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LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT (THIS "AGREEMENT"), is entered into as
of February 27, 1997, by and among FOOTHILL CAPITAL CORPORATION, a California
corporation ("Foothill"), with a place of business located at ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇, MIDCOM COMMUNICATIONS
INC., a Washington corporation ("Midcom"), with its chief executive office
located at ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ADVAL,
INC., an Oregon corporation ("AdVal"), with its chief executive office located
at ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ADVAL DATA CORPORATION,
an Oregon corporation ("AdVal Data"), with its chief executive office located at
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ADVANCED NETWORK DESIGN, a
California corporation ("A.N.D."), with its chief executive office located at
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, CEL-TECH INTERNATIONAL
CORP., a Washington corporation ("Cel-Tech"), with its chief executive office
located at ▇▇▇▇▇ ▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, and PACNET INC., a
Washington corporation ("PacNet"), with its chief executive office located at
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇.
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION.
1.1 DEFINITIONS. As used in this Agreement, the following
terms shall have the following definitions:
"Acceptable Clearinghouses" means (a) Zero Plus Dialing, Inc.
d/b/a U.S. Billing, and (b) such other Clearinghouses as Foothill, in its
reasonable discretion, may approve in writing as such.
"Account Debtor" means any Person who is or who may become
obligated under, with respect to, or on account of, an Account.
"Accounts" means all currently existing and hereafter arising
accounts, contract rights, and all other forms of obligations owing to Midcom or
any other Borrower arising out of the sale or lease of goods, the sale or lease
of General Intangibles, or the rendition of services by any Borrower,
irrespective of whether earned by performance, and any and all credit insurance,
guaranties, or security therefor.
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"Adjusted Net Worth", with respect to Midcom, means the sum of
(a) Midcom's net worth, plus (b) the aggregate principal amount of Midcom's
Indebtedness in respect of the Subordinated Notes.
"AdVal" has the meaning ascribed to such term in the
introductory paragraph of this Agreement.
"AdVal Data" has the meaning ascribed to such term in the
introductory paragraph of this Agreement.
"Advances" has the meaning ascribed thereto in Section 2.1(a)
hereof.
"Affiliate" means, as applied to any Person, any other Person
who directly or indirectly controls, is controlled by, is under common control
with or is a director or executive officer of such Person.
"Agreement" has the meaning set forth in the introductory
paragraph of this Agreement.
"A.N.D." has the meaning ascribed to such term in the
introductory paragraph of this Agreement.
"Approved Billing Services Agreement" means a Billing Services
Agreement a true and complete copy of which previously has been provided to
Foothill and Foothill's counsel for review, that is in form and substance
satisfactory to Foothill, with respect to which the LEC party thereto has
delivered a LEC Non-Offset and Consent to Assignment Agreement, and with respect
to which the rights of the Borrower party thereto may be the subject of an
attached, enforceable, and perfected Lien in favor of Foothill.
"Authorized Officer" means any officer or other employee of
any Borrower.
"Average Unused Portion of Facility" means, as of the first
day of any month, the non-negative amount equal to (a) the then Maximum Amount
(giving effect to any increases thereof, if any, that have become effective
before, or that become effective on, such day), minus (b) the average Daily
Balance of Advances that were outstanding during the immediately preceding
month.
"Bankruptcy Code" means the United States Bankruptcy Code (11
U.S.C. Section 101 et seq.), as amended, and any successor statute.
"Benefit Plan" means (a) a "defined benefit plan" (as defined
in Section 3(35) of ERISA) for which any Borrower or any ERISA Affiliate thereof
has been an "employer"
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(as defined in Section 3(5) of ERISA) within the past six years, and (b) any
pension plan subject to Section 412 of the IRC.
"Billing Services Agreement" means a billing services
agreement or similar agreement that has been entered into and is in full force
and effect between any Borrower and a LEC.
"Books and Records" means all of the books and records of each
Borrower, including: ledgers; records indicating, summarizing, or evidencing the
properties or assets of Midcom or any other Borrower (including the Collateral)
or liabilities; all information relating to any Borrower's business operations
or financial condition; and all computer programs, disk or tape files,
printouts, runs, or other computer prepared information.
"Borrowers" means Midcom, AdVal, AdVal Data, A.N.D., Cel-Tech,
and PacNet, collectively, and jointly and severally, and "Borrower" means any
one of them.
"Borrowers' Designated Account" means account number
470581002735 of the Borrowers maintained with Borrowers' Designated Account
Bank, or such other deposit account (located within the United States) of the
Borrowers designated, in writing and from time to time, by all of the Borrowers
to Foothill prior to the date of the establishment of such other deposit
account.
"Borrowers' Designated Account Bank" means Key Bank of Alaska,
whose office is located at ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇-▇▇▇▇, and whose ABA number is ▇▇▇-▇▇▇-▇▇▇.
"Borrowing Base" has the meaning set forth in Section 2.1(a)
hereof.
"Borrowing Base Certificate" means a borrowing base
certificate in form and substance satisfactory to Foothill.
"Business Day" means any day that is not a Saturday, Sunday,
or other day on which national banks are authorized or required to close.
"Carrier" means any provider of long distance
telecommunications access with whom any Borrower from time to time does
business, such as (without limitation) Sprint Communications Company L.P.,
Worldcom Network Services, Inc. d/b/a WilTel, and AT&T Corp.
"Carrier Agreement" means each contract or agreement in effect
between a Borrower and any Carrier.
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"Carrier Non-Offset and Consent to Assignment Agreement"
means, with respect to any Carrier Agreement, an agreement, in form and
substance satisfactory to Foothill, among the Borrower party to such Carrier
Agreement, the Carrier party to such Carrier Agreement, and Foothill.
"Cel-Tech" has the meaning ascribed to such term in the
introductory paragraph of this Agreement.
"Change of Control" shall be deemed to have occurred at such
time as (a) with respect to Midcom, a "person" or "group" (within the meaning of
Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, but not
including a ▇▇▇▇▇▇▇ Related Person) becomes the "beneficial owner" (as defined
in Rule 13d-3 under the Securities Exchange Act of 1934), directly or
indirectly, of more than 20% of the total voting power of all classes of stock
then outstanding of Midcom normally entitled to vote in the election of
directors, or (b) with respect to any Borrower other than Midcom, less than one
hundred percent (100.0%) of the outstanding voting stock of such Borrower by
vote (assuming that all convertible instruments, warrants, bonds, debentures, or
options then outstanding held by Persons other than Midcom or any other Borrower
have been exercised) shall be owned, free and clear of any Liens of any Person
(other than Foothill) and control (without being subject to any voting trust,
voting agreement, shareholders agreement, or any other agreement or arrangement
limiting or affecting the voting of such stock) by Midcom or any other Borrower,
as the case may be.
"Cherry Accounts" means Accounts in respect of customer bases
acquired by Midcom from Cherry Communications Incorporated.
"Clearinghouse" means a LEC call transaction
billing-and-collection clearinghouse, such as (without limitation) Zero Plus
Dialing, Inc. d/b/a U.S. Billing.
"Clearinghouse Account" means, as of any date of
determination, any Account of Midcom or any other Borrower submitted for billing
and collection to or through a Clearinghouse.
"Clearinghouse Notification" means a notice, in form and
substance satisfactory to Foothill, to each Clearinghouse used by any Borrower
from Foothill and such Borrower.
"Closing Date" means the earlier to occur of the date of the
making of the initial Advance hereunder or the first date when each of the
conditions set forth in Section 3.1 shall have been fulfilled or waived.
"Code" means the California Uniform Commercial Code.
"Collateral" means each of the following:
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(a) the Accounts,
(b) the Books and Records,
(c) the Equipment,
(d) the General Intangibles,
(e) the Inventory,
(f) the Negotiable Collateral,
(g) the Real Property, if any,
(h) any money, or other assets of any Borrower that now
or hereafter come into the possession, custody, or
control of Foothill, and
(i) the proceeds and products, whether tangible or
intangible, of any of the foregoing, including
proceeds of insurance covering any or all of the
Collateral, and any and all Accounts, Books and
Records, Equipment, General Intangibles, Inventory,
Negotiable Collateral, Real Property, money, deposit
accounts, or other tangible or intangible property
resulting from the sale, exchange, collection, or
other disposition of any of the foregoing, or any
portion thereof or interest therein, and the proceeds
thereof.
"Collateral Access Agreement" means a landlord waiver or
consent, mortgagee waiver or consent, Equipment lessor or Equipment secured
financer waiver or consent, bailee letter, or a similar acknowledgement
agreement of any warehouseman, processor, or other Person in possession of,
having a Lien upon, or having rights or interests in Collateral consisting of
goods, or of lessors or secured financers of Equipment, in each case, if and as
requested by Foothill, in form and substance satisfactory to Foothill.
"Collections" means all cash, checks, notes, instruments, and
other items of payment (including, insurance proceeds, proceeds of cash sales,
rental proceeds, and tax refunds).
"Comdisco" means Comdisco, Inc.
"Compliance Certificate" means a certificate, in form and
substance satisfactory to Foothill, and delivered by the Chief Financial Officer
of Midcom to Foothill.
"Control Agreement" means a control agreement, in form and
substance satisfactory to Foothill, among one or more Borrowers, Foothill, and
the applicable securities intermediary, that provides (among other things) that,
from and after the giving of notice by Foothill to such securities intermediary
(a "Notice of Exclusive Control"), such securities intermediary shall take
instructions solely from Foothill with respect to the applicable Securities
Account and related Investment Property.
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"Daily Balance" means the amount of the outstanding Advances
owed at the end of a given day.
"deems itself insecure" means, with respect to a particular
circumstance, that the Person in good faith believes that the prospect of
payment or performance with respect to any Obligation is materially impaired.
For purposes of this definition, the burden of proof of establishing lack of
good faith shall be on the party against whom a right, power, or remedy has been
exercised as a result of the Person's deeming itself insecure.
"Default" means an event, condition, or default that, with the
giving of notice, the passage of time, or both, would be an Event of Default.
"Dilution Reserve" means, as of the date of any determination,
an amount sufficient to reduce Foothill's advance rate against Eligible Accounts
by one (1) percentage point for each percentage point by which the amount
(expressed as a percentage and based upon the experience of the immediately
prior six (6) months) of billed Accounts that are subject to bad debt
write-downs, discounts, contras, credits, or other dilutive items is in excess
of: (a) prior to January 1, 1998, seven and one-half percent (7.50%) of all
Eligible Accounts; and (b) from and after January 1, 1998, six percent (6.00%)
of all Eligible Accounts.
"Disbursement Letter" means an instructional letter executed
and delivered by an Authorized Officer to Foothill authorizing the extension of
credit to be made on the Closing Date, in form and substance satisfactory to
Foothill.
"Direct Account" means, as of any date of determination, any
Account that is not a LEC Account or a Clearinghouse Account.
"Dollars or $" means United States dollars.
"DTI" means Dal Telecom International, an entity organized
under the laws of Russia.
"Early Termination Premium" has the meaning set forth in
Section 3.6.
"Effective Date" means the date on which this Agreement is
executed and delivered by each of the Borrowers and Foothill.
"Eligible Accounts" means those Accounts (net of reserves for
accounts receivable variance against the applicable Borrower's general ledger)
created by any Borrower in the ordinary course of business, that arise out of
such Borrower's sale of goods, sale of General Intangibles relating to the
provision of telecommunication services, or rendition of services, and that
strictly comply with each and all of the representations and warranties
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respecting Accounts made by such Borrower to Foothill in the Loan Documents;
provided, however, that standards of eligibility may be fixed and revised from
time to time by Foothill in Foothill's reasonable credit judgment; provided
further that to the extent Foothill revises such standards of eligibility,
Foothill will endeavour in good faith to provide notice to the Borrowers of such
revision, but any failure of Foothill to do so shall not result in any liability
to Foothill whatsoever unless and to the extent such failure arose from the
gross negligence or willful misconduct of Foothill. Eligible Accounts shall not
include the following:
(a) Accounts with selling terms of more than 30 days
or Accounts that the Account Debtor has failed to pay (i) in the case of LEC
Accounts, within 90 days of invoice date (which, for purposes of this Agreement,
with respect to any LEC Account, means the date of receipt by the applicable
Borrower from the applicable LEC of a LEC Confirmation Statement with respect to
such LEC Account), or (ii) in the case of Direct Accounts, within 90 days of
invoice date;
(b) Accounts owed by an Account Debtor or its
Affiliate where fifty percent (50%) or more of all Accounts owed to the
applicable Borrower from that Account Debtor (or its Affiliates) have not been
paid within 90 days of invoice date;
(c) Accounts with respect to which the Account Debtor
is an employee, Affiliate, or agent of any Borrower; unless such Accounts arise
out of an arm's- length transaction on terms no less favorable to such Borrower
than the terms of such Borrower's transactions with its other customers that are
not employees, Affiliates, or agents of any Borrower;
(d) Accounts with respect to which goods are placed
on consignment, guaranteed sale, sale or return, sale on approval, ▇▇▇▇ and
hold, or other terms by reason of which the payment by the Account Debtor may be
conditional;
(e) Accounts that are not payable in Dollars or with
respect to which the Account Debtor: (i) does not maintain its chief executive
office in the United States, or (ii) is not organized under the laws of the
United States or any State thereof, or (iii) is the government of any foreign
country or sovereign state, or of any state, province, municipality, or other
political subdivision thereof, or of any department, agency, public corporation,
or other instrumentality thereof, unless (y) the Account is supported by an
irrevocable letter of credit satisfactory to Foothill (as to form, substance,
and issuer) and assigned and delivered to and directly drawable by Foothill, or
(z) the Account is covered by credit insurance in form and amount, and by an
insurer, satisfactory to Foothill;
(f) Accounts with respect to which the Account Debtor
is either (i) the United States or any department, agency, or instrumentality of
the United States (exclusive, however, of Accounts with respect to which the
applicable Borrower has complied,
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to the satisfaction of Foothill, with the Assignment of Claims Act, 31 U.S.C.
Section 3727), or (ii) any State of the United States (exclusive, however, of
Accounts owed by any State that does not have a statutory counterpart to the
Assignment of Claims Act);
(g) Accounts with respect to which the Account Debtor
is a creditor of the applicable Borrower, has or has asserted a right of setoff,
or has disputed its liability or made any claim with respect to the Accounts
owing to the applicable Borrower that has not been resolved, to the extent of
the amount (in Foothill's reasonable business credit judgment) of such credit,
set-off right, or dispute or claim;
(h) Accounts with respect to an Account Debtor whose
total obligations owing to one or more of the Borrowers exceed 5% of all
Eligible Accounts, to the extent of the obligations owing by such Account Debtor
in excess of such percentage;
(i) Accounts with respect to which the applicable
Borrower received from the Account Debtor, and is accountable for, a customer
deposit, to the extent of such customer deposit;
(j) Accounts with respect to which the Account Debtor
is subject to any Insolvency Proceeding, or becomes insolvent, or goes out of
business, except to the extent, if any, that Foothill, in its sole and absolute
discretion, deems eligible any such Accounts that also (1) arise after the
commencement of such Account Debtor's Insolvency Proceeding and (2) are
adequately secured by a deposit;
(k) Accounts the timely collection of which Foothill,
in its reasonable credit judgment, believes to be substantially doubtful by
reason of the Account Debtor's financial condition or otherwise;
(l) Accounts with respect to which any goods giving
rise to such Account have not been shipped and delivered to and accepted by the
Account Debtor, any General Intangibles relating to the provision of
telecommunications services giving rise to such Account have not been provided
to and accepted, consumed, or utilized by the Account Debtor, any services
giving rise to such Account have not been performed and accepted, consumed, or
utilized by the Account Debtor, or the Account otherwise does not represent a
final sale;
(m) Accounts with respect to which the Account Debtor
is located in the states of New Jersey, Minnesota, Indiana, or West Virginia (or
any other state that requires a creditor to file a Business Activity Report or
similar document in order to bring suit or otherwise enforce its remedies
against such Account Debtor in the courts or through any judicial process of
such state), unless the applicable Borrower has qualified to do business in New
Jersey, Minnesota, Indiana, West Virginia, or such other states, or has filed a
Notice of
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Business Activities Report with the applicable division of taxation, the
department of revenue, or with such other state offices, as appropriate, for the
then-current year, or is exempt from such filing requirement;
(n) LEC Accounts submitted for billing and collection
to a LEC with respect to which there does not exist an Approved Billing Service
Agreement;
(o) LEC Accounts (i) that are not covered by a LEC
Confirmation Statement received by the applicable Borrower from the applicable
LEC, or (ii) that are covered by a LEC Confirmation Statement received by the
applicable Borrower from the applicable LEC to the extent of (without
duplication) reductions of or offsets against amounts otherwise payable with
respect thereto by reason of up-front LEC rejects or credits deducted from net
confirmed revenues on such LEC Confirmation Statement;
(p) Direct Accounts that have not yet been billed to
the Account Debtor (provided that such Accounts may qualify as Eligible Unbilled
Direct Accounts if they otherwise meet the criteria applicable thereto);
(q) Clearinghouse Accounts, except to the extent of
the Net Due From Acceptable Clearinghouses;
(r) Accounts to the extent that they represent
obligations with respect to advance ▇▇▇▇▇▇▇▇ that are due prior to the
completion of performance by the applicable Borrower with respect to the subject
contract or transaction that gives rise to such Accounts; unless Foothill, in
its sole and absolute discretion, otherwise deems such Accounts to constitute
Eligible Accounts;
(s) Cherry Accounts, unless and until such time, if
ever, that both (i) the billing of the underlying Account Debtors in respect of
the Cherry Accounts customer bases is accomplished through a billing network
owned or controlled by a Borrower, and (ii) Midcom's litigation with Cherry
Communications Incorporated has been settled to the satisfaction of Foothill;
(t) Accounts with respect to which any commissions
are owed to any Persons other than a Borrower, to the extent of such
commissions; and
(u) Accounts that have been transferred to a
Borrower's legal or collection department.
"Eligible Direct Account" means, as of any date of
determination, an Eligible Account that is a Direct Account.
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"Eligible LEC Account" means, as of any date of determination,
an Eligible Account that is a LEC Account. The amount of any Eligible LEC
Account shall be presumed to be the amount thereof projected to be received by
the applicable Borrower on the related LEC Confirmation Statement unless
Foothill in its sole discretion determines the amount thereof to be a different
amount.
"Eligible Unbilled Direct Account" means, as of any date of
determination, a Direct Account of any Borrower that (a) resulted from a
transaction that occurred prior to the date of determination and with respect to
which such Borrower has an existing call transaction record in a format that is
capable of being billed by such Borrower to its customer in accordance with such
Borrower's usual billing methods for Direct Accounts but that has not yet been
billed and invoiced to such customer, (b) does not relate to a transaction that
occurred more than 30 days prior to the date of determination, and (c) in all
other respects would qualify as an Eligible Direct Account but for the fact that
it has not yet been billed and invoiced to such Borrower's customer. Eligible
Unbilled Direct Accounts shall be net of contra accounts. If an Account that,
immediately prior to being billed and invoiced, was an Eligible Unbilled Direct
Account, then is billed and invoiced, it thereupon shall cease to be an Eligible
Unbilled Direct Account, and it shall become an Eligible Direct Account if it
then meets the criteria applicable thereto.
"Environmental Law" means (i) the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended, 42 U.S.C.
Section 9601 et seq.; (ii) the Resource Conservation and Recovery Act, as
amended, 42 U.S.C. Section 6901 et seq.; (iii) the Toxic Substances Control Act,
as amended, 15 U.S.C. Section 2601 et seq.; and (iv) any other federal or state
law or regulation relating to the protection of the environment.
