated basis
in accordance with GAAP.
"Control" means the possession, directly or indirectly, of the power
to direct or cause the direction of the management or policies of a Person,
whether through the ability to exercise voting power, by contract or otherwise.
"Controlling" and "Controlled" have meanings correlative thereto.
- ------------ ----------
<PAGE>
7
"Cumulative Operating Cash Flow" means, as at any date of determination,
------------------------------
the positive cumulative Consolidated Operating Cash Flow realized during the
period commencing on the Effective Date and ending on the last day of the most
recent fiscal quarter immediately preceding the date of determination for which
consolidated financial information of the Borrower is available or, if such
cumulative Consolidated Operating Cash Flow for such period is negative, the
negative amount by which cumulative Consolidated Operating Cash Flow is less
than zero.
"Default" means any event or condition which constitutes an Event of
-------
Default or which upon notice, lapse of time or both would, unless cured or
waived, become an Event of Default.
"Disclosed Matters" means the actions, suits and proceedings and the
-----------------
environmental matters disclosed in Schedule 3.06.
"dollars" or "$" refers to lawful money of the United States of America.
------- -
"Effective Date" means the date on which the conditions specified in
--------------
Section 4.01 are satisfied (or waived in accordance with Section 9.02).
"Environmental Claim" means any written accusation, allegation, notice of
-------------------
violation, claim, demand, order, directive, cost recovery action or other cause
of action by, or on behalf of, any Governmental Authority or any Person for
damages, injunctive or equitable relief, Personal injury (including sickness,
disease or death), Remedial Action costs, tangible or intangible property
damage, natural resource damages, nuisance, pollution, any adverse effect on the
environment caused by any Hazardous Material, or for fines, penalties or
restrictions, resulting from or based upon (a) the existence, or the
continuation of the existence, of a Release (including sudden or non-sudden,
accidental or non-accidental Releases), (b) exposure to any Hazardous Material,
(c) the presence, use, handling, transportation, storage, treatment or disposal
of any Hazardous Material or (d) the violation or alleged violation of any
Environmental Law or Environmental Permit.
"Environmental Laws" means all laws, rules, regulations, codes, ordinances,
------------------
orders, decrees, judgments, injunctions, notices or binding agreements issued,
promulgated or entered into by any Governmental Authority, relating in any way
to the environment, preservation or reclamation of natural resources, the
management, release or
<PAGE>
8
threatened release of any Hazardous Material or to health and safety matters.
"Environmental Liability" means any liability, contingent or otherwise
-----------------------
(including any liability for damages, costs of environmental remediation, fines,
penalties or indemnities), of the Borrower or any Subsidiary directly or
indirectly resulting from or based upon (a) violation of any Environmental Law,
(b) the generation, use, handling, transportation, storage, treatment or
disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials,
(d) the release or threatened release of any Hazardous Materials into the
environment or (e) any contract, agreement or other consensual arrangement
pursuant to which liability is assumed or imposed with respect to any of the
foregoing.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended from time to time.
"ERISA Affiliate" means any trade or business (whether or not incorporated)
---------------
that, together with the Borrower, is treated as a single employer under Section
414(b) or (c) of the Code or, solely for purposes of Section 302 of ERISA and
Section 412 of the Code, is treated as a single employer under Section 414 of
the Code.
"ERISA Event" means (a) any "reportable event", as defined in Section 4043
-----------
of ERISA or the regulations issued thereunder with respect to a Plan (other than
an event for which the 30-day notice period is waived); (b) the existence with
respect to any Plan of an "accumulated funding deficiency" (as defined in
Section 412 of the Code or Section 302 of ERISA), whether or not waived; (c) the
filing pursuant to Section 412(d) of the Code or Section 303(d) of ERISA of an
application for a waiver of the minimum funding standard with respect to any
Plan; (d) the incurrence by the Borrower or any of its ERISA Affiliates of any
liability under Title IV of ERISA with respect to the termination of any Plan;
(e) the receipt by the Borrower or any ERISA Affiliate from the PBGC or a plan
administrator of any notice relating to an intention to terminate any Plan or
Plans or to appoint a trustee to administer any Plan; (f) the incurrence by the
Borrower or any of its ERISA Affiliates of any liability with respect to the
withdrawal or partial withdrawal from any Plan or Multiemployer Plan; or (g) the
receipt by the Borrower or any ERISA Affiliate of any notice, or the receipt by
any Multiemployer Plan from the Borrower or any ERISA Affiliate of any notice,
concerning the imposition of Withdrawal Liability or a determination that a
Multiemployer Plan is, or is expected
<PAGE>
9
to be, insolvent or in reorganization, within the meaning of Title IV of ERISA.
"Eurodollar", when used in reference to any Loan or Borrowing, refers to
----------
whether such Loan, or the Loans comprising such Borrowing, are bearing interest
at a rate determined by reference to the Adjusted LIBO Rate.
"Event of Default" has the meaning assigned to such term in Article VII.
----------------
"Excluded Taxes" means, with respect to the Administrative Agent, any
--------------
Lender, the Issuing Bank or any other recipient of any payment to be made by or
on account of any obligation of the Borrower hereunder, (a) income or franchise
taxes imposed on (or measured by) its net income by the United States of
America, or by the jurisdiction under the laws of which such recipient is
organized or in which its principal office is located or, in the case of any
Lender, in which its applicable lending office is located, (b) any branch
profits taxes imposed by the United States of America or any similar tax imposed
by any other jurisdiction in which the Borrower is located and (c) in the case
of a Foreign Lender (other than an assignee pursuant to a request by the
Borrower under Section 2.17(b)), any withholding tax that is imposed on amounts
payable to such Foreign Lender at the time such Foreign Lender becomes a party
to this Agreement (or designates a new lending office) or is attributable to
such Foreign Lender's failure to comply with Section 2.15(e), except to the
extent that such Foreign Lender (or its assignor, if any) was entitled, at the
time of designation of a new lending office (or assignment), to receive
additional amounts from the Borrower with respect to such withholding tax
pursuant to Section 2.15(a).
"Existing Letters of Credit" means the letters of credit issued for the
--------------------------
account of the Borrower and outstanding as of the Effective Date under the
Amended and Restated Credit Agreement dated as of November 10, 1995, among the
Borrower and Fleet National Bank, as amended; provided that the "Existing
--------
Letters of Credit" shall not include any non-dollar denominated letters of
credit issued for the account of the Borrower by Fleet National Bank.
"FCC" means the Federal Communications Commission.
---
"Federal Funds Effective Rate" means, for any day, the weighted average
----------------------------
(rounded upwards, if necessary, to the next 1/100 of 1%) of the rates on
overnight Federal funds transactions with members of the Federal Reserve System
arranged by Federal funds brokers, as published on the next
<PAGE>
10
succeeding Business Day by the Federal Reserve Bank of New York, or, if such
rate is not so published for any day that is a Business Day, the average
(rounded upwards, if necessary, to the next 1/100 of 1%) of the quotations for
such day for such transactions received by the Administrative Agent from three
Federal funds brokers of recognized standing selected by it.
"Financial Officer" means the chief financial officer, principal accounting
-----------------
officer, treasurer or controller of the Borrower.
"Foreign Lender" means any Lender that is organized under the laws of a
--------------
jurisdiction other than that in which the Borrower is located. For purposes of
this definition, the United States of America, each State thereof and the
District of Columbia shall be deemed to constitute a single jurisdiction.
"Foreign Subsidiary" means any Subsidiary that is organized under the
------------------
laws of a jurisdiction other than the United States of America or any State
thereof or the District of Columbia.
"GAAP" means generally accepted accounting principles in the United States
----
of America.
"Governmental Authority" means the government of the United States of
----------------------
America, any other nation or any political subdivision thereof, whether state or
local, and any agency, authority, instrumentality, regulatory body, court,
central bank or other entity exercising executive, legislative, judicial,
taxing, regulatory or administrative powers or functions of or pertaining to
government.
"Guarantee" of or by any Person (the "guarantor") means, without
--------- ---------
duplication, any obligation, contingent or otherwise, of the guarantor
guaranteeing or having the economic effect of guaranteeing any Indebtedness or
other obligation of any other Person (the "primary obligor") in any manner,
---------------
whether directly or indirectly, and including any obligation of the guarantor,
direct or indirect, (a) to purchase or pay (or advance or supply funds for the
purchase or payment of) such Indebtedness or other obligation or to purchase (or
to advance or supply funds for the purchase of) any security for the payment
thereof, (b) to purchase or lease property, securities or services for the
purpose of assuring the owner of such Indebtedness or other obligation of the
payment thereof, (c) to maintain working capital, equity capital or any other
financial statement condition or liquidity of the primary obligor so as to
enable the primary
<PAGE>
11
obligor to pay such Indebtedness or other obligation or (d) as an account party
in respect of any letter of credit or letter of guaranty issued to support such
Indebtedness or obligation; provided, that the term Guarantee shall not include
--------
endorsements for collection or deposit in the ordinary course of business.
"Guarantee Agreement" means the Guarantee Agreement with respect to the
-------------------
Obligations substantially in the form of Exhibit C, made by the Subsidiary Loan
Parties in favor of the Administrative Agent for the benefit of the Secured
Parties.
"Hazardous Materials" means all explosive or radioactive substances or
-------------------
wastes and all hazardous or toxic substances, wastes or other pollutants,
including petroleum or petroleum distillates, asbestos or asbestos containing
materials, polychlorinated biphenyls, radon gas, infectious or medical wastes
and all other substances or wastes of any nature regulated pursuant to any
Environmental Law.
"Hedging Agreement" means any interest rate protection agreement, foreign
-----------------
currency exchange agreement, commodity price protection agreement or other
interest or currency exchange rate or commodity price hedging arrangement.
"Indebtedness" of any Person means, without duplication, (a) all
------------
obligations of such Person for borrowed money or with respect to deposits or
advances of any kind, (b) all obligations of such Person evidenced by bonds,
debentures, notes or similar instruments, (c) all obligations of such Person
upon which interest charges are customarily paid (other than obligations in
respect of trade payables on which interest charges or default charges are
incurred in connection with the non-payment of such trade payables), (d) all
obligations of such Person under conditional sale or other title retention
agreements relating to property acquired by such Person, (e) all obligations of
such Person in respect of the deferred purchase price of property or services
(excluding current accounts payable incurred in the ordinary course of
business), (f) all Indebtedness of others secured by (or for which the holder of
such Indebtedness has an existing right, contingent or otherwise, to be secured
by) any Lien on property owned or acquired by such Person, whether or not the
Indebtedness secured thereby has been assumed, (g) all Guarantees by such Person
of Indebtedness of others, (h) all Capital Lease Obligations of such Person, (i)
all obligations, contingent or otherwise, of such Person as an account party in
respect of letters of credit and letters of
<PAGE>
12
guaranty and (j) all obligations, contingent or otherwise, of such Person in
respect of bankers' acceptances. The Indebtedness of any Person shall include
the Indebtedness of any other entity (including any partnership in which such
Person is a general partner) to the extent such Person is liable therefor as a
result of such Person's ownership interest in or other relationship with such
entity, except to the extent the terms of such Indebtedness provide that such
Person is not liable therefor. For purposes of determining any particular amount
of Indebtedness under this Agreement, any Guarantees, Liens or obligations with
respect to letters of credit supporting Indebtedness otherwise included in the
determination of such particular amount shall not be included.
"Indemnified Taxes" means Taxes other than Excluded Taxes.
-----------------
"Indemnity, Subrogation and Contribution Agreement" means the Indemnity,
-------------------------------------------------
Subrogation and Contribution Agreement, substantially in the form of Exhibit F,
among the Borrower and the Subsidiaries.
"Information Memorandum" means the Confidential Information Memorandum
----------------------
dated September 1998, relating to the Borrower and the Transactions.
"Intercompany Note" means an intercompany note issued by a Foreign
-----------------
Subsidiary to the Borrower and representing such Foreign Subsidiary's obligation
to repay the Borrower an amount equal to the proceeds of Loans or drawings on
Letters of Credit used by such Foreign Subsidiary to finance the design,
development, acquisition, construction or improvement of Telecommunications
Assets of such Foreign Subsidiary.
"Interest Election Request" means a request by the Borrower to convert or
-------------------------
continue a Borrowing in accordance with Section 2.06.
"Interest Payment Date" means (a) with respect to any ABR Loan (other than
---------------------
a Swingline Loan), the last Business Day of each March, June, September and
December, (b) with respect to any Eurodollar Loan, the last day of the Interest
Period applicable to the Borrowing of which such Loan is a part and, in the case
of a Eurodollar Borrowing with an Interest Period of more than three months'
duration, each day prior to the last day of such Interest Period that occurs at
intervals of three months' duration after the first day of such Interest Period
and (c) with respect to
<PAGE>
13
any Swingline Loan, the day that such Loan is required to be repaid.
"Interest Period" means with respect to any Eurodollar Borrowing, the
---------------
period commencing on the date of such Borrowing and ending on the numerically
corresponding day in the calendar month that is one, two, three or six months
(or, with the consent of each Lender, nine or twelve months) thereafter, as the
Borrower may elect, provided, that (i) if any Interest Period would end on a day
--------
other than a Business Day, such Interest Period shall be extended to the next
succeeding Business Day unless such next succeeding Business Day would fall in
the next calendar month, in which case such Interest Period shall end on the
next preceding Business Day and (ii) any Interest Period that commences on the
last Business Day of a calendar month (or on a day for which there is no
numerically corresponding day in the last calendar month of such Interest
Period) shall end on the last Business Day of the last calendar month of such
Interest Period. For purposes hereof, the date of a Borrowing initially shall be
the date on which such Borrowing is made and thereafter shall be the effective
date of the most recent conversion or continuation of such Borrowing.
"Investment" has the meaning set forth in Section 6.05.
----------
"IRU" means a noncancellable indefeasible right of use to, or in capacity
---
in, telecommunications bandwidth (or similar network bandwidth), related
equipment or other Telecommunications Assets, or any other right substantially
similar to the foregoing.
"Issuing Bank" means The Chase Manhattan Bank, in its capacity as the
------------
issuer of Letters of Credit hereunder, and its successors in such capacity as
provided in Section 2.05(i). The Issuing Bank may, in its discretion, arrange
for one or more Letters of Credit to be issued by Affiliates of the Issuing
Bank, in which case the term "Issuing Bank" shall include any such Affiliate
with respect to Letters of Credit issued by such Affiliate. Notwithstanding the
foregoing, Fleet National Bank shall be deemed to be an Issuing Bank with
respect to the Existing Letters of Credit issued by it, but shall not be
obligated to issue any additional Letters of Credit except as otherwise set
forth in this Agreement.
"IXC" means IXC Internet Services, Inc., a Delaware corporation, and any
---
successors or assigns under the IXC Agreement.
<PAGE>
14
"IXC Agreement" means the IRU and Stock Purchase Agreement dated as of
-------------
July 23, 1997, between the Borrower and IXC, as amended.
"LC Availability Period" means the period from and including the Effective
----------------------
Date to but excluding the earlier of the Maturity Date and the date of
termination of the Revolving Commitments.
"LC Disbursement" means a payment made by the Issuing Bank pursuant to a
---------------
Letter of Credit.
"LC Exposure" means, at any time, the sum of (a) the aggregate undrawn
-----------
amount of all outstanding Letters of Credit at such time plus (b) the aggregate
amount of all LC Disbursements that have not yet been reimbursed by or on behalf
of the Borrower at such time. The LC Exposure of any Lender at any time shall be
its Applicable Percentage of the total LC Exposure at such time.
"Lenders" means the Persons listed on Schedule 2.01 and any other Person
-------
that shall have become a party hereto pursuant to an Assignment and Acceptance,
other than any such Person that ceases to be a party hereto pursuant to an
Assignment and Acceptance. Unless the context otherwise requires, the "Lenders"
includes the Swingline Lender.
"Letter of Credit" means any letter of credit issued pursuant to this
----------------
Agreement. Each Existing Letter of Credit shall be deemed to constitute a Letter
of Credit issued hereunder on the Effective Date for all purposes of the Loan
Documents.
"Leverage Ratio" means, on any date, the ratio of (a) Total Debt as of
--------------
such date to (b) Consolidated EBITDA for the period of four consecutive fiscal
quarters of the Borrower most recently ended as of such date, all determined on
a consolidated basis in accordance with GAAP.
"LIBO Rate" means, with respect to any Eurodollar Borrowing for any
---------
Interest Period, the rate appearing on Page 3750 of the Dow Jones Market Service
(or on any successor or substitute page of such Service, or any successor to or
substitute for such Service, providing rate quotations comparable to those
currently provided on such page of such Service, as determined by the
Administrative Agent from time to time for purposes of providing quotations of
interest rates applicable to dollar deposits in the London interbank market) at
approximately 11:00 a.m., London time, two Business Days prior to the
commencement of such
<PAGE>
15
Interest Period, as the rate for dollar deposits with a maturity comparable to
such Interest Period. In the event that such rate is not available at such time
for any reason, then the "LIBO Rate" with respect to such Eurodollar Borrowing
---------
or such Interest Period shall be the rate at which dollar deposits of $5,000,000
and for a maturity comparable to such Interest Period are offered by the
principal London office of the Administrative Agent in immediately available
funds in the London interbank market at approximately 11:00 a.m., London time,
two Business Days prior to the commencement of such Interest Period.
"License" means any license issued by the FCC or any other Governmental
-------
Authority that regulates communications.
"Lien" means, with respect to any asset, (a) any mortgage, deed of trust,
----
lien, pledge, hypothecation, encumbrance, charge or security interest in, on or
of such asset, (b) the interest of a vendor or a lessor under any conditional
sale agreement, capital lease or title retention agreement (or any financing
lease having substantially the same economic effect as any of the foregoing)
relating to such asset and (c) in the case of securities, any purchase option,
call or similar right of a third party with respect to such securities.
"Loan Documents" means this Agreement, any notes issued pursuant hereto,
--------------
the Guarantee Agreement, the Pledge Agreement, the Security Agreement, the
Indemnity, Subrogation and Contribution Agreement and the other Security
Documents.
"Loan Parties" means the Borrower and the Subsidiary Loan Parties.
------------
"Loans" means the loans made by the Lenders to the Borrower pursuant to
-----
this Agreement.
"Material Adverse Effect" means a material adverse effect on (a) the
-----------------------
business, assets, operations, prospects or condition, financial or otherwise, of
the Loan Parties taken as a whole, (b) the ability of any Loan Party to perform
any of its obligations under any Loan Document or (c) the material rights of or
benefits available to the Lenders under any Loan Document.
"Material Indebtedness" means Indebtedness (other than the Loans and
---------------------
Letters of Credit), or obligations in respect of one or more Hedging Agreements,
of any one or more of the Borrower and its Subsidiaries in an aggregate
<PAGE>
16
principal amount exceeding $5,000,000. For purposes of determining Material
Indebtedness, the "principal amount" of the obligations of the Borrower or any
Subsidiary in respect of any Hedging Agreement at any time shall be the maximum
aggregate amount (giving effect to any netting agreements) that the Borrower or
such Subsidiary would be required to pay if such Hedging Agreement were
terminated at such time.
"Maturity Date" means the date which is three years from the Effective
-------------
Date or, if such date does not fall on a Business Day, the first Business Day
thereafter.
"Moody's" means Moody's Investors Service, Inc.
-------
"Mortgage" means a mortgage, deed of trust, assignment of leases and rents,
--------
leasehold mortgage or other security document granting a Lien on any Mortgaged
Property to secure the Obligations. Each Mortgage shall be satisfactory in form
and substance to the Administrative Agent.
"Mortgaged Property" means each parcel of real property and improvements
------------------
thereto with respect to which a Mortgage is granted pursuant to Section 5.12 or
5.13.
"Multiemployer Plan" means a multiemployer plan as defined in Section 4001
------------------
(a)(3) of ERISA.
"Net Debt" means Total Debt minus Non-Restricted Cash.
--------
"Net Proceeds" means, with respect to any event (a) the cash proceeds
------------
received in respect of such event including (i) any cash received in respect of
any non-cash proceeds, but only as and when received, (ii) in the case of a
casualty, insurance proceeds, and (iii) in the case of a condemnation or similar
event, condemnation awards and similar payments, net of (b) the sum of (i) all
reasonable fees and out-of-pocket expenses paid by the Borrower and the
Subsidiaries to third parties (other than Affiliates) in connection with such
event (including, without limitation, the fees and expenses of counsel,
investment bankers and accountants), (ii) in the case of a sale or other
disposition of an asset (including pursuant to a casualty or condemnation), the
amount of all payments required to be made by the Borrower and the Subsidiaries
as a result of such event to repay Indebtedness (other than Loans) secured by
such asset or otherwise subject to mandatory prepayment as a result of such
event, and (iii) the amount of all taxes paid (or reasonably estimated to be
payable) by the Borrower and the Subsidiaries, and the amount of any reserves
<PAGE>
17
established by the Borrower and the Subsidiaries to fund contingent liabilities
reasonably estimated to be payable, in each case during the year that such event
occurred or the next succeeding year and that are directly attributable to such
event (as determined reasonably and in good faith by the chief financial officer
of the Borrower).
"Non-Hostile Acquisition" means any non-hostile acquisition, directly or
-----------------------
indirectly, of assets from, or capital stock or other equity interests (other
than margin stock) in, any Person as part of a single transaction or a series of
related transactions so long as (a) any such non-hostile acquisition shall not
cause a Change in Control, (b) immediately after giving effect thereto, no
Default or Event of Default shall have occurred and be continuing or would
result therefrom, (c) such non-hostile acquisition has been approved by the
Board of Directors of the Borrower and evidenced in a resolution thereof and (d)
both before and after such Non-Hostile Acquisition is made by the Borrower or
any Subsidiary the Borrower shall be in pro forma compliance with the financial
covenants set forth in Section 6.12.
"Non-Restricted Cash" means cash minus any cash escrowed with respect to
-------------------
the payment of obligations other than the Obligations.
"Obligations" has the meaning assigned to such term in the Collateral
-----------
Agreement.
"Other Taxes" means any and all present or future stamp or documentary
-----------
taxes or any other excise or property taxes, charges or similar levies arising
from any payment made under any Loan Document or from the execution, delivery or
enforcement of, or otherwise with respect to, any Loan Document.
"PBGC" means the Pension Benefit Guaranty Corporation referred to and
----
defined in ERISA and any successor entity performing similar functions.
"Perfection Certificate" means a certificate in the form of Annex 2 to the
----------------------
Security Agreement or any other form approved by the Administrative Agent.
<PAGE>
18
"Permitted Encumbrances" means:
----------------------
(a) Liens imposed by law for taxes that are not yet due or are being
contested in compliance with Section 5.04;
(b) carriers', warehousemen's, mechanics', materialmen's, repairmen's
and other like Liens imposed by law, arising in the ordinary course of
business and securing obligations that are not overdue by more than 30 days
or are being contested in compliance with Section 5.04;
(c) pledges and deposits made in the ordinary course of business in
compliance with workers' compensation, unemployment insurance and other
social security laws or regulations;
(d) deposits to secure the performance of bids, trade contracts,
leases, statutory or public obligations, surety and appeal bonds, advance
payment bonds, standby letters of credit, performance bonds and other
obligations of a like nature, in each case in the ordinary course of
business and not in connection with the borrowing of money and Liens in
favor of customs or revenue authorities to secure customs duties;
(e) judgment or similar liens in respect of judgments, decrees or
orders that do not constitute an Event of Default under clause (k) of
Article VII;
(f) easements, zoning restrictions, rights-of-way and similar
encumbrances on real property imposed by law or arising in the ordinary
course of business that do not secure any monetary obligations and do not
materially detract from the value of the affected property for the purpose
it is used by the Borrower or any Subsidiary or materially interfere with
the ordinary conduct of business of the Borrower or any Subsidiary;
(g) any Lien encumbering deposits made to secure obligations arising
from regulatory, contractual or warranty requirements of the Borrower or
any Subsidiary arising in the ordinary course of business, including rights
of offset and setoff;
(h) leases, subleases, licenses or similar rights granted to third
Persons; and
<PAGE>
19
(i) Liens securing any refinancing, in whole or in part, of an
obligation or Indebtedness permitted under Section 6.01 and secured by a
Lien permitted under Section 6.02.
provided that the term "Permitted Encumbrances" shall not include any Lien
- --------
securing Indebtedness.
"Permitted Investments" means:
---------------------
(a) direct obligations of, or obligations the principal of and
interest on which are unconditionally guaranteed by, the United States of
America (or by any agency thereof to the extent such obligations are backed
by the full faith and credit of the United States of America), in each case
maturing within one year from the date of acquisition thereof;
(b) investments in commercial paper maturing within 270 days from the
date of acquisition thereof and having, at such date of acquisition, a
rating of "P-1" (or higher) according to Moody's or "A-1" (or higher)
according to S&P;
(c) investments in certificates of deposit, banker's acceptances and
time deposits maturing within one year from the date of acquisition thereof
issued or guaranteed by or placed with, and time deposits of and money
market deposit accounts issued or offered by, any Lender or domestic office
of any commercial bank organized under the laws of the United States of
America or any State thereof which has a combined capital and surplus and
undivided profits of not less than $500,000,000;
(d) fully collateralized repurchase agreements with a term of not more
than 30 days for securities described in clause (a) above and entered into
with a financial institution satisfying the criteria described in clause
(c) above; and
(e) solely with respect to interest escrow reserves required to be
established under the Senior Note Indenture, investments permitted pursuant
to the terms of the Indenture.
"Permitted Preferred Stock" means the Series B Preferred Stock and any
-------------------------
other preferred stock of the Borrower other than preferred stock which, by its
terms, obligates the Borrower to pay any dividend or other distribution (except
in the form of additional shares of
<PAGE>
20
capital stock of the Borrower) and except for cash dividends, redemptions or
other distributions not in excess of $1,000,000 in the aggregate for the term of
this Agreement.
"Person" means any natural person, corporation, limited liability
------
company, trust, joint venture, association, company, partnership, Governmental
Authority or other entity.
"Plan" means any employee pension benefit plan (other than a
----
Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section
412 of the Code or Section 302 of ERISA, and in respect of which the Borrower or
any ERISA Affiliate is (or, if such plan were terminated, would under Section
4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of
ERISA.
"Pledge Agreement" shall mean the Pledge Agreement, substantially in
----------------
the form of Exhibit D, between the Borrower, the Subsidiary Loan Parties and the
Administrative Agent for the benefit of the Secured Parties.
"Prepayment Event" means:
----------------
(a) any sale, transfer or other disposition (including pursuant to a
sale and leaseback transaction) of any property or asset of the Borrower or
any Subsidiary, other than (i) dispositions described in clauses (a) and
(b) of Section 6.06 and (ii) other dispositions to the extent that in
aggregate the Net Proceeds from all such dispositions do not exceed
$5,000,000 each fiscal year; or
(b) any casualty or other insured damage to, or any taking under power
of eminent domain or by condemnation or similar proceeding of, any property
or asset of the Borrower or any Subsidiary.
"Prime Rate" means the rate of interest per annum publicly announced
----------
from time to time by The Chase Manhattan Bank as its prime rate in effect at its
principal office in New York City; each change in the Prime Rate shall be
effective from and including the date such change is publicly announced as being
effective.
"Purchase Money Obligation" means any Indebtedness secured by a Lien
-------------------------
on assets of the Borrower or its Subsidiaries which are purchased by the
Borrower or its Subsidiaries; provided that (i) the security agreement or
--------
conditional sales or other title retention contract pursuant
<PAGE>
21
to which the Lien on such assets is created shall be entered into within 90 days
after the purchase or substantial completion of the construction of such assets
and shall at all times be confined solely to the assets so purchased or acquired
and all accessions, additions, replacements, substitutions and proceeds thereof,
(ii) such Lien shall only secure the Indebtedness entered into by the Borrower
or such Subsidiary in connection with such purchase and (iii) such Indebtedness
shall not exceed the aggregate amount of such purchase.
"Redeemable Capital Stock" means any capital stock of the Borrower
------------------------
that, either by its terms or by the terms of any security into which it is
convertible or exchangeable or otherwise, is or upon the happening of an event
or passage of time would be, required to be redeemed prior to the date six
months after the Maturity Date or is redeemable at the option of the holder
thereof at any time prior to the date six months after the Maturity Date, or is
convertible into or exchangeable for debt securities at any time prior to the
date six months after the Maturity Date at the option of the holder thereof.
"Register" has the meaning set forth in Section 9.04(c).
--------
"Related Parties" means, with respect to any specified Person, such
---------------
Person's Affiliates and the respective directors, officers, employees, agents
and advisors of such Person and such Person's Affiliates.
"Release" means any spilling, leaking, pumping, pouring, emitting,
-------
emptying, discharging, injecting, escaping, leaching, dumping, disposing,
depositing, dispersing, emanating or migrating of any Hazardous Material in,
into, onto or through the environment.
"Required Lenders" means, at any time, Lenders having Revolving
----------------
Exposures and unused Revolving Commitments representing more than 50% of the sum
of the total Revolving Exposures and unused Revolving Commitments at such time;
provided that if, at any time, there are only two Lenders with outstanding
- --------
Revolving Commitments and Revolving Exposures, the Required Lenders shall be
deemed to be such two Lenders.
"Restricted Payment" means any dividend or other distribution (whether
------------------
in cash, securities or other property) with respect to any shares of any class
of capital stock of the Borrower or any Subsidiary, or any payment (whether in
cash, securities or other property), including any sinking
<PAGE>
22
fund or similar deposit, on account of the purchase, redemption, retirement,
acquisition, cancelation or termination of (i) any Indebtedness, (ii) any such
shares of capital stock or preferred stock of the Borrower or any Subsidiary or
(iii) any option, warrant or other right to acquire any such shares of capital
stock of the Borrower or any Subsidiary.
"Revolving Availability Period" means the period from and including
-----------------------------
the Effective Date to but excluding the earlier of the Maturity Date and the
date of termination of the Revolving Commitments.
"Revolving Commitment" means, with respect to each Lender, the
--------------------
commitment, if any, of such Lender to make Revolving Loans and Swingline Loans
hereunder, expressed as an amount representing the maximum aggregate amount of
such Lender's Revolving Exposure hereunder, as such commitment may be (a)
reduced from time to time pursuant to Section 2.07 and (b) reduced or increased
from time to time pursuant to assignments by or to such Lender pursuant to
Section 9.04. The initial amount of each Lender's Revolving Commitment is set
forth on Schedule 2.01, or in the Assignment and Acceptance pursuant to which
such Lender shall have assumed its Revolving Commitment, as applicable. The
initial aggregate amount of the Lenders' Revolving Commitments is $110,000,000.
"Revolving Exposure" means, with respect to any Lender at any time,
------------------
the sum of the outstanding principal amount of such Lender's Revolving Loans and
such Lender's LC Exposure and Swingline Exposure at such time.
"Revolving Lender" means a Lender with a Revolving Commitment or, if
----------------
the Revolving Commitments have terminated or expired, a Lender with Revolving
Exposure.
"Revolving Loan" means a Loan made pursuant to Section 2.01.
--------------
"S&P" means Standard & Poor's Ratings Group, a division of The McGraw-
---
Hill Companies, Inc.
"Secured Parties" has the meaning assigned to such term in the
---------------
Security Agreement.
"Security Agreement" means the Security Agreement among the Borrower,
------------------
the Subsidiary Loan Parties and the Administrative Agent, substantially in the
form of Exhibit E.
<PAGE>
23
"Security Documents" means the Security Agreement, the Pledge
------------------
Agreement and each other security agreement or other instrument or document
executed and delivered pursuant to any of the foregoing or Section 5.12, 5.13 or
5.15 to secure any of the Obligations.
"Senior Note Indenture" means the Indenture dated as of April 13,
---------------------
1998, between the Borrower and Wilmington Trust Company, as amended, with
respect to the Senior Notes.
"Senior Notes" means the Borrower's 10% Senior Notes due 2005 in the
------------
original principal amount of $600,000,000.
"Series B Preferred Stock" means the Borrower's $30,000,000 Series B
------------------------
8% Convertible Preferred Stock.
"SFr" refers to lawful money of Switzerland.
---
"Significant Subsidiary" means any Subsidiary of the Borrower that, at
----------------------
any time, owns or maintains at least $1,000,000 in assets or generates at least
$1,000,000 in annual revenues.
"Statutory Reserve Rate" means a fraction (expressed as a decimal),
----------------------
the numerator of which is the number one and the denominator of which is the
number one minus the aggregate of the maximum reserve percentages (including any
marginal, special, emergency or supplemental reserves) expressed as a decimal
established by the Board to which the Administrative Agent is subject with
respect to the Adjusted LIBO Rate, for eurocurrency funding (currently referred
to as "Eurocurrency Liabilities" in Regulation D of the Board). Such reserve
percentages shall include those imposed pursuant to such Regulation D.
Eurodollar Loans shall be deemed to constitute eurocurrency funding and to be
subject to such reserve requirements without benefit of or credit for proration,
exemptions or offsets that may be available from time to time to any Lender
under such Regulation D or any comparable regulation. The Statutory Reserve Rate
shall be adjusted automatically on and as of the effective date of any change in
any reserve percentage after the date hereof.
"subsidiary" means, with respect to any Person (the "parent") at any
---------- ------
date, any corporation, limited liability company, partnership, association or
other entity the accounts of which would be consolidated with those of the
parent in the parent's consolidated financial statements if such financial
statements were prepared in accordance with GAAP as of such date, as well as any
other corporation,
<PAGE>
24
limited liability company, partnership, association or other entity (a) of which
securities or other ownership interests representing more than 50% of the equity
or more than 50% of the ordinary voting power or, in the case of a partnership,
more than 50% of the general partnership interests are, as of such date, owned,
controlled or held, or (b) that is, as of such date, an Affiliate otherwise
Controlled, by the parent or one or more subsidiaries of the parent or by the
parent and one or more subsidiaries of the parent.
"Subsidiary" means any subsidiary of the Borrower.
----------
"Subsidiary Loan Party" means any Subsidiary that is a Significant
---------------------
Subsidiary and is not a Foreign Subsidiary or any other Subsidiary which becomes
a Subsidiary Loan Party by becoming party to the Guarantee Agreement, the Pledge
Agreement, the Security Agreement and the Indemnity, Contribution and
Subrogation Agreement.
"Swingline Exposure" means, at any time, the aggregate principal
------------------
amount of all Swingline Loans outstanding at such time. The Swingline Exposure
of any Lender at any time shall be its Applicable Percentage of the total
Swingline Exposure at such time.
"Swingline Lender" means The Chase Manhattan Bank, in its capacity as
----------------
lender of Swingline Loans hereunder.
"Swingline Loan" has the meaning set forth in Section 2.18.
--------------
"Swiss Subsidiary Debt" means commercial loans in an aggregate amount
---------------------
up to SFr44,000,000 to the Swiss Subsidiaries from various banks located in
Switzerland secured by certain assets purchased by the Swiss Subsidiaries with
the proceeds of such loans.
"Swiss Subsidiaries" means PSINet Euro Telecom SARL, PSIWeb Europe
------------------
SARL and PSINet Europe B.V.
"Taxes" means any and all present or future taxes, levies, imposts,
-----
duties, deductions, charges or withholdings imposed by any Governmental
Authority.
"Telecommunications Assets" means all assets (including capital
-------------------------
stock), rights (contractual or otherwise) and properties, real or personal,
whether tangible or intangible, used or intended for use in connection with a
Telecommunications Business.
<PAGE>
25
"Telecommunications Business" means, when used in reference to any
---------------------------
Person, that such Person is engaged primarily in (i) the business of
transmitting, or providing services relating to the transmission of, voice,
video or data through owned or leased transmission facilities, (ii) the business
of creating, developing or marketing communications-related network equipment or
services or computer-based information or (iii) businesses reasonably related
thereto.
"Total Debt" means, at any time, all Indebtedness of the Borrower and
----------
the Subsidiary Loan Parties as determined on a consolidated basis in accordance
with GAAP.
"Transactions" means the execution, delivery and performance by each
------------
Loan Party of the Loan Documents to which it is designated a party.
"Type", when used in reference to any Loan or Borrowing, refers to
----
whether the rate of interest on such Loan, or on the Loans comprising such
Borrowing, is determined by reference to the Adjusted LIBO Rate or the Alternate
Base Rate.
"Withdrawal Liability" means liability to a Multiemployer Plan as a
--------------------
result of a complete or partial withdrawal from such Multiemployer Plan, as such
terms are defined in Part I of Subtitle E of Title IV of ERISA.
SECTION 1.02. Classification of Loans and Borrowings. For purposes of
--------------------------------------
this Agreement, Loans may be classified by Type (e.g., a "Eurodollar Loan").
----
Borrowings also may be classified and referred to by Type (e.g., a "Eurodollar
----
Borrowing").
SECTION 1.03. Terms Generally. The definitions of terms herein shall
---------------
apply equally to the singular and plural forms of the terms defined. Whenever
the context may require, any pronoun shall include the corresponding masculine,
feminine and neuter forms. The words "include", "includes" and "including" shall
be deemed to be followed by the phrase "without limitation". The word "will"
shall be construed to have the same meaning and effect as the word "shall".
Unless the context requires otherwise (a) any definition of or reference to any
agreement, instrument or other document herein shall be construed as referring
to such agreement, instrument or other document as from time to time amended,
supplemented or otherwise modified (subject to any restrictions on such
amendments, supplements or modifications set forth herein), (b) any reference
herein to any Person shall be construed to include such Person's
<PAGE>
26
successors and assigns, (c) the words "herein", "hereof" and "hereunder", and
words of similar import, shall be construed to refer to this Agreement in its
entirety and not to any particular provision hereof, (d) all references herein
to Articles, Sections, Exhibits and Schedules shall be construed to refer to
Articles and Sections of, and Exhibits and Schedules to, this Agreement and (e)
the words "asset" and "property" shall be construed to have the same meaning and
effect and to refer to any and all tangible and intangible assets and
properties, including cash, securities, accounts and contract rights.
SECTION 1.04. Accounting Terms; GAAP. Except as otherwise expressly
----------------------
provided herein, all terms of an accounting or financial nature shall be
construed in accordance with GAAP, as in effect from time to time; provided
--------
that, if the Borrower notifies the Administrative Agent that the Borrower
requests an amendment to any provision hereof to eliminate the effect of any
change occurring after the date hereof in GAAP or in the application thereof on
the operation of such provision (or if the Administrative Agent notifies the
Borrower that the Required Lenders request an amendment to any provision hereof
for such purpose), regardless of whether any such notice is given before or
after such change in GAAP or in the application thereof, then such provision
shall be interpreted on the basis of GAAP as in effect and applied immediately
before such change shall have become effective until such notice shall have been
withdrawn or such provision amended in accordance herewith.
ARTICLE II
The Credits
-----------
SECTION 2.01. Revolving Commitments. Subject to the terms and
---------------------
conditions set forth herein, each Lender agrees to make Loans to the Borrower
from time to time during the Revolving Availability Period in an aggregate
principal amount that will not result in such Lender's Revolving Exposure
exceeding such Lender's Revolving Commitment. Within the foregoing limits and
subject to the terms and conditions set forth herein, the Borrower may borrow,
prepay and reborrow Loans.
SECTION 2.02. Loans and Borrowings. (a) Each Loan (other than a
--------------------
Swingline Loan) shall be made as part of a Borrowing consisting of Loans of the
same Type made by the Lenders ratably in accordance with their respective
Revolving Commitments. The failure of any Lender to make
<PAGE>
27
any Loan required to be made by it shall not relieve any other Lender of its
obligations hereunder; provided that the Revolving Commitments of the Lenders
--------
are several and no Lender shall be responsible for any other Lender's failure to
make Loans as required.
(b) Subject to Section 2.12, each Borrowing shall be comprised
entirely of ABR Loans or Eurodollar Loans as the Borrower may request in
accordance herewith. Each Swingline Loan shall be an ABR Loan. Each Lender at
its option may make any Eurodollar Loan by causing any domestic or foreign
branch or Affiliate of such Lender to make such Loan; provided that any exercise
--------
of such option shall not affect the obligation of the Borrower to repay such
Loan in accordance with the terms of this Agreement.
(c) At the commencement of each Interest Period for any Eurodollar
Borrowing, such Borrowing shall be in an aggregate amount that is an integral
multiple of $1,000,000 and not less than $5,000,000. At the time that each ABR
Revolving Borrowing is made, such Borrowing shall be in an aggregate amount that
is an integral multiple of $1,000,000 and not less than $5,000,000; provided
--------
that an ABR Revolving Borrowing may be in an aggregate amount that is equal to
the entire unused balance of the total Revolving Commitments or that is required
to finance the reimbursement of an LC Disbursement as contemplated by Section
2.04(e). Each Swingline Loan shall be in an amount that is an integral multiple
of $10,000 and not less than $50,000. Borrowings of more than one Type may be
outstanding at the same time; provided that there shall not at any time be more
--------
than a total of 10 Eurodollar Borrowings outstanding.
(d) Notwithstanding any other provision of this Agreement, the
Borrower shall not be entitled to request, or to elect to convert or continue,
any Borrowing if the Interest Period requested with respect thereto would end
after the Maturity Date.
