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PLEDGE AGREEMENT
PLEDGE AGREEMENT, dated as of February 27, 1997, made by the
Persons listed on the signature pages hereof (each a "Pledgor" and collectively
the "Pledgors"; provided that "Pledgor" shall be deemed to include any other
Person that executes and delivers an amendment in the form of Exhibit A hereto
agreeing to be bound by the terms and provisions hereof), to Foothill Capital
Corporation ("Foothill").
W I T N E S S E T H :
WHEREAS, Midcom Communications Inc., Adval, Inc., Adval Data
Corporation, Advanced Network Design, Cel-Tech International Corp., and Pacnet
Inc. (hereinafter referred to, collectively, as "Borrowers") and Foothill have
entered into that certain Loan and Security Agreement, dated as of even date
herewith (as it may be amended, supplemented or otherwise modified from time to
time, the "Loan Agreement"; capitalized terms used herein and not otherwise
defined herein shall have the meanings ascribed thereto in the Loan Agreement);
and
WHEREAS, each Pledgor is the legal and beneficial owner of the
shares of capital stock or other equity securities described in Schedule I
hereto (or any addenda thereto) (collectively, the "Pledged Shares"); and
WHEREAS, the Pledged Shares as of the date hereof represent
all of the capital stock or other equity securities of each direct or indirect
Subsidiary of each Pledgor (each, an "Issuer"); and
WHEREAS, it is a condition precedent under the Loan Agreement
to the making of the Advances that the Pledgors shall have made the pledge
contemplated by this Agreement;
NOW, THEREFORE, in consideration of the premises and to induce
Foothill to make the Advances, each Pledgor hereby agrees with Foothill as
follows:
SECTION l. Pledge. Each Pledgor hereby pledges to Foothill,
and grants to Foothill a security interest in, all of such Pledgor's right,
title, and interest in and to the following (the "Pledged Collateral"):
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(i) all of the Pledged Shares;
(ii) all additional shares of stock or other
securities of any Issuer of the Pledged Shares from time to
time acquired by such Pledgor in any manner (any such shares
being "Additional Shares");
(iii) the certificates (if any) representing the
shares referred to in clauses (i) and (ii) above; and
(iv) all dividends, cash, instruments and other
property or proceeds, from time to time received, receivable
or otherwise distributed in respect of or in exchange for any
or all of the Pledged Shares and/or Additional Shares.
SECTION 2. Security for Obligations. This Agreement secures,
and the Pledged Collateral is security for, the full and prompt payment by
Borrowers when due (whether at stated maturity, by acceleration or otherwise)
of, and the performance by Borrowers of, the Obligations, whether now or
hereafter existing and whether for principal, interest, fees, expenses or
otherwise, and the performance by each Pledgor of its obligations hereunder
(collectively, the "Secured Obligations").
SECTION 3. Delivery of Pledged Collateral. (a) All
certificates or instruments representing or evidencing the Pledged Collateral
shall be delivered to and held by or on behalf of Foothill pursuant hereto and
shall be in suitable form for transfer by delivery, or shall be accompanied by
duly executed instruments of transfer or assignment in blank, all in form and
substance satisfactory to Foothill; (b) upon the occurrence and during the
continuance of an Event of Default, Foothill shall have the right to the extent
permitted under any applicable law, at any time in its discretion and without
notice to any Pledgor, to transfer to or to register in its name or in the name
of any of its nominees any or all of the Pledged Collateral; and (c) Foothill
shall have the right at any time to exchange certificates representing or
evidencing any of the Pledged Collateral for certificates of smaller or larger
denominations.
SECTION 4. Representations and Warranties. Each Pledgor makes
the following representations:
(a) As of the date that the applicable Pledged Shares are
pledged hereunder by such Pledgor, those Pledged Shares (i) have been duly
authorized and validly issued; (ii) are fully paid and non-assessable; and (iii)
constitute all of the issued and outstanding capital stock and other equity
securities of the Issuer thereof.
