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RAPID LINK INC | Laurus Capital Management, LLC | LAURUS MASTER FUND, LTD | ONE RING NETWORKS, INC | TELENATIONAL COMMUNICATIONS, INC | VALENS OFFSHORE SPV II, CORP | VALENS US SPV I, LLC. RealDealDocs™ contains millions of easily searchable legal documents and clauses from top law firms. Search for free - click here. |
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Exhibit 10.1
SECURITY
AGREEMENT
LV
ADMINISTRATIVE SERVICES, INC.,
as
Administrative and Collateral Agent
THE
LENDERS
From
Time to Time Party Hereto
RAPID
LINK, INCORPORATED
TELENATIONAL
COMMUNICATIONS, INC.
and
ONE
RING NETWORKS, INC.
Dated:
March 31, 2008
TABLE OF
CONT ENTS
SECURITY AGREEMENT
This
SECURITY AGREEMENT is made as of March 31, 2008 (as amended,
restated, supplemented and/or modified from time to time, this
“ Agreement
”) by and among the lenders from time to time party
hereto (the “ Lenders
”), LV ADMINISTRATIVE SERVICES, INC., a Delaware
corporation, as administrative and collateral agent for the
Lenders (in such capacity, the “ Agent
” and together with the Lenders, the “ Creditor
Parties ”), Rapid Link, Incorporated, a Delaware
corporation (the “ Parent
”), and each party listed on Exhibit A
attached hereto (each an “ Eligible
Subsidiary ” and collectively, the “
Eligible
Subsidiaries ”; the Parent and each Eligible
Subsidiary, each a “ Company
” and collectively, the “ Companies
”).
BACKGROUND
The
Companies have requested that the Lenders make advances
available to the Companies and purchase term notes from the
Companies; and
The
Lenders have agreed to make such advances and purchase such
notes on the terms and conditions set forth in this
Agreement.
AGREEMENT
NOW,
THEREFORE, in consideration of the mutual covenants and
undertakings and the terms and conditions contained herein,
the parties hereto agree as follows:
1.
General D
efinit ions and Terms; Rules of
Construction .
(a)
General
Definitions . Capitalized terms used in this
Agreement shall have the meanings assigned to them in Annex
A.
(b)
Accounting
Terms . Any accounting terms used in this
Agreement which are not specifically defined shall have the
meanings customarily given them in accordance with GAAP and
all financial computations shall be computed, unless
specifically provided herein, in accordance with GAAP
consistently applied.
(c)
Other
Terms . All other terms used in this
Agreement and defined in the UCC, shall have the meaning given
therein unless otherwise defined herein.
(d)
Rules of
Construction . All Schedules, Addenda,
Annexes and Exhibits hereto or expressly identified to this
Agreement are incorporated herein by reference and taken
together with this Agreement constitute but a single
agreement. The words “herein”,
“hereof” and “hereunder” or other
words of similar import refer to this Agreement as a whole,
including the Exhibits, Addenda, Annexes and Schedules
thereto, as the same may be from time to time amended,
modified, restated or supplemented, and not to any particular
section, subsection or clause contained in this
Agreement. Wherever from the context it appears
appropriate, each term stated in either the singular or plural
shall include the singular and the plural, and pronouns stated
in the masculine, feminine or neuter gender shall include the
masculine, the feminine and the neuter, as the case may
be. The term “or” is not
exclusive. The term “including” (or any
form thereof) shall not be limiting or
exclusive. The term “$,”
“U.S.$” and “Dollars” shall mean
lawful currency of the United States of
America. All references to statutes and related
regulations shall include any amendments of same and any
successor statutes and regulations. All references
in this Agreement or in the Schedules, Addenda, Annexes and
Exhibits to this Agreement to sections, schedules, disclosure
schedules, exhibits, and attachments shall refer to the
corresponding sections, schedules, disclosure schedules,
exhibits, and attachments of or to this
Agreement. All references to any instruments or
agreements, including references to any of this Agreement or
the Ancillary Agreements shall include any and all
modifications or amendments thereto and any and all extensions
or renewals thereof.
2.
L oan Facility .
(a)
Revolving
Loans .
(i)
Subject to satisfaction of the Revolving Commitment
Conditions and the terms and conditions set forth herein and
in the Ancillary Agreements, each Lender, severally and not
jointly, may make revolving loans (the “ Revolving
Loans ”) to the Companies from time to time
during the Term which, in the aggregate at any time
outstanding, will not exceed such Lender’s Revolving
Commitment Percentage of the lesser of (A) (I) the Capital
Availability Amount minus (II) the Reserves and (B) an amount
equal to (I) the Accounts Availability minus (II) the
Reserves. The amount derived at any time from
Section 2(a)(i)(B)(I) minus 2(a)(i)(B)(II) shall be referred
to as the “ Formula
Amount .” The Companies shall, jointly
and severally, execute and deliver to each Lender on the
Closing Date a Secured Revolving Note evidencing such
Lender’s Revolving Commitment Percentage of the Capital
Availability Amount. The Companies hereby each
acknowledge and agree that each Lender’s obligation to
purchase a Secured Revolving Note from the Companies on the
Closing Date shall be contingent upon the satisfaction (or
waiver by the Agent) of the items and matters set forth in the
closing checklist provided by the Agent to the Companies on or
prior to the Closing Date. The Companies hereby
each further acknowledge and agree that, immediately prior to
each borrowing hereunder and immediately after giving effect
thereto, the Companies shall be deemed to have certified to
the Lenders that at the time of each such proposed borrowing
and also after giving effect thereto (x) there shall exist no
Event of Default, (y) all representations, warranties and
covenants made by the Companies in connection with this
Agreement and the Ancillary Agreements are true, correct and
complete (other than any representation, warranty or covenant
made as of a specific date, in which case such representation,
warranty or covenant shall have been true, correct and
complete as of such date) and (z) all of each Company’s
and its respective Subsidiaries’ covenant requirements
under this Agreement and the Ancillary Agreements have been
met. The Companies hereby agree to provide a
certificate confirming the foregoing concurrently with each
request for a borrowing hereunder.
(ii) Notwithstanding
the limitations set forth above, if requested by any Company,
the Agent may determine in its sole discretion to permit
Revolving Loans in excess of the Formula Amount (the aggregate
of Revolving Loans in excess of the Formula Amount at any
time, an “ Overadvance
”) to be made and/or to remain outstanding; provided
that any Overadvance made on or after the Specified Assignment
Date shall constitute a Permitted Overadvance. For
purposes hereof, “ Permitted
Overadvance ” means an Overadvance that, as
determined by the Agent in its discretion, acting reasonably,
(A) is made solely to maintain, protect or preserve the
Collateral and/or the Lenders’ rights under this
Agreement and the Ancillary Agreements and is necessary in
order to avoid a material adverse effect on the Collateral
and/or the Lenders’ rights under this Agreement and the
Ancillary Agreements; (B) does not exceed fifty percent (50%)
of the Formula Amount at any time; and (C) remains outstanding
for not more than forty-five (45) consecutive Business Days,
unless in case of this clause (C), the Agent otherwise
agrees. In connection with each such request by one
or more Companies (each, an “ Overadvance
Request ”), the Companies shall be deemed to have
certified, as of the time of such proposed borrowing and
immediately after giving effect thereto, to the satisfaction
of all Overadvance Conditions. For purposes hereof,
“ Overadvance
Conditions ” means (x) no Event of Default shall
exist and be continuing as of such date; (y) all
representations, warranties and covenants made by the
Companies in connection with the Security Agreement and the
Ancillary Agreements shall be true, correct and complete as of
such date; and (z) the Companies and their respective
Subsidiaries shall have taken all action necessary to grant
the Agent “control” over all of the
Companies’ and their respective Subsidiaries’
Deposit Accounts (the “ Control
Accounts ”), with any agreements establishing
“control” to be in form and substance satisfactory
to the Agent. The Companies hereby agree to provide
a certificate confirming the satisfaction of the Overadvance
Conditions concurrently with the Overadvance Request for
same.
(iii) The
Companies acknowledge that the exercise of the Agent’s
discretionary rights hereunder may result during the Term in
one or more increases or decreases in the advance percentages
used in determining Accounts Availability and each of the
Companies hereby consent to any such increases or decreases
which may limit or restrict advances requested by the
Companies.
(iv) If
any interest, fees, costs or charges payable to the Creditor
Parties hereunder are not paid when due, each of the Companies
shall thereby be deemed to have requested, and each of the
Lenders will be deemed to have made and the Agent will charge
to the Companies’ account with a Revolving Loan
immediately due and payable as of such date in an amount equal
to such unpaid interest, fees, costs or charges; provided
, however ,
that the Agent may elect to extend the maturity of all or a
portion of any such Revolving Loan at any time prior to the
Specified Assignment Date to a date that is on or prior to the
maturity of the Loans made other than pursuant to this clause
(iv).
(v) If
any Company at any time fails to perform or observe any of the
covenants contained in this Agreement or any Ancillary
Agreement, the Agent may, but need not, perform or observe
such covenant on behalf and in the name, place and stead of
such Company (or, at the Agent’s option, in the
Agent’s name) and may, but need not, take any and all
other actions which the Agent may deem necessary to cure or
correct such failure (including the payment of taxes, the
satisfaction of Liens, the performance of obligations owed to
Account Debtors, lessors or other obligors, the procurement
and maintenance of insurance, the execution of assignments,
security agreements and financing statements, and the
endorsement of instruments). The amount of all
monies expended and all costs and expenses (including
reasonable attorneys’ fees and legal expenses) incurred
by the Agent in connection with or as a result of the
performance or observance of such agreements or the taking of
such action by the Agent shall be charged to the
Companies’ account as a Revolving Loan and added to the
Obligations. To facilitate the Agent’s
performance or observance of such covenants by each Company,
each Company hereby irrevocably appoints the Agent, or the
Agent’s delegate, acting alone, as such Company’s
attorney in fact (which appointment is coupled with an
interest) with the right (but not the duty) from time to time
to create, prepare, complete, execute, deliver, endorse or
file in the name and on behalf of such Company any and all
instruments, documents, assignments, security agreements,
financing statements, applications for insurance and other
agreements and writings required to be obtained, executed,
delivered or endorsed by such Company.
(vi) The
Agent will account to Company Agent monthly with a statement
of all Revolving Loans and other advances, charges and
payments made pursuant to this Agreement, and such account
rendered by the Agent shall be deemed final, binding and
conclusive absent manifest error unless the Agent is notified
by Company Agent in writing to the contrary within thirty (30)
days of the date each account was rendered specifying the item
or items to which objection is made.
(vii) During
the Term, the Companies may borrow, repay, re-borrow and
prepay Revolving Loans in accordance with the terms and
conditions hereof.
