CREDIT AND SECURITY AGREEMENT
This Credit and Security Agreement (this "AGREEMENT") is made as of the
24th day of September, 2001, (the "EFFECTIVE DATE") between MCI WorldCom Network
Services, Inc., a Delaware corporation ("LENDER"), and (i) Rhythms
Netconnections Inc., a Delaware corporation, (ii) Rhythms Links Inc. - Virginia,
a Virginia corporation, (iii) Rhythms Links Inc., a Delaware corporation, and
(iv) Rhythms Leasing Inc., a Nevada corporation (referred to herein individually
as "BORROWER" and collectively as "BORROWERS" or individually as "CORPORATE
GUARANTOR" and collectively as "CORPORATE GUARANTORS," as the context requires).
In consideration of the premises and the mutual promises herein contained,
the parties intending to be legally bound agree as follows:
ARTICLE I
CONSTRUCTION AND DEFINED TERMS
SECTION 1.01. ARTICLES AND SECTIONS. The Article and Section headings and
captions in this Agreement are for convenience only and shall not affect the
construction or interpretation of this Agreement. The references in this
Agreement to Articles and Sections shall be read as Articles or Sections of this
Agreement unless otherwise specifically provided.
SECTION 1.02. EXHIBITS AND SCHEDULES. The references in this Agreement to
specific Exhibits and Schedules shall be read as references to such specific
Exhibits and Schedules attached, or intended to be attached, to this Agreement
and any counterpart of this Agreement and regardless of whether they are in fact
attached to this Agreement, and including any amendments, supplements, and
replacements thereto from time to time.
SECTION 1.03. CREDIT DOCUMENTS. References in this Agreement to Credit
Documents, and any of the documents that are included within the definition of
Credit Documents, shall include such amendments, supplements, and replacements
as may be made thereto or therefor from time to time.
SECTION 1.04. DISCRETIONARY CONSENTS. Wherever a provision of this
Agreement or any other Credit Document provides for Lender's consent, any such
consent may be provided or withheld in Lender's sole and absolute discretion
(unless otherwise expressly provided herein or in such other Credit Document),
and the granting of consent in one instance shall not constitute or imply the
granting of consent in any similar or other instance.
SECTION 1.05. ACCOUNTING TERMS. Accounting terms used but not otherwise
defined in this Agreement shall have the meanings provided by, and be construed
in accordance with, GAAP.
SECTION 1.06. DEFINED TERMS. Unless otherwise expressly stated in this
Agreement, or otherwise defined in the Asset Purchase Agreement, capitalized
terms used in this Agreement shall have the following meanings:
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"ACCOUNTS" As defined in Section 4A.01.
"ACCOUNT DEBTOR" A Person obligated on an Account, Chattel Paper, or
General Intangible, other than a Person obligated to pay a negotiable
instrument, even if the instrument constitutes part of Chattel Paper.
"AFFILIATE" As defined in Section 3.05.
"APPLICABLE LAW" As to any Person, all Laws applicable to such Person
and all Laws applicable to any Property or activity of such Person.
"APPROVAL ORDER" As defined in the Asset Purchase Agreement.
"ARTICLE 5" Article 5 of the UCC.
"ARTICLE 8" Article 8 of the UCC.
"ARTICLE 9" Article 9 of the UCC.
"ARTICLES OF INCORPORATION" As to any corporation, the Articles of
Incorporation or Certificate of Incorporation, or similar charter document, and
all amendments thereto.
"ASSET DISPOSITION" Any sale, exchange, assignment, conveyance, lease,
license, transfer, or other disposition (including any transfer effected by
recapitalization, merger, reorganization, share exchange, or other capital
transaction) of any Collateral, including any issuance of Ownership Interest of
any Borrower or any Subsidiary of any Borrower, other than in the ordinary
course of business; provided, however, that it shall not include the
consummation of the transactions contemplated in the Asset Purchase Agreement.
"ASSET PURCHASE AGREEMENT" The Asset Purchase Agreement dated as of
September 24, 2001 by and among Borrowers and Lender, as it may be amended from
time to time.
"ASSET PURCHASE AGREEMENT ARTICLE IX OBLIGATIONS" All obligations,
indebtedness and liabilities of any Borrower for advances made to any Borrower
under Article IX of the Asset Purchase Agreement (if and to the extent that
advances made to any Borrower under Article IX of the Asset Purchase Agreement
are not made as loan advances under this Agreement), whether primary, secondary,
contingent, direct or indirect, joint or several, or for payment or for
performance. The Asset Purchase Agreement Article IX Obligations include the
Borrowers' obligations under Section 7.16(c) of this Agreement to repay to
Lender all amounts advanced to any Borrower under Article IX of the Asset
Purchase Agreement.
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"AUTHENTICATE" or "AUTHENTICATED" or "AUTHENTICATING" or
"AUTHENTICATION" To sign (or to have signed), or to execute or otherwise adopt
(or to have executed or otherwise adopted) a symbol, or encrypt or similarly
process (or to have encrypted or similarly processed) a Record in whole or in
part, with the present intent of the authenticating Person to identify the
Person and adopt or accept a Record.
"BANK" As defined in Article 9, and any organization that is engaged
in the business of banking, including commercial banks, savings banks, savings
and loan associations, credit unions, and trust companies.
"BANKRUPTCY CODE" The United States Bankruptcy Codes, as amended from
time to time, and any successor legislation, and all rules and regulations
entered, promulgated or approved thereunder.
"BANKRUPTCY COURT" The United States Bankruptcy Court for the Southern
District of New York or any other court having jurisdiction over the Chapter 11
Cases from time to time.
"BORROWER GROUP LIEN" Any Lien that (a) is held by a Borrower, (b)
encumbers Property of another Borrower, and (c) secures only Indebtedness of one
or more Borrowers to the Borrower that holds the Lien.
"BORROWER INFORMATION" As defined in Section 3.27.
"BUDGET" As defined in Section 2.12.
"BUSINESS" The provision of high speed data transmission through
digital subscriber line technology in markets served by the 710 Assumed Central
Office Locations and the Network Operations Center, both as identified in the
Asset Purchase Agreement.
"CAPITAL EXPENDITURE" For any Person, expenditures (including the
aggregate amount of all payments made in respect of capital lease obligations
and operating lease obligations during such period) made by such Person to
acquire, use, or construct fixed assets, plant or equipment (including office
equipment, software, hardware and other computer equipment), or real estate and
including renewals, improvements and replacements, but excluding repairs,
computed in accordance with GAAP.
"CASE CONVERSION" Any Borrower becoming the debtor in any case under
Chapter 7 of the Bankruptcy Code, whether as a result of conversion of any of
the Chapter 11 Cases to a case under Chapter 7 of the Bankruptcy Code, or
otherwise.
"CASUALTY EVENT" With respect to any Collateral of any Person, (a) any
loss or damage to, or any condemnation or other taking of, such Collateral for
which such Person or any other Person receives insurance proceeds, or proceeds
of a condemnation award or other compensation by judgment, award or otherwise,
and (b) any loss or damage to, or condemnation
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or other taking of, any Collateral of any Person, not within the scope of clause
(a) of this definition, if the amount of such loss, damage or taking exceeds
$20,000 in any one event or $50,000 in the aggregate in any calendar year.
"CHAPTER 11 CASE" Case No. 01-14283-brl, Case No. 01-14284-brl, Case
No. 01-14285-brl, Case No. 01-14286-brl and Case No. 01-14287-brl, being jointly
administered under Case No. 01-14283-brl under Chapter 11 of the Bankruptcy Code
in the Bankruptcy Court and shall include any case under Chapter 11 of the
Bankruptcy Code in which any Borrower is a debtor as a result of the termination
of the joint administration of such Case No. 01-14283-brl.
"CHATTEL PAPER" As defined in Section 4A.01.
"COLLATERAL" As defined in Section 4A.01.
"COLLECTION COLLATERAL" Accounts, Chattel Paper, Deposit Accounts,
General Intangibles, Instruments, Documents, Investment Property,
Letter-of-credit rights, Commercial Tort Claims, and Supporting Obligations.
Collection Collateral does not include (a) the Restricted Cash, or (b) so long
as the Restricted Cash Account contains no Property other than the Restricted
Cash, the Restricted Cash Account.
"COLLECTION COLLATERAL DEBTOR" Each Account Debtor with respect to any
Collection Collateral that is an Account, Chattel Paper, or General Intangible,
and each Person obligated to Debtor with respect to any Collection Collateral
other than an Account, Chattel Paper, or General Intangible.
"COLLECTION COSTS" As defined in Section 4.10.
"COMMERCIAL TORT CLAIM" As defined in Article 9, and any claim arising
in tort with respect to which: (a) the claimant is an organization; or (b) the
claimant is an individual and the claim: (i) arose in the course of the
claimant's business or profession; and (ii) does not include damages arising out
of personal injury to or the death of an individual.
"COMMITTED AMOUNT" $32,000,000.
"CONCENTRATION ACCOUNT" Account #12330-01173 maintained by Lender with
Bank of America, N.A.
"CONSOLIDATED" When used with reference to the consolidated financial
statements of any Borrower, shall mean the financial statements of such Borrower
and its consolidated Subsidiaries as consolidated in accordance with GAAP, after
the elimination of intercompany items.
"CONSOLIDATED SUBSIDIARIES" When used with reference to any Borrower,
any Person the assets and liabilities of which are required to be consolidated
with those of such Borrower in such Borrower's Consolidated financial statements
in accordance with GAAP.
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"CONTROL AGREEMENT" (a) As applicable to Collateral that is Investment
Property (other than a commodity contract), "Control Agreement" means a written
agreement (or other Authenticated Record), in form and substance satisfactory to
Lender, between any Borrower, Lender, and the securities intermediary, that
gives Lender "control" (within the meaning of Article 8 and Article 9) over such
Investment Property, and which contains such additional provisions as Lender may
deem necessary or appropriate for the protection of Lender's rights to such
Collateral.
(b) As applicable to Collateral that is a commodity contract,
"Control Agreement" means a written agreement (or other Authenticated Record),
in form and substance satisfactory to Lender, between any Borrower, Lender, and
the commodity intermediary, that gives Lender "control" (within the meaning of
Article 9) over such commodity contract, and which contains such additional
provisions as Lender may deem necessary or appropriate for the protection of
Lender's rights to such Collateral.
(c) As applicable to Collateral that is a Deposit Account, "Control
Agreement" means a written agreement (or other Authenticated Record), in form
and substance satisfactory to Lender, between any Borrower, Lender, and the Bank
with which the Deposit Account is maintained, that gives Lender "control"
(within the meaning of Article 9) over such Deposit Account, and which contains
such additional provisions as Lender may deem necessary or appropriate for the
protection of Lender's rights to such Collateral.
"CONTROL CONSENT" As applicable to Collateral that is a
Letter-of-credit right, "Control Consent" means a written consent (or other
Authenticated Record) in form and substance satisfactory to Lender, pursuant to
which a letter of credit issuer (or any nominated person with respect to a
letter of credit) consents to an assignment of the proceeds of the letter of
credit, which written consent shall contain such provisions as Lender may deem
necessary or appropriate for the protection of Lender's rights to such
Collateral.
"COPYRIGHT" or "COPYRIGHTS" Any copyright protected under any Law,
including any original works of authorship, or other Property, or rights
comprised therein, that may be entitled to copyright protection under any Law.
"CREDIT ADMINISTRATION COSTS" As defined in Section 4.10.
"CREDIT DOCUMENT" or "CREDIT DOCUMENTS" This Agreement, the Note,
each Control Agreement, each Control Consent, each Loan Funding Request, and
each and every other agreement of any kind, promissory note, instrument,
assignment, certificate, guaranty, indemnity, bond, financing statement,
exhibit, schedule, notice, request or other document, made by any Person,
that evidences, secures, guarantees or otherwise relates directly or
indirectly to the Loan Obligations or Lender's rights and remedies with
respect thereto, or that is given to Lender to induce Lender to make, issue
or extend the Loan Obligations or any thereof, or that is made to perfect (by
control or otherwise) the security interests and other rights of Lender in
and to the Collateral, or that is made to memorialize or escrow any
Collateral, or that is made to
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induce Lender to make, fund, or extend loans or other financial
accommodations to or for the account of Borrower, and all amendments,
modifications, supplements, extensions and replacements hereof and thereof,
from time to time.
"CREDIT TERMINATION DATE" As defined in Section 2.01.
"DEPOSIT ACCOUNTS" As defined in Section 4A.01.
"DEFAULT" Any event, occurrence, circumstance, act, or failure to act
which is or with the giving of notice and/or the passage of time would become an
Event of Default.
"DOCUMENTS" As defined in Section 4A.01.
"DOCUMENTARY CREDIT" Any Letter of Credit, and to the extent not
included within the term Letter of Credit, any "standby" letter of credit (as
such term is defined in International Standby Practices 1998, ICC Publication
No. 590), any documentary credits (as such term is defined in the Uniform
Customs and Practice for Documentary Credits, 1993 Revision, ICC Publication No.
500), and any other arrangement, however named or described, whereby a bank or
other Person (the "issuing bank") acting at the request and on the instructions
of a customer (the "applicant") or on its own behalf (i) is to make a payment to
or to the order of a third party (the "beneficiary"), or is to accept and pay
bills of exchange ("drafts") drawn by the beneficiary, or (ii) authorizes
another bank or other Person to effect such payment, or to accept and pay such
bills of exchange ("drafts"), or (iii) authorizes another bank or other Person
to negotiate, against stipulated documents, provided that the terms and
conditions of the credit are complied with.
"DOLLARS" The lawful currency of the United States of America.
"EFFECTIVE DATE" The Effective Date as set forth on the first page of
this Agreement.
"ENVIRONMENTAL CLAIM" means with respect to any Person, any written or
oral notice, claim, suit, order, information request, demand or other
communication (referred to in this definition collectively as a "claim") by any
other Person alleging, asserting or relating to such Person's liability for
investigatory costs, cleanup costs, governmental response costs, damages to
natural resources or other Property, personal injuries, fines or penalties
arising out of, based on or resulting from (i) the presence, release, or
threatened release into the environment, of any Regulated Substance at any
location, whether or not owned by such Person, or (ii) circumstances forming the
basis of any liability or violation under any Environmental Law. Environmental
Claim shall include any claim by any governmental authority or other person for
enforcement, cleanup, removal, response, remedial or other actions or damages
pursuant to any applicable Environmental Law, and any claim by any third party
seeking damages, contribution, indemnification, cost recovery, compensation or
injunctive relief resulting from the presence of
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Regulated Substances or arising from alleged injury or threat of injury to
health, safety or the environment.
"ENVIRONMENTAL LAWS" Any Law, permit, order or judgment of any
applicable federal, state, local or foreign jurisdiction relating to pollution,
hazardous substances, hazardous wastes, petroleum or otherwise relating to
protection of the environment, natural resources or human health, including, by
way of example and not by way of limitation, the Clean Air Act, the Clean Water
Act, the Resource Conservation and Recovery Act, the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA"), the Toxic Substances
Control Act, and the Emergency Planning and Community Right-to-Know Act, all as
amended.
"EQUIPMENT" As defined in Section 4A.01.
"EQUITY INTEREST" As defined in Section 3.05.
"EQUITY RIGHTS" As defined in Section 3.05.
"EVENT OF DEFAULT" An Event of Default set forth in Article VI.
"FILING DATE" August 1, 2001.
"FINAL ORDER" An order of the Bankruptcy Court in form and content
satisfactory to Lender authorizing the transactions contemplated by this
Agreement, which order shall have been entered in the Chapter 11 Case after
notice and a final hearing in accordance with Bankruptcy Rule 4001(c), the
operation and effect of which order has not been reversed or modified in any
respect, and which order is not the subject in any respect of a pending appeal
or, if the subject in any respect of a pending appeal, is not the subject in any
respect of any stay pending appeal.
"GAAP" or "GENERALLY ACCEPTED ACCOUNTING PRINCIPLES" Generally
accepted accounting principles in the United States of America as in effect from
time to time as set forth in the opinions and pronouncements of the Accounting
Principles Board and the American Institute of Certified Public Accountants and
the statements and pronouncements of the Financial Accounting Standards Board
which are applicable to the circumstances as of the date of determination
consistently applied.
"GENERAL INTANGIBLES" As defined in Section 4A.01.
"GOVERNMENTAL AUTHORITY" Any executive, judicial, legislative or other
branch, department, office, commission, board, bureau, agency, or
instrumentality of the government of any jurisdiction, including the federal
government of the United States and any foreign country, and any state,
provincial, local or municipal government, and including any monetary authority,
and including the Persons holding or exercising the powers, privileges,
discretions, titles, offices or authorities of any thereof, and including any
central bank or comparable authority or agency.
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"GOODS" As defined in Article 9, and all things that are movable when
a security interest attaches, including (i) fixtures, (ii) standing timber that
is to be cut and removed under a conveyance or contract for sale, (iii) the
unborn young of animals, (iv) crops grown, growing, or to be grown, even if the
crops are produced on trees, vines, or bushes, (v) manufactured homes, and (vi)
any computer program embedded in Goods and any supporting information provided
in connection with a transaction relating to the program if (A) the program is
associated with the Goods in such a manner that it customarily is considered
part of the Goods, or (B) by becoming the owner of the Goods, a Person acquires
a right to use the program in connection with the Goods. The term "Goods" does
not include a computer program embedded in Goods that consist solely of the
medium in which the program is embedded, and does not include accounts (as
"account" is defined in Article 9), chattel paper (as "chattel paper" is defined
in Article 9), commercial tort claims (as "commercial tort claim" is defined in
Article 9), deposit accounts (as "deposit account" is defined in Article 9),
documents (as "document" is defined in Article 9), general intangibles (as
"general intangible" is defined in Article 9), instruments (as "instrument" is
defined in Article 9), investment property (as "investment property" is defined
in Article 9), letter-of-credit rights (as "letter-of-credit right" is defined
in Article 9), letters of credit (as "letter of credit" is defined in Article
5), money, or oil, gas, or other minerals before extraction.
"GUARANTOR OBLIGATIONS" As to any Corporate Guarantor, all
obligations, liabilities and indebtedness of such Corporate Guarantor arising
under Article IV-B of this Agreement.
"HELD ITEMS" As defined in Section 4A.01.
"INCLUDE" and "INCLUDING" Unless otherwise expressly limited herein
(and except where used in the context of "does not include," "shall not
include," or "not included"), the words "include" and "including" shall be read
to mean "include, without limitation," and "including, without limitation," as
the case may be.
"INDEBTEDNESS" As defined in Section 3.09.
"INDEBTEDNESS FOR BORROWED MONEY" As defined in Section 3.09.
"INITIAL ADVANCE COMMITTED AMOUNT" As defined in Section 2.01(a).
"INSTRUMENTS" As defined in Section 4A.01.
"INTELLECTUAL PROPERTY" Copyrights, Patents, and Trademarks, and all
rights relating to any of the foregoing, and all applications, registrations,
re-applications, and re-registrations for any of the foregoing, and all
amendments, reissues, renewals, or supplementations of, or substitutions or
replacements for, any of the foregoing, and including any other rights or
interests in any of the foregoing, and including rights to xxx for past, present
or future violations or infringements of any of the foregoing.
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"INTEREST RATE" The fixed interest rate of ten percent (10%) per
annum.