SECTION 2.03. Requests for Borrowings. To request a Borrowing, the
-----------------------
Borrower shall notify the Administrative Agent of such request by telephone (a)
in the case of a Eurodollar Borrowing, not later than 11:00 a.m., New York City
time, three Business Days before the date of the proposed Borrowing, (b) in the
case of an ABR Borrowing, not later than 11:00 a.m., New York City time, one
Business Day before the date of the proposed Borrowing; provided that any such
--------
notice of an ABR Revolving Borrowing to finance the reimbursement of an LC
Disbursement as contemplated by Section 2.04(e) may be given not later than
10:00 a.m., New York City time, on the date of the proposed Borrowing. Each
<PAGE>
28
such telephonic Borrowing Request shall be irrevocable and shall be confirmed
promptly by hand delivery or telecopy to the Administrative Agent of a written
Borrowing Request in a form approved by the Administrative Agent and signed by
the Borrower. Each such telephonic and written Borrowing Request shall specify
the following information in compliance with Section 2.02:
(i) the aggregate amount of such Borrowing;
(ii) the date of such Borrowing, which shall be a Business Day;
(iii) whether such Borrowing is to be an ABR Borrowing or a Eurodollar
Borrowing;
(iv) in the case of a Eurodollar Borrowing, the initial Interest
Period to be applicable thereto, which shall be a period contemplated by
the definition of the term "Interest Period"; and
(v) the location and number of the Borrower's account to which funds
are to be disbursed, which shall comply with the requirements of Section
2.05.
If no election as to the Type of Borrowing is specified, then the requested
Borrowing shall be an ABR Borrowing. If no Interest Period is specified with
respect to any requested Eurodollar Revolving Borrowing, then the Borrower shall
be deemed to have selected an Interest Period of one month's duration. Promptly
following receipt of a Borrowing Request in accordance with this Section, the
Administrative Agent shall advise each Lender of the details thereof and of the
amount of such Lender's Loan to be made as part of the requested Borrowing.
SECTION 2.04. Letters of Credit. (a) General. Subject to the terms and
----------------- -------
conditions set forth herein, the Borrower may request the issuance of Letters of
Credit for its own account, in a form reasonably acceptable to the
Administrative Agent and the Issuing Bank, at any time and from time to time
during the LC Availability Period. In the event of any inconsistency between the
terms and conditions of this Agreement and the terms and conditions of any form
of letter of credit application or other agreement submitted by the Borrower to,
or entered into by the Borrower with, the Issuing Bank relating to any Letter of
Credit, the terms and conditions of this Agreement shall control.
(b) Notice of Issuance, Amendment, Renewal, Extension; Certain
----------------------------------------------------------
Conditions. To request the issuance of a
- ----------
<PAGE>
29
Letter of Credit (or the amendment, renewal or extension of an outstanding
Letter of Credit), the Borrower shall hand deliver or telecopy (or transmit by
electronic communication, if arrangements for doing so have been approved by the
Issuing Bank) to the Issuing Bank and the Administrative Agent (reasonably in
advance of the requested date of issuance, amendment, renewal or extension but
in no event less than five Business Days) a notice requesting the issuance of a
Letter of Credit, or identifying the Letter of Credit to be amended, renewed or
extended, and specifying the date of issuance, amendment, renewal or extension
(which shall be a Business Day), the date on which such Letter of Credit is to
expire (which shall comply with paragraph (c) of this Section), the amount of
such Letter of Credit, the name and address of the beneficiary thereof and such
other information as shall be necessary to prepare, amend, renew or extend such
Letter of Credit. If requested by the Issuing Bank, the Borrower also shall
submit a letter of credit application on the Issuing Bank's standard form in
connection with any request for a Letter of Credit. A Letter of Credit shall be
issued, amended, renewed or extended only if (and upon issuance, amendment,
renewal or extension of each Letter of Credit the Borrower shall be deemed to
represent and warrant that), after giving effect to such issuance, amendment,
renewal or extension (i) the LC Exposure shall not exceed $25,000,000 and (ii)
the total Revolving Exposures shall not exceed the total Revolving Commitments.
(c) Expiration Date. Each Letter of Credit shall expire at or prior
---------------
to the close of business on the earlier of (i) the date one year after the date
of the issuance of such Letter of Credit (or, in the case of any renewal or
extension thereof, one year after such renewal or extension) and (ii) the date
that is five Business Days prior to the Maturity Date.
(d) Participations. By the issuance of a Letter of Credit (or an
--------------
amendment to a Letter of Credit increasing the amount thereof) and without any
further action on the part of the Issuing Bank or the Lenders, the Issuing Bank
hereby grants to each Lender, and each Lender hereby acquires from the Issuing
Bank, a participation in such Letter of Credit equal to such Lender's Applicable
Percentage of the aggregate amount available to be drawn under such Letter of
Credit. In consideration and in furtherance of the foregoing, each Lender hereby
absolutely and unconditionally agrees to pay to the Administrative Agent, for
the account of the Issuing Bank, such Lender's Applicable Percentage of each LC
Disbursement made by the Issuing Bank and not reimbursed by the Borrower on the
date
<PAGE>
30
due as provided in paragraph (e) of this Section, or of any reimbursement
payment required to be refunded to the Borrower for any reason. Each Lender
acknowledges and agrees that its obligation to acquire participations pursuant
to this paragraph in respect of Letters of Credit is absolute and unconditional
and shall not be affected by any circumstance whatsoever, including any
amendment, renewal or extension of any Letter of Credit or the occurrence and
continuance of a Default or reduction or termination of the Revolving
Commitments, and that each such payment shall be made without any offset,
abatement, withholding or reduction whatsoever.
(e) Reimbursement. If the Issuing Bank shall make any LC Disbursement
-------------
in respect of a Letter of Credit, the Borrower shall reimburse such LC
Disbursement by paying to the Administrative Agent an amount equal to such LC
Disbursement not later than 12:00 noon, New York City time, on the date that
such LC Disbursement is made, if the Borrower shall have received notice of such
LC Disbursement prior to 10:00 a.m., New York City time, on such date, or, if
such notice has not been received by the Borrower prior to such time on such
date, then not later than 12:00 noon, New York City time, on (i) the Business
Day that the Borrower receives such notice, if such notice is received prior to
10:00 a.m., New York City time, on the day of receipt, or (ii) the Business Day
immediately following the day that the Borrower receives such notice, if such
notice is not received prior to such time on the day of receipt; provided that,
--------
if such LC Disbursement is not less than $5,000,000, the Borrower may, if
sufficient unused Revolving Commitments are available and subject to the
conditions to borrowing set forth herein, request in accordance with Section
2.03 that such payment be financed with an ABR Revolving Borrowing in an
equivalent amount and, to the extent so financed, the Borrower's obligation to
make such payment shall be discharged and replaced by the resulting ABR
Revolving Borrowing. If the Borrower fails to make such payment when due, the
Administrative Agent shall notify each Lender of the applicable LC Disbursement,
the payment then due from the Borrower in respect thereof and such Lender's
Applicable Percentage thereof. Promptly following receipt of such notice, each
Revolving Lender shall pay to the Administrative Agent its Applicable Percentage
of the payment then due from the Borrower, in the same manner as provided in
Section 2.06 with respect to Loans made by such Lender (and Section 2.06 shall
apply, mutatis mutandis, to the payment obligations of the Revolving Lenders),
------- --------
and the Administrative Agent shall promptly pay to the Issuing Bank the amounts
so received by it from the Lenders. Promptly following receipt by the
Administrative Agent of any payment
<PAGE>
31
from the Borrower pursuant to this paragraph, the Administrative Agent shall
distribute such payment to the Issuing Bank or, to the extent that Lenders have
made payments pursuant to this paragraph to reimburse the Issuing Bank, then to
such Lenders and the Issuing Bank as their interests may appear. Any payment
made by a Lender pursuant to this paragraph to reimburse the Issuing Bank for
any LC Disbursement (other than the funding of ABR Loans as contemplated above)
shall not constitute a Loan and shall not relieve the Borrower of its obligation
to reimburse such LC Disbursement.
(f) Obligations Absolute. The Borrower's obligation to reimburse LC
---------------------
Disbursements as provided in paragraph (e) of this Section shall be absolute,
unconditional and irrevocable, and shall be performed strictly in accordance
with the terms of this Agreement under any and all circumstances whatsoever and
irrespective of (i) any lack of validity or enforceability of any Letter of
Credit or this Agreement, or any term or provision therein, (ii) any draft or
other document presented under a Letter of Credit proving to be forged,
fraudulent or invalid in any respect or any statement therein being untrue or
inaccurate in any respect, (iii) payment by the Issuing Bank under a Letter of
Credit against presentation of a draft or other document that does not comply
with the terms of such Letter of Credit, or (iv) any other event or circumstance
whatsoever, whether or not similar to any of the foregoing, that might, but for
the provisions of this Section, constitute a legal or equitable discharge of, or
provide a right of setoff against, the Borrower's obligations hereunder.
Neither the Administrative Agent, the Lenders nor the Issuing Bank, nor any of
their Related Parties, shall have any liability or responsibility by reason of
or in connection with the issuance or transfer of any Letter of Credit or any
payment or failure to make any payment thereunder (irrespective of any of the
circumstances referred to in the preceding sentence), or any error, omission,
interruption, loss or delay in transmission or delivery of any draft, notice or
other communication under or relating to any Letter of Credit (including any
document required to make a drawing thereunder), any error in interpretation of
technical terms or any consequence arising from causes beyond the control of the
Issuing Bank; provided that the foregoing shall not be construed to excuse the
--------
Issuing Bank from liability to the Borrower to the extent of any direct damages
(as opposed to consequential damages, claims in respect of which are hereby
waived by the Borrower to the extent permitted by applicable law) suffered by
the Borrower that are caused by the Issuing Bank's failure to exercise care when
determining whether drafts and other
<PAGE>
32
documents presented under a Letter of Credit comply with the terms thereof. The
parties hereto expressly agree that, in the absence of gross negligence or
wilful misconduct on the part of the Issuing Bank (as finally determined by a
court of competent jurisdiction), the Issuing Bank shall be deemed to have
exercised care in each such determination. In furtherance of the foregoing and
without limiting the generality thereof, the parties agree that, with respect to
documents presented which appear on their face to be in substantial compliance
with the terms of a Letter of Credit, the Issuing Bank may, in its sole
discretion, either accept and make payment upon such documents without
responsibility for further investigation, regardless of any notice or
information to the contrary, or refuse to accept and make payment upon such
documents if such documents are not in strict compliance with the terms of such
Letter of Credit.
(g) Disbursement Procedures. The Issuing Bank shall, promptly
-----------------------
following its receipt thereof, examine all documents purporting to represent a
demand for payment under a Letter of Credit. The Issuing Bank shall promptly
notify the Administrative Agent and the Borrower by telephone (confirmed by
telecopy) of such demand for payment and whether the Issuing Bank has made or
will make an LC Disbursement thereunder; provided that any failure to give or
--------
delay in giving such notice shall not relieve the Borrower of its obligation to
reimburse the Issuing Bank and the Lenders with respect to any such LC
Disbursement.
(h) Interim Interest. If the Issuing Bank shall make any LC
----------------
Disbursement, then, unless the Borrower shall reimburse such LC Disbursement in
full on the date such LC Disbursement is made, the unpaid amount thereof shall
bear interest, for each day from and including the date such LC Disbursement is
made to but excluding the date that the Borrower reimburses such LC
Disbursement, at the rate per annum then applicable to ABR Revolving Loans;
provided that, if the Borrower fails to reimburse such LC Disbursement when due
- --------
pursuant to paragraph (e) of this Section, then Section 2.11(c) shall apply.
Interest accrued pursuant to this paragraph shall be for the account of the
Issuing Bank, except that interest accrued on and after the date of payment by
any Revolving Lender pursuant to paragraph (e) of this Section to reimburse the
Issuing Bank shall be for the account of such Lender to the extent of such
payment.
(i) Replacement of the Issuing Bank. The Issuing Bank may be replaced
-------------------------------
at any time by written agreement among the Borrower, the Administrative Agent,
the replaced Issuing Bank and the successor Issuing Bank. The Administrative
Agent shall notify the Lenders of any such replacement of
<PAGE>
33
the Issuing Bank. At the time any such replacement shall become effective, the
Borrower shall pay all unpaid fees accrued for the account of the replaced
Issuing Bank pursuant to Section 2.10(b). From and after the effective date of
any such replacement, (i) the successor Issuing Bank shall have all the rights
and obligations of the Issuing Bank under this Agreement with respect to Letters
of Credit to be issued thereafter and (ii) references herein to the term
"Issuing Bank" shall be deemed to refer to such successor or to any previous
Issuing Bank, or to such successor and all previous Issuing Banks, as the
context shall require. After the replacement of an Issuing Bank hereunder, the
replaced Issuing Bank shall remain a party hereto and shall continue to have all
the rights and obligations of an Issuing Bank under this Agreement with respect
to Letters of Credit issued by it prior to such replacement, but shall not be
required to issue additional Letters of Credit.
(j) Cash Collateralization. If any Event of Default shall occur and
----------------------
be continuing, on the Business Day that the Borrower receives notice from the
Administrative Agent or the Required Lenders (or, if the maturity of the Loans
has been accelerated, Lenders with LC Exposures representing greater than 50% of
the total LC Exposures) demanding the deposit of cash collateral pursuant to
this paragraph, the Borrower shall deposit in an account with the Administrative
Agent, in the name of the Administrative Agent and for the benefit of the
Lenders, an amount in cash equal to 100% of the LC Exposure as of such date plus
any accrued and unpaid interest thereon; provided that the obligation to deposit
--------
such cash collateral shall become effective immediately, and such deposit shall
become immediately due and payable, without demand or other notice of any kind,
upon the occurrence of any Event of Default with respect to the Borrower
described in clause (h) or (i) of Article VII. Each such deposit shall be held
by the Administrative Agent as collateral for the payment and performance of the
obligations of the Borrower under this Agreement. The Administrative Agent
shall have exclusive dominion and control, including the exclusive right of
withdrawal, over such account. Other than any interest earned on the investment
of such deposits in investments maturing within 30 days from the date of
acquisition thereof, which investments shall be made at the reasonable request
of the Borrower and at the Borrower's risk and expense, such deposits shall not
bear interest. Interest or profits, if any, on such investments shall
accumulate in such account. Moneys in such account shall be applied by the
Administrative Agent to reimburse the Issuing Bank for LC Disbursements for
which it has not been reimbursed and,
<PAGE>
34
to the extent not so applied, shall be held for the satisfaction of the
reimbursement obligations of the Borrower for the LC Exposure at such time or,
if the maturity of the Loans has been accelerated (but subject to the consent of
Lenders with LC Exposures representing greater than 50% of the total LC
Exposures), be applied to satisfy other obligations of the Borrower under this
Agreement. If the Borrower is required to provide an amount of cash collateral
hereunder as a result of the occurrence of an Event of Default, such amount (to
the extent not applied as aforesaid) shall be returned to the Borrower within
three Business Days after all Events of Default have been cured or waived.
SECTION 2.05. Funding of Borrowings. (a) Each Lender shall make each
---------------------
Loan to be made by it hereunder on the proposed date thereof by wire transfer of
immediately available funds by 12:00 noon, New York City time, to the account of
the Administrative Agent most recently designated by it for such purpose by
notice to the Lenders; provided that Swingline Loans shall be made as provided
--------
in Section 2.18. The Administrative Agent will make such Loans available to the
Borrower by promptly crediting the amounts so received, in like funds, to an
account of the Borrower maintained with the Administrative Agent in New York
City and designated by the Borrower in the applicable Borrowing Request except
as otherwise designated by the Borrower; provided that ABR Revolving Loans made
--------
to finance the reimbursement of an LC Disbursement as provided in Section
2.04(e) shall be remitted by the Administrative Agent to the Issuing Bank.
(b) Unless the Administrative Agent shall have received notice from a
Lender prior to the proposed date of any Borrowing that such Lender will not
make available to the Administrative Agent such Lender's share of such
Borrowing, the Administrative Agent may assume that such Lender has made such
share available on such date in accordance with paragraph (a) of this Section
and may, in reliance upon such assumption, make available to the Borrower a
corresponding amount. In such event, if a Lender has not in fact made its share
of the applicable Borrowing available to the Administrative Agent, then the
applicable Lender and the Borrower severally agree to pay to the Administrative
Agent forthwith on demand such corresponding amount with interest thereon, for
each day from and including the date such amount is made available to the
Borrower to but excluding the date of payment to the Administrative Agent, at
(i) in the case of such Lender, the greater of the Federal Funds Effective Rate
and a rate determined by the Administrative Agent in accordance with
<PAGE>
35
banking industry rules on interbank compensation or (ii) in the case of the
Borrower, the interest rate applicable to ABR Loans. If such Lender pays such
amount to the Administrative Agent, then such amount shall constitute such
Lender's Loan included in such Borrowing.
SECTION 2.06. Interest Elections. (a) Each Borrowing initially shall
------------------
be of the Type specified in the applicable Borrowing Request and, in the case of
a Eurodollar Borrowing, shall have an initial Interest Period as specified in
such Borrowing Request. Thereafter, the Borrower may elect to convert such
Borrowing to a different Type or to continue such Borrowing and, in the case of
a Eurodollar Borrowing, may elect Interest Periods therefor, all as provided in
this Section. The Borrower may elect different options with respect to different
portions of the affected Borrowing, in which case each such portion shall be
allocated ratably among the Lenders holding the Loans comprising such Borrowing,
and the Loans comprising each such portion shall be considered a separate
Borrowing. This Section shall not apply to Swingline Borrowings, which may not
be converted or continued.
(b) To make an election pursuant to this Section, the Borrower shall
notify the Administrative Agent of such election by telephone by the time that a
Borrowing Request would be required under Section 2.03 if the Borrower were
requesting a Borrowing of the Type resulting from such election to be made on
the effective date of such election. Each such telephonic Interest Election
Request shall be irrevocable and shall be confirmed promptly by hand delivery or
telecopy to the Administrative Agent of a written Interest Election Request in a
form approved by the Administrative Agent and signed by the Borrower.
(c) Each telephonic and written Interest Election Request shall
specify the following information in compliance with Section 2.02 and paragraph
(f) of this Section:
(i) the Borrowing to which such Interest Election Request applies
and, if different options are being elected with respect to different
portions thereof, the portions thereof to be allocated to each resulting
Borrowing (in which case the information to be specified pursuant to
clauses (iii) and (iv) below shall be specified for each resulting
Borrowing);
(ii) the effective date of the election made pursuant to such
Interest Election Request, which shall be a Business Day;
<PAGE>
36
(iii) whether the resulting Borrowing is to be an ABR Borrowing or a
Eurodollar Borrowing; and
(iv) if the resulting Borrowing is a Eurodollar Borrowing, the
Interest Period to be applicable thereto after giving effect to such
election, which shall be a period contemplated by the definition of the
term "Interest Period".
If any such Interest Election Request requests a Eurodollar Borrowing but does
not specify an Interest Period, then the Borrower shall be deemed to have
selected an Interest Period of one month's duration.
(d) Promptly following receipt of an Interest Election Request, the
Administrative Agent shall advise each Lender of the details thereof and of such
Lender's portion of each resulting Borrowing.
(e) If the Borrower fails to deliver a timely Interest Election
Request with respect to a Eurodollar Borrowing prior to the end of the Interest
Period applicable thereto, then, unless such Borrowing is repaid as provided
herein, at the end of such Interest Period such Borrowing shall be converted to
an ABR Borrowing. Notwithstanding any contrary provision hereof, if an Event of
Default has occurred and is continuing and the Administrative Agent, at the
request of the Required Lenders, so notifies the Borrower, then, so long as an
Event of Default is continuing (i) no outstanding Borrowing may be converted to
or continued as a Eurodollar Borrowing and (ii) unless repaid, each Eurodollar
Borrowing shall be converted to an ABR Borrowing at the end of the Interest
Period applicable thereto.
SECTION 2.07. Termination and Reduction of Revolving Commitments. (a)
---------------------------------------------------
Unless previously terminated, Revolving Commitments shall terminate on the
Maturity Date.
(b) The Borrower may at any time terminate, or from time to time
reduce, the Revolving Commitments; provided that (i) each reduction of the
--------
Revolving Commitments shall be in an amount that is an integral multiple of
$1,000,000 and not less than $5,000,000 and (ii) the Borrower shall not
terminate or reduce the Revolving Commitments if, after giving effect to any
concurrent prepayment of the Revolving Loans in accordance with Section 2.09,
the sum of the Revolving Exposures would exceed the total Revolving Commitments.
<PAGE>
37
(c) The Borrower shall notify the Administrative Agent of any
election to terminate or reduce the Revolving Commitments under paragraph (b) of
this Section at least three Business Days prior to the effective date of such
termination or reduction, specifying such election and the effective date
thereof. Promptly following receipt of any notice, the Administrative Agent
shall advise the Lenders of the contents thereof. Each notice delivered by the
Borrower pursuant to this Section shall be irrevocable; provided that a notice
--------
of termination of the Revolving Commitments delivered by the Borrower may state
that such notice is conditioned upon the effectiveness of other credit
facilities, in which case such notice may be revoked by the Borrower (by notice
to the Administrative Agent on or prior to the specified effective date) if such
condition is not satisfied. Any termination or reduction of the Revolving
Commitments shall be permanent.
SECTION 2.08. Repayment of Loans; Evidence of Debt. (a) The Borrower
------------------------------------
hereby unconditionally promises to pay (i) to the Administrative Agent for the
account of each Lender the then unpaid principal amount of each Revolving Loan
of such Lender on the Maturity Date and (ii) to the Administrative Agent for the
account of the Swingline Lender the then unpaid principal amount of each
Swingline Loan on the earlier of the Revolving Maturity Date and the first date
after such Swingline Loan is made that is the last day of a calendar month and
is at least two Business Days after such Swingline Loan is made; provided that
--------
on each date that a Revolving Borrowing is made, the Borrower shall repay all
Swingline Loans then outstanding.
(b) Each Lender shall maintain in accordance with its usual practice
an account or accounts evidencing the indebtedness of the Borrower to such
Lender resulting from each Loan made by such Lender, including the amounts of
principal and interest payable and paid to such Lender from time to time
hereunder.
(c) The Administrative Agent shall maintain accounts in which it
shall record (i) the amount of each Loan made hereunder, the Type thereof and
the Interest Period applicable thereto, (ii) the amount of any principal or
interest due and payable or to become due and payable from the Borrower to each
Lender hereunder and (iii) the amount of any sum received by the Administrative
Agent hereunder for the account of the Lenders and each Lender's share thereof.
(d) The entries made in the accounts maintained pursuant to paragraph
(b) or (c) of this Section shall be
<PAGE>
38
prima facie evidence of the existence and amounts of the obligations recorded
- ----- -----
therein; provided that the failure of any Lender or the Administrative Agent to
--------
maintain such accounts or any error therein shall not in any manner affect the
obligation of the Borrower to repay the Loans in accordance with the terms of
this Agreement.
(e) Any Lender may request that Loans made by it be evidenced by a
promissory note. In such event, the Borrower shall prepare, execute and deliver
to such Lender a promissory note payable to the order of such Lender (or, if
requested by such Lender, to such Lender and its registered assigns) and in a
form approved by the Administrative Agent. Thereafter, the Loans evidenced by
such promissory note and interest thereon shall at all times (including after
assignment pursuant to Section 9.04) be represented by one or more promissory
notes in such form payable to the order of the payee named therein (or, if such
promissory note is a registered note, to such payee and its registered assigns).
SECTION 2.09. Prepayment of Loans. (a) The Borrower shall have the
-------------------
right at any time and from time to time to prepay any Borrowing in whole or in
part, subject to the requirements of this Section.
(b) In the event and on each occasion that any Net Proceeds are
received by or on behalf of the Borrower or any Subsidiary in respect of any
Prepayment Event, immediately after such Net Proceeds are received, the
Revolving Commitments shall be automatically and permanently reduced in an
aggregate amount equal to 100% of such Net Proceeds; provided that the Revolving
--------
Commitments shall not be reduced to the extent that (x) within 365 days of
receipt of Net Proceeds from any event described in clause (a) of the definition
of Prepayment Event, the Borrower or a Subsidiary reinvests such Net Proceeds in
Telecommunications Assets or (ii) within 180 days of receipt of Net Proceeds in
respect of any event described in clause (b) of the definition of Prepayment
Event, the Borrower or a Subsidiary applies such Net Proceeds to rebuild or
replace the property with respect to which such Net Proceeds were received and
(y) no Default exists or would result therefrom.
(c) If at any time the sum of the total Revolving Exposures exceeds
the total Revolving Commitments, the Borrower shall immediately prepay Revolving
Borrowings and Swingline Loans to the extent necessary to eliminate such excess.
If any such excess remains after all Revolving Borrowings and Swingline Loans
are prepaid, the Borrower shall deposit cash collateral pursuant to Section
2.04(j) in an amount equal to such remaining excess.
<PAGE>
39
(d) Prior to any optional or mandatory prepayment of Borrowings
hereunder, the Borrower shall select the Borrowing or Borrowings to be prepaid
and shall specify such selection in the notice of such prepayment pursuant to
paragraph (f) of this Section; provided that each prepayment of Borrowings shall
--------
be applied to prepay ABR Borrowings before any other Borrowings. Any reduction
of the Revolving Commitments shall be accompanied by prepayment of Revolving
Loans to the extent the aggregate amount of such Loans outstanding exceeds the
total amount of the Revolving Commitments as so reduced.
(e) The Borrower shall notify the Administrative Agent (and, in the
case of prepayment of a Swingline Loan, the Swingline Lender) by telephone
(confirmed by telecopy) of any prepayment hereunder (i) in the case of
prepayment of a Eurodollar Borrowing, not later than 11:00 a.m., New York City
time, three Business Days before the date of prepayment, (ii) in the case of
prepayment of an ABR Borrowing, not later than 11:00 a.m., New York City time,
one Business Day before the date of prepayment and (iii) in the case of
prepayment of a Swingline Loan, not later than 12:00 noon, New York City time,
on the date of prepayment. Each such notice shall be irrevocable and shall
specify the prepayment date, the principal amount of each Borrowing or portion
thereof to be prepaid and, in the case of a mandatory prepayment, a reasonably
detailed calculation of the amount of such prepayment; provided that, if a
--------
notice of optional prepayment is given in connection with a conditional notice
of termination of the Revolving Commitments as contemplated by Section 2.07,
then such notice of prepayment may be revoked if such notice of termination is
revoked in accordance with Section 2.07. Promptly following receipt of any such
notice (other than a notice relating solely to Swingline Loans), the
Administrative Agent shall advise the Lenders of the contents thereof. Each
partial prepayment of any Borrowing and each reduction of Revolving Commitments
shall be in an amount that would be permitted in the case of an advance of a
Borrowing of the same Type as provided in Section 2.02, except as necessary to
apply fully the required amount of a mandatory prepayment or reduction. Each
prepayment of a Borrowing shall be applied ratably to the Loans included in the
prepaid Borrowing. Prepayments shall be accompanied by accrued interest to the
extent required by Section 2.11.
SECTION 2.10. Fees. (a) The Borrower agrees to pay to the
----
Administrative Agent for the account of each Lender a commitment fee, which
shall accrue at the Applicable Rate on the average daily unused amount of each
Revolving Commitment of such Lender during the period from
<PAGE>
40
and including the date hereof to but excluding the date on which such Revolving
Commitment terminates. Accrued commitment fees shall be payable in arrears on
the last day of March, June, September and December of each year and on the date
on which the Revolving Commitments terminate, commencing on the first such date
to occur after the date hereof. All commitment fees shall be computed on the
basis of a year of 360 days and shall be payable for the actual number of days
elapsed (including the first day but excluding the last day). For purposes of
computing commitment fees with respect to Revolving Commitments, a Revolving
Commitment of a Lender shall be deemed to be used to the extent of the
outstanding Revolving Loans and LC Exposure of such Lender (and the Swingline
Exposure of such Lender shall be disregarded for such purpose).
(b) The Borrower agrees to pay (i) to the Administrative Agent for the
account of each Lender a participation fee with respect to its participations in
Letters of Credit, which shall accrue at the same Applicable Margin as interest
on Eurodollar Revolving Loans on the average daily amount of such Lender's LC
Exposure (excluding any portion thereof attributable to unreimbursed LC
Disbursements) during the period from and including the Effective Date to but
excluding the later of the date on which such Lender's Revolving Commitment
terminates and the date on which such Lender ceases to have any LC Exposure, and
(ii) to the Issuing Bank a fronting fee, which shall accrue at the rate or rates
per annum separately agreed upon in writing between the Borrower and the Issuing
Bank on the average daily amount of the total LC Exposures (excluding any
portion thereof attributable to unreimbursed LC Disbursements) during the period
from and including the Effective Date to but excluding the later of the date of
termination of the Revolving Commitments and the date on which there ceases to
be any LC Exposure, as well as the Issuing Bank's standard fees with respect to
the issuance, amendment, renewal or extension of any Letter of Credit or
processing of drawings thereunder. Participation fees and fronting fees accrued
through and including the last day of March, June, September and December of
each year shall be payable on the third Business Day following such last day,
commencing on the first such date to occur after the Effective Date; provided
--------
that all such fees shall be payable on the date on which the Revolving
Commitments terminate and any such fees accruing after the date on which the
Revolving Commitments terminate shall be payable on demand. Any other fees
payable to the Issuing Bank pursuant to this paragraph shall be payable within
10 days after demand. All participation fees and fronting fees shall be
computed on the basis of a year of 360 days and shall be payable for the
<PAGE>
41
actual number of days elapsed (including the first day but excluding the last
day).
(c) The Borrower agrees to pay to the Administrative Agent, for its own
account, fees payable in the amounts and at the times separately agreed upon in
writing between the Borrower and the Administrative Agent.
(d) All fees payable hereunder shall be paid on the dates due, in
immediately available funds, to the Administrative Agent (or to the Issuing
Bank, in the case of fees payable to it) for distribution, in the case of
commitment fees and participation fees, to the Lenders entitled thereto. Fees
paid shall not be refundable under any circumstances.
SECTION 2.11. Interest. (a) The Loans comprising each ABR Borrowing
---------
(including each Swingline Loan) shall bear interest at the Alternate Base Rate
plus the Applicable Margin.
(b) The Loans comprising each Eurodollar Borrowing shall bear interest at
the Adjusted LIBO Rate for the Interest Period in effect for such Borrowing plus
the Applicable Margin.
(c) Notwithstanding the foregoing, if any principal of or interest on any
Loan or any fee or other amount payable by the Borrower hereunder is not paid
when due, whether at stated maturity, upon acceleration or otherwise, such
overdue amount shall bear interest, after as well as before judgment, at a rate
per annum equal to (i) in the case of overdue principal of any Loan, 2% plus the
rate otherwise applicable to such Loan as provided in the preceding paragraphs
of this Section or (ii) in the case of any other amount, 2% plus the rate
applicable to ABR Loans as provided in paragraph (a) of this Section.
(d) Accrued interest on each Loan shall be payable in arrears on each
Interest Payment Date for such Loan and, in the case of Revolving Loans, upon
termination of the Revolving Commitments; provided that (i) interest accrued
--------
pursuant to paragraph (c) of this Section shall be payable on demand, (ii) in
the event of any repayment or prepayment of any Loan (other than a prepayment of
an ABR Loan prior to the end of the Revolving Availability Period), accrued
interest on the principal amount repaid or prepaid shall be payable on the date
of such repayment or prepayment and (iii) in the event of any conversion of any
Eurodollar Loan prior to the end of the current Interest Period
<PAGE>
42
therefor, accrued interest on such Loan shall be payable on the effective date
of such conversion.
(e) All interest hereunder shall be computed on the basis of a year of 360
days, except that interest computed by reference to the Alternate Base Rate at
times when the Alternate Base Rate is based on the Prime Rate shall be computed
on the basis of a year of 365 days (or 366 days in a leap year), and in each
case shall be payable for the actual number of days elapsed (including the first
day but excluding the last day). The applicable Alternate Base Rate or Adjusted
LIBO Rate shall be determined by the Administrative Agent, and such
determination shall be conclusive absent manifest error.
SECTION 2.12. Alternate Rate of Interest. If prior to the commencement of
---------------------------
any Interest Period for a Eurodollar Borrowing:
(a) the Administrative Agent determines (which determination shall be
conclusive absent manifest error) that adequate and reasonable means do not
exist for ascertaining the Adjusted LIBO Rate for such Interest Period; or
(b) the Administrative Agent is advised by the Required Lenders that
the Adjusted LIBO Rate for such Interest Period will not adequately and
fairly reflect the cost to such Lenders (or Lender) of making or
maintaining their Loans (or its Loan) included in such Borrowing for such
Interest Period;
then the Administrative Agent shall give notice thereof to the Borrower and the
Lenders by telephone or telecopy as promptly as practicable thereafter and,
until the Administrative Agent notifies the Borrower and the Lenders that the
circumstances giving rise to such notice no longer exist, (i) any Interest
Election Request that requests the conversion of any Borrowing to, or
continuation of any Borrowing as, a Eurodollar Borrowing shall be ineffective
and (ii) if any Borrowing Request requests a Eurodollar Borrowing, such
Borrowing shall be made as an ABR Borrowing.
SECTION 2.13. Increased Costs. (a) If any Change in Law shall:
----------------
(i) impose, modify or deem applicable any reserve, special deposit or
similar requirement against assets of, deposits with or for the account of,
or credit extended by, any Lender (except any such reserve
<PAGE>
43
requirement reflected in the Adjusted LIBO Rate) or the Issuing Bank; or
(ii) impose on any Lender or the Issuing Bank or the London interbank
market any other condition affecting this Agreement or Eurodollar Loans
made by such Lender or any Letter of Credit or participation therein;
and the result of any of the foregoing shall be to increase the cost to such
Lender of making or maintaining any Eurodollar Loan (or of maintaining its
obligation to make any such Loan) or to increase the cost to such Lender or the
Issuing Bank of participating in, issuing or maintaining any Letter of Credit or
to reduce the amount of any sum received or receivable by such Lender or the
Issuing Bank hereunder (whether of principal, interest or otherwise), then the
Borrower will pay to such Lender or the Issuing Bank, as the case may be, such
additional amount or amounts as will compensate such Lender or the Issuing Bank,
as the case may be, for such additional costs incurred or reduction suffered.
(b) If any Lender or the Issuing Bank determines that any Change in
Law regarding capital requirements has or would have the effect of reducing the
rate of return on such Lender's or the Issuing Bank's capital or on the capital
of such Lender's or the Issuing Bank's holding company, if any, as a consequence
of this Agreement or the Loans made by, or participations in Letters of Credit
held by, such Lender, or the Letters of Credit issued by the Issuing Bank, to a
level below that which such Lender or the Issuing Bank or such Lender's or the
Issuing Bank's holding company could have achieved but for such Change in Law
(taking into consideration such Lender's or the Issuing Bank's policies and the
policies of such Lender's or the Issuing Bank's holding company with respect to
capital adequacy), then from time to time the Borrower will pay to such Lender
or the Issuing Bank, as the case may be, such additional amount or amounts as
will compensate such Lender or the Issuing Bank or such Lender's or the Issuing
Bank's holding company for any such reduction suffered.
(c) A certificate of a Lender or the Issuing Bank setting forth the
amount or amounts necessary to compensate such Lender or the Issuing Bank or its
holding company, as the case may be, as specified in paragraph (a) or (b) of
this Section shall be delivered to the Borrower and shall be conclusive absent
manifest error. The Borrower shall pay such Lender or the Issuing Bank, as the
case may be, the
<PAGE>
44
amount shown as due on any such certificate within 10 days after receipt
thereof.
(d) Failure or delay on the part of any Lender or the Issuing Bank to
demand compensation pursuant to this Section shall not constitute a waiver of
such Lender's or the Issuing Bank's right to demand such compensation; provided
--------
that the Borrower shall not be required to compensate a Lender or the Issuing
Bank pursuant to this Section for any increased costs or reductions incurred
more than 180 days prior to the date that such Lender or the Issuing Bank, as
the case may be, notifies the Borrower of the Change in Law giving rise to such
increased costs or reductions and of such Lender's or the Issuing Bank's
intention to claim compensation therefor; provided further that, if the Change
-------- -------
in Law giving rise to such increased costs or reductions is retroactive, then
the 180-day period referred to above shall be extended to include the period of
retroactive effect thereof.
SECTION 2.14. Break Funding Payments. In the event of (a) the
-----------------------
payment of any principal of any Eurodollar Loan other than on the last day of an
Interest Period applicable thereto (including as a result of an Event of
Default), (b) the conversion of any Eurodollar Loan other than on the last day
of the Interest Period applicable thereto, (c) the failure to borrow, convert,
continue or prepay any Loan on the date specified in any notice delivered
pursuant hereto (regardless of whether such notice may be revoked under Section
2.11(g) and is revoked in accordance therewith), or (d) the assignment of any
Eurodollar Loan other than on the last day of the Interest Period applicable
thereto as a result of a request by the Borrower pursuant to Section 2.17, then,
in any such event, the Borrower shall compensate each Lender for the loss, cost
and expense (but not loss of margin) attributable to such event. In the case of
a Eurodollar Loan, such loss, cost or expense to any Lender shall be deemed to
include an amount determined by such Lender to be the excess, if any, of (i) the
amount of interest which would have accrued on the principal amount of such Loan
had such event not occurred, at the Adjusted LIBO Rate that would have been
applicable to such Loan, for the period from the date of such event to the last
day of the then current Interest Period therefor (or, in the case of a failure
to borrow, convert or continue, for the period that would have been the Interest
Period for such Loan), over (ii) the amount of interest which would accrue on
such principal amount for such period at the interest rate which such Lender
would bid were it to bid, at the commencement of such period, for dollar
deposits of a comparable amount and period from other banks in the
<PAGE>
45
eurodollar market. A certificate of any Lender setting forth any amount or
amounts that such Lender is entitled to receive pursuant to this Section shall
be delivered to the Borrower and shall be conclusive absent manifest error. The
Borrower shall pay such Lender the amount shown as due on any such certificate
within 10 days after receipt thereof.
SECTION 2.15. Taxes. (a) Any and all payments by or on account of any
------
obligation of the Borrower hereunder or under any other Loan Document shall be
made free and clear of and without deduction for any Indemnified Taxes or Other
Taxes; provided that if the Borrower shall be required to deduct any Indemnified
--------
Taxes or Other Taxes from such payments, then (i) the sum payable shall be
increased as necessary so that after making all required deductions (including
deductions applicable to additional sums payable under this Section) the
Administrative Agent, Lender or Issuing Bank (as the case may be) receives an
amount equal to the sum it would have received had no such deductions been made,
(ii) the Borrower shall make such deductions and (iii) the Borrower shall pay
the full amount deducted to the relevant Governmental Authority in accordance
with applicable law.
(b) In addition, the Borrower shall pay any Other Taxes to the relevant
Governmental Authority in accordance with applicable law.
(c) The Borrower shall indemnify the Administrative Agent, each Lender and
the Issuing Bank, within 10 days after written demand therefor, for the full
amount of any Indemnified Taxes or Other Taxes paid by the Administrative Agent,
such Lender or the Issuing Bank, as the case may be, on or with respect to any
payment by or on account of any obligation of the Borrower hereunder or under
any other Loan Document (including Indemnified Taxes or Other Taxes imposed or
asserted on or attributable to amounts payable under this Section) and any
penalties, interest and reasonable expenses arising therefrom or with respect
thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or
legally imposed or asserted by the relevant Governmental Authority. A
certificate as to the amount of such payment or liability delivered to the
Borrower by a Lender or the Issuing Bank, or by the Administrative Agent on its
own behalf or on behalf of a Lender or the Issuing Bank, shall be conclusive
absent manifest error.
(d) As soon as practicable after any payment of Indemnified Taxes or Other
Taxes by the Borrower to a Governmental Authority, the Borrower shall deliver to
the
<PAGE>
46
Administrative Agent the original or a certified copy of a receipt issued by
such Governmental Authority evidencing such payment, a copy of the return
reporting such payment or other evidence of such payment reasonably satisfactory
to the Administrative Agent.
(e) Any Foreign Lender that is entitled to an exemption from or reduction
of withholding tax under the law of the jurisdiction in which the Borrower is
located, or any treaty to which such jurisdiction is a party, with respect to
payments under this Agreement shall deliver to the Borrower (with a copy to the
Administrative Agent), at the time or times prescribed by applicable law, such
properly completed and executed documentation prescribed by applicable law or
reasonably requested by the Borrower as will permit such payments to be made
without withholding or at a reduced rate.
SECTION 2.16. Payments Generally; Pro Rata Treatment; Sharing of Setoffs.
-----------------------------------------------------------
(a) The Borrower shall make each payment required to be made by it hereunder or
under any other Loan Document (whether of principal, interest, fees or
reimbursement of LC Disbursements, or of amounts payable under Section 2.13,
2.14 or 2.15, or otherwise) prior to 12:00 noon, New York City time, on the date
when due, in immediately available funds, without set-off or counterclaim. Any
amounts received after such time on any date may, in the discretion of the
Administrative Agent, be deemed to have been received on the next succeeding
Business Day for purposes of calculating interest thereon. All such payments
shall be made to the Administrative Agent at its offices at 270 Park Avenue, New
York, New York, except payments to be made directly to the Issuing Bank or the
Swingline Lender as expressly provided herein and except that payments pursuant
to Sections 2.13, 2.14, 2.15 and 9.03 shall be made directly to the Persons
entitled thereto and payments pursuant to other Loan Documents shall be made to
the Persons specified therein. The Administrative Agent shall distribute any
such payments received by it for the account of any other Person to the
appropriate recipient promptly following receipt thereof. If any payment under
any Loan Document shall be due on a day that is not a Business Day, the date for
payment shall be extended to the next succeeding Business Day, and, in the case
of any payment accruing interest, interest thereon shall be payable for the
period of such extension. All payments under each Loan Document shall be made
in dollars.