(viii) If
any Eligible Account is not paid by the Account Debtor within
ninety (90) days after the date that such Eligible Account was
invoiced or if any Account Debtor asserts a deduction,
dispute, contingency, set-off, or counterclaim with respect to
any Eligible Account, (a “ Delinquent
Account ”), the Companies shall jointly and
severally (i) reimburse the Lenders for the amount of the
Revolving Loans made with respect to such Delinquent Account
plus an adjustment fee in an amount equal to one-quarter of
one percent (0.25%) of the gross face amount of such Eligible
Account or (ii) immediately replace such Delinquent Account
with an otherwise Eligible Account.
(b)
Term
Loan A . Subject to the terms and conditions
set forth herein and in the Ancillary Agreements, each Lender
shall make a term loan to the Companies in such Lender’s
Term Loan A Commitment Percentage of $1,800,000 (the “
Term
Loan A ”). Term Loan A shall be
advanced on the Closing Date and shall be, with respect to
principal, payable in consecutive monthly installments of
principal commencing on October 1, 2009 and on the first day
of each month thereafter through and including the last day of
the term, subject to acceleration upon the occurrence of an
Event of Default or termination of this
Agreement. Term Loan A shall be evidenced by the
Secured Term A Notes. The Companies hereby
acknowledge and agree that each Lender’s obligation to
purchase a Secured Term A Note on the Closing Date shall be
contingent upon the satisfaction (or waiver by the Agent) of
the items and matters set forth in the closing checklist
provided by the Agent to the Companies on or prior to the
Closing Date.
(c)
Term
Loan B . Subject to satisfaction of the Term
Loan B Conditions and the terms and conditions set forth
herein and in the Ancillary Agreements, each Lender shall make
a term loan to the Companies in such Lender’s Term Loan
B Commitment Percentage of $1,500,000 (the “ Term Loan
B ”). Term Loan B shall be advanced on
the date on which the Term Loan B Conditions shall have been
satisfied and shall be, with respect to principal, payable in
consecutive monthly installments of principal commencing on
October 1, 2009 and on the first day of each month thereafter
through and including the last day of the term, subject to
acceleration upon the occurrence of an Event of Default or
termination of this Agreement. Term Loan B shall be
evidenced by the Secured Term B Notes. The
Companies hereby acknowledge and agree that each
Lender’s obligation to purchase a Secured Term B Note
shall be contingent upon the satisfaction (or waiver by the
Agent) of the Term Loan B Conditions and of the items and
matters set forth in the closing checklist provided by the
Agent to the Companies on or prior to the Closing
Date.
(d)
Deferred
Purchase Price Loan . Simultaneously with
the consummation of the Secured Party Sale Transaction,
Companies shall issue to the Secured Party Sale Lenders, in
accordance with their respective Deferred Purchase Loan
Commitment Percentages, a Deferred Purchase Price Note
evidencing payment of the purchase price for the assets
conveyed to the Parent or an Eligible Subsidiary in connection
with the Secured Party Sale Transaction. The
Deferred Purchase Price Notes shall be, with respect to
principal, payable at maturity, subject to acceleration upon
the occurrence of an Event of Default or termination of this
Agreement.
3.
Rep ayme nt of the Loans . The
Companies (a) may prepay the Obligations from time to time in
accordance with the terms and provisions of the Notes (and
Section 18 hereof if such prepayment is due to a termination
of this Agreement); (b) shall repay on the Maturity Date (as
defined in the Secured Term Notes) (i) the then aggregate
outstanding principal balance of the Term Loans together with
accrued and unpaid interest, fees and charges; and (ii) all
other amounts owed the Lenders under the Secured Term Notes;
(c) shall repay on the expiration of the Term (i) the then
aggregate outstanding principal balance of the Revolving Loans
together with accrued and unpaid interest, fees and charges;
and (ii) all other amounts owed the Creditor Parties under
this Agreement and the Ancillary Agreements; and (d) subject
to Section 2(a)(ii), shall repay on any day on which the then
aggregate outstanding principal balance of the Revolving Loans
are in excess of the Formula Amount at such time, the
Revolving Loans in an amount equal to such
excess. Any payments of principal, interest, fees
or any other amounts payable hereunder or under any Ancillary
Agreement shall be made prior to 12:00 noon (New York time) on
the due date thereof in immediately available
funds.
4.
Pro cedur e for Revolving Loans
. Company Agent may by written notice request a
borrowing of Revolving Loans prior to 12:00 noon (New York
time) on the Business Day of its request to incur, on the next
Business Day, a Revolving Loan. Together with each
request for a Revolving Loan (or at such other intervals as
the Agent may request), Company Agent shall deliver to the
Agent a Borrowing Base Certificate in the form of Exhibit B
attached hereto, which shall be certified as true and correct
by the Chief Executive Officer or Chief Financial Officer of
Company Agent together with all supporting documentation
relating thereto. All Revolving Loans shall be
disbursed from whichever office or other place the Agent may
designate from time to time and shall be charged to the
Companies’ account on the Agent’s
books. The proceeds of each Revolving Loan made by
the Lenders shall be made available to Company Agent on the
Business Day following the Business Day so requested in
accordance with the terms of this Section 4 by way of credit
to the applicable Company’s operating account maintained
with such bank as Company Agent designated to the
Agent. Any and all Obligations due and owing
hereunder may be charged to the Companies’ account and
shall constitute Revolving Loans.
5.
Int erest and Payments .
(a)
Interest
.
(i)
Except as modified by Section
5(a)(iii) below, the Companies shall jointly and severally pay
interest at the Contract Rate on the unpaid principal balance
of each Loan until such time as such Loan is collected in full
in good funds in dollars of the United States of
America.
(ii) Interest
and payments shall be computed on the basis of actual days
elapsed in a year of 360 days. At the Agent’s
option, the Lenders may charge the Companies’ account
for said interest.
(iii) Effective
upon the occurrence of any Event of Default and for so long as
any Event of Default shall be continuing, the Contract Rate
shall automatically be increased as set forth in the Notes
(such increased rate, the “ Default
Rate ”), and all outstanding Obligations,
including unpaid interest, shall continue to accrue interest
from the date of such Event of Default at the Default Rate
applicable to such Obligations.
(iv) In
no event shall the aggregate interest payable hereunder or
under any Note exceeds the maximum rate permitted under any
applicable law or regulation, as in effect from time to time
(the “ Maximum Legal
Rate ”), and if any provision of this Agreement
or any Ancillary Agreement is in contravention of any such law
or regulation, interest payable under this Agreement and each
Ancillary Agreement shall be computed on the basis of the
Maximum Legal Rate (so that such interest will not exceed the
Maximum Legal Rate).
(v) The
Companies shall jointly and severally pay principal, interest
and all other amounts payable hereunder, or under any
Ancillary Agreement, without any deduction whatsoever,
including any deduction for any set-off or
counterclaim.
(vi) All
payments made by any Company under this Agreement shall be
made free and clear of, and without deduction or withholding
for or on account of, any present or future Taxes now or
hereafter imposed, levied, collected, withheld or assessed by
any Governmental Authority, other than Excluded
Taxes. If any Non-Excluded Taxes or Other Taxes are
required to be withheld from any amounts payable to any
Creditor Party hereunder, the amounts so payable to such
Creditor Party shall be increased to the extent necessary to
yield to such Creditor Party (after payment of all
Non-Excluded Taxes and Other Taxes, including those imposed on
payments made pursuant to this paragraph (vi) of this Section
5(a)) interest or any such other amounts payable hereunder at
the rates or in the amounts specified in this Agreement,
provided, however, that no Company shall be required to
increase any such amounts payable to any Lender with respect
to any Non-Excluded Taxes that are directly attributable to
such Lender’s failure to comply with the requirements of
paragraph (ix) of this Section 5(a).
(vii) In
addition, the Companies shall pay any Other Taxes to the
relevant Governmental Authority in accordance with applicable
law.
(viii) Whenever
any Non-Excluded Taxes or Other Taxes are payable by any
Company, as promptly as possible thereafter such Company shall
send to the Agent for its own account or for the account of
the relevant Lender, as the case may be, a certified copy of
an original official receipt received by such Company showing
payment thereof (or such other evidence reasonably
satisfactory to the Agent). If such Company fails
to pay any Non-Excluded Taxes or Other Taxes when due to the
appropriate taxing authority or fails to remit to the Agent
the required receipts or other required documentary evidence,
the Companies shall indemnify the Creditor Parties for any
incremental taxes, interest or penalties that may become
payable by any Creditor Party as a result of any such
failure.
(ix) Each
Lender (or its assignee) that is not a “United States
person,” as defined in Section 7701(a)(30) of the Code
(a “ Non-U.S.
Lender ”) shall deliver to the Company Agent and
the Agent two completed originals of an appropriate U.S.
Internal Revenue Service Form W-8, as applicable, or any
subsequent versions thereof or successors thereto, properly
completed and duly executed by such Non-U.S.
Lender. Such forms shall be delivered by each
Non-U.S. Lender on or before the date it becomes a party to
this Agreement. In addition, each Non-U.S. Lender
shall deliver such forms promptly upon the obsolescence or
invalidity of any form previously delivered by such Non-U.S.
Lender. Each Non-U.S. Lender shall promptly notify
the Company Agent at any time it determines that it is no
longer in a position to provide any previously delivered
certificate to the Company Agent (or any other form of
certification adopted by the U.S. taxing authorities for such
purpose). Notwithstanding any other provision of
this paragraph, a Non-U.S. Lender shall not be required to
deliver any form pursuant to this paragraph that such Non-U.S.
Lender is not legally able to deliver.
(x) The
agreements in this Section shall survive the termination of
this Agreement and the payment of the Loans and all other
amounts payable hereunder or under any other Ancillary
Agreement.
(b)
Payment; Certain
Closing Conditions .
