Exhibit 10.3
EXHIBIT B
SECURITY AGREEMENT
Dated as of February 23, 1999
From
USN COMMUNICATIONS, INC.
and its Subsidiaries,
as the Grantors
to
PRICEWATERHOUSECOOPERS LLP, as
the Secured Party.
TABLE OF CONTENTS
PAGE
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SECTION 1. Grant of Security............................................1
SECTION 2. Security for Obligations.....................................3
SECTION 3. Grantors Remain Liable.......................................4
SECTION 4. Delivery of Security Collateral..............................4
SECTION 5. Representations and Warranties...............................4
SECTION 6. Further Assurances...........................................5
SECTION 7. As to Equipment and Inventory................................6
SECTION 8. Insurance....................................................7
SECTION 9. Place of Perfection, Records, Collection of
Receivables..................................................7
SECTION 10. Voting Rights; Dividends; Etc................................8
SECTION 11. Transfers and Other Liens; Additional Shares.................9
SECTION 12. The Secured Party Appointed Attorney-in-Fact................10
SECTION 13. The Secured Party May Perform...............................10
SECTION 14. The Secured Party's Duties..................................10
SECTION 15. Remedies....................................................10
SECTION 16 Indemnity and Expenses......................................11
SECTION 17. Security Interest Absolute..................................12
SECTION 18. Amendments; Waivers; Etc....................................12
SECTION 19. Addresses for Notices.......................................13
SECTION 20. Continuing Security Interest, Assignments under the
Note Purchase Agreement.....................................13
SECTION 21. Release and Termination.....................................13
SECTION 22. Execution in Counterparts...................................13
SECTION 23. Governing Law; Terms........................................14
SECTION 24. Subject to Collateral Agency Agreement......................14
Schedule I PLEDGED SHARES
Schedule II LOCATIONS OF EQUIPMENT AND INVENTORY
Schedule III TRADE NAMES
SECURITY AGREEMENT, dated as of February 23, 1999, made by USN
COMMUNICATIONS, INC., a Delaware corporation (the "BORROWER"), and each of
the other Persons listed on the signature pages hereof (together with the
Borrower, collectively the "GRANTORS" and individually a "GRANTOR"), in
favor of PRICEWATERHOUSE COOPERS LLP, as collateral agent (together with
its successors and assigns in such capacity, the "COLLATERAL AGENT") under
the Collateral Agency Agreement, dated as of the date hereof (as amended,
restated or otherwise modified from time to time, the "COLLATERAL AGENCY
AGREEMENT"), among the Borrower, the Collateral Agent and the Purchasers
under the Note Purchase Agreement referred to below.
(1) The Borrower has entered into the Note Purchase Agreement,
dated as of the date hereof (such Agreement, as amended, restated or
otherwise modified from time to time, is referred to herein as the "NOTE
PURCHASE AGREEMENT"; the terms defined therein and not otherwise defined
herein being used herein as therein defined), with the purchasers named on
Annex I thereto (collectively, the "PURCHASERS"), pursuant to which the
Borrower is issuing Senior Secured Notes due June 30, 1999 (as amended,
restated or otherwise modified from time to time, the "NOTES").
(2) Each Grantor is the owner of the shares set forth in Schedule
I hereto and issued by the corporation named therein.
(3) The Secured Party is entering into this Agreement on behalf
of, and for benefit for, the Purchasers in order to perfect their security
interest in the Collateral.
(4) It is a condition precedent to the purchase of the Notes by
the Purchasers under the Note Purchase Agreement that each Grantor shall
have granted the assignment and security interest and made the pledge and
assignment contemplated by this Agreement.
NOW, THEREFORE, in consideration of the premises and in order to induce
the Secured Party to purchase the Notes, each Grantor hereby agrees with
the Secured Party as follows:
SECTION 1. Grant of Security. Each Grantor hereby assigns and pledges
to the Secured Party, and hereby grants to the Secured Party for its
benefit and the benefit of the Purchasers, a security interest in the
following (collectively, the "COLLATERAL"):
(a) all of such Grantor's right, title and interest, whether now
owned or hereafter acquired, in and to all equipment in all of its
forms, wherever located, now or hereafter existing, all fixtures and
all parts thereof and all accessions thereto (any and all such
equipment, fixtures, parts and accessions being the "EQUIPMENT");
(b) all of such Grantor's right, title and interest, whether now
owned or hereafter acquired, in and to all inventory in all of its
forms, wherever located, now or hereafter existing (including, but not
limited to, (i) all raw materials and work in process therefor,
finished goods thereof and materials used or consumed in the
manufacture or production thereof, (ii) goods in which such Grantor
has an interest in mass or a joint or other interest or right of any
kind (including, without limitation, goods in which such Grantor has
an interest or right as consignee) and (iii) goods that are returned
to or repossessed by such Grantor), and all accessions thereto and
products thereof and documents therefor (any and all such inventory,
accessions, products and documents being the "INVENTORY");
(c) all of such Grantor's right, title and interest, whether now
owned or hereafter acquired, in and to all accounts, accounts
receivable, reimbursements, notes, contract rights, lease rights,
chattel paper, instruments, deposit accounts, general intangibles
(including, without limitation, patents, trademarks, copyrights, trade
secrets, computer hardware and software, and other intellectual
property) and other obligations of any kind (including, without
limitation, all intercompany debt owed to such Grantor that is not
evidenced by a promissory note or similar instrument and all telephone
accounts and accounts receivable arising from telecommunication
services rendered to an end user prior to the sale, assignment, or
transfer of such account (collectively, the "END USER ACCOUNTS") to a
regional Xxxx operating company, a Xxxx operating company, local
exchange company, credit card company or provider of local telephone