(b) If at any time insufficient funds are received by and available to the
Administrative Agent to pay fully all amounts of principal, unreimbursed LC
<PAGE>
47
Disbursements, interest and fees then due hereunder, such funds shall be applied
(i) first, towards payment of interest and fees then due hereunder, ratably
among the parties entitled thereto in accordance with the amounts of interest
and fees then due to such parties, and (ii) second, towards payment of principal
and unreimbursed LC Disbursements then due hereunder, ratably among the parties
entitled thereto in accordance with the amounts of principal and unreimbursed LC
Disbursements then due to such parties.
(c) If any Lender shall, by exercising any right of set-off or
counterclaim or otherwise, obtain payment in respect of any principal of or
interest on any of its Loans or participations in LC Disbursements or Swingline
Loans resulting in such Lender receiving payment of a greater proportion of the
aggregate amount of its Loans and participations in LC Disbursements and
Swingline Loans and accrued interest thereon than the proportion received by any
other Lender, then the Lender receiving such greater proportion shall purchase
(for cash at face value) participations in the Loans, LC Disbursements and
Swingline Loans of other Lenders to the extent necessary so that the benefit of
all such payments shall be shared by the Lenders ratably in accordance with the
aggregate amount of principal of and accrued interest on their respective Loans
and participations in LC Disbursements and Swingline Loans; provided that (i) if
--------
any such participations are purchased and all or any portion of the payment
giving rise thereto is recovered, such participations shall be rescinded and the
purchase price restored to the extent of such recovery, without interest, and
(ii) the provisions of this paragraph shall not be construed to apply to any
payment made by the Borrower pursuant to and in accordance with the express
terms of this Agreement or any payment obtained by a Lender as consideration for
the assignment of or sale of a participation in any of its Loans or
participations in LC Disbursements to any assignee or participant, other than to
the Borrower or any Subsidiary or Affiliate thereof (as to which the provisions
of this paragraph shall apply). The Borrower consents to the foregoing and
agrees, to the extent it may effectively do so under applicable law, that any
Lender acquiring a participation pursuant to the foregoing arrangements may
exercise against the Borrower rights of set-off and counterclaim with respect to
such participation as fully as if such Lender were a direct creditor of the
Borrower in the amount of such participation.
(d) Unless the Administrative Agent shall have received notice from the
Borrower prior to the date on which any payment is due to the Administrative
Agent for the account of the Lenders or the Issuing Bank hereunder that
<PAGE>
48
the Borrower will not make such payment, the Administrative Agent may assume
that the Borrower has made such payment on such date in accordance herewith and
may, in reliance upon such assumption, distribute to the Lenders or the Issuing
Bank, as the case may be, the amount due. In such event, if the Borrower has not
in fact made such payment, then each of the Lenders or the Issuing Bank, as the
case may be, severally agrees to repay to the Administrative Agent forthwith on
demand the amount so distributed to such Lender or Issuing Bank with interest
thereon, for each day from and including the date such amount is distributed to
it to but excluding the date of payment to the Administrative Agent, at the
greater of the Federal Funds Effective Rate and a rate determined by the
Administrative Agent in accordance with banking industry rules on interbank
compensation.
(e) If any Lender shall fail to make any payment required to be made by it
pursuant to Section 2.04(d) or (e), 2.05(b), 2.16(d) or 9.03(c), then the
Administrative Agent may, in its discretion (notwithstanding any contrary
provision hereof), apply any amounts thereafter received by the Administrative
Agent for the account of such Lender to satisfy such Lender's obligations under
such Sections until all such unsatisfied obligations are fully paid.
SECTION 2.17. Mitigation Obligations; Replacement of Lenders. (a) If any
-----------------------------------------------
Lender requests compensation under Section 2.13, or if the Borrower is required
to pay any additional amount to any Lender or any Governmental Authority for the
account of any Lender pursuant to Section 2.15, then such Lender shall use
reasonable efforts to designate a different lending office for funding or
booking its Loans hereunder or to assign its rights and obligations hereunder to
another of its offices, branches or affiliates, if, in the judgment of such
Lender, such designation or assignment (i) would eliminate or reduce amounts
payable pursuant to Section 2.13 or 2.15, as the case may be, in the future and
(ii) would not subject such Lender to any unreimbursed cost or expense and would
not otherwise be disadvantageous to such Lender. The Borrower hereby agrees to
pay all reasonable costs and expenses incurred by any Lender in connection with
any such designation or assignment.
(b) If any Lender requests compensation under Section 2.13, or if the
Borrower is required to pay any additional amount to any Lender or any
Governmental Authority for the account of any Lender pursuant to Section 2.15,
or if any Lender defaults in its obligation to fund Loans hereunder, then the
Borrower may, at its sole expense and effort, upon notice to such Lender and the
<PAGE>
49
Administrative Agent, require such Lender to assign and delegate, without
recourse (in accordance with and subject to the restrictions contained in
Section 9.04), all its interests, rights and obligations under this Agreement to
an assignee that shall assume such obligations (which assignee may be another
Lender, if a Lender accepts such assignment); provided that (i) the Borrower
--------
shall have received the prior written consent of the Administrative Agent, the
Issuing Bank and the Swingline Lender, which consent shall not unreasonably be
withheld, (ii) such Lender shall have received payment of an amount equal to the
outstanding principal of its Loans and participations in LC Disbursements and
Swingline Loans, accrued interest thereon, accrued fees and all other amounts
payable to it hereunder, from the assignee (to the extent of such outstanding
principal and accrued interest and fees) or the Borrower (in the case of all
other amounts) and (iii) in the case of any such assignment resulting from a
claim for compensation under Section 2.13 or payments required to be made
pursuant to Section 2.15, such assignment will result in a reduction in such
compensation or payments. A Lender shall not be required to make any such
assignment and delegation if, prior thereto, as a result of a waiver by such
Lender or otherwise, the circumstances entitling the Borrower to require such
assignment and delegation cease to apply.
SECTION 2.18. Swingline Loans. (a) Subject to the terms and conditions
----------------
set forth herein, the Swingline Lender agrees to make loans ("Swingline Loans")
---------------
to the Borrower from time to time during the Revolving Availability Period, in
an aggregate principal amount at any time outstanding that will not result in
(i) the aggregate principal amount of outstanding Swingline Loans exceeding
$5,000,000 or (ii) the sum of the total Revolving Exposures exceeding the total
Revolving Commitments; provided that the Swingline Lender shall not be required
--------
to make a Swingline Loan to refinance an outstanding Swingline Loan. Within the
foregoing limits and subject to the terms and conditions set forth herein, the
Borrower may borrow, prepay and reborrow Swingline Loans.
(b) To request a Swingline Loan, the Borrower shall notify the
Administrative Agent of such request by telephone (confirmed by telecopy), not
later than 1:00 p.m., New York City time, on the day of a proposed Swingline
Loan. Each such notice shall be irrevocable and shall specify the requested date
(which shall be a Business Day) and amount of the requested Swingline Loan. The
Administrative Agent will promptly advise the Swingline Lender of any such
notice received from the Borrower. The Swingline Lender shall make each
Swingline Loan available to the Borrower by means of a
<PAGE>
50
credit to the general deposit account of the Borrower with the Swingline Lender
(or, in the case of a Swingline Loan made to finance the reimbursement of an LC
Disbursement as provided in Section 2.04(e), by remittance to the Issuing Bank)
by 2:00 p.m., New York City time, on the requested date of such Swingline Loan.
(c) The Swingline Lender may by written notice given to the Administrative
Agent not later than 10:00 a.m., New York City time, on any Business Day require
the Revolving Lenders to acquire participations on such Business Day in all or a
portion of the Swingline Loans outstanding. Such notice shall specify the
aggregate amount of Swingline Loans in which Revolving Lenders will participate.
Promptly upon receipt of such notice, the Administrative Agent will give notice
thereof to each Revolving Lender, specifying in such notice such Lender's
Applicable Percentage of such Swingline Loan or Loans. Each Revolving Lender
hereby absolutely and unconditionally agrees, upon receipt of notice as provided
above, to pay to the Administrative Agent, for the account of the Swingline
Lender, such Lender's Applicable Percentage of such Swingline Loan or Loans.
Each Revolving Lender acknowledges and agrees that its obligation to acquire
participations in Swingline Loans pursuant to this paragraph is absolute and
unconditional and shall not be affected by any circumstance whatsoever,
including the occurrence and continuance of a Default or reduction or
termination of the Revolving Commitments, and that each such payment shall be
made without any offset, abatement, withholding or reduction whatsoever. Each
Revolving Lender shall comply with its obligation under this paragraph by making
a wire transfer to the Administrative Agent for the benefit of the Swingline
Lender of immediately available funds, in the same manner as provided in Section
2.05 with respect to Loans made by such Lender (and Section 2.05 shall apply,
mutatis mutandis, to the payment obligations of the Revolving Lenders), and the
- ------- --------
Administrative Agent shall promptly pay to the Swingline Lender the amounts so
received by it from the Revolving Lenders. The Administrative Agent shall
notify the Borrower of any participations in any Swingline Loan acquired
pursuant to this paragraph, and thereafter payments in respect of such Swingline
Loan shall be made to the Administrative Agent and not to the Swingline Lender.
Any amounts received by the Swingline Lender from the Borrower (or other party
on behalf of the Borrower) in respect of a Swingline Loan after receipt by the
Swingline Lender of the proceeds of a sale of participations therein shall be
promptly remitted to the Administrative Agent; any such amounts received by the
Administrative Agent shall be promptly remitted by the Administrative Agent to
the
<PAGE>
51
Revolving Lenders that shall have made their payments pursuant to this paragraph
and to the Swingline Lender, as their interests may appear. The purchase of
participations in a Swingline Loan pursuant to this paragraph shall not relieve
the Borrower of any default in the payment thereof.
ARTICLE III
Representations and Warranties
------------------------------
The Borrower represents and warrants to the Lenders that:
SECTION 3.01. Organization; Powers. Each of the Borrower and its
---------------------
Subsidiaries is duly organized, validly existing and in good standing under the
laws of the jurisdiction of its organization, has all requisite power and
authority to carry on its business as now conducted and, except where the
failure to do so, individually or in the aggregate, could not reasonably be
expected to result in a Material Adverse Effect, is qualified to do business in,
and is in good standing in, every jurisdiction where such qualification is
required.
SECTION 3.02. Authorization; Enforceability. The Transactions to be
-----------------------------
entered into by each Loan Party are within such Loan Party's corporate powers
and have been duly authorized by all necessary corporate and, if required,
stockholder action. This Agreement has been duly executed and delivered by the
Borrower and constitutes, and each other Loan Document to which any Loan Party
is to be a party, when executed and delivered by such Loan Party, will
constitute, a legal, valid and binding obligation of the Borrower or such Loan
Party (as the case may be), enforceable in accordance with its terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium or other laws
affecting creditors' rights generally and subject to general principles of
equity, regardless of whether considered in a proceeding in equity or at law.
SECTION 3.03. Governmental Approvals; No Conflicts. The Transactions (a)
------------------------------------
do not require any consent or approval of, registration or filing with, or any
other action by, any Governmental Authority, except such as have been obtained
or made and are in full force and effect and except filings necessary to perfect
Liens created under the Loan Documents, (b) will not violate any applicable law
or regulation or the charter, by-laws or other organizational documents of the
Borrower or any of its Subsidiaries or any
<PAGE>
52
order of any Governmental Authority, (c) will not violate or result in a default
under any indenture, material agreement or other material instrument binding the
Borrower or any of its Subsidiaries or its assets, or give rise to a right
thereunder to require any payment to be made by the Borrower or any of its
Subsidiaries, and (d) will not result in the creation or imposition of any Lien
on any asset of the Borrower or any of its Subsidiaries, except Liens created
under the Loan Documents.
SECTION 3.04. Financial Condition; No Material Adverse Change. (a) The
------------------------------------------------
Borrower has heretofore furnished to the Lenders its consolidated balance sheet
and statements of income, stockholders equity and cash flows (i) as of and for
the fiscal year ended December 31, 1997, reported on by Price Waterhouse LLP,
independent public accountants, and (ii) as of and for the fiscal quarter and
the portion of the fiscal year ended June 30, 1998, certified by its chief
financial officer. Such financial statements present fairly, in all material
respects, the financial position and results of operations and cash flows of the
Borrower and its consolidated Subsidiaries as of such dates and for such periods
in accordance with GAAP, subject to year-end audit adjustments and the absence
of footnotes in the case of the statements referred to in clause (ii) above.
(b) The Borrower has heretofore furnished to the Lenders its pro forma
consolidated balance sheet as of August 31, 1998, prepared giving effect to the
Transactions as if the Transactions had occurred on such date. Such pro forma
consolidated balance sheet (i) has been prepared in good faith based on the same
assumptions used to prepare the pro forma financial statements included in the
Information Memorandum (which assumptions are believed by the Borrower to be
reasonable), (ii) is based on the information available to the Borrower after
due inquiry, (iii) accurately reflects all adjustments necessary to give effect
to the Transactions and (iv) presents fairly, in all material respects, the pro
forma financial position of the Borrower and its consolidated Subsidiaries as of
August 31, 1998 as if the Transactions had occurred on such date.
(c) Except as disclosed in the financial statements referred to in this
Section 3.04 or the notes thereto or in the Information Memorandum and except
for the Disclosed Matters, after giving effect to the Transactions, neither the
Borrower nor any of its Subsidiaries has, as of the Effective Date, any material
contingent liabilities, unusual long-term commitments or unrealized losses.
<PAGE>
53
(d) Since June 30, 1998, there has been no material adverse change in the
business, assets, operations, prospects or condition, financial or otherwise, of
the Borrower and its Subsidiaries, taken as a whole.
SECTION 3.05. Properties. (a) Each of the Borrower and its Subsidiaries
----------
has good title to, or valid leasehold interests in, all its real and personal
property material to its business (including its Mortgaged Properties, if any),
except for minor defects in title that do not interfere with its ability to
conduct its business as currently conducted or to utilize such properties for
their intended purposes and subject to Liens permitted hereby.
(b) Each of the Borrower and its Subsidiaries owns, or is licensed to use,
all trademarks, tradenames, copyrights, patents and other intellectual property
material to its business, and the use thereof by the Borrower and its
Subsidiaries does not infringe upon the rights of any other Person, except for
any such infringements that, individually or in the aggregate, could not
reasonably be expected to result in a Material Adverse Effect.
(c) Schedule 3.05 sets forth the address of each real property that is
owned or leased by the Borrower or any Subsidiary Loan Party as of the Effective
Date after giving effect to the Transactions.
(d) Neither any Mortgaged Property nor any interest therein is subject to
any right of first refusal, option or other contractual right to purchase such
Mortgaged Property or interest therein.
SECTION 3.06. Litigation and Environmental Matters. (a) Except as
-------------------------------------
disclosed in the financial statements referred to in Section 3.04(a), as of the
date hereof, there are no actions, suits or proceedings by or before any
arbitrator or Governmental Authority pending against or, to the knowledge of the
Borrower, threatened against or affecting the Borrower or any of its
Subsidiaries (i) as to which there is a reasonable possibility of an adverse
determination and that, if adversely determined, could reasonably be expected,
individually or in the aggregate, to result in a Material Adverse Effect (other
than the Disclosed Matters) or (ii) that involve any of the Loan Documents or
the Transactions.
(b) Except for the Disclosed Matters and except with respect to any other
matters that, individually or in the aggregate, could not reasonably be expected
to result in a Material Adverse Effect, neither the Borrower nor any of
<PAGE>
54
its Subsidiaries (i) has failed to comply with any Environmental Law or to
obtain, maintain or comply with any permit, license or other approval required
under any Environmental Law, (ii) has become subject to any Environmental
Liability, (iii) has received notice of any claim with respect to any
Environmental Liability or (iv) knows of any basis for any Environmental
Liability.
(c) Since the date of this Agreement, there has been no change in the
status of the Disclosed Matters that, individually or in the aggregate, has
resulted in, or materially increased the likelihood of, a Material Adverse
Effect.
SECTION 3.07. Compliance with Laws and Agreements. Each of the Borrower and
-----------------------------------
its Subsidiaries is in compliance with all laws, regulations and orders of any
Governmental Authority applicable to it or its property and all indentures,
material agreements and other material instruments binding upon it or its
property, except where the failure to do so, individually or in the aggregate,
could not reasonably be expected to result in a Material Adverse Effect. No
Default has occurred and is continuing.
SECTION 3.08. Investment and Holding Company Status. Neither the Borrower
-------------------------------------
nor any of its Subsidiaries is (a) an "investment company" as defined in, or
subject to regulation under, the Investment Company Act of 1940 or (b) a
"holding company" as defined in, or subject to regulation under, the Public
Utility Holding Company Act of 1935.
SECTION 3.09. Taxes. Each of the Borrower and its Subsidiaries has timely
------
filed or caused to be filed all Tax returns and reports required to have been
filed and has paid or caused to be paid all Taxes required to have been paid by
it, except (a) Taxes that are being contested in good faith by appropriate
proceedings and for which the Borrower or such Subsidiary, as applicable, has
set aside on its books adequate reserves or (b) to the extent that the failure
to do so could not reasonably be expected to result in a Material Adverse
Effect.
SECTION 3.10. ERISA. No ERISA Event has occurred or is reasonably expected
-----
to occur that, when taken together with all other such ERISA Events for which
liability is reasonably expected to occur, could reasonably be expected to
result in a Material Adverse Effect. Neither the Borrower nor any ERISA
Affiliate maintains or contributes to any Plan that is subject to the funding
requirement of ERISA or the Code or that is subject to Title IV of ERISA.
<PAGE>
55
SECTION 3.11. Disclosure. The Borrower has disclosed to the Lenders all
-----------
material agreements, instruments and corporate or other restrictions to which
the Borrower or any of its Subsidiaries is subject, and all other matters known
to any of them, that, individually or in the aggregate, could reasonably be
expected to result in a Material Adverse Effect. Neither the Information
Memorandum nor any of the other reports, financial statements, certificates or
other information furnished by or on behalf of any Loan Party to the
Administrative Agent or any Lender in connection with the negotiation of this
Agreement or any other Loan Document or delivered hereunder or thereunder (as
modified or supplemented by other information so furnished), taken as a whole,
contains any material misstatement of fact or omits to state any material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; provided that, with respect to
--------
projected financial information, the Borrower represents only that such
information was prepared in good faith based upon assumptions believed to be
reasonable at the time.
SECTION 3.12. Subsidiaries. Schedule 3.12 sets forth the name of, and the
------------
ownership interest of the Borrower in, each Subsidiary of the Borrower and
identifies each Subsidiary that is a Subsidiary Loan Party, in each case as of
the Effective Date.
SECTION 3.13. Insurance. Schedule 3.13 sets forth a description of all
----------
insurance maintained by or on behalf of the Borrower and the Subsidiary Loan
Parties as of the Effective Date. As of the Effective Date, all premiums then
due in respect of such insurance have been paid.
SECTION 3.14. Labor Matters. As of the Effective Date, there are no
-------------
strikes, lockouts or slowdowns against the Borrower or any Subsidiary pending
or, to the knowledge of the Borrower, threatened. The hours worked by and
payments made to employees of the Borrower and the Subsidiaries have not been in
violation of the Fair Labor Standards Act or any other applicable Federal,
state, local or foreign law dealing with such matters. All payments due from the
Borrower or any Subsidiary, or for which any claim may be made against the
Borrower or any Subsidiary, on account of wages and employee health and welfare
insurance and other benefits, have been paid or accrued as a liability on the
books of the Borrower or such Subsidiary. The consummation of the Transactions
will not give rise to any right of termination or right of renegotiation on the
part of any union under any collective bargaining agreement to which the
Borrower or any Subsidiary is bound.
<PAGE>
56
SECTION 3.15. Solvency. Immediately after the consummation of the
---------
Transactions to occur on the Effective Date and immediately following the making
of each Loan made on the Effective Date and after giving effect to the
application of the proceeds of such Loans, (a) the fair saleable value of the
assets of the Loan Parties, taken as a whole, at a fair valuation, will exceed
their aggregate debts and liabilities, subordinated, contingent or otherwise;
(b) the present fair saleable value of the assets of the Loan Parties, taken as
a whole, will be greater than the amount that will be required to pay the
probable liability of their aggregate debts and other liabilities, subordinated,
contingent or otherwise, as such debts and other liabilities become absolute and
matured; (c) the Loan Parties, taken as a whole, will be able to pay their
aggregate debts and liabilities, subordinated, contingent or otherwise, as such
debts and liabilities become absolute and matured; and (d) the Loan Parties,
taken as a whole, will not have unreasonably small capital with which to conduct
the businesses in which they are engaged as such businesses are now conducted
and are proposed to be conducted following the Effective Date.
SECTION 3.16. FCC Compliance. (a) The Borrower and each Subsidiary are in
---------------
compliance in all material respects with the Communications Act and all
requirements of the FCC and with the communications laws of all other
jurisdictions in which the Borrower and its Subsidiaries conduct business and
the communications requirements of all Governmental Authorities in such
jurisdictions (collectively, the "Foreign Communications Regulations".
(b) The Borrower has no knowledge of any investigation, notice of apparent
liability, violation, forfeiture or other order or complaint issued by or before
the FCC or any other Governmental Authority, which could reasonably be expected
to have a Material Adverse Effect except as set forth in Schedule 3.16.
(c) No event has occurred which (i) results in, or after notice or lapse
of time or both would result in, revocation, suspension, adverse modifications,
non-renewal, impairment, restriction or termination of, or order of forfeiture
with respect to, any License in any respect which could reasonably be expected
to have a Material Adverse Effect or (ii) affects or could reasonably be
expected in the future to affect any of the rights of the Borrower or any
Subsidiary under any License held by the Borrower or any Subsidiary in any
respect which could reasonably be expected to have a Material Adverse Effect.
<PAGE>
57
(d) The Borrower and each Subsidiary have duly filed in a timely manner
all material filings, reports, applications, documents, instruments and
information required to be filed by it under the Communications Act and the
Foreign Communications Regulations, and all such filings were when made true,
correct and complete in all material respects.
(e) The Borrower has no reason to believe that each License of the
Borrower or any Subsidiary will not be renewed in the ordinary course if the
failure to so renew any such Licenses would have a Material Adverse Effect.
SECTION 3.17. Licenses. (i) The Borrower and its Subsidiaries have the
--------
full use and benefit of all material Licenses necessary to conduct their
respective businesses as currently conducted, (ii) such Licenses have been duly
issued by the FCC or the relevant Foreign Governmental Authority, are held by
the Borrower or such Subsidiary and are in full force and effect and (iii) the
Borrower and its Subsidiaries are in compliance in all material respects with
all of the provisions of each such License.
SECTION 3.18. No Burdensome Restrictions. Except as set forth in Schedule
---------------------------
3.18, no Requirement of Law or contractual obligation (other than, in the case
of clause (b) below, any restriction under subsection 6.08) applicable to the
Borrower or any Subsidiary could reasonably be expected to (a) have a Material
Adverse Effect or (b) limit the ability of any Subsidiary to pay dividends or to
make distributions or advances to the Borrower or any other Subsidiary.
SECTION 3.19. Security Documents. (a) The Pledge Agreement is effective to
------------------
create in favor of the Collateral Agent, for the ratable benefit of the Secured
Parties, a legal, valid and enforceable security interest in the Collateral (as
defined in the Pledge Agreement) and, when the Collateral is delivered to the
Collateral Agent, the Pledge Agreement shall create a fully perfected first
priority Lien on, and security interest in, all right, title and interest of the
pledgors thereunder in such Collateral, in each case prior and superior in right
to any other Person.
(b) The Security Agreement is effective to create in favor of the
Collateral Agent, for the ratable benefit of the Secured Parties, a legal, valid
and enforceable security interest in the Collateral (as defined in the Security
Agreement) and, when financing statements in appropriate
<PAGE>
58
form are filed in the offices specified on Schedule 6 to the Perfection
Certificate, the Security Agreement shall constitute a fully perfected Lien on,
and security interest in, all right, title and interest of the grantors
thereunder in such Collateral to the extent that Liens on such Collateral may be
perfected by the filing of financing statements in the offices specified on
Schedule 6 (other than the Intellectual Property, as defined in the Security
Agreement), in each case prior and superior in right to any other Person, other
than with respect to Liens expressly permitted by Section 6.02.
(c) When the Security Agreement is filed in the United States Patent and
Trademark Office and the United States Copyright Office, and, with respect to
Collateral in which a security interest cannot be perfected by such filings,
upon the filing of the financing statements referred to in paragraph (b) above,
the Security Agreement and such financing statements shall constitute a fully
perfected Lien on, and security interest in, all right, title and interest of
the grantors thereunder in the Intellectual Property (as defined in the Security
Agreement), except to the extent filings are required in jurisdictions outside
the United States in respect of foreign Intellectual Property, in each case
prior and superior in right to any other Person (it being understood that
subsequent recordings in the United States Patent and Trademark Office and the
United States Copyright Office may be necessary to perfect a lien on registered
trademarks, trademark applications and copyrights acquired by the grantors after
the date hereof), other than with respect to Liens expressly permitted by
Section 6.02.
SECTION 3.20. Federal Regulations. No part of the proceeds of any Loans or
-------------------
any Letter of Credit will be used in any manner which would result in a
violation of Regulation U or X of the Board as now and from time to time
hereafter in effect or to buy or carry "margin stock" (as defined thereunder) or
to refinance any Indebtedness incurred for such purpose.
SECTION 3.21. Environmental Matters. Except as set forth in Schedule 3.21:
----------------------
(a) The properties owned or operated by the Borrower and the Subsidiaries
(the "Properties") do not contain any Hazardous Materials in amounts or
concentrations which (i) constitute, or constituted a violation of, (ii) require
Remedial Action under, or (iii) could give rise to liability on the part of the
Borrower or its Subsidiaries under, Environmental Laws, which violations,
Remedial
<PAGE>
59
Actions and liabilities, in the aggregate, could result in a Material Adverse
Effect;
(b) The Properties, if any, owned, leased or operated by the Borrower and
its Subsidiaries and all operations of the Borrower and the Subsidiaries are in
compliance with all Environmental Laws and all necessary Environmental Permits
have been obtained and are in effect, except to the extent that such non-
compliance or failure to obtain any necessary permits, in the aggregate, could
not result in a Material Adverse Effect;
(c) There have been no Releases or to the Borrower's knowledge threatened
Releases at, from, under or proximate to the Properties or otherwise in
connection with the operations of the Borrower or the Subsidiaries, which
Releases or threatened Releases, in the aggregate, could result in a Material
Adverse Effect;
(d) Neither the Borrower nor any of the Subsidiaries has received any
notice of an Environmental Claim in connection with the Properties or the
operations of the Borrower or the Subsidiaries or with regard to any Person
whose liabilities for environmental matters the Borrower or the Subsidiaries has
retained or assumed, in whole or in part, contractually, by operation of law or
otherwise, which, in the aggregate, could result in a Material Adverse Effect,
nor do the Borrower or the Subsidiaries have reason to believe that any such
notice will be received or is being threatened; and
(e) Hazardous Materials have not been transported from the Properties, nor
have Hazardous Materials been generated, treated, stored or disposed of at, on
or under any of the Properties in a manner that could give rise to liability on
the part of the Borrower or its Subsidiaries under any Environmental Law which
could result in a Material Adverse Effect, nor have the Borrower or the
Subsidiaries retained or assumed any liability, contractually, by operation of
law or otherwise, with respect to the generation, treatment, storage or disposal
of Hazardous Materials, which transportation, generation, treatment, storage or
disposal, or retained or assumed liabilities, in the aggregate, could result in
a Material Adverse Effect.
SECTION 3.22. Year 2000. Any reprogramming required to permit the proper
----------
functioning, in and following the year 2000, of (i) the Borrower's computer
systems and equipment containing embedded microchips and the testing of all such
systems and equipment, as so reprogrammed, will be completed by June 30, 1999.
The cost to the Borrower of
<PAGE>
60
such reprogramming and testing and of the reasonably foreseeable consequences of
year 2000 to the Borrower (including, without limitation, reprogramming errors)
will not result in a Default or a Material Adverse Effect. Except for such of
the reprogramming referred to in the preceding sentence as may be necessary, the
computer and management information systems of the Borrower and its Subsidiaries
are and, with ordinary course upgrading, maintenance and replacement, will
continue for the term of this Agreement to be, sufficient to permit the Borrower
to conduct its business without Material Adverse Effect.
ARTICLE IV
Conditions
----------
SECTION 4.01. Effective Date. The obligations of the Lenders to
---------------
make Loans and of the Issuing Bank to issue Letters of Credit hereunder shall
not become effective until the date on which each of the following conditions is
satisfied (or waived in accordance with Section 9.02):
(a) The Administrative Agent (or its counsel) shall have received
from each party hereto either (i) a counterpart of this Agreement signed on
behalf of such party or (ii) written evidence satisfactory to the
Administrative Agent (which may include telecopy transmission of a signed
signature page of this Agreement) that such party has signed a counterpart
of this Agreement.
(b) The Administrative Agent shall have received a favorable written
opinion (addressed to the Administrative Agent and the Lenders and dated
the Effective Date) of Nixon, Hargrave, Devans & Doyle, counsel for the
Borrower, substantially in the form of Exhibit B, and covering such other
matters relating to the Loan Parties, the Loan Documents or the
Transactions as the Required Lenders shall reasonably request. The Borrower
hereby requests such counsel to deliver such opinions.
(c) The Administrative Agent shall have received such documents and
certificates as the Administrative Agent or its counsel may reasonably
request relating to the organization, existence and good standing of each
Loan Party, the authorization of the Transactions and any other legal
matters relating to the Loan Parties, the Loan Documents or the
Transactions, all in form and
<PAGE>
61
substance satisfactory to the Administrative Agent and its counsel.
(d) The Administrative Agent shall have received a certificate, dated
the Effective Date and signed by the Chairman, the Chief Executive Officer,
the President, a Vice President or a Financial Officer of the Borrower,
confirming compliance with the conditions set forth in paragraphs (a) and
(b) of Section 4.02.
(e) The Administrative Agent shall have received all fees and other
amounts due and payable on or prior to the Effective Date, including, to
the extent invoiced, reimbursement or payment of all out-of-pocket expenses
required to be reimbursed or paid by any Loan Party hereunder or under any
other Loan Document.
(f) The Pledge Agreement shall have been duly executed by the parties
thereto, shall have been delivered to the Collateral Agent and shall be in
full force and effect, and all the outstanding (i) intercompany
Indebtedness owed to any Loan Party by the Borrower or any Subsidiary
(other than intercompany Indebtedness existing on the date hereof) and (ii)
equity or partnership interests that are owned by the Borrower or any
Subsidiary Loan Party (in each case as of the Effective Date after giving
effect to the Transactions) (A) shall have been duly and validly pledged
thereunder to the Administrative Agent for the ratable benefit of the
Secured Parties and (B) certificates representing such equity or
partnership interests (except that such certificates representing equity or
partnership interests in a Foreign Subsidiary may be limited to 65% of the
outstanding shares of such equity or partnership interests in such Foreign
Subsidiary), accompanied by stock powers or other instruments of transfer,
endorsed in blank, with respect to such certificates and such promissory
notes, except as may be agreed upon by the Administrative Agent.
(g) The Security Agreement shall have been duly executed by the
parties thereto, shall have been delivered to the Collateral Agent and
shall be in full force and effect, and all documents and instruments,
including Uniform Commercial Code financing statements, requested by the
Administrative Agent to be filed, registered or recorded to create or
perfect the Liens intended to be created under the Security Agreement shall
have been delivered to the Administrative Agent or its counsel.
<PAGE>
62
(h) The Administrative Agent shall have received a completed
Perfection Certificate (giving effect to the Transactions) dated the
Effective Date and signed by an executive officer or Financial Officer of
the Borrower (but without all the attachments contemplated thereby).
(i) The Guarantee Agreement shall have been duly executed by the
Subsidiary Loan Parties and the Administrative Agent, shall have been
delivered to the Administrative Agent and shall be in full force and
effect.
(j) The Indemnity, Subrogation and Contribution Agreement shall have
been duly executed by the parties thereto, shall have been delivered to the
Collateral Agent and shall be in full force and effect.
(k) The Administrative Agent shall have received evidence
satisfactory to it that the insurance required by Section 5.07 is in
effect.
(l) The Lenders shall have received a pro forma consolidated balance
sheet of the Borrower as of the final day of the full month immediately
prior the month in which the Closing Date falls, reflecting all pro forma
adjustments as if the Transactions had been consummated on such date, and
such pro forma consolidated balance sheet shall be consistent in all
material respects with the forecasts and other information previously
provided to the Lenders. After giving effect to the Transactions, neither
the Borrower nor any of its Subsidiaries shall have outstanding any shares
of preferred stock or any Indebtedness, other than (i) Indebtedness
incurred under the Loan Documents, (ii) $600,000,000 aggregate principal
amount of the Senior Notes, (iii) the Borrower's Series B 8% Convertible
Preferred Stock issued in November 1997, (iv) borrowings under the existing
Canadian bank facility of a subsidiary of the Borrower, (v) capitalized
lease obligations, purchase money indebtedness, installment sale
obligations and other obligations incurred to finance the acquisition,
design, development, construction or improvement of property to the extent
permitted hereunder, (vi) the Swiss Subsidiary Debt and the other
Indebtedness listed on Schedule 6.01.
(m) All of the existing secured revolving bank credit facilities of
the Borrower shall have been terminated and all outstanding obligations
thereunder
<PAGE>
63
shall have been paid or, in the case of any outstanding letters of credit,
refinanced under this Agreement.
(n) The Administrative Agent shall be reasonably satisfied with the
sufficiency of amounts available under this Agreement to meet the ongoing
working capital requirements of the Borrower and its subsidiaries.
(o) The Borrower shall, on a pro forma basis, be in compliance with
all covenants set forth in Section 6.12.
(p) All consents and approvals required to be obtained from any
Governmental Authority or other Person in connection with the Transactions
shall have been obtained without the imposition of any burdensome
conditions and there shall be no governmental or judicial action, actual or
threatened, that could reasonably be expected to restrain, prevent or
impose burdensome conditions on the Transactions.
(q) There shall have been no material adverse change in the business,
assets, results of operations, condition (financial or otherwise),
prospects or material agreements of the Borrower and the Subsidiaries,
taken as a whole, since December 31, 1997.
The Administrative Agent shall notify the Borrower and the Lenders of the
Effective Date, and such notice shall be conclusive and binding. The obligations
of the Lenders to make Loans and of the Issuing Bank to issue Letters of Credit
hereunder shall not become effective unless each of the foregoing conditions is
satisfied (or waived pursuant to Section 9.02) at or prior to 3:00 p.m., New
York City time, on October 14, 1998 (and, in the event such conditions are not
so satisfied or waived, the Revolving Commitments shall terminate at such time).
SECTION 4.02. Each Credit Event. The obligation of each Lender to
------------------
make a Loan on the occasion of any Borrowing, and of the Issuing Bank to issue,
amend, renew or extend any Letter of Credit, is subject to the satisfaction of
the following conditions:
(a) The representations and warranties of each Loan Party set forth
in the Loan Documents shall be true and correct on and as of the date of
such Borrowing or the date of issuance, amendment, renewal or extension of
such Letter of Credit, as applicable,
<PAGE>
64
except to the extent such representations and warranties expressly relate
to an earlier date in which case such representations and warranties shall
be true and correct as of such earlier date.
(b) At the time of and immediately after giving effect to such
Borrowing or the issuance, amendment, renewal or extension of such Letter
of Credit, as applicable, no Default shall have occurred and be continuing.
Each Borrowing and each issuance, amendment, renewal or extension of a Letter of
Credit shall be deemed to constitute a representation and warranty by the
Borrower on the date thereof as to the matters specified in paragraphs (a) and
(b) of this Section.
ARTICLE V
Affirmative Covenants
---------------------
Until the Revolving Commitments have expired or been terminated and
the principal of and interest on each Loan and all fees payable hereunder shall
have been paid in full and all Letters of Credit shall have expired or
terminated and all LC Disbursements shall have been reimbursed, the Borrower
covenants and agrees with the Lenders that:
SECTION 5.01. Financial Statements and Other Information. The
-------------------------------------------
Borrower will furnish to the Administrative Agent:
(a) within 92 days after the end of each fiscal year of the Borrower,
its audited consolidated balance sheet and related statements of
operations, stockholders' equity and cash flows as of the end of and for
such year, setting forth in each case in comparative form the figures for
the previous fiscal year, all reported on by PricewaterhouseCoopers or
other independent public accountants of recognized national standing
(without a "going concern" or like qualification or exception and without
any qualification or exception as to the scope of such audit) to the effect
that such consolidated financial statements present fairly in all material
respects the financial condition and results of operations of the Borrower
and its consolidated Subsidiaries on a consolidated basis in accordance
with GAAP consistently applied;
<PAGE>
65
(b) within 47 days after the end of each of the first three fiscal
quarters of each fiscal year of the Borrower, its consolidated balance
sheet and related statements of operations, stockholders' equity and cash
flows as of the end of and for such fiscal quarter and the then elapsed
portion of the fiscal year, setting forth in each case in comparative form
the figures for the corresponding period or periods of (or, in the case of
the balance sheet, as of the end of) the previous fiscal year, all
certified by one of its Financial Officers as presenting fairly in all
material respects the financial condition and results of operations of the
Borrower and its consolidated Subsidiaries on a consolidated basis in
accordance with GAAP consistently applied, subject to normal year-end audit
adjustments and the absence of footnotes;
(c) concurrently with any delivery of financial statements under
clause (a) or (b) above, a certificate of a Financial Officer of the
Borrower (i) certifying as to whether a Default has occurred and, if a
Default has occurred, specifying the details thereof and any action taken
or proposed to be taken with respect thereto, (ii) setting forth reasonably
detailed calculations demonstrating compliance with Section 6.12 and (iii)
stating whether any change in GAAP or in the application thereof has
occurred since the date of the Borrower's audited financial statements
referred to in Section 3.04 and, if any such change has occurred,
specifying the effect of such change on the financial statements
accompanying such certificate;
(d) concurrently with any delivery of financial statements under
clause (a) above, a certificate of the accounting firm that reported on
such financial statements stating whether they obtained knowledge during
the course of their examination of such financial statements of any Default
(which certificate may be limited to the extent required by accounting
rules or guidelines);
(e) at least 30 days after to the commencement of each fiscal year of
the Borrower, a detailed consolidated budget for such fiscal year
(including a projected consolidated balance sheet and related statements of
projected operations and cash flow as of the end of and for such fiscal
year) and, promptly when available, any significant revisions of such
budget;
(f) on an annual basis, a copy of the projections as to the
performance of the Borrower, presented in a
<PAGE>
66
manner consistent with the projections in the Information Memorandum for
the period from the date of the most recent balance sheet included in the
financial statements delivered pursuant to (a) above through the last day
of the financial year in which the Maturity Date occurs, such projections
to be accompanied by a certificate of a Financial Officer of the Borrower
to the effect that such projections have been prepared using assumptions
believed in good faith by the management of the Borrower to be reasonable
as of the date of such certificate (which shall be subsequent to the date
of the most recent balance sheet included in such financial statements).
(g) promptly after the same become publicly available, copies of all
periodic and other reports, proxy statements and other materials filed by
the Borrower or any Subsidiary with the Securities and Exchange Commission,
or any Governmental Authority succeeding to any or all of the functions of
said Commission, or with any national securities exchange, as the case may
be; and
(h) promptly following any request therefor, such other information
regarding the operations, business affairs and financial condition of the
Borrower or any Subsidiary, or compliance with the terms of any Loan
Document, as the Administrative Agent or any Lender may reasonably request.
SECTION 5.02. Notices of Material Events. The Borrower will furnish
---------------------------
to the Administrative Agent prompt written notice of the following:
(a) the occurrence of any Default;
(b) the filing or commencement of any action, suit or proceeding by
or before any arbitrator or Governmental Authority against or affecting the
Borrower or any Affiliate thereof that, if adversely determined, could
reasonably be expected to result in a Material Adverse Effect;
(c) the occurrence of any ERISA Event that, alone or together with
any other ERISA Events that have occurred, could reasonably be expected to
result in liability of the Borrower and its Subsidiaries in an aggregate
amount exceeding $10,000,000; and
<PAGE>
67
(d) any other development that results in, or could reasonably be
expected to result in, a Material Adverse Effect.
Each notice delivered under this Section shall be accompanied by a statement of
a Financial Officer or other executive officer of the Borrower setting forth the
details of the event or development requiring such notice and any action taken
or proposed to be taken with respect thereto.
SECTION 5.03. Information Regarding Collateral. (a) The Borrower
---------------------------------
will furnish to the Administrative Agent prompt written notice of any change,
but in no event later than 30 days after the date of such change, (i) in any
Loan Party's corporate name or in any trade name used to identify it in the
conduct of its business or in the ownership of its properties, (ii) in the
location of any Loan Party's chief executive office, its principal place of
business, any office in which it maintains books or records relating to
Collateral owned by or it any office or facility at which Collateral owned by it
having a value in excess of $1,000,000 is located (including the establishment
of any such new office or facility), (iii) in any Loan Party's identity or
corporate structure or (iv) in any Loan Party's Federal Taxpayer Identification
Number. The Borrower agrees to promptly make, after the occurrence of any of the
foregoing changes (but in no event later than 45 days after the occurrence of
any such changes), all filings under the Uniform Commercial Code or otherwise
that are required by the Administrative Agent in order for the Administrative
Agent to continue at all times following such change to have a valid, legal and
perfected security interest in all the Collateral.