(i)
Payment
. Subject to the terms of Section 5(b)(ii) below,
the Companies shall, jointly and severally, pay (A) to Valens
Capital Management, LLC, the investment manager of the
Specified Lenders (“ VCM
”), a non-refundable payment in an amount equal to one
and one-half percent (1.50%) of the aggregate principal amount
of the Secured Revolving Notes, Secured Term A Notes and
Secured Term B Notes, plus reasonable
expenses (including reasonable legal fees and expenses)
incurred in connection with the entering into of this
Agreement and the Ancillary Agreements, plus expenses incurred
in connection with each of VCM and/or Lenders’ due
diligence review of the Company and its Subsidiaries and all
other related matters; (B) to the Specified Lenders, a
non-refundable payment in an amount equal to one percent
(1.00%) of the aggregate principal amount of the Secured
Revolving Notes, Secured Term A Notes and Secured Term B
Notes; and (C) to the Specified Lenders, an advance prepayment
discount deposit equal to one percent (1.00%) of the aggregate
principal amount of the Secured Revolving Notes, Secured Term
A Notes and Secured Term B Notes. The payments set
forth in clauses (i)(A), (i)(B) and (i)(C) relating to Secured
Term A Notes plus reasonable expenses (including reasonable
legal fees and expenses) incurred in connection with the
entering into of this Agreement and the Ancillary Agreements,
plus expenses incurred in connection with each of VCM and/or
Lenders’ due diligence review of the Company and its
Subsidiaries and all other related matters, shall be deemed
fully earned on the Closing Date and shall not be subject to
rebate or proration for any reason. The payments
set forth in clauses (i)(A), (i)(B) and (i)(C) relating to
Secured Term A Notes plus reasonable expenses (including
reasonable legal fees and expenses) incurred in connection
with the entering into of this Agreement and the Ancillary
Agreements, plus expenses incurred in connection with each of
VCM and/or Lenders’ due diligence review of the Company
and its Subsidiaries and all other related matters (net of any
deposits previously paid by the Companies), shall be paid at
closing out of funds held pursuant to the funds escrow
agreement and a disbursement letter executed in connection
herewith. The payments set forth in clauses (i)(A),
(i)(B) and (i)(C) relating to the Secured Revolving Notes and
Secured Term B Notes, shall be deemed fully earned at the time
the Revolving Commitment Conditions and Term Loan B
Conditions, respectively, are satisfied. The
payments set forth in clauses (i)(A), (i)(B) and (i)(C)
relating to the Secured Revolving Notes and Secured Term B
Notes shall paid at the time the Revolving Commitment
Conditions and Term Loan B Conditions are respectively
satisfied, out of funds held pursuant to a funds escrow
agreement and a disbursement letter executed in connection
therewith.
(ii)
Overadvance
Payment . Without affecting the
Lenders’ rights hereunder, each Overadvance shall bear
additional interest at a rate equal to one percent (1.00%) per
month of the amount of such Overadvance for all times such
amounts shall be in excess of the Formula
Amount. All amounts that are incurred pursuant to
this Section 5(b)(ii) shall be due and payable by the
Companies monthly, in arrears, on the first business day of
each calendar month and upon expiration of the
Term.
(iii)
Financial
Information Default . Without affecting the
Lenders’ other rights and remedies, in the event any
Company fails to deliver the financial information required by
Section 11 on or before the date required by this Agreement
and after the lapse of the cure period provided in Section
20(c), the Companies shall jointly and severally pay each
Lender its pro rata share of an aggregate fee in the amount of
$100.00 per week (or portion thereof) for each such failure
until such failure is cured to the Agent’s satisfaction
or waived in writing by the Agent. All amounts that
are incurred pursuant to this Section 5(b)(iii) shall be due
and payable by the Companies monthly, in arrears, on the first
business day of each calendar month and upon expiration of the
Term.
6.
Se
curit y Interest .
(a) To
secure the prompt payment to the Creditor Parties of the
Obligations, each Company hereby assigns, pledges and grants
to the Agent, for the ratable benefit of the Creditor Parties,
a continuing security interest in and Lien upon all of the
Collateral. All of each Company’s Books and
Records relating to the Collateral shall, until delivered to
or removed by the Agent, be kept by such Company in trust for
the Creditor Parties until the termination of this Agreement
and the payment in full of all Obligations. Each
confirmatory assignment schedule or other form of assignment
hereafter executed by each Company shall be deemed to include
the foregoing grant, whether or not the same appears
therein.
(b) Each
Company hereby (i) authorizes the Agent to file any financing
statements, continuation statements or other amendments
thereto that (A) indicate the Collateral (1) as all assets and
personal property of such Company or words of similar effect,
regardless of whether any particular asset comprised in the
Collateral falls within the scope of Article 9 of the UCC of
such jurisdiction, or (2) as being of an equal or lesser scope
or with greater detail, and (B) contain any other information
required by Part 5 of Article 9 of the UCC for the sufficiency
or filing office acceptance of any financing statement,
continuation statement or other amendment and (ii) ratifies
its authorization for the Agent to have filed any initial
financial statements, or amendments thereto if filed prior to
the date hereof. Each Company acknowledges that it
is not authorized to file, and will not give any authorization
to anyone other than the Agent (including pursuant to Section
9-509(b) of the UCC) to file, any financing statement or
amendment or termination statement with respect to any
financing statement without the prior written consent of the
Agent and agrees that it will not do so without the prior
written consent of the Agent, subject to such Company’s
rights under Section 9-509(d)(2) of the UCC.
(c) Each
Company hereby grants to the Agent, for the ratable benefit of
the Creditor Parties, an irrevocable, non-exclusive, worldwide
license without payment of royalty or other compensation to
such Company to upon the occurrence and during the continuance
of an Event of Default use or otherwise exploit in any manner
as to which authorization of the holder of such Intellectual
Property would be required, and to license or sublicense such
rights in to and under any Intellectual Property now or
hereafter owned by or licensed to, such Company, and wherever
the same may be located, and including in such license access
to all media in which any of such Intellectual Property may be
recorded or stored and to all software and hardware used for
the compilation or printout thereof, and represents, promises
and agrees that any such license or sublicense is not and will
not be in conflict with the contractual or commercial rights
of any third Person and subject, in the case of trademarks and
service marks, to sufficient rights to quality control and
inspection in favor of such Company to avoid the risk of
invalidation of said trademarks and service
marks. The foregoing license will terminate on the
termination of this Agreement and the payment in full of all
Obligations; provided
, however ,
that any license, sublicense, or other rights granted by the
Agent pursuant to such license during its term shall remain in
effect in accordance with its terms.
(d) Any
proceeds received by the Agent from the foreclosure, sale,
lease or other disposition of any of the Collateral shall be
paid over to the Agent for application in accordance with
Section 21.
7.
R
epr esentations, Warranties and Covenants
Concerning the Collateral . Each Company
represents, warrants (each of which such representations and
warranties shall be deemed repeated upon the making of each
request for a Loan and made as of the time of each and every
Loan hereunder) and covenants as follows:
(a) all
of the Collateral (i) is owned by it free and clear of all
Liens (including any claim of infringement) except
those in the Agent’s favor and Permitted Liens and (ii)
is not subject to any agreement prohibiting the granting of a
Lien or requiring notice of or consent to the granting of a
Lien.
(b) it
shall not encumber, mortgage, pledge, assign or grant any
security interest in or Lien upon any Collateral or any other
assets to anyone other than the Agent and except for Permitted
Liens.
(c) the
Liens granted pursuant to this Agreement, upon the filing of
UCC-1 financing statements in respect of each Company (or the
District of Columbia Recorder of Deeds Office for each Company
that is organized under the laws of a jurisdiction outside of
the United States of America) in favor of the Agent in the
applicable filing office of the state of organization of such
Company (or the District of Columbia Recorder of Deeds Office
for each Company that is organized under the laws of a
jurisdiction outside of the United States of America), the
recording of the Liens in favor of the Agent in the U.S.
Patent and Trademark Office and the U.S. Copyright Office, as
applicable, the taking of any actions required under the laws
of jurisdictions outside the United States with respect to
Intellectual Property included in the Collateral which is
created under such laws, and the completion of the other
filings and actions listed on Schedule
7(c) (which, in the case of all filings and other
documents referred to in said Schedule, have been delivered to
the Agent in duly executed form) constitute valid perfected
security interests in all of the Collateral in favor of the
Agent as security for the prompt payment of the Obligations,
enforceable in accordance with the terms hereof against any
and all of its creditors and purchasers and such security
interest is prior to all other Liens in existence on the date
hereof.
(d) no
effective security agreement, mortgage, deed of trust,
financing statement, equivalent security or Lien instrument or
continuation statement covering all or any part of the
Collateral is or will be on file or of record in any public
office, except those relating to Permitted Liens.
(e) it
shall not dispose of any of the Collateral whether by sale,
lease or otherwise except for Permitted Liens, the sale of
Inventory in the ordinary course of business and for the
disposition or transfer in the ordinary course of business
during any fiscal year of obsolete and worn-out Equipment
having an aggregate fair market value of not more than $35,000
and only to the extent that (i) the proceeds of any such
disposition are used to acquire replacement Equipment which is
subject to the Agent’s first priority security interest
or are used to repay Loans or to pay general corporate
expenses, or (ii) following the occurrence of an Event of
Default which continues to exist the proceeds of which are
remitted to the Agent to be held as cash collateral for the
Obligations.
(f) it
shall defend the right, title and interest of the Agent in and
to the Collateral against the claims and demands of all
Persons whomsoever, and take such actions, including (i) all
actions necessary to grant the Agent “control” of
any Investment Property, Deposit Accounts, Letter-of-Credit
Rights or electronic Chattel Paper owned by it, with any
agreements establishing control to be in form and substance
satisfactory to the Agent, (ii) the prompt (but in no event
later than five (5) Business Days following the Agent’s
request therefor) delivery to the Agent of all original
Instruments, Chattel Paper, negotiable Documents and
certificated Equity Interests owned by it (in each case,
accompanied by stock powers, allonges or other instruments of
transfer executed in blank), (iii) notification to third
parties of the Agent’s interest in Collateral at the
Agent’s request, and (iv) the institution of litigation
against third parties as shall be prudent in order to protect
and preserve its and/or the Agent’s respective and
several interests in the Collateral.
(g) it
shall promptly, and in any event within five (5) Business Days
after the same is acquired by it, notify the Agent of any
commercial tort claim (as defined in the UCC) acquired by it
and unless otherwise consented to by the Agent, it shall enter
into a supplement to this Agreement granting to the Agent a
Lien in such commercial tort claim.
(h)
it shall place notations upon its Books and
Records and any of its financial statements to disclose the
Agent’s Lien in the Collateral.
(i) if
it retains possession of any Chattel Paper or Instrument with
the Agent’s consent, such Chattel Paper and Instruments
shall be marked with the following
legend: “This writing and the obligations
evidenced or secured hereby are subject to the security
interest of LV Administrative Services, Inc., as agent.”
Notwithstanding the foregoing, upon the reasonable request of
the Agent, such Chattel Paper and Instruments shall be
delivered to the Agent.
(j)
it shall perform in a
reasonable time all other steps requested by the Agent to
create and maintain in the Agent’s favor a valid
perfected first Lien in all Collateral subject only to
Permitted Liens.