"INTERIM ORDER" An order of the Bankruptcy Court in form and content
satisfactory to Lender authorizing the transactions contemplated by this
Agreement, which order shall have been entered in the Chapter 11 Case after
notice and a preliminary hearing in accordance with Bankruptcy Rule 4001(c), the
operation and effect of which order has not been reversed or modified in any
respect, and which order is not the subject in any respect of a pending appeal
or, if the subject in any respect of a pending appeal, is not the subject in any
respect of any stay pending appeal.
"INVENTORY" As defined in Section 4A.01.
"INVESTMENT PROPERTY" As defined in Section 4A.01.
"INVESTMENTS" As defined in Section 3.07.
"ITEMS OF PAYMENTS" All checks, drafts, cash, and other remittances of
payment of, or on account of, any Accounts, Instruments, Chattel Paper,
Documents, Investment Property, or General Intangibles, or received as proceeds
of the sale or lease of any of Borrowers' Property or as payment for any
services rendered by any Borrower to any Person.
"LAW" or "LAWS" At any time, all laws, statutes, regulations,
ordinances, rules, codes, decrees, orders, and other directives of any federal,
state, district, territorial, or local government within the United States of
America (or any national, state, provincial or local government outside the
United States), or any branch, department, agency or office thereof, applicable
to any party to any Credit Document, or to any Property of any party to any
Credit Document, or to any business, industry, or other activity in which any
party to the Credit Documents may be engaged from time to time, including all
Environmental Laws.
"LETTER OF CREDIT" or "LETTERS OF CREDIT" As "letter of credit" is
defined in Article 5.
"LETTER OF CREDIT ISSUER" A Bank or other Person that issues a Letter
of Credit.
"LETTER-OF-CREDIT RIGHT" As defined in Article 9, and any right to
payment or performance under a Letter of Credit, whether or not the beneficiary
has demanded or is at the time entitled to demand payment or performance,
excluding, however, from the definition of Letter-of-credit right, any right of
a beneficiary to demand payment or performance under a Letter of Credit.
"LIEN" As defined in Section 3.10.
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"LOAN" The loan advances made pursuant to Article II to this
Agreement, including each advance thereof made under Section 2.02.
"LOAN FUNDING REQUEST" A written request for a loan advance of all or
part of the "Initial Advance Committed Amount" (as defined in Section 2.01) or
the "Subsequent Advance Committed Amount" (as defined in Section 2.01) in the
form of EXHIBIT A, including the SCHEDULE 1 referred to in EXHIBIT A, and given
to Lender by Borrower in accordance with the notice provisions of this
Agreement.
"LOAN OBLIGATIONS" The obligations, indebtedness, and liabilities of
any Borrower to Lender under this Agreement, the Note, and the other Credit
Documents, whether primary, secondary, contingent, direct or indirect, joint or
several, or for payment or for performance, and including each Borrower's
obligations to pay to Lender as and when due all principal, interest, costs and
expenses (including Credit Administration Costs) evidenced by, arising under, or
relating to, the Note, this Agreement, and the other Credit Documents. Without
limiting the generality of the foregoing, the Loan Obligations include (i) the
Loan, and (ii) all Guarantor Obligations relating to the Loan.
"MARGIN STOCK" As defined in Section 3.16.
"MATERIAL ADVERSE EFFECT" A material adverse effect on the Business,
taken as a whole, or any development which could be reasonably expected to delay
or prevent the consummation of the transactions contemplated hereby or which
could be reasonably expected to materially and adversely affect the value of the
Assets, taken as a whole, or the rights and remedies of Lender under any Credit
Documents, other than matters arising out of or because of the Chapter 11 Case.
"MATURITY DATE" The earlier to occur of (a) December 31, 2001, or (b)
the Closing Date.
"NOMINATED PERSON" With respect to any Letter of Credit, any Person
whom a Letter of Credit Issuer (a) designates or authorizes to pay, accept,
negotiate, or otherwise give value under a Letter of Credit and (b) undertakes
by agreement or custom and practice to reimburse.
"NECESSARY PERMITS" As defined in Section 3.02.
"NET PROCEEDS" means, as to any Asset Disposition, the proceeds of
such Asset Disposition in form of cash or cash equivalents, including payments
in respect of deferred obligations when received in the form of cash or cash
equivalents and proceeds from the conversion of other property received when
converted to cash or cash equivalents, net of: (i) brokerage commissions and
other costs of disposition, if any, directly related to such Asset Disposition,
excluding any such commissions paid to any affiliate of any Borrower, (ii)
provisions for taxes, if any, payable as a result of such Asset Disposition
without regard to the Consolidated results of operations of any Borrower or any
Subsidiary of any Borrower, taken as
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a whole, and (iii) payments, if any, made to repay indebtedness for borrowed
money that is secured by a senior lien or security interest on the Property that
is the subject of the Asset Disposition.
"NOTE" A Promissory Note (Limited Recourse) in the form of EXHIBIT B
attached hereto, or in such other form as may be satisfactory to Lender,
executed and delivered to Lender by each Borrower to further evidence Borrowers'
agreement and obligation to repay the Loan.
"NOTIFICATION EVENT" As defined in Section 4.02.
"OBLIGATIONS" All now existing and hereafter arising obligations,
indebtedness, and liabilities of any Borrower to Lender of any kind, whether
primary, secondary, contingent, direct or indirect, joint or several, or for
payment or for performance, and including each Borrower's obligations to pay to
Lender as and when due all principal, interest, costs and expenses (including
all Credit Administration Costs), and fees arising from or relating to loans
made, or other credits granted or created, or financial accommodations extended,
by Lender to any Borrower at any time and in any amount, and including all of
each Borrower's obligations, indebtedness, and liabilities to Lender for payment
or performance under this Agreement, the Note and the other Credit Documents,
and including any other claims or judgments that Lender may have against any
Borrower at any time, and including any of the foregoing arising before, during,
or after the initial or any renewal term of the Credit Documents, and including
any Guarantor Obligations of any Corporate Guarantor. Without limiting the
generality of the foregoing, the Obligations include the Asset Purchase
Agreement Article IX Obligations, the Loan, and the Loan Obligations.
"OBLIGOR" Each Borrower and each Corporate Guarantor.
"OPERATING EXPENSE" or "OPERATING EXPENSES" Operating expenses related
to the Business that are incurred by a Borrower in the ordinary course of its
business, relate solely to the period after September 24, 2001 at 11:59 p.m. and
until the Closing, and are identified in the Budget in reasonable detail. If and
to the extent that an operating expense relates to both (a) the Business and (b)
Borrowers' other activities, only that portion of the operating expense that is
reasonably allocable to the Business shall be included as an Operating Expense.
"OPERATING LEASE" Any lease of Property other than a lease that is a
capital lease obligation as determined in accordance with GAAP.
"OTHER PERSONALTY" As defined in Section 4A.01.
"OWNERSHIP INTEREST" As to any Person, any Equity Interest or Equity
Rights in such Person.
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"PATENT" or "PATENTS" Any patent issued under any Law for any
invention or discovery, and any discovery of a new or useful process, machine,
manufacture, or composition of matter, or any new and useful improvement
thereof, or other Property, that may be entitled to a patent or patent
protection under any Law.
"PAYMENT OFFICE" Any location, designated by Lender upon written
notice to Borrowers, to which payments are to be made under this Agreement.
"PERMITTED INDEBTEDNESS FOR BORROWED MONEY" As defined in Section
3.09.
"PERMITTED INVESTMENTS" As defined in Section 3.07.
"PERMITTED LIEN" As defined in Section 3.10.
"PERSON" Any natural person, corporation, limited liability company,
partnership, joint venture, entity, association, joint-stock company, trust or
unincorporated organization and any Governmental Authority.
"PROCEEDS" As defined in Section 4A.01.
"PRODUCTS" As defined in Section 4A.01.
"PROPERTY" Any right or interest in or to property of any kind
whatsoever, whether real, personal, or mixed, and whether tangible or
intangible.
"RECORD" and "RECORDS" As defined in Article 9, and, except as used in
"for record," "of record," "record or legal title," and "record owner," any
information that is inscribed on a tangible medium or which is stored in an
electronic or other medium and is retrievable in perceivable form.
"REGULATED SUBSTANCE" or "REGULATED SUBSTANCES" Any substance,
material, or waste that is regulated or listed under any Environmental Laws, and
such substances, materials, or wastes include, but are not limited to, any whose
release or threatened release may pose a risk to human health or the
environment, and also include (a) asbestos in any form, (b) urea formaldehyde
foam insulation, (c) paint containing lead, (d) transformers or other equipment
that contain dielectric fluid polychlorinated biphenyls at levels of fifty (50)
parts per million or more, (e) radioactive materials, and (f) petroleum or
petroleum hydrocarbons in any form.
"RESPONSIBLE OFFICER" With respect to the subject matter of any
representation, warranty, covenant, agreement, obligation, notification
requirement, or certificate contained in or delivered to Lender pursuant to any
of the Credit Documents, the President, Chief Operating Officer, Chief Executive
Officer, Chief Financial Officer, Executive Vice President or Vice President, or
Secretary of any Borrower.
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"RESPONSIBLE OFFICER'S CERTIFICATE" A certificate in form and
substance satisfactory to Lender and signed by a Responsible Officer to the
effect that no Default or Event of Default exists, or if any Default or Event of
Default does exist, specifying the nature and extent thereof and what action
such Borrower proposes to take with respect thereto, and which certificate shall
also demonstrate compliance with the financial covenants of this Agreement.
"RESTRICTED CASH" As defined in Section 4A.11.
"RESTRICTED CASH ACCOUNT" As defined in Section 4A.11.
"SCHEDULED EXCLUDED PROPERTY" As defined in Section 4A.12.
"SECURED OBLIGATIONS" The Asset Purchase Agreement Article IX
Obligations and the Loan Obligations.
"SUBSEQUENT ADVANCE COMMITTED AMOUNT" As defined in Section 2.01(b).
"SUBSIDIARY" As defined in Section 3.05.
"SUPPORTING OBLIGATION" As defined in Article 9, and any
Letter-of-credit right or secondary obligation that supports the payment or
performance of an Account, Chattel Paper, a Document, a General Intangible, an
Instrument, or Investment Property.
"TEMPORARY CASH INVESTMENTS" As defined in Section 3.07.
"TRADEMARK" or "TRADEMARKS" Any trademark, service xxxx, collective
xxxx, certification xxxx, or other distinctive xxxx, or other Property, that may
be entitled to trademark protection under any Law.
"UCC" The Uniform Commercial Code, as in effect in the State of New
York; provided that if and to the extent that the Uniform Commercial Code of a
jurisdiction other than New York governs the perfection and the effect of
perfection or nonperfection of a security interest under this Agreement, then
"UCC" shall refer to the Uniform Commercial Code of such other jurisdiction to
the extent applicable to the perfection and the effect of perfection or
nonperfection of such security interest.
ARTICLE II
CREDIT FACILITY
SECTION 2.01. LOAN. Upon the terms and subject to the conditions of this
Agreement (including, without limitation, the provisions of Section 2.12 and
Section 2.13), during the period commencing on the Effective Date and ending on
the last Business Day prior to the Maturity Date (such last Business Day prior
to the Maturity Date being referred to herein as the "CREDIT
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TERMINATION DATE"), Lender agrees to make loans to Borrowers in an aggregate
amount not to exceed the Committed Amount, as follows:
(a) Upon and after the entry of the Interim Order and prior to the
Credit Termination Date, $10,000,000 of the Committed Amount or such other
amount of the Committed Amount as may be authorized in the Interim Order (the
"INITIAL ADVANCE COMMITTED AMOUNT"), shall be made available by Lender to be
loaned to Borrowers in accordance with the terms of this Agreement.
(b) Upon and after the entry of the Final Order and prior to the
Credit Termination Date, additional loan advances, in an aggregate amount of
$22,000,000 or such other aggregate amount as equals the difference between the
Committed Amount and the Initial Advance Committed Amount (the "SUBSEQUENT
ADVANCE COMMITTED AMOUNT"), shall be made available by Lender to be loaned to
Borrowers in accordance with the terms of this Agreement.
SECTION 2.02. LOAN FUNDING REQUESTS. From time to time on or after the
Effective Date and before the Credit Termination Date, Borrowers may request
loan advances of the Initial Advance Committed Amount (when available in
accordance with the terms of Section 2.01(a)) and the Subsequent Advance
Committed Amount (when available in accordance with the terms of Section
2.01(b)), as the case may be, in accordance with the following procedure:
(a) Each loan advance shall be requested by Borrowers giving Lender a
completed and signed Loan Funding Request, in accordance with the notice
procedures of this Agreement, at least three Business Days prior to the proposed
date of such Loan advance.
(b) Amounts loaned to Borrowers shall be disbursed to Borrowers by
wire transfer to the Concentration Account.
(c) Borrowers shall not give Lender more than one Loan Funding
Request during any calendar week and Lender shall not be obligated to make more
than one loan advance during any calendar week.
(d) Loan advances shall not exceed the amount necessary on a weekly
basis to pay Borrowers' Operating Expenses as set forth in a Budget (or updated
Budget, as the case may be) prepared by Borrowers and approved by Lender.
SECTION 2.03. COVENANT TO PAY; NOTE. Each Borrower, severally and jointly,
covenants and agrees to execute and deliver to Lender the Note immediately upon
the execution and delivery of this Agreement and to repay the Loan to Lender,
together with all accrued interest at the Interest Rate, and all Credit
Administration Costs and fees relating thereto, without set-off, defense or
counterclaim of any kind, in accordance with the terms of this Agreement, the
Note and the other Credit Documents.
SECTION 2.04. INTEREST PAYMENTS. Upon and after the occurrence of an Event
of Default, all accrued and unpaid interest on the Loan shall be due and payable
on demand. In the
14
event the Buyer acquires the Assets pursuant to the terms of the Asset Purchase
Agreement, the accrued and unpaid interest as of the Closing Date shall be
credited against the Purchase Price.
SECTION 2.05. PRINCIPAL PAYMENTS. Subject to acceleration upon the
occurrence of an Event of Default, and unless sooner paid in full in connection
with the Closing, the outstanding principal balance of the Loan shall be due and
payable on the Maturity Date. In the event the Buyer acquires the Assets
pursuant to the terms of the Asset Purchase Agreement, the outstanding principal
balance of the Loan as of the Closing Date shall be credited against the
Purchase Price.
SECTION 2.06. PREPAYMENTS. Borrowers may prepay the Loan in whole or in
part at any time without premium or penalty.
SECTION 2.07. MANNER OF PAYMENTS. All payments to be made to Lender shall
be made in Dollars in immediately available funds without set-off, defense,
counterclaim or deduction of any kind, at the Payment Office on the dates
specified for such payments under this Agreement, the Note or the other Credit
Documents. If any payment on the Loan shall be due and payable on any day which
is not a Business Day, such payment shall be deemed due on the next following
Business Day and interest shall be payable at the applicable rate specified
herein through such Business Day. Payments made in other than Dollars shall be
accepted subject to collection.
SECTION 2.08. APPLICATION OF PAYMENTS. Payments made by Borrowers to Lender
shall be applied in such order as Lender may determine in Lender's discretion.
SECTION 2.09. USE OF LOAN PROCEEDS. The proceeds of the Loan shall be used
solely by Borrowers to fund Borrowers' Operating Expenses that are not funded
from proceeds of Collection Collateral.
SECTION 2.10. COMPUTATION OF INTEREST. All interest shall accrue based on a
360-day year for the actual number of days outstanding.
SECTION 2.11. Intentionally omitted.
SECTION 2.12. CONDITIONS TO INITIAL ADVANCE. The following are conditions
precedent to the making of any advance of the Initial Advance Committed Amount
and must be fulfilled to Lender's satisfaction:
(a) Lender shall have received the following:
(i) copies of resolutions of the Board of Directors (or other
applicable governing body of any Borrower that is not a corporation) of each
Borrower, authorizing the execution, delivery and performance of this Agreement
and the other Credit Documents, and the borrowing hereunder, and such other
matters as Lender may require, in form and substance satisfactory to Lender,
certified by a Responsible Officer of such Borrower; and
15
(ii) a certificate of the Secretary or Assistant Secretary of
each Borrower as to the correctness and completeness of the copy of the By-laws
of such Borrower attached thereto and as to the incumbency and signatures of the
officers of such Borrower who execute the Credit Documents on behalf of such
Borrower; and
(iii) a copy of the Articles of Incorporation of each Borrower,
certified by an officer of such Borrower as being correct and complete, together
with a certificate of the appropriate officer or department of the state in
which such Borrower is incorporated as to the good standing of such Borrower,
with copies of the Articles of Incorporation of such Borrower on file certified
by such appropriate officer or department; and
(iv) certificates of the appropriate officers or departments of
the states in which each Borrower is not incorporated or formed but does
business as to such Borrower's qualification and good standing to conduct
business as a foreign corporation or limited liability company, as the case may
be, in such States;
(v) such additional supporting certifications and other
documents as Lender may request;
(b) Lender shall have received fully executed originals of this
Agreement and of each of the other Credit Documents;
(c) Lender shall have received from Borrowers a budget prepared by
Borrowers' Responsible Officer reasonably detailing Borrowers' anticipated cash
receipts and projected accrued operating expenses for the period commencing on
the date of entry of the Interim Order and ending on December 31, 2001, and
setting forth the anticipated use of the proceeds of the Loan, all on a weekly
and biweekly basis and satisfactory in form and substance to Lender (the
"BUDGET");
(d) The Bankruptcy Court shall have entered the Interim Order;
(e) The Bankruptcy Court shall have entered the Approval Order; and
(f) Borrowers shall have given Lender a complete listing of each
Borrower's Deposit Accounts and securities accounts (as "securities account" is
defined in Article 8), copies of the account agreements relating to such Deposit
Accounts and securities accounts, and copies of the most recent monthly or other
periodic account statements for such Deposit Accounts and securities accounts.