(b) Each year, at the time of delivery of annual financial statements
with respect to the preceding fiscal year pursuant to clause (a) of Section
5.01, the Borrower shall deliver to the Administrative Agent a certificate of an
executive officer or a Financial Officer of the Borrower (i) setting forth the
information required pursuant to Section 2 of the Perfection Certificate or
confirming that there has been no change in such information since the date of
the Perfection Certificate delivered on the Effective Date or the date of the
most recent certificate delivered pursuant to this Section and (ii) certifying
that all Uniform Commercial Code financing statements (including fixture
filings, as applicable) or other appropriate filings, recordings or
registrations, including all refilings, rerecordings and reregistrations,
containing a description of the Collateral have been filed of record in each
governmental, municipal or other appropriate office in
<PAGE>
68
each jurisdiction identified pursuant to clause (i) above to the extent
necessary to protect and perfect the security interests under the Security
Documents or identifying such additional Uniform Commercial Code financing
statements or other appropriate filings, recordings or registrations as may be
required to protect and perfect the security interests under the Security
Documents which, upon the request of the Administrative Agent, shall be filed,
recorded or registered, in either case for a period of not less than 18 months
after the date of such certificate (except as noted therein with respect to any
continuation statements to be filed within such period).
SECTION 5.04. Existence; Conduct of Business. The Borrower will,
-------------------------------
and will cause each of its Subsidiaries to, do or cause to be done all things
necessary to preserve, renew and keep in full force and effect its legal
existence and the rights, licenses, permits, privileges, franchises, patents,
copyrights, trademarks and trade names material to the conduct of its business;
provided that the foregoing shall not prohibit any merger, consolidation,
- --------
liquidation, dissolution or asset sale permitted under Section 6.04 or 6.06.
SECTION 5.05. Payment of Obligations. The Borrower will, and will
-----------------------
cause each of its Subsidiaries to, pay its Indebtedness and other obligations,
including Tax liabilities, before the same shall become delinquent or in
default, except where (a) the validity or amount thereof is being contested in
good faith by appropriate proceedings, (b) the Borrower or such Subsidiary has
set aside on its books adequate reserves with respect thereto in accordance with
GAAP, (c) such contest effectively suspends collection of the contested
obligation and the enforcement of any Lien securing such obligation and (d) the
failure to make payment pending such contest could not reasonably be expected to
result in a Material Adverse Effect.
SECTION 5.06. Maintenance of Properties. The Borrower will, and
--------------------------
will cause each of its Subsidiaries to, keep and maintain all property material
to the conduct of its business in good working order and condition, normal wear
and tear excepted.
SECTION 5.07. Insurance. (a) The Borrower will, and will cause
----------
each of the Subsidiary Loan Parties to, maintain, with financially sound and
reputable insurance companies:
(i) fire and extended coverage insurance, on a replacement cost
basis, with respect to all personal
<PAGE>
69
property and improvements to real property, in such amounts as are
customarily maintained by companies in the same or similar business
operating in the same or similar locations;
(ii) commercial general liability insurance against claims for bodily
injury, death or property damage occurring upon, about or in connection
with the use of any properties owned, occupied or controlled by it,
providing coverage on an occurrence basis with a combined single limit of
not less than $1,000,000 and including the broad form CGL endorsement;
(iii) business interruption insurance, insuring against lost earnings
and additional expenses in an aggregate amount up to $10,000,000; and
(iv) such other insurance as may be required by law.
Deductibles or self-insured retention shall not exceed $5,000 for fire and other
casualty loss policies and $25,000 for earthquake and flood insurance and for
commercial general liability policies.
(b) Fire and extended coverage policies (and any policies required
to be maintained pursuant to paragraph (c) below) maintained with respect to any
Collateral shall be endorsed or otherwise amended to include (i) a non-
contributing mortgage clause (regarding improvements to real property) and
lenders' loss payable clause (regarding personal property), in each case in
favor of the Administrative Agent and providing for losses thereunder to be
payable to the Administrative Agent or its designee, (ii) a provision to the
effect that neither the Borrower, the Administrative Agent nor any other party
shall be a coinsurer and (iii) such other provisions as the Administrative Agent
may reasonably require from time to time to protect the interests of the
Lenders. Commercial general liability policies shall be endorsed to name the
Administrative Agent as an additional insured. Business interruption policies
shall name the Administrative Agent as loss payee. Each such policy referred to
in this paragraph also shall provide that it shall not be canceled, modified or
not renewed (i) by reason of nonpayment of premium except upon not less than 10
days' prior written notice thereof by the insurer to the Administrative Agent
(giving the Administrative Agent the right to cure defaults in the payment of
premiums) or (ii) for any other reason except upon not less than 30 days' prior
written notice thereof by the insurer to the Administrative Agent. The Borrower
shall
<PAGE>
70
deliver to the Administrative Agent, prior to the cancelation, modification or
nonrenewal of any such policy of insurance, a copy of a renewal or replacement
policy (or other evidence of renewal of a policy previously delivered to the
Administrative Agent) together with evidence satisfactory to the Administrative
Agent of payment of the premium therefor.
(c) If at any time the area in which any Mortgaged Property is
located is designated (i) a "flood hazard area" in any Flood Insurance Rate Map
published by the Federal Emergency Management Agency (or any successor agency),
the Borrower shall obtain flood insurance in such total amount as the
Administrative Agent or the Required Lenders may from time to time require, and
otherwise comply with the National Flood Insurance Program as set forth in the
Flood Disaster Protection Act of 1973, as amended from time to time.
SECTION 5.08. Casualty and Condemnation. (a) The Borrower will
--------------------------
furnish to the Administrative Agent prompt written notice of any casualty or
other insured damage, insured or otherwise, to any portion of any Collateral or
the commencement of any action or proceeding for the taking of any Collateral or
any part thereof or interest therein under power of eminent domain or by
condemnation or similar proceeding to the extent such casualty, other insured
damage or taking of Collateral exceeds $1,000,000.
(b) If any event described in paragraph (a) of this Section results
in Net Proceeds (whether in the form of insurance proceeds, condemnation award
or otherwise), the Administrative Agent is authorized to collect such Net
Proceeds and, if received by the Borrower or any Subsidiary, such Net Proceeds
shall be paid over to the Administrative Agent; provided that (i) if the
--------
aggregate Net Proceeds in respect of such event (other than proceeds of business
income insurance) are less than $5,000,000, such Net Proceeds may be paid to the
Borrower and, if paid to the Administrative Agent, shall be paid over to the
Borrower unless a Default has occurred and is continuing, and (ii) all proceeds
of business interruption insurance shall be paid over to the Borrower unless a
Default has occurred and is continuing. All such Net Proceeds retained by or
paid over to the Administrative Agent shall be held (except as provided in the
proviso in the preceding sentence) by the Administrative Agent and released from
time to time to pay the costs of repairing, restoring or replacing the affected
property in accordance with the terms of the applicable Security Document,
subject to the provisions of the
<PAGE>
71
applicable Security Document regarding application of such Net Proceeds during a
Default.
(c) If any Net Proceeds retained by or paid over to the
Administrative Agent as provided above continue to be held by the Administrative
Agent on the date that is 180 days after the occurrence of the event resulting
in such Net Proceeds, then such Net Proceeds shall be applied to reduce
Revolving Commitments and prepay Borrowings as provided in Section 2.09(c).
SECTION 5.09. Books and Records; Inspection and Audit Rights. The
-----------------------------------------------
Borrower will, and will cause each of its Subsidiaries to, keep proper books of
record and account in which full, true and correct entries are made of all
dealings and transactions in relation to its business and activities. The
Borrower will, and will cause each of its Subsidiaries to, permit any
representatives designated by the Administrative Agent or any Lender, upon
reasonable prior notice, to visit and inspect its properties, to examine and
make extracts from its books and records, and to discuss its affairs, finances
and condition with its officers and independent accountants, all at such
reasonable times and as often as reasonably requested.
SECTION 5.10. Compliance with Laws. The Borrower will, and will
---------------------
cause each of its Subsidiaries to, comply with all laws, rules, regulations and
orders of any Governmental Authority applicable to it or its property, except
where the failure to do so, individually or in the aggregate, could not
reasonably be expected to result in a Material Adverse Effect.
SECTION 5.11. Use of Proceeds and Letters of Credit. The proceeds
--------------------------------------
of the Loans and the issuance of Letters of Credit will be used to refinance the
existing secured bank credit facility of the Borrower, to finance acquisitions
permitted hereunder, to provide working capital and for other general corporate
purposes. No part of the proceeds of any Loan will be used, whether directly or
indirectly, for any purpose that entails a violation of any of the Regulations
of the Board, including Regulations U and X.
SECTION 5.12. Assets Acquired by Foreign Subsidiaries with
--------------------------------------------
Proceeds; Pledge of Intercompany Notes. To the extent that proceeds of Loans or
- ---------------------------------------
Letters of Credit are to be used to finance the acquisition, construction or
improvement of Telecommunications Assets of any Foreign Subsidiary (and not for
working capital purposes), the Borrower will loan such proceeds to such Foreign
Subsidiary
<PAGE>
72
pursuant to an Intercompany Note secured by the Telecommunications Assets
acquired with such proceeds and will pledge all such Intercompany Notes to the
Administrative Agent for the benefit of the Secured Parties pursuant to the
Pledge Agreement.
SECTION 5.13. Additional Subsidiaries and Significant Subsidiaries.
-----------------------------------------------------
If any additional Subsidiary is formed or acquired after the Effective Date that
constitutes a Significant Subsidiary or any existing Subsidiary becomes a
Significant Subsidiary after the Effective Date, the Borrower will notify the
Administrative Agent and (a) the Borrower will cause such Subsidiary to become a
party to the Pledge Agreement, the Security Agreement, the Guarantee Agreement
and the Indemnity, Subrogation and Contribution Agreement as contemplated under
each agreement, within 15 Business Days after such new Significant Subsidiary is
formed or acquired, or such existing Subsidiary becomes a Significant
Subsidiary, and promptly take such actions to create and perfect Liens on such
Subsidiary's assets to secure the Obligations as the Administrative Agent or the
Required Lenders shall reasonably request and (b) if any shares of capital stock
or Indebtedness of such Significant Subsidiary are owned by or on behalf of any
Loan Party, the Borrower will cause such shares and promissory notes (to the
extent any such promissory note has an aggregate principal amount of at least
$1,000,000) evidencing such Indebtedness to be pledged pursuant to the Pledge
Agreement within 15 Business Days after such Significant Subsidiary is formed or
acquired (except that, if such shares of capital stock so owned are shares of a
Foreign Subsidiary, shares of common stock of such Subsidiary to be pledged
pursuant to the Pledge Agreement may be limited to 65% of the outstanding shares
of common stock of such Foreign Subsidiary excluding directors' qualifying
shares).
SECTION 5.14. Completion of Perfection Certificate. On or prior to
-------------------------------------
the date 60 days following the Effective Date, (a) the Borrower shall have
delivered to the Administrative Agent the attachments contemplated by the
Perfection Certificate delivered on the Effective Date, including the results of
a search of the Uniform Commercial Code (or equivalent) filings made with
respect to the Borrower and the Subsidiary Loan Parties in the jurisdictions
contemplated by the Perfection Certificate and copies of the financing
statements (or similar documents) disclosed by such search and evidence
reasonably satisfactory to the Administrative Agent that the Liens indicated by
such financing statements (or similar documents) are permitted by Section 6.02
or have been released and (b) a favorable written opinion (addressed to
<PAGE>
73
the Lenders and dated the date the Borrower complies with clause (a) above) of
counsel for the Borrower, covering such matters in connection with such filings
as the Required Lenders may reasonably request.
SECTION 5.15. Further Assurances. (a) The Borrower will, and will
-------------------
cause each Subsidiary Loan Party to, execute any and all further documents,
financing statements, agreements and instruments, and take all such further
actions (including the filing and recording of financing statements, fixture
filings, mortgages, deeds of trust and other documents), which the
Administrative Agent or the Required Lenders may reasonably request, to
effectuate the transactions contemplated by the Loan Documents or to grant,
preserve, protect or perfect the Liens created or intended to be created by the
Security Documents or the validity or priority of any such Lien, all at the
expense of the Loan Parties. The Borrower also agrees to provide to the
Administrative Agent, from time to time upon request, evidence reasonably
satisfactory to the Administrative Agent as to the perfection and priority of
the Liens created or intended to be created by the Security Documents (including
opinions of local counsel with respect to any mortgage on real property located
in the United States and any Uniform Commercial Code Financing Statements filed
in connection with such Mortgage in a jurisdiction in which such local counsel
is qualified).
(b) If any material assets (including any real property or
improvements thereto or any interest therein) are acquired by the Borrower or
any Subsidiary Loan Party after the Effective Date (other than assets
constituting Collateral under the Security Agreement that become subject to the
Lien of the Security Agreement upon acquisition thereof), the Borrower will
notify the Administrative Agent and the Lenders thereof, and, if requested by
the Administrative Agent or the Required Lenders, the Borrower will cause such
assets to be subjected to a Lien securing the Obligations and will take, and
cause the Subsidiary Loan Parties to take, such actions as shall be necessary or
reasonably requested by the Administrative Agent to grant and perfect such
Liens, including actions described in paragraph (a) of this Section, all at the
expense of the Loan Parties.
<PAGE>
74
ARTICLE VI
Negative Covenants
------------------
Until the Revolving Commitments have expired or terminated and the
principal of and interest on each Loan and all fees payable hereunder have been
paid in full and all Letters of Credit have expired or terminated and all LC
Disbursements shall have been reimbursed, the Borrower covenants and agrees with
the Lenders that:
SECTION 6.01. Indebtedness; Certain Equity Securities. The Borrower
----------------------------------------
will not, and will not permit any Subsidiary to, create, incur, assume or permit
to exist any Indebtedness, except:
(i) Indebtedness created under the Loan Documents;
(ii) Indebtedness existing on or committed to as the date hereof and
set forth in Schedule 6.01, the indebtedness of Tokyo Internet Corporation
to be assumed by the Borrower in connection with the acquisition of all the
capital stock of Tokyo Internet Corporation to be completed after the
Effective Date and extensions, renewals and replacements of any such
Indebtedness that do not increase the outstanding principal amount thereof
or result in an earlier maturity date or decreased weighted average life
thereof;
(iii) Indebtedness of the Borrower to any Subsidiary and of any
Subsidiary to the Borrower or any other Subsidiary; provided that
--------
Indebtedness of any Subsidiary that is not a Loan Party to the Borrower or
any Subsidiary Loan Party shall be subject to Section 6.05;
(iv) Guarantees by the Borrower of Indebtedness of any Subsidiary and
by any Subsidiary of Indebtedness of the Borrower or any other Subsidiary;
provided that Guarantees by the Borrower or any Subsidiary Loan Party of
--------
Indebtedness of any Subsidiary that is not a Loan Party shall be subject to
Section 6.05;
(v) Indebtedness of the Borrower or any Subsidiary incurred to
finance the design, development, acquisition, construction or improvement
of real or personal property, tangible or intangible, used or to be used in
connection with a Telecommunications Business, including, without
limitation, Capital Lease Obligations, Purchase Money Obligations,
installments
<PAGE>
75
sales, mortgage financings, master lease arrangements or similar such
agreements or arrangements, and any Indebtedness assumed in connection with
the acquisition of any such assets or secured by a Lien on any such assets
prior to the acquisition thereof, and extensions, renewals and replacements
of any such assumed Indebtedness that do not increase the outstanding
principal amount thereof or result in an earlier maturity date or decreased
weighted average life thereof; provided that (A) such Indebtedness is
--------
incurred prior to or within 90 days (or, in the case of Capital Lease
Obligations, 180 days) after such acquisition or the completion of such
construction or improvement and (B) the aggregate principal amount of
Indebtedness permitted by this clause (v) shall not exceed $350,000,000 at
any time outstanding;
(vi) (x) Indebtedness of any Person that becomes a Subsidiary after
the date hereof and (y) other unsecured Indebtedness, so long as both
before and after such Indebtedness is incurred by the Borrower or any
Subsidiary of the Borrower is in pro forma compliance with the financial
covenants set forth in Section 6.12; provided that (A) in the case of
--------
clause (x) above, such Indebtedness exists at the time such Person becomes
a Subsidiary and is not created in contemplation of or in connection with
such Person becoming a Subsidiary and (B) the aggregate principal amount of
Indebtedness permitted by this clause (vi) shall not exceed $50,000,000 at
any time outstanding;
(vii) Indebtedness incurred to finance the acquisition of IRUs
(including the financing of the Borrower's investment to be made in
connection with the Japan-U.S. Cable Network referred to in Schedule 6.05)
so long as both before and after giving effect to the incurrence of such
Indebtedness the Borrower is in pro forma compliance with the financial
covenants set forth in Section 6.12;
(viii) the Swiss Subsidiary Debt, to the extent the aggregate
principal amount thereof does not exceed SFr44,000,000 and such
indebtedness is not guaranteed by, and is non-recourse to, the assets of
the Borrower or any Subsidiary other than the assets of the Swiss
Subsidiaries;
(ix) Indebtedness permitted by Section 10.08(b)(iii) of the Senior
Note Indenture, in an aggregate principal amount not to exceed the lesser
of (x) the product of (A) two and (B) the net cash
<PAGE>
76
proceeds received by the Borrower since the date of such indenture from
sales of its capital stock in public offerings or to strategic investors
and (y) $750,000,000;
(x) Indebtedness in respect of Hedging Agreements permitted by
Section 6.07 hereof; and
(xi) Indebtedness in respect of bid, performance or advance payment
bonds, standby letters of credit and appeal or surety bonds entered into in
the ordinary course of business and not in connection with the borrowing of
money.
; provided, however, that, except as permitted by Section 6.05 or 6.08, neither
-------- -------
the Borrower nor any Subsidiary shall (i) use the proceeds of any Loans made
hereunder to make loans to any Subsidiary which is not a Subsidiary Loan Party
or (ii) make any Guarantees of Indebtedness of any Subsidiary which is not a
Subsidiary Loan Party, in either case to the extent the Borrower has not
delivered or caused to be delivered to the Collateral Agent the certificates
representing 100% of the equity or partnership interests of such Subsidiary or,
in the case of any Foreign Subsidiary to the extent such delivery would be
permitted under applicable law, the certificates representing 65% of the equity
or partnership interests of such Foreign Subsidiary (excluding directors'
qualifying shares).
For purposes of determining compliance with this Section 6.01, in the event that
an item of Indebtedness may be incurred by meeting the criteria of one or more
of the types of Indebtedness described in any clause of this Section 6.01 (or
the definition of the terms used therein), the Borrower, in its sole discretion,
may (i) classify such item of Indebtedness under and comply with any of such
clauses of this Section 6.01 (or any of such definitions), as applicable, (ii)
classify and divide such item of Indebtedness into more than one of such clauses
(or definitions), as applicable, and (iii) elect to comply with such clauses (or
definitions), as applicable, in any order.
SECTION 6.02. Liens. The Borrower will not, and will not permit any
------
Subsidiary to, create, incur, assume or permit to exist any Lien on any property
or asset now owned
<PAGE>
77
or hereafter acquired by it, or, except as otherwise permitted pursuant to this
Agreement, assign or sell any income or revenues (including accounts receivable)
or rights in respect of any thereof, except:
(i) Liens created under the Loan Documents;
(ii) Permitted Encumbrances;
(iii) any Lien on any property or asset of the Borrower or any
Subsidiary existing on the date hereof and set forth in Schedule 6.02;
provided that (i) such Lien shall not apply to any other property or asset
--------
of the Borrower or any Subsidiary and (ii) such Lien shall secure only
those obligations which it secures on the date hereof;
(iv) any Lien existing on any property or asset prior to the
acquisition thereof by the Borrower or any Subsidiary or existing on any
property or asset of any Person that becomes a Subsidiary after the date
hereof prior to the time such Person becomes a Subsidiary; provided that
--------
(A) such Lien is not created in contemplation of or in connection with such
acquisition or such Person becoming a Subsidiary, as the case may be, (B)
such Lien shall not apply to any other property or assets of the Borrower
or any Subsidiary and (C) such Lien shall secure only those obligations
which it secures on the date of such acquisition or the date such Person
becomes a Subsidiary, as the case may be;
(v) Liens on assets or properties securing Indebtedness permitted
by clause (v) or (vii) of Section 6.01; provided that (A) such security
--------
interests and the Indebtedness secured thereby are incurred prior to or
within 90 days (or, in the case of Capital Lease Obligations, 180 days)
after such acquisition or the completion of such construction or
improvement, (B) the Indebtedness secured thereby does not exceed 100% of
the cost or purchase price of designing, developing, acquiring,
constructing or improving such assets or properties and (C) such security
interests shall only apply to such assets or properties acquired, designed,
developed, constructed or improved and any accessions, additions,
replacements, substitutions and proceeds of such assets or properties of
the Borrower or the Subsidiaries;
(vi) any Lien in favor of the Borrower or any Subsidiary Loan
Party;
<PAGE>
78
(vii) any Liens on Indebtedness permitted under Section 6.01(x) to
the extent any such Hedging Agreement was entered into with a counterparty
that was a Lender or an Affiliate of a Lender at the time such Hedging
Agreement was entered into; and
(viii) any Liens on Indebtedness permitted under Section 6.01(viii).
SECTION 6.03. Sale and Lease-Back Transactions. The Borrower will
---------------------------------
not, nor will it permit any Subsidiary to, enter into any arrangement, directly
or indirectly, with any person whereby it shall sell or transfer any property,
real or personal, used or useful in its business, whether now owned or hereafter
acquired, and thereafter rent or lease such property or other property which it
intends to use for substantially the same purpose as the property being sold or
transferred; provided that the foregoing restriction does not apply to any such
--------
arrangement solely between any Loan Parties.
SECTION 6.04. Fundamental Changes. (a) The Borrower will not, and
--------------------
will not permit any Subsidiary to, merge into or consolidate with any other
Person, or permit any other Person to merge into or consolidate with it, or
liquidate or dissolve, except that, if at the time thereof and immediately after
giving effect thereto no Default shall have occurred and be continuing (i) any
Subsidiary may merge into the Borrower in a transaction in which the Borrower is
the surviving corporation, (ii) any Subsidiary may merge into any Subsidiary in
a transaction in which the surviving entity is a Subsidiary (except that any
Subsidiary all the shares of which have been delivered to the Collateral Agent
pursuant to the Pledge Agreement shall only merge with another Subsidiary to the
extent that, upon giving effect to such merger, all the shares of the surviving
corporation shall have been delivered to the Collateral Agent), (iii) any
Subsidiary may liquidate or dissolve if the Borrower determines in good faith
that such liquidation or dissolution is in the best interests of the Borrower
and is not materially disadvantageous to the Lenders and (iv) the Borrower may
merge into or consolidate with any Subsidiary in a transaction designed solely
for the purpose of effecting a change in the jurisdiction of incorporation of
the Borrower within the United States of America if such Subsidiary was formed
solely for the purpose of effecting such merger or consolidation and, prior to
such merger or consolidation, is a corporation with no assets or liabilities
(other than as required by law); provided that any such merger involving a
--------
Person that is not a wholly
<PAGE>
79
owned Subsidiary immediately prior to such merger shall not be permitted unless
also permitted by Section 6.05.
(b) The Borrower will not, and will not permit any of its
Subsidiaries to, engage to any material extent in any business other than
businesses of the type conducted by the Borrower that is not a
Telecommunications Business.
SECTION 6.05. Investments, Loans, Advances, Guarantees and
--------------------------------------------
Acquisitions. The Borrower will not, and will not permit any of its
- -------------
Subsidiaries to, purchase, hold or acquire (including pursuant to any merger
with any Person that is not a wholly owned Subsidiary upon giving effect to such
merger) any capital stock, evidences of indebtedness or other securities
(including any option, warrant or other right to acquire any of the foregoing)
of, make or permit to exist any loans or advances to, Guarantee any obligations
of, or make or permit to exist any investment or any other interest in, any
other Person, or purchase or otherwise acquire (in one transaction or a series
of transactions) any assets of any other Person constituting a business unit
(collectively "Investments"), except:
(a) Permitted Investments and transactions permitted by Section
6.04;
(b) Investments existing or contractually committed to by the
Borrower on the date hereof or other Investments set forth on Schedule
6.05, to the extent such Investments would not be permitted under any other
clause of this Section;
(c) Investments by the Borrower in the capital stock of its
Subsidiaries or in the capital stock or equity interests of any joint
venture or other Person entered into by the Borrower; provided that (i)
--------
certificates, if any, representing equity or partnership interests of such
Subsidiary, joint venture or other Person held by a Loan Party as a result
thereof shall be delivered pursuant to the Pledge Agreement (subject to the
limitations applicable to common stock of a Foreign Subsidiary referred to
in Section 5.13) and (ii) such Investments (other than Investments in Loan
Parties) may not exceed $50,000,000 in the aggregate, except that
Investments, in addition to such $50,000,000, in Foreign Subsidiaries may
be made by the Borrower in an amount not to exceed $50,000,000 in the
aggregate;
(d) Investments by the Borrower and its Subsidiaries in IRUs and
other Telecommunications
<PAGE>
80
Assets; provided that such Investments (a) are within the ordinary course
--------
of business, (b) are in an aggregate amount not in excess of $100,000,000;
provided that the calculation of such aggregate amount shall exclude any
--------
Guarantees by the Borrower of Indebtedness incurred by a Subsidiary in
connection with the purchase of IRUs or other Telecommunications Assets,
and (c) both before and after giving effect thereto, the Borrower is in pro
forma compliance with the covenants set forth in Section 6.12;
(e) loans, advances, Guarantees or other Indebtedness made by the
Borrower to any Subsidiary and made by any Subsidiary to the Borrower or
any other Subsidiary; provided that any such loans and advances made by a
--------
Loan Party after the Effective Date shall (within 30 days thereafter) be
evidenced by a promissory note pledged pursuant to the Pledge Agreement;
and provided further, that the Borrower shall not, and shall cause the
-------- -------
Subsidiaries not to, make loans, advances, Guarantees or other Indebtedness
to any Subsidiary to the extent the Borrower has not delivered, or caused
to be delivered (to the extent permitted by applicable law in the case of
pledges by Foreign Subsidiaries), to the Collateral Agent the certificates
representing 100% of the equity or partnership interests of such Subsidiary
(or, in the case of any Foreign Subsidiary, certificates representing 65%
of the equity or partnership interests of such Foreign Subsidiary excluding
directors' qualifying shares);
(f) Investments received in connection with the bankruptcy or
reorganization of, or settlement of delinquent accounts and disputes with,
customers and suppliers, in each case in the ordinary course of business;
(g) so long as both before and after giving effect thereto, the
Borrower would be in pro forma compliance with the covenants set forth in
Section 6.12, Non-Hostile Acquisitions solely for stock and/or cash
consideration in an aggregate amount not greater than $150,000,000 with
respect to each such Non-Hostile Acquisition; provided that any such Non-
--------
Hostile Acquisition shall be consummated in accordance with the applicable
law;
(h) any payment permitted under Section 6.08;
<PAGE>
81
(i) advances to employees or officers of the Borrower in the ordinary
course of business so long as the aggregate amount of such advances shall
not exceed $2,000,000 outstanding at one time;
(j) accounts receivable created or acquired in the ordinary course of
business of the Borrower or any Subsidiary and Investments arising from
transactions by the Borrower or any Subsidiary with trade creditors or
customers in the ordinary course of business (including any such Investment
received pursuant to any plan of reorganization or similar arrangement
pursuant to the bankruptcy or insolvency of such trade creditors or
customers or otherwise in settlement of a claim);
(k) loans in the ordinary course of business to employees, officers or
directors of the Borrower or a Subsidiary to purchase capital stock of the
Borrower pursuant to the terms of stock benefit plans; provided that any
--------
such loan does not result in the payment of any cash or other property by
the Borrower to any party in connection therewith; and
(l) Guarantees and other Indebtedness permitted by Section 6.01.
For purposes of determining compliance with this Section 6.05, in the event that
an item of Indebtedness may be incurred by meeting the criteria of one or more
of the types of Investments described in any clause of this Section 6.05 (or the
definition of the terms used therein), the Borrower, in its sole discretion, may
(i) classify such item of Investment under and comply with any of such clauses
of this Section 6.05 (or any of such definitions), as applicable, (ii) classify
and divide such item of Investment into more than one of such clauses (or
definitions), as applicable, and (iii) elect to comply with such clauses (or
definitions), as applicable, in any order.
SECTION 6.06. Asset Sales. The Borrower will not, and will not
------------
permit any of its Subsidiaries to, sell, transfer, lease or otherwise dispose of
any asset (which assets shall be deemed not to include any of the Borrower's
capital stock), including any capital stock (other than the Borrower's capital
stock), nor will the Borrower permit any of it Subsidiaries to issue any
additional shares of its
<PAGE>
82
capital stock or other ownership interest in such Subsidiary, except:
(a) sales of inventory, used or surplus equipment and Permitted
Investments in the ordinary course of business and Investments permitted by
Section 6.05;
(b) sales, transfers and dispositions to the Borrower or a Subsidiary;
provided that any such sales, transfers or dispositions involving a
--------
Subsidiary that is not a Loan Party shall be made in compliance with
Section 6.09(a) (other than any such transactions between two non-Loan
Parties); and
(c) sales, transfers and dispositions of assets (other than capital
stock of a Subsidiary) that are not permitted by any other clause of this
Section; provided that the aggregate fair market value of all assets sold,
--------
transferred or otherwise disposed of in reliance upon this clause (c) shall
not exceed $10,000,000 during any fiscal year of the Borrower;
provided that all sales, transfers, leases and other dispositions permitted
--------
by clauses (a), (b) and (c) above shall be made for fair value and solely
for cash consideration; provided that transfers of contract rights and
--------
obligations between the Borrower and any Subsidiary may be made for non-
cash consideration;
(d) sales, transfers and depositions of assets permitted by clauses
(a) and (b) of Section 10.12 of the Senior Note Indenture, without regard
to the foregoing provisions of this Section 6.07;
(e) exchanges of Telecommunications Assets by the Borrower or any
Subsidiary with any third Person that is not an Affiliate of the Borrower
or Loan Party; provided that (i) such exchange is made for fair value, (ii)
--------
the Lenders shall be granted a security interest in all of the Borrower's
right, title and interest in, to and under the Telecommunications Assets
transferred by such third Person to the Borrower substantially to the same
extent as its security interest, if any, in the Telecommunications Assets
transferred by the Borrower or any Subsidiary, (iii) each such exchange by
the Borrower or any Subsidiary and such third Person shall occur on a
substantially contemporaneous basis as part of a single, integrated
transaction and (iv) the Board of Directors of the Borrower or any
Subsidiary shall have approved such exchange (and such approval shall be
evidenced by a resolution thereof) or, if such
<PAGE>
83
exchange relates to Telecommunications Assets of the Borrower with a fair
value of less than $10,000,000, an executive or financial officer shall
have delivered to the Administrative Agent a certificate certifying that
such exchange has been duly authorized and is for fair value); provided
--------
that the Borrower may enter into one or more exchanges of
Telecommunications Assets that do not comply with clause (ii) above to the
extent that (x) the aggregate value of the Telecommunications Assets so
exchanged does not exceed $20,000,000 for the term of this Agreement and
(y) the Telecommunications Assets received by the Borrower or any of its
Subsidiaries as part of any such exchange are held by the Borrower, a
Subsidiary the capital shares of which have been pledged to the Collateral
Agent pursuant to the terms of the Pledge Agreement or a direct or indirect
wholly-owned Subsidiary of a Subsidiary whose shares have been pledged to
the Collateral Agent pursuant to the terms of the Pledge Agreement; and
(f) sales of capital stock by a Subsidiary to any other Subsidiary
(other than sales by a wholly-owned Subsidiary to a non-wholly-owned
Subsidiary).
For purposes of determining compliance with this Section 6.06, in the event that
an Asset Sale may be made by meeting the criteria of one or more of the types of
Asset Sales described in any clause of this Section 6.06 (or the definition of
the terms used therein), the Borrower, in its sole discretion, may (i) classify
such Asset Sale under and comply with any of such clauses of this Section 6.06
(or any of such definitions), as applicable, (ii) classify and divide such Asset
Sale into more than one of such clauses (or definitions), as applicable, and
(iii) elect to comply with such clauses (or definitions), as applicable, in any
order.
SECTION 6.07. Hedging Agreements. The Borrower will not, and will
-------------------
not permit any of its Subsidiaries to, enter into any Hedging Agreement, other
than Hedging Agreements entered into in the ordinary course of business to hedge
or mitigate risks to which the Borrower or any Subsidiary is exposed in the
conduct of its business or the management of its liabilities and assets.
SECTION 6.08. Restricted Payments; Certain Payments of Indebtedness.
------------------------------------------------------
(a) Except as permitted by Section 6.05, the Borrower will not, and will not
permit any Subsidiary to, make or agree to pay or make, directly or indirectly,
or be or become liable in respect of any
<PAGE>
84
obligation to make, any Restricted Payment (but excluding payments or
distributions of its capital stock), except:
(i) payment of Indebtedness created under the Loan Documents;
(ii) payment of regularly scheduled interest and principal payments
as and when due in respect of any Indebtedness, the prepayment of
Capitalized Lease Obligations and the repayment of any Indebtedness assumed
by the Borrower or any Subsidiary in connection with an acquisition within
45 days of the date of consummation of such acquisition;
(iii) refinancings of Indebtedness to the extent permitted by Section
6.01;
(iv) payment of secured Indebtedness that becomes due as a result of
the voluntary sale or transfer of the property or assets securing such
Indebtedness;
(v) the repurchase, redemption, or other acquisition or retirement
for value of any shares of any class of capital stock of the Borrower in
exchange for (including any such exchange pursuant to the exercise of a
conversion right or privilege in connection with which cash is paid in lieu
of the issuance of fractional shares or scrip), or out of the Net Proceeds
of a substantially concurrent issuance and sale for cash (other than to a
Subsidiary) of, other shares of capital stock (other than Redeemable
Capital Stock) of the Borrower;
(vi) the repurchase, redemption, defeasance, retirement or
acquisition for value or payment of principal of any subordinated
Indebtedness or Redeemable Capital Stock in exchange for, or in an amount
not in excess of the Net Proceeds of, a substantially concurrent issuance
and sale for cash (other than to a Subsidiary of the Borrower) of, any
capital stock or Redeemable Capital Stock of the Borrower; provided that
--------
any such new Redeemable Capital Stock (A) shall have an aggregate
liquidation preference that does not exceed the aggregate liquidation
preference of the amount so refinanced; (B) has a stated maturity later
than date six months after the Maturity Date;
(vii) the repurchase, redemption, defeasance, retirement, refinancing,
acquisition for value or payment of principal of any subordinated
Indebtedness
<PAGE>
85
(other than Redeemable Capital Stock) through the substantially concurrent
issuance of the new subordinated Indebtedness of the Borrower; provided
--------
that any such new subordinated Indebtedness (A) shall be in a principal
amount that does not exceed the principal amount and accrued interest
thereon so refinanced or the accreted value thereof as of the date of
refinancing (or, if such subordinated Indebtedness provides for an amount
less than the principal amount thereof to be due and payable upon a
declaration of acceleration thereof, then such lesser amount as of the date
of determination), plus the lesser of (x) the stated amount of any premium
or other payment required to be paid in connection with such a refinancing
pursuant to the terms of the Indebtedness being refinanced or (y) the
amount of premium or other payment actually paid at such time to refinance
the Indebtedness, plus, in either case, the amount of expenses of the
Borrower incurred in connection with such refinancing, (B) has a stated
maturity for its final scheduled principal payment later than the date six
months after the Maturity Date and (C) is expressly subordinated in right
of payment to all amounts payable by the Borrower to the Lenders at least
to the same extent as the subordinated Indebtedness to be refinanced to the
reasonable satisfaction of the Required Lenders;
(viii) the repurchase of shares of, or options to purchase shares of,
common stock of Borrower or any of its Subsidiaries from employees,
officers, consultants or directors or any former employees, officers,
consultants or directors of the Borrower or any of its Subsidiaries (or
permitted transferees of such employees, officers, consultants or directors
or former employees, officers, consultants or directors), pursuant to the
terms of the agreements (including employment agreements) or plans (or
amendments thereto) or other arrangements or transactions approved by the
Board of Directors of the Borrower under which such individuals purchase or
sell or are granted that option to purchase or sell, shares of such common
stock; provided, however, that the aggregate amount of such repurchases
-------- -------
shall not exceed $1,000,000 in any calendar year or $3,000,000 in the
aggregate for the term of this Agreement pursuant to this clause (viii);
(ix) the (A) payment of dividends on the Borrower's Series B
Preferred Stock (in the form of cash or additional shares of Series B
Preferred Stock) in an aggregate amount not to exceed $3,000,000 in any
<PAGE>
86
calendar year; provided that such amounts may, to the extent not previously
--------
paid, be aggregated through the period prior to the conversion or
redemption of such Series B Preferred Stock, and (B) redemption of any
shares of Series B Preferred Stock outstanding on the date of this
Agreement (including any shares of Series B Preferred Stock issued on or
after the date of this Agreement as dividends thereon or in respect of such
additional shares so issued) pursuant to the terms of such shares of Series
B Preferred Stock and the certificate of incorporation of the Borrower as
in effect on the date of this Agreement (or as such terms may be amended to
the extent such amendment is determined by the Board of Directors, in good
faith, not to adversely affect the Lenders);
(x) the payment or declaration of any dividend or the making of any
distribution on or the redemption of rights or any securities issued
pursuant to the Borrower Rights Agreement;
(xi) the payment of cash in lieu of the issuance of fractional
shares pursuant to any agreement, warrant or option and any repurchase or
other acquisition of fractional shares from time to time; and
(xii) the acquisition of capital stock of the Borrower by the
Borrower in connection with the cashless exercise of any options, warrants
or similar rights issued by the Borrower on or prior to January 1, 1998;
(xiii) the payment or declaration of any non-cash dividend or
distribution in respect of any of the Borrower's or any Subsidiaries'
capital stock (including any preferred stock), it being understood that the
Borrower shall not make any cash payments in excess of $1,000,000 in the
aggregate (as permitted in definition of "Permitted Preferred Stock" set
forth in Section 1.01) in respect to any redemption of preferred stock
pursuant to Section 6(d) of Article Fourth of the Certificate of Amendment
of the Borrower's Certificate of Incorporation dated November 6, 1997;
(xiv) the redemption or repurchase of any class of Redeemable Capital
Stock; provided that the aggregate cash payments in respect of such
--------
redemption shall not be in excess of $1,000,000 for the term of this
Agreement; and
<PAGE>
87
(xv) the payment of any cash dividends on Permitted Preferred Stock
to the extent that (i) any such payment shall not be made with the proceeds
of any Loan made hereunder, (ii) both before and after such payment is made
by the Borrower or any Subsidiary of the Borrower is in pro forma
compliance with the financial covenants set forth in Section 6.12, (iii)
the aggregate amount of any such payments shall not exceed $25,000,000 in
any fiscal year and (iv) after giving effect thereto, the aggregate amount
of all such payments declared or made after the date hereof shall not
exceed the sum of the following:
(A) (i) the Cumulative Operating Cash Flow determined at the time
of such Restricted Payment less (ii) 150% of cumulative Consolidated
Interest Expense determined for the period (treated as one accounting
period) commencing on the date hereof and ending on the last day of
the most recent fiscal quarter immediately preceding the date of such
payment for which consolidated financial information of the Borrower
is required to be available;
(B) the aggregate Net Proceeds received after the date hereof by
the Borrower from the issuance or sale (other than to any of its
Subsidiaries) of capital stock (other than Redeemed Capital Stock) of
the Borrower or any options, warrants or rights to purchase such
capital stock (other than Redeemed Capital Stock) of the Borrower
(except to the extent such proceeds are used to purchase, redeem or
otherwise retire capital stock as set forth above in Section 6.08(vi)
or (vii);
(C) the aggregate Net Proceeds received after the date hereof by
the Borrower (other than from any of its Subsidiaries) upon the
exercise of any options, warrants or rights to purchase capital stock
(other than Redeemed Capital Stock) of the Borrower;
(D) the aggregate Net Proceeds received after the date hereof by
the Borrower from the conversion or exchange, if any, of debt
securities or Redeemable Capital Stock of the Borrower or its
Subsidiaries into or for capital stock (other than Redeemed Capital
Stock) of the Borrower plus, to the extent such debt securities or
Redeemable Capital Stock were issued after the date hereof,
<PAGE>
88
the aggregate of Net Proceeds from their original issuance; and
(E) in the case of the disposition or repayment of any Investment
constituting a Restricted Payment, an amount equal to the lesser of
(x) the cash return of capital with respect to such Investment (less
the cost of disposition and taxes, if any) and (y) the initial amount
of such Investment.
(b) The Borrower will not, and will not permit any Subsidiary to,
issue any preferred stock other than Permitted Preferred Stock, the Series
B Preferred Stock and other preferred stock issued to a Loan Party.
