EXHIBIT 99.7
SECURITY AGREEMENT
SECURITY AGREEMENT, dated as of December 20, 2001, Covad Communications
Company, a California corporation (the "Grantor"), having its principal place of
business at ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, in favor of
SBC Communications Inc. (the "Secured Party").
W I T N E S S E T H:
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WHEREAS, the Grantor is a direct Subsidiary of Covad Communications
Group, Inc. (the "Parent");
WHEREAS, the Parent has entered into a Credit Agreement, dated as of
November 12, 2001, with the Secured Party (said agreement, as it may hereafter
be amended or otherwise modified from time to time, being the "Credit Agreement"
and the terms defined therein and not otherwise defined herein being used herein
having the meanings therein assigned), for purposes of establishing a term loan
(the "Loan") to the Parent;
WHEREAS, the Parent has entered into a Resale Agreement, dated as of
November 12, 2001, with the Secured Party (as the same may from time to time be
amended, modified or supplemented, the "Resale Agreement") for purpose of
establishing the terms of a prepayment for products and services from the Parent
by the Secured Party and the conditional repayment thereof by the Parent under
the circumstances described therein;
WHEREAS, the Grantor will received substantial direct and indirect
benefits from the making of the Loan and the arrangements under the Credit
Agreement and the Resale Agreement; and
WHEREAS, it is a condition precedent to the making of the Loan and the
effectiveness of the Resale Agreement that the Grantor shall have entered into
this Agreement.
NOW, THEREFORE, in consideration of the premises and to induce the
Secured Party to make the Loan the Grantor hereby agrees with the Secured Party
as follows:
1. Defined Terms.
(a) As used in this Agreement, the following terms have the meanings
specified below (such meanings being equally applicable to both the singular and
plural forms of the terms defined):
"Accounts" means all "accounts," as such term is defined in
the UCC, now owned or hereafter acquired by the Secured Party,
including (a) all accounts receivable, other receivables, book debts
and other forms of obligations (other than forms
of obligations evidenced by Chattel Paper or Instruments), (including
any such obligations that may be characterized as an account under the
UCC), (b) all of the Secured Party's rights in, to and under all
purchase orders or receipts for goods or services, (c) all of the
Secured Party's rights to any goods represented by any of the foregoing
(including unpaid sellers' rights of rescission, replevin, reclamation
and stoppage in transit and rights to returned, reclaimed or
repossessed goods), (d) all rights to payment due to the Secured Party
for property sold, leased, licensed, assigned or otherwise disposed of,
for a policy of insurance issued or to be issued, for a secondary
obligation incurred or to be incurred, for energy provided or to be
provided, for the use or hire of a vessel under a charter or other
contract, arising out of the use of a credit card or charge card, or
for services rendered or to be rendered by the Secured Party or in
connection with any other transaction (whether or not yet earned by
performance on the part of the Secured Party), (e) all health care
insurance receivables and (f) all collateral security of any kind,
given by the Grantor or any other Person with respect to any of the
foregoing.
"Account Debtor" means any "account debtor," as such term is
defined in the UCC.
"Agreement" means this Security Agreement, as the same may
from time to time be amended, modified or supplemented, and shall refer
to this Security Agreement as in effect on the date such reference
becomes operative.
"Cash Collateral Account" means an account established by the
Secured Party at a banking institution in the name of the Secured Party
and under the control of the Secured Party.
"Chattel Paper" means any "chattel paper," as such term is
defined in the UCC, including electronic chattel paper, now owned or
hereafter acquired by the Grantor.
"Collateral" means:
(i) all Accounts;
(ii) all Chattel Paper;
(iii) all Contracts, including (A) all rights of the
Grantor to receive moneys due or to become due under any
Contract, (B) all rights of the Grantor to receive proceeds of
any insurance, indemnity, warranty or guaranty with respect to
any Contract, (C) any and all claims of the Grantor for
damages arising out of or for breach of or a default under any
Contract and (D) all rights of the Grantor to terminate,
amend, supplement, modify or exercise rights or options under
any Contract, to perform or to compel performance under any
Contract and to exercise all remedies thereunder;
(iv) all Documents;
(v) all General Intangibles (including payment
intangibles);
(vi) all Goods (including Inventory, Equipment and
Fixtures);
(vii) all Instruments;
(viii) all Investment Property and all certificates
and documents, if any, representing any Investment Property;
(ix) all present and future Deposit Accounts
(including all Qualified Accounts and Securities Accounts) and
all funds, Investment Property and other property from time to
time held in the Deposit Accounts (including all Qualified
Accounts and Securities Accounts) and all certificates and
Instruments from time to time held in or representing the
Deposit Accounts (including all Qualified Accounts and
Securities Accounts);
(x) all money, cash or Cash Equivalents of the
Grantor;
(xi) all Supporting Obligations and Letter-of-Credit
Rights of the Grantor;
(xii) all other goods and personal property of the
Grantor whether tangible or intangible or whether now owned or
hereafter acquired by the Grantor and wherever located;
(xiii) to the extent not otherwise included, all
Proceeds of each of the foregoing and all accessions to,
substitutions and replacements for, and rents, profits and
products of, each of the foregoing, and all dividends, cash,
interest, Instruments and other property and Proceeds from
time to time received, receivable or otherwise distributed in
respect of or in exchange for any Investment Property and
Instruments, including Proceeds in the form of Accounts,
Chattel Paper, Contracts, Documents, General Intangibles,
Goods, Instruments and Investment Property; and
(xiv) all property of the Grantor held by the Secured
Party, including all property of every description, now or
hereafter in the possession or custody of or in transit to the
Secured Party for any purpose, including safekeeping,
collection or pledge, for the account of the Grantor, or as to
which the Grantor may have any right or power; provided,
however, the "Collateral" shall not include the Reserve
Account except to the extent any residual monies remain in the
Reserve Account after payment to all creditors from the
Reserve Account in accordance with the Bankruptcy Plan.
"Control" means "control" as defined in the UCC.
"Contracts" means all contracts, undertakings or other
agreements (other than Chattel Paper, Documents or Instruments) in or
under which the Grantor may now or hereafter have any right, title or
interest, including with respect to an Account, any agreement relating
to the terms of payment or the terms of performance thereof.
"Deposit Accounts" means all "deposit accounts" and
"securities accounts" as each such term is defined in the UCC, now or
hereafter held in the name of
the Grantor, including each of the accounts listed on Schedule V
hereto, all monies, Instruments and other property deposited therein,
including all Investment Property, and all certificates and
instruments, if any, representing or evidencing such account provided,
however, that "Deposit Accounts" shall not include the Excluded
Accounts.
"Documents" means all "documents," as such term is defined in
the UCC, now owned or hereafter acquired by the Grantor, wherever
located.
"Equipment" means all "equipment," as such term is defined in
the UCC, now owned or hereafter acquired by the Grantor, wherever
located and, in any event, including all the Grantor's machinery and
equipment, including processing equipment, conveyors, machine tools,
data processing and computer equipment, including embedded software and
peripheral equipment and all engineering, processing and manufacturing
equipment, office machinery, furniture, materials handling equipment,
tools, attachments, accessories, automotive equipment, trailers,
trucks, forklifts, molds, dies, stamps, motor vehicles, rolling stock
and other equipment of every kind and nature, trade fixtures and
fixtures not forming a part of real property, together with all
additions and accessions thereto, replacements therefor, all parts
therefor, all substitutes for any of the foregoing, fuel therefor, and
all manuals, drawings, instructions, warranties and rights with respect
thereto, and all products and proceeds thereof and condemnation awards
and insurance proceeds with respect thereto.
"Excluded Accounts" means each of the accounts held in the
name of the Grantor exclusively for the processing of employee
reimbursement of pre-funded medical and dental expenses and other
comparable employee pre-funded expenses, including, without limitation
the following accounts held at Silicon Valley Bank: ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇: Account Nos. 330040948, 3300123636,
3300083914, and any other successor accounts (whether held at the same
or a different financial institution).
