-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FCpuTwFe9lrz7ETeacarHrzpL4/YxCKA5u/E2D2+rs715NsuxefLvjp70VX/iTp7 tymKBQhMWvpZS0FNs2sh9A== 0000914039-99-000329.txt : 19990720 0000914039-99-000329.hdr.sgml : 19990720 ACCESSION NUMBER: 0000914039-99-000329 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990707 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19990719 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SHARED TECHNOLOGIES CELLULAR INC CENTRAL INDEX KEY: 0000933583 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-TELEPHONE INTERCONNECT SYSTEMS [7385] IRS NUMBER: 061386411 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 001-13558 FILM NUMBER: 99666368 BUSINESS ADDRESS: STREET 1: 100 GREAT MEADOW RD STREET 2: SUITE 102 CITY: WETHERSFIELD STATE: CT ZIP: 06109 BUSINESS PHONE: 8602582500 MAIL ADDRESS: STREET 1: C/O SHARED TECHNOLOGIES CELLULAR INC STREET 2: 100 GREAT MEADOW ROAD SUITE 102 CITY: WETHERSFIELD STATE: CT ZIP: 06109 8-K 1 FORM 8-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): July 7, 1999 SHARED TECHNOLOGIES CELLULAR, INC. (Exact name of registrant as specified in its charter)
Delaware 1-13732 06-386411 (State of incorporation) (Commission File No.) (IRS Employer Identification No.)
100 Great Meadow Road, Suite 104 Wethersfield, Connecticut 06109 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (860) 258-2500 (Former name or former address, if changed since last report.) 2 ITEM 5. OTHER EVENTS. On July 7, 1999, Shared Technologies Cellular, Inc. (the "Company") entered into a $10 million two-year revolving credit facility with State Street Bank and Trust Company (the "Bank"). Advances under the loan are to be used for working capital and general corporate purposes. The loan is secured by substantially all of the Company's assets. In connection with the loan, the Company issued to the Bank a ten-year warrant for the purchase of 150,000 shares of its Common Stock at an exercise price of $10 per share, subject to certain adjustments. The warrant is redeemable by the Bank any time after the third anniversary for a minimum redemption price of $200,000. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS. (c) Exhibits. Exhibit No. Description 4.1 Loan Agreement dated as of July 7, 1999 by and between Shared Technologies Cellular, Inc. and State Street Bank and Trust Company. 4.2 Security Agreement and Assignment dated as of July 7, 1999 by and between Shared Technologies Cellular, Inc. and State Street Bank and Trust Company. 4.3 Warrant to Purchase Common Stock of Shared Technologies Cellular, Inc. issued to State Street Bank and Trust Company dated as of July 7, 1999. -2- 3 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. Date: July 16, 1999 SHARED TECHNOLOGIES CELLULAR, INC. By:\s\ Vincent DiVincenzo ------------------------------------- Name: Vincent DiVincenzo Title: Chief Financial Officer -3- EX-4.1 2 EXHIBIT 4.1 1 LOAN AGREEMENT THIS LOAN AGREEMENT is entered into as of the 7th day of July, 1999 between SHARED TECHNOLOGIES CELLULAR, INC., a corporation organized under the laws of the State of Delaware, with its principal place of business at 100 Great Meadow Road, Suite 104, Wethersfield, Connecticut 06109 (the "Borrower"); and STATE STREET BANK AND TRUST COMPANY, a Massachusetts trust company with its principal place of business at 225 Franklin Street, Boston, Massachusetts 02110 (the "Lender"). RECITALS: WHEREAS, Borrower has requested that the Lender make available to Borrower a Revolving Credit Loan Facility in the principal amount of Ten Million Dollars ($10,000,000.00). The Lender is willing to provide, on a secured basis, such loan facility to the Borrower, subject to the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the foregoing, and for other good and valuable consideration, the Lender and the Borrower hereby agree as follows: ARTICLE 1. DEFINITIONS 1.1 TERMS. As used in this Agreement, the following terms hall have the meanings set out respectively after each such term (such meanings to be equally applicable to both the singular and plural forms of the terms defined): "Advance" shall have the meaning set forth in SECTION 2.1(a) hereof. "Affiliate" shall mean, as applied to any Person, the spouse of such Person, any relative of such Person within the third degree, any member, director, officer, stockholder, warrant holder, or general partner of such Person, any corporation, association, firm or other entity of which such Person is a member, director, officer, stockholder, or general partner, and any other Person directly or indirectly controlling, controlled by or under direct or indirect common control with such Person, including but not limited to the Principals and others determined by the Lender. "Agreement" shall mean this Loan Agreement, as the same may be amended from time to time by the parties hereto. "Authorizations" shall have the meaning set forth at SECTION 3.7 hereof. "Borrower" shall have the meaning set forth in the Preamble hereto. 2 "Borrowing Base" shall have the meaning set forth at SECTION 2.1 (a) hereof. "Borrowing Base Certificate" shall mean a certificate in the form of EXHIBIT B hereto. "Borrowing Certificate" shall mean a written request for an Advance in the form of EXHIBIT A hereto. "Business Day" shall mean a day that commercial banks in the City of Boston, Massachusetts, are open for the conduct of regular banking business. "Call Centers" shall mean Borrower's facilities at which Borrower monitors its businesses. "Capital Expenditure" means all expenditures paid or incurred by Borrower and/or Guarantor in respect of (i) the acquisition, construction, improvement or replacement of land, buildings, machinery, equipment or any other fixed assets or leaseholds to the extent such expenditures have been or should be, in accordance with GAAP, capitalized on the books of the Borrower and/or Guarantor, and (ii) to the extent related to and not included in (i) above, materials, contract labor and direct labor, to the extent such expenditures have been or should be, in accordance with GAAP, capitalized on the books of the Borrower and/or Guarantor. Where a fixed asset is acquired by a lease which is required to be capitalized pursuant to Statement of Financial Accounting Standards Number 13 or any successor thereto, the amount required to be capitalized in accordance therewith shall be considered to be a Capital Expenditure in the year such asset is first leased. "Capital Lease" shall mean a lease of property that is required to be recorded as a liability on the lessee's balance sheet under GAAP, with the amount of a Capital Lease to be deemed to be the amount of the liability so recorded. "CERCLA" shall mean the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. Section 9600 et seq., as amended and in effect from time to time. "Closing Date" shall mean the date set forth at the beginning of this Agreement. "Code" shall mean the Internal Revenue Code of 1986, as amended and in effect. "Collateral" shall have the meaning set forth in SECTION 2.8 hereof. "Commitment Fee" shall have the meaning set forth at SECTION 2.2 hereof. "Commitment Termination Date" shall mean July 6, 2001. -2- 3 "Compliance Certificate" shall mean the certificate required by SECTION 4.1(b)(xiv) and SECTIONS 5.4(a) and 5.4(b) hereof, in the form of EXHIBIT C annexed hereto. "Controlled Group" shall mean all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control which, together with the Borrower or any of its subsidiaries, are treated as a single employer under Section 414 of the Code. "Contingent Obligations", as applied to any Person, shall mean any direct or indirect liability, contingent or otherwise, of that Person (x) with respect to any indebtedness, lease, dividend, letter of credit or other obligation of another if the primary purpose or intent thereof by the Person incurring the Contingent Obligation is to provide assurance to the obligee of such obligations of