EXHIBIT 10.2
▇▇▇▇▇ FARGO LETTERHEAD Inland Empire Commercial Banking
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
June 1, 2004
XET Corporation and
CXR Telcom Corporation
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Ladies and Gentlemen:
This letter is to confirm that ▇▇▇▇▇ FARGO BANK, NATIONAL ASSOCIATION
("Bank"), subject to all terms and conditions contained herein, has agreed to
make available the credit described below to XET CORPORATION ("XET") and CXR
TELCOM CORPORATION ("CXR") (each individually, a "Borrower"). Each reference
herein to "Borrower" shall mean each and every party, collectively and
individually, defined above as a Borrower.
1. A revolving line of credit under which Bank will make advances to
Borrower from time to time up to and including June 1, 2005, not to exceed at
any time the maximum principal amount of Three Million Dollars ($3,000,000.00)
("Line of Credit"), the proceeds of which shall be used to finance working
capital requirements.
2. A term loan in the principal amount of One Hundred Fifty Thousand
Dollars ($150,000.00) ("Term Loan"), the proceeds of which shall be used to
refinance existing equipment loan with ▇▇▇▇▇ Fargo Business Credit and to
provide additional working capital. Bank's commitment to grant the Term Loan
shall terminate on July 1, 2004. The Line of Credit and the Term Loan shall be
collectively referred to herein as the "Loans."
I. CREDIT TERMS:
1. LINE OF CREDIT:
(a) LINE OF CREDIT NOTE. ▇▇▇▇▇▇▇▇'s obligation to repay advances under
the Line of Credit shall be evidenced by a promissory note dated as of June 1,
2004 ("Line of Credit Note"), all terms of which are incorporated herein by this
reference.
XET Corporation and
CXR Telcom Corporation
June 1, 2004
Page 2
(b) CONVERSION TO FORMULA LINE OF CREDIT. Notwithstanding anything
herein to the contrary, if average outstanding borrowings under the Loans exceed
Two Million Dollars ($2,000,000.00) in the aggregate for a period of thirty (30)
consecutive days (a "Conversion Event"), the Line of Credit shall be converted
to a formula-based Line of Credit as set forth herein. Immediately upon the
occurrence of a Conversion Event and continuing up to and including such time as
a Reconversion Event (as such term is defined in Section 1.1 (c) below), if any,
occurs hereunder, outstanding borrowings under the Line of Credit, to a maximum
of the principal amount set forth above, shall not at any time exceed an
aggregate of eighty percent (80%) of Borrower's eligible accounts receivable,
plus fifteen percent (15%) of the value of Borrower's eligible raw material
inventory, plus thirty percent (30%) of the value of finished goods inventory
(exclusive of work in process and inventory which is obsolete, unsaleable,
damaged, consigned or offsite items), with value defined as the lower of cost or
market value. All of the foregoing shall be determined by Bank upon receipt and
review of all collateral reports required hereunder and such other documents and
collateral information as Bank may from time to time require. ▇▇▇▇▇▇▇▇
acknowledges that said borrowing base was established by Bank with the
understanding that, among other items, the aggregate of all returns, rebates,
discounts, credits and allowances for the immediately preceding three (3) months
at all times shall be less than five percent (5%) of ▇▇▇▇▇▇▇▇'s gross sales for
said period. If such dilution of Borrower's accounts for the immediately
preceding three (3) months at any time exceeds five percent (5%) of Borrower's
gross sales for said period, or if there at any time exists any other matters,
events, conditions or contingencies which Bank reasonably believes may affect
payment of any portion of Borrower's accounts, Bank, in its sole discretion, may
reduce the foregoing advance rate against eligible accounts receivable to a
percentage appropriate to reflect such additional dilution and/or establish
additional reserves against ▇▇▇▇▇▇▇▇'s eligible accounts receivable.
As used herein, "eligible accounts receivable" shall consist solely of
trade accounts created in the ordinary course of ▇▇▇▇▇▇▇▇'s business, upon which
▇▇▇▇▇▇▇▇'s right to receive payment is absolute and not contingent upon the
fulfillment of any condition whatsoever, and in which Bank has a perfected
security interest of first priority, and shall not include:
(i) any account which is more than sixty (60) days past due;
(ii) that portion of any account for which there exists any
right of setoff, defense or discount (except regular discounts allowed
in the ordinary course of business to promote prompt payment) or for
which any defense or counterclaim has been asserted;
(iii) any account which represents an obligation of any state
or municipal government or of the United States government or any
political subdivision thereof (except accounts which represent
obligations of the United States government and for which the
assignment provisions of the Federal Assignment of Claims Act, as
amended or recodified from time to time, have been complied with to
Bank's satisfaction);
XET Corporation and
CXR Telcom Corporation
June 1, 2004
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(iv) any account which represents an obligation of an account
debtor located in a foreign country;
(v) any account which arises from the sale or lease to or
performance of services for, or represents an obligation of, an
employee, affiliate, partner, member, parent or subsidiary of Borrower;
(vi) that portion of any account, which represents interim or
progress ▇▇▇▇▇▇▇▇ or retention rights on the part of the account
debtor;
(vii) any account which represents an obligation of any
account debtor when twenty percent (20%) or more of Borrower's accounts
from such account debtor are not eligible pursuant to (i) above;
(viii) that portion of any account from an account debtor
which represents the amount by which ▇▇▇▇▇▇▇▇'s total accounts from
said account debtor exceeds twenty-five percent (25%) of ▇▇▇▇▇▇▇▇'s
total accounts;
(ix) any account deemed ineligible by Bank when Bank, in its
sole discretion, deems the creditworthiness or financial condition of
the account debtor, or the industry in which the account debtor is
engaged, to be unsatisfactory.