"Fixtures" means all "fixtures" as such term is defined in the
UCC, now owned or hereafter acquired by the Grantor.
"General Intangibles" means all "general intangibles," as such
term is defined in the UCC, now owned or hereafter acquired by the
Grantor, including all right, title and interest that the Grantor may
now or hereafter have in or under any Contract, all payment
intangibles, customer lists, Licenses, Copyrights, Trademarks, Patents,
and all applications therefor and reissues, extensions or renewals
thereof, rights in Intellectual Property, interests in partnerships,
joint ventures and other business associations, licenses, permits,
copyrights, trade secrets, proprietary or confidential information,
inventions (whether or not patented or patentable), technical
information, procedures, designs, knowledge, know-how, software, data
bases, data, skill, expertise, experience, processes, models, drawings,
materials and records, goodwill (including the goodwill associated with
any Trademark or Trademark License), all rights and claims in or under
insurance policies (including insurance for fire, damage, loss and
casualty, whether covering personal property, real property, tangible
rights or intangible rights, all liability, life, key man and business
interruption insurance, and all unearned premiums),
uncertificated securities, choses in action, deposit, checking and
other bank accounts, rights to receive tax refunds and other payments,
rights to receive dividends, distributions, cash, Instruments and other
property in respect of or in exchange for pledged Stock and Investment
Property, rights of indemnification, all books and records,
correspondence, credit files, invoices and other papers, including
without limitation all tapes, cards, computer runs and other papers and
documents in the possession or under the control of the Grantor or any
computer bureau or service company from time to time acting for the
Grantor.
"Goods" means all "goods" as defined in the UCC, now owned or
hereafter acquired by the Grantor, wherever located, including embedded
software to the extent included in "goods" as defined in the UCC,
manufactured homes, standing timber that is cut and removed for sale
and unborn young of animals.
"Instruments" means all "instruments," as such term is defined
in the UCC, now owned or hereafter acquired by the Grantor, wherever
located, and, in any event, including all certificated securities, all
certificates of deposit, and all promissory notes and other evidences
of indebtedness, other than instruments that constitute, or are a part
of a group of writings that constitute, Chattel Paper.
"Inventory" means all "inventory," as such term is defined in
the UCC, now owned or hereafter acquired by the Grantor, wherever
located, and in any event including inventory, merchandise, goods and
other personal property that are held by or on behalf of the Grantor
for sale or lease or are furnished or are to be furnished under a
contract of service, or that constitute raw materials, work in process,
finished goods, returned goods, or materials or supplies of any kind,
nature or description used or consumed or to be used or consumed in the
Grantor's business or in the processing, production, packaging,
promotion, delivery or shipping of the same, including all supplies and
embedded software.
"Investment Property" means all domestic "investment property"
as such term is defined in the UCC now owned or hereafter acquired by
the Grantor, wherever located, including (i) all securities, whether
certificated or uncertificated, including stocks, bonds, interests in
limited liability companies, partnership interests, treasuries,
certificates of deposit, and mutual fund shares; (ii) all securities
entitlements of the Grantor, including the rights of the Grantor to any
securities account and the financial assets held by a securities
intermediary in such securities account and any free credit balance or
other money owing by any securities intermediary with respect to that
account; (iii) all securities accounts of the Grantor; (iv) all
commodity contracts of the Grantor; and (v) all commodity accounts held
by the Grantor.
"Letter-of-Credit Rights" means letter-of-credit rights as
such term is defined in the UCC, now owned or hereafter acquired by the
Grantor, including rights to payment or performance under a letter of
credit, whether or not the Grantor, as beneficiary, has demanded or is
entitled to demand payment or performance.
"Pledged Shares" has the meaning assigned to such term in the
Pledge Agreement by the Grantor in favor of the Secured Party.
"Proceeds" means "proceeds," as such term is defined in the
UCC, including (a) any and all proceeds of any insurance, indemnity,
warranty or guaranty payable to the Grantor from time to time with
respect to any of the Collateral, (b) any and all payments (in any form
whatsoever) made or due and payable to the Grantor from time to time in
connection with any requisition, confiscation, condemnation, seizure or
forfeiture of all or any part of the Collateral by any Governmental
Authority (or any Person acting under color of governmental authority),
(c) any claim of the Grantor against third parties (i) for past,
present or future infringement of any Patent or Patent License, or (ii)
for past, present or future infringement or dilution of any Copyright,
Copyright License, Trademark or Trademark License, or for injury to the
goodwill associated with any Trademark or Trademark License, (d) any
recoveries by the Grantor against third parties with respect to any
litigation or dispute concerning any of the Collateral including claims
arising out of the loss or nonconformity of, interference with the use
of, defects in, or infringement of rights in, or damage to, Collateral,
(e) all amounts collected on, or distributed on account of, other
Collateral, including dividends, interest, distributions and
Instruments with respect to Investment Property and pledged Stock, and
(f) any and all other amounts, rights to payment or other property
acquired upon the sale, lease, license, exchange or other disposition
of Collateral and all rights arising out of Collateral.
"Qualified Account" means any Deposit Account maintained by
the Grantor with a Qualified Account Entity and as to which a Qualified
Account Letter is in effect, all monies, Instruments and other property
deposited therein, including all Investment Property, and all
certificates and instruments, if any, representing or evidencing such
account.
"Qualified Account Entity" means ▇▇▇▇▇ Fargo Bank, N.A. or any
other bank or other financial institution reasonably acceptable to the
Secured Party and with respect to which the Grantor has delivered to
the Secured Party a duly executed Qualified Account Letter.
"Qualified Account Letter" means a letter, substantially in
the form of Schedule III hereto (with such changes as may be agreed to
by the Secured Party) or in such other form acceptable to the Secured
Party, executed by the Grantor and the Secured Party and acknowledged
and agreed to by a Qualified Account Entity.
"Securities Account" means any Deposit Account maintained by
the Grantor with a Securities Intermediary and as to which a Securities
Account Control Agreement is in effect, all monies, Instruments and
other property deposited therein, including all Investment Property,
and all certificates and instruments, if any, representing or
evidencing such account.
"Securities Account Control Agreement" means an agreement,
substantially in the form of Schedule VIII hereto (with such changes as
may be agreed to
by the Secured Party) or in such other form acceptable to the Secured
Party, executed by the Grantor and the Secured Party and acknowledged
and agreed to by a Securities Intermediary.
"Securities Intermediary" means a "securities intermediary" as
defined in Section 8-102(a)(14) of the UCC.
"Software" means all "software" as such term is defined in the
UCC, now owned or hereafter acquired by the Grantor, other than
software embedded in any category of goods, including all computer
programs and all supporting information provided in connection with a
transaction related to any program.
"Supporting Obligations" means all supporting obligations as
such term is defined in the UCC, including letters of credit and
guaranties issued in support of Accounts, Chattel Paper, Documents,
General Intangibles, Instruments, or Investment Property.
"UCC" means the Uniform Commercial Code as the same may, from
time to time, be enacted and in effect in the State of Delaware;
provided, that in the event that, by reason of mandatory provisions of
law, any or all of the attachment, perfection or priority of, or
remedies with respect to, the Secured Party's Lien on any Collateral is
governed by the Uniform Commercial Code as enacted and in effect in a
jurisdiction other than the State of Delaware, the term "UCC" shall
mean the Uniform Commercial Code as enacted and in effect in such other
jurisdiction solely for purposes of the provisions thereof relating to
such attachment, perfection, priority or remedies and for purposes of
definitions related to such provisions.
"Uniform Commercial Code jurisdiction" means any jurisdiction
in which all or substantially all of Article 9 as contained in the 2000
Official Text of the Uniform Commercial Code, as recommended by the
National Conference of Commissioners on Uniform State Laws and the
American Law Institute, together with any subsequent amendments or
modifications to the Official Text has been enacted and is in effect on
the date of reference thereto.
