LOAN AND SECURITY AGREEMENT
DATED AS OF DECEMBER 15, 1998
AMONG
INCOMNET, INC.,
INCOMNET COMMUNICATIONS CORPORATION
AND
IRONWOOD TELECOM LLC
TABLE OF CONTENTS
Page
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1. DEFINITIONS AND TERMS..................................................1
1.1. Definitions...................................................1
1.2. Rules of Construction.........................................8
2. LOANS..................................................................9
2.1. Term Loan.....................................................9
3. INTEREST AND OTHER CHARGES.............................................9
3.1. Interest......................................................9
3.2. Maximum Interest Rate........................................10
3.3. Origination Fee..............................................10
4. PAYMENTS AND PREPAYMENTS..............................................10
4.1. Repayment of Loan............................................10
4.2. Voluntary Prepayments of Loan................................10
4.3. Place and Form of Payments; Extension of Time................11
4.4. Application and Reversal of Payments.........................11
4.5. Indemnity for Returned Payments..............................11
5. LENDER'S BOOKS AND RECORDS; QUARTERLY STATEMENTS......................11
6. COLLATERAL............................................................12
6.1. Grant of Security Interest...................................12
6.2. Perfection and Protection of Security Interest...............12
6.3. Location of Collateral.......................................13
6.4. Title to, Liens on, and Sale and Use of, Collateral..........14
6.5. Access and Examination.......................................14
6.6. Insurance....................................................14
6.7. Collection of Accounts; Payments.............................15
6.8. Equipment....................................................16
6.9. Documents, Instruments, and Chattel Paper....................16
6.10. Right to Cure................................................17
6.11. Lender's Rights, Duties and Liabilities......................17
7. BOOKS AND RECORDS; FINANCIAL INFORMATION; NOTICES.....................17
7.1. Books and Records............................................17
7.2. Financial Information........................................18
7.3. Notices to Lender............................................18
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8. GENERAL WARRANTIES AND REPRESENTATIONS................................19
8.1. Authorization, Validity, and Enforceability of this
Agreement and the Loan Documents.............................19
8.2. Validity and Priority of Security Interest...................20
8.3. Organization and Qualification...............................20
8.4. Corporate Name; Prior Transactions...........................20
8.5. Subsidiaries and Affiliates..................................20
8.6. Use of Proceeds..............................................21
8.7. Public Disclosure............................................21
8.8. Intangible Property..........................................21
8.9. Capital......................................................21
8.10. Material Litigation..........................................22
8.11. Title, Security Interests of Lender..........................22
8.12. Restrictive Agreements, Labor Contracts......................22
8.13. Laws.........................................................22
8.14. Consents.....................................................22
8.15. Defaults.....................................................22
8.16. Financial Condition..........................................23
8.17. ERISA........................................................23
8.18. Taxes........................................................23
8.19. Business Relationships.......................................23
8.20. ICC Ownership................................................23
9. AFFIRMATIVE AND NEGATIVE COVENANTS....................................24
9.1. Taxes and Other Obligations..................................24
9.2. Corporate Existence and Good Standing........................24
9.3. Maintenance of Property and Insurance........................24
9.4. Mergers, Consolidations, Acquisitions or Sales...............24
9.5. Transactions Affecting Collateral or Obligations.............25
9.6. Guaranties...................................................25
9.7. Debt.........................................................25
9.8. Prepayment...................................................25
9.9. Transactions with Affiliates.................................25
9.10. Liens........................................................26
9.11. Restricted Investments.......................................26
9.12. Equity Sales.................................................26
9.13. EBITDA and Other Financial Covenants.........................26
9.14. Intentionally Deleted........................................26
9.15. Further Assurances...........................................26
9.16. Expenses.....................................................26
9.17. Notice of Litigation.........................................27
9.18. ERISA........................................................27
9.19. Labor Disputes...............................................27
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9.20. Capital Expenditures.........................................27
9.21. Name.........................................................27
10. CLOSING; CONDITIONS TO CLOSING........................................27
10.1. Representations and Warranties; Covenants; Events............28
10.2. Delivery of Documents........................................28
11. DEFAULT; REMEDIES.....................................................29
11.1. Events of Default............................................29
11.2. Remedies.....................................................31
12. MISCELLANEOUS.........................................................32
12.1. Cumulative Remedies; No Prior Recourse to Collateral.........32
12.2. No Implied Waivers...........................................33
12.3. Severability.................................................33
12.4. Governing Law................................................33
12.5. Consent to Jurisdiction and Venue; Service of Process........33
12.6. Waivers......................................................34
12.7. Survival of Representations and Warranties...................34
12.8. Indemnification..............................................34
12.9. Other Security and Guaranties................................35
12.10. Notices......................................................35
12.11. Waiver of Notices............................................36
12.12. Binding Effect; Assignment; Disclosure.......................36
12.13. Modification.................................................36
12.14. Counterparts.................................................36
12.15. Captions.....................................................36
12.16. Right of SetOff..............................................37
12.17. Fees and Expenses............................................37
12.18. Prior Agreements.............................................37
12.19. Additional Post-Closing Covenants............................38
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LOAN AND SECURITY AGREEMENT
This LOAN AND SECURITY AGREEMENT (the "Agreement") is made and entered
into as of December 15, 1998, by and among Incomnet, Inc., a California
corporation ("Borrower"), Incomnet Communications Corporation, Inc., a Delaware
corporation formerly known as National Telecommunications & Communications, Inc.
("ICC"), and Ironwood Telecom LLC, a Colorado limited
liability company ("Lender").
BACKGROUND
Lender has agreed to make financing available to or for the benefit of
Borrower in the total amount of $16,785,470.00 on the terms and conditions set
forth below. ICC currently has outstanding debt with (i) Worldcom Network
Services, Inc. ("Worldcom") with the outstanding amount of $3,456,151.56 as of
December 15, 1998 ("Worldcom Debt") secured by a security agreement dated June
1, 1996 between ICC and Worldcom ("Worldcom Security Agreement") and (ii) First
Bank & Trust ("First Bank") with the outstanding amount of $4,954,707.80 as of
December 15, 1998 ("First Bank Debt") secured by a promissory note dated March
27, 1997 as modifed from time to time between ICC and First Bank ("First Bank
Note"). Lender, ICC and Borrower have agreed that Lender will (i) purchase or
obtain by assignment the Worldcom Debt and the First Bank Debt and (ii) advance
funds or provide financing to Borrower at Closing with the total Principal
Amount of all such transactions equal to $16,785,470.00. On the terms and
conditions described below, Borrower and ICC are granting to Lender a security
interest in certain of their property.
AGREEMENT
In consideration of the mutual conditions and agreements set forth in this
Agreement, and for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, Borrower and Lender hereby agree as follows:
1. DEFINITIONS AND TERMS.
1.1. Definitions.
The capitalized terms used in this Agreement and the Exhibits and
the Schedules attached hereto shall have the meanings set forth below or
elsewhere as indicated in this Agreement:
"Account" means Borrower's or ICC's, as the case may be, right to
payment arising out of a sale or lease and delivery of goods or rendition of
services in the ordinary course of Borrower's or ICC's business.
"Account Debtor" means each Person obligated in any way on or in
connection with an Account.
"Adjusted Tangible Net Worth" means, at any date: (a) the book value
(after deducting related depreciation, obsolescence, amortization, valuation and
other proper reserves
as determined in accordance with GAAP) at which the assets of Borrower would be
shown on its balance sheet at such date prepared in accordance with GAAP less
(b) the amount at which Borrower's liabilities would be shown on such balance
sheet, including as liabilities all reserves for contingencies and other
potential liabilities which would be shown on such balance sheet.
"Affiliate" means a Person, other than Lender (a) which, directly or
indirectly, controls, is controlled by or is under common control with,
Borrower; (b) which beneficially owns or holds, directly or indirectly, five
percent or more of any class of voting stock of Borrower; or (c) five percent or
more of any class of the voting stock (or if such Person is not a corporation,
five percent or more of the equity interest) of which is beneficially owned or
held, directly or indirectly, by Borrower. The term control (including the terms
"controlled by" and "under common control with") means the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of the Person in question.
"Agreement" means this Loan and Security Agreement dated as of
December 15, 1998, among Borrower, ICC and Lender.
"Amended and Restated Note(s)" means individually and collectively
the Amended and Restated First Bank Note and the Worldcom Promissory Note in the
forms attached hereto as Exhibit A.
"Borrower" means Incomnet, Inc., a California corporation.
"Business Day" means any day that is not a Saturday, Sunday, or a
day on which banks in Los Angeles, California or Denver, Colorado, are required
or permitted to close.
"Casey" means John P. Casey, an individual.
"Closing Date" means December 15, 1998.
"Code" means the Internal Revenue Code of 1986, as amended from time
to time.
"Collateral" has the meaning given to such term in Section 6.1.1.
"Contract Rights" means, collectively, all of Borrower's or ICC's,
as the case may be, rights and remedies under, and all moneys and claims for
money due or to become due to Borrower under all material contracts and
agreements to which Borrower is a party and any and all amendments, supplements,
extensions, and renewals thereof, including but not limited to the LEC contracts
set forth on Schedule 1.1.
"Debt" means all liabilities, obligations and indebtedness of
Borrower to any Person, of any kind or nature, now or hereafter owing, arising,
due or payable, howsoever evidenced, created, incurred, acquired or owing,
whether primary, secondary, direct, contingent, fixed or otherwise. Without in
any way limiting the generality of the foregoing, Debt shall specifically
include the following: (i) Borrower's liabilities and obligations to trade
creditors; (ii) all Obligations; (iii) all obligations and liabilities of any
Person secured by any Lien on Borrower's Property, even though Borrower shall
not have assumed or become liable for the
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payment thereof; provided, however, that all such obligations and liabilities
which are limited in recourse to such Property shall be included in Debt only to
the extent of the book value of such Property as would be shown on a balance
sheet of Borrower prepared in accordance with GAAP; (iv) all obligations and
liabilities created or arising under any capital lease or conditional sale or
other title retention agreement with respect to Property used or acquired by
Borrower, even if the rights and remedies of the lessor, seller or lender
thereunder are limited to repossession of such Property; provided, however, that
all such obligations and liabilities which are limited in recourse to such
Property shall be included in Debt only to the extent of the book value of such
Property as would be shown on a balance sheet of Borrower prepared in accordance
with GAAP; (v) all accrued pension fund and other employee benefit plan
obligations and liabilities; (vi) all obligations and liabilities under
Guaranties; and (vii) deferred taxes.
"EBITDA" means in any fiscal period, Borrower's consolidated net
income (other than extraordinary or non-recurring items of Borrower for such
period), plus (i) the amount of all interest expense, income tax expense,
depreciation expense, and amortization expense of Borrower for such period, on a
consolidated basis, and plus or minus (as the case may be) (ii) any other
non-cash charges which have been added or subtracted, as the case may be, in
calculating Borrower's consolidated net income for such period.
"Equipment" means all of Borrower's or ICC's, as the case may be,
now owned and hereafter acquired machinery, equipment, furniture, furnishings,
fixtures, and other tangible personal property (except Inventory), including
data processing hardware and software, motor vehicles and office equipment, as
well as all of such types of property leased by Borrower or ICC and all of
Borrower's or ICC's rights and interests with respect thereto under such leases
(including options to purchase); together with all present and future additions
and accessions thereto, replacements therefor, component and auxiliary parts and
supplies used or to be used in connection therewith, and all substitutes for any
of the foregoing, and all manuals, drawings, instructions, warranties and rights
with respect thereto wherever any of the foregoing is located.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended from time to time.
"Event" means any event or condition which, with notice, the passage
of time, the happening of any other condition or event, or any combination
thereof, would constitute an Event of Default.
"Event of Default" has the meaning given to such term in Section
11.1.
"Fiscal Year" means Borrower's fiscal year for financial accounting
purposes. The current Fiscal Year of Borrower will end on December 31, 1998.