Borrower expressly acknowledges that the foregoing provisions regarding
conversion of the Line of Credit to a formula-based Line of Credit are being
relied upon by Bank in extending the Line of Credit to Borrower.
(c) RECONVERSION TO NON-FORMULA LINE OF CREDIT. If, following a
Conversion Event, average outstanding borrowings under the Loans are equal to or
less than Two Million Dollars ($2,000,000.00) in the aggregate for a period of
thirty consecutive days (a "Reconversion Event"), the Line of Credit shall be
reconverted to a non-formula based Line of Credit until such time as a
Conversion Event, if any, shall occur hereunder.
(d) BORROWING AND REPAYMENT. Borrower may from time to time during the
term of the Line of Credit borrow, partially or wholly repay its outstanding
borrowings, and reborrow, subject to all of the limitations, terms and
conditions contained herein or in the Line of Credit Note; PROVIDED, HOWEVER,
that the total outstanding borrowings under the Line of Credit shall not at any
time exceed the maximum principal amount available thereunder, as set forth
above.
XET Corporation and
CXR Telcom Corporation
June 1, 2004
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2. TERM LOAN:
(a) TERM NOTE. ▇▇▇▇▇▇▇▇'s obligation to repay the Term Loan shall be
evidenced by a promissory note dated as of June 1, 2004 ("Term Note"), all terms
of which are incorporated herein by this reference.
(b) REPAYMENT. The principal amount of the Term Loan shall be repaid in
accordance with the provisions of the Term Note.
(c) PREPAYMENT. Borrower may prepay principal on the Term Loan solely
in accordance with the provisions of the Term Note.
3. COLLATERAL:
As security for all indebtedness of Borrower to Bank under the Line of
Credit, Borrower hereby grants to Bank security interests of first priority in
all Borrower's accounts receivable, other rights to payment and general
intangibles, inventory and equipment.
As security for all indebtedness of Borrower to Bank under the Term
Loan, Borrower hereby grants to Bank security interests of first priority in all
Borrower's equipment.
All of the foregoing shall be evidenced by and subject to the terms of
such security agreements, financing statements, deeds of trust and other
documents as Bank shall reasonably require, all in form and substance
satisfactory to Bank. Borrower shall reimburse Bank immediately upon demand for
all costs and expenses incurred by Bank in connection with any of the foregoing
security, including without limitation, filing and recording fees and costs of
appraisals, audits and title insurance.
4. GUARANTIES:
All indebtedness of Borrower to Bank shall be guaranteed jointly and
severally by MicroTel International Inc. ("MII") in the principal amount of
$3,150,000.00, as evidenced by and subject to the terms of guaranties in form
and substance satisfactory to Bank.
II. INTEREST/FEES:
1. INTEREST. The outstanding principal balance of each credit subject
hereto shall bear interest, at the rate of interest set forth in each promissory
note or other instrument or document executed in connection therewith.
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CXR Telcom Corporation
June 1, 2004
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2. COMPUTATION AND PAYMENT. Interest shall be computed on the basis of
a 360-day year, actual days elapsed. Interest shall be payable at the times and
place set forth in each promissory note or other instrument or document required
hereby.
3. COMMITMENT FEE. Borrower shall pay to Bank a non-refundable
commitment fee for the Term Loan equal to Five Hundred Dollars ($500.00), which
fee shall be due and payable in full upon execution of this agreement.
4. UNUSED COMMITMENT FEE. Borrower shall pay to Bank a fee equal to one
quarter percent (0.25%) per annum (computed on the basis of a 360-day year,
actual days elapsed) on the average daily unused amount of the Line of Credit,
which fee shall be calculated on a quarterly basis by Bank and shall be due and
payable by Borrower in arrears on the first day after each calendar quarter end.
III. REPRESENTATIONS AND WARRANTIES:
Borrower makes the following representations and warranties to Bank,
which representations and warranties shall survive the execution of this letter
and shall continue in full force and effect until the full and final payment,
and satisfaction and discharge, of all obligations of Borrower to Bank subject
to this letter.
1. LEGAL STATUS OF XET. XET is a corporation, duly organized and
existing and in good standing under the laws of the State of New Jersey, and is
qualified or licensed to do business in all jurisdictions in which such
qualification or licensing is required or in which the failure to so qualify or
to be so licensed could have a material adverse effect on Borrower.
2. LEGAL STATUS OF CXR. CXR is a corporation, duly organized and
existing and in good standing under the laws of the State of Delaware, and is
qualified or licensed to do business in all jurisdictions in which such
qualification or licensing is required or in which the failure to so qualify or
to be so licensed could have a material adverse effect on Borrower.
