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EXHIBIT 10.9
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AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
BY AND BETWEEN
PHOENIX NETWORK, INC.
AND
FOOTHILL CAPITAL CORPORATION
DATED AS OF SEPTEMBER 26, 1995
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TABLE OF CONTENTS
1. DEFINITIONS AND CONSTRUCTION . . . . . . . . . . . . . . . . . . . 1
1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Accounting Terms . . . . . . . . . . . . . . . . . . . . . . 11
1.3 Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
1.4 Construction . . . . . . . . . . . . . . . . . . . . . . . . 11
1.5 Schedules and Exhibits. . . . . . . . . . . . . . . . . . . 12
2. LOAN AND TERMS OF PAYMENT . . . . . . . . . . . . . . . . . . . . . 12
2.1 Revolving Advances. . . . . . . . . . . . . . . . . . . . . 12
2.2 Letters of Credit and Letter of Credit Guarantees. . . . . . 13
2.3 {Intentionally Omitted} . . . . . . . . . . . . . . . . . . 14
2.4 Overadvances . . . . . . . . . . . . . . . . . . . . . . . . 14
2.5 Interest: Rates, Payments, and Calculations . . . . . . . . 15
2.6 Crediting Payments; Application of Collections . . . . . . . 16
2.7 Statements of Obligations . . . . . . . . . . . . . . . . . . 16
2.8 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3. CONDITIONS; TERM OF AGREEMENT . . . . . . . . . . . . . . . . . . . 17
3.1 Conditions Precedent to Initial Advance, L/C, or L/C Guaranty 17
3.2 Conditions Precedent to All Advances, L/Cs, or L/C Guarantees 19
3.3 Term; Automatic Renewal . . . . . . . . . . . . . . . . . . 20
3.4 Effect of Termination . . . . . . . . . . . . . . . . . . . 20
3.5 Early Termination by Borrower . . . . . . . . . . . . . . . 20
3.6 Termination Upon Intentional Event of Default . . . . . . . 21
4. CREATION OF SECURITY INTEREST . . . . . . . . . . . . . . . . . . . 21
4.1 Grant of Security Interest . . . . . . . . . . . . . . . . . 21
4.2 Negotiable Collateral . . . . . . . . . . . . . . . . . . . 21
4.3 Collection of Accounts, General Intangibles, Negotiable
Collateral . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.4 Delivery of Additional Documentation Required . . . . . . . 22
4.5 Power of Attorney . . . . . . . . . . . . . . . . . . . . . 22
4.6 Right to Inspect . . . . . . . . . . . . . . . . . . . . . . 23
5. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . 23
5.1 No Prior Encumbrances . . . . . . . . . . . . . . . . . . . 23
5.2 Eligible Accounts . . . . . . . . . . . . . . . . . . . . . 23
5.3 {Intentionally Omitted} . . . . . . . . . . . . . . . . . . 23
5.4 Location of Inventory and Equipment . . . . . . . . . . . . 23
5.5 Inventory Records . . . . . . . . . . . . . . . . . . . . . 24
5.6 Location of Chief Executive Office . . . . . . . . . . . . . 24
5.7 Due Organization and Qualification . . . . . . . . . . . . . 24
5.8 Due Authorization; No Conflict . . . . . . . . . . . . . . . 24
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5.9 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . 24
5.10 No Material Adverse Change in Financial Condition . . . . . 24
5.11 Solvency . . . . . . . . . . . . . . . . . . . . . . . . . . 25
5.12 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
5.13 Environmental Condition . . . . . . . . . . . . . . . . . . 25
5.14 Reliance by Foothill; Cumulative . . . . . . . . . . . . . . 26
6. AFFIRMATIVE COVENANTS. . . . . . . . . . . . . . . . . . . . . . . 26
6.1 Accounting System . . . . . . . . . . . . . . . . . . . . . 26
6.2 Collateral Reports . . . . . . . . . . . . . . . . . . . . . 26
6.3 Schedules of Accounts . . . . . . . . . . . . . . . . . . . 26
6.4 Financial Statements, Reports, Certificates . . . . . . . . 27
6.5 Tax Returns . . . . . . . . . . . . . . . . . . . . . . . . 28
6.6 Guarantor Reports . . . . . . . . . . . . . . . . . . . . . 28
6.7 Performance of Obligations to Carriers . . . . . . . . . . . 28
6.8 Credits and Allowances. . . . . . . . . . . . . . . . . . . 29
6.9 Title to Equipment . . . . . . . . . . . . . . . . . . . . . 29
6.10 Maintenance of Equipment . . . . . . . . . . . . . . . . . . 29
6.11 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
6.12 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . 29
6.13 Foothill Expenses . . . . . . . . . . . . . . . . . . . . . 30
6.14 Financial Covenants . . . . . . . . . . . . . . . . . . . . 30
6.15 No Setoffs or Counterclaims . . . . . . . . . . . . . . . . 31
6.16 Location of Inventory and Equipment . . . . . . . . . . . . 31
6.17 Duplicate Copies of Important Data . . . . . . . . . . . . . 31
7. NEGATIVE COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . 31
7.1 Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . 31
7.2 Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
7.3 Restrictions on Fundamental Changes . . . . . . . . . . . . 32
7.4 Extraordinary Transactions and Disposal of Assets . . . . . 32
7.5 Change Name . . . . . . . . . . . . . . . . . . . . . . . . 32
7.6 Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . 32
7.7 Restructure . . . . . . . . . . . . . . . . . . . . . . . . 33
7.8 Prepayments . . . . . . . . . . . . . . . . . . . . . . . . 33
7.9 Change of Control . . . . . . . . . . . . . . . . . . . . . 33
7.10 Capital Expenditures . . . . . . . . . . . . . . . . . . . . 33
7.11 {Intentionally Omitted} . . . . . . . . . . . . . . . . . . 33
7.12 Distributions . . . . . . . . . . . . . . . . . . . . . . . 33
7.13 Accounting Methods . . . . . . . . . . . . . . . . . . . . . 33
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7.14 Investments . . . . . . . . . . . . . . . . . . . . . . . . 33
7.15 Transactions with Affiliates . . . . . . . . . . . . . . . . 34
7.16 Suspension . . . . . . . . . . . . . . . . . . . . . . . . . 34
7.17 Compensation . . . . . . . . . . . . . . . . . . . . . . . . 34
7.18 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . 34
7.19 Contracts with Carriers . . . . . . . . . . . . . . . . . . 34
7.20 Contracts with Integretel . . . . . . . . . . . . . . . . . 35
8. EVENTS OF DEFAULT. . . . . . . . . . . . . . . . . . . . . . . . . 35
9. FOOTHILL'S RIGHTS AND REMEDIES. . . . . . . . . . . . . . . . . . . 37
9.1 Rights and Remedies . . . . . . . . . . . . . . . . . . . . 37
9.2 Remedies Cumulative . . . . . . . . . . . . . . . . . . . . 39
10. TAXES AND EXPENSES REGARDING THE COLLATERAL . . . . . . . . . . . . 39
11. WAIVERS; INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . 40
11.1 Demand; Protest; etc. . . . . . . . . . . . . . . . . . . . 40
11.2 Foothill's Liability for Inventory or Equipment . . . . . . 40
11.3 Indemnification . . . . . . . . . . . . . . . . . . . . . . 40
12. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER. . . . . . . . . . . . . 41
14. DESTRUCTION OF BORROWER'S DOCUMENTS . . . . . . . . . . . . . . . . 42
15. GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . 42
15.1 Effectiveness . . . . . . . . . . . . . . . . . . . . . . . 42
15.2 Successors and Assigns . . . . . . . . . . . . . . . . . . . 42
15.3 Section Headings . . . . . . . . . . . . . . . . . . . . . . 43
15.4 Interpretation . . . . . . . . . . . . . . . . . . . . . . . 43
15.5 Severability of Provisions . . . . . . . . . . . . . . . . . 43
15.6 Amendments in Writing . . . . . . . . . . . . . . . . . . . 43
15.7 Counterparts; Telefacsimile Execution . . . . . . . . . . . 43
15.8 Revival and Reinstatement of Obligations . . . . . . . . . . 43
15.9 Integration . . . . . . . . . . . . . . . . . . . . . . . . 44
SCHEDULES
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Schedule P-1 Permitted Liens
Schedule 5.9 Litigation
Schedule 6.16 Location of Inventory and Equipment
Schedule 7.1 Scheduled Indebtedness
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AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
This AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT, is entered into
as of September 26, 1993, between FOOTHILL CAPITAL CORPORATION, a California
corporation ("Foothill"), with a place of business located at ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇, and PHOENIX
NETWORK, INC. a Delaware corporation, ("Borrower"), with its chief executive
office located at ▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇-▇▇▇▇.
This Agreement amends and restates the Loan and Security Agreement dated
as of August 26, 1993 (as previously amended, the "Prior Agreement") among
Foothill and Borrower. Except for any provisions of the Prior Agreement that,
by their terms, survive its termination (such as indemnities by Borrower in
favor of Foothill), this Agreement supersedes and replaces the Prior Agreement
and all Obligations of Borrower under the Prior Agreement shall become
Obligations of Borrower under this Agreement.
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION.
1.1 DEFINITIONS. As used in this Agreement, the following
terms shall have the following definitions:
"Account Debtor" means any Person who is or who may become
obligated under, with respect to, or on account of an Account.
"Accounts" means all currently existing and hereafter arising
accounts, contract rights, and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods, the sale or lease of general
intangibles relating to the provision of telecommunications services, or the
rendition of services by Borrower, irrespective of whether earned by
performance, and any and all credit insurance, guaranties, or security
therefor.
"Affiliate" means, as applied to any Person, any other Person
directly or indirectly controlling, controlled by, or under common control
with, that Person. For purposes of this definition, "control" as applied to
any Person means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of that Person, whether
through the ownership of voting securities, by contract, or otherwise;
provided, however, that, in any event: (a) any Person which owns directly or
indirectly five percent (5%) or more of the securities having ordinary voting
power for the election of directors or other members of the governing body of a
Person or five percent (5%) or more of the partnership or other ownership
interests of a Person (other than as a limited partner of such Person) shall be
deemed to control such Person; (b) each director or officer of a Person shall
be deemed to be an Affiliate of such Person; and (c) each partnership or joint
venture in which a Person is a partner or joint venturer shall be deemed to be
an Affiliate of such Person.
"Agreement" means this Amended and Restated Loan and Security
Agreement and any extensions, riders, supplements, notes, amendments, or
modifications to or in connection with this Amended and Restated Loan and
Security Agreement.
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"Applicable Margin" means, subject to adjustment as provided
below based on Borrower's EBITDA and net income, one and three-quarters percent
(1.75%) per annum. The foregoing notwithstanding, if Borrower's EBITDA and net
income for its fiscal year 1996 each exceed 90% of the amount thereof projected
in the Projections, then, effective January 1, 1997, the Applicable Margin
shall be reduced to one and one half percent (1.50) per annum.
"Authorized Officer" means any officer of Borrower.
"Average Unused Portion of Maximum Amount" means (a) the Maximum
Amount; less (b) (i) the average Daily Balance of advances made by Foothill
under Section 2.1 that were outstanding during the immediately preceding month;
plus (ii) the average Daily Balance of the undrawn L/Cs and L/C Guarantees
issued by Foothill under Section 2.2 that were outstanding during the
immediately preceding month.
"Bankruptcy Code" means the United States Bankruptcy Code (11
U.S.C. Section 101 et seq.), as amended, and any successor statute.
"Borrower" has the meaning set forth in the preamble to this
Agreement.
"Borrower's Books" means all of Borrower's books and records
including: ledgers; records indicating, summarizing, or evidencing Borrower's
assets or liabilities, or the Collateral; all information relating to
Borrower's business operations or financial condition; and all computer
programs, disc or tape files, printouts, runs, or other computer prepared
information, and the equipment containing such information.
"Borrowing Base" has the meaning set forth in Section 2.1.
"Business Day" means any day which is not a Saturday, Sunday, or
other day on which national banks are authorized or required to close.
"Carrier" means any provider of long distance telecommunications
access with whom Borrower from time to time does business, such as (without
limitation) Sprint, AT&T, Allnet, and ECI.
"Change of Control" shall be deemed to have occurred at such time
as a "person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of
the Securities Exchange Act of 1934) becomes the "beneficial owner" (as defined
in Rule 13d-3 under the Securities Exchange Act of 1934), directly or
indirectly, of more than 20% of the total voting power of all classes of stock
then outstanding of Borrower normally entitled to vote in elections of
directors.
"Closing Date" means October 16, 1995.
"Code" means the California Uniform Commercial Code.
"Collateral" means each of the following: the Accounts;
Borrower's Books; the Equipment; the General Intangibles; the Inventory; the
Negotiable Collateral; any money, or other assets of Borrower which hereafter
come into the possession, custody, or control of Foothill; and the proceeds and
products,
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whether tangible or intangible, of any of the foregoing including proceeds of
insurance covering any or all of the Collateral, and any and all Accounts,
Equipment, General Intangibles, Inventory, Negotiable Collateral, money,
deposit accounts, or other tangible or intangible property resulting from the
sale, exchange, collection, or other disposition of the Collateral, or any
portion thereof or interest therein, and the proceeds thereof.