services (each a "LEC") for billing and collection, and rights in and
to any of the telephone receivables, debts, and other amounts payable
to such Grantor by any LEC) and any and all other assets, now or
hereafter existing, whether or not arising out of or in connection
with the sale or lease of goods or the rendering of services and
whether or not earned by performance (including, without limitation,
the Corecomm Asset Purchase Agreement and any rights with respect to
workers' compensation or other deposits made by such Grantor and any
rights to receive tax refunds or other refunds, reimbursements and
payments from any federal, state or local government or any political
subdivision, agency or instrumentality thereof), and all rights now or
hereafter existing in and to all security agreements, leases and other
contracts (including without limitation, network contracts, customer
contracts for the furnishing by such Grantor of telecommunication
services and billing and collection contracts) securing or otherwise
relating to any such accounts, contract rights, chattel paper,
instruments, deposit accounts, general intangibles, obligations or
other assets (any and all such accounts, contract rights, chattel
paper, instruments, deposit accounts, general intangibles and
obligations, to the extent not referred to in clause (d), (e) or (f)
below, being the "RECEIVABLES", and any and all such leases, security
agreements and other contracts being the "RELATED CONTRACTS");
(d) all of the following (the "SECURITY COLLATERAL"):
(i) the shares of stock set forth opposite in Schedule I
hereto and issued by the corporations indicated therein
(collectively referred to herein as the "INITIAL PLEDGED SHARES",
and together with the shares referred to in clause (iii) below,
the "PLEDGED SHARES"), together with the certificates
representing such Initial Pledged Shares and all dividends, cash,
instruments and other property from time to time received,
receivable or otherwise distributed in respect of or in exchange
for any or all of such Initial Pledged Shares; and
(ii) all additional shares of stock of any issuer of any
Initial Pledged Shares or of any other Subsidiary of such Grantor
or of any other Person from time to time acquired by such Grantor
in any manner, and all additional shares of stock of each other
Subsidiary of such Grantor to the extent required pursuant to
Section 8.11 of the Note Purchase Agreement, together with the
certificates representing such additional shares and all
dividends, cash, instruments and other property from time to time
received, receivable or otherwise distributed in respect of or in
exchange for any or all of such shares;
(e) all of the following (collectively, the "ACCOUNT COLLATERAL"):
(i) all deposit accounts of such Grantor, all funds held
therein and all certificates and instruments, if any, from time
to time representing or evidencing such deposit accounts;
(ii) all notes, certificates of deposit, deposit accounts,
checks and other instruments from time to time hereafter
delivered to or otherwise possessed by the Secured Party for or
on behalf of such Grantor in substitution for or in addition to
any or all of the then existing Account Collateral; and
(iii) all interest, dividends, cash, drafts, rights to
receive payment in money or kind, instruments and other property
from time to time received, receivable or otherwise distributed
in respect of or in exchange for any or all of the then existing
Account Collateral;
(f) customer lists, all documents containing the names,
addresses, telephone numbers, and other information regarding such
Grantor's customers, subscribers, tapes, programs, printouts, disks, and
other material and documents relating to the recording, billing or
analyzing of any of the foregoing, and any other right to payment;
(g) all of such Grantor's other property and rights of every kind
and description and interests therein; and
(h) all proceeds of any and all of the foregoing Collateral
(including, without limitation, proceeds that constitute property of the
types described in clauses (a) - (g) of this Section 1) and, to the extent
not otherwise included, all (i) payments under insurance (whether or not a
Secured Party is the loss payee thereof), or any indemnity, warranty or
guaranty, payable by reason of loss or damage to or otherwise with respect
to any of the foregoing Collateral and (ii) cash.
Notwithstanding the foregoing, Collateral shall not include a
grant of any Related Contract or other contract or capital lease if such
grant (i) is prohibited by such contract's terms, (ii) requires
governmental approval, or (iii) would violate any applicable law.
SECTION 2. Security for Obligations. This Agreement secures the
payment of (a) all Obligations of each Grantor now or hereafter existing
under the Note Documents, whether direct or indirect, absolute or
contingent, including any extensions, modifications, substitutions,
amendments and renewals thereof, whether for principal, interest, premium,
penalties, fees, the Facility Fee, indemnifications, costs, expenses or
otherwise and (b) all amounts required to be paid by the Borrower to
CoreComm Limited pursuant to Section 8.6 of the CoreComm Asset Purchase
Agreement (all such Obligations being the "SECURED OBLIGATIONS"). Without
limiting the generality of the foregoing, this Agreement secures the
payment of all amounts that constitute part of the Secured Obligations and
would be owed by any Grantor to the Secured Party or a Purchaser under the
Note Documents.
SECTION 3. Grantors Remain Liable. Anything herein to the contrary
notwithstanding, (a) each Grantor shall remain liable under the contracts
and agreements included in the Collateral to the extent set forth therein
to perform all of its duties and obligations thereunder to the same extent
as if this Agreement had not been executed, (b) the exercise by the Secured
Party of any of the rights hereunder shall not release any Grantor from any
of its duties or obligations under the contracts and agreements included in
the Collateral and (c) neither the Secured Party nor any Purchaser shall
have any obligation or liability under the contracts and agreements
included in the Collateral by reason of this Agreement, nor shall the
Secured Party or any Purchaser be obligated to perform any of the
obligations or duties of any Grantor thereunder or to take any action to
collect or enforce any claim for payment assigned hereunder.