3. AUTHORIZATION AND VALIDITY. This letter and each promissory note,
contract, instrument and other document deemed necessary by Bank to evidence any
extension of credit to Borrower pursuant to the terms and conditions hereof, or
now or at any time hereafter required by or delivered to Bank in connection with
this letter (collectively, the "Loan Documents") have been duly authorized, and
upon their execution and delivery in accordance with the provisions hereof will
constitute legal, valid and binding agreements and obligations of Borrower or
the party which executes the same, enforceable in accordance with their
respective terms.
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CXR Telcom Corporation
June 1, 2004
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4. NO VIOLATION. The execution, delivery and performance by Borrower of
each of the Loan Documents do not violate any provision of any law or
regulation, or contravene any provision of the Articles of Incorporation or
By-Laws of Borrower, or result in a breach of or constitute a default under any
contract, obligation, indenture or other instrument to which Borrower is a party
or by which Borrower may be bound.
5. LITIGATION. There are no pending, or to the best of ▇▇▇▇▇▇▇▇'s
knowledge threatened, actions, claims, investigations, suits or proceedings by
or before any governmental authority, arbitrator, court or administrative agency
which could have a material adverse effect on the financial condition or
operation of Borrower other than those disclosed by Borrower to Bank in writing
prior to the date hereof.
6. CORRECTNESS OF FINANCIAL STATEMENT. The financial statement of
Borrower dated March 31, 2004, a true copy of which has been delivered by
Borrower to Bank prior to the date hereof, (a) is complete and correct and
presents fairly the financial condition of Borrower, (b) discloses all
liabilities of Borrower that are required to be reflected or reserved against
under generally accepted accounting principles, whether liquidated or
unliquidated, fixed or contingent, and (c) has been prepared in accordance with
generally accepted accounting principles consistently applied. Since the date of
such financial statement there has been no material adverse change in the
condition or operation of Borrower, nor has Borrower mortgaged, pledged, granted
a security interest in or otherwise encumbered any of its assets or properties
except in favor of Bank or as otherwise permitted by Bank in writing.
7. INCOME TAX RETURNS. Borrower has no knowledge of any pending
assessments or adjustments of its income tax payable with respect to any year.
8. NO SUBORDINATION. There is no agreement, indenture, contract or
instrument to which Borrower is a party or by which Borrower may be bound that
requires the subordination in right of payment of any of Borrower's obligations
subject to this letter to any other obligation of Borrower.
9. PERMITS, FRANCHISES. Borrower possesses, and will hereafter possess,
all permits, consents, approvals, franchises and licenses required and all
rights to trademarks, trade names, patents and fictitious names, if any,
necessary to enable it to conduct the business in which it is now engaged in
compliance with applicable law.
10. ERISA. Borrower is in compliance in all material respects with all
applicable provisions of the Employee Retirement Income Security Act of 1974, as
amended or recodified from time to time ("ERISA"); Borrower has not violated any
provision of any defined employee pension benefit plan (as defined in ERISA)
maintained or contributed to by Borrower (each, a "Plan"); no Reportable Event,
as defined in ERISA, has occurred and is continuing with respect to any Plan
initiated by Borrower; Borrower has met its minimum funding requirements under
ERISA with respect to each Plan; and each Plan will be able to fulfill its
benefit obligations as they come due in accordance with the Plan documents and
under generally accepted accounting principles.
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CXR Telcom Corporation
June 1, 2004
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11. OTHER OBLIGATIONS. Borrower is not in default on any obligation for
borrowed money, any purchase money obligation or any other material lease,
commitment, contract, instrument or obligation.
12. ENVIRONMENTAL MATTERS. Except as disclosed by Borrower to Bank in
writing prior to the date hereof, Borrower is in compliance in all material
respects with all applicable federal or state environmental, hazardous waste,
health and safety statutes, and any rules or regulations adopted pursuant
thereto, which govern or affect any of Borrower's operations and/or properties,
including without limitation, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, the Superfund Amendments and
Reauthorization Act of 1986, the Federal Resource Conservation and Recovery Act
of 1976, and the Federal Toxic Substances Control Act, as any of the same may be
amended, modified or supplemented from time to time. None of the operations of
Borrower is the subject of any federal or state investigation evaluating whether
any remedial action involving a material expenditure is needed to respond to a
release of any toxic or hazardous waste or substance into the environment.
Borrower has no material contingent liability in connection with any release of
any toxic or hazardous waste or substance into the environment.
IV. CONDITIONS:
1. CONDITIONS OF INITIAL EXTENSION OF CREDIT. The obligation of Bank to
extend any credit contemplated by this letter is subject to fulfillment to
Bank's satisfaction of all of the following conditions:
(a) DOCUMENTATION. Bank shall have received each of the Loan Documents,
duly executed and in form and substance satisfactory to Bank.
(b) FINANCIAL CONDITION. There shall have been no material adverse
change, as determined by Bank, in the financial condition or business of
Borrower or any guarantor hereunder, nor any material decline, as determined by
Bank, in the market value of any collateral required hereunder or a substantial
or material portion of the assets of Borrower, or any such guarantor.