"Consolidated Current Assets" means as of any date of
determination the aggregate amount of all current assets of Borrower and its
subsidiaries calculated on a consolidated basis that would, in accordance with
GAAP, be classified on a balance sheet as current assets.
"Consolidated Current Liabilities" means as of any date of
determination the aggregate amount of all current liabilities of Borrower and
its subsidiaries, calculated on a consolidated basis that would, in accordance
with GAAP, be classified on a balance sheet as current liabilities. For
purposes of the foregoing, all advances outstanding under this Agreement shall
be deemed to be current liabilities without regard to whether they would be
deemed to be so under GAAP.
"Consolidated Tangible Net Worth" means, as of the date any
determination thereof is to be made, Borrower's total stockholder's equity,
minus all intangible assets of Borrower, calculated on a consolidated basis.
"Consolidated Working Capital" means the result of subtracting
Consolidated Current Liabilities from Consolidated Current Assets.
"Daily Balance" means the amount of an Obligation owed at the end
of a given day.
"Dilution" means, with respect to any Dilution Measuring Period,
as reasonably determined by Foothill, the fraction, expressed as a percentage,
of which the numerator is the total during such Dilution Measuring Period of
all bad debt write-downs, promotions, and other items with respect to Accounts
of Borrower that could reduce or otherwise impair the full and timely
collection of such Accounts, and of which the denominator is the total during
such Dilution Measuring Period of all collections received with respect to
Accounts of Borrower.
"Dilution Measuring Period" means, in relation to any calendar
month, the preceding three calendar months.
"Early Termination Premium" has the meaning set forth in Section
3.4.
"EBITDA" means, for any fiscal period of Borrower, Borrower's net
income for such period, determined in accordance with GAAP, plus any interest,
taxes, depreciation, and amortization that were deducted in arriving at net
income.
"Eligible Accounts" means those Accounts created by Borrower in
the ordinary course of business that arise out of Borrower's sale of goods,
sale of general intangibles relating to the provision of telecommunication
services, or rendition of services, that strictly comply with all of Borrower's
representations and warranties to Foothill, and that are and at all times shall
continue to be acceptable to Foothill in all respects; provided, however, that
standards of eligibility may be fixed and revised from time
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to time by Foothill in Foothill's reasonable credit judgment. Eligible
Accounts shall include Eligible Unbilled Accounts. Eligible Accounts shall not
include the following:
(a) Accounts which the Account Debtor has failed to pay
within sixty (60) days of invoice date;
(b) Accounts that are not due upon receipt of
Borrower's invoice by the Account Debtor or within ten (10) days thereafter;
(c) Accounts with respect to which the Account Debtor
is an officer, employee, Affiliate, or agent of Borrower;
(d) Accounts with respect to which goods are placed on
consignment, guaranteed sale, sale or return, sale on approval, ▇▇▇▇ and hold,
or other terms by reason of which the payment by the Account Debtor may be
conditional;
(e) Accounts with respect to which the Account Debtor
is not a resident of the United States, and which are not either (1) covered by
credit insurance in form and amount, and by an insurer, satisfactory to
Foothill, or (2) supported by one or more letters of credit that are assignable
by their terms and have been delivered to Foothill in an amount and of a tenor,
and issued by a financial institution, acceptable to Foothill;
(f) Accounts with respect to which the Account Debtor
is the United States or any department, agency, or instrumentality of the
United States, any state of the United States;
(g) Accounts with respect to which Borrower is or may
become liable to the Account Debtor for goods sold or services rendered by the
Account Debtor to Borrower;
(h) Accounts with respect to an Account Debtor whose
total obligations owing to Borrower exceed ten percent (10%) of all Eligible
Accounts, to the extent of the obligations of such Account Debtor in excess of
such percentage;
(i) Accounts with respect to which the Account Debtor
disputes liability or makes any claim with respect thereto, or is subject to
any Insolvency Proceeding, or become insolvent, or goes out of business;
(j) Accounts the collection of which Foothill, in its
reasonable credit judgment, believes to be doubtful by reason of the Account
Debtor's financial condition;
(k) Accounts owed by an Account Debtor that has failed
to pay fifty percent (50%) or more of its Accounts owed to Borrower within
sixty (60) days of the date of the applicable invoices;
(l) Accounts that are payable in other than United
States Dollars;
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(m) Accounts, other than Eligible Unbilled Accounts,
that have not yet been billed to the relevant Account Debtor;
(n) Accounts that represent progress payments or other
advance ▇▇▇▇▇▇▇▇ that are due prior to the completion of performance by
Borrower of the subject contract for goods or services; and
(o) Accounts arising from services provided by a
Carrier, if Borrower is in default of its obligations to such Carrier in any
material respect that would entitle such Carrier to exercise remedies against
Borrower, if such Carrier in fact is exercising such remedies, or has indicated
its intention to exercise such remedies, or has threatened to exercise such
remedies, and if Foothill in the good faith exercise of Foothill's discretion
has determined that such actual, intended, or threatened exercise of remedies
may interfere with the value or collectibility of the affected Accounts.
"Eligible Unbilled Accounts" means those particular Accounts
created by Borrower in the ordinary course of business that arise out of
Borrower's sale of goods, sale of general intangibles relating to the provision
of telecommunication services, or rendition of services, but have not yet been
billed to the relevant Account Debtor, that are described in a call transaction
record tape or electronic data transfer that has been delivered by a Carrier to
Integretel, and that in all other respects qualify as Eligible Accounts.
"Equipment" means all of Borrower's present and hereafter
acquired machinery, machine tools, motors, equipment, furniture, furnishings,
fixtures, vehicles (including motor vehicles and trailers), tools, parts, dies,
jigs, goods (other than consumer goods, farm products, or Inventory), and any
interest in any of the foregoing, wherever located, and all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, wherever located.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and the regulations thereunder.
"ERISA Affiliate" means each trade or business (whether or not
incorporated and whether or not foreign) which is or may hereafter become a
member of a group of which Borrower is a member and which is treated as a
single employer under ERISA Section 4001(b)(1), or IRC Section 414.
"Event of Default" has the meaning set forth in Section 8.
"Foothill" has the meaning set forth in the preamble to this
Agreement.
"Foothill Expenses" means all: costs or expenses (including
taxes (other than taxes on Foothill's income and other corporate taxes payable
by Foothill), photocopying, notarization, telecommunication and insurance
premiums) required to be paid by Borrower under any of the Loan Documents that
are paid or advanced by Foothill; documentation filing, recording, publication,
appraisal (including periodic Collateral appraisals), real estate survey (if
real estate is pledged to Foothill), environmental audit (if real estate is
pledged to Foothill), and search fees assessed, paid, or incurred by Foothill
in connection with Foothill's transactions with Borrower; costs and expenses
incurred by Foothill in the disbursement of funds to Borrower (by wire transfer
or otherwise); charges paid or incurred by Foothill resulting from the dishonor
of checks; reasonable costs and expenses paid or incurred by Foothill to
correct
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any default or enforce any provision of the Loan Documents, or in gaining
possession of, maintaining, handling, preserving, storing, shipping, selling,
preparing for sale, or advertising to sell the Collateral, or any portion
thereof, irrespective of whether a sale is consummated; reasonable costs and
expenses paid or incurred by Foothill in examining Borrower's Books; costs and
expenses of third party claims or any other suit paid or incurred by Foothill
in enforcing or defending the Loan Documents; and Foothill's reasonable
attorneys fees and expenses incurred in advising, structuring, drafting,
reviewing, administering, amending, terminating, enforcing (including attorneys
fees and expenses incurred in connection with a "workout," a "restructuring,"
or an Insolvency Proceeding concerning Borrower or any guarantor of the
Obligations), defending, or concerning the Loan Documents, irrespective of
whether suit is brought.
"GAAP" means generally accepted accounting principles as in
effect from time to time in the United States, consistently applied.
"General Intangibles" means all of Borrower's present and future
general intangibles and other personal property (including contract rights,
rights arising under common law, statutes, or regulations, choses or things in
action, goodwill, patents, trade names, trademarks, servicemarks, copyrights,
blueprints, drawings, purchase orders, customer lists, monies due or
recoverable from pension funds, route lists, monies due under any royalty or
licensing agreements, infringements, claims, computer programs, computer discs,
computer tapes, literature, reports, catalogs, deposit accounts, insurance
premium rebates, tax refunds, and tax refund claims), other than goods and
Accounts.
"Hazardous Materials" means all or any of the following: (a)
substances that are defined or listed in, or otherwise classified pursuant to,
any applicable laws or regulations as "hazardous substances," "hazardous
materials," "hazardous wastes," "toxic substances" or any other formulation
intended to define, list or classify substances by reason of deleterious
properties such as ignitability, corrosivity, reactivity, carcinogenicity,
reproductive toxicity or "EP toxicity"; (b) oil, petroleum or petroleum derived
substances, natural gas, natural gas liquids or synthetic gas and drilling
fluids, produced waters and other wastes associated with the exploration,
development or production of crude oil, natural gas or geothermal resources;
(c) any flammable substances or explosives or any radioactive materials; and
(d) asbestos in any form or electrical equipment which contains any oil or
dielectric fluid containing levels of polychlorinated biphenyls in excess of
fifty parts per million.
"Indebtedness" shall mean: (a) all obligations of Borrower for
borrowed money; (b) all obligations of Borrower evidenced by bonds, debentures,
notes, or other similar instruments and all reimbursement or other obligations
of Borrower in respect of letters of credit, letter of credit guaranties,
bankers acceptances, interest rate swaps, controlled disbursement accounts, or
other financial products; (c) all obligations under capitalized leases; (d) all
obligations or liabilities of others secured by a lien or security interest on
any asset of Borrower, irrespective of whether such obligation or liability is
assumed; and (e) any obligation of Borrower guaranteeing or intended to
guarantee (whether guaranteed, endorsed, co-made, discounted, or sold with
recourse to Borrower) any indebtedness, lease, dividend, letter of credit, or
other obligation of any other Person.
"Insolvency Proceeding" means any proceeding commenced by or
against any Person under any provision of the Bankruptcy Code, as amended, or
under any other bankruptcy or insolvency law, including assignments for the
benefit of creditors, formal or informal moratoria, compositions, extensions
generally with its creditors, or proceedings seeking reorganization,
arrangement, or other similar relief.
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"Integretel" means Integretel, Incorporated, a California
corporation.
"Inventory" means all present and future inventory in which
Borrower has any interest, including goods held for sale or lease or to be
furnished under a contract of service and all of Borrower's present and future
raw materials, work in process, finished goods, and packing and shipping
materials, wherever located, and any documents of title representing any of the
above.
"IRC" means the Internal Revenue Code of 1986, as amended, and
the regulations thereunder.
"L/C" has the meaning set forth in Section 2.2(a).
"L/C Guaranty" has the meaning set forth in Section 2.2(a).
"Loan Documents" means this Agreement, the Lock Box Agreement,
any note or notes executed by Borrower and payable to Foothill, and any other
agreement entered into by Borrower or any Affiliate of Borrower in connection
with this Agreement.
"Lock Box" shall have the meaning provided in the Lock Box
Agreement.
"Lock Box Agreement" means that certain Lockbox Operating
Procedural Agreement, in form and substance satisfactory to Foothill, among
Borrower, Foothill, and the Lock Box Bank.
"Lock Box Bank" means Professional Bank of Denver, Colorado, and
any other bank, reasonably acceptable to Foothill, that succeeds Professional
Bank of Denver, Colorado in such capacity.
"Maximum Amount" has the meaning set forth in Section 2.1.
"Multiemployer Plan" means a "multiemployer plan" as defined in
ERISA Sections 3(37) or 4001(a)(3) or IRC Section 414(f) which covers employees
of Borrower or any ERISA Affiliate.
"Negotiable Collateral" means all of Borrower's present and
future letters of credit, notes, drafts, instruments, certificated and
uncertificated securities (including the shares of stock of subsidiaries of
Borrower), documents, personal property leases (wherein Borrower is the
lessor), chattel paper, and Borrower's Books relating to any of the foregoing.
"Obligations" means all loans, advances, debts, principal,
interest (including any interest that, but for the provisions of the Bankruptcy
Code, would have accrued), contingent reimbursement obligations owing to
Foothill under any outstanding L/Cs or L/C Guarantees, premiums, liabilities
(including all amounts charged to Borrower's loan account pursuant to any
agreement authorizing Foothill to charge Borrower's loan account), obligations,
fees (including Early Termination Premiums), lease payments, guaranties,
covenants, and duties owing by Borrower to Foothill of any kind and description
(whether pursuant to or evidenced by the Loan Documents, by any note or other
instrument, or by any other agreement between Foothill and Borrower, and
irrespective of whether for the payment of money), whether direct or indirect,
absolute or contingent, due or to become due, now existing or hereafter
arising, and including any debt, liability, or obligation owing from Borrower
to others that Foothill may have obtained by assignment
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or otherwise, and further including all interest not paid when due and all
Foothill Expenses that Borrower is required to pay or reimburse by the Loan
Documents, by law, or otherwise.
"Overadvance" has the meaning set forth in Section 2.3.