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(b) Such Pledgor is the legal and beneficial owner of the
Pledged Collateral free and clear of any Lien, except for Permitted Liens.
(c) Upon compliance with any applicable local law registration
requirements, the pledge of the Pledged Shares creates a valid, perfected and
first priority security interest in such Pledged Collateral, in favor of
Foothill.
(d) No consent, authorization, approval, or other action by,
and no notice to or filing with, any governmental authority is required either
(i) for the pledge by such Pledgor of the Pledged Collateral pursuant to this
Agreement or for the due execution, delivery or performance of this Agreement by
such Pledgor, or (ii) for the exercise by Foothill of the voting or other rights
provided for in this Agreement or of the remedies in respect of the Pledged
Collateral pursuant to this Agreement, except as may be required in connection
with the disposition of the Pledged Collateral by laws affecting the offering
and sale of securities generally or for any filings necessary to comply with
applicable local law registration requirements.
SECTION 5. Further Assurances, Etc. (a) Each Pledgor agrees
that at any time and from time to time, at the cost and expense of such Pledgor,
such Pledgor will promptly execute and deliver all further instruments and
documents, and take all further action, that may be necessary or desirable, or
that Foothill may reasonably request, in order to perfect and protect the Lien
granted or purported to be granted hereby or to enable Foothill to exercise and
enforce its rights and remedies hereunder with respect to any Pledged
Collateral.
(b) Each Pledgor agrees to defend the title to the Pledged
Collateral and the Lien thereon of Foothill against the claim of any other
Person and to maintain and preserve such Lien until indefeasible payment in full
of all obligations.
SECTION 6. Voting Rights; Dividends; Etc.
(a) As long as no Event of Default shall have occurred and be
continuing (and, in the case of subsection (a) (i) of this Section 6, as long as
no notice thereof shall have been given by Foothill to the Pledgors pursuant to
subsection (b) hereof):
(i) Each Pledgor shall be entitled to exercise any and all
voting and other consensual rights pertaining to the Pledged Collateral or any
part thereof for any purpose not inconsistent with the terms of this Agreement
or any other Loan Document; provided, however, that such Pledgor shall not
exercise or shall refrain from exercising any such right if such action could
reasonably be expected to result in a Material Adverse Change;
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(ii) Each Pledgor shall be entitled to receive and retain
(subject to any Lien thereon in favor of Foothill) any and all dividends or
distributions paid in respect of the Pledged Collateral, other than any and all:
(A) dividends paid or payable other than in cash in
respect of, and instruments and other property received,
receivable or otherwise distributed in respect of, or in
exchange for, any Pledged Collateral,
(B) dividends and other distributions paid or payable
in cash in respect of any Pledged Shares or Additional Pledged
Shares in connection with a partial or total liquidation or
dissolution of the Issuer thereof or in connection with a
reduction by the Issuer thereof of such Issuer's capital,
capital surplus or paid-in-surplus, and
(C) cash paid, payable or otherwise distributed in
redemption of, or in exchange for, any Pledged Collateral, all
of which shall be forthwith delivered to Foothill for deposit
in the Lockboxes, in the manner set forth in the Loan
Agreement, and shall, if received by such Pledgor, be received
in trust for the benefit of Foothill, be segregated from the
other property or funds of such Pledgor, and be forthwith
delivered to Foothill for deposit in the Lockboxes, in the
same form as so received (with any necessary endorsement); and
(iii) Foothill shall execute and deliver (or cause to be
executed and delivered) to any Pledgor all such proxies and other instruments as
such Pledgor may reasonably request for the purpose of enabling such Pledgor to
exercise the voting and other rights which it is entitled to exercise pursuant
to paragraph (i) above and to receive the dividends or distributions which it is
authorized to receive and retain pursuant to paragraph (ii) above.
