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MASTER FORBEARANCE AGREEMENT
ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT OR TO
FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON
LAW.
This Master Forbearance Agreement (the "Agreement") is made as of this
_____ day of March, 1997 between KEYBANK NATIONAL ASSOCIATION, f/k/a KEY BANK OF
WASHINGTON INC. ("Lessor") and MIDCOM COMMUNICATIONS, INC. ("Lessee"), a
Washington corporation and PACNET INC. ("Guarantor"), a Washington corporation.
I.
RECITALS
A. On or about September 12, 1995, Lessor and Lessee entered into a
Master Equipment Lease Agreement ("Master Lease") for the lease of certain
equipment. The Master Lease provides for the execution and delivery of Equipment
Schedules that more particularly describes the leased equipment. The Master
Lease and Equipment Schedules are hereafter collectively described as "Lease
Documents".
B. On or about September 12, 1995, four (4) Equipment Schedules
("leases") were executed as follows:
Equipment Schedule No. 1, Lease No. 9212, for equipment with a total
cost of $908,649.97. Lease payments for the first fifty-nine (59)
months equal $17,047.61 per month. The final payment equals $17,047.61
plus a balloon payment of $136,297.50.
Equipment Schedule No. 2, Lease No. 9369, for equipment with a total
cost of $840,708.71. Lease payments for the first fifty-nine (59)
months equal $15,714.25 per month. The final payment equals $15,714.25
plus a balloon payment of $126,106.31.
Equipment Schedule No. 3, Lease No. 9515, for equipment with a total
cost of $706,453.33. Lease payments for the first fifty-nine (59)
months equal $13,147.96 per month. The final payment equals $13,147.96
plus a balloon payment of $105,967.99.
Equipment Schedule No. 4, Lease No. 9762, for equipment with a total
cost of $277,012.32. Lease payments for the sixty (60) month term equal
$4,832.54 per month.
C. Lessee's performance of the terms and conditions contained in the
Lease Documents is guaranteed by Guarantor in a corporate guaranty
("Guaranties").
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D. On or about September 26, 1996, Lessor advised Lessee of certain
existing defaults under the Lease Documents. Specifically, Lessor informed
Lessee it was in default with respect to Lessee's financial performance
covenants and with respect to the inadequate value of the leased equipment
securing the outstanding lease balances.
E. Over the next four months, Lessor and Lessee negotiated to resolve
the existing defaults under the Lease Documents.
F. Lessee has requested of Lessor certain forbearances and extensions
under the Lease Documents. To the extent set forth in this Agreement, Lessor has
agreed to indulge Lessee in its request.
G. At the present time, the payoffs for the leases are as follows:
Lease No. 9212 $812,643.26 through January 29, 1997;
Lease No. 9369 $791,861.97 through January 26, 1997;
Lease No. 9515 $658,297.81 through January 31, 1997;
Lease No. 9762 $275,097.41 through February 7, 1997.
Therefore, in consideration of the mutual promises and covenants
contained herein, the sufficiency of which is acknowledged, Lessor, Guarantor
and Lessee hereby agree to the terms and conditions of this Agreement as
follows:
II.
AGREEMENT
A. Conditions to Effectiveness.
This Agreement is conditioned upon the fulfillment of the following
conditions precedent to be performed to the Lessor's satisfaction:
1. Subject to paragraph II.A.2.(i) below, lessee shall place Lessor in
a senior lien position as to all of Lessee's equipment, replacement equipment
and proceeds ("personal property"), excepting personal property in which
existing lien holders have properly perfected purchase money security interests
pursuant to RCW 62A.9-107 and RCW 62A.9-312.
2. Subject to paragraph II.A.2.(i) below, the total value of Lessee's
personal property subject to purchase money security interests shall not exceed
$2,000,000.00, based on the Lessee's book value of such personal property, on
the earlier of the date Lessor is place in a senior lien position as to Lessee's
personal property, or April 30, 1997.