"Participant" means any Person, other than Foothill, that has
committed to provide a portion of the financing contemplated herein.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Permitted Liens" means: (a) liens and security interests held by
Foothill; (b) liens for unpaid taxes that are not yet due and payable; (c)
liens and security interests set forth on Schedule P-1 attached hereto; (d)
purchase money security interests and liens of lessors under capitalized leases
to the extent that the acquisition or lease of the underlying asset was
permitted under Section 7.10, and so long as the security interest or lien only
secures the purchase price of the asset; (e) easements, rights of way,
reservations, covenants, conditions, restrictions, zoning variances, and other
similar encumbrances that do not materially interfere with the use or value of
the property subject thereto; (f) obligations and duties as lessee under any
leases of personal property existing on the date of this Agreement; (g)
mechanics', materialmen's, warehousemen's, or similar liens; and (h) a security
interest in favor of WilTel, Inc. on the Accounts that are generated through
the use of WilTel, Inc.'s telecommunications system, junior in priority to the
security interest of Foothill and subject to an intercreditor agreement
satisfactory to Foothill.
"Person" means and includes natural persons, corporations,
limited partnerships, general partnerships, joint ventures, trusts, land
trusts, business trusts, or other organizations, irrespective of whether they
are legal entities, and governments and agencies and political subdivisions
thereof.
"Plan" means any plan described in ERISA Section 3(2) maintained
for employees of Borrower or any ERISA Affiliate, other than a Multiemployer
Plan.
"Prohibited Transaction" means any transaction described in
Section 406 of ERISA which is not exempt by reason of Section 408 of ERISA, and
any transaction described in Section 4975(c) of the IRC which is not exempt by
reason of Section 4975(c)(2) of the IRC.
"Projections" means the most current projections of Borrower
relating to its fiscal year 1996, including projections regarding EBITDA and
net income of Borrower for such fiscal year, that have been provided by
Borrower to Foothill, and reviewed and accepted by Foothill in Foothill's sole
discretion.
"Reference Rate" means the highest of the variable rates of
interest, per annum, most recently announced by (i) Bank of America, N.T. &
S.A., San Francisco, California, (ii) Mellon Bank, N.A., Pittsburgh,
Pennsylvania, and (iii) Citibank, N.A., New York, New York, or any successor to
any of the foregoing institutions, as its "prime rate" or "reference rate," as
the case may be, irrespective of whether such announced rate is the best rate
available from such financial institution.
"Renewal Date" has the meaning set forth in Section 3.3.
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"Reportable Event" means 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
4068(f) of ERISA.
"Solvent" means, with respect to any Person on a particular date,
that on such date (i) at fair valuations, all of the assets of such Person are
greater than the sum of the debts, including contingent liabilities, of such
Person, (ii) the present fair salable value of the assets of such Person is not
less than the amount that will be required to pay the probable liability of
such Person on its debts as they become absolute and matured, (iii) such Person
is able to realize upon its assets and pay its debts and other liabilities,
contingent obligations and other commitments as they mature in the normal
course of business, (iv) such Person does not intend to, and does not believe
that it will, incur debts beyond such Person's ability to pay as such debts
mature, and (v) such Person is not engaged in business or a transaction, and is
not about to engage in business or a transaction, for which such Person's
assets would constitute unreasonably small capital after giving due
consideration to the prevailing practices in the industry in which such Person
is engaged. In computing the amount of contingent liabilities at any time, it
is intended that such liabilities will be computed at the amount that, in light
of all the facts and circumstances existing at such time, represents the amount
that can reasonably be expected to become an actual or matured liability.
"Voidable Transfer" has the meaning set forth in Section 15.8.
1.2 ACCOUNTING TERMS. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP. When used herein,
the term "financial statements" shall include the notes and schedules thereto.
Whenever the term "Borrower" is used in respect of a financial covenant or a
related definition, it shall be understood to mean Borrower on a consolidated
basis unless the context clearly requires otherwise.
1.3 CODE. Any terms used in this Agreement which are defined
in the Code shall be construed and defined as set forth in the Code unless
otherwise defined herein.
1.4 CONSTRUCTION. Unless the context of this Agreement
clearly requires otherwise, references to the plural include the singular,
references to the singular include the plural, the term "including" is not
limiting, and the term "or" has, except where otherwise indicated, the
inclusive meaning represented by the phrase "and/or." The words "hereof,"
"herein," "hereby," "hereunder," and similar terms in this Agreement refer to
this Agreement as a whole and not to any particular provision of this
Agreement. Section, subsection, clause, schedule, and exhibit references are
to this Agreement unless otherwise specified. Any reference in this Agreement
or in the Loan Documents to this Agreement or any of the Loan Documents shall
include all alterations, amendments, changes, extensions, modifications,
renewals, replacements, substitutions, and supplements, thereto and thereof, as
applicable.
1.5 SCHEDULES AND EXHIBITS. All of the schedules and exhibits
attached to this Agreement shall be deemed incorporated herein by reference.
2. LOAN AND TERMS OF PAYMENT.
2.1 REVOLVING ADVANCES. Subject to the terms and conditions
of this Agreement, and so long as no Event of Default has occurred and is
continuing, Foothill agrees to make revolving advances
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to Borrower in an amount not to exceed the Borrowing Base. For purposes of this
Agreement "Borrowing Base" shall mean:
(a) subject to adjustment based on Dilution as provided
in Section 2.1(b), an amount equal to the lesser of: (i) the sum of (A) eighty
percent (80%) of the amount of Eligible Accounts (other than Eligible Unbilled
Accounts) plus (B) the lesser of forty percent (40%) of the amount of Eligible
Unbilled Accounts and Three Million Dollars ($3,000,000), and (ii) an amount
equal to Borrower's cash collections for the immediately preceding sixty (60)
day period.
(b) should Dilution during any Dilution Measuring
Period exceed ten percent, the advance rates set forth in Section 2.1(a) shall
be reduced during the next calendar month by one percent for each percent by
which Dilution exceeded ten percent (rounded to the nearest whole number).
(c) anything to the contrary in paragraphs (a) or (b)
above notwithstanding, Foothill may reduce its advance rates based upon
Eligible Accounts without declaring an Event of Default if it determines, in
its reasonable discretion, that there is a material impairment of the prospect
of repayment of all or any portion of the Obligations or a material impairment
of the value or priority of Foothill's security interests in the Collateral.
(d) Foothill shall have no obligation to make advances
hereunder to the extent they would cause the outstanding Obligations to exceed
Ten Million Dollars ($10,000,000) (the "Maximum Amount").
(e) Foothill is authorized to make advances under this
Agreement based upon telephonic or other instructions received from anyone
purporting to be an Authorized Officer of Borrower or, without instructions, if
pursuant to Section 6.12. Borrower agrees to establish and maintain a single
designated deposit account for the purpose of receiving the proceeds of the
advances requested by Borrower and made by Foothill hereunder. Unless
otherwise agreed by Foothill and Borrower, any advance requested by Borrower
and made by Foothill hereunder shall be made to such designated deposit
account. Amounts borrowed pursuant to this Section 2.1 may be repaid and, so
long as no Event of Default has occurred and is continuing, reborrowed at any
time during the term of this Agreement.
2.2 LETTERS OF CREDIT AND LETTER OF CREDIT GUARANTEES.
(a) Subject to the terms and conditions of this
Agreement, Foothill agrees to issue commercial or standby letters of credit for
the account of Borrower (each, an "L/C") or to issue standby letters of credit
or guarantees of payment (each such letter of credit or guaranty, an "L/C
Guaranty") with respect to commercial or standby letters of credit issued by
another Person for the account of Borrower in an aggregate face amount not to
exceed the lesser of: (i) the Borrowing Base less the amount of outstanding
revolving advances pursuant to Section 2.1, and (ii) Seven Hundred Fifty
Thousand Dollars ($750,000). Borrower expressly understands and agrees that
Foothill shall have no obligation to arrange for the issuance by other
financial institutions of L/Cs that are to be the subject of L/C Guarantees and
that certain of such L/Cs may be outstanding on the Closing Date. Each such
L/C (including those that are the subject of L/C Guarantees) shall have an
expiry date no later than sixty (60) days prior to the date on which this
Agreement is scheduled to terminate under Section 3.3 hereof and all such L/Cs
and L/C Guarantees shall be in form and substance acceptable to Foothill in its
sole discretion. Foothill shall not have any
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obligation to issue L/Cs or L/C Guarantees to the extent that the face amount
of all outstanding L/Cs and L/C Guarantees, plus the amount of revolving
advances outstanding pursuant to Section 2.1, would exceed the Maximum Amount.
The L/Cs and the L/C Guarantees issued under this Section 2.2 shall be used by
Borrower, consistent with this Agreement, for its general working capital
purposes or to support its obligations with respect to workers' compensation
premiums or other similar obligations. If Foothill is obligated to advance
funds under an L/C or L/C Guaranty, the amount so advanced immediately shall be
deemed to be an advance made by Foothill to Borrower pursuant to Section 2.1
and, thereafter, shall bear interest on the terms and conditions provided in
Section 2.4.
(b) Borrower hereby agrees to indemnify, save, and hold
Foothill harmless from any loss, cost, expense, or liability, including
payments made by Foothill, expenses, and reasonable attorneys fees incurred by
Foothill arising out of or in connection with any L/Cs or L/C Guarantees.
Borrower agrees to be bound by the issuing bank's regulations and
interpretations of any L/Cs guarantied by Foothill and opened to or for
Borrower's account or by Foothill's interpretations of any L/C issued by
Foothill to or for Borrower's account, even though this interpretation may be
different from Borrower's own, and Borrower understands and agrees that
Foothill shall not be liable for any error, negligence, or mistakes, whether of
omission or commission, in following Borrower's instructions or those contained
in the L/Cs or any modifications, amendments, or supplements thereto. Borrower
understands that the L/C Guarantees may require Foothill to indemnify the
issuing bank for certain costs or liabilities arising out of claims by Borrower
against such issuing bank. Borrower hereby agrees to indemnify, defend, and
hold Foothill harmless with respect to any loss, cost, expense, or liability
incurred by Foothill under any L/C Guaranty as a result of Foothill's
indemnification of any such issuing bank.
(c) Borrower hereby authorizes and directs any bank
that issues an L/C guaranteed by Foothill to deliver to Foothill all
instruments, documents, and other writings and property received by the issuing
bank pursuant to the L/C, and to accept and rely upon Foothill's instructions
and agreements with respect to all matters arising in connection with the L/C
and the related application. Borrower may or may not be the "account party" on
such L/Cs.
(d) Any and all service charges, commissions, fees and
costs incurred by Foothill relating to the L/Cs guaranteed by Foothill shall be
considered Foothill Expenses for purposes of this Agreement and shall be
immediately reimbursable by Borrower to Foothill. On the first Business Day of
each month, Borrower will pay Foothill a fee equal to two percent (2.00%) per
annum times the average Daily Balance of the undrawn L/Cs and L/C Guarantees
that were outstanding during the immediately preceding month. Service charges,
commissions, fees and costs may be charged to Borrower's loan account at the
time the service is rendered or the cost is incurred.
(e) Immediately upon the termination of this Agreement,
Borrower agrees to either: (i) provide cash collateral to Foothill in an
amount equal to the maximum amount of Foothill's obligations under L/Cs plus
the maximum amount of Foothill's obligations to any issuing bank under
outstanding L/C Guarantees, or (ii) cause to be delivered to Foothill releases
of all of Foothill's obligations under its outstanding L/Cs and L/C Guarantees.
At Foothill's discretion, any proceeds of Collateral received by Foothill may
be held as the cash collateral required by this Section 2.2(e).
2.3 {INTENTIONALLY OMITTED}.
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2.4 OVERADVANCES. If, at any time or for any reason, the
amount of Obligations owed by Borrower to Foothill pursuant to Sections 2.1 and
2.2 is greater than either the dollar or percentage limitations set forth in
Sections 2.1 or 2.2 (an "Overadvance"), Borrower shall immediately pay to
Foothill, in cash, the amount of such excess to be used by Foothill to repay
the Obligations or to be held by Foothill as cash collateral to secure
repayment of L/Cs or L/C Guarantees.
2.5 INTEREST: RATES, PAYMENTS, AND CALCULATIONS.
(a) Interest Rate. All Obligations, except for undrawn
L/Cs and L/C Guarantees, shall bear interest, on the average Daily Balance, at
a rate equal to the Reference Rate plus the Applicable Margin.
(b) Default Rate. All Obligations, except for undrawn
L/Cs and L/C Guarantees, shall bear interest, from and after the occurrence and
during the continuance of an Event of Default, at a rate equal to the Reference
Rate plus the Applicable Margin plus four (4.00) percentage points. From and
after the occurrence and during the continuance of an Event of Default, the fee
provided in Section 2.2(d) shall be increased to a fee equal to that certain
percentage per annum equal to the Applicable Margin plus four (4.00) percentage
points times the average Daily Balance of the undrawn L/Cs and L/C Guarantees
that were outstanding during the immediately preceding month.
(c) Minimum Interest. In no event shall the rate of
interest chargeable hereunder be less than eight percent (8.00%) per annum.