(k)
it shall notify the Agent promptly and in
any event within five (5) Business Days after obtaining
knowledge thereof (i) of any event or circumstance that, to
its knowledge, would cause the Agent to consider any then
existing Account as no longer constituting an Eligible
Account; (ii) of any material delay in its performance of any
of its obligations to any Account Debtor; (iii) of any
assertion by any Account Debtor(s) of any claims, offsets or
counterclaims which exceed $2,500 individually or in the
aggregate; (iv) of any allowances, credits and/or monies
granted by it to Account Debtor(s) in excess of $2,500
individually or in the aggregate; (v) of all material adverse
information relating to the financial condition of an Account
Debtor or Account Debtors owing, individually or in the
aggregate, Accounts in excess of $2,500; (vi) of any material
return of goods; and (vii) of any loss, damage or destruction
of any of the Collateral which is valued in excess of $2,500
in the aggregate.
(l)
all Eligible Accounts (i) represent complete
bona fide transactions which require no further act under any
circumstances on its part to make such Accounts payable by the
Account Debtors, (ii) are not subject to any present, future
contingent offsets or counterclaims, and (iii) do not
represent bill and hold sales, consignment sales, guaranteed
sales, sale or return or other similar understandings or
obligations of any Affiliate or Subsidiary of such
Company. It has not made, nor will it make, any
agreement with any Account Debtor for any extension of time
for the payment of any Account, any compromise or settlement
for less than the full amount thereof, any release of any
Account Debtor from liability therefor, or any deduction
therefrom except (i) a discount or allowance for prompt or
early payment allowed by it in the ordinary course of its
business consistent with historical practice and as previously
disclosed to the Agent in writing and (ii) compromises and
settlements which do not exceed $2,500 in the aggregate during
any calendar month.
(m) it
shall keep and maintain its Equipment in good operating
condition, except for ordinary wear and tear, and shall make
all necessary repairs and replacements thereof so that the
value and operating efficiency shall at all times be
maintained and preserved. It shall not permit any
such items to become a Fixture to real estate or accessions to
other personal property.
(n)
it shall maintain and keep
all of its Books and Records concerning the Collateral at its
executive offices listed in Schedule
12(aa) .
(o) except
for the Telecommunications Hardware, it shall maintain and
keep the tangible Collateral at the addresses listed in
Schedule
12(aa) , provided, that it may change such locations or
open a new location, provided that it provides the Agent at
least thirty (30) days prior written notice of such changes or
new location and (ii) prior to such change or opening of a new
location where Collateral having a value of more than $50,000
will be located, it executes and delivers to the Agent such
agreements as are deemed reasonably necessary or prudent by
the Agent, including landlord agreements, mortgagee agreements
and warehouse agreements, each in form and substance
satisfactory to the Agent, to adequately protect and maintain
the Agent’s security interest in such
Collateral.
(p)
Schedule
7(p) lists all banks and other financial institutions
at which it maintains deposits and/or other accounts, and such
Schedule correctly identifies the name, address and telephone
number of each such depository, the name in which the account
is held, a description of the purpose of the account, and the
complete account number. It shall not establish any
depository or other bank account with any financial
institution (other than the accounts set forth on Schedule
7(p) ) without the Agent’s prior written
consent.
(q) On
the date hereof, its exact legal name (as indicated in the
public record of its jurisdiction of organization),
jurisdiction of organization, organizational identification
number, if any, from the jurisdiction of organization, and the
location of its chief executive office or sole place of
business or principal residence, as the case may be, are
specified on Schedule
7(q) . It has furnished to the Agent a
certified charter, certificate of incorporation or other
organization document and long-form good standing certificate
as of a date which is recent to the date hereof. It
is organized solely under the laws of the jurisdiction so
specified and has not filed any certificates of domestication,
transfer or continuance in any other
jurisdiction. Except as otherwise indicated on
Schedule
7(q) , the jurisdiction of its organization of
formation is required to maintain a public record showing it
to have been organized or formed. Except as
specified on Schedule
7(q) , it has not changed its name, jurisdiction of
organization, chief executive office or sole place of business
or its corporate structure in any way (e.g., by merger,
consolidation, change in corporate form or otherwise) within
the past five years and has not within the last five years
become bound (whether as a result of merger or otherwise) as a
grantor under a security agreement entered into by another
Person, which has not heretofore been terminated.
(r)
It will not, except upon 30 days’ prior
written notice to the Agent and delivery to the Agent of (i)
all additional financing statements and other documents
reasonably requested by the Agent to maintain the validity,
perfection and priority of the security interests provided for
herein and (ii) if applicable, a written supplement to
Schedule
12(aa) showing any additional location at which
Inventory or Equipment in excess of $25,000 in the aggregate
shall be kept: (A) change its jurisdiction of
organization or the location of its chief executive office or
sole place of business or principal residence from that
referred to in Section 7(q); (B) change its name, identity or
organizational structure; or (C) permit any of the Inventory
or Equipment (other than Telecommunications Hardware) having a
value in excess of $25,000 in the aggregate to be kept at a
location other than those listed on Schedule
12(aa) .
8.
P aym ent of Accounts .
(a) No
later than forty five (45) days following the Closing Date,
but on or prior to the date upon which the Revolving
Commitment Conditions shall be satisfied or otherwise at
Agent’s election following the occurrence of an Event of
Default which is continuing, each Company will irrevocably
direct all of its present and future Account Debtors and other
Persons obligated to make payments constituting Collateral to
make such payments directly to the lockboxes maintained by
such Company (the “ Lockboxes
”) with Wells Fargo Bank or such other financial
institution accepted by the Agent in writing as may be
selected by such Company (the “ Lockbox
Bank ”) pursuant to the terms of the certain
agreements among one or more Companies, the Agent and/or the
Lockbox Bank in form and substance acceptable to
Agent. No later than forty five (45) days following
the Closing Date, but on or prior to the date upon which the
Revolving Commitment Conditions shall be satisfied or
otherwise at Agent’s election following the occurrence
of an Event of Default which is continuing, each Company shall
and shall cause the Lockbox Bank to enter into all such
documentation acceptable to the Agent pursuant to which, among
other things, the Lockbox Bank agrees to: (a) sweep
the Lockbox on a daily basis and deposit all checks received
therein to an account designated by the Agent in writing and
(b) comply only with the instructions or other directions of
the Agent concerning the Lockbox. All of each
Company’s invoices, account statements and other written
or oral communications directing, instructing, demanding or
requesting payment of any Account of any Company or any other
amount constituting Collateral shall conspicuously direct that
all payments be made to the Lockbox or such other address as
the Agent may direct in writing. If,
notwithstanding the instructions to Account Debtors, any
Company receives any payments, such Company shall immediately
remit such payments to the Agent in their original form with
all necessary endorsements. Until so remitted, such
Company shall hold all such payments in trust for and as the
property of the Agent for the ratable benefit of the Creditor
Parties and shall not commingle such payments with any of its
other funds or property.
(b) At
the Agent’s election, following the occurrence of an
Event of Default which is continuing, the Agent may notify
each Company’s Account Debtors of the Agent’s
security interest in the Accounts, collect them directly and
charge the reasonable collection costs and expenses thereof to
Companies’ joint and several account.
9.
Co llecti on and Maintenance of Collateral
.
(a) The
Agent may verify each Company’s Accounts from time to
time, but not more often than once every three (3) months,
unless an Event of Default has occurred and is continuing or
Agent believes that such verification is necessary to preserve
or protect the Collateral, utilizing an audit control company
or any other agent of the Agent or the Lenders.
(b) Proceeds
of Accounts received by the Agent will be deemed received on
the Business Day after the Agent’s receipt of such
proceeds in good funds in dollars of the United States of
America to an account designated by the Agent. Any
amount received by the Agent after 12:00 noon (New York time)
on any Business Day shall be deemed received on the next
Business Day.
(c) As
the Agent receives the proceeds of Accounts of any Company, it
shall (i) apply such proceeds, as required, to amounts
outstanding under the Notes, and (ii) remit all such remaining
proceeds (net of interest, fees and other amounts then due and
owing to Creditor Parties hereunder) to Company Agent (for the
benefit of the applicable Companies) upon request (but no more
often than twice a week). Notwithstanding the
foregoing, following the occurrence and during the continuance
of an Event of Default, the Agent, at its option, may (A)
apply such proceeds to the Obligations in such order as the
Agent shall elect, (B) hold all such proceeds as cash
collateral for the Obligations and each Company hereby grants
to the Agent for the ratable benefit of the Creditor Parties a
security interest in such cash collateral amounts as security
for the Obligations and/or (C) do any combination of the
foregoing.
10.
Insp
ectio ns and Appraisals
. At all times during normal business hours, the
Creditor Parties, and/or any agent of any of them shall have
the right to (a) have access to, visit, inspect, review,
evaluate and make physical verification and appraisals of each
Company’s properties and the Collateral, (b) inspect,
audit and copy (or take originals if necessary) and make
extracts from each Company’s Books and Records,
including management letters prepared by the Accountants, and
(c) discuss with each Company’s directors, principal
officers, and independent accountants, each Company’s
business, assets, liabilities, financial condition, results of
operations and business prospects. Each Company
will deliver to the Agent any instrument necessary for the
Agent to obtain records from any service bureau maintaining
records for such Company. If any internally
prepared financial information, including that required under
this Section is unsatisfactory in any manner to the Agent, the
Agent may request that the Accountants review the
same.
11.