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i. The assets leased by MidCom Communications, Inc. ("MidCom")
pursuant to that certain Master Lease Agreement between MidCom
and Comdisco, Inc. dated January 15, 1997, are specifically
excluded from the pledge of collateral under this Agreement.
3. In order to place Lessor in such senior lien position, the following
steps shall be taken:
a. Lessee shall provide Lessor with written documentation
identifying the states where Lessee has personal property
located by no later than February 14, 1997. Lessee shall fully
and continuously cooperate with Lessor in ensuring that the
list of states is complete, including providing Lessor with
reasonable access to its employees who are familiar with the
location of Lessee's personal property.
b. Lessee shall execute and deliver a Key Bank Security Agreement
to Lessor granting Lessor a security interest in all of
Lessee's personal property, as defined in paragraph II.A.1
herein, by no later than April 7, 1997.
C. Lessee shall execute UCC-1 Financing Statements in favor of
Lessor for each state in which Lessee has personal property
located, including but not limited to Arizona, California,
Connecticut, Florida, Georgia, Illinois, Indiana,
Massachusetts, Michigan, Nevada, New York, North Carolina,
Ohio, Oregon, Pennsylvania, Tennessee, Texas, Utah,
Washington, Washington, D.C., and Wisconsin by no later than
April 7, 1997.
▇. ▇▇▇▇▇▇ may conduct UCC searches in each state in which Lessee
has identified it has personal property located so that Lessor
may obtain the names and addresses of each party holding a
lien against Lessee's personal property. Subject to any
unforeseen search delays, this shall be completed by February
7, 1997.
▇. ▇▇▇▇▇▇ shall provide Lessee with copies of the UCC results and
a list of the secured parties in each state searched by no
later than February 14, 1997 (subject to such searches being
completed).
f. Lessee shall contact each secured party in each state in which
Lessee has personal property located and request and obtain
from such secured party an executed Key Bank subordination
agreement and UCC-3 change statement. The subordination
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agreement will provide, in part, that each such secured party
agrees to subordinate its security interest to the security
interest granted to Lessor. Each subordination agreement and
accompanying UCC-3 change statement will be delivered to
Lessor for recording purposes.
g. Lessee shall have until April 30, 1997 in which to obtain all
of the executed subordination agreements and UCC-3 changes
statements, and complete the process of placing Lessor in a
senior lien position as to all of Lessee's personal property.
h. After all subordination agreements and UCC-3 change statement
are executed and the UCC-1 financing statements and UCC-3
changes statements are filed, Lessor shall perform a secondary
UCC-1 in each state in which Lessee has identified it has
personal property located in order to ensure that there have
been no interim grants of security interest or other
intervening liens. In the event one or more interim security
interests or intervening liens is discovered, Lessee shall
have fifteen (15) days from notification by Lessor to obtain a
subordination agreement from such party or parties.
i. In the event Lessee requests the deletion or exclusion of any
personal property from the security interest granted to Lessor
under this Agreement, Lessee shall submit such a written
request to Lessor for evaluation. Lessor shall evaluate such
request on a case-by-case basis and shall provide Lessee with
a response to such request within ten (10) calendar days of
receiving such a request. In the event Lessor consents to
Lessee's request, in Lessor's sole discretion, Lessor agrees
to execute such documentation as may be necessary and
appropriate for accommodating such request of Lessee.
4. The entire process of placing Lessor in a senior lien position for
Lessee's personal property must in all material respects be completed by April
30, 1997.
B. Forbearance.
So long as Lessee performs the conditions precedent described in
section II.A herein, and Lessee otherwise fully and completely complies with the
terms of this Agreement and the Lease Documents, Lessor shall:
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1. Forbear from asserting all of the existing defaults under the
Lease Documents, including but not limited to:
a. defaults with respect to the lessee's financial
performance;
b. defaults with respect to the inadequate value of the
leased equipment securing the outstanding lease
balances.
2. Forbear from asserting its rights and remedies for the
existing defaults under the Lease Documents, including but not
limited to the rights and remedies described in section 22 of
the Master Lease.