(d) Payments. Interest hereunder shall be due and
payable in arrears on the first day of each month during the term hereof.
Foothill shall, at its option, charge such interest, all Foothill Expenses, and
all payments due under any note or other Loan Document to Borrower's loan
account, which amounts shall thereafter accrue interest at the rate then
applicable hereunder. Any interest not paid when due shall be compounded by
becoming a part of the Obligations, and such interest shall thereafter accrue
interest at the rate then applicable hereunder.
(e) Computation. The Reference Rate as of this date is
eight and three-quarters percent (8.75%) per annum. In the event the Reference
Rate is changed from time to time hereafter, the applicable rate of interest
hereunder automatically and immediately shall be increased or decreased by an
amount equal to the Reference Rate change. The rates of interest charged
hereunder shall be based upon the average Reference Rate in effect during the
month. All interest and fees chargeable under the Loan Documents shall be
computed on the basis of a three hundred sixty (360) day year for the actual
number of days elapsed.
(f) Intent to Limit Charges to Maximum Lawful Rate. In
no event shall the interest rate or rates payable under this Agreement, plus
any other amounts paid in connection herewith, exceed the highest rate
permissible under any law which a court of competent jurisdiction shall, in a
final determination, deem applicable. Borrower and Foothill, in executing this
Agreement, intend to expressly and legally agree upon the rate of interest and
manner of payment stated within it; provided, however, that, anything contained
herein to the contrary notwithstanding, if said rate or rates of interest or
manner of payment exceeds the maximum allowable under applicable law, then,
ipso facto as of the date of this Agreement, Borrower is and shall be liable
only for the payment of such maximum as allowed by law, and payment received
from
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Borrower in excess of such legal maximum, whenever received, shall be applied
to reduce the principal balance of the Obligations to the extent of such
excess.
2.6 CREDITING PAYMENTS; APPLICATION OF COLLECTIONS. The
receipt of any wire transfer of funds, check, or other item of payment by
Foothill (whether from transfers to Foothill by the Lock Box Bank pursuant to
the Lock Box Agreement or otherwise) immediately shall be applied to
provisionally reduce the Obligations, but shall not be considered a payment on
account unless such wire transfer is of immediately available federal funds and
is made to the appropriate deposit account of Foothill or unless and until such
check or other item of payment is honored when presented for payment. From and
after the Closing Date, Foothill shall be entitled to charge Borrower for one
and three-quarters (1.75) Business Days of `float' at the rate set forth in
Section 2.3(a) (applicable to advances under Section 2.1) on all collections,
checks, wire transfers, or other items of payment that are received by Borrower
or processed through the Lock Box (regardless of whether forwarded by the Lock
Box Bank to Foothill, whether owned by Borrower or collected as agent for
another, whether provisionally applied to reduce the Obligations or otherwise).
This across-the-board one and three-quarters (1.75) Business Day float charge
on all Borrower receipts is acknowledged by the parties to constitute an
integral aspect of the pricing of Foothill's facility to Borrower, and shall
apply irrespective of the characterization of whether receipts are owned by
Borrower or Foothill, and irrespective of the level of Borrower's Obligations
to Foothill. Should such check or item of payment not be honored when
presented for payment, then Borrower shall be deemed not to have made such
payment, and interest shall be recalculated accordingly. Anything to the
contrary contained herein notwithstanding, any wire transfer, check, or other
item of payment received by Foothill after 11:00 a.m. Los Angeles time shall be
deemed to have been received by Foothill as of the opening of business on the
immediately following Business Day.
2.7 STATEMENTS OF OBLIGATIONS. Foothill shall render
statements to Borrower of the Obligations, including principal, interest, fees,
and including an itemization of all charges and expenses constituting Foothill
Expenses owing, and such statements shall be conclusively presumed to be
correct and accurate and constitute an account stated between Borrower and
Foothill unless, within thirty (30) days after receipt thereof by Borrower,
Borrower shall deliver to Foothill by registered or certified mail at its
address specified in Section 12, written objection thereto describing the error
or errors contained in any such statements.
2.8 FEES. Borrower shall pay to Foothill the following fees:
(a) Closing Fee. A one time closing fee of Seventy
Five Thousand Dollars ($75,000) which is earned, in full, on the Closing Date
and is due and payable by Borrower to Foothill, in connection with this
Agreement, in three equal installments of Twenty Five Thousand Dollars
($25,000) each, the first due on the Closing Date, the second due one month
after the Closing Date, and the third due two months after the Closing Date;
(b) Unused Line Fee. On the first day of each month
during the term of this Agreement, a fee in an amount equal to one half percent
(0.50%) per annum times the Average Unused Portion of the Maximum Amount;
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(c) Annual Facility Fee. On each anniversary of the
Closing Date, a Fee in an amount equal to one half percent (0.50%) of the
Maximum Amount, such fee shall be fully earned on each such anniversary;
(d) Financial Examination, Documentation and Appraisal
Fees. Foothill's customary fee of Six Hundred Dollars ($600) per day per
examiner, plus out-of-pocket expenses for each financial analysis and
examination of Borrower performed by Foothill or its agents; Foothill's
customary appraisal fee of Seven Hundred Fifty Dollars ($750) per day per
appraiser, plus out-of-pocket expenses for each appraisal of the Collateral
performed by Foothill or its agents; and Foothill's customary fee of One
Thousand Dollars ($1,000) per year for its loan documentation review;
(e) Servicing Fee. On the first day of each month
during the term of this Agreement, and thereafter so long as any Obligations
are outstanding, a servicing fee in an amount equal to One Thousand Five
Hundred Dollars ($1,500) per month.
3. CONDITIONS; TERM OF AGREEMENT.
3.1 CONDITIONS PRECEDENT TO INITIAL ADVANCE, L/C, OR L/C
GUARANTY. The obligation of Foothill to make the initial advance, provide an
L/C, or L/C Guaranty hereunder is subject to the fulfillment, to the
satisfaction of Foothill and its counsel, of each of the following conditions
on or before the Closing Date:
(a) the Closing Date shall occur on or before October
16, 1995;
(b) Foothill shall have received from Borrower evidence
satisfactory to Foothill that Borrower has obtained, in September, 1995, not
less than fifteen million dollars ($15,000,000) of additional investment
capital on terms and conditions acceptable to Foothill in Foothill's sole
discretion;
(c) Foothill shall have received searches reflecting
the filing of its financing statements and fixture filings;
(d) Foothill shall have received each of the following
documents, duly executed, and each such document shall be in full force and
effect:
(i) the Lock Box Agreement;
(ii) no-offset, intercreditor, and consent to
assignment agreements in form and substance
satisfactory to Foothill, entered into between
Foothill, Borrower, and each Carrier; and
(iii) a service agreement in form and substance
satisfactory to Foothill, entered into between
Borrower and Integretel;
(e) Foothill shall have received a certificate from the
Secretary of Borrower attesting to the resolutions of Borrower's Board of
Directors authorizing its execution and delivery
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of this Agreement and the other Loan Documents to which Borrower is a party and
authorizing specific officers of Borrower to execute same;
(f) Foothill shall have received copies of Borrower's
Bylaws and Certificate of Incorporation, as amended, modified, or supplemented
to the Closing Date, certified by the Secretary of Borrower;
(g) Foothill shall have received a certificate of
corporate status with respect to Borrower, dated within ten (10) days of the
Closing Date, by the Secretary of State of the state of incorporation of
Borrower, which certificate shall indicate that Borrower is in good standing in
such state;
(h) Foothill shall have received certificates of
corporate status with respect to Borrower, each dated as of a date that is
within a reasonable period prior to the Closing Date, such certificates to be
issued by the Secretary of State of the states in which its failure to be duly
qualified or licensed would have a material adverse effect on the financial
condition or assets of Borrower, which certificates shall indicate that
Borrower is in good standing;
(i) Foothill shall have received the insurance
certificates, or certified copies of the policies of insurance, together with
the endorsements as are required by Section 6.12 hereof, the form and substance
of which shall be satisfactory to Foothill and its counsel;
(j) {intentionally omitted};
(k) {intentionally omitted};
(l) Foothill shall have received an opinion of
Borrower's counsel in form and substance satisfactory to Foothill in its sole
discretion;
(m) Foothill shall have received and reviewed, and
shall have expressed no objection to, the terms of all contracts and agreements
in effect between Borrower and each Carrier; and
(n) all other documents and legal matters in connection
with the transactions contemplated by this Agreement shall have been delivered
or executed or recorded and shall be in form and substance satisfactory to
Foothill and its counsel.
3.2 CONDITIONS PRECEDENT TO ALL ADVANCES, L/CS, OR L/C
GUARANTEES. The following shall be conditions precedent to all advances, L/Cs,
or L/C Guarantees hereunder:
(a) the representations and warranties contained in
this Agreement or the other Loan Documents shall be true and correct in all
respects on and as of the date of such advance, L/C, or L/C Guaranty, as though
made on and as of such date (except to the extent that such representations and
warranties relate solely to an earlier date);
(b) no Event of Default or event which with the giving
of notice or passage of time would constitute an Event of Default shall have
occurred and be continuing on the date of such advance, L/C, or L/C Guaranty,
nor shall either result from the making of the advance; and
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(c) no injunction, writ, restraining order, or other
order of any nature prohibiting, directly or indirectly, the making of such
advance shall have been issued and remain in force by any governmental
authority against Borrower, Foothill, or any of their Affiliates.
3.3 TERM; AUTOMATIC RENEWAL. This Agreement shall become
effective upon the execution and delivery hereof by Borrower and Foothill and
shall continue in full force and effect for a term ending on the date (the
"Renewal Date") that is three (3) years from the Closing Date and shall be
automatically renewed for successive one (1) year periods thereafter, unless
sooner terminated pursuant to the terms hereof. Either party may terminate
this Agreement effective on the Renewal Date or on any one (1) year anniversary
of the Renewal Date by giving the other party at least ninety (90) days prior
written notice by registered or certified mail, return receipt requested. The
foregoing notwithstanding, Foothill shall have the right to terminate its
obligations under this Agreement immediately and without notice upon the
occurrence of an Event of Default.
3.4 EFFECT OF TERMINATION. On the date of termination, all
Obligations (including contingent reimbursement obligations under any
outstanding L/Cs or L/C Guarantees) shall become immediately due and payable
without notice or demand. No termination of this Agreement, however, shall
relieve or discharge Borrower of Borrower's duties, Obligations, or covenants
hereunder, and Foothill's continuing security interest in the Collateral shall
remain in effect until all Obligations have been fully discharged and
Foothill's obligation to provide advances hereunder is terminated. If Borrower
has sent a notice of termination pursuant to the provisions of Section 3.3, but
fails to pay all Obligations within five (5) Business Days of the date set
forth in said notice, then Foothill may, but shall not be required to, renew
this Agreement for an additional term of one (1) year.
3.5 EARLY TERMINATION BY BORROWER. The provisions of Section
3.3 that allow termination of this Agreement by Borrower only on the Renewal
Date and certain anniversaries thereof notwithstanding, Borrower has the
option, at any time upon sixty (60) days prior written notice to Foothill, to
terminate this Agreement by paying to Foothill, in cash, the Obligations
(including any contingent reimbursement obligations of Foothill under any L/Cs
or L/C Guarantees), together with a premium (the "Early Termination Premium")
equal to (subject to adjustment as provided below): (a) during the first year
following the Closing Date, the greater of (i) one and three-quarters percent
(1.75%) of the Maximum Amount, and (ii) the total interest and fees (including
L/C and L/C Guaranty Fees) for the immediately preceding six (6) months; (b)
during the second year following the Closing Date, one and one half percent
(1.50%) of the Maximum Amount; and (c) during the third year following the
Closing Date, three quarters of a percent (0.75%) of the Maximum Amount. The
foregoing notwithstanding, if the termination of this Agreement is in
connection with and as the result of an acquisition of Borrower by another
Person during the second or third year following the Closing Date, then, in
such circumstance only, the Early Termination Premium during the second year
shall be reduced to three quarters of one percent (0.75%) of the Maximum
Amount, and the Early Termination Premium during the third year shall be
reduced to three eighths of one percent (0.375%) of the Maximum Amount.
3.6 TERMINATION UPON INTENTIONAL EVENT OF DEFAULT. If
Foothill terminates this Agreement upon the occurrence of an Event of Default
that is caused intentionally by Borrower for the purpose, in Foothill's
reasonable judgment, of avoiding the Early Termination Premium provided in
Section 3.5, in view of the impracticability and extreme difficulty of
ascertaining actual damages and by mutual agreement of the parties as to a
reasonable calculation of Foothill's lost profits as a result thereof, Borrower
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shall pay to Foothill upon the effective date of such termination, a premium in
an amount equal to the Early Termination Premium. The Early Termination
Premium shall be presumed to be the amount of damages sustained by Foothill as
the result of the early termination and Borrower agrees that it is reasonable
under the circumstances currently existing. The Early Termination Premium
provided for in this Section 3.6 shall be deemed included in the Obligations.
4. CREATION OF SECURITY INTEREST.
4.1 GRANT OF SECURITY INTEREST. Borrower hereby grants to
Foothill a continuing security interest in all currently existing and hereafter
acquired or arising Collateral in order to secure prompt repayment of any and
all Obligations and in order to secure prompt performance by Borrower of each
of its covenants and duties under the Loan Documents. Foothill's security
interest in the Collateral shall attach to all Collateral without further act
on the part of Foothill or Borrower.
