Exhibit 10.1
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LOAN AND SECURITY AGREEMENT
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This Loan and Security Agreement is made as of May 11, 1995 by and
between CENTURY BUSINESS CREDIT CORPORATION ("Lender"), having executive offices
at ▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ and US WATS, INC.
("Borrower"), having its principal place of business at ▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇.,
▇▇▇▇▇ ▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇.
WHEREAS, the Borrower has requested that Lender make loans and
advances available to Borrower; and
WHEREAS, Lender has agreed to make such loans and advances to Borrower
on the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and
undertakings and the terms and conditions contained herein, the parties hereto
agree as follows:
1. (a) General Definitions. When used in this Agreement, the following
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terms shall have the following meanings:
"Affiliate" of any Person means (a) any Person (other than a
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Subsidiary) which, directly or indirectly, is in control of, is controlled by,
or is under common control with such Person, or (b) any Person who is a director
or officer (i) of such Person, (ii) of any Subsidiary of such Person or (iii) of
any Person described in clause (a) above. For purposes of this definition,
control of a Person shall mean the power, direct or indirect, (i) to vote five
percent (5.0%) or more of the securities having ordinary voting power for the
election of directors of such Person, or (ii) to direct or cause the direction
of the management and policies of such Person whether by contract or otherwise.
"Ancillary Agreements" means all agreements, instruments, and
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documents including, without limitation, mortgages, pledges, powers of attorney,
consents, assignments, contracts, notices, security agreements, trust agreements
whether heretofore, concurrently, or hereafter executed by or on behalf of
Borrower or delivered to Lender, relating to this Agreement or to the
transactions contemplated by this Agreement.
"Authority" shall have the meaning set forth in paragraph 12(e)(iii).
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"Closing Date" means May 11, 1995 or such other date as may be agreed
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upon by the parties hereto.
"Collateral" means and includes:
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(A) all Inventory;
(B) all Equipment;
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(C) all General Intangibles;
(D) all Receivables;
(E) all books, records, ledgercards, files, correspondence,
computer programs, tapes, disks and related data processing software (owned by
Borrower or in which it has an interest) which at any time evidence or contain
information relating to (A), (B), (C) and (D) above or are otherwise necessary
or helpful in the collection thereof or realization thereupon;
(F) documents of title, policies and certificates of insurance,
securities, chattel paper, other documents or instruments evidencing or
pertaining to (A), (B), (C), (D) and (E) above;
(G) all guaranties, liens on real or personal property, leases,
and other agreements and property which in any way secure or relate to (A), (B),
(C), (D), (E) and (F) above, or are acquired for the purpose of securing and
enforcing any item thereof;
(H) (i) all cash held as cash collateral to the extent not
otherwise constituting Collateral, all other cash or property at any time on
deposit with or held by Lender for the account of Borrower (whether for
safekeeping, custody, pledge, transmission or otherwise), (ii) all present or
future deposit accounts (whether time or demand or interest or non-interest
bearing) of Borrower with Lender or any other Person including those to which
any such cash may at any time and from time to time be credited, (iii) all
investments and reinvestments (however evidenced) of amounts from time to time
credited to such accounts, and (iv) all interest, dividends, distributions and
other proceeds payable on or with respect to (x) such investments and
reinvestments and (y) such accounts; and
(I) all products and proceeds of (A), (B), (C), (D), (E), (F),
(G) and (H) above (including, but not limited to, all claims to items referred
to in (A), (B), (C), (D), (E), (F), (G) and (H) above) and all claims of
Borrower against third parties (x) for (i) loss of, damage to, or destruction
of, and (ii) payments due or to become due under leases, rentals and hires of
any or all of (A), (B), (C), (D), (E), (F), (G) and (H) above and (y) proceeds
payable under, or unearned premiums with respect to policies of insurance in
whatever form.
"Contract Rate" means an interest rate per annum equal to the greater
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of (A) ten percent (10%) or (B) the (i) Prime Rate plus (ii) three and three
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quarters percent (3-3/4%).
"Customer" means and includes the account debtor with respect to any
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of the Receivables and/or prospective purchaser of goods, services or both with
respect to any contract or contract right, and/or any party who enters into or
proposes to enter into any contract or other arrangement with the Borrower,
pursuant to which the Borrower is to deliver any personal property or perform
any services.
"Default Rate" means a rate equal to three percent (3.0%) per annum in
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excess of the Contract Rate.
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"Eligible Inventory" means Inventory which the Lender, in its sole and
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absolute discretion, determines: (a) is subject to the security interest of
Lender and is subject to no other liens or encumbrances whatsoever (other than
Permitted Liens); (b) is in good condition and meets all standards imposed by
any governmental agency, or department or division thereof having regulatory
authority over such Inventory, its use or sale including but not limited to the
Federal Fair Labor Standards Act of 1938 as amended, and all rules, regulations
and orders thereunder; (c) is currently either usable or salable in the normal
course of Borrower's business; and (d) not to be ineligible for any other
reason.
"Eligible Receivables" means and includes each Receivable which
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conforms to the following criteria: (a) shipment of the merchandise or the
rendition of services has been completed; (b) no return, rejection or
repossession of the merchandise has occurred; (c) merchandise or services shall
not have been rejected or disputed by the Customer and there shall not have been
asserted any offset, defense or counterclaim; (d) continues to be in full
conformity with the representations and warranties made by the Borrower to the
Lender with respect thereto; (e) Lender is, and continues to be, satisfied with
the credit standing of the Customer in relation to the amount of credit
extended; (f) there are no facts existing or threatened which are likely to
result in any adverse change in a Customer's financial condition, (g) is
documented by an invoice in a form approved by Lender and shall not be unpaid
more than ninety (90) days from invoice date; (h) less than twenty five percent
(25%) of the unpaid amount of invoices due from such Customer remain unpaid more
than ninety (90) days from invoice date; (i) is not evidenced by chattel paper
or an instrument of any kind with respect to or in payment of the Receivable
unless such instrument is duly endorsed to and in possession of the Lender or
represents a check in payment of a Receivable; (j) if the Customer is located
outside of the United States, the goods which gave rise to such Receivable were
shipped after receipt by the Borrower from or on behalf of the Customer of an
irrevocable letter of credit, assigned and delivered to the Lender and confirmed
by a financial institution acceptable to the Lender and is in form and substance
acceptable to the Lender, payable in the full amount of the Receivable in United
States dollars at a place of payment located within the United States; (k) such
Receivable is not subject to any lien, other than Permitted Liens; (l) does not
arise out of transactions with any employee, officer, agent, director,
stockholder or Affiliate of the Borrower; (m) is payable to the Borrower; (n)
does not arise out of a ▇▇▇▇ and hold sale prior to shipment and, if the
Receivable arises out of a sale to any Person to which the Borrower is indebted,
the amount of such indebtedness, and any anticipated indebtedness, is deducted
in determining the face amount of such Receivable; (o) is net of any returns,
discounts, claims, credits and allowances; (p) if the Receivable arises out of
contracts between the Borrower and the United States, any state, or any
department, agency or instrumentality of any of them, Borrower has so notified
Lender, in writing, prior to the creation of such Receivable, and, if Lender so
requests, there has been compliance with any governmental notice or approval
requirements, including without limitation, compliance with the Federal
Assignment of Claims Act; (q) is a good and valid account representing an
undisputed bona fide indebtedness incurred by the Customer therein named, for a
fixed sum as set forth in the invoice relating thereto with respect to an
unconditional sale and delivery upon the stated terms of goods sold by the
Borrower, or work, labor and/or services rendered by the Borrower; (r) the total
unpaid Receivables from such Customer does not exceed twenty percent (20%) of
all Eligible Receivables; (s) does not arise out of progress ▇▇▇▇▇▇▇▇ prior to
completion of the order; and (t) is otherwise satisfactory to the Lender as
determined in good faith by the Lender in the reasonable exercise of its
discretion.
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"Environmental Complaint" shall have the meaning set forth in
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paragraph 12(e)(iii).
"Equipment" means and includes all of Borrower's now owned or
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hereafter acquired equipment, machinery and goods (excluding Inventory), whether
or not constituting fixtures, including, without limitation: plant and office
equipment, tools, dies, parts, data processing equipment, furniture and trade
fixtures, trucks, trailers, loaders and other vehicles and all replacements and
substitutions therefore and all accessions thereto.
"ERISA" shall have the meaning set forth in paragraph 12(f).
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"Event of Default" shall mean the occurrence of any of the events set
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forth in paragraph 18 and the failure to cure any such default within any
applicable cure period.
"Formula Amount" shall have the meaning set forth in paragraph 2(a).
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"GAAP" means generally accepted accounting principles, practices and
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procedures in effect from time to time.
