EXHIBIT 10.2
SECURITY AGREEMENT
Dated as of November 18, 1998
From
USN COMMUNICATIONS, INC.,
the Company
to
XXXXXXX XXXXX GLOBAL ALLOCATION FUND, INC.
as Purchaser
TABLE OF CONTENTS
Page
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Section 1. Grant of Security...........................................1
Section 2. Security for Obligations....................................3
Section 3. Grantor Remains Liable......................................3
Section 4. Delivery of Security Collateral.............................3
Section 5. Representations and Warranties..............................4
Section 6. Further Assurances..........................................5
Section 7. As to Equipment and Inventory...............................6
Section 8. Insurance...................................................6
Section 9. Place of Perfection, Records, Collection
of Receivables..............................................7
Section 10. Voting Rights; Dividends; Etc...............................8
Section 11. Transfers and Other Liens; Additional Shares................9
Section 12. The Secured Party Appointed Attorney-in-Fact................9
Section 13. The Secured Party May Perform..............................10
Section 14. The Secured Party's Duties.................................10
Section 15. Remedies...................................................10
Section 16. Registration Rights........................................11
Section 17. Indemnity and Expenses.....................................12
Section 18. Security Interest Absolute.................................12
Section 19. Amendments; Waivers; Etc...................................13
Section 20. Addresses for Notices......................................13
Section 21. Continuing Security Interest, Assignments
under the Note Purchase Agreement..........................13
Section 22. Release and Termination....................................13
Section 23. Execution in Counterparts..................................14
Section 24. Governing Law; Terms.......................................14
Schedule I PLEDGED SHARES..............................................1
Schedule II LOCATIONS OF EQUIPMENT AND INVENTORY........................1
Schedule III TRADE NAMES................................................1
SECURITY AGREEMENT, dated as of November 18, 1998, made by USN
COMMUNICATIONS, INC., a Delaware corporation (the "Grantor") and XXXXXXX
XXXXX GLOBAL ALLOCATION FUND, INC. (together with its successors and
assigns, the "Secured Party") as purchaser.
(1) The Secured Party has entered into a Note Purchase Agreement
with the Grantor, pursuant to which the Grantor is issuing on the date
hereof $10,000,000 in aggregate principal amount of 17% Senior Secured
Notes due January 15, 1999 (the "Notes"; the terms defined therein and not
otherwise defined herein being used herein as therein defined).
(2) The Grantor is the owner of the shares set forth in Schedule
I hereto and issued by the corporation named therein.
(3) It is a condition precedent to the purchase of the Notes by
the Secured Party under the Note Purchase Agreement that the Grantor shall
have granted the assignment and security interest and made the pledge and
assignment contemplated by this Agreement.
NOW, THEREFORE, in consideration of the premises and in order to
induce the Secured Party to purchase the Notes, the Grantor hereby agrees
with the Secured Party:
Section 1. GRANT OF SECURITY. The Grantor hereby assigns and
pledges to the Secured Party, and hereby grants to the Secured Party for
its benefit, a security interest in, the following (collectively, the
"Collateral"):
(a) all of the Grantor's right, title and interest, whether now
owned or hereafter acquired, in and to all equipment in all of its
forms, wherever located, now or hereafter existing, all fixtures and
all parts thereof and all accessions thereto (any and all such
equipment, fixtures, parts and accessions being the "Equipment");
(b) all of the Grantor's right, title and interest, whether now
owned or hereafter acquired, in and to all inventory in all of its
forms, wherever located, now or hereafter existing (including, but not
limited to, (i) all raw materials and work in process therefor,
finished goods thereof and materials used or consumed in the
manufacture or production thereof, (ii) goods in which the Grantor has
an interest in mass or a joint or other interest or right of any kind
(including, without limitation, goods in which the Grantor has an
interest or right as consignee) and (iii) goods that are returned to
or repossessed by the Grantor), and all accessions thereto and
products thereof and documents therefor (any and all such inventory,
accessions, products and documents being the "Inventory");
(c) all of the Grantor's right, title and interest, whether now
owned or hereafter acquired. in and to all accounts, accounts
receivable, reimbursements, notes, contract rights, lease rights,
chattel paper, instruments, deposit accounts, general intangibles and
other obligations of any kind (including, without limitation, all
intercompany debt owed to the Grantor that is not evidenced by a
promissory note or similar instrument and all telephone accounts and
accounts receivable arising from telecommunication services rendered
to an end user prior to the sale, assignment, or transfer of such
account (collectively, the "End User Accounts") to a regional Xxxx
operating company, a Xxxx operating company, local exchange company,
credit card company or provider of local telephone services (each a
"LEC") for billing and collection, and rights in and to any of the
telephone receivables, debts, and other amounts payable to Debtor by
any LEC) and any and all other assets, now or hereafter existing,
whether or not arising out of or in connection with the sale or lease
of goods or the rendering of services and whether or not earned by