SECTION 6.09. Transactions with Affiliates. The Borrower will not,
-----------------------------
nor will it permit any Subsidiary to, sell, lease or otherwise transfer any
property or assets to, or purchase, lease or otherwise acquire any property or
assets from, or otherwise engage in any other transactions with, any of its
Affiliates, except (a) transactions in the ordinary course of business at prices
and on terms and conditions not less favorable to the Borrower or such
Subsidiary than could be obtained on an arm's-length basis from unrelated third
parties, (b) transactions between or among the Borrower and the Subsidiary Loan
Parties not involving any other Affiliate, (c) any Restricted Payment permitted
by Section 6.08, (d) compensation, severance and employee benefit arrangements
with any officer, director or employee of the Borrower, including under any
stock option or stock incentive plans, in the ordinary course of business, (e)
the execution and delivery of or payments made under any tax sharing agreement
between or among any of the Borrower and any Subsidiary, (f) licensing or
sublicensing of the use of any intellectual property by the Borrower or any
Subsidiary to the Borrower any other Subsidiary of the Borrower or to any
Permitted Joint Venture (as defined in the Senior Note Indenture); provided that
--------
the licensor shall continue to have access to such intellectual property to the
extent necessary for the conduct of its business and, in the case of any
Permitted Joint Venture, that the terms of any such arrangement are fair and
reasonable to the Borrower or any such Subsidiary as determined in good faith by
the Board of Directors of the Borrower, (g) arrangements between the Borrower
and any Subsidiary for the purpose of providing services or employees to such
Subsidiary and (h) transactions undertaken pursuant to the IXC Agreement and
other agreements entered into in connection therewith and in effect on the date
hereof (or as such other agreements may be amended, from time to time, to the
extent
<PAGE>
89
that any such amendment has been determined by the Board of Directors of the
Borrower, in good faith, not to adversely affect the Lenders).
SECTION 6.10. Restrictive Agreements. The Borrower will not, nor
-----------------------
will it permit any Subsidiary to, directly or indirectly, enter into, incur or
permit to exist any agreement or other arrangement that prohibits, restricts or
imposes any condition upon (a) the ability of the Borrower or any Subsidiary to
create, incur or permit to exist any Lien upon any of its property or assets, or
(b) the ability of any Subsidiary to pay dividends or other distributions with
respect to any shares of its capital stock or to make or repay loans or advances
to the Borrower or any other Subsidiary or to Guarantee Indebtedness of the
Borrower or any other Subsidiary; provided that (i) the foregoing shall not
--------
apply to restrictions and conditions imposed by law or by any Loan Document,
(ii) the foregoing shall not apply to restrictions and conditions pursuant to
the Senior Note Indenture or Senior Notes or otherwise existing on the date
hereof and identified on Schedule 6.10 (but shall apply to any extension or
renewal of, or any amendment or modification expanding the scope of, any such
restriction or condition), (iii) the foregoing shall not apply to customary
restrictions and conditions contained in agreements relating to the sale of a
Subsidiary or its assets pending such sale, provided such restrictions and
conditions apply only to the Subsidiary or its assets that are to be sold and
such sale is permitted hereunder, (iv) clause (a) of the foregoing shall not
apply to restrictions or conditions imposed by any agreement relating to secured
Indebtedness permitted by this Agreement if such restrictions or conditions
apply only to the property or assets securing such Indebtedness and any
accessions, additions, replacements, substitutions and proceeds thereof and (v)
clause (a) of the foregoing shall not apply to customary provisions in leases
and other contracts restricting the assignment thereof.
SECTION 6.11. Amendment of Material Documents. The Borrower will
--------------------------------
not, nor will it permit any Subsidiary to, amend, modify or waive any of its
rights under (a) any agreement relating to the Senior Notes, any Permitted
Preferred Stock or any Indebtedness incurred by the Borrower in connection with
a public sale of debt securities, (b) its certificate of incorporation, by-laws
or other organizational documents (except in connection with the issuance of
capital stock (including Permitted Preferred Stock) permitted in Section 6.08)
or (c) the IXC Agreement; provided, however, that the Borrower or any Subsidiary
-------- -------
may amend, modify or waive any of its rights under the foregoing
<PAGE>
90
documents if such amendment, modification or waiver shall not materially and
adversely affect the rights of the Lender under any of the Loan Documents.
SECTION 6.12. Financial Covenants. (a) Minimum Revenue. The Borrower
-------------------- ----------------
will not permit Consolidated Revenue for any period of four consecutive fiscal
quarters ending during any period set forth below to be less than the dollar
amount set forth opposite such period.
<TABLE>
<CAPTION>
Period Revenue
------ -------
<S> <C>
On or after December 31,
1998 but prior to
June 30, 1999 $215,000,000
On or after June 30,
1999 but prior to
December 31, 1999 $285,000,000
On or after December 31,
1999 but prior to
June 30, 2000 $350,000,000
On or after June 30,
2000 but prior to
December 31, 2000 $425,000,000
December 31, 2000 and
thereafter $500,000,000
</TABLE>
(b) Maximum Ratio of Net Debt to Annualized Adjusted Revenue. The
---------------------------------------------------------
Borrower will not permit the ratio of Net Debt to Annualized Adjusted Revenue to
exceed 2.5 to 1 at any time.
(c) Minimum Cash Balance. Permit the sum of (x) Non-Restricted Cash
---------------------
and (y) available and unused Revolving Commitments at any time to be less than
$100,000,000.
(d) Minimum EBITDA. The Borrower will not permit Consolidated EBITDA
---------------
for any period of four consecutive fiscal quarters ending on the date set forth
below to be less than the dollar amount set forth opposite such date:
<PAGE>
91
<TABLE>
<CAPTION>
Date Consolidated EBITDA
---- -------------------
<S> <C>
December 31, 1998 $(45,000,000)
March 31, 1999 $(40,000,000)
June 30, 1999 $(29,000,000)
September 30, 1999 $(15,000,000)
December 31, 1999 $ 0
March 31, 2000 $ 15,000,000
June 30, 2000 $ 25,000,000
September 30, 2000 $ 40,000,000
December 31, 2000 and $ 50,000,000
thereafter
</TABLE>
ARTICLE VII
Events of Default
-----------------
If any of the following events ("Events of Default") shall occur:
-----------------
(a) the Borrower shall fail to pay any principal of any Loan or any
reimbursement obligation in respect of any LC Disbursement when and as the
same shall become due and payable, whether at the due date thereof or at a
date fixed for prepayment thereof or otherwise;
(b) the Borrower shall fail to pay any interest on any Loan or any fee
or any other amount (other than an amount referred to in clause (a) of this
Article) payable under this Agreement or any other Loan Document, when and
as the same shall become due and payable, and such failure shall continue
unremedied for a period of five days;
(c) any representation or warranty made or deemed made by or on behalf
of the Borrower or any Subsidiary in or in connection with any Loan
Document or any amendment or modification thereof or waiver thereunder, or
in any report, certificate, financial statement or other document furnished
pursuant to or in connection with any Loan Document or any amendment or
modification thereof or waiver thereunder, shall prove to have been
materially incorrect when made or deemed made;
(d) The Borrower shall fail to observe or perform any covenant,
condition or agreement contained in Section 5.02, 5.04 (with respect to the
existence of the Borrower) or 5.11 or in Article VI;
<PAGE>
92
(e) any Loan Party shall fail to observe or perform any covenant,
condition or agreement contained in any Loan Document (other than those
specified in clause (a), (b) or (d) of this Article), and such failure
shall continue unremedied for a period of 30 days after notice thereof from
the Administrative Agent to the Borrower (which notice will be given at the
request of any Lender);
(f) The Borrower or any Subsidiary shall fail to make any payment
(whether of principal or interest and regardless of amount) in respect of
any Material Indebtedness (following any applicable grace period), when and
as the same shall become due and payable;
(g) any event or condition occurs that results in any Material
Indebtedness becoming due prior to its scheduled maturity or that enables
or permits (with or without the giving of notice, the lapse of time or
both) the holder or holders of any Material Indebtedness or any trustee or
agent on its or their behalf to cause any Material Indebtedness to become
due, or to require the prepayment, repurchase, redemption or defeasance
thereof, prior to its scheduled maturity; provided that this clause (g)
--------
shall not apply to secured Indebtedness that becomes due as a result of the
voluntary sale or transfer of the property or assets securing such
Indebtedness;
(h) an involuntary proceeding shall be commenced or an involuntary
petition shall be filed seeking (i) liquidation, reorganization or other
relief in respect of the Borrower or any Significant Subsidiary or its
debts, or of a substantial part of its assets, under any Federal, state or
foreign bankruptcy, insolvency, receivership or similar law now or
hereafter in effect or (ii) the appointment of a receiver, trustee,
custodian, sequestrator, conservator or similar official for the Borrower
or any Significant Subsidiary or for a substantial part of its assets, and,
in any such case, such proceeding or petition shall continue undismissed
for 60 days or an order or decree approving or ordering any of the
foregoing shall be entered;
(i) The Borrower or any Significant Subsidiary shall (i) voluntarily
commence any proceeding or file any petition seeking liquidation,
reorganization or other relief under any Federal, state or foreign
bankruptcy, insolvency, receivership or similar law now or hereafter in
effect, (ii) consent to the institution
<PAGE>
93
of, or fail to contest in a timely and appropriate manner, any proceeding
or petition described in clause (h) of this Article, (iii) apply for or
consent to the appointment of a receiver, trustee, custodian, sequestrator,
conservator or similar official for the Borrower or any Significant
Subsidiary or for a substantial part of its assets, (iv) file an answer
admitting the material allegations of a petition filed against it in any
such proceeding, (v) make a general assignment for the benefit of creditors
or (vi) take any action for the purpose of effecting any of the foregoing;
(j) The Borrower or any Significant Subsidiary shall become unable,
admit in writing its inability or fail generally to pay its debts as they
become due;
(k) one or more judgments for the payment of money in an aggregate
amount in excess of $10,000,000 shall be rendered against the Borrower, any
Subsidiary or any combination thereof and the same shall remain
undischarged for a period of 30 consecutive days during which execution
shall not be effectively stayed, or any action shall be legally taken by a
judgment creditor to attach or levy upon any assets of the Borrower or any
Subsidiary to enforce any such judgment;
(l) an ERISA Event shall have occurred that, in the opinion of the
Required Lenders, when taken together with all other ERISA Events that have
occurred, could reasonably be expected to result in liability of the
Borrower and its Subsidiaries in an aggregate amount exceeding (i)
$5,000,000 in any year or (ii) $15,000,000 for all periods;
(m) following the period of time set forth in Section 5.14, any Lien
purported to be created under any Security Document shall cease to be, or
shall be asserted by any Loan Party not to be, a valid and perfected Lien
on any Collateral (excluding foreign Intellectual Property), with the
priority required by the applicable Security Document, except (i) as a
result of the sale or other disposition of the applicable Collateral in a
transaction permitted under the Loan Documents, (ii) as a result of the
Administrative Agent's failure to maintain possession of any stock
certificates, promissory notes or other instruments delivered to it under
the Collateral Agreement or (iii) to the extent the Administrative Agent
did not require the filing of financing statements in a particular
jurisdiction and to the
<PAGE>
94
extent that the aggregate amount of such Collateral referred to above shall
not exceed $10,000,000 at any time;
(n) a Change in Control shall occur;
then, and in every such event (other than an event with respect to the Borrower
described in clause (h) or (i) of this Article), and at any time thereafter
during the continuance of such event, the Administrative Agent may, and at the
request of the Required Lenders shall, by notice to the Borrower, take either or
both of the following actions, at the same or different times: (i) terminate
the Revolving Commitments, and thereupon the Revolving Commitments shall
terminate immediately, and (ii) declare the Loans then outstanding to be due
and payable in whole (or in part, in which case any principal not so declared to
be due and payable may thereafter be declared to be due and payable), and
thereupon the principal of the Loans so declared to be due and payable, together
with accrued interest thereon and all fees and other obligations of the Borrower
accrued hereunder, shall become due and payable immediately, without
presentment, demand, protest or other notice of any kind, all of which are
hereby waived by the Borrower; and in case of any event with respect to the
Borrower described in clause (h) or (i) of this Article, the Revolving
Commitments shall automatically terminate and the principal of the Loans then
outstanding, together with accrued interest thereon and all fees and other
obligations of the Borrower accrued hereunder, shall automatically become due
and payable, without presentment, demand, protest or other notice of any kind,
all of which are hereby waived by the Borrower.
ARTICLE VIII
The Administrative Agent
------------------------
Each of the Lenders and the Issuing Bank hereby irrevocably appoints
the Administrative Agent as its agent and authorizes the Administrative Agent to
take such actions on its behalf and to exercise such powers as are delegated to
the Administrative Agent by the terms of the Loan Documents, together with such
actions and powers as are reasonably incidental thereto.
The bank serving as the Administrative Agent hereunder shall have the
same rights and powers in its capacity as a Lender as any other Lender and may
exercise the same as though it were not the Administrative Agent, and such bank
and its Affiliates may accept deposits from, lend
<PAGE>
95
money to and generally engage in any kind of business with the Borrower or any
Subsidiary or other Affiliate thereof as if it were not the Administrative Agent
hereunder.
The Administrative Agent shall not have any duties or obligations
except those expressly set forth in the Loan Documents. Without limiting the
generality of the foregoing, (a) the Administrative Agent shall not be subject
to any fiduciary or other implied duties, regardless of whether a Default has
occurred and is continuing, (b) the Administrative Agent shall not have any duty
to take any discretionary action or exercise any discretionary powers, except
discretionary rights and powers expressly contemplated by the Loan Documents
that the Administrative Agent is required to exercise in writing by the Required
Lenders (or such other number or percentage of the Lenders as shall be necessary
under the circumstances as provided in Section 9.02), and (c) except as
expressly set forth in the Loan Documents, the Administrative Agent shall not
have any duty to disclose, and shall not be liable for the failure to disclose,
any information relating to the Borrower or any of its Subsidiaries that is
communicated to or obtained by the bank serving as Administrative Agent or any
of its Affiliates in any capacity. The Administrative Agent shall not be liable
for any action taken or not taken by it with the consent or at the request of
the Required Lenders (or such other number or percentage of the Lenders as shall
be necessary under the circumstances as provided in Section 9.02) or in the
absence of its own gross negligence or wilful misconduct. The Administrative
Agent shall not be deemed not to have knowledge of any Default unless and until
written notice thereof is given to the Administrative Agent by the Borrower or a
Lender, and the Administrative Agent shall not be responsible for or have any
duty to ascertain or inquire into (i) any statement, warranty or representation
made in or in connection with any Loan Document, (ii) the contents of any
certificate, report or other document delivered thereunder or in connection
therewith, (iii) the performance or observance of any of the covenants,
agreements or other terms or conditions set forth in any Loan Document, (iv) the
validity, enforceability, effectiveness or genuineness of any Loan Document or
any other agreement, instrument or document, or (v) the satisfaction of any
condition set forth in Article IV or elsewhere in any Loan Document, other than
to confirm receipt of items expressly required to be delivered to the
Administrative Agent.
The Administrative Agent shall be entitled to rely upon, and shall not
incur any liability for relying upon, any notice, request, certificate, consent,
statement,
<PAGE>
96
instrument, document or other writing believed by it to be genuine and to have
been signed or sent by the proper Person. The Administrative Agent also may rely
upon any statement made to it orally or by telephone and believed by it to be
made by the proper Person, and shall not incur any liability for relying
thereon. The Administrative Agent may consult with legal counsel (who may be
counsel for the Borrower), independent accountants and other experts selected by
it, and shall not be liable for any action taken or not taken by it in
accordance with the advice of any such counsel, accountants or experts.
The Administrative Agent may perform any and all its duties and
exercise its rights and powers by or through any one or more sub-agents
appointed by the Administrative Agent. The Administrative Agent and any such
sub-agent may perform any and all its duties and exercise its rights and powers
through their respective Related Parties. The exculpatory provisions of the
preceding paragraphs shall apply to any such sub-agent and to the Related
Parties of each Administrative Agent and any such sub-agent, and shall apply to
their respective activities in connection with the syndication of the credit
facilities provided for herein as well as activities as Administrative Agent.
Subject to the appointment and acceptance of a successor the
Administrative Agent as provided in this paragraph, the Administrative Agent may
resign at any time by notifying the Lenders, the Issuing Bank and the Borrower.
Upon any such resignation, the Required Lenders shall have the right, in
consultation with the Borrower, to appoint a successor. If no successor shall
have been so appointed by the Required Lenders and shall have accepted such
appointment within 30 days after the retiring Administrative Agent gives notice
of its resignation, then the retiring Administrative Agent may, on behalf of the
Lenders and the Issuing Bank, appoint a successor Administrative Agent which
shall be a bank with an office in New York, New York, or an Affiliate of any
such bank. Upon the acceptance of its appointment as Administrative Agent
hereunder by a successor, such successor shall succeed to and become vested with
all the rights, powers, privileges and duties of the retiring Administrative
Agent, and the retiring Administrative Agent shall be discharged from its duties
and obligations hereunder. The fees payable by the Borrower to a successor
Administrative Agent shall be the same as those payable to its predecessor
unless otherwise agreed between the Borrower and such successor. After the
Administrative Agent's resignation hereunder, the provisions of this Article and
Section 9.03 shall continue in effect for the benefit of such retiring
Administrative Agent, its sub-
<PAGE>
97
agents and their respective Related Parties in respect of any actions taken or
omitted to be taken by any of them while it was acting as Administrative Agent.
Each Lender acknowledges that it has, independently and without
reliance upon the Administrative Agent or any other Lender and based on such
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement. Each Lender also
acknowledges that it will, independently and without reliance upon the
Administrative Agent or any other Lender and based on such documents and
information as it shall from time to time deem appropriate, continue to make its
own decisions in taking or not taking action under or based upon this Agreement,
any other Loan Document or related agreement or any document furnished hereunder
or thereunder.
ARTICLE IX
Miscellaneous
-------------
SECTION 9.01. Notices. Except in the case of notices and other
--------
communications expressly permitted to be given by telephone, all notices and
other communications provided for herein shall be in writing and shall be
delivered by hand or overnight courier service, mailed by certified or
registered mail or sent by telecopy, as follows:
(a) if to the Borrower, to it at 510 Huntmar Park Drive, Herndon,
Virginia 20170, Attention Chairman (Telecopy No. 703-397-5377) and
Attention of General Counsel (Telecopy No. 703-904-9527);
(b) if to the Administrative Agent, to The Chase Manhattan Bank, Loan
and Agency Services Group, One Chase Manhattan, Eighth Floor, New York, New
York 10081, Attention of Rana Khan (Telecopy No. (212) 552-5700), with a
copy to The Chase Manhattan Bank, 270 Park Avenue, New York 10017,
Attention of Mitch Gervis (Telecopy No. 270-4584);
(c) if to the Issuing Bank, to The Chase Manhattan Bank, Loan and
Agency Services Group, One Chase Manhattan, Eighth Floor, New York, New
York 10081, Attention of Rana Khan (Telecopy No. (212) 552-5700), with a
copy to The Chase Manhattan Bank, 270 Park Avenue, New York 10017,
Attention of Mitch Gervis (Telecopy No. 270-4584);
<PAGE>
98
(d) if to the Swingline Lender, to The Chase Manhattan Bank, Loan and
Agency Services Group, One Chase Manhattan, Eighth Floor, New York, New
York 10081, Attention of Rana Khan (Telecopy No. (212) 552-5700), with a
copy to The Chase Manhattan Bank, 270 Park Avenue, New York 10017,
Attention of Mitch Gervis (Telecopy No. 270-4584);
(e) if to any other Lender, to it at its address (or telecopy number)
set forth in its Administrative Questionnaire.
Any party hereto may change its address or telecopy number for notices and other
communications hereunder by notice to the other parties hereto. All notices and
other communications given to any party hereto in accordance with the provisions
of this Agreement shall be deemed to have been given on the date of receipt.
SECTION 9.02. Waivers; Amendments. (a) No failure or delay by the
--------------------
Administrative Agent, the Issuing Bank or any Lender in exercising any right or
power hereunder or under any other Loan Document shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right or power, or
any abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. The rights and remedies of the Administrative Agent, the
Issuing Bank and the Lenders hereunder and under the other Loan Documents are
cumulative and are not exclusive of any rights or remedies that they would
otherwise have. No waiver of any provision of any Loan Document or consent to
any departure by any Loan Party therefrom shall in any event be effective unless
the same shall be permitted by paragraph (b) of this Section, and then such
waiver or consent shall be effective only in the specific instance and for the
purpose for which given. Without limiting the generality of the foregoing, the
making of a Loan or issuance of a Letter of Credit shall not be construed as a
waiver of any Default, regardless of whether the Administrative Agent, any
Lender or the Issuing Bank may have had notice or knowledge of such Default at
the time.
(b) Neither this Agreement nor any other Loan Document nor any
provision hereof or thereof may be waived, amended or modified except, in the
case of this Agreement, pursuant to an agreement or agreements in writing
entered into by the Borrower and the Required Lenders or, in the case of any
other Loan Document, pursuant to an agreement or agreements in writing entered
into by the Administrative Agent and the Loan Party or Loan Parties that are
parties
<PAGE>
99
thereto, in each case with the consent of the Required Lenders; provided that no
--------
such agreement shall (i) increase the Revolving Commitment of any Lender without
the written consent of such Lender, (ii) reduce the principal amount of any Loan
or LC Disbursement or reduce the rate of interest thereon, or reduce any fees
payable hereunder, without the written consent of each Lender affected thereby,
(iii) postpone the scheduled date of payment of the principal amount of any Loan
or LC Disbursement, or any interest thereon, or any fees payable hereunder, or
reduce the amount of, waive or excuse any such payment, or postpone the
scheduled date of expiration of any Revolving Commitment, without the written
consent of each Lender affected thereby, (iv) change Section 2.18(b) or (c) in a
manner that would alter the pro rata sharing of payments required thereby,
without the written consent of each Lender, (v) change any of the provisions of
this Section or the definition of "Required Lenders" or any other provision of
any Loan Document specifying the number or percentage of Lenders required to
waive, amend or modify any rights thereunder or make any determination or grant
any consent thereunder, without the written consent of each Lender, (vi) release
any Subsidiary from its Guarantee under the Guarantee Agreement (except as
expressly provided in the Guarantee Agreement), or limit its liability in
respect of such Guarantee, without the written consent of each Lender, (vii)
release all or any part of the Collateral from the Liens of the Security
Documents, without the written consent of each Lender, (viii) change any
provisions of any Loan Document in a manner that by its terms adversely affects
the rights in respect of payments due to Lenders holding Loans of any class
differently than those holding Loans of any other class, without the written
consent of Lenders holding a majority in interest of the outstanding Loans and
unused Revolving Commitments of each affected class; provided further that (A)
----------------
no such agreement shall amend, modify or otherwise affect the rights or duties
of the Administrative Agent, the Issuing Bank or the Swingline Lender without
the prior written consent of the Administrative Agent, the Issuing Bank or the
Swingline Lender, as the case may be, and (B) any waiver, amendment or
modification of this Agreement that by its terms affects the rights or duties
under this Agreement of the Lenders may be effected by an agreement or
agreements in writing entered into by the Borrower and requisite percentage in
interest of the Lenders.
SECTION 9.03. Expenses; Indemnity; Damage Waiver. (a) The Borrower
----------------------------------
shall pay (i) all reasonable out-of-pocket expenses incurred by the
Administrative Agent and its Affiliates, including the reasonable fees, charges
and
<PAGE>
100
disbursements of counsel for the Administrative Agent, in connection with the
syndication of the credit facilities provided for herein, the preparation and
administration of the Loan Documents or any amendments, modifications or waivers
of the provisions thereof (whether or not the transactions contemplated hereby
or thereby shall be consummated), (ii) all reasonable out-of-pocket expenses
incurred by the Issuing Bank in connection with the issuance, amendment, renewal
or extension of any Letter of Credit or any demand for payment thereunder, (iii)
all out-of-pocket expenses incurred by the Administrative Agent, the Issuing
Bank or any Lender, including the fees, charges and disbursements of any counsel
for the Administrative Agent, the Issuing Bank or any Lender, in connection with
the enforcement or protection of its rights in connection with the Loan
Documents, including its rights under this Section, or in connection with the
Loans made or Letters of Credit issued hereunder, including all such out-of-
pocket expenses incurred during any workout, restructuring or negotiations in
respect of such Loans or Letters of Credit; (iv) all documentary taxes in
connection with the Loan Documents.
(b) The Borrower shall indemnify the Arranger, the Administrative
Agent, the Issuing Bank and each Lender, and each Related Party of any of the
foregoing Persons (each such Person being called an "Indemnitee") against, and
----------
hold each Indemnitee harmless from, any and all losses, claims, damages,
liabilities and related expenses, including the fees, charges and disbursements
of any counsel for any Indemnitee, incurred by or asserted against any
Indemnitee arising out of, in connection with, or as a result of (i) the
execution or delivery of any Loan Document or any other agreement or instrument
contemplated hereby, the performance by the parties to the Loan Documents of
their respective obligations thereunder or the consummation of the Transactions
or any other transactions contemplated hereby, (ii) any Loan or Letter of Credit
or the use of the proceeds therefrom (including any refusal by the Issuing Bank
to honor a demand for payment under a Letter of Credit if the documents
presented in connection with such demand do not strictly comply with the terms
of such Letter of Credit), (iii) any actual or alleged presence or release of
Hazardous Materials on or from any Mortgaged Property or any other property
owned or operated by the Borrower or any of its Subsidiaries, or any
Environmental Liability related in any way to the Borrower or any of its
Subsidiaries, or (iv) any actual or prospective claim, litigation, investigation
or proceeding relating to any of the foregoing, whether based on contract, tort
or any other theory and regardless of whether any Indemnitee is a party thereto;
provided that such indemnity shall not, as to any Indemnitee, be available
- --------
<PAGE>
101
to the extent that such losses, claims, damages, liabilities or related expenses
are determined by a court of competent jurisdiction by final and nonappealable
judgment to have resulted from the gross negligence or wilful misconduct of such
Indemnitee.
(c) To the extent that the Borrower fails to pay any amount required
to be paid by it to the Administrative Agent, the Issuing Bank or the Swingline
Lender under paragraph (a) or (b) of this Section, each Lender severally agrees
to pay to the Administrative Agent, the Issuing Bank or the Swingline Lender, as
the case may be, such Lender's pro rata share (determined as of the time that
the applicable unreimbursed expense or indemnity payment is sought) of such
unpaid amount; provided that the unreimbursed expense or indemnified loss,
--------
claim, damage, liability or related expense, as the case may be, was incurred by
or asserted against the Administrative Agent, the Issuing Bank or the Swingline
Lender in its capacity as such. For purposes hereof, a Lender's "pro rata share"
shall be determined based upon its share of the sum of the total Revolving
Exposures and unused Revolving Commitments at the time.
(d) To the extent permitted by applicable law, the Borrower shall not
assert, and each hereby waives, any claim against any Indemnitee, on any theory
of liability, for special, indirect, consequential or punitive damages (as
opposed to direct or actual damages) arising out of, in connection with, or as a
result of, this Agreement or any agreement or instrument contemplated hereby,
the Transactions, any Loan or Letter of Credit or the use of the proceeds
thereof.
(e) All amounts due under this Section shall be payable promptly
after written demand therefor.
SECTION 9.04. Successors and Assigns. (a) The provisions of this
----------------------
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns permitted hereby (including any
Affiliate of the Issuing Bank that issues any Letter of Credit), except that the
Borrower may not assign or otherwise transfer any of its rights or obligations
hereunder without the prior written consent of each Lender (and any attempted
assignment or transfer by the Borrower without such consent shall be null and
void). Nothing in this Agreement, expressed or implied, shall be construed to
confer upon any Person (other than the parties hereto, their respective
successors and assigns permitted hereby (including any Affiliate of the Issuing
Bank that issues any
<PAGE>
102
Letter of Credit) and, to the extent expressly contemplated hereby, the Related
Parties of each of the Administrative Agent, the Issuing Bank and the Lenders)
any legal or equitable right, remedy or claim under or by reason of this
Agreement.
(b) Any Lender may assign to one or more assignees all or a portion of
its rights and obligations under this Agreement (including all or a portion of
its Revolving Commitment and the Loans at the time owing to it); provided that
--------
(i) except in the case of an assignment to a Lender or an Affiliate of a Lender,
each of the Borrower (other than upon the occurrence and continuance of an Event
of Default) and the Administrative Agent (and, in the case of an assignment of
all or a portion of a Revolving Commitment or any Lender's obligations in
respect of its LC Exposure or Swingline Exposure, the Issuing Bank and the
Swingline Lender) must give prior written consent to such assignment (which
consent shall not be unreasonably withheld), (ii) except in the case of an
assignment to a Lender or an Affiliate of a Lender or an assignment of the
entire remaining amount of the assigning Lender's Revolving Commitment or Loans,
the amount of the Revolving Commitment or Loans of the assigning Lender subject
to each such assignment (determined as of the date the Assignment and Acceptance
with respect to such assignment is delivered to the Administrative Agent) shall
not be less than $5,000,000 unless each of the Borrower and the Administrative
Agent otherwise consent, (iii) each partial assignment shall be made as an
assignment of a proportionate part of all the assigning Lender's rights and
obligations under this Agreement, (iv) the parties to each assignment shall
execute and deliver to the Administrative Agent an Assignment and Acceptance,
together with a processing and recordation fee of $3,500 (other than in the case
of an assignment by a Lender to one of its Affiliates), and (v) the assignee, if
it shall not be a Lender, shall deliver to the Administrative Agent an
Administrative Questionnaire; and provided further that any consent of the
----------------
Borrower otherwise required under this paragraph shall not be required if an
Event of Default under clause (h) or (i) of Article VII has occurred and is
continuing. Subject to acceptance and recording thereof pursuant to paragraph
(d) of this Section, from and after the effective date specified in each
Assignment and Acceptance the assignee thereunder shall be a party hereto and,
to the extent of the interest assigned by such Assignment and Acceptance, have
the rights and obligations of a Lender under this Agreement, and the assigning
Lender thereunder shall, to the extent of the interest assigned by such
Assignment and Acceptance, be released from its obligations under this Agreement
(and, in
<PAGE>
103
the case of an Assignment and Acceptance covering all of the assigning Lender's
rights and obligations under this Agreement, such Lender shall cease to be a
party hereto but shall continue to be entitled to the benefits of Sections 2.13,
2.14, 2.15 and 9.03). Any assignment or transfer by a Lender of rights or
obligations under this Agreement that does not comply with this paragraph shall
be treated for purposes of this Agreement as a sale by such Lender of a
participation in such rights and obligations in accordance with paragraph (e) of
this Section.
(c) The Administrative Agent, acting for this purpose as an agent of
the Borrower, shall maintain at one of its offices in The City of New York a
copy of each Assignment and Acceptance delivered to it and a register for the
recordation of the names and addresses of the Lenders, and the Revolving
Commitment of, and principal amount of the Loans and LC Disbursements owing to,
each Lender pursuant to the terms hereof from time to time (the "Register"). The
--------
entries in the Register shall be conclusive, and the Borrower, the
Administrative Agent, the Issuing Bank and the Lenders may treat each Person
whose name is recorded in the Register pursuant to the terms hereof as a Lender
hereunder for all purposes of this Agreement, notwithstanding notice to the
contrary. The Register shall be available for inspection by the Borrower, the
Issuing Bank and any Lender, at any reasonable time and from time to time upon
reasonable prior notice.
(d) Upon its receipt of a duly completed Assignment and Acceptance
executed by an assigning Lender and an assignee, the assignee's completed
Administrative Questionnaire (unless the assignee shall already be a Lender
hereunder), the processing and recordation fee referred to in paragraph (b) of
this Section and any written consent to such assignment required by paragraph
(b) of this Section, the Administrative Agent shall accept such Assignment and
Acceptance and record the information contained therein in the Register. No
assignment shall be effective for purposes of this Agreement unless it has been
recorded in the Register as provided in this paragraph.
(e) Any Lender may, without the consent of the Borrower, the
Administrative Agent, the Issuing Bank or the Swingline Lender, sell
participations to one or more banks or other entities (a "Participant") in all
-----------
or a portion of such Lender's rights and obligations under this Agreement
(including all or a portion of its Revolving Commitment and the Loans owing to
it); provided that (i) such Lender's obligations under this Agreement shall
--------
remain unchanged, (ii) such Lender shall remain solely responsible to the
<PAGE>
104
other parties hereto for the performance of such obligations and (iii) the
Borrower, the Administrative Agent, the Issuing Bank and the other Lenders shall
continue to deal solely and directly with such Lender in connection with such
Lender's rights and obligations under this Agreement. Any agreement or
instrument pursuant to which a Lender sells such a participation shall provide
that such Lender shall retain the sole right to enforce the Loan Documents and
to approve any amendment, modification or waiver of any provision of the Loan
Documents; provided that such agreement or instrument may provide that such
--------
Lender will not, without the consent of the Participant, agree to any amendment,
modification or waiver described in the first proviso to Section 9.02(b) that
affects such Participant. Subject to paragraph (f) of this Section, the Borrower
agrees that each Participant shall be entitled to the benefits of Sections 2.13,
2.14 and 2.15 to the same extent as if it were a Lender and had acquired its
interest by assignment pursuant to paragraph (b) of this Section. To the extent
permitted by law, each Participant also shall be entitled to the benefits of
Section 9.08 as though it were a Lender, provided such Participant agrees to be
subject to Section 2.16(c) as though it were a Lender.
(f) A Participant shall not be entitled to receive any greater
payment under Section 2.13 or 2.15 than the applicable Lender would have been
entitled to receive with respect to the participation sold to such Participant,
unless the sale of the participation to such Participant is made with the
Borrower's prior written consent. A Participant that would be a Foreign Lender
if it were a Lender shall not be entitled to the benefits of Section 2.15 unless
the Borrower is notified of the participation sold to such Participant and such
Participant agrees, for the benefit of the Borrower, to comply with Section
2.15(e) as though it were a Lender.
(g) Any Lender may at any time pledge or assign a security interest
in all or any portion of its rights under this Agreement to secure obligations
of such Lender, including any pledge or assignment to secure obligations to a
Federal Reserve Bank, and this Section shall not apply to any such pledge or
assignment of a security interest; provided that no such pledge or assignment of
--------
a security interest shall release a Lender from any of its obligations hereunder
or substitute any such pledgee or assignee for such Lender as a party hereto.
SECTION 9.05. Survival. All covenants, agreements, representations and
--------
warranties made by the Loan Parties in the Loan Documents and in the
certificates or
<PAGE>
105
other instruments delivered in connection with or pursuant to this Agreement or
any other Loan Document shall be considered to have been relied upon by the
other parties hereto and shall survive the execution and delivery of the Loan
Documents and the making of any Loans and issuance of any Letters of Credit,
regardless of any investigation made by any such other party or on its behalf
and notwithstanding that the Administrative Agent, the Issuing Bank or any
Lender may have had notice or knowledge of any Default or incorrect
representation or warranty at the time any credit is extended hereunder, and
shall continue in full force and effect as long as the principal of or any
accrued interest on any Loan or any fee or any other amount payable under this
Agreement is outstanding and unpaid or any Letter of Credit is outstanding and
so long as the Revolving Commitments have not expired or terminated. The
provisions of Sections 2.13, 2.14, 2.15 and 9.03 and Article VIII shall survive
and remain in full force and effect regardless of the consummation of the
transactions contemplated hereby, the repayment of the Loans, the expiration or
termination of the Letters of Credit and the Revolving Commitments or the
termination of this Agreement or any provision hereof.
SECTION 9.06. Counterparts; Integration; Effectiveness. This Agreement may be
-----------------------------------------
executed in counterparts (and by different parties hereto on different
counterparts), each of which shall constitute an original, but all of which when
taken together shall constitute a single contract. This Agreement, the other
Loan Document and any separate letter agreements with respect to fees payable to
the Administrative Agent constitute the entire contract among the parties
relating to the subject matter hereof and supersede any and all previous
agreements and understandings, oral or written, relating to the subject matter
hereof. Except as provided in Section 4.01, this Agreement shall become
effective when it shall have been executed by the Administrative Agent and when
the Administrative Agent shall have received counterparts hereof which, when
taken together, bear the signatures of each of the other parties hereto, and
thereafter shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns. Delivery of an executed
counterpart of a signature page of this Agreement by telecopy shall be effective
as delivery of a manually executed counterpart of this Agreement.
SECTION 9.07. Severability. Any provision of this Agreement held to be
-------------
invalid, illegal or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such invalidity, illegality or
unenforceability without affecting the validity, legality
<PAGE>
106
and enforceability of the remaining provisions hereof; and the invalidity of a
particular provision in a particular jurisdiction shall not invalidate such
provision in any other jurisdiction.
SECTION 9.08. Right of Setoff. If an Event of Default shall have
---------------
occurred and be continuing, each Lender and each of its Affiliates is hereby
authorized at any time and from time to time, to the fullest extent permitted by
law, to set off and apply any and all deposits (general or special, time or
demand, provisional or final) at any time held and other obligations at any time
owing by such Lender or Affiliate to or for the credit or the account of the
Borrower against any of and all the obligations of the Borrower now or hereafter
existing under this Agreement held by such Lender, irrespective of whether or
not such Lender shall have made any demand under this Agreement and although
such obligations may be unmatured. The rights of each Lender under this Section
are in addition to other rights and remedies (including other rights of setoff)
which such Lender may have.
SECTION 9.09. Governing Law; Jurisdiction; Consent to Service of
--------------------------------------------------
Process. (a) This Agreement shall be construed in accordance with and governed
- -------
by the law of the State of New York.
(b) The Borrower hereby irrevocably and unconditionally submits, for
itself and its property, to the nonexclusive jurisdiction of the Supreme Court
of the State of New York sitting in New York County and of the United States
District Court of the Southern District of New York, and any appellate court
from any thereof, in any action or proceeding arising out of or relating to any
Loan Document, or for recognition or enforcement of any judgment, and each of
the parties hereto hereby irrevocably and unconditionally agrees that all claims
in respect of any such action or proceeding may be heard and determined in such
New York State or, to the extent permitted by law, in such Federal court. Each
of the parties hereto agrees that a final judgment in any such action or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on the judgment or in any other manner provided by law. Nothing in this
Agreement or any other Loan Document shall affect any right that the
Administrative Agent, the Issuing Bank or any Lender may otherwise have to bring
any action or proceeding relating to this Agreement or any other Loan Document
against the Borrower or its properties in the courts of any jurisdiction.
<PAGE>
107
(c) The Borrower hereby irrevocably and unconditionally waives, to the
fullest extent it may legally and effectively do so, any objection which it may
now or hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to this Agreement or any other Loan Document in any
court referred to in paragraph (b) of this Section. Each of the parties hereto
hereby irrevocably waives, to the fullest extent permitted by law, the defense
of an inconvenient forum to the maintenance of such action or proceeding in any
such court.
(d) Each party to this Agreement irrevocably consents to service of
process in the manner provided for notices in Section 9.01. Nothing in this
Agreement or any other Loan Document will affect the right of any party to this
Agreement to serve process in any other manner permitted by law.
SECTION 9.10. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES,
--------------------
TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A
TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR
RELATING TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH
PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY
OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD
NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B)
ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER
INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SECTION.
SECTION 9.11. Headings. Article and Section headings and the Table of
--------
Contents used herein are for convenience of reference only, are not part of this
Agreement and shall not affect the construction of, or be taken into
consideration in interpreting, this Agreement.
SECTION 9.12. Confidentiality. Each of the Administrative Agent, the
---------------
Issuing Bank and the Lenders agrees to maintain the confidentiality of the
Information (as defined below), except that Information may be disclosed (a) to
its and its Affiliates' directors, officers, employees and agents, including
accountants, legal counsel and other advisors (it being understood that the
Persons to whom such disclosure is made will be informed of the confidential
nature of such Information and instructed to keep such Information
confidential), (b) (i) to the extent requested by any bank regulatory authority
or the Securities and Exchange Commission or (ii) to the extent requested by
<PAGE>
108
any other regulatory authority, upon prior written notice to the Borrower to the
extent reasonably practicable, (c) to the extent required by applicable laws or
regulations (other than as provided in (b)) or by any subpoena or similar legal
process; provided that the Borrower shall be notified promptly, to the extent
--------
reasonably practicable, prior to any such disclosure so that the Borrower may
contest such disclosure or seek confidential treatment thereof, (d) to any other
party to this Agreement, (e) in connection with the exercise of any remedies
hereunder or any suit, action or proceeding relating to this Agreement or any
other Loan Document or the enforcement of rights hereunder or thereunder, (f)
subject to an agreement containing provisions substantially the same as those of
this Section, to any assignee of or Participant in, or any prospective assignee
of or Participant in, any of its rights or obligations under this Agreement, (g)
with the written consent of the Borrower or (h) to the extent such Information
(i) becomes publicly available other than as a result of a breach of this
Section or (ii) becomes available to the Administrative Agent, the Issuing Bank
or any Lender on a nonconfidential basis from a source known by such recipient
to be subject to a confidentiality obligation with respect thereto other than
the Borrower. For the purposes of this Section, "Information" means all
-----------
information received from the Borrower or any Subsidiary relating to the
Borrower and/or any Subsidiary or any of their respective businesses, other than
any such information that is available to the Administrative Agent, the Issuing
Bank or any Lender on a nonconfidential basis prior to disclosure by
<PAGE>
109
the Borrower. Any Person required to maintain the confidentiality of
Information as provided in this Section shall be considered to have complied
with its obligation to do so if such Person has exercised the same degree of
care to maintain the confidentiality of such Information as such Person would
accord to its own confidential information.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective authorized officers as of the day and year
first above written.
PSINET INC.,
by
/s/ William L. Schrader
---------------------------------
Name: William L. Schrader
Title: Chairman
THE CHASE MANHATTAN BANK,
individually and as
Administrative Agent,
by
/s/ Mitchell Gervis
---------------------------------
Name: Mitchell Gervis
Title: Vice President
FLEET NATIONAL BANK,
individually and as Syndication
Agent,
by
/s/ Daniel G. Head, Jr.