(b) For purposes of this Agreement, all terms, other than capitalized
terms, used in this Agreement that are defined in the UCC have the meanings
specified therein unless otherwise defined in the Credit Agreement. The words
"herein", "hereof" and "hereunder" and other words of similar impact refer to
this Agreement as a whole, including the Exhibits and Schedules hereto, and not
to any particular section, subsection or clause contained in this Agreement.
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".
2. Grant of Security Interest. The Grantor, as collateral security for
the full and prompt payment when due (whether at stated maturity, by
acceleration or otherwise) of, and the performance of, all the Obligations
grants and conveys to the
Secured Party as collateral security, a continuing security interest in all of
the Grantor's entire right, title and interest in and to Collateral.
3. Rights of the Secured Party; Limitations on Secured Party's
Obligations.
(a) It is expressly agreed by the Grantor that, anything herein to the
contrary notwithstanding, the Grantor shall remain liable under each of the
Contracts to observe and perform all the conditions and obligations to be
observed and performed by it thereunder and shall perform all of its duties and
obligations thereunder, all in accordance with and pursuant to the terms and
provisions of each such Contract. The Secured Party shall not have any
obligation or liability under any Contract by reason of or arising out of this
Agreement or the granting of a security interest in any Contract to the Secured
Party of a security interest therein or the receipt by the Secured Party of any
payment relating to any Contract pursuant hereto, nor shall the Secured Party be
required or obligated in any manner to perform or fulfill any of the obligations
of the Grantor under or pursuant to any Contract, or to make any payment, or to
make any inquiry as to the nature or the sufficiency of any payment received by
it or the sufficiency of any performance by any party under any Contract, or to
present or file any claim, or to take any action to collect or enforce any
performance or the payment of any amounts which may have been assigned to it or
to which it may be entitled at any time or times.
(b) Subject to Section 8 and to Section 4(h) below, the Secured Party
authorizes the Grantor to collect its Accounts, Chattel Paper, General
Intangibles, Investment Property and Instruments in a manner consistent with
past practices, and the Secured Party may, upon the occurrence and during the
continuance of any Event of Default and without notice, limit or terminate said
authority at any time. If required by the Secured Party at any time during the
continuance of any Event of Default, any Proceeds, when first collected by the
Grantor, received in payment of any such Account or in payment for any of its
Inventory or on account of any of its Contracts, shall be promptly deposited by
the Grantor in precisely the form received (with all necessary indorsements) in
the Cash Collateral Account or a Qualified Account then under the exclusive
control of the Secured Party, as hereinafter provided, and until so turned over
shall be deemed to be held in trust by the Grantor for and as the Secured
Party's property and shall not be commingled with the Grantor's other funds or
properties. Such Proceeds, when deposited, shall continue to be collateral
security for all of the Obligations and shall not constitute payment thereof
until applied as hereinafter provided. The Secured Party may apply all or a part
of the funds on deposit in said special account to the principal of or interest
on or both in respect of any of the Obligations in accordance with the
provisions of Section 8(d) hereof and any part of such funds which the Secured
Party elects not so to apply and deems not required as collateral security for
the Obligations shall be paid over from time to time by the Secured Party to the
Grantor. If an Event of Default has occurred and is continuing, at the request
of the Secured Party the Grantor shall deliver to the Secured Party any original
and other documents evidencing, and relating to, the sale and delivery of such
Inventory or the performance of labor or service which created such Accounts,
including any original orders, invoices and shipping receipts; and, prior to the
occurrence of an Event of Default the Grantor shall deliver photocopies thereof
to the Secured Party at its request.
(c) The Secured Party may at any time, upon the occurrence and during
the continuance of any Event of Default, after first notifying the Grantor of
its intention to do so, notify Account Debtors of the Grantor, parties to
Contracts of the Grantor constituting Collateral, obligors of Instruments of the
Grantor and obligors in respect of Investment Property and Chattel Paper of the
Grantor that the Accounts and the right, title and interest of the Grantor in
and under such Contracts, such Instruments, such Investment Property and such
Chattel Paper have been assigned to the Secured Party and that payments shall be
made directly to the Secured Party. Upon the request of the Secured Party, upon
the occurrence and during the continuance of an Event of Default, the Grantor
will so notify such Account Debtors, parties to such Contracts, obligors of such
Instruments and obligors in respect of such Investment Property and Chattel
Paper. Once any such notice has been given to any Account Debtor, parties to
such Contracts, obligors of such Instruments and obligors in respect of such
Investment Property and Chattel Paper, the Grantor shall not give any contrary
instructions to such Account Debtor or other Person without the Secured Party's
prior written consent. Upon the occurrence and during the continuance of an
Event of Default, the Secured Party may in its own name or in the name of others
communicate with such Account Debtors, parties to such Contracts, obligors of
such Instruments and obligors in respect of such Investment Property and Chattel
Paper to verify with such Persons to the Secured Party's satisfaction the
existence, amount and terms of any such Accounts, Contracts, Instruments,
Investment Property or Chattel Paper.
(d) Subject to Section 9.11 of the Credit Agreement, upon reasonable
prior notice to the Grantor (unless an Event of Default has occurred and is
continuing, in which case no notice is necessary), the Secured Party shall have
the right to make test verifications of the Accounts and physical verifications
of the Inventory in any manner and through any medium that it reasonably
considers advisable, and the Grantor agrees to furnish all such assistance and
information as the Secured Party may reasonably require in connection therewith.
The Grantor, at its own cost and expense, will cause certified independent
public accountants satisfactory to the Secured Party to prepare and deliver to
the Secured Party, at any time and from time to time promptly upon the Secured
Party's reasonable request, but not more frequently than annually so long as no
Default or Event of Default has occurred and is continuing, the following
reports: (i) a reconciliation of all its Accounts, (ii) an aging of all its
Accounts, (iii) trial balances, and (iv) a test verification of such Accounts as
the Secured Party may request. The Grantor at its own expense will cause
certified independent public accountants satisfactory to the Secured Party to
prepare and deliver to the Secured Party the results of the annual physical
verification of its Inventory made or observed by such accountants.
(e) Upon the occurrence and during the continuance of an Event of
Default, the Secured Party shall have the right, at any time in its discretion
and without notice to the Grantor, to transfer to or to register in its name or
in the name of any of its nominees any Investment Property or Instruments. In
addition, the Secured Party shall have the right at
any time to exchange any Instruments or any certificates representing or
evidencing any Investment Property for certificates or Instruments of smaller or
larger denominations.
(f) The Grantor shall not grant Control over any Investment Property,
Qualified Account or Securities Account to any Person other than the Secured
Party.
(g) Subject to Section 8 and provided that no Event of Default shall
have occurred and be continuing (and, in the case of clause (i) below, as long
as no notice thereof shall have been given by the Secured Party to the Grantor):
(i) The Grantor shall be entitled to exercise any and all
voting and other consensual rights pertaining to Instruments and
Investment Property or any part of any thereto for any purpose not
inconsistent with the terms of this Agreement or any other Loan
Document or which would have the effect of impairing the value of the
Collateral or the position of the Secured Party therein.
(ii) The Grantor shall be entitled to receive and retain any
and all dividends, interest and principal paid in respect of any
Instruments and Investment Property, other than any and all:
(A) dividends, interest and principal paid or payable
other than in cash in respect of, and other Instruments,
Investment Property and other property received, receivable or
otherwise distributed in respect of, or in exchange for, any
such Collateral;
(B) dividends and other distributions paid or payable
in cash in respect of any such Collateral in connection with a
partial or total liquidation or dissolution or in connection
with a reduction of capital, capital surplus or paid in
surplus; and
(C) cash paid, payable or otherwise distributed in
redemption of, or in exchange for, any such Collateral,
all of which shall, if received by the Grantor, be received in trust
for the benefit of the Secured Party, and be forthwith deposited into a
Qualified Account or Securities Account to the Secured Party as
Collateral in the same form as so received (with any necessary
endorsement).