another that such obligation of another will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such obligation will be protected (in whole or in part) against loss in respect thereof, (y) in support of any letter of credit issued for the account of that Person or for which that Person is otherwise liable for reimbursement thereof, or (z) under interest rate protection or other hedging agreements. The amount of any Contingent Obligation shall be equal to the amount of the obligation so guaranteed or otherwise supported, or, in the case of interest rate protection or other hedging agreements, the then fair market value of such agreements. "Current Assets" shall mean Borrower's and Guarantor's combined cash and cash equivalents, inventory and Receivables, excluding intercompany receivables and Receivables more than 90 days past due. "Current Liabilities" shall mean Borrower's and Guarantor's accounts payable and accrued expenses, and current maturities of long-term debt, excluding intercompany accounts payable. "Current Ratio" shall mean the ratio of Current Assets to Current Liabilities (exclusive of Telecom Taxes payable). "Default Rate" shall have the meaning set forth in SECTION 2.6 hereof. "Eligible Accounts Receivable shall mean a Receivable which is acceptable to the Lender in its sole and reasonable discretion, but at least is continuously in compliance with all of the following: (a) The Receivable is an account which arose in the ordinary course of the business of Borrower or Guarantor from or in connection with a bona fide sale of goods or rendition of services, performed in accordance with an order or contract, oral or written, wherein all obligations of the Borrower or Guarantor regarding the -3- 4 shipment or delivery of such goods to the customer have been satisfied or the services have been performed for the customer; no material part of such goods has been returned, rejected, lost or damaged; the Receivable is not evidenced by chattel paper or an instrument of any kind; and the customer is not insolvent or the subject of any bankruptcy or insolvency proceeding of any kind; (b) The rights of the Borrower and Guarantor in and to the Receivable and the proceeds thereof are not subject to any assignment, claim, lien, security interest or other encumbrance other than liens in favor of the Lender; (c) The Receivable is not disputed nor subject to offset, credit allowance, contra account or adjustment by the customer, except discounts and allowances for prompt payment disclosed to the Lender; (d) The customer is not located in the State of New Jersey or the Borrower has filed a Notice of Business Activities Report with the New Jersey Division of Taxation for the then current year; (e) The Receivable does not arise out of a transaction with an employee, officer, agent, director, stockholder, affiliate, or subsidiary of the Borrower, or any person which, directly or indirectly, controls or is controlled by, or is under common control with, the Borrower, as determined by the Lender; (f) The Rental Accounts Receivable has been due and payable for thirty (30) days or less from the due date prescribed by the terms of the sale and the Prepaid Accounts Receivable has been due and payable for sixty (60) days or less from the due date prescribed by the terms of the sale; and (g) The financial condition of the customer is satisfactory to the Lender in its sole and reasonable discretion; and (h) The Receivables are not from customers located outside of the United States, provided, however, that Receivables generated from foreign rental customers who utilize a credit card for payment of the Receivable, which may or may not be drawn on a foreign bank, shall be deemed to be Eligible Accounts Receivable. "Environmental Requirement" shall mean all applicable present and future statutes, regulations, rules, ordinances, codes, licenses, permits, orders, approvals, plans, authorizations, policies and similar items of all governmental agencies, departments, commissions, boards, bureaus or instrumentalities of the United States, states and political subdivisions thereof and all applicable judicial, administrative and regulatory decrees, judgments and orders, relating to the protection of human health or the environment. -4- 5 "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended. "Event of Default" shall have the meaning set forth at SECTION 7.1 hereof. "Facility Fee" shall have the meaning set forth at SECTION 2.2 hereof. "Fiscal Quarter" shall mean each quarterly period ending on March 31, June 30, September 30 and December 31 in each year. "GAAP" shall mean generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession, which are applicable to the circumstances as of the date of determination. "Guarantor" shall mean The Cellular Hotline, Inc., a Missouri corporation. "Guaranty" shall have the meaning set forth at SECTION 2.7 hereof. "Hazardous Materials" shall mean any flammable explosives, radioactive materials, hazardous waste, toxic substances or related materials, including, without limitation, asbestos, polychlorinated biphenyls, urea formaldehyde, radon, and any substance defined as or included in the definition of (a) any "hazardous waste" as defined by Resource Conservation and Recovery Act of 1976, as amended from time to time, and regulations promulgated thereunder; (b) any "hazardous substance" as defined by CERCLA, and regulations promulgated thereunder; (c) any "toxic substance" as defined by the Toxic Substance Control Act, as amended from time to time, and the regulations promulgated thereunder; (d) any petroleum product; and (e) any other substance, pollutant, contaminant, chemical or industrial toxic or hazardous substance or waste, including, without limitation, hazardous materials, within the meaning of any other applicable federal, state or local law, regulation, ordinance or requirement (including consent decrees and administrative orders) relating to or imposing liability or standards of conduct concerning any hazardous, toxic or dangerous waste, substance or material, all as amended or hereafter amended. "Indebtedness" shall mean as to any Person at any date (without duplication): (1) any indebtedness or liability of such Person for borrowed money, or for the deferred purchase price of property or services (including trade obligations); (2) obligations of such Person as lessee under Capital Leases and under any lease or similar assignment that cannot be canceled by such Person and has a term of more than one (1) year from the -5- 6 date of determination; (3) current liabilities of such Person in respect of unfunded vested benefits under any pension plan or similar plan of such Person or maintained by such Person; (4) obligations of such Person under letters of credit issued for the account of such Person; (5) obligations secured by any Lien on property owned by such Person, whether or not the obligations have been assumed or guaranteed by such Person; (6) guarantees by such Person of Indebtedness of another Person other than guarantees of collection or deposit in the ordinary course of business; and (7) reimbursement obligations of any Person (whether contingent or otherwise) in respect of letters of credit, bankers, acceptances, surety or other bends and similar instruments. "Investments" shall mean any payment of money or property to a Person in exchange for an equity interest or evidence of indebtedness of such Person or in exchange for any right to acquire an equity interest or evidence of indebtedness of such Person. "Leasehold Mortgage" shall have the meaning set forth at SECTION 2.8 hereof. "Legal Requirement" shall mean any requirement imposed upon the Lender by any law of the United States of America or by any regulation, order, interpretation, ruling or official directive (whether or not having the force of law) of the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, or any other board or governmental or administrative