"GAAP" means at any particular time generally accepted accounting
principles as in effect at such time.
"General Intangibles" means all general intangibles of Borrower or
ICC's, as the case may be, whether now owned or hereafter created or acquired by
Borrower or ICC, including all choses in action, causes of action, corporate or
other business records, deposit accounts,
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investment property, inventions, designs, drawings, blueprints, patents, patent
applications, trademarks and the goodwill of the business symbolized thereby,
names, trade names, trade secrets, goodwill, copyrights, registrations,
licenses, franchises, customer lists, security and other deposits, rights in all
litigation presently or hereafter pending for any cause or claim (whether in
contract, tort or otherwise), and all judgments now or hereafter arising
therefrom, all claims of Borrower against Lender, rights to purchase or sell
real or personal property, rights as a licensor or licensee of any kind,
royalties, telephone numbers, proprietary information, purchase orders, and all
insurance policies and claims (including without limitation life insurance, key
man insurance, credit insurance, liability insurance, property insurance and
other insurance), tax refunds and claims, computer programs, discs, tapes and
tape files, claims under guaranties, security interests or other security held
by or granted to Borrower or ICC, all rights to indemnification and all other
intangible property of every kind and nature (other than Receivables).
"Guaranty" by any Person means all obligations of such Person which
in any manner directly or indirectly guarantee the payment or performance of any
indebtedness or other obligation of any other Person (the "guaranteed
obligations"), or assure or in effect assure the holder of the guaranteed
obligations against loss in respect thereof, including any such obligations
incurred through an agreement, (a) to purchase the guaranteed obligations or any
Property constituting security therefor or (b) to advance or supply funds for
the purchase or payment of the guaranteed obligations or to maintain a working
capital or other balance sheet condition.
"Intercompany Accounts" means all assets and liabilities, however
arising, which are due to Borrower from any Affiliate other than Lender, Casey
or Richard, or due from Borrower to any Affiliate other than Lender, Casey or
Richard, or which otherwise arise from any transaction by Borrower with any
Affiliate other than Lender, Casey or Richard.
"Inventory" means all of Borrower's or ICC's, as the case may be,
now owned and hereafter acquired inventory, goods, merchandise, and other
personal property, wherever located, to be furnished under any contract of
service or held for sale or lease, all raw materials, workinprocess, finished
goods, returned and repossessed goods, and materials and supplies of any kind,
nature or description which are or might be used or consumed in Borrower's or
ICC's business or used in connection with the manufacture, packing, shipping,
advertising, selling or finishing of such inventory, goods, merchandise and
other personal property, and all documents of title or other documents
representing them.
"IRS" means the Internal Revenue Service or any successor agency.
"Lawsuit" has the meaning given to such term in Section 10.4.
"Lender" means Ironwood Telecom LLC, a Colorado limited liability
company.
"Lien" means: any interest in property securing an obligation owed
to, or a claim by, a Person other than the owner of the Property, whether such
interest is based on the common law, statute, or contract, and includes a
security interest, charge, claim, or lien arising from a mortgage, deed of
trust, encumbrance, pledge, hypothecation, assignment, deposit arrangement,
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agreement, or conditional sale, or a lease, consignment or bailment for security
purposes, or any reservation, exception, encroachment, easement, rightofway,
condition, restrictment, lease or other title exception or encumbrance affecting
Property.
"Loan" has the meaning given to such term in Section 2.1.
"Loan Documents" means this Agreement, the Notes, the Warrants, the
Registration Rights Agreement, and all other agreements, instruments, and
documents heretofore, now or hereafter evidencing, securing, guaranteeing or
otherwise relating to the Obligations, the Collateral, the Security Interest or
any other aspect of the transactions contemplated by this Agreement.
"Material Adverse Change" means a material and adverse change in the
Property, business, operations or condition (financial or otherwise) of Borrower
and its Subsidiaries taken as a whole.
"Note(s)" has the meaning given to such term in Section 2.1.
"ICC" means National Telephone & Communications, Inc., a Delaware
corporation.
"Obligations" means all obligations relating to the Worldcom Debt
and the First Bank Debt, all present and future loans, advances, liabilities,
obligations, covenants, duties, and Debts owing by Borrower or ICC to Lender,
whether or not arising under this Agreement, whether or not evidenced by any
note or other instrument or document, whether arising from an extension of
credit, opening of a letter of credit, acceptance, loan, guaranty,
indemnification or otherwise, whether direct or indirect (including those
acquired by assignment from others, and any participation by Lender in
Borrower's or ICC's debts owing to others), absolute or contingent, due or to
become due, primary or secondary, as principal or guarantor, and including all
interest, charges, expenses, fees, attorneys' fees, filing fees and any other
sums chargeable to Borrower or ICC hereunder, under another Loan Document, or
under any other agreement or instrument with Lender.
"Payment Account" means each blocked bank account or bank account
associated with a lock box, established pursuant to Section 6.7, to which the
funds of Borrower (including Proceeds of Accounts and other Collateral) are
deposited or credited, and which is maintained in the name of Lender or
Borrower, as Lender may determine, on terms acceptable to Lender.
"PBGC" means the Pension Benefit Guaranty Corporation or any Person
succeeding to the functions thereof.
"Permitted Liens" means: (a) Liens for taxes not yet payable or
Liens for taxes being contested in good faith and by proper proceedings
diligently pursued, provided that a reserve or other appropriate provision, if
any, as shall be required by GAAP shall have been made therefor and that a stay
of enforcement of any such Lien is in effect; (b) Liens in favor of Lender; (c)
Liens upon Equipment granted in connection with the acquisition of such
Equipment by Borrower or ICC after the date hereof to the extent specifically
permitted by this Agreement;
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(d) reservations, exceptions, encroachments, easements, rights of way,
covenants, conditions, restrictions, leases and other similar title exceptions
or encumbrances affecting the Real Property, provided that they do not in the
aggregate materially detract from the value of such Real Property or materially
interfere with their use in the ordinary conduct of Borrower's or ICC's
business; (e) deposits under workmen's compensation, unemployment insurance,
social security and other similar laws; (f) liens relating to statutory
obligations with respect to surety and appeal bonds, performance bonds and other
obligations of a like nature incurred in the ordinary course of business,
provided such are not either individually or in the aggregate in a material
amount; and (g) Liens described on Schedule 6.4.
"Person" means any individual, sole proprietorship, partnership,
joint venture, trust, unincorporated organization, association, corporation,
Public Authority, or any other entity.
"Plan" means any pension or other employee benefit plan which is
subject to Title IV of ERISA, and which is: (a) a plan maintained by Borrower or
any Related Company; (b) a plan to which Borrower or any Related Company
contributes or is required to contribute; (c) a plan to which Borrower or any
Related Company was required to make contributions at any time during the five
(5) calendar years preceding the date of this Agreement; or (d) any other plan
with respect to which Borrower or any Related Company has incurred or may incur
liability, including contingent liability, under Title IV of ERISA, either to
such plan or to the PBGC.
"Premises" means all of Borrower's or ICC's rights, title, and
interest in the real property now owned or leased or hereafter acquired,
including all rights and easements in connection therewith and all buildings and
improvements now or hereafter constructed thereon.
"Principal Amount" means the aggregate amount of the principal
amounts under the Notes as the same may be (i) reduced from time to time by
payments of principal in accordance with the terms of this Agreement and the
Notes or (ii) increased under the terms of this Agreement or the Notes.
"Proceeds" means all products and proceeds, including rentals, of
any Collateral, and all proceeds of such proceeds and products, including all
cash and credit balances, all payments under any indemnity, warranty, or
guaranty payable with respect to any Collateral, all awards for taking by
eminent domain, all proceeds of fire or other insurance, and all money and other
Property obtained as a result of any claims against third parties or any legal
action or proceeding with respect to Collateral.
"Property" means any interest in any kind of property or asset,
whether real, personal or mixed, or tangible or intangible.
"Public Authority" means the government of any country or sovereign
state, or of any state, province, municipality, or other political subdivision
thereof, or any department, agency, public corporation or other instrumentality
of any of the foregoing.
"Real Property" means all of Borrower's or ICC's rights, title, and
interest, other than leasehold interests, in real property now owned or
hereafter acquired by Borrower, including
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all rights and easements in connection therewith and all buildings and
improvements now or hereafter constructed thereon.
"Receivables" means all of Borrower's or ICC's, as the case may be,
now owned and hereafter arising or acquired: (a) accounts (whether or not earned
by performance), including accounts owed to Borrower or ICC by any of its
Subsidiaries or Affiliates, together with all interest, late charges, penalties,
collection fees, and other sums which shall be due and payable in connection
with any account; (b) proceeds of any letters of credit naming Borrower or ICC
as beneficiary; (c) contract rights, chattel instruments, documents, general
intangibles (including choses in action, causes of action, tax refunds, tax
refund claims, Reversions and other amounts payable to Borrower or ICC from
pension and employee benefit plans, rights and claims against shippers and
carriers, rights to indemnification and business interruption insurance) and all
forms of obligations owing to Borrower or ICC (including obligations owing to
Borrower or ICC by Subsidiaries and Affiliates); (d) guarantees and other
security for any of the foregoing; (e) rights of stoppage in transit, replevin,
and reclamation; and (f) other rights or remedies of an unpaid vendor, lienor or
secured party.
"Related Company" means any member of any controlled group of
corporations (as defined in Section 414 of the Code) of which Borrower is a
part, or any trade or business (whether or not incorporated) which together with
Borrower would be treated as a single employer under Section 4001 of ERISA.
"Reportable Event" shall have the meaning assigned to that term in
Title IV of ERISA, including a reportable event described in Section 4043 of
ERISA or the regulations thereunder, a withdrawal from a Plan described in
Section 4063 of ERISA, or a cessation of operations described in Section 4062(e)
of ERISA.
"Restricted Investment" means any acquisition of Property by
Borrower or any of its Subsidiaries in exchange for cash or other Property,
whether in the form of an acquisition of stock, indebtedness or other
obligation, or by loan, advance, capital contribution or otherwise, except the
following: (a) Property to be used in the business of Borrower; (b) current
assets arising from the sale or lease of goods or rendition of services in the
ordinary course of business of Borrower; (c) direct obligations of the United
States of America, or any agency thereof, or obligations guaranteed by the
United States of America, provided that such obligations mature within one (1)
year from the date of acquisition thereof; (d) certificates of deposit maturing
within one (1) year from the date of acquisition, bankers' acceptances,
Eurodollar bank deposits, or overnight bank deposits, in each case issued by,
created by, or with a bank or trust company organized under the laws of the
United States or any state thereof having capital and surplus aggregating at
least $100,000,000; (e) commercial paper given the highest rating by a national
credit rating agency and maturing not more than two hundred seventy (270) days
from the date of creation thereof; and (f) investments in any of Borrower's
Subsidiaries (by capital contribution or otherwise) or purchase or repurchase of
any stock or indebtedness, or any Property, of any of Borrower's Subsidiaries,
other than as contemplated under this Agreement.
"Reversions" means any funds which may become due to Borrower or ICC
in connection with the termination of any Plan or other employee benefit plan.
7
"Richard" means Denis Richard, an individual.
"Security Interest" means, collectively, the Liens granted to Lender
in the Collateral pursuant to this Agreement, the other Loan Documents or any
other agreement.
"Subscriber Data" means, wherever located, and whether now owned or
hereafter acquired or created: (a) all customer lists, all documents containing
the names, addresses, telephone numbers or other information regarding
Borrower's or ICC's customers, and tapes, programs, printouts, disks, and other
material or documents relation to the recording, billing or analyzing of any of
the forgoing; (b) customer accounts and contracts for the furnishing by Borrower
or ICC of telecommunications services, and billing and collection contracts,
whether evidenced by a document or otherwise; and (c) all records and documents
relating to any and all of the foregoing items in (a) and (b) whether in the
form of writing, microfilm, microfiche, tape, or electronic media.