SECTION 4. Delivery of Security Collateral. Unless previously
delivered, all certificates or instruments representing or evidencing
Security Collateral or Account Collateral (and, to the extent requested by
the Secured Party, any other Collateral) shall be delivered to and held by
or on behalf of the Secured Party pursuant hereto and shall be in suitable
form for transfer by delivery, or shall be accompanied by duly executed
instruments of transfer or assignment in blank, all in form and substance
satisfactory to the Secured Party. Subject to the Interim DIP Order, after
the occurrence of an Event of Default and for so long as it is continuing,
the Secured Party shall have the right, at any time in its discretion and
without notice to any Grantor, to transfer to or to register in the name of
the Secured Party or any of its nominees any or all of the Security
Collateral and Account Collateral, subject only to the revocable rights
specified in Section 10(a). In addition, the Secured Party shall have the
right at any time to exchange certificates or instruments representing or
evidencing Security Collateral or Account Collateral for certificates or
instruments of smaller or larger authorized denominations.
SECTION 5. Representations and Warranties. Each Grantor represents
and warrants as follows:
(a) All of the Equipment and Inventory are located at the
places specified in Schedule II hereto. The chief place of
business and chief executive office of such Grantor and the office
where such Grantor keeps its records concerning the Receivables,
and all originals of all chattel paper that evidence Receivables,
are located at the address below such Grantor's name on the
signature pages hereto. No material amount of the Receivables is
evidenced by a promissory note or other instrument.
(b) Such Grantor is the legal and beneficial owner of the
Collateral of such Grantor free and clear of any Lien, except for
the security interest created by this Agreement and except as
permitted under the Note Purchase Agreement. No effective
financing statement or other instrument similar in effect covering
all or any part of the Collateral is on file in any recording
office, except such as may have been filed in favor of the Secured
Party relating to this Agreement or as permitted by the Note
Purchase Agreement. Such Grantor has the trade names listed on
Schedule III.
(c) The Pledged Shares have been duly authorized and
validly issued and are fully paid and non-assessable.
(d) The Initial Pledged Shares constitute the percentage
of the issued and outstanding shares of stock of the issuers
thereof indicated on Schedule I.
(e) This Agreement, the pledge of the Security Collateral
pursuant hereto, the pledge and assignment of the Account
Collateral pursuant hereto and the Interim DIP Order create a
valid and, subject to the filing of all necessary financing
statements and the delivery of the Security Collateral, perfected
first priority security interest in the Collateral of the type
subject to Articles 8 or 9 of the Uniform Commercial Code,
securing the payment of the Secured Obligations, and all filings
and other actions necessary or desirable to perfect and protect
such security interest have been duly taken except as permitted
under the Note Purchase Agreement.
(f) Other than the Interim DIP Order, no consent of any
other Person and no authorization, approval or other action by,
and no notice to or filing with, any governmental authority or
regulatory body or other third party is required either (i) for
the grant by any Grantor of the assignment and security interest
granted hereby, for the pledge by any Grantor of the Security
Collateral pursuant hereto or for the execution, delivery or
performance of this Agreement by any Grantor, (ii) for the
perfection or maintenance of the pledge, assignment and security
interest created hereby (including the first priority nature of
such pledge, assignment or security interest), except for the
Interim DIP Order and the filing of financing and continuation
statements under the Uniform Commercial Code, which financing
statements have been or will be duly filed or (iii) for the
exercise by the Secured Party of its voting or other rights
provided for in this Agreement or the remedies in respect of the
Collateral pursuant to this Agreement, except as may be required
by the Interim DIP Order or in connection with the disposition of
any portion of the Security Collateral by laws affecting the
offering and sale of securities generally or as otherwise
permitted under the Note Purchase Agreement.
SECTION 6. Further Assurances.
(a) Each Grantor agrees that from time to time, at its
own expense, it will promptly execute and deliver all further
instruments and documents, and take all further action, that may
be necessary, or that the Secured Party may reasonably request, in
order to perfect and protect any pledge, assignment or security
interest granted or purported to be granted hereby or to enable
the Secured Party to exercise and enforce its respective rights
and remedies hereunder with respect to any Collateral. At the
reasonable request of the Secured Party, without limiting the
generality of the foregoing, each Grantor will: (i) xxxx
conspicuously each document included in the Inventory, each
chattel paper included in the Receivables, each Related Contract
and, at the request of the Secured Party, each of its records
pertaining to the Collateral with a legend, in form and substance
satisfactory to the Secured Party, indicating that such document,
chattel paper, Related Contract or Collateral is subject to the
security interest granted hereby; (ii) if any Collateral shall be
evidenced by a promissory note or other instrument or chattel
paper, deliver and pledge to the Secured Party hereunder such note
or instrument or chattel paper duly endorsed and accompanied by
duly executed instruments of transfer or assignment, all in form
and substance satisfactory to the Secured Party; and (iii) execute
and file such financing or continuation statements, or amendments
thereto, and such other instruments or notices, as may be
necessary or desirable, or as the Secured Party may request, in
order to perfect and preserve the pledge, assignment and security
interest granted or purported to be granted hereby.
(b) Each Grantor hereby authorizes the Secured Party to
file one or more financing or continuation statements, and
amendments thereto, relating to all or any part of the Collateral
without the signature of such Grantor where permitted by law. A
photocopy or other reproduction of this Agreement or any financing
statement covering the Collateral or any part thereof shall be
sufficient as a financing statement where permitted by law.