agency of the United States of America, or any political subdivision of any thereof. "Lender" shall mean State Street Bank and Trust Company, a Massachusetts trust company, and its successors and assigns. "Lien" shall mean any mortgage, deed of trust, pledge, security interest, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), preference, priority, or other security agreement or preferential arrangement, charge, or encumbrance of any kind or nature whatsoever (including, without limitation, any conditional sale or other title retention agreement), any financing lease having substantially the same economic effect as any of the foregoing, and the filing of any financing statement or similar notice of security interest under the Uniform Commercial Code or comparable law of any jurisdiction to evidence any of the foregoing. "Loan" shall mean the Revolving Credit Loan. "Loan Documents" means this Agreement, the Note, the Security Documents, the Guaranty, the Warranty and any other security agreement, pledge agreement, collateral assignment, mortgage or guaranty executed and delivered by the Borrower and the Guarantor in connection herewith or pursuant hereto. -6- 7 "Material Contracts" shall mean those contracts described in SECTION 3.8 hereof and on Schedule 3.8 (b) hereto. "Net Income [Net Loss]" shall mean Borrower's and Guarantor's consolidated net income, [net loss] determined in accordance with GAAP and shall reflect all costs and expenditures under GAAP other than expenditures properly classified as Capital Expenditures. "Net Proceeds" shall mean the gross cash proceeds received by the Borrower or Guarantor from the sale or other disposition of assets, other than assets sold in the ordinary course of business, less actual selling expenses and attorneys' fees incurred in connection therewith and good faith estimated taxes payable as a result thereof, and other reasonable amounts agreed to by the Lender in its reasonable judgment that are incurred in connection with such sale; provided, that in the event that the actual taxes paid in respect of any such sale or other disposition are less than the good faith estimated taxes at the time of such sale, "Net Proceeds" shall be deemed to include such difference on the date payment of such taxes is due. "Note" shall mean the Promissory Note in the principal amount of $10,000,000.00, evidencing Borrower's obligation to repay the Revolving Credit Loan, to be issued by the Borrower to the Lender on the Closing Date in the form of EXHIBIT D, duly executed with all blanks appropriately completed. "Obligations" shall mean all liabilities, obligations and indebtedness of the Borrower and the Guarantor under this Agreement, the Security Documents and the Note, whether now existing or hereafter arising, specifically including, without limitation, all obligations to reimburse costs of the Lender under SECTION 9.2 hereof, all liabilities and obligations under standby letters of credit issued by the Lender for the account of the Borrower, and any overdrafts on account(s) of the Borrower or the Guarantor at the Lender. "Participant" shall have the meaning set forth at SECTION 8.3 hereof. "Payment Event of Default shall have the meaning set forth at SECTION 7.1(b) hereof. "Permitted Acquisitions" shall mean acquisitions of assets or capital stock of any Person approved in writing by the Lender and shall include, without limitation, the acquisition of Retail Cellular, Inc. "Permitted Indebtedness" shall mean existing indebtedness on terms and conditions acceptable to Lender, as described in SECTION 6.1(e) hereto. "Permitted Investments" shall mean (a) investments in property to be used by the Borrower in the ordinary course of business; (b) current assets arising from the sale or -7- 8 furnishing of goods and services in the ordinary course of business; (c) investments (of one year or less) in direct or guaranteed obligations of the United States, or any department or agency thereof; (d) investments (of 90 days or less) in certificates of deposit of the Lender or of national banks having capital, surplus and undivided profits in excess of $500,000,000; (e) investments (of 90 days or less) in commercial paper given the highest rating by Standard and Poor's Bond Rating Index or by Moody's Investor Service or by another similar nationally recognized investment rating service; and (f) advances to employees in the ordinary course of business for the payment of reasonable bona fide, properly documented business expenses to be incurred on behalf of the Borrower not exceeding $5,000 in the aggregate at any one time; and "Permitted Investments" shall include, without limitation, the Borrower's loan in the original principal amount of Five Hundred Thousand Dollars ($500,000.000) to Retail Distributors, Inc. "Person" shall mean a corporation, an association, a general or limited partnership, a joint venture, a trust, an organization, any business entity, a natural person or any government or agency or political subdivision thereof. "Plan" means an employee pension benefit plan which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Code as to which the Borrower or any member of the Controlled Group may have any liability. "Prepaid Lines" shall mean Borrower's and Guarantor's prepaid or debit cellular phone service lines with Borrower's and Guarantor's customers. "Prime Rate" shall mean the rate of interest announced by the Lender from time to time in Boston, Massachusetts as its "prime rate". "Principals" shall mean Anthony D. Autorino and Vincent DiVincenzo. "Properties" shall have the meaning set forth at SECTION 3.17. "Projections" shall have the meaning set forth at SECTION 3.1(b) hereof. "Purchaser" shall have the meaning set forth at SECTION 8.4 hereof. "Quarterly Date" shall mean each March 31, June 30, September 30 and December 31. "Receivables" means all of the Borrower's and Guarantor's now owned and hereafter acquired rights to payment for goods sold or leased or for services rendered, and all proceeds of any of the foregoing, including but not limited to the following: -8- 9 a) "Rental Accounts Receivables", which shall mean those Receivables arising from rentals of cellular phones to Borrower's and Guarantor's customers; and b) "Prepaid Accounts Receivables", which shall mean those Receivables arising from Borrower's and Guarantor's program for activation/prepayment of cellular phone accounts. "Regulation G" shall mean Regulation G of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor thereto or other regulation or official interpretation of said Board of Governors relating to reserve requirements applicable to member banks of the Federal Reserve System. "Regulation U" shall mean Regulation U of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor thereto or other regulation or official interpretation of said Board of Governors relating to the extension of credit by banks for the purpose of purchasing or carrying margin stocks applicable to member banks of the Federal Reserve System. "Restricted Payment" shall mean any dividend, distribution, or other payment, direct or indirect, by the Borrower, in cash, property, securities or other assets, to Borrower's or Guarantor's shareholders, to Guarantor or any other Affiliate of the Borrower, including, without limitation, management fees, advances, distributions, reimbursements, dividends, payments of interest or principal, and payments for the purpose of purchasing, retiring or redeeming any ownership or other equity interests in the Borrower or Guarantor or making any distribution or return of capital in respect of such interests; provided that any payment of Premiums (as defined in the Series C Convertible Preferred Stock's Certificate of Designations, Preferences and Rights) upon the conversion of any Series C Convertible Preferred Stock shall not be deemed a Restricted Payment so long as: (A) such payment is made in share of the Borrower's common stock; or (B) (1) no Event of Default has occurred prior to any such payment, and (2) no Event of Default would occur as a result of such payment, and (3) Borrower has unused availability under the Revolving Credit Loan of at least Five Hundred Thousand Dollars ($500,000.00); and provided further that no payment made to (x) a holder of the Borrower's Convertible 5% Notes, or (y) Retail Distributors, Inc. ("RDI") under the Stock Purchase Agreement, Services Agreement or Consulting Agreement, each to be entered into with RDI, shall be deemed to be a Restricted Payment. "Revolving Credit Commitment" shall mean $10,000,000.00. -9- 10 "Revolving Credit Loan" shall mean the loan to the Borrower described in SECTION 2.1(a) hereof. "SEC" shall mean the Securities and Exchange Commission. "Security Agreements" shall have the meaning set forth at SECTION 2.8(a) hereof. "Security Documents" shall have the meaning set forth at SECTION 2.8(b) hereof. "Stockholder's Equity" shall mean at any time the sum of the following amounts from the Borrower's and Guarantor's consolidated balance sheet prepared in accordance with GAAP: (i) the par or stated value of all outstanding capital stock; (ii) capital surplus; and (iii) retained earnings. "Telecom Taxes" shall mean any taxes, interest and penalties, owed by Borrower or Guarantor to federal, state and local taxing authorities for the Borrower's and the Guarantor's telecommunications business or has been described by the Borrower as "Telecom Taxes" in any financial statements delivered to the Lender. "Unmatured Default" means an event which but for the lapse of time or the giving of notice, or both, would constitute an Event of Default. "Warrant" shall mean the detachable warrant as described in SECTION 2.9 hereof in the form of EXHIBIT E attached hereto. 1.2 ACCOUNTING TERMS. Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all accounting determinations hereunder shall be made, and all financial statements required to be delivered hereunder shall be prepared, in accordance with GAAP, applied on a basis consistent (except for changes concurred with by the Borrower's independent public accountants) with the most recent financial statements of the Borrower delivered to the Lender. The parties hereto further agree that in the event that any change in accounting principles from those used in the preparation of the financial statements of the Borrower for the year ended December 31, 1998, hereafter occasioned by the promulgation of rules, regulations, pronouncements and opinions by or required by the Financial Accounting Standards Board or the Accounting Principles Board of the American Institute of Certified Public Accountants (or successors thereto or agencies with similar -10- 11 functions) results in any change in the method of calculation of financial covenants, standards or terms found in this Agreement, the parties hereto agree to enter into negotiations to amend the financial covenants, terms or standards contained in this Agreement to equitably reflect such change in accounting principles with the desired result that the criteria for evaluating the Borrower's financial condition shall be the same after such change as if such change had not been made. If the parties cannot agree on such an amendment as contemplated under the immediately preceding sentence, then the financial covenants shall be computed without giving effect to such change in accounting principles. 1.3 OTHER TERMS. The words "hereof", "herein", and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. ARTICLE 2. THE LOAN. 2.1 REVOLVING CREDIT LOAN. (a) Loan. Subject to the terms of this Agreement, the Lender agrees to make advances to the Borrower (each such advance being referred to herein as an "Advance" and all such Advances being collectively referred to herein as the "Revolving Credit Loan") from time to time from the Closing Date through and including the Commitment Termination Date in an aggregate principal amount not to exceed the lesser of: i) 70% of Eligible Receivables, plus, through September 30, 1999, $2,000,000.00; or ii) the amount of the Revolving Loan Commitment; provided that notwithstanding the foregoing, the Lender shall have no obligation to make an Advance if an Event of Default exists or would result therefrom. Notwithstanding the foregoing, initial availability for Advances under the Loan shall be limited as follows: 1) for the first thirty (30) days after the date hereof, availability under the Revolving Loan Commitment shall not exceed $3,000,000.00; and 2) after the first thirty (30) days after the date hereof, the availability under the Revolving Loan Commitment shall not exceed $5,000,000.00 until the Borrower provides evidence to the Lender that Borrower has 70,000 Prepaid Lines. When the Borrower has complied with the requirements set out in Subsections 1) and 2) above, then, subject to the Borrower's compliance with the terms of this SECTION 2.1(a) and -11- 12 so long as Borrower is in full compliance with the terms of this Agreement, Borrower shall be entitled to borrow the full amount of the Revolving Credit Commitment. The formula and conditions provided in this SECTION 2.1 (a) for the making of Advances are collectively referred to herein as the "Borrowing Base". (b) Use of Proceeds. The proceeds of the Loan shall be used by the Borrower for (i) working capital and general corporate purposes; (ii) Permitted Acquisitions and (iii) standby letters of credit not to exceed $1,000,000.00 in the aggregate for periods not to exceed one (1) year, to be evidenced by Borrower's execution of the Lender's standard letter of credit agreements upon terms and conditions mutually agreed upon between Lender and Borrower. The Lender shall have no obligation to make any Advance for acquisitions of any nature if it has not approved the applicable acquisition contemplated by the Borrower. (c) Note. The Borrower's obligation to repay the Loan shall be evidenced by the Note and this Agreement, and shall bear interest, mature and be payable as set forth in this Agreement and the Note. (d) Advances. Advances shall be made by the Lender at the Borrower's request. If, upon the Lender's receipt of the Borrowing Base Certificate from Borrower for the four (4) week period during which the Advance was made, the Lender determines either that: (i) the Borrower utilized the proceeds of the Advance for purposes which are not permitted by this Agreement; or (ii) the aggregate outstanding Advances exceed the Borrowing Base availability, or (iii) the Advance resulted in or otherwise effected a violation of any of the financial covenants set forth in ARTICLE VI and ARTICLE VII of this Agreement, or (iv) an Event of Default, or an event which upon notice or lapse of time or both would constitute an Event of Default, has occurred and is continuing under the Loan Agreement, then the Borrower shall immediately repay to the Lender the amount of the Advances which exceeds the Borrowing Base as well as the amount of the Advances which was utilized for purposes not permitted by this Agreement. Each request for Advance which is not for working capital or for general corporate purposes shall be in the form attached hereto as EXHIBIT A (a "Borrowing Certificate"). The Lender shall inform the Borrower within three (3) Business Days after it receives such a request which is not for working capital or general corporate purposes whether it approves the Borrower's proposed use of the Advance. If it approves the use of the Advance, the Lender shall make the requested Advance available to the Borrower on the date approved by the Lender. (e) Liquidity Management Control System. The Borrower shall maintain a minimum balance of Ten Thousand Dollars ($10,000.00) with the Bank's Liquidity Management Control System Account. If at any time the balance in said account is less than Ten Thousand Dollars ($10,000.00) the Bank shall be entitled to immediate fund -12- 13 same by an automatic advance under the Revolving Credit Loan, without any further authorization from the Borrower. The Borrower shall pay to the Bank a monthly fee of Seven Hundred Fifty Dollars ($750.00) for the LMCS (sweep product) for this account. 