2. CONDITIONS OF EACH EXTENSION OF CREDIT. The obligation of Bank to
make each extension of credit requested by ▇▇▇▇▇▇▇▇ hereunder shall be subject
to the fulfillment to Bank's satisfaction of each of the following conditions:
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CXR Telcom Corporation
June 1, 2004
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(a) COMPLIANCE. The representations and warranties contained herein and
in each of the other Loan Documents shall be true on and as of the date of the
signing of this letter and on the date of each extension of credit by Bank
pursuant hereto, with the same effect as though such representations and
warranties had been made on and as of each such date, and on each such date, no
default hereunder, and no condition, event or act which with the giving of
notice or the passage of time or both would constitute such a default, shall
have occurred and be continuing or shall exist.
(b) DOCUMENTATION. Bank shall have received all additional documents
which may be required in connection with such extension of credit.
V. COVENANTS:
Borrower covenants that so long as Bank remains committed to extend
credit to Borrower pursuant hereto, or any liabilities (whether direct or
contingent, liquidated or unliquidated) of Borrower to Bank under any of the
Loan Documents remain outstanding, and until payment in full of all obligations
of Borrower subject hereto, Borrower shall, unless Bank otherwise consents in
writing:
1. PUNCTUAL PAYMENT. Punctually pay all principal, interest, fees or
other liabilities due under any of the Loan Documents at the times and place and
in the manner specified therein, and immediately upon demand by Bank, the amount
by which the outstanding principal balance of any credit subject hereto at any
time exceeds any limitation on borrowings applicable thereto.
2. ACCOUNTING RECORDS. Maintain adequate books and records in
accordance with generally accepted accounting principles consistently applied,
and permit any representative of Bank, at any reasonable time, to inspect, audit
and examine such books and records, to make copies of the same and inspect the
properties of Borrower.
3. FINANCIAL STATEMENTS. Provide to Bank all of the following, in form
and detail satisfactory to Bank:
(a) not later than 120 days after and as of the end of each fiscal
year, a consolidated and consolidating audited financial statement and copy of
the 10-K report of Borrower and MII, filed with the Securities Exchange
Commission, prepared by a certified public accountant, acceptable to Bank, to
include a balance sheet, income statements, and statement of cash flows and
retained earnings;
(b) not later than 30 days after and as of the end of each fiscal
month, a consolidated and consolidating financial statement of Borrower and MII,
prepared by Borrower and MII, to include a balance sheet, income statements, and
statement of cash flows and retained earnings;
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CXR Telcom Corporation
June 1, 2004
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(c) commencing upon occurrence of a Conversion Event, if any, and
continuing up to and including such time as a Reconversion Event, if any,
occurs, not later than 10 days after and as of each month end, a borrowing base
certificate, an inventory collateral report, an aged listing of accounts
receivable and accounts payable, and a reconciliation of accounts;
(d) not later than 30 days after and as of the end of each fiscal year,
projections of consolidated financial statements;
(e) contemporaneously with each annual and quarterly financial
statement of ▇▇▇▇▇▇▇▇ required hereby, a certificate of the president or chief
financial officer of ▇▇▇▇▇▇▇▇ that said financial statements are accurate and
that there exists no default hereunder nor any condition, act or event which
with the giving of notice or the passage of time or both would constitute such a
default;
(f) from time to time such other information as Bank may reasonably
request.
4. COMPLIANCE. Preserve and maintain all licenses, permits,
governmental approvals, rights, privileges and franchises necessary for the
conduct of its business; and comply with the provisions of all documents
pursuant to which Borrower is organized and/or which govern Borrower's continued
existence and with the requirements of all laws, rules, regulations and orders
of a governmental agency applicable to Borrower and/or its business.
5. INSURANCE. Maintain and keep in force insurance of the types and in
amounts customarily carried in lines of business similar to that of Borrower,
including but not limited to fire, extended coverage, public liability, flood,
property damage and workers' compensation, with all such insurance carried with
companies and in amounts satisfactory to Bank, and deliver to Bank from time to
time at Bank's request schedules setting forth all insurance then in effect.
6. FACILITIES. Keep all properties useful or necessary to Borrower's
business in good repair and condition, and from time to time make necessary
repairs, renewals and replacements thereto so that such properties shall be
fully and efficiently preserved and maintained.
7. TAXES AND OTHER LIABILITIES. Pay and discharge when due any and all
indebtedness, obligations, assessments and taxes, both real or personal,
including without limitation federal and state income taxes and state and local
property taxes and assessments, except (a) such as Borrower may in good faith
contest or as to which a bona fide dispute may arise, and (b) for which Borrower
has made provision, to Bank's satisfaction, for eventual payment thereof in the
event Borrower is obligated to make such payment.
8. LITIGATION. Promptly give notice in writing to Bank of any
litigation pending or threatened against ▇▇▇▇▇▇▇▇.
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CXR Telcom Corporation
June 1, 2004
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9. FINANCIAL CONDITION. Maintain Borrower's financial condition as
follows using generally accepted accounting principles consistently applied and
used consistently with prior practices (except to the extent modified by the
definitions herein), with compliance determined commencing with ▇▇▇▇▇▇▇▇'s
financial statements for the period ending March 31, 2004:
(a) Current Ratio not less than 1.50 to 1.0, determined as of each
fiscal quarter end, with "Current Ratio" defined as total current assets divided
by total current liabilities.