performance (including, without limitation, any rights with respect to
workers' compensation or other deposits made by the Grantor and any
rights to receive tax refunds or other refunds, reimbursements and
payments from any federal, state or local government or any political
subdivision, agency or instrumentality thereof), and all rights now or
hereafter existing in and to all security agreements, leases and other
contracts (including without limitation, network contracts, customer
contracts for the furnishing by the Company of telecommunication
services and billing and collection contracts) securing or otherwise
relating to any such accounts, contract rights, chattel paper,
instruments, deposit accounts, general intangibles, obligations or
other assets (any and all such accounts, contract rights, chattel
paper, instruments, deposit accounts, general intangibles and
obligations, to the extent not referred to in clause (d), (e) or (f)
below, being the "Receivables", and any and all such leases, security
agreements and other contracts being the "Related Contracts");
(d) all of the following (the "Security Collateral"):
(i) the shares of stock set forth opposite in Schedule I
hereto and issued by the corporations indicated therein
(collectively referred to herein as the "Initial Pledged Shares",
and together with the shares referred to in clause (iii) below,
the "Pledged Shares"), together with the certificates
representing such Initial Pledged Shares and all dividends, cash,
instruments and other property from time to time received,
receivable or otherwise distributed in respect of or in exchange
for any or all of such Initial Pledged Shares; and
(ii) all additional shares of stock of any issuer of any
Initial Pledged Shares or of any other Subsidiary of the Grantor
or of any other Person from time to time acquired by the Grantor
in any manner, and all additional shares of stock of each other
Subsidiary of the Grantor to the extent required pursuant to
Section 8.11 of the Note Purchase Agreement, together with the
certificates representing such additional shares and all
dividends, cash, instruments and other property from time to time
received, receivable or otherwise distributed in respect of or in
exchange for any or all of such shares;
(e) all of the following (collectively, the "Account Collateral"):
(i) all deposit accounts of the Grantor (including, without
limitation, the "Account"), all funds held therein and all
certificates and instruments, if any, from time to time
representing or evidencing such deposit accounts;
(ii) all notes, certificates of deposit, deposit accounts,
checks and other instruments from time to time hereafter
delivered to or otherwise possessed by the Secured Party for or
on behalf of the Grantor in substitution for or in addition to
any or all of the then existing Account Collateral; and
(iii) all interest, dividends, cash, drafts, rights to
receive payment in money or kind, instruments and other property
from time to time received, receivable or otherwise distributed
in respect of or in exchange for any or all of the then existing
Account Collateral;
(f) customer lists, all documents containing the names,
addresses, telephone numbers, and other information regarding the
Company's customers, subscribers, tapes, programs, printouts, disks,
and other material and documents relating to the recording, billing or
analyzing of any of the foregoing, and any other right to payment; and
(g) all proceeds of any and all of the foregoing Collateral
(including, without limitation, proceeds that constitute property of
the types described in clauses (a) - (f) of this Section 1) and, to
the extent not otherwise included, all (i) payments under insurance
(whether or not the Secured Party is the loss payee thereof), or any
indemnity, warranty or guaranty, payable by reason of loss or damage
to or otherwise with respect to any of the foregoing Collateral and
(ii) cash.
Notwithstanding the foregoing, Collateral shall not include a
grant of any Related Contract or other contract or capital lease if such
grant (i) is prohibited by such contract's terms, (ii) requires
governmental approval, or (iii) would violate any applicable law.
Section 2. SECURITY FOR OBLIGATIONS. This Agreement secures the
payment of all Obligations of the Grantor now or hereafter existing under
the Note Documents, whether direct or indirect, absolute or contingent,
including any extensions, modifications, substitutions, amendments and
renewals thereof whether for principal, interest, premium, penalties, fees,
the Facility Fee, indemnifications, costs, expenses or otherwise (all such
Obligations being the "Secured Obligations"). Without limiting the
generality of the foregoing, this Agreement secures the payment of all
amounts that constitute part of the Secured Obligations and would be owed
by the Grantor to the Secured Party under the Note Documents but for the
fact that they are unenforceable or not allowable due to the existence of a
bankruptcy, reorganization or similar proceeding involving the Grantor.
Section 3. GRANTOR REMAINS LIABLE. Anything herein to the
contrary notwithstanding, (a) the Grantor shall remain liable under the
contracts and agreements included in the Collateral to the extent set forth
therein to perform all of its duties and obligations thereunder to the same
extent as if this Agreement had not been executed, (b) the exercise by the
Secured Party of any of the rights hereunder shall not release the Grantor
from any of its duties or obligations under the contracts and agreements
included in the Collateral and (c) the Secured Party shall not have any
obligation or liability under the contracts and agreements included in the
Collateral by reason of this Agreement, nor shall the Secured Party be
obligated to perform any of the obligations or duties of the Grantor
thereunder or to take any action to collect or enforce any claim for
payment assigned hereunder.