3. Waive all existing defaults under the Lease Documents on the
later of the 91st day following the date when Lessor is placed
in first lien position on all of the Lessee's personal
property and such first lien position is property perfected,
or on August 1, 1997.
C. Additional Actions to be Taken by Lessee.
Lessee shall take the following additional actions:
1. Execute this Agreement by February 6, 1997.
2. Execute any and all additional documentation as may be
required from time to time by Lessor, in order to fulfill the
purposes and intents of this Agreement.
3. Timely pay Lessor the monthly lease payments pursuant to the
terms of the Lease Documents.
4. Reimburse Lessor for all of its attorneys' fees and costs
associated with the execution of this Agreement pursuant to
section III.1 herein.
D. Events of Default.
Lessee shall be in default of this Agreement if any of the following
shall occur:
1. Lessee fails in any way to fully and completely perform its
obligations under the terms of this Agreement, including but
not limited to the provisions in II.A, to fully and completely
perform its obligations under the terms of the Lease
Documents, or to fully and completely perform its obligations
under the terms of the Security Agreement to be executed in
conjunction with this Agreement.
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2. Lessee fails in any respect to place Lessor in a senior lien
position as to all of Lessee's personal property by April 30,
1997.
3. There is a failure of any warranty or representation made by
the Lessee herein.
4. Lessee fails to make the monthly lease payments to Lessor when
due pursuant to the terms of the Lease Documents.
5. Lessee fails to reimburse Lessor for all of Lessor's attorneys
fees and costs associated with the execution of this Agreement
pursuant to section III.1 herein.
6. Lessee files a petition in bankruptcy, is subject to an
involuntary bankruptcy petition, is the subject of a state
receivership or is involved in any other form of insolvency
proceeding.
E. Remedies.
If Lessee fails in any way to fully and completely perform all its
obligations under the terms of this Agreement and the Lease Documents, and an
event of default arises, Lessor shall be entitled to:
1. Rescind this Agreement.
2. Assert all of the existing defaults under the Lease Documents,
including but not limited to:
a. defaults with respect to the lessee's financial
performance;
b. defaults with respect to the inadequate value of the
leased equipment securing the outstanding lease
balances.
3. Pursue all rights and remedies for the existing defaults under
the Lease Documents pursuant to section 22 of the Master
Lease.
4. Pursue any and all other rights and remedies Lessor may have
under this Agreement, the Lease Documents, applicable law, or
otherwise.
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III
GENERAL PROVISIONS.
A. Attorneys' Fees and Costs.
1. Lessee has paid Lessor $10,000.00 towards Lessor's reasonable costs,
fees, and expenses to be incurred in connection with this Agreement, including
but not limited to Lessor's attorneys' fees, UCC search fees, recording fees and
out-of-pocket costs. If or when this sum of $10,000.00 is fully expended, Lessor
shall invoice Lessee for all of Lessor's additional reasonable costs, fees, and
expenses incurred in connection with this Agreement, including but not limited
to Lessor's attorneys' fees, UCC search fees, recording fees and out-of-pocket
costs. Lessee shall pay Lessor the total amount of the invoice within ten (10)
days of the invoice date. Failure to pay such invoice within ten (10) days shall
constitute an event of default under section II.D. herein.
2. In the event Lessor is required to enforce any preserved default or
default under this Agreement, Lessee agrees to pay to Lessor all of Lessor's
attorney fees, expenses and costs incurred to enforce any and all rights of
Lessor in any forum, including without limitation those fees and costs incurred
with or without suit; in any appeal, bankruptcy, insolvency or receivership
proceeding, including Lessor's participation in any bankruptcy proceeding,
whether such bankruptcy participation is for protection of Lessor, monitoring
such proceedings, or for such other purposes as Lessor deems appropriate; any
recording fees and title insurance; and in any post-judgment collection
proceedings.