SECTION 2.13. CONDITIONS TO ALL ADVANCES. The following are conditions
precedent to the making of each advance of the Initial Advance Committed Amount
and each advance of the Subsequent Advance Committed Amount, and must be
fulfilled to Lender's satisfaction:
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(a) Borrowers shall have given Lender a properly completed and signed
Loan Funding Request for the requested advance; and
(b) On and as of the date the advance is made, each representation
and each warranty made in this Agreement and in any other Credit Documents shall
be true, accurate, and complete in all material respects; and
(c) Borrowers shall have fulfilled in all material respects each and
all of Borrowers' covenants in this Agreement and the other Credit Documents;
and
(d) On and as of the date each advance is made, no Default or Event
of Default shall have occurred and be continuing; and
(e) The applicable advance shall have been authorized by the Interim
Order or the Final Order, as the case may be; and
(f) Borrowers shall have provided to Lender an updated Budget
prepared by Borrowers' Responsible Officer showing that after making the
requested advance, the unadvanced portion of the Committed Amount (and assuming
such unadvanced portion of the Committed Amount were to be advanced under this
Agreement), together with Borrowers' other reasonably anticipated sources of
funds, will provide Borrowers with sufficient working capital to operate in
compliance with the requirements of the Asset Purchase Agreement until December
31, 2001; and
(g) Lender shall have a perfected first priority security interest in
each Borrower's Accounts and General Intangibles; and
(h) Lender shall have a perfected first priority security interest in
each Borrower's Deposit Accounts, which security interests shall have been
perfected by control pursuant to a Control Agreement. The preceding sentence
shall not apply to a Restricted Cash Account that is a Deposit Account so long
as such Restricted Cash Account contains no Property other than the Restricted
Cash; and
(i) If any Borrower has a securities account (as "securities account"
is defined in Article 8), Lender shall have a perfected first priority security
interest in each such securities account, which security interest shall have
been perfected by control pursuant to a Control Agreement. The preceding
sentence shall not apply to a Restricted Cash Account that is a securities
account so long as such Restricted Cash Account contains no Property other than
the Restricted Cash; and
(j) If any Borrower has a Letter-of-credit right, Lender shall have a
perfected first priority security interest in each such Letter-of-credit right,
which security interest shall have been perfected by control pursuant to a
Control Consent; and
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(k) With regard to Collateral other than Accounts, General
Intangibles, Deposit Accounts, securities accounts, or Letter-of-credit rights
within the scope of clauses (g), (h), (i), and (j) of this Section, Lender shall
have either (1) a perfected first priority Lien upon such Collateral pursuant to
Section 364(c)(2) of the Bankruptcy Code, or (2) if such Collateral is subject
to (x) a valid and perfected Permitted Lien in existence on the Filing Date or
(y) valid Liens in existence on the Filing Date that are perfected subsequent to
the Filing Date as permitted by Section 546(b) of the Bankruptcy Code, a
perfected Lien pursuant to Section 364(c)(3) of the Bankruptcy Code; and
(l) The aggregate amount of Indebtedness secured by Permitted Liens
(other than (i) Liens in favor of Lender and (ii) Borrower Group Liens) on any
Collateral shall not exceed $250,000; and
(m) All Borrower Group Liens on any Property that is Collateral shall
be subordinate to the Lender's security interest in the Collateral.
SECTION 2.14. DESIGNATION OF AGENT AND ATTORNEY-IN-FACT. Each Borrower that
is a party to any Credit Document hereby irrevocably appoints Rhythms as the
agent and attorney-in-fact for such Borrower with full power and authority to
act on behalf of such Borrower in all respects with respect to any actions,
waivers, consents, payments, receipts, or notices, whether or not required under
this Agreement or the other Credit Documents, or as Rhythms may engage in,
provide, give or take in its sole and unfettered discretion. Each such Borrower
agrees that all actions taken, waivers or consents provided, payments made or
received, or notices given or received, by Lender, in each case by or to
Rhythms, shall be effective as to such Borrower regardless of whether such
action, waiver, consent or notice was taken or approved by, or given or received
by, any Person other than Rhythms. In all respects and circumstances Lender is
entitled to rely without limitation on any and all actions, waivers, consents,
and notices of Rhythms as actions, waivers, consents or notices of each
Borrower, including any and all agreements to modify or amend in any respect, or
grant any waiver or consent under, or to give or receive any notice with respect
to, this Agreement or any other Credit Documents, and Lender is under no
expectation or obligation whatsoever to inquire as to whether any such action or
waiver was approved or ratified by, or notice given or received by, any such
Borrower, and may act as if any such action, waiver, consent, or notice was
engaged in, provided, taken, given or received by each such Borrower. In this
respect, absent prior written notice to the contrary with respect to a specified
matter, it is agreed that, in each and every circumstance insofar as Lender is
concerned, any action taken, waiver or consent given, or notice given or
received by, Rhythms, shall be deemed taken, given or received by, each such
Borrower even absent an express indication that such action is taken, such
waiver or consent is given, or such notice is given or received by any such
Borrower other than Rhythms.
SECTION 2.15. DEFAULT. Notwithstanding anything to the contrary set forth
in this Agreement or any other Credit Document, upon and after the occurrence of
a Default Lender shall have no obligation to make any loan advances to Borrower
under this Agreement; provided however, upon and after the occurrence of a
Default, Lender may continue to make loan advances in Lender's sole and absolute
discretion.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES
Each Borrower hereby makes the following representations and warranties to
Lender (a) on and as of the Effective Date, and (b) at the time that any advance
of the Initial Advance Committed Amount or the Subsequent Advance Committed
Amount is made, and Lender shall be entitled to rely upon the truth, accuracy,
and completeness of the following representations and warranties without regard
to any other information that may be now or hereafter known by or disclosed to
Lender or any of Lender's shareholders, directors, officers, employees, agents,
attorneys or other advisors:
SECTION 3.01. CONDITIONS. All conditions precedent to the making of each
loan advance as set forth in Article II have been satisfied in full.
SECTION 3.02. EXISTENCE. Each Borrower: (a) is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization; (b) has all requisite corporate or limited
liability company, and has all material governmental licenses, authorizations,
consents and approvals, including all Necessary Permits, to own its Assets and
carry on its Business as now being or as proposed to be conducted; and (c) is
qualified to do business and is in good standing in all jurisdictions in which
the nature of the business conducted by it makes such qualification necessary
and where failure so to qualify could (either individually or in the aggregate)
have a Material Adverse Effect. "NECESSARY PERMITS" means all rights, permits,
easements, licenses, franchises, patents, privileges, authorizations,
permissions, consents, agreements, or approvals of or issued by any Governmental
Authority, or any other Person, that may be required by any Law or are otherwise
necessary or advisable for the ownership or operation of the businesses and
properties of any Borrower.
SECTION 3.03. ACTION. (a) Each Borrower shall have all necessary corporate
power, authority and legal right to execute, deliver and perform Borrowers'
obligations under each of the Credit Documents; (b) the execution, delivery and
performance by each Borrower of each of the Credit Documents shall have been
duly authorized by all necessary corporate or other action on each Borrower's
part (including any required shareholder approvals); and (c) this Agreement
shall have been duly and validly executed and delivered by each Borrower and
constitutes, and the Note and other Credit Documents, when executed and
delivered by each Borrower, will constitute, each Borrower's legal, valid and
binding obligation, enforceable against each Borrower, as the case may be, in
accordance with its terms.
SECTION 3.04. APPROVALS. Other than the entry of the Interim Order, the
Approval Order, and the Final Order by the Bankruptcy Court, no authorizations,
approvals or consents of, and no filings or registrations with any Governmental
Authority, or any securities exchange, are necessary for the execution, delivery
or performance of the Credit Documents by any Borrower or for the legality,
validity or enforceability thereof, or the perfection of the security interests
created in favor of Lender pursuant to this Agreement and the other Credit
Documents. The
19
borrowings hereunder, and the execution, delivery and performance of each of the
Credit Documents will not (a) contravene any provision of law, any order of any
court or other agency of government, or (b) contravene the Articles of
Incorporation or by-laws of any Borrower, or any indenture, agreement or other
instrument binding upon any Borrower, or (c) to the best knowledge of each
Borrower, be in conflict with, result in the breach of or constitute (with due
notice or lapse of time or both) a default under any such indenture, agreement
or other instrument binding upon any Borrower, or (d) to the best knowledge of
each Borrower, result in the creation or imposition of any Lien of any nature
whatsoever upon any of the Collateral, except any Liens created pursuant to this
Agreement and the other Credit Documents.
SECTION 3.05. OWNERSHIP. SCHEDULE 3.05 contains a true, accurate, and
complete description of the capital structure of each Borrower and each of its
Subsidiaries and Affiliates, (except in the case of Rhythms, which is a publicly
traded corporation), and identifies each Person who owns or holds an Equity
Interest or Equity Rights in each Borrower.
"EQUITY INTEREST" means, with respect to any Person, any ownership
interest in such Person, including all shares, participations, rights or other
equivalents of corporate stock and all partnership and membership interests of
any kind.
"EQUITY RIGHTS" means, with respect to any Person, any subscriptions,
options, warrants, commitments, purchase rights, preemptive rights or agreements
of any kind (including any stockholders' or voting trust agreements) for the
issuance, sale, registration or voting of, or securities convertible into, any
additional shares of capital stock of any class, or partnership, membership or
other ownership interests of any type in, such Person.
"AFFILIATE" means, as to any Person, any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person, and including any Subsidiary of such Person.
For purposes of this definition, "control" (including, with correlative
meanings, the terms "controlling," "controlled by," and "under common control
with"), as used with respect to any Person, shall mean the possession, directly
or indirectly, of the power to direct or cause the direction of the management
or policies of such Person, whether through ownership of voting securities, by
agreement or otherwise; provided that legal or beneficial ownership of ten
percent (10%) or more of the voting securities (or other ownership interests
other than limited partnership interests) of a Person shall in any event be
deemed to be control.
"SUBSIDIARY" means, as to any Person, (i) any corporation or limited
liability company (A) that is directly or indirectly controlled by such Person
or any Subsidiary of such Person or (B) if more than 10% of the voting and/or
non-voting stock or other ownership shares of such corporation or limited
liability company is owned by such Person or any Subsidiary of such Person, (ii)
any joint venture or partnership (A) in which such Person or any Subsidiary of
such Person is a general partner or (B) if more than 10% of the partnership
interests in such venture or partnership are owned by such Person or any
Subsidiary of such Person, (iii) any trust for the benefit of such Person or any
Subsidiary of such Person, or any other organization, trust or other entity as
to which such Person or any Subsidiary of such Person
20
is in a position of management, trust, or control, and (iv) to the extent not
otherwise included by the preceding clauses, any Subsidiary of any corporation,
limited liability company, partnership, organization, trust or other entity
described in clauses (i), (ii), or (iii).
SECTION 3.06. Intentionally omitted.
SECTION 3.07. INVESTMENTS. SCHEDULE 3.07 contains a true, accurate, and
complete listing of each Investment of each Borrower. No Borrower has
Investments other than Permitted Investments.
"INVESTMENTS" means, with respect to any Person, (a) any Indebtedness
for Borrowed Money of any other Person owed to such Person, (b) the acquisition
(whether for cash, Property, services or securities or otherwise) of capital
stock, bonds, notes, debentures, partnership interests or other ownership
interests or other securities of any other Person or any agreement to make any
such acquisition (including any "short sale" or any sale of any securities at a
time when such securities are not owned by the Person entering into such sale),
(c) the making of any deposit with, or advance, loan or extension of credit to,
any other Person (including the purchase of Property from another Person subject
to an understanding or agreement, contingent or otherwise, to resell such
Property to such Person, but excluding trade credit extended by a Person arising
from inventory sold or services provided in the ordinary course of such Person's
business), or (d) the making of any guarantee of, or other contingent obligation
with respect to, Indebtedness or other liability of any other Person and any
amount committed to be advanced, lent or extended to such Person.
"PERMITTED INVESTMENTS" means with respect to each Borrower (a)
endorsements of negotiable instruments and similar negotiable documents in the
ordinary course of such Borrower's business; (b) Temporary Cash Investments; and
(c) any Investments specifically listed on SCHEDULE 3.07 on the Effective Date.
"TEMPORARY CASH INVESTMENTS" means any Investment in (a) the direct
obligations of the United States or any agency thereof, or obligations
guaranteed by the United States or any agency thereof; (b) commercial paper
rated at least A-1 by Standard & Poor's Corporation and P-1 by Xxxxx'x Investors
Service, Inc.; (c) time deposits with, including certificates of deposits issued
by, any office located in the United States of any bank or trust company which
is organized under the laws of the United States or any State thereof and has
capital, surplus and undivided profits aggregating at least Five hundred million
Dollars ($500,000,000) and which issues (or the parent of which issues)
certificates of deposit or commercial paper with a rating described in clause
(b) above; (d) money market mutual funds with a right of redemption on a daily
basis and having assets of at least Five hundred million Dollars ($500,000,000),
substantially all of which assets consist of investments of a type described in
the foregoing clauses; provided in each case that any Investment referred to in
clauses (a) through (c) above matures within six (6) months from the day of
acquisition thereof by any Borrower, and that any Investments referred to in
this definition shall (i) provide for the payment of principal and interest (and
not principal alone or interest alone) and (ii) are not subject to any
contingency regarding the payment of principal or interest.
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SECTION 3.08. DEPOSIT ACCOUNTS. (a) SCHEDULE 3.08(a) contains a true,
accurate, and complete listing of each Borrower's Deposit Accounts and
securities accounts that are not Restricted Cash Accounts.
(b) SCHEDULE 3.08(b) contains a true, accurate, and complete listing
of each Borrower's Restricted Cash Accounts.
(c) SCHEDULE 3.08(a) and SCHEDULE 3.08(b) together constitute a
complete listing of each Borrower's Deposit Accounts and securities accounts.
(d) No Property other than Restricted Cash is maintained in any
Restricted Cash Account.
SECTION 3.09. INDEBTEDNESS. SCHEDULE 3.09 contains a true, accurate, and
complete listing of each Borrower's Indebtedness for Borrowed Money.
"INDEBTEDNESS" means, as applied to any Person, and as measured
without duplication, all items (except items of capital stock, capital or
paid-in-surplus or of retained earnings) which in accordance with GAAP, would be
included in determining total liabilities as shown on the liability side of a
balance sheet of such Person, including all of such Person's (i) Indebtedness
for Borrowed Money, (ii) trade accounts payable, (iii) Indebtedness of another
Person secured by any Lien to which any Property owned or held by such Person is
subject, whether or not the Indebtedness secured thereby shall have been
assumed, and (iv) obligations under any guarantee.
"INDEBTEDNESS FOR BORROWED MONEY" means, as applied to any Person, and
as measured without duplication, all of such Person's Indebtedness from (a)
obligations in respect of money borrowed, and including those evidenced by
bonds, debentures, notes and other debt instruments, (b) capital lease
obligations, (c) Indebtedness on which interest is accrued or charged, (d)
reimbursement obligations under letters of credit, liquidated, contingent or
otherwise, (e) obligations of, or Indebtedness issued or assumed by, such
Person, to pay the deferred purchase price or acquisition price of Property or
services, and including (i) Capital Expenditures, (ii) trade accounts that are
payable more than thirty (30) days after the date the respective goods are
delivered or the respective services are rendered, and (iii) trade accounts
payable that have been outstanding more than thirty (30) days, and (f)
obligations as a guarantor, surety, or accommodation party of items of another
Person that as to such other Person would constitute Indebtedness for Borrowed
Money of such other Person under the preceding clauses of this definition.
"PERMITTED INDEBTEDNESS FOR BORROWED MONEY" means any of the following
Indebtedness for Borrowed Money: (a) the Obligations, (b) any other Indebtedness
for Borrowed Money specifically listed on SCHEDULE 3.09 on the Effective Date,
and (c) any other Indebtedness payable solely out of Restricted Cash.
22
SECTION 3.10. LIENS. Each Borrower has good title to its Property free of
all Liens, except for Permitted Liens and Liens which if foreclosed upon
individually or in the aggregate would not have a Material Adverse Effect on the
Collateral. SCHEDULE 3.10 contains a true, accurate, and complete listing of
each Lien on each Borrower's Property.
"LIEN" means any security interest, security agreement, real estate
mortgage, chattel mortgage, deed of trust, title retention contract, security
title, factor's lien, assignment, pledge, grant or conveyance for security
purposes or in settlement of debt, or other arrangement for security purposes,
deed-in-lieu of foreclosure or to secure debt, transfer for other than fair
consideration, judgment lien or other lien, charge or encumbrance of any kind,
and including any of the foregoing arising by operation of statute or other law
or the application of equitable principles, whether perfected or unperfected,
avoidable or unavoidable, consensual or non-consensual.
"PERMITTED LIEN" means (i) any Lien in favor of Lender, (ii) Borrower
Group Liens that are subordinate to Lender's security interest in the
Collateral, (iii) Liens for taxes which are not yet delinquent, (iv) deposits or
pledges to secure obligations under worker's compensation, social security or
similar laws, or under unemployment insurance in the ordinary course of business
of any Borrower, (v) each Lien listed on SCHEDULE 3.10, and (vi) if the
aggregate amount of the Indebtedness secured by Liens within the scope of
clauses (iii), (iv) and (v) of this definition is less than $250,000, such other
Liens, if any, as may exist on the Effective Date, provided that the aggregate
amount of all Indebtedness secured by Liens within the scope of clauses (iii),
(iv), and (v) of this definition, plus the aggregate amount of all Indebtedness
secured by Liens under this clause (vi), shall not exceed $250,000.
SECTION 3.11. INSURANCE. SCHEDULE 3.11 contains a true, accurate, and
complete listing of each insurance policy (including policies of worker's
compensation insurance, liability insurance, casualty insurance and business
interruption insurance) maintained in full force and effect by each Borrower.
SECTION 3.12. NAME, STRUCTURE. Except as listed on SCHEDULE 3.12, no
Borrower has changed its name or organizational structure or purchased or
acquired any Property from any Person other than Property which in the hands of
such Person was such Person's inventory and was sold to such Borrower in the
ordinary course of such Person's business.
SECTION 3.13. Intentionally omitted.
SECTION 3.14. Intentionally omitted.
SECTION 3.15. Intentionally omitted.
SECTION 3.16. MARGIN STOCK. No Borrower is engaged principally, or as one
of its activities, in the business of extending credit for the purpose, whether
immediate, incidental or ultimate, of buying or carrying Margin Stock, and no
part of the proceeds of any extension of credit hereunder will be used to buy or
carry any Margin Stock. "MARGIN STOCK" means margin
23
stock within the meanings of Regulations T, U and X of the Board of Governors of
the Federal Reserve System (or any successor) as the same may be modified and
supplemented and in effect from time to time.
SECTION 3.17. TAX IDENTIFICATION NUMBERS. The tax identification number for
each Borrower is listed on SCHEDULE 3.17.
SECTION 3.18. Intentionally omitted.
SECTION 3.19. Intentionally omitted.
SECTION 3.20. TAXES. Each Borrower has filed and will continue to file all
United States income tax returns and all state income tax returns which are
required to be filed, and has paid, or made adequate provisions for the payment
of, all taxes which have or may become due pursuant to said returns or pursuant
to any assessment received by any Borrower except such taxes, if any, as are
being contested in good faith and as to which adequate reserves have been
provided.
SECTION 3.21. INVESTMENT COMPANY ACT. No Borrower is an "investment
company," or a company "controlled" by an "investment company," within the
meaning of the Investment Company Act of 1940, as amended.
SECTION 3.22. PUBLIC UTILITY HOLDING COMPANY ACT. No Borrower is a "holding
company" or an "affiliate" of a "holding company" or a "subsidiary company" of a
"holding company" within the meaning of the Public Utility Holding Company Act
of 1935, as amended.
SECTION 3.23. COMMERCIAL LOAN. The Loan made under this Agreement is made
solely for a business or commercial purpose, and not for any personal, family,
or household purpose. The terms of this Agreement do not violate any Laws that
regulate credit, including any Laws regarding usury and the charging of
interest, late charges, fees, or any costs and charges of the types included
within the definition of Credit Administration Costs under this Agreement.
SECTION 3.24. APPLICABLE LAWS. To the best knowledge of each Borrower, each
Borrower is in compliance, in all material respects, with all Applicable Laws.
SECTION 3.25. NO BROKER. The Sellers have engaged the firm of Lazard Freres
& Co. LLC to assist them in connection with the matters contemplated by this
Agreement and the Asset Purchase Agreement and will be solely responsible for
the fees and expenses of such firm.
SECTION 3.26. Intentionally omitted.