2.2 COMMITMENT FEE AND FACILITY FEE. (a) Commitment Fee. In addition to all other sums due hereunder and under the Note, the Borrower shall pay to the Lender on each Quarterly Date beginning June 30, 1999 and continuing through the Commitment Termination Date, a fee (the "Commitment Fee") equal to three-quarters of one percent (3/4%) per annum on the average daily unused portion of the Revolving Credit Commitment. The Commitment Fee shall be calculated on the basis of the actual number of days elapsed over a 360 day year, and shall be payable in arrears. (b) Facility Fee. On the Closing Date, the Borrower shall pay a fee (the "Facility Fee") to the Lender in the amount of Seventy-five Thousand Dollars ($75,000.00) in consideration of the time and expense incurred by the Lender in investigating the transactions contemplated hereby. 2.3 PAYMENTS UNDER THE NOTE; NO DEDUCTIONS. (a) All payments made by the Borrower of principal of, and interest on, the Note, and other sums and charges payable hereunder, shall be made to the Lender at its office set forth above, or by debiting by the Lender of the demand deposit account(s) in the name of the Borrower at the Lender, or in such other reasonable manner as may be designated by the Lender in writing to the Borrower, and in any event shall be made in immediately available funds. The Borrower hereby irrevocably authorizes the Lender to so debit any one or more of its demand deposit account(s) for such payments. (b) The Borrower's obligation to make all payments provided for in this Agreement and the Note shall be unconditional. Each such payment shall be made without deduction for any claim, defense or offset of any type, including, without limitation, any withholdings and other deductions on account of income or other taxes and regardless of whether any claims, defenses or offsets of any type exist. 2.4 PREPAYMENT. (a) Optional Prepayments; Reborrowing; Final Payment. The Borrower may from time to time prepay the Loan, without penalty except as set forth in SECTION 2.4(e) hereof. The Borrower may borrower, repay, and reborrow hereunder, subject to the terms of SECTION 2.1(a) hereof, from the date hereof to and including the Commitment Termination Date. Notwithstanding anything herein to the contrary, all outstanding -13- 14 amounts of Revolving Credit Loan shall be paid in full on the Commitment Termination Date. (b) Mandatory Prepayment of Loan. If the Obligations at any time exceed the availability under the Loan, as described in SECTION 2.1(a), then the Loan shall be repaid immediately by Borrower to reduce the outstandings under the Loan so that the Obligations does not exceed the available Revolving Credit Commitment, subject to Borrower's compliance with SECTION 2.1(a) hereof. (c) Mandatory Prepayments From Insurance Proceeds. The Borrower shall, from time to time until payment in full of the Loan, within 10 days following the receipt of any payment of proceeds of any insurance policy on account of each separate loss, damage or injury in excess of Fifty Thousand Dollars ($50,000.00) to any tangible property, pay such proceeds to the Lender. Such amounts shall be advanced by the Lender to the Borrower as needed for the repair or replacement of such property upon delivery to the Lender of evidence satisfactory to the Lender of such expenditure or commitment, unless the Lender in its reasonable judgment decides that repair or replacement of the damaged property is not feasible in a reasonable period of time, in which event the Lender may apply such proceeds to the repayment of the Note. (d) Mandatory Prepayments From Net Proceeds. Within five (5) Business Days after the closing of the sale or other disposition of any asset or assets of Borrower (excluding the sale of inventory in the ordinary course of business) to any Person from which Borrower derives Net Proceeds, the Borrower shall notify the Lender, and unless the Lender directs otherwise, the Borrower shall make a mandatory prepayment of the Loan in an amount equal to 100% of such Net Proceeds, which prepayments shall be accompanied by a certificate duly executed by an officer of Borrower certifying the amount of Net Proceeds and evidencing in reasonable detail the computations made in determining the amount of Net Proceeds. (e) Prepayment Fee. If the Loan is cancelled or completely prepaid within eighteen (18) months of the Closing Date, the Borrower shall pay to the Lender on the date of cancellation or prepayment a prepayment fee of two percent (2%) of the Revolving Credit Commitment (the "Prepayment Fee"), provided, however, if prepayment is from proceeds of the sale of all assets or stock of Borrower, then no Prepayment Fee shall be required. 2.5 RATE OF INTEREST. Interest on the Loan shall accrue at a rate per annum equal to the Prime Rate (with such interest rate changing on the effective date of each change in the Prime Rate). 2.6 DEFAULT RATE OF INTEREST. -14- 15 Notwithstanding SECTION 2.5 hereof, if an Event of Default shall have occurred and remains outstanding and not waived or cured for sixty (60) days after the occurrence of the Event of Default, then, in such event, to the extent permitted by law, the interest rate applicable to the Loan (the "Default Rate") shall be two percent (2%) in excess of the Prime Rate. Such Default Rate in each case shall continue in effect until six (6) months after all such Events of Default are cured or waived. 2.7 GUARANTY. The repayment of the Loan shall be guaranteed by the Guarantor, as evidenced by that certain duly executed guaranty in form and substance satisfactory to the Lender and its counsel ("Guaranty"). 2.8 SECURITY FOR THE OBLIGATIONS. (a) The Obligations shall at all times be secured by the following agreements, in each case in form and substance satisfactory to the Lender and its counsel: (i) first priority perfected security interests in all of the tangible and intangible personal property of the Borrower and the Guarantor, whether now owned or hereafter acquired by the Borrower and the Guarantor, or in which the Borrower and the Guarantor may now have or hereafter acquire an interest, pursuant to a Security and Assignment Agreement between the Lender and Borrower and pursuant to a Security and Assignment Agreement between the Lender and the Guarantor (collectively, the "Security Agreements"); (ii) first priority perfected leasehold mortgages or deeds of trust (collectively, the "Leasehold Mortgages") with respect to all real estate leases in which the Borrower now has or may in the future have an interest in Maryland Heights, Missouri, and Hartford, Connecticut, and Wethersfield, Connecticut, including, without limitation, all locations where Borrower maintains a Calling Station; (iii) the Guaranty; (iv) first priority perfected security interests in all patents, trademarks and copyrights of each of Borrower and Guarantor, whether now owned or hereafter acquired by Borrower or Guarantor, pursuant to Security Agreements -- Patents, Trademarks and Copyrights, between the Lender and each of the Borrower and the Guarantor (collectively, the "Intellectual Property Security Agreements"); (v) Collateral Assignment of all Material Contracts of each of the Borrower and Guarantor, whether now owned or hereafter acquired by each of the Borrower and the Guarantor or in which the Borrower and the Guarantor may now have or hereinafter acquire an interest, pursuant to Conditional Assignment of Licenses and -15- 16 Material Contracts between the Lender and each of the Borrower and the Guarantor (collectively, the "Conditional Assignments"); (vi) Consent, duly executed, of each of MCI Telecommunications Corporation, WorldCom Technologies, Inc., and Shared Technologies Fairchild, Inc. to