(b) Upon the occurrence and during the continuance of an Event
of Default:
(i) Upon notice by Foothill to any Pledgor, all
rights of such Pledgor to exercise the voting and other
consensual rights which it would otherwise be entitled to
exercise pursuant to Section 6(a) (i) above shall cease, and
all such rights shall thereupon become vested in Foothill who
shall thereupon have the sole right to exercise such voting
and other consensual rights.
(ii) All rights of any Pledgor to receive the
dividends or distributions which it would otherwise be
authorized to receive and retain pursuant to Section 6(a) (ii)
above shall cease, and all such rights shall thereupon become
vested in
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Foothill who shall thereupon have the sole right to receive
and hold as Pledged Collateral such dividends or distributions
for deposit in the Lockboxes.
(iii) All dividends or distributions which are
received by any Pledgor contrary to the provisions of
paragraph (ii) of this Section 6(b) shall be received in trust
for the benefit of Foothill, shall be segregated from other
property or funds of such Pledgor and shall be forthwith
delivered to Foothill for deposit in the Lockboxes, in the
same form as so received (with any necessary endorsement).
(iv) Each Pledgor shall, if necessary to permit
Foothill to exercise the voting and other rights which it may
be entitled to exercise pursuant to Section 6(b)(i) above and
to receive all dividends and distributions which it may be
entitled to receive under Section 6(b)(ii) above, execute and
deliver to Foothill, from time to time and upon written notice
of Foothill, appropriate proxies and other instruments as
Foothill may reasonably request. The foregoing shall not in
any way limit Foothill's power and authority granted pursuant
to Section 8 hereof.
SECTION 7. Transfers and Other Liens; Additional Shares. (a)
Each Pledgor agrees that it will not (i) sell or otherwise dispose of, or grant
any option or warrant with respect to, any of the Pledged Collateral except as
permitted by the Loan Agreement, or (ii) create or permit to exist any Lien upon
or with respect to any of the Pledged Collateral, except for the Lien created
pursuant to this Agreement or Liens permitted pursuant to Section 7.2 of the
Loan Agreement.
(b) Each Pledgor agrees that it will (i) except as permitted
by the Loan Agreement, cause each Issuer not to issue any shares of capital
stock or other equity securities in addition to or in substitution for the
Pledged Shares, (ii) pledge hereunder, immediately upon its acquisition
(directly or indirectly) thereof, any and all Additional Shares, and (iii)
promptly (and in any event within three Business Days) deliver to Foothill a
Pledge Amendment, duly executed by such Pledgor, in substantially the form of
Exhibit A hereto (a "Pledge Amendment"), in respect of the Additional Shares,
together with all certificates or other instruments representing or evidencing
the same. Each Pledgor hereby (i) authorizes Foothill to attach each Pledge
Amendment to this Pledge Agreement, (ii) agrees that all capital stock and other
equity securities listed on any Pledge Amendment delivered to Foothill shall for
all purposes hereunder constitute Pledged Shares, and (iii) is deemed to have
made, upon such delivery, the representations and warranties contained in
Section 4 hereof with respect to such Pledged Collateral.
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SECTION 8. Foothill Appointed Attorney-in-Fact and Proxy.
Subject to Section 6 hereof, each Pledgor hereby irrevocably constitutes and
appoints Foothill and any officer or agent thereof, with full power of
substitution, as its true and lawful attorney-in-fact and proxy with full
irrevocable power and authority in the place and stead of such Pledgor and in
the name of such Pledgor or in its own name, from time to time in Foothill's
discretion, for the purpose of carrying out the terms of this Agreement, to take
any and all appropriate action and to execute and deliver any and all documents
and instruments which Foothill may deem necessary or advisable to accomplish the
purposes of this Agreement, and, without limiting the generality of the
foregoing, hereby gives Foothill the power and right, on behalf of such Pledgor,
upon the occurrence and during the continuance of an Event of Default, to
receive, indorse and collect all instruments made payable to such Pledgor
representing any dividend or distribution in respect of the Pledged Collateral
or any part thereof, to give full discharge for the same, and to vote or grant
any consent in respect of the Pledged Shares authorized by Section 6(b) hereof.