"Subsidiary" means any present or future corporation of which
Borrower owns, directly or indirectly, more than 50% of the voting stock.
"Term Note" means the promissory note in the amount of $8,374,610.64
as more fully described in Section 2.1 and in the form attached hereto as
Exhibit A.
"Termination Event" means: (a) a Reportable Event with respect to a
Plan described in Section 4043 of ERISA and the regulations issued thereunder
(other than a Reportable Event not subject to the provision for thirty (30)
days' notice to the PBGC under such regulations); (b) the withdrawal of Borrower
or any Related Company from a Plan during a plan year in which it was a
"substantial employer" as defined in Section 4001(a) (2) of ERISA; (c) the
filing of a notice of intent to terminate a Plan or the treatment of a Plan
amendment as a termination under Section 4041 of ERISA; (d) the institution of
proceedings by the PBGC to terminate or have a trustee appointed to administer a
Plan; (e) any other event or condition which might constitute grounds under
Section 4042 of ERISA for the termination of, or the appointment of a trustee to
administer, any Plan; or (f) the partial or complete withdrawal of Borrower or
any Related Company from a Multiemployer Plan (as defined under ERISA).
"UCC" means the Uniform Commercial Code (or any successor statute)
of the State of Colorado, California or of any other state the laws of which are
required by thereof to be applied in connection with the issue of perfection of
security interests, as such statutes are in effect during the term hereof.
1.2. Rules of Construction.
This Agreement shall be construed in accordance with the following
rules of construction:
(i) any accounting term used in this Agreement shall have, unless
otherwise specifically provided herein, the meaning customarily given in
accordance with GAAP, and all financial computations hereunder shall be
computed, unless otherwise specifically provided herein, in accordance with GAAP
as consistently applied;
8
(ii) other than accounting terms, all undefined terms contained in
this Agreement shall, unless the context indicates otherwise, have the meanings
provided for by the UCC to the extent the same are used or defined therein;
(iii) the terms defined in this Agreement include the plural as well
as the singular;
(iv) all references in this Agreement to designated "Sections" and
other subdivisions are to the designated Sections and other subdivisions of the
body of this Agreement;
(v) pronouns of either gender or neuter shall include, as
appropriate, the other pronoun forms;
(vi) the words "herein," "hereof" and "hereunder" and other words of
similar import refer to this Agreement as a whole and not to any particular
Section or other subdivision; and
(vii) the words "includes" and "including" are not limiting.
2. LOANS.
2.1. Term Loan.
Lender shall make a term loan (the "Loan") to Borrower and Borrower
agrees to receive the Loan in an amount equal to the Principal Amount and
pursuant to the terms and provisions of this Agreement. The term "Loan" shall
incorporate all debt evidenced by the Amended and Restated Notes and the Term
Note. The proceeds of the Loan shall be disbursed on the Closing Date in
accordance with Schedule 2. The Loan shall be repayable in accordance with the
terms of the Term Note and the Amended and Restated Notes (the Term Note and the
Amended and Restated Notes shall be individually and/or collectively referred to
and defined herein as the "Note(s)") and the Notes shall be authorized, issued
and delivered by Borrower and ICC as the case may be to Lender, in the forms
attached as Exhibit A. On the Closing Date, Borrower shall issue to Lender the
Warrants substantially in the form of Exhibit B.
3. INTEREST AND OTHER CHARGES.
3.1. Interest.
3.1.1. Interest Formula.
Borrower shall pay to Lender interest on the unpaid principal
balance of the Loan at a per annum rate equal to twelve percent (12%). Interest
charges shall be computed on the basis of a year of 360 days and actual days
elapsed and shall be payable to Lender quarterly in arrears on the last Business
Day of each Fiscal Quarter, with the first such payment of interest (which shall
include interest in arrears from December 15, 1998 through December 31, 1998)
becoming due and payable on March 31, 1999.
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3.1.2. Default Interest Rates.
If any Event of Default occurs, then, from the date such Event of
Default occurs and until it is cured, or until all Obligations are paid and
performed in full, whichever first occurs, Borrower shall pay interest on the
unpaid principal balance of the Loan at a per annum rate equal to three percent
(3%) plus the rate of interest otherwise specified herein as applicable to the
Loan (the "Default Rate").
3.2. Maximum Interest Rate.
In no event shall the interest rate and other charges hereunder
exceed the highest rate permissible under any law which a court of competent
jurisdiction shall, in a final determination, deem applicable hereto. If a court
determines that Lender has received interest and other charges hereunder in
excess of the highest rate applicable hereto, such excess shall be deemed to
have been received on account of, and shall automatically be applied to reduce,
the Obligations, other than interest, in the inverse order of maturity, and the
provisions hereof shall be deemed amended to provide for the highest permissible
rate. If there are no Obligations outstanding, Lender shall refund to Borrower
such excess.
3.3. Origination Fee.
On the Closing Date, Borrower shall pay to Lender an origination fee
in the amount of $400,000 plus attorneys' fees and related expenses in
connection with the negotiation, preparation, or consumation of this Agreement
and the transactions contemplated hereby.
4. PAYMENTS AND PREPAYMENTS.
4.1. Repayment of Loan.
Borrower shall repay this portion of the Principal Amount that is
then outstanding, plus all accrued and unpaid interest thereon, on December 31,
2000.
4.2. Voluntary Prepayments of Loan.
4.2.1. Borrower may prepay the Principal Amount in whole or in part
at any time and from time to time, upon at least two (2) Business Days' prior
written notice to Lender. All prepayments of the principal of the Principal
Amount shall be accompanied by the payment of all accrued but unpaid interest on
the prepaid Principal Amount to the date of prepayment.
4.2.2. Any prepayment under this Section 4.2 of less than all of the
outstanding Principal Amount shall be applied, first, to accrued but unpaid
interest on the Loan and, second, to the Principal Amount to be prepaid.
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4.3. Place and Form of Payments; Extension of Time.
All payments of principal, interest and other sums due to Lender
shall be made at Lender's address set forth in the Note held by Lender or at
such other address as shall be designated by Lender. Except for Proceeds
received directly by Lender, all such payment shall be made in immediately
available funds. If any payment of the Principal Amount, interest thereon or
other sum to be made hereunder becomes due and payable on a day other than a
Business Day, the due date of such payment shall be extended to the next
succeeding Business Day and interest thereon shall be payable at the applicable
interest rate during such extension.
4.4. Application and Reversal of Payments.
Lender shall have the continuing and exclusive right to apply and
reverse and reapply any and all Proceeds of Collateral and payments that Lender
receives to any portion of the Obligations.
4.5. Indemnity for Returned Payments.
If after receipt of any payment of, or Proceeds applied to the
payment of, all or any part of the Obligations, Lender is for any reason
required to surrender such payment or Proceeds to any Person, because such
payment or Proceeds is invalidated, declared fraudulent, set aside, determined
to be void or voidable as a preference, or a diversion of trust funds, or for
any other reason, then the Obligations or part thereof intended to be satisfied
shall be revived and continue and this Agreement shall continue in full force as
if such payment or Proceeds had not been received by Lender, and Borrower shall
be liable to pay to Lender and hereby does indemnify Lender and holds Lender
harmless for the amount of such payment or Proceeds surrendered. The provisions
of this Section 4.5 shall be effective notwithstanding any contrary action which
may have been taken by Lender in reliance upon such payment or Proceeds, and any
such contrary action so taken shall be without prejudice to Lender's rights
under this Agreement and shall be deemed to have been conditioned upon such
payment or Proceeds having become final and irrevocable. The provisions of this
Section 4.5 shall survive the termination of this Agreement.
5. LENDER'S BOOKS AND RECORDS; QUARTERLY STATEMENTS.
Borrower and ICC agree that the books and records of Lender showing
the Obligations and the transactions pursuant to this Agreement and the other
Loan Documents shall be admissible in any action or proceeding arising
therefrom, and shall constitute prima facie proof thereof, irrespective of
whether any Obligation is also evidenced by a promissory note or other
instrument. Lender will provide to Borrower a quarterly statement of Loans,
payments, and other transactions pursuant to this Agreement. Such statement
shall be deemed correct, accurate, and binding on Borrower and as an account
stated (except for reversals and reapplications of payments made as provided in
Section 4.5 and corrections of errors discovered by Lender), unless Borrower
notifies Lender in writing to the contrary within thirty (30) days after such
statement is rendered. In the event a timely written notice of objections is
given by Borrower, only the items to which exception is expressly made will be
considered to be disputed by Borrower.
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6. COLLATERAL.
6.1. Grant of Security Interest.
6.1.1. As security for the Obligations, each of Borrower and ICC
hereby grants to Lender a continuing security interest in, lien on, and
assignment of all of their respective Property including the following: (i) all
Contract Rights, Equipment, General Intangibles, Inventory, Receivables,
Subscriber Data (excluding Subscriber Data for the residents of the State of New
York until any necessary approvals are received) and Proceeds, wherever located
and whether now existing or hereafter arising or acquired; (ii) all proceeds of
the sale of any equity securities of Rapid Cast, Inc. of which Borrower is the
owner (beneficial or otherwise), and all equity securities of ICC owned by
Borrower, (iii) all moneys, securities and other property and the Proceeds
thereof, now or hereafter held or received by, or in transit to, Lender from or
for Borrower or ICC, whether for safekeeping, pledge, custody, transmission,
collection or otherwise, including all of Borrower's and ICC's deposit accounts,
credits, and balances with any financial institution or local exchange carrier,
and all claims of Borrower or ICC against any financial institution or local
exchange carrier at any time existing relating to Borrower's and ICC's deposit
accounts with any financial institution with which Borrower or ICC maintains
deposits or Borrower's or ICC's accounts with any local exchange carrier with
which Borrower or ICC has a contractual relationship or otherwise does business;
(iv) all of Borrower's and ICC's deposit accounts with any financial
institutions with which Borrower or ICC maintains deposits; and (v) all books,
records and other Property relating to or referring to any of the foregoing,
including all books, records, ledger cards, data processing records, computer
software and other Property and general intangibles at any time evidencing or
relating to the Equipment, General Tangibles, Proceeds, and other property
referred to above (all of the foregoing, together with the Premises and all
other Property in which Lender may at any time be granted a Lien, being herein
collectively referred to as the "Collateral"). Lender shall have all of the
rights of a secured party with respect to the Collateral under the UCC and other
applicable laws.
6.1.2. All Obligations shall constitute a single loan secured by the
Collateral. Lender may, except as otherwise provided in the Loan Documents, in
its sole discretion, (i) exchange, waive, or release any of the Collateral, (ii)
apply Collateral and direct the order or manner of sale thereof as Lender may
determine and (iii) settle, compromise, collect, or otherwise liquidate any
Collateral in any manner, all without affecting the Obligations or Lender's
right to take any other action with respect to any other Collateral.
6.2. Perfection and Protection of Security Interest.
6.2.1. Borrower and ICC shall each, at their expense, perform all
steps requested by Lender at any time to perfect, maintain, protect and enforce
the Security Interest, including: (i) executing and filing financing or
continuation statements, and
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amendments thereof, in form and substance satisfactory to Lender; (ii)
delivering to Lender the originals of all instruments, documents, and chattel
paper, and all other Collateral of which Lender determines it should have
physical possession in order to perfect and protect the Security Interest
therein, duly endorsed or assigned to Lender without restriction; (iii) placing
notations on Borrower's or ICC's books of account, as the case may be, to
disclose the Security Interest; (iv) delivering to Lender all letters of credit
on which Borrower or ICC is named beneficiary; and (v) taking such other steps
as are deemed necessary by Lender to maintain the Security Interest.