Section 4. DELIVERY OF SECURITY COLLATERAL. All certificates or
instruments representing or evidencing Security Collateral or Account
Collateral (and, to the extent requested by the Secured Party, any other
Collateral) shall be delivered to and held by or on behalf of the Secured
Party pursuant hereto and shall be in suitable form for transfer by
delivery, or shall be accompanied by duly executed instruments of transfer
or assignment in blank, all in form and substance satisfactory to the
Secured Party. After the occurrence of an Event of Default and for so long
as it is continuing, the Secured Party shall have the right, at any time in
its discretion and without notice to any Grantor, to transfer to or to
register in the name of the Secured Party or any of its nominees any or all
of the Security Collateral and Account Collateral, subject only to the
revocable rights specified in Section 10(a). In addition, the Secured Party
shall have the right at any time to exchange certificates or instruments
representing or evidencing Security Collateral or Account Collateral for
certificates or instruments of smaller or larger authorized denominations.
Section 5. REPRESENTATIONS AND WARRANTIES. The Grantor represents
and warrants as follows:
(a) All of the Equipment and Inventory are located at the places
specified in Schedule II hereto. The chief place of business and chief
executive office of the Grantor and the office where the Grantor keeps
its records concerning the Receivables, and all originals of all
chattel paper that evidence Receivables, are located at the address
below the Grantor's name on the signature pages hereto. No material
amount of the Receivables is evidenced by a promissory note or other
instrument.
(b) The Grantor is the legal and beneficial owner of the
Collateral of the Grantor free and clear of any Lien, except for the
security interest created by this Agreement and except as permitted
under the Note Purchase Agreement. No effective financing statement or
other instrument similar in effect covering all or any part of the
Collateral is on file in any recording office, except such as may have
been filed in favor of the Secured Party relating to this Agreement or
as permitted by the Note Purchase Agreement. The Grantor has the trade
names listed on Schedule III.
(c) The Pledged Shares have been duly authorized and validly
issued and are fully paid and non-assessable.
(d) The Initial Pledged Shares constitute the percentage of the
issued and outstanding shares of stock of the issuers thereof
indicated on Schedule I.
(e) This Agreement, the pledge of the Security Collateral
pursuant hereto and the pledge and assignment of the Account
Collateral pursuant hereto create a valid and, subject to the filing
of all necessary financing statements and the delivery of the Security
Collateral, perfected first priority security interest in the
Collateral of the type subject to Articles 8 or 9 of the Uniform
Commercial Code, securing the payment of the Secured Obligations, and
all filings and other actions necessary or desirable to perfect and
protect such security interest have been duly taken except as
permitted under the Note Purchase Agreement.
(f) No consent of any other Person and no authorization, approval
or other action by, and no notice to or filing with, any governmental
authority or regulatory body or other third party is required either
(i) for the grant by the Grantor of the assignment and security
interest granted hereby, for the pledge by the Grantor of the Security
Collateral pursuant hereto or for the execution, delivery or
performance of this Agreement by the Grantor, (ii) for the perfection
or maintenance of the pledge, assignment and security interest created
hereby (including the first priority nature of such pledge, assignment
or security interest), except for the filing of financing and
continuation statements under the Uniform Commercial Code, which
financing statements have been or will be duly filed or (iii) for the
exercise by the Secured Party of its voting or other rights provided
for in this Agreement or the remedies in respect of the Collateral
pursuant to this Agreement, except as may be required in connection
with the disposition of any portion of the Security Collateral by laws
affecting the offering and sale of securities generally or as
otherwise permitted under the Note Purchase Agreement.
Section 6. FURTHER ASSURANCES.
(a) The Grantor agrees that from time to time, at its own
expense, it will promptly execute and deliver all further instruments
and documents, and take all further action, that may be necessary, or
that the Secured Party may reasonably request, in order to perfect and
protect any pledge, assignment or security interest granted or
purported to be granted hereby or to enable the Secured Party to
exercise and enforce its rights and remedies hereunder with respect to
any Collateral. At the reasonable request of the Secured Party,
without limiting the generality of the foregoing, the Grantor will:
(i) xxxx conspicuously each document included in the Inventory, each
chattel paper included in the Receivables, each Related Contract and,
at the request of the Secured Party, each of its records pertaining to
the Collateral with a legend, in form and substance satisfactory to
the Secured Party, indicating that such document, chattel paper,
Related Contract or Collateral is subject to the security interest
granted hereby; (ii) if any Collateral shall be evidenced by a
promissory note or other instrument or chattel paper, deliver and
pledge to the Secured Party hereunder such note or instrument or
chattel paper duly endorsed and accompanied by duly executed
instruments of transfer or assignment, all in form and substance
satisfactory to the Secured Party; and (iii) execute and file such
financing or continuation statements, or amendments thereto, and such
other instruments or notices, as may be necessary or desirable, or as
the Secured Party may request, in order to perfect and preserve the
pledge, assignment and security interest granted or purported to be
granted hereby.