"General Intangibles" means and includes all of Borrower's now owned
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or hereafter acquired general intangibles including, without limitation,
trademarks, tradenames, tradestyles, trade secrets, equipment formulation,
manufacturing procedures, quality control procedures, product specifications,
patents, patent applications, copyrights, registrations, contract rights, choses
in action, causes of action, corporate or other business records, inventions,
designs, goodwill, claims under guarantees, licenses, franchises, tax refunds,
tax refund claims, computer programs, computer data bases, computer program flow
diagrams, source codes, object codes and all other intangible property of every
kind and nature.
"Guarantor" means individually, ▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇
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▇▇▇▇▇▇▇ and USWC and any other Person who may hereafter guarantee payment or
performance of the whole or any part of the Obligations and "Guarantors" means
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collectively all such Persons.
"Guaranty Agreements" means (i) the Limited Guaranty dated the Closing
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Date which are executed by each of ▇▇▇▇▇ ▇. ▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ in favor of
Lender, (ii) the Guaranty of Validity dated the Closing Date which is executed
by ▇▇▇▇ ▇▇▇▇▇▇▇ in favor of Lender, (iii) the Guaranty dated the Closing Date
executed by USWC in favor of Lender and (iv) any other Guaranty Agreements
executed by any other Guarantor in favor of Lender.
"Guarantor Security Agreement" means the Guarantor Security Agreement
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executed by USWC in favor of Lender.
"Hazardous Discharge" shall have the meaning set forth in paragraph
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12(e)(iii).
"Incipient Event of Default" means any act or event which, with the
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giving of notice or passage of time or both, would constitute an Event of
Default.
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"Inventory" means and includes all of Borrower's now owned or
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hereafter acquired goods, merchandise and other personal property, wherever
located, to be furnished under any contract of service or held for sale or
lease, all raw materials, work in process, finished goods and materials and
supplies of any kind, nature or description which are or might be used or
consumed in Borrower's business or used in selling or furnishing such goods,
merchandise and other personal property, and all documents of title or other
documents representing them.
"Loans" means the Revolving Credit Advances and all extensions of
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credit hereunder.
"Maximum Revolving Amount" means $2,000,000.
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"Minimum Average Monthly Loan Amount" means $750,000.
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"Minimum Default Average Monthly Loan Amount" means $750,000.
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"Obligations" means and includes all Loans, all advances, debts,
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liabilities, obligations, covenants and duties owing by Borrower to Lender (or
any corporation that directly or indirectly controls or is controlled by or is
under common control with Lender) of every kind and description (whether or not
evidenced by any note or other instrument and whether or not for the payment of
money or the performance or non-performance of any act), direct or indirect,
absolute or contingent, due or to become due, contractual or tortious,
liquidated or unliquidated, whether existing by operation of law or otherwise
now existing or hereafter arising including, without limitation, any debt,
liability or obligation owing from Borrower to others which Lender may have
obtained by assignment or otherwise and further including, without limitation,
all interest, charges or any other payments Borrower is required to make by law
or otherwise arising under or as a result of this Agreement and the Ancillary
Agreements, together with all reasonable expenses and reasonable attorneys' fees
chargeable to Borrower's account or incurred by Lender in connection with
Borrower's account whether provided for herein or in any Ancillary Agreement.
"Permitted Liens" means (i) liens of carriers, warehousemen, mechanics
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and materialmen incurred in the ordinary course of business securing sums not
overdue; (ii) liens incurred in the ordinary course of business in connection
with workmen's compensation, unemployment insurance or other forms of
governmental insurance or benefits, relating to employees, securing sums (a) not
overdue or (b) being diligently contested in good faith provided that adequate
reserves with respect thereto are maintained on the books of Borrower in
conformity with GAAP, (iii) liens in favor of Lender, (iv) liens for taxes (a)
not yet due or (b) being diligently contested in good faith, provided that
adequate reserves with respect thereto are maintained on the books of Borrower
in conformity with GAAP provided, that, the lien shall have no effect on the
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priority of liens in favor of Lender or the value of the assets in which Lender
has a lien and (v) liens specified on Exhibit 1(A) hereto.
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"Person" means an individual, partnership, corporation, trust or
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unincorporated organization, or a government or agency or political subdivision
thereof.
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"Prime Rate" means the prime commercial lending rate of Chase
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Manhattan Bank, N.A. as publicly announced in New York, New York to be in effect
from time to time as its "prime" or "base" rate of interest and is neither tied
to any external rate of interest or index nor does it necessarily reflect the
lowest rate of interest actually charged to any particular class or category of
customers. Such rate shall be increased or decreased as the case may be for
each increase or decrease in said rate in an amount equal to such increase or
decrease in said rate; each change to be effective as of the day of the change
in such rate.
"Receivables" means and includes all of Borrower's now owned or
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hereafter acquired accounts including, without limitation, all accounts arising
from telecommunication services rendered to Customers whether or not such
accounts have been processed and formatted for billing, and contract rights,
instruments, insurance proceeds, documents, chattel paper, letters of credit and
Borrower's rights to receive payment thereunder, any and all rights to the
payment or receipt of money or other forms of consideration of any kind at any
time now or hereafter owing or to be owing to Borrower, all proceeds thereof and
all files in which Borrower has any interest whatsoever containing information
identifying or pertaining to any of Borrower's Receivables, together with all of
Borrower's rights to any merchandise which is represented thereby, and all
Borrower's right, title, security and guaranties with respect to each
Receivable, including, without limitation, all rights of stoppage in transit,
replevin and reclamation and all rights as an unpaid vendor.
"Receivables Availability" means the amount of Revolving Credit
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Advances against Eligible Receivables Lender may from time to time during the
term of this Agreement make available to Borrower up to Seventy Five percent
(75%) of the net face amount of Borrower's Eligible Receivables.
"Revolving Credit Advances" shall have the meaning set forth in
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paragraph 2(a).
"Senior Management" shall mean ▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇
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▇▇▇▇▇▇▇ and any other individual who is currently involved in the management of
Borrower.
"Subsidiary" of any Person means a corporation or other entity whose
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shares of stock or other ownership interests having ordinary voting power (other
than stock or other ownership interests having such power only by reason of the
happening of a contingency) to elect a majority of the directors of such
corporation, or other Persons performing similar functions for such entity, are
owned, directly or indirectly, by such Person.
"Term" means the Closing Date through May 10, 1997 subject to
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acceleration upon the occurrence of an Event of Default hereunder or other
termination hereunder.
"USWC" shall mean USW Corp., a Florida corporation.
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"USWE" shall mean USW Enterprises, Inc., a Pennsylvania corporation.
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"UCC" shall mean the Uniform Commercial Code as adopted in the State
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of New York as in effect from time to time.
(b) Accounting Terms. Any accounting terms used in this Agreement
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which are not specifically defined shall have the meanings customarily given
them in accordance with GAAP.
(c) Other Terms. All other terms used in this Agreement and defined
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in the UCC, shall have the meaning given therein unless otherwise defined
herein.
2. Revolving Credit Advances.
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(a) Subject to the terms and conditions set forth herein and in the
Ancillary Agreements, Lender may, in its sole discretion, make revolving credit
advances (the "Revolving Credit Advances") to Borrower from time to time during
the term of this Agreement which, in the aggregate at any time outstanding, will
not exceed the lesser of (x) the Maximum Revolving Amount or (y) an amount equal
to the sum of:
(i) Receivables Availability, minus
(ii) such reserves as Lender may reasonably deem proper and
necessary from time to time.
The sum of 2(a)(i) minus (ii) shall be referred to as the "Formula Amount".
(b) Notwithstanding the limitations set forth above, Lender retains
the right to lend Borrower from time to time such amounts in excess of such
limitations as Lender may determine in its sole discretion.
(c) Borrower acknowledges that the exercise of Lender's discretionary
rights hereunder may result during the term of this Agreement in one or more
increases or decreases in the advance percentages used in determining
Receivables Availability and Borrower hereby consents to any such increases or
decreases which may limit or restrict advances requested by Borrower.
(d) If Borrower does not pay any interest, fees, costs or charges to
Lender when due, Borrower shall thereby be deemed to have requested, and Lender
is hereby authorized at its discretion to make and charge to Borrower's account,
a Revolving Credit Advance to Borrower as of such date in an amount equal to
such unpaid interest, fees, costs or charges.
(e) Any sums expended by Lender due to Borrower's failure to perform
or comply with its obligations under this Agreement, including but not limited
to the payment of taxes, insurance premiums or leasehold obligations, shall be
charged to Borrower's account as a Revolving Credit Advance and added to the
Obligations.
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(f) Lender will account to Borrower monthly with a statement of all
Revolving Credit Advances and other advances, charges and payments made pursuant
to this Agreement, and such account rendered by Lender shall be deemed final,
binding and conclusive unless Lender is notified by Borrower in writing to the
contrary within thirty (30) days of the date each account was rendered
specifying the item or items to which objection is made.
(g) During the Term hereof, Borrower may borrow, prepay and reborrow
Revolving Credit Advances, all in accordance with the terms and conditions
hereof.