Each Pledgor hereby ratifies, to the extent permitted by law, all that any said
attorney shall lawfully do or cause to be done by virtue hereof. This power,
being coupled with an interest, is irrevocable until, and shall automatically
terminate upon, the termination of this Agreement pursuant to Section 17. To the
extent Secured Party takes any action under this Section 8, Secured Party will
endeavor in good faith to provide notice to the relevant Pledgor of such action,
but any failure of Secured Party to do so shall not result in any liability to
Secured Party whatsoever unless and to the extent such failure arose from the
willful misconduct, gross negligence, or bad faith of Secured Party.
SECTION 9. Foothill May Perform. If any Pledgor fails to
perform any agreement contained herein, Foothill may itself perform, or cause
performance of, such agreement, and the expenses of Foothill incurred in
connection therewith shall be payable by such Pledgor under Section 12 hereof
and constitute Obligations secured hereby.
SECTION 10. Reasonable Care. Foothill shall be deemed to have
exercised reasonable care in the custody and preservation of the Pledged
Collateral in its possession if the Pledged Collateral is accorded treatment
substantially equal to that which Foothill accords its own property, it being
understood that Foothill shall not have any responsibility for (i) ascertaining
or taking action with respect to calls, conversions, exchanges, maturities,
tenders or other matters relative to any Pledged Collateral, whether or not
Foothill has or is deemed to have knowledge of any such matter, or (ii) taking
any necessary steps to preserve rights against any Person with respect to any
Pledged Collateral.
SECTION 11. Remedies upon Default. If any Event of Default
shall have occurred and be continuing:
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(a) Foothill may exercise in respect of the Pledged
Collateral, in addition to other rights and remedies provided for herein or
otherwise available to it, all the rights and remedies of a secured party after
default under the Code or any other applicable law in effect in the State of
California at that time, and Foothill may also, without notice except as
specified below, sell the Pledged Collateral or any part thereof in one or more
parcels at public or private sale, at any exchange, broker's board or at any
office of Foothill or elsewhere, for cash, on credit or for future delivery, and
upon such other terms as Foothill may deem commercially reasonable. Each Pledgor
agrees that, to the extent notice of sale shall be required by law, at least ten
days' notice to such Pledgor of the time and place of any public sale or the
time after which any private sale is to be made shall constitute reasonable
notification. Foothill shall not be obligated to make any sale of Pledged
Collateral regardless of notice of sale having been given. Foothill may adjourn
any public or private sale from time to time by announcement at the time and
place fixed therefor, and such sale may, without further notice, be made at the
time and place to which it was so adjourned. Each Pledgor hereby waives any
claims against Foothill arising by reason of the fact that the price at which
any Pledged Collateral may have been sold at such a private sale was less than
the price which might have been obtained at a public sale, even if Foothill
accepts the first offer received and does not offer such Pledged Collateral to
more than one offeree. Foothill will comply with applicable federal and state
securities laws in connection with any foreclosure sale.
(b) Each Pledgor recognizes that by reason of certain
prohibitions contained in the Securities Act of 1933, as amended (the
"Securities Act") and applicable state securities laws, Foothill may be
compelled, with respect to any sale of all or any part of the Pledged
Collateral, to limit purchasers to those who will agree, among other things, to
acquire such securities for their own account, for investment, and not with a
view to the distribution or resale thereof. Each Pledgor acknowledges and agrees
that any such sale may result in prices and other terms less favorable to the
seller than if such sale were a public sale without such restrictions and,
notwithstanding such circumstances, agrees that any such sale shall be deemed to
have been made in a commercially reasonable manner. Foothill shall be under no
obligation to delay the sale of any of the Pledged Collateral for the period of
time necessary to permit any Pledgor to register such securities for public sale
under the Securities Act, or under applicable state securities laws, even if
such Pledgor would agree to do so.