(b) Tangible Net Worth of Borrower and MII on a consolidated basis, not
at any time less than $5,200,000.00, measured quarterly, with "Tangible Net
Worth" defined as the aggregate of total stockholders' equity plus subordinated
debt less any intangible assets.
(c) Total Liabilities divided by Tangible Net Worth of Borrower and
domestic operations of MII, on a consolidated basis, not at any time greater
than 2.00 to 1.00, determined as of each fiscal quarter end, with "Total
Liabilities" defined as the aggregate of current liabilities and noncurrent
liabilities less subordinated debt, and with "Tangible Net Worth" as defined
above.
(d) Net income after taxes not less than $1.00 on an annual basis,
determined as of each fiscal year, and net profit after taxes not less than
$1.00 in each fiscal quarter immediately following a fiscal quarter in which
Borrower incurred a net loss after taxes.
(e) Minimum Debt Service Coverage Ratio of not less than 1.50:1.00 on a
trailing four (4) quarter basis, with "Debt Service Coverage Ratio" defined as
net income plus depreciation plus amortization minus non-financed capital
expenditures divided by current portion of long term debt, measured quarterly.
10. DIVIDENDS, DISTRIBUTIONS. Not declare or pay any dividend or
distribution either in cash, stock or any other property on Borrower's stock now
or hereafter outstanding, nor redeem, retire, repurchase or otherwise acquire
any shares of any class of Borrower's stock now or hereafter outstanding.
VI. DEFAULT, REMEDIES:
1. DEFAULT, REMEDIES. Upon the violation of any term or condition of
any of the Loan Documents, or upon the occurrence of any default or defined
event of default under any of the Loan Documents: (a) all indebtedness of
Borrower under each of the Loan Documents, any term thereof to the contrary
notwithstanding, shall at Bank's option and without notice become immediately
due and payable without presentment, demand, protest or notice of dishonor, all
of which are expressly waived by Borrower; (b) the obligation, if any, of Bank
to extend any further credit under any of the Loan Documents shall immediately
cease and terminate; and (c) Bank shall have all rights, powers and remedies
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CXR Telcom Corporation
June 1, 2004
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available under each of the Loan Documents, or accorded by law, including
without limitation the right to resort to any or all security for any credit
subject hereto and to exercise any or all of the rights of a beneficiary or
secured party pursuant to applicable law. All rights, powers and remedies of
Bank may be exercised at any time by Bank and from time to time after the
occurrence of any such breach or default, are cumulative and not exclusive, and
shall be in addition to any other rights, powers or remedies provided by law or
equity.
2. NO WAIVER. No delay, failure or discontinuance of Bank in exercising
any right, power or remedy under any of the Loan Documents shall affect or
operate as a waiver of such right, power or remedy; nor shall any single or
partial exercise of any such right, power or remedy preclude, waive or otherwise
affect any other or further exercise thereof or the exercise of any other right,
power or remedy. Any waiver, permit, consent or approval of any kind by Bank of
any breach of or default under any of the Loan Documents must be in writing and
shall be effective only to the extent set forth in such writing.
VII. MISCELLANEOUS:
1. NOTICES. All notices, requests and demands which any party is
required or may desire to give to any other party under any provision of this
letter must be in writing delivered to each party at its address first set forth
above, or to such other address as any party may designate by written notice to
all other parties. Each such notice, request and demand shall be deemed given or
made as follows: (a) if sent by hand delivery, upon delivery; (b) if sent by
mail, upon the earlier of the date of receipt or three (3) days after deposit in
the U.S. mail, first class and postage prepaid; and (c) if sent by telecopy,
upon receipt.
2. COSTS, EXPENSES AND ATTORNEYS' FEES. Borrower shall pay to Bank
immediately upon demand the full amount of all payments, advances, charges,
costs and expenses, including reasonable attorneys' fees (to include outside
counsel fees and all allocated costs of Bank's in-house counsel), expended or
incurred by Bank in connection with (a) the negotiation and preparation of this
letter and the other Loan Documents, Bank's continued administration hereof and
thereof, and the preparation of amendments and waivers hereto and thereto, (b)
the enforcement of Bank's rights and/or the collection of any amounts which
become due to Bank under any of the Loan Documents, and (c) the prosecution or
defense of any action in any way related to any of the Loan Documents, including
without limitation, any action for declaratory relief, whether incurred at the
trial or appellate level, in an arbitration proceeding or otherwise, and
including any of the foregoing incurred in connection with any bankruptcy
proceeding (including without limitation, any adversary proceeding, contested
matter or motion brought by Bank or any other person) relating to any Borrower
or any other person or entity.
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June 1, 2004
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3. SUCCESSORS, ASSIGNMENT. This letter shall be binding upon and inure
to the benefit of the heirs, executors, administrators, legal representatives,
successors and assigns of the parties; PROVIDED, HOWEVER, that Borrower may not
assign or transfer its interest hereunder without Bank's prior written consent.