SECTION 3.27. BORROWER INFORMATION. There is no fact or circumstance or
anticipated event known to any Responsible Officer that could have a Material
Adverse Effect that has not been disclosed to Lender in this Agreement, the
other Credit Documents, or in another writing furnished to Lender on or before
the Effective Date for use in connection with the transactions
24
contemplated by this Agreement and the other Credit Documents. The Borrower
Information furnished to Lender on or before the Effective Date is true,
accurate, and complete in all material respects, and does not omit any material
fact or facts necessary to make the Borrower Information not misleading, and all
Borrower Information furnished to Lender after the Effective Date shall be true,
accurate and complete in all material respects. "BORROWER INFORMATION" means any
information furnished to Lender by or on behalf of any Borrower at any time,
including all such information furnished to Lender in connection with Borrowers'
application for the credits and other accommodations contemplated by this
Agreement and the other Credit Documents, including any information contained in
any credit or loan application, and in any financial statements, tax returns,
appraisals, environmental audits, reports, correspondence, opinion letters,
annexes, schedules, lists and exhibits relating to such application or otherwise
relating to the matters and transactions contemplated by the Credit Documents,
and including all representations and other information made to or furnished to
Lender in the Credit Documents and in the Exhibits, Schedules and certificates
relating thereto, and including any and all financial statements, tax returns,
reports, certificates, notices, annexes, schedules, lists (including any
listings or descriptions of any of Borrowers' Property) and exhibits, furnished
to Lender from time to time in accordance with the terms of the Credit Documents
or otherwise relating to any Borrower.
SECTION 3.28. SECURITY INTEREST. The security interests created by each
Borrower under Article IV-A of this Agreement shall be either:
(a) a perfected first priority Lien, pursuant to Section 364(c)(2) of
the Bankruptcy Code, upon all Collateral; or
(b) a perfected Lien, pursuant to Section 364(c)(3) of the Bankruptcy
Code, upon all Collateral of each Borrower that is subject to a valid and
perfected Permitted Lien in existence on the Filing Date or that is subject to
valid Liens in existence on the Filing Date that are perfected subsequent to the
Filing Date as permitted by Section 546(b) of the Bankruptcy Code or that is
subject to Permitted Liens, junior to such valid and perfected Liens.
SECTION 3.29. CHIEF EXECUTIVE OFFICE. Each Borrower's chief executive
office (a) is located in either the State of Colorado (or the state in which the
Borrower is incorporated), and (b) has not been located in any jurisdiction
other the State of Colorado (or the state in which the Borrower is
incorporated).
SECTION 3.30. COMMERCIAL TORT CLAIMS. Except as listed on SCHEDULE
4A.01(d), no Borrower has any Commercial Tort Claims.
SECTION 3.31. LETTER-OF-CREDIT RIGHTS. Except as listed on SCHEDULE 3.31,
no Borrower has any Commercial Tort Claims.
25
ARTICLE IV
AFFIRMATIVE COVENANTS
Each Borrower covenants and agrees that from the date hereof and until the
later of the Maturity Date or payment in full of all Secured Obligations owed by
each Borrower to Lender, unless Lender shall otherwise consent in writing:
SECTION 4.01. INFORMATION. Each Borrower shall deliver to Lender, or cause
to be delivered to Lender, the following:
(a) Monthly Bankruptcy Trustee Reports, as filed with the U.S.
Trustee's Office in the Southern District of New York, within two Business Days
of the filing date of such reports;
(b) the Budget, as required under Article II;
(c) on each Wednesday of each week, weekly and bi-weekly budgets
itemizing the following week's disbursements in reasonable detail;
(d) on Wednesday of each week, current cash receipts and accounts
receivables aging reports;
(e) on Wednesday of each week, current accounts payable aging
reports;
(f) promptly upon transmission thereof, copies of any filings and
registrations with, and reports to, the Securities and Exchange Commission, or
any successor agency, by any Borrower, and copies of all financial statements,
proxy statements, notices and reports as such Borrower shall send to its
shareholders or to the holders of any other Indebtedness of such Borrower in
their capacity as holders;
(g) concurrently with each filing by each Borrower of any tax return
pursuant to the taxing authority of any Governmental Authority, a photocopy of
each such tax return, with all related forms, schedules, and related
information; and
(h) with reasonable promptness upon any such request, such other
information regarding the business, properties or financial or operating
condition of any Borrower, or regarding the Collateral, or regarding the
Restricted Cash Accounts, as Lender may request.
SECTION 4.02. REPORTING NOTIFICATION EVENTS. Immediately upon any
Responsible Officer obtaining knowledge thereof, but in any event within two
Business Days after any Responsible Officer obtains such knowledge, each
Borrower shall give Lender written notice of each Notification Event, which
written notice shall include (i) a description of the Notification Event
(including an estimate of any anticipated liability or Material Adverse Effect
that may
26
arise from such Notification Event other than the occurrence of a Default or
Event of Default), (ii) the date of the Notification Event and the date that the
Responsible Officer first obtained knowledge of the Notification Event, and
(iii) a description of the manner in which such Borrower has addressed or
otherwise responded to the Notification Event or intends to address or otherwise
respond to the Notification Event. "NOTIFICATION EVENT" means any of the
following events or occurrences: (a) any Default or Event of Default; or (b) any
Lien upon any Collateral other than Permitted Liens; or (c) any Casualty Event;
or (d) the occurrence of any event or condition which, with respect to any
Borrower, gives rise to unfunded pension liabilities or similar liabilities,
severance liabilities, unemployment liabilities, wage claims, or the like, in
favor of any individual, entity, organization, association or group, including,
without limitation, any tax authority or governmental authority, if such claims
or liabilities could, individually or in the aggregate, have a Material Adverse
Effect; or (e) the occurrence of any event or condition which constitutes a
Default or Event of Default under any Indebtedness of any Borrower (other than
the Obligations) if the acceleration of such Indebtedness as a result of such
Default or Event of Default would have a Material Adverse Effect; or (f) the
receipt of notice by a Responsible Officer of any Borrower, of potential
liability or responsibility for the violation (or alleged violation) of any
Laws, if such violation could (in view of any possible penalties, fines,
liabilities, damage awards, settlement costs and expenses, and any possible
equitable relief) have a Material Adverse Effect; or (g) any event or fact (or
change of fact) or any circumstance (or change of circumstance) that warrants
the revision of any Borrower Information in order to cause such Borrower
Information to be, and to continue to be, true, accurate and complete in all
material respects at all times; or (h) any change in incumbency in one or more
of the following offices of any Borrower's management: President, Treasurer,
Chief Financial Officer, or any other office named in the incumbency certificate
given to Lender; or (i) any occurrence, that would not be a Notification Event
within the scope of the foregoing clauses of this definition of Notification
Event, which has or reasonably may have a Material Adverse Effect.
SECTION 4.03. EXISTENCE. Each Borrower shall maintain its corporate or
other legal existence, in each jurisdiction in which it is incorporated or
otherwise formed, and in each jurisdiction where it is required to register or
qualify to do business, except for failures to register or qualify which,
individually or in the aggregate, would not have a Material Adverse Effect.
SECTION 4.04. Intentionally omitted.
SECTION 4.05. COLLATERAL. Each Borrower shall maintain, preserve and
protect all Collateral and keep such Collateral in good repair, working order
and condition, normal wear and tear excepted, and from time to time as necessary
make, or cause to be made, all repairs, renewals, and replacements thereto as
necessary in order that the business carried on in connection therewith may be
properly conducted at all times.
SECTION 4.06. INSURANCE. Each Borrower shall maintain in full force and
effect at all times insurance (including worker's compensation insurance,
liability insurance, casualty insurance and business interruption insurance) in
such amounts, covering such risks and liabilities, and with such deductibles as
are in accordance with normal industry practice unless higher limits or other
types of coverage are required by the terms of the other Credit Documents.
27
Each Borrower shall provide to Lender promptly upon Lender's request from time
to time certificates, policies or endorsements as Lender shall require as proof
of such insurance, and if such Borrower fails to do so, Lender is authorized,
but not required, to obtain such insurance at the expense of Borrowers. All
insurance policies shall provide for at least 30 days' prior written notice to
Lender of any cancellation or reduction in coverage and Lender may act as
attorney-in-fact for each Borrower in obtaining, and at any time an Event of
Default exists, adjusting, settling, amending and canceling such insurance. Each
Borrower shall cause Lender to be named as a loss payee and an additional
insured (but without any liability for any premiums) with respect to the
Collateral under all such insurance policies and shall cause such Borrower to
obtain non-contributory lender's loss payable endorsements to all such insurance
policies with respect to the Collateral in form and substance satisfactory to
Lender. Such lender's loss payable endorsements shall specify that the proceeds
of such insurance with respect to the Collateral shall be payable to Lender as
its interests may appear and further specify that Lender shall be paid
regardless of any act or omission by any Borrower or any other Person. All
proceeds of such casualty insurance with respect to the Collateral shall be paid
to Lender for application to the Obligations in accordance with the terms of
this Agreement and the other Credit Documents or otherwise. Lender shall not be
responsible for any failure to collect any insurance proceeds due under the
terms of any policy regardless of the cause of such failure.
SECTION 4.07. CASUALTY EVENT PROCEEDS. If any Casualty Event shall occur
and be covered in whole or in part by insurance, and any Borrower shall be
entitled, in accordance with the terms of any insurance policy, or in accordance
with any agreement with or decision of any Person other than Lender, to receive
any proceeds of such Casualty Event and insurance, then, so long as no Event of
Default has occurred and is continuing, such proceeds shall promptly be applied
or paid at such Borrower's election either (a) to restore or replace the
Collateral so damaged or destroyed in such Casualty Event if such proceeds shall
be sufficient to pay the full cost and expense of such restoration or
replacement, or (b) as a prepayment on the Secured Obligations; provided,
however, that upon and during the continuance of an Event of Default, such
Borrower shall cause all such proceeds attributable to Collateral, immediately
upon receipt by such Borrower or any other Person, to be paid to Lender to be
applied at Lender's election, in Lender's discretion either (a) to restore or
replace the Collateral so damaged or destroyed or (b) as a prepayment on the
Secured Obligations. If any Casualty Event shall occur for which any Borrower is
entitled to a condemnation award or other similar compensation, then, at
Lender's election, in Lender's discretion, such Borrower shall cause any
proceeds of such award or other similar compensation, immediately upon receipt
by such Borrower or any other Person, to be paid to Lender to be applied as a
prepayment on the Secured Obligations.
SECTION 4.08. TAXES. Each Borrower shall pay and discharge or cause to be
paid and discharged promptly all taxes, assessments, and governmental charges or
levies imposed upon such Borrower or upon such Borrower's income and profits, or
upon any of its Collateral or any part thereof, before the same shall become in
default, as well as all lawful claims for labor, materials and supplies or
otherwise which, if unpaid, might become a Lien upon such Collateral or any part
thereof; PROVIDED, HOWEVER, that no Borrower shall be required to pay and
discharge or to cause to be paid and discharged any such tax, assessment,
charge, levy or claim so long as the validity thereof shall be contested in good
faith by appropriate proceedings and such
28
Borrower shall have set aside on its books adequate reserves with respect to any
such tax, assessment, charge, levy or claim, so contested.
SECTION 4.09. COMPLIANCE WITH LAWS. Each Borrower shall comply, in all
material respects, with all Applicable Laws.
SECTION 4.10. CREDIT ADMINISTRATION COSTS; BROKERS. Each Borrower shall pay
and cause each other Borrower to pay all Credit Administration Costs promptly
upon Lender's demand from time to time. Each Borrower shall indemnify and hold
harmless Lender from and against any claim by any Person for a commission or
finder's fee or other compensation of any kind attributable to any extensions of
credit or other matters or transactions contemplated under this Agreement and
the other Credit Documents, and shall pay Lender's attorney's fees, litigation
expenses and court costs in defending any such claim for a commission or
finder's fee other compensation.
"COLLECTION COSTS" means all costs and expenses of administering and
enforcing this Agreement and the other Credit Documents, and including any and
all costs and expenses of collecting the Obligations and exercising Lender's
rights and remedies under the Credit Documents as against any Collateral, or as
against any Borrower or other party to any Credit Documents, or any trustee,
receiver or debtor-in-possession, and any and all costs and expenses incurred by
Lender at any time in enforcing, defending, protecting, perfecting, and
maintaining Lender's security interests and the priority thereof in any
Collateral, and any other costs and expenses incurred by Lender after the
occurrence of any Default, with regard to any matters relating to the Credit
Documents, and regardless of whether an Event of Default shall have been
declared, any Obligations shall have been accelerated or declared due or any
other remedies shall have been exercised, and including any and all such costs
and expenses incurred by Lender in or relating to any bankruptcy or insolvency
proceedings. Collection Costs include court costs, filing fees, attorney's fees,
paralegal fees, litigation expenses of any kind, the fees and expenses of
experts, consultants, accountants, engineers, appraisers, surveyors, receivers,
trustees, warehousemen, and auctioneers, and the costs and expenses of
repossessing, transporting, storing, maintaining, insuring, repairing,
advertising, marketing, and selling any Collateral, including all applicable
transfer taxes, recordation taxes, documentary stamps, and sales taxes relating
to the creation or perfection of Lender's security interests in any Collateral,
and all costs of inspecting, studying, testing, and monitoring the condition of
any Collateral, and all costs of response, remediation, or clean-up regarding
the condition of any Collateral.
"CREDIT ADMINISTRATION COSTS" means all Collection Costs and any other
costs and expenses (including Lender's attorney's fees and expenses) incurred by
Lender from time to time relating to the preparation, modification,
supplementation, review, and interpretation of the Credit Documents, or the
monitoring, processing, and servicing of the Secured Obligations, or any
Collateral and the transactions and other matters contemplated by the Credit
Documents, and including any such costs and expenses incurred in Lender's due
diligence and other preparation for the closing of the Loan.
29
SECTION 4.11. REVIEW AND AUDIT. Each Borrower shall maintain its financial
books and records in accordance with GAAP. Lender shall be permitted access to
all of Borrowers' books and records at any location during normal business hours
and shall be permitted to take copies, at Borrowers' expense, of such books and
records as Lender may request. Each Borrower shall permit and authorize Lender
through any Person designated by Lender, at such times and as often as Lender
may request, to visit, inspect, examine, audit and verify any of the properties,
books and records of such Borrower relevant to the subject matter of this
Agreement or any other Credit Documents or any Borrower Information or the
financial condition of such Borrower.
SECTION 4.12. USE OF LOAN PROCEEDS. The proceeds of the Loan shall be used
solely for the purpose expressly permitted in Article II.
SECTION 4.13. Intentionally omitted.
SECTION 4.14. ENVIRONMENTAL MATTERS. Each Borrower shall cause all
Collateral owned or operated by any Borrower to be kept free of contamination
from Regulated Substances and any other harmful or physical conditions except as
otherwise would be in compliance with applicable Environmental Laws. If any
Borrower receives notice or becomes aware of any Environmental Claim or any
violation of Environmental Laws or any contamination with Regulated Substances
that relates to any of them or any Collateral, then such Borrower shall promptly
provide written notice thereof to Lender and, upon written request of Lender,
shall provide Lender with such reports, certificates, engineering studies or
other written material or data as Lender may require so as to satisfy Lender
that such Borrower is in compliance with its obligations under this Agreement.
SECTION 4.15. Intentionally omitted.
SECTION 4.16. ASSET PURCHASE AGREEMENT. Each Borrower shall comply with,
perform, and fulfill all of such Borrower's covenants, agreements and other
obligations under the Asset Purchase Agreement.