3. Repayment of the Revolving Credit Advances. Borrower shall be
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required to (a) make a mandatory prepayment hereunder at any time that the
aggregate outstanding principal balance of the Revolving Credit Advances made by
Lender to Borrower hereunder is in excess of the Formula Amount in an amount
equal to such excess, and (b) repay on the expiration of the Term (i) the then
aggregate outstanding principal balance of Revolving Credit Advances made by
Lender to Borrower hereunder together with accrued and unpaid interest, fees and
charges and (ii) all other amounts owed Lender under this Agreement and the
Ancillary Agreements.
4. Procedure for Revolving Credit Advances. The Borrower may by
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written or telephonic notice request a borrowing of Revolving Credit Advances
prior to 11:00 A.M. New York time on the business day of its request to incur,
on that day, a Revolving Credit Advance. All Revolving Credit Advances shall be
disbursed from whichever office or other place Lender may designate from time to
time and, together with any and all other Obligations of Borrower to Lender,
shall be charged to the Borrower's account on Lender's books. The proceeds of
each Revolving Credit Advance made by the Lender shall be made available to the
Borrower on the day so requested by way of credit to the Borrower's operating
account maintained with such bank as Borrower designated to Lender. Any and all
Obligations due and owing hereunder may be charged to Borrower's account and
shall constitute Revolving Credit Advances.
5. Interest and Fees.
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(a) Interest.
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(i) Except as modified by paragraphs 5(a)(iii) and 5(b)(iv)
below, Borrower shall pay interest on the unpaid principal balance of the Loans
for each day they are outstanding at the Contract Rate.
(ii) Interest shall be (a) computed on the basis of actual days
elapsed over a 360-day year, (b) calculated by Lender on a daily basis and
billed to Borrower monthly and (c) payable in arrears on the last day of each
month, or, at Lender's option, Lender may charge Borrower's account for said
interest.
(iii) Upon the occurrence and during the continuance of an Event
of Default, interest shall be payable at the Default Rate.
(iv) Notwithstanding the foregoing, in no event shall interest
exceed the maximum rate permitted under any applicable law or regulation, and if
any
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provision of this Agreement or an Ancillary Agreement is in contravention of any
such law or regulation, such provision shall be deemed amended to provide for
interest at said maximum rate and any excess amount shall either be applied, at
Lender's option, to the outstanding Loans in such order as Lender shall
determine or refunded by Lender to Borrower.
(v) Borrower shall pay principal, interest and all other
amounts payable hereunder, or under any Ancillary Agreement, without any
deduction whatsoever, including, but not limited to, any deduction for any set-
off or counterclaim.
(b) Fees.
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(i) Minimum Loan Fee. In the event the average closing daily
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unpaid balances of all Loans hereunder during any calendar month is less than
the Minimum Average Monthly Loan Amount, Borrower shall pay to Lender a minimum
loan fee at a rate per annum equal to the Contract Rate on the amount by which
the Minimum Average Monthly Loan Amount exceeds such average closing daily
unpaid balances; provided, however, there shall be no minimum loan fee payable
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in the event Lender refuses to make a Revolving Credit Advance after Borrower's
written request therefor when there is no Event of Default which has occurred
and is then continuing. Such fee shall be calculated on the basis of a year of
360 days and actual days elapsed and such fee shall be charged to Borrower's
account on the first day of each month with respect to the prior month.
(ii) Closing Fee. Upon execution of this Agreement by Borrower
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and Lender, Borrower shall pay to Lender a closing fee in an amount equal to
$20,000.
(iii) Collateral Monitoring Fee. Upon Lender's performance of
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any collateral monitoring and/or verification including, without limitation, any
field examination, collateral analysis or other business analysis, the need for
which is to be determined by Lender and which monitoring is undertaken by Lender
or for Lender's benefit, an amount equal to $600 per day, per person, for each
person employed to perform such monitoring together with all costs,
disbursements and expenses incurred by the Lender and the person performing such
collateral monitoring and/or verification shall be charged to Borrower's
account.
(iv) Minimum Default Loan Fee. In the event that following the
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occurrence of an Event of Default the average closing daily unpaid balance of
all Loans hereunder during any calendar month is less than the Minimum Default
Average Monthly Loan Amount, Borrower shall pay to Lender in lieu of interest
charges provided for in Section 5(a) and the fee provided for in Sections
5(b)(i), a fee equal to two percent (2.0%) per month on the unpaid principal
balance of the Loans. Such fee shall be computed on the basis of a year of 360
days and actual days elapsed and such fee shall be charged to Borrower's account
on the first day of each month with respect to the prior month.
(v) Overadvance Fee. Without affecting Borrower's obligation
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to immediately repay any Loans which exceed the amounts permitted by paragraph 2
of this Agreement ("Overadvances"), in the event an Overadvance occurs or is
made by Lender, Borrower shall pay interest on the unpaid balance of the Loans
at the
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Default Rate for as long as such Overadvance remains outstanding and shall pay
Lender a fee in the amount of $250.00 for each month or part thereof that an
Overadvance exists. Such fee shall be charged to Borrower's account upon the
occurrence of each Overadvance.
(vi) Financial Information Default. Without affecting Lender's
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other rights and remedies, in the event Borrower fails to deliver the financial
information required by paragraphs 9 and 11 on the date required by this
Agreement, Borrower shall pay Lender a fee in the amount of $100.00 for each
such failure. Such fee shall be charged to Borrower's account upon the
occurrence of each such failure.
6. Security Interest.
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(a) To secure the prompt payment to Lender of the Obligations,
Borrower hereby assigns, pledges and grants to Lender a continuing security
interest in and to the Collateral, whether now owned or existing or hereafter
acquired or arising and wheresoever located, whether or not the same is subject
to Article 9 of the UCC. All of the Borrower's ledger sheets, files, records,
books of account, business papers and documents relating to the Collateral
shall, until delivered to or removed by Lender, be kept by Borrower in trust for
Lender until all Obligations have been paid in full. Each confirmatory
assignment schedule or other form of assignment hereafter executed by Borrower
shall be deemed to include the foregoing grant, whether or not the same appears
therein.
(b) Lender may file one or more financing statements disclosing
Lender's security interest in the Collateral without Borrower's signature
appearing thereon or Lender may sign on Borrower's behalf as provided in
paragraph 13 hereof. The parties agree that a carbon, photographic or other
reproduction of this Agreement shall be sufficient as a financing statement. If
any Receivable becomes evidenced by a promissory note or any other instrument
for the payment of money, Borrower will immediately deliver such instrument to
Lender appropriately endorsed.
7. Representations Concerning the Collateral. Borrower represents
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and warrants (each of which such representations and warranties shall be deemed
repeated upon the making of each request for a Revolving Credit Advance and made
as of the time of each and every Revolving Credit Advance hereunder):
(a) all the Collateral (i) is owned by Borrower free and clear of all
claims, liens, security interests and encumbrances (including without limitation
any claims of infringement) except (A) those in Lender's favor and (B) Permitted
Liens and (ii) is not subject to any agreement prohibiting the granting of a
security interest or requiring notice of or consent to the granting of a
security interest; and
(b) all Receivables (i) represent complete bona fide transactions
which require no further act under any circumstances on Borrower's part to make
such Receivables payable by the Customers, (ii) to the best of Borrower's
knowledge, are not subject to any present, future or contingent offsets or
counterclaims, and (iii) do not represent ▇▇▇▇ and hold sales, consignment
sales, guaranteed sales, sale or return or other similar understandings or
obligations of any Affiliate or Subsidiary of Borrower.
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8. Covenants Concerning the Collateral. During the Term, Borrower
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covenants that it shall:
(a) not dispose of any of the Collateral whether by sale, lease or
otherwise except for (i) the sale of Inventory in the ordinary course of
business, and (ii) the disposition or transfer in the ordinary course of
business during any fiscal year of obsolete and worn-out Equipment having an
aggregate fair market value of not more than $250,000 and only to the extent
that (x) the proceeds of any such disposition are used to acquire replacement
Equipment which is subject to Lender's first priority security interest or (y)
the proceeds of which are remitted to Lender in reduction of the Obligations;
(b) not encumber, mortgage, pledge, assign or grant any security
interest in any Collateral or any of Borrower's other assets to anyone other
than Lender and except for Permitted Liens;
(c) place notations upon Borrower's books of account and any
financial statement prepared by Borrower to disclose Lender's security interest
in the Collateral;
(d) keep and maintain the Equipment in good operating condition,
except for ordinary wear and tear, and shall make all necessary repairs and
replacements thereof so that the value and operating efficiency shall at all
times be maintained and preserved. Borrower shall not permit any such items to
become a fixture to real estate or accessions to other personal property;
(e) not extend the payment terms of any Receivable without prompt
notice thereof to Lender;
(f) perform all other steps requested by Lender to create and
maintain in Lender's favor a valid perfected first security interest in all
Collateral (except for Permitted Liens); and
(g) defend the Collateral against the claims and demands of all
parties.