6.2.2. Lender may file, without Borrower's or ICC's signature, one
or more financing statements disclosing the Security Interest. Each of Borrower
and ICC agree that a photocopy or other reproduction of this Agreement or of a
financing statement is sufficient as a financing statement. If any Collateral is
at any time in the possession or control of any warehouseman, bailee or any of
Borrower's or ICC's agents or processors, then Borrower or ICC shall notify
Lender thereof and shall notify such Person of the Security Interest in such
Collateral and, upon Lender's request, instruct such Person to hold all such
Collateral for Lender's account subject to Lender's instructions. If at any time
any Collateral is located on any Premises that are not owned by Borrower or ICC,
then Borrower or ICC shall obtain written waivers, in form and substance
satisfactory to Lender, of all present and future Liens to which the owner or
lessor or any mortgagee of such Premises may be entitled to assert against the
Collateral. From time to time, Borrower or ICC shall, upon Lender's request,
execute and deliver confirmatory written instruments pledging the Collateral to
Lender but Borrower's failure to do so shall not affect or limit the Security
Interest. So long as this Agreement is in effect, and until all Obligations have
been fully satisfied, the Security Interest shall continue in full force and
effect in all Collateral. Prior hereto or concurrently herewith Borrower shall
deliver to Lender (i) certificates representing the Rapid Cast, Inc. equity
securities, the sales proceeds of which are pledged as security for the
Obligations pursuant to Section 6.1 and (ii) certificates representing the ICC
equity securities endorsed in blank and pledged hereunder as security of the
Obligations pursuant to Section 6.1. Lender shall hold the certificates
representing the Rapid Cast, Inc. equity securities as security for Borrower's
covenant not to sell the securities represented by such certificates without the
prior consent of Lender.
6.3. Location of Collateral.
Borrower represents and warrants to Lender that: (a) a correct and
complete list of Borrower's chief executive office, the location of its books
and records, the locations of the Collateral and the locations of all of its
other places of business is set forth in Schedule 6.3; and (b) Schedule 6.3
correctly identifies any of such facilities and locations that are not owned by
Borrower and sets forth the names of the owners and lessors of, and, to the best
of Borrower's knowledge, the holders of any mortgages on such facilities and
locations. Borrower agrees that it will not maintain any Collateral at any
location other than those listed on Schedule 6.3, and that it will not otherwise
change or add to any of such locations, unless it gives Lender at least thirty
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(30) days' prior written notice and executes such financing statements and other
documents that Lender requests in connection therewith.
6.4. Title to, Liens on, and Sale and Use of, Collateral.
Borrower represents, warrants and covenants to Lender that: (i) all
Collateral is and will continue to be owned by Borrower or ICC free and clear of
all Liens whatsoever, except for the Security Interest and other Permitted
Liens; (ii) the Security Interest will not be subject to any prior Lien except
Permitted Liens, if any; (iii) Borrower or ICC will use, store and maintain the
Collateral with all reasonable care and will use the Collateral for lawful
purposes only; (iv) Borrower and ICC will not, without Lender's prior written
approval, sell, or dispose of, or permit the sale or disposition of any
Collateral except in the ordinary course of business; and (v) Borrower will not,
without Lender's prior written approval, sell, dispose of, transfer or assign
any equity securities of Rapid Cast, Inc., now or hereafter owned by Borrower
(beneficially or otherwise). The inclusion of Proceeds in the Collateral shall
not be deemed Lender's consent to any sale or other disposition of the
Collateral except as expressly permitted herein.
6.5. Access and Examination.
Lender shall at all reasonable times have access to, examine, audit,
make extracts from and inspect Borrower's and ICC's records, files and books of
account and the Collateral and may discuss Borrower's and ICC's affairs with
Borrower's and ICC's officers and management. Borrower and ICC shall deliver to
Lender any instrument necessary for Lender to obtain records from any service
bureau maintaining records for Borrower. Lender may, at any time, and at
Borrower's expense, make copies of all of Borrower's and ICC's books and
records, or require Borrower or ICC to deliver such copies to Lender. Lender
may, without expense to Lender, use such of Borrower's and ICC's personnel,
supplies and premises as may be reasonably necessary for maintaining or
enforcing the Security Interest.
6.6. Insurance.
6.6.1. Borrower or ICC shall insure the Collateral against loss or
damage by fire with extended coverage, theft, burglary, pilferage, loss in
transit and such other hazards as Lender shall specify, in amounts, under
policies and by insurers acceptable to Lender. Borrower or ICC or shall also
maintain flood insurance, in the event of a designation of the area in which any
Real Property is located as "flood prone" or a "flood risk area," as defined by
the Flood Disaster Protection Act of 1973, in an amount to be reasonably
determined by Lender, and shall comply with the additional requirements of the
National Flood Insurance Program as set forth therein. Borrower or ICC shall
cause Lender to be named in each such policy as secured party or mortgagee and
loss payee or additional insured, in a manner acceptable to Lender. Each policy
of insurance shall contain a clause or endorsement requiring the insurer to give
not less than thirty (30) days' prior written notice to Lender in the event of
cancellation of the policy for any reason whatsoever and a clause or endorsement
stating that the interest of Lender shall not be impaired or invalidated by any
act or neglect of Borrower or ICC or the owner of any Premises where Collateral
is located nor by the use of such Premises for purposes
14
more hazardous than are permitted by such policy. All premiums for such
insurance shall be paid by Borrower or ICC when due, and certificates of
insurance and, if requested, photocopies of the policies shall be delivered to
Lender. If Borrower or ICC fails to procure such insurance or to pay the
premiums therefor when due, Lender may (but shall not be required to) do so and
charge the costs thereof to Borrower's loan account. Borrower or ICC shall
promptly notify Lender of any loss, damage, or destruction to the Collateral or
arising from its use, whether or not covered by insurance.
6.6.2. Lender is hereby authorized to collect all insurance proceeds
directly. After deducting from such proceeds the expenses, if any, incurred by
Lender in the collection or handling thereof, Lender may apply such proceeds to
the reduction of the Obligations, in such order as Lender determines, or, at
Lender's option, may permit or require Borrower to use such money, or any part
thereof, to replace, repair, restore or rebuild the Collateral in a diligent and
expeditious manner with materials and workmanship of substantially the same
quality as existed before the loss, damage or destruction.
6.7. Collection of Accounts; Payments.
6.7.1. Prior to Closing, Borrower and ICC shall establish a lockbox
service for collections of Accounts at a bank determined by Lender and pursuant
to documentation satisfactory to Lender. Borrower and ICC shall instruct all
Account Debtors to make all payments directly to the address established for
such service. If, notwithstanding such instructions, Borrower or ICC receives
any Proceeds of Accounts, it shall receive such payments as Lender's trustee and
shall immediately deliver such payments to Lender in their original form duly
endorsed in blank or deposit them into a Payment Account, as Lender may direct.
All collections received in any such lockbox or Payment Account or directly by
Borrower, ICC or Lender, and all funds in any Payment Account or other account
to which such collections are deposited, shall be the sole property of Lender
and shall be subject to Lender' s sole control. Until Borrower or ICC defaults
under this Agreement or until Lender reasonably believes a Borrower or ICC
default is imminent hereunder, Lender will disburse such funds in the lock box
account to Borrower to be used by Borrower in the ordinary course of business
subject to the terms of this Agreement. Lender may, at any time, notify obligors
that the Accounts have been assigned to Lender and of the Security Interest
therein, and may collect them directly and charge the collection costs and
expenses to Borrower's loan account. Borrower and ICC, at Lender's request,
shall execute and deliver to Lender such documents as Lender shall require to
grant Lender access to any post office box in which collections of Accounts are
received.
6.7.2. If sales of Inventory are made for cash or cash equivalents,
Borrower and ICC shall immediately deliver to Lender the identical checks, cash
or other forms of payment which Borrower or ICC receives.
15
6.7.3. All payments received by Lender on account of Accounts or as
Proceeds of other Collateral will be Lender's sole property and will be credited
to Borrower's loan account (conditional upon final collection) upon the date of
Lender's receipt thereof.
6.7.4. In the event Borrower repays all of the Obligations upon the
termination of this Agreement, other than through Lender's receipt of payments
on account of Accounts or Proceeds of other Collateral, such payment will be
credited (conditional upon final collection) upon the date of Lender's receipt
thereof.
6.8. Equipment.
Borrower and ICC represent and warrant to Lender that all of the
Equipment is and will be used or held for use in Borrower's or ICC's business.
Borrower or ICC shall keep and maintain the Equipment in good operating
condition and repair (ordinary wear and tear excepted) and shall make all
necessary replacements thereof. Borrower or ICC shall promptly inform Lender of
any material additions to or deletions from the Equipment. Borrower and ICC
shall not permit any Equipment to become a fixture to real property or an
accession to other personal property, unless Lender has a valid, perfected, and
first priority Security Interest in such real or personal property. Borrower and
ICC shall not, without Lender's prior written consent, sell, lease as a lessor,
or otherwise dispose of any of the Equipment; provided, however, that Borrower
and ICC may dispose of obsolete or unusable Equipment having an orderly
liquidation value no greater than $5,000 individually, and $50,000 in the
aggregate in any Fiscal Year, without Lender's consent, subject to the
conditions set forth below. In the event any of the Equipment is sold,
transferred or otherwise disposed of with Lender's prior written consent or as
otherwise permitted hereby and: (i) such sale, transfer or disposition is
effected without replacement of such Equipment, or such Equipment is replaced by
Equipment leased by Borrower or ICC, or by Equipment purchased by Borrower or
ICC subject to a lien or other right constituting a Permitted Lien, then
Borrower or ICC shall deliver all of the cash proceeds of any such sale,
transfer or disposition to Lender, which proceeds shall be applied to the
repayment of the Obligations; or (ii) such sale, transfer or disposition is made
in connection with the purchase by Borrower or ICC of replacement Equipment
(other than subject to a Permitted Lien), then Borrower or ICC shall use the
proceeds of such sale, transfer or disposition to finance the purchase by
Borrower or ICC of replacement Equipment and shall deliver to Lender written
evidence of the use of the proceeds for such purchase. All replacement Equipment
purchased by Borrower or ICC shall be free and clear of all liens, claims and
encumbrances, except for the Security Interest and other Permitted Liens.
6.9. Documents, Instruments, and Chattel Paper.
Borrower represents and warrants to Lender that: (a) all documents,
instruments and chattel paper describing, evidencing, or constituting
Collateral, and all signatures and endorsements thereon, are and will be
complete, valid and genuine, and (b) all are and will be owned by Borrower or
ICC free and clear of all Liens other than Permitted Liens.
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6.10. Right to Cure.
Lender may, in its sole discretion, pay any amount or do any act
required of Borrower hereunder in order to preserve, protect, maintain or
enforce the Obligations, the Collateral or the Security Interest, and which
Borrower or ICC fails to pay or do, including payment of any judgment against
Borrower, any insurance premium, any warehouse charge, processing charge, any
landlord's claim and any other Lien upon the Collateral. All payments that
Lender makes under this Section 6.10 and all outofpocket costs and expenses that
Lender pays or incurs in connection with any action taken by it hereunder shall
be charged to Borrower's loan account. Any payment made or other action taken by
Lender under this Section 6.10 shall be without prejudice to any right to assert
an Event of Default hereunder and to proceed accordingly. Borrower and ICC
hereby appoint Lender and Lender's designees as Borrower's attorney and as such,
shall have the power: (a) to endorse Borrower's or ICC's name on any checks,
notes, acceptances, money orders, or other forms of payment or security that
come into Lender's possession; (b) to sign Borrower's or ICC's name on any
document of title relating to any Collateral; (c) to notify the post office
authorities to change the address for delivery of Borrower's or ICC's mail to an
address designated by Lender and to open and dispose of all mail to Borrower or
ICC and (d) to do all things necessary to carry out this Agreement. Borrower and
ICC ratify and approve all acts of Lender and Lender's designees as Borrower's
attorney-in-fact. Neither Lender nor Lender's designee shall be liable for any
acts or omissions or for any error of judgment or mistake of fact or law. This
power, being coupled with an interest, is irrevocable until this Agreement has
been terminated and the Obligations have been fully satisfied.