(c) If Foothill determines to exercise its right to sell any
or all of the Pledged Collateral, upon written request, each Pledgor shall, from
time to time, furnish to Foothill all such information as Foothill may request
in order to determine the number of shares and other instruments included in the
Pledged Collateral which may be sold by Foothill as exempt transactions under
the Securities Act and rules of the Securities and Exchange Commission
thereunder, as the same are from time to time in effect.
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SECTION 12. Expenses. Each Pledgor will, jointly and
severally, upon demand pay to Foothill the amount of any and all reasonable
expenses, including, without limitation, the reasonable fees and expenses of
Foothill's counsel and of any experts and agents, which Foothill may incur in
connection with (i) the administration of this Agreement, (ii) the custody or
preservation of, sale of, collection from, or other realization upon, any of the
Pledged Collateral, (iii) the exercise or enforcement of any of the rights and
remedies hereunder of Foothill, or (iv) the failure by any Pledgor to perform or
observe any of the provisions hereof.
SECTION 13. Security Interest Absolute. All rights of Foothill
and obligations of the Pledgors hereunder, and all security interests created or
granted hereby, shall be absolute and unconditional irrespective of:
(i) any lack of validity or enforceability of any
provision of the Loan Agreement or any other Loan Document or
any other agreement or instrument relating thereto;
(ii) any change in the time, manner or place of
payment of, or in any other term of, or any increase in the
amount of, all or any of the Secured Obligations, or any other
amendment or waiver of any term of, or any consent to any
departure from any requirement of, the Loan Agreement or any
other Loan Document;
(iii) any exchange, release or non-perfection of any
Lien on any other collateral, or any release or amendment or
waiver of any term of any guaranty of, or consent to departure
from any requirement of any guaranty of, all or any of the
Secured Obligations; or
(iv) any other circumstance which might otherwise
constitute a defense available to, or a discharge of,
Borrowers or any Pledgor.
SECTION 14. Amendments, Etc. No amendment or waiver of any
provision of this Agreement nor consent to any departure by any Pledgor herefrom
shall in any event be effective unless the same shall be in writing and signed
by Foothill and each Pledgor affected thereby, and then such waiver or consent
shall be effective only in the specific instance and for the specific purpose
for which given.
SECTION 15. Addresses for Notices. All notices and other
communications provided for hereunder shall be in writing (including, without
limitation, by
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telecopy) and mailed, sent or delivered in accordance with the provisions set
forth in Section 12 of the Loan Agreement.
SECTION 16. Continuing Security Interest; Transfer of
Obligations. This Pledge Agreement shall create a continuing security interest
in the Pledged Collateral and shall (i) remain in full force and effect until
the termination of this Agreement pursuant to Section 17, (ii) be binding upon
each Pledgor, its successors and assigns, and (iii) inure, together with the
rights and remedies of Foothill hereunder, to the benefit of and be enforceable
by Foothill and its successors, transferees and assigns.
SECTION 17. Termination of Security Interest. This Agreement,
and the security interests created or granted hereby, shall automatically
terminate and be released on the date at which (i) the commitments of Foothill
to extend credit to Borrowers under the Loan Agreement have been irrevocably
terminated, and (ii) all Secured Obligations have been fully and finally paid in
cash. Upon any release of the security interest created by this Agreement in any
of the Pledged Collateral pursuant to this Section 17, Foothill (without
recourse upon, or any representation or warranty whatsoever by, Foothill) shall
promptly (i) return, transfer and deliver to the applicable Pledgor all
certificates, instruments and other property held by Foothill pursuant to this
Agreement representing or evidencing such Pledged Collateral as shall not have
been sold or otherwise applied pursuant to the terms hereof, as the case may be,
all without recourse upon, or representation or warranty whatsoever by,
Foothill, except that the same shall be free and clear of any claims, liens or
encumbrances created by or in respect of Foothill, and at the cost and expense
of such Pledgor, and (ii) execute and deliver to each Pledgor (at the cost and
expense of such Pledgor) such instruments as may be reasonably requested by such
Pledgor acknowledging the release of such security interest with respect to such
Pledged Collateral.