(iii) The Secured Party shall execute or deliver (or cause to
be executed and delivered) to the Grantor all such proxies and other
instruments as the Grantor may reasonably request for the purpose of
enabling the Grantor to exercise the voting and other rights which it
is entitled to exercise pursuant to clause (i) above and to receive the
dividends, interest payments and principal payments which it is
authorized to receive and retain pursuant to paragraph (ii) above.
(h) With respect to Qualified Accounts and Securities Accounts:
(i) The Grantor hereby transfers to the Secured Party Control
over each Qualified Account and Securities Account at each Qualified
Account Entity and Securities Intermediary, respectively.
(ii) The Grantor hereby agrees and covenants that (A) all
cash, all Cash Equivalents and all Proceeds of a type customarily held
in Deposit Accounts shall be deposited in the Qualified Accounts or
Securities Accounts, (B) it will not make or maintain any deposits in
any account with, or maintain any securities account or other
investment account with, any financial or other institution other than
(x) a Qualified Account Entity that maintains the same in a Qualified
Account or (y) a Securities Intermediary that maintains the same in a
Securities Account, and (C) it shall not maintain any commodities
account with any Person.
(iii) The Grantor shall cause each Person obligated to make
payments to the Grantor for any reason by wire transfer or otherwise to
any Deposit Account for any reason (each such Person being an "Obligor"
of the Grantor) to make all payments, or to continue to make all
payments, as the case may be, with respect to all Collateral, to the
Qualified Accounts or Securities Accounts and cause any payments
received by the Grantor or any other Person from any Obligor to be
deposited promptly upon receipt into such Qualified Accounts or
Securities Accounts.
(iv) In the event the Grantor or any Qualified Account Entity
or any Securities Intermediary shall, after the date hereof, terminate
an agreement with respect to the maintenance of a Qualified Account or
Securities Account, respectively, for any reason, or if the Secured
Party shall demand such termination as a result of the failure of a
Qualified Account Entity or Securities Intermediary to comply with any
of the terms of the applicable Qualified Account Letter or Securities
Account Control Agreement, as applicable, or there shall occur and be
continuing an Event of Default or if the Secured Party determines in
its reasonable discretion that the financial condition of a Qualified
Account Entity or Securities Intermediary has materially deteriorated,
the Grantor agrees to notify all of its Obligors that were making
payments to such terminated Qualified Account or Qualified Account
Entity or Securities Account or Securities Intermediary, as applicable,
to make all future payments, at the direction of the Secured Party, to
another Qualified Account Entity or Securities Intermediary with
respect to which the Grantor has delivered to the Secured Party an
executed Qualified Account Letter or Securities Account Control
Agreement, respectively, and which has not been terminated.
(v) Subject to Section 8 and provided that no Event of Default
shall have occurred and be continuing, the Grantor is hereby authorized
by the Secured Party to direct the disposition of such funds then on
deposit in the Qualified Account Entities and Securities
Intermediaries, which direction shall not be
exercised by the Secured Party unless and until an Event of Default
shall have occurred and be continuing.
(i) With respect to the Canadian Accounts, the Grantor shall:
(i) permit only funds received from credit card payments that
are required to be deposited in accounts in Canada to be deposited at
any time in any of the Canadian Accounts;
(ii) sweep all funds in the Canadian Accounts into a Qualified
Account no less frequently than once per month;
(iii) not permit any average monthly balance of all of the
Canadian Accounts to exceed $300,000 in the aggregate; and
(iv) provide the Secured Party a copy of each monthly account
statement received in respect of each of the Canadian Accounts and all
of the Canadian Accounts in the aggregate, on a monthly basis, no later
than ten (10) Business Days after receipt thereof.
(j) With respect to the Excluded Accounts, the Grantor shall:
(i) permit only employee funds held exclusively for the
processing of employee reimbursement of pre-funded medical and dental
expenses and other comparable employee pre-funded expenses, to be
deposited at any time in any of the Excluded Accounts; and
(ii) provide the Secured Party a copy of each monthly account
statement received in respect of each of the Excluded Accounts and all
of the Excluded Accounts in the aggregate, on a monthly basis, no later
than ten (10) Business Days after receipt thereof.
4. Representations and Warranties. The Grantor hereby represents and
warrants to the Secured Party as follows:
(a) The representations and warranties applicable to the Grantor
contained in Article IV of the Credit Agreement and in the other Loan Documents,
each of which is hereby incorporated herein by reference, are true and correct
in all material respects and the Secured Party shall be entitled to rely on each
of them as if they were fully set forth herein.
(b) The Grantor (i) is the legal and beneficial owner of all Investment
Property, free and clear of any Lien other than the Lien granted pursuant to
this Agreement and Permitted Liens, and (ii) is the sole and exclusive owner of
each item of all other Collateral in which it purports to grant a security
interest hereunder, having good title thereto, free and clear of any and all
Liens, except for the Lien granted pursuant to this Agreement and other
Permitted Liens.
(c) No effective security agreement, financing statement, equivalent
security or lien instrument or continuation statement covering all or any part
of the Collateral is on file or of record in any public office, except such as
may have been filed by the Grantor in favor of the Secured Party pursuant to
this Agreement or such as relate to other Permitted Liens.
(d) Appropriate financing statements having been filed in the
jurisdictions listed on Schedule I hereto, all certificates representing
Investment Property that consists of certificated securities having been
delivered to the Secured Party, the Secured Party having obtained Control over
all Investment Property and all appropriate filings having been made, this
Agreement is effective to create a valid and continuing first priority Lien on
the Collateral, to the extent contemplated by the Credit Agreement to be created
on the Effective Date, prior to all other Liens except Permitted Liens. All
action necessary or desirable to protect and perfect such security interest in
each item of the Collateral has been duly taken.
(e) Schedule II attached hereto reflects as of the Effective Date:
(i) the Grantor's exact corporate name as it appears in its
certificate of incorporation;
(ii) the state of incorporation of the Grantor;
(iii) each other corporate name the Grantor has had since its
organization, together with the date of the relevant change; and
(iv) the current location of the chief executive office of the
Grantor.
(f) The Grantor does not maintain and has not maintained within the
past year any books or records concerning the Collateral except at the locations
specified on Schedule II hereto.
(g) Each place of business of the Grantor, including each location
where the Grantor maintains or has maintained Inventory, Equipment or Real
Property within the past year, is set forth on Schedule 4.19(a) to the Credit
Agreement as the location of a Real Property Asset specified on such schedule as
owned or leased, as applicable, by the Grantor.
(h) All Investment Property of the Grantor as of the date hereof, other
than Investment Property held in a Qualified Account or Securities Account, is
listed on Schedule IV.
(i) The execution, delivery and performance by the Grantor of this
Agreement are within the Grantor's corporate powers, have been duly authorized
by all necessary corporate action, do not contravene the Grantor's certificate
of incorporation or by-laws, any requirement of law or any order or decree of
any court, or any Contractual Obligation of the Grantor, and do not result in or
require
the creation of any Lien (other than Liens created pursuant to or permitted by
the Loan Documents) upon or with respect to any of its properties.
(j) No consent, authorization, approval or other action by, and no
notice to or filing with, any Governmental Authority is required for the due
execution, delivery and performance by the Grantor of this Agreement, the grant
of the security interest granted hereby, or the exercise by the Secured Party of
the voting or other rights provided for hereby or the remedies in respect of the
Collateral provided for hereby, except as may be required in connection with the
disposition of the Investment Property by laws affecting the offering and sale
of securities generally and filings to perfect Liens that have been duly made.
(k) Schedule VI sets forth a true and complete list of all Qualified
Accounts maintained by the Grantor as of the Effective Date.