9. Collection and Maintenance of Collateral and Records.
----------------------------------------------------
Lender may at any time verify Borrower's Receivables utilizing an
audit control company or any other agent of Lender. Lender or Lender's designee
may notify customers or account debtors, at any time at Lender's sole
discretion, of Lender's security interest in Receivables, collect them directly
and charge the collection costs and expenses to Borrower's account, but, unless
and until Lender does so or gives Borrower other instructions, Borrower shall
collect all Receivables for Lender, receive all payments thereon for Lender's
benefit in trust as Lender's trustee (to the extent of the outstanding
Obligations) and immediately deliver them to Lender in their original form with
all necessary endorsements or, as directed by Lender, deposit such payments as
directed by Lender pursuant to paragraphs 22 or 23 hereof. Lender will credit
(conditional upon final collection) all such payments to Borrower's account in
the case of a payment in the form of federal funds or other immediately
available funds two (2) business days after receipt by Lender of such funds in
dollars of the United States of America in Lender's account and in the case of
payment in any other form five (5) business days after receipt by Lender of good
funds in dollars of the United States of America in Lender's account. Promptly
after
27
the creation of any Receivables, Borrower shall provide Lender with schedules
describing all Receivables created or acquired by Borrower and shall execute and
deliver confirmatory written assignments of such Receivables to Lender, but
Borrower's failure to execute and deliver such schedules or written confirmatory
assignments of such Receivables shall not affect or limit Lender's security
interest or other rights in and to the Receivables. Borrower shall furnish, at
Lender's request, copies of contracts, invoices or the equivalent, and any
original shipping and delivery receipts for all merchandise sold or services
rendered and such other documents and information as Lender may require.
Borrower shall also provide Lender on a monthly (within ten (10) days after the
end of each month) or more frequent basis, as requested by Lender, a detailed or
aged trial balance of all of Borrower's existing Receivables specifying the
names and balances due for each account debtor and such other information
pertaining to the Receivables as Lender may request. Borrower shall provide
Lender on a monthly (within ten (10) days after the end of each month), or more
frequent basis, as requested by Lender, a summary report of Borrower's current
Inventory, certified as true and accurate by Borrower's President or Chief
Financial Officer, as well as an aged trial balance of Borrower's existing
accounts payable. Borrower shall provide Lender, as requested by Lender, such
other schedules, documents and/or information regarding the Collateral as Lender
may require.
10. Inspections. At all times during normal business hours, Lender
-----------
shall have the right to (a) visit and inspect Borrower's properties and the
Collateral, (b) inspect, audit and make extracts from Borrower's relevant books
and records, including, but not limited to, management letters prepared by
independent accountants, and (c) discuss with Borrower's principal officers, and
independent accountants, Borrower's business, assets, liabilities, financial
condition, results of operations and business prospects. Borrower will deliver
to Lender any instrument necessary for Lender to obtain records from any service
bureau maintaining records for Borrower.
11. Financial Information. Borrower shall provide Lender (a) as soon
---------------------
as available, but in any event within ninety (90) days after the end of each of
Borrower's fiscal years, Borrower's balance sheet as at the end of such fiscal
year and the related statements of income, retained earnings and changes in cash
flow for such fiscal year, setting forth in comparative form the figures as at
the end of and for the previous fiscal year, which shall have been reported on
by independent certified public accountants who (i) are members of the SEC
Practice Section and who have received an unqualified peer review report on
their latest review, or (ii) shall be satisfactory to Lender and shall be
accompanied by an unqualified audit report issued by such independent certified
public accountants; (b) as soon as available, drafts of Borrower's balance sheet
as at the end of each of Borrower's fiscal years and the related statements of
income, retained earnings and changes in cash flow for such fiscal year, which
have been internally prepared by Borrower; (c) as soon as available, but in any
event within thirty (30) days after the close of each month, the balance sheet
as at the end of such month and the related statements of income, retained
earnings and changes in cash flow for such month, which have been internally
prepared by Borrower. All financial statements required under (a), (b) and (c)
above shall be prepared in accordance with GAAP, subject to year-end adjustments
in the case of monthly statements. Together with the financial statements
furnished pursuant to (a) above, Borrower shall deliver a certificate of
Borrower's certified public accountants addressed to Lender stating that, as it
relates to financial or accounting issues, (i) they have caused this Agreement
and the Ancillary Agreements to be reviewed and (ii) in making the examination
necessary for the issuance of such financial statements, nothing has come to
28
their attention to lead them to believe that any Event of Default or Incipient
Event of Default exists and, in particular, they have no knowledge of any Event
of Default or Incipient Event of Default or, if such is not the case, specifying
such Event of Default or Incipient Event of Default and its nature, when it
occurred and whether it is continuing. At the times the financial statements
are furnished pursuant to (a), (b) and (c) above, a certificate of Borrower's
President or Chief Financial Officer shall be delivered to Lender stating that,
based on an examination sufficient to enable him to make an informed statement,
no Event of Default or Incipient Event of Default exists, or, if such is not the
case, specifying such Event of Default or Incipient Event of Default and its
nature, when it occurred, whether it is continuing and the steps being taken by
Borrower with respect to such event.
12. Additional Representations, Warranties and Covenants. Borrower
----------------------------------------------------
represents, warrants (each of which such representations and warranties shall be
deemed repeated upon the making of a request for a Revolving Credit Advance and
made as of the time of each Revolving Credit Advance made hereunder), and
covenants that:
(a) Borrower is a corporation duly organized and validly existing
under the laws of the State of New York and duly qualified and in good standing
in every other state or jurisdiction in which the nature of Borrower's business
requires such qualification;
(b) the execution, delivery and performance of this Agreement and the
Ancillary Agreements (i) have been duly authorized, (ii) are not in
contravention of Borrower's certificate of incorporation, by-laws or of any
indenture, agreement or undertaking to which Borrower is a party or by which
Borrower is bound and (iii) are within Borrower's corporate powers;
(c) this Agreement and the Ancillary Agreements executed and
delivered by Borrower are Borrower's legal, valid and binding obligations,
enforceable in accordance with their terms;
(d) it keeps and will continue to keep all of its books and records
concerning the Collateral at Borrower's executive offices located at the address
set forth in the introductory paragraph of this Agreement and will not move such
books and records without giving Lender at least thirty (30) days prior written
notice;
(e) (i) the operation of Borrower's business is and will continue
to be in compliance in all material respects with all applicable federal, state
and local laws, including but not limited to all applicable environmental laws
and regulations;
(ii) Borrower will establish and maintain a system to assure and
monitor continued compliance with all applicable environmental laws, which
system shall include periodic reviews of such compliance;
(iii) In the event the Borrower obtains, gives or receives notice
of any release or threat of release of a reportable quantity of any hazardous
substances on its property (any such event being hereinafter referred to as a
"Hazardous Discharge") or receives any notice of violation, request for
information or notification that it is potentially responsible for investigation
or cleanup of environmental conditions on its property, demand letter or
complaint, order, citation, or other written notice with regard to any
29
Hazardous Discharge or violation of any environmental laws affecting its
property or Borrower's interest therein (any of the foregoing is referred to
herein as an "Environmental Complaint") from any Person or entity, including any
state agency responsible in whole or in part for environmental matters in the
state in which such property is located or the United States Environmental
Protection Agency (any such person or entity hereinafter the "Authority"), then
the Borrower shall, within seven (7) days, give written notice of same to the
Lender detailing facts and circumstances of which the Borrower is aware giving
rise to the Hazardous Discharge or Environmental Complaint and periodically
inform Lender of the status of the matter. Such information is to be provided to
allow the Lender to protect its security interest in the Collateral and is not
intended to create nor shall it create any obligation upon the Lender with
respect thereto;
(iv) Borrower shall respond promptly to any Hazardous Discharge
or Environmental Complaint and take all necessary action in order to safeguard
the health of any Person and to avoid subjecting the Collateral to any lien. If
Borrower shall fail to respond promptly to any Hazardous Discharge or
Environmental Complaint or Borrower shall fail to comply with any of the
requirements of any environmental laws, the Lender may, but without the
obligation to do so, for the sole purpose of protecting the Lender's interest in
Collateral: (A) give such notices or (B) enter onto Borrower's property (or
authorize third parties to enter onto such property) and take such actions as
the Lender (or such third parties as directed by the Lender) deems reasonably
necessary or advisable, to clean up, remove, mitigate or otherwise deal with any
such Hazardous Discharge or Environmental Complaint. All reasonable costs and
expenses incurred by the Lender (or such third parties) in the exercise of any
such rights, including any sums paid in connection with any judicial or
administrative investigation or proceedings, fines and penalties, together with
interest thereon from the date expended at the Default Rate for Revolving Credit
Advances shall be paid upon demand by the Borrower, and until paid shall be
added to and become a part of the Obligations secured by the liens created by
the terms of this Agreement or any other agreement between Lender and Borrower;
(v) Borrower shall defend and indemnify the Lender and hold the
Lender harmless from and against all loss, liability, damage and expense,
claims, costs, fines and penalties, including attorney's fees, suffered or
incurred by the Lender under or on account of any environmental laws, including,
without limitation, the assertion of any lien thereunder, with respect to any
Hazardous Discharge, the presence of any hazardous substances affecting
Borrower's property, whether or not the same originates or emerges from
Borrower's property or any contiguous real estate, including any loss of value
of the Collateral as a result of the foregoing except to the extent such loss,
liability, damage and expense is attributable to any Hazardous Discharge
resulting from actions on the part of the Lender. The Borrower's obligations
under this paragraph 12(e) shall arise upon the discovery of the presence of any
hazardous substances on the Borrower's property, whether or not any federal,
state, or local environmental agency has taken or threatened any action in
connection with the presence of any hazardous substances. The Borrower's
obligation and the indemnifications hereunder shall survive the termination of
this Agreement;
(vi) For purposes of paragraph 12(e) all references to
Borrower's property shall be deemed to include all of Borrower's right, title
and interest in and to all owned and/or leased premises.