6.11. Lender's Rights, Duties and Liabilities.
Borrower and ICC assume all responsibility and liability arising
from or relating to the use, sale or other disposition of the Collateral.
Neither Lender nor any of its officers, directors, employees, or agents shall be
liable or responsible in any way for the safekeeping of any of the Collateral,
or for any act or failure to act with respect to the Collateral, or for any
diminution in the value thereof, all of which shall be at Borrower's and ICC's
sole risk. The Obligations shall not be affected by any failure to Lender to
take any steps to perfect the Security Interest or to collect or realize upon
the Collateral, nor shall loss of or damage to the Collateral.
7. BOOKS AND RECORDS; FINANCIAL INFORMATION; NOTICES.
7.1. Books and Records.
Borrower and ICC shall maintain, at all times, correct and complete
books, records and accounts in which complete, correct and timely entries are
made of its transactions in accordance with GAAP. Borrower and ICC shall, by
means of appropriate entries, reflect in such accounts and in all financial
statements proper liabilities and reserves for all taxes and proper provision
for depreciation and amortization of Property and bad debts, all in accordance
with GAAP. Borrower and ICC shall maintain at all times books and records
pertaining to the Collateral in such detail, form, and scope as Lender shall
reasonably require.
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7.2. Financial Information.
Borrower and ICC shall promptly furnish to Lender all such financial
information as Lender shall reasonably request, and notify its auditors and
accountants that Lender is authorized to obtain such information directly from
them. Without limiting the foregoing, Borrower and its Subsidiaries will furnish
to Lender:
7.2.1. Promptly upon their becoming available, copies of each proxy
statement, financial statement and report which Borrower sends to its
shareholders;
7.2.2. Promptly after filing with the PBGC and the IRS a copy of
each annual report or other filing filed with respect to each Plan of Borrower
or any Related Company; and
7.2.3. Such additional information as Lender may from time to time
reasonably request regarding the financial and business affairs of Borrower or
any Subsidiary.
7.3. Notices to Lender.
In addition to other notices required under this Agreement, Borrower
and ICC shall notify Lender in writing of the following matters at the following
times:
7.3.1. Immediately after becoming aware of the existence of any
Event of Default;
7.3.2. Within two (2) days after becoming aware that the holder of
any capital stock of Borrower or ICC or of any Debt of Borrower or of ICC has
given notice or taken any action with respect to a claimed default;
7.3.3. Within two (2) days after becoming aware of any Material
Adverse Change in Borrower's or ICC's Property, business, operations or
condition (financial or otherwise) or of any event or circumstance could
reasonably be expected to result in a Material Adverse Change;
7.3.4. Within two (2) days after becoming aware of any pending or
threatened action, proceeding or counterclaim by any Person, or any pending or
threatened investigation by a Public Authority, which may materially and
adversely affect the Collateral, the repayment of the Obligations, Lender's
rights under the Loan Documents or Borrower's or ICC's Property, business,
operations or condition (financial or otherwise);
7.3.5. Within two (2) days after becoming aware of any pending or
threatened strike, work stoppage, material unfair labor practice claim or other
material labor dispute affecting Borrower, ICC or any of their Subsidiaries;
18
7.3.6. Within two (2) days after becoming aware of any violation of
any law, statute, regulation or ordinance of a Public Authority applicable to
Borrower or ICC, which may materially and adversely affect the Collateral, the
repayment of the Obligations, Lender's rights under the Loan Documents, or
Borrower's or ICC's Property, business, operations or condition (financial or
otherwise);
7.3.7. (a) Immediately after becoming aware of any Termination Event
with respect to a Plan, or any other Reportable Event with respect to a Plan,
accompanied by any materials required to be filed with the PBGC with respect
thereto; (b) immediately after Borrower's or ICC's receipt of any notice
concerning the imposition of any withdrawal liability under Section 4042 of
ERISA with respect to a Plan; (c) immediately upon the establishment of any Plan
not existing at the Closing Date or the commencement of contributions by
Borrower or ICC to any Plan to which Borrower or ICC was not contributing at the
Closing Date; and (d) immediately upon becoming aware of any other event or
condition regarding a Plan or Borrower's or ICC's or a Related Company's
compliance with ERISA which may materially and adversely affect Borrower's or
ICC's Property, business, operation or condition (financial or otherwise); and
7.3.8. Thirty (30) days prior to Borrower or ICC changing its name.
Each notice given under this Section 7.3 shall describe the subject matter
thereof in reasonable detail and shall set forth the action that Borrower or ICC
has taken or proposes to take with respect thereto.
8. GENERAL WARRANTIES AND REPRESENTATIONS.
Borrower and ICC jointly and severally continuously warrant and
represent to Lender, at all times during the term of this Agreement and until
all Obligations have been satisfied, that, in addition to other representations
and warranties set forth in this agreement and except as hereafter disclosed to
and accepted by Lender in writing:
8.1. Authorization, Validity, and Enforceability of this Agreement and
the Loan Documents.
Borrower has the corporate power and authority to execute, deliver
and perform this Agreement and the other Loan Documents, to incur the
Obligations and to grant the Security Interest. ICC has the corporate power and
authority to grant the Security Interest and to perform all of their obligations
contemplated by this Agreement. Borrower and ICC have taken all necessary
corporate action to authorize its execution, delivery and performance of this
Agreement and the other Loan Documents. No consent, approval or authorization
of, or filing with, any Public Authority, and no consent of any other Person, is
required in connection with Borrower's or ICC's execution, delivery and
performance of this Agreement and the other Loan Documents, except for those
already duly obtained. This Agreement and the other Loan Documents have been
duly executed and delivered by Borrower or ICC, as the case may be, and
constitute legal, valid and binding obligations of Borrower and ICC, as the case
may be, enforceable against them in accordance with their respective terms,
without defense, set-off, or
19
counterclaim. Borrower's and ICC's, as the case may be, execution, delivery and
performance of this Agreement and the other Loan Documents do not and will not
conflict with, or constitute a violation or breach of, or constitute a default
under, or result in the creation or imposition of any Lien upon the Property of
Borrower or ICC or any of their Subsidiaries (except as contemplated by this
Agreement and the other Loan Documents) by reason of the terms of (a) any
mortgage, lease, agreement, or instrument to which Borrower, ICC or any of their
Subsidiaries is a party or which is binding upon Borrower, ICC or any of their
Subsidiaries, (b) any judgment, law, statute, rule or governmental regulation
applicable to Borrower, ICC or any of their Subsidiaries or (c) the Certificate
or Articles of Incorporation or ByLaws of Borrower, ICC or any of their
Subsidiaries.
8.2. Validity and Priority of Security Interest.
The provisions of this Agreement and the other Loan Documents create
legal and valid Liens on all the Collateral in Lender's favor, and when all
proper filings, recordings, and other actions necessary to perfect such Liens
have been made or taken, such Liens will constitute perfected and continuing
Liens on all the Collateral except for Permitted Liens securing all the
Obligations, and will be enforceable against Borrower or ICC and all third
parties.
8.3. Organization and Qualification.
Borrower: (a) is duly incorporated and organized and validly
existing in good standing under the laws of the State of California; and is
qualified to do business in states, if any, in which qualification is necessary
in order for it to own or lease its Property and conduct its business; and (b)
has all requisite power and authority to conduct its business and to own its
Property, including all governmental permits, licenses and authorizations needed
to conduct its business.
ICC: (a) is duly incorporated and organized and validly existing in
good standing under the laws of the State of Delaware; (b) is qualified to do
business as a foreign corporation and is in good standing in the States of
Arizona, California, Hawaii, Nevada, Oregon and Washington which are the only
states in which qualification is necessary in order for it to own or lease its
Property or conduct its business; and (c) has all requisite power and authority
to conduct its business and to own its Property, including all governmental
permits, licenses and authorizations needed to conduct its business.
8.4. Corporate Name; Prior Transactions.
Neither Borrower nor ICC has, during the past five (5) years, been
known by or used any other corporate or fictitious name, or been a party to any
merger or consolidation, or acquired all or substantially all of the assets of
any Person, or acquired any of its Property out of the ordinary course of
business, except as set forth on Schedule 8.4.
8.5. Subsidiaries and Affiliates.
A correct and complete list of the name and relationship to Borrower
of each and all of Borrower's Subsidiaries and other Affiliates (other than
Lender, Casey or Richard) is set
20
forth in Schedule 8.5. Each Subsidiary and Affiliate is (a) duly incorporated
and organized and validly existing in good standing under the laws of its state
of incorporation set forth on Schedule 8.5 and (b) qualified to do business as a
foreign corporation and in good standing in the states set forth opposite its
name on Schedule 8.5, which are the only states in which such qualification is
necessary in order for it to own or lease its Property and conduct its business.
8.6. Use of Proceeds.
8.6.1. None of the transactions contemplated in this Agreement
(including the use of certain proceeds from such Loans) will violate or result
in the violation of Section 7 of the Securities Exchange Act of 1934, as
amended, or any regulations issued pursuant thereto, including Regulations G, T,
U and X of the Board of Governors of the Federal Reserve System ("Federal
Reserve Board"), 12 C.F.R., Chapter II. Borrower does not own or intend to carry
or purchase any "margin stock" within the meaning of said Regulation G. None of
the proceeds of the Loans will be used, directly or indirectly, to purchase or
carry (or refinance any borrowing, the proceeds of which were used to purchase
or carry) any "margin stock" within the meaning of the Securities Exchange Act
of 1934, as amended.
8.6.2. Borrower will use the proceeds of the Loan for no purposes
other than (i) to repay certain obligations of Borrower to Lender; (ii) to make
capital contributions to ICC; and (iii) for Borrower's general corporate
purposes.
8.7. Public Disclosure.
At the time of filing or submission, no document filed by Borrower
with the Securities and Exchange Commission pursuant to the Securities Exchange
Act of 1934, as amended, contains any untrue statement of a material fact or
omits to state any material fact necessary in order to make the statements
contained herein or therein not misleading.
8.8. Intangible Property.
Borrower and ICC possess adequate assets, licenses, patents, patent
applications, copyrights, trademarks, trademark applications and trade names for
the present and planned future conduct of its business without any known
conflict with the rights of others, and each is valid and has been duly
registered or filed with the appropriate governmental authorities.
8.9. Capital.
Upon Closing, Borrower and ICC shall have capital sufficient to
conduct their business, will be able to pay their debts as they mature and own
property having a fair salable or realizable value greater than the amount
required to pay all of its debts (including contingent debts). Lender
acknowledges that, subject to the terms of this Agreement, Borrower may obtain
commercially reasonable lines of credit in the ordinary course of business.
21
8.10. Material Litigation.
Except for the items set forth and described on Schedule 8.10,
neither Borrower nor ICC has any pending or knowledge of any threatened
litigation, actions or proceedings which would, if adversely determined,
materially and adversely affect its business, assets, operations, prospects or
condition, financial or otherwise, or the Collateral or any of Lender's
interests therein.
8.11. Title, Security Interests of Lender.
Borrower or ICC has good, indefeasible and merchantable title to the
Collateral and, upon the filing of UCC-1 Financing Statements in the appropriate
offices, this Agreement and such documents shall create valid and perfected
first priority liens in the Collateral (other than (a) Collateral consisting of
Receivables which the account debtor is the United States or any agency thereof
and (b) Collateral to which a perfected lien may be obtained only by possession
of such Collateral), subject only to Permitted Liens.
8.12. Restrictive Agreements, Labor Contracts.
Neither Borrower nor ICC is a party or subject to any contract or
subject to any charge, corporate restriction, judgment, decree or order
materially and adversely affecting its business, assets, operations, prospects
or condition, financial or otherwise, or which restricts its right or ability to
incur Indebtedness, and are not party to any labor dispute. In addition, no
labor contract of either Borrower or ICC is scheduled to expire during the
Initial Term of this Agreement, except as disclosed on Schedule 8.12 hereto.