(c) Each Grantor will furnish to the Secured Party from
time to time statements and schedules further identifying and
describing the Collateral and such other reports in connection
with the Collateral as the Secured Party may reasonably request,
all in reasonable detail.
(d) Each Grantor agrees to take any action which the
Secured Party may reasonably request in order to obtain and enjoy
the full rights and benefits granted to the Secured Party by this
Agreement and each other agreement, instrument and document
delivered to the Secured Party in connection herewith or in any
document evidencing or securing the Collateral, including
specifically, at such Grantor's sole cost and expense, the use of
its best efforts to assist in obtaining approval of the FCC or any
other agency or government for any action or transaction
contemplated by this Agreement which is then required by law, and
specifically, without limitation, upon request, to prepare, sign
and file with the FCC or any other agency or government the
assignor's or transferor's portion of any application or
applications for consent to the assignment of any license or
franchise or transfer of control necessary or appropriate under
the FCC's or any agency or government's rules and regulations for
approval of (a) any sale or sales of property constituting the
Collateral by the Secured Party on its behalf, or (b) any
assumption by the Secured Party on its behalf of voting rights or
management rights in property constituting the Collateral affected
in accordance with the terms of this Agreement.
SECTION 7. As to Equipment and Inventory. (a) Each Grantor shall
keep the Equipment and Inventory (other than Inventory sold in the ordinary
course of business) at the places therefor specified in Section 5(a) or,
upon prior written notice to the Secured Party, at such other places in a
jurisdiction where all action required by Section 6 shall have been taken
with respect to the Equipment and Inventory.
(b) To the extent required by the Note Purchase Agreement, each
Grantor shall cause the Equipment to be maintained and preserved in the
same condition, repair and working order as when new, ordinary wear and
tear excepted, and in accordance with any manufacturer's manual, and shall
forthwith, or in the case of any loss or damage to any of the Equipment as
quickly as practicable after the occurrence thereof, make or cause to be
made all repairs, replacements and other improvements in connection
therewith that are necessary or desirable to such end. Each Grantor shall
promptly furnish to the Secured Party a statement respecting any material
loss or damage to any of the Equipment.
(c) To the extent required by the Note Purchase Agreement and the
Bankruptcy Code, each Grantor shall pay promptly when due all property and
other taxes, assessments and governmental charges or levies imposed upon,
and all claims (including claims for labor, materials and supplies)
against, the Equipment and Inventory. In producing the Inventory, each
Grantor shall comply in all material respects with all requirements of the
Fair Labor Standards Act.
SECTION 8. Insurance. (a) Each Grantor shall, at its own expense,
maintain insurance with respect to the Equipment and Inventory in such
amounts, against such risks, in such form and with such insurers, as shall
be reasonably satisfactory to the Secured Party from time to time and is
customary in the industry. Each Grantor shall take all necessary action to
ensure that each policy for liability insurance shall provide for all
losses to be paid on behalf of the Secured Party and each Grantor as their
interests may appear, and each policy for property damage insurance shall
provide for all losses to be paid directly to the Secured Party. Each
Grantor shall take all necessary action to ensure that each such policy
shall in addition (i) name each Grantor and the Secured Party as insured
Party thereunder (without any representation or warranty by or obligation
upon the Secured Party) as their interests may appear, (ii) contain the
agreement by the insurer that any loss thereunder shall be payable to the
Secured Party notwithstanding any action, inaction or breach of
representation or warranty by any Grantor, (iii) provide that there shall
be no recourse against the Secured Party for payment of premiums or other
amounts with respect thereto and (iv) provide that at least 10 days' prior
written notice of cancellation or of lapse shall be given to the Secured
Party by the insurer. Each Grantor shall, if so requested by the Secured
Party, deliver to the Secured Party original or duplicate policies of such
insurance and, as often as the Secured Party may reasonably request, a
report of a reputable insurance broker with respect to such insurance.
Further, each Grantor shall, at the request of the Secured Party, duly
exercise and deliver instruments of assignment of such insurance policies
to comply with the requirements of Section 6 and cause the insurers to
acknowledge notice of such assignment.
(b) Reimbursement under any liability insurance maintained by each
Grantor pursuant to this Section 8 may be paid directly to the Person who
shall have incurred liability covered by such insurance. In case of any
loss involving damage to Equipment or Inventory when subsection (c) of this
Section 8 is not applicable, each Grantor may make or cause to be made the
necessary repairs to or replacements of such Equipment or Inventory, and
any proceeds of insurance maintained by each Grantor pursuant to this
Section 8 shall be paid to such Grantor as reimbursement for the costs of
such repairs or replacements.
(c) Upon the occurrence and during the continuance of any Default
or the actual or constructive total loss (in excess of $100,000 per
occurrence) of any Equipment or Inventory, all insurance payments in
respect of such Equipment or Inventory shall be paid to and applied by the
Secured Party as specified in Section 15(b).
SECTION 9. Place of Perfection, Records, Collection of
Receivables. (a) Each Grantor shall keep its chief place of business and
chief executive office and the office where it keeps its records concerning
the Collateral and all originals of all chattel paper that evidence
Receivables, at the location therefor specified in Section 5(a) or, upon 30
days' prior written notice to the Secured Party, at such other locations in
a jurisdiction where all actions required by Section 6 shall have been
taken with respect to the Collateral. Each Grantor will hold and preserve
such records and chattel paper and will permit representatives of the
Secured Party at any time during normal business hours to inspect and make
abstracts from such records and chattel paper.