30
ARTICLE IV-A
ADDITIONAL SECURITY PROVISIONS
SECTION 4A.01. SECURITY INTEREST. To further secure the Asset Purchase
Agreement Article IX Obligations and the Loan Obligations, and without limiting
the legal operation and effect of any other Credit Document, each Borrower
hereby collaterally assigns to Lender, and grants Lender a security interest in,
all of such Borrower's now owned and hereafter acquired, created or arising
Property described below, and in each case regardless of where such Property may
be located and whether such Property may be in the possession of such Borrower,
Lender, or a third party, and, if any of such Property may be held or stored
with any third party, together with all of such Borrower's rights now owned and
hereafter acquired, created or arising relating to the storage, withdrawal and
retrieval thereof and access thereto (all of which Property described below and
all such rights of storage, withdrawal, retrieval and access, in each case both
now owned and hereafter acquired, created or arising, being referred to herein
as "COLLATERAL"):
(a) All of Borrowers' now owned and hereafter acquired, created or
arising (i) "accounts" (as "account" is defined in Article 9), (ii) rights to
payment of any monetary obligation, whether or not earned by performance, (A)
for property that has been or is to be sold, leased, licensed, assigned, or
otherwise disposed of, (B) for services rendered or to be rendered, (C) for a
policy of insurance issued or to be issued, (D) for a secondary obligation
incurred or to be incurred, (E) for energy provided or to be provided, (F) for
the use or hire of a vessel under a charter or other contract, (G) arising out
of the use of a credit or charge card or information contained on or for use
with the card, or (H) as winnings in a lottery or other game of chance operated
or sponsored by a state, governmental unit of a state, or Person licensed or
authorized to operate the game by a state or governmental unit of a state, (iii)
health-care-insurance receivables, and (iv) rights of stoppage in transit,
replevin, repossession and reclamation and other rights and remedies of an
unpaid vendor, lienor or secured party, and all guaranties or other contracts of
suretyship with respect to any of the foregoing property, and all deposits,
letters of credit, and other security for the obligation of any Account Debtor
relating in any way to any of the foregoing property, and all credit and other
insurance for any of the foregoing property ("ACCOUNTS"). The term Accounts does
not include (i) rights to payment evidenced by chattel paper or an instrument
(as "chattel paper" and "instrument" are defined in Article 9), (ii) commercial
tort claims (as "commercial tort claim" is defined in Article 9), (iii) deposit
accounts (as "deposit account" is defined in Article 9), (iv) investment
property (as "investment property" is defined in Article 9), (v)
letter-of-credit rights or letters of credit (as "letter-of-credit right" and
"letter of credit" are defined in Article 9 and Article 5, as the case may be),
or (vi) rights to payment for money or funds advanced or sold, other than rights
arising out of the use of a credit or charge card or information contained on or
for use with the card; and
(b) All of Borrowers' now owned and hereafter acquired, created or
arising (i) "chattel paper" (as "chattel paper" is defined in Article 9) and
(ii) Records that evidence both a Monetary Obligation and a security interest in
specific Goods, a security interest in specific Goods and software used in the
Goods, a security interest in specific Goods and license of software used in the
Goods, a lease of specific Goods, or a lease of specific Goods and license of
software used in the Goods (and if a transaction is evidenced by Records that
include
31
an instrument or series of instruments, the group of Records taken together
constitutes Chattel Paper) and any thereof evidenced by a Record or Records
consisting of information stored in an electronic medium (as used in this clause
"Monetary Obligation" means a monetary obligation secured by the Goods or owed
under a lease of the Goods and includes a monetary obligation with respect to
software used in the Goods); excluding, however, from the definition of Chattel
Paper, (x) charters or other contracts involving the use or hire of a vessel and
(y) Records that evidence a right to payment arising out of the use of a credit
card or information contained on or for use with the card ("CHATTEL PAPER"); and
(c) All of Borrowers' now owned and hereafter acquired, created or
arising (i) "deposit accounts" (as "deposit account" is defined in Article 9)
and (ii) demand, time, savings, passbook, or similar accounts maintained with
any Bank (and including lockboxes and lockbox accounts), and all amounts,
balances, and contents therein and thereof and all of Borrowers' rights under
agreements relating thereto ("DEPOSIT ACCOUNTS") (provided however, if the
Restricted Cash Account is a Deposit Account, the Restricted Cash Account shall
be excluded from the Collateral so long as the Restricted Cash Account contains
no Property other than the Restricted Cash); and
(d) All of Borrowers' Commercial Tort Claims now or hereafter
identified on SCHEDULE 4A.01(d) to this Agreement; and
(e) All of Borrowers' now owned and hereafter acquired, created or
arising (i) "documents" (as "document" is defined in Article 9), (ii) documents
of title (as "document of title" is defined in Section 1-201 of the UCC), and
(iii) receipts of the type described in Section 7-201(2) of the UCC (for goods
including distilled spirits and agricultural commodities stored under a statute
requiring a bond against withdrawal or a license for the issuance of receipts in
the nature of warehouse receipts) ("DOCUMENTS"); and
(f) All of Borrowers' now owned and hereafter acquired, created or
arising (i) "instruments" (as "instrument" is defined in Article 9), (ii) any
negotiable instrument or any other writing that evidences a right to the payment
of a monetary obligation, is not itself a security agreement or lease, and is of
a type that in ordinary course of business is transferred by delivery with any
necessary endorsement or assignment, and (iii) Promissory Notes or other
instruments or agreements evidencing Borrowers' right to payment from any Person
or Persons ("INSTRUMENTS"). The term "Instruments" does not include (i)
investment property (as "investment property" is defined in Article 9), (ii)
letters of credit (as "letter of credit" is defined in Article 5), or (iii)
writings that evidence a right to payment arising out of the use of a credit or
charge card or information contained on or for use with the card; and
(g) All of Borrowers' now owned and hereafter acquired, created or
arising (i) "investment property" (as "investment property" is defined in
Article 9), (ii) securities (as "security" is defined in Article 8), whether
certificated or uncertificated, (iii) security entitlements (as "security
entitlement" is defined in Article 8), (iv) securities accounts (as "securities
account" is defined in Article 8), (v) commodity contracts (as "commodity
contract" is defined in Article
32
9), (vi) commodity accounts (as "commodity account" is defined in Article 9),
and (vii) including ,without limitation, all of Borrowers' shares of Series D
Preferred Stock of Megapath Networks, Inc. ("INVESTMENT PROPERTY") (provided
however, if the Restricted Cash Account is a securities account, the Restricted
Cash Account shall be excluded from the Collateral so long as the Restricted
Cash Account contains no Property other than the Restricted Cash); and
(h) All of Borrowers' now owned and hereafter acquired, created or
arising Letter-of-credit rights and all of Borrowers' now owned and hereafter
acquired, created or arising Documentary Credits; and
(i) All of Borrowers' now owned and hereafter acquired, created or
arising (i) "inventory" (as "inventory" is defined in Article 9) and (ii) other
Goods (other than, as to this clause (ii), farm products (as "farm products" is
defined in Article 9) which (A) are leased by any Borrower as lessor, (B) are
held by any Borrower for sale or lease or to be furnished under a contract of
service, (C) are furnished by any Borrower under a contract of service, or (D)
consist of raw materials, work in process, or materials used or consumed in
Borrowers' business, including all Accessions to such inventory and other Goods
("INVENTORY"); and
(j) All of Borrowers' now owned and hereafter acquired, created or
arising (i) "equipment" (as "equipment" is defined in Article 9) and (ii) other
Goods (other than, as to this clause (ii), Inventory, farm products (as "farm
products" is defined in Article 9), or consumer goods (as "consumer goods" is
defined in Article 9)), including fixtures and including all accessions to such
equipment and other Goods ("EQUIPMENT"); and
(k) All of Borrowers' now owned and hereafter acquired, created or
arising (i) "general intangibles" (as "general intangible" is defined in Article
9) and (ii) personal property, including things in action, other than accounts
(as "account" is defined in Article 9), chattel paper (as "chattel paper" is
defined in Article 9), commercial tort claims (as "commercial tort claim" is
defined in Article 9), deposit accounts (as "deposit account" is defined in
Article 9), documents (as "document" is defined in Article 9), goods (as "goods"
are defined in Article 9), instruments (as "instrument" is defined in Article
9), investment property (as "investment property" is defined in Article 9),
letter-of-credit rights (as "letter-of-credit right" is defined in Article 9),
letters of credit (as "letter of credit" is defined in Article 5), money, and
oil, gas, or other minerals before extraction ("GENERAL INTANGIBLES"). Without
limiting the generality of the preceding sentence, General Intangibles include
Borrowers' now owned and hereafter acquired, created or arising payment
intangibles, rights or claims in respect of refunds for taxes paid, Intellectual
Property (including, as to any Trademark, the goodwill of the business in which
the Trademark is used, or that part of the goodwill of the business connected
with the use of and symbolized by the Trademark); and
(l) All of Borrowers' now owned and hereafter acquired, created or
arising moneys, securities and other property, now or hereafter held or received
by, or in transit to, Lender, whether for safekeeping, pledge, custody,
transmission, collection or otherwise, and any balances, sums and credits of
Borrowers held by Lender at any time existing ("HELD ITEMS"); and
33
(m) All of Borrowers' now owned and hereafter acquired, created or
arising right, title and interest in any tangible or intangible personal
property that is not described within the other defined terms included within
the definition of Collateral ("OTHER PERSONALTY"); and
(n) All of Borrowers' now owned and hereafter acquired, created or
arising products of Collateral, including any product or mass that results when
any Goods that are Collateral become commingled goods ("PRODUCTS"); and
(o) All of Borrowers' now owned and hereafter acquired, created or
arising Records, and Borrowers' books, records, documents, ledger cards,
invoices, bills of lading and other shipping evidence, credit files, computer
programs, tapes, discs, diskettes, and other data and software storage medium
and devices, and other property and general intangibles evidencing or relating
to Collateral or any Account Debtor (including any rights of Borrower with
respect to the foregoing maintained with or by any other Person) ("BUSINESS
RECORDS"); and
(p) All of Borrowers' now owned and hereafter acquired, created or
arising cash and non-cash proceeds (as "proceeds" is defined in Article 9), and
all Property received in respect of any sale, lease, license, exchange,
transfer, redemption, or other disposition of any Collateral, and any other
thing or item of value paid, received or collected in respect of any Collateral,
including any cash, check, accepted draft, or other item of value paid or
delivered upon honor or giving of value by the issuer or any nominated person
under a letter of credit, and including interest and dividend payments made on
or in respect of any Collateral, and distributions made in respect of any
Collateral, and rights arising out of any Collateral, and claims arising out of
the loss, nonconformity, or interference with the use of, defects or
infringements of rights in, or damage to, any Collateral, and insurance payable
by reason of the loss or nonconformity of, defects or infringement of rights in,
or damage to, any Collateral ("PROCEEDS").
SECTION 4A.02. DEPOSIT ACCOUNTS; CONTROL. (a) To further secure the Asset
Purchase Agreement Article IX Obligations and the Loan Obligations, and to more
fully protect the security interest of Lender against Liens of other creditors
of any Borrower, each Borrower hereby (i) transfers and assigns exclusively to
Lender all of Borrowers' now owned and hereafter acquired rights of ownership,
dominion and control of all of Borrowers' Deposit Accounts, including all of
Borrowers' Deposit Accounts disclosed or listed on any schedule to this
Agreement or any other Credit Document and all of Borrowers' other Deposit
Accounts whether or not so disclosed or listed, and (ii) agrees that Lender
shall have the right to direct the disposition of funds in each of Borrowers'
Deposit Accounts without further consent of any Borrower. Promptly upon Lender's
request from time to time, Borrowers shall Authenticate and deliver to Lender,
and shall cause each Bank with which any Deposit Account is maintained to
Authenticate and deliver to Lender, such Control Agreements as Lender may
request to further confirm and perfect Lender's Lien upon Borrowers' Deposit
Accounts.
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(b) With respect to any of Borrowers' Deposit Accounts maintained
with Lender, Lender shall have the right, at any time, to (i) terminate
Borrowers' right to direct the disposition of funds from the Deposit Accounts
and (ii) block Borrowers' access to the Deposit Accounts and any funds in the
Deposit Accounts.
(c) With respect to any of Borrowers' Deposit Accounts not maintained
with Lender, Borrowers shall not have the right to direct the disposition of any
funds from the Deposit Accounts unless Lender has agreed in writing that
Borrowers retain the right to direct the disposition of funds from the Deposit
Accounts. If Lender has agreed in writing that Borrowers retain the right to
direct the disposition of funds from a Deposit Account not maintained with
Lender, Lender shall be entitled to terminate Borrowers' right to direct the
disposition of funds from such Deposit Account at any time in Lender's sole
discretion by giving the Bank with which such Deposit Account is maintained a
written notice ("blocked account notice") terminating Borrowers' right to direct
the disposition of funds from such Deposit Account.
(d) If the Restricted Cash Account is a Deposit Account, then so long
as the Restricted Cash Account contains no Property other than the Restricted
Cash, the provisions of this Section 4A.02 shall not apply to the Restricted
Cash Account.
SECTION 4A.03. INVESTMENT PROPERTY; CONTROL. (a) Promptly upon Lender's
request from time to time, Borrowers shall Authenticate and deliver to Lender,
and shall cause any securities intermediary, commodity intermediary, and any
other appropriate parties to Authenticate and deliver to Lender, such Control
Agreements as Lender may request relating to any Collateral that is Investment
Property. If Lender has agreed in writing that Borrowers retain the right to
make substitutions for an uncertificated security or security entitlement, to
originate instructions or entitlement orders to the issuer or securities
intermediary, or otherwise to deal with the uncertificated security or security
entitlement, Lender shall be entitled to terminate Borrowers' right to make
substitutions for such uncertificated security or security entitlement, to
originate instructions or entitlement orders to the issuer or securities
intermediary, or otherwise to deal with such uncertificated security or security
entitlement, at any time in Lender's sole discretion by giving the issuer or
securities intermediary a written notice ("notice of exclusive control")
terminating Borrowers' right to make substitutions for such uncertificated
security or security entitlement, to originate instructions or entitlement
orders to the issuer or securities intermediary, or otherwise to deal with the
uncertificated security or security entitlement.
(b) If the Restricted Cash Account is a securities account, then so
long as the Restricted Cash Account contains no Property other than the
Restricted Cash, the provisions of this Section 4A.03 shall not apply to the
Restricted Cash Account.
SECTION 4A.04. LETTER-OF-CREDIT RIGHTS; CONTROL. Promptly upon
Borrowers obtaining any Letter-of-credit rights, Borrowers shall notify Lender
in writing of such Letter-of-credit rights. Promptly upon Lender's request from
time to time, Borrowers shall Authenticate and deliver to Lender, and shall
cause any Letter of Credit Issuer or Nominated Person, as the case may be, and
any other appropriate parties to Authenticate and deliver to Lender, such
35
Control Consents as Lender may request relating to any Collateral that is
Letter-of-credit rights. Without limiting any other provision of this Agreement
(or any other Credit Document), and to further secure the Asset Purchase
Agreement Article IX Obligations and the Loan Obligations, Borrowers hereby
assign to Lender Borrowers' now owned and hereafter acquired, created or arising
rights to all of the Proceeds of Borrowers' now owned and hereafter acquired,
created or arising Letters of Credit.
SECTION 4A.05. ELECTRONIC CHATTEL PAPER; CONTROL. Borrowers shall create,
store and assign the Record or Records comprising Borrowers' Electronic Chattel
Paper in such a manner that Lender shall have control of Borrowers' Electronic
Chattel Paper.
SECTION 4A.06. COMMERCIAL TORT CLAIMS. Promptly upon Borrowers obtaining
rights to any Commercial Tort Claim, Borrowers shall (a) notify Lender in
writing of the Commercial Tort Claim and (b) Authenticate and deliver to Lender
an amendment to this Agreement (and SCHEDULE 4A.01(d)) in form and substance
satisfactory to Lender, which amendment shall add to the description of
Collateral covered by this Agreement a description of such Commercial Tort Claim
that reasonably identifies such Commercial Tort Claim and grant to Lender a
security interest in such Commercial Tort Claim, and (c) if requested by Lender,
Authenticate in recordable form and deliver to Lender one or more financing
statements or financing statement amendments or other lien notices covering such
Commercial Tort Claim.
SECTION 4A.07. COLLATERAL IN POSSESSION OF THIRD PARTY. If the Collateral
is in the possession of a third party, Borrowers shall join with Lender in
notifying such third party of Lender's security interest in the Collateral, and
Borrowers shall obtain for Lender a written acknowledgement from such third
party that such third party is holding the Collateral for the benefit of Lender.
SECTION 4A.08. PERFECTION BY FILING. (a) Notwithstanding any provisions in
the Interim Order and Final Order that establish a perfected security interest
in and lien on the Collateral by operation of law, upon Lender's request from
time to time, Borrowers shall Authenticate, in recordable form, and deliver to
Lender any financing statement or other lien notice or other document, and cause
any third party to Authenticate and deliver to Lender any other document
(including financing statement termination statements), requested by Lender to
further evidence the security interests created under this Agreement and to
maintain, and continue the first priority of the security interests created
under this Agreement.
(b) Borrowers hereby appoint Lender as Borrowers' attorney-in-fact,
with power of substitution, which appointment is irrevocable and coupled with an
interest, to Authenticate in the name of each Borrower, and to transmit to, or
file, record, or register with, any Person, and at any time, any lien notice,
instrument or document that Lender may deem necessary or advisable to further
evidence, enforce, defend, protect, perfect, continue, or maintain any security
interest, or to further evidence the perfection or priority of any security
interest, created under this Agreement.
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(c) Lender shall not be required to obtain Borrowers' consent or
authorization for Lender to file, and Lender shall be entitled to file, with or
without Authentication by Borrowers (or by Lender as Borrowers'
attorney-in-fact), any financing statement, amendment, or other Record that
Lender may be authorized to file in accordance with the terms of Article 9,
including any financing statement, amendment, or other Record that Lender may be
authorized to file based on any Borrower having Authenticated this Agreement or
based on any Borrower having Authenticated any other security agreement.
(d) Any financing statement or other Record filed to further evidence
the perfection or priority of the security interests granted by this Agreement
may, at Lender's option, describe or indicate the Collateral in the manner that
the Collateral is described in this Agreement, or as all assets of Borrowers, or
as all personal property of Borrowers, or by any other description or indication
of the Collateral that may be sufficient for a financing statement under Article
9.
SECTION 4A.09. PERFECTION BY POSSESSION. If Collateral is of a type as to
which it is necessary or advisable, as determined by Lender, for Lender to take
possession of such Collateral in order to protect, perfect, or maintain the
first priority of Lender's security interest or other Lien in such (or any
other) Collateral, then, promptly upon Lender's request from time to time,
Borrower shall deliver such Collateral to Lender.
SECTION 4A.10. LIEN WAIVERS. Promptly upon Lender's request from time to
time, Borrowers shall provide to Lender landlord collateral agreements,
mortgagee collateral agreements, and other instruments and lien waivers, in form
and substance satisfactory to Lender, and in favor of Lender, and Authenticated
by any Persons (including any owners, contract purchasers, option holders,
easement holders, lessors, lessees, sublessees, occupants, or mortgagees) having
or claiming any interest in any real estate owned, leased or otherwise used or
occupied by Borrowers, whereby such Persons shall expressly waive, or
subordinate to Lender's security interest in the Collateral, all Liens against
the Collateral and provide to Lender, without cost to Lender, and on terms
satisfactory to Lender, rights of access to such real estate for purposes of
storage, holding, retaking, processing, maintenance, marketing, selling,
leasing, licensing, and otherwise disposing of such Collateral.
SECTION 4A.11. RESTRICTED CASH; RESTRICTED CASH ACCOUNT. Notwithstanding
anything to the contrary set forth in this Agreement, Lender acknowledges and
agrees that the Collateral shall not include any cash and cash equivalents and
Temporary Cash Investments owned by Borrowers and on hand as of the date of the
entry of the Interim Order (the "RESTRICTED CASH"). All Restricted Cash shall be
maintained separately in a segregated deposit account or a segregated securities
account (each such deposit account or securities account that holds Restricted
Cash is referred to herein as a "RESTRICTED CASH ACCOUNT") and at no time shall
be commingled with any Collateral or Proceeds. Lender agrees that so long as the
Restricted Cash Account contains no Property other than the Restricted Cash, the
Restricted Cash Account shall not be part of the Collateral.
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SECTION 4A.12. SCHEDULED EXCLUDED PROPERTY. Notwithstanding anything to the
contrary set forth in this Agreement, Lender acknowledges and agrees that the
Collateral shall not include any Property listed on SCHEDULE 4A.12 to this
Agreement (the "SCHEDULED EXCLUDED PROPERTY").
SECTION 4A.13. USE OF PROCEEDS OF COLLECTION COLLATERAL PRIOR TO DEFAULT.
Prior to the occurrence of a Default, Borrowers shall be privileged to use, and
shall use, Proceeds of Collection Collateral solely for payment of Operating
Expenses. Upon and after the occurrence of a Default, Lender shall be entitled
to revoke Borrowers' privilege to use the Proceeds of Collection Collateral by
giving notice of such revocation to Borrowers, whereupon and thereafter Borrower
shall not use Proceeds of Collection Collateral for any purpose without Lender's
prior written consent. Borrower shall not use proceeds of Collection Collateral
for any purpose other than payment of Operating Expenses.
ARTICLE IV-B
GUARANTY AGREEMENT
SECTION 4B.01. GUARANTY AGREEMENT. Subject to the limitations on recourse
set forth in Section 7.16 of this Agreement, each Corporate Guarantor hereby
jointly and severally guarantees to Lender the prompt payment of the Secured
Obligations of each other Corporate Guarantor in full when due (whether at
stated maturity, as a mandatory prepayment, by acceleration or otherwise)
strictly in accordance with the terms thereof. Each Corporate Guarantor hereby
further agrees that if any of the Secured Obligations of any other Corporate
Guarantor are not paid in full when due (whether at stated maturity, as a
mandatory prepayment, by acceleration or otherwise), such Corporate Guarantor
will, jointly and severally, promptly pay the same, without any demand or notice
whatsoever, and that in the case of any extension of time of payment or renewal
of any of the Secured Obligations of any other Corporate Guarantor, the same
will be promptly paid in full when due (whether at extended maturity, as a
mandatory prepayment, by acceleration or otherwise) in accordance with the terms
of such extension or renewal.