8.13. Laws.
Neither Borrower nor ICC is in violation of any applicable statute,
regulation, ordinance or any order of any court, tribunal or governmental
agency, in any respect materially and adversely affecting the Collateral or
their business, assets, operations, prospects or condition, financial or
otherwise.
8.14. Consents.
Borrower and ICC have obtained or caused to be obtained or issued
any required consent of a governmental agency or other Person in connection with
the financing contemplated hereby.
8.15. Defaults.
Except as disclosed on Schedule 8.15 hereto, neither Borrower nor
ICC is in default with respect to any note, indenture, loan agreement, mortgage,
lease, deed or other agreement to which it is a party or by which it or its
assets are bound, nor has any event occurred which, with the giving of notice or
the lapse of time, or both, would cause such a default.
22
8.16. Financial Condition.
The financial information provided to Lender, specifically including
the third quarter, 1998 financial statements of Borrower and ICC (the "Current
Financial Statements") fairly represents Borrower's and ICC's financial
condition and results of operations and those of such other Persons described
therein as of the date thereof; there are no material omissions from the
financial information or other facts or circumstances not reflected in the
financial information; and there has been no material and adverse change in such
financial condition or operations since the date of the Current Financial
Statements delivered to Lender hereunder.
8.17. ERISA.
None of Borrower, ICC, any ERISA Affiliate, or any Plan is or has
been in violation of any of the provisions of ERISA, any of the qualification
requirements of IRC Section 401(a) or any of the published interpretations
thereunder, nor has Borrower or any ERISA Affiliate received any notice to such
effect. No notice of intent to terminate a Plan has been filed under Section
4041 of ERISA, nor has any Plan been terminated under ERISA. No lien upon the
assets of Borrower or ICC has arisen with respect to a Plan. No prohibited
transaction or reportable event has occurred with respect to a Plan. Neither
Borrower, ICC nor any ERISA Affiliate has incurred any withdrawal liability with
respect to any multiemployer Plan. Borrower, ICC and each ERISA Affiliate have
made all contributions required to be made by them to any Plan or Multiemployer
Plan when due. There is no accumulated funding deficiency in any Plan, whether
or not waived;
8.18. Taxes.
Borrower and ICC have filed all tax returns and such other reports
as they are required by law to file and have paid or made adequate provision for
the payment on or prior to the date when due of all taxes, assessments and
similar charges that are due and payable;
8.19. Business Relationships.
Except as set forth in Schedule 8.19 hereto, there exists no actual
or threatened termination, cancellation or limitation of, or any modification or
change in, the business relationship between Borrower or ICC and any customer or
any group of customers whose purchases individually or in the aggregate are
material to the business of Borrower or ICC, or with any material supplier, and
there exists no present condition or state of facts or circumstances which would
materially and adversely affect Borrower or ICC or prevent Borrower or ICC from
conducting such business after the consummation of the transactions contemplated
by this Agreement in substantially the same manner in which it has heretofore
been conducted; and
8.20. ICC Ownership.
As of the date hereof, Borrower owns one hundred percent (100%) of
all the outstanding stock in ICC. After the transactions contemplated herein are
consumated, Borrower shall not own less than 93% of the outstanding stock of ICC
(excluding stock subject to
23
employee or consultant stock options which do not exceed 8.55% of the
outstanding stock of ICC) and there are no valid outstanding rights of any third
party to acquire any stock in ICC.
9. AFFIRMATIVE AND NEGATIVE COVENANTS.
In addition to other covenants contained in this Agreement, Borrower
and ICC covenant that, so long as any of the Obligations remains outstanding:
9.1. Taxes and Other Obligations.
Borrower and ICC shall each: (a) file when due all tax returns and
other reports which it is required to file, pay when due all taxes, fees,
assessments and other governmental charges against it or upon its Property,
income, and franchises, make all required withholding and other tax deposits,
and establish adequate reserves for the payment of all such items, and shall
provide to Lender, upon request, satisfactory evidence of its timely compliance
with the foregoing; and (b) pay when due all Debt owed by it and perform and
discharge in a timely manner all other obligations undertaken by it; provided,
however, that Borrower and ICC need not pay any tax, fee, assessment,
governmental charge or Debt, or perform or discharge any other obligation, that
it is contesting in good faith by appropriate proceedings diligently pursued and
with respect to which prior notice has been given to Lender and reserves
satisfactory to Lender have been provided or a bond satisfactory to Lender has
been posted.
9.2. Corporate Existence and Good Standing.
Borrower, ICC and each of their Subsidiaries shall maintain its
corporate existence and its qualification and good standing in all states
necessary to conduct its business and own its Property, and shall obtain and
maintain all licenses, permits, franchises and governmental authorizations
necessary to conduct its business and own its Property.
9.3. Maintenance of Property and Insurance.
Borrower, ICC and each of their Subsidiaries shall: (a) maintain all
of its Property necessary and useful in its business in good operating condition
and repair, ordinary wear and tear excepted; and (b) maintain with financially
sound and reputable insurers such other insurance with respect to its Property
and business against casualties and contingencies of such types (including
business interruption, environmental liability, public liability, product
liability, and larceny, embezzlement or other criminal misappropriation) and in
such amounts as is customary for Persons of established reputation engaged in
the same or a similar business and similarly situated, naming Lenderas
additional insured under each such policy.
9.4. Mergers, Consolidations, Acquisitions or Sales.
Except with the prior written consent of Lender or in connection
with the reincorporation of Borrower in the State of Delaware (provided such
reincorporation does not alter the ownership of Borrower) neither Borrower nor
ICC shall enter into any transaction of merger, reorganization or consolidation,
or transfer, sell, assign, lease or otherwise dispose of all
24
or any material part of its Property other than in the ordinary course of
business, or windup, liquidate or dissolve, or agree to do any of the foregoing.
9.5. Transactions Affecting Collateral or Obligations.
Neither Borrower, ICC nor any of their Subsidiaries shall enter into
any transaction which materially and adversely affects the Collateral or
Borrower's ability to repay the Obligations.
9.6. Guaranties.
Neither Borrower, ICC nor any of their Subsidiaries shall make,
issue, or become liable on any Guaranty, except Guaranties in favor of Lender.
9.7. Debt.
Neither Borrower, ICC nor any of their Subsidiaries shall incur or
maintain any Debt, other than: (a) the Obligations; (b) trade payables and other
contractual obligations to suppliers and customers incurred in the ordinary
course of business; (c) Debt incurred to finance the purchase of Equipment in
the ordinary course of business; (d) other Debt set forth on Schedule 9.7; and
(e) intercompany accounts.
9.8. Prepayment.
Neither Borrower, ICC nor any of their Subsidiaries shall
voluntarily prepay any Debt, except the Obligations in accordance with their
terms.
9.9. Transactions with Affiliates.
Except as set forth below, or, as otherwise allowed under the Loan
Documents, neither Borrower, ICC nor any of their Subsidiaries shall: sell,
transfer, distribute or pay any money or Property to any Affiliate, or lend or
advance money or Property to any Affiliate, or invest in (by capital
contribution or otherwise) or purchase or repurchase any stock or indebtedness,
or any Property, of any Affiliate, pay any dividends, or become liable on any
Guaranty of the indebtedness, dividends, or other obligations of any Affiliate.
Notwithstanding the foregoing: Borrower and ICC may (i) pay commercially
reasonable compensation to employees, (ii) invest in any of its Subsidiaries (by
capital contribution or otherwise), (iii) provide the Guaranty by ICC of the
obligations of Casey under the Secured Promissory Note issued by Casey to Lender
on November 4, 1998 or any other obligations of Casey owing to Lender, (iv)
redeem Borrower's stock owned by Casey and Lender and (v) if no Event of Default
has occurred and is continuing, Borrower and ICC may engage in transactions with
Affiliates in the normal course of business, in amounts and upon terms fully
disclosed to Lender, provided that such terms are no less favorable to Borrower
or the Subsidiary, as the case may be, than those which would be obtainable in a
comparable arm's length transaction with a third party who is not an Affiliate.
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9.10. Liens.
Neither Borrower, ICC nor any of their Subsidiaries shall create,
incur, assume, or permit to exist any Lien on any Property now owned or
hereafter acquired by any of them, except Permitted Liens.
9.11. Restricted Investments.
Neither Borrower, ICC nor any of their Subsidiaries shall make any
Restricted Investment.
9.12. Equity Sales.
Without the prior consent of Lender, neither Borrower, ICC nor any
of their Subsidiaries shall sell any equity securities or grant any option or
other rights to purchase or acquire any equity securities.
9.13. EBITDA and Other Financial Covenants.
Borrower and ICC shall comply with the financial covenants set forth
on Schedule 9.13.
9.14. Intentionally Deleted.
Intentionally deleted.
9.15. Further Assurances.
Borrower and ICC shall execute and deliver, or cause to be executed
and delivered, to Lender such documents and agreements, and shall take or cause
to be taken such actions, as Lender may, from time to time, request, to carry
out the terms and conditions of this Agreement and the other Loan Documents.
9.16. Expenses.
Borrower or ICC shall Promptly reimburse Lender for all costs, fees
and expenses incurred by Lender in connection with the negotiation, preparation,
execution, delivery, administration and enforcement of each of the Loan
Documents, including, but not limited to, the attorneys' and paralegals' fees of
in-house and outside counsel, expert witness fees, lien, title search and
insurance fees, appraisal fees, all charges and expenses incurred in connection
with any and all environmental reports and environmental remediation activities,
and all other costs, expenses, taxes and filing or recording fees payable in
connection with the transactions contemplated by this Agreement, including
without limitation all such costs, fees and expenses as Lender shall incur or
for which Lender shall become obligated in connection with (i) any inspection or
verification of the Collateral, (ii) any proceeding relating to the Loan
Documents or the Collateral, (iii) actions taken with respect to the Collateral
and Lender's security interest therein, including, without limitation, the
defense or prosecution of any action involving Lender and Borrower or any third
party, (iv) enforcement of any of Lender's rights and remedies with
26
respect to the Obligations or Collateral, and (v) consultation with Lender's
attorneys and participation in any workout, bankruptcy or other insolvency or
other proceeding involving Borrower, ICC or any Affiliate, whether or not suit
is filed. Borrower shall also pay all Lender charges in connection with bank
wire transfers, forwarding of loan proceeds, deposits of checks and other items
of payment, returned checks, establishment and maintenance of lockboxes and
other blocked accounts, and all other bank and administrative matters, in
accordance with Lender's schedule of bank and administrative fees and charges in
effect from time to time;
9.17. Notice of Litigation.
Borrower or ICC shall promptly notify Lender in writing of any
litigation, suit or administrative proceeding which could reasonably be expected
to lead to a Material Adverse Change in the Collateral or Borrower's or ICC's
business, assets, operations, prospects or condition, financial or otherwise,
whether or not the claim is covered by insurance;
9.18. ERISA.
Borrower or ICC shall notify Lender in writing (i) promptly upon the
occurrence of any event described in Paragraph 4043 of ERISA, other than a
termination, partial termination or merger of a Plan or a transfer of a Plan's
assets and (ii) prior to any termination, partial termination or merger of a
Plan or a transfer of a Plan's assets;
9.19. Labor Disputes.
Borrower or ICC, as the case may be, shall promptly notify Lender in
writing of any labor dispute (excluding isolated or individual actions which
either individually or in the aggregate could reasonably be expected to lead to
a Material Adverse Change) to which Borrower is or may become subject and the
expiration of any labor contract to which Borrower is a party or bound.