---------------------------------
Name: Daniel G. Head, Jr.
Title: Senior Vice President
THE BANK OF NEW YORK,
individually and as
Documentation Agent,
by
/s/ Gerry Granovsky
---------------------------------
Name: Gerry Granovsky
Title: Vice President
<PAGE>
Exhibits and Schedules to the Credit Agreement have been omitted. The
following is a list of the omitted Exhibits and Schedules which the Company
agrees to furnish supplementally to the Commission upon request:
Exhibits:
--------
Exhibit A Form of Assignment and Acceptance
Exhibit B Form of Opinion of Borrower's Counsel
Exhibit F Form of Indemnity, Subrogation and Contribution Agreement
Schedules:
---------
Schedule 2.01 Commitments
Schedule 3.05 Real Property
Schedule 3.06 Litigation and Environmental Matters
Schedule 3.12 Subsidiaries
Schedule 3.13 Insurance
Schedule 3.16 FCC Violations
Schedule 3.18 Burdensome Restrictions
Schedule 6.01 Existing Indebtedness
Schedule 6.02 Existing Liens
Schedule 6.05 Existing Investments
Exhibits C, D and E to the Credit Agreement are filed herewith as Exhibits
2.3, 2.4 and 2.5 to this Form 8-K.
-115-
<PAGE>
1
EXHIBIT 2.3
EXECUTION COPY
GUARANTEE AGREEMENT dated as of September 29, 1998, among each of the
subsidiaries listed on Schedule I hereto (each such subsidiary individually, a
"Guarantor" and, collectively, the "Guarantors") of PSINET INC., a New York
corporation (the "Borrower"), and THE CHASE MANHATTAN BANK, a Delaware
corporation, as collateral agent (the "Collateral Agent") for the Secured
Parties (as defined in the Credit Agreement referred to below).
Reference is made to the Credit Agreement dated as of September 29, 1998
(as amended, supplemented or otherwise modified from time to time, the "Credit
Agreement"), among the Borrower, the lenders from time to time party thereto
(the "Lenders"), The Chase Manhattan Bank, as Administrative Agent, Issuing Bank
and Collateral Agent, Fleet National Bank, as Syndication Agent, and The Bank of
New York, as Documentation Agent. Capitalized terms used herein and not defined
herein shall have the meanings assigned to such terms in the Credit Agreement.
The Lenders have agreed to make Loans to the Borrower and the Issuing Bank
has agreed to issue Letters of Credit for the account of the Borrower pursuant
to, and upon the terms and subject to the conditions specified in, the Credit
Agreement. Each of the Guarantors is a direct or indirect Subsidiary of the
Borrower and acknowledges that it will derive substantial benefit from the
making of the Loans by the Lenders. The obligations of the Lenders to make
Loans and of the Issuing Bank to issue Letters of Credit are conditioned on,
among other things, the execution and delivery by the Guarantors of a Guarantee
Agreement in the form hereof. As consideration therefor and in order to induce
the Lenders to make Loans and the Issuing Banks to issue Letters of Credit, the
Guarantors are willing to execute this Agreement.
<PAGE>
2
Accordingly, the parties hereto agree as follows:
SECTION 1. Guarantee. Each Guarantor unconditionally guarantees, jointly
with the other Guarantors and severally, as a primary obligor and not merely as
a surety, (a) the due and punctual payment by the Borrower of (i) the principal
of and premium, if any, and interest (including interest accruing during the
pendency of any bankruptcy, insolvency, receivership or other similar
proceeding, regardless of whether allowed or allowable in such proceeding) on
the Loans, when and as due, whether at maturity, by acceleration, upon one or
more dates set for prepayment or otherwise, (ii) each payment required to be
made by the Borrower under the Credit Agreement in respect of any Letter of
Credit, when and as due, including payments in respect of reimbursement of
disbursements, interest thereon and obligations to provide cash collateral and
(iii) all other monetary obligations, including fees, costs, expenses and
indemnities, whether primary, secondary, direct, contingent, fixed or otherwise
(including monetary obligations incurred during the pendency of any bankruptcy,
insolvency, receivership or other similar proceeding, regardless of whether
allowed or allowable in such proceeding), of the Loan Parties to the Secured
Parties under the Credit Agreement and the other Loan Documents, (b) the due and
punctual performance of all covenants, agreements, obligations and liabilities
of the Loan Parties under or pursuant to the Credit Agreement and the other Loan
Documents, (c) unless otherwise agreed upon in writing by the applicable Lender
party thereto, the due and punctual payment and performance of all obligations
of the Borrower, monetary or otherwise, under each Hedging Agreement entered
into with a counterparty that was a Lender or an Affiliate of a Lender at the
time such Hedging Agreement was entered into and (d) each payment required to be
made in respect of any non-dollar denominated letters of credit issued for the
account of the Borrower by Fleet National Bank, when and as due, including
payments in respect of reimbursement of disbursements, interest thereon and
obligations to provide cash collateral (all the monetary and other obligations
referred to in the preceding clauses (a) through (d) being collectively called
the "Obligations"). Each Guarantor further agrees that the Obligations may be
extended or renewed, in whole or in part, without notice to or further
<PAGE>
3
assent from it, and that it will remain bound upon its guarantee notwithstanding
any extension or renewal of any Obligation.
Anything contained in this Agreement to the contrary notwithstanding, the
obligations of each Guarantor hereunder shall be limited to a maximum aggregate
amount equal to the greatest amount that would not render such Guarantor's
obligations hereunder subject to avoidance as a fraudulent transfer or
conveyance under Section 548 of Title 11 of the United States Code or any
provisions of applicable state law (collectively, the "Fraudulent Transfer
Laws"), in each case after giving effect to all other liabilities of such
Guarantor, contingent or otherwise, that are relevant under the Fraudulent
Transfer Laws (specifically excluding, however, any liabilities of such
Guarantor (a) in respect of intercompany indebtedness to the Borrower or
Affiliates of the Borrower to the extent that such indebtedness would be
discharged in an amount equal to the amount paid by such Guarantor hereunder and
(b) under any Guarantee of senior unsecured indebtedness or Indebtedness
subordinated in right of payment to the Obligations which Guarantee contains a
limitation as to maximum amount similar to that set forth in this paragraph,
pursuant to which the liability of such Guarantor hereunder is included in the
liabilities taken into account in determining such maximum amount)and after
giving effect as assets to the value (as determined under the applicable
provisions of the Fraudulent Transfer Laws) of any rights to subrogation,
contribution, reimbursement, indemnity or similar rights of such Guarantor
pursuant to (i) applicable law or (ii) any agreement providing for an equitable
allocation among such Guarantor and other Affiliates of the Borrower of
obligations arising under Guarantees by such parties (including the Indemnity,
Subrogation and Contribution Agreement).
SECTION 2. Obligations Not Waived. To the fullest extent permitted by
applicable law, each Guarantor waives presentment to, demand of payment from and
protest to the Borrower of any of the Obligations, and also waives notice of
acceptance of its guarantee and notice of protest for nonpayment. To the
fullest extent permitted by applicable law, the obligations of each Guarantor
hereunder shall not be affected by (a) the failure of the Collateral Agent or
any other Secured Party to assert any claim or demand or to
<PAGE>
4
enforce or exercise any right or remedy against the Borrower or any other
Subsidiary Guarantor under the provisions of the Credit Agreement, any other
Loan Document or otherwise, (b) any rescission, waiver, amendment or
modification of, or any release from any of the terms or provisions of this
Agreement, any other Loan Document, any Guarantee or any other agreement,
including with respect to any other Subsidiary Guarantor under this Agreement or
(c) the failure to perfect any security interest in, or the release of, any of
the security held by or on behalf of the Collateral Agent or any other Secured
Party.
SECTION 3. Security. Each of the Guarantors authorizes the Collateral
Agent and each of the other Secured Parties, to (a) take and hold, as provided
in the Security Agreement, security for the payment of this Guarantee and the
Obligations and exchange, enforce, waive and release any such security, (b)
apply such security and direct the order or manner of sale thereof as provided
in the Security Agreement and (c) release or substitute any one or more
endorsees, other guarantors of other obligors.
SECTION 4. Guarantee of Payment. Each Guarantor further agrees that its
guarantee constitutes a guarantee of payment when due and not of collection, and
waives any right to require that any resort be had by the Collateral Agent or
any other Secured Party to any of the security held for payment of the
Obligations or to any balance of any deposit account or credit on the books of
the Collateral Agent or any other Secured Party in favor of the Borrower or any
other Person.
SECTION 5. No Discharge or Diminishment of Guarantee. The obligations of
each Guarantor hereunder shall not be subject to any reduction, limitation,
impairment or termination for any reason (other than the indefeasible payment in
full in cash of the Obligations), including any claim of waiver, release,
surrender, alteration or compromise of any of the Obligations, and shall not be
subject to any defense or setoff, counterclaim, recoupment or termination
whatsoever by reason of the invalidity, illegality or unenforceability of the
Obligations or otherwise. Without limiting the generality of the foregoing, the
obligations of each Guarantor hereunder shall not be discharged or impaired or
otherwise affected by the
<PAGE>
5
failure of the Collateral Agent or any other Secured Party to assert any claim
or demand or to enforce any remedy under the Credit Agreement, any other Loan
Document or any other agreement, by any waiver or modification of any provision
of any thereof, by any default, failure or delay, wilful or otherwise, in the
performance of the Obligations, or the failure to perfect any security interest
in, or the release of, any of the security held by or on behalf of the
Collateral Agent or any other Secured Party, or by any other act or omission
that may or might in any manner or to any extent vary the risk of any Guarantor
or that would otherwise operate as a discharge of each Guarantor as a matter of
law or equity (other than the indefeasible payment in full in cash of all the
Obligations).
SECTION 6. Defenses of Borrower Waived. To the fullest extent permitted
by applicable law, each of the Guarantors waives any defense based on or arising
out of any defense of the Borrower or the unenforceability of the Obligations or
any part thereof from any cause, or the cessation from any cause of the
liability of the Borrower, other than the final and indefeasible payment in full
in cash of the Obligations. The Collateral Agent and the other Secured Parties
may, at their election, foreclose on any security held by one or more of them by
one or more judicial or nonjudicial sales, accept an assignment of any such
security in lieu of foreclosure, compromise or adjust any part of the
Obligations, make any other accommodation with the Borrower or any other
guarantor or exercise any other right or remedy available to them against the
Borrower or any other guarantor, without affecting or impairing in any way the
liability of any Guarantor hereunder except to the extent the Obligations have
been fully, finally and indefeasibly paid in cash. Pursuant to applicable law,
each of the Guarantors waives any defense arising out of any such election even
though such election operates, pursuant to applicable law, to impair or to
extinguish any right of reimbursement or subrogation or other right or remedy of
such Guarantor against the Borrower or any other Guarantor or guarantor, as the
case may be, or any security.
SECTION 7. Agreement to Pay; Subordination. In furtherance of the
foregoing and not in limitation of any other right that the Collateral Agent or
any other Secured Party has at law or in equity against any Guarantor by
<PAGE>
6
virtue hereof, upon the failure of the Borrower or any other Loan Party to pay
any Obligation when and as the same shall become due, whether at maturity, by
acceleration, after notice of prepayment or otherwise, each Guarantor hereby
promises to and will forthwith pay, or cause to be paid, to the Collateral Agent
or such other Secured Party as designated thereby in cash the amount of such
unpaid Obligations. Upon payment by any Guarantor of any sums to the Collateral
Agent or any Secured Party as provided above, all rights of such Guarantor
against the Borrower arising as a result thereof by way of right of subrogation,
contribution, reimbursement, indemnity or otherwise shall in all respects be
subordinate and junior in right of payment to the prior indefeasible payment in
full in cash of all the Obligations. In addition, any indebtedness of the
Borrower now or hereafter held by any Guarantor is hereby subordinated in right
of payment to the prior payment in full of the Obligations during the existence
of an Event of Default. If any amount shall erroneously be paid to any Guarantor
on account of (i) such subrogation, contribution, reimbursement, indemnity or
similar right or (ii) any such indebtedness of the Borrower, such amount shall
be held in trust for the benefit of the Secured Parties and shall forthwith be
paid to the Collateral Agent to be credited against the payment of the
Obligations, whether matured or unmatured, in accordance with the terms of the
Loan Documents.
SECTION 8. Information. Each of the Guarantors assumes all responsibility
for being and keeping itself informed of the Borrower's financial condition and
assets, and of all other circumstances bearing upon the risk of nonpayment of
the Obligations and the nature, scope and extent of the risks that such
Guarantor assumes and incurs hereunder, and agrees that none of the Collateral
Agent or the other Secured Parties will have any duty to advise any of the
Guarantors of information known to it or any of them regarding such
circumstances or risks.
SECTION 9. Representations and Warranties. Each of the Guarantors
represents and warrants as to itself that all representations and warranties
relating to it contained in the Credit Agreement are true and correct.
<PAGE>
7
SECTION 10. Termination. The Guarantees made hereunder (a) shall
terminate when all the Obligations have been indefeasibly paid in full and the
Lenders have no further commitment to lend under the Credit Agreement and (b)
shall continue to be effective or be reinstated, as the case may be, if at any
time payment, or any part thereof, of any Obligation is rescinded or must
otherwise be restored by any Secured Party or any Guarantor upon the bankruptcy
or reorganization of the Borrower, any Guarantor or otherwise.
SECTION 11. Binding Effect; Several Agreement; Assignments. 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 agreements by or on behalf of the Guarantors that are contained in
this Agreement shall bind and inure to the benefit of each party hereto and
their respective successors and assigns. This Agreement shall become effective
as to any Guarantor when a counterpart hereof executed on behalf of such
Guarantor shall have been delivered to the Collateral Agent, and a counterpart
hereof shall have been executed on behalf of the Collateral Agent, and
thereafter shall be binding upon such Guarantor and the Collateral Agent and
their respective successors and assigns, and shall inure to the benefit of such
Guarantor, the Collateral Agent and the other Secured Parties, and their
respective successors and assigns, except that no Guarantor shall have the right
to assign its rights or obligations hereunder or any interest herein (and any
such attempted assignment shall be void). If all of the capital stock of a
Guarantor is sold, transferred or otherwise disposed of to a Person that is not
an Affiliate of the Borrower pursuant to a transaction permitted by Section 6.06
of the Credit Agreement, such Guarantor shall be released from its obligations
under this Agreement without further action. This Agreement shall be construed
as a separate agreement with respect to each Guarantor and may be amended,
modified, supplemented, waived or released with respect to any Guarantor without
the approval of any other Guarantor and without affecting the obligations of any
other Guarantor hereunder.
SECTION 12. Waivers; Amendment. (a) No failure or delay of the
Collateral Agent in exercising any power or right hereunder shall operate as a
waiver thereof, nor shall
<PAGE>
8
any single or partial exercise of any such right or power, or any abandonment or
discontinuance of steps to enforce such a right or power, preclude any other or
further exercise thereof or the exercise of any other right or power. The rights
and remedies of the Collateral Agent hereunder and of the other Secured Parties
under the other Loan Documents are cumulative and are not exclusive of any
rights or remedies that they would otherwise have. No waiver of any provision of
this Agreement or consent to any departure by any Guarantor therefrom shall in
any event be effective unless the same shall be permitted by paragraph (b)
below, and then such waiver or consent shall be effective only in the specific
instance and for the purpose for which given. No notice or demand on any
Guarantor in any case shall entitle such Guarantor to any other or further
notice or demand in similar or other circumstances.
(b) Neither this Agreement nor any provision hereof may be waived, amended
or modified except pursuant to a written agreement entered into between the
Guarantors with respect to which such waiver, amendment or modification relates
and the Collateral Agent, with the prior written consent of the Required Lenders
(except as otherwise provided in the Credit Agreement).
SECTION 13. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 14. Notices. All communications and notices hereunder shall be in
writing and given as provided in Section 9.01 of the Credit Agreement. All
communications and notices hereunder to each Guarantor shall be given to it in
care of the Borrower at the address set forth in the Credit Agreement.
SECTION 15. Survival of Agreement; Severability. (a) All covenants,
agreements, representations and warranties made by the Guarantors herein and in
the certificates or other instruments prepared or delivered in connection with
or pursuant to this Agreement or any other Loan Document shall be considered to
have been relied upon by the Collateral Agent and the other Secured Parties and
shall survive the making by the Lenders of the Loans
<PAGE>
9
regardless of any investigation made by the Secured Parties or on their behalf,
and shall continue in full force and effect as long as the principal of or any
accrued interest on any Loan or any other fee or amount payable under this
Agreement or any other Loan Document is outstanding and unpaid or the LC
Exposure does not equal zero and as long as the Commitments and the LC
Commitment have not been terminated.
(b) In the event any one or more of the provisions contained in this
Agreement or in any other Loan Document should be held invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein and therein shall not in any way be
affected or impaired thereby (it being understood that the invalidity of a
particular provision in a particular jurisdiction shall not in and of itself
affect the validity of such provision in any other jurisdiction). The parties
shall endeavor in good-faith negotiations to replace the invalid, illegal or
unenforceable provisions with valid provisions the economic effect of which
comes as close as possible to that of the invalid, illegal or unenforceable
provisions.
SECTION 16. Counterparts. This Agreement may be executed in counterparts,
each of which shall constitute an original, but all of which when taken together
shall constitute a single contract, and shall become effective as provided in
Section 11. Delivery of an executed signature page to this Agreement by
facsimile transmission shall be as effective as delivery of a manually executed
counterpart of this Agreement.
SECTION 17. Rules of Interpretation. The rules of interpretation
specified in Section 1.03 of the Credit Agreement shall be applicable to this
Agreement.
SECTION 18. Jurisdiction; Consent to Service of Process. (a) Each
Guarantor hereby irrevocably and unconditionally submits, for itself and its
property, to the nonexclusive jurisdiction of the Supreme Court of the State of
New York sitting in New York County and of the United States District Court of
the Southern District of New York, and any appellate court from any thereof, in
any action or proceeding arising out of or relating to any Loan Document,
<PAGE>
10
or for recognition or enforcement of any judgment, and each of the parties
hereto hereby irrevocably and unconditionally agrees that all claims in respect
of any such action or proceeding may be heard and determined in such New York
State or, to the extent permitted by law, in such Federal court. Each of the
parties hereto agrees that a final judgment in any such action or proceeding
shall be conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law. Nothing in this Agreement or
any other Loan Document shall affect any right that the Collateral Agent or any
other Secured Party may otherwise have to bring any action or proceeding
relating to this Agreement or any other Loan Document against any Guarantor or
its properties in the courts of any jurisdiction.
(b) Each Guarantor hereby irrevocably and unconditionally waives, to the
fullest extent it may legally and effectively do so, any objection that it may
now or hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to this Agreement or the other Loan Documents in any
New York State or Federal court. Each of the parties hereto hereby irrevocably
waives, to the fullest extent permitted by law, the defense of an inconvenient
forum to the maintenance of such action or proceeding in any such court.
(c) Each party to this Agreement irrevocably consents to service of
process in the manner provided for notices in Section 14. Nothing in this
Agreement will affect the right of any party to this Agreement to serve process
in any other manner permitted by law.
SECTION 19. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY
JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER
OR IN CONNECTION WITH THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS. EACH PARTY
HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER
PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT,
IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B)
ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER
INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS, AS APPLICABLE, BY,
<PAGE>
11
AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 19.
SECTION 20. Additional Guarantors. Pursuant to Section 5.13 of the Credit
Agreement, each Subsidiary Loan Party of the Borrower that was not in existence
or not a Subsidiary Loan Party on the date of the Credit Agreement is required
to enter into this Agreement as a Guarantor upon becoming a Subsidiary Loan
Party. Upon execution and delivery after the date hereof by the Collateral
Agent and such a Subsidiary of an instrument in the form of Annex 1, such
Subsidiary Loan Party shall become a Guarantor hereunder with the same force and
effect as if originally named as a Guarantor herein. The execution and delivery
of any instrument adding an additional Guarantor as a party to this Agreement
shall not require the consent of any other Guarantor hereunder. The rights and
obligations of each Guarantor hereunder shall remain in full force and effect
notwithstanding the addition of any new Guarantor as a party to this Agreement.
This Agreement may be waived, amended or modified with respect to any one or
more Guarantors and any one or more Guarantors may be released from its
obligations hereunder without the consent or agreement of any other Guarantor.
SECTION 21. Right of Setoff. If an Event of Default shall have occurred
and be continuing, each Secured Party is hereby authorized at any time and from
time to time, to the fullest extent permitted by law, to set off and apply any
and all deposits (general or special, time or demand, provisional or final) at
any time held and other Indebtedness at any time owing by such Secured Party to
or for the credit or the account of any Guarantor against any or all the
obligations of such Guarantor now or hereafter existing under this Agreement and
the other Loan Documents held by such Secured Party, irrespective of whether or
not such Secured Party shall have made any demand under this Agreement or any
other Loan Document and although such obligations may be unmatured. After any
exercise of such right of setoff, the Secured Party shall give notice of such
exercise to the Administrative Agent and the Borrower; provided, however, that
-------- -------
failure to give such notice shall not in any way affect the rights of any
Secured Party. The rights of each Secured Party under this Section 21 are in
<PAGE>
12
addition to other rights and remedies (including other rights of setoff) which
such Secured Party may have.
<PAGE>
13
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written.
PSIWEB INC.,
By /s/ William L. Schrader
---------------------------
Name: William L. Schrader
Title: Chairman
PSINET SECURITY SERVICES INC.,
By /s/ William L. Schrader
---------------------------
Name: William L. Schrader
Title: Chairman
PSINET NORTH AMERICA HOLDINGS INC.,
By /s/ William L. Schrader
---------------------------
Name: William L. Schrader
Title: President
IONET, INC.,
By /s/ William L. Schrader
---------------------------
Name: William L. Schrader
Title: Chairman
PSINETWORKS COMPANY,
By /s/ William L. Schrader
---------------------------
Name: William L. Schrader
Title: Chairman
TELECOM LICENSING INC.,
By /s/ William L. Schrader
---------------------------
Name: William L. Schrader
Title: President
<PAGE>
14
PSINET ASIA HOLDINGS INC.,
By /s/ William L. Schrader
---------------------------
Name: William L. Schrader
Title: Chairman
THE CHASE MANHATTAN BANK, as Collateral Agent,
By /s/ Mitchell Gervis
--------------------------
Name: Mitchell Gervis
Title: Vice President
<PAGE>
EXHIBIT 2.4
EXECUTION COPY
PLEDGE AGREEMENT dated as of September 29, 1998, among PSINET INC., a New
York corporation (the "Borrower"), each subsidiary of the Borrower listed on
Schedule I hereto (the "Subsidiary Pledgors", and together with the Borrower,
the "Pledgors") and THE CHASE MANHATTAN BANK, a New York banking corporation
("Chase"), as collateral agent (in such capacity, the "Collateral Agent") for
the Secured Parties (as defined in the Credit Agreement referred to below).
Reference is made to (a) the Credit Agreement dated as of September 29,
1998 (as amended, supplemented or otherwise modified from time to time, the
"Credit Agreement"), among the Borrower, the lenders from time to time party
thereto (the "Lenders"), Chase, as administrative agent for the Lenders, Fleet
National Bank, as Syndication Agent and The Bank of New York, as Documentation
Agent, and (b) the Guarantee Agreement dated as of September 29, 1998 (as
amended, supplemented or otherwise modified from time to time, the "Guarantee
Agreement") among the Pledgors and the Collateral Agent.
The Lenders have agreed to make Loans to the Borrower and the Issuing Bank
has agreed to issue Letters of Credit for the account of the Borrower, pursuant
to, and upon the terms and subject to the conditions specified in, the Credit
Agreement. The Guarantors have agreed to guarantee, among other things, all the
obligations of the Borrower under the Credit Agreement. The obligations of the
Lenders to make Loans and of the Issuing Bank to issue Letters of Credit are
conditioned upon, among other things, the execution and delivery by the Pledgors
of a Pledge Agreement in the form hereof to secure (a) the due and punctual
payment by the Borrower of (i) the principal of and premium, if any, and
interest (including interest accruing during the pendency of any bankruptcy,
insolvency, receivership or other similar proceeding, regardless of whether
allowed or allowable in such proceeding) on the Loans, when and as due, whether
at maturity, by acceleration, upon one or more dates set for prepayment or
otherwise, (ii) each payment required to be made by the Borrower under the
Credit Agreement in respect of any Letter of Credit, when and as due, including
payments in respect of reimbursement of disbursements, interest thereon and
<PAGE>
2
obligations to provide cash collateral and (iii) all other monetary obligations,
including fees, costs, expenses and indemnities, whether primary, secondary,
direct, contingent, fixed or otherwise (including monetary obligations incurred
during the pendency of any bankruptcy, insolvency, receivership or other similar
proceeding, regardless of whether allowed or allowable in such proceeding), of
the Loan Parties to the Secured Parties under the Credit Agreement and the other
Loan Documents, (b) the due and punctual performance of all covenants,
agreements, obligations and liabilities of the Loan Parties under or pursuant to
the Credit Agreement and the other Loan Documents, (c) unless otherwise agreed
upon in writing by the applicable Lender party thereto, the due and punctual
payment and performance of all obligations of the Borrower, monetary or
otherwise under each Hedging Agreement entered into with a counterparty that was
a Lender or an Affiliate of a Lender at the time such Hedging Agreement was
entered into and (d) each payment required to be made in respect of any non-
dollar denominated letters of credit issued for the account of the Borrower by
Fleet National Bank, when and as due, including payments in respect of
reimbursement of disbursements, interest thereon and obligations to provide cash
collateral (all the monetary and other obligations referred to in the preceding
clauses (a) through (d) being referred to collectively as the "Obligations").
Capitalized terms used herein and not defined herein shall have meanings
assigned to such terms in the Credit Agreement.
Accordingly, the Pledgors and the Collateral Agent, on behalf of
itself and each Secured Party (and each of their respective successors or
assigns), hereby agree as follows:
SECTION 1. Pledge. As security for the payment and performance, as
the case may be, in full of the Obligations, each Pledgor hereby transfers,
grants, bargains, sells, conveys, hypothecates, pledges, sets over and delivers
unto the Collateral Agent, its successors and assigns, and hereby grants to the
Collateral Agent, its successors and assigns, for the ratable benefit of the
Secured Parties, a security interest in all of the Pledgor's right, title and
interest in, to and under (a) all shares of capital stock, membership interests
or other equity interests owned by it, all of which are listed on Schedule II
hereto, and any shares of capital stock, membership interests or other equity
interests obtained in the future by the Pledgor and the certificates
representing all such shares, membership interests or other equity interests
(the "Pledged
<PAGE>
3
Stock"); provided that the pledged interests shall not include (i) more than 65%
of the issued and outstanding shares of stock of any first-tier Foreign
Subsidiary or (ii) to the extent that applicable law requires that a Subsidiary
of the Pledgor issue directors' qualifying shares, such qualifying shares;
(b)(i) all debt securities owned by it, all of which are listed opposite the
name of the Pledgor on Schedule II hereto, (ii) any debt securities in the
future issued to the Pledgor and (iii) the promissory notes and any other
instruments evidencing such debt securities (the "Pledged Debt Securities"); (c)
all other property that may be delivered to and held by the Collateral Agent
pursuant to the terms hereof; (d) subject to Section 5, all payments of
principal or interest, dividends, cash, instruments and other property from time
to time received, receivable or otherwise distributed, in respect of, in
exchange for or upon the conversion of the securities referred to in clauses (a)
and (b) above; (e) subject to Section 5, all rights and privileges of the
Pledgor with respect to the securities and other property referred to in clauses
(a), (b), (c) and (d) above; and (f) all proceeds of any of the foregoing (the
items referred to in clauses (a) through (f) above being collectively referred
to as the "Collateral"). Upon delivery to the Collateral Agent, (a) any stock
certificates, notes or other securities now or hereafter included in the
Collateral (the "Pledged Securities") shall be accompanied by stock powers duly
executed in blank or other instruments of transfer satisfactory to the
Collateral Agent and by such other instruments and documents as the Collateral
Agent may reasonably request in order to give effect to the pledge granted
hereby and (b) all other property comprising part of the Collateral shall be
accompanied by proper instruments of assignment duly executed by the applicable
Pledgor and such other instruments or documents as the Collateral Agent may
reasonably request in order to give effect to the pledge granted hereby. Each
delivery of Pledged Securities shall be accompanied by a schedule describing the
securities theretofore and then being pledged hereunder, which schedule shall be
attached hereto as Schedule II and made a part hereof. Each schedule so
delivered shall supersede any prior schedules so delivered. Notwithstanding
anything herein to the contrary, in no event shall the Collateral (as defined in
this Agreement) include, nor shall this Agreement be applicable to, any
"Collateral" as such term is defined in the Interest Escrow Agreement, dated as
of April 13, 1998, between Wilmington Trust Company, as Escrow Agent and Trustee
and the Pledgor, as amended
<PAGE>
4
(except that no amendment shall be made to the definition of "Collateral" as
defined therein on the date hereof).
TO HAVE AND TO HOLD the Collateral, together with all right, title,
interest, powers, privileges and preferences pertaining or incidental thereto,
unto the Collateral Agent, its successors and assigns, for the ratable benefit
of the Secured Parties, forever; subject, however, to the terms, covenants and
conditions hereinafter set forth.
SECTION 2. Delivery of the Collateral. (a) Each Pledgor agrees promptly to
deliver or cause to be delivered to the Collateral Agent any and all Pledged
Securities (other than Permitted Investments held through a Securities
Intermediary (as defined in the Security Agreement attached as Exhibit E to the
Credit Agreement) and other than Pledged Debt Securities existing on the date
hereof), and any and all certificates or other instruments or documents
representing the Collateral.
(b) Each Pledgor will cause any Indebtedness for borrowed money owed to
the Pledgor by any Person (other than Permitted Investments held through a
Securities Intermediary and other than Indebtedness between the Borrower and a
Subsidiary or between Subsidiaries existing on the date hereof) to be evidenced
by a duly executed promissory note, bond, debenture or similar instrument that
is pledged and delivered to the Collateral Agent pursuant to the terms thereof.
SECTION 3. Representations, Warranties and Covenants. Each Pledgor
hereby represents, warrants and covenants, as to itself and the Collateral
pledged by it hereunder, to and with the Collateral Agent that as of the
Effective Date:
(a) the Pledged Stock represents that percentage as set forth on
Schedule II of the issued and outstanding shares of each class of the
capital stock of the issuer with respect thereto;
(b) except for the security interest granted hereunder, the Pledgor
(i) is and will at all times continue to be (until the maturity thereof in
the case of debt securities) the direct owner, beneficially and of record,
of the Pledged Securities indicated on Schedule II (unless (x) such Pledged
Securities are transferred to another Pledgor in a transaction permitted by
Section 6.04
<PAGE>
5
or 6.06 of the Credit Agreement and pledged by such Pledgor to the
Collateral Agent for the benefit of the Secured Parties pursuant to Section
1 of this Pledge Agreement or (y) such Pledged Securities are transferred
to someone other than a Pledgor in a transfer permitted by Section 6.06 of
the Credit Agreement), (ii) holds the same free and clear of all Liens,
(iii) will make no assignment, pledge, hypothecation or transfer of, or
create or permit to exist any security interest in or other Lien on, the
Collateral, other than pursuant hereto and except for assignments and
transfers described in the parenthetical in (i) above, and (iv) subject to
Section 5, will cause any and all Collateral (other than Permitted
Investments held through a Securities Intermediary), whether for value paid
by the Pledgor or otherwise, to be forthwith deposited with the Collateral
Agent and pledged or assigned hereunder;
(c) the Pledgor (i) has the power and authority to pledge the
Collateral in the manner hereby done or contemplated and (ii) will defend
its title or interest thereto or therein against any and all Liens (other
than the Lien created by this Agreement), however arising, of all Persons
whomsoever;
(d) except for such consents and approvals as have been obtained and
are in full force and effect, no consent of any other Person (including
stockholders or creditors of any Pledgor) and no consent or approval of any
Governmental Authority or any securities exchange was or is necessary to
the validity of the pledge effected hereby;
(e) by virtue of the execution and delivery by the Pledgors of this
Agreement, (i) when the Pledged Securities (other than Permitted
Investments made through a Securities Intermediary), certificates or other
documents representing or evidencing the Collateral are delivered to, and
continue to be in the possession of, the Collateral Agent in accordance
with this Agreement, the Collateral Agent will have, a valid and perfected
first lien upon and security interest in such Pledged Securities (other
than Permitted Investments made through a Securities Intermediary) as
security for the payment and performance of the Obligations and (ii) when
any Securities Intermediary through which Permitted Investments are held
enters into an agreement to comply with instructions originated by the
Collateral Agent
<PAGE>
6
with respect to such Permitted Investments without further consent from the
Borrower or any Subsidiary, the Collateral Agent will have a valid and
perfected first lien upon and security interest in such Permitted
Investments as security for the payment and performance of the Obligations;
(f) the pledge effected hereby is effective to vest in the Collateral
Agent, on behalf of the Secured Parties, the rights of the Collateral Agent
in the Collateral as set forth herein;
(g) all of the Pledged Stock has been duly authorized and validly
issued and is fully paid and nonassessable;
(h) all information set forth herein relating to the Pledged Stock is
accurate and complete in all material respects as of the date hereof; and
(i) the pledge of the Pledged Stock pursuant to this Agreement does
not violate Regulation U or X of the Federal Reserve Board or any successor
thereto as of the date hereof.
SECTION 4. Registration in Nominee Name; Denominations. The Collateral
Agent, on behalf of the Secured Parties, shall have the right (in its sole and
absolute discretion) to hold the Pledged Securities in its own name as pledgee,
the name of its nominee (as pledgee or as sub-agent) or the name of the
Pledgors, endorsed or assigned in blank or in favor of the Collateral Agent.
Each Pledgor will promptly give to the Collateral Agent copies of any material
notices or other communications received by it with respect to Pledged
Securities registered in the name of such Pledgor. The Collateral Agent shall at
all times have the right to exchange the certificates representing Pledged
Securities for certificates of smaller or larger denominations for any purpose
consistent with this Agreement.
SECTION 5. Voting Rights; Dividends and Interest, etc. (a) Unless and
until an Event of Default shall have occurred and be continuing:
(i) Each Pledgor shall be entitled to exercise any and all voting
and/or other consensual rights and powers inuring to an owner of Pledged
Securities or any part
<PAGE>
7
thereof for any purpose consistent with the terms of this Agreement, the
Credit Agreement and the other Loan Documents; provided, however, that such
Pledgor will not be entitled to exercise any such right if the result
thereof could materially and adversely affect the rights inuring to a
holder of the Pledged Securities or the rights and remedies of any of the
Secured Parties under this Agreement or the Credit Agreement or any other
Loan Document or the ability of the Secured Parties to exercise the same.
(ii) The Collateral Agent shall execute and deliver to each Pledgor,
or cause to be executed and delivered to each Pledgor, all such proxies,
powers of attorney and other instruments as such Pledgor may reasonably
request for the purpose of enabling such Pledgor to exercise the voting
and/or consensual rights and powers it is entitled to exercise pursuant to
subparagraph (i) above and to receive the cash dividends it is entitled to
receive pursuant to subparagraph (iii) below.
(iii) Each Pledgor shall be entitled to receive and retain any and all
cash dividends, interest and principal paid on the Pledged Securities to
the extent and only to the extent that such cash dividends, interest and
principal are permitted by, and otherwise paid in accordance with, the
terms and conditions of the Credit Agreement, the other Loan Documents and
applicable laws. If an Event of Default shall have occurred and be
continuing, all noncash dividends, interest and principal, and all
dividends, interest and principal paid or payable in cash or otherwise in
connection with a partial or total liquidation or dissolution, return of
capital, capital surplus or paid-in surplus, and all other distributions
(other than distributions referred to in the preceding sentence) made on or
in respect of the Pledged Securities, whether paid or payable in cash or
otherwise, whether resulting from a subdivision, combination or
reclassification of the outstanding capital stock of the issuer of any
Pledged Securities or received in exchange for Pledged Securities or any
part thereof, or in redemption thereof, or as a result of any merger,
consolidation, acquisition or other exchange of assets to which such issuer
may be a party or otherwise, shall be and become part of the Collateral,
and, if received by any Pledgor, shall not be commingled by such Pledgor
with any of its other funds or property but shall
<PAGE>
8
be held separate and apart therefrom, shall be held in trust for the
benefit of the Collateral Agent and shall be forthwith delivered to the
Collateral Agent in the same form as so received (with any necessary
endorsement).
(b) Upon the occurrence and during the continuance of an Event of Default,
all rights of any Pledgor to dividends, interest or principal that such Pledgor
is authorized to receive pursuant to paragraph (a)(iii) above shall cease, and
all such rights shall thereupon become vested in the Collateral Agent, which
shall have the sole and exclusive right and authority to receive and retain such
dividends, interest or principal. All dividends, interest or principal received
by the Pledgor contrary to the provisions of this Section 5 shall be held in
trust for the benefit of the Collateral Agent, shall be segregated from other
property or funds of such Pledgor and shall be forthwith delivered to the
Collateral Agent upon demand in the same form as so received (with any necessary
endorsement). Any and all money and other property paid over to or received by
the Collateral Agent pursuant to the provisions of this paragraph (b) shall be
retained by the Collateral Agent in an account to be established by the
Collateral Agent upon receipt of such money or other property and shall be
applied in accordance with the provisions of Section 7. After all Events of
Default have been cured or waived, the Collateral Agent shall, within five
Business Days after all such Events of Default have been cured or waived, repay
to each Pledgor all cash dividends, interest or principal (without interest),
that such Pledgor would otherwise be permitted to retain pursuant to the terms
of paragraph (a)(iii) above and which remain in such account.
(c) Upon the occurrence and during the continuance of an Event of Default,
all rights of any Pledgor to exercise the voting and consensual rights and
powers it is entitled to exercise pursuant to paragraph (a)(i) of this Section
5, and the obligations of the Collateral Agent under paragraph (a)(ii) of this
Section 5, shall cease, and all such rights shall thereupon become vested in the
Collateral Agent, which shall have the sole and exclusive right and authority to
exercise such voting and consensual rights and powers in a manner not
inconsistent with the terms of this Agreement, provided that, unless otherwise
directed by the Required Lenders, the Collateral Agent shall have the right from
time to time following and during the continuance of an Event of Default to
permit the Pledgors to
<PAGE>
9
exercise such rights. After all Events of Default have been cured or waived,
such Pledgor will have the right to exercise the voting and consensual rights
and powers that it would otherwise be entitled to exercise pursuant to the terms
of paragraph (a)(i) above.
SECTION 6. Remedies upon Default. Upon the occurrence and during the
continuance of an Event of Default, subject to applicable regulatory and legal
requirements, the Collateral Agent may sell the Collateral, or any part thereof,
at public or private sale or at any broker's board or on any securities
exchange, for cash, upon credit or for future delivery as the Collateral Agent
shall deem appropriate subject to applicable law and standards of commercial
reasonableness. The Collateral Agent shall be authorized at any such sale (if
it deems it advisable to do so) to restrict the prospective bidders or
purchasers to Persons who will represent and agree that they are purchasing the
Collateral for their own account for investment and not with a view to the
distribution or sale thereof, and upon consummation of any such sale the
Collateral Agent shall have the right to assign, transfer and deliver to the
purchaser or purchasers thereof the Collateral so sold. Each such purchaser at
any such sale shall hold the property sold absolutely free from any claim or
right on the part of any Pledgor, and, to the extent permitted by applicable
law, the Pledgors hereby waive all rights of redemption, stay, valuation and
appraisal any Pledgor now has or may at any time in the future have under any
rule of law or statute now existing or hereafter enacted.
The Collateral Agent shall give a Pledgor 10 days' prior written notice
(which each Pledgor agrees is reasonable notice within the meaning of Section 9-
504(3) of the Uniform Commercial Code as in effect in the State of New York or
its equivalent in other jurisdictions) of the Collateral Agent's intention to
make any sale of such Pledgor's Collateral. Such notice, in the case of a public
sale, shall state the time and place for such sale and, in the case of a sale at
a broker's board or on a securities exchange, shall state the board or exchange
at which such sale is to be made and the day on which the Collateral, or portion
thereof, will first be offered for sale at such board or exchange. Any such
public sale shall be held at such time or times within ordinary business hours
and at such place or places as the Collateral Agent may fix and state in the
notice of such sale. At any such sale, the Collateral, or portion thereof, to
<PAGE>
10
be sold may be sold in one lot as an entirety or in separate parcels, as the
Collateral Agent may (in its sole and absolute discretion) determine. The
Collateral Agent shall not be obligated to make any sale of any Collateral if it
shall determine not to do so, regardless of the fact that notice of sale of such
Collateral shall have been given. The Collateral Agent may, without notice or
publication, adjourn any public or private sale or cause the same to be
adjourned from time to time by announcement at the time and place fixed for
sale, and such sale may, without further notice, be made at the time and place
to which the same was so adjourned. In case any sale of all or any part of the
Collateral is made on credit or for future delivery, the Collateral so sold may
be retained by the Collateral Agent until the sale price is paid in full by the
purchaser or purchasers thereof, but the Collateral Agent shall not incur any
liability in case any such purchaser or purchasers shall fail to take up and pay
for the Collateral so sold and, in case of any such failure, such Collateral may
be sold again upon like notice. For purposes hereof, (a) a written agreement to
purchase the Collateral or any portion thereof shall be treated as a sale
thereof, (b) the Collateral Agent shall be free to carry out such sale pursuant
to such agreement and (c) such Pledgor shall not be entitled to the return of
the Collateral or any portion thereof subject thereto, notwithstanding the fact
that after the Collateral Agent shall have entered into such an agreement all
Events of Default shall have been remedied and the Obligations paid in full. As
an alternative to exercising the power of sale herein conferred upon it, the
Collateral Agent may proceed by a suit or suits at law or in equity to foreclose
upon the Collateral and to sell the Collateral or any portion thereof pursuant
to a judgment or decree of a court or courts having competent jurisdiction or
pursuant to a proceeding by a court-appointed receiver. Any sale pursuant to the
provisions of this Section 6 shall be deemed to conform to the commercially
reasonable standards as provided in Section 9-504(3) of the Uniform Commercial
Code as in effect in the State of New York or its equivalent in other
jurisdictions.