Fin
anci al and Other Reporting
. Company Agent will deliver, or cause to be
delivered, to the Creditor Parties each of the following,
which shall be in form and detail acceptable to the
Agent:
(a) As
soon as available, and in any event within ninety (90) days
after the end of each fiscal year of the Parent, each
Company’s audited financial statements with a report of
independent certified public accountants of recognized
standing selected by the Parent and acceptable to the Agent
(the “ Accountants
”), which annual financial statements shall be without
qualification (other than a “going concern”
qualification) and shall include each of the Parent’s
and each of its Subsidiaries’ balance sheet as at the
end of such fiscal year and the related statements of each of
the Parent’s and each of its Subsidiaries’ income,
retained earnings and cash flows for the fiscal year then
ended, prepared on a consolidating and Consolidated basis to
include the Parent, each Subsidiary of the Parent and each of
their respective affiliates, all in reasonable detail and
prepared in accordance with GAAP, together with (i) if and
when available, copies of any management letters prepared by
the Accountants; and (ii) a certificate of the Parent’s
President, Chief Executive Officer or Chief Financial Officer
stating that such financial statements have been prepared in
accordance with GAAP and whether or not such officer has
knowledge of the occurrence of any Default or Event of Default
hereunder and, if so, stating in reasonable detail the facts
with respect thereto;
(b) As
soon as available and in any event within forty five (45) days
after the end of each fiscal quarter of the Parent, an
unaudited/internal balance sheet and statements of income,
retained earnings and cash flows of each of the Parent’s
and each of its Subsidiaries’ as at the end of and for
such quarter and for the year to date period then ended,
prepared on a consolidating and Consolidated basis to include
the Parent, each Subsidiary of the Parent and each of their
respective affiliates, in reasonable detail and stating in
comparative form the figures for the corresponding date and
periods in the previous year, all prepared in accordance with
GAAP, subject to year-end adjustments and accompanied by a
certificate of the Parent’s President, Chief Executive
Officer or Chief Financial Officer, stating (i) that such
financial statements have been prepared in accordance with
GAAP, subject to year-end audit adjustments, and (ii) whether
or not such officer has knowledge of the occurrence of any
Default or Event of Default hereunder not theretofore reported
and remedied and, if so, stating in reasonable detail the
facts with respect thereto;
(c) As
soon as available and in any event within thirty (30) days
after the end of each calendar month, an unaudited/internal
balance sheet and statements of income, retained earnings and
cash flows of each of the Parent and its Subsidiaries as at
the end of and for such month and for the year to date period
then ended, prepared on a consolidating and Consolidated basis
to include the Parent, each Subsidiary of the Parent and each
of their respective affiliates, in reasonable detail and
stating in comparative form the figures for the corresponding
date and periods in the previous year, all prepared in
accordance with GAAP, subject to year-end adjustments and
accompanied by a certificate of the Parent’s President,
Chief Executive Officer or Chief Financial Officer, stating
(i) that such financial statements have been prepared in
accordance with GAAP, subject to year-end audit adjustments,
and (ii) whether or not such officer has knowledge of the
occurrence of any Default or Event of Default hereunder not
theretofore reported and remedied and, if so, stating in
reasonable detail the facts with respect thereto;
(d) Within
thirty (30) days after the end of each month (or more
frequently if the Agent so requests), agings of each
Company’s Accounts, unaudited trial balances and their
accounts payable and a calculation of each Company’s
Accounts and/or Eligible Accounts, provided, however, that if
the Agent shall request the foregoing information more often
than as set forth in the immediately preceding clause, each
Company shall have fifteen (15) days from each such request to
comply with the Agent’s demand;
(e) Promptly
after (i) the filing thereof, copies of the Parent’s
most recent registration statements and annual, quarterly,
monthly or other regular reports which the Parent files with
the Securities and Exchange Commission (the “
SEC
”), and (ii) the issuance thereof, copies of such
financial statements, reports and proxy statements as the
Parent shall send to its stockholders;
(f) Together
with each delivery of any financial statement pursuant to
Section 11(a), 11(b) or 11(c), a Compliance Certificate duly
executed by the President, Chief Executive Officer or Chief
Financial Officer of the Parent that, among other things, (i)
states that such financial statements have been prepared in
accordance with GAAP, subject to year-end audit adjustments
and (ii) states that no Default or Event of Default is
continuing as of the date of delivery of such Compliance
Certificate or, if a Default or Event of Default is
continuing, states the nature thereof and the action that the
Companies propose to take with respect thereto;
and
(g) Within
fifteen (15) days after the end of each second fiscal quarter
of each Company (or more frequently if the Agent so requests)
a listing by location of Telecommunications
Hardware.
(h) Each
Company shall deliver, or cause the applicable Subsidiary of
each Company to deliver, such other information as the Agent
shall reasonably request.
12.
Ad
dition al Representations and
Warranties . Each Company hereby represents
and warrants to each Creditor Party as follows:
(a)
Organization,
Good Standing and Qualification . It and
each of its Subsidiaries is a corporation, partnership or
limited liability company, as the case may be, duly organized,
validly existing and in good standing under the laws of its
jurisdiction of organization. It and each of its
Subsidiaries has the corporate, limited liability company or
partnership, as the case may be, power and
authority to own and operate its properties and assets and,
insofar as it is or shall be a party thereto, to (i) execute
and deliver this Agreement and the Ancillary Agreements, (ii)
to issue and sell the Notes, (iii) to issue and sell the
Warrants and the shares of Common Stock issuable upon exercise
of the Warrants (the “ Warrant
Shares ”), and to (iv) carry out the provisions
of this Agreement and the Ancillary Agreements and to carry on
its business as presently conducted. It and each of
its Subsidiaries is duly qualified and is authorized to do
business and is in good standing as a foreign corporation,
partnership or limited liability company, as the case may be,
in all jurisdictions in which the nature or location of its
activities and of its properties (both owned and leased) makes
such qualification necessary, except for those jurisdictions
in which failure to do so has not had, or could not reasonably
be expected to have, individually or in the aggregate, a
Material Adverse Effect.
(b)
Subsidiaries
. Each direct and indirect Subsidiary of each
Company, the direct owner of such Subsidiary and its
percentage ownership thereof, is set forth on Schedule
12(b) .
(c)
Capitalization;
Voting Rights .
(i) The
authorized capital stock of the Parent, as of the date hereof
consists of 185,000,000 shares, of which 175,000,000 are
shares of Common Stock, par value $0.001 per share, 65,149,522
shares of which are issued and outstanding, and 10,000,000 are
shares of preferred stock, par value $0.0001 per share of
which no shares of preferred stock are issued and
outstanding. The authorized, issued and outstanding
capital stock of each other Company and each Subsidiary of
each Company is set forth on Schedule
12(c) .
(ii) Except
as disclosed on Schedule
12(c) , other than: (A) the shares reserved
for issuance under the Parent’s stock option plans; and
(B) shares which may be issued pursuant to this Agreement and
the Ancillary Agreements, there are no outstanding options,
warrants, rights (including conversion or preemptive rights
and rights of first refusal), proxy or stockholder agreements,
or arrangements or agreements of any kind for the purchase or
acquisition from the Parent of any of its
securities. Except as disclosed on Schedule
12(c) , neither the offer or issuance of any of the
Notes or the Warrants, or the issuance of any of the Warrant
Shares, nor the consummation of any transaction contemplated
hereby will result in a change in the price or number of any
securities of the Parent outstanding, under anti-dilution or
other similar provisions contained in or affecting any such
securities.
(iii) All
issued and outstanding shares of the Parent’s Common
Stock: (A) have been duly authorized and validly
issued and are fully paid and non-assessable; and (B) were
issued in compliance with all applicable state and federal
laws concerning the issuance of such securities.
(iv) The
rights, preferences, privileges and restrictions of the shares
of the Common Stock are as stated in the Parent’s
Certificate of Incorporation (the Certificate of Incorporation
and all filed amendments thereto, collectively, the “
Charter
”). The Warrant Shares have been duly and
validly reserved for issuance. When issued in
compliance with the provisions of this Agreement and the
Parent’s Charter, the Securities will be validly issued,
fully paid and non-assessable, and will be free of any liens
or encumbrances; provided
, however ,
that the Securities may be subject to restrictions on transfer
under state and/or federal securities laws as set forth herein
or as otherwise required by such laws at the time a transfer
is proposed.
(d)
Authorization;
Binding Obligations . All corporate,
partnership or limited liability company, as the case may be,
action on its and its Subsidiaries’ part (including
their respective officers and directors) necessary for the
authorization of this Agreement and the Ancillary Agreements,
the performance of all of its and its Subsidiaries’
obligations hereunder and under the Ancillary Agreements on
the Closing Date and, the authorization, issuance and delivery
of the Notes and the Warrants has been taken or will be taken
prior to the Closing Date. This Agreement and the
Ancillary Agreements, when executed and delivered and to the
extent it is a party thereto, will be its and its
Subsidiaries’ valid and binding obligations enforceable
against each such Person in accordance with their terms,
except:
(i)
as limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general
application affecting enforcement of creditors’ rights;
and
(ii) general
principles of equity that restrict the availability of
equitable or legal remedies.
The
issuance of the Notes is not and will not be subject to any
preemptive rights or rights of first refusal that have not
been properly waived or complied with. The issuance
of the Warrants and the subsequent exercise of the Warrants
for Warrant Shares are not and will not be subject to any
preemptive rights or rights of first refusal that have not
been properly waived or complied with.
(e)
Liabilities;
Solvency . (i) Neither it nor any of its
Subsidiaries has any liabilities, except current liabilities
incurred in the ordinary course of business and liabilities
disclosed in any Exchange Act Filings and as set forth on
Schedule
12(e) .
(ii) Both
before and after giving effect to (A) the Loans incurred on
the Closing Date or such other date as Loans requested
hereunder are made or incurred, (B) the disbursement of the
proceeds of, or the assumption of the liability in respect of,
such Loans pursuant to the instructions or agreement of any
Company, (C) the payment and accrual of all transaction costs
in connection with the foregoing and (D) the consummation of
the transactions contemplated herein and in the Ancillary
Agreements, each Company and each Subsidiary of each Company,
is and will be, Solvent.
(f)
Agreements;
Action . Except as set forth on Schedule
12(f) or as disclosed in any Exchange Act
Filings:
(i)
There are no agreements, understandings,
instruments, contracts, proposed transactions, judgments,
orders, writs or decrees to which it or any of its
Subsidiaries is a party or to its knowledge by which it is
bound which may involve: (A) obligations
(contingent or otherwise) of, or payments to, it or any of its
Subsidiaries in excess of $50,000 (other than obligations of,
or payments to, it or any of its Subsidiaries arising from
purchase or sale agreements entered into in the ordinary
course of business); or (B) the transfer or license of any
patent, copyright, trade secret or other proprietary right to
or from it (other than licenses arising from the purchase of
“off the shelf” or other standard products); or
(C) provisions restricting the development, manufacture or
distribution of its or any of its Subsidiaries’ products
or services; or (D) indemnification by it or any of its
Subsidiaries with respect to infringements of proprietary
rights.
(ii) Since
October 31, 2007 (the “ Balance Sheet
Date ”), neither it nor any of its Subsidiaries
has: (A) declared or paid any dividends, or
authorized or made any distribution upon or with respect to
any class or series of its capital stock; (B) incurred any
indebtedness for money borrowed or any other liabilities
(other than the Obligations incurred hereunder and under the
Ancillary Agreements and ordinary course obligations)
individually in excess of $50,000 or, in the case of
indebtedness and/or liabilities individually less than
$50,000, in excess of $100,000 in the aggregate; (C) made any
loans or advances to any Person not in excess, individually or
in the aggregate, of $100,000, other than ordinary advances
for travel expenses; or (D) sold, exchanged or otherwise
disposed of any of its assets or rights, other than the sale
of its Inventory in the ordinary course of
business.
(iii) For
the purposes of subsections (i) and (ii) of this Section
12(f), all indebtedness, liabilities, agreements,
understandings, instruments, contracts and proposed
transactions involving the same Person (including Persons it
or any of its applicable Subsidiaries has reason to believe
are affiliated therewith or with any Subsidiary thereof) shall
be aggregated for the purpose of meeting the individual
minimum dollar amounts of such subsections.