the Conditional Assignments; (vii) Assignment of Borrower's Proof of Claim in Bankruptcy Proceedings of SmarTalk TeleServices, Inc., in form and substance appropriate for filing with the applicable United States Bankruptcy Court (the "Conditional Assignment of Proof of Claim"); (viii) landlord's waivers and consents in form satisfactory to the Lender by which owners of real estate leased by the Borrower in Maryland Heights, Missouri, and Wethersfield and Hartford, Connecticut, shall consent to the assignment of the leases to the Lender, shall disclaim any right to levy on the Collateral installed on the leased premises, and shall grant to the Lender a right of entry to remove such Collateral in case of an Event of Default; and (ix) such financing statements, assignments, agreements to assign, and other instruments as the Lender may reasonably request in connection with any of the foregoing. (b) All agreements and instruments described or contemplated in SECTION 2.7 and this SECTION 2.8, including the Security Agreements, Intellectual Property Security Agreements, the Conditional Assignments, Conditional Assignment of Proof of Claim, the Guaranty, the Leasehold Mortgages, together with any and all other agreements and instruments heretofore or hereafter securing any of the Obligations, are sometimes hereinafter collectively referred to as the "Security Documents", and the term "Collateral" as used herein shall be deemed to include the assets of the Borrower and the Guarantor, any lease of real property covered by any leasehold mortgage or deed of trust, and any mortgage delivered or required to be delivered hereunder. The Borrower shall take such further action and execute such additional documents as may be necessary from time to time to enable the Lender to obtain and maintain the security interests, liens and other rights and benefits contemplated by this SECTION 2.8. 2.9 WARRANT. As part of the consideration for the Loan, the Borrower shall execute and deliver to the Lender the Warrant in the form of EXHIBIT E attached hereto, which shall evidence the Borrower's obligation with respect to one hundred fifty thousand (150,000) shares of the common stock of the Borrower at a current price of $10.00, exercisable for ten (10) years from the date of issue and containing a net issuance provision with a put right after the third (3rd) anniversary hereof. The put is to be the greater of the then market value or Two Hundred Thousand Dollars ($200,000.00). -16- 17 2.10 INDEMNIFICATION. (a) In the event that at any time after the date of this Agreement any change in any Legal Requirement shall, in the opinion of the Lender, require that the unfunded portion of the Revolving Credit Commitment be treated as an asset or otherwise be included for purposes of calculating the appropriate amount of capital or equity to be maintained by the Lender or any corporation controlling the Lender, and such Legal Requirement shall have the effect of reducing the rate of return on the Lender's or such corporation's capital or equity, as the case may be, as a consequence of the Lender's obligations hereunder, to a level below that which the Lender or such corporation, as the case may be, would have achieved but for such Legal Requirement (taking into account the Lender's or such corporation's policies, as the case may be, with respect to capital adequacy) by an amount deemed by the Lender to be material, and provided that the Lender imposes a similar requirement on a substantial portion of those of its borrowers whose loans are of a size and nature similar to the Loan to the Borrower hereunder, then from time to time, following written notice by the Lender to the Borrower of such Legal Requirement as provided in SUBSECTION (b) of this SECTION 2.10, within forty-five (45) days after demand therefor by the Lender, the Borrower shall pay to the Lender such additional amount or amounts as will compensate the Lender or such corporation, as the case may be, for the reduction described in this SUBSECTION (a) as if such reduction had not occurred. (b) If the Lender becomes entitled to claim any additional amounts pursuant to this SECTION 2.10, it shall promptly notify the Borrower of the event giving rise to such entitlement. A certificate setting forth in reasonable detail the computation of the effect on the Lender described in subsection (a) above and the computation of any additional amounts payable pursuant to this SECTION 2.10 shall be delivered to the Borrower by the Lender promptly after such additional amounts are initial incurred and shall be conclusive in the absence of manifest error. The covenants contained in this Section shall survive until the Loan is paid in full. (c) The Lender will not charge the Borrower under this SECTION 2.10 unless the Lender assesses similar charges against a majority of its customers who have outstanding loan commitments. ARTICLE 3. REPRESENTATIONS AND WARRANTIES In order to induce the Lender to enter into this Agreement and to make the Loan, the Borrower represents and warrants to the Lender (which representations and warranties shall survive the delivery of the Note and the making of the Loan and shall be deemed to be restated each time an advance of the Loan is requested by the Borrower) that: -17- 18 3.1 FINANCIAL STATEMENTS; SEC FILINGS. (a) The Borrower has delivered to the Lender audited financial statements of the Borrower as at December 31, 1995, December 31, 1996, December 31, 1997 and December 31, 1998. Said financial statements have been prepared in accordance with GAAP consistently applied, and fairly present the financial condition of the Borrower at the dates thereof and the results of the Borrower's operations for the periods covered thereby. Except as set forth in said balance sheets, the Borrower has no material long-term liabilities or other material forward or long-term commitments. Since December 31, 1998, there has been no material adverse change in the condition of the Borrower, financial or otherwise. (b) The Borrower has heretofore furnished to the Lender a financial forecast through December 31, 2001 (the "Projections"), which Projections contain projected revenues and operating expenses. The Borrower has prepared the Projections in good faith on the basis of reasonable and prudent assumptions and believes the financial projections set forth therein to be reasonable in light of information known to the Borrower as of the Closing Date. To the best of the Borrower's knowledge, based on information known to the Borrower as of the Closing Date, such Projections do not omit to state any material fact known to the Borrower as of the Closing Date necessary in order to make such Projections not misleading. (c) The Borrower has delivered to the Lender copies of the Borrower's: March 31, 1999 10-Q Quarterly Report; Proxy Statement for its 1999 Annual Meeting dated as of April 30, 1999; and Amended 10-K Annual Report. Said Statements and Reports have been prepared and filed by Borrower in accordance with applicable federal laws, rules and regulations. 3.2 ORGANIZATION OF BORROWER. Borrower (i) is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware (ii) has the power and authority to own its properties and to carry on its business as now being conducted and as presently contemplated, (iii) is duly qualified to transact business in every jurisdiction where the nature of its activities requires such qualification, and (iv) has the power and authority to execute, deliver and perform its obligations under this Agreement, the Note, the Security Documents and under all other documents, agreements and instruments executed by it in connection with any of the foregoing. 