Bank reserves the right to sell, assign, transfer, negotiate or grant
participations in all or any part of, or any interest in, Bank's rights and
benefits under each of the Loan Documents. In connection therewith Bank may
disclose all documents and information which Bank now has or hereafter may
acquire relating to any credit subject hereto, Borrower or its business, any
guarantor hereunder or the business of such guarantor, or any collateral
required hereunder.
4. ENTIRE AGREEMENT; AMENDMENT. This letter and the other Loan
Documents constitute the entire agreement between Borrower and Bank with respect
to each credit subject hereto and supersede all prior negotiations,
communications, discussions and correspondence concerning the subject matter
hereof. This letter may be amended or modified only in writing signed by each
party hereto.
5. NO THIRD PARTY BENEFICIARIES. This letter is made and entered into
for the sole protection and benefit of the parties hereto and their respective
permitted successors and assigns, and no other person or entity shall be a third
party beneficiary of, or have any direct or indirect cause of action or claim in
connection with, this letter or any other of the Loan Documents to which it is
not a party.
6. SEVERABILITY OF PROVISIONS. If any provision of this letter shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity without
invalidating the remainder of such provision or any remaining provisions of this
letter.
7. GOVERNING LAW. This letter shall be governed by and construed in
accordance with the laws of the State of California.
8. ARBITRATION.
(a) ARBITRATION. The parties hereto agree, upon demand by any party, to
submit to binding arbitration all claims, disputes and controversies between or
among them (and their respective employees, officers, directors, attorneys, and
other agents), whether in tort, contract or otherwise arising out of or relating
to in any way (i) the loan and related Loan Documents which are the subject of
this Agreement and its negotiation, execution, collateralization,
administration, repayment, modification, extension, substitution, formation,
inducement, enforcement, default or termination; or (ii) requests for additional
credit.
XET Corporation and
CXR Telcom Corporation
June 1, 2004
Page 13
(b) GOVERNING RULES. Any arbitration proceeding will (i) proceed in a
location in California selected by the American Arbitration Association ("AAA");
(ii) be governed by the Federal Arbitration Act (Title 9 of the United States
Code), notwithstanding any conflicting choice of law provision in any of the
documents between the parties; and (iii) be conducted by the AAA, or such other
administrator as the parties shall mutually agree upon, in accordance with the
AAA's commercial dispute resolution procedures, unless the claim or counterclaim
is at least $1,000,000.00 exclusive of claimed interest, arbitration fees and
costs in which case the arbitration shall be conducted in accordance with the
AAA's optional procedures for large, complex commercial disputes (the commercial
dispute resolution procedures or the optional procedures for large, complex
commercial disputes to be referred to, as applicable, as the "Rules"). If there
is any inconsistency between the terms hereof and the Rules, the terms and
procedures set forth herein shall control. Any party who fails or refuses to
submit to arbitration following a demand by any other party shall bear all costs
and expenses incurred by such other party in compelling arbitration of any
dispute. Nothing contained herein shall be deemed to be a waiver by any party
that is a bank of the protections afforded to it under 12 U.S.C. ss.91 or any
similar applicable state law.
(c) NO WAIVER OF PROVISIONAL REMEDIES, SELF-HELP AND FORECLOSURE. The
arbitration requirement does not limit the right of any party to (i) foreclose
against real or personal property collateral; (ii) exercise self-help remedies
relating to collateral or proceeds of collateral such as setoff or repossession;
or (iii) obtain provisional or ancillary remedies such as replevin, injunctive
relief, attachment or the appointment of a receiver, before during or after the
pendency of any arbitration proceeding. This exclusion does not constitute a
waiver of the right or obligation of any party to submit any dispute to
arbitration or reference hereunder, including those arising from the exercise of
the actions detailed in sections (i), (ii) and (iii) of this paragraph.
(d) ARBITRATOR QUALIFICATIONS AND POWERS. Any arbitration proceeding in
which the amount in controversy is $5,000,000.00 or less will be decided by a
single arbitrator selected according to the Rules, and who shall not render an
award of greater than $5,000,000.00. Any dispute in which the amount in
controversy exceeds $5,000,000.00 shall be decided by majority vote of a panel
of three arbitrators; PROVIDED, HOWEVER, that all three arbitrators must
actively participate in all hearings and deliberations. The arbitrator will be a
neutral attorney licensed in the State of California or a neutral retired judge
of the state or federal judiciary of California, in either case with a minimum
of ten years experience in the substantive law applicable to the subject matter
of the dispute to be arbitrated. The arbitrator will determine whether or not an
issue is arbitratable and will give effect to the statutes of limitation in
determining any claim. In any arbitration proceeding the arbitrator will decide
XET Corporation and
CXR Telcom Corporation
June 1, 2004
Page 14
(by documents only or with a hearing at the arbitrator's discretion) any
pre-hearing motions which are similar to motions to dismiss for failure to state
a claim or motions for summary adjudication. The arbitrator shall resolve all
disputes in accordance with the substantive law of California and may grant any
remedy or relief that a court of such state could order or grant within the
scope hereof and such ancillary relief as is necessary to make effective any
award. The arbitrator shall also have the power to award recovery of all costs
and fees, to impose sanctions and to take such other action as the arbitrator
deems necessary to the same extent a judge could pursuant to the Federal Rules
of Civil Procedure, the California Rules of Civil Procedure or other applicable
law. Judgment upon the award rendered by the arbitrator may be entered in any
court having jurisdiction. The institution and maintenance of an action for
judicial relief or pursuit of a provisional or ancillary remedy shall not
constitute a waiver of the right of any party, including the plaintiff, to
submit the controversy or claim to arbitration if any other party contests such
action for judicial relief.