(iv) the
Parent maintains disclosure controls and procedures (“
Disclosure
Controls ”) designed to ensure that information
required to be disclosed by the Parent in the reports that it
files or submits under the Exchange Act is recorded,
processed, summarized, and reported, within the time periods
specified in the rules and forms of the SEC.
(v) Each
Company makes and keeps books, records, and accounts, that, in
reasonable detail, accurately and fairly reflect the
transactions and dispositions of its assets. Each
Company maintains internal control over financial reporting
(“ Financial
Reporting Controls ”) designed by, or under the
supervision of, its principal executive and principal
financial officers, and effected by its board of directors,
management, and other personnel, to provide reasonable
assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes
in accordance with GAAP, including that:
(1) transactions
are executed in accordance with management’s general or
specific authorization;
(2) unauthorized
acquisition, use, or disposition of the Parent’s assets
that could have a material effect on the financial statements
are prevented or timely detected;
(3) transactions
are recorded as necessary to permit preparation of financial
statements in accordance with GAAP, and that its receipts and
expenditures are being made only in accordance with
authorizations of the Parent’s management and board of
directors;
(4) transactions
are recorded as necessary to maintain accountability for
assets; and
(5) the
recorded accountability for assets is compared with the
existing assets at reasonable intervals, and appropriate
action is taken with respect to any differences.
(vi) There
is no weakness in any of its Disclosure Controls or Financial
Reporting Controls that is required to be disclosed in any of
the Exchange Act Filings, except as so disclosed.
(g)
Obligations to
Related Parties . Except as set forth on
Schedule
12(g) , neither it nor any of its Subsidiaries has any
obligations to their respective officers, directors,
stockholders or employees other than:
(i)
for payment of salary for services
rendered and for bonus payments;
(ii)
reimbursement for reasonable expenses
incurred on its or its Subsidiaries’
behalf;
(iii) for
other standard employee benefits made generally available to
all employees (including stock option agreements outstanding
under any stock option plan approved by its and its
Subsidiaries’ Board of Directors, as applicable);
and
(iv) obligations
listed in its and each of its Subsidiary’s financial
statements or disclosed in any of the Parent’s Exchange
Act Filings.
Except
as described above or set forth on Schedule
12(g) , none of its officers, directors or, to the best
of its knowledge, key employees or stockholders, any of its
Subsidiaries or any members of their immediate families, are
indebted to it or any of its Subsidiaries, individually or in
the aggregate, in excess of $50,000 or have any direct or
indirect ownership interest in any Person with which it or any
of its Subsidiaries is affiliated or with which it or any of
its Subsidiaries has a business relationship, or any Person
which competes with it or any of its Subsidiaries, other than
passive investments in publicly traded companies (representing
less than one percent (1.0%) of such company) which may
compete with it or any of its Subsidiaries. Except
as described above or on Schedule 12(g), none of its officers,
directors or stockholders, or any member of their immediate
families, is, directly or indirectly, interested in any
material contract with it or any of its Subsidiaries and no
agreements, understandings or proposed transactions are
contemplated between it or any of its Subsidiaries and any
such Person. Except as set forth on Schedule
12(g) , neither it nor any of its Subsidiaries is a
guarantor or indemnitor of any indebtedness of any other
Person.
(h)
Changes
. Since the Balance Sheet Date, except as disclosed
in any Exchange Act Filing or
in any Schedule to this Agreement or to any of the Ancillary
Agreements, there has not been:
(i)
any change in its or any of its
Subsidiaries’ business, assets, liabilities, condition
(financial or otherwise), properties, operations or prospects,
which, individually or in the aggregate, has had, or could
reasonably be expected to have, a Material Adverse
Effect;
(ii)
any resignation or termination of any of its
or its Subsidiaries’ officers, key employees or groups
of employees;
(iii) any
material change, except in the ordinary course of business, in
its or any of its Subsidiaries’ contingent obligations
by way of guaranty, endorsement, indemnity, warranty or
otherwise;
(iv) any
damage, destruction or loss, whether or not covered by
insurance, which has had, or could reasonably be expected to
have, individually or in the aggregate, a Material Adverse
Effect;
(v)
any waiver by it or any of its
Subsidiaries of a valuable right or of a material debt owed to
it;
(vi) any
direct or indirect material loans made by it or any of its
Subsidiaries to any of its or any of its Subsidiaries’
stockholders, employees, officers or directors, other than
advances made in the ordinary course of business;
(vii) any
material change in any compensation arrangement or agreement
with any employee, officer, director or
stockholder;
(viii) any
declaration or payment of any dividend or other distribution
of its or any of its Subsidiaries’ assets;
(ix) any
labor organization activity related to it or any of its
Subsidiaries;
(x)
any debt, obligation or liability
incurred, assumed or guaranteed by it or any of its
Subsidiaries, except those for immaterial amounts and for
current liabilities incurred in the ordinary course of
business;
(xi) any
sale, assignment, transfer, abandonment or other disposition
of any Intellectual Property or other intangible assets owned
by the Company or any of its Subsidiaries;
(xii) any
change in any material agreement to which it or any of its
Subsidiaries is a party or by which either it or any of its
Subsidiaries is bound which, either individually or in the
aggregate, has had, or could reasonably be expected to have,
individually or in the aggregate, a Material Adverse
Effect;
(xiii) any
other event or condition of any character that, either
individually or in the aggregate, has had, or could reasonably
be expected to have, individually or in the aggregate, a
Material Adverse Effect; or
(xiv) any
arrangement or commitment by it or any of its Subsidiaries to
do any of the acts described in subsection (i) through (xiii)
of this Section 12(h).
(i)
Title to
Properties and Assets; Liens, Etc. Except
as set forth on Schedule
12(i) , it and each of its Subsidiaries has good and
marketable title to their respective properties and assets
(tangible or intangible), and good title to its leasehold
interests, in each case subject to no Lien, other than
Permitted Liens. All facilities, Equipment,
Fixtures, vehicles and other properties owned, leased or used
by it or any of its Subsidiaries are in good operating
condition and repair and are reasonably fit and usable for the
purposes for which they are being used. Except as
set forth on Schedule
12(i) , it and each of its Subsidiaries is in
compliance with all material terms of each lease to which it
is a party or is otherwise bound.
(j)
Intellectual
Property .
(i) Each
Company and each of its Subsidiaries owns or possesses
sufficient legal rights to use all Intellectual Property
necessary for its business as now conducted and, to the
Company’s knowledge, as presently proposed to be
conducted. There are no settlements or consents,
covenants not to sue, non-assertion assurances, or releases to
which any Company or any of its Subsidiaries is bound which
adversely affects its rights to own or use any Intellectual
Property.
(ii) To
each Company’s knowledge, the conduct of such
Company’s and each of its Subsidiaries’ business
as now conducted, and as presently proposed to be conducted,
does not (and will not) result in any infringement or other
violation of the rights of others.
(iii)
Schedule
12(j) (as such schedule may be amended or supplemented
from time to time) sets forth a true and complete list of (A)
all registrations and applications for Intellectual Property
owned by each Company or any of its Subsidiaries filed or
issued by any Intellectual Property registry and (B) all
Intellectual Property licenses which are either material to
the business of any Company or any of its Subsidiaries or
relate to any material portion of a Company’s or any of
its Subsidiaries’ Inventory, including licenses for
standard software having a replacement value of more than
$10,000. None of such Intellectual Property
licenses are reasonably likely to be construed as an
assignment of the licensed Intellectual Property to such
Company or any of its Subsidiaries.
(iv) Except
as disclosed on Schedule
12(j)(iv) , there are no claims pending or, to best of
any Company’s knowledge, threatened and neither any
Company nor any of its Subsidiaries has received any other
communications, alleging that, any Company or any of its
Subsidiaries has infringed, diluted, misappropriated, or
otherwise violated any Intellectual Property of any other
person or entity, nor is any Company aware of any basis
therefore.
(v) No
Company is aware of any infringement diluted, misappropriated,
or other violation of its Intellectual Property by any other
person or entity.
(vi) No
Company nor any of its Subsidiaries utilizes any inventions,
trade secrets or other Intellectual Property of any of its
employees, officers or contractors (or former employees,
officers, or contractors) except for inventions, trade secrets
or other Intellectual Property that is owned by a Company or
any of its Subsidiaries as a matter of law or have been
rightfully assigned to a Company or any of its
Subsidiaries.
(k)
Compliance with
Other Instruments . Neither it nor any of
its Subsidiaries is in violation or default of (i) any term of
its Charter, Bylaws or Limited Liability Company Agreement, or
(B) any provision of any indebtedness, mortgage, indenture,
contract, agreement or instrument to which it is party or by
which it is bound or of any judgment, decree, order or writ,
which violation or default, in the case of this clause (y),
has had, or could reasonably be expected to have, either
individually or in the aggregate, a Material Adverse
Effect. The execution, delivery and performance of
and compliance with this Agreement and the Ancillary
Agreements to which it is a party, and the issuance of the
Notes and the other Securities each pursuant hereto and
thereto, will not, with or without the passage of time or
giving of notice, result in any such material violation, or be
in conflict with or constitute a default under any such term
or provision, or result in the creation of any Lien upon any
of its or any of its Subsidiary’s properties or assets
(other than the Liens created by this Agreement and the
Ancillary Agreements) or the suspension, revocation,
impairment, forfeiture or non-renewal of any permit, license,
authorization or approval applicable to it or any of its
Subsidiaries, their businesses or operations or any of their
assets or properties.
(l)
Litigation
. Except as set forth on Schedule
12(l) , there is no action, suit, proceeding or
investigation pending or, to its knowledge, currently
threatened against it or any of its Subsidiaries that prevents
it or any of its Subsidiaries from entering into this
Agreement or the Ancillary Agreements, or from consummating
the transactions contemplated hereby or thereby, or which has
had, or could reasonably be expected to have, either
individually or in the aggregate, a Material Adverse Effect,
or could result in any change in its or any of its
Subsidiaries’ current equity ownership, nor is it aware
that there is any basis to assert any of the
foregoing. Neither it nor any of its Subsidiaries
is a party to or subject to the provisions of any order, writ,
injunction, judgment or decree of any court or government
agency or instrumentality. There is no action,
suit, proceeding or investigation by it or any of its
Subsidiaries currently pending or which it or any of its
Subsidiaries intends to initiate other than those relating to
collection actions in the ordinary course of its or its
Subsidiaries business.
(m)
Tax
Returns and Payments . It and each of its
Subsidiaries has timely filed all tax returns (federal, state
and local) required to be filed by it. All taxes
shown to be due and payable on such returns, any assessments
imposed, and all other taxes due and payable by it and each of
its Subsidiaries on or before the Closing Date, have been paid
or will be paid prior to the time they become
delinquent. Except as set forth on Schedule
12(m) , neither it nor any of its Subsidiaries has been
advised:
(i)
that any of its returns, federal, state or
other, have been or are being audited as of the date hereof;
or
(ii) of
any adjustment, deficiency, assessment or court decision in
respect of its federal, state or other taxes.