(b) The Grantor hereby authorizes the Secured Party to file one
or more financing or continuation statements, and amendments thereto,
relating to all or any part of the Collateral without the signature of
the Grantor where permitted by law. A photocopy or other reproduction
of this Agreement or any financing statement covering the Collateral
or any part thereof shall be sufficient as a financing statement where
permitted by law.
(c) The Grantor will furnish to the Secured Party from time to
time 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.
(d) The Grantor agrees to take any action which the Secured Party
may reasonably request in order to obtain and enjoy the full rights
and benefits granted to the Secured Party by this Agreement and each
other agreement, instrument and document delivered to the Secured
Party in connection herewith or in any document evidencing or securing
the Collateral, including specifically, at the Company's sole cost and
expense, the use of its best efforts to assist in obtaining approval
of the FCC or any other agency or government for any action or
transaction contemplated by this Agreement which is then required by
law, and specifically, without limitation, upon request, to prepare,
sign and file with the FCC or any other agency or government the
assignor's or transferor's portion of any application or applications
for consent to the assignment of any license or franchise or transfer
of control necessary or appropriate under the FCC's or any agency or
government's rules and regulations for approval of (a) any sale or
sales of property constituting the Collateral by the Secured Party on
its behalf, or (b) any assumption by the Secured Party on its behalf
of voting rights or management rights in property constituting the
Collateral affected in accordance with the terms of this Agreement.
Section 7. AS TO EQUIPMENT AND INVENTORY. (a) The Grantor shall
keep the Equipment and Inventory (other than Inventory sold in the ordinary
course of business) at the places therefor specified in Section 5(a) or,
upon prior written notice to the Secured Party, at such other places in a
jurisdiction where all action required by Section 6 shall have been taken
with respect to the Equipment and Inventory.
(b) To the extent required by the Note Purchase Agreement, the
Grantor shall cause the Equipment to be maintained and preserved in the
same condition, repair and working order as when new, ordinary wear and
tear excepted, and in accordance with any manufacturer's manual, and shall
forthwith, or in the case of any loss or damage to any of the Equipment as
quickly as practicable after the occurrence thereof, make or cause to be
made all repairs, replacements and other improvements in connection
therewith that are necessary or desirable to such end. The Grantor shall
promptly furnish to the Secured Party a statement respecting any material
loss or damage to any of the Equipment.
(c) To the extent required by the Note Purchase
Agreement, the Grantor shall pay promptly when due all property and other
taxes, assessments and governmental charges or levies imposed upon, and all
claims (including claims for labor, materials and supplies) against, the
Equipment and Inventory. In producing the Inventory, the Grantor shall
comply in all material respects with all requirements of the Fair Labor
Standards Act.
Section 8. INSURANCE. (a) The Grantor shall, at its own expense,
maintain insurance with respect to the Equipment and Inventory in such
amounts, against such risks, in such form and with such insurers, as shall
be reasonably satisfactory to the Secured Party from time to time and is
customary in the industry. The Grantor shall take all necessary action to
ensure that each policy for liability insurance shall provide for all
losses to be paid on behalf of the Secured Party and the Grantor as their
interests may appear, and each policy for property damage insurance shall
provide for all losses to be paid directly to the Secured Party. The
Grantor shall take all necessary action to ensure that each such policy
shall in addition (i) name such Grantor and the Secured Party as insured
parties thereunder (without any representation or warranty by or obligation
upon the Secured Party) as their interests may appear, (ii) contain the
agreement by the insurer that any loss thereunder shall be payable to the
Secured Party notwithstanding any action, inaction or breach of
representation or warranty by the Grantor, (iii) provide that there shall
be no recourse against the Secured Party for payment of premiums or other
amounts with respect thereto and (iv) provide that at least 10 days' prior
written notice of cancellation or of lapse shall be given to the Secured
Party by the insurer. The Grantor shall, if so requested by the Secured
Party, deliver to the Secured Party original or duplicate policies of such
insurance and, as often as the Secured Party may reasonably request, a
report of a reputable insurance broker with respect to such insurance.
Further, the Grantor shall, at the request of the Secured Party, duly
exercise and deliver instruments of assignment of such insurance policies
to comply with the requirements of Section 6 and cause the insurers to
acknowledge notice of such assignment.
(b) Reimbursement under any liability insurance maintained by any
Grantor pursuant to this Section 8 may be paid directly to the Person who
shall have incurred liability covered by such insurance. In case of any
loss involving damage to Equipment or Inventory when subsection (c) of this
Section 8 is not applicable, the Grantor may make or cause to be made the
necessary repairs to or replacements of such Equipment or Inventory, and
any proceeds of insurance maintained by the Grantor pursuant to this
Section 8 shall be paid to the Grantor as reimbursement for the costs of
such repairs or replacements.
(c) Upon the occurrence and during the continuance of any Default
or the actual or constructive total loss (in excess of $100,000 per
occurrence) of any Equipment or Inventory, all insurance payments in
respect of such Equipment or Inventory shall be paid to and applied by the
Secured Party as specified in Section 15(b).