"Equipment" means all present and hereafter acquired
machinery, machine tools, motors, equipment, furniture, furnishings, fixtures,
vehicles (including motor vehicles and trailers), tools, parts, goods (other
than consumer goods, farm products, or Inventory), wherever located, of Midcom
or any other Borrower, including (a) any interest of such Borrower in any of the
foregoing, and (b) all attachments, accessories, accessions, replacements,
substitutions, additions, and improvements to any of the foregoing.
"ERISA" the Employee Retirement Income Security Act of 1974,
29 U.S.C. Section 1000 et seq., amendments thereto, successor statutes,
and regulations or guidance promulgated thereunder.
"ERISA Affiliate" means, with respect to any Borrower, (a) any
corporation subject to ERISA whose employees are treated as employed by the same
employer as the employees of such Borrower under IRC Section 414(b), (b) any
trade or business subject to ERISA whose employees are treated as employed by
the same employer as the employees of such Borrower under IRC Section 414(c),
(c) solely for purposes of Section 302 of ERISA and Section 412 of the IRC, any
organization subject to ERISA that is a member of an affiliated service group of
which such Borrower is a member under IRC Section 414(m), or (d) solely for
purposes of Section 302 of ERISA and
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Section 412 of the IRC, any party subject to ERISA that is a party to an
arrangement with such Borrower and whose employees are aggregated with the
employees of such Borrower under IRC Section 414(o).
"ERISA Event" means, with respect to any Borrower, (a) a
Reportable Event with respect to any Benefit Plan or Multiemployer Plan, (b) the
withdrawal of such Borrower or any ERISA Affiliate thereof from a Benefit Plan
during a plan year in which it was a "substantial employer" (as defined in
Section 4001(a)(2) of ERISA), (c) the providing of notice of intent to terminate
a Benefit Plan in a distress termination (as described in Section 4041(c) of
ERISA), (d) the institution by the PBGC of proceedings to terminate a Benefit
Plan or Multiemployer Plan, (e) any event or condition (i) that provides a basis
under Section 4042(a)(1), (2), or (3) of ERISA for the termination of, or the
appointment of a trustee to administer, any Benefit Plan or Multiemployer Plan,
or (ii) that may result in termination of a Multiemployer Plan pursuant to
Section 4041A of ERISA, (f) the partial or complete withdrawal within the
meaning of Sections 4203 and 4205 of ERISA, of such Borrower or any ERISA
Affiliate thereof from a Multiemployer Plan, or (g) providing any security to
any Plan under Section 401(a)(29) of the IRC by such Borrower or any ERISA
Affiliate thereof.
"Event of Default" has the meaning set forth in Section 8.
"Existing Lender Group" means Transamerica Business Credit
Corporation and the other lenders (if any) party to that certain Credit
Agreement, dated as of November 8, 1995 (as amended, restated, supplemented, or
otherwise modified), with Midcom or any other Borrower.
"Existing Lender Group Agent" means Transamerica Business
Credit Corporation, as agent for the Existing Lender Group.
"Fee Date" means the earlier to occur of (a) March 15, 1997,
and (b) the Closing Date.
"FEIN" means Federal Employer Identification Number.
"Foothill" has the meaning set forth in the introductory
paragraph of this Agreement.
"Foothill Account" means an account maintained by Foothill at
a depositary selected by Foothill.
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"Foothill Expenses" means all: costs or expenses (including
taxes, and insurance premiums) required to be paid by any Borrower under any of
the Loan Documents that are paid or incurred by Foothill; fees or charges paid
or incurred by Foothill in connection with Foothill's transactions with any
Borrower, including, fees or charges for photocopying, notarization, couriers
and messengers, telecommunication, public record searches (including tax Lien,
litigation, and UCC searches and including searches with the patent and
trademark office, the copyright office, or the department of motor vehicles),
filing, recording, publication, appraisal (including periodic Personal Property
Collateral or Real Property appraisals), real estate surveys, real estate title
policies and endorsements, and environmental audits; costs and expenses incurred
by Foothill in the disbursement of funds to any one or more of the Borrowers (by
wire transfer or otherwise); charges paid or incurred by Foothill resulting from
the dishonor of checks written by any Borrower or any Account Debtor; costs and
expenses paid or incurred by Foothill to correct any default or enforce any
provision of the Loan Documents, or in gaining possession of, maintaining,
handling, preserving, storing, shipping, selling, preparing for sale, or
advertising to sell the Personal Property Collateral or any Real Property, or
any portion thereof, irrespective of whether a sale is consummated; costs and
expenses paid or incurred by Foothill in examining any Books and Records; costs
and expenses of third party claims or any other suit paid or incurred by
Foothill in enforcing or defending the Loan Documents or in connection with the
transactions contemplated by the Loan Documents or Foothill's relationship with
any Borrower or any guarantor; and Foothill's reasonable attorneys fees and
expenses incurred in advising, structuring, drafting, reviewing, administering,
amending, terminating, enforcing (including attorneys fees and expenses incurred
in connection with a "workout," a "restructuring," or an Insolvency Proceeding
concerning any one or more of the Borrowers or any guarantor of the
Obligations), defending, or concerning the Loan Documents, irrespective of
whether suit is brought.
"Fundamental Change Transaction" has the meaning set forth in
Section 7.3.
"GAAP" means generally accepted accounting principles as in
effect from time to time in the United States, consistently applied.
"General Intangibles" means all of each Borrower's present and
future general intangibles and other personal property (including contract
rights, rights arising under common law, statutes, or regulations, choses or
things in action, goodwill, patents, trade names, trademarks, servicemarks,
copyrights, blueprints, drawings, purchase orders, customer lists, monies due or
recoverable from pension funds, route lists, rights to payment and other rights
under any royalty or licensing agreements, infringement claims, computer
programs, information contained on computer disks or tapes, literature, reports,
catalogs, deposit accounts, insurance premium rebates, tax refunds, and tax
refund claims, in each case, of Midcom or any other Borrower), other than goods,
Accounts, and Negotiable Collateral.
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"Governing Documents" means the certificates or articles of
incorporation, by-laws, or other organizational or governing documents of any
Person.
"Hazardous Materials" means any substances that are defined or
listed in, or otherwise classified pursuant to, any Environmental Laws as
"hazardous substances," "hazardous wastes," "toxic substances," "toxic
pollutants," "hazardous pollutants," or any similar term under any Environmental
Law. The term "Hazardous Materials" specifically includes any petroleum product
and any flammable substances or explosives or any radioactive materials, but
specifically excludes a substance present only in de minimis quantities that
does not present a material risk of harm to public health or the environment or
that would not be the subject of a reporting requirement or an enforcement
action if brought to the attention of appropriate governmental authorities.
"Indebtedness" means: (a) all obligations of Midcom or any
other Borrower for borrowed money, (b) all obligations of Midcom or any other
Borrower evidenced by bonds, debentures, notes, or other similar instruments and
all reimbursement or other obligations of any Borrower in respect of letters of
credit, bankers acceptances, interest rate swaps, or other financial products,
(c) all obligations of Midcom or any other Borrower under capital leases, (d)
all obligations or liabilities of others secured by a Lien on any property or
asset of Midcom or any other Borrower, irrespective of whether such obligation
or liability is assumed, and (e) any obligation of Midcom or any other Borrower
guaranteeing or intended to guarantee (whether guaranteed, endorsed, co-made,
discounted, or sold with recourse to Midcom or any other Borrower) any
indebtedness, lease, dividend, letter of credit, or other obligation of any
other Person.
"Insolvency Proceeding" means any proceeding commenced by or
against any Person under any provision of the Bankruptcy Code or under any other
bankruptcy or insolvency law, assignments for the benefit of creditors, formal
or informal moratoria, compositions, extensions generally with creditors, or
proceedings seeking reorganization, arrangement, or other similar relief.
"Intercreditor Agreements" means, collectively: (a) an
intercreditor agreement between Foothill and Key Bank, with respect to Midcom,
specifying the relative rights, duties, and priorities of Foothill and Key Bank
with respect to the Collateral provided by Midcom to Foothill or Key Bank, in
form and substance satisfactory to Foothill in its sole discretion, acknowledged
and consented to by Midcom; and (b) an intercreditor agreement between Foothill
and Comdisco, with respect to Midcom, specifying the relative rights, duties,
and priorities of Foothill and Comdisco with respect to the Collateral provided
by Midcom to Foothill or Comdisco, in form and substance satisfactory to
Foothill in its sole discretion, acknowledged and consented to by Midcom.
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"Inventory" means all present and future inventory in which
Midcom or any other Borrower has any interest, including goods held for sale or
lease or to be furnished under a contract of service and all present and future
raw materials, work in process, finished goods, and packing and shipping
materials, wherever located, of any Borrower.
"Investment" means any transaction within the scope of Section
7.14 (whether permitted or prohibited thereby), and includes capital
contributions, equity contributions, loans, and advances.
"Investment Property" shall have the meaning ascribed to such
term in Division 9 of the Code.
"IRC" means the Internal Revenue Code of 1986, as amended, and
the regulations thereunder.
"Key Bank" means Key Bank of Washington.
"LEC" means a local exchange carrier or telephone company that
provides basic telecommunications services to its customers and from whom any
Borrower receives payments with respect to Accounts, such as (without
limitation) Pacific ▇▇▇▇, U.S. West, Southwestern ▇▇▇▇, GTE, and Ameritech.
"LEC Account" means, as of any date of determination, any
Account of any Borrower submitted by or on behalf of such Borrower to a LEC for
billing and payment pursuant to a Billing Services Agreement.
"LEC Confirmation Statement" means a written confirmation
statement sent to the applicable Borrower by a LEC to confirm the receipt by the
LEC from such Borrower of call transaction records relating to Accounts that the
LEC is to ▇▇▇▇ on behalf of such Borrower to customers of the LEC.
"LEC Non-Offset and Consent to Assignment Agreement" means an
agreement by a LEC in favor of the applicable Borrower, that is in form and
substance satisfactory to Foothill, that runs to the benefit of Foothill, or
that may be assigned to Foothill and is in fact so assigned, and that is in full
force and effect.
"Lien" means any interest in property securing an obligation
owed to, or a claim by, any Person other than the owner of the property, whether
such interest shall be based on the common law, statute, or contract, whether
such interest shall be recorded or perfected, and whether such interest shall be
contingent upon the occurrence of some future event or events or the existence
of some future circumstance or circumstances, including the lien or security
interest arising from a mortgage, deed of trust, encumbrance, pledge,
hypothecation,
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assignment, deposit arrangement, security agreement, adverse claim or charge,
conditional sale or trust receipt, or from a lease, consignment, or bailment for
security purposes and also including reservations, exceptions, encroachments,
easements, rights-of-way, covenants, conditions, restrictions, leases, and other
title exceptions and encumbrances affecting Real Property.
"Loan Account" has the meaning set forth in Section 2.7.
"Loan Documents" means this Agreement, the Disbursement
Letter, the Lockbox Agreements, the Pledge Agreement, the Trademark Security
Agreement, any Mortgages hereafter delivered by any one or more of the Borrowers
to Foothill, the Suretyship Agreement, the Intercreditor Agreements, the Control
Agreements, any note or notes executed by any one or more of the Borrowers and
payable to Foothill, and any other agreement entered into, now or in the future,
in connection with this Agreement.
"Lockbox Account" means a depositary account established
pursuant to one of the Lockbox Agreements.
"Lockbox Agreements" means those certain Lockbox Operating
Procedural Agreements and those certain Depository Account Agreements, in form
and substance satisfactory to Foothill, each of which is among a Borrower,
Foothill, and one of the Lockbox Banks.
"Lockbox Bank" means a bank identified as such by the
Borrowers in writing to, and approved by, Foothill.
"Lockboxes" has the meaning set forth in Section 2.4.
"Material Adverse Change" means (a) a material adverse change
in the business, prospects, operations, results of operations, assets,
liabilities or condition (financial or otherwise) of the Borrowers, (b) the
material impairment of the ability of the Borrowers to perform their obligations
under the Loan Documents or of Foothill to enforce the Obligations or realize
upon the Collateral, (c) a material adverse effect on the value of the
Collateral or the amount that Foothill would be likely to receive (after giving
consideration to delays in payment and costs of enforcement) in the liquidation
of such Collateral, or (d) a material impairment of the priority of Foothill's
Liens on the Collateral.
"Material Carriers" means the Carriers identified on Schedule
M-1.
"Maximum Amount" means, subject to increase as set forth
below, Thirty Million Dollars ($30,000,000). From time to time after the
Effective Date, Borrower may request an increase in the Maximum Amount, on one
or more occasions, in increments of
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$5,000,000 or an integral multiple thereof, to an amount not to exceed
$50,000,000, such increases to become effective, in each instance,
prospectively, subject to the prior or concurrent satisfaction of the Maximum
Amount Increase Conditions.
"Maximum Amount Increase Conditions" means: (a) Foothill shall
have received written notice from the Borrowers specifying the requested amount
and requested effective date (not earlier than 60 days following Foothill's
receipt of such notice and all information, reports, and other items to be
delivered under clause (d) below) of an increase in the Maximum Amount; (b)
Foothill shall have received payment of any applicable fee provided for in
Section 2.8(b); (c) Foothill shall have obtained one or more Participants
satisfactory to Foothill to provide the amount of the incremental increase in
the Maximum Amount and on terms and conditions satisfactory to Foothill; (d)
each Borrower shall have delivered to Foothill all information, reports, and
other items reasonably and timely requested by Foothill, and the results of
Foothill's review thereof shall be satisfactory to Foothill in its sole
discretion; and (e) no Default or Event of Default shall have occurred and be
continuing or would result therefrom at the time of the written notice and at
the time of the actual increase in the Maximum Amount.
"Maximum Foothill Amount" means that portion of the Maximum
Amount for which Foothill shall be responsible, exclusive of any participations
with Participants. As of the Effective Date, the Maximum Foothill Amount is
$30,000,000. Thereafter, in connection with Foothill's obtaining one or more
Participants satisfactory to Foothill to provide commitments in respect hereof
on terms and conditions satisfactory to Foothill, the Maximum Foothill Amount
shall be reduced Dollar-for-Dollar by the amount of commitments so provided by
such Participants; provided, however, that in no event shall the Maximum
Foothill Amount be less than the lower of $15,000,000 and 50% of the Maximum
Amount.
"Midcom" has the meaning ascribed to such term in the
introductory paragraph of this Agreement.
"Microwave Assets" means certain microwave transmission/relay
Equipment located at the locations identified as "Microwave Sites" on Schedule
6.13.
"Mortgages" means any one or more mortgages, deeds of trust,
or deeds to secure debt, that hereafter may be from time to time executed by
Midcom or any other Borrower in favor of Foothill, the form and substance of
which shall be satisfactory to Foothill, that encumber any Real Property and the
related improvements thereto.
"Multiemployer Plan" means a "multiemployer plan" (as defined
in Section 4001(a)(3) of ERISA) to which any Borrower or any ERISA Affiliate
thereof has contributed, or was obligated to contribute, within the past six
years.
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"Negotiable Collateral" means all of each Borrower's present
and future letters of credit, notes, drafts, instruments, certificated
securities (including the shares of stock of Subsidiaries of any Borrower),
Investment Property, documents, personal property leases (wherein any Borrower
is the lessor), chattel paper, and any Books and Records relating to any of the
foregoing.
"Net Due From Acceptable Clearinghouses" means the result of
(a) any monies or rights to payment due from Acceptable Clearinghouses pursuant
to the applicable billing/collection agreement between an Acceptable
Clearinghouse and the applicable Borrower, minus (b) the sum of all fees,
charges, credits, adjustments, discounts, reserves, charge-backs, or other
monies withheld by Acceptable Clearinghouses pursuant to such billing/collection
agreements.
"Non-Material Subsidiary" means any Subsidiary identified on
Schedule N-1 attached hereto.
"Notice of Exclusive Control" has the meaning set forth in the
definition of "Control Agreement."
"Obligations" means all loans, Advances, debts, principal,
interest (including any interest that, but for the provisions of the Bankruptcy
Code, would have accrued), contingent reimbursement obligations owing to
Foothill, premiums (including Early Termination Premiums), liabilities
(including all amounts charged to the Loan Account pursuant hereto),
obligations, fees or Foothill Expenses (including any fees or expenses that, but
for the provisions of the Bankruptcy Code, would have accrued) lease payments,
guaranties, covenants, and duties owing by Midcom or any other Borrower to
Foothill of any kind and description (whether pursuant to or evidenced by the
Loan Documents or pursuant to any other agreement between Foothill and any
Borrower, and irrespective of whether for the payment of money), whether direct
or indirect, absolute or contingent, due or to become due, now existing or
hereafter arising, and including any debt, liability, or obligation owing from
any Borrower to others that Foothill may have obtained by assignment or
otherwise, and further including all interest not paid when due and all Foothill
Expenses that any Borrower is required to pay or reimburse by the Loan
Documents, by law, or otherwise.
"Overadvance" has the meaning set forth in Section 2.2.
"PacNet" has the meaning ascribed to such term in the
introductory paragraph of this Agreement.
"Paid-Off Letter" means one or more letters, each in form and
substance reasonably satisfactory to Foothill, from the Existing Lender Group
Agent acknowledging that all of the obligations of Borrower owing to the
Existing Lender Group have been repaid in full
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and that all of the commitments of the Existing Lender Group have been
irrevocably terminated and agreeing to terminate or release all of the Liens
existing in favor of the Existing Lender Group on the properties or assets of
any Borrower.
"Participant" means any Person to which Foothill has sold a
participation interest in its rights under the Loan Documents.
"PBGC" means the Pension Benefit Guaranty Corporation as
defined in Title IV of ERISA, or any successor thereto.
"Permitted Dispositions" means: (a) the sale of Inventory to
buyers in the ordinary course of business; (b) the sale or other disposition of
obsolete Equipment in the ordinary course of business; and (c) the sale or other
disposition of the Microwave Assets.
"Permitted Fundamental Changes" means: (a) the conversion of
the Subordinated Notes into equity securities of Midcom, so long as no Change of
Control would result therefrom; (b) the merger of any Non-Material Subsidiary
with and into any Borrower, so long as that Borrower is the surviving
corporation; (c) so long as no Event of Default has occurred and is continuing
or would result therefrom, the merger of any Borrower with and into any other
Borrower; provided, however, that (i) the proposed surviving Borrower shall
provide Foothill at least 30 days prior written notice of such merger and shall
deliver to Foothill such documents as Foothill may reasonably request for the
purpose of perfecting or maintaining the perfection or priority of any Liens
Foothill may have on any Collateral affected by any such transaction (including
financing statements, fixture filings, and Collateral Access Agreements), and
(ii) in any such merger involving Midcom, the surviving corporation of such
merger shall be Midcom; and (d) so long as no Event of Default has occurred and
is continuing or would result therefrom, the sale, transfer, or other
disposition by any Borrower other than Midcom of all or substantially all of its
assets to any other Borrower; provided, however, that the proposed transferee
Borrower shall provide Foothill at least 30 days prior written notice of such
sale, transfer, or other disposition and shall deliver to Foothill such
documents as Foothill may reasonably request for the purpose of perfecting or
maintaining the perfection or priority of any Liens Foothill may have on any
Collateral affected by any such sale, transfer, or other disposition (including
financing statements, fixture filings, and Collateral Access Agreements).