(l) Schedule VII sets forth a true and complete list of all Securities
Accounts maintained by the Grantor as of the Effective Date.
(m) All monies deposited in the Excluded Accounts are funds held
exclusively for the processing of employee reimbursement of pre-funded medical
and dental expenses and other comparable employee pre-funded expenses, and such
monies constitute the only property deposited in the Excluded Accounts.
5. Covenants. The Grantor covenants and agrees with the Secured Party
that from and after the date of this Agreement and until the Obligations are
fully satisfied:
(a) The Grantor shall take, or shall refrain from taking, as the case
may be, each action that is necessary to be taken or not taken, as the case may
be, so that no Default or Event of Default is caused by the failure to take such
action or to refrain from taking such action by the Grantor or any of its
Subsidiaries.
(b) At any time and from time to time, upon the written request of the
Secured Party, and at the sole expense of the Grantor, the Grantor will promptly
and duly execute and deliver any and all such further instruments and documents
and take such further action as may be necessary or desirable, and as the
Secured Party may reasonably request in writing, in order to perfect and protect
any security interests granted or purported to be granted hereby or to enable
the Secured Party to exercise and enforce the rights and remedies pursuant
hereto with respect to any of the Collateral, including using its best efforts
to secure all consents and approvals necessary or appropriate for the assignment
to the Secured Party of any Contract held by the Grantor or in which the Grantor
has any rights not heretofore assigned, filing any financing or continuation
statements under the UCC with respect to the Liens and security interests
granted hereby as to those jurisdictions that are not Uniform Commercial Code
jurisdictions, transferring Collateral to the Secured Party's possession (if a
security interest in such Collateral can be perfected by possession) and placing
the interest of the Secured
Party as lienholder on the certificate of title of any vehicle. The Grantor also
hereby authorizes the Secured Party to file any such financing or continuation
statement without the signature of the Grantor to the extent permitted by
applicable law. In addition, if requested by the Secured Party, the Grantor will
comply with the requirements of the Federal Assignment of Claims Act with
respect to the assignment to the Secured Party of any Accounts on which an
Account Debtor is the Federal government.
(c) The Grantor shall, in accordance with the terms of the Credit
Agreement, obtain or use its best efforts to obtain waivers or subordinations of
Liens from landlords and mortgagees, and the Grantor shall in all instances
obtain signed acknowledgements of the Secured Party's Liens from bailees having
possession of any Grantor's Goods that they hold for the benefit of the Secured
Party.
(d) The Grantor shall obtain a duly executed and acknowledged Qualified
Account Letter or Securities Account Control Agreement, as applicable, with each
bank or financial institution or Securities Intermediary holding a Deposit
Account for the Grantor.
(e) The Grantor shall take all steps necessary to grant the Secured
Party control of all electronic chattel paper in accordance with the UCC and all
"transferable records" as defined in each of the Uniform Electronic Transactions
Act and the Electronic Signatures in Global and National Commerce Act.
(f) Grantor hereby irrevocably authorizes the Secured Party at any time
and from time to time to file in any filing office of any jurisdiction any
initial financing statements and amendments thereto that (a) indicate the
Collateral (i) as all assets of the Grantor or words of similar effect,
regardless of whether any particular asset comprised in the Collateral falls
within the scope of Article 9 of the UCC or such jurisdiction, or (ii) as being
of an equal or lesser scope or with greater detail, and (b) contain any other
information required by part 5 of Article 9 of the UCC for the sufficiency or
filing office acceptance of any financing statement or amendment, including (i)
if the Grantor is an organization, the type of organization and any organization
identification number issued to such Grantor, and (ii) in the case of a
financing statement filed as a fixture filing or indicating Collateral as
as-extracted collateral or timber to be cut, a sufficient description of real
property to which the Collateral relates. The Grantor agrees to furnish any such
information to the Secured Party promptly upon request. The Grantor also
ratifies its authorization for the Secured Party to have filed in any
jurisdiction any initial financing statements or amendments thereto relating to
the Collateral.
(g) The Grantor will keep and maintain at its own cost and expense
satisfactory and complete records of the Collateral, including a record of all
payments received and all credits granted with respect to the Collateral and all
other dealings with the Collateral. The Grantor will ▇▇▇▇ its books and records
pertaining to the Collateral to evidence this Agreement and the Lien and
security interests granted hereby. All Chattel Paper will be marked with the
following legend: "This writing and the obligations evidenced or secured hereby
are subject to the security interest of SBC Communications Inc.". If requested
by the Secured Party, the security interest of the Secured Party shall be noted
on the certificate of title of each vehicle. For the Secured Party's further
security, the Grantor agrees that the Secured Party shall have a special
property interest in all of the Grantor's books and records pertaining to the
Collateral and, upon the occurrence and during the continuance of any Event of
Default, the Grantor shall deliver and turn over any such books and records to
the Secured Party or to its representatives at any time on demand of the Secured
Party. Upon reasonable notice to the Grantor (unless an Event of Default has
occurred and is continuing, in which case no notice is necessary), the Secured
Party shall at all times, but, subject to the confidentiality provisions of
Section 9.11 of the Credit Agreement, not more frequently than annually so long
as no Default or Event of Default has occurred and is continuing, have full and
free access during normal business hours to all the books and records and
correspondence of the Grantor, and the Secured Party or its representatives may
examine the same, take extracts therefrom and make photocopies thereof, and the
Grantor agrees to render to the Secured Party, at the Grantor's cost and
expense, such clerical and other assistance as may be reasonably requested with
regard thereto.
(h) In any suit, proceeding or action brought by the Secured Party
relating to any Account, Investment Property, Chattel Paper, Contract, General
Intangible or Instrument for any sum owing thereunder, or to enforce any
provision of any Account, Investment Property, Chattel Paper, Contract, General
Intangible or Instrument, the Grantor will save, indemnify and keep the Secured
Party harmless from and against all expense, loss or damage suffered by reason
of any defense, set-off, counterclaim, recoupment or reduction of liability
whatsoever of the obligor thereunder, arising out of a breach by the Grantor of
any obligation thereunder or arising out of any other agreement, Indebtedness or
liability at any time owing to, or in favor of, such obligor or its successors
from the Grantor, and all such obligations of the Grantor shall be and remain
enforceable against and only against the Grantor and shall not be enforceable
against the Secured Party.
(i) The Grantor will comply with all acts, rules, regulations, orders,
decrees and directions of any Governmental Authority, applicable to the
Collateral or any part thereof or to the operation of the Grantor's business if
the failure to do so would individually or in the aggregate reasonably be
expected to have a Material Adverse Effect; provided that the Grantor may
contest any act, regulation, order, decree or direction in any reasonable manner
which shall not, in the sole opinion of the Secured Party, adversely affect the
Secured Party's rights hereunder or adversely affect the first priority of its
Lien on and security interest in the Collateral.
(j) The Grantor promptly will pay when due all taxes, assessments and
governmental charges or levies imposed upon the Collateral or in respect of its
income or profits therefrom and all claims of any kind (including claims for
labor, materials and supplies), except that no such charge need be paid if (i)
such non-payment does not involve any danger of the sale, forfeiture or loss of
any of the Collateral or any interest therein, and (ii) such charge is
adequately reserved against in accordance with and to the extent required by
GAAP.
(k) In all material respects, the Grantor will comply with and perform
all obligations, covenants, conditions and agreements with respect to any
Account, Investment Property, Chattel Paper, Contract, License and all other
agreements to which it is a party or by which it is bound if the failure to do
so could individually or in the aggregate have a Material Adverse Effect.
(l) The Grantor will not create, permit or suffer to exist, and will
defend the Collateral against and take such other action as is necessary to
remove, any Lien on the Collateral except Permitted Liens, and will defend the
right, title and interest of the Secured Party in and to any of the Grantor's
rights under the Chattel Paper, Investment Property, Contracts, Documents,
General Intangibles and Instruments and to the Equipment and Inventory and in
and to the Proceeds thereof against the claims and demands of all Persons
whomsoever.