30
(f) based upon the Employee Retirement Income Security Act of 1974
("ERISA"), and the regulations and published interpretations thereunder: (i)
Borrower has not engaged in any Prohibited Transactions as defined in paragraph
406 of ERISA and paragraph 4975 of the Internal Revenue Code, as amended; (ii)
Borrower has met all applicable minimum funding requirements under paragraph 302
of ERISA in respect of its plans; (iii) Borrower has no knowledge of any event
or occurrence which would cause the Pension Benefit Guaranty Corporation to
institute proceedings under Title IV of ERISA to terminate any employee benefit
plan(s); (iv) Borrower has no fiduciary responsibility for investments with
respect to any plan existing for the benefit of persons other than Borrower's
employees; and (v) Borrower has not withdrawn, completely or partially, from any
multi-employer pension plan so as to incur liability under the Multiemployer
Pension Plan Amendments Act of 1980;
(g) it is solvent, able to pay its debts as they mature, has capital
sufficient to carry on its business and all businesses in which it is about to
engage and the fair saleable value of its assets (calculated on a going concern
basis) is in excess of the amount of its liabilities;
(h) except as set forth on Exhibit 12(h) attached hereto, there is no
-------------
pending or threatened litigation, actions or proceeding which involve the
possibility of materially and adversely affecting the Borrower's business,
assets, operations, prospects or condition (financial or otherwise), or the
Collateral or the ability of Borrower to perform this Agreement;
(i) all balance sheets and income statements which have been delivered
to Lender fairly, accurately and properly state Borrower's financial condition
on a basis consistent with that of previous financial statements and there has
been no material adverse change in Borrower's financial condition as reflected
in such statements since the date thereof and such statements do not fail to
disclose any fact or facts which might materially and adversely affect
Borrower's financial condition;
(j) (x) it possesses all of the licenses, patents, copyrights,
trademarks and tradenames necessary to conduct its business, (y) there has been
no assertion or claim of violation or infringement with respect thereof and (z)
all such licenses, patents, copyrights, trademarks and tradenames are listed on
Exhibit 12(j);
-------------
(k) it will pay or discharge when due all taxes, assessments and
governmental charges or levies imposed upon it;
(l) it will promptly inform Lender in writing of: (i) the commencement
of all proceedings and investigations by or before and/or the receipt of any
notices from, any governmental or nongovernmental body and all actions and
proceedings in any court or before any arbitrator against or in any way
concerning any of Borrower's properties, assets or business, which might singly
or in the aggregate, have a materially adverse effect on Borrower; (ii) any
amendment of Borrower's certificate of incorporation or by-laws; (iii) any
change in Borrower's business, assets, liabilities, condition (financial or
otherwise), results of operations or business prospects which has had or might
have a materially adverse effect on Borrower; (iv) any Event of Default or
Incipient Event of Default; (v) any default or any event which with the passage
of time or giving of notice or both would constitute a default under any
agreement for the payment of money to which Borrower is a
31
party or by which Borrower or any of Borrower's properties may be bound which
would have a material adverse effect on Borrower's business, assets, operations,
prospects or condition (financial or otherwise) or the Collateral; (vi) any
change in the location of Borrower's executive offices; (vii) any change in the
location of Borrower's Inventory or Equipment from the locations listed on
Exhibit 12(l) attached hereto, (viii) any change in Borrower's corporate name;
-------------
(ix) any material delay in Borrower's performance of any of its obligations to
any account debtor and of any assertion of any material claims, offsets or
counterclaims by any account debtor and of any allowances, credits and/or other
monies granted by it to any account debtor; (x) and furnish to Lender all
material adverse information relating to the financial condition of any account
debtor; and (xi) any material return of goods;
(m) it will not (i) create, incur, assume or suffer to exist any
indebtedness (exclusive of trade debt) whether secured or unsecured other than
Borrower's indebtedness to Lender and as set forth on Exhibit 12(m) attached
-------------
hereto and made a part hereof; (ii) declare, pay or make any dividend or
distribution on any shares of the common stock or preferred stock of Borrower or
apply any of its funds, property or assets to the purchase, redemption or other
retirement of any common stock or preferred stock of Borrower except that so
long as (a) a notice of termination with regard to this Agreement shall not be
outstanding, (b) no Event of Default or Incipient Event of Default shall have
occurred, and (c) the purpose for such purchase, redemption or dividend shall be
as set forth in writing to Agent at least ten (10) days prior to such purchase,
redemption or dividend and such purchase, redemption or dividend shall in fact
be used for such purpose, Borrower shall be permitted to pay dividends by the
terms thereof as in effect on the Closing Date provided, however, that after
giving effect to the payment of such dividends there shall not exist any Event
of Default or Incipient Event of Default; provided however, that if no notice of
-------- -------
termination with regard to this Agreement shall be outstanding and no Event of
Default or Incipient Event of Default shall have occurred and be continuing,
Borrower may pay or make dividends or distributions on its 9% Series of
Convertible Preferred Stock existing as of the date of this Agreement; (iii)
directly or indirectly, prepay any indebtedness (other than to Lender), or
repurchase, redeem, retire or otherwise acquire any indebtedness of Borrower;
(iv) make advances, loans or extensions of credit to any Person; (v) become
either directly or contingently liable upon the obligations of any Person by
assumption, endorsement or guaranty thereof or otherwise; (vi) enter into any
merger, consolidation or other reorganization with or into any other Person or
acquire all or a portion of the assets or stock of any Person or permit any
other Person to consolidate with or merge with it; (vii) form any Subsidiary or
enter into any partnership, joint venture or similar arrangement; (viii)
materially change the nature of the business in which it is presently engaged;
(ix) change its fiscal year or make any changes in accounting treatment and
reporting practices without prior written notice to Lender except as required by
GAAP or in the tax reporting treatment or except as required by law; (x) enter
into any transaction with any Affiliate, except in ordinary course on arms-
length terms; or (xi) ▇▇▇▇ Receivables under any name except the present name of
the Borrower;
(n) all financial projections of Borrower's performance prepared by
Borrower or at Borrower's direction and delivered to Lender will represent, at
the time of delivery to Lender, Borrower's best estimate of Borrower's future
financial performance and will be based upon assumptions which are reasonable in
light of Borrower's past performance and then current business conditions;
32
(o) it will not make capital expenditures in any fiscal year an amount
in excess of $250,000;
(p) none of the proceeds of the Loans hereunder will be used directly
or indirectly to "purchase" or "carry" "margin stock" or to repay indebtedness
incurred to "purchase" or "carry" "margin stock" within the respective meanings
of each of the quoted terms under Regulation G of the Board of Governors of the
Federal Reserve System as now and from time to time hereafter in effect; and
(q) it will bear the full risk of loss from any loss of any nature
whatsoever with respect to the Collateral. At it's own cost and expense in
amounts and with carriers acceptable to Lender, it shall (i) keep all its
insurable properties and properties in which it has an interest insured against
the hazards of fire, flood, sprinkler leakage, those hazards covered by extended
coverage insurance and such other hazards, and for such amounts, as is customary
in the case of companies engaged in businesses similar to Borrower's including,
without limitation, business interruption insurance; (ii) maintain a bond in
such amounts as is customary in the case of companies engaged in businesses
similar to Borrower's insuring against larceny, embezzlement or other criminal
misappropriation of insured's officers and employees who may either singly or
jointly with others at any time have access to the assets or funds of Borrower
either directly or through authority to draw upon such funds or to direct
generally the disposition of such assets; (iii) maintain public and product
liability insurance against claims for personal injury, death or property damage
suffered by others; (iv) maintain all such worker's compensation or similar
insurance as may be required under the laws of any state or jurisdiction in
which Borrower is engaged in business; (v) furnish Lender with (x) copies of all
policies and evidence of the maintenance of such policies at least thirty (30)
days before any expiration date, (y) endorsements to such policies naming Lender
as "co-insured" or "additional insured" and appropriate loss payable
endorsements in form and substance satisfactory to Lender, naming Lender as loss
payee, and (z) evidence that as to Lender the insurance coverage shall not be
impaired or invalidated by any act or neglect of Borrower and the insurer will
provide Lender with at least thirty (30) days notice prior to cancellation.