"Permitted Liens" means (a) Liens held by Foothill, (b) Liens
for unpaid taxes that are not yet due and payable, (c) Liens set forth on
Schedule P-1 attached hereto, (d) the interests of lessors under operating
leases and purchase money Liens of lessors under capital leases to the extent
that the acquisition or lease of the underlying asset is permitted under Section
7.10, and so long as the Lien only secures the purchase price of the asset and
any expenses incurred in connection with such purchase money financing
transaction, (e) easements, rights of way, reservations, covenants, conditions,
restrictions, zoning variances,
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and other similar encumbrances that do not materially interfere with the use or
value of the property subject thereto, (f) mechanics', materialmen's,
warehousemen's, or similar Liens that arise by operation of law, (g) exceptions
listed in any title insurance or commitment therefor delivered by a Borrower
hereunder in respect of any Real Property and as are approved in the sole
discretion of Foothill, (h) Liens of Key Bank that are permitted by, and subject
to, the terms of the Intercreditor Agreement with Key Bank, (i) Liens of
Comdisco that are permitted by, and subject to, the terms of the Intercreditor
Agreement with Comdisco, and (j) a Lien in favor of either Star Bank or Key Bank
on cash collateral for a letter of credit, in an original face amount not to
exceed $120,000, issued by either Star Bank or Key Bank for the benefit of
Comdisco.
"Permitted Protest" means the right of Midcom or any other
Borrower to protest any Lien, tax, rental payment, or other charge, other than
any such Lien that secures the Obligations, provided that (a) a reserve with
respect to such obligation is established on the books of such Borrower in an
amount that is reasonably satisfactory to Foothill, (b) any such protest is
instituted and diligently prosecuted by such Borrower in good faith, and (c)
Foothill is satisfied that, while any such protest is pending, there will be no
impairment of the enforceability, validity, or priority of any of the Liens of
Foothill on the Collateral.
"Permitted Stock Redemption" means, so long as no Event of
Default has occurred and is continuing or would result therefrom, the redemption
by Midcom of approximately 885,360 shares of its common stock held by ▇▇▇▇▇ ▇▇▇
or certain Affiliates thereof for a price to be determined by arbitration and to
be payable ratably over 36 months (all as more particularly described in that
certain Amendment No. 1 to Form S-1 filed by Midcom with the Securities and
Exchange Commission on January 16, 1997 and bearing Registration No. 333-14427).
"Person" means and includes natural persons, corporations,
limited liability companies, limited partnerships, general partnerships, limited
liability partnerships, joint ventures, trusts, land trusts, business trusts, or
other organizations, irrespective of whether they are legal entities, and
governments and agencies and political subdivisions thereof.
"Personal Property Collateral" means all Collateral other than
Real Property.
"▇▇▇▇▇▇▇ Related Person" means ▇▇▇▇ ▇▇▇▇▇▇▇ or any Affiliate
thereof.
"Plan" means any employee benefit plan, program, or
arrangement maintained or contributed to by any Borrower or with respect to
which any Borrower may incur liability.
"Pledge Agreement" means an agreement, in form and substance
satisfactory to Foothill, dated as of even date with this Agreement, and entered
into by Midcom and each
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other Borrower for the benefit of Foothill, whereby each such Borrower pledges
to Foothill all of the capital stock of each of its Subsidiaries.
"Pledged Shares" means the original certificates evidencing
the shares of capital stock of Subsidiaries of each Borrower pledged to Foothill
pursuant to the Pledge Agreement.
"Qualified Participant" means (a) a commercial bank organized
under the laws of the United States, or any state thereof, and having total
assets in excess of $100,000,000; (b) a commercial bank organized under the laws
of any other country which is a member of the Organization for Economic
Cooperation and Development or a political subdivision of any such country, and
having total assets in excess of $100,000,000; provided that such bank is acting
through a branch or agency located in the United States; (c) a finance company,
insurance or other financial institution or fund that is engaged in making,
purchasing or otherwise investing in commercial loans in the ordinary course of
its business and having total assets in excess of $50,000,000; (d) any Affiliate
(other than individuals) of Foothill; or (e) any other Person approved by
Foothill and Borrower; provided, however, in no event shall any Qualified
Participant have total assets less than the product of (i) 10 times (ii) the
amount of such Qualified Participant's financing commitment in respect hereof.
"Qualified Transaction" has the meaning set forth in Section
3.6.
"Real Property" means the parcel or parcels of real property
and the related improvements thereto, if any, identified on Schedule R-1, and
any estates or interests in real property hereafter acquired by Midcom or any
other Borrower.
"Reference Rate" means the highest of the variable rates of
interest, per annum, most recently announced by Norwest Bank Minnesota, National
Association, or any successor thereto, as its "prime rate" or "reference rate,"
irrespective of whether such announced rate is the best rate available from such
financial institution.
"Renewal Date" has the meaning set forth in Section 3.4.
"Reportable Event" means any of the events described in
Section 4043(c) of ERISA or the regulations thereunder other than a Reportable
Event as to which the provision of 30 days notice to the PBGC is waived under
applicable regulations.
"Retiree Health Plan" means an "employee welfare benefit plan"
within the meaning of Section 3(1) of ERISA that provides benefits to
individuals after termination of their employment, other than as required by
Section 601 of ERISA.
"Securities Account" means a "securities account" as that term
is defined in Section 8-501 of the Code.
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"Solvent" means, with respect to any Person on a particular
date, that on such date (a) at fair valuations, all of the properties and assets
of such Person are greater than the sum of the debts, including contingent
liabilities, of such Person, (b) the present fair salable value of the
properties and assets of such Person is not less than the amount that will be
required to pay the probable liability of such Person on its debts as they
become absolute and matured, (c) such Person is able to realize upon its
properties and assets and pay its debts and other liabilities, contingent
obligations and other commitments as they mature in the normal course of
business, (d) such Person does not intend to, and does not believe that it will,
incur debts beyond such Person's ability to pay as such debts mature, and (e)
such Person is not engaged in business or a transaction, and is not about to
engage in business or a transaction, for which such Person's properties and
assets would constitute unreasonably small capital after giving due
consideration to the prevailing practices in the industry in which such Person
is engaged. In computing the amount of contingent liabilities at any time, it is
intended that such liabilities will be computed at the amount that, in light of
all the facts and circumstances existing at such time, represents the amount
that reasonably can be expected to become an actual or matured liability.
"Subordinated Notes" means the 8.25% convertible subordinated
notes due 2003 issued by Midcom pursuant to the Subordinated Notes Indenture in
the aggregate principal amount of $97,743,000 outstanding as of the Effective
Date.
"Subordinated Notes Indenture" means that certain Indenture,
dated as of August 22, 1996, by and between Midcom as issuer, and IBJ ▇▇▇▇▇▇▇▇
Bank & Trust Company as trustee relative to the Subordinated Notes, as amended
through the Effective Date, and as the same thereafter may be amended, restated,
supplemented, or otherwise modified from time to time in accordance with the
terms of the Loan Documents.
"Subsidiary" of a Person means a corporation, partnership,
limited liability company, or other entity in which that Person directly or
indirectly owns or controls the shares of stock or other ownership interests
having ordinary voting power to elect a majority of the board of directors or
appoint other managers of such corporation, partnership, limited liability
company, or other entity; provided, however, that, for purposes of this
Agreement, DTI shall not be deemed a Subsidiary of Midcom.
"Suretyship Agreement" means an agreement, in form and
substance satisfactory to Foothill, dated as of even date with this Agreement,
and entered into by Midcom and each other Borrower for the benefit of Foothill.
"Syndicated Amount" means that portion of the Maximum Amount
equal to the aggregate financing commitments (to the extent not breached or
terminated) of all Participants.
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"Trademark Security Agreement" means a Trademark Security
Agreement, in form and substance satisfactory to Foothill, dated as of even date
herewith, by and among Midcom, each other Borrower, and Foothill.
"Voidable Transfer" has the meaning set forth in Section
15.8.
"ZPDI Billing Agreement" means the billing/collection
agreement between Midcom and Zero Plus Dialing, Inc. d/b/a U.S. Billing.
"ZPDI Notification and Acknowledgment" means a notice, in form
and substance satisfactory to Foothill, from Midcom and Foothill to (and
acknowledged by) Zero Plus Dialing, Inc. d/b/a U.S. Billing.
1.2 ACCOUNTING TERMS. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP. When used herein, the
term "financial statements" shall include the notes and schedules thereto.
Whenever the term "Borrower" is used in respect of a financial covenant or a
related definition, it shall be understood to mean Borrower on a consolidated
basis unless the context clearly requires otherwise.
1.3 CODE. Any terms used in this Agreement that are defined in
the Code shall be construed and defined as set forth in the Code unless
otherwise defined herein.
1.4 CONSTRUCTION. Unless the context of this Agreement clearly
requires otherwise, references to the plural include the singular, references to
the singular include the plural, the term "including" is not limiting, and the
term "or" has, except where otherwise indicated, the inclusive meaning
represented by the phrase "and/or." The words "hereof," "herein," "hereby,"
"hereunder," and similar terms in this Agreement refer to this Agreement as a
whole and not to any particular provision of this Agreement. An Event of Default
shall "continue" or be "continuing" until such Event of Default has been waived
in writing by Foothill. Section, subsection, clause, schedule, and exhibit
references are to this Agreement unless otherwise specified. Any reference in
this Agreement or in the Loan Documents to this Agreement or any of the Loan
Documents shall include all alterations, amendments, changes, extensions,
modifications, renewals, replacements, substitutions, and supplements, thereto
and thereof, as applicable.
1.5 SCHEDULES AND EXHIBITS. All of the schedules delivered by
the Borrowers hereunder, as may be modified from time to time by the Borrowers
to the extent permitted hereby, and all of the exhibits attached to this
Agreement shall be deemed incorporated herein by reference. The Borrowers shall
have the right to submit for acceptance by Foothill from time to time proposed
modifications to existing schedules to this Agreement
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or any other Loan Document. Foothill shall have the right, but not the
obligation, to accept any such proposed modification to such existing schedule
within 20 days of its submission. If any such proposed modification is expressly
accepted in writing by Foothill, in its sole and absolute discretion, within
such period, then the relevant existing schedule automatically shall be deemed
thereafter to be modified by the accepted proposed modification thereof. Any
such proposed modification that is not expressly accepted in writing by Foothill
within such period shall be deemed to have been rejected by Foothill.
2. LOAN AND TERMS OF PAYMENT.
2.1 REVOLVING ADVANCES. (a) Subject to the terms and
conditions of this Agreement, Foothill agrees to make advances ("Advances") to
Borrower in an aggregate amount at any one time outstanding not to exceed the
least of (i) the Maximum Amount, (ii) the Maximum Foothill Amount plus the
Syndicated Amount, and (iii) the Borrowing Base. For purposes of this Agreement,
"Borrowing Base", as of any date of determination, shall mean the result of:
(y) the least of:
(i) the sum of:
(A) eighty five percent (85%)
of Eligible Accounts, less
the amount, if any, of the
Dilution Reserve; plus
(B) the lower of (1) seventy
five percent (75%) of
Eligible Unbilled Direct
Accounts, and (2) the
amount of credit
availability created by
clause (y)(i)(A) above; and
(ii) an amount equal to the product of
(A) 2 times (B) the aggregate amount
of the Borrowers' Collections with
respect to Accounts for the
immediately preceding 30 day period
(or, upon the written request
therefor by the Borrowers based upon
a sustained increase in aggregate
revenues of the Borrowers as
demonstrated to the satisfaction of
Foothill, such longer period, if
any, as Foothill, in its reasonable
discretion, may from time to time
approve in writing); and
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(iii) an amount equal to the Borrowers'
revenues (on a consolidated basis)
for the immediately preceding 90 day
period;
minus
(z) the aggregate amount of reserves, if any,
established by Foothill under Section
2.1(b).
(b) Anything to the contrary in Section 2.1(a) above
notwithstanding, Foothill may create reserves against or reduce its advance
rates based upon Eligible Accounts or categories thereof: (i) if Foothill
determines that there has occurred a Material Adverse Change; (ii) in respect of
due and payable excise tax obligations that are unpaid by any one or more of the
Borrowers to the extent that Foothill has not received satisfactory legal advice
that Liens arising in respect of such unpaid tax obligations are subordinated to
the Liens of Foothill; and (iii) in respect of set-offs by Carriers, LECS, or
Clearinghouses that have not executed and delivered, in favor of Foothill, a
non-offset agreement, in form and substance satisfactory to Foothill.
(c) Foothill shall have no obligation to make
Advances hereunder to the extent they would cause the outstanding Obligations to
exceed the Maximum Amount. In addition, Foothill shall have no obligation to
make Advances hereunder to the extent they would cause the outstanding
Obligations to exceed the Maximum Foothill Amount plus the Syndicated Amount.
(d) Amounts borrowed pursuant to this Section 2.1 may
be repaid and, subject to the terms and conditions of this Agreement, reborrowed
at any time during the term of this Agreement.
2.2 OVERADVANCES. If, at any time or for any reason, the
aggregate amount of Obligations owed by Borrower to Foothill pursuant to Section
2.1 is greater than either the dollar or percentage limitations set forth in
Section 2.1 (an "Overadvance"), Borrower immediately shall pay to Foothill, in
cash, the amount of such excess to be used by Foothill to repay Advances
outstanding under Section 2.1.
2.3 INTEREST: RATES, PAYMENTS, AND CALCULATIONS.
(a) Interest Rate. Except as provided in Section
2.3(b), all Obligations shall bear interest at a per annum rate from time to
time equal to the Reference Rate plus 1.00 percentage points.
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(b) Default Rate. All Obligations shall bear
interest, from and after the occurrence and during the continuance of an Event
of Default, at a per annum rate from time to time equal to the Reference Rate
plus 4.00 percentage points.
(c) Minimum Interest. In no event shall the rate of
interest chargeable hereunder be less than seven percent (7.00%) per annum. To
the extent that interest accrued hereunder at the rate set forth herein would be
less than the foregoing minimum rate, the interest rate chargeable hereunder for
the period in question automatically shall be deemed increased to the minimum
rate.
(d) Payments. Interest hereunder shall be due and
payable, in arrears, on the first day of each month during the term hereof. Each
Borrower hereby authorizes Foothill to charge, and (unless Foothill receives
instructions from an Authorized Officer regarding alternative means of payment
acceptable to Foothill in respect thereof) Foothill shall charge, without prior
notice to any Borrower, such interest, all Foothill Expenses (as and when
incurred), and all payments due under any Loan Document to the Loan Account,
which amounts thereafter shall accrue interest at the rate then applicable
hereunder. Any interest not paid when due shall be compounded and shall
thereafter accrue interest at the rate then applicable hereunder.
(e) Computation. The Reference Rate as of the
Effective Date is eight and one quarter percent (8.25%) per annum. In the event
the Reference Rate is changed from time to time hereafter, the applicable rate
of interest hereunder automatically and immediately shall be increased or
decreased by an amount equal to such change in the Reference Rate. All interest
and fees chargeable under the Loan Documents shall be computed on the basis of a
360 day year for the actual number of days elapsed.
(f) Intent to Limit Charges to Maximum Lawful Rate.
In no event shall the interest rate or rates payable under this Agreement, plus
any other amounts paid in connection herewith, exceed the highest rate
permissible under any law that a court of competent jurisdiction shall, in a
final determination, deem applicable. Each Borrower and Foothill, in executing
and delivering this Agreement, intend legally to agree upon the rate or rates of
interest and manner of payment stated within it; provided, however, that,
anything contained herein to the contrary notwithstanding, if said rate or rates
of interest or manner of payment exceeds the maximum allowable under applicable
law, then, ipso facto as of the date of this Agreement, each Borrower is and
shall be liable only for the payment of such maximum as allowed by law, and
payment received from any Borrower in excess of such legal maximum, whenever
received, shall be applied to reduce the principal balance of the Obligations to
the extent of such excess.
2.4 REPORTING AND COLLECTION OF ACCOUNTS.
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(a) At all times from and after the Fee Date and
until the Closing Date, on the first Business Day of each week, the Borrowers
shall report to Foothill, in writing, the aggregate amount of all Collections
during the immediately preceding week in sufficient detail to permit Foothill to
calculate the amount of 'float' payable in respect thereof pursuant to Section
2.5.
(b) At all times from and after the Closing Date,
each Borrower shall maintain lockboxes (the "Lockboxes") and, immediately after
the Closing Date, each Borrower shall instruct all Account Debtors with respect
to the Accounts, General Intangibles, and Negotiable Collateral of such Borrower
to remit all Collections in respect thereof to such Lockboxes. Each Borrower,
Foothill, and the Lockbox Banks shall enter into the Lockbox Agreements, which
among other things shall provide for the opening of a Lockbox Account for the
deposit of Collections at a Lockbox Bank. Each Borrower agrees that all
Collections and other amounts received by such Borrower with respect to
Collateral immediately upon receipt shall be deposited into a Lockbox Account.
No Lockbox Agreement or arrangement contemplated thereby shall be modified by
any Borrower without the prior written consent of Foothill. Upon the terms and
subject to the conditions set forth in the Lockbox Agreements, all amounts
received in each Lockbox Account shall be wired each Business Day into the
Foothill Account.
2.5 CREDITING PAYMENTS; APPLICATION OF COLLECTIONS. The
receipt of any Collections by Foothill (whether from transfers to Foothill by
the Lockbox Banks pursuant to the Lockbox Agreements or otherwise) immediately
shall be applied provisionally to reduce the Obligations outstanding under
Section 2.1, but shall not be considered a payment on account unless such
Collection item is a wire transfer of immediately available federal funds and is
made to the Foothill Account or unless and until such Collection item is honored
when presented for payment. From and after the Fee Date, Foothill shall be
entitled to charge the Borrowers for 2 Business Days of `clearance' or `float'
at the rate set forth in Section 2.3(a) or Section 2.3(b), as applicable, on all
Collections that (a) from and after the Fee Date and until the Closing Date, are
reported pursuant to Section 2.4(a), and (b) from and after the Closing Date,
are received by Foothill (regardless of whether forwarded by the Lockbox Banks
to Foothill, whether provisionally applied to reduce the Obligations under
Section 2.1, or otherwise). This across-the-board 2 Business Day clearance or
float charge on all Collections is acknowledged by the parties to constitute an
integral aspect of the pricing of Foothill's financing of the Borrowers, and
shall apply irrespective of the characterization of whether receipts are owned
by any Borrower or Foothill, and whether or not there are any outstanding
Advances, the effect of such clearance or float charge being the equivalent of
charging 2 Business Days of interest on such Collections. Should any Collection
item not be honored when presented for payment, then the Borrowers shall be
deemed not to have made such payment, and interest shall be recalculated
accordingly. Anything to the contrary contained herein notwithstanding, any
Collection item shall be deemed received by Foothill only if it is received into
the Foothill Account on or before 11:00 a.m. Los Angeles time. If
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any Collection item is received into the Foothill Account after 11:00 a.m. Los
Angeles time it shall be deemed to have been received by Foothill as of the
opening of business on the immediately following Business Day.
2.6 BORROWERS' DESIGNATED ACCOUNT. Foothill is authorized to
make the Advances under this Agreement based upon telephonic or other
instructions received from anyone purporting to be an Authorized Officer, or
without instructions if pursuant to Section 2.3(d). The Borrowers agree to
establish and maintain Borrowers' Designated Account with Borrowers' Designated
Account Bank for the purpose of receiving the proceeds of the Advances requested
by any Borrower and made by Foothill hereunder. Unless otherwise agreed by
Foothill and the Borrowers, any Advance requested by Borrower and made by
Foothill hereunder shall be made to Borrowers' Designated Account.