3.3 AUTHORIZATION. The execution, delivery and performance by the Borrower of its obligations under the Loan Documents have been duly authorized by all requisite corporate action of the Borrower and its officers, directors and stockholders. Except as set forth in Schedule 3.3 annexed hereto, neither the execution and performance of this -18- 19 Agreement, nor the borrowings hereunder, nor the execution and delivery of any of the Loan Documents will violate (i) to the knowledge of the Borrower, after the Borrower's exercise of reasonable due diligence, any provision of law, (ii) any material order, judgment or decree of any court or other agency of government applicable to the Borrower, (iii) the corporate charter or the bylaws of Borrower, or (iv) any material indenture, agreement or other instrument to which the Borrower is a party, or by which the Borrower is bound. Except as set forth in Schedule 3.3 annexed hereto, the execution, performance and delivery by the Borrower of its obligations under the Loan Documents will not be in conflict with, result in a breach of, or constitute (with due notice or lapse of time or both) a default under any such material indenture, agreement or instrument, or (except as may be permitted by this Agreement) result in the creation or imposition of any lien, charge or encumbrance of any nature whatsoever upon any of the property or assets of the Borrower pursuant to any such material indenture, agreement or instrument. To the knowledge of the Borrower, after the Borrower's exercise of reasonable due diligence, the Loan Documents constitute the legal, valid and binding obligations of the Borrower, and are enforceable in accordance with their respective terms, except as such enforcement may be limited by bankruptcy, insolvency, moratorium and similar laws affecting creditors' rights generally. 3.4 NO CONSENT REQUIRED. Except as set forth on Schedule 3.4 annexed hereto, the Borrower is not required to obtain any order, consent, approval or authorization of, or presently required to make any declaration or filing with, any governmental authority or other Person, as a condition to the execution, delivery and performance of any of the Loan Documents or the granting of the security interests in the Collateral. Except as stated in such schedule, all orders, consents, approvals and authorizations described in such Schedule 3.4 have been duly granted and are in full force and effect on the date hereof. 3.5 LITIGATION. Except as described on Schedule 3.5 attached hereto, there is no action, suit or proceeding at law or in equity or by or before any governmental instrumentality or other agency (including any arbitration board or tribunal) now pending or, to the knowledge of the Borrower, threatened against or affecting the Borrower (nor to Borrower's knowledge does any basis exist for such an action, suit or proceeding) (a) which, if adversely determined, would have a material adverse effect on the business, operations, properties, assets or condition, financial or otherwise, of the Borrower, or (b) which questions the validity of any of the Loan Documents, or any action taken or to be taken pursuant thereto. 3.6 NO ENCUMBRANCES OR DEFAULTS. Except as set forth on Schedule 3.6 hereto, the Borrower is not a party to any agreement or instrument or subject to any corporate, contractual or other restriction which would materially and adversely affect its business or its ability to perform its obligations under the Loan Documents. There is no default by the Borrower in the performance, observance or fulfillment of any of the material -19- 20 obligations, covenants or conditions contained in any material agreement or instrument to which it is a party. 3.7 GOVERNMENTAL LICENSES AND CONTRACTS. Schedule 3.7 attached hereto lists all material franchises, licenses, consents, permits, approvals and authorizations of local, state and federal public or governmental bodies which as of the Closing Date are necessary with respect to the conduct by the Borrower of its business as presently conducted and as contemplated to be conducted in the future as of the Closing Date (all such franchises, licenses, consents, permits, approvals and authorizations being hereinafter referred to as the "Authorizations"). Unless otherwise indicated on Schedule 3.7, the Borrower has heretofore furnished to the Lender true and accurate copies of each such Authorization listed on Schedule 3.7. All such Authorizations have been obtained and are in full force and effect without any modification, amendment or revocation which would materially adversely affect the conduct of business of the Borrower, and are duly issued in the name of, or validly assigned to, the Borrower. The Borrower has full power and authority to operate thereunder and is in material compliance with all of the terms, provisions and requirements of each of said Authorizations. To the knowledge of the Borrower, none of the Authorizations are the subject of a pending action to modify, amend, terminate or renew an Authorization, and the Borrower has no reason to believe that any of the Authorizations will be revoked or materially and adversely modified, or will not be renewed in the ordinary course. Schedule 3.7 also lists the expiration date of each Authorization obtained by the Borrower. 3.8 OTHER MATERIAL AGREEMENTS. (a) The Borrower has entered into all necessary contracts and agreements for the conduct of its business as presently conducted, including, without limitation, all necessary reseller agreements, distribution agreements, activation agreements, and all necessary agreements for the use of telephone lines and other communications facilities used by it (collectively, the "Material Contracts"). (b) Schedule 3.8(b) attached hereto accurately and completely lists all material agreements to which the Borrower is a party. All of the foregoing agreements are valid, subsisting and in full force and effect and neither the Borrower nor, to the best knowledge of the Borrower, any other parties thereto are in material default thereunder. True and complete copies of all such agreements, if any, have been delivered by the Borrower to the Lender. 3.9 REAL ESTATE; PERSONAL PROPERTY. (a) The Borrower validly leases, or holds valid easements with respect to, all real estate used by it in connection with its business, including all real estate at which the Call Stations are located. True and accurate copies of all of the Borrower's leases, easements, -20- 21 and other agreements existing as of the Closing Date for the use of real property have been furnished to the Lender, and all such agreements are in full force and effect, without any modification, amendment or termination which would materially adversely affect the financial condition of the Borrower, and no material default exists under any of the foregoing. Schedule 3.9 accurately and completely lists all such leases and easements. (b) To the best knowledge of the Borrower, the Borrower's use of real estate does not violate any building codes, zoning restrictions or other laws or regulations governing land use, or any law or Environmental Requirement. (c) The Borrower has good title to all of its properties and assets, free and clear of all Liens, except for Liens in favor of the Lender and Liens securing Permitted Indebtedness. 3.10 CALL CENTERS; OPERATING AREA. The Borrower operates its business from two (2) Call Centers, one located at Suite 1100, 100 Constitution Plaza, Hartford, Connecticut 06103, and the other located at 149 Weldon Parkway, Suite 109, Maryland Heights, Missouri. Borrower maintains sales offices at the locations listed on Schedule 3.10. 3.11 CUSTOMER CONTRACTS. The Borrower has heretofore delivered to the Lender true and complete copies of representative samples of forms of customer contracts presently in force, and copies of representative samples of contracts and agreements under which it provides service to its customers. 3.12 QUALITY OF SYSTEMS. The Borrower's Call Stations have been and, to the extent it will be installed after the date hereof, will be, constructed in accordance with industry standards at the time of installation. The Borrower's Call Stations have the present capacity to service at least 500,000 customers. 