Neither
it nor any of its Subsidiaries has any knowledge of any
liability of any tax to be imposed upon its properties or
assets as of the date of this Agreement that is not adequately
provided for.
(n)
Employees
. Except as set forth on Schedule
12(n) , neither it nor any of its Subsidiaries has any
collective bargaining agreements with any of its
employees. There is no labor union organizing
activity pending or, to its knowledge, threatened with respect
to it or any of its Subsidiaries. Except as
disclosed in the Exchange Act Filings or on Schedule
12(n) , neither it nor any of its Subsidiaries is a
party to or bound by any currently effective employment
contract, deferred compensation arrangement, bonus plan,
incentive plan, profit sharing plan, retirement agreement or
other employee compensation plan or agreement. To
its knowledge, none of its or any of its Subsidiaries’
employees, nor any consultant with whom it or any of its
Subsidiaries has contracted, is in violation of any term of
any employment contract, proprietary information agreement or
any other agreement relating to the right of any such
individual to be employed by, or to contract with, it or any
of its Subsidiaries because of the nature of the business to
be conducted by it or any of its Subsidiaries; and to its
knowledge the continued employment by it and its Subsidiaries
of their present employees, and the performance of its and its
Subsidiaries contracts with its independent contractors, will
not result in any such violation. Neither it nor
any of its Subsidiaries is aware that any of its or any of its
Subsidiaries’ employees is obligated under any contract
(including licenses, covenants or commitments of any nature)
or other agreement, or subject to any judgment, decree or
order of any court or administrative agency that would
interfere with their duties to it or any of its
Subsidiaries. Neither it nor any of its
Subsidiaries has received any notice alleging that any such
violation has occurred. Except for employees who
have a current effective employment agreement with it or any
of its Subsidiaries, none of its or any of its
Subsidiaries’ employees has been granted the right to
continued employment by it or any of its Subsidiaries or to
any material compensation following termination of employment
with it or any of its Subsidiaries. Except as set
forth on Schedule
12(n) , neither it nor any of its Subsidiaries is aware
that any officer, key employee or group of employees intends
to terminate his, her or their employment with it or any of
its Subsidiaries, as applicable, nor does it or any of its
Subsidiaries have a present intention to terminate the
employment of any officer, key employee or group of
employees.
(o)
Registration
Rights and Voting Rights . Except as set
forth on Schedule
12(o) and except as disclosed in Exchange Act Filings,
neither it nor any of its Subsidiaries is presently under any
obligation, and neither it nor any of its Subsidiaries has
granted any rights, to register any of its or any of its
Subsidiaries’ presently outstanding securities or any of
its securities that may hereafter be issued. Except
as set forth on Schedule
12(o) and except as disclosed in Exchange Act Filings,
to its knowledge, none of its or any of its
Subsidiaries’ stockholders has entered into any
agreement with respect to its or any of its
Subsidiaries’ voting of equity securities.
(p)
Compliance with
Laws; Permits . Neither it nor any of its
Subsidiaries is in violation of the Sarbanes-Oxley Act of 2002
or any SEC related regulation or rule or any rule of the
Principal Market promulgated thereunder or any other
applicable statute, rule, regulation, order or restriction of
any domestic or foreign government or any instrumentality or
agency thereof in respect of the conduct of its business or
the ownership of its properties which has had, or could
reasonably be expected to have, either individually or in the
aggregate, a Material Adverse Effect. No
governmental orders, permissions, consents, approvals or
authorizations are required to be obtained and no
registrations or declarations are required to be filed in
connection with the execution and delivery of this Agreement
or any Ancillary Agreement and the issuance of any of the
Securities, except such as have been duly and validly obtained
or filed, or with respect to any filings that must be made
after the Closing Date, as will be filed in a timely
manner. It and each of its Subsidiaries has all
material franchises, permits, licenses and any similar
authority necessary for the conduct of its business as now
being conducted by it, the lack of which could, either
individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect.
(q)
Environmental
and Safety Laws . There are no pending
actions, suits or proceedings by or before any arbitrator or
Governmental Authority pending, or to the knowledge of any
Company threatened against or affecting any Company or any of
its Subsidiaries under Environmental Law. Each
Company and each of its Subsidiaries (i) are and have been in
full compliance with Environmental Law and have no knowledge
of any material expenditure that will be required to maintain
such compliance in the future; (ii) have not received any
notice or claim alleging that they are not in full compliance
with or otherwise have liability under Environmental Law; and
(iii) have no knowledge of any facts or circumstances that
could reasonably be expected to form the basis of any such
claim. No Hazardous Materials are present or are
used or have been used, stored, or released by any Company or
any of its Subsidiaries, or to their knowledge by any other
Person, at any property currently or formerly owned, leased or
operated by any Company or any of its Subsidiaries or disposed
of at any other location by any Company or any of its
Subsidiaries except (i) in compliance with Environmental Law;
and (2) in quantities and under circumstances that would not
require investigation or remediation by any Company or any of
its Subsidiaries. No Company nor any of its
Subsidiaries has assumed by contract or by operation of law
the liabilities arising under Environmental Law of any other
Person. Each Company and each of its Subsidiaries
have provided to Agent all material reports, audits and
assessments in their possession or control regarding the
environmental condition of any property currently or formerly
owned or operated by any Company or any of its
Subsidiaries.
(r)
Valid
Offering . Assuming the accuracy of the
representations and warranties of the Lenders contained in
this Agreement, the offer and issuance of the Securities will
be exempt from the registration requirements of the Securities
Act of 1933, as amended (the “ Securities
Act ”), and will have been registered or
qualified (or are exempt from registration and qualification)
under the registration, permit or qualification requirements
of all applicable state securities laws.
(s)
Full
Disclosure . It and each of its Subsidiaries
has provided the Lenders with all information requested by the
Lenders in connection with the Lenders’ decision to
enter into this Agreement, including all information each
Company and each of its Subsidiaries believe is reasonably
necessary to make such investment decision. Neither
this Agreement, the Ancillary Agreements nor the exhibits and
schedules hereto and thereto nor any other document, including
without limitation the responses contained in any
questionnaire provided to any Company by the Agent, delivered
by it or any of its Subsidiaries to the Agent or their
attorneys or agents in connection herewith or therewith or
with the transactions contemplated hereby or thereby, contain
any untrue statement of a material fact nor omit to state a
material fact necessary in order to make the statements
contained herein or therein, in light of the circumstances in
which they are made, not misleading. Any financial
projections and other estimates provided to the Lenders by it
or any of its Subsidiaries were based on its and its
Subsidiaries’ experience in the industry and on
assumptions of fact and opinion as to future events which it
or any of its Subsidiaries, at the date of the issuance of
such projections or estimates, believed to be
reasonable.
(t)
Insurance
. It and each of its Subsidiaries has general
commercial, product liability, fire and casualty insurance
policies with coverages which it believes are customary for
companies similarly situated to it and each of its
Subsidiaries in the same or similar business.
(u)
SEC
Reports and Financial Statements . Except as
set forth on Schedule
12(u) , it and each of its Subsidiaries has filed all
proxy statements, reports and other documents required to be
filed by it under the Exchange Act. The Parent has
furnished the Lenders with copies of: (i) its
Annual Report on Form 10-KSB for its fiscal years ended
October 31, 2007 and October 31, 2006; and (ii) its Quarterly
Reports on Form 10-QSB for its fiscal quarters ended January
31, 2008, July 31, 2007, April 30, 2007 and January 31, 2007,
and the Form 8-K filings which it has made during its fiscal
year 2008 to date (collectively, the “ SEC
Reports ”). Except as set forth on
Schedule
12(u) , each SEC Report was, at the time of its filing,
in substantial compliance with the requirements of its
respective form and none of the SEC Reports, nor the financial
statements (and the notes thereto) included in the SEC
Reports, as of their respective filing dates, contained any
untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances
under which they were made, not misleading. Such
financial statements have been prepared in accordance with
GAAP applied on a consistent basis during the periods involved
(except (i) as may be otherwise indicated in such financial
statements or the notes thereto or (ii) in the case of
unaudited interim statements, to the extent they may not
include footnotes or may be condensed) and fairly present in
all material respects the financial condition, the results of
operations and cash flows of the Parent and its Subsidiaries,
on a Consolidated basis, as of, and for, the periods presented
in each such SEC Report.
(v)
Listing
. The Common Stock is listed or quoted, as
applicable, on the Principal Market and satisfies all
requirements for the continuation of such listing or
quotation, as applicable, and the Parent shall do all things
necessary for the continuation of such listing or quotation,
as applicable. The Parent has not received any
notice that its Common Stock will be delisted from, or no
longer quoted on, as applicable, the Principal Market or that
its Common Stock does not meet all requirements for such
listing or quotation, as applicable.
(w)
No
Integrated Offering . Neither it, nor any of
its Subsidiaries nor any of its Affiliates, nor any Person
acting on its or their behalf, has directly or indirectly made
any offers or sales of any security or solicited any offers to
buy any security under circumstances that would cause the
offering of the Securities pursuant to this Agreement or any
Ancillary Agreement to be integrated with prior offerings by
it for purposes of the Securities Act which would prevent it
from issuing the Securities pursuant to Rule 506 under the
Securities Act, or any applicable exchange-related stockholder
approval provisions, nor will it or any of its Affiliates or
Subsidiaries take any action or steps that would cause the
offering of the Securities to be integrated with other
offerings.
(x)
Stop
Transfer . The Securities are restricted
securities as of the date of this
Agreement. Neither it nor any of its Subsidiaries
will issue any stop transfer order or other order impeding the
sale and delivery of any of the Securities at such time as the
Securities are registered for public sale or an exemption from
registration is available, except as required by state and
federal securities laws.
(y)
Dilution
. It specifically acknowledges that the
Parent’s obligation to issue the shares of Common Stock
upon exercise of the Warrants is binding upon the Parent and
enforceable regardless of the dilution such issuance may have
on the ownership interests of other shareholders of the
Parent.