4.2 NEGOTIABLE COLLATERAL. In the event that any Collateral,
including proceeds, is evidenced by or consists of Negotiable Collateral,
Borrower shall, immediately upon the request of Foothill, endorse and assign
such Negotiable Collateral to Foothill and deliver physical possession of such
Negotiable Collateral to Foothill.
4.3 COLLECTION OF ACCOUNTS, GENERAL INTANGIBLES, NEGOTIABLE
COLLATERAL. On or before the Closing Date, Foothill, Borrower, and the Lock
Box Bank shall enter into the Lock Box Agreement, in form and substance
satisfactory to Foothill in its sole discretion, pursuant to which all of
Borrower's cash receipts, checks, and other items of payment will be forwarded
to Foothill on a daily basis. At any time that Foothill in good ▇▇▇▇▇ ▇▇▇▇▇
itself insecure (in accordance with Section 1208 of the Code) or at any time
that an Event of Default has occurred and is continuing, Foothill or Foothill's
designee may: (a) notify customers or Account Debtors of Borrower that the
Accounts, General Intangibles, or Negotiable Collateral have been assigned to
Foothill or that Foothill has a security interest therein; and (b) collect the
Accounts, General Intangibles, and Negotiable Collateral directly and charge
the collection costs and expenses to Borrower's loan account. Borrower agrees
that it will hold in trust for Foothill, as Foothill's trustee, any cash
receipts, checks, and other items of payment that it receives on account of the
Accounts, General Intangibles, or Negotiable Collateral and immediately will
deliver said cash receipts, checks, and other items of payment to Foothill in
their original form as received by Borrower.
4.4 DELIVERY OF ADDITIONAL DOCUMENTATION REQUIRED. At any
time upon the reasonable request of Foothill, Borrower shall execute and
deliver to Foothill all financing statements, continuation financing
statements, fixture filings, security agreements, chattel mortgages, pledges,
assignments, endorsements of certificates of title, applications for title,
affidavits, reports, notices, schedules of accounts, letters of authority, and
all other documents that Foothill may reasonably request, in form satisfactory
to Foothill, to perfect and continue perfected Foothill's security interests in
the Collateral and in order to fully consummate all of the transactions
contemplated hereby and under the other the Loan Documents.
4.5 POWER OF ATTORNEY. Borrower hereby irrevocably makes,
constitutes, and appoints Foothill (and any of Foothill's officers, employees,
or agents designated by Foothill) as Borrower's true and lawful attorney, with
power to: (a) if Borrower fails to, or refuses timely to execute and deliver
any of the documents described in Section 4.4, sign the name of Borrower on any
of the documents described in Section
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4.4 or on any other similar documents to be executed, recorded, or filed in
order to perfect or continue perfected Foothill's security interest in the
Collateral; (b) at any time that an Event of Default has occurred and is
continuing or Foothill deems itself insecure (in accordance with Section 1208
of the Code), sign Borrower's name on any invoice or ▇▇▇▇ of lading relating to
any Account, drafts against Account Debtors, schedules and assignments of
Accounts, verifications of Accounts, and notices to Account Debtors; (c) send
requests for verification of Accounts; (d) endorse Borrower's name on any
checks, notices, acceptances, money orders, drafts, or other item of payment or
security that may come into Foothill's possession; (e) at any time that an
Event of Default has occurred and is continuing or Foothill deems itself
insecure (in accordance with Section 1208 of the Code), notify the post office
authorities to change the address for delivery of Borrower's mail to an address
designated by Foothill, to receive and open all mail addressed to Borrower, and
to retain all mail relating to the Collateral and forward all other mail to
Borrower; (f) at any time that an Event of Default has occurred and is
continuing or Foothill deems itself insecure (in accordance with Section 1208
of the Code), make, settle, and adjust all claims under Borrower's policies of
insurance and make all determinations and decisions with respect to such
policies of insurance; and (g) at any time that an Event of Default has
occurred and is continuing or Foothill deems itself insecure (in accordance
with Section 1208 of the Code), settle and adjust disputes and claims
respecting the Accounts directly with Account Debtors, for amounts and upon
terms which Foothill determines to be reasonable, and Foothill may cause to be
executed and delivered any documents and releases which Foothill determines to
be necessary. The appointment of Foothill as Borrower's attorney, and each and
every one of Foothill's rights and powers, being coupled with an interest, is
irrevocable until all of the Obligations have been fully repaid and performed
and Foothill's obligation to extend credit hereunder is terminated.
4.6 RIGHT TO INSPECT. Foothill (through any of its officers,
employees, or agents) shall have the right, from time to time hereafter to
inspect Borrower's Books and to check, test, and appraise the Collateral in
order to verify Borrower's financial condition or the amount, quality, value,
condition of, or any other matter relating to, the Collateral; provided that,
so long as no Event of Default has occurred and is continuing and so long as
Foothill does not in good ▇▇▇▇▇ ▇▇▇▇ itself to be insecure (in accordance with
Section 1208 of the Code), such right will only be exercised by Foothill on
reasonable notice during normal business hours, and Collateral audits will be
conducted no more frequently than quarterly.
5. REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants to Foothill as follows:
5.1 NO PRIOR ENCUMBRANCES. Borrower has good and indefeasible
title to the Collateral, free and clear of liens, claims, security interests,
or encumbrances except for Permitted Liens.
5.2 ELIGIBLE ACCOUNTS. The Eligible Accounts are, at the time
of the creation thereof and as of each date on which Borrower includes them in
a Borrowing Base calculation or certification, bona fide existing obligations
created by the sale and delivery of Inventory or the rendition of services to
Account Debtors in the ordinary course of Borrower's business, unconditionally
owed to Borrower without defenses, disputes, offsets, counterclaims, or rights
of return or cancellation. The property giving rise to such Eligible Accounts
has been delivered to the Account Debtor, or to the Account Debtor's agent for
immediate shipment to and unconditional acceptance by the Account Debtor. At
the time of the creation of an Eligible Account and as of each date on which
Borrower includes an Eligible Account in a Borrowing Base calculation or
certification, Borrower has not received notice of actual or imminent
bankruptcy, insolvency,
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or material impairment of the financial condition of any applicable Account
Debtor regarding such Eligible Account.
5.3 {INTENTIONALLY OMITTED}.
5.4 LOCATION OF INVENTORY AND EQUIPMENT. The Inventory and
Equipment are not stored with a bailee, warehouseman, or similar party (without
Foothill's prior written consent) and are located only at the locations
identified on Schedule 6.16 or otherwise permitted by Sections 6.16.
5.5 INVENTORY RECORDS. Borrower now keeps, and hereafter at
all times shall keep, correct and accurate records itemizing and describing the
kind, type, quality, and quantity of the Inventory, and Borrower's cost
therefor.
5.6 LOCATION OF CHIEF EXECUTIVE OFFICE. The chief executive
office of Borrower is located at the address indicated in the first paragraph
of this Agreement and Borrower covenants and agrees that it will not, without
thirty (30) days prior written notification to Foothill, relocate such chief
executive office.
5.7 DUE ORGANIZATION AND QUALIFICATION. Borrower is and shall
at all times hereafter be duly organized and existing and in good standing
under the laws of the state of its incorporation and qualified and licensed to
do business in, and in good standing in, any state in which the conduct of its
business or its ownership of property requires that it be so qualified or where
the failure to be so licensed or qualified could reasonably be expected to have
a material adverse effect on the business, operations, condition (financial or
otherwise), finances, or prospects of Borrower.
5.8 DUE AUTHORIZATION; NO CONFLICT. The execution, delivery,
and performance of the Loan Documents are within Borrower's corporate powers,
have been duly authorized, and are not in conflict with nor constitute a breach
of any provision contained in Borrower's Certificate of Incorporation, or
Bylaws, nor will they constitute an event of default under any material
agreement to which Borrower is a party.
5.9 LITIGATION. There are no actions or proceedings pending
by or against Borrower before any court or administrative agency and Borrower
does not have knowledge or belief of any pending, threatened, or imminent
litigation, governmental investigations, or claims, complaints, actions, or
prosecutions involving Borrower or any guarantor of the Obligations, except for
ongoing collection matters in which Borrower is the plaintiff, matters
disclosed on Schedule 5.9, and matters arising after the date hereof that, if
decided adversely to Borrower, would not materially impair the prospect of
repayment of any portion of the Obligations or materially impair the value or
priority of Foothill's beneficial security interest in the Collateral.
5.10 NO MATERIAL ADVERSE CHANGE IN FINANCIAL CONDITION. All
financial statements relating to Borrower or any guarantor of the Obligations
that have been or may hereafter be delivered by Borrower to Foothill have been
prepared in accordance with GAAP and fairly present Borrower's financial
condition as of the date thereof and Borrower's results of operations for the
period then ended. There has not been a material adverse change in the
financial condition of Borrower or any guarantor since the date of the latest
financial statements submitted to Foothill on or before the Closing Date.
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5.11 SOLVENCY. Borrower is Solvent. No transfer of property
is being made by Borrower and no obligation is being incurred by Borrower in
connection with the transactions contemplated by this Agreement or the other
Loan Documents with the intent to hinder, delay, or defraud either present or
future creditors of Borrower.
5.12 ERISA. None of Borrower, 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. No notice of intent to terminate a Plan has been
filed under Section 4041 of ERISA, nor has any Plan been terminated under
Section 4041(e) of ERISA. The PBGC has not instituted proceedings to
terminate, or appoint a trustee to administer, a Plan and no event has occurred
or condition exists that might constitute grounds under Section 4042 of ERISA
for the termination of, or the appointment of a trustee to administer, any
Plan. Neither Borrower nor any ERISA Affiliate would be liable for any amount
pursuant to Sections 4062, 4063, or 4064 of ERISA if all Plans terminated as of
the most recent valuation dates of such Plans. Neither Borrower nor any ERISA
Affiliate have: withdrawn from a "multiple employer Plan" during a plan year
for which it was a substantial employer, as defined in Section 4001(a)(2) of
ERISA; or failed to make a payment to a Plan required under Section 302(f)(1)
of ERISA such that security would have to be provided pursuant to Section 307
of ERISA. No lien upon the assets of Borrower has arisen with respect to a
Plan. No prohibited transaction or Reportable Event has occurred with respect
to a Plan. Neither Borrower nor any ERISA Affiliate has incurred any
withdrawal liability with respect to any Multiemployer Plan. Borrower 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.
5.13 ENVIRONMENTAL CONDITION. None of Borrower's properties or
assets has ever been used by Borrower or, to the best of Borrower's knowledge,
by previous owners or operators in the disposal of, or to produce, store,
handle, treat, release, or transport, any Hazardous Materials. None of
Borrower's properties or assets has ever been designated or identified in any
manner pursuant to any environmental protection statute as a Hazardous
Materials disposal site, or a candidate for closure pursuant to any
environmental protection statute. No lien arising under any environmental
protection statute has attached to any revenues or to any real or personal
property owned or operated by Borrower. Borrower has not received a summons,
citation, notice, or directive from the Environmental Protection Agency or any
other federal or state governmental agency concerning any action or omission by
Borrower resulting in the releasing or disposing of Hazardous Materials into
the environment.
5.14 RELIANCE BY FOOTHILL; CUMULATIVE. Each warranty and
representation contained in this Agreement shall be automatically deemed
repeated with each advance or issuance of an L/C or L/C Guaranty and shall be
conclusively presumed to have been relied on by Foothill regardless of any
investigation made or information possessed by Foothill. The warranties and
representations set forth herein shall be cumulative and in addition to any and
all other warranties and representations that Borrower now or hereinafter shall
give, or cause to be given, to Foothill.
6. AFFIRMATIVE COVENANTS.
Borrower covenants and agrees that, so long as any credit
hereunder shall be available and until payment in full of the Obligations, and
unless Foothill shall otherwise consent in writing, Borrower shall do all of
the following:
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6.1 ACCOUNTING SYSTEM. Borrower at all times hereafter shall
maintain a standard and modern system of accounting in accordance with GAAP
with ledger and account cards or computer tapes, discs, printouts, and records
pertaining to the Collateral which contain information as from time to time may
be requested by Foothill. Borrower shall also keep proper books of account
showing all sales, claims, and allowances on its Inventory.
6.2 COLLATERAL REPORTS. Borrower shall deliver to Foothill,
no later than the twentieth (20th) day of each month during the term of this
Agreement, a detailed aging, by total, of the Accounts, a reconciliation
statement, and a summary aging, by vendor, of all accounts payable and any book
overdraft. Original sales invoices evidencing daily sales shall be mailed by
Borrower to each Account Debtor with, at Foothill's request on a sampling basis
in connection with quarterly audits, a copy to Foothill, and, at Foothill's
direction if there exists an Event of Default or Foothill in good ▇▇▇▇▇ ▇▇▇▇▇
itself insecure (in accordance with Section 1208 of the Code), the invoices
shall indicate on their face that the Account has been assigned to Foothill and
that all payments are to be made directly to Foothill. Borrower shall deliver
to Foothill, as Foothill may from time to time reasonably require, collection
reports, sales journals, invoices, original delivery receipts, customer's
purchase orders, shipping instructions, bills of lading, and other
documentation respecting shipment arrangements. Absent such a request by
Foothill, copies of all such documentation shall be held by Borrower as
custodian for Foothill.