Borrower shall instruct the insurance carriers that in the event of any loss
thereunder, the carriers shall make payment for such loss to lender and not to
Borrower and Lender jointly. If any insurance losses are paid by check, draft
or other instrument payable to Borrower and Lender jointly, Lender may endorse
Borrower's name thereon and do such other things as Lender may deem advisable to
reduce the same to cash. Lender is hereby authorized to adjust and compromise
claims. All loss recoveries received by Lender upon any such insurance may be
applied to the Obligations, in such order as Lender in its sole discretion shall
determine. Any surplus shall be paid by Lender to Borrower or applied as may be
otherwise required by law. Any deficiency thereon shall be paid by Borrower to
Lender, on demand.
(r) USWC and USWE are inactive Subsidiaries of Borrower and do not own
any material assets.
13. Power of Attorney. Borrower hereby appoints Lender or any other
-----------------
Person whom Lender may designate as Borrower's attorney, with power to: (i)
endorse Borrower's name on any checks, notes, acceptances, money orders, drafts
or other forms of payment or security that may come into Lender's possession;
(ii) sign Borrower's name on any invoice or ▇▇▇▇ of lading relating to any
Receivables, drafts against customers,
33
schedules and assignments of Receivables, notices of assignment, financing
statements and other public records, verifications of account and notices to or
from customers; (iii) verify the validity, amount or any other matter relating
to any Receivable by mail, telephone, telegraph or otherwise with account
debtors; (iv) execute customs declarations and such other documents as may be
required to clear Inventory through Customs; (v) do all things necessary to
carry out this Agreement, any Ancillary Agreement and all related documents;
(vi) on or after the occurrence and continuation of an Event of Default, notify
the post office authorities to change the address for delivery of Borrower's
mail to an address designated by Lender, and to receive, open and dispose of all
mail addressed to Borrower; and (vii) enforce and collect any cash judgment or
settlement amount in Borrower's favor with respect to any adjudicated or settled
litigation in the event Lender determines in good faith that Borrower is not
actively pursuing the collection thereof, provided, that Borrower shall have the
sole right to prosecute and settle or otherwise resolve any litigation to which
it is a party. Borrower hereby ratifies and approves all acts of the attorney.
Neither Lender nor the attorney will be liable for any acts or omissions or for
any error of judgment or mistake of fact or law. This power, being coupled with
an interest, is irrevocable so long as any Receivable which is assigned to
Lender or in which Lender has a security interest remains unpaid and until the
Obligations have been fully satisfied.
14. Expenses. Borrower shall pay all of Lender's out-of-pocket costs
--------
and expenses, including, without limitation, reasonable fees and disbursements
of counsel and appraisers, in connection with the preparation, execution and
delivery of this Agreement and the Ancillary Agreements, and in connection with
the prosecution or defense of any action, contest, dispute, suit or proceeding
concerning any matter in any way arising out of, related to or connected with
this Agreement or any Ancillary Agreement. Borrower shall also pay all of
Lender's fees, charges, out-of-pocket costs and expenses, including without
limitation reasonable fees and disbursements of counsel and appraisers, in
connection with (a) the preparation, execution and delivery of any waiver, any
amendment thereto or consent proposed or executed in connection with the
transactions contemplated by this Agreement or the Ancillary Agreements, (b)
Lender's obtaining performance of the Obligations under this Agreement and any
Ancillary Agreements, including, but not limited to, the enforcement or defense
of Lender's security interests, assignments of rights and liens hereunder as
valid perfected security interests, (c) any attempt to inspect, verify, protect,
collect, sell, liquidate or otherwise dispose of any Collateral, (d) any
appraisals or re-appraisals of any property (real or personal) pledged to Lender
by Borrower as Collateral for, or any other Person as security for, Borrower's
Obligations hereunder and (e) any consultations in connection with any of the
foregoing. Borrower shall also pay Lender's customary bank charges for all bank
services performed or caused to be performed by Lender for Borrower at
Borrower's request or in connection with Borrower's loan account with Lender.
All such costs and expenses together with all filing, recording and search fees,
taxes and interest payable by Borrower to Lender shall be payable on demand and
shall be secured by the Collateral. If any tax by any governmental authority is
or may be imposed on or as a result of any transaction between Borrower and
Lender which Lender is or may be required to withhold or pay, Borrower agrees to
indemnify and hold Lender harmless in respect of such taxes, and Borrower will
repay to Lender the amount of any such taxes which shall be charged to
Borrower's account; and until Borrower shall furnish Lender with indemnity
therefor (or supply Lender with evidence satisfactory to it that due provision
for the payment thereof has been made), Lender may hold without interest any
balance standing to Borrower's credit and Lender shall retain its security
interests in any and all ▇▇▇▇▇▇▇▇▇▇.
▇▇
▇▇. Assignment By Lender. Lender may assign any or all of the
--------------------
Obligations together with any or all of the security therefor and any transferee
shall succeed to all of Lender's rights with respect thereto. Upon such
transfer, Lender shall be released from all responsibility for the Collateral to
the extent same is assigned to any transferee. Lender may from time to time
sell or otherwise grant participations in any of the Obligations and the holder
of any such participation shall, subject to the terms of any agreement between
Lender and such holder, be entitled to the same benefits as Lender with respect
to any security for the Obligations in which such holder is a participant.
Borrower agrees that each such holder may exercise any and all rights of
banker's lien, set-off and counterclaim with respect to its participation in the
Obligations as fully as though Borrower were directly indebted to such holder in
the amount of such participation.
16. Waivers. Borrower waives presentment and protest of any
-------
instrument and notice thereof, notice of default and all other notices to which
Borrower might otherwise be entitled.
17. Term of Agreement. This Agreement shall continue in full force
-----------------
and effect until the expiration of the Term; provided, however, Lender may
-------- -------
terminate at any time upon sixty (60) days notice. The Term shall be
automatically extended for successive periods of two (2) years each unless
Borrower shall have provided Lender with a written notice of termination, at
least sixty (60) days prior to the expiration of the initial Term or any renewal
Term. Upon such extension of the initial Term or any renewal Term, Borrower
shall pay Lender an extension fee in an amount equal to the product of (x) the
Maximum Revolving Amount times (y) one percent (1.0%). Notwithstanding the
foregoing, Lender shall release its security interests at any time after fifteen
(15) business days notice upon payment to it of all Obligations if Borrower
shall have (i) provided Lender with an executed release of any and all claims
which Borrower may have or thereafter shall have under this Agreement and (ii)
paid to Lender an early payment fee as follows:
(a) during the period ending with the expiration of the initial Term,
the fee shall be equal to the product of (x) fifty percent (50%) of the average
monthly interest (including any minimum loan fees payable hereunder) payable by
Borrower to Lender from the Closing Date until the date of payment of the fee
hereunder multiplied by (y) the difference between (i) twenty-four (24) and (ii)
the number of full months which have elapsed from the Closing Date until the
date of payment of the fee hereunder;
(b) during the period ending during any renewal Term of this
Agreement, the fee shall be equal to the product of (x) fifty percent (50%) of
the average monthly interest (including any minimum loan fees payable hereunder)
payable by Borrower to Lender from the date such renewal Term commences until
payment of the fee hereunder multiplied by (y) the difference between (i) twenty
four (24) and (ii) the number of full months which have elapsed from the date
such renewal Term is in effect until the date of payment of the fee hereunder;
such fee being intended to compensate Lender for its costs and expenses incurred
in initially approving this Agreement or extending same. Such early payment fee
shall also be due and payable by Borrower to Lender upon termination of this
Agreement by Lender after the occurrence of an Event of Default.