(b) Except as otherwise provided in this subsection (b), each
Grantor shall have the sole right to continue to collect, at its own
expense, all amounts due or to become due to such Grantor under the
Receivables. In connection with such collections, each Grantor may take
such action as such Grantor or the Secured Party may deem necessary or
advisable to enforce collection of the Receivables; provided, however, that
the Secured Party shall have the right at any time following the occurrence
and during the continuance of an Event of Default, to notify the obligors
under any Receivables of the assignment of such Receivables to the Secured
Party and to direct such obligors to make payment of all amounts due or to
become due to such Grantor thereunder directly to the Secured Party and,
upon such notification and at the expense of such Grantor, to enforce
collection of any such Receivables, and to adjust, settle or compromise the
amount or payment thereof, in the same manner and to the same extent as
such Grantor might have done, and the Secured Party also agrees to provide
prompt notice (in advance, if reasonably practicable) of same to such
Grantor. After receipt by each Grantor of the notice from the Secured Party
referred to in the proviso to the preceding sentence, and until an Event of
Default no longer exists (i) subject to the Note Purchase Agreement and the
Interim DIP Order, all amounts and proceeds (including instruments)
received by such Grantor in respect of the Receivables shall be received in
trust for the benefit of the Secured Party hereunder and applied as
provided by Section 15(b) and (ii) such Grantor shall not adjust, settle or
compromise the amount or payment of any Receivable, release wholly or
partly any obligor thereof, or allow any credit or discount thereon.
SECTION 10. Voting Rights; Dividends; Etc. (a) So long as no
Event of Default shall have occurred and be continuing:
(i) Each Grantor shall be entitled to exercise any
and all voting and other consensual rights pertaining to the
Security Collateral or any part thereof for any purpose not
inconsistent with the terms of this Agreement or the other
Note Documents; provided, however, that such Grantor shall
not exercise or refrain from exercising any such right if,
in the Secured Party's judgment, such action would have a
material adverse effect on the value of the Security
Collateral or any part thereof; and provided further that
such Grantor shall give the Secured Party at least five
days' written notice of the manner in which it intends to
exercise, or the reasons for refraining from exercising, any
such right that could be reasonably expected to have a
Material Adverse Effect.
(ii) Each Grantor shall be entitled to receive and
retain any and all dividends and interest paid in respect of
the Security Collateral; provided, however, that any and all
(A) dividends and interest paid or payable other than
in cash in respect of, and instruments and other property
received, receivable or otherwise distributed in respect of,
or in exchange for, any Security Collateral,
(B) dividends and other distributions paid or payable
in cash in respect of any Security Collateral in connection
with a partial or total liquidation or dissolution or in
connection with a reduction of capital, capital surplus or
paid-in-surplus and
(C) cash paid, payable or otherwise distributed in
respect of principal of, or in redemption of, or in exchange
for, any Security Collateral shall be, and shall be
forthwith delivered to the Secured Party to hold as,
Security Collateral and shall, if received by any Grantor,
be received in trust for the benefit of the Secured Party,
be segregated from the other property or funds of such
Grantor and be forthwith delivered to the Secured Party as
Security Collateral in the same form as so received (with
any necessary endorsement).
(iii) The Secured Party shall execute and deliver (or
cause to be executed and delivered) to each Grantor all such
proxies and other instruments as each Grantor may reasonably
request for the purpose of enabling each Grantor to exercise
the voting and other rights that it is entitled to exercise
pursuant to paragraph (i) above and to receive the dividends
or interest payments that it is authorized to receive and
retain pursuant to paragraph (ii) above.
(b) Upon the occurrence and during the continuance of an
Event of Default, subject to the Note Purchase Agreement and the
Interim DIP Order:
(iv) All rights of each Grantor (x) to exercise or
refrain from exercising the voting and other consensual
rights that it would otherwise be entitled to exercise
pursuant to Section 10(a)(i) shall, upon notice to such
Grantor by the Secured Party, cease and (y) to receive the
dividends and interest payments that it would otherwise be
authorized to receive and retain pursuant to Section
10(a)(ii) shall, upon notice from the Secured Party,
automatically cease, and all such rights shall thereupon
become vested in the Secured Party, which shall thereupon
have the sole right to exercise or refrain from exercising
such voting and other consensual rights and to receive and
hold as Security Collateral such dividends and interest
payments.
(v) All dividends and interest payments that are
received by any Grantor contrary to the provisions of
paragraph (i) of this Section 10(b) shall be received in
trust for the benefit of the Secured Party, shall be
segregated from other funds of such Grantor and shall be
forthwith paid over to the Secured Party as Security
Collateral in the same form as so received (with any
necessary endorsement).
SECTION 11. Transfers and Other Liens; Additional Shares. (a) Each
Grantor shall not (i) sell, assign (by operation of law or otherwise) or
otherwise dispose of, or grant any option with respect to, any of the
Collateral, except sales of Inventory in the ordinary course of business,
or (ii) create or suffer to exist any Lien upon or with respect to any of
the Collateral except for the pledge, assignment and security interest
created by this Agreement, except, in each case, as permitted under the
Note Purchase Agreement.
(b) Each Grantor shall (i) cause each issuer of the Pledged Shares
not to issue any stock or other securities in addition to or in
substitution for the Pledged Shares issued by such issuer, except to such
Grantor, and (ii) pledge hereunder, immediately upon its acquisition
(directly or indirectly) thereof, any and all additional shares of stock or
other securities.