Section 9. PLACE OF PERFECTION, RECORDS, COLLECTION OF
RECEIVABLES. (a) The Grantor shall keep its chief place of business and
chief executive office and the office where it keeps its records concerning
the Collateral and all originals of all chattel paper that evidence
Receivables, at the location therefor specified in Section 5(a) or, upon 30
days' prior written notice to the Secured Party, at such other locations in
a jurisdiction where all actions required by Section 6 shall have been
taken with respect to the Collateral. The Grantor will hold and preserve
such records and chattel paper and will permit representatives of the
Secured Party at any time during normal business hours to inspect and make
abstracts from such records and chattel paper.
(b) Except as otherwise provided in this subsection (b), the
Grantor shall have the sole right to continue to collect, at its own
expense, all amounts due or to become due the Grantor under the
Receivables. In connection with such collections, the Grantor may take such
action as the Grantor or the Secured Party may deem necessary or advisable
to enforce collection of the Receivables; provided, however, that the
Secured Party shall have the right at any time following the occurrence and
during the continuance of an Event of Default, to notify the Obligors under
any Receivables of the assignment of such Receivables to the Secured Party
and to direct such Obligors to make payment of all amounts due or to become
due to the Grantor thereunder directly to the Secured Party and, upon such
notification and at the expense of the Grantor, to enforce collection of
any such Receivables, and to adjust, settle or compromise the amount or
payment thereof, in the same manner and to the same extent as the Grantor
might have done, and Secured Party also agrees to provide prompt notice (in
advance, if reasonably practicable) of same to Grantor. After receipt by
the Grantor of the notice from the Secured Party referred to in the proviso
to the preceding sentence, and until an Event of Default no longer exists
(i) all amounts and proceeds (including instruments) received by the
Grantor in respect of the Receivables shall be received in trust for the
benefit of the Secured Party hereunder and applied as provided by Section
15(b) and (ii) the Grantor shall not adjust, settle or compromise the
amount or payment of any Receivable, release wholly or partly any Obligor
thereof, or allow any credit or discount thereon.
Section 10. VOTING RIGHTS; DIVIDENDS; ETC. (a) So long as no
Event of Default shall have occurred and be continuing:
(i) The Grantor shall be entitled to exercise any and all
voting and other consensual rights pertaining to the Security
Collateral or any part thereof for any purpose not inconsistent
with the terms of this Agreement or the other Note Documents;
provided, however, that the Grantor shall not exercise or refrain
from exercising any such right if, in the Secured Party's
judgment, such action would have a material adverse effect on the
value of the Security Collateral or any part thereof; and
provided further that the Grantor shall give the Secured Party at
least five days' written notice of the manner in which it intends
to exercise, or the reasons for refraining from exercising, any
such right that could be reasonably expected to have a Material
Adverse Effect.
(ii) The Grantor shall be entitled to receive and retain any
and all dividends and interest paid in respect of the Security
Collateral; provided, however, that any and all
(A) dividends and interest paid or payable other than in
cash in respect of, and instruments and other property received,
receivable or otherwise distributed in respect of, or in exchange
for, any Security Collateral,
(B) dividends and other distributions paid or payable in
cash in respect of any Security 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 respect
of principal of, or in redemption of, or in exchange for, any
Security Collateral shall be, and shall be forthwith delivered to
the Secured Party to hold as, Security Collateral and shall, if
received by the Grantor, be received in trust for the benefit of
the Secured Party, be segregated from the other property or funds
of the Grantor and be forthwith delivered to the Secured Party as
Security Collateral in the same form as so received (with any
necessary endorsement).
(iii) The Secured Party shall execute and 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 that it is entitled to exercise pursuant to paragraph (i)
above and to receive the dividends or interest payments that it
is authorized to receive and retain pursuant to paragraph (ii)
above.
(b) Upon the occurrence and during the continuance of an Event of
Default:
(i) All rights of the Grantor (x) to exercise or refrain
from exercising the voting and other consensual rights that it
would otherwise be entitled to exercise pursuant to Section
10(a)(i) shall, upon notice to the Grantor by the Secured Party,
cease and (y) to receive the dividends and interest payments that
it would otherwise be authorized to receive and retain pursuant
to Section 10(a)(ii) shall, upon notice from the Secured Party,
automatically cease, and all such rights shall thereupon become
vested in the Secured Party, which shall thereupon have the sole
right to exercise or refrain from exercising such voting and
other consensual rights and to receive and hold as Security
Collateral such dividends and interest payments.
(ii) All dividends and interest payments that are received
by the Grantor contrary to the provisions of paragraph (i) of
this Section 10(b) 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
Security Collateral in the same form as so received (with any
necessary endorsement).
Section 11. TRANSFERS AND OTHER LIENS; ADDITIONAL SHARES. (a) The
Grantor shall not (i) sell, assign (by operation of law or otherwise) or
otherwise dispose of, or grant any option with respect to, any of the
Collateral, except sales of Inventory in the ordinary course of business,
or (ii) create or suffer to exist any Lien upon or with respect to any of
the Collateral except for the pledge, assignment and security interest
created by this Agreement, except, in each case, as permitted under the
Note Purchase Agreement.