35
18. Events of Default. The occurrence of any of the following shall
-----------------
constitute an Event of Default:
(a) failure to make payment of any of the Obligations when required
hereunder within three (3) days after receipt of written notice from Lender of
such failure;
(b) failure to pay any taxes when due unless such taxes are being
contested in good faith by appropriate proceedings and with respect to which
adequate reserves have been provided on Borrower's books;
(c) failure to perform under and/or committing any breach of this
Agreement or any Ancillary Agreement or any other agreement between Borrower and
Lender (other than a breach of the provisions of Sections 8(c), 8(f) and 8(g)
which is cured within fifteen (15) days of receipt of notice thereof from
Lender);
(d) occurrence of a default under any agreement to which Borrower is a
party with third parties which has a material adverse affect upon Borrower's
business, assets, operations, prospects or condition (financial or otherwise)
including all leases for any premises where Inventory or Equipment is located;
(e) any representation, warranty or statement made by Borrower
hereunder, in any Ancillary Agreement, any certificate, statement or document
delivered pursuant to the terms hereof, or in connection with the transactions
contemplated by this Agreement should at any time be false or misleading in any
material respect;
(f) if any Guarantor attempts to terminate, challenges the validity
of, or its liability under any Guaranty Agreement or Guarantor Security
Agreement or if any Guarantor shall die and Borrower shall fail to provide
Lender with a replacement Guarantor acceptable to Lender within forty-five (45)
days of such occurrence;
(g) should any Guarantor default in its obligations under any Guaranty
Agreement or any Guarantor Security Agreement and fail to cure such default
within five (5) days following receipt of Lender's notice thereof, or if any
proceeding shall be brought to challenge the validity, binding effect of any
Guaranty Agreement or any Guarantor Security Agreement, or should any Guarantor
breach in any material respect, any representation, warranty or covenant
contained in any Guaranty Agreement or any Guarantor Security Agreement or
should any Guaranty Agreement or Guarantor Security Agreement cease to be a
valid, binding and enforceable obligation;
(h) an attachment or levy is made upon any of Borrower's assets having
an aggregate value in excess of $25,000, or a judgment is rendered against
Borrower or any of Borrower's property involving a liability of more than
$25,000, which shall not have been vacated, discharged, stayed or bonded pending
appeal within thirty (30) days from the entry thereof;
(i) any change in Borrower's condition or affairs (financial or
otherwise) which in Lender's reasonable opinion impairs in any material respect,
the Collateral or the ability of Borrower to perform its Obligations;
36
(j) any lien created hereunder or under any Ancillary Agreement for
any reason ceases to be or is not a valid and perfected lien having a first
priority interest;
(k) if Borrower shall (i) apply for, consent to or suffer to exist the
appointment of, or the taking of possession by, a receiver, custodian, trustee
or liquidator of itself or of all or a substantial part of its property, (ii)
make a general assignment for the benefit of creditors, (iii) commence a
voluntary case under the federal bankruptcy laws (as now or hereafter in
effect), (iv) be adjudicated a bankrupt or insolvent, (v) file a petition
seeking to take advantage of any other law providing for the relief of debtors,
(vi) acquiesce to, or fail to have dismissed, within thirty (30) days, any
petition filed against it in any involuntary case under such bankruptcy laws, or
(vii) take any action for the purpose of effecting any of the foregoing;
(l) Borrower shall admit in writing its inability, or be generally
unable to pay its debts as they become due or cease operations of its present
business;
(m) any Affiliate or any Subsidiary (other than USWE) or any Guarantor
shall (i) apply for, consent to or suffer to exist the appointment of, or the
taking possession by, a receiver, custodian, trustee or liquidator of itself or
of all or a substantial part of its property, (ii) admit in writing its
inability, or be generally unable, to pay its debts as they become due or cease
operations of its present business, (iii) make a general assignment for the
benefit of creditors, (iv) commence a voluntary case under the federal
bankruptcy laws (as now or hereafter in effect), (v) be adjudicated a bankrupt
or insolvent, (vi) file a petition seeking to take advantage of any other law
providing for the relief of debtors, (vii) acquiesce to, or fail to have
dismissed, within thirty (30) days, any petition filed against it in any
involuntary case under such bankruptcy laws or (viii) take any action for the
purpose of effecting any of the foregoing;
(n) Borrower directly or indirectly sells, assigns, transfers,
conveys, or suffers or permits to occur any sale, assignment, transfer or
conveyance of any assets of Borrower or any interest therein, except as
permitted herein;
(o) Borrower fails to operate in the ordinary course of business;
(p) Lender shall in good ▇▇▇▇▇ ▇▇▇▇ itself insecure or unsafe or shall
fear diminution in value, removal or waste of the Collateral;
(q) a default by Borrower in the payment, when due, of any principal
of or interest on any indebtedness (other than the Obligations) for money
borrowed and Borrower fails to cure such default within any applicable cure
period;
(r) (i) Senior Management shall cease to constitute a majority of the
board of directors of the Borrower or (ii) ▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ or
▇▇▇▇ ▇▇▇▇▇▇▇ shall cease to be involved in the management of the Borrower; or
(s) the indictment or threatened indictment of Borrower or any
Guarantor under any criminal statute, or commencement or threatened commencement
of criminal or civil proceeding against Borrower or any Guarantor pursuant to
which statute or proceeding the penalties or remedies sought or available
include forfeiture of any of the property of Borrower or any Guarantor.
37
19. Remedies. (a) Upon the occurrence of an Event of Default
--------
pursuant to paragraph 18(k) herein, all Obligations shall be immediately due and
payable and this Agreement shall be deemed terminated; upon the occurrence and
continuation of any other of the Events of Default, Lender shall have the right
to demand repayment in full of all Obligations, whether or not otherwise due.
Until all Obligations have been fully satisfied, Lender shall retain its
security interest in all Collateral. Lender shall have, in addition to all
other rights provided herein, the rights and remedies of a secured party under
the UCC, and under other applicable law, all other legal and equitable rights to
which Lender may be entitled, including without limitation, the right to take
immediate possession of the Collateral, to require Borrower to assemble the
Collateral, at Borrower's expense, and to make it available to Lender at a place
designated by Lender which is reasonably convenient to both parties and to enter
any of the premises of Borrower or wherever the Collateral shall be located,
with or without force or process of law, and to keep and store the same on said
premises until sold (and if said premises be the property of Borrower, Borrower
agrees not to charge Lender for storage thereof), and the right to apply for the
appointment of a receiver for Borrower's property. Further, Lender may, at any
time or times after default by Borrower, sell and deliver all Collateral held by
or for Lender at public or private sale for cash, upon credit or otherwise, at
such prices and upon such terms as Lender, in Lender's sole discretion, deems
advisable or Lender may otherwise recover upon the Collateral in any
commercially reasonable manner as Lender, in its sole discretion, deems
advisable. The requirement of reasonable notice shall be met if such notice is
mailed postage prepaid to Borrower at Borrower's address as shown in Lender's
records, at least ten (10) days before the time of the event of which notice is
being given. Lender may be the purchaser at any sale, if it is public. In
connection with the exercise of the foregoing remedies, Lender is granted
permission to use all of Borrower's trademarks, tradenames, tradestyles,
patents, patent applications, licenses, franchises and other proprietary rights
which are used in connection with (a) Inventory for the purpose of disposing of
such Inventory and (b) Equipment for the purpose of completing the manufacture
of unfinished goods. The proceeds of sale shall be applied first to all costs
and expenses of sale, including attorneys' fees, and second to the payment (in
whatever order Lender elects) of all Obligations. Lender will return any excess
to Borrower and Borrower shall remain liable to Lender for any deficiency. In
addition to all other sums due to Lender, Borrower shall pay Lender, for costs
and expenses incurred by Lender for internal collection efforts to obtain or
enforce payment of Receivables, an amount equal to fifteen percent (15%) of the
net face amount of any Receivables collected.
(b) UPON THE OCCURRENCE OF AN EVENT OF DEFAULT WHICH IS CONTINUING,
BORROWER HEREBY EMPOWERS ANY ATTORNEY OR PROTHONOTARY OF CLERK OF ANY COURT OF
RECORD IN THE UNITED STATES OF AMERICA OR ELSEWHERE TO APPEAR FOR BORROWER, AND
WITH OR WITHOUT COMPLAINT FILED, CONFESS JUDGMENT, OR A SERIES OF JUDGMENTS,
AGAINST BORROWER IN FAVOR OF LENDER OR ANY SUCCESSOR OR ASSIGN THEREOF (A) FOR
ALL OBLIGATIONS AND/OR (B) IN ANY ACTION, INCLUDING, WITHOUT LIMITATION
REPLEVIN, INSTITUTED BY LENDER TO OBTAIN POSSESSION OF THE COLLATERAL SECURING
ANY OF THE OBLIGATIONS, IN EITHER CASE WITH OR WITHOUT DECLARATION, WITH COSTS
OF SUIT, WITHOUT STAY OF EXECUTION AND TOGETHER WITH INTEREST THEREON IF NOT
PAID WHEN DUE, WHETHER BY ACCELERATION OR OTHERWISE, COSTS OF SUIT AND AN
ATTORNEY'S COMMISSION OF 15%
38
FOR COLLECTION. BORROWER HEREBY FOREVER WAIVES AND RELEASES ALL ERRORS IN SAID
PROCEEDINGS, WAIVES ALL RIGHT OF APPEAL AND STAY OF EXECUTION AND EXTENSION OF
TIME OF PAYMENT, AGREES TO CONDEMNATION OF ANY PROPERTY LEVIED UPON BY VIRTUE OF
ANY SUCH EXECUTION, AND WAIVES ALL EXEMPTIONS FROM LEVY AND SALE OF ANY PROPERTY
THAT NOW IS OR HEREAFTER MAY BE EXEMPTED BY LAW. INTEREST ON ANY SUCH JUDGMENT
SHALL ACCRUE AT THE DEFAULT RATE. NO SINGLE EXERCISE OF THE FOREGOING POWER TO
CONFESS JUDGMENT, OR A SERIES OF JUDGMENTS, SHALL BE DEEMED TO EXHAUST THE
POWER, WHETHER OR NOT ANY SUCH EXERCISE SHALL BE HELD BY ANY COURT TO BE VALID,
VOIDABLE, OR VOID, BUT THE POWER SHALL CONTINUE UNDIMINISHED AND IT MAY BE
EXERCISED FROM TIME TO TIME AS OFTEN AS LENDER SHALL ELECT UNTIL SUCH TIME AS
LENDER SHALL HAVE RECEIVED PAYMENT IN FULL OF THE OBLIGATIONS, INCLUDING,
WITHOUT LIMITATION PRINCIPAL, INTEREST AND COSTS.