2.7 MAINTENANCE OF LOAN ACCOUNT; STATEMENTS OF OBLIGATIONS.
Foothill shall maintain an account on its books in the name of the Borrowers
(the "Loan Account") on which the Borrowers will be charged with all Advances
made by Foothill to the Borrowers or for the Borrowers' account, including,
accrued interest, Foothill Expenses, and any other payment Obligations of the
Borrowers, in accordance with Section 2.5 and on which the Borrowers will be
credited with all payments received by Foothill from any Borrower or for the
Borrowers' account, including all amounts received in the Foothill Account from
any Lockbox Bank. Foothill shall render statements regarding the Loan Account to
the Borrowers, including principal, interest, fees, and including an itemization
of all charges and expenses constituting Foothill Expenses owing, and such
statements shall be conclusively presumed to be correct and accurate and
constitute an account stated between the Borrowers and Foothill unless, within
30 days after receipt thereof by the Borrowers, the Borrowers shall deliver to
Foothill, by registered or certified mail at its address specified in Section
12, written objection thereto describing the error or errors contained in any
such statements.
2.8 FEES. The Borrowers shall pay to Foothill the following
fees:
(a) Signing Fee. A one time signing fee of Three
Hundred Seventy Five Thousand Dollars ($375,000), which is earned, in full, on
the Effective Date and is due and payable to Foothill as follows: (i) Two
Hundred Twenty Five Thousand Dollars ($225,000) shall be due and payable on the
Effective Date; and (ii) Seventy Five Thousand Dollars ($75,000) shall be due
and payable on each of the first anniversary of the Effective Date and the
second anniversary of the Effective Date; provided, however, that, in any event,
all unpaid amounts in respect of such fee shall be due and payable upon the
termination of this Agreement, whether by its terms, by prepayment, by
acceleration, or otherwise.
(b) Line Increase Fee. On the effective date of any
increase in the Maximum Amount, a fee equal to the product of (i) the amount by
which the Maximum Amount is increased on such effective date, times (ii) 1.25%.
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(c) Unused Line Fee. On the first day of each month,
payable in arrears and commencing July 1, 1997 (with respect to June 1997), a
fee in an amount equal to one-quarter of one percent (0.25%) per annum times the
Average Unused Portion of Facility with respect to the month then ended;
(d) Financial Examination, Documentation, and
Appraisal Fees. Foothill's customary fee of Six Hundred Fifty Dollars ($650) per
day per examiner, plus out-of-pocket expenses for each financial analysis and
examination (i.e., audits) of any Borrower performed by personnel employed by
Foothill; Foothill's customary appraisal fee of One Thousand Five Hundred
Dollars ($1,500) per day per appraiser, plus out-of-pocket expenses for each
appraisal of the Collateral performed by personnel employed by Foothill; and,
the actual charges paid or incurred by Foothill if it elects to employ the
services of one or more third Persons to perform such financial analyses and
examinations (i.e., audits) of any Borrower or to appraise the Collateral; and,
on each anniversary of the Effective Date, Foothill's customary fee of Two
Thousand Five Hundred Dollars ($2,500) per year for its loan documentation
review. The foregoing notwithstanding, so long as no Event of Default has
occurred and is continuing and Foothill does not deem itself insecure, Foothill
agrees that Borrower only shall be obligated to reimburse Foothill for the
foregoing fees, expenses, and charges with respect to 4 financial examinations
of each Borrower per year and 4 appraisals of the Collateral per year (each of
which appraisals may be conducted in different stages); and
(e) Servicing Fee. Payable, in arrears, on the first
day of each March, June, September, and December after the Fee Date and during
the term of this Agreement, a servicing fee in an amount equal to Sixteen
Thousand Dollars ($16,000) for each three-month period. If this Agreement
terminates on a date other than the first day of any March, June, September, or
December, the Borrowers also shall pay Foothill on such date of termination a
servicing fee in an amount equal to the ratable portion of Sixteen Thousand
Dollars ($16,000) in respect of the period between the immediately preceding
first day of March, June, September, or December, as the case may be, and such
date of termination.
3. CONDITIONS; TERM OF AGREEMENT.
3.1 CONDITIONS PRECEDENT TO THE INITIAL ADVANCE. The
obligation of Foothill to make the initial Advance is subject to the
fulfillment, to the satisfaction of Foothill and its counsel, of each of the
following conditions on or before the Closing Date:
(a) the Effective Date shall occur on or before March
15, 1997;
(b) Foothill shall have received, on or before the
Effective Date, the $225,000 installment of the signing fee due and payable on
the Effective Date in accordance with Section 2.8(a);
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(c) Foothill shall have received, on or before the
Fee Date, the Suretyship Agreement, duly executed, and such document shall be in
full force and effect;
(d) the Closing Date shall occur on or before April
15, 1997;
(e) the Existing Lender Group Agent shall have
executed and delivered the Paid-Off Letter, together with UCC termination
statements and other documentation evidencing the termination of all Liens in
favor of the Existing Lender Group or the Existing Lender Group Agent in respect
of the properties and assets of any Borrower;
(f) Foothill shall have received searches reflecting
the filing of its financing statements with respect to the Collateral;
(g) Foothill shall have received each of the
following documents, duly executed, on or before the Closing Date, and each such
document shall be in full force and effect:
i) the Pledge Agreement;
ii) the Trademark Security Agreement;
iii) the Disbursement Letter;
iv) the ZPDI Notification and
Acknowledgment;
v) the Clearinghouse Notifications for
each Clearinghouse (other Zero Plus
Dialing, Inc. d/b/a U.S. Billing),
if any, used by a Borrower as of the
Closing Date;
vi) the Carrier Non-Offset and Consent
to Assignment Agreements in respect
of each of the Material Carriers;
vii) the Lockbox Agreements; and
viii) the Intercreditor Agreements;
(h) Foothill shall have received possession of the
Pledged Shares together with duly executed blank stock powers with respect
thereto.
(i) Foothill shall have received, dated within 10
days before the Closing Date, a certificate from the Secretary of each Borrower
attesting to the resolutions of such Borrower's Board of Directors authorizing
its execution, delivery, and performance of
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this Agreement and the other Loan Documents to which such Borrower is a party
and authorizing specific officers of such Borrower to execute same;
(j) Foothill shall have received, within 10 days
before the Closing Date, copies of each Borrower's Governing Documents, as
amended, modified, or supplemented to the Closing Date, certified by the
Secretary of such Borrower;
(k) Foothill shall have received, within 10 days
before the Closing Date, a certificate of status with respect to each Borrower,
dated within 10 days of the Closing Date, by the appropriate officer of the
jurisdiction of organization of such Borrower, which certificate shall indicate
that such Borrower is in good standing in such jurisdiction;
(l) Foothill shall have received, within 15 days
before the Closing Date, certificates of status with respect to each Borrower,
each dated within 15 days of the Closing Date, such certificates to be issued by
the appropriate officer of the jurisdictions in which its failure to be duly
qualified or licensed would have a Material Adverse Change, which certificates
shall indicate that such Borrower is in good standing in such jurisdictions;
(m) Foothill shall have received, within 5 days
before the Closing Date, an opinion of each Borrower's counsel in form and
substance satisfactory to Foothill;
(n) Foothill shall have received, on or before the
Closing Date, a memorandum in form and substance satisfactory to Foothill, from
local counsel acceptable to Foothill and licensed in the below-referenced States
that shall satisfactorily address the priority of Foothill's prior perfected
Liens on the Collateral as against municipal or state tax Liens arising, or that
may in the future arise, under the respective laws of the States of California,
Florida, Illinois, New York, Ohio, Texas, and Washington, with respect to taxes
(such as, without limitation, excise taxes) that in any way relate to the
provision of telecommunications services;
(o) Foothill shall have received, within 10 days
before the Closing Date, copies of the Subordinated Notes Indenture and the ZPDI
Billing Agreement, together with a certificate of the Secretary of Midcom
certifying each of the same to be a true and correct and complete copy thereof;
(p) Foothill shall have received and reviewed, and
shall have expressed no objection to, a written business plan for the Borrowers
with respect to the Borrowers' fiscal years 1997, 1998, 1999, and 2000;
(q) Foothill shall have completed a field survey by
its examiners, and the results shall be acceptable to Foothill;
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(r) Foothill shall have completed an updated audit,
and the results shall be acceptable to Foothill;
(s) Foothill shall have received written notice from
the Borrowers specifying the requested date of such initial Advance, which
requested date shall not be less than 3 weeks after the date Foothill receives
such notice;
(t) Foothill shall have received a certificate of
insurance, together with the endorsements thereto, as are required by Section
6.10 hereof, the form and substance of which shall be satisfactory to Foothill
and its counsel;
(u) Foothill shall have received Collateral Access
Agreements in respect of each of the locations set forth on Schedule 3.1(u);
(v) Foothill shall have received a Certificate of the
Chief Financial Officer of Midcom certifying that all tax returns required to be
filed by each Borrower have been timely filed and all taxes upon each Borrower
or its properties, assets, income, and franchises (including payroll taxes) have
been paid prior to delinquency, except such taxes that are the subject of a
Permitted Protest;
(w) Foothill and Foothill's counsel shall have been
provided with a true and complete copy of each Billing Services Agreement in
effect on the Closing Date and shall have had a reasonable opportunity to review
each such Billing Services Agreement, and Foothill shall have advised the
Borrowers as to whether or not each such Billing Services Agreement is an
Approved Billing Services Agreement;
(x) Foothill and Foothill's counsel shall have been
provided with a true and complete copy of each Carrier Agreement in respect of a
Material Carrier and shall have had a reasonable opportunity to review each such
Carrier Agreement, and Foothill shall have expressed no objection to the terms
of each such Carrier Agreement;
(y) Foothill and its counsel shall have had an
opportunity to review the status of (i) the Frontier litigation filed in the
United States District Court for the Eastern District of Michigan (Southern
Division) as Case No. 96-CV-73856-DT, and (ii) that certain securities class
action lawsuit filed in the United States District Court for the Western
District of Washington as Case No. C96-614D, and the results of such review
shall have been satisfactory to Foothill;
(z) Foothill shall have received a certificate, in
form and substance satisfactory to Foothill and duly executed by each of the
Chief Financial Officer and the General Counsel of Midcom, stating, to the best
of such officers' information and good faith belief, the maximum amount of
liability of the Borrowers that the Frontier litigation filed in
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the United States District Court for the Eastern District of Michigan (Southern
Division) as Case No. 96-CV-73856-DT would reasonably be expected to result in,
and such amount shall be acceptable to Foothill in its sole and absolute
discretion;
(aa) Foothill and Foothill's counsel shall have been
provided with a true and complete copy of each of the material contractual
obligations of each Borrower in respect of Indebtedness (including the
Subordinated Notes Indenture and the respective financing documents with Key
Bank and Comdisco) and shall have had a reasonable opportunity to review each
such material contractual obligation, and Foothill shall have expressed no
objection to the terms of each such material contractual obligation;
(ab) Foothill shall have received evidence,
satisfactory to Foothill, of the ability of each Borrower to age accounts
payable in a manner satisfactory to Foothill; and
(ac) all other documents and legal matters in
connection with the transactions contemplated by this Agreement shall have been
delivered or executed or recorded and shall be in form and substance
satisfactory to Foothill and its counsel.
3.2 CONDITIONS PRECEDENT TO ALL ADVANCES. The following shall
be conditions precedent to all Advances hereunder:
(a) the representations and warranties of each
Borrower contained in this Agreement and the other Loan Documents shall be true
and correct in all material respects on and as of the date of such extension of
credit, as though made on and as of such date (except to the extent that such
representations and warranties relate solely to an earlier date);
(b) no Default or Event of Default shall have
occurred and be continuing on the date of such extension of credit, nor shall
either result from the making thereof; and
(c) no injunction, writ, restraining order, or other
order of any nature prohibiting, directly or indirectly, the extending of such
credit shall have been issued and remain in force by any governmental authority
against any Borrower, Foothill, or any of their Affiliates.
3.3 CONDITION SUBSEQUENT. As a condition subsequent to the
making of the initial Advance, the Borrowers shall perform or cause to be
performed the following (the failure by the Borrowers to so perform or cause to
be performed constituting an Event of Default hereunder):
(a) within thirty 30 days of the Closing Date, deliver to
Foothill the certified copies of the policies of insurance, together with the
endorsements thereto, as are required by
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Section 6.10 hereof, the form and substance of which shall be satisfactory to
Foothill and its counsel.
3.4 TERM AND TERMINATION. This Agreement shall become
effective on the Effective Date and this Agreement shall continue in full force
and effect for a term ending on the date (the "Renewal Date") that is three (3)
years from the Effective Date and automatically shall be renewed for successive
1 year periods thereafter, unless sooner terminated pursuant to the terms
hereof. Either all of the Borrowers, on the one hand, or Foothill, on the other
hand, may terminate this Agreement effective on the Renewal Date or on any 1
year anniversary of the Renewal Date by giving the other party at least 90 days
prior written notice. The foregoing notwithstanding, Foothill shall have the
right to terminate its obligations under this Agreement immediately and without
notice upon the occurrence and during the continuation of an Event of Default.
3.5 EFFECT OF TERMINATION. On the date of termination of this
Agreement, all Obligations (including any contingent reimbursement obligations
of any Borrower) immediately shall become due and payable without notice or
demand. No termination of this Agreement, however, shall relieve or discharge
any Borrower of such Borrower's duties, Obligations, or covenants hereunder, and
Foothill's continuing Liens on the Collateral shall remain in effect until all
Obligations have been fully and finally discharged and Foothill's obligation to
provide additional credit hereunder is terminated. If Borrower has sent a notice
of termination pursuant to the provisions of Section 3.4, but fails to pay the
Obligations in full on the date set forth in said notice, then Foothill may, but
shall not be required to, renew this Agreement for an additional term of 1 year.
3.6 EARLY TERMINATION BY THE BORROWERS. (a) The provisions of
Section 3.4 that allow termination of this Agreement by the Borrowers only on
the Renewal Date and certain anniversaries thereof notwithstanding, the
Borrowers have the option, at any time upon 90 days prior written notice to
Foothill, to terminate this Agreement by paying to Foothill, in cash, the
Obligations, in full, together with a premium (the "Early Termination Premium")
equal to the product of (i) the then existing Maximum Amount (giving effect to
any increases that have become effective before, or that become effective on,
the date of such termination) times (ii) a percentage equal to (x) from and
after the Effective Date and through and including the first anniversary of the
Closing Date, 3%, (y) from and after the day immediately following the first
anniversary of the Closing Date and through and including the second anniversary
of the Closing Date, 2%, and (z) thereafter, 1%.
(b) Section 3.6(a) notwithstanding, in the event that
the Borrowers timely exercise the Borrowers' option to terminate this Agreement
pursuant to Section 3.6(a) and the Obligations are repaid in full in cash in
connection with the consummation of a Qualified Transaction, the Early
Termination Premium payable shall be one-half (1/2) of the applicable amount
otherwise payable.
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As used herein, "Qualified Transaction" means the sale of all or
substantially all of the assets or stock of Midcom to any Person other
than any Borrower (including a sale effected by one or more mergers,
consolidations, reorganizations, or other transactions providing for
the conversion or exchange of more than 50% of the outstanding shares
of common stock of Midcom into securities of any Person other than any
Borrower, or cash, or property, or any combination of any of the
foregoing forms of consideration), which transaction shall not be
financed in whole or in part by Foothill or any Participant.
3.7 TERMINATION UPON EVENT OF DEFAULT. If Foothill terminates
this Agreement upon the occurrence of an Event of Default, in view of the
impracticability and extreme difficulty of ascertaining actual damages and by
mutual agreement of the parties as to a reasonable calculation of Foothill's
lost profits as a result thereof, the Borrowers shall pay to Foothill upon the
effective date of such termination, a premium in an amount equal to the Early
Termination Premium. The Early Termination Premium shall be presumed to be the
amount of damages sustained by Foothill as the result of the early termination
and the Borrowers agree that it is reasonable under the circumstances currently
existing. The Early Termination Premium provided for in this Section 3.7 shall
be deemed included in the Obligations.
4. CREATION OF LIENS.
4.1 GRANT OF LIENS. Each Borrower hereby grants to Foothill a
continuing Lien on all right, title, and interest of such Borrower in and to all
currently existing and hereafter acquired or arising Personal Property
Collateral in order to secure prompt repayment of any and all Obligations and in
order to secure prompt performance by the Borrowers of each of the Borrowers'
covenants and duties under the Loan Documents. Foothill's Liens on the Personal
Property Collateral shall attach to all Personal Property Collateral without
further act on the part of Foothill or any Borrower. Anything contained in this
Agreement or any other Loan Document to the contrary notwithstanding, except for
Permitted Dispositions, no Borrower has any authority, express or implied, to
dispose of any item or portion of the Personal Property Collateral or any Real
Property.
4.2 NEGOTIABLE COLLATERAL. In the event that any Collateral,
including proceeds, is evidenced by or consists of Negotiable Collateral, the
appropriate Borrower, immediately upon the request of Foothill, shall endorse
and deliver physical possession of such Negotiable Collateral to Foothill to the
extent necessary for Foothill to perfect, and maintain the priority of, its Lien
thereon.
4.3 COLLECTION OF ACCOUNTS, GENERAL INTANGIBLES, AND
NEGOTIABLE COLLATERAL. At any time upon the occurrence and during the
continuance of an Event of Default, Foothill or Foothill's designee may (a)
notify customers or Account Debtors of any
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Borrower that the Accounts, General Intangibles, or Negotiable Collateral have
been assigned to Foothill or that Foothill has a Lien thereon, and (b) collect
the Accounts, General Intangibles, and Negotiable Collateral directly and charge
the collection costs and expenses to the Loan Account. Each Borrower agrees that
it will hold in trust for Foothill, as Foothill's trustee, any Collections that
it receives and immediately will deliver said Collections to Foothill in their
original form as received by such Borrower.
4.4 DELIVERY OF ADDITIONAL DOCUMENTATION REQUIRED. At any time
upon the request of Foothill, each Borrower shall execute and deliver to
Foothill all financing statements, continuation financing statements, fixture
filings, security agreements, chattel mortgages, Mortgages, pledges,
assignments, endorsements of certificates of title, applications for title,
affidavits, reports, notices, schedules of accounts, letters of authority,
Clearinghouse Notifications, Collateral Access Agreements, and all other
documents that Foothill reasonably may request, in form satisfactory to
Foothill, to perfect and continue perfected Foothill's Liens on the Collateral,
and in order to fully consummate all of the transactions contemplated hereby and
under the other the Loan Documents. Without limiting the generality of the
foregoing, from and after such time as any Borrower becomes a switch-based
operator, such Borrower shall execute and deliver to Foothill all financing
statements that Foothill reasonably may request and shall cause to be executed
and delivered such Collateral Access Agreements from the lessors, warehousemen,
bailees, and mortgagees of the locations where the switching Equipment is
located, and such Collateral Access Agreements and intercreditor agreements from
lessors or secured financers of such switching Equipment, if and as required by
Foothill. Without limiting the foregoing, each Borrower agrees to execute and
deliver any supplementary Control Agreements, security agreements, financing
statements, or other documents reasonably required by Foothill to create,
perfect, or maintain the perfection or priority of, its Liens on such Borrower's
Investment Property (subject to the remedial restrictions contained herein).