(m) Upon the occurrence and during the continuance of any Event of
Default, the Grantor will not, without the Secured Party's prior written
consent, grant any extension of the time of payment of any of the Accounts,
Investment Property, Chattel Paper or Instruments, or compromise, compound or
settle the same for less than the full amount thereof, or release, wholly or
partly, any Person liable for the payment thereof, or allow any credit or
discount whatsoever thereon.
(n) The Grantor will maintain, with financially sound and reputable
companies, insurance policies (i) insuring its Inventory and Equipment against
loss by fire, explosion, theft and such other casualties as are usually insured
against by companies engaged in the same or similar businesses and (ii) insuring
the Grantor and the Secured Party against liability for personal injury and
property damage relating to such Inventory and Equipment, such policies to be in
such amounts and against at least such risks as are usually insured against in
the same general area by companies engaged in the same or a similar business,
naming the Secured Party as an additional insured with a lender loss payable
clause in favor of the Secured Party. All insurance with respect to the
Inventory and Equipment shall (i) contain a clause which provides that the
Secured Party's interest under the policy will not be invalidated by any act or
omission of, or any breach of warranty by, the insured, or by any change in the
title, ownership or possession of the insured property, or by the use of the
property for purposes more hazardous than is permitted in the policy, and (ii)
provide that no cancellation, reduction in amount or change in coverage thereof
shall be effective until at least ten days after receipt by the Secured Party of
written notice thereof.
(o) The Grantor will not sell, lease, transfer or otherwise dispose of
any of the Collateral, or attempt or contract to do so, except as permitted by
the Credit Agreement.
(p) The Grantor will, if so requested by the Secured Party, furnish to
the Secured Party, as often as the Secured Party reasonably requests, statements
and schedules further identifying and describing the Collateral and such other
reports in connection with the Collateral as the Secured Party may reasonably
request, all in reasonable detail.
(q) The Grantor will advise the Secured Party promptly, in reasonable
detail, (i) of any material Lien or claim made or asserted against any of the
Collateral other than Permitted Liens and (ii) of the occurrence of any other
event which would have a Material Adverse Effect.
(r) The Grantor will keep and maintain the Equipment in good operating
condition sufficient for the continuation of the business conducted by the
Grantor on a basis consistent with past practices, ordinary wear and tear
excepted, and the Grantor will provide for all maintenance and service and all
repairs necessary for such purpose.
(s) The Grantor will not change its name, identity or corporate
structure in any manner which might make any financing or continuation statement
filed in connection herewith seriously misleading within the meaning of the UCC
(or any other then applicable provision of the UCC) unless the Grantor shall
have given the Secured Party at least 30 days' prior written notice thereof and
shall have taken all action (or made arrangements to take such action
substantially simultaneously with such change if it is impossible to take such
action in advance) necessary or reasonably requested by the Secured Party to
amend such financing statement or continuation statement so that it is not
seriously misleading. The Grantor will not change its principal place of
business or change its state of incorporation, or remove its records or change
the location of its Inventory and Equipment to any location other than any
location as set forth on Schedule 4.19(a) of the Credit Agreement, unless it
gives the Secured Party at least 30 days' prior written notice thereof and has
taken such action as is necessary to cause the security interest of the Secured
Party in the Collateral to continue to be perfected.
6. The Secured Party's Appointment as Attorney-in-Fact and Proxy.
(a) The Grantor hereby irrevocably constitutes and appoints the Secured
Party and any officer or agent thereof, with full power of substitution, as its
true and lawful attorney-in-fact and proxy with full irrevocable power and
authority in the place and stead of the Grantor and in the name of the Grantor
or in its own name, from time to time in the Secured Party's discretion, for the
purpose of carrying out the terms of this Agreement, at any time after the
occurrence and during the continuance of an Event of Default, to take any and
all appropriate action and to execute and deliver any and all
documents and instruments which the Secured Party may deem necessary or
desirable to accomplish the purposes of this Agreement, including to receive,
indorse and collect all instruments payable to the Grantor representing any
dividend, interest payment or other distribution or payment in respect of any
Investment Property, to give full discharge for the same, and to vote or grant
any consent in respect of the Investment Property authorized by Section 8(d)
hereto and, without limiting the generality of the foregoing, hereby gives the
Secured Party the power and right, on behalf of the Grantor, at any time after
the occurrence and during the continuance of an Event of Default without notice
to or assent by the Grantor to do the following:
(i) to ask, demand, collect, receive and give acquittances and
receipts for any and all moneys due and to become due under any
Collateral and, in the name of the Grantor or in its own name or
otherwise, to take possession of and endorse and collect any checks,
drafts, notes, acceptances or other Instruments for the payment of
moneys due under any Collateral and to file any claim or to take any
other action or proceeding in any court of law or equity or otherwise
deemed appropriate by the Secured Party for the purpose of collecting
any and all such moneys due under any Collateral whenever payable and
to file any claim or to take any other action or proceeding in any
court of law or equity or otherwise deemed appropriate by the Secured
Party for the purpose of collecting any and all such moneys due under
any Collateral whenever payable;
(ii) to pay or discharge taxes, Liens, security interests or
other encumbrances levied or placed on or threatened against the
Collateral, to effect any repairs or any insurance called for by the
terms of this Agreement and to pay all or any part of the premiums
therefor and the costs thereof; and
(iii) (A) to direct any party liable for any payment under any
of the Collateral to make payment of any and all moneys due, and to
become due thereunder, directly to the Secured Party or as the Secured
Party shall direct; (B) to receive payment of and receipt for any and
all moneys, claims and other amounts due, and to become due at any
time, in respect of or arising out of any Collateral; (C) to sign and
indorse any invoices, freight or express bills, bills of lading,
storage or warehouse receipts, drafts against debtors, assignments,
verifications and notices in connection with Accounts and other
Documents constituting or relating to the Collateral; (D) to commence
and prosecute any suits, actions or proceedings at law or in equity in
any court of competent jurisdiction to collect the Collateral or any
part thereof and to enforce any other right in respect of any
Collateral; (E) to defend any suit, action or proceeding brought
against the Grantor with respect to any Collateral; (F) to settle,
compromise or adjust any suit, action or proceeding described above
and, in connection therewith, to give such discharges or releases as
the Secured Party may deem appropriate; (G) to license or, to the
extent permitted by an applicable license, sublicense, whether general,
special or otherwise, and whether on an exclusive or non-exclusive
basis, any patent or trademark, throughout the world for such term or
terms, on such conditions, and in such manner, as the Secured Party
shall in its sole discretion determine; and (H) generally to sell,
transfer, pledge, make any agreement with respect to or otherwise deal
with any of the Collateral as fully and completely as though the
Secured Party were the absolute owner thereof for all purposes, and to
do, at the Secured Party's option and the Grantor's expense, at any
time,
or from time to time, all acts and things which the Secured Party reasonably
deems necessary to protect, preserve or realize upon the Collateral and the
Secured Party's Lien therein, in order to effect the intent of this Agreement,
all as fully and effectively as the Grantor might do.
(b) The Grantor hereby ratifies, to the extent permitted by law, all
that any said attorney shall lawfully do or cause to be done by virtue hereof.
The power of attorney granted pursuant to this Section 6, being coupled with an
interest, shall be irrevocable until the Obligations are paid and collected in
full.
(c) The powers conferred on the Secured Party hereunder are solely to
protect the Secured Party's interests in the Collateral and shall not impose any
duty upon it to exercise any such powers. The Secured Party shall be accountable
only for amounts that it actually receives as a result of the exercise of such
powers and neither it nor any of its officers, directors, employees or agents
shall be responsible to the Grantor for any act or failure to act, except for
its own gross negligence or willful misconduct.