6.3 SCHEDULES OF ACCOUNTS. With such regularity as Foothill
shall require, Borrower shall provide Foothill with schedules describing all
Accounts. Foothill's failure to request such schedules or Borrower's failure
to execute and deliver such schedules shall not affect or limit Foothill's
security interest or other rights in and to the Accounts.
6.4 FINANCIAL STATEMENTS, REPORTS, CERTIFICATES. Borrower
agrees to deliver to Foothill: (a) as soon as available, but in any event
within thirty (30) days after the end of each month during each of Borrower's
fiscal years, a company prepared balance sheet, income statement, and cash flow
statement covering Borrower's operations during such period; and (b) as soon as
available, but in any event within ninety (90) days after the end of each of
Borrower's fiscal years, financial statements of Borrower for each such fiscal
year, audited by independent certified public accountants reasonably acceptable
to Foothill and certified, without any qualifications, by such accountants to
have been prepared in accordance with GAAP, together with a certificate of such
accountants addressed to Foothill stating that such accountants do not have
knowledge of the existence of any event or condition constituting an Event of
Default, or that would, with the passage of time or the giving of notice,
constitute an Event of Default. Such audited financial statements shall
include a balance sheet, profit and loss statement, and cash flow statement,
and, if prepared, such accountants' letter to management. Borrower shall have
issued written instructions to its independent certified public accountants
authorizing them to communicate with Foothill and to release to Foothill
whatever financial information concerning Borrower that Foothill may request;
provided that failure of such accountants to cooperate is not an Event of
Default under this sentence. If Borrower is a parent company of one or more
subsidiaries, or Affiliates, or is a subsidiary or Affiliate of another
company, then, in addition to the financial statements referred to above,
Borrower agrees to deliver financial statements prepared on a consolidating
basis so as to present Borrower and each such related entity separately, and on
a consolidated basis.
Together with the above, Borrower shall also deliver to Foothill
Borrower's Form 10-Q Quarterly Reports, Form 10-K Annual Reports, and Form 8-K
Current Reports, and any other filings made
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by Borrower with the Securities and Exchange Commission, if any, as soon as the
same are filed, or any other information that is provided by Borrower to its
shareholders, and any other report reasonably requested by Foothill relating to
the Collateral and financial condition of Borrower.
Each month, together with the financial statements provided
pursuant to Section 6.4(a), Borrower shall deliver to Foothill a certificate
signed by its chief financial officer to the effect that: (a) all reports,
statements, or computer prepared information of any kind or nature delivered or
caused to be delivered to Foothill hereunder have been prepared in accordance
with GAAP and fully and fairly present the financial condition of Borrower; (b)
Borrower is in timely compliance with all of its covenants and agreements
hereunder; (c) the representations and warranties of Borrower contained in this
Agreement and the Loan Documents are true and correct in all material respects
on and as of the date of such certificate, as though made on and as of such
date (except to the extent that such representations and warranties relate
solely to an earlier date); (d) Borrower is not in default with respect to any
of its obligations to any Carrier, or, if Borrower is in default, specifying
the details of each such default; and (e) on the date of delivery of such
certificate to Foothill there does not exist any condition or event which
constitutes an Event of Default (or, in each case, to the extent of any non-
compliance, describing such non-compliance as to which he or she may have
knowledge and what action Borrower has taken, is taking or proposes to take
with respect thereto).
Borrower hereby irrevocably authorizes and directs all auditors,
accountants, or other third parties to deliver to Foothill, at Borrower's
expense, copies of Borrower's financial statements, papers related thereto, and
other accounting records of any nature in their possession, and to disclose to
Foothill any information they may have regarding Borrower's business affairs
and financial condition; provided that failure of such third parties to
cooperate is not an Event of Default under this sentence.
6.5 TAX RETURNS. Borrower agrees to deliver to Foothill
copies of each of Borrower's future federal income tax returns, and any
amendments thereto, within thirty (30) days of the filing thereof with the
Internal Revenue Service.
6.6 GUARANTOR REPORTS. Borrower agrees to cause any guarantor
of any of the Obligations to deliver its annual financial statements at the
time when Borrower provides its audited financial statements to Foothill and
copies of all federal income tax returns as soon as the same are available and
in any event no later than thirty (30) days after the same are required to be
filed by law.
6.7 PERFORMANCE OF OBLIGATIONS TO CARRIERS. Borrower shall
make all payments due from it to Carriers within ten (10) days of their due
date, and otherwise shall comply in all material respects with Borrower's non-
monetary contractual obligations to Carriers; provided that Borrower shall not
be in breach of this section by virtue of claiming permitted credits and
deductions, or by virtue of immaterial breaches that would not permit Carriers
to enforce default remedies. Should Borrower acquire knowledge that Borrower
is in breach of this section, or should Borrower receive a default notice from
any Carrier, in each such instance Borrower immediately shall notify Foothill
of same and all relevant details pertaining thereto. If Foothill determines in
good faith that Borrower is delinquent with respect to amounts owed to a
Carrier, and that such delinquency may have an adverse effect upon the value or
collectibility of the Accounts (such as, by way of illustration but not by way
of limitation, where a Carrier threatens to contact customers of Borrower and
give notices or assert demands that could confuse such customers or interfere
with collection of the affected Accounts by Borrower or Foothill), then
Foothill in its sole discretion may elect to pay to such Carrier amounts
claimed by such Carrier to be due from Borrower, whereupon such
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amounts so paid by Foothill shall become Foothill Expenses immediately due and
payable from Borrower to Foothill.
6.8 CREDITS AND ALLOWANCES. Credits and allowances, if any,
as between Borrower and its Account Debtors shall be on the same basis and in
accordance with the usual customary practices of Borrower, as they exist at the
time of the execution and delivery of this Agreement. If at any time prior to
the occurrence of an Event of Default, any Account Debtor seeks any credit or
allowance from Borrower, Borrower promptly shall determine the reason therefor
and, if Borrower accepts such reason, issue a credit memorandum (which credit
memorandum may be contained in such Account Debtor's next monthly billing
statement) in the appropriate amount to such Account Debtor. Borrower shall
notify Foothill, on a basis and with a frequency satisfactory to Foothill in
Foothill's discretion, of all credits and allowances and of all disputes and
claims.
6.9 TITLE TO EQUIPMENT. Upon Foothill's request, Borrower
shall immediately deliver to Foothill, properly endorsed, any and all evidences
of ownership of, certificates of title, or applications for title to any items
of Equipment.
6.10 MAINTENANCE OF EQUIPMENT. Borrower shall keep and
maintain the Equipment in good operating condition and repair (ordinary wear
and tear excepted), and make all necessary replacements thereto so that the
value and operating efficiency thereof shall at all times be maintained and
preserved. Borrower shall not permit any item of Equipment to become a fixture
to real estate or an accession to other property, and the Equipment is now and
shall at all times remain personal property.
6.11 TAXES. All assessments and taxes, whether real, personal,
or otherwise, due or payable by, or imposed, levied, or assessed against
Borrower or any of its property have been paid, and shall hereafter be paid in
full, before delinquency or before the expiration of any extension period.
Borrower shall make due and timely payment or deposit of all federal, state,
and local taxes, assessments, or contributions required of it by law, and will
execute and deliver to Foothill, on demand, appropriate certificates attesting
to the payment or deposit thereof. Borrower will make timely payment or
deposit of all tax payments and withholding taxes required of it by applicable
laws, including those laws concerning F.I.C.A., F.U.T.A., state disability, and
local, state, and federal income taxes, and will, upon request, furnish
Foothill with proof satisfactory to Foothill indicating that Borrower has made
such payments or deposits.
6.12 INSURANCE.
(a) Borrower, at its expense, shall keep the Collateral
insured against loss or damage by fire, theft, explosion, sprinklers, and all
other hazards and risks, and in such amounts, as ordinarily insured against by
other owners in similar businesses. Borrower also shall maintain business
interruption, public liability, product liability, and property damage
insurance relating to Borrower's ownership and use of the Collateral, as well
as insurance against larceny, embezzlement, and criminal misappropriation.
(b) All such policies of insurance shall be in such
form, with such companies, and in such amounts as may be reasonably
satisfactory to Foothill. All such policies of insurance (except those of
public liability and property damage) shall contain a 438BFU lender's loss
payable endorsement, or an equivalent endorsement in a form satisfactory to
Foothill, showing Foothill as sole loss
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payee thereof, and shall contain a waiver of warranties, and shall specify that
the insurer must give at least ten (10) days prior written notice to Foothill
before canceling its policy for any reason. Borrower shall deliver to Foothill
certified copies of such policies of insurance and evidence of the payment of
all premiums therefor. All proceeds payable under any such policy shall be
payable to Foothill to be applied on account of the Obligations.
6.13 FOOTHILL EXPENSES. Borrower shall immediately, upon
written notice, reimburse Foothill for all sums expended by Foothill which
constitute Foothill Expenses and Borrower hereby authorizes and approves all
advances and payments by Foothill for items constituting Foothill Expenses and
authorizes Foothill, without prior written notice, to charge Borrower's loan
account for the amount thereof as and when incurred or expended.
6.14 FINANCIAL COVENANTS. Borrower shall maintain:
(a) Current Ratio. A ratio of Consolidated Current
Assets divided by Consolidated Current Liabilities of at least one and five
one-hundredths to one (1.05 : 1.00), measured on a fiscal quarter-end basis;
(b) Debt to Consolidated Tangible Net Worth Ratio. A
ratio of Borrower's total liabilities divided by Consolidated Tangible Net
Worth of not more than five to one (5.0 : 1.0), measured on a fiscal quarter-
end basis;
(c) Consolidated Tangible Net Worth. Consolidated
Tangible Net Worth on a fiscal quarter-end basis of at least Three Million
Dollars ($3,000,000); and
(d) Consolidated Working Capital. Consolidated Working
Capital of not less than Five Hundred Seventy Thousand Dollars ($570,000),
measured on a fiscal quarter-end basis.
Anything in this Section 6.14 to the contrary notwithstanding, the foregoing
financial covenants shall be re-set by Foothill within forty five (45) days of
the Closing Date at reasonable levels determined by Foothill based on the
Projections, with such re-set covenant levels to be communicated in writing by
Foothill to Borrower when so determined, and thereafter documented by a future
amendment hereto which the parties agree to negotiate and enter into in good
faith.
6.15 NO SETOFFS OR COUNTERCLAIMS. All payments hereunder and
under the other Loan Documents made by or on behalf of Borrower shall be made
without setoff or counterclaim and free and clear of, and without deduction or
withholding for or on account of, any federal, state, or local taxes.
6.16 LOCATION OF INVENTORY AND EQUIPMENT. The Inventory and
Equipment shall not at any time now or hereafter be stored with a bailee,
warehouseman, or similar party without Foothill's prior written consent.
Borrower shall keep the Inventory and Equipment only at the locations
identified on Schedule 6.16; provided, however, that Borrower may amend
Schedule 6.16 so long as such amendment occurs by written notice to Foothill
not less than thirty (30) days prior to the date on which the Inventory or
Equipment is moved to such new location and so long as, at the time of such
written notification, Borrower provides any financing statements or fixture
filings necessary to perfect and continue perfected Foothill's
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security interest in such assets and also provides to Foothill a landlord's
waiver in form and substance satisfactory to Foothill.
6.17 DUPLICATE COPIES OF IMPORTANT DATA. Borrower shall
maintain duplicate copies of the optical disks that contain Borrower's billing
and accounts receivable data, which duplicate copies shall be stored in a
secure, off-site location.
7. NEGATIVE COVENANTS.
Borrower covenants and agrees that, so long as any credit
hereunder shall be available and until payment in full of the Obligations,
Borrower will not do any of the following without Foothill's prior written
consent:
7.1 INDEBTEDNESS. Create, incur, assume, permit, guarantee,
or otherwise become or remain, directly or indirectly, liable with respect to
any Indebtedness, except:
(a) Indebtedness evidenced by this Agreement;
(b) Indebtedness set forth in the latest financial
statements of Borrower submitted to Foothill on or prior to the Closing Date or
described on Schedule 7.1;
(c) Indebtedness secured by Permitted Liens; and
(d) refinancings, renewals, or extensions of
Indebtedness permitted under clauses (b) and (c) of this Section 7.1 (and
continuance or renewal of any Permitted Liens associated therewith) so long as:
(i) the terms and conditions of such refinancings, renewals, or extensions do
not materially impair the prospects of repayment of the Obligations by
Borrower, (ii) the net cash proceeds of such refinancings, renewals, or
extensions do not result in an increase in the aggregate principal amount of
the Indebtedness so refinanced, renewed, or extended, and (iii) such
refinancings, renewals, refundings, or extensions do not result in a shortening
of the average weighted maturity of the Indebtedness so refinanced, renewed, or
extended.