(e) DISCOVERY. In any arbitration proceeding discovery will be
permitted in accordance with the Rules. All discovery shall be expressly limited
to matters directly relevant to the dispute being arbitrated and must be
completed no later than 20 days before the hearing date and within 180 days of
the filing of the dispute with the AAA. Any requests for an extension of the
discovery periods, or any discovery disputes, will be subject to final
determination by the arbitrator upon a showing that the request for discovery is
essential for the party's presentation and that no alternative means for
obtaining information is available.
(f) CLASS PROCEEDINGS AND CONSOLIDATIONS. The resolution of any dispute
arising pursuant to the terms of this Agreement shall be determined by a
separate arbitration proceeding and such dispute shall not be consolidated with
other disputes or included in any class proceeding.
(g) PAYMENT OF ARBITRATION COSTS AND FEES. The arbitrator shall award
all costs and expenses of the arbitration proceeding.
(h) REAL PROPERTY COLLATERAL; JUDICIAL REFERENCE. Notwithstanding
anything herein to the contrary, no dispute shall be submitted to arbitration if
the dispute concerns indebtedness secured directly or indirectly, in whole or in
part, by any real property unless (i) the holder of the mortgage, lien or
security interest specifically elects in writing to proceed with the
arbitration, or (ii) all parties to the arbitration waive any rights or benefits
that might accrue to them by virtue of the single action rule statute of
California, thereby agreeing that all indebtedness and obligations of the
parties, and all mortgages, liens and security interests securing such
indebtedness and obligations, shall remain fully valid and enforceable. If any
such dispute is not submitted to arbitration, the dispute shall be referred to a
referee in accordance with California Code of Civil Procedure Section 638 et
seq., and this general reference agreement is intended to be specifically
XET Corporation and
CXR Telcom Corporation
June 1, 2004
Page 15
enforceable in accordance with said Section 638. A referee with the
qualifications required herein for arbitrators shall be selected pursuant to the
AAA's selection procedures. Judgment upon the decision rendered by a referee
shall be entered in the court in which such proceeding was commenced in
accordance with California Code of Civil Procedure Sections 644 and 645.
(i) MISCELLANEOUS. To the maximum extent practicable, the AAA, the
arbitrators and the parties shall take all action required to conclude any
arbitration proceeding within 180 days of the filing of the dispute with the
AAA. No arbitrator or other party to an arbitration proceeding may disclose the
existence, content or results thereof, except for disclosures of information by
a party required in the ordinary course of its business or by applicable law or
regulation. If more than one agreement for arbitration by or between the parties
potentially applies to a dispute, the arbitration provision most directly
related to the Loan Documents or the subject matter of the dispute shall
control. This arbitration provision shall survive termination, amendment or
expiration of any of the Loan Documents or any relationship between the parties.
9. JOINT AND SEVERAL LIABILITY.
(a) For purposes of this Section VII. 9 only, XET and CXR shall be
referred to individually as a "Borrower" and collectively as the "Borrowers."
(b) Each Borrower has determined and represents to Bank that it is in
its best interests and in pursuance of its legitimate business purposes to
induce Bank to extend credit pursuant to this Agreement. Each Borrower
acknowledges and represents that its business is related to the business of the
other Borrower, the availability of the commitments provided for in this
Agreement benefits both Borrowers, and advances and other credit extensions made
under this Agreement will be for and inure to the benefit of Borrowers,
individually and together.
(c) Each Borrower has determined and represents to Bank that it has,
and after giving effect to the transactions contemplated by this Agreement will
have, assets having a fair saleable value in excess of its debts, after giving
effect to any rights of contribution or subrogation which may be available to
such Borrower, and each Borrower has, and will have, access to adequate capital
for the conduct of its business and the ability to pay its debts as such debts
mature.
(d) Each Borrower agrees that it is jointly and severally liable to
Bank for, and each Borrower agrees to pay to Bank when due the full amount of,
all indebtedness now existing or hereafter arising to Bank under or in
connection with the Agreement and all modifications, extensions and renewals
thereof, including, without limitation, all advances disbursed to either
Borrower under the Line of Credit, all interest which accrues thereon, all
principal and interest due to Bank in connection with the Term Loan, and all
fees, costs and expenses chargeable to Borrowers or any of them in connection
with this Agreement. The obligations of Borrowers to Bank for this Agreement
shall be in addition to any obligations of any Borrower to Bank under any other
agreement heretofore or hereafter given to Bank unless said other agreement is
expressly modified or revoked in writing, and this Agreement shall not, unless
expressly herein provided, affect or invalidate any such other agreement.