4.5 POWER OF ATTORNEY. Each Borrower hereby irrevocably makes,
constitutes, and appoints Foothill (and any of Foothill's officers, employees,
or agents designated by Foothill) as such Borrower's true and lawful attorney,
with power to (a) if such Borrower refuses to, or fails timely to execute and
deliver any of the documents described in Section 4.4, sign the name of such
Borrower on any of the documents described in Section 4.4, (b) at any time that
an Event of Default has occurred and is continuing or Foothill deems itself
insecure, sign such Borrower's name on any invoice or ▇▇▇▇ of lading relating to
any Account, drafts against Account Debtors, schedules and assignments of
Accounts, verifications of Accounts, and notices to Account Debtors, (c) send
requests for verification of Accounts (in a form reasonably acceptable to such
Borrower), (d) endorse such Borrower's name on any Collection item of such
Borrower that may come into Foothill's possession, (e) at any time that an Event
of Default has occurred and is continuing or Foothill deems itself insecure,
notify the post office authorities to change the address for delivery of such
Borrower's mail to an address designated by Foothill, to receive and open all
mail addressed to such Borrower,
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and to retain all mail relating to the Collateral and forward all other mail to
such Borrower, (f) at any time that an Event of Default has occurred and is
continuing or Foothill deems itself insecure, make, settle, and adjust all
claims under such Borrower's policies of insurance and make all determinations
and decisions with respect to such policies of insurance, and (g) at any time
that an Event of Default has occurred and is continuing or Foothill deems itself
insecure, settle and adjust disputes and claims respecting the Accounts directly
with Account Debtors, for amounts and upon terms that Foothill determines to be
reasonable, and Foothill may cause to be executed and delivered any documents
and releases that Foothill determines to be necessary. The appointment of
Foothill as each Borrower's attorney pursuant to this Section 4.5, and each and
every one of Foothill's rights and powers, being coupled with an interest, is
irrevocable until all of the Obligations have been fully and finally repaid and
performed and Foothill's obligation to extend credit hereunder is terminated. To
the extent Foothill takes any action under any of clauses (a), (b), (e), (f), or
(g) of this Section 4.5, Foothill will endeavour in good faith to provide notice
to the relevant Borrower of such action, but any failure of Foothill to do so
shall not result in any liability to Foothill whatsoever unless and to the
extent such failure arose from the willful misconduct, gross negligence, or bad
faith of Foothill.
4.6 RIGHT TO INSPECT. Prior to the time that an Event of
Default has occurred and is continuing or Foothill deems itself insecure,
Foothill (through any of its officers, employees, or agents) shall have the
right, from time to time (subject to Section 2.8(d)) during normal business
hours and without substantially disrupting the applicable Borrower's normal
business operations, to inspect any Books and Records and to check, test, and
appraise the Collateral in order to verify any one or more of the Borrowers'
financial condition or the amount, quality, value, condition of, or any other
matter relating to, the Collateral. After the time that an Event of Default has
occurred and is continuing or at any time that Foothill deems itself insecure,
Foothill (through any of its officers, employees, or agents) shall have the
right, from time to time thereafter and at any time or times determined by
Foothill in its sole and absolute discretion, to inspect any Books and Records
and to check, test, and (subject to Section 2.8(d)) appraise the Collateral in
order to verify Borrower's financial condition or the amount, quality, value,
condition of, or any other matter relating to, the Collateral, irrespective of
whether any such action disrupts Borrower's normal business operations.
4.7 CONTROL AGREEMENTS. Foothill agrees that it will not give
any Notice of Exclusive Control unless an Event of Default has occurred and is
continuing or Foothill deems itself insecure. Each Borrower agrees that it will
not transfer assets out of any Securities Accounts other than in the ordinary
course of business or as otherwise permitted hereunder and, if to another
securities intermediary, unless each of such Borrower, Foothill, and the
substitute securities intermediary have entered into a Control Agreement. No
arrangement contemplated hereby or by any Control Agreement in respect of any
Securities Accounts or other Investment Property shall be modified by any
Borrower without the prior written consent of Foothill. Upon the occurrence and
during the continuance of an Event of Default or if Foothill deems itself
insecure, Foothill may elect to notify any securities
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intermediary to liquidate or transfer any Investment Property held thereby and
remit the proceeds thereof to the Foothill Account.
5. REPRESENTATIONS AND WARRANTIES.
In order to induce Foothill to enter into this Agreement, each
Borrower makes the following representations and warranties with respect to such
Borrower or its assets, which shall be true, correct, and complete in all
respects as of the date hereof, and shall be true, correct, and complete in all
respects as of the Effective Date, and at and as of the date of the making of
each Advance, as though made on and as of the date of such Advance (except to
the extent that such representations and warranties relate solely to an earlier
date) and such representations and warranties shall survive the execution and
delivery of this Agreement:
5.1 NO LIENS. Such Borrower has good and indefeasible title to
the Collateral owned by such Borrower, free and clear of Liens, except for
Permitted Liens.
5.2 ELIGIBLE ACCOUNTS. The Eligible Accounts of such Borrower
are bona fide existing obligations created by the sale and delivery of Inventory
or General Intangibles or the rendition of services to Account Debtors in the
ordinary course of such Borrower's business, unconditionally owed to such
Borrower without defenses, disputes, offsets, counterclaims, or rights of return
or cancellation except to the extent that the effect of such defenses, disputes,
offsets, counterclaims, rights of return or cancellation have been excluded on
the applicable Borrowing Base Certificate. The property giving rise to such
Eligible Accounts has been delivered or provided to the Account Debtor, or to
the Account Debtor's agent for immediate shipment or delivery to and
unconditional acceptance by the Account Debtor. Such Borrower has not received
notice of actual or imminent bankruptcy, insolvency, or material impairment of
the financial condition of any Account Debtor regarding any Eligible Account.
5.3 EQUIPMENT. Except as set forth on Schedule 5.3, all of the
Equipment owned by such Borrower is used or held for use in such Borrower's
business and is fit for such purposes and is personal property.
5.4 LOCATION OF INVENTORY AND EQUIPMENT. Except as set forth
on Schedule 5.4, the Inventory and Equipment are not stored with a bailee,
warehouseman, or similar party (without Foothill's prior written consent).
Except as set forth on Schedule 5.4, the Inventory and Equipment are located
only at the locations identified on Schedule 6.13.
5.5 INVENTORY RECORDS. Such Borrower now keeps, and hereafter
at all times shall keep, correct and accurate records itemizing and describing
the kind, type, quality, and quantity of any Inventory of such Borrower, and
such Borrower's cost therefor.
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5.6 LOCATION OF CHIEF EXECUTIVE OFFICE; FEIN. The chief
executive office of such Borrower is located at the addresses indicated in the
introductory paragraph of this Agreement. The FEIN of Midcom is ▇▇-▇▇▇▇▇▇▇. The
FEIN of AdVal is 52- 1841828. The FEIN of AdVal Data is ▇▇-▇▇▇▇▇▇▇. The FEIN of
A.N.D. is ▇▇-▇▇▇▇▇▇▇. The FEIN of Cel-Tech is ▇▇-▇▇▇▇▇▇▇. The FEIN of PacNet is
▇▇-▇▇▇▇▇▇▇.
5.7 DUE ORGANIZATION AND QUALIFICATION; NO SUBSIDIARIES EXCEPT
AS DISCLOSED.
(a) Such Borrower is duly organized and existing and
in good standing under the laws of the jurisdiction of its incorporation and
qualified and licensed to do business in, and in good standing in, any state
where the failure to be so licensed or qualified reasonably could be expected to
have a Material Adverse Change.
(b) Set forth on Schedule 5.7 is a complete and
accurate list of each of the direct and indirect Subsidiaries of such Borrower,
showing: (i) the jurisdiction of their incorporation; (ii) the number of shares
of each class of common and preferred stock authorized for each such Subsidiary;
and (iii) the number and the percentage of the outstanding shares of each such
class owned directly or indirectly by such Borrower. All of the outstanding
capital stock of each such Subsidiary has been validly issued and is fully paid
and non-assessable.
(c) Except as set forth on Schedule 5.7, no capital
stock (or any securities, instruments, warrants, options, purchase rights,
conversion or exchange rights, calls, commitments or claims of any character
convertible into or exercisable for capital stock) of any direct or indirect
Subsidiary of such Borrower is subject to the issuance of any security,
instrument, warrant, option, purchase right, conversion or exchange right, call,
commitment or claim of any right, title, or interest therein or thereto.
(d) Each Non-Material Subsidiary (i) does not own any
property or assets with a book value in excess of $50,000, (ii) does not
currently engage in any material business activity, and (iii) does not intend in
the future to engage in any material business activity.
5.8 DUE AUTHORIZATION; NO CONFLICT.
(a) The execution, delivery, and performance by such
Borrower of this Agreement and the Loan Documents to which it is a party have
been duly authorized by all necessary corporate action.
(b) The execution, delivery, and performance by such
Borrower of this Agreement and the Loan Documents to which it is a party do not
and will not (i) violate any provision of federal, state, or local law or
regulation (including Regulations G, T, U, and
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X of the Federal Reserve Board) applicable to such Borrower, the Governing
Documents of such Borrower, or any order, judgment, or decree of any court or
other Governmental Authority binding on such Borrower, (ii) conflict with,
result in a breach of, or constitute (with due notice or lapse of time or both)
a default under any material contractual obligation (including the Subordinated
Notes Indenture) or material lease of such Borrower, (iii) result in or require
the creation or imposition of any Lien of any nature whatsoever upon any
properties or assets of such Borrower, other than Permitted Liens, or (iv)
require any approval of stockholders or any approval or consent of any Person
under any material contractual obligation of such Borrower.
(c) Other than the filing of appropriate financing
statements, fixture filings, similar security filings, and mortgages, the
execution, delivery, and performance by such Borrower of this Agreement and the
Loan Documents to which such Borrower is a party do not and will not require any
registration with, consent, or approval of, or (except for Midcom's filings with
the Securities Exchange Commission in the ordinary course of Midcom's business)
notice to, or other action with or by, any federal, state, foreign, or other
Governmental Authority or other Person.
(d) This Agreement and the other Loan Documents to
which such Borrower is a party, and all other documents contemplated hereby and
thereby, when executed and delivered by such Borrower will be the legally valid
and binding obligations of such Borrower, enforceable against such Borrower in
accordance with their respective terms, except as enforcement may be limited by
equitable principles or by bankruptcy, insolvency, reorganization, moratorium,
or similar laws relating to or limiting creditors' rights generally.
(e) The Liens granted by such Borrower to Foothill in
and to its properties and assets pursuant to this Agreement and the other Loan
Documents are validly created, perfected, and first priority Liens, subject only
to Permitted Liens.
5.9 LITIGATION. There are no actions or proceedings pending by
or against such Borrower before any court or administrative agency and no
Borrower has any knowledge or belief of any pending, threatened, or imminent
litigation, governmental investigations, or claims, complaints, actions, or
prosecutions involving any Borrower or any guarantor of the Obligations, except
for: (a) ongoing collection matters in which Borrower is the plaintiff; (b)
matters disclosed on Schedule 5.9; and (c) matters arising after the date hereof
that, if decided adversely to any one or more of the Borrowers, would not have a
Material Adverse Change.
5.10 NO MATERIAL ADVERSE CHANGE. All financial statements
relating to such Borrower or any guarantor of the Obligations that have been
delivered by such Borrower to Foothill have been prepared in accordance with
GAAP (except, in the case of unaudited financial statements, for the lack of
footnotes and being subject to year-end audit adjustments) and fairly present
such Borrower's (or such guarantor's, as applicable) financial condition as
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of the date thereof and such Borrower's results of operations for the period
then ended. There has not been a Material Adverse Change with respect to any
Borrower (or such guarantor, as applicable) since the date of the latest
financial statements submitted to Foothill on or before the Effective Date.
5.11 SOLVENCY. Such Borrower is Solvent. No transfer of
property is being made by such Borrower and no obligation is being incurred by
such Borrower in connection with the transactions contemplated by this Agreement
or the other Loan Documents with the intent to hinder, delay, or defraud either
present or future creditors of any Borrower.
5.12 EMPLOYEE BENEFITS. No Borrower or any ERISA Affiliate
thereof maintains or contributes to any Benefit Plan, other than those listed on
Schedule 5.12. Each Borrower and each ERISA Affiliate thereof have satisfied the
minimum funding standards of ERISA and the IRC with respect to each Benefit Plan
to which it is obligated to contribute. No ERISA Event has occurred nor has any
other event occurred that may result in an ERISA Event that reasonably could be
expected to result in a Material Adverse Change. Except for the Borrowers'
obligations with respect to "401(k) Plan" contributions, no Borrower or any
ERISA Affiliate thereof, or any fiduciary of any Plan is subject to any direct
or indirect liability with respect to any Benefit Plan under any applicable law,
treaty, rule, regulation, or agreement. No Borrower or any ERISA Affiliate
thereof is required to provide security to any Benefit Plan under Section
401(a)(29) of the IRC.
5.13 ENVIRONMENTAL CONDITION. Such Borrower has not used and,
to the best of such Borrower's knowledge, no other previous owners or operators
have used or permitted the use of such Borrower's properties or assets to treat,
store for more than 90 days, produce, transport, release, or dispose of any
Hazardous Materials except in compliance with all Environmental Laws in all
material respects. Such Borrower has not received any notice designating or
identifying any of such Borrower's properties or assets as a Hazardous Materials
disposal site or candidate for closure pursuant to any Environmental Law. No
Lien arising under any Environmental Law has attached to any revenues or to any
real or personal property owned or operated by such Borrower. Such Borrower has
not received a summons, citation, notice, or directive from the Environmental
Protection Agency or any other federal or state governmental agency concerning
any action or omission by such Borrower resulting in the releasing or disposing
of Hazardous Materials into the environment.
5.14 MATERIAL CARRIERS. The Material Carriers collectively
account for not less than 95% of the aggregate amount of the Borrowers' volume
of telecommunications traffic through Carriers. Each Carrier Agreement in
respect of a Material Carrier is in full force and effect and no Borrower is in
material default thereunder.
5.15 RELIANCE BY FOOTHILL; CUMULATIVE. Each warranty and
representation contained in this Agreement automatically shall be deemed
repeated with each extension of
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credit hereunder and shall be conclusively presumed to have been relied on by
Foothill regardless of any investigation made or information possessed by
Foothill. The warranties and representations set forth herein shall be
cumulative and in addition to any and all other warranties and representations
that any Borrower now or hereafter shall give, or cause to be given, to
Foothill.
6. AFFIRMATIVE COVENANTS.
Each Borrower covenants and agrees that, so long as any credit
hereunder shall be available and until full and final payment of the
Obligations, and unless Foothill shall otherwise consent in writing, such
Borrower shall do all of the following:
6.1 ACCOUNTING SYSTEM. Maintain a standard and modern system
of accounting in accordance with GAAP with ledger and account cards or computer
tapes, disks, printouts, and records pertaining to the Collateral which contain
information as from time to time may be reasonably requested by Foothill.
6.2 COLLATERAL REPORTING. Provide Foothill with the following
documents at the following times in form satisfactory to Foothill: (a) on each
Business Day (or on such less frequent basis satisfactory to Foothill), (i) a
sales journal, collection journal, and collection register containing all
entries since the last such journals and register delivered hereunder, (ii) a
Borrowing Base Certificate, (iii) a report summarizing all written disputes or
claims with respect to Accounts received by such Borrower and not previously
reported to Foothill, (iv) a report with respect to unbilled Direct Accounts of
such Borrower, and (v) a report detailing contra Accounts with respect to each
of Eligible Direct Accounts, Eligible LEC Accounts, and Eligible Unbilled Direct
Accounts, (b) on a monthly basis and, in any event, by no later than the 10th
day of each month during the term of this Agreement, (i) a Borrowing Base
Certificate containing a detailed calculation of the Borrowing Base, (ii) a
detailed aging, by total, of the Accounts, together with a reconciliation to the
detailed calculation of the Borrowing Base previously provided to Foothill,
(iii) a summary aging, by vendor, of such Borrower's accounts payable and any
book overdraft, and (iv) a summary aging, by state and by municipality, of such
Borrower's tax obligations in respect of state or municipal taxes (such as,
without limitation, excise taxes) that in any way relate to the provision of
telecommunications services, (c) upon request, copies of invoices in connection
with the Accounts, customer statements, credit memos, remittance advices and
reports, deposit slips, and purchase orders and invoices, and (d) such other
reports as to the Collateral or the financial condition of such Borrower as
Foothill may request from time to time. Such Borrower shall ▇▇▇▇ Account Debtors
with respect to Direct Accounts within 45 days after the close of any monthly
billing period.
6.3 FINANCIAL STATEMENTS, REPORTS, CERTIFICATES. Deliver to
Foothill: (a) as soon as available, but in any event within 30 days after the
end of each month during the
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term of this Agreement, a company prepared balance sheet, income statement, and
cash flow statement covering such Borrower's operations during such month; and
(b) as soon as available, but in any event within 90 days after the end of each
of such Borrower's fiscal years ending either immediately prior to the beginning
of, or during, the term of this Agreement, financial statements of such Borrower
for each such fiscal year, audited by independent certified public accountants
reasonably acceptable to Foothill and certified, without any qualifications, by
such accountants to have been prepared in accordance with GAAP, together with a
certificate of such accountants addressed to Foothill stating that such
accountants do not have knowledge of the existence of any Default or Event of
Default. Such audited financial statements shall include a balance sheet, profit
and loss statement, and cash flow statement, and, if prepared, such accountants'
letter to management. With respect to any Borrower that is a parent company of
one or more Subsidiaries, or is a Subsidiary or Affiliate of another company,
then, in addition to the financial statements referred to above, such Borrower
agrees to deliver financial statements prepared on a consolidating basis so as
to present such Borrower and each such related entity separately, and on a
consolidated basis.
Together with the above, Midcom also shall deliver to Foothill
Midcom's Form 10-Q Quarterly Reports, Form 10-K Annual Reports, and Form 8-K
Current Reports, and any other filings made by Midcom with the Securities and
Exchange Commission under the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder or in respect thereof, within 3
Business Days of the date that the same are filed, or any other information that
is provided by any Borrower to its shareholders generally, and any other report
reasonably requested by Foothill relating to the financial condition of any one
or more of the Borrowers.
Within 10 Business Days of the end of each month, together
with the financial statements provided in accordance with Section 6.3(a), such
Borrower shall deliver to Foothill (i) a certificate signed by its chief
financial officer to the effect that: (w) all reports, statements, or computer
prepared information of any kind or nature delivered or caused to be delivered
to Foothill hereunder have been prepared in accordance with GAAP (except, in the
case of unaudited financial statements, for the lack of footnotes and being
subject to year-end audit adjustments) and fairly present the financial
condition of such Borrower, (x) the representations and warranties of such
Borrower contained in this Agreement and the other Loan Documents are true and
correct in all material respects on and as of the date of such certificate, as
though made on and as of such date (except to the extent that such
representations and warranties relate solely to an earlier date), (y) such
Borrower is not in default with respect to any of its obligations to any
Material Carrier under any Carrier Agreement, or, if such Borrower is in such
default, specifying the details of each such default, and (z) on the date of
delivery of such certificate to Foothill there does not exist any condition or
event that constitutes a Default or Event of Default (or, in each case, to the
extent of any non-compliance, describing such non-compliance as to which he or
she may have knowledge and what action such Borrower has taken, is taking, or
proposes to take with respect thereto), and
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(ii) for each month that also is the date on which a financial covenant in
Section 7.22 is to be tested, a Compliance Certificate demonstrating in
reasonable detail the Borrowers' compliance at the end of such period with the
applicable financial covenants contained in Section 7.22.
Each Borrower shall have issued written instructions to its
independent certified public accountants authorizing them to communicate with
Foothill and to release to Foothill whatever financial information concerning
any Borrower that Foothill may request. Each Borrower hereby irrevocably
authorizes and directs all auditors, accountants, or other third parties to
deliver to Foothill, at the Borrowers' expense, copies of each Borrower's
financial statements, papers related thereto, and other accounting records of
any nature in their possession, and to disclose to Foothill any information they
may have regarding any Borrower's business affairs and financial conditions.
6.4 TAX RETURNS. Deliver to Foothill copies of each of such
Borrower's future federal income tax returns, and any amendments thereto, within
30 days of the filing thereof with the Internal Revenue Service.