SECTION 4B.02. OBLIGATIONS UNCONDITIONAL. The Obligations of the Corporate
Guarantors under Section 4B.01 hereof are joint and several, absolute and
unconditional, irrespective of the value, genuineness, validity, regularity or
enforceability of any of the Credit Documents, or any substitution, release or
exchange of any other guarantee of or security for any of the Obligations, and,
to the fullest extent permitted by applicable law, irrespective of any other
circumstance whatsoever which might otherwise constitute a legal or equitable
discharge or defense of a surety or guarantor, it being the intent of this
Section 4B.02 that the obligations of the Corporate Guarantors hereunder shall
be absolute and unconditional under any and all circumstances. Without limiting
the generality of the foregoing, it is agreed that, to the fullest extent
permitted by law, the occurrence of any one or more of the following shall not
alter or impair the liability of any Corporate Guarantor hereunder which shall
remain absolute and unconditional as described above:
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(i) at any time or from time to time, without notice to any Corporate
Guarantor, the time for any performance of or compliance with any of the Secured
Obligations shall be extended, or such performance or compliance shall be
waived;
(ii) any of the acts mentioned in any of the provisions of any of the
Credit Documents or the Asset Purchase Agreement or any other agreement or
instrument referred to therein shall be done or omitted;
(iii) the maturity of any of the Secured Obligations shall be
accelerated, or any of the Secured Obligations shall be modified, supplemented
or amended in any respect, or any right under any of the Credit Documents or any
other agreement or instrument referred to therein shall be waived or any other
guarantee of any of the Secured Obligations or any security therefor shall be
released or exchanged in whole or in part or otherwise dealt with;
(iv) any Lien granted to, or in favor of, Lender as security for any
of the Secured Obligations shall fail to attach or be perfected;
(v) any of the Secured Obligations shall be determined to be void or
voidable (including, without limitation, for the benefit of any creditor of any
Corporate Guarantor) or shall be subordinated to the claims of any Person
(including, without limitation, any creditor of any Corporate Guarantor);
(vi) the full or partial release of any Collateral; or
(vii) the full or partial release of liability of any Obligor.
With respect to its Obligations hereunder, each Corporate Guarantor hereby
expressly waives diligence, presentment, demand of payment, protest and all
notices whatsoever, and any requirement that Lender exhaust any right, power or
remedy or proceed against any Person under any of the Credit Documents or the
Asset Purchase Agreement or any other agreement or instrument referred to
therein, or against any other Person under any other guarantee of, or security
for, any of the Secured Obligations. Lender shall have no present or future duty
or obligation, and the Corporate Guarantors waive any right to claim or assert
any such duty or obligation, to discover or to disclose to the Corporate
Guarantors any information, financial or otherwise, concerning such Corporate
Guarantor, any other Obligor, or any Collateral or other security the Secured
Obligations.
SECTION 4B.03. REMEDIES. The Corporate Guarantors agree that, to the
fullest extent permitted by law, as between the Corporate Guarantors, on the one
hand, and the Lender, on the other hand, the Secured Obligations may be declared
to be forthwith due and payable as provided in Article VI hereof (and shall be
deemed to have become automatically due and payable as provided in Article VI
hereof, and shall be deemed to have become automatically due and payable in the
circumstances provided in said Article VI) notwithstanding any stay, injunction
or other prohibition preventing such declaration (or preventing such Secured
Obligations from
39
becoming automatically due and payable) as against any other Person and that, in
the event of such declaration (or such Secured Obligations being deemed to have
become automatically due and payable), such Secured Obligations (whether or not
due and payable by any other Person) shall forthwith become due and payable by
the Corporate Guarantors.
SECTION 4B.04. CONTINUING GUARANTY. The guarantee in this Article IV-B is a
continuing guarantee, and shall apply to all Secured Obligations whenever
arising.
ARTICLE V
NEGATIVE COVENANTS
Each Borrower covenants and agrees that from the date hereof and until the
later of the Maturity Date or payment in full of all Secured Obligations owed by
Borrowers to Lender, unless Lender shall otherwise consent in writing:
SECTION 5.01. INVESTMENTS. No Borrower shall make, acquire or hold any
Investments other than Permitted Investments.
SECTION 5.02. INDEBTEDNESS. No Borrower shall incur, create, assume or
suffer to exist any Indebtedness other than Permitted Indebtedness for Borrowed
Money.
SECTION 5.03. MAINTENANCE OF PERMITTED INDEBTEDNESS. No Borrower shall
prepay any Permitted Indebtedness for Borrowed Money, excepting any prepayments
of the Secured Obligations. Borrower shall not modify any agreement relating to
any Permitted Indebtedness for Borrowed Money.
SECTION 5.04. Intentionally omitted.
SECTION 5.05. LINE OF BUSINESS; NAME; STRUCTURE. No Borrower shall engage
in any business other than the business engaged in by such Borrower on the
Effective Date. No Borrower shall refuse, or divert or refer to any other Person
any Business or Business opportunity that any Borrower could profit from in the
ordinary course of any Borrower's business. No shareholder, officer, director,
member or employee of any Borrower shall divert from such Borrower, or refer to
any person other than any other Borrower, any Business or Business opportunity
that could be served by any other Borrower in the ordinary course of such
Borrower's business. No Borrower shall change its name or organizational
structure.
SECTION 5.06. Intentionally omitted.
SECTION 5.07. Intentionally omitted.
SECTION 5.08. Intentionally omitted
SECTION 5.09. Intentionally omitted.
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SECTION 5.10. CONSOLIDATIONS; MERGERS; DISPOSITIONS; ACQUISITIONS. Except
as expressly contemplated in the Asset Purchase Agreement, no Borrower shall (i)
enter into any transaction of merger or consolidation, or liquidate, wind up or
dissolve itself, or suffer any liquidation or dissolution, or (ii) make any
Asset Disposition, except that any Borrower may make (a) sales of inventory or
services in the ordinary course of such Borrower's business, and (b) sales for
fair consideration of equipment that is obsolete and no longer useful in such
Borrower's business, or (iii) acquire by purchase or otherwise any of the
outstanding capital stock of, or all or substantially all of the business,
Property or assets of, any Person. Notwithstanding anything to the contrary set
forth in this Agreement, Borrowers shall promptly pay to Lender or cause to be
paid to Lender, as prepayments of the Secured Obligations, all Net Proceeds of
any Asset Dispositions that may be permitted under this Agreement or the Asset
Purchase Agreement; provided that if the Net Proceeds of permitted Asset
Dispositions exceed the amount of outstanding Secured Obligations, the excess
Net Proceeds after payment of all outstanding Secured Obligations shall continue
to be part of the Collateral, shall be maintained until used in a Deposit
Account in which Lender has a first priority security interest which security
interest is perfected by control pursuant to a Control Agreement, and shall be
used by Borrowers solely for payment of Operating Expenses.
SECTION 5.11. LIENS; BAILMENTS; CERTAIN SALES. No Borrower shall (a) store
any Collateral with, or give possession or control of any Collateral to, any
holder, bailee, warehouseman or other Person without Lender's prior written
consent, which consent may be withheld in Lender's discretion, or (b) create,
incur, assume or suffer to exist any Lien upon any Collateral other than
Permitted Liens, or (c) license any Collateral to any other Person, or (d)
directly or indirectly, sell with or without recourse, or discount or factor,
any Collateral.
SECTION 5.12. RESTRICTED CASH ACCOUNT. No Borrower shall maintain any
Property, other than Restricted Cash, in any Restricted Cash Account.
ARTICLE VI
EVENTS OF DEFAULT; CERTAIN REMEDIES UPON DEFAULT
SECTION 6.01. EVENTS OF DEFAULT. Each of the following events shall
constitute an Event of Default attributable to all Borrowers:
(a) Any Borrower's failure to pay as and when due any amount of
principal or interest of the Loan or the Asset Purchase Agreement Article IX
Obligations; or
(b) Any Borrower's failure to pay any fees due in accordance with the
terms of this Agreement or the other Credit Documents as and when due; or
(c) Any Borrower's failure to pay any Credit Administration Costs
within five (5) Business Days after Lender's demand for such payments; or
41
(d) If any representation or warranty made by any Borrower in any
Credit Document is not true, accurate and complete in all material respects; or
(e) Intentionally omitted;
(f) Any Borrower's failure to notify Lender of any Notification Event
as required in accordance with the requirements of Section 4.02; or
(g) The failure by any Borrower to fulfill in all material respect a
covenant of this Agreement or any other Credit Document, which failure is not
within the scope of clauses (a) through (f) of this Section; or
(h) If any statement, report, appraisal, certificate, opinion, or
other information furnished to Lender by any Person in connection with
Borrowers' request for the Loan was not true, accurate and complete in all
material respects when so furnished to Lender and on the Effective Date; or
(i) If any statement, report, certificate, opinion, or other
information furnished to Lender with or in accordance with the terms of this
Agreement (including all annexes, schedules, and exhibits to the Credit
Documents and all materials delivered to Lender to satisfy any condition of this
Agreement) is not true, accurate and complete in all material respects when so
furnished to Lender; or
(j) If any Chapter 11 Case shall be dismissed or subject to a Case
Conversion (or if any Borrower shall otherwise become subject to a Case
Conversion) or any Borrower shall file a motion or other pleading seeking the
dismissal of any of the Chapter 11 Cases under Section 1112 of the Bankruptcy
Code or otherwise; or
(k) A trustee under Chapter 7 or Chapter 11 of the Bankruptcy Code, a
responsible officer, or an examiner with enlarged powers relating to the
operation of the business (powers beyond those set forth in Section 1106(a)(3)
an (4) of the Bankruptcy Code) under Section 1106(b) of the Bankruptcy Code
shall be appointed in any of the Chapter 11 Cases and the order appointing such
trustee, responsible officer or examiner shall not be reversed or vacated within
30 days after the entry thereof; or
(l) The Bankruptcy Court shall enter, over the objection of any
Borrower, an order or orders granting relief from the automatic stay applicable
under Section 362 of the Bankruptcy Code to the holder or holders of any
security interest to permit foreclosure (or the granting of a deed in lieu of
foreclosure or the like) on any Collateral of a Borrower which has value in
excess of $100,000 in the aggregate; or
(m) Any order of the Bankruptcy Court shall be entered reversing,
amending, supplementing, staying for a period in excess of 10 days, vacating or
otherwise modifying the Interim Order, the Final Order, or the Approval Order;
or
42
(n) If any Credit Documents shall for any reason be asserted by any
Borrower not to be a legal, valid and binding obligation of the respective
parties thereto, enforceable in accordance with its terms; or
(o) Intentionally omitted; or
(p) The Bankruptcy Court has not entered the Final Order within 15
Business Days after the Effective Date; or
(q) If any Seller under the Asset Purchase Agreement shall materially
breach any of its obligations under the Asset Purchase Agreement, and such
breach is not cured within any applicable cure period under the Asset Purchase
Agreement; or
(r) The termination of the Asset Purchase Agreement by any party to
the Asset Purchase Agreement.
SECTION 6.02. ACCELERATION. Upon the occurrence of an Event of Default, and
at any time thereafter unless and until such Event of Default has been waived by
Lender in writing or cured to the satisfaction of Lender as expressly
acknowledged by Lender in writing, Lender may take any or all of the following
actions against any or all Borrowers: (a) declare the Maturity Date accelerated
(without the necessity of any notice) on the Loan; and/or (b) declare the unpaid
principal of, and all accrued and unpaid interest on, the Loan and any and all
other outstanding and unpaid Secured Obligations to be due, whereupon the same
shall be immediately due and payable without presentment, demand, protest or
other notice of any kind, all of which are hereby waived by each Borrower;
and/or (c) enforce any and all rights and interests created and existing under
the Credit Documents and all rights of set-off; provided, however, without
limiting the generality of the foregoing, upon the occurrence of an Event of
Default described in Section 6.01(j) through (m) above, (i) the Maturity Date
shall be immediately accelerated (without the necessity of any notice), and (ii)
the unpaid principal of, and all accrued and unpaid interest on, the Loan and
any and all other outstanding and unpaid Secured Obligations shall be
immediately due and payable to Lender without any action on the part of Lender,
and without presentment, demand, protest, or other notice of any kind, all of
which are hereby waived.
SECTION 6.03. RIGHT TO ENFORCE CLAIM; LENDER IN POSSESSION OR CONTROL.
(a) Upon and after the occurrence of a Default or an Event of
Default, and in addition to such other rights and remedies as Lender may have
under other provisions of this Agreement or any other Credit Documents, or under
common or statutory law, Lender may reduce a claim to judgment, foreclose, or
otherwise enforce the claim, security interest, or agricultural lien by any
available judicial procedure, and if the Collateral is Documents, Lender may
proceed either as to the Documents or as to the Goods the Documents cover.
(b) If Lender has possession of Collateral (i) reasonable expenses,
including the cost of insurance and payment of taxes or other charges, incurred
in the custody, preservation, use, or operation of the Collateral are chargeable
to Borrower and are secured by
43
the Collateral, (ii) the risk of accidental loss or damage is upon Borrower to
the extent of a deficiency in any effective insurance coverage, (iii) Lender
shall keep the Collateral identifiable, but fungible Collateral may be
commingled, and (iv) Lender may use or operate the Collateral (A) for the
purpose of preserving the Collateral or its value, or (B) as permitted by an
order of a court having competent jurisdiction, or (C) for the purpose of
transporting the Collateral, or (D) for the purposes of demonstrating the use or
operation of the Collateral.
(c) If Lender has possession of Collateral or control of Collateral
that is Deposit Accounts, Electronic Chattel Paper, Investment Property, or
Letter-of-credit rights, then Lender (i) may hold as additional security any
Proceeds, except money or funds, received from the Collateral, (ii) shall apply
money or funds received from the Collateral to reduce the Secured Obligations
unless remitted to Borrower, and (iii) may create a security interest in the
Collateral.
(d) If Lender has possession of Collateral that is Chattel Paper or
an Instrument, then as to any such Chattel Paper or Instrument, Lender shall not
be obligated to take any necessary steps to preserve rights against prior
parties.
SECTION 6.04. COLLECTION AND ENFORCEMENT. At any time after the occurrence
of a Default or an Event of Default, Lender may:
(a) notify any Collection Collateral Debtor or other Person obligated
on Collateral to make payment or otherwise render performance to or for the
benefit of Lender;
(b) take any Proceeds to which Lender is entitled under Section 9-315
of Article 9;
(c) enforce the obligations of any Collection Collateral Debtor or
other Person obligated on Collateral and exercise the rights of Borrower with
respect to the obligations of the Collection Collateral Debtor or other Person
obligated on Collateral to make payment or otherwise render performance to
Borrower, and with respect to any property that secures the obligations of the
Collection Collateral Debtor or other Person obligated on the Collateral; and
(d) if Lender holds a security interest in a Deposit Account
perfected by control pursuant to an agreement among Borrower, Lender and the
Bank with which the Deposit Account is maintained, or if Lender becomes the
Bank's customer with respect to the Deposit Account, instruct the Bank with
which the Deposit Account is maintained to pay the balance of the Deposit
Account to or for the benefit of Lender.
SECTION 6.05. APPLICATION OF PROCEEDS OF COLLECTION OR ENFORCEMENT. (a)
Lender shall apply or pay over for application the cash Proceeds of collection
of Collateral, or enforcement of the obligations of a Collection Collateral
Debtor, in the following order to:
(1) the reasonable expenses of collection and enforcement and
the reasonable attorney's fees and legal expenses incurred by Lender;
44
(2) the satisfaction of obligations secured by the security
interest or agricultural lien under which the collection or enforcement is made;
and
(3) the satisfaction of obligations secured by any subordinate
security interest in or other lien on the Collateral subject to the security
interest or agricultural lien under which the collection or enforcement is made
if Lender receives an Authenticated demand for Proceeds before distribution of
the Proceeds is completed.
(b) Lender need not apply or pay over for application non-cash
Proceeds of collection and enforcement unless the failure to do so would be
commercially unreasonable.
(c) Lender shall account to and pay Borrower for any surplus and any
Obligor is liable for any deficiency.
SECTION 6.06. POSSESSION OF COLLATERAL. (a) At any time after the
occurrence of a Default or an Event of Default, Lender may require each Borrower
to assemble the Collateral and make the Collateral available to Lender at a
place designated by Lender which is reasonably convenient to Lender and such
Borrower. If Lender requires any Borrower to assemble the Collateral and make
the Collateral available to Lender, as described in the preceding sentence, such
Borrower shall do so promptly, and in any event within three days after Lender
gives such Borrower a notice requesting such Borrower to assemble the Collateral
and make the Collateral available to Lender at the place designated by Lender.
Without limiting Lender's right to designate any place which is reasonably
convenient to Borrowers for making Collateral available to Lender, each Borrower
agrees that any place designated by Lender and located within 100 miles of any
place where such Borrower stores, uses, sells, leases, licenses, or maintains
Collateral in the ordinary course of such Borrower's business shall be
conclusively deemed to be a place reasonably convenient to such Borrower for
making the Collateral available to Lender.
(b) At any time after the occurrence of a Default or an Event of
Default, Lender may, pursuant to judicial process, or without judicial process
if Lender proceeds without breach of peace, (1) take possession of the
Collateral and, (2) without removal, render Equipment unusable and dispose of
Collateral on any Borrower's premises in accordance with Section 6.07.
SECTION 6.07. DISPOSITION OF COLLATERAL. (a) At any time after the
occurrence of a Default or an Event of Default, Lender may sell, lease, license,
or otherwise dispose of any or all of the Collateral in its present condition or
following any commercially reasonable preparation or processing.
(b) Lender may dispose of Collateral by public or private
proceedings, by one or more contracts, as a unit or in parcels, and at any time
and place and on any terms.
45
(c) Lender may purchase Collateral (1) at a public disposition or (2)
if the Collateral is of a kind that is customarily sold on a recognized market
or the subject of widely distributed standard price quotations, at a private
disposition.
(d) A contract for sale, lease, license, or other disposition
includes the warranties relating to title, possession, quiet enjoyment, and the
like which by operation of law accompany a voluntary disposition of property of
the kind subject to the contract; provided, however, Lender may disclaim or
modify such warranties (1) in a manner that would be effective to disclaim or
modify the warranties in a voluntary disposition of property of the kind subject
to the contract of disposition, or (2) by communicating to the purchaser a
Record evidencing the contract for disposition and including an express
disclaimer or modification of the warranties, and provided further that a Record
is sufficient to disclaim such warranties if such Record indicates "There is no
warranty relating to title, possession, quiet enjoyment, or the like in this
disposition" or uses words of similar import.
(e) Prior to a disposition of Collateral, Lender shall give
Borrowers, and any other parties required to receive notice under Article 9,
notification as required under Article 9 before a sale, lease, license, or other
disposition of Collateral.
SECTION 6.08. APPLICATION OF PROCEEDS OF DISPOSITION OF COLLATERAL. (a)
Lender shall apply or pay over for application the cash Proceeds of disposition
of Collateral in the following order:
(1) the reasonable expenses of retaking, holding, preparing for
disposition, processing, and disposing, and reasonable attorney's fees and legal
expenses incurred by Lender;
(2) the satisfaction of obligations secured by the security
interest or agricultural lien under which the disposition is made; and
(3) the satisfaction of obligations secured by any subordinate
security interest in or other subordinate lien on the Collateral if:
(A) Lender receives from the holder of the subordinate
security interest or other lien an Authenticated demand for Proceeds before
distribution of the Proceeds is completed;
(B) in a case in which a consignor has an interest in the
Collateral, the subordinated security interest or other lien is senior to the
interest of the consignor; and
(4) a secured party that is a consignor of the Collateral if
Lender receives from the consignor an Authenticated demand for Proceeds before
distribution of the Proceeds is completed.
46
(b) Lender need not apply or pay over for application non-cash
Proceeds of disposition unless the failure to do so would be commercially
unreasonable.