SECTION 12. The Secured Party Appointed Attorney-in-Fact. Subject
to the Note Purchase Agreement and the Interim DIP Order, each Grantor
hereby irrevocably appoints each of the Secured Party such Grantor's
attorney-in-fact, with full authority in the place and stead of such
Grantor and in the name of such Grantor or otherwise, from time to time in
the Secured Party's discretion, following an Event of Default and until
such Event of Default no longer exists, to take any action and to execute
any instrument that the Secured Party may deem necessary or advisable to
accomplish the purposes of this Agreement, including, without limitation:
(a) to obtain and adjust insurance required to be paid to
the Secured Party pursuant to Section 8,
(b) to ask for, demand, collect, xxx for, recover,
compromise, receive and give acquittance and receipts for moneys
due and to become due under or in respect of any of the
Collateral,
(c) to receive, indorse and collect any drafts or other
instruments, documents and chattel paper, in connection with
clause (a) or (b) above, and
(d) to file any claims or take any action or institute
any proceedings that the Secured Party may deem necessary or
desirable for the collection of any of the Collateral or otherwise
to enforce compliance with the rights of the Secured Party with
respect to any of the Collateral.
SECTION 13. The Secured Party May Perform. If any Grantor fails to
perform any agreement contained herein, the Secured Party may itself
perform, or cause performance of, such agreement, and the expenses of the
Secured Party incurred in connection therewith shall be payable by such
Grantor under Section 16(b).
SECTION 14. The Secured Party's Duties. The powers conferred on
the Secured Party hereunder are solely to protect its interest in the
Collateral and shall not impose any duty upon it to exercise any such
powers. Except for the safe custody of any Collateral in its possession and
the accounting for moneys actually received by it hereunder, the Secured
Party shall have no duty as to any Collateral, as to ascertaining or taking
action with respect to calls, conversions, exchanges, maturities, tenders
or other matters relative to any Security Collateral, whether or not the
Secured Party has or is deemed to have knowledge of such matters, or as to
the taking of any necessary steps to preserve rights against any Party or
any other rights pertaining to any Collateral. The Secured Party shall be
deemed to have exercised reasonable care in the custody and preservation of
any Collateral in its possession if such Collateral is accorded treatment
substantially equal to that which the Secured Party accords its own
property.
SECTION 15. Remedies. If any Event of Default shall have occurred
and be continuing, subject to the Note Purchase Agreement and the Interim
DIP Order:
(a) The Secured Party may exercise in respect of the
Collateral, in addition to other rights and remedies provided for
herein or otherwise available to it, all the rights and remedies
of a secured party upon default under the Uniform Commercial Code
in effect in the State of New York at such time (the "NEW YORK
UNIFORM COMMERCIAL CODE") (whether or not the New York Uniform
Commercial Code applies to the affected Collateral) and also may
(i) require each Grantor to, and each Grantor hereby agrees that
it will at its expense and upon request of the Secured Party
forthwith, assemble all or part of the Collateral as directed by
the Secured Party and make it available to the Secured Party at a
place to be designated by the Secured Party that is reasonably
convenient to all Party; (ii) without notice except as specified
below, sell the Collateral or any part thereof in one or more
parcels at public or private sale, at any of the Secured Party's
offices or elsewhere, for cash, on credit or for future delivery,
and upon such other terms as the Secured Party may deem
commercially reasonable; (iii) occupy any premises owned or leased
by any Grantor where the Collateral or any part thereof is
assembled or located for a reasonable period in order to
effectuate its rights and remedies hereunder or under law, without
obligation to each Grantor in respect of such occupation; and (iv)
exercise any and all rights and remedies of each Grantor under or
in connection the Receivables or otherwise in respect of the
Collateral, including, without limitation, any and all rights of
each Grantor to demand or otherwise require payments of any amount
under the Receivables. Each Grantor agrees that, to the extent
notice of sale shall be required by law, at least ten days' notice
to such Grantor of the time and place of any public sale or the
time after which any private sale is to be made shall constitute
reasonable notification. The Secured Party shall not be obligated
to make any sale of Collateral regardless of notice of sale having
been given. The Secured Party may adjourn any public or private
sale from time to time by announcement at the time and place fixed
therefor, and such sale may, without further notice, be made at
the time and place to which it was so adjourned.
(b) All cash proceeds received by the Secured Party in
respect of any sale of, collection from, or other realization upon
all or any part of the Collateral may, in the discretion of the
Secured Party, be held by the Secured Party as collateral for,
and/or then or at any time thereafter applied (after payment of
any amounts payable to the Secured Party pursuant to Section 16)
in whole or in part by the Secured Party against, all or any part
of the Secured Obligations in such order as the Secured Party
shall elect. Any surplus of such cash or cash proceeds held by the
Secured Party and remaining after the indefeasible payment in full
in cash of all the Secured Obligations shall be paid over to the
relevant Grantor or to whomsoever may be lawfully entitled to
receive such surplus.
(c) The Secured Party may exercise any and all rights and
remedies of each Grantor otherwise in respect of the Collateral.
(d) Upon notice to the relevant Grantor by the Secured
Party, all payments received by such Grantor in respect of the
Collateral shall be received in trust for the benefit of the
Secured Party, shall be segregated from other funds of such
Grantor and shall be forthwith paid over to the Secured Party in
the same form as so received (with any necessary endorsement).