(z)
Patriot
Act . It certifies that, to the best of its
knowledge, neither it nor any of its Subsidiaries has been
designated, nor is or shall be owned or controlled, by a
“suspected terrorist” as defined in Executive
Order 13224. It hereby acknowledges that each of
the Creditor Parties seeks to comply with all applicable laws
concerning money laundering and related
activities. In furtherance of those efforts, it
hereby represents, warrants and covenants that: (i)
none of the cash or property that it or any of its
Subsidiaries will pay or will contribute to any Creditor Party
has been or shall be derived from, or related to, any activity
that is deemed criminal under United States law; and (ii) no
contribution or payment by it or any of its Subsidiaries to
any Creditor Party, to the extent that they are within its or
any such Subsidiary’s control shall cause such Creditor
Party to be in violation of the United States Bank Secrecy
Act, the United States International Money Laundering Control
Act of 1986 or the United States International Money
Laundering Abatement and Anti-Terrorist Financing Act of
2001. It shall promptly notify the Agent if any of
these representations, warranties and covenants ceases to be
true and accurate regarding it or any of its
Subsidiaries. It shall provide any Creditor Party
with any additional information regarding it and each
Subsidiary thereof that such Creditor Party deems necessary or
convenient to ensure compliance with all applicable laws
concerning money laundering and similar
activities. It understands and agrees that if at
any time it is discovered that any of the foregoing
representations, warranties and covenants are incorrect, or if
otherwise required by applicable law or regulation related to
money laundering or similar activities, the Creditor Parties
may undertake appropriate actions to ensure compliance with
applicable law or regulation, including but not limited to
segregation and/or redemption of any Lender’s investment
in it. It further understands that the Creditor
Parties may release confidential information about it and its
Subsidiaries and, if applicable, any underlying beneficial
owners, to proper authorities if such Creditor Party, in its
sole discretion, determines that it is in the best interests
of such Creditor Party in light of relevant rules and
regulations under the laws set forth in subsection (ii)
above.
(aa)
Company Name;
Locations of Offices, Records and
Collateral. Schedule 12(aa) sets forth each
Company’s name as it appears in official filings in its
jurisdiction of organization, the type of entity of each
Company, the organizational identification number issued by
each Company’s jurisdiction of organization or a
statement that no such number has been issued, each
Company’s jurisdiction of organization, and the location
of each Company’s chief executive office, corporate
offices, warehouses, other locations of Collateral and
locations where records with respect to Collateral are kept
(including in each case the county of such locations) and,
except as set forth in such Schedule
12(aa) , such locations have not changed during the
preceding twelve months. As of the Closing Date,
during the prior five years, except as set forth in
Schedule
12(aa) , no Company has been known as or conducted
business in any other name (including trade
names). Each Company has only one jurisdiction of
organization.
(bb)
ERISA
. Based upon the Employee Retirement Income
Security Act of 1974 (“ ERISA
”), and the regulations and published interpretations
thereunder: (i) neither it nor any of its
Subsidiaries has engaged in any Prohibited Transactions (as
defined in Section 406 of ERISA and Section 4975 of the Code);
(ii) it and each of its Subsidiaries has met all applicable
minimum funding requirements under Section 302 of ERISA in
respect of its plans; (iii) neither it nor any of its
Subsidiaries has any knowledge of any event or occurrence
which would cause the Pension Benefit Guaranty Corporation to
institute proceedings under Title IV of ERISA to terminate any
employee benefit plan(s); (iv) neither it nor any of its
Subsidiaries has any fiduciary responsibility for investments
with respect to any plan existing for the benefit of persons
other than its or such Subsidiary’s employees; and (v)
neither it nor any of its Subsidiaries has withdrawn,
completely or partially, from any multi-employer pension plan
so as to incur liability under the Multiemployer Pension Plan
Amendments Act of 1980.
(cc)
Status of
Companies . Unless all of the Obligations
are properly classified as debt for U.S. federal income tax
purposes, each Company is a corporation for U.S. federal
income tax purposes.
(dd)
Schedule
12(dd) lists a true and correct description of all
Telecommunications Licenses and Telecommunications Contracts
executed by, issued in the name of, or assigned or transferred
to each Company and are in full force and effect and have been
duly and validly executed by, issued in the name of, or
validly assigned to, the applicable Company and true, complete
and correct copies of each Telecommunications License have
been delivered to the Agent. None of the
Telecommunications Licenses is subject to any conditions or
requirements that are not generally imposed by the FCC,
applicable State PUC, or applicable Foreign Regulatory
Authority upon holders of such Telecommunications
Licenses. None of the Telecommunications Contracts
contain any material terms or conditions that are inconsistent
with the requirements of Sections 251 and 252 of the
Telecommunications Act of 1996, 46 USC Section 151 et
seq. The Telecommunications Licenses set forth on
Schedule
12(dd) are the only material licenses, permits,
authorizations, consents or approvals required from the FCC,
any applicable State PUC, or Foreign Regulatory Authority for
the operation of the telecommunications or communications
businesses of the Company as those businesses are currently
conducted.
(ee) Each
Company (i) has duly filed all material reports and other
filings which are required to be filed under the
Communications Laws and has paid all fees due to the FCC, any
State PUC or Foreign Regulatory Authority, including but not
limited to the submission of all required FCC Forms 499-A and
Forms 499-Q and the payment of all Universal Service Fund
fees, all Telecommunications Relay Service Fund fees, all
North American Numbering Plan Fund fees, all Local Number
Portability Fund fees, all regulatory fees, and all franchise
fees and (ii) is in compliance in all material respects with
the Communications Laws. All information provided
by or on behalf of the Company in any filing with the FCC, any
State PUC or Foreign Regulatory Authority was, at the time of
filing, true, correct and complete in all material respects
when made, and the FCC, applicable State PUC, or Foreign
Regulatory Authority has been notified of any material changes
in such information as may be required by the Communications
Laws.
(ff) Each
Company has obtained all the prior consents or authorizations
of, or made all required notices to, the FCC, any State PUC or
Foreign Regulatory Authority, and obtained all prior consents
to assign or transfer all Telecommunications Contracts
required for the execution and delivery of this Agreement and
the Ancillary Agreements.
(gg) Neither
execution and delivery of this Agreement nor any Ancillary
Agreement will (i) violate or conflict with the Communications
Laws; (ii) result in or cause a forfeiture, suspension,
termination, revocation, impairment, adverse modification or
non-renewal of any of the Telecommunications Licenses or
Telecommunications Contracts.
(hh) Except
with respect to general rulemaking and similar proceedings
relating generally to the telecommunications or communications
industries, (i) there is no adverse judgment, decree or order
issued against any Company by the FCC, any applicable State
PUC, or Foreign Regulatory Authority; and (ii) there are no
proceedings or investigations pending or, to the knowledge of
any Company, threatened from or before the FCC, a State PUC,
or Foreign Regulatory Authority naming any Company, its
Telecommunications Licenses, or its Telecommunications
Contracts.
13.
Cov
ena nts . Each Company, as
applicable, covenants and agrees with the Creditor Parties as
follows:
(a)
Stop-Orders
. The Parent shall advise the Agent, promptly after
it receives notice of issuance by the SEC, any state
securities commission or any other regulatory authority of any
stop order or of any order preventing or suspending any
offering of any securities of the Parent, or of the suspension
of the qualification of the Common Stock for offering or sale
in any jurisdiction, or the initiation of any proceeding for
any such purpose.
(b)
Listing
. The Parent shall promptly secure the listing or
quotation, as applicable, of the shares of Common Stock
issuable upon exercise of the Warrants on the Principal Market
upon which shares of Common Stock are listed or quoted, as
applicable, (subject to official notice of issuance) and shall
maintain such listing or quotation, as applicable, so long as
any other shares of Common Stock shall be so listed or quoted,
as applicable. The Parent shall maintain the
listing or quotation, as applicable, of its Common Stock on
the Principal Market, and will comply in all material respects
with the Parent’s reporting, filing and other
obligations under the bylaws or rules of the Financial
Industry Regulatory Authority (“FINRA”) and such
exchanges, as applicable.
(c)
Market
Regulations . The Parent shall notify the
SEC, NASDAQ, FINRA and applicable state authorities, in
accordance with their requirements, of the transactions
contemplated by this Agreement, and shall take all other
necessary action and proceedings as may be required and
permitted by applicable law, rule and regulation, for the
legal and valid issuance of the Securities to the Lenders and
promptly provide copies thereof to the Agent.
(d)
Reporting
Requirements . The Parent shall timely file
with the SEC all reports required to be filed pursuant to the
Exchange Act and refrain from terminating its status as an
issuer required by the Exchange Act to file reports thereunder
even if the Exchange Act or the rules or regulations
thereunder would permit such termination.
(e)
Use of
Funds . It shall only use the proceeds of
(i) the Revolving Loans for general working capital purposes,
(ii) Term Loan A to fund the operations of iBroadband
Networks, Inc. and iBroadband of Texas, Inc. in accordance
with the terms of the Transition Services Agreement, to
refinance existing indebtedness of the Companies and for
general working capital purposes and (iii) Term Loan B for
general working capital purposes.
(f)
Access to
Facilities . It shall, and shall cause each
of its Subsidiaries to, permit any representatives designated
by the Agent (or any successor of the Agent), upon reasonable
notice and during normal business hours, at Company’s
expense and accompanied by a representative of Company Agent
(provided that no such prior notice shall be required to be
given and no such representative shall be required to
accompany the Agent in the event the Agent believes such
access is necessary to preserve or protect the Collateral or
following the occurrence and during the continuance of an
Event of Default), to:
(i)
visit and inspect any of its or any such
Subsidiary’s properties;
(ii)
examine its or any such Subsidiary’s
corporate and financial records (unless such examination is
not permitted by federal, state or local law or by contract)
and make copies thereof or extracts therefrom;
and
(iii) discuss
its or any such Subsidiary’s affairs, finances and
accounts with its or any such Subsidiary’s directors,
officers and Accountants.
Notwithstanding
the foregoing, neither it nor any of its Subsidiaries shall
provide any material, non-public information to the Agent
unless the Agent signs a confidentiality agreement and
otherwise complies with Regulation FD, under the federal
securities laws.
(g)
Taxes
. It shall, and shall cause each of its
Subsidiaries to, promptly pay and discharge, or cause to be
paid and discharged, when due and payable, all lawful taxes,
assessments and governmental charges or levies imposed upon it
and its Subsidiaries’ income, profits, property or
business, as the case may be; provided, however, that any such
tax, assessment, charge or levy need not be paid currently if
(x) the validity thereof shall currently and diligently be
contested in good faith by appropriate proceedings, (y) such
tax, assessment, charge or levy shall have no effect on the
Lien priority of the Agent in the Collateral, and (z) if it
and/or such Subsidiary, as applicable, shall have set aside on
its and/or such Subsidiary’s books adequate reserves
with respect thereto in accordance with GAAP; and provided,
further, that it shall, and shall cause each of its
Subsidiaries to, pay all such taxes, assessments, charges or
levies forthwith upon the commencement of proceedings to
foreclose any lien which may have attached as security
therefor.
(h)
Insurance
.
(i)
It shall bear the full risk of loss
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