(d) The Grantor also authorizes the Secured Party, at any time and from
time to time upon the occurrence and during the continuance of an Event of
Default, (i) to communicate in its own name with any party to any Contract with
regard to the assignment of the right, title and interest of the Grantor in and
under the Contracts hereunder and other matters relating thereto and (ii) to
execute, in connection with the sale provided for in Section 8 hereof, any
indorsements, assignments or other instruments of conveyance or transfer with
respect to the Collateral.
7. Secured Party May Perform. If the Grantor fails to perform or comply
with any of its agreements contained herein, the Secured Party, as provided for
by the terms of this Agreement, may, but shall not be obligated to, itself
perform or comply, or otherwise cause performance or compliance, with such
agreement, and the reasonable expenses of the Secured Party incurred in
connection with such performance or compliance, together with interest thereon
at the highest rate then in effect in respect of the Loans, shall be payable by
the Grantor to the Secured Party on demand and shall constitute Obligations
secured hereby.
8. Remedies, Rights Upon an Event of Default.
(a) If any Event of Default shall occur and be continuing, the Secured
Party may exercise in addition to all other rights and remedies granted to it in
this Agreement and in any other instrument or agreement securing, evidencing or
relating to the Obligations, all rights and remedies of a secured party under
the UCC. Without limiting the generality of the foregoing, the Grantor expressly
agrees that in any such event the Secured Party, without demand of performance
or other demand, advertisement or notice of any kind (except the notice
specified below of time and place of public or private sale) to or upon the
Grantor or any other Person (all and each of which demands, advertisements
and/or notices are hereby expressly waived to the maximum extent permitted by
the UCC and other applicable law), may forthwith collect, receive, appropriate
and realize upon the Collateral, or any part thereof, and/or may forthwith sell,
lease, assign, give an option or
options to purchase, or sell or otherwise dispose of and deliver said Collateral
(or contract to do so), or any part thereof, in one or more parcels at public or
private sale or sales, at any exchange or broker's board or any of the Secured
Party's offices or elsewhere at such prices as it may deem best, for cash or on
credit or for future delivery without assumption of any credit risk, provided
that the terms of any such sale or disposal are commercially reasonable. The
Secured Party shall have the right upon any such public sale or sales, and, to
the extent permitted by law, upon any such private sale or sales, to purchase
the whole or any part of said Collateral so sold, free of any right or equity of
redemption, which equity of redemption the Grantor hereby releases. The Grantor
further agrees, at the Secured Party's request to assemble the Collateral and
make it available to the Secured Party at places which the Secured Party shall
reasonably select, whether at the Grantor's premises or elsewhere. The Secured
Party shall apply the net proceeds of any such collection, recovery receipt,
appropriation, realization or sale, as provided in Section 8(b) hereof, the
Grantor remaining liable for any deficiency remaining unpaid after such
application, and only after so paying over such net proceeds and after the
payment by the Secured Party of any other amount required by any provision of
law, need the Secured Party account for the surplus, if any, to the Grantor. To
the maximum extent permitted by applicable law, the Grantor waives all claims,
damages, and demands against the Secured Party arising out of the repossession,
retention or sale of the Collateral. The Grantor agrees that the Secured Party
need not give more that ten days' notice of the time and place of any public
sale or of the time after which a private sale may take place and that such
notice is reasonable notification of such matters. The Grantor shall remain
liable for any deficiency if the proceeds of any sale or disposition of the
Collateral are insufficient to pay all amounts to which the Secured Party is
entitled, the Grantor also being liable for the fees and expenses of any
attorneys employed by the Secured Party to collect such deficiency.
(b) Any cash held by the Secured Party as Collateral and all cash
proceeds received by the Secured Party in respect of any sale, disposition or
other realization upon all or any part of the Collateral of the Grantor shall be
distributed by the Secured Party in the following order of priorities:
(i) first, to the payment of the costs and expenses of such
sale, disposition or other realization, including all expenses and
liabilities of (including reasonable compensation to the agents of, and
counsel to) the Secured Party, and all expenses, liabilities and
advances made or incurred by the Secured Party in connection therewith
or pursuant to Section 7 hereof;
(ii) next, to the Secured Party for application in payment in
full of the Obligations; provided, that if the amount of such cash
proceeds exceeds the amount of the Obligations then due and payable,
the Secured Party may retain such excess cash proceeds in an amount not
to exceed 110% of the Obligations not then due, for application in
payment of the Obligations not then due, for a period up to the date
such Obligations become due and payable, but in no event later than 180
days after receipt thereof, such 180-day period to be extended for so
long as any dispute exists between any Loan Party and the Secured Party
with respect to such application of or the Secured Party's right to
apply such proceeds; and
(iii) finally, after payment in full of all the Obligations,
to the payment of the Grantor, or its successors or assigns, or to
whosoever may be lawfully entitled to receive the same as a court of
competent jurisdiction may direct of any surplus then remaining.
(c) Without limiting any other provisions of this Section 8, upon the
occurrence and during the continuance of an Event of Default:
(i) the Secured Party may, at any time, terminate any or all
Qualified Accounts or Securities Accounts and require that the Grantor
notify all obligors that were making payment to said Qualified Accounts
or Securities Accounts to make all future payments to, at the direction
of the Secured Party, another Qualified Account specified by the
Secured Party or to the Cash Collateral Account; and
(ii) upon notice to the Grantor by the Secured Party and any
or all of the Qualified Account Entities, the authorization of the
Grantor under Section 3(h) to direct the disposition of funds on
deposit in Qualified Accounts or Securities Accounts maintained in such
Qualified Account Entities or Securities Intermediaries shall be
revoked and all deposits contained therein shall be transferred to the
Cash Collateral Account.
(d) Without limiting any other provisions of this Section 8, upon the
occurrence and during the continuance of an Event of Default:
(i) Upon written notice to the Grantor by the Secured Party,
all rights of the Grantor to exercise the voting and other consensual
rights which it would otherwise be entitled to exercise pursuant to
Section 3(g) shall cease, and all such rights shall thereupon become
vested in the Secured Party who shall thereupon have the sole right to
exercise such voting and other consensual rights.
(ii) All rights of the Grantor to receive the dividends,
interest payments and principal payments which it would otherwise be
authorized to receive and retain pursuant to Section 3(g) shall cease,
and all such rights shall thereupon become vested in the Secured Party
who shall thereupon have the sole right to receive and hold as
Collateral such dividends, interest payments and principal payments.
(iii) All dividends and principal and interest payments which
are received by the Grantor contrary to the provisions of this Section
8(d) shall be received in trust for the benefit of the Secured Party,
shall be segregated from other funds of the Grantor and shall be
forthwith paid over to the Secured Party as Collateral in the same form
as so received (with any necessary endorsement).
(iv) The Grantor shall, upon the written request of the
Secured Party, if necessary to permit the Secured Party to exercise the
voting and other rights which it may be entitled to exercise pursuant
to Section 8(d)(i) above and to receive all dividends and distributions
which it may be entitled to receive under Section 3(g)(ii) or Section
8(d)(ii) above, execute and deliver to the Secured Party, from time to
time and upon written notice of the Secured Party, appropriate proxies,
dividend and other payment orders and
other instruments as the Secured Party may reasonably request. The
foregoing shall not in any way limit the Secured Party's power and
authority granted pursuant to Section 6 hereof.
9. Limitation on the Secured Party's Duty in Respect of Collateral. To
the extent permitted by applicable law, the Secured Party shall not have any
duty as to any Collateral in its possession or control or in the possession or
control of any agent or nominee of it or any income thereon or as to the
preservation of rights against prior parties or any other rights pertaining
thereto, except that the Secured Party shall use reasonable care with respect to
the Collateral in its possession or under its control and shall account to the
Grantor for all funds actually received by the Secured Party in respect of any
foreclosure on or disposition of the Collateral. The Secured Party shall be
deemed to have exercised reasonable care in the custody and preservation of the
Collateral in its possession if the Collateral is accorded treatment
substantially equal to that which the Secured Party accords its own property, it
being understood that the Secured Party shall not have any responsibility for
(a) ascertaining or taking action with respect to calls, conversions, exchanges,
maturities, tenders or other matters relative to any Collateral, whether or not
the Secured Party has or is deemed to have knowledge of any such matter, or (b)
taking any necessary steps to preserve rights against any Person with respect to
any Collateral. Upon written request of the Grantor at any time, the Secured
Party shall account for any moneys received by it prior to such time in respect
of any foreclosure on or disposition of the Collateral.