(c) Unless Lender is required to apply or pay over cash Proceeds to a
consignor under subsection (a)(4) of this Section, Lender shall account to and
pay Borrowers for any surplus, and any Obligor is liable for any deficiency.
SECTION 6.09. ADDITIONAL PROVISIONS REGARDING SALES AND OTHER DISPOSITIONS.
In the event that Lender shall sell or otherwise dispose of the Collateral, or
any part thereof, the following additional provisions shall be applicable to
such sale or other disposition:
(a) Such sale or other disposition may be at public or private sale
(or at any broker's board or on any securities exchange) for cash, upon credit
or for future delivery as Lender shall deem appropriate. Lender shall be
authorized at any such sale (if Lender deems it advisable to do so with regard
to any type or item of Collateral) to restrict the prospective bidders or
purchasers to Persons who will represent and agree that they are purchasing the
Collateral for their own use (or for their own account for investment, as
applicable) and not with a view to the distribution or sale thereof, and upon
consummation of any such sale, Lender shall have the right to assign, transfer
and deliver to the purchaser or purchasers thereof the Collateral so sold. Each
such purchaser at any such sale shall hold the property sold absolutely, free
from any claim or right on the part of Borrowers, and Borrowers hereby waive (to
the extent permitted by law) all rights of redemption, stay and appraisal which
Borrowers now has or may at any time in the future have under any rule of law or
statute now existing or hereafter enacted. Lender shall give Borrowers at least
ten (10) days' written notice (which Borrowers agree is reasonable notice) of
Lender's intention to make any sale of Collateral owned by Borrowers. Such
notice, in the case of a public sale, shall state the time and place for such
sale and, in the case of a sale at a broker's board or on a securities exchange,
shall state the board or exchange at which such sale is to be made and the day
on which the Collateral, or portion thereof, will first be offered for sale at
such board or exchange. Any such public sale shall be held at such time or times
within ordinary business hours and at such place or places as Lender may fix and
state in the notice of such sale, and Lender shall not be obligated to make any
sale of any Collateral if Lender shall determine not to do so, regardless of the
fact that notice of sale of such Collateral shall have been given, and Lender
may, without notice or publication, adjourn any public or private sale or cause
the same to be adjourned from time to time by announcement at the time and place
fixed for sale, and such sale may, without further notice to Borrowers or anyone
else, be made at the time and place to which the same was so adjourned.
(b) In case any sale of all or any part of the Collateral is made on
credit or for future delivery, the Collateral so sold may be retained by Lender
until the sale price is paid by the purchaser or purchasers thereof, but Lender
shall not incur any liability in case any such purchaser or purchasers shall
fail to take up and pay for Collateral so sold and, in case of any such failure,
such of the Collateral may be sold again upon notice to Borrowers as set forth
in this Section.
47
(c) At any public sale, Lender may bid for or purchase, free (to the
extent permitted by law) from any right of redemption, stay or appraisal on the
part of Borrowers (all said rights being also hereby waived and released to the
extent permitted by law), the Collateral or any part thereof offered for sale
and may make payment on account thereof by using any claim then due and payable
to Lender from Borrowers as a credit against the purchase price, and Lender may,
upon compliance with the terms of sale, hold, retain and dispose of such
property without further accountability to Borrowers therefor.
(d) For purposes of any sale of Collateral in accordance with this
Agreement, a written agreement to purchase the Collateral or any portion thereof
shall be treated as a sale thereof. Lender shall be free to carry out such sale
pursuant to such agreement, and Borrower shall not be entitled to the return of
the Collateral or any portion thereof subject thereto, notwithstanding the fact
that after Lender shall have entered into such an agreement, all Events of
Default shall have been remedied and the Secured Obligations paid in full.
(e) Upon any sale of Collateral by Lender (including a sale pursuant
to a power of sale granted by statute or under a judicial proceeding), the
receipt of Lender or of the officer making the sale shall be a sufficient
discharge to the purchaser or purchasers of the Collateral being sold, and such
purchaser or purchasers shall not be obligated to see to the application of any
part of the purchase money paid over to Lender or such officer or be answerable
in any way for the misapplication thereof.
SECTION 6.10. LICENSE TO USE INTELLECTUAL PROPERTY. Each Borrower agrees
that Lender and any receiver, and any designee of Lender or any receiver, each
shall have, and each is hereby granted, an irrevocable, royalty-free, perpetual,
and worldwide license to reproduce, distribute, publicly perform, publicly
display, create derivative works of, make, have made, sell, offer to sell, or
otherwise use (including the right to sublicense) such Borrower's Intellectual
Property (and including such Borrower's rights to any Intellectual Property to
the extent that the license granted in this Section would not violate the rights
granted to such Borrower), including, as to any Trademark, the goodwill of such
Borrower's business in which the Trademark is used, or that part of the goodwill
of such Borrower's business connected with the use of and symbolized by the
Trademark, in and in connection with (i) collecting Collateral, (ii)
manufacturing, completing, and repairing Collateral, (iii) marketing, selling,
leasing, licensing, or disposing of Collateral, and (iv) exercising Lender's
rights and remedies under this Agreement (or otherwise) relating to Collateral.
SECTION 6.11. WAIVERS. Each Borrower waives presentment, demand, notice of
dishonor, and protest, and all demands and notices of any action taken by Lender
under this Agreement, except as otherwise provided herein, are hereby waived,
and any indulgence of Lender, substitution for, exchange of or release of
collateral, or addition or release of any person liable on the collateral is
hereby assented and consented to and shall not operate or be claimed to operate
to release or exonerate any other collateral or person or any claim of Lender.
48
ARTICLE VII
MISCELLANEOUS
SECTION 7.01. FURTHER ASSURANCES. Each Borrower shall execute and deliver
to Lender such further assurances of this Agreement and the matters contemplated
by this Agreement and the other Credit Documents, including any agreements,
assignments, instruments or other documents in favor of Lender, promptly from
time to time upon Lender's written request.
SECTION 7.02. SUCCESSORS AND ASSIGNS. This Agreement and the other Credit
Documents shall be binding upon and inure to the benefit of Lender and its
successors and assigns and any holders of the Note. No Borrower shall, without
Lender's prior written consent, which consent may be withheld in Lender's
discretion, assign such Borrower's rights under this Agreement or any of the
other Credit Documents to any Person, and any attempt of such an assignment by
any Borrower without Lender's prior written consent shall be void.
SECTION 7.03. SEVERABILITY. Any provision of this Agreement prohibited by
the laws of any jurisdiction shall, as to such jurisdiction, be ineffective to
the extent of such prohibition, or modified to conform with such laws, without
invalidating the remaining provisions of this Agreement, and any such
prohibition in any jurisdiction shall not invalidate such provisions in any
other jurisdiction.
SECTION 7.04. GOVERNING LAW. This Agreement and the other Credit Documents
and the rights and obligations of the parties hereunder and thereunder shall be
governed by and construed and interpreted in accordance with the laws of the
State of New York (excluding New York conflict of laws rules), including all
matters of construction, validity and performance, regardless of the location of
the parties or any Property, excepting, however, that the UCC (or decisional
law) of a jurisdiction other than New York may provide the method of perfection
of liens and security interests created under this Agreement and the other
Credit Documents.
SECTION 7.05. JURISDICTION; VENUE; SERVICE. Each Borrower and Lender
acknowledge that the Bankruptcy Court shall have exclusive jurisdiction;
provided, however, if the Chapter 11 Case is dismissed, then each Borrower shall
consent to the jurisdiction as provided in this Section. Each Borrower
irrevocably consents to the non-exclusive personal jurisdiction of the courts of
the State of New York and, if a basis for federal jurisdiction exists, the
non-exclusive jurisdiction of the United States District Court for the Southern
District of New York. Each Borrower agrees that venue shall be proper in any
circuit court of the State of New York selected by Lender or, if a basis for
federal jurisdiction exists, in any Division of the United States District Court
for the Southern District of New York. Each Borrower waives any right to object
to the maintenance of any suit or claim in any of the state or federal courts of
the State of New York on the basis of improper venue or of inconvenience of
forum. Any suit or claim brought by any Borrower against Lender that is based,
in whole or in part, directly or indirectly, on this Agreement or any matters
relating to this Agreement or the other Credit Documents, shall be brought in a
court only in the State of New York. No Borrower shall file any counterclaim
against Lender in any suit or claim brought by Lender against any Borrower in
49
a jurisdiction outside of the State of New York unless under the rules of the
court in which Lender brought such suit or claim the counterclaim is mandatory,
and not permissive, and would be considered waived unless filed as a
counterclaim in the claim or suit instituted by Lender against such Borrower.
Each Borrower agrees that any forum outside the State of New York is an
inconvenient forum and that a suit brought by any Borrower against Lender in any
court outside the State of New York should be dismissed or transferred to a
court located in the State of New York. Each of the parties hereto further
irrevocably consents to the service of process out of any of the aforementioned
courts in any such action or proceeding by the mailing of copies thereof by
registered or certified mail, postage prepaid, to it at the address set out for
notices in this Agreement, such service to become effective 30 days after such
mailing. Nothing herein shall affect the right of Lender to serve process in any
other manner permitted by law or to commence legal proceedings or to otherwise
proceed against any Borrower or any other Person in any other jurisdiction.
SECTION 7.06. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be an original,
but all of which shall constitute one and the same instrument. It shall not be
necessary in making proof of this Agreement to produce or account for more than
one such counterpart. A photocopy, facsimile or telecopy of this Agreement shall
be effective as an original.
SECTION 7.07. SURVIVAL. All representations and warranties and indemnities
made by Borrowers herein shall survive delivery of the Note and the making of
the Loan.
SECTION 7.08. NOTICES. Any notice required or permitted by or in connection
with this Agreement shall be in writing and shall be made by telecopy, or by
hand delivery, or by overnight delivery service, or by certified mail, return
receipt requested, postage prepaid, addressed to the parties at the appropriate
address set forth below or to such other address as may be hereafter specified
by written notice by the parties to each other. Notice shall be considered given
as of the earlier of the date of actual receipt, or the date of the telecopy or
hand delivery, one calendar day after delivery to an overnight delivery service,
or three calendar days after the date of mailing, independent of the date of
actual delivery or whether delivery is ever in fact made, as the case may be,
provided the giver of notice can establish that notice was given as provided
herein. Each undersigned Borrower hereby appoints Rhythms as its agent for
purposes of receiving notices under this Agreement and the other Credit
Documents, so that notices given to Rhythms shall be fully effective notice to
Rhythms and to each such other undersigned Borrower (other than Rhythms).
50
If to Lender: WorldCom, Inc.
000 Xxxxxxx Xxxxxx Xxxxx
Xxxxxxx, XX 00000
Attention: K. Xxxxxxx Xxxxxx, Xx.
Fax: (000) 000-0000
WorldCom, Inc.
0000 00xx Xxxxxx, X.X.
0xx Xxxxx
Xxxxxxxxxx, XX 00000
Attention: Xxxxxx X. Xxxx, Esq.
Fax: (000) 000-0000
If to Borrowers: Rhythms NetConnections Inc.
0000 Xxxx Xxxxxxx Xxxxxx
Xxxxxxxxx, XX 00000
Attention: X.X. Xxxxxxxx, III
Fax: (000) 000-0000
With a copy to: Weil, Gotshal & Xxxxxx LLP
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxx Xxxxx, Esq.
Fax: (000) 000-0000
and: Xxxxxxxxxx, Xxxxx & Xxxxxx, P.C.
000 Xxxxxxxxxxx Xx., 00xx Xxxxx
Xxxxxx, XX 00000
Attention: Xxxx Xxxxxxx, Esq.
Fax: (000) 000-0000
and: Milbank, Tweed, Xxxxxx & XXXxxx LLP
Xxx Xxxxx Xxxxxxxxx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxx X. Xxxxxxx, Esq.
Fax: (000) 000-0000
SECTION 7.09. LENDER APPOINTED ATTORNEY-IN-FACT. Each Borrower hereby
appoints Lender as each Borrower's attorney-in-fact, with power of substitution,
which appointment is coupled with an interest and irrevocable, to do each of the
following in the name of any Borrower or in the name of Lender or otherwise, for
the use and benefit of Lender, but at the cost and expense of Borrowers, and
with or without notice to any Borrower, upon and after the occurrence of a
Default: (a) notify the Collection Collateral Debtors to make payments directly
to Lender, and to take control of the cash and non-cash proceeds of any
Collateral; (b) compromise, extend, or renew any of the Collateral or deal with
the same as it may deem advisable; (c) release, make exchanges, substitutions,
or surrender of all or any part of the
51
Collateral; (d) remove from any Borrower's place of business all Records
relating to or evidencing any of the Collateral or without cost or expense to
Lender, make such use of Borrowers' places of business as may be reasonably
necessary to administer, control and collect the Collateral; (e) repair, alter
or supply goods, if any, necessary to fulfill in whole or in part the purchase
order or similar order of any Account Debtor; (f) demand, collect, receipt for
and give renewals, extensions, discharges and releases of any of the Collateral;
(g) institute and prosecute legal and equitable proceedings to enforce
collection of, or realize upon, any of the Collateral; (h) settle, renew, extend
compromise, compound, exchange or adjust claims with respect to any of the
Collateral or any legal proceedings brought with respect thereto; (i) endorse
the name of any Borrower upon any Items of Payment relating to the Collateral or
upon any proof of claim in bankruptcy against an Collection Collateral Debtor;
(j) institute and prosecute legal and equitable proceedings to reclaim any of
the goods sold to any Account Debtor obligated on an Account at a time when such
Account Debtor was insolvent; and (k) receive and open all mail addressed to any
Borrower and notify the postal authorities to change the address for the
delivery of mail to Borrowers to such address as Lender may designate.
SECTION 7.10. REMEDIES CUMULATIVE. No failure or delay on the part of
Lender in exercising any right, power or privilege hereunder or under any other
Credit Document and no course of dealing between any Borrower and Lender shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right, power or privilege hereunder or under any other Credit Document preclude
any other or further exercise thereof or the exercise of any other right, power
or privilege hereunder or thereunder. The rights and remedies provided herein
are cumulative and not exclusive of any rights or remedies which Lender would
otherwise have. No notice to or demand on any Borrower in any case shall entitle
any Borrower to any other or further notice or demand in similar or other
circumstances or constitute a waiver of the rights of Lender to any other or
further action in any circumstances without notice or demand.
SECTION 7.11. AMENDMENTS, WAIVERS AND CONSENTS. Neither this Agreement nor
any other Credit Document nor any of the terms hereof or thereof may be amended,
changed, waived, discharged or terminated unless such amendment, change, waiver,
discharge or termination is in writing signed by Lender.
SECTION 7.12. WAIVERS OF CLAIMS; CONSEQUENTIAL AND PUNITIVE DAMAGES. Each
Borrower and Lender hereby waive to the fullest extent permitted by law all
claims to consequential and punitive damages in any lawsuit or other legal
action brought by either of them against the other of them in respect of any
claim between them arising under this Agreement, the other Credit Documents, or
any other agreement or agreements between them at any time, including any such
agreements, whether written or oral, made or alleged to have been made at any
time prior to the date hereof, and all agreements made hereafter or otherwise,
and any and all claims arising under common law or under any statute of any
state or the United States of America, whether any such claims be now existing
or hereafter arising, now known or unknown. In making this waiver Lender and
each Borrower each acknowledge and agree that there shall be no claims for
consequential or punitive damages made by Lender against any Borrower and there
shall be no claims for consequential or punitive damages made against Lender by
any Borrower. Lender and each Borrower acknowledge and agree that this waiver of
52
claims for consequential damages and punitive damages is a material element of
the consideration for this Agreement.
SECTION 7.13. NO THIRD PARTY BENEFICIARIES. There shall be no third-party
beneficiaries of this Agreement.
SECTION 7.14. ENTIRE AGREEMENT. Each Borrower agrees that the Credit
Documents are a complete and exclusive expression of all the terms of the Loan
and agrees that all prior agreements, statements, and representations, whether
written or oral, which relate in any way to the Loan are hereby superseded and
shall be given no force and effect, and that no promise, inducement, or
representation has been made to any Borrower which relates in any way to the
Loan, other than what is expressly stated in the Credit Documents. Each Borrower
has executed the Credit Documents in full, understands the terms therein, and is
executing this Agreement after the opportunity to have full consultation with
counsel of Borrowers' choice.
SECTION 7.15. WAIVER OF JURY TRIAL. EACH BORROWER AND LENDER HEREBY WAIVE
ALL RIGHT TO TRIAL BY JURY OF ANY AND ALL CLAIMS BETWEEN THEM OF ANY TYPE,
INCLUDING CLAIMS ARISING UNDER AND/OR RELATING IN ANY WAY TO THIS AGREEMENT
AND/OR THE OTHER CREDIT DOCUMENTS AND/OR THE TRANSACTIONS CONTEMPLATED BY THE
CREDIT DOCUMENTS. EACH BORROWER AND LENDER ACKNOWLEDGE THAT THIS IS A WAIVER OF
A LEGAL RIGHT AND THAT THIS WAIVER IS MADE KNOWINGLY AND VOLUNTARILY AFTER
CONSULTATION WITH COUNSEL OF ITS CHOICE. EACH BORROWER AND LENDER AGREES THAT
ALL SUCH CLAIMS SHALL BE TRIED BEFORE A JUDGE OF A COURT HAVING JURISDICTION,
WITHOUT A JURY.
SECTION 7.16. PROVISIONS REGARDING LIMITATIONS ON RECOURSE. (a) Except as
otherwise provided below, Lender shall not enforce the Secured Obligations or
any Credit Document by any suit, claim, action or proceeding ("action") wherein
a money judgment, deficiency judgment or other judgment for personal liability
shall be sought against Borrower, and Lender for itself, its successors and
assigns irrevocably waives any and all right to xxx for, seek or demand any such
damages, money judgment, deficiency judgment or personal judgment against
Borrower under or in connection with the Secured Obligations or any other Credit
Document and agrees to look solely to the Collateral and/or any other property
given to Lender as security for the Secured Obligations (all of which being
referred to herein as "COLLATERAL PROPERTY") for the enforcement of any
liability or obligation of Borrower in respect of the Secured Obligations,
provided that nothing contained herein shall be construed to prevent Lender from
bringing a foreclosure action, action for specific performance or other
appropriate action or proceeding to enable Lender to enforce and realize upon
this Agreement or any other Credit Document or the Asset Purchase Agreement in
respect of the Secured Obligations, and any lien, pledge, or security interest
in the Collateral Property given to Lender created by this Agreement or any
other Credit Document; provided, further, however, that any judgment in any such
action or proceeding shall be enforceable against Borrower only to the extent of
Borrower's interest in the Collateral Property. Lender agrees that Lender shall
not, except as otherwise provided in this Section 7.16, xxx for, seek or demand
any deficiency judgment against Borrower in respect of the
53
Secured Obligations in any action or proceeding, under or by reason of or in
connection with this Agreement or any other Credit Document or the Asset
Purchase Agreement, and shall not have an administrative claim against any of
the Borrowers or Corporate Guarantors by any suit, claim, action, proof of
claim, request for administrative payment or proceeding.