6.5 GUARANTOR REPORTS. Cause any guarantor of any of the
Obligations (other than any Borrower) to deliver its annual financial statements
at the time when Midcom provides its audited financial statements to Foothill
and copies of all federal income tax returns as soon as the same are available
and in any event no later than 30 days after the same are required to be filed
by law.
6.6 RETURNS. Returns and allowances, if any, as between such
Borrower and its Account Debtors shall be on the same basis and in accordance
with the usual customary practices of such Borrower, as they exist at the time
of the execution and delivery of this Agreement.
6.7 TITLE TO EQUIPMENT. Upon Foothill's request, immediately
deliver to Foothill, properly endorsed, any and all evidences of ownership of,
certificates of title, or applications for certificates of title, to any items
of Equipment of such Borrower.
6.8 MAINTENANCE OF EQUIPMENT. Maintain the Equipment of such
Borrower in good operating condition and repair (ordinary wear and tear
excepted), and make all necessary replacements thereto so that the value and
operating efficiency thereof shall at all times be maintained and preserved.
Such Borrower shall not permit any item of Equipment (other than applicable
items of Microwave Assets) of such Borrower to become a fixture to real estate
or an accession to other property, and the Equipment (other than applicable
items of Microwave Assets) of such Borrower shall at all times remain personal
property.
6.9 TAXES. All assessments and taxes, whether real, personal,
or otherwise, due or payable by, or imposed, levied, or assessed against any
Borrower or any of its property
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shall be paid in full, before delinquency or before the expiration of any
extension period. Such Borrower shall make due and timely payment or deposit of
all federal, state, and local taxes, assessments, or contributions required of
it by law, and will execute and deliver to Foothill, on demand, appropriate
certificates attesting to the payment thereof or deposit with respect thereto.
Such Borrower will make timely payment or deposit of all tax payments and
withholding taxes required of it by applicable laws, including those laws
concerning F.I.C.A., F.U.T.A., state disability, and local, state, and federal
income taxes, and will, upon request, furnish Foothill with proof satisfactory
to Foothill indicating that such Borrower has made such payments or deposits.
The foregoing to the contrary notwithstanding, no Borrower shall be required to
pay or discharge any such assessment or tax (other than: (x) payroll taxes, (y)
any taxes that are the subject of a federal tax Lien, and (z) any state or
municipal taxes (such as, without limitation, excise taxes) that in any way
relate to the provision of telecommunications services and give rise to Liens,
if any, that have priority over the prior perfected Liens of Foothill under the
laws of the States of California, Florida, Illinois, New York, Ohio, Texas, and
Washington) to the extent and so long as the validity thereof shall be the
subject of a Permitted Protest.
6.10 INSURANCE.
(a) At its expense, keep its Personal Property
Collateral insured against loss or damage by fire, theft, explosion, sprinklers,
and all other hazards and risks, and in such amounts, as are ordinarily insured
against by other owners in similar businesses. Such Borrower also shall maintain
business interruption, public liability, product liability, and property damage
insurance relating to such Borrower's ownership and use of its Personal Property
Collateral, as well as insurance against larceny, embezzlement, and criminal
misappropriation.
(b) At its expense, obtain and maintain (i) insurance
of the type necessary to insure the Improvements and Chattels (as such terms are
defined in the Mortgages), for the full replacement cost thereof, against any
loss by fire, lightning, windstorm, hail, explosion, aircraft, smoke damage,
vehicle damage, earthquakes, elevator collision, and other risks from time to
time included under "extended coverage" policies, in such amounts as Foothill
may require, but in any event in amounts sufficient to prevent such Borrower
from becoming a co-insurer under such policies, (ii) combined single limit
bodily injury and property damages insurance against any loss, liability, or
damages on, about, or relating to each parcel of Real Property Collateral, in an
amount of not less than $1,000,000; (iii) business rental insurance covering
annual receipts for a 12 month period for each parcel of Real Property
Collateral; and (iv) insurance for such other risks as Foothill may require.
Replacement costs, at Foothill's option, may be redetermined by an insurance
appraiser, satisfactory to Foothill, not more frequently than once every 12
months at such Borrower's cost.
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(c) [intentionally omitted]
(d) All such policies of insurance shall be in such
form, with such companies, and in such amounts as may be reasonably satisfactory
to Foothill. All insurance required herein shall be written by companies which
are authorized to do insurance business in the State of California. All hazard
insurance and such other insurance as Foothill shall specify, shall contain a
California Form 438BFU (NS) mortgagee endorsement, or an equivalent endorsement
satisfactory to Foothill, showing Foothill as sole loss payee thereof, and shall
contain a waiver of warranties. Every policy of insurance referred to in this
Section 6.10 shall contain an agreement by the insurer that it will not cancel
such policy except after 30 days prior written notice to Foothill and that any
loss payable thereunder shall be payable notwithstanding any act or negligence
of any Borrower or Foothill which might, absent such agreement, result in a
forfeiture of all or a part of such insurance payment and notwithstanding (i)
occupancy or use of the Real Property Collateral for purposes more hazardous
than permitted by the terms of such policy, (ii) any foreclosure or other action
or proceeding taken by Foothill pursuant to the Mortgages upon the happening of
an Event of Default, or (iii) any change in title or ownership of the Real
Property Collateral. The Borrowers shall deliver to Foothill certified copies of
such policies of insurance and evidence of the payment of all premiums therefor.
(e) Original policies or certificates thereof
satisfactory to Foothill evidencing such insurance shall be delivered to
Foothill at least 30 days prior to the expiration of the existing or preceding
policies. The Borrowers shall give Foothill prompt notice of any loss covered by
such insurance, and Foothill shall have the right to adjust any loss. Foothill
shall have the exclusive right to adjust all losses payable under any such
insurance policies without any liability to any Borrower whatsoever in respect
of such adjustments. Any monies received as payment for any loss under any
insurance policy including the insurance policies mentioned above, shall be paid
over to Foothill to be applied at the option of Foothill either to the
prepayment of the Obligations without premium, in such order or manner as
Foothill may elect, or shall be disbursed to the applicable Borrower under stage
payment terms satisfactory to Foothill for application to the cost of repairs,
replacements, or restorations. All repairs, replacements, or restorations shall
be effected with reasonable promptness and shall be of a value at least equal to
the value of the items or property destroyed prior to such damage or
destruction. Upon the occurrence of an Event of Default, Foothill shall have the
right to apply all prepaid premiums to the payment of the Obligations in such
order or form as Foothill shall determine.
(f) Each Borrower shall not take out separate
insurance concurrent in form or contributing in the event of loss with that
required to be maintained under this Section 6.10, unless Foothill is included
thereon as named insured with the loss payable to Foothill under a standard
California 438BFU (NS) Mortgagee endorsement, or its local equivalent. Such
Borrower immediately shall notify Foothill whenever such separate
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insurance is taken out, specifying the insurer thereunder and full particulars
as to the policies evidencing the same, and originals of such policies
immediately shall be provided to Foothill.
6.11 NO SETOFFS OR COUNTERCLAIMS. All payments hereunder and
under the other Loan Documents made by or on behalf of any Borrower shall be
made without setoff or counterclaim and free and clear of, and without deduction
or withholding for or on account of, any federal, state, or local taxes.
6.12 [INTENTIONALLY OMITTED].
6.13 LOCATION OF INVENTORY AND EQUIPMENT. Except as set forth
on schedule 5.4, keep the Inventory and Equipment of such Borrower only at the
locations identified on Schedule 6.13; provided, however, that the Borrowers may
amend Schedule 6.13 so long as such amendment occurs by written notice to
Foothill not less than 30 days prior to the date on which any such Inventory or
Equipment is moved to such new location, so long as such new location is within
the continental United States, and so long as, at the time of such written
notification, the applicable Borrower provides any financing statements or
fixture filings necessary to perfect and continue perfected Foothill's Liens on
such assets and also provides to Foothill a Collateral Access Agreement.
6.14 COMPLIANCE WITH LAWS. Comply with the requirements of all
applicable laws, rules, regulations, and orders of any governmental authority,
including the Fair Labor Standards Act and the Americans With Disabilities Act,
other than laws, rules, regulations, and orders the non-compliance with which,
individually or in the aggregate, would not have and could not reasonably be
expected to have a Material Adverse Change.
6.15 EMPLOYEE BENEFITS.
(a) Cause to be delivered to Foothill each of the following:
(i) promptly, and in any event within 10 Business Days after such Borrower or
any of its Subsidiaries knows or has reason to know that an ERISA Event has
occurred that reasonably could be expected to result in a Material Adverse
Change, a written statement of the chief financial officer of such Borrower
describing such ERISA Event and any action that is being taken with respect
thereto by such Borrower or any Subsidiary or ERISA Affiliate thereof, and any
action taken or threatened by the IRS, Department of Labor, or PBGC. Such
Borrower or such Subsidiary, as applicable, shall be deemed to know all facts
known by the administrator of any Benefit Plan of which it is the plan sponsor;
(ii) promptly, and in any event within 3 Business Days after the filing thereof
with the IRS, a copy of each funding waiver request filed with respect to any
Benefit Plan and all communications received by Borrower, any of its
Subsidiaries or, to the knowledge of Borrower, any ERISA Affiliate with respect
to such request; and (iii) promptly, and in any event within 3 Business Days
after receipt by such Borrower, any of its Subsidiaries or, to the knowledge of
such Borrower, any ERISA Affiliate thereof, of the
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PBGC's intention to terminate a Benefit Plan or to have a trustee appointed to
administer a Benefit Plan, copies of each such notice.
(b) Cause to be delivered to Foothill, upon Foothill's
request, each of the following: (i) a copy of each Benefit Plan of such Borrower
or any Subsidiary or ERISA Affiliate thereof (or, where any such plan is not in
writing, complete description thereof) (and if applicable, related trust
agreements or other funding instruments) and all amendments thereto, all written
interpretations thereof and written descriptions thereof that have been
distributed to employees or former employees of such Borrower or its
Subsidiaries; (ii) the most recent determination letter issued by the IRS with
respect to each Benefit Plan; (iii) for the three most recent plan years, annual
reports on Form 5500 Series required to be filed with any governmental agency
for each Benefit Plan; (iv) all actuarial reports prepared for the last three
plan years for each Benefit Plan; (v) a listing of all Multiemployer Plans, with
the aggregate amount of the most recent annual contributions required to be made
by such Borrower or any ERISA Affiliate thereof to each such plan and copies of
the collective bargaining agreements requiring such contributions; (vi) any
information that has been provided to such Borrower or any ERISA Affiliate
thereof regarding withdrawal liability under any Multiemployer Plan; and (vii)
the aggregate amount of the most recent annual payments made to former employees
of such Borrower or its Subsidiaries under any Retiree Health Plan.
6.16 LEASES. Pay when due all rents and other amounts payable
under any leases to which such Borrower is a party or by which such Borrower's
properties and assets are bound, unless such payments are the subject of a
Permitted Protest. To the extent that such Borrower fails timely to make payment
of such rents and other amounts payable when due under its leases, Foothill
shall be entitled, in its sole discretion, and without the necessity of
declaring an Event of Default, to reserve an amount equal to such unpaid amounts
against the Borrowing Base.
6.17 PERFORMANCE OF OBLIGATIONS TO CARRIERS. Make all payments
due from it to Carriers within 90 days of their due date except to the extent
the same are the subject of a Permitted Protest, and otherwise comply in all
material respects with such Borrower's non-monetary contractual obligations to
Carriers; provided that such Borrower shall not be in breach of this section by
virtue of claiming permitted credits and deductions, or by virtue of immaterial
breaches that would not permit Carriers to enforce default remedies. Should any
Borrower acquire knowledge that such Borrower is in breach of this section, or
should such Borrower receive a default notice from any Carrier, in each such
instance such Borrower immediately shall notify Foothill of same and all
relevant details pertaining thereto. If Foothill determines in good faith that
any Borrower is delinquent with respect to amounts owed to a Carrier, and that
such delinquency may have a material adverse effect upon the value or
collectibility of the Accounts (such as, by way of illustration but not by way
of limitation, where a Carrier threatens to contact customers of such Borrower
and give notices or assert demands that could confuse such customers or
interfere with collection of the affected
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Accounts by such Borrower or Foothill), then Foothill in its sole discretion may
elect to pay to such Carrier amounts claimed by such Carrier to be due from such
Borrower, whereupon such amounts so paid by Foothill shall become Foothill
Expenses immediately due and payable from Borrower to Foothill. To the extent
Foothill takes any action under the immediately preceding sentence, Foothill
will endeavour in good faith to provide notice to the relevant Borrower of such
action, but any failure of Foothill to do so shall not result in any liability
to Foothill whatsoever unless and to the extent such failure arose from the
willful misconduct, gross negligence, or bad faith of Foothill.
6.18 LEC AGREEMENTS, CARRIER AGREEMENTS, AND OTHER AGREEMENTS.
From time to time, if and as requested by Foothill, each Borrower shall deliver
to Foothill copies of all Billing Service Agreements, Carrier Agreements, and/or
other material agreements in effect between such Borrower, on the one hand, and
a LEC, Clearinghouse, or Carrier, on the other hand; provided that if any such
agreement contains confidentiality restrictions, Foothill will agree to
reasonable restrictions upon the use or dissemination of such agreement by
Foothill.
6.19 BROKERAGE INDEMNITY. Pay any and all brokerage
commissions or finder's fees incurred in connection with or as a result of the
Borrowers' obtaining financing from Foothill under this Agreement, and indemnify
and hold Foothill harmless from and against any claim of a broker or finder for
the payment of any brokerage commission or finder's fee arising out of the
Borrowers' obtaining financing from Foothill under this Agreement.
6.20 CONTINGENCY PLAN. Prior to the 60th day following the
Effective Date, the Borrowers shall have prepared and shall provide to Foothill
a formalized written contingency plan for backup computer operations, in
reasonable detail and including cost estimates and feasibility analysis, which
plan shall be reasonably satisfactory to Foothill.
6.21 NEW CARRIER NON-OFFSET AND CONSENT TO ASSIGNMENT
AGREEMENTS. With respect to any Carrier Agreement entered into after the Closing
Date, cause the relevant Carrier to duly execute and deliver to Foothill a
Carrier Non-Offset and Consent to Assignment Agreement in respect thereof.
7. NEGATIVE COVENANTS.
Each Borrower covenants and agrees that, so long as any credit
hereunder shall be available and until full and final payment of the
Obligations, such Borrower will not do any of the following without Foothill's
prior written consent:
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7.1 INDEBTEDNESS. Create, incur, assume, permit, guarantee, or
otherwise become or remain, directly or indirectly, liable with respect to any
Indebtedness, except (without duplication):
(a) Indebtedness evidenced by this Agreement;
(b) Indebtedness set forth in the latest financial
statements of Borrower submitted to Foothill on or prior to the Effective Date;
(c) Indebtedness evidenced by the Subordinated Notes;
(d) Indebtedness secured by Permitted Liens;
(e) any other unsecured Indebtedness in the aggregate
amount not to exceed $1,500,000 at any one time outstanding; and
(f) refinancings, renewals, or extensions of
Indebtedness permitted under clauses (b), (c), (d), and (e) of this Section 7.1
(and continuance or renewal of any Permitted Liens associated therewith) so long
as: (i) the terms and conditions of such refinancings, renewals, or extensions
do not materially impair the prospects of repayment of the Obligations by the
Borrowers, (ii) the net cash proceeds of such refinancings, renewals, or
extensions do not result in an increase in the aggregate principal amount of the
Indebtedness so refinanced, renewed, or extended, (iii) such refinancings,
renewals, refundings, or extensions do not result in a shortening of the average
weighted maturity of the Indebtedness so refinanced, renewed, or extended, and
(iv) to the extent that Indebtedness that is refinanced was subordinated in
right of payment to the Obligations, then the subordination terms and conditions
of the refinancing Indebtedness must be at least as favorable to Foothill as
those applicable to the refinanced Indebtedness.
7.2 LIENS. Create, incur, assume, or permit to exist, directly
or indirectly, any Lien on or with respect to any of the Collateral, except for
Permitted Liens (including Liens that are replacements of Permitted Liens to the
extent that the original Indebtedness is refinanced under Section 7.1(f) and so
long as the replacement Liens only encumber those assets or property that
secured the original Indebtedness).
7.3 RESTRICTIONS ON FUNDAMENTAL CHANGES. Except for Permitted
Fundamental Changes, enter into any acquisition, merger, consolidation,
reorganization, or recapitalization, or reclassify its capital stock, or
liquidate, wind up, or dissolve itself (or suffer any liquidation or
dissolution), or convey, sell, assign, lease, transfer, or otherwise dispose of,
in one transaction or a series of transactions, all or any substantial part of
its business, property, or assets, whether now owned or hereafter acquired, or
acquire by purchase or otherwise all or substantially all of the properties,
assets, stock, or other evidence
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of beneficial ownership of any Person (collectively, a "Fundamental Change
Transaction"). Without limiting the generality of the foregoing, no Borrower
shall cause, suffer, or permit any Non-Material Subsidiary to have any property
or assets with an aggregate book value in excess of $50,000 or to engage in any
material business activity. For the avoidance of doubt, the foregoing shall not
prevent any Borrower from solely executing and delivering a non-binding letter
of intent in respect of any Fundamental Change Transaction; provided, however,
that such Borrower shall not consummate any Fundamental Change Transaction
contemplated in any such letter of intent unless (i) such Borrower shall have
provided to Foothill all information, reports, and other items reasonably
requested by Foothill in respect of the contemplated Fundamental Change
Transaction, and (ii) Foothill, in its sole and absolute discretion, shall have
consented to such contemplated Fundamental Change Transaction(s) within 30 days
after the later of the date of Foothill's receipt of Borrower's written request
for such consent and the date of Foothill's receipt of all such information,
reports, and other items; provided further that any such contemplated
Fundamental Change Transaction that is not expressly consented to in writing by
Foothill within such period shall be deemed to have been rejected by Foothill.
7.4 EXTRAORDINARY TRANSACTIONS AND DISPOSAL OF ASSETS. Except
for Permitted Dispositions and except as may be permitted by Section 7.3, enter
into any transaction not in the ordinary and usual course of such Borrower's
business, including the sale, lease, or other disposition of, moving,
relocation, or transfer, whether by sale or otherwise, of any of such Borrower's
properties or assets.
7.5 CHANGE NAME. Change such Borrower's name, FEIN, corporate
structure (within the meaning of Section 9402(7) of the Code), or identity, or
add any new fictitious name, unless such Borrower shall have provided Foothill
not less than 30 days prior written notice of any such proposed change and
executed and delivered to Foothill such documents (including financing
statements, fixture filings, and Collateral Access Agreements) as Foothill may
reasonably request.
7.6 GUARANTEE. Guarantee or otherwise become in any way liable
with respect to the obligations of any third Person except by endorsement of
instruments or items of payment for deposit to the account of such Borrower or
which are transmitted or turned over to Foothill.
7.7 RESTRUCTURE. Make any change in such Borrower's corporate
structure, the principal nature of such Borrower's business operations, or the
date of its fiscal year.
7.8 PREPAYMENTS; AMENDMENTS TO DOCUMENTS. (a) Except in
connection with a refinancing permitted by Section 7.1(f), prepay, redeem,
retire, defease, purchase, or otherwise acquire any Indebtedness owing to any
third Person, other than the Obligations in accordance with this Agreement, and
(b) directly or indirectly, amend, modify,
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alter, increase, or change any of the terms or conditions of any agreement,
instrument, document, indenture, or other writing evidencing or concerning
Indebtedness permitted under Sections 7.1(b), (c), (d), (e), or (f).
7.9 CHANGE OF CONTROL. Cause, permit, or suffer, directly or
indirectly, any Change of Control.