(b) The Grantor shall (i) cause each issuer of the Pledged Shares
not to issue any stock or other securities in addition to or in
substitution for the Pledged Shares issued by such issuer, except to the
Grantor, and (ii) pledge hereunder, immediately upon its acquisition
(directly or indirectly) thereof, any and all additional shares of stock or
other securities.
Section 12. THE SECURED PARTY APPOINTED ATTORNEY-IN-FACT. The
Grantor hereby irrevocably appoints the Secured Party the Grantor's
attorney-in-fact, with full authority in the place and stead of the Grantor
and in the name of the Grantor or otherwise, from time to time in the
Secured Party's discretion, following an Event of Default and until such
Event of Default no longer exists, to take any action and to execute any
instrument that the Secured Party may deem necessary or advisable to
accomplish the purposes of this Agreement, including, without limitation:
(a) to obtain and adjust insurance required to be paid to the
Secured Party pursuant to Section 8,
(b) to ask for, demand, collect, xxx for, recover, compromise,
receive and give acquittance and receipts for moneys due and to become
due under or in respect of any of the Collateral,
(c) to receive, indorse and collect any drafts or other
instruments, documents and chattel paper, in connection with clause
(a) or (b) above, and
(d) to file any claims or take any action or institute any
proceedings that the Secured Party may deem necessary or desirable for
the collection of any of the Collateral or otherwise to enforce
compliance with the rights of the Secured Party with respect to any of
the Collateral.
Section 13. THE SECURED PARTY MAY PERFORM. If the Grantor fails
to perform any agreement contained herein, the Secured Party may itself
perform, or cause performance of, such agreement, and the expenses of the
Secured Party incurred in connection therewith shall be payable by the
Grantor under Section 17(b).
Section 14. THE SECURED PARTY'S DUTIES. The powers conferred on
the Secured Party hereunder are solely to protect its interest in the
Collateral and shall not impose any duty upon it to exercise any such
powers. Except for the safe custody of any Collateral in its possession and
the accounting for moneys actually received by it hereunder, the Secured
Party shall have no duty as to any Collateral, as to ascertaining or taking
action with respect to calls, conversions, exchanges, maturities, tenders
or other matters relative to any Security Collateral, whether or not the
Secured Party has or is deemed to have knowledge of such matters, or as to
the taking of any necessary steps to preserve rights against any parties or
any other rights pertaining to any Collateral. The Secured Party shall be
deemed to have exercised reasonable care in the custody and preservation of
any Collateral in its possession if such Collateral is accorded treatment
substantially equal to that which such Grantor accords its own property.
Section 15. REMEDIES. If any Event of Default shall have occurred
and be continuing:
(a) The Secured Party may exercise in respect of the Collateral,
in addition to other rights and remedies provided for herein or
otherwise available to it, all the rights and remedies of a secured
party upon default under the Uniform Commercial Code in effect in the
State of Illinois at such time (the "Illinois Uniform Commercial
Code") (whether or not the Illinois Uniform Commercial Code applies to
the affected Collateral) and also may (i) require the Grantor to, and
the Grantor hereby agrees that it will at its expense and upon request
of the Secured Party forthwith, assemble all or part of the Collateral
as directed by the Secured Party and make it available to the Secured
Party at a place to be designated by the Secured Party that is
reasonably convenient to both parties; (ii) without notice except as
specified below, sell the Collateral or any part thereof in one or
more parcels at public or private sale, at any of the Secured Party's
offices or elsewhere, for cash, on credit or for future delivery, and
upon such other terms as the Secured Party may deem commercially
reasonable; (iii) occupy any premises owned or leased by the Grantor
where the Collateral or any part thereof is assembled or located for a
reasonable period in order to effectuate its rights and remedies
hereunder or under law, without obligation to the Grantor in respect
of such occupation; and (iv) exercise any and all rights and remedies
of the Grantor under or in connection the Receivables or otherwise in
respect of the Collateral, including, without limitation, any and all
rights of the Grantor to demand or otherwise require payments of any
amount under the Receivables. The Grantor agrees that, to the extent
notice of sale shall be required by law, at least ten days' notice to
the Grantor of the time and place of any public sale or the time after
which any private sale is to be made shall constitute reasonable
notification. The Secured Party shall not be obligated to make any
sale of Collateral regardless of notice of sale having been given. The
Secured Party may adjourn any public or private sale from time to time
by announcement at the time and place fixed therefor, and such sale
may, without further notice, be made at the time and place to which it
was so adjourned.
(b) All cash proceeds received by the Secured Party in respect of
any sale of, collection from, or other realization upon all or any
part of the Collateral may, in the discretion of the Secured Party, be
held by the Secured Party as collateral for, and/or then or at any
time thereafter applied (after payment of any amounts payable to the
Secured Party pursuant to Section 17) in whole or in part by the
Secured Party against, all or any part of the Secured Obligations in
such order as the Secured Party shall elect. Any surplus of such cash
or cash proceeds held by the Secured Party and remaining after payment
in full of all the Secured Obligations shall be paid over to the
Company or to whomsoever may be lawfully entitled to receive such
surplus.