B. Acknowledgement and Preservation of Defaults.
1. Lessee acknowledges, admits and agrees that defaults exist under the
terms of the Lease Documents as follows:
a. defaults with respect to the lessee's financial performance;
b. defaults with respect to the inadequate value of the leased
equipment securing the outstanding lease balances.
2. Lessee acknowledges and agrees that all existing defaults are
preserved, and that nothing in this Agreement or the Lease Documents shall be
construed as a waiver by Lessor of its right to assert such defaults until the
later of the 91st day following the date when Lessor is placed in first lien
position on all of the Lessee's personal property and such first lien position
is property perfected, or on August 1, 1997.
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C. Confirmation of Debt/Ratification of Lease Documents.
All Lease Documents are hereby confirmed and ratified by Lessee and
Lessor as being in full force and effect on this date, except as modified or
superseded pursuant to this Agreement. Lessee acknowledges it is liable under
the Lease Documents in accordance with their terms.
D. Ratification and Revival of Guaranties.
All prior Guaranties executed by Guarantor, including but not limited
to the Corporate Guaranty contained in the Master Lease, are hereby ratified and
revived as if fully set forth herein. Guarantor consents to the execution of
this Agreement and agrees that this Agreement does not modify its respective
responsibilities under the Guaranties, other than entitling the Lessee to the
benefit of the forbearance period.
Upon Lessor's being paid in full pursuant to the terms of the Lease
Documents, this Agreement shall be deemed satisfied and Lessor shall release all
UCC financing statements; except, however, all of Lessor's rights under the
Guaranties, under the Lease Documents and under this Agreement shall be
automatically reinstated if any payment is reclaimed in a bankruptcy or
receivership proceeding, until Guarantors pay Lessor the amount reclaimed or the
amount is otherwise paid to Lessor and is not subject to further reclamation.
E. No Modification.
This Agreement is intended merely as an indulgence by Lessor to allow
Lessee a period of time in which to pay Lessor the full amount due and owing
under the terms of the Lease Documents. This Agreement does not constitute a
novation as to any of the Lease Documents or Guaranty and does not modify,
alter, amend or in any way affect the terms and conditions of the Lease
Documents or Guaranty, except as expressly and specifically stated herein.
F. Controlling Terms.
In the event of a conflict between the terms of this Agreement and the
terms of the existing Lease Documents or Guaranty, the terms of this Agreement
control, subject to all applicable laws.
G. Severability.
The invalidity of all or any part of any section of this Agreement, the
Loan Documents or the Guaranties shall not render invalid the remainder of this
Agreement, or the Lease Documents to the extent it represents the intent of the
parties in all material respects if interpreted without the invalid provision.
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H. No Defenses/Release.
Lessee and Guarantor hereby acknowledge and agree that they have no
defenses, setoffs or counterclaims against Lessor based upon any events or
transactions occurring, or failing to occur, prior to the date of this
Agreement. To the extent Lessee or Guarantor may have any such defenses, setoffs
or counterclaims against Lessor, they hereby forever waive, release and
relinquish the same.
1. Further Description of Claims. The release is intended to be, and
is, a full, complete and general release in favor of Lessor, with respect to all
claims, demands, actions, causes of action and other matters described above,
including, without limitation, any claims, demands or causes of actions based
upon allegations of, for, or in connection with, but not limited to, breach of
fiduciary duty, breach of any alleged duty of fair dealing or good faith, breach
of confidence, undue influence, duress, economic coercion, usury, conflict of
interest, intentional tort, negligence, gross negligence, bad faith,
malpractice, violations of the Racketeer Influenced and Corrupt Organizations
Act, intentional or negligent infliction of mental distress, tortuous
interference with contractual relations or prospective business advantage,
breach of contract, deceptive trade practices, libel, slander, fraud,
misrepresentation, conspiracy or any other theory, cause of action, occurrence,
matter or thing which might give rise to liability upon Lessor.
2. No Other Consideration. The foregoing release is in full
satisfaction for the agreements of the Lessor, Lessee, and Guarantor contained
herein, and Lessor will not receive any further consideration for the release.