7.10 CAPITAL EXPENDITURES. (a) The Borrowers shall not make
any capital expenditures in respect of switching Equipment and related
improvements in excess of $19,000,000 in the aggregate during the term of this
Agreement.
(b) The Borrowers shall not make any other capital
expenditures during any fiscal year in excess of: (i) with respect to fiscal
year 1997 of Midcom, $6,000,000, and (ii) with respect to any fiscal year of
Midcom after fiscal year 1997, 120% of the amount of capital expenditures
permitted under this Section 7.10 for the immediately preceding fiscal year of
Midcom.
7.11 CONSIGNMENTS. Consign any Inventory or sell any Inventory
on ▇▇▇▇ and hold, sale or return, sale on approval, or other conditional terms
of sale.
7.12 DISTRIBUTIONS. Except for the Permitted Stock Redemption,
make any distribution or declare or pay any dividends (in cash or other
property, other than capital stock) on, or purchase, acquire, redeem, or retire
any of such Borrower's capital stock, of any class, whether now or hereafter
outstanding.
7.13 ACCOUNTING METHODS. Modify or change its method of
accounting or enter into, modify, or terminate any agreement currently existing,
or at any time hereafter entered into with any third party accounting firm or
service bureau for the preparation or storage of such Borrower's accounting
records without said accounting firm or service bureau agreeing to provide
Foothill information regarding the Collateral or such Borrower's financial
condition. Each Borrower waives the right to assert a confidential relationship,
if any, it may have with any accounting firm or service bureau in connection
with any information requested by Foothill pursuant to or in accordance with
this Agreement, and agrees that Foothill may contact directly any such
accounting firm or service bureau in order to obtain such information.
7.14 INVESTMENTS. Directly or indirectly make, acquire, or
incur any liabilities (including contingent obligations) for or in connection
with (a) the acquisition of the securities of (whether debt or equity), or other
interests in, a Person, (b) loans, advances, capital contributions, equity
contributions, or transfers of property to a Person, or (c) the acquisition of
all or substantially all of the properties or assets of a Person. The foregoing
notwithstanding, after the Effective Date, any Borrower may make investments in
DTI,
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including equity investments and intercompany loans, advances, or accounts,
that do not exceed $500,000 in the aggregate for all Borrowers at any one time
outstanding.
7.15 TRANSACTIONS WITH AFFILIATES. Directly or indirectly
enter into or permit to exist any material transaction with any Affiliate of any
Borrower except for (a) Permitted Fundamental Changes, (b) the transactions
described on Schedule 7.15, and (c) transactions that are (i) in the ordinary
course of such Borrower's business, (ii) upon fair and reasonable terms, (iii)
are fully disclosed to Foothill, and (iv) are no less favorable to such Borrower
than would be obtained in an arm's length transaction with a non-Affiliate.
7.16 SUSPENSION. Suspend or go out of a substantial portion of
its business.
7.17 [INTENTIONALLY OMITTED].
7.18 USE OF PROCEEDS. Use the proceeds of the Advances made
hereunder for any purpose other than: (a) to pay transactional costs and
expenses incurred in connection with this Agreement; and (b) consistent with the
terms and conditions hereof, for its lawful and permitted corporate purposes.
7.19 CHANGE IN LOCATION OF CHIEF EXECUTIVE OFFICE; INVENTORY
AND EQUIPMENT WITH BAILEES. Without 30 days prior written notification to
Foothill, relocate its chief executive office to a new location, unless, at the
time of such written notification, such Borrower provides any financing
statements or fixture filings necessary to perfect and continue perfected
Foothill's Liens and also provides to Foothill a Collateral Access Agreement.
Except as set forth on Schedule 5.4, the Inventory and Equipment shall not at
any time now or hereafter be stored with a bailee, warehouseman, or similar
party without Foothill's prior written consent.
7.20 NO PROHIBITED TRANSACTIONS UNDER ERISA OR IRC. Directly
or indirectly:
(a) Engage, or permit any Subsidiary of such Borrower to
engage, in any prohibited transaction which is reasonably likely to result in a
civil penalty or excise tax described in Sections 406 of ERISA or 4975 of the
IRC for which a statutory or class exemption is not available or a private
exemption has not been previously obtained from the Department of Labor;
(b) permit to exist with respect to any Benefit Plan any
accumulated funding deficiency (as defined in Sections 302 of ERISA and 412 of
the IRC), whether or not waived;
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(c) fail, or permit any Subsidiary of such Borrower to fail,
to pay timely required contributions or annual installments due with respect to
any waived funding deficiency to any Benefit Plan;
(d) terminate, or permit any Subsidiary of such Borrower to
terminate, any Benefit Plan where such event would result in any liability of
such Borrower, any of its Subsidiaries or any ERISA Affiliate thereof under
Title IV of ERISA;
(e) fail, or permit any Subsidiary of such Borrower to fail,
to make any required contribution or payment to any Multiemployer Plan;
(f) fail, or permit any Subsidiary of such Borrower to fail,
to pay any required installment or any other payment required under Section 412
of the IRC on or before the due date for such installment or other payment;
(g) amend, or permit any Subsidiary of such Borrower to amend,
a Plan resulting in an increase in current liability for the plan year such that
either of such Borrower, any Subsidiary of Borrower or any ERISA Affiliate
thereof is required to provide security to such Plan under Section 401(a)(29) of
the IRC; or
(h) withdraw, or permit any Subsidiary of such Borrower to
withdraw, from any Multiemployer Plan where such withdrawal is reasonably likely
to result in any liability of any such entity under Title IV of ERISA;
which, individually or in the aggregate for all Borrowers, results in or
reasonably would be expected to result in a claim against or liability of any
one or more of the Borrowers, their Subsidiaries, or their ERISA Affiliate in
excess of $100,000.
7.21 CONTRACTS WITH CARRIERS, LECS, OR CLEARINGHOUSES. Enter
into any new contractual arrangements with Carriers, LECs, or Clearinghouses, or
materially amend, modify, or extend existing contractual arrangements with
Carriers, LECs, or Clearinghouses, if the effect would be to prohibit Foothill
from having a Lien on the rights of such Borrower thereunder, to prohibit
disclosure of the terms thereof to Foothill, to ▇▇▇▇▇ ▇ ▇▇▇▇ to the Carrier,
LEC, or Clearinghouse on any of the Collateral, to authorize any Carrier to
withhold delivery of call transaction record tapes other than after the
occurrence of a default under the relevant Carrier Agreement, or to authorize
any Carrier to contact or directly ▇▇▇▇ customers of such Borrower with respect
to services provided by such Carrier to such Borrower for resale to such
Borrower's customers.
7.22 FINANCIAL COVENANT. Maintain a consolidated Adjusted Net
Worth determined in accordance with GAAP of Midcom and its Subsidiaries of less
than the relevant amount set forth in the following table, measured on a fiscal
quarter-end basis:
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==========================================================================================
Period Ending Minimum Consolidated Adjusted Net Worth
------------------------------------------------------------------------------------------
6/30/97 ($15,852,000)
------------------------------------------------------------------------------------------
9/30/97 ($32,712,000)
------------------------------------------------------------------------------------------
12/31/97 ($45,686,000)
------------------------------------------------------------------------------------------
03/31/98 ($52,023,000)
------------------------------------------------------------------------------------------
06/30/98 ($55,557,000)
------------------------------------------------------------------------------------------
09/30/98 ($56,111,000)
------------------------------------------------------------------------------------------
12/31/98 ($54,804,000)
------------------------------------------------------------------------------------------
03/31/99 ($51,474,000)
------------------------------------------------------------------------------------------
06/30/99 ($45,960,000)
------------------------------------------------------------------------------------------
09/30/99 ($38,406,0000
------------------------------------------------------------------------------------------
12/31/99 ($29,000,0000
==========================================================================================
8. EVENTS OF DEFAULT.
Any one or more of the following events shall constitute an
event of default (each, an "Event of Default") under this Agreement:
8.1 If any one or more of the Borrowers fail to pay when due
and payable or when declared due and payable, any portion of the Obligations
(whether of principal, interest (including any interest which, but for the
provisions of the Bankruptcy Code, would have accrued on such amounts), fees and
charges due Foothill, reimbursement of Foothill Expenses, or other amounts
constituting Obligations);
8.2 If any one or more of the Borrowers fail or neglect to
perform, keep, or observe any term, provision, condition, covenant, or agreement
contained in this Agreement, in any of the Loan Documents, or in any other
present or future agreement between any one or more of the Borrowers and
Foothill;
8.3 If there is a Material Adverse Change;
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8.4 If any material portion of any Borrower's properties or
assets is attached, seized, subjected to a writ or distress warrant, or is
levied upon, or comes into the possession of any third Person;
8.5 If an Insolvency Proceeding is commenced by any Borrower;
8.6 If an Insolvency Proceeding is commenced against any
Borrower and any of the following events occur: (a) such Borrower consents to
the institution of the Insolvency Proceeding against it; (b) the petition
commencing the Insolvency Proceeding is not timely controverted; (c) the
petition commencing the Insolvency Proceeding is not dismissed within 60 days of
the date of the filing thereof; provided, however, that, during the pendency of
such period, Foothill shall be relieved of its obligation to extend credit
hereunder; (d) an interim trustee is appointed to take possession of all or a
substantial portion of the properties or assets of, or to operate all or any
substantial portion of the business of, such Borrower; or (e) an order for
relief shall have been issued or entered therein;
8.7 If any Borrower is enjoined, restrained, or in any way
prevented by court order from continuing to conduct all or any material part of
its business affairs;
8.8 If a notice of Lien, levy, or assessment is filed of
record with respect to any of any Borrower's properties or assets by the United
States Government, or any department, agency, or instrumentality thereof, or by
any state, county, municipal, or governmental agency, or if any taxes or debts
owing at any time hereafter to any one or more of such entities becomes a Lien,
whether ▇▇▇▇▇▇ or otherwise, upon any of any Borrower's properties or assets and
the same is not paid on the payment date thereof;
8.9 If a judgment or other claim becomes a Lien upon any
material portion of any Borrower's properties or assets;
8.10 (a) If there is a default in any material agreement with
Key Bank, any material agreement with Comdisco, or the Subordinated Notes
Indenture or any Subordinated Note, and such default (i) occurs at the final
maturity of the obligations thereunder, or (ii) results in a right by the third
Person party thereto or beneficiary thereof, irrespective of whether exercised,
to accelerate the maturity of the applicable Borrower's obligations thereunder;
or
(b) If there is a default in any Carrier Agreement
with a Material Carrier, and such default (i) occurs at the final maturity of
the obligations thereunder, (ii) results in a right by the Carrier party
thereto, irrespective of whether exercised, to accelerate the maturity of the
applicable Borrower's obligations thereunder, or (iii) results in the
termination by the applicable Carrier of such agreement; or
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(c) If there is a default (other than a default that,
individually or in the aggregate with all other defaults, could not reasonably
be expected to result in a Material Adverse Change) in any other material
agreement to which any Borrower is a party with one or more third Persons, and
such default (i) occurs at the final maturity of the obligations thereunder, or
(i) results in a right by such third Persons, irrespective of whether exercised,
to accelerate the maturity of such Borrower's obligations thereunder;
8.11 If any Borrower makes any payment on account of
Indebtedness that has been contractually subordinated in right of payment to the
payment of the Obligations (including Indebtedness evidenced by the Subordinated
Notes), except to the extent such payment is permitted by the terms of the
subordination provisions applicable to such Indebtedness;
8.12 If there occurs a "Change of Control" under the
Subordinated Notes Indenture, as amended or modified from time to time;
8.13 If any material misstatement or misrepresentation exists
now or hereafter in any warranty, representation, statement, or report made to
Foothill by any Borrower or any officer, employee (within the scope of his
employment), agent (within the scope of his agency), or director of any
Borrower, or if any such warranty or representation is withdrawn; or
8.14 If the obligation of any guarantor or other third Person
under any Loan Document is limited or terminated by operation of law or by the
guarantor or other third Person thereunder, or any such guarantor or other third
Person becomes the subject of an Insolvency Proceeding.
9. FOOTHILL'S RIGHTS AND REMEDIES.
9.1 RIGHTS AND REMEDIES. Upon the occurrence, and during the
continuation, of an Event of Default Foothill may, at its election, without
notice of its election and without demand, do any one or more of the following,
all of which are authorized by each Borrower:
(a) Declare all Obligations, whether evidenced by
this Agreement, by any of the other Loan Documents, or otherwise, immediately
due and payable;
(b) Cease advancing money or extending credit to or
for the benefit of any one or more of the Borrowers under this Agreement, under
any of the Loan Documents, or under any other agreement between any Borrower and
Foothill;
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(c) Terminate this Agreement and any of the other
Loan Documents as to any future liability or obligation of Foothill, but without
affecting Foothill's rights and Liens on the Personal Property Collateral or any
Real Property and without affecting the Obligations;
(d) Settle or adjust disputes and claims with respect
to Accounts directly with the relevant Account Debtors for amounts and upon
terms which Foothill considers advisable, and in such cases, Foothill will
credit the Borrowers' Loan Account with only the net amounts received by
Foothill in payment of such disputed Accounts after deducting all Foothill
Expenses incurred or expended in connection therewith;
(e) Cause each Borrower to hold all returned
Inventory in trust for Foothill, segregate all returned Inventory from all other
property of any Borrower or in any Borrower's possession and conspicuously label
said returned Inventory as the property of Foothill;
(f) Without notice to or demand upon any Borrower or
any guarantor, make such payments and do such acts as Foothill considers
necessary or reasonable to protect its Liens on the Collateral. Each Borrower
agrees to assemble the Personal Property Collateral if Foothill so requires, and
to make the Personal Property Collateral available to Foothill as Foothill may
designate. Each Borrower authorizes Foothill to enter the premises where the
Personal Property Collateral is located, to take and maintain possession of the
Personal Property Collateral, or any part of it, and to pay, purchase, contest,
or compromise any Lien that in Foothill's determination appears to conflict with
its Liens and to pay all expenses incurred in connection therewith. With respect
to any of each Borrower's owned or leased premises, such Borrower hereby grants
Foothill a license to enter into possession of such premises and to occupy the
same, without charge, for up to 120 days in order to exercise any of Foothill's
rights or remedies provided herein, at law, in equity, or otherwise;
(g) Without notice to any Borrower (such notice being
expressly waived), and without constituting a retention of any collateral in
satisfaction of an obligation (within the meaning of Section 9505 of the Code),
set off and apply to the Obligations any and all (i) balances and deposits of
any Borrower held by Foothill (including any amounts received in the Lockbox
Accounts), or (ii) indebtedness at any time owing to or for the credit or the
account of any Borrower held by Foothill;
(h) Hold, as cash collateral, any and all balances
and deposits of any Borrower held by Foothill, and any amounts received in the
Lockbox Accounts, to secure the full and final repayment of all of the
Obligations;
(i) Ship, reclaim, recover, store, finish, maintain,
repair, prepare for sale, advertise for sale, and sell (in the manner provided
for herein) the Personal Property
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Collateral. Foothill is hereby granted a license or other right to use, without
charge, any Borrower's labels, patents, copyrights, rights of use of any name,
trade secrets, trade names, trademarks, service marks, and advertising matter,
or any property of a similar nature, as it pertains to the Personal Property
Collateral, in completing production of, advertising for sale, and selling any
Personal Property Collateral and any Borrower's rights under all licenses and
all franchise agreements shall inure to Foothill's benefit;
(j) Require each Borrower to deliver to Foothill a
complete list of all end-user customers of such Borrower, with respect to all
Accounts of such Borrower including LEC Accounts and Direct Accounts, or any
reasonably designated portion thereof, which such Borrower shall deliver to
Foothill promptly upon demand by Foothill;
(k) Sell the Personal Property Collateral at either a
public or private sale, or both, by way of one or more contracts or
transactions, for cash or on terms, in such manner and at such places (including
any premises of any Borrower) as Foothill determines is commercially reasonable.
It is not necessary that the Personal Property Collateral be present at any such
sale;
(l) Foothill shall give notice of the disposition of
the Personal Property Collateral as follows:
(1) Foothill shall give the relevant
Borrower and each holder of a Lien on the Personal Property Collateral who has
filed with Foothill a written request for notice, a notice in writing of the
time and place of public sale, or, if the sale is a private sale or some other
disposition other than a public sale is to be made of the Personal Property
Collateral, then the time on or after which the private sale or other
disposition is to be made;
(2) The notice shall be personally delivered
or mailed, postage prepaid, to the relevant Borrower as provided in Section 12,
at least 5 days before the date fixed for the sale, or at least 5 days before
the date on or after which the private sale or other disposition is to be made;
no notice needs to be given prior to the disposition of any portion of the
Personal Property Collateral that is perishable or threatens to decline speedily
in value or that is of a type customarily sold on a recognized market. Notice to
Persons other than the relevant Borrower claiming an interest in the Personal
Property Collateral shall be sent to such addresses as they have furnished to
Foothill;
(3) If the sale is to be a public sale,
Foothill also shall give notice of the time and place by publishing a notice one
time at least 5 days before the date of the sale in a newspaper of general
circulation in the county in which the sale is to be held;
(m) Foothill may credit bid and purchase at any
public sale; and
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(n) Any deficiency that exists after disposition of
the Personal Property Collateral as provided above will be paid immediately by
the Borrowers. Any excess will be returned, without interest and subject to the
rights of third Persons, by Foothill to the relevant Borrower.
9.2 REMEDIES CUMULATIVE. Foothill's rights and remedies under
this Agreement, the Loan Documents, and all other agreements shall be
cumulative. Foothill shall have all other rights and remedies not inconsistent
herewith as provided under the Code, by law, or in equity. No exercise by
Foothill of one right or remedy shall be deemed an election, and no waiver by
Foothill of any Event of Default shall be deemed a continuing waiver. No delay
by Foothill shall constitute a waiver, election, or acquiescence by it.
10. TAXES AND EXPENSES.
If any Borrower fails to pay any monies (whether taxes, assessments,
insurance premiums, or, in the case of leased properties or assets, rents or
other amounts payable under such leases or related agreements) due to third
Persons (including Comdisco or Key Bank), or fails to make any deposits or
furnish any required proof of payment or deposit, all as required under the
terms of this Agreement, then, to the extent that Foothill determines that such
failure by such Borrower could result in a Material Adverse Change, in its sole
discretion and without prior notice to any Borrower, Foothill may do any or all
of the following: (a) make payment of the same or any part thereof; (b) set up
such reserves in the Loan Account as Foothill deems necessary to protect
Foothill from the exposure created by such failure; or (c) obtain and maintain
insurance policies of the type described in Section 6.10, and take any action
with respect to such policies as Foothill deems prudent. Any such amounts paid
by Foothill, and any other amounts paid by Foothill to Comdisco or Key Bank
under the Intercreditor Agreement, shall constitute Foothill Expenses. Any such
payments made by Foothill shall not constitute an agreement by Foothill to make
similar payments in the future or a waiver by Foothill of any Event of Default
under this Agreement. Foothill need not inquire as to, or contest the validity
of, any such expense, tax, or Lien and the receipt of the usual official notice
for the payment thereof shall be conclusive evidence that the same was validly
due and owing.
11. WAIVERS; INDEMNIFICATION.
11.1 DEMAND; PROTEST; ETC. Each Borrower waives demand,
protest, notice of protest, notice of default or dishonor, notice of payment and
nonpayment, notice of any default, nonpayment at maturity, release, compromise,
settlement, extension, or renewal of accounts, documents, instruments, chattel
paper, and guarantees at any time held by Foothill on which any Borrower may in
any way be liable.