SECTION 7. Application of Proceeds of Sale. The proceeds of any sale of
Collateral pursuant to Section 6, as well as any Collateral consisting of cash,
shall be applied promptly by the Collateral Agent after receipt thereof as
follows:
FIRST, to the payment of all costs and expenses incurred by the
Collateral Agent in connection with such
<PAGE>
11
sale or otherwise in connection with this Agreement, any other Loan
Document or any of the Obligations, including all court costs and the
reasonable fees and expenses of its agents and legal counsel, the repayment
of all advances made by the Collateral Agent hereunder or under any other
Loan Document on behalf of any Pledgor and any other costs or expenses
incurred in connection with the exercise of any right or remedy hereunder
or under any other Loan Document;
SECOND, to the payment in full of the Obligations (the amounts so
applied to be distributed among the Secured Parties pro rata in accordance
with the amounts of the Obligations owed to them on the date of any such
distribution); and
THIRD, to the Pledgors, their successors or assigns, or as a court of
competent jurisdiction may otherwise direct.
The Collateral Agent shall have absolute discretion as to the time of
application of any such proceeds, moneys or balances in accordance with this
Agreement. Upon any sale of the Collateral by the Collateral Agent (including
pursuant to a power of sale granted by statute or under a judicial proceeding),
the receipt of the purchase money by the Collateral Agent or of the officer
making the sale shall be a sufficient discharge to the purchaser or purchasers
of the Collateral so sold and such purchaser or purchasers shall not be
obligated to see to the application of any part of the purchase money paid over
to the Collateral Agent or such officer or be answerable in any way for the
misapplication thereof.
SECTION 8. Reimbursement of Collateral Agent. (a) Each Pledgor agrees to
pay upon demand to the Collateral Agent the amount of any and all reasonable
expenses, including the reasonable fees, other charges and disbursements of its
counsel and of any experts or agents, that the Collateral Agent may incur in
connection with (i) the administration of this Agreement, (ii) the custody or
preservation of, or the sale of, collection from, or other realization upon, any
of the Collateral, (iii) the exercise or enforcement of any of the rights of the
Collateral Agent hereunder or (iv) the failure by such Pledgor to perform or
observe any of the provisions hereof.
<PAGE>
12
(b) Without limitation of its indemnification obligations under the
other Loan Documents, each Pledgor agrees to indemnify the Collateral Agent and
the Indemnitees (as defined in Section 9.03(b) of the Credit Agreement) against,
and hold each Indemnitee harmless from, any and all losses, claims, damages,
liabilities and related expenses, including reasonable counsel fees, other
charges and disbursements, incurred by or asserted against any Indemnitee
arising out of, in any way connected with, or as a result of (i) the execution
or delivery of this Agreement or any other Loan Document or any agreement or
instrument contemplated hereby or thereby, the performance by the parties hereto
of their respective obligations thereunder or the consummation of the
Transactions and the other transactions contemplated thereby or (ii) any claim,
litigation, investigation or proceeding relating to any of the foregoing,
whether or not any Indemnitee is a party thereto, provided that such indemnity
shall not, as to any Indemnitee, be available to the extent that such losses,
claims, damages, liabilities or related expenses are determined by a court of
competent jurisdiction by a final judgment which has not been overturned or
vacated on appeal to have resulted from the gross negligence or wilful
misconduct of such Indemnitee.
(c) Any amounts payable as provided hereunder shall be additional
Obligations secured hereby and by the other Security Documents. The provisions
of this Section 8 shall remain operative and in full force and effect regardless
of the termination of this Agreement, the consummation of the transactions
contemplated hereby, the repayment of any of the Obligations, the invalidity or
unenforceability of any term or provision of this Agreement or any other Loan
Document or any investigation made by or on behalf of the Collateral Agent or
any other Secured Party. All amounts due under this Section 8 shall be payable
on written demand therefor and, if not paid within five Business Days after
written demand for payment is received by Pledgor from the Collateral Agent,
shall bear interest at the rate specified in Section 2.11(c) of the Credit
Agreement.
SECTION 9. Collateral Agent Appointed Attorney-in-Fact. Each Pledgor
hereby appoints the Collateral Agent, effective during the continuance of any
Event of Default, the attorney-in-fact of such Pledgor for the purpose of
carrying out the provisions of this Agreement and taking any action and
executing any instrument that the Collateral Agent may deem necessary or
<PAGE>
13
advisable to accomplish the purposes hereof, which appointment is irrevocable
and coupled with an interest. Without limiting the generality of the foregoing,
the Collateral Agent shall have the right, upon the occurrence and during the
continuance of an Event of Default, with full power of substitution either in
the Collateral Agent's name or in the name of such Pledgor, to ask for, demand,
sue for, collect, receive and give acquittance for any and all moneys due or to
become due under and by virtue of any Collateral, to endorse checks, drafts,
orders and other instruments for the payment of money payable to the Pledgor
representing any interest or dividend or other distribution payable in respect
of the Collateral or any part thereof or on account thereof and to give full
discharge for the same, to settle, compromise, prosecute or defend any action,
claim or proceeding with respect thereto, and to sell, assign, endorse, pledge,
transfer and to make any agreement respecting, or otherwise deal with, the same,
in each case in a manner not inconsistent with the terms of this Agreement;
provided, however, that nothing herein contained shall be construed as requiring
or obligating the Collateral Agent to make any commitment or to make any inquiry
as to the nature or sufficiency of any payment received by the Collateral Agent,
or to present or file any claim or notice, or to take any action with respect to
the Collateral or any part thereof or the moneys due or to become due in respect
thereof or any property covered thereby. The Collateral Agent and the other
Secured Parties shall be accountable only for amounts actually received as a
result of the exercise of the powers granted to them herein, and neither they
nor their officers, directors, employees or agents shall be responsible to any
Pledgor for any act or failure to act hereunder, except for their own gross
negligence or wilful misconduct.
SECTION 10. Waivers; Amendment. (a) No failure or delay of the
Collateral Agent in exercising any power or right hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right or
power, or any abandonment or discontinuance of steps to enforce such a right or
power, preclude any other or further exercise thereof or the exercise of any
other right or power. The rights and remedies of the Collateral Agent hereunder
and of the other Secured Parties under the other Loan Documents are cumulative
and are not exclusive of any rights or remedies that they would otherwise have.
No waiver of any provisions of this Agreement or consent to any departure by any
Pledgor therefrom shall in
<PAGE>
14
any event be effective unless the same shall be permitted by paragraph (b)
below, and then such waiver or consent shall be effective only in the specific
instance and for the purpose for which given. No notice or demand on any Pledgor
in any case shall entitle such Pledgor to any other or further notice or demand
in similar or other circumstances.
(b) Neither this Agreement nor any provision hereof may be waived,
amended or modified except pursuant to a written agreement entered into between
the Collateral Agent and the Pledgor or Pledgors with respect to which such
waiver, amendment or modification is to apply, subject to any consent required
in accordance with Section 9.02 of the Credit Agreement.
SECTION 11. Securities Act, etc. In view of the position of the
Pledgors in relation to the Pledged Securities, or because of other current or
future circumstances, a question may arise under the Securities Act of 1933, as
now or hereafter in effect, or any similar statute hereafter enacted analogous
in purpose or effect (such Act and any such similar statute as from time to time
in effect being called the "Federal Securities Laws") with respect to any
disposition of the Pledged Securities permitted hereunder. Each Pledgor
understands that compliance with the Federal Securities Laws might very strictly
limit the course of conduct of the Collateral Agent if the Collateral Agent were
to attempt to dispose of all or any part of the Pledged Securities, and might
also limit the extent to which or the manner in which any subsequent transferee
of any Pledged Securities could dispose of the same. Similarly, there may be
other legal restrictions or limitations affecting the Collateral Agent in any
attempt to dispose of all or part of the Pledged Securities under applicable
Blue Sky or other state securities laws or similar laws analogous in purpose or
effect. Each Pledgor recognizes that in light of such restrictions and
limitations the Collateral Agent may, with respect to any sale of the Pledged
Securities, limit the purchasers to those who will agree, among other things, to
acquire such Pledged Securities for their own account, for investment, and not
with a view to the distribution or resale thereof. Each Pledgor acknowledges
and agrees that in light of such restrictions and limitations, the Collateral
Agent, in its sole and absolute discretion, (a) may proceed to make such a sale
whether or not a registration statement for the purpose of registering such
Pledged Securities or part thereof shall have been filed under the Federal
Securities Laws and (b) may approach and negotiate
<PAGE>
15
with a single potential purchaser to effect such sale. Each Pledgor acknowledges
and agrees that any such sale might result in prices and other terms less
favorable to the seller than if such sale were a public sale without such
restrictions. In the event of any such sale, the Collateral Agent shall incur no
responsibility or liability for selling all or any part of the Pledged
Securities at a price that the Collateral Agent, in its sole and absolute
discretion, may in good faith deem reasonable under the circumstances,
notwithstanding the possibility that a substantially higher price might have
been realized if the sale were deferred until after registration as aforesaid or
if more than a single purchaser were approached. The provisions of this Section
11 will apply notwithstanding the existence of a public or private market upon
which the quotations or sales prices may exceed substantially the price at which
the Collateral Agent sells.
SECTION 12. Registration, etc. Each Pledgor agrees that, upon the
occurrence and during the continuance of an Event of Default hereunder, if for
any reason the Collateral Agent desires to sell any of the Pledged Securities of
the Borrower at a public sale, it will, at any time and from time to time, upon
the written request of the Collateral Agent, use its best efforts to take or to
cause the issuer of such Pledged Securities to take such action and prepare,
distribute and/or file such documents, as are required or advisable in the
reasonable opinion of counsel for the Collateral Agent to permit the public sale
of such Pledged Securities. Each Pledgor further agrees to indemnify, defend
and hold harmless the Collateral Agent, each other Secured Party, any
underwriter and their respective officers, directors, affiliates and controlling
Persons from and against all loss, liability, expenses, costs of counsel
(including, without limitation, reasonable fees and expenses to the Collateral
Agent of legal counsel), and claims (including the costs of investigation) that
they may incur insofar as such loss, liability, expense or claim arises out of
or is based upon any alleged untrue statement of a material fact contained in
any prospectus (or any amendment or supplement thereto) or in any notification
or offering circular, or arises out of or is based upon any alleged omission to
state a material fact required to be stated therein or necessary to make the
statements in any thereof not misleading, except insofar as the same may have
been caused by any untrue statement or omission based upon information furnished
in writing to such Pledgor or the issuer of such Pledged Securities by the
Collateral Agent or
<PAGE>
16
any other Secured Party expressly for use therein. Each Pledgor further agrees,
upon such written request referred to above, to use its best efforts to qualify,
file or register, or cause the issuer of such Pledged Securities to qualify,
file or register, any of the Pledged Securities under the Blue Sky or other
securities laws of such states as may be requested by the Collateral Agent and
keep effective, or cause to be kept effective, all such qualifications, filings
or registrations. Each Pledgor will bear all costs and expenses of carrying out
its obligations under this Section 12. Each Pledgor acknowledges that there is
no adequate remedy at law for failure by it to comply with the provisions of
this Section 12 and that such failure would not be adequately compensable in
damages, and therefore agrees that its agreements contained in this Section 12
may be specifically enforced.
SECTION 13. Security Interest Absolute. All rights of the Collateral
Agent hereunder, the grant of a security interest in the Collateral and all
obligations of each Pledgor hereunder, shall be absolute and unconditional
irrespective of (a) any lack of validity or enforceability of the Credit
Agreement, any other Loan Document, any agreement with respect to any of the
Obligations or any other agreement or instrument relating to any of the
foregoing, (b) any change in the time, manner or place of payment of, or in any
other term of, all or any of the Obligations, or any other amendment or waiver
of or any consent to any departure from the Credit Agreement, any other Loan
Document or any other agreement or instrument relating to any of the foregoing,
(c) any exchange, release or nonperfection of any other collateral, or any
release or amendment or waiver of or consent to or departure from any guaranty,
for all or any of the Obligations or (d) any other circumstance that might
otherwise constitute a defense available to, or a discharge of, any Pledgor in
respect of the Obligations or in respect of this Agreement (other than the
indefeasible payment in full of all the Obligations).
SECTION 14. Termination or Release. (a) This Agreement and the
security interests granted hereby shall terminate when all the Obligations have
been indefeasibly paid in full and the Lenders have no further commitment to
lend under the Credit Agreement, the LC Exposure has been reduced to zero and
the Issuing Bank has no further obligation to issue Letters of Credit under the
Credit Agreement.
<PAGE>
17
(b) Upon any sale or other transfer by any Pledgor of any Collateral
that is permitted under the Credit Agreement to any Person that is not a
Pledgor, or, upon the effectiveness of any written consent to the release of the
security interest granted hereby in any Collateral pursuant to Section 9.02(b)
of the Credit Agreement, the security interest in such Collateral shall be
automatically released.
(c) In connection with any termination or release pursuant to
paragraph (a) or (b), the Collateral Agent shall execute and deliver to any
Pledgor, at such Pledgor's expense, all documents that such Pledgor shall
reasonably request to evidence such termination or release. Any execution and
delivery of documents pursuant to this Section 14 shall be without recourse to
or warranty by the Collateral Agent (except to the extent that any losses,
claims, damages, liabilities or related expenses are determined by a court of
competent jurisdiction by final and nonappealable judgment to have resulted from
the gross negligence or wilful misconduct of the Collateral Agent).
SECTION 15. Notices. All communications and notices hereunder shall
be in writing and given as provided in Section 9.01 of the Credit Agreement.
All communications and notices hereunder to any Subsidiary Pledgor shall be
given to it in care of the Borrower at the address set forth in the Credit
Agreement.
SECTION 16. Further Assurances. Each Pledgor agrees to do such
further acts and things, and to execute and deliver such additional conveyances,
assignments, agreements and instruments, as the Collateral Agent may at any time
reasonably request in connection with the administration and enforcement of this
Agreement or with respect to the Collateral or any part thereof or in order
better to assure and confirm unto the Collateral Agent its rights and remedies
hereunder.
SECTION 17. Binding Effect; Several Agreement; Assignments. 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 agreements by or on behalf of any Pledgor that are
contained in this Agreement shall bind and inure to the benefit of its
successors and assigns. This Agreement shall become effective as to any Pledgor
when a counterpart hereof executed on behalf of such Pledgor shall have been
delivered to the
<PAGE>
18
Collateral Agent and a counterpart hereof shall have been executed on behalf of
the Collateral Agent, and thereafter shall be binding upon such Pledgor and the
Collateral Agent and their respective successors and assigns, and shall inure to
the benefit of such Pledgor, the Collateral Agent and the other Secured Parties,
and their respective successors and assigns, except that no Pledgor shall have
the right to assign its rights hereunder or any interest herein or in the
Collateral (and any such attempted assignment shall be void), except as
expressly contemplated by this Agreement or the other Loan Documents. If all of
the capital stock of a Pledgor is sold, transferred or otherwise disposed of to
a Person that is not a Subsidiary Loan Party pursuant to a transaction permitted
by Section 6.06 of the Credit Agreement, such Pledgor shall be released from its
obligations under this Agreement without further action. This Agreement shall be
construed as a separate agreement with respect to each Pledgor and may be
amended, modified, supplemented, waived or released with respect to any Pledgor
without the approval of any other Pledgor and without affecting the obligations
of any other Pledgor hereunder.
SECTION 18. Survival of Agreement; Severability. (a) All covenants,
agreements, representations and warranties made by each Pledgor herein and in
the certificates or other instruments prepared or delivered in connection with
or pursuant to this Agreement or any other Loan Document shall be considered to
have been relied upon by the Collateral Agent and the other Secured Parties and
shall survive the making by the Lenders of the Loans and the issuance of the
Letters of Credit by the Issuing Bank, regardless of any investigation made by
the Secured Parties or on their behalf, and shall continue in full force and
effect as long as the principal of or any accrued interest on any Loan or any
other fee or amount payable under this Agreement or any other Loan Document is
outstanding and unpaid or the LC Exposure does not equal zero and as long as the
Commitments and the LC Commitment have not been terminated.
(b) In the event any one or more of the provisions contained in this
Agreement should be held invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby (it being understood
that the invalidity of a particular provision in a particular jurisdiction shall
not in and of itself affect the validity of such provision in any other
jurisdiction). The
<PAGE>
19
parties shall endeavor in good-faith negotiations to replace the invalid,
illegal or unenforceable provisions with valid provisions the economic effect of
which comes as close as possible to that of the invalid, illegal or
unenforceable provisions.
SECTION 19. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 20. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall constitute an original, but all of which,
when taken together, shall constitute a single contract, and shall become
effective as provided in Section 17. Delivery of an executed counterpart of a
signature page to this Agreement by facsimile transmission shall be as effective
as delivery of a manually executed counterpart of this Agreement.
SECTION 21. Rules of Interpretation. The rules of interpretation
specified in Section 1.03 of the Credit Agreement shall be applicable to this
Agreement. Section headings used herein are for convenience of reference only,
are not part of this Agreement and are not to affect the construction of, or to
be taken into consideration in interpreting this Agreement.
SECTION 22. Jurisdiction; Consent to Service of Process. (a) Each
Pledgor hereby irrevocably and unconditionally submits, for itself and its
property, to the nonexclusive jurisdiction of the Supreme Court of the State of
New York sitting in New York County and of the United States District Court of
the Southern District of New York, and any appellate court from any thereof, in
any action or proceeding arising out of or relating to any Loan Document, or for
recognition or enforcement of any judgment, and each of the parties hereto
hereby irrevocably and unconditionally agrees that all claims in respect of any
such action or proceeding may be heard and determined in such New York State or,
to the extent permitted by law, in such Federal court. Each of the parties
hereto agrees that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment or
in any other manner provided by law. Nothing in this Agreement or any other
Loan Document shall affect any right that the Collateral Agent or any other
Secured Party may otherwise have to bring any action or
<PAGE>
20
proceeding relating to this Agreement or any other Loan Document against any
Pledgor or its properties in the courts of any jurisdiction.
(b) Each Pledgor hereby irrevocably and unconditionally waives, to
the fullest extent it may legally and effectively do so, any objection that it
may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this Agreement or the other Loan
Documents in any New York State or Federal court. Each of the parties hereto
hereby irrevocably waives, to the fullest extent permitted by law, the defense
of an inconvenient forum to the maintenance of such action or proceeding in any
such court.
(c) Each party to this Agreement irrevocably consents to service of
process in the manner provided for notices in Section 15. Nothing in this
Agreement will affect the right of any party to this Agreement to serve process
in any other manner permitted by law.
SECTION 23. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES,
TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A
TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT
OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT. EACH PARTY HERETO (A) CERTIFIES
THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT
AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY,
AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
SECTION 24. Additional Pledgors. Pursuant to Section 5.13 of the
Credit Agreement, each Subsidiary Loan Party of the Borrower that was not in
existence or not a Subsidiary Loan Party on the date of the Credit Agreement is
required to enter in this Agreement as a Subsidiary Pledgor upon becoming a
Subsidiary Loan Party if such Subsidiary owns or possesses property of a type
that would be considered Collateral hereunder. Upon execution and delivery by
the Collateral Agent and a Subsidiary Loan Party of an instrument in the form of
Annex 1, such Subsidiary Loan Party shall become a Subsidiary Pledgor hereunder
with the same force and effect as if originally named as a Subsidiary Pledgor
herein. The execution and delivery of such instrument shall not require the
consent of
<PAGE>
21
any Pledgor hereunder. The rights and obligations of each Pledgor hereunder
shall remain in full force and effect notwithstanding the addition of any new
Subsidiary Pledgor as a party to this Agreement. This Agreement may be waived,
amended or modified with respect to any one or more Pledgors and any one or more
Pledgors may be released from its obligations hereunder without the consent or
agreement of any other Pledgor.
SECTION 25. Execution of Financing Statements. Pursuant to Section
9-402 of the Uniform Commercial Code as in effect in the State of New York, each
Pledgor authorizes the Collateral Agent to file financing statements with
respect to the Collateral owned by it without the signature of such Pledgor in
such form and in such filing offices as the Collateral Agent reasonably
determines appropriate to perfect the security interests of the Collateral Agent
under this Agreement. A carbon, photographic or other reproduction of this
Agreement shall be sufficient as a financing statement for filing in any
jurisdiction.
<PAGE>
22
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
PSINET INC.,
By /s/ William L. Schrader
--------------------------
Name: William L. Schrader
Title: Chairman
PSIWEB INC.,
By /s/ William L. Schrader
------------------------
Name: William L. Schrader
Title: Chairman
PSINET SECURITY SERVICES INC.,
By /s/ William L. Schrader
------------------------
Name: William L. Schrader
Title: Chairman
PSINET NORTH AMERICA HOLDINGS INC.,
By /s/ William L. Schrader
------------------------
Name: William L. Schrader
Title: President
IONET, INC.,
By /s/ William L. Schrader
------------------------
Name: William L. Schrader
Title: Chairman
<PAGE>
23
PSINETWORKS COMPANY,
By /s/ William L. Schrader
------------------------
Name: William L. Schrader
Title: Chairman
TELECOM LICENSING INC.,
By /s/ William L. Schrader
------------------------
Name: William L. Schrader
Title: President
PSINET ASIA HOLDINGS INC.,
By /s/ William L. Schrader
------------------------
Name: William L. Schrader
Title: Chairman
THE CHASE MANHATTAN BANK, as Collateral Agent,
By /s/ Mitchell Gervis
------------------------
Name: Mitchell Gervis
Title: Vice President
<PAGE>
EXHIBIT 2.5
EXECUTION COPY
SECURITY AGREEMENT dated as of September 29, 1998, among PSINET INC., a New
York corporation (the "Borrower"), each subsidiary of the Borrower listed on
Schedule I hereto (each such subsidiary individually a "Guarantor" and,
collectively, the "Guarantors"; the Guarantors and the Borrower are referred to
collectively herein as the "Grantors") and THE CHASE MANHATTAN BANK, a New York
banking corporation ("Chase"), as collateral agent (in such capacity, the
"Collateral Agent") for the Secured Parties (as defined herein).
Reference is made to (a) the Credit Agreement dated as of September 29,
1998 (as amended, supplemented or otherwise modified from time to time, the
"Credit Agreement"), among the Borrower, the lenders from time to time party
thereto (the "Lenders"), Chase, as administrative agent for the Lenders (in such
capacity, the "Administrative Agent") Fleet National Bank, as Syndication Agent
and The Bank of New York, as Documentation Agent, and (b) the Guarantee
Agreement dated as of September 29, 1998 (as amended, supplemented or otherwise
modified from time to time, the "Guarantee Agreement"), among the Guarantors and
the Collateral Agent.
The Lenders have agreed to make Loans to the Borrower and the Issuing Bank
has agreed to issue Letters of Credit for the account of the Borrower, pursuant
to, and upon the terms and subject to the conditions specified in, the Credit
Agreement. Each of the Guarantors has agreed to guarantee, among other things,
all the obligations of the Borrower under the Credit Agreement. The obligations
of the Lenders to make Loans and of the Issuing Banks to issue Letters of Credit
are conditioned upon, among other things, the execution and delivery by the
Grantors of an agreement in the form hereof to secure (a) the due and punctual
payment by the Borrower of (i) the principal of and premium, if any, and
interest (including interest accruing during the pendency of any bankruptcy,
insolvency, receivership or other similar proceeding, regardless of whether
allowed or allowable in such proceeding) on the Loans, when and as due, whether
at maturity, by acceleration, upon one or more dates set for prepayment or
otherwise, (ii) each payment required to be made by the Borrower under the
Credit Agreement in respect of any Letter of Credit, when and as due, including
payments in respect of reimbursement of disbursements, interest thereon
<PAGE>
2
and obligations to provide cash collateral and (iii) all other monetary
obligations, including fees, costs, expenses and indemnities, whether primary,
secondary, direct, contingent, fixed or otherwise (including monetary
obligations incurred during the pendency of any bankruptcy, insolvency,
receivership or other similar proceeding, regardless of whether allowed or
allowable in such proceeding), of the Loan Parties to the Secured Parties under
the Credit Agreement and the other Loan Documents, (b) the due and punctual
performance of all covenants, agreements, obligations and liabilities of the
Loan Parties under or pursuant to the Credit Agreement and the other Loan
Documents, (c) the due and punctual payment and performance of all obligations
of the Borrower, monetary or otherwise, under each Hedging Agreement entered
into with a counterparty that was a Lender or an Affiliate of a Lender at the
time such Hedging Agreement was entered into and (d) each payment required to be
made in respect of any non-dollar denominated letters of credit issued for the
account of the Borrower by Fleet National Bank, when and as due, including
payments in respect of reimbursement of disbursements, interest thereon and
obligations to provide cash collateral (all the monetary and other obligations
described in the preceding clauses (a) through (d) being collectively called the
"Obligations").
Accordingly, the Grantors and the Collateral Agent, on behalf of
itself and each Secured Party (and each of their respective successors or
assigns), hereby agree as follows:
ARTICLE I
Definitions
SECTION 1.01. Definition of Terms Used Herein. Unless the context
otherwise requires, all capitalized terms used but not defined herein shall have
the meanings set forth in the Credit Agreement.
SECTION 1.02. Definition of Certain Terms Used Herein. As used herein,
the following terms shall have the following meanings:
"Account Debtor" shall mean any Person who is or who may become obligated
to any Grantor under, with respect to or on account of an Account.
<PAGE>
3
"Accounts" shall mean any and all right, title and interest of any Grantor
to payment for goods and services sold or leased, including any such right
evidenced by chattel paper, whether due or to become due, whether or not it has
been earned by performance, and whether now or hereafter acquired or arising in
the future, including accounts receivable from Affiliates of the Grantors.
"Accounts Receivable" shall mean all Accounts and all right, title and
interest in any returned goods, together with all rights, titles, securities and
guarantees with respect thereto, including any rights to stoppage in transit,
replevin, reclamation and resales, and all related security interests, liens and
pledges, whether voluntary or involuntary, in each case whether now existing or
owned or hereafter arising or acquired.
"Collateral" shall mean all (a) Accounts Receivable, (b) Documents, (c)
Equipment, (d) General Intangibles, (e) Inventory, (f) cash and cash accounts,
(g) Investment Property and (h) Proceeds, but shall exclude the Excluded
Collateral.
"Commodity Account" shall mean an account maintained by a Commodity
Intermediary in which a Commodity Contract is carried out for a Commodity
Customer.
"Commodity Contract" shall mean a commodity futures contract, an option on
a commodity futures contract, a commodity option or any other contract that, in
each case, is (a) traded on or subject to the rules of a board of trade that has
been designated as a contract market for such a contract pursuant to the federal
commodities laws or (b) traded on a foreign commodity board of trade, exchange
or market, and is carried on the books of a Commodity Intermediary for a
Commodity Customer.
"Commodity Customer" shall mean a Person for whom a Commodity Intermediary
carries a Commodity Contract on its books.
"Commodity Intermediary" shall mean (a) a Person who is registered as a
futures commission merchant under the federal commodities laws or (b) a Person
who in the ordinary course of its business provides clearance or settlement
services for a board of trade that has been
<PAGE>
4
designated as a contract market pursuant to federal commodities laws.
"Copyright License" shall mean any written agreement, now or hereafter in
effect, granting any right to any third party under any Copyright now or
hereafter owned by any Grantor or which such Grantor otherwise has the right to
license, or granting any right to such Grantor under any Copyright now or
hereafter owned by any third party, and all rights of such Grantor under any
such agreement.
"Copyrights" shall mean all of the following now owned or hereafter
acquired by any Grantor: (a) all copyright rights in any work subject to the
copyright laws of the United States or any other country, whether as author,
assignee, transferee or otherwise, and (b) all registrations and applications
for registration of any such copyright in the United States or any other
country, including registrations, recordings, supplemental registrations and
pending applications for registration in the United States Copyright Office,
including those listed on Schedule II.
"Credit Agreement" shall have the meaning assigned to such term in the
preliminary statement of this Agreement.
"Documents" shall mean all instruments, files, records, ledger sheets and
documents covering or relating to any of the Collateral.
"Entitlement Holder" shall mean a Person identified in the records of a
Securities Intermediary as the Person having a Security Entitlement against the
Securities Intermediary. If a Person acquires a Security Entitlement by virtue
of Section 8-501(b)(2) or (3) of the Uniform Commercial Code, such Person is the
Entitlement Holder.
"Equipment" shall mean all equipment, furniture and furnishings, and all
tangible personal property similar to any of the foregoing, including tools,
parts and supplies of every kind and description, and all improvements,
accessions or appurtenances thereto, that are now or hereafter owned by any
Grantor. The term Equipment shall include Fixtures.
"Excluded Collateral" shall mean any Collateral which (a) is subject to a
Lien permitted by Section 6.02 of the Credit Agreement if and to the extent the
terms of such
<PAGE>
5
permitted Lien prohibit the Grantor from granting a Lien on the assets or
properties the subject of such permitted Lien or on Grantor's rights under the
agreement to which such permitted Lien relates or (b) is the subject of any
license, lease or other agreement which by its terms prohibit Grantor from
granting a Lien on the assets or properties the subject thereof or on Grantor's
rights as lessee or licensee thereunder.
"Financial Asset" shall mean (a) a Security, (b) an obligation of a Person
or a share, participation or other interest in a Person or in property or an
enterprise of a Person, which is, or is of a type, dealt with in or traded on
financial markets, or which is recognized in any area in which it is issued or
dealt in as a medium for investment or (c) any property that is held by a
Securities Intermediary for another Person in a Securities Account if the
Securities Intermediary has expressly agreed with the other Person that the
property is to be treated as a Financial Asset under Article 8 of the Uniform
Commercial Code. As the context requires, the term Financial Asset shall mean
either the interest itself or the means by which a Person's claim to it is
evidenced, including a certificated or uncertificated Security, a certificate
representing a Security or a Security Entitlement.
"Fixtures" shall mean all items of Equipment, whether now owned or
hereafter acquired, of any Grantor that become so related to particular real
estate that an interest in them arises under any real estate law applicable
thereto.
"General Intangibles" shall mean all choses in action and causes of action
and all other assignable intangible personal property of any Grantor of every
kind and nature (other than Accounts Receivable) now owned or hereafter acquired
by any Grantor, including corporate or other business records, indemnification
claims, contract rights (including rights under leases, whether entered into as
lessor or lessee, Hedging Agreements and other agreements), Intellectual
Property, goodwill, registrations, franchises, tax refund claims and any letter
of credit, guarantee, claim, security interest or other security held by or
granted to any Grantor to secure payment by an Account Debtor of any of the
Accounts Receivable.
"Intellectual Property" shall mean all intellectual and similar property of
any Grantor of every kind and
<PAGE>
6
nature now owned or hereafter acquired by any Grantor, including inventions,
designs, Patents, Copyrights, Licenses, Trademarks, trade secrets, confidential
or proprietary technical and business information, know-how, show-how or other
data or information, software and databases and all embodiments or fixations
thereof and related documentation, registrations and franchises, and all
additions, improvements and accessions to, and books and records describing or
used in connection with, any of the foregoing.
"Inventory" shall mean all goods of any Grantor, whether now owned or
hereafter acquired, held for sale or lease, or furnished or to be furnished by
any Grantor under contracts of service, or consumed in any Grantor's business,
including raw materials, intermediates, work in process, packaging materials,
finished goods, semi-finished inventory, scrap inventory, manufacturing supplies
and spare parts, and all such goods that have been returned to or repossessed by
or on behalf of any Grantor.
"Investment Property" shall mean all Securities (whether certificated or
uncertificated), Security Entitlements, Securities Accounts, Commodity Contracts
and Commodity Accounts of any Grantor, whether now owned or hereafter acquired
by any Grantor.
"License" shall mean any Patent License, Trademark License, Copyright
License or other license or sublicense to which any Grantor is a party (other
than those license agreements which by their terms prohibit assignment or a
grant of a security interest by such Grantor as licensee thereunder).
"Obligations" shall have the meaning assigned to such term in the
preliminary statement of this Agreement.
"Patent License" shall mean any written agreement, now or hereafter in
effect, granting to any third party any right to make, use or sell any invention
on which a Patent, now or hereafter owned by any Grantor or which any Grantor
otherwise has the right to license, is in existence, or granting to any Grantor
any right to make, use or sell any invention on which a Patent, now or hereafter
owned by any third party, is in existence, and all rights of any Grantor under
any such agreement.
<PAGE>
7
"Patents" shall mean all of the following now owned or hereafter acquired
by any Grantor: (a) all letters patent of the United States or any other
country, all registrations and recordings thereof, and all applications for
letters patent of the United States or any other country, including
registrations, recordings and pending applications in the United States Patent
and Trademark Office or any similar offices in any other country, including
those listed on Schedule III, and (b) all reissues, continuations, divisions,
continuations-in-part, renewals or extensions thereof, and the inventions
disclosed or claimed therein, including the right to make, use and/or sell the
inventions disclosed or claimed therein.
"Perfection Certificate" shall mean a certificate substantially in the form
of Annex 2 hereto, completed and supplemented with the schedules and attachments
contemplated thereby, and duly executed by a Financial Officer of the Borrower.
"Proceeds" shall mean any consideration received from the sale, exchange,
license, lease or other disposition of any asset or property that constitutes
Collateral, any value received as a consequence of the possession of any
Collateral and any payment received from any insurer or other Person or entity
as a result of the destruction, loss, theft, damage or other involuntary
conversion of whatever nature of any asset or property which constitutes
Collateral, and shall include, (a) any claim of any Grantor against any third
party for (and the right to sue and recover for and the rights to damages or
profits due or accrued arising out of or in connection with) (i) past, present
or future infringement of any Patent now or hereafter owned by any Grantor, or
licensed under a Patent License, (ii) past, present or future infringement or
dilution of any Trademark now or hereafter owned by any Grantor or licensed
under a Trademark License or injury to the goodwill associated with or
symbolized by any Trademark now or hereafter owned by any Grantor, (iii) past,
present or future breach of any License and (iv) past, present or future
infringement of any Copyright now or hereafter owned by any Grantor or licensed
under a Copyright License and (b) any and all other amounts from time to time
paid or payable under or in connection with any of the Collateral.
<PAGE>
8
"Secured Parties" shall mean (a) the Lenders, (b) the Administrative Agent,
(c) the Collateral Agent, (d) the Issuing Bank, (e) each counterparty to a
Hedging Agreement entered into with the Borrower or any Loan Party if such
counterparty was a Lender at the time the Hedging Agreement was entered into,
and continues to be a Lender, (f) the beneficiaries of each indemnification
obligation undertaken by any Grantor under any Loan Document and (g) the
successors and assigns of each of the foregoing.
"Securities" shall mean any obligations of an issuer or any shares,
participations or other interests in an issuer or in property or an enterprise
of an issuer which (a) are represented by a certificate representing a security
in bearer or registered form, or the transfer of which may be registered upon
books maintained for that purpose by or on behalf of the issuer, (b) are one of
a class or series or by its terms is divisible into a class or series of shares,
participations, interests or obligations and (c)(i) are, or are of a type, dealt
with or trade on securities exchanges or securities markets or (ii) are a medium
for investment and by their terms expressly provide that they are a security
governed by Article 8 of the Uniform Commercial Code; provided that securities
-------- ----
shall not include (i) more than 65% of the issued and outstanding shares of
stock of any first-tier Foreign Subsidiary or (ii) to the extent that applicable
law requires that a Subsidiary of any Grantor issue directors' qualifying
shares, such qualifying shares.
"Securities Account" shall mean an account to which a Financial Asset is or
may be credited in accordance with an agreement under which the Person
maintaining the account undertakes to treat the Person for whom the account is
maintained as entitled to exercise rights that comprise the Financial Asset.
"Security Entitlements" shall mean the rights and property interests of an
Entitlement Holder with respect to a Financial Asset.
"Security Interest" shall have the meaning assigned to such term in Section
2.01.
"Securities Intermediary" shall mean (a) a clearing corporation or (b) a
Person, including a bank or broker, that in the ordinary course of its business
maintains
<PAGE>
9
securities accounts for others and is acting in that capacity.
"Trademark License" shall mean any written agreement, now or hereafter in
effect, granting to any third party any right to use any Trademark now or
hereafter owned by any Grantor or which any Grantor otherwise has the right to
license, or granting to any Grantor any right to use any Trademark now or
hereafter owned by any third party, and all rights of any Grantor under any such
agreement.
"Trademarks" shall mean all of the following now owned or hereafter
acquired by any Grantor: (a) all domestic trademarks, service marks, trade
names, corporate names, company names, business names, fictitious business
names, trade styles, trade dress, logos, other source or business identifiers,
designs and general intangibles of like nature, now existing or hereafter
adopted or acquired in the United States, all registrations and recordings
thereof in the United States, and all registration and recording applications
filed in connection therewith, including registrations and registration
applications in the United States Patent and Trademark Office, any State of the
United States or any political subdivision thereof, and all extensions or
renewals thereof, including those listed on Schedule IV, (b) all goodwill
associated therewith or symbolized thereby and (c) all other assets, rights and
interests that uniquely reflect or embody such goodwill.
SECTION 1.03. Rules of Interpretation. The rules of interpretation
specified in Section 1.03 of the Credit Agreement shall be applicable to this
Agreement.
<PAGE>
10
ARTICLE II
Security Interest
SECTION 2.01. Security Interest. As security for the payment or
performance, as the case may be, in full of the Obligations, each Grantor hereby
bargains, sells, conveys, assigns, sets over, mortgages, pledges, hypothecates
and transfers to the Collateral Agent, its successors and assigns, for the
ratable benefit of the Secured Parties, and hereby grants to the Collateral
Agent, its successors and assigns, for the ratable benefit of the Secured
Parties, a security interest in, all of such Grantor's right, title and interest
in, to and under the Collateral (the "Security Interest"). Without limiting the
foregoing, the Collateral Agent is hereby authorized to file one or more
financing statements (including fixture filings), continuation statements,
filings with the United States Patent and Trademark Office or United States
Copyright Office (or any successor office or any similar office in any other
country) or other documents for the purpose of perfecting, confirming,
continuing, enforcing or protecting the Security Interest granted by each
Grantor, without the signature of any Grantor, and naming any Grantor or the
Grantors as debtors and the Collateral Agent as secured party.
SECTION 2.02. No Assumption of Liability. The Security Interest is granted
as security only and shall not subject the Collateral Agent or any other Secured
Party to, or in any way alter or modify, any obligation or liability of any
Grantor with respect to or arising out of the Collateral.
ARTICLE III
Representations and Warranties
The Grantors jointly and severally represent and warrant to the Collateral
Agent and the Secured Parties that:
SECTION 3.01. Title and Authority. Each Grantor has good title to, or
valid leasehold interest in, the Collateral material to its business with
respect to which it has purported to grant a Security Interest hereunder,
<PAGE>
11
except for minor defects in title that do not interfere with its ability to
conduct its business as currently conducted or to utilize such properties for
their intended purposes and subject to Liens permitted by the Credit Agreement
and has full power and authority to grant to the Collateral Agent the Security
Interest in such Collateral pursuant hereto and to execute, deliver and perform
its obligations in accordance with the terms of this Agreement, without the
consent or approval of any other Person other than any consent or approval which
has been obtained.
SECTION 3.02. Filings. (a) The Perfection Certificate has been duly
prepared, completed and executed and the information set forth therein is
correct and complete in all material respects. Each Grantor has or will deliver
to the Collateral Agent fully executed Uniform Commercial Code financing
statements (including fixture filings, as applicable) or other appropriate
filings, recordings or registrations containing a description of the Collateral
pursuant to the Credit Agreement for filing in each governmental, municipal or
other office in the United States requested by the Collateral Agent and
specified in Schedule 6 to the Perfection Certificate, which are all the
filings, recordings and registrations (other than filings required to be made in
the United States Patent and Trademark Office and the United States Copyright
Office in order to perfect the Security Interest in Collateral consisting of
United States Patents, Trademarks and Copyrights) that are necessary in the
United States to publish notice of and protect the validity of and to establish
a legal, valid and perfected security interest in favor of the Collateral Agent
(for the ratable benefit of the Secured Parties) in respect of all Collateral in
which the Security Interest may be perfected by filing, recording or
registration in the United States (or any political subdivision thereof) and its
territories and possessions, and no further or subsequent filing, refiling,
recording, rerecording, registration or reregistration is necessary in any such
jurisdiction, except as provided under applicable law with respect to the filing
of continuation statements.