SECTION 19. Governing Law; Severability. This Agreement shall
be governed by, and be construed and interpreted in accordance with, the law of
the State of California. Wherever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective only to the
extent of such prohibition or invalidity and without invalidating the remaining
provisions of this Agreement.
SECTION 20. Waiver of Jury Trial. Each Pledgor waives any
right it may have to a trial by jury in respect of any litigation based on, or
arising out of, under or in connection with, this Agreement or any other Loan
Document, or any course of conduct, course of dealing, verbal or written
statement or other action of any loan party or any secured party.
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SECTION 21. Section Titles. The Section titles contained in
this Agreement are and shall be without substantive meaning or content of any
kind whatsoever and are not part of this Agreement.
SECTION 22. Counterparts. This Agreement may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute but one and the same agreement.
IN WITNESS WHEREOF, each Pledgor has caused this Agreement to
be duly executed and delivered by its duly authorized officer on the date first
above written.
MIDCOM COMMUNICATIONS INC.,
a Washington corporation
By /s/ ▇▇▇▇ ▇. ▇▇▇▇▇
------------------------
Title: Secretary
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ADVAL, INC.,
an Oregon corporation
By /s/ ▇▇▇▇ ▇. ▇▇▇▇▇
------------------------
Title: Secretary
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ADVAL DATA CORPORATION,
an Oregon corporation
By /s/ ▇▇▇▇ ▇. ▇▇▇▇▇
------------------------
Title: Secretary
--------------------
ADVANCED NETWORK DESIGN,
a California corporation
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By /s/ ▇▇▇▇ ▇. ▇▇▇▇▇
------------------------
Title: Secretary
--------------------
CEL-TECH INTERNATIONAL CORP.,
a Washington corporation
By /s/ ▇▇▇▇ ▇. ▇▇▇▇▇
------------------------
Title: Secretary
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PACNET INC.,
a Washington corporation
By /s/ ▇▇▇▇ ▇. ▇▇▇▇▇
------------------------
Title: Secretary
--------------------
Accepted and Acknowledged:
FOOTHILL CAPITAL CORPORATION,
a California corporation
By___________________________
Title:_______________________
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EXHIBIT A
PLEDGE AMENDMENT
This Pledge Amendment, dated ____________, 19___, is delivered
pursuant to Section 7 of the Pledge Agreement referred to below. [IF THIS PLEDGE
AMENDMENT IS BEING EXECUTED AND DELIVERED BY A NEW PLEDGOR: THE UNDERSIGNED
HEREBY ACKNOWLEDGES EACH AND ALL OF THE PROVISIONS OF THE PLEDGE AGREEMENT AND
JOINS IN AND AGREES TO BE BOUND THEREBY AS A PLEDGOR, MUTATIS MUTANDIS.] The
undersigned hereby agrees that: (a) this Pledge Amendment may be attached to the
Pledge Agreement, dated as of February 27, 1997, between the Pledgors referred
to therein and Foothill Capital Corporation; and (b) that the capital stock and
other equity securities listed on this Pledge Amendment shall be and become part
of the Pledged Collateral referred to in the Pledge Agreement and Schedule I
thereto and shall secure all Secured Obligations. The terms defined in the
Pledge Agreement or Loan Agreement are used herein as therein defined.
[NAME OF PLEDGOR]
By:_______________________________
Name:
Title:
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Pledgor Issuer Number Class Certificate Former Name, if Pledgor's Jurisdiction of
of Shares Number(s) any, in which Percentage Organization
Certificate Issued Ownership
of Total
Issued and
Outstanding
Capital
Stock
represented
by Pledged
Shares
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SCHEDULE I
Pledged Shares
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Pledgor Issuer Number Class Certificate Former Name, if Pledgor's Jurisdiction of
of Shares Number(s) any, in which Percentage Organization
Certificate Issued Ownership
of Total
Issued and
Outstanding
Capital
Stock
represented
by Pledged
Shares
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