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11.2 FOOTHILL'S LIABILITY FOR COLLATERAL. So long as Foothill
complies with its obligations, if any, under Section 9207 of the Code, Foothill
shall not in any way or manner be liable or responsible for: (a) the safekeeping
of the Collateral; (b) any loss or damage thereto occurring or arising in any
manner or fashion from any cause; (c) any diminution in the value thereof; or
(d) any act or default of any carrier, warehouseman, bailee, forwarding agency,
or other Person. All risk of loss, damage, or destruction of the Collateral
shall be borne by the Borrowers.
11.3 INDEMNIFICATION. The Borrowers shall pay, indemnify,
defend, and hold Foothill, each Participant, and each of their respective
officers, directors, employees, counsel, agents, and attorneys-in-fact (each, an
"Indemnified Person") harmless (to the fullest extent permitted by law) from and
against any and all claims, demands, suits, actions, investigations,
proceedings, and damages, and all reasonable attorneys fees and disbursements
and other costs and expenses actually incurred in connection therewith (as and
when they are incurred and irrespective of whether suit is brought), at any time
asserted against, imposed upon, or incurred by any of them in connection with or
as a result of or related to the execution, delivery, enforcement, performance,
and administration of this Agreement and any other Loan Documents or the
transactions contemplated herein, and with respect to any investigation,
litigation, or proceeding related to this Agreement, any other Loan Document, or
the use of the proceeds of the credit provided hereunder (irrespective of
whether any Indemnified Person is a party thereto), or any act, omission, event
or circumstance in any manner related thereto (all the foregoing, collectively,
the "Indemnified Liabilities"). The Borrowers shall have no obligation to any
Indemnified Person under this Section 11.3 with respect to any Indemnified
Liability that a court of competent jurisdiction finally determines to have
resulted from the gross negligence or willful misconduct of such Indemnified
Person. This provision shall survive the termination of this Agreement and the
repayment of the Obligations.
12. NOTICES.
Unless otherwise provided in this Agreement, all notices or
demands by any party relating to this Agreement or any other Loan Document shall
be in writing and (except for financial statements and other informational
documents which may be sent by first-class mail, postage prepaid) shall be
personally delivered or sent by registered or certified mail, postage prepaid,
return receipt requested, or by prepaid telex, overnight courier, telefacsimile,
or telegram (with messenger delivery specified) to a Borrower or to Foothill, as
the case may be, at its address set forth below:
IF TO ANY BORROWER: C/O MIDCOM COMMUNICATIONS INC.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: Chief Financial Officer
Fax No. ▇▇▇.▇▇▇.▇▇▇▇
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WITH COPIES TO: MIDCOM COMMUNICATIONS INC.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: General Counsel
Fax No. ▇▇▇.▇▇▇.▇▇▇▇
AND ▇▇▇▇▇▇ ▇▇▇▇▇▇ WHITE & ▇▇▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
Fax No. ▇▇▇.▇▇▇.▇▇▇▇
IF TO FOOTHILL: FOOTHILL CAPITAL CORPORATION
▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: Business Finance Division Manager
Fax No. ▇▇▇.▇▇▇.▇▇▇▇
WITH COPIES TO: ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇., ▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇ ▇▇▇▇▇▇▇ Hilson, Esq.
Fax No. ▇▇▇.▇▇▇.▇▇▇▇
The parties hereto may change the address at which they are to
receive notices hereunder, by notice in writing in the foregoing manner given to
the other. All notices or demands sent in accordance with this Section 12, other
than notices by Foothill in connection with Sections 9504 or 9505 of the Code,
shall be deemed received on the earlier of the date of actual receipt or 3 days
after the deposit thereof in the mail. Each Borrower acknowledges and agrees
that notices sent by Foothill in connection with Sections 9504 or 9505 of the
Code shall be deemed sent when personally delivered, deposited in the mail or
transmitted by telefacsimile or other similar method set forth above.
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.
THE VALIDITY OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS
(UNLESS AND TO THE EXTENT EXPRESSLY PROVIDED TO THE CONTRARY IN AN ANOTHER LOAN
DOCUMENT), THE CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF AND THEREOF,
AND THE RIGHTS OF THE PARTIES HERETO AND THERETO WITH RESPECT TO ALL
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MATTERS ARISING HEREUNDER OR THEREUNDER OR RELATED HERETO OR THERETO SHALL BE
DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF CALIFORNIA. THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING
IN CONNECTION WITH THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE TRIED
AND LITIGATED ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF LOS
ANGELES, STATE OF CALIFORNIA OR, AT THE SOLE OPTION OF FOOTHILL, IN ANY OTHER
COURT IN WHICH FOOTHILL SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND WHICH
HAS SUBJECT MATTER JURISDICTION OVER THE MATTER IN CONTROVERSY. EACH PARTY
HERETO WAIVES, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY
HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE
EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 13. EACH
BORROWER AND FOOTHILL HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF
ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN
DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT
CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR
STATUTORY CLAIMS. EACH BORROWER AND FOOTHILL REPRESENT THAT EACH HAS REVIEWED
THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS
FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF
THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
14. DESTRUCTION OF BORROWER'S DOCUMENTS.
All documents, schedules, invoices, agings, or other papers
delivered to Foothill by any Borrower may be destroyed or otherwise disposed of
by Foothill four (4) months after they are delivered to or received by Foothill,
unless such Borrower requests, in writing, the return of said documents,
schedules, or other papers and makes arrangements, at such Borrower's expense,
for their return.
15. GENERAL PROVISIONS.
15.1 EFFECTIVENESS. This Agreement shall be binding and deemed
effective when executed by each of the Borrowers and Foothill.
15.2 SUCCESSORS AND ASSIGNS. This Agreement shall bind and
inure to the benefit of the respective successors and assigns of each of the
parties; provided, however, that no Borrower may assign this Agreement or any
rights or duties hereunder without Foothill's
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prior written consent and any prohibited assignment shall be absolutely void. No
consent to an assignment by Foothill shall release any Borrower from its
Obligations. Foothill may assign this Agreement and its rights and duties
hereunder and no consent or approval by any Borrower is required in connection
with any such assignment. Foothill reserves the right to sell, assign, transfer,
negotiate, or grant participations in all or any part of, or any interest in
Foothill's rights and benefits hereunder and the other Loan Document, in each
case, without the consent of any Borrower; provided, however, that the prior
written consent of Borrower shall be required in connection with any sale of any
such participating interests by Foothill to any Person other than a Qualified
Participant. In connection with any such assignment or participation, Foothill
may disclose all documents and information which Foothill now or hereafter may
have relating to any Borrower or any Borrower's business. To the extent that
Foothill assigns its rights and obligations hereunder to a third Person,
Foothill thereafter shall be released from such assigned obligations to Borrower
and such assignment shall effect a novation between Borrower and such third
Person.
15.3 PARTICIPATION AGREEMENT ACKNOWLEDGMENT. By entering into
a participation agreement with Foothill in respect hereof, each Participant
shall be deemed to have agreed that (a) the Borrowers are third party
beneficiaries of the commitment of such Participant to participate in Advances
by Foothill, and (b) if such Participant fails to fund its portion of a
requested Advance, then, as to the amount participated, the Borrowers will have
the same rights with respect to such Participant as the Borrowers would have had
with respect to Foothill in the absence of such participation. Foothill hereby
further agrees to use reasonable best efforts to cause any such participation
agreement to contain an express acknowledgment of the immediately preceding
sentence.
15.4 SECTION HEADINGS. Headings and numbers have been set
forth herein for convenience only. Unless the contrary is compelled by the
context, everything contained in each section applies equally to this entire
Agreement.
15.5 INTERPRETATION. Neither this Agreement nor any
uncertainty or ambiguity herein shall be construed or resolved against Foothill
or any Borrower, whether under any rule of construction or otherwise. On the
contrary, this Agreement has been reviewed by all parties and shall be construed
and interpreted according to the ordinary meaning of the words used so as to
fairly accomplish the purposes and intentions of all parties hereto.
15.6 SEVERABILITY OF PROVISIONS. Each provision of this
Agreement shall be severable from every other provision of this Agreement for
the purpose of determining the legal enforceability of any specific provision.
15.7 AMENDMENTS IN WRITING. This Agreement can only be amended
by a writing signed by both Foothill, on the one hand, and all of the Borrowers,
on the other hand.
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15.8 COUNTERPARTS; TELEFACSIMILE EXECUTION. This Agreement may
be executed in any number of counterparts and by different parties on separate
counterparts, each of which, when executed and delivered, shall be deemed to be
an original, and all of which, when taken together, shall constitute but one and
the same Agreement. Delivery of an executed counterpart of this Agreement by
telefacsimile shall be equally as effective as delivery of a manually executed
counterpart of this Agreement. Any party delivering an executed counterpart of
this Agreement by telefacsimile also shall deliver a manually executed
counterpart of this Agreement but the failure to deliver a manually executed
counterpart shall not affect the validity, enforceability, and binding effect of
this Agreement.
15.9 REVIVAL AND REINSTATEMENT OF OBLIGATIONS. If the
incurrence or payment of the Obligations by any Borrower or any guarantor of the
Obligations or the transfer by either or both of such parties to Foothill of any
property of either or both of such parties should for any reason subsequently be
declared to be void or voidable under any state or federal law relating to
creditors' rights, including provisions of the Bankruptcy Code relating to
fraudulent conveyances, preferences, and other voidable or recoverable payments
of money or transfers of property (collectively, a "Voidable Transfer"), and if
Foothill is required to repay or restore, in whole or in part, any such Voidable
Transfer, or elects to do so upon the reasonable advice of its counsel, then, as
to any such Voidable Transfer, or the amount thereof that Foothill is required
or elects to repay or restore, and as to all reasonable costs, expenses, and
attorneys fees of Foothill related thereto, the liability of the Borrowers or
such guarantor automatically shall be revived, reinstated, and restored and
shall exist as though such Voidable Transfer had never been made.
15.10 INTEGRATION. This Agreement, together with the other
Loan Documents, reflects the entire understanding of the parties with respect to
the transactions contemplated hereby and shall not be contradicted or qualified
by any other agreement, oral or written, before the date hereof.
15.11 QUALIFICATION UNDER SUBORDINATED NOTES INDENTURE. The
Obligations constitute "Senior Indebtedness" and "Designated Senior
Indebtedness" under the Subordinated Notes Indenture.
15.12 CONFIDENTIALITY. Foothill agrees to treat all material,
non-public information regarding any Borrower and its operations, assets, and
existing and contemplated business plans in a confidential manner; it being
understood and agreed by each Borrower that in any event Foothill may make
disclosures (a) to counsel for and other advisors, accountants, and auditors to
Foothill, (b) reasonably required by any bona fide potential or actual assignee,
transferee, or participant in connection with any contemplated or actual
assignment or transfer by Foothill of an interest herein or any participation
interest in Foothill's rights hereunder, (c) of information that has become
public by disclosures made by Persons other than Foothill, or (d) as required or
requested by any court, governmental or administrative agency, pursuant
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to any subpoena or other legal process, or by any law, statute, regulation, or
court order; provided, however, that, unless prohibited by applicable law,
statute, regulation, or court order, Foothill shall notify the Borrowers of any
request by any court, governmental or administrative agency, or pursuant to any
subpoena or other legal process for disclosure of any such non-public material
information concurrent with, or where practicable, prior to the disclosure
thereof.
[remainder of page intentionally left blank]
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed in Los Angeles, California.
MIDCOM COMMUNICATIONS INC.,
a Washington corporation
By_________________________
Title:_______________________
ADVAL, INC.,
an Oregon corporation
By_________________________
Title:_______________________
ADVAL DATA CORPORATION,
an Oregon corporation
By_________________________
Title:_______________________
ADVANCED NETWORK DESIGN,
a California corporation
By_________________________
Title:_______________________
▇-▇
▇▇
▇▇▇-▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇▇ CORP.,
a Washington corporation
By_________________________
Title:_______________________
PACNET INC.,
a Washington corporation
By_________________________
Title:_______________________
FOOTHILL CAPITAL CORPORATION,
a California corporation
By_________________________
Title:_______________________
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[GRAPHIC OMITTED]
LOAN AND SECURITY AGREEMENT
BY AND AMONG
MIDCOM COMMUNICATIONS INC.,
ADVAL, INC.,
ADVAL DATA CORPORATION,
ADVANCED NETWORK DESIGN,
CEL-TECH INTERNATIONAL CORP.,
AND
PACNET INC.
AND
FOOTHILL CAPITAL CORPORATION
DATED AS OF FEBRUARY 27, 1997
69
TABLE OF CONTENTS
1. DEFINITIONS AND CONSTRUCTION.................................................................................. 1
1.1 Definitions.......................................................................................... 1
1.2 Accounting Terms..................................................................................... 22
1.3 Code................................................................................................. 22
1.4 Construction......................................................................................... 22
1.5 Schedules and Exhibits............................................................................... 22
2. LOAN AND TERMS OF PAYMENT..................................................................................... 23
2.1 Revolving Advances................................................................................... 23
2.2 Overadvances......................................................................................... 24
2.3 Interest: Rates, Payments, and Calculations......................................................... 24
2.4 Reporting and Collection of Accounts................................................................. 25
2.5 Crediting Payments; Application of Collections....................................................... 26
2.6 Borrowers' Designated Account........................................................................ 26
2.7 Maintenance of Loan Account; Statements of Obligations............................................... 27
2.8 Fees................................................................................................. 27
3. CONDITIONS; TERM OF AGREEMENT................................................................................. 28
3.1 Conditions Precedent to the Initial Advance.......................................................... 28
3.2 Conditions Precedent to all Advances................................................................. 32
3.3 Condition Subsequent................................................................................. 32
3.4 Term and Termination................................................................................. 32
3.5 Effect of Termination................................................................................ 33
3.6 Early Termination by the Borrowers................................................................... 33
3.7 Termination Upon Event of Default.................................................................... 34
4. CREATION OF LIENS............................................................................................. 34
4.1 Grant of Liens....................................................................................... 34
4.2 Negotiable Collateral................................................................................ 34
4.3 Collection of Accounts, General Intangibles, and Negotiable Collateral............................... 34
4.4 Delivery of Additional Documentation Required........................................................ 35
4.5 Power of Attorney.................................................................................... 35
4.6 Right to Inspect..................................................................................... 36
4.7 Control Agreements................................................................................... 36
5. REPRESENTATIONS AND WARRANTIES................................................................................ 37
5.1 No Liens............................................................................................. 37
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5.2 Eligible Accounts.................................................................................... 37
5.3 Equipment............................................................................................ 37
5.4 Location of Inventory and Equipment.................................................................. 37
5.5 Inventory Records.................................................................................... 37
5.6 Location of Chief Executive Office; FEIN............................................................. 38
5.7 Due Organization and Qualification; No Subsidiaries Except as
Disclosed............................................................................................ 38
5.8 Due Authorization; No Conflict....................................................................... 38
5.9 Litigation........................................................................................... 39
5.10 No Material Adverse Change. ......................................................................... 39
5.11 Solvency............................................................................................. 40
5.12 Employee Benefits.................................................................................... 40
5.13 Environmental Condition.............................................................................. 40
5.14 Material Carriers.................................................................................... 40
5.15 Reliance by Foothill; Cumulative..................................................................... 41
6. AFFIRMATIVE COVENANTS......................................................................................... 41
6.1 Accounting System.................................................................................... 41
6.2 Collateral Reporting................................................................................. 41
6.3 Financial Statements, Reports, Certificates.......................................................... 42
6.4 Tax Returns.......................................................................................... 43
6.5 Guarantor Reports.................................................................................... 43
6.6 Returns.............................................................................................. 43
6.7 Title to Equipment................................................................................... 43
6.8 Maintenance of Equipment............................................................................. 43
6.9 Taxes................................................................................................ 44
6.10 Insurance............................................................................................ 44
6.11 No Setoffs or Counterclaims.......................................................................... 46
6.12 [intentionally omitted].............................................................................. 46
6.13 Location of Inventory and Equipment.................................................................. 46
6.14 Compliance with Laws................................................................................. 46
6.15 Employee Benefits.................................................................................... 46
6.16 Leases............................................................................................... 47
6.17 Performance of Obligations to Carriers............................................................... 47
6.18 LEC Agreements, Carrier Agreements, and Other Agreements............................................. 48
6.19 Brokerage Indemnity.................................................................................. 48
6.20 Contingency Plan..................................................................................... 48
6.21 New Carrier Non-Offset and Consent to Assignment Agreements.......................................... 48
7. NEGATIVE COVENANTS............................................................................................ 48
7.1 Indebtedness......................................................................................... 49
7.2 Liens................................................................................................ 49
7.3 Restrictions on Fundamental Changes.................................................................. 49
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7.4 Extraordinary Transactions and Disposal of Assets.................................................... 50
7.5 Change Name.......................................................................................... 50
7.6 Guarantee............................................................................................ 50
7.7 Restructure.......................................................................................... 50
7.8 Prepayments; Amendments to Documents................................................................. 50
7.9 Change of Control.................................................................................... 51
7.10 Capital Expenditures................................................................................. 51
7.11 Consignments......................................................................................... 51
7.12 Distributions........................................................................................ 51
7.13 Accounting Methods................................................................................... 51
7.14 Investments.......................................................................................... 51
7.15 Transactions with Affiliates......................................................................... 52
7.16 Suspension........................................................................................... 52
7.17 [Intentionally Omitted].............................................................................. 52
7.18 Use of Proceeds...................................................................................... 52
7.19 Change in Location of Chief Executive Office; Inventory and Equipment
with Bailees......................................................................................... 52
7.20 No Prohibited Transactions Under ERISA or IRC........................................................ 52
7.21 Contracts with Carriers, LECs, or Clearinghouses..................................................... 53
7.22 Financial Covenant................................................................................... 53
8. EVENTS OF DEFAULT............................................................................................. 54
9. FOOTHILL'S RIGHTS AND REMEDIES................................................................................ 56
9.1 Rights and Remedies.................................................................................. 56
9.2 Remedies Cumulative.................................................................................. 59
10. TAXES AND EXPENSES............................................................................................ 59
11. WAIVERS; INDEMNIFICATION...................................................................................... 59
11.1 Demand; Protest; etc................................................................................. 59
11.2 Foothill's Liability for Collateral.................................................................. 59
11.3 Indemnification...................................................................................... 60
12. NOTICES....................................................................................................... 60
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.................................................................... 61
14. DESTRUCTION OF BORROWER'S DOCUMENTS........................................................................... 62
15. GENERAL PROVISIONS............................................................................................ 62
15.1 Effectiveness........................................................................................ 62
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15.2 Successors and Assigns............................................................................... 62
15.3 Participation Agreement Acknowledgment............................................................... 63
15.4 Section Headings..................................................................................... 63
15.5 Interpretation....................................................................................... 63
15.6 Severability of Provisions........................................................................... 63
15.7 Amendments in Writing................................................................................ 63
15.8 Counterparts; Telefacsimile Execution................................................................ 64
15.9 Revival and Reinstatement of Obligations............................................................. 64
15.10 Integration.......................................................................................... 64
15.11 Qualification under Subordinated Notes Indenture..................................................... 64
15.12 Confidentiality...................................................................................... 64
SCHEDULES
Schedule M-1 Material Carriers
Schedule N-1 Non-Material Subsidiaries
Schedule P-1 Permitted Liens
Schedule R-1 Real Property
Schedule 3.1(u) Collateral Access Agreements Required on or before Closing
Date
Schedule 5.3 Certain Equipment
Schedule 5.4 Bailees and Warehousemen
Schedule 5.7 Subsidiaries
Schedule 5.9 Litigation
Schedule 5.12 ERISA Benefit Plans
Schedule 6.13 Location of Inventory and Equipment
Schedule 7.15 Transactions with Affiliates
S-iv