(b) Each Grantor represents and warrants that fully executed security
agreements in the form hereof and containing a description of all Collateral
consisting of Intellectual Property shall have been received and recorded within
three months after the execution of this Agreement with respect to United States
Patents and United States
<PAGE>
12
registered Trademarks (and Trademarks for which United States registration
applications are pending) and within one month after the execution of this
Agreement with respect to United States registered Copyrights by the United
States Patent and Trademark Office and the United States Copyright Office
pursuant to 35 U.S.C. (S) 261, 15 U.S.C. (S) 1060 or 17 U.S.C. (S) 205 and the
regulations thereunder, as applicable, and otherwise as may be required pursuant
to the laws of any other necessary jurisdiction, to protect the validity of and
to establish a legal, valid and perfected security interest in favor of the
Collateral Agent (for the ratable benefit of the Secured Parties) in respect of
all Collateral consisting of Patents, Trademarks and Copyrights in which a
security interest may be perfected by filing, recording or registration in the
United States (or any political subdivision thereof) and its territories and
possessions, or in any other necessary jurisdiction, and no further or
subsequent filing, refiling, recording, rerecording, registration or
reregistration is necessary (other than such actions as are necessary to perfect
the Security Interest with respect to any Collateral consisting of Patents,
Trademarks and Copyrights (or registration or application for registration
thereof) acquired or developed after the date hereof).
SECTION 3.03. Validity of Security Interest. The Security Interest
constitutes (a) a legal and valid security interest in all the Collateral
securing the payment and performance of the Obligations, (b) subject to the
filings described in Section 3.02 above, a perfected security interest in all
Collateral in which a security interest may be perfected by filing, recording or
registering a financing statement or analogous document in the United States (or
any political subdivision thereof) and its territories and possessions pursuant
to the Uniform Commercial Code or other applicable law in such jurisdictions and
(c) a security interest that shall be perfected in all Collateral in which a
security interest may be perfected upon the receipt and recording of this
Agreement with the United States Patent and Trademark Office and the United
States Copyright Office, as applicable, within the three-month period
(commencing as of the date hereof) pursuant to 35 U.S.C. 261 or 15 U.S.C. (S)
1060 or the one-month period (commencing as of the date hereof) pursuant to 17
U.S.C. (S) 205 and otherwise as may be required pursuant to the laws of any
other necessary jurisdiction. The Security Interest is and shall be prior
<PAGE>
13
to any other Lien on any of the Collateral, other than Liens expressly permitted
pursuant to Section 6.02 of the Credit Agreement.
SECTION 3.04. Absence of Other Liens. The Collateral is owned by the
Grantors free and clear of any Lien, except for Liens expressly permitted
pursuant to Section 6.02 of the Credit Agreement and except for restrictions on
transfer, assignment, use and rights of first refusal and similar rights under
the terms of any leases, licenses and other agreements under which the Grantor
acquired rights in and to Collateral. The Grantor has not filed or consented to
the filing of (a) any financing statement or analogous document under the
Uniform Commercial Code or any other applicable laws covering any Collateral,
(b) any assignment in which any Grantor assigns any Collateral or any security
agreement or similar instrument covering any Collateral with the United States
Patent and Trademark Office or the United States Copyright Office or (c) any
assignment in which any Grantor assigns any Collateral or any security agreement
or similar instrument covering any Collateral with any foreign governmental,
municipal or other office, which financing statement or analogous document,
assignment, security agreement or similar instrument is still in effect, except,
in each case, for Liens expressly permitted pursuant to Section 6.02 of the
Credit Agreement and except for financing statements evidencing Liens being
terminated on the Effective Date.
<PAGE>
14
ARTICLE IV
Covenants
SECTION 4.01. Change of Name; Location of Collateral; Records; Place of
Business. (a) Each Grantor agrees to promptly notify in writing the Collateral
Agent, but in no event later than 30 days after such change, of any change (i)
in its corporate name or in any trade name used to identify it in the conduct of
its business or in the ownership of its properties, (ii) in the location of its
chief executive office, its principal place of business, any office in which it
maintains books or records relating to Collateral owned by it or any office or
facility at which Collateral owned by it having a value in excess of $1,000,000
is located (including the establishment of any such new office or facility),
(iii) in its corporate structure or (iv) in its Federal Taxpayer Identification
Number. Each Grantor agrees to make within 45 days, after the occurrence of any
of the foregoing changes, all filings under the Uniform Commercial Code or
otherwise that are required by the Collateral Agent in order for the Collateral
Agent to continue at all times following such change to have a valid, legal and
perfected first priority security interest in all the Collateral.
(b) Each Grantor agrees to maintain, at its own cost and expense, such
complete and accurate records with respect to the Collateral owned by it as is
consistent with its current practices and in accordance with such prudent and
standard practices used in industries that are the same as or similar to those
in which such Grantor is engaged, but in any event to include complete
accounting records indicating all payments and proceeds received with respect to
any part of the Collateral.
SECTION 4.02. Periodic Certification. Each year, at the time of delivery
of annual financial statements with respect to the preceding fiscal year
pursuant to Section 5.01 of the Credit Agreement, the Borrower shall deliver to
the Collateral Agent a certificate executed by an executive officer or a
Financial Officer of the Borrower (a) setting forth the information required
pursuant to Section 2 of the Perfection Certificate or confirming that there has
been no change in such information since the date of such certificate or the
date of the most recent certificate delivered pursuant this Section 4.02 and (b)
<PAGE>
15
certifying that all Uniform Commercial Code financing statements (including
fixture filings, as applicable) or other appropriate filings, recordings or
registrations, including all refilings, rerecordings and reregistrations,
containing a description of the Collateral have been filed of record in each
governmental, municipal or other appropriate office in each jurisdiction
identified pursuant to clause (a) above to the extent necessary to protect and
perfect the Security Interest or identifying such additional Uniform Commercial
Code financing statements or other appropriate filings, recordings or
registrations as may be required to protect and perfect the security interests
hereunder which, upon the request of the Collateral Agent, shall be filed,
recorded or registered, in either case for a period of not less than 18 months
after the date of such certificate (except as noted therein with respect to any
continuation statements to be filed within such period). Each certificate
delivered pursuant to this Section 4.02 shall identify in the format of Schedule
II, III or IV, as applicable, all Intellectual Property of any Grantor in
existence on the date thereof and not then listed on such Schedules or
previously so identified to the Collateral Agent.
SECTION 4.03. Protection of Security. Each Grantor shall, at its own cost
and expense, take any and all reasonable actions necessary to defend title to
the Collateral against all Persons and to defend the Security Interest of the
Collateral Agent in the Collateral and the priority thereof against any Lien not
expressly permitted pursuant to Section 6.02 of the Credit Agreement.
SECTION 4.04. Further Assurances. Each Grantor agrees, at its own expense,
(x) to execute, acknowledge, deliver and cause to be duly filed all such further
instruments and documents and take all such actions as the Collateral Agent may
from time to time reasonably request to better assure, preserve, protect and
perfect the Security Interest and the rights and remedies created hereby,
including the payment of any fees and taxes required in connection with the
execution and delivery of this Agreement, the granting of the Security Interest
and the filing of any financing statements (including fixture filings) or other
documents in connection herewith or therewith and (y) at the request of the
Collateral Agent, to enter into and to cause any Securities Intermediary through
which it holds Investment Property to enter into
<PAGE>
16
(or to reinvest through a Securities Intermediary who will enter into) a control
agreement, in form and substance satisfactory to the Collateral Agent, pursuant
to which such Securities Intermediary grants "control", within the meaning of
Section 8-106 of the Uniform Commercial Code of the State of New York, over such
Investment Property to the Collateral Agent. If any amount payable under or in
connection with any of the Collateral shall be or become evidenced by any
promissory note or other instrument, such note or instrument shall be forthwith
pledged and delivered to the Collateral Agent, duly endorsed in a manner
satisfactory to the Collateral Agent.
Without limiting the generality of the foregoing, each Grantor hereby
authorizes the Collateral Agent, with prompt notice thereof to the Grantors, to
supplement this Agreement by supplementing Schedule II, III or IV hereto or
adding additional schedules hereto to specifically identify any asset or item
that may constitute Copyrights, Licenses, Patents or Trademarks; provided,
however, that any Grantor shall have the right, exercisable within 45 days after
it has been notified by the Collateral Agent of the specific identification of
such Collateral, to advise the Collateral Agent in writing of any inaccuracy of
the representations and warranties made by such Grantor hereunder with respect
to such Collateral. Each Grantor agrees that it will use its reasonable best
efforts to take such action as shall be necessary in order that all
representations and warranties hereunder shall be true and correct with respect
to such Collateral within 30 days after the date it has been notified by the
Collateral Agent of the specific identification of such Collateral.
SECTION 4.05. Inspection and Verification. The Collateral Agent and such
Persons as the Collateral Agent may reasonably designate shall have the right,
at the Grantors' own cost and expense, to inspect the Collateral, all records
related thereto (and to make extracts and copies from such records) and the
premises upon which any of the Collateral is located, to discuss the Grantors'
affairs with the officers of the Grantors and their independent accountants and
to verify under reasonable procedures the validity, amount, quality, quantity,
value, condition and status of, or any other matter relating to, the Collateral,
including, in the case of Accounts or Collateral in the possession of any third
Person, by contacting Account Debtors in the event of and during the
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17
continuance of an Event of Default or the third Person possessing such
Collateral for the purpose of making such a verification. The Collateral Agent
shall have the absolute right to share any information it gains from such
inspection or verification with any Secured Party (it being understood that any
such information shall be deemed to be "Information" subject to the provisions
of Section 9.12 of the Credit Agreement).
SECTION 4.06. Taxes; Encumbrances. At its option, the Collateral Agent
may, upon reasonable prior notice to Grantors, discharge past due taxes,
assessments, charges, fees, Liens, security interests or other encumbrances at
any time levied or placed on the Collateral and not permitted pursuant to
Section 6.02 of the Credit Agreement, and may pay for the maintenance and
preservation of the Collateral to the extent any Grantor fails to do so as
required by the Credit Agreement or this Agreement, and each Grantor jointly and
severally agrees to reimburse the Collateral Agent on demand for any payment
made or any expense incurred by the Collateral Agent pursuant to the foregoing
authorization; provided, however, that nothing in this Section 4.06 shall be
interpreted as excusing any Grantor from the performance of, or imposing any
obligation on the Collateral Agent or any Secured Party to cure or perform, any
covenants or other promises of any Grantor with respect to taxes, assessments,
charges, fees, liens, security interests or other encumbrances and maintenance
as set forth herein or in the other Loan Documents.
SECTION 4.07. Assignment of Security Interest. If at any time any Grantor
shall take a security interest in any property of an Account Debtor or any other
Person to secure payment and performance of an Account in excess of $1,000,000
to the extent permissible under the document granting a security interest, such
Grantor shall promptly assign such security interest to the Collateral Agent.
Such assignment need not be filed of public record unless necessary to continue
the perfected status of the security interest against creditors of and
transferees from the Account Debtor or other Person granting the security
interest.
SECTION 4.08. Continuing Obligations of the Grantors. Each Grantor shall
remain liable to observe and perform all the conditions and obligations to be
observed and performed by it under each contract, agreement or instrument
relating
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18
to the Collateral, all in accordance with the terms and conditions thereof, and
each Grantor jointly and severally agrees to indemnify and hold harmless the
Collateral Agent and the Secured Parties from and against any and all liability
for such performance.
SECTION 4.09. Use and Disposition of Collateral. None of the Grantors
shall make or permit to be made an assignment, pledge or hypothecation of the
Collateral or shall grant any other Lien in respect of the Collateral, except as
expressly permitted by the Credit Agreement. None of the Grantors shall make,
nor shall they permit to be made, any sale, conveyance, lease, assignment,
transfer or other disposition of any Collateral except as permitted by the
Credit Agreement and each Grantor shall remain at all times in possession of the
Collateral owned by it, except that (a) Inventory may be sold in the ordinary
course of business and (b) unless and until the Collateral Agent shall notify
the Grantors that an Event of Default shall have occurred and be continuing, the
Grantors may use and dispose of the Collateral in any lawful manner not
inconsistent with the provisions of this Agreement, the Credit Agreement or any
other Loan Document. Without limiting the generality of the foregoing, each
Grantor agrees that it shall not permit any Inventory in excess of $5,000,000 to
be in the possession or control of any warehouseman, bailee, agent or processor
at any time unless such warehouseman, bailee, agent or processor shall have been
notified of the Security Interest and shall have agreed in writing to hold the
Inventory subject to the Security Interest and the instructions of the
Collateral Agent and to waive and release any Lien held by it with respect to
such Inventory, whether arising by operation of law or otherwise.
SECTION 4.10. Limitation on Modification of Accounts. None of the Grantors
will, without the Collateral Agent's prior written consent, grant any extension
of the time of payment of any of the Accounts Receivable in excess of $5,000,000
in the aggregate, compromise, compound or settle the same for less than the full
amount thereof, release, wholly or partly, any Person liable for the payment
thereof or allow any credit or discount whatsoever thereon, other than
extensions, credits, discounts, compromises or settlements granted or made in
the ordinary course of business and consistent with its good faith business
judgment.
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19
SECTION 4.11. Insurance. The Grantors, at their own expense, shall
maintain or cause to be maintained insurance covering physical loss or damage to
the Inventory and Equipment in accordance with Section 5.07 of the Credit
Agreement. Each Grantor irrevocably makes, constitutes and appoints the
Collateral Agent (and all officers, employees or agents designated by the
Collateral Agent) as such Grantor's true and lawful agent (and attorney-in-fact)
for the purpose, solely during the continuance of an Event of Default, of
making, settling and adjusting claims in respect of Collateral under policies of
insurance, endorsing the name of such Grantor on any check, draft, instrument or
other item of payment for the proceeds of such policies of insurance and for
making all determinations and decisions with respect thereto. In the event that
any Grantor at any time or times shall fail to obtain or maintain any of the
policies of insurance required hereby or to pay any premium in whole or part
relating thereto, the Collateral Agent may, without waiving or releasing any
obligation or liability of the Grantors hereunder or any Event of Default, in
its sole reasonable discretion, obtain and maintain such policies of insurance
and pay such premium and take any other actions with respect thereto as the
Collateral Agent deems advisable. All sums disbursed by the Collateral Agent in
connection with this Section 4.11, including reasonable attorneys' fees, court
costs, expenses and other charges relating thereto, shall be payable, upon
demand, by the Grantors to the Collateral Agent and shall be additional
Obligations secured hereby.
SECTION 4.12. Legend. Each Grantor shall upon written request legend, in
form and manner reasonably satisfactory to the Collateral Agent, its Accounts
Receivable and its books, records and, to the extent applicable, documents
evidencing or pertaining thereto with an appropriate reference to the fact that
such Accounts Receivable have been collaterally assigned to the Collateral Agent
for the benefit of the Secured Parties and that the Collateral Agent has a
security interest therein.
SECTION 4.13. Covenants Regarding Patent, Trademark and Copyright
Collateral. (a) Each Grantor agrees that it will not, and it will exercise its
best efforts to ensure that its licensees will not, do any act, or omit to do
any act, whereby any Patent which is material to the conduct of
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20
such Grantor's business may become invalidated or dedicated to the public, and
agrees that it shall continue to mark any products covered by a Patent with the
relevant patent number as necessary and sufficient to establish and preserve its
maximum rights under applicable patent laws.
(b) Each Grantor (either itself or through its licensees or its
sublicensees) will, for each Trademark material to the conduct of such Grantor's
business, (i) maintain such Trademark in full force free from any claim of
abandonment or invalidity for non-use, (ii) maintain the quality of products and
services offered under such Trademark, (iii) display such Trademark with notice
of Federal or foreign registration to the extent necessary and sufficient to
establish and preserve its maximum rights under applicable law and (iv) not
knowingly use or knowingly permit the use of such Trademark in violation of any
third party rights.
(c) Each Grantor (either itself or through licensees) will, for each work
material to the conduct of Grantor's business covered by a material Copyright,
continue to publish, reproduce, display, adopt and distribute the work with
appropriate copyright notice as necessary and sufficient to establish and
preserve its rights under applicable copyright laws.
(d) Each Grantor shall notify the Collateral Agent promptly if it knows
that any Patent, Trademark or Copyright material to the conduct of the business
of the Grantors (taken as a whole) may reasonably be expected to become
abandoned, lost or dedicated to the public, or of any material adverse
determination or development (including the institution of, or any such
determination or development in, any proceeding in the United States Patent and
Trademark Office, United States Copyright Office or any court or similar office
of any country) regarding such Grantor's ownership of any such Patent, Trademark
or Copyright, its right to register the same, or to keep and maintain the same.
(e) In the event that any Grantor shall, either itself or through any
agent, employee, licensee or designee, file an application for any Patent,
Trademark or Copyright (or for the registration of any Trademark or Copyright)
with the United States Patent and Trademark Office, United States Copyright
Office or any office or
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21
agency in any political subdivision of the United States or in any other country
or any political subdivision thereof, such Grantor shall promptly thereafter
inform the Collateral Agent of such action, and, upon request of the Collateral
Agent, execute and deliver any and all agreements, instruments, documents and
papers as the Collateral Agent may reasonably request to evidence the Collateral
Agent's security interest in such Patent, Trademark or Copyright, and such
Grantor hereby appoints the Collateral Agent as its attorney-in-fact to execute
and file such writings for the foregoing purposes, all acts of such attorney
being hereby ratified and confirmed; such power, being coupled with an interest,
is irrevocable.
(f) Each Grantor will take all necessary steps that are consistent with
the practice in any proceeding before the United States Patent and Trademark
Office, United States Copyright Office or any office or agency in any political
subdivision of the United States or in any other country or any political
subdivision thereof, to maintain and pursue each material application relating
to the Patents, Trademarks and/or Copyrights (excluding applications which a
Grantor abandons pursuant to good faith business considerations) (and to obtain
the relevant grant or registration) and to maintain each issued Patent and each
registration of the Trademarks and Copyrights that is material to the conduct of
the business of the Grantors (taken as a whole), including timely filings of
applications for renewal, affidavits of use, affidavits of incontestability and
payment of maintenance fees, and, if consistent with good business judgment, to
initiate opposition, interference and cancelation proceedings against third
parties.
(g) In the event that any Grantor has reason to believe that any
Collateral consisting of a Patent, Trademark or Copyright material to the
conduct of the business of the Grantors (taken as a whole) has been or is about
to be infringed, misappropriated or diluted by a third party in any material
respect, such Grantor promptly shall notify the Collateral Agent and shall, if
consistent with good business judgment, promptly sue for infringement,
misappropriation or dilution and to recover any and all damages for such
infringement, misappropriation or dilution, and take such other actions as are
appropriate under the circumstances to protect such Collateral.
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22
(h) Upon and during the continuance of an Event of Default, if requested
by the Collateral Agent, each Grantor shall use reasonable efforts to obtain all
requisite consents or approvals by the licensor of each Copyright License,
Patent License or Trademark License to effect the assignment of all of such
Grantor's right, title and interest thereunder to the Collateral Agent or its
designee.
ARTICLE V
Power of Attorney
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23
Each Grantor irrevocably makes, constitutes and appoints the Collateral
Agent (and all officers, employees or agents designated by the Collateral Agent)
as such Grantor's true and lawful agent and attorney-in-fact, and in such
capacity the Collateral Agent shall have the right, with power of substitution
for each Grantor and in each Grantor's name or otherwise, for the use and
benefit of the Collateral Agent and the Secured Parties, solely upon the
occurrence and during the continuance of an Event of Default (a) to receive,
endorse, assign and/or deliver any and all notes, acceptances, checks, drafts,
money orders or other evidences of payment relating to the Collateral or any
part thereof; (b) to demand, collect, receive payment of, give receipt for and
give discharges and releases of all or any of the Collateral; (c) to sign the
name of any Grantor on any invoice or bill of lading relating to any of the
Collateral; (d) to send verifications of Accounts Receivable to any Account
Debtor; (e) to commence and prosecute any and all suits, actions or proceedings
at law or in equity in any court of competent jurisdiction to collect or
otherwise realize on all or any of the Collateral or to enforce any rights in
respect of any Collateral; (f) to settle, compromise, compound, adjust or defend
any actions, suits or proceedings relating to all or any of the Collateral; (g)
to notify, or to require any Grantor to notify, Account Debtors to make payment
directly to the Collateral Agent; and (h) to use, sell, assign, transfer,
pledge, make any agreement with respect to or otherwise deal with all or any of
the Collateral, and to do all other acts and things necessary to carry out the
purposes of this Agreement, as fully and completely as though the Collateral
Agent were the absolute owner of the Collateral for all purposes, in each case
in a manner not inconsistent with the terms of this Agreement and on terms that
are commercially reasonable and in compliance with any mandatory requirements of
applicable law; provided, however, that nothing herein contained shall be
construed as requiring or obligating the Collateral Agent or any Secured Party
to make any commitment or to make any inquiry as to the nature or sufficiency of
any payment received by the Collateral Agent or any Secured Party, or to present
or file any claim or notice, or to take any action with respect to the
Collateral or any part thereof or the moneys due or to become due in respect
thereof or any property covered thereby, and no action taken or omitted to be
taken by the Collateral Agent or any Secured Party with respect to the
Collateral or any part thereof shall give rise to
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24
any defense, counterclaim or offset in favor of any Grantor or to any claim or
action against the Collateral Agent or any Secured Party. It is understood and
agreed that the appointment of the Collateral Agent as the agent and
attorney-in-fact of the Grantors for the purposes set forth above is coupled
with an interest and is irrevocable. The provisions of this Section shall in no
event relieve any Grantor of any of its obligations hereunder or under any other
Loan Document with respect to the Collateral or any part thereof or impose any
obligation on the Collateral Agent or any Secured Party to proceed in any
particular manner with respect to the Collateral or any part thereof, or in any
way limit the exercise by the Collateral Agent or any Secured Party of any other
or further right which it may have on the date of this Agreement or hereafter,
whether hereunder, under any other Loan Document, by law or otherwise.
ARTICLE VI
Remedies
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25
SECTION 6.01. Remedies upon Default. Upon the occurrence and during the
continuance of an Event of Default, each Grantor agrees to deliver each item of
Collateral to the Collateral Agent forthwith on demand to the extent reasonably
practicable, and it is agreed that the Collateral Agent shall have the right to
take any of or all the following actions at the same or different times (subject
to any mandatory requirements of law and standards of commercial reasonableness
that cannot be waived by contract): (a) with respect to any Collateral
consisting of Intellectual Property, on demand, to cause the Security Interest
to become an assignment, transfer and conveyance of any of or all such
Collateral by the applicable Grantors to the Collateral Agent, or to license or
sublicense, whether general, special or otherwise, and whether on an exclusive
or non-exclusive basis, any such Collateral throughout the world on such terms
and conditions and in such manner as the Collateral Agent shall determine (other
than in violation of any then-existing licensing arrangements to the extent that
waivers cannot be obtained), and (b) with or without legal process and with or
without prior notice or demand for performance, to take possession of the
Collateral and to enter any premises owned or leased by the Grantors where the
Collateral may be located for the purpose of taking possession of or removing
the Collateral and, generally, to exercise any and all rights afforded to a
secured party under the Uniform Commercial Code or other applicable law.
Without limiting the generality of the foregoing, each Grantor agrees that the
Collateral Agent shall have the right, subject to the mandatory requirements of
applicable law, to sell or otherwise dispose of all or any part of the
Collateral, at public or private sale or at any broker's board or on any
securities exchange, for cash, upon credit or for future delivery as the
Collateral Agent shall deem appropriate and commercially reasonable. The
Collateral Agent shall be authorized at any such sale (if it deems it advisable
to do so) to restrict the prospective bidders or purchasers to Persons who will
represent and agree that they are purchasing the Collateral for their own
account for investment and not with a view to the distribution or sale thereof,
and upon consummation of any such sale the Collateral Agent shall have the right
to assign, transfer and deliver to the purchaser or purchasers thereof the
Collateral so sold. Each such purchaser at any such sale shall hold the
property sold absolutely, free from any claim or right on the part of any
Grantor, and each Grantor hereby waives (to
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26
the extent permitted by law) all rights of redemption, stay and appraisal which
such Grantor now has or may at any time in the future have under any rule of law
or statute now existing or hereafter enacted.
The Collateral Agent shall give the Grantors 10 days' written notice (which
each Grantor agrees is reasonable notice within the meaning of Section 9-504(3)
of the Uniform Commercial Code as in effect in the State of New York or its
equivalent in other jurisdictions) of the Collateral Agent's intention to make
any sale of Collateral. Such notice, in the case of a public sale, shall state
the time and place for such sale and, in the case of a sale at a broker's board
or on a securities exchange, shall state the board or exchange at which such
sale is to be made and the day on which the Collateral, or portion thereof, will
first be offered for sale at such board or exchange. Any such public sale shall
be held at such time or times within ordinary business hours and at such place
or places as the Collateral Agent may fix and state in the notice (if any) of
such sale. At any such sale, the Collateral, or portion thereof, to be sold may
be sold in one lot as an entirety or in separate parcels, as the Collateral
Agent may (in its sole and absolute discretion) determine. The Collateral Agent
shall not be obligated to make any sale of any Collateral if it shall determine
not to do so, regardless of the fact that notice of sale of such Collateral
shall have been given. The Collateral Agent may, without notice or publication,
adjourn any public or private sale or cause the same to be adjourned from time
to time by announcement at the time and place fixed for sale, and such sale may,
without further notice, be made at the time and place to which the same was so
adjourned. In case any sale of all or any part of the Collateral is made on
credit or for future delivery, the Collateral so sold may be retained by the
Collateral Agent until the sale price is paid by the purchaser or purchasers
thereof, but the Collateral Agent shall not incur any liability in case any such
purchaser or purchasers shall fail to take up and pay for the Collateral so sold
and, in case of any such failure, such Collateral may be sold again upon like
notice. For purposes hereof, a written agreement to purchase the Collateral or
any portion thereof shall be treated as a sale thereof; the Collateral Agent
shall be free to carry out such sale pursuant to such agreement and no Grantor
shall be entitled to the return of the Collateral or any portion thereof subject
thereto, notwith-
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27
standing the fact that after the Collateral Agent shall have entered into such
an agreement all Events of Default shall have been remedied and the Obligations
paid in full. As an alternative to exercising the power of sale herein conferred
upon it, the Collateral Agent may proceed by a suit or suits at law or in equity
to foreclose this Agreement and to sell the Collateral or any portion thereof
pursuant to a judgment or decree of a court or courts having competent
jurisdiction or pursuant to a proceeding by a court-appointed receiver.
SECTION 6.02. Application of Proceeds. The Collateral Agent shall apply
promptly the proceeds of any collection or sale of the Collateral, as well as
any Collateral consisting of cash, as follows:
FIRST, to the payment of all reasonable costs and expenses incurred by
the Administrative Agent or the Collateral Agent (in its capacity as such
hereunder or under any other Loan Document) in connection with such
collection or sale or otherwise in connection with this Agreement or any of
the Obligations, including all court costs and the reasonable fees and
expenses of its agents and legal counsel, the repayment of all advances
made by the Collateral Agent hereunder or under any other Loan Document on
behalf of any Grantor and any other costs or expenses incurred in
connection with the exercise of any right or remedy hereunder or under any
other Loan Document;
SECOND, to the payment in full of the Obligations (the amounts so
applied to be distributed among the Secured Parties pro rata in accordance
with the amounts of the Obligations owed to them on the date of any such
distribution); and
THIRD, to the respective Grantors, their successors or assigns, or as
a court of competent jurisdiction may otherwise direct.
The Collateral Agent shall have absolute discretion as to time of
application of any such proceeds, moneys or balances in accordance with this
Agreement. Upon any sale of the Collateral by the Collateral Agent (including
pursuant to a power of sale granted by statute or under a judicial proceeding),
the receipt of the Collateral Agent or of the officer making the sale shall be a
sufficient
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28
discharge to the purchaser or purchasers of the Collateral so sold and such
purchaser or purchasers shall not be obligated to see to the application of any
part of the purchase money paid over to the Collateral Agent or such officer or
be answerable in any way for the misapplication thereof.
SECTION 6.03. Grant of License to Use Intellectual Property. For the
purpose of enabling the Collateral Agent to exercise rights and remedies under
this Article at such time as the Collateral Agent shall be lawfully entitled to
exercise such rights and remedies, each Grantor hereby grants to the Collateral
Agent an irrevocable, non-exclusive license (exercisable without payment of
royalty or other compensation to the Grantors) to use, license or sub-license
any of the Collateral consisting of Intellectual Property now owned or hereafter
acquired by such Grantor (to the extent not prohibited by the terms of any
license agreement pursuant to which such Grantor is a licensee), and wherever
the same may be located, and including in such license reasonable access to all
media in which any of the licensed items may be recorded or stored and to all
computer software and programs used for the compilation or printout thereof.
The use of such license by the Collateral Agent shall be exercised, at the
option of the Collateral Agent, upon the occurrence and during the continuation
of an Event of Default; provided that any license, sub-license or other
transaction entered into by the Collateral Agent in accordance herewith shall be
binding upon the Grantors notwithstanding any subsequent cure of an Event of
Default.
ARTICLE VII
Miscellaneous
SECTION 7.01. Notices. All communications and notices hereunder shall
(except as otherwise expressly permitted herein) be in writing and given as
provided in Section 9.01 of the Credit Agreement. All communications and
notices hereunder to any Guarantor shall be given to it at its address or
telecopy number set forth on Schedule I, with a copy to the Borrower.
SECTION 7.02. Security Interest Absolute. All rights of the Collateral
Agent hereunder, the Security Interest
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and all obligations of the Grantors hereunder shall be absolute and
unconditional irrespective of (a) any lack of validity or enforceability of the
Credit Agreement, any other Loan Document, any agreement with respect to any of
the Obligations or any other agreement or instrument relating to any of the
foregoing, (b) any change in the time, manner or place of payment of, or in any
other term of, all or any of the Obligations, or any other amendment or waiver
of or any consent to any departure from the Credit Agreement, any other Loan
Document or any other agreement or instrument, (c) any exchange, release or non-
perfection of any Lien on other collateral, or any release or amendment or
waiver of or consent under or departure from any guarantee, securing or
guaranteeing all or any of the Obligations, or (d) any other circumstance that
might otherwise constitute a defense available to, or a discharge of, any
Grantor in respect of the Obligations or this Agreement.
SECTION 7.03. Survival of Agreement. All covenants, agreements,
representations and warranties made by any Grantor herein and in the
certificates or other instruments prepared or delivered in connection with or
pursuant to this Agreement shall be considered to have been relied upon by the
Secured Parties and shall survive the making by the Lenders of the Loans, and
the execution and delivery to the Lenders of any notes evidencing such Loans,
regardless of any investigation made by the Lenders or on their behalf, and
shall continue in full force and effect until this Agreement shall terminate.
SECTION 7.04. Binding Effect; Several Agreement. This Agreement shall
become effective as to any Grantor when a counterpart hereof executed on behalf
of such Grantor shall have been delivered to the Collateral Agent and a
counterpart hereof shall have been executed on behalf of the Collateral Agent,
and thereafter shall be binding upon such Grantor and the Collateral Agent and
their respective successors and assigns, and shall inure to the benefit of such
Grantor, the Collateral Agent and the other Secured Parties and their respective
successors and assigns, except that no Grantor shall have the right to assign or
transfer its rights or obligations hereunder or any interest herein or in the
Collateral (and any such assignment or transfer shall be void) except as
expressly contemplated by this Agreement or the Credit Agreement. This
Agreement shall be construed as a separate agreement
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30
with respect to each Grantor and may be amended, modified, supplemented, waived
or released with respect to any Grantor without the approval of any other
Grantor and without affecting the obligations of any other Grantor hereunder.
SECTION 7.05. Successors and Assigns. 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 agreements
by or on behalf of any Grantor or the Collateral Agent that are contained in
this Agreement shall bind and inure to the benefit of their respective
successors and assigns.
SECTION 7.06. Collateral Agent's Fees and Expenses; Indemnification. (a)
Each Grantor jointly and severally agrees to pay upon demand to the Collateral
Agent the amount of any and all reasonable expenses, including the reasonable
fees, disbursements and other charges of its counsel and of any experts or
agents, which the Collateral Agent may incur in connection with (i) the
administration of this Agreement, (ii) the custody or preservation of, or the
sale of, collection from or other realization upon any of the Collateral, (iii)
the exercise, enforcement or protection of any of the rights of the Collateral
Agent hereunder or (iv) the failure of any Grantor to perform or observe any of
the provisions hereof.
(b) Without limitation of its indemnification obligations under the other
Loan Documents, each Grantor jointly and severally agrees to indemnify the
Collateral Agent and the other Indemnitees against, and hold each of them
harmless from, any and all losses, claims, damages, liabilities and related
expenses, including reasonable fees, disbursements and other charges of counsel,
incurred by or asserted against any of them arising out of, in any way connected
with, or as a result of, the execution, delivery or performance of this
Agreement or any claim, litigation, investigation or proceeding relating hereto
or to the Collateral, whether or not any Indemnitee is a party thereto; provided
that such indemnity shall not, as to any Indemnitee, be available to the extent
that such losses, claims, damages, liabilities or related expenses are
determined by a court of competent jurisdiction by final and nonappealable
judgment to have resulted from the gross negligence or willful misconduct of
such Indemnitee.
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(c) Any such amounts payable as provided hereunder shall be additional
Obligations secured hereby and by the other Security Documents. The provisions
of this Section 7.06 shall remain operative and in full force and effect
regardless of the termination of this Agreement or any other Loan Document, the
consummation of the transactions contemplated hereby, the repayment of any of
the Loans, the invalidity or unenforceability of any term or provision of this
Agreement or any other Loan Document, or any investigation made by or on behalf
of the Collateral Agent or any Lender. All amounts due under this Section 7.06
shall be payable on written demand therefor.
SECTION 7.07. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
SECTION 7.08. Waivers; Amendment. (a) No failure or delay of the
Collateral Agent in exercising any power or right hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right or
power, or any abandonment or discontinuance of steps to enforce such a right or
power, preclude any other or further exercise thereof or the exercise of any
other right or power. The rights and remedies of the Collateral Agent hereunder
and of the Collateral Agent, the Administrative Agent, the Issuing Bank and the
Lenders under the other Loan Documents are cumulative and are not exclusive of
any rights or remedies that they would otherwise have. No waiver of any
provisions of this Agreement or any other Loan Document or consent to any
departure by any Grantor therefrom shall in any event be effective unless the
same shall be permitted by paragraph (b) below, 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 on any Grantor in any case shall entitle such
Grantor or any other Grantor to any other or further notice or demand in similar
or other circumstances.
(b) Neither this Agreement nor any provision hereof may be waived, amended
or modified except pursuant to an agreement or agreements in writing entered
into by the Collateral Agent and the Grantor or Grantors with respect to which
such waiver, amendment or modification is to apply, subject to any consent
required in accordance with Section 9.02 of the Credit Agreement.
<PAGE>
32
SECTION 7.09. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO
THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL
BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF,
UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS.
EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY
OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD
NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B)
ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER
INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS, AS APPLICABLE, BY, AMONG OTHER
THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 7.09.
SECTION 7.10. Severability. In the event any one or more of the
provisions contained in this Agreement should be held invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein shall not in any way be affected or
impaired thereby (it being understood that the invalidity of a particular
provision in a particular jurisdiction shall not in and of itself affect the
validity of such provision in any other jurisdiction). The parties shall
endeavor in good-faith negotiations to replace the invalid, illegal or
unenforceable provisions with valid provisions the economic effect of which
comes as close as possible to that of the invalid, illegal or unenforceable
provisions.
SECTION 7.11 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall constitute an original but all of which when
taken together shall constitute but one contract (subject to Section 7.04), and
shall become effective as provided in Section 7.04. Delivery of an executed
signature page to this Agreement by facsimile transmission shall be effective as
delivery of a manually executed counterpart hereof.
SECTION 7.12. Headings. Article and Section headings used herein are for
the purpose of reference only, are not part of this Agreement and are not to
affect the construction of, or to be taken into consideration in interpreting,
this Agreement.
<PAGE>
33
SECTION 7.13. Jurisdiction; Consent to Service of Process. (a) Each
Guarantor hereby irrevocably and unconditionally submits, for itself and its
property, to the nonexclusive jurisdiction of the Supreme Court of the State of
New York sitting in New York County and of the United States District Court of
the Southern District of New York, and any appellate court from any thereof, in
any action or proceeding arising out of or relating to any Loan Document, or for
recognition or enforcement of any judgment, and each of the parties hereto
hereby irrevocably and unconditionally agrees that all claims in respect of any
such action or proceeding may be heard and determined in such New York State or,
to the extent permitted by law, in such Federal court. Each of the parties
hereto agrees that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment or
in any other manner provided by law. Nothing in this Agreement or any other
Loan Document shall affect any right that the Collateral Agent, the
Administrative Agent, the Issuing Bank or any Lender may otherwise have to bring
any action or proceeding relating to this Agreement or any other Loan Document
against any Grantor or its properties in the courts of any jurisdiction.
(b) Each Grantor hereby irrevocably and unconditionally waives, to the
fullest extent it may legally and effectively do so, any objection which it may
now or hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to this Agreement or the other Loan Documents in any
New York State or Federal court. Each of the parties hereto hereby irrevocably
waives, to the fullest extent permitted by law, the defense of an inconvenient
forum to the maintenance of such action or proceeding in any such court.
(c) Each party to this Agreement irrevocably consents to service of
process in the manner provided for notices in Section 7.01. Nothing in this
Agreement will affect the right of any party to this Agreement to serve process
in any other manner permitted by law.
SECTION 7.14. Termination. This Agreement and the Security Interest shall
terminate when all the Obligations have been indefeasibly paid in full and the
Lenders have no further commitment to lend, the LC Exposure has been reduced to
zero and the Issuing Bank has no further
<PAGE>
34
commitment to issue Letters of Credit under the Credit Agreement, at which time
the Collateral Agent shall execute and deliver to the Grantors, at the Grantors'
expense, all Uniform Commercial Code termination statements and similar
documents which the Grantors shall reasonably request to evidence such
termination. Any execution and delivery of termination statements or documents
pursuant to this Section 7.14 shall be without recourse to or warranty by the
Collateral Agent (except to the extent that any losses, claims, damages,
liabilities or related expenses are determined by a court of competent
jurisdiction by final and nonappealable judgment to have resulted from the gross
negligence or wilful misconduct of the Collateral Agent). A Guarantor shall
automatically be released from its obligations hereunder and the Security
Interest in the Collateral of such Guarantor shall be automatically released in
the event that all the capital stock of such Guarantor shall be sold,
transferred or otherwise disposed of to a Person that is not a Subsidiary Loan
Party in accordance with the terms of the Credit Agreement; provided that the
Required Lenders shall have consented to such sale, transfer or other
disposition (if and to the extent required by the Credit Agreement) and the
terms of such consent did not provide otherwise. The Security Interest in
Collateral which is disposed of by a Grantor to a Person other than another
Grantor in a transaction permitted by Section 6.06 of the Credit Agreement shall
be automatically released except with respect to the Proceeds received therefor
subject to the Credit Agreement with respect to a Prepayment Event.
<PAGE>
35
SECTION 7.15. Additional Grantors. Pursuant to Section 5.13 of the Credit
Agreement, each Subsidiary Loan Party of the Borrower that was not in existence
or not a Subsidiary Loan Party on the date of the Credit Agreement is required
to enter in this Agreement as a Guarantor upon becoming a Subsidiary Loan Party.
Upon execution and delivery by the Collateral Agent and a Subsidiary Loan Party
of an instrument in the form of Annex 3 hereto, such Subsidiary Loan Party shall
become a Grantor hereunder with the same force and effect as if originally named
as a Grantor herein. The execution and delivery of any such instrument shall
not require the consent of any Grantor hereunder. The rights and obligations of
each Grantor hereunder shall remain in full force and effect notwithstanding the
addition of any new Grantors as a party to this Agreement.
<PAGE>
36
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written.
PSINET INC.,
By /s/ William L. Schrader
--------------------------
Name: William L. Schrader
Title: Chairman
PSIWEB INC.,
By /s/ William L. Schrader
--------------------------
Name: William L. Schrader
Title: Chairman
PSINET SECURITY SERVICES INC.,
By /s/ William L. Schrader
--------------------------
Name: William L. Schrader
Title: Chairman
PSINET NORTH AMERICA HOLDINGS INC.,
By /s/ William L. Schrader
--------------------------
Name: William L. Schrader
Title: President
IONET, INC.,
By /s/ William L. Schrader
--------------------------
Name: William L. Schrader
Title: Chairman
<PAGE>
37
PSINETWORKS COMPANY,
By /s/ William L. Schrader
--------------------------
Name: William L. Schrader
Title: Chairman
TELECOM LICENSING INC.,
By /s/ William L. Schrader
--------------------------
Name: William L. Schrader
Title: President
PSINET ASIA HOLDINGS INC.,
By /s/ William L. Schrader
--------------------------
Name: William L. Schrader
Title: Chairman
THE CHASE MANHATTAN BANK, as
Collateral Agent,
By /s/ Mitchell Gervis
--------------------------
Name: Mitchell Gervis
Title: Vice President
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in each of the Registration
Statements on Form S-8 (Nos. 33-98314, 33-98316, 33-98318, 33-98320, 33-99464,
33-99466, 33-99470, 333-04008), the Registration Statement on Form S-3 (No. 333-
48663) and the Registration Statement on Form S-4 (No. 333-51491) of PSINet Inc.
of our report dated September 30, 1998, with respect to the financial statements
of Tokyo Internet Corporation contained in the Current Report on Form 8-K dated
October 16, 1998 of PSINet Inc.
/s/ Price Waterhouse
Price Waterhouse
October 16, 1998
Tokyo, Japan