(c) The Secured Party may exercise any and all rights and
remedies of the Grantor otherwise in respect of the Collateral.
(d) Upon notice to the Grantor by the Secured Party, all payments
received by the Grantor in respect of the Collateral 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 in the same form as so received (with any necessary
endorsement).
Section 16. REGISTRATION RIGHTS. If the Secured Party shall
determine to exercise its right to sell all or any of the Security Collateral
pursuant to Section 15, the Grantor agrees that, upon request of the Secured
Party, the Grantor will, at its own expense:
(a) execute and deliver, and cause each issuer of the Security
Collateral contemplated to be sold and the directors and officers
thereof to execute and deliver, all such instruments and documents,
and do or cause to be done all such other acts and things, as may be
necessary or, in the opinion of the Secured Party, advisable to
register such Security Collateral under the provisions of the
Securities Act of 1933, as from time to time amended (the "Securities
Act"), to cause the registration statement relating thereto to become
effective and to remain effective for such period as prospectuses are
required by law to be furnished and to make all amendments and
supplements thereto and to the related prospectus that, in the opinion
of the Secured Party, are necessary or advisable, all in conformity
with the requirements of the Securities Act and the rules and
regulations of the Securities and Exchange Commission applicable
thereto;
(b) use its best efforts to qualify the Security Collateral under
the state securities or "Blue Sky" laws and to obtain all necessary
governmental approvals for the sale of the Security Collateral, as
requested by the Secured Party;
(c) cause each such issuer to make available to its security
holders, as soon as practicable, an earnings statement that will
satisfy the provisions of Section 11(a) of the Securities Act;
(d) provide the Secured Party with such other information and
projections as may be necessary or, in the opinion of the Secured
Party, advisable to enable the Secured Party to effect the sale of
such Security Collateral; and
(e) do or cause to be done all such other acts and things as may
be necessary to make such sale of the Security Collateral or any part
thereof valid and binding and in compliance with applicable law.
The Secured Party is authorized, in connection with any sale of the
Security Collateral pursuant to Section 15, to deliver or otherwise
disclose to any prospective purchaser of the Security Collateral (i) any
registration statement or prospectus, and all supplements and amendments
thereto, prepared pursuant to clause (a) above, (ii) any information and
projections provided to it pursuant to clause (d) above and (iii) any other
information in its possession relating to the Security Collateral.
Section 17. INDEMNITY AND EXPENSES. (a) The Grantor agrees to
indemnify the Secured Party from and against any and all claims, losses and
liabilities growing out of or resulting from this Agreement (including,
without limitation, enforcement of this Agreement), except claims, losses
or liabilities resulting from the Secured Party's bad faith, gross
negligence or willful misconduct as determined by a final judgment of a
court of competent jurisdiction.
(b) 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 its counsel and of any experts and agents, that the Secured
Party may incur in connection with (i) the administration of this
Agreement, (ii) the custody, preservation, use or operation of, or the sale
of, collection from or other realization upon, any of the Collateral, (iii)
the exercise or enforcement of any of the rights of the Secured Party
hereunder or (iv) the failure by the Grantor to perform or observe any of
the provisions hereof.
Section 18. SECURITY INTEREST ABSOLUTE. The obligations of the
Grantor under this Agreement are independent of the Secured Obligations,
and a separate action or actions may be brought and prosecuted against the
Grantor to enforce this Agreement, irrespective of whether any action is
brought against the Grantor. All rights of the Secured Party and the
pledge, assignment and security interest hereunder, and all obligations of
the Grantor hereunder, shall be absolute and unconditional, irrespective
of:
(a) any lack of validity or enforceability of any Note Document
or any other agreement or instrument relating thereto;
(b) any change in the time, manner or place of payment of, or in
any other term of, all or any of the Secured Obligations or any other
amendment or waiver of or any consent to any departure from any Note
Document;
(c) any taking, exchange, release or non-perfection of any other
collateral, or any taking, release or amendment or waiver of or
consent to departure from any guaranty, for all or any of the Secured
Obligations;
(d) any manner of application of collateral, or proceeds thereof,
to all or any of the Secured Obligations, or any manner of sale or
other disposition of any collateral for all or any of the Secured
Obligations or any other assets of the Grantor or any of its
Subsidiaries;
(e) any change, restructuring or termination of the corporate
structure or existence of the Grantor or any of its Subsidiaries; or
(f) any other circumstance that might otherwise constitute a
defense available to, or a discharge of, the Grantor or a third party
grantor of a security interest.
This Agreement shall continue to be effective or reinstated, as
the case may be, if at any time any payment of any of the Secured
Obligations is rescinded or must otherwise be returned by the Secured Party
or by any other Person upon the insolvency, bankruptcy or reorganization of
the Grantor or otherwise, all as though such payment had not been made.