SECTION 16. Indemnity and Expenses. (a) Each Grantor agrees to
indemnify the Secured Party from and against any and all claims, losses and
liabilities growing out of or resulting from this Agreement (including,
without limitation, enforcement of this Agreement), except claims, losses
or liabilities resulting from the Secured Party's bad faith, gross
negligence or willful misconduct as determined by a final judgment of a
court of competent jurisdiction.
(b) Each Grantor will upon demand pay to the Secured Party the
amount of any and all reasonable expenses, including the reasonable fees
and expenses of its counsel and of any experts and agents, that the Secured
Party may incur in connection with (i) the administration of this
Agreement, (ii) the custody, preservation, use or operation of, or the sale
of, collection from or other realization upon, any of the Collateral, (iii)
the exercise or enforcement of any of the rights of the Secured Party
hereunder or (iv) the failure by any Grantor to perform or observe any of
the provisions hereof.
SECTION 17. Security Interest Absolute. All rights of the Secured
Party and the pledge, assignment and security interest hereunder, and all
obligations of any Grantor hereunder, shall be absolute and unconditional,
irrespective of:
(a) any lack of validity or enforceability of any Note
Document or any other agreement or instrument relating thereto;
(b) any change in the time, manner or place of payment
of, or in any other term of, all or any of the Secured Obligations
or any other amendment or waiver of or any consent to any
departure from any Note Document;
(c) subject to the Note Purchase Agreement and the
Interim DIP Order, any taking, exchange, release or non-perfection
of any other collateral, or any taking, release or amendment or
waiver of or consent to departure from any guaranty, for all or
any of the Secured Obligations;
(d) any manner of application of collateral, or proceeds
thereof, to all or any of the Secured Obligations, or any manner
of sale or other disposition of any collateral for all or any of
the Secured Obligations or any other assets of any Grantor or any
of its Subsidiaries;
(e) any change, restructuring or termination of the
corporate structure or existence of any Grantor or any of its
Subsidiaries; or
(f) any other circumstance that might otherwise
constitute a defense available to, or a discharge of, any Grantor
or a third party grantor of a security interest.
This Agreement shall continue to be effective or reinstated, as
the case may be, if at any time any payment of any of the Secured
Obligations is rescinded or must otherwise be returned by the Secured Party
or by any other Person, all as though such payment had not been made.
SECTION 18. Amendments; Waivers; Etc. No amendment or waiver of
any provision of this Agreement, and no consent to any departure by any
Grantor herefrom, shall in any event be effective unless the same shall be
in writing and signed by the Secured Party and, if required, approved by
the Bankruptcy Court, and then such waiver or consent shall be effective
only in the specific instance and for the specific purpose for which given.
No failure on the part of the Secured Party to exercise, and no delay in
exercising, any right hereunder shall operate as a waiver thereof; nor
shall any single or partial exercise of any such right preclude any other
or further exercise thereof or the exercise of any other right.
SECTION 19. Addresses for Notices. All notices and other
communications provided for hereunder shall be in writing (including
telecopier, telegraphic, telex or cable communication) and, mailed,
telegraphed, telecopied, telexed, cabled or delivered if to any Grantor,
addressed to it at the address of the Borrower set forth below on the
signature pages hereof and as otherwise provided in the Interim DIP Order,
and if to the Secured Party, addressed to it at its address set forth below
on the signature pages herein, the CoreComm Asset Purchase Agreement, or,
as to any party, at such other address as shall be designated by such party
in a written notice to each other party complying as to delivery with the
terms of this Section. All such notices and other communications shall,
when mailed, telecopied, telegraphed, telexed or cabled, be effective three
Business Days after deposited in the mails, or when telecopied, delivered
to the telegraph company, confirmed by telex answerback or delivered to the
cable company, respectively, addressed as aforesaid.
SECTION 20. Continuing Security Interest, Assignments under the
Note Purchase Agreement. This Agreement shall create a continuing security
interest in the Collateral and shall (a) remain in full force and effect
until the later of the indefeasible payment in full in cash of the
principal of the Notes, accrued interest thereon, and all other Secured
Obligations and the Maturity Date, (b) be binding upon each Grantor, its
successors and assigns and (c) inure, together with the rights and remedies
of the Secured Party hereunder, to the benefit of the Secured Party, the
Purchasers and their successors, transferees and assigns.
SECTION 21. Release and Termination. (a) Upon any sale, lease,
transfer or other disposition of any item of Collateral in accordance with
the terms of the Note Documents the security interest in such collateral
shall automatically be released. In addition, other than sales of Inventory
in the ordinary course of business, the Secured Party will, at each
Grantor's expense, execute and deliver to each Grantor such documents as
each Grantor shall reasonably request to evidence the release of such item
of Collateral from the assignment and security interest granted hereby;
provided, however, that (i) at the time of such release no Default shall
have occurred and be continuing, (ii) each Grantor shall have delivered to
the Secured Party, at least five Business Days prior to the date of the
proposed written release, a written request for release describing the item
of Collateral and the terms of the sale, lease, transfer or other
disposition in reasonable detail, including the price thereof and any
expenses in connection therewith, together with a form of release for
execution by the Secured Party and a certification by each relevant Grantor
to the effect that the transaction is in compliance with the Note Documents
and as to such other matters as the Secured Party may request, (iii) the
proceeds of any such sale, lease, transfer or other disposition required to
be applied in accordance with Sections 7.1 and 7.2 of the Note Purchase
Agreement shall be paid to the Purchasers as therein provided and (iv) the
Secured Party shall have approved such sale, lease, transfer or other
disposition in writing or the same shall otherwise be permitted by the Note
Purchase Agreement.