10. Expenses. The Grantor will upon demand pay to the Secured Party the
amount of any and all reasonable expenses, including the reasonable fees and
expenses of the Secured Party's counsel and of any experts and agents, which the
Secured Party may incur in connection with (i) the administration of this
Agreement, (ii) the custody or preservation of, sale of, collection from, or
other realization upon, any of the Collateral, (iii) the exercise or enforcement
of any of the rights and remedies hereunder of the Secured Party, or (iv) the
failure by the Grantor to perform or observe any of the provisions hereof.
11. Security Interest Absolute. All rights of the Secured Party and
security interests hereunder, and all obligations of the Grantor hereunder,
shall be absolute and unconditional irrespective of:
(i) any lack of validity or enforceability of any provision of
the Credit Agreement, the Note or any other Loan Document or any other
agreement or instrument relating thereto;
(ii) any change in the time, manner or place of payment of, or
in any other term of, or any increase in the amount of, all or any of
the Obligations, or any other amendment or waiver of any term of, or
any consent to any departure from any requirement of, the Credit
Agreement, the Note or any other Loan Document;
(iii) any exchange, release or non-perfection of any Lien on
any other collateral, or any release or amendment or waiver of any term
of any guaranty of, or
consent to departure from any requirement of any guaranty of, all or
any of the Obligations; or
(iv) any other circumstance which might otherwise constitute a
defense available to, or a discharge of, a borrower or a pledgor.
12. Amendments, Etc. No amendment or waiver of any provision of this
Agreement nor consent to any departure by the Grantor herefrom shall in any
event be effective unless the same shall be in writing and signed by the Secured
Party, and then any such waiver or consent shall only be effective in the
specific instance and for the specific purpose for which given.
13. Notices. All notices and other communications provided for
hereunder shall be in writing (including telecopy communication) and mailed,
telecopied or delivered by hand, if to the Grantor, addressed to it at, ▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ (Telecopy No. (▇▇▇) ▇▇▇-▇▇▇▇),
Attention: ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, and if to the Secured Party, addressed to it its
address specified in the Credit Agreement, or, as to each party, at such other
address as shall be designated by such party in a written notice to each other
party complying as to delivery with the terms of this Section. All such notices
and other communications shall, when mailed, telecopied or delivered, be
effective when deposited in the mails, telecopied with confirmation of receipt,
or delivered by hand to the addressee or its agent, respectively except notices
under Section 8 shall not be effective until received by the Grantor.
14. Binding Effect. This Agreement shall create a continuing security
interest in the Collateral and shall (i) remain in full force and effect until
payment in full (after the Termination Date) of the Obligations, (ii) be binding
upon the Grantor, its successors and assigns, and (iii) inure, together with the
rights and remedies hereunder, to the benefit of and be enforceable by the
Secured Party and its successors, transferees and assigns; provided, however,
that the Grantor may not assign its rights or obligations hereunder or in
connection herewith or any interest herein (voluntarily, by operation of law or
otherwise) without the prior written consent of the Secured Party. Except as
provided in Section 2, no other Person (including any other creditor of the
Grantor) shall have any interest herein or any right or benefit with respect
hereto and this Agreement shall not be construed so as to confer any right or
benefit upon any Person other than the parties to this Agreement and each of
their respective successors and assigns.
15. Termination. Upon the payment in full (after the Termination Date)
of the Obligations, the Grantor shall be entitled to the return, upon its
request and at its expense, of such of the Collateral as shall not have been
sold or otherwise applied pursuant to the terms hereof.
16. Governing Law; Severability. This Agreement and the rights and
obligations of the parties hereto, including the interpretation, construction,
validity and enforceability thereof, shall be governed by the law of the State
of Delaware. Wherever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement shall be
prohibited by or invalid under applicable law of any jurisdiction, such
provision shall, as to such jurisdiction, be ineffective only to the extent of
such prohibition or invalidity and without invalidating the remaining provisions
of this Agreement or affecting the validity or enforceability of such provision
in any other jurisdiction.
17. Entire Agreement. Subject to the terms of the Dispute Resolution
Agreement, this Agreement, together with all of the other Loan Documents and all
certificates and documents delivered hereunder or thereunder, embodies the
entire agreement of the parties and supersedes all prior oral or written
agreements and understandings relating to the subject matter hereof, including
that certain term sheet, dated on or about October 19, 2001, between the Parent
and the Secured Party.
18. Section Titles. The Section titles contained in this Agreement are
and shall be without substantive meaning or content of any kind whatsoever and
are not a part of this Agreement.
19. Counterparts. This Agreement may be executed in any number of
counterparts, each of which counterpart, when so executed and delivered, shall
be deemed to be an original and all of which counterparts, taken together, shall
constitute one and the same Agreement.
20. Further Indemnification. The Grantor agrees to pay, and to save the
Secured Party harmless from, any and all liabilities with respect to, or
resulting from any delay in paying, any and all excise, sales or other similar
taxes which may be payable or determined to be payable with respect to any of
the Collateral or in connection with any of the transactions contemplated by
this Agreement.
21. No Waiver; Remedies.
(a) No failure on the part of the Secured Party to exercise, and no
delay in exercising any right hereunder shall operate as a waiver thereof; nor
shall any single or partial exercise of any right hereunder preclude any other
or further exercise thereof or the exercise of any other right. The remedies
herein provided are cumulative, may be exercised singly or concurrently, and are
not exclusive of any remedies provided by law or any of the other Loan
Documents.
(b) Failure by the Secured Party at any time or times hereafter to
require strict performance by the Grantor or any other Person of any of the
provisions, warranties, terms or conditions contained in any of the Loan
Documents now or at any time or times hereafter executed by the Grantor or any
such other Person and delivered to the Secured Party shall not waive, affect or
diminish any right of the Secured Party at any time or times hereafter to demand
strict performance thereof, and such right shall not be deemed to have been
modified or waived by any course of conduct or knowledge of the Secured Party,
or any agent, officer or employee of the Secured Party.
22. Waivers. The Grantor hereby waives presentment, demand, protest or
any notice (to the maximum extent permitted by applicable law) of any kind in
connection with this Agreement or any Collateral, except such demands and
notices as are expressly required by this Agreement.
23. Unpaid Obligations. Notwithstanding any provisions of this
Agreement to the contrary, if, after giving effect to any sale, transfer,
assignment or other disposition of any or all of the Collateral pursuant hereto
and after the application of the proceeds hereunder to Obligations, any
Obligations remain unpaid or unsatisfied, Grantor shall remain liable for the
unpaid and unsatisfied amount of such Obligations.
24. Conflicts. If any term or provision of this Agreement in respect of
any Collateral that also constitutes "Pledged Collateral" under the Pledge
Agreement or "Intellectual Property Collateral" under the Intellectual Property
Security Agreement is inconsistent with any term or provision under the Pledge
Agreement or the Intellectual Property Security Agreement, as the case may be,
in respect of such Collateral, the terms and provisions of the Pledge Agreement
or the Intellectual Property Security Agreement, as the case may be, shall
control.
IN WITNESS WHEREOF, the Grantor has caused this Agreement to be
executed and delivered by its duly authorized officer on the date first above
written.
COVAD COMMUNICATIONS COMPANY
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
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Name: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Title: President
Accepted and Acknowledged:
SBC COMMUNICATIONS INC.
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
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Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Title: VP - Controller