9.20. Capital Expenditures.
Borrower or ICC, as the case may be, shall promptly notify Lender in
writing of the making of any capital Expenditure materially affecting Borrower's
or ICC's business, assets, prospects, operations or condition, financial or
otherwise.
9.21. Name.
Neither Borrower nor ICC shall use any corporate or fictitious name
other than its corporate name as set forth in its Articles or Certificate of
Incorporation on the date hereof.
10. CLOSING; CONDITIONS TO CLOSING.
Lender will not be obligated to make the Loan, unless the following
conditions precedent have been satisfied as determined by Lender:
27
10.1. Representations and Warranties; Covenants; Events.
Borrower's and ICC's representations and warranties contained in
this Agreement and the other Loan Documents shall be correct and complete as of
the Closing Date; Borrower and ICC shall have performed and complied with all
covenants, agreements, and conditions contained herein and in the other Loan
Documents which are required to have been performed or complied with on or
before the Closing Date; and there shall exist no Event or Event of Default on
the Closing Date.
10.2. Delivery of Documents.
Borrower shall have delivered, or cause to be delivered, to Lender
the following documents fully executed by Borrower and any party thereto other
than Lender:
10.2.1. The Notes in the form of Exhibit A;
10.2.2. Warrants to purchase two million shares of Borrower's Common
Stock at an exercise price of $1.00 per share and Warrants to purchase one
million shares of Borrower's Common Stock at an exercise price of $2.25 per
share, substantially in the form of Exhibit B;
10.2.3. A UCC-1 financing statement substantially in the form of
Exhibit C;
10.2.4. The Registration Rights Agreement substantially in the form
of Exhibit D;
10.2.5. The Guaranty in the form of Exhibit E;
10.2.6. Assignments of rights under contracts with any local
exchange carrier with which Borrower or ICC is doing business;
10.2.7. Certificates of good standing for Borrower and ICC from the
secretary of state of their states of incorporation and certificates of
qualification to do business from states where Borrower or ICC are conducting
business;
10.2.8. Board resolutions and incumbency certificates from Borrower
and ICC authorizing the transactions contemplated by this Agreement;
10.2.9. Fully executed UCC-3 financing statements or similar UCC
statements evidencing assignment of the debt from Worldcom and First Bank;
10.2.10. Opinion of counsel to Borrower and ICC for the benefit of
Lender in form and substance acceptable to Lender;
28
10.2.11. An environmental certificate from Borrower and ICC, in form
and substance acceptable to lender, with respect to the offices set forth on
Exhibit F;
10.2.12. Intentionally deleted;
10.2.13. Evidence assuring Lender that there is no breach by the
plaintiffs in the Class Action Lawsuit under the settlement agreement that
would, in Lender's judgment, cause such settlement agreement not to close as
contemplated;
10.2.14. All documents which Borrower was obligated to deliver to
Lender as a condition of the Bridge Loan specified in the October 30, 1998
Commitment to Fund letter between Lender and Borrower; and
10.2.15. All other documents, certificates, or materials requested
by Lender to evidence compliance with the terms and conditions of this
Agreement.
11. DEFAULT; REMEDIES.
11.1. Events of Default.
It shall constitute an event of default ("Event of Default") if any
one or more of the following shall occur for any reason:
11.1.1. any failure to make payment of principal, interest or fees
on any of the Obligations when due;
11.1.2. any representation or warranty made by Borrower or ICC in
this Agreement, any of the other Loan Documents, or any certificate furnished by
Borrower, ICC or any of their Subsidiaries at any time to Lender shall prove to
be untrue in any material respect as of the date when made or furnished;
11.1.3. default shall occur in the observance or performance of any
of the covenants and agreements contained in this Agreement, the Notes, any
other Loan Document, or any other agreement entered into at any time to which
Borrower, ICC or any of their Subsidiaries and Lender are party, or if any such
agreement or document shall terminate (other than in accordance with its terms
or the terms hereof or with the written consent of Lender) or become void or
unenforceable without the written consent of Lender;
11.1.4. any default by Borrower or ICC under any agreement or
instrument which could reasonably be expected to lead to a Material Adverse
Change;
11.1.5. except as set forth on Schedule 11.1.5, any default by
Borrower or ICC in any payment of an amount greater than $25,000 per individual
occurrence or $250,000 in the aggregate of all such defaults or alleged defaults
relating to (i) principal
29
or interest on any indebtedness (other than the Obligations) for borrowed money
beyond any period of grace provided with respect thereto or (ii) the performance
of any other agreement, term or condition contained in any agreement under which
any such obligation is contained therin; provided, however, that there shall be
no threshold allowance for any default under any local exchange carrier contract
where there is no grace period or for any obligation of Borrower or ICC to
Worldcom
11.1.6. Borrower or ICC shall make a general assignment for benefit
of creditors; or any proceeding shall be instituted by Borrower seeking to
adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up,
reorganization, arrangement, adjustment, protection relief, or composition of it
or its debts under law relating to bankruptcy, insolvency or reorganization or
relief of debtors, or seeking entry of an order for relief or the appointment of
a receiver, trustee, or other similar official for it or for any substantial
part of its property or Borrower or ICC, as the case may be, shall take any
corporate action to authorize any of the actions set forth above in this Section
11.1.6;
11.1.7. an involuntary petition shall be filed or an action or
proceeding otherwise commenced against Borrower or ICC seeking reorganization,
arrangement or readjustment of Borrower's or ICC's debts or for any other relief
under the Federal Bankruptcy Code, as amended, or under any other bankruptcy or
insolvency act or law, state or federal, now or hereafter existing and remain
undismissed or unvacated for a period of forty-five (45) days;
11.1.8. a receiver, assignee, liquidator, trustee or similar officer
for Borrower or ICC or for all or any part of their Property shall be appointed
involuntarily;
11.1.9. Borrower or ICC shall file a certificate of dissolution
under applicable state law or shall be liquidated, dissolved or woundup or shall
commence or have commenced against it any action or proceeding for dissolution,
windingup or liquidation, or shall take any corporate action in furtherance
thereof; Borrower or ICC shall be nationalized, expropriated or condemned,
seized or otherwise appropriated, or custody or control of such Property or of
Borrower or ICC shall be assumed by any Public Authority or any court of
competent jurisdiction at the instance of any Public Authority, except where
contested in good faith by proper proceedings diligently pursued where a stay of
enforcement is in effect;
11.1.10. any guaranty of the Obligations shall be terminated,
revoked or declared void or invalid;
11.1.11. one or more final judgments for the payment of money, which
could reasonably be expected to lead to a Material Adverse Change, shall be
rendered against Borrower or ICC and Borrower or ICC shall fail to discharge the
same within forty-five (45) days from the date of notice of entry thereof or to
appeal therefrom;
30
11.1.12. any loss, theft, damage or destruction of any item or items
of Collateral occurs which: (i) materially and adversely affects the operation
of Borrower's or ICC's business; or (ii) is material in amount and is not
adequately covered by insurance;
11.1.13. Borrower ceases to own 93% of the outstanding stock of ICC
(excluding stock subject to employee or consultant stock options which do not
exceed 8.55% of the outstanding stock of ICC);
11.1.14. any event or condition shall occur or exist with respect to
a Plan that could, in Lender's reasonable judgment, subject Borrower, ICC or any
of their Subsidiaries to any tax, penalty or other liabilities under ERISA or
the Code in the aggregate material in relation to the business, operations,
Property or financial or other condition of Borrower, ICC and their
Subsidiaries, taken as a whole;
11.1.15. Borrower or ICC shall generally not pay its debts as debts
become due or shall admit its inability to pay its debts generally;
11.1.16. a Material Adverse Change shall occur; or
11.1.17. Lender determines in its sole judgment that the balance of
collectable Receivables drops or has dropped below the amounts set forth in
Schedule 9.13 or any of the financial targets set forth on Schedule 9.13 are not
met.
11.2. Remedies.
11.2.1. If an Event of Default exists, Lender may, without notice to
or demand on Borrower, do one or more of the following at any time or times and
in any order: (i) terminate this Agreement; (ii) declare any or all Obligations
to be immediately due and payable (provided, however, that upon the occurrence
of any Event of Default described in Section , Section , Section or Section ,
all Obligations shall automatically become immediately due and payable without
any action by Lender); and (iii) pursue its other rights and remedies under the
Loan Documents and applicable law.
11.2.2. If an Event of Default exists: (i) Lender shall have, in
addition to all other rights, the rights and remedies of a secured party under
the UCC; (ii) Lender may, at any time, take possession of the Collateral and
make it available to Lender at a place or places reasonably convenient to
Lender; (iii) Lender may use any and all of the Collateral including the General
Intangibles to continue the business of Borrower or ICC and (iv) Lender may sell
and deliver any Collateral at public or private sales, for cash, upon credit or
otherwise, at such prices and upon such terms as Lender deems advisable, in its
sole discretion, and may, if Lender deems it reasonable, postpone or adjourn any
sale of the Collateral by an announcement at the time and place of sale or such
postponed or adjourned sale without giving a new notice of sale. Without in any
way requiring
31
notice to be given in the following manner, Borrower and ICC agree that any
notice by Lender of sale, disposition or other intended action hereunder or in
connection herewith, whether required by the UCC or otherwise, shall constitute
reasonable notice to Borrower and ICC if such notice is mailed by registered or
certified mail, return receipt requested, postage prepaid, or is delivered
personally against receipt, at least five (5) days prior to such action to
Borrower's address specified in or pursuant to Section . If any Collateral is
sold on terms other than payment in full at the time of sale, no credit shall be
given against the Obligations until Lender receives payment, and if the buyer
defaults in payment, Lender may resell the Collateral without further notice to
Borrower or ICC. In the event Lender seeks to take possession of all or any
portion of the Collateral by judicial process, Borrower and ICC irrevocably
waives: (a) the posting of any bond, surety or security with respect thereto
which might otherwise be required; (b) any demand for possession prior to the
commencement of any suit or action to recover the Collateral; and (c) any
requirement that Lender retain possession and not dispose of any Collateral
until after trial or final judgment. Borrower and ICC each agree that Lender has
no obligation to preserve rights to the Collateral or marshal any Collateral for
the benefit of any Person. Lender is hereby granted a license or other right to
use, without charge, Borrower's and ICC's labels, patents, copyrights, name,
trade secrets, trade names, trademarks, and advertising matter, or any similar
property, in completing production of, advertising or selling any Collateral,
and Borrower's and ICC's rights under all licenses and all franchise agreements
shall inure to Lender's benefit. The proceeds of sale shall be applied first to
all expenses of sale, including attorneys' fees, and second, in whatever order
Lender elects, to all Obligations. Lender shall return any excess to Borrower
and Borrower and ICC shall remain liable for any deficiency.
11.2.3. If an Event of Default occurs, Borrower and ICC each hereby
waives all rights to notice and hearing prior to the exercise by Lender of
Lender's rights to repossess the Collateral without judicial process or to
replevy, attach or levy upon the Collateral without notice or hearing.
12. MISCELLANEOUS.
12.1. Cumulative Remedies; No Prior Recourse to Collateral.
The enumeration herein of Lender's rights and remedies is not
intended to be exclusive, and such rights and remedies are in addition to and
not by way of limitation of any other rights or remedies that Lender may have
under the UCC or other applicable law. Lender shall have the right, in its sole
discretion, to determine which rights and remedies are to be exercised and in
which order. The exercise of one right or remedy shall not preclude the exercise
of any others, all of which shall be cumulative. To the extent permitted by law,
Lender may, without limitation, proceed directly against Borrower or ICC to
collect the Obligations without any prior recourse to the Collateral.
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12.2. No Implied Waivers.
No act, failure or delay by Lender shall constitute a waiver of any
of its rights and remedies. No single or partial waiver by Lender of any
provision of this Agreement, or any other Loan Document, or of breach or default
hereunder or thereunder, or of any right or remedy which Lender may have, shall
operate as a waiver of any other provision, breach, default, right or remedy or
of the same provision, breach, default, right or remedy on a future occasion. No
waiver by Lender shall affect its right to require strict performance of this
Agreement except as to the matter waived.