7.2 LIENS. Create, incur, assume, or permit to exist,
directly or indirectly, any lien on or with respect to any of its property or
assets, of any kind, whether now owned or hereafter acquired, or any income or
profits therefrom, except for Permitted Liens (including Permitted Liens that
are continued or renewed as permitted under Section 7.1(d)).
7.3 RESTRICTIONS ON FUNDAMENTAL CHANGES. Enter into any
acquisition, merger, consolidation, reorganization, or recapitalization, or
reclassify its capital stock, or liquidate, wind up, or dissolve itself (or
suffer any liquidation or dissolution), or convey, sell, assign, lease,
transfer, or otherwise dispose of, in one transaction or a series of
transactions, all or any substantial part of its business, property, or assets,
whether now owned or hereafter acquired, or acquire by purchase or otherwise
all or substantially all the assets, stock, or other evidence of beneficial
ownership of any Person.
7.4 EXTRAORDINARY TRANSACTIONS AND DISPOSAL OF ASSETS. Enter
into any transaction not in the ordinary and usual course of Borrower's
business, including, but not limited to, the sale, lease, or
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other disposition of, moving, relocation, or transfer, whether by sale or
otherwise, of any of Borrower's assets (other than sales of Inventory in the
ordinary and usual course of Borrower's business as currently conducted), or
the making of any advance or loan except in the ordinary course of business as
currently conducted.
7.5 CHANGE NAME. Change Borrower's name, business structure,
or identity, or add any new fictitious name without first giving thirty (30)
days prior written notice to Foothill.
7.6 GUARANTEE. Guarantee or otherwise become in any way
liable with respect to the obligations of any third party except by endorsement
or instruments or items of payment for deposit to the account of Borrower or
which are transmitted or turned over to Foothill.
7.7 RESTRUCTURE. Make any change in Borrower's financial
structure, the principal nature of Borrower's business operations, or the date
of its fiscal year.
7.8 PREPAYMENTS. Prepay any Indebtedness owing to any third
party.
7.9 CHANGE OF CONTROL. Cause, permit, or suffer, directly or
indirectly, any Change of Control.
7.10 CAPITAL EXPENDITURES. Make any capital expenditure, or
any commitment therefor, where the aggregate amount of such capital
expenditures, made or committed for in any fiscal year, is in excess of Five
Hundred Thousand Dollars ($500,000); provided that, for purposes of the
foregoing, moving costs that have been approved in advance by Foothill (which
approval shall not unreasonably be withheld by Foothill) shall not be deemed
capital expenditures. Anything in this Section 7.10 to the contrary
notwithstanding, the foregoing capital expenditure limitations shall be re-set
by Foothill within forty five (45) days of the Closing Date at reasonable
levels determined by Foothill based on the Projections, with such re-set
capital expenditure limitations to be communicated in writing by Foothill to
Borrower when so determined, and thereafter documented by a future amendment
hereto which the parties agree to negotiate and enter into in good faith.
7.11 {INTENTIONALLY OMITTED}.
7.12 DISTRIBUTIONS. Make any distribution or declare or pay
any dividends (in cash or in stock) on, or purchase, acquire, redeem, or retire
any of Borrower's capital stock, of any class, whether now or hereafter
outstanding.
7.13 ACCOUNTING METHODS. Modify or change its method of
accounting or enter into, modify, or terminate any agreement currently
existing, or at any time hereafter entered into with any third party accounting
firm or service bureau for the preparation or storage of Borrower's accounting
records without said accounting firm or service bureau agreeing to provide
Foothill information regarding the Collateral or Borrower's financial
condition. Borrower waives the right to assert a confidential relationship, if
any, it may have with any accounting firm or service bureau in connection with
any information requested by Foothill pursuant to or in accordance with this
Agreement, and agrees that Foothill may contact directly any such accounting
firm or service bureau in order to obtain such information.
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7.14 INVESTMENTS. Directly or indirectly make or acquire any
beneficial interest in (including stock, partnership interest, or other
securities of), or make any loan, advance, or capital contribution to, any
Person; provided that this Section shall not prohibit investments in secure,
liquid, short-term cash equivalents.
7.15 TRANSACTIONS WITH AFFILIATES. Directly or indirectly
enter into or permit to exist any transaction with any Affiliate of Borrower
except for transactions that are in the ordinary course of Borrower's business,
upon fair and reasonable terms, that are fully disclosed to Foothill, and that
are no less favorable to Borrower than would be obtained in arm's length
transaction with a non-Affiliate.
7.16 SUSPENSION. Suspend or go out of a substantial portion of
its business.
7.17 COMPENSATION. (a) Subject to Section 7.17(b), pay or
accrue total cash compensation, during any year, to officers and senior
management employees in an aggregate amount in excess of one hundred twenty
percent (120%) of that paid or accrued in the prior year; provided, however,
Borrower may pay bonuses to such individuals in accordance with the provisions
of a pre-existing incentive bonus program, provided that, prior to the Closing
Date, Borrower provides a copy thereof to Foothill.
(b) Section 7.17(a) notwithstanding, if Borrower should
propose to adopt a new bonus plan for its officers and senior management, and
if Borrower should request Foothill's consent to its adoption of such a plan,
Foothill shall not unreasonably withhold its consent thereto. Should Borrower,
during any year, adopt such a new plan that has been approved by Foothill, the
compensation provided for in such plan shall be permitted by Section 7.17(a),
and the compensation of officers and senior management of Borrower for such
year, giving effect to such plan, shall serve as the new baseline for future
increases in compensation, applying the 120% aggregate test of Section 7.17(a)
going forward from such plan.
7.18 USE OF PROCEEDS. Use the proceeds of the advances made
hereunder for any purpose other than: (A) to refinance Obligations due Foothill
under the Prior Agreement; (B) to pay transactional costs and expenses incurred
in connection with this Agreement; and (C) thereafter, consistent with the
terms and conditions hereof, for its lawful and permitted corporate purposes.
7.19 CONTRACTS WITH CARRIERS. Enter into any new contractual
arrangements with Carriers, or materially amend, modify, or extend existing
contractual arrangements with Carriers, if the effect would be to prohibit
Foothill from having a security interest in the rights of Borrower thereunder,
to prohibit disclosure of the terms thereof to Foothill, to grant a security
interest to the Carrier in any of the Collateral, to authorize the Carrier to
withhold delivery of call transaction record tapes other than after the
occurrence of a default, or to contact or directly ▇▇▇▇ customers of Borrower
with respect to services provided by such Carrier to Borrower for resale to
Borrower's customers.
7.20 CONTRACTS WITH INTEGRETEL. Enter into any new contractual
arrangements with Integretel, or materially amend, modify, or extend existing
contractual arrangements with Integretel, except on terms approved in advance
by Foothill in Foothill's discretion.
8. EVENTS OF DEFAULT.
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Any one or more of the following events shall constitute an event
of default (each, an "Event of Default") under this Agreement:
8.1 If Borrower fails to pay when due and payable or when
declared due and payable, any portion of the Obligations (whether of principal,
interest (including any interest which, but for the provisions of the
Bankruptcy Code, would have accrued on such amounts), fees and charges due
Foothill, reimbursement of Foothill Expenses, or other amounts constituting
Obligations);
8.2 If Borrower fails or neglects to perform, keep, or observe
any term, provision, condition, covenant, or agreement contained in this
Agreement, in any of the Loan Documents, or in any other present or future
agreement between Borrower and Foothill;
8.3 If there is a material impairment of the prospect of
repayment of any portion of the Obligations owing to Foothill or a material
impairment of the value or priority of Foothill's security interests in the
Collateral;
8.4 If any material portion of Borrower's assets is attached,
seized, subjected to a writ or distress warrant, or is levied upon, or comes
into the possession of any third Person;
8.5 If an Insolvency Proceeding is commenced by Borrower;
8.6 If an Insolvency Proceeding is commenced against Borrower
and any of the following events occur: (1) Borrower consents to the
institution of the Insolvency Proceeding against it; (2) the petition
commencing the Insolvency Proceeding is not timely controverted; (3) the
petition commencing the Insolvency Proceeding is not dismissed within forty-
five (45) calendar days of the date of the filing thereof; provided, however,
that, during the pendency of such period, Foothill shall be relieved of its
obligation to make additional advances; (4) an interim trustee is appointed to
take possession of all or a substantial portion of the assets of, or to operate
all or any substantial portion of the business of, Borrower; or (5) an order
for relief shall have been issued or entered therein;
8.7 If Borrower is enjoined, restrained, or in any way
prevented by court order from continuing to conduct all or any material part of
its business affairs;
8.8 If a notice of lien, levy, or assessment is filed of
record with respect to any of Borrower's assets by the United States
Government, or any department, agency, or instrumentality thereof, or by any
state, county, municipal, or governmental agency, or if any taxes or debts
owing at any time hereafter to any one or more of such entities becomes a lien,
whether ▇▇▇▇▇▇ or otherwise, upon any of Borrower's assets and the same is not
paid on the payment date thereof;
8.9 If a judgment or other claim for an amount of one hundred
thousand dollars ($100,000) or more becomes a lien or encumbrance upon any
material portion of Borrower's assets and is not satisfied, stayed, or removed
within thirty (30) days;
8.10 If there is a default in any material agreement to which
Borrower is a party with third parties resulting in a right by such third
parties, whether or not exercised, to accelerate the maturity of
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Borrower's Indebtedness thereunder if the amount of such Indebtedness equals or
exceeds one hundred thousand dollars ($100,000);
8.11 If Borrower makes any payment on account of Indebtedness
that has been contractually subordinated in right of payment to the payment of
the Obligations, except to the extent such payment is permitted by the terms of
the subordination provisions applicable to such Indebtedness;
8.12 If any material misstatement or misrepresentation exists
now or hereafter in any warranty, representation, statement, or report made to
Foothill by Borrower or any officer, employee, agent, or director of Borrower,
or if any such warranty or representation is withdrawn by any officer or
director;
8.13 If the obligation of any guarantor or other third party
under any loan document is limited or terminated by operation of law or by the
guarantor or other third party thereunder, or any guarantor or other third
party becomes the subject of an Insolvency Proceeding; or
8.14 If a Prohibited Transaction or Reportable Event shall
occur with respect to a Plan which could have a material adverse effect on the
financial condition of Borrower; if any lien upon the assets of Borrower in
connection with any Plan shall arise; if Borrower or any ERISA Affiliate shall
completely or partially withdraw from a Multiemployer Plan or Multiple Employer
Plan of which Borrower or such ERISA Affiliate was a substantial employer, and
such withdrawal could, in the opinion of Foothill, have a material adverse
effect on the financial condition of Borrower; if Borrower or any of its ERISA
Affiliates shall fail to make full payment when due of all amounts which
Borrower or any of its ERISA Affiliates may be required to pay to any Plan or
any Multiemployer Plan as one or more contributions thereto; if Borrower or any
of its ERISA Affiliates creates or permits the creation of any accumulated
funding deficiency, whether or not waived; or upon the voluntary or involuntary
termination of any Plan which termination could, in the opinion of Foothill,
have a material adverse effect on the financial condition of Borrower: if
Borrower shall fail to notify Foothill promptly and in any event within ten
(10) days of the occurrence of any event that constitutes an Event of Default
under this clause or would constitute such an Event of Default upon the
exercise of Foothill's judgment.