Section 19. AMENDMENTS; WAIVERS; ETC. No amendment or waiver of
any provision of this Agreement, and no 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 such waiver or consent
shall be effective only in the specific instance and for the specific
purpose for which given. 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 such
right preclude any other or further exercise thereof or the exercise of any
other right.
Section 20. ADDRESSES FOR NOTICES. All notices and other
communications provided for hereunder shall be in writing (including
telecopier, telegraphic, telex or cable communication) and, mailed,
telegraphed, telecopied, telexed, cabled or delivered if to the Grantor,
addressed to it at the address set forth below on the signature pages
hereof, and if to the Secured Party or, as to any 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,
telegraphed, telexed or cabled, respectively, be effective when deposited
in the mails, telecopied, delivered to the telegraph company, confirmed by
telex answerback or delivered to the cable company, respectively, addressed
as aforesaid.
Section 21. CONTINUING SECURITY INTEREST, ASSIGNMENTS UNDER THE
NOTE PURCHASE AGREEMENT. This Agreement shall create a continuing security
interest in the Collateral and shall (a) remain in full force and effect
until the later of the payment in full in cash of the principal of the
Notes, accrued interest thereon, and all other Secured Obligations and the
Maturity Date, (b) be binding upon the Grantor, its successors and assigns
and (c) inure, together with the rights and remedies of the Secured Party
hereunder, to the benefit of the Secured Party and its respective
successors, transferees and assigns.
Section 22. RELEASE AND TERMINATION. (a) Upon any sale, lease,
transfer or other disposition of any item of Collateral in accordance with
the terms of the Note Documents the security interest in such collateral
shall automatically be released. In addition, other than sales of Inventory
in the ordinary course of business, the Secured Party will, at the
Grantor's expense, execute and deliver to the Grantor such documents as the
Grantor shall reasonably request to evidence the release of such item of
Collateral from the assignment and security interest granted hereby;
provided, however, that (i) at the time of such release no Default shall
have occurred and be continuing, (ii) the Grantor shall have delivered to
the Secured Party, at least five Business Days prior to the date of the
proposed written release, a written request for release describing the item
of Collateral and the terms of the sale, lease, transfer or other
disposition in reasonable detail, including the price thereof and any
expenses in connection therewith, together with a form of release for
execution by the Secured Party and a certification by the Grantor to the
effect that the transaction is in compliance with the Note Documents and as
to such other matters as the Secured Party may request, (iii) the proceeds
of any such sale, lease, transfer or other disposition required to be
applied in accordance with Sections 7.1 and 7.2 of the Note Purchase
Agreement shall be paid to, or in accordance with the instructions of, the
Secured Party at the closing and (iv) the Secured Party shall have approved
such sale, lease, transfer or other disposition in writing or the same
shall otherwise be permitted by the Note Purchase Agreement.
(b) Upon the later of the payment in full in cash of the
principal of the Notes, accrued interest thereon, and all other Secured
Obligations and the Maturity Date, the pledge, assignment and security
interest granted hereby shall terminate and all rights to the Collateral
shall revert to the Grantor. Upon any such termination, the Secured Party
will, at the Grantor's expense, execute and deliver to the Grantor such
documents as the Grantor shall reasonably request to evidence such
termination. Section 23. EXECUTION IN COUNTERPARTS. This Agreement may be
executed in any number of counterparts, each of which when so executed
shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement. Delivery of any executed counterpart
of a signature page to this Agreement by telecopier shall be effective as
delivery of a manually executed counterpart of this Agreement.
Section 24. GOVERNING LAW; TERMS. This Agreement shall be
governed by and construed in accordance with the laws of the State of
Illinois, except to the extent that the validity or perfection of the
security interest hereunder, or remedies hereunder, in respect of any
particular Collateral are governed by the laws of a jurisdiction other than
the State of Illinois, Unless otherwise defined herein or in the Note
Purchase Agreement, terms used in Article 9 of the Illinois Uniform
Commercial Code are used herein as therein defined.
IN WITNESS WHEREOF, each Grantor has caused this Agreement to be
duly executed and delivered by its officer thereunto duly authorized as of
the date first above written.
USN COMMUNICATIONS, INC.
By_________________________________
Name:______________________________
Title:_____________________________
USN Communications, Inc.
00 Xxxxx Xxxxxxxxx Xxxxx
Xxxxx 0000
Xxxxxxx, Xxxxxxxx 00000
Phone: 312/000-0000
Fax: 312/000-0000
SCHEDULE I
PLEDGED SHARES
Percentage
of
Owner Stock Issuer Class of Stock Par Value Stock Certificate Number Outstanding
----- ------------ -------------- --------- No(s). of Shares Shares
----------------- --------- ------------
USN Communications, Inc.
SCHEDULE II
LOCATIONS OF EQUIPMENT AND INVENTORY
Locations of Equipment:
Locations of Inventory:
SCHEDULE III
TRADE NAMES