12.3. Severability.
Any provision of this Agreement which is prohibited or invalid under
applicable law of any jurisdiction (including without limitation federal or
state regulatory authorities) shall be ineffective to the extent of such
prohibition or unenforceability, without invalidating the remainder of this
Agreement, and any such prohibition or unenforceability in any jurisdiction
shall not invalidate or render unenforceable such provision in any other
jurisdiction.
12.4. Governing Law.
This Agreement shall be deemed to have been made in the State of
Colorado and shall be governed by and interpreted in accordance with the laws of
such state, except that no doctrine of choice of law shall be used to apply the
laws of any other state or jurisdiction and except to the extent that the law of
the location of the Collateral would govern, and in that case that law shall
govern with respect to issues concerning perfection and remedies available with
respect to the Collateral located there only.
12.5. Consent to Jurisdiction and Venue; Service of Process.
Borrower and ICC agree that, in addition to any other courts that
may have jurisdiction under applicable laws, any action or proceeding to enforce
or arising out of this Agreement or any of the other Loan Documents may be
commenced in the state court of original jurisdiction of the State of Colorado
for Jefferson County, or in the United States District Court for Colorado, and
Borrower and ICC consent and submit in advance to such jurisdiction, agrees that
venue will be proper in such courts on any such matter and irrevocably waive,
and agree not to plead or claim, any objection that either may ever have to the
venue of any such action or proceeding in any such court or that such action or
proceeding was brought in an inconvenient court. Borrower and ICC hereby waive
personal service of process and agrees that a summons and complaint commencing
an action or proceeding in any such court shall be properly served and shall
confer personal jurisdiction if served by registered or certified mail to
Borrower or ICC. Should Borrower or ICC fail to appear or answer any summons,
complaint, process or papers so served within thirty (30) days after the mailing
or other service thereof, it shall be deemed in default and an order or judgment
may be entered against it as demanded or prayed for in such summons, complaint,
process or papers. The choice of forum set forth in this Section 12.5 shall not
be deemed to preclude the enforcement of any judgment obtained in such forum, or
the taking of any action under this Agreement to enforce the same, in any
appropriate jurisdiction.
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12.6. Waivers.
BORROWER AND ICC HEREBY WAIVE TRIAL BY JURY, RIGHTS OF SETOFF, AND
THE RIGHT TO INTERPOSE COUNTERCLAIMS IN ANY LITIGATION IN ANY COURT WITH RESPECT
TO, IN CONNECTION WITH, OR ARISING OUT OF THIS AGREEMENT, THE OTHER LOAN
DOCUMENTS, THE OBLIGATIONS OR THE COLLATERAL, OR ANY INSTRUMENT OR DOCUMENT
DELIVERED PURSUANT HERETO OR THERETO, OR ANY OTHER CLAIM OR DISPUTE HOWSOEVER
ARISING, BETWEEN BORROWER OR ICC AND LENDER. BORROWER AND ICC CONFIRM THAT THE
FOREGOING WAIVERS ARE INFORMED AND FREELY MADE.
12.7. Survival of Representations and Warranties.
All of Borrower's and ICC's representations and warranties contained
in this Agreement shall survive the execution, delivery, and acceptance thereof
by the parties, notwithstanding any investigation by Lender or its agents.
12.8. Indemnification.
Borrower and ICC hereby jointly and severally indemnify, defend and
hold Lender, and its directors, officers, agents, employees and counsel,
harmless from and against any and all losses, claims, damages, liabilities,
expenses, deficiencies, judgments or penalties imposed on, incurred by or
asserted against any of them, whether direct, indirect or consequential, arising
out of or by reason of any litigation, investigations, claims, or proceedings
(whether based on any federal, state or local laws or other statutes or
regulations, including securities, environmental, or commercial laws and
regulations, under common law or at equitable cause, or on contract or
otherwise) commenced or threatened, which arise out of or in any way based upon
the negotiation, preparation, execution, delivery, enforcement, performance or
administration of this Agreement, any other Loan Document, or any undertaking or
proceeding related to any of the transactions contemplated hereby or any act,
omission to act, event or transaction related or attendant thereto, including
amounts paid in settlement, court costs, and the fees and expenses of counsel
reasonably incurred in connection with any such litigation, investigation, claim
or proceeding. Without limiting the foregoing, if, by reason of any suit or
proceeding of any kind, nature, or description against Borrower or ICC, or by
Borrower or ICC or any other party against Lender, which in Lender's sole
discretion makes it advisable for Lender to seek counsel for protection and
preservation of its liens and security assets, or to defend its own interest,
such expenses and counsel fees shall be allowed to Lender. To the extent that
the undertaking to indemnify, pay and hold harmless set forth in this Section
12.8 may be unenforceable because it is violative of any law or public policy,
Borrower and ICC shall contribute the maximum portion which it is permitted to
pay and satisfy under applicable law, to the payment and satisfaction of all
indemnified matters incurred by Lender. The foregoing indemnity shall survive
the payment of the Obligations and the termination of this Agreement. All of the
foregoing costs and expenses shall be part of the Obligations and secured by the
Collateral.
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12.9. Other Security and Guaranties.
Lender may, without notice or demand and without affecting
Borrower's or ICC's obligations hereunder, from time to time: (a) take from any
Person and hold collateral (other than the Collateral) for the payment of all or
any part of the Obligations and exchange, enforce or release such collateral or
any part thereof; and (b) accept and hold any endorsement or guaranty of payment
of all or any part of the Obligations and release any such endorser or
guarantor, or any Person who has given any Lien in any other collateral as
security for the payment of all or any part of the Obligations, or any other
Person in any way obligated to pay all or any part of the Obligations.
12.10. Notices.
All notices, demands and requests that either party is required or
elects to give to the other shall be in writing, shall be delivered personally
against receipt, or sent by recognized overnight courier service, or mailed by
registered or certified mail, return receipt requested, postage prepaid, or sent
by telex or telecopy, and shall be addressed to the party to be notified as
follows:
If to the
Lender: Ironwood Telecom LLC
555 Zang Street, Suite 300
Lakewood, Colorado 80228
Attention: Mr. John P. Hill
Telecopier: (303) 985-5875
with a copy to: Howrey & Simon
1299 Pennsylvania Ave., N.W.
Washington, D.C. 20004-2402
Attention: Roger A. Klein, Esquire
Telecopier: (202) 383-6610
If to the
Borrower: Incomnet, Inc.
2801 Main Street
Irvine, California 92614
Attention: Mr. Denis Richard
Telecopier: (949) 224-7474
with a copy to: Heller Ehrman White & McAuliffe
601 South Figueroa Street, 40th Floor
Los Angeles, California 90017
Attention: Paul H. Greiner, Esquire
Telecopier: (213) 614-1868
35
If to ICC: Incomnet Communications Corporation
2801 Main Street
Irvine, California 92614
Attention: Mr. Denis Richard
Telecopier: (949) 224-7474
or to such other address as each party may designate for itself by like notice.
Any such notice, demand, or request shall be deemed given when received if
personally delivered or sent by overnight courier, or when deposited in the
United States mails, postage paid, if sent by registered or certified mail, or
when answerback received, if sent by telex or telecopier.
12.11. Waiver of Notices.
Unless otherwise expressly provided herein, Borrower and ICC waive
presentment, protest and notice of demand or dishonor and protest as to any
instrument, as well as any and all other notices to which it might otherwise be
entitled. No notice to or demand on Borrower which Lender may elect to give
shall entitle Borrower or ICC to any further notice or demand in the same,
similar or other circumstances.
12.12. Binding Effect; Assignment; Disclosure.
The provisions of this Agreement shall be binding upon and inure to
the benefit of the respective representatives, successors and assigns of the
parties hereto; provided, however, that no interest herein may be assigned by
Borrower or ICC without the prior written consent of Lender. The rights and
benefits of Lender hereunder shall, if Lender so agrees, inure to any party
acquiring any interest in the Obligations or any part thereof. Borrower and ICC
agree that Lender may use Borrower's or ICC's name in advertising and
promotional materials and in conjunction therewith disclose the general terms of
this Agreement.
12.13. Modification.
This Agreement is intended by Borrower, ICC and Lender to be the
final, complete, and exclusive expression of the agreement between them. This
Agreement supersedes any and all prior and contemporaneous oral or written
agreements relating to the subject matter hereof. No modification, rescission,
waiver, release, or amendment of any provision of this Agreement shall be made,
except by a written agreement signed by Borrower and ICC and a duly authorized
officer of Lender.
12.14. Counterparts.
This Agreement may be executed in any number of counterparts, and by
Lender, Borrower and ICC in separate counterparts, each of which shall be an
original, but all of which shall together constitute one and the same agreement.
12.15. Captions.
The captions contained in this Agreement are for convenience only,
are without substantive meaning and should not be construed to modify, enlarge,
or restrict any provision.
36
12.16. Right of SetOff.
Whenever an Event of Default exists, Lender is hereby authorized at
any time, and from time to time, 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 Lender or any affiliate of Lender to or
for the credit or the account of Borrower or ICC against any and all of the
Obligations, whether or not then due and payable. Lender agrees promptly to
notify Borrower or ICC after any such setoff and application made by Lender,
provided that the failure to give such notice shall not affect the validity of
such setoff and application.
12.17. Fees and Expenses.
Borrower or ICC shall pay to Lender on demand, all costs and
expenses that Lender pays or incurs in connection with the negotiation,
preparation, consummation, administration, enforcement, and termination of this
Agreement, including, without limitation reasonable attorneys' fees and
disbursements of counsel to Lender.
12.18. Prior Agreements.
Borrower and ICC hereby acknowledge that the warrant agreements, the
Registration Rights Agreement, the side agreements dated November 4 and November
6, 1998 and collateral pledges associated with the Bridge Loan are still in full
force and effect.
[Section 12.19 and signature page to follow.]
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12.19. Additional Post-Closing Covenants.
Within thirty (30) days after Closing, Borrower shall provide or
cause to be delivered to Lender: (a) key man insurance issued by an insurance
company reasonably acceptable to Lender in the amount of three million dollars
($3,000,000) insuring the life of Denis Richard with Lender being listed as
primary beneficiary and evidence of one year of paid premiums and (b) waivers of
landlords' liens on the Collateral from Borrower and ICC landlords in a form
reasonably acceptable to Lender.
IN WITNESS WHEREOF, the parties have entered into this Agreement on
the date first above written.
INCOMNET, INC.
By: /s/ Denis Richard
---------------------------------
Denis Richard
President and Chief Executive
Officer
INCOMNET COMMUNICATIONS CORPORATION,
formerly known as NATIONAL TELEPHONE &
COMMUNICATIONS, INC.
By: /s/ Denis Richard
---------------------------------
Denis Richard
President and Chief Executive
Officer
IRONWOOD TELECOM LLC
By: /s/ Donald V. Berlanti
---------------------------------
Donald V. Berlanti
Member
38
SCHEDULES
Schedule 1.1 LEC Contracts
Schedule 6.3 - Location of Collateral
Schedule 6.4 - Permitted Liens
Schedule 8.4 - Fictitious Names; Names of Acquired Persons
Schedule 8.5 - Subsidiaries
Schedule 8.10 Litigation
Schedule 9.7 - Permitted Debt
Schedule 9.13 Additional Financial Covenants
Schedule 11.1.5 Defaults
EXHIBITS
Exhibit A - Notes (Section 10.2.1)
Exhibit B - Form of Warrant (Section 10.2.2)
Exhibit C - Form of UCC-1 (Section 10.2.3)
Exhibit D - Form of Registration Rights Agreement (Section 10.2.4)
Exhibit E - Form of Guaranty (Section 10.2.5)
Exhibit F Environmental Certificate (Section 10.2.11)
iv