(b) Upon the later of the indefeasible payment in full in cash of
the principal of the Notes, accrued interest thereon, and all other Secured
Obligations and the Maturity Date, the pledge, assignment and security
interest granted hereby shall terminate and all rights to the Collateral
shall revert to the Grantors. Upon any such termination, the Secured Party
will, at the Grantors' expense, execute and deliver to each Grantor such
documents as each Grantor shall reasonably request to evidence such
termination.
SECTION 22. Execution in Counterparts. This Agreement may be
executed in any number of counterparts, each of which when so executed
shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement. Delivery of any executed counterpart
of a signature page to this Agreement by telecopier shall be effective as
delivery of a manually executed counterpart of this Agreement.
SECTION 23. Governing Law; Terms. This Agreement shall be governed
by and construed in accordance with the laws of the State of New York,
except to the extent that the validity or perfection of the security
interest hereunder, or remedies hereunder, in respect of any particular
Collateral are governed by the laws of a jurisdiction other than the State
of New York, Unless otherwise defined herein or in the Note Purchase
Agreement, terms used in Article 9 of the New York Uniform Commercial Code
are used herein as therein defined.
SECTION 24. Subject to Collateral Agency Agreement. Any and all
rights granted to the Collateral Agent under this Agreement are to be held
and exercised by the Collateral Agent as collateral Agent solely for the
benefit of the Purchasers pursuant to the terms of the Collateral Trust
Agreement. Nothing in this Agreement or otherwise provided shall entitle
any Person, other than the Collateral Agent and the Purchasers, to any
right, title or interest in the Collateral or the benefits provided by this
Agreement.
USN COMMUNICATIONS, INC.
[FN]
By: /s/ Xxxxxx X. Xxxxxxxx
___________________________________
Name: Xxxxxx X. Xxxxxxxx
Title:
USN Communications, Inc.
00 Xxxxx Xxxxxxxxx Xxxxx - Xxxxx 0000
Xxxxxxx, Xxxxxxxx 00000
Phone: 312/000-0000
Fax: 312/000-0000
U.S. NETWORK CORPORATION
By: /s/ Xxxxxx X. Xxxxxxxx
___________________________________
Name: Xxxxxx X. Xxxxxxxx
Title:
FONENET/OHIO, INC.
By: /s/ Xxxxxx X. Xxxxxxxx
___________________________________
Name: Xxxxxx X. Xxxxxxxx
Title:
USN COMMUNICATIONS MIDWEST, INC.
By: /s/ Xxxxxx X. Xxxxxxxx
___________________________________
Name: Xxxxxx X. Xxxxxxxx
Title:
USN COMMUNICATIONS NORTHEAST, INC.
By: /s/ Xxxxxx X. Xxxxxxxx
___________________________________
Name: Xxxxxx X. Xxxxxxxx
Title:
QUEST UNITED, INC.
By: /s/ Xxxxxx X. Xxxxxxxx
___________________________________
Name: Xxxxxx X. Xxxxxxxx
Title:
USN COMMUNICATIONS LONG DISTANCE, INC.
By: /s/ Xxxxxx X. Xxxxxxxx
___________________________________
Name: Xxxxxx X. Xxxxxxxx
Title:
USN SOLUTIONS, INC.
By: /s/ Xxxxxx X. Xxxxxxxx
___________________________________
Name: Xxxxxx X. Xxxxxxxx
Title:
USN COMMUNICATIONS ATLANTIC, INC.
By: /s/ Xxxxxx X. Xxxxxxxx
___________________________________
Name: Xxxxxx X. Xxxxxxxx
Title:
USN COMMUNICATIONS VIRGINIA, INC.
By: /s/ Xxxxxx X. Xxxxxxxx
___________________________________
Name: Xxxxxx X. Xxxxxxxx
Title:
USN COMMUNICATIONS SOUTHWEST, INC.
By: /s/ Xxxxxx X. Xxxxxxxx
___________________________________
Name: Xxxxxx X. Xxxxxxxx
Title:
USN COMMUNICATIONS MAINE, INC.
By: /s/ Xxxxxx X. Xxxxxxxx
___________________________________
Name: Xxxxxx X. Xxxxxxxx
Title:
USN COMMUNICATIONS WEST, INC.
By: /s/ Xxxxxx X. Xxxxxxxx
___________________________________
Name: Xxxxxx X. Xxxxxxxx
Title:
Accepted and Agreed:
PRICEWATERHOUSECOOPERS LLP
By: /s/ Xxxxxx E.M. Kopucz
_________________________________
Name: Xxxxxx E.M. Kopucz
Title: Principal
PricewaterhouseCoopers LLP
000 Xxxxxxx Xxxxxx
Xxxxxx, Xxxxxxxxxxxxx 00000
Attention: Xxxxxx X.X. Xxxxxx
Phone: 000-000-0000
Fax: 000-000-0000
SCHEDULE I
PLEDGED SHARES
PERCENTAGE
OF
STOCK CERTIFICATE NUMBER OUTSTANDING
OWNER STOCK ISSUER CLASS OF STOCK PAR VALUE NO(S). OF SHARES SHARES
----- ------------ -------------- --------- ----------------- --------- ------------
USN Communications, Inc.
SCHEDULE II
LOCATIONS OF EQUIPMENT AND INVENTORY
LOCATIONS OF EQUIPMENT:
LOCATIONS OF INVENTORY:
SCHEDULE III
TRADE NAMES