(b) The provisions of this Section 7.16 shall not (i) constitute a
waiver, release or impairment of any obligation evidenced or secured by this
Agreement, the Note, any other Credit Document, or the Asset Purchase Agreement;
(ii) impair the right of Lender to obtain a deficiency judgment in any action or
proceeding in order to preserve its rights and remedies, including, without
limitation, an action against Borrower under this Agreement or the Note or the
Asset Purchase Agreement in respect of the Secured Obligations, foreclosure,
non-judicial foreclosure, or the exercise of a power of sale under any Credit
Document; however, Lender agrees that Lender shall not enforce such deficiency
judgment against any assets of Borrower other than the Collateral Property or in
the exercise of its rights and remedies to the Collateral Property; (iii) impair
the right of Lender to name Borrower as a party defendant in any action or suit
for judicial foreclosure and sale under any Credit Document; (iv) affect the
validity or enforceability of, or impair the right of Lender to enforce, any
indemnity, representation or warranty made in connection with this Agreement or
any other Credit Documents or the Asset Purchase Agreement; or (v) affect the
validity or enforceability of, or impair the right of Lender to enforce this
Agreement, the Note, the other Credit Documents, and the Asset Purchase
Agreement in accordance with their terms.
(c) Subject to the forgoing provisions of this Section 7.16,
Borrowers shall repay to Lender, on the same date and in the same manner as the
Loan Obligations are due and payable, all amounts advanced to any Borrower under
Article IX of the Asset Purchase Agreement.
SECTION 7.17. PROVISIONS REGARDING SPECIFIED TERMINATION EVENT.
(a) As used in this Section, the following terms have the following
meanings:
"EXCESS LOAN AMOUNT" means the amount, determined as of the
Termination Event Date, equal to the lesser of:
(i) the outstanding balance of the Loan Obligations, or
(ii) the amount equal to the difference between (A) the
aggregate of all Loan advances made under this Agreement prior to the
Termination Event Date, and (B) the total amount of Operating Expenses accruing
during the Termination Event Period.
"TERMINATION EVENT" means the termination of the Asset Purchase
Agreement by Lender pursuant to Section 8.1(h) of the Asset Purchase Agreement.
"TERMINATION EVENT DATE" means the date of the Termination Event.
54
"TERMINATION EVENT PERIOD" the period from September 24, 2001 at
11:59 p.m. to and including the Termination Event Date.
(b) Upon the occurrence of the Termination Event, and provided that
the Borrowers shall have paid to Lender the Excess Loan Amount within three
Business Days after the Termination Event Date:
(A) Lender shall apply the Excess Loan Amount payment as a
prepayment on the Loan Obligations; and
(B) Lender shall release Lender's security interests in the
Collateral; and
(C) Section 7.16 of this Agreement (and Section 15 of the Note)
shall not be applicable as to any remaining outstanding Obligations, and Lender
shall have an allowed general unsecured claim in respect of any remaining
outstanding Obligations.
[SIGNATURE PAGE FOLLOWS]
55
IN WITNESS WHEREOF, Lender and each Borrower, intending to be legally bound
hereby, have caused this Agreement to be duly executed and delivered under seal
as of the date first above written.
LENDER:
WITNESS: MCI WorldCom Network Services, Inc.,
a Delaware corporation
By: (SEAL)
----------------------------- ------------------------------
Name:
Title:
BORROWERS/CORPORATE GUARANTORS:
WITNESS: Rhythms NetConnections Inc.,
a Delaware corporation
By: (SEAL)
----------------------------- ------------------------------
Name:
Title:
WITNESS: Rhythms Links Inc. - Virginia,
a Virginia corporation
By: (SEAL)
----------------------------- ------------------------------
Name:
Title:
WITNESS: Rhythms Links Inc.,
a Delaware corporation
By: (SEAL)
----------------------------- ------------------------------
Name:
Title:
WITNESS: Rhythms Leasing, Inc.,
a Nevada corporation
By: (SEAL)
----------------------------- ------------------------------
Name:
Title:
56
ATTACHMENTS:
Exhibit A (Form of Loan Funding Request)
Exhibit B (Form of Promissory Note)
Schedule 3.05 (Ownership)
Schedule 3.07 (Investments)
Schedule 3.08(a) (Deposit Accounts and securities accounts other than Restricted
Cash Accounts)
Schedule 3.08(b) (Restricted Cash Accounts)
Schedule 3.09 (Indebtedness for Borrowed Money)
Schedule 3.10 (Permitted Lien)
Schedule 3.11 (Insurance)
Schedule 3.12 (Name, Structure)
Schedule 3.17 (Tax Identification Numbers)
Schedule 3.31 (Letter-of-credit rights)
Schedule 4A.01(d) (Commercial Tort Claims)
Schedule 4A.12 (Scheduled Excluded Property)
57
EXHIBIT A
[FORM OF LOAN FUNDING REQUEST]
MCI WorldCom Network Services, Inc.
c/o WorldCom, Inc.
000 Xxxxxxx Xxxxxx Xxxxx
Xxxxxxx, Xxxxxxxxxxx 00000
Attention: K. Xxxxxxx Xxxxxx, Xx.
Fax: (000) 000-0000
Re: LOAN FUNDING REQUEST
Gentlemen:
The undersigned Borrowers request the following advance pursuant to Section
2.02 of the Credit and Security Agreement by and among the undersigned and MCI
WorldCom Network Services, Inc., dated as of September 24, 2001 (the "CREDIT
AGREEMENT"). Capitalized terms used in this Loan Funding Request shall have the
meanings given them in the Credit Agreement:
Borrower requests an advance (the "REQUESTED ADVANCE") under the [Initial
Advance Committed Amount] [the Subsequent Advance Committed Amount] in the
principal amount of __________________________ Dollars ($____________) to be
made on or after ___________, 2001 by wire transfer to the Concentration Account
in accordance with the following wire transfer instructions:
Bank of America, N.A.
San Francisco, CA
ABA No. 000000000
Account No.: 12330-01173
In support of this Loan Funding Request, Borrowers hereby represent and
warrant to Lender that:
1. The representations and warranties contained in the Credit Agreement
are true and correct in all material respects on and as of the date hereof, and
will be true and correct in all material respects on the date that the Requested
Advance is made (both before and after the Requested Advance is made).
2. If the Requested Advance is the initial loan advance under the Credit
Agreement, each of the conditions of Section 2.12 of the Credit Agreement have
been satisfied.
3. Each of the conditions of Section 2.13 of the Credit Agreement have
been satisfied for the Requested Advance.
1
4. No Default or Event of Default has occurred and is continuing or will
exist on the date that the Requested Advance is made (whether before or after
the Requested Advance is made).
5. When the Requested Advance is made, the total aggregate outstanding
principal balance of all advances made under the Credit Agreement will not
exceed the Committed Amount.
6. The Requested Advance shall be used solely for the following working
capital purposes:
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7. The proceeds of all loan advances made to Borrower under the Credit
Agreement prior to the date of this Loan Funding Request have been used solely
for the working capital purposes described in the Loan Funding Requests related
to such prior advances.
Attached to this Exhibit as SCHEDULE 1 is the [Budget] [updated Budget]
required by the terms of Section [2.12] or [2.13] of the Credit Agreement,
certified by the Responsible Officer of Borrower. Borrowers represent and
warrant to Lender that the information set forth on SCHEDULE 1 is true accurate
and complete in all material respects as of the date of this Loan Funding
Request.
This Loan Funding Request may be signed in counterparts and each shall be
effective as an original, and a photocopy, facsimile or telecopy of this Loan
Funding Request shall be effective as an original. In making proof of this Loan
Funding Request, it shall not be necessary to produce more than one counterpart,
photocopy, facsimile, or telecopy of this Loan Funding Request.
Any Borrower's receipt of the proceeds of the Requested Advance shall be
deemed to be a further representation and warranty that the representations and
warranties made in this Loan Funding Request are true and correct in all
material requests.
Sincerely,
Rhythms Netconnections Inc.
Rhythms Links Inc.
Rhythms Links Inc. - Virginia
Rhythms Leasing Inc.
By:
------------------------------------
Name:
Title: President
2
SCHEDULE 1 TO LOAN FUNDING REQUEST
[ATTACH BUDGET OR UPDATED BUDGET]
3
EXHIBIT B
[FORM OF PROMISSORY NOTE (LIMITED RECOURSE)]
PROMISSORY NOTE
(LIMITED RECOURSE)
$32,000,000 September 24, 2001
FOR VALUE RECEIVED, (i) Rhythms Netconnections Inc., a Delaware
corporation, (ii) Rhythms Links Inc. - Virginia, a Virginia corporation, (iii)
Rhythms Links Inc., a Delaware corporation, and (iv) Rhythms Leasing Inc., a
Nevada corporation (each referred to herein individually as and collectively as
"BORROWER"), promises to pay to the order of MCI WorldCom Network Services,
Inc., a Delaware corporation (referred to herein as "LENDER," which term shall
also include any subsequent holder of this Note) the principal sum of Thirty-Two
Million and 00/100 Dollars ($32,000,000), or so much thereof as may be advanced
to Borrower in accordance with the terms of the Credit Agreement (herein
defined), together with interest until paid, as set forth in this Note and in
the Credit Agreement.
This Promissory Note (this "NOTE") is the Note referred to in and secured
by that certain Credit and Security Agreement between Borrower and Lender and
dated the same date as this Note (referred to herein as the "CREDIT AGREEMENT,"
which term shall include such amendments, supplements, and replacements as may
be made thereto or therefor from time to time). Capitalized terms that are used
in this Note, but not defined in this Note, which are defined in the Credit
Agreement, shall have the meanings given to such terms in the Credit Agreement.
Capitalized terms that are used in this Note, but not defined in this Note,
which are defined in the Asset Purchase Agreement shall have the meanings given
to such terms in the Asset Purchase Agreement.
1. FIXED INTEREST RATE. Interest shall accrue and be payable on the
outstanding unpaid principal balance of this Note at the fixed interest rate of
ten percent (10%) per annum. All interest shall accrue based on a 360-day year
for the actual number of days outstanding.
2. PAYMENTS.
(a) In the event the Buyer acquires the Assets pursuant to the terms
of the Asset Purchase Agreement, all principal outstanding under this Note,
together with the accrued and unpaid interest thereon as of the Closing Date,
shall be credited against the Purchase Price.
(b) Unless sooner paid in full, the entire unpaid principal balance
of this Note, together with all outstanding and unpaid accrued interest,
expenses, and fees, shall be due and payable on the Maturity Date.
1
3. MANNER OF PAYMENT. All payments shall be made in U.S. dollars in
immediately available funds without set-off or counterclaim or deduction of any
kind on the due dates of such payments. Payments shall be made to the address
set forth herein for notices, except that if the Credit Agreement requires
payments to be made to a different address, then payments shall be made to the
address required by the terms of the Credit Agreement. Any payments by check
shall be accepted subject to collection in immediately available funds. Payments
shall be applied to interest, principal, late charges, costs, expenses and fees
in such order as Lender may determine in Lender's discretion.
4. PREPAYMENT. Borrower shall be privileged to prepay this Note in whole
or in part at any time without premium or penalty. All partial prepayments shall
be applied in inverse order of maturity.
5. CREDIT ADMINISTRATION COSTS. Borrower shall pay all Credit
Administration Costs incurred by Lender after the occurrence of any default
under this Note, and regardless of whether an Event of Default shall have been
declared.
6. DEFAULT; ACCELERATION. The occurrence of any of the following events
shall be an "EVENT OF DEFAULT" under this Note: (a) failure of Borrower to make
any payment of principal or interest under this Note when due; or (b) the
occurrence of any Event of Default under the Credit Agreement. Upon the
occurrence of an Event of Default, the unpaid principal with interest and all
other sums evidenced by this Note shall, at the option of Lender, and in
Lender's discretion, become immediately due and payable; provided that if in
accordance with the terms of the Credit Agreement the occurrence of such Event
of Default would cause the unpaid principal, interest, or other sums evidenced
by this Note to be immediately due and payable, such amounts shall become
immediately due and payable without any action on the part of Lender.
7. NOTICES. Any notice or demand required or permitted by or in
connection with this Note shall be in writing and shall be given in accordance
with the terms of the Credit Agreement
8. CERTAIN WAIVERS. As to this Note, Borrower waives all applicable
exemption rights, whether under any state constitution, homestead laws or
otherwise, and also waives valuation and appraisement, presentment, notice of
dishonor, and protest, notice of demand and nonpayment of this Note, and notice
of acceleration and expressly agrees that the maturity of this Note, or any
payment under this Note, may be extended from time to time without in any way
affecting the liability of Borrower. If Lender transfers this Note to another
holder who takes this Note for value and without actual knowledge of a claim or
defense of Borrower against any prior holder of this Note, such transferee shall
not be subject to any claims, set-offs or defenses that Borrower may have
against any holder of this Note prior to such transfer, and such transferee
shall have all of the rights of a holder in due course against Borrower even if,
absent this provision, such transferee would not qualify as a holder in due
course under applicable law.
2
9. PRESERVATION OF LENDER RIGHTS. No failure on the part of Lender to
exercise any right or remedy hereunder, whether before or after the happening of
an Event of Default shall constitute a waiver thereof, and no waiver of any past
Event of Default shall constitute waiver of any future default or of any other
Event of Default. No failure to accelerate the indebtedness evidenced hereby by
reason of any Event of Default, or acceptance of a past due payment, or
indulgence granted from time to time, shall be construed to be a waiver of the
right to insist upon prompt payment thereafter or to impose late charges
retroactively or prospectively, or shall be deemed to be a novation of this Note
or as a reinstatement of the indebtedness evidenced hereby or as a waiver of
such right of acceleration or any other right, or be construed so as to preclude
the exercise of any right that Lender may have, whether by the laws of the State
of New York, by agreement, or otherwise; and Borrower hereby expressly waives
the benefit of any statute or rule of law or equity that would produce a result
contrary to or in conflict with the foregoing. This Note may not be changed
orally, but only by an agreement in writing signed by the party against whom
such agreement is sought to be enforced.
10. GOVERNING LAW. This Note shall be governed by the laws of the State of
New York (without regard to New York conflicts of laws rules).
11. JURISDICTION; VENUE. Borrower acknowledges that the Bankruptcy Court
shall have exclusive jurisdiction over any action, suit, claim or proceeding
arising out of or relating to this Note and/or the Credit Agreement; provided,
however if the Chapter 11 Case is dismissed, then Borrower shall consent to the
jurisdiction as provided in this Section. Borrower hereby irrevocably consents
to the non-exclusive personal jurisdiction of the courts of the State of New
York and, if a basis for federal jurisdiction exists, the non-exclusive
jurisdiction of the United States District Court for the Southern District of
New York. Borrower agrees that venue shall be proper in any circuit court of the
State of New York selected by Lender or, if a basis for federal jurisdiction
exists, in any Division of the United States District Court for the Southern
District of New York. Borrower waives any right to object to the maintenance of
any suit or claim in any of the state or federal courts of the State of New York
on the basis of improper venue or of inconvenience of forum. Any suit or claim
brought by Borrower against Lender that is based, in whole or in part, directly
or indirectly, on this Note or any matters relating to this Note, shall be
brought in a court only in the State of New York. Borrower shall not file any
counterclaim against Lender in any suit or claim brought by Lender against
Borrower in a jurisdiction outside of the State of New York unless under the
rules of the court in which Lender brought such suit or claim the counterclaim
is mandatory, and not permissive, and would be considered waived unless filed as
a counterclaim in the claim or suit instituted by Lender against Borrower.
Borrower agrees that any forum outside the State of New York is an inconvenient
forum and that a suit brought by Borrower against Lender in any court outside
the State of New York should be dismissed or transferred to a court located in
the State of New York.
12. SEVERABILITY. In case any provision (or any part of any provision)
contained in this Note shall for any reason be held to be invalid, illegal, or
unenforceable in any respect, such invalidity, illegality, or unenforceability
shall not affect any other provision (or remaining part of the affected
provision) of this Note, but this Note shall be construed as if such invalid,
illegal, or
3
unenforceable provision (or part thereof) had never been contained herein but
only to the extent such provision (or part thereof) is invalid, illegal, or
unenforceable.
13. JOINT AND SEVERAL LIABILITY. If there is more than one person signing
this Note as Borrower, the liability of each such person shall be joint and
several, and without limiting the operation or effect of any other provision of
this Note each such person waives: (a) any right to require Lender to: (i)
proceed against any other Obligor, (ii) proceed against any particular property
or collateral given by any person to secure this Note; or (iii) notify such
person of any default by any other person in the payment of any amounts due
under this Note or in the performance of any other agreement of any Obligor; and
(b) any defense arising by reason of any of the following: (i) any disability or
any counterclaim or right of set-off or other defense of any Obligor, (ii) the
invalidity, illegality or lack of enforceability of this Note or any provision
thereof from any cause whatsoever, including any action or inaction by Lender,
(iii) the failure of Lender to perfect or maintain perfection of any security
interest in any property securing this Note, (iv) the cessation from any cause
whatsoever of the liability of any Obligor, including the release by Lender of
such Obligor's liability hereunder, (v) that this Note shall be void or voidable
as against any Obligor or any Obligor's creditors, including a trustee in
bankruptcy of any Obligor, by reason of any fact or circumstance, (vi) any event
or circumstance which might otherwise constitute a legal or equitable discharge
of any Obligor's obligations hereunder, or (viii) any act or omission of Lender
(except acts or omissions in bad faith) which changes the scope of such person's
risk hereunder.
14. MUTUAL WAIVER OF JURY TRIAL. BORROWER AND LENDER WAIVE ALL RIGHTS TO
TRIAL BY JURY OF ANY CLAIMS OF ANY KIND ARISING UNDER OR RELATING IN ANY WAY TO
THIS NOTE. BORROWER AND LENDER ACKNOWLEDGE THAT THIS IS A WAIVER OF A LEGAL
RIGHT AND REPRESENT TO EACH OTHER THAT THESE WAIVERS ARE MADE KNOWINGLY AND
VOLUNTARILY AFTER CONSULTATION WITH COUNSEL OF THEIR CHOICE. BORROWER AND LENDER
AGREE THAT ALL SUCH CLAIMS SHALL BE TRIED BEFORE A JUDGE OF A COURT HAVING
JURISDICTION, WITHOUT A JURY.
15. PROVISIONS REGARDING LIMITATIONS ON RECOURSE. This Note is subject to
the provisions regarding limitations on recourse set forth in Section 7.16 of
the Credit Agreement.
16. PROVISIONS REGARDING SPECIFIED TERMINATION EVENT. Section 15 of this
Note is subject to the provisions set forth in Section 7.17 of the Credit
Agreement.
[SIGNATURE PAGE FOLLOWS]
4
IN WITNESS WHEREOF, and intending to be legally bound hereby, each
undersigned Borrower executes this Note under seal as of the date first written
above.
BORROWERS:
WITNESS: Rhythms Netconnections Inc.,
a Delaware corporation
By: (SEAL)
----------------------------- ------------------------------
Name:
Title:
WITNESS: Rhythms Links Inc. - Virginia,
a Virginia corporation
By: (SEAL)
----------------------------- ------------------------------
Name:
Title:
WITNESS: Rhythms Links Inc.,
a Delaware corporation
By: (SEAL)
----------------------------- ------------------------------
Name:
Title:
WITNESS: Rhythms Leasing Inc.,
a Nevada corporation
By: (SEAL)
----------------------------- ------------------------------
Name:
Title:
5