XET Corporation and
CXR Telcom Corporation
June 1, 2004
Page 16
(e) The liability of each Borrower for the Loans shall be reinstated
and revived and the rights of Bank shall continue if and to the extent that for
any reason any amount at any time paid on account of the Loans by the other
Borrower or any other person or entity is rescinded or must otherwise be
restored by Bank, whether as a result of any proceedings in bankruptcy or
reorganization or otherwise, all as though such amount had not been paid.
(f) Each Borrower authorizes Bank, without notice to or demand on such
Borrower, and without affecting such Borrower's liability for the Loans, from
time to time to: (a) alter, compromise, extend, accelerate or otherwise change
the time for payment of, or otherwise change the terms of, the liabilities and
obligations of the other Borrower to Bank on account of the Loans; (b) take and
hold security from the other Borrower for the payment of the Loans, and
exchange, enforce, waive, subordinate or release any such security; (c) apply
such security and direct the order or manner of sale thereof, including without
limitation, a non-judicial sale permitted by the terms of the controlling
security agreement, as Bank in its discretion may determine; (d) release or
substitute any one or more of the endorsers or any guarantors of the Loans, or
any other party obligated thereon; and (e) apply payments received by Bank from
the other Borrower to indebtedness of the other Borrower to Bank other than the
Loans.
(g) Each Borrower represents and warrants to Bank that it has
established adequate means of obtaining from the other Borrower on a continuing
basis financial and other information pertaining to the other Borrower's
financial condition, and each Borrower agrees to keep adequately informed from
such means of any facts, events or circumstances which might in any way affect
its risks hereunder. Each Borrower further agrees that Bank shall have no
obligation to disclose to it any information or material about the other
Borrower which is acquired by Bank in any manner.
(h) Each Borrower waives any right to require Bank to: (i) proceed
against the other Borrower or any other person; (ii) proceed against or exhaust
any security held from the other Borrower or any other person; (iii) pursue any
other remedy in Bank's power; (iv) apply payments received by Bank from the
other Borrower to the Loans; or (v) make any presentments or demands for
performance, or give any notices of nonperformance, protests, notices of protest
or notices of dishonor in connection with the Loans.
(i) Each Borrower waives any defense to its liability for the Loans
based upon or arising by reason of:
(i) any disability or other defense of the other
Borrower or any other person;
XET Corporation and
CXR Telcom Corporation
June 1, 2004
Page 17
(ii) the cessation or limitation from any cause
whatsoever, other than payment in full, of the liability of
the other Borrower for the Loans;
(iii) any lack of authority of any officer, director,
partner, agent or other person acting or purporting to act on
behalf of the other Borrower or any defect in the formation of
the other Borrower;
(iv) the application by the other Borrower of the
proceeds of the Loans for purposes other than the purposes
intended or understood by Bank or Borrowers;
(v) any act or omission by Bank which directly or
indirectly results in or aids the discharge of the other
Borrower by operation of law or otherwise, or which in any way
impairs or suspends any rights or remedies of Bank against the
other Borrower;
(vi) any impairment of the value of any interest in
any security for the Loans, including, without limitation, the
failure to obtain or maintain perfection or recordation of any
interest in any such security, the release of any such
security without substitution, and/or the failure to preserve
the value of, or to comply with applicable law in disposing
of, any such security; or
(vii) any modification of the obligations or
liabilities of the other Borrower for the Loans, including,
without limitation, the renewal, extension, acceleration or
other change in time for payment of, or other change in the
terms of, the indebtedness of the other Borrower for the
Loans, including increase or decrease of the rate of interest
thereon.
(j) Until the Loans and all indebtedness of Borrowers to Bank arising
under or in connection with the Agreement shall have been paid in full, no
Borrower shall have any right of subrogation. Each Borrower waives all rights
and defenses it may have arising out of (i) any election of remedies by Bank,
even though that election of remedies, such as a non-judicial foreclosure with
respect to any security for the Loans, destroys its rights of subrogation or its
rights to proceed against the other Borrower for reimbursement, or (ii) any loss
of rights it may suffer by reason of any rights, powers or remedies of the other
Borrower in connection with any anti-deficiency laws or any other laws limiting,
qualifying or discharging any Borrower's indebtedness for the Loans. Until the
Loans and all indebtedness of each Borrower to Bank arising under or in
connection with this Agreement shall have been paid in full, each Borrower
waives any right to enforce any remedy which Bank now has or may hereafter have
against the other Borrower or any other person, and waives any benefit of, or
any right to participate in, any security now or hereafter held by Bank.
XET Corporation and
CXR Telcom Corporation
June 1, 2004
Page 18
Your acknowledgment of this letter shall constitute acceptance of the foregoing
terms and conditions. Bank's commitment to extend any credit to Borrower
pursuant to the terms of this letter shall terminate on July 1, 2004, unless
this letter is acknowledged by ▇▇▇▇▇▇▇▇ and returned to Bank on or before that
date.
Sincerely,
▇▇▇▇▇ FARGO BANK,
NATIONAL ASSOCIATION
By: /S/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Relationship Manager
Acknowledged and accepted as of 6/14/04
XET CORPORATION
By: /S/ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
--------------------------
Title: CFO/VP/SEC
CXR TELCOM CORPORATION
By: /S/ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
--------------------------
Title: CFO/VP/SEC