I. Entire Agreement.
This Agreement sets forth the full and complete agreement of Lessor,
Lessee and Guarantor with respect to its subject matter. This Agreement
supersedes and replaces any earlier representations, inducements, promises,
settlements, compromises, agreements, or understandings, written or oral,
between the parties hereto. Any such earlier undertakings shall have no force or
effect after the execution of this Agreement. This Agreement may not be amended,
modified or revoked except by means of a supplemental writing that is signed by
the party against whom the amendment, modification or revocation is to be
enforced.
J. Time.
Time is of the essence for this Agreement. Any failure by any party to
fully perform that party's obligations at or prior to the time required by this
Agreement shall be conclusively deemed a material breach of this Agreement.
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K. Governing Law and Venue.
This Agreement has been executed under and shall be construed and
enforced in accordance with the laws of the State of Washington. If there is any
litigation or other proceeding to enforce or interpret any provision of this
Agreement, jurisdiction shall be in a court in King County, State of Washington.
L. Binding Effect.
This Agreement shall be binding upon the parties hereto and each
party's, successors and assigns.
M. Execution in Counterparts.
This Agreement may be executed in any number of counterparts and by
each party on separate counterparts, each of which when so executed and
delivered shall be deemed an original and all of which when taken together shall
constitute but one and the same instrument.
N. Captions.
The paragraph headings used in this Agreement are for convenience of
reference only and shall not affect the construction of any provision of this
Agreement.
O. Independent Legal Counsel.
The undersigned parties acknowledge, represent and agree that they have
read this Agreement and fully understand the terms hereof, that they have been
fully advised by their legal counsel with respect hereto, and that the same is
executed by them upon the advice and recommendation and with the approval of
their independent legal counsel.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed the day and year first above written.
LENDER:
KEYBANK NATIONAL ASSOCIATION
By
-----------------------------
Its
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BORROWER:
MIDCOM COMMUNICATIONS INC., a
Washington corporation
By
-----------------------------
Its
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GUARANTOR:
PACNET INC.
By
-----------------------------
Its
---------------------------
STATE OF WASHINGTON)
) ss.
COUNTY OF KING )
I certify that I know or have satisfactory evidence that
____________________ is the person who appeared before me, and said person
acknowledged that he signed this instrument, on oath stated that he was
authorized to execute the instrument and acknowledged it as the ________________
of KEYBANK NATIONAL ASSOCIATION to be the free and voluntary act of such parties
for the uses and purposes mentioned in this instrument.
DATED:
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[Notary Signature]
-------------------------------------
[Type or Print Name of Notary]
NOTARY PUBLIC for the State of
Washington, residing
at
----------------------------------
My appointment expires:
------------------------------------
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STATE OF WASHINGTON)
) ss.
COUNTY OF KING )
I certify that I know or have satisfactory evidence that
____________________ is the person who appeared before me, and said person
acknowledged that he signed this instrument, on oath stated that he was
authorized to execute the instrument and acknowledged it as the ________________
of MIDCOM COMMUNICATIONS INC. to be the free and voluntary act of such parties
for the uses and purposes mentioned in this instrument.
DATED:
------------------------------------ -------------------------------------
[Notary Signature]
-------------------------------------
[Type or Print Name of Notary]
NOTARY PUBLIC for the State of
Washington, residing
at
----------------------------------
My appointment expires:
------------------------------------
STATE OF WASHINGTON)
) ss.
COUNTY OF KING )
I certify that I know or have satisfactory evidence that
____________________ is the person who appeared before me, and said person
acknowledged that he signed this instrument, on oath stated that he was
authorized to execute the instrument and acknowledged it as the ________________
of PACNET INC. to be the free and voluntary act of such parties for the uses and
purposes mentioned in this instrument.
DATED:
------------------------------------ -------------------------------------
[Notary Signature]
-------------------------------------
[Type or Print Name of Notary]
NOTARY PUBLIC for the State of
Washington, residing
at
----------------------------------
My appointment expires:
------------------------------------
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