9. FOOTHILL'S RIGHTS AND REMEDIES.
9.1 RIGHTS AND REMEDIES. Upon the occurrence of an Event of
Default Foothill may, at its election, without notice of its election and
without demand, do any one or more of the following, all of which are
authorized by Borrower:
(a) Declare all Obligations, whether evidenced by this
Agreement, by any of the other Loan Documents, or otherwise, immediately due
and payable;
(b) Cease advancing money or extending credit to or for
the benefit of Borrower under this Agreement, under any of the Loan Documents,
or under any other agreement between Borrower and Foothill;
(c) Terminate this Agreement and any of the other Loan
Documents as to any future liability or obligation of Foothill, but without
affecting Foothill's rights and security interest in the Collateral and without
affecting the Obligations;
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(d) Settle or adjust disputes and claims directly with
Account Debtors for amounts and upon terms which Foothill considers advisable,
and in such cases, Foothill will credit Borrower's loan account with only the
net amounts received by Foothill in payment of such disputed Accounts after
deducting all Foothill Expenses incurred or expended in connection therewith;
(e) {intentionally omitted};
(f) Without notice to or demand upon Borrower or any
guarantor, make such payments and do such acts as Foothill considers necessary
or reasonable to protect its security interest in the Collateral. Borrower
agrees to assemble the Collateral if Foothill so requires, and to make the
Collateral available to Foothill as Foothill may designate. Borrower
authorizes Foothill to enter the premises where the Collateral is located, to
take and maintain possession of the Collateral, or any part of it, and to pay,
purchase, contest, or compromise any encumbrance, charge, or lien that in
Foothill's determination appears to be prior or superior to its security
interest and to pay all expenses incurred in connection therewith. With
respect to any of Borrower's owned premises, Borrower hereby grants Foothill a
license to enter into possession of such premises and to occupy the same,
without charge, for up to one hundred twenty (120) days in order to exercise
any of Foothill's rights or remedies provided herein, at law, in equity, or
otherwise;
(g) Without notice to Borrower (such notice being
expressly waived) set off and apply to the Obligations, without constituting a
retention of any collateral in satisfaction of the obligation (within the
meaning of Section 9505 of the Code), any and all (i) balances and deposits of
Borrower held by Foothill (including any amounts received in the Lock Box
regardless of whether held in a concentration account of Foothill), or (ii)
indebtedness at any time owing to or for the credit or the account of Borrower
held by Foothill;
(h) Hold, as cash collateral, any and all balances and
deposits of Borrower held by Foothill, and any amounts received in the Lock Box
regardless of whether held in a concentration account of Foothill, to secure
the Obligations;
(i) Ship, reclaim, recover, store, finish, maintain,
repair, prepare for sale, advertise for sale, and sell (in the manner provided
for herein) the Collateral. Foothill is hereby granted a license or other
right to use, without charge, Borrower's labels, patents, copyrights, rights of
use of any name, trade secrets, trade names, trademarks, service marks, and
advertising matter, or any property of a similar nature, as it pertains to the
Collateral, in completing production of, advertising for sale, and selling any
Collateral and Borrower's rights under all licenses and all franchise
agreements shall inure to Foothill's benefit;
(j) Sell the Collateral at either a public or private
sale, or both, by way of one or more contracts or transactions, for cash or on
terms, in such manner and at such places (including Borrower's premises) as
Foothill determines is commercially reasonable. It is not necessary that the
Collateral be present at any such sale;
(k) Foothill shall give notice of the disposition of
the Collateral as follows:
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(1) Foothill shall give Borrower and each holder
of a security interest in the Collateral who has filed with Foothill a written
request for notice, a notice in writing of the time and place of public sale,
or, if the sale is a private sale or some other disposition other than a public
sale is to be made of the Collateral, then the time on or after which the
private sale or other disposition is to be made;
(2) The notice shall be personally delivered or
mailed, postage prepaid, to Borrower as provided in Section 12, at least five
(5) days before the date fixed for the sale, or at least five (5) days before
the date on or after which the private sale or other disposition is to be made,
unless the Collateral is perishable or threatens to decline speedily in value.
Notice to Persons other than Borrower claiming an interest in the Collateral
shall be sent to such addresses as they have furnished to Foothill;
(3) If the sale is to be a public sale, Foothill
also shall give *notice of the time and place by publishing a notice one time
at least five (5) days before the date of the sale in a newspaper of general
circulation in the county in which the sale is to be held;
(l) Foothill may credit bid and purchase at any public
sale; and
(m) Any deficiency that exists after disposition of the
Collateral as provided above will be paid immediately by Borrower. Any excess
will be returned, without interest and subject to the rights of third parties,
by Foothill to Borrower.
9.2 REMEDIES CUMULATIVE. Foothill's rights and remedies under
this Agreement, the Loan Documents, and all other agreements shall be
cumulative. Foothill shall have all other rights and remedies not inconsistent
herewith as provided under the Code, by law, or in equity. No exercise by
Foothill of one right or remedy shall be deemed an election, and no waiver by
Foothill of any Event of Default shall be deemed a continuing waiver. No delay
by Foothill shall constitute a waiver, election, or acquiescence by it.
10. TAXES AND EXPENSES REGARDING THE COLLATERAL.
If Borrower fails to pay any monies (whether taxes, rents, assessments,
insurance premiums, or otherwise) due to third Persons, or fails to make any
deposits or furnish any required proof of payment or deposit, all as required
under the terms of this Agreement, then, to the extent that Foothill determines
that such failure by Borrower could have a material adverse effect on
Foothill's interests in the Collateral, in its discretion and without prior
notice to Borrower, Foothill may do any or all of the following: (a) make
payment of the same or any part thereof; (b) set up such reserves in Borrower's
loan account as Foothill deems necessary to protect Foothill from the exposure
created by such failure; or (c) obtain and maintain insurance policies of the
type described in Section 6.12, and take any action with respect to such
policies as Foothill deems prudent. Any amounts paid or deposited by Foothill
shall constitute Foothill Expenses, shall be immediately charged to Borrower's
loan account and become additional Obligations, shall bear interest at the then
applicable rate hereinabove provided, and shall be secured by the Collateral.
Any payments made by Foothill shall not constitute an agreement by Foothill to
make similar payments in the future or a waiver by Foothill of any Event of
Default under this Agreement. Foothill need not inquire as to, or contest the
validity of, any such expense, tax, security interest, encumbrance, or lien and
the receipt of the usual official notice for the payment thereof shall be
conclusive evidence that the same was validly due and owing.
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11. WAIVERS; INDEMNIFICATION.
11.1 DEMAND; PROTEST; ETC. Borrower waives demand, protest,
notice of protest, notice of default or dishonor, notice of payment and
nonpayment, notice of any default, nonpayment at maturity, release, compromise,
settlement, extension, or renewal of accounts, documents, instruments, chattel
paper, and guarantees at any time held by Foothill on which Borrower may in any
way be liable.
11.2 FOOTHILL'S LIABILITY FOR INVENTORY OR EQUIPMENT. So long
as Foothill complies with its obligations, if any, under Section 9207 of the
Code, Foothill shall not in any way or manner be liable or responsible for: (a)
the safekeeping of the Collateral; (b) any loss or damage thereto occurring or
arising in any manner or fashion from any cause; (c) any diminution in the
value thereof; or (d) any act or default of any carrier, warehouseman, bailee,
forwarding agency, or other Person. All risk of loss, damage, or destruction
of the Collateral shall be borne by Borrower.
11.3 INDEMNIFICATION. Borrower agrees to defend and indemnify
Foothill and its officers, employees, and agents and hold Foothill harmless
against: (a) all obligations, demands, claims, and liabilities claimed or
asserted by any other party arising out of or relating to the transactions
contemplated by this Agreement or any other Loan Document, and (b) all losses
(including reasonable attorneys fees and disbursements) in any way suffered,
incurred, or paid by Foothill as a result of or in any way arising out of,
following, or consequential to the transactions contemplated by this Agreement
or any other Loan Document; save for and excluding any of the foregoing that
are caused by the gross negligence or willful misconduct of Foothill. This
provision shall survive the termination of this Agreement.
12. NOTICES.
Unless otherwise provided in this Agreement, all notices or
demands by any party relating to this Agreement or any other agreement entered
into in connection therewith shall be in writing and (except for financial
statements and other informational documents which may be sent by first-class
mail, postage prepaid) shall be personally delivered or sent by registered or
certified mail, postage prepaid, return receipt requested, or by prepaid telex,
TWX, telefacsimile, or telegram (with messenger delivery specified) to Borrower
or to Foothill, as the case may be, at its addresses set forth below:
If to Borrower: PHOENIX NETWORK, INC.
▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Senior Vice President and
Chief Financial Officer
If to Foothill: FOOTHILL CAPITAL CORPORATION
▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: Business Finance Division Manager
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The parties hereto may change the address at which they are to
receive notices hereunder, by notice in writing in the foregoing manner given
to the other. All notices or demands sent in accordance with this Section 12,
other than notices by Foothill in connection with Sections 9504 or 9505 of the
Code, shall be deemed received on the earlier of the date of actual receipt or
three (3) days after the deposit thereof in the mail. Borrower acknowledges
and agrees that notices sent by Foothill in connection with Sections 9504 or
9505 of the Code shall be deemed sent when deposited in the mail or transmitted
by telefacsimile or other similar method set forth above.
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.
THE VALIDITY OF THIS AGREEMENT, ITS CONSTRUCTION, INTERPRETATION,
AND ENFORCEMENT, AND THE RIGHTS OF THE PARTIES HERETO WITH RESPECT TO ALL
MATTERS ARISING HEREUNDER OR RELATED HERETO SHALL BE DETERMINED UNDER, GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA. THE
PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS
AGREEMENT SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND FEDERAL COURTS
LOCATED IN THE COUNTY OF LOS ANGELES, STATE OF CALIFORNIA OR, AT THE SOLE
OPTION OF FOOTHILL, IN ANY OTHER COURT IN WHICH FOOTHILL SHALL INITIATE LEGAL
OR EQUITABLE PROCEEDINGS AND WHICH HAS SUBJECT MATTER JURISDICTION OVER THE
MATTER IN CONTROVERSY. EACH OF BORROWER AND FOOTHILL WAIVES, TO THE EXTENT
PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE
OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS
BROUGHT IN ACCORDANCE WITH THIS SECTION 13. BORROWER AND FOOTHILL HEREBY WAIVE
THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED
UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS
CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY
CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. BORROWER AND FOOTHILL
REPRESENT THAT EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY
WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE
EVENT OF LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT
TO A TRIAL BY THE COURT.
14. DESTRUCTION OF BORROWER'S DOCUMENTS.
All documents, schedules, invoices, agings, or other papers
delivered to Foothill may be destroyed or otherwise disposed of by Foothill
four (4) months after they are delivered to or received by Foothill, unless
Borrower requests, in writing, the return of said documents, schedules, or
other papers and makes arrangements, at Borrower's expense, for their return.
15. GENERAL PROVISIONS.
15.1 EFFECTIVENESS. This Agreement shall be binding and deemed
effective when executed by Borrower and Foothill.
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15.2 SUCCESSORS AND ASSIGNS. This Agreement shall bind and
inure to the benefit of the respective successors and assigns of each of the
parties; provided, however, that Borrower may not assign this Agreement or any
rights or duties hereunder without Foothill's prior written consent and any
prohibited assignment shall be absolutely void. No consent to an assignment by
Foothill shall release Borrower from its Obligations. Foothill may assign this
Agreement and its rights and duties hereunder and no consent or approval by
Borrower is required in connection with any such assignment. Foothill reserves
the right to sell, assign, transfer, negotiate, or grant participations in all
or any part of, or any interest in Foothill's rights and benefits hereunder.
In connection therewith, Foothill may disclose all documents and information
which Foothill now or hereafter may have relating to Borrower or Borrower's
business. To the extent that Foothill assigns its rights and obligations
hereunder to a third party, Foothill shall thereafter be released from such
assigned obligations to Borrower and such assignment shall effect a novation
between Borrower and such third party.
15.3 SECTION HEADINGS. Headings and numbers have been set
forth herein for convenience only. Unless the contrary is compelled by the
context, everything contained in each paragraph applies equally to this entire
Agreement.
15.4 INTERPRETATION. Neither this Agreement nor any
uncertainty or ambiguity herein shall be construed or resolved against Foothill
or Borrower, whether under any rule of construction or otherwise. On the
contrary, this Agreement has been reviewed by all parties and shall be
construed and interpreted according to the ordinary meaning of the words used
so as to fairly accomplish the purposes and intentions of all parties hereto.
15.5 SEVERABILITY OF PROVISIONS. Each provision of this
Agreement shall be severable from every other provision of this Agreement for
the purpose of determining the legal enforceability of any specific provision.
15.6 AMENDMENTS IN WRITING. This Agreement cannot be changed
or terminated orally. All prior agreements, understandings, representations,
warranties, and negotiations, if any, are merged into this Agreement.
15.7 COUNTERPARTS; TELEFACSIMILE EXECUTION. This Agreement may
be executed in any number of counterparts and by different parties on separate
counterparts, each of which, when executed and delivered, shall be deemed to be
an original, and all of which, when taken together, shall constitute but one
and the same Agreement. Delivery of an executed counterpart of this Agreement
by telefacsimile shall be equally as effective as delivery of a manually
executed counterpart of this Agreement. Any party delivering an executed
counterpart of this Agreement by telefacsimile shall also deliver a manually
executed counterpart of this Agreement but the failure to deliver a manually
executed counterpart shall not affect the validity, enforceability, and binding
effect of this Agreement.
15.8 REVIVAL AND REINSTATEMENT OF OBLIGATIONS. If the
incurrence or payment of the Obligations by Borrower or any guarantor of the
Obligations or the transfer by either or both of such parties to Foothill of
any property of either or both of such parties should for any reason
subsequently be declared to be void or voidable under any state or federal law
relating to creditors' rights, including provisions of the Bankruptcy Code
relating to fraudulent conveyances, preferences, and other voidable or
recoverable payments of money or transfers of property (collectively, a
"Voidable Transfer"), and if Foothill is required
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to repay or restore, in whole or in part, any such Voidable Transfer, or elects
to do so upon the reasonable advice of its counsel, then, as to any such
Voidable Transfer, or the amount thereof that Foothill is required or elects to
repay or restore, and as to all reasonable costs, expenses, and attorneys fees
of Foothill related thereto, the liability of Borrower or such guarantor
automatically shall be revived, reinstated, and restored and shall exist as
though such Voidable Transfer had never been made.
15.9 INTEGRATION. This Agreement, together with the other Loan
Documents, reflects the entire understanding of the parties with respect to the
transactions contemplated hereby and shall not be contradicted, modified, or
qualified by any other agreement, oral or written, whether before or after the
date hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed at Los Angeles, California.
PHOENIX NETWORK, INC.,
a Delaware corporation
By /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
---------------------------------
Its Senior Vice President
--------------------------------
FOOTHILL CAPITAL CORPORATION,
a California corporation
By /s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇
---------------------------------
Its Assistant Vice President
--------------------------------
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