20. Waiver; Cumulative Remedies. Failure by Lender to exercise any
---------------------------
right, remedy or option under this Agreement or any supplement hereto or any
other agreement between Borrower and Lender or delay by Lender in exercising the
same, will not operate as a waiver; no waiver by Lender will be effective unless
it is in writing and then only to the extent specifically stated. Lender's
rights and remedies under this Agreement will be cumulative and not exclusive of
any other right or remedy which Lender may have.
21. Application of Payments. Borrower irrevocably waives the right
-----------------------
to direct the application of any and all payments at any time or times hereafter
received by Lender from or on Borrower's behalf and Borrower hereby irrevocably
agrees that Lender shall have the continuing exclusive right to apply and
reapply any and all payments received at any time or times hereafter against
Borrower's Obligations hereunder in such manner as Lender may deem advisable
notwithstanding any entry by Lender upon any of Lender's books and records.
22. Depository Accounts. Any payment received by Borrower on account
-------------------
of any Collateral shall be held by Borrower in trust for Lender (to the extent
of the outstanding Obligations) and Borrower shall promptly deliver same in kind
to Lender or deposit all such payments into a cash collateral account at such
bank as Lender may designate for application to payment of the Obligations.
Borrower shall also execute such further documents as Lender may deem necessary
to establish such an account and all funds deposited in such account shall (to
the extent of the outstanding Obligations) immediately be deemed Lender's
property.
23. Lock Box Accounts. Borrower shall, at Lender's request, instruct
-----------------
all of its customers and account debtors to make such payments on account of
Receivables to an account under Lender's dominion and control at such bank as
Lender may designate. Borrower shall also execute such further documents as
Lender may deem necessary to establish such an account and the funds deposited
in such account shall immediately be deemed Lender's property; provided,
--------
however, Lender shall give telephonic notice to Borrower to the extent Lender
-------
has received funds in excess of the outstanding amount of the Obligations and
shall upon Borrower's request return to Borrower such excess within
39
two (2) business days. Until so returned, Lender shall hold all such excess as
bailee for the benefit of Borrower.
24. Revival. Borrower further agrees that to the extent Borrower
-------
makes a payment or payments to Lender, which payment or payments or any part
thereof are subsequently invalidated, declared to be fraudulent or preferential,
set aside and/or required to be repaid to a trustee, receiver or any other party
under any bankruptcy act, state or federal law, common law or equitable cause,
then, to the extent of such payment or repayment, the obligation or part thereof
intended to be satisfied shall be revived and continued in full force and effect
as if said payment had not been made.
25. Notices. Any notice or request hereunder may be given to
-------
Borrower or Lender at the respective addresses set forth below or as may
hereafter be specified in a notice designated as a change of address under this
paragraph. Any notice or request hereunder shall be given by registered or
certified mail, return receipt requested, hand delivery, overnight mail or
telecopy (confirmed by mail). Notices and requests shall be, in the case of
those by hand delivery, deemed to have been given when delivered to any officer
of the party to whom it is addressed, in the case of those by mail or overnight
mail, deemed to have been given when deposited in the mail or with the overnight
mail carrier, and, in the case of a telecopy, when confirmed.
Notices shall be provided as follows:
If to the Lender: Century Business Credit Corporation
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to: ▇▇▇▇ & Hessen
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Borrower: U.S. Wats, Inc.
▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇, President
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to: Kaufman, Coren, Ress, ▇▇▇▇▇▇▇
& ▇▇▇▇▇▇▇▇▇▇, P.C.
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
40
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
26. Governing Law and Waiver of Jury Trial. THIS AGREEMENT (EXCEPT
--------------------------------------
TO THE EXTENT OF THE CONFESSION OF JUDGMENT PROVIDED IN SECTION 19(b) OF THIS
AGREEMENT TO WHICH THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA SHALL APPLY)
SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF NEW YORK. LENDER SHALL HAVE THE RIGHTS AND REMEDIES OF A SECURED
PARTY UNDER APPLICABLE LAW INCLUDING, BUT NOT LIMITED TO, THE UNIFORM COMMERCIAL
CODE OF NEW YORK. BORROWER AGREES THAT ALL ACTIONS AND PROCEEDINGS RELATING
DIRECTLY OR INDIRECTLY TO THIS AGREEMENT OR ANY ANCILLARY AGREEMENT OR ANY OTHER
OBLIGATIONS SHALL BE LITIGATED IN THE FEDERAL DISTRICT COURT OF THE SOUTHERN
DISTRICT OF NEW YORK OR, AT LENDER'S OPTION, IN ANY OTHER COURTS LOCATED IN NEW
YORK STATE OR ELSEWHERE AS LENDER MAY SELECT AND THAT SUCH COURTS ARE CONVENIENT
FORUMS AND BORROWER SUBMITS TO THE PERSONAL JURISDICTION OF SUCH COURTS.
BORROWER WAIVES PERSONAL SERVICE OF PROCESS AND CONSENTS THAT SERVICE OF PROCESS
UPON BORROWER MAY BE MADE BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT
REQUESTED, DIRECTED TO BORROWER AT BORROWER'S ADDRESS APPEARING ON LENDER'S
RECORDS, AND SERVICE SO MADE SHALL BE DEEMED COMPLETED TWO (2) DAYS AFTER THE
SAME SHALL HAVE BEEN SO MAILED. BOTH PARTIES HERETO WAIVE THE RIGHT TO A TRIAL
BY JURY IN ANY ACTION OR PROCEEDING BETWEEN BORROWER AND, EXCEPT AS OTHERWISE
REQUIRED BY APPLICABLE LAW IN ORDER TO PRESERVE SUCH COUNTERCLAIMS OR OFFSETS,
LENDER AND BORROWER WAIVES THE RIGHT TO ASSERT IN ANY ACTION OR PROCEEDING
INSTITUTED BY LENDER WITH REGARD TO THIS AGREEMENT OR ANY OF THE OBLIGATIONS ANY
OFFSETS OR COUNTERCLAIMS WHICH IT MAY HAVE.
27. Limitation of Liability. Borrower acknowledges and understands
-----------------------
that in order to assure repayment of the Obligations hereunder Lender may be
required to exercise any and all of Lender's rights and remedies hereunder and
agrees that neither Lender nor any of Lender's agents shall be liable for acts
taken or omissions made in connection herewith or therewith except for actual
bad faith.
28. Entire Understanding. This Agreement and the Ancillary
--------------------
Agreements contain the entire understanding between Borrower and Lender and any
promises, representations, warranties or guarantees not herein contained shall
have no force and effect unless in writing, signed by the Borrower's and
Lender's respective officers. Neither this Agreement, the Ancillary Agreements,
nor any portion or provisions thereof may be changed, modified, amended, waived,
supplemented, discharged, cancelled or terminated orally or by any course of
dealing, or in any manner other than by an agreement in writing, signed by the
party to be charged.
29. Severability. Wherever possible each provision of this Agreement
------------
or the Ancillary Agreements shall be interpreted in such manner as to be
effective and valid under applicable law, but if any provision of this Agreement
or the Ancillary Agreements shall be prohibited by or invalid under applicable
law such provision shall be ineffective to
41
the extent of such prohibition or invalidity, without invalidating the remainder
of such provision or the remaining provisions thereof.
30. Captions. All captions are and shall be without substantive
--------
meaning or content of any kind whatsoever.
31. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall constitute an original and all of which taken
together shall constitute one and the same instrument.
32. Construction. The parties acknowledge that each party and its
------------
counsel have reviewed this Agreement and that the normal rule of construction to
the effect that any ambiguities are to be resolved against the drafting party
shall not be employed in the interpretation of this Agreement or any amendments,
schedules or exhibits thereto.
33. Publicity. Borrower hereby authorizes Lender to make appropriate
---------
announcements of the financial arrangement entered into by and between Borrower
and Lender, including, without limitation, announcements which are commonly
known as tombstones, in such publications and to such selected parties as Lender
shall in its sole and absolute discretion deem appropriate.
IN WITNESS WHEREOF, this Agreement has been duly executed as of the day and
year first above written.
ATTEST: US WATS, INC.
By: ▇▇▇▇ ▇▇▇▇▇▇▇
--------------
Secretary By: ▇▇▇▇ ▇▇▇▇▇▇▇
--------------
Title: Chief Financial Officer
------------------------
[CORPORATE SEAL]
CENTURY BUSINESS CREDIT
CORPORATION
By: ▇▇▇▇▇ ▇▇▇▇▇
-------------
Title: Senior Vice President
----------------------
42