3.13 INDEBTEDNESS AND LIENS. The Borrower does not have any Indebtedness except for Indebtedness permitted by SECTION 6.1 hereof, and there are no Liens on any of the assets of the Borrower, except Liens permitted by SECTION 6.2 hereof. The Borrower have no material Contingent Obligations except as set forth on Schedule 3.13. 3.14 TAXES. As of the Closing Date, the Borrower has: (a) filed all tax returns required by law to be filed; and (b) with the exception of Telecom Taxes, paid all taxes, assessments and other governmental charges levied upon its properties, assets and income, other than those not yet delinquent. As of the Closing Date, there are no material -21- 22 unpaid assessments for additional taxes and to the best of the Borrower's knowledge there is no basis therefor. 3.15 COMPLIANCE WITH APPLICABLE LAWS. The Borrower is in compliance in all material respects with all applicable Federal, state and local laws, including all laws, rules and regulations governing the provision of long distance telephone service, activation of accounts and rentals of portable cellular telephones. 3.16 ENVIRONMENTAL COMPLIANCE. (a) The Borrower has no knowledge that any of the real property leased, controlled or operated by the Borrower (the "Properties") fails to comply with all Environmental Requirements. (b) Neither the Borrower, nor to the best of the Borrower's knowledge, any previous owner, tenant, occupant or user of any of the Properties or any other person, has engaged in or permitted any operations or activities upon any of the Properties for the purpose of the handling, manufacture, treatment, storage, use, generation, release, discharge, refining, dumping or disposal of a material amount of any Hazardous Materials the removal of which is required or the maintenance of which by the Borrower is prohibited or penalized under any Environmental Requirement. (c) To the best of the Borrower's knowledge, no Hazardous Material has been or is currently located in, on, under or about any of the Properties in a manner which materially violates any Environmental Requirement or which requires cleanup or corrective action of any kind under any Environmental Requirement. (d) No notice of violation, lien, complaint, suit, order or other notice of communication concerning any alleged violation of any Environmental Requirement in, on, under or about any of the Properties has been received by the Borrower or, to the best of the Borrower's knowledge, any prior owner or occupant of any of the Properties which has not been fully satisfied and complied with in a timely fashion so as to bring such Property into full compliance with all Environmental Requirements. (e) The Borrower duly holds all permits and licenses, if any, required under any Environmental Requirement to be issued to it by any governmental authority on account of any or all of its activities on any of the Properties and is in full compliance with the terms and conditions of such permits and licenses. To the best of the Borrower's knowledge, no change in the facts or circumstances reported or assumed in the application for or granting of any such permits or licenses exists, which if reported or discovered would result in the revocation of such permits or licenses; and such permits and licenses are in full force and effect. -22- 23 (f) No portion of any of the Properties has been listed, designated or identified in the National Priorities List (NPL) or the CERCLA information system (CERCLIS), both as published by the United States Environmental Protection Agency, or any similar list of sites published by any Federal, state or local authority proposed for or requiring cleanup, or remedial or corrective action under any Environmental Requirement. 3.17 INVESTMENTS; INVESTMENT COMPANY. The Borrower has no Investments other than Permitted Investments. The Borrower is not an "investment company", or a company "controlled" by an "investment company", as such terms are defined in the Investment Company Act of 1940, as amended. 3.18 FEDERAL RESERVE SYSTEM REGULATIONS. The Borrower does not own and has no present intention of acquiring, any "margin security" within the meaning of Regulation G (12 CFR Part 207), or any "margin stock" within the meaning of Regulation U (12 CFR Part 221), of the Board of Governors of the Federal Reserve System (herein called "margin security" and "margin stock"). None of the proceeds of the Loan will be used, directly or indirectly, by the Borrower for the purpose of purchasing or carrying, or for the purpose of reducing or retiring any indebtedness which was originally incurred to purchase or carry, any margin security or margin stock or for any other purpose which might constitute the transactions contemplated hereby a "purpose credit" within the meaning of said Regulation G or Regulation U, or cause this Agreement to violate any other regulation of the Board of Governors of the Federal Reserve System or the Securities Exchange Act of 1934, as amended, or any rules or regulations promulgated under any of such statutes. Neither the consummation of the Loan hereunder, nor the use, directly or indirectly, of all or any portion of the proceeds thereof, will violate or result in a violation of any provision of any applicable statute, regulation or order of, or any restriction imposed by, the United States of America or by any authorized official, board, department, instrumentality or agency thereof relating to the control of foreign or overseas lending or investment. 3.19 ERISA COMPLIANCE. Except as set forth on Schedule 3.19, the Borrower has no pension, profit sharing or other similar plan covered by ERISA providing for a program of deferred compensation to any employee. To the knowledge of the Borrower, after the Borrower's exercise of reasonable due diligence, the Borrower is in material compliance with the requirements of ERISA. 3.20 SOLVENCY OF BORROWER. Entering into this Agreement, making and delivering the Note and the borrowings under this Agreement, do not and will not render the Borrower insolvent; the Borrower is not contemplating either the filing of a petition under any state or federal bankruptcy or insolvency laws or the liquidating of all or a major portion of its property, and the Borrower has no knowledge of any person contemplating the filing of any such petition against it or any of its assets; and after giving effect to the transactions contemplated by this Agreement the Borrower is and will be able to pay its debts as such -23- 24 debts become due and will have and continue to have capital sufficient to carry on its business as presently conducted and as presently contemplated to be conducted. 3.21 NO MISSTATEMENTS. No statement of fact made by or on behalf of the Borrower in this Agreement or in any certificate or schedule furnished by the Borrower to the Lender pursuant hereto, or otherwise delivered by the Borrower to the Lender, or in any reports or filings delivered by Borrower to the SEC or to Borrower's shareholders, contains any untrue statement of a material fact. There is no fact presently known to the Borrower which has not been disclosed to the Lender which materially affects adversely, nor as far as the Borrower can foresee, will materially affect adversely the property, business, operations or condition (financial or otherwise) of the Borrower. 3.22 YEAR 2000 MATTERS. Any reprogramming required to permit the proper functioning (but only to the extent that such proper functioning would otherwise be impaired by the occurrence of the year 2000) in and following the year 2000 of computer systems and other equipment containing embedded microchips, in either case owned or operated by the Borrower or any of its Affiliates or used or relied upon in the conduct of their business (including any such systems and other equipment supplied by others or with which the computer systems the Borrower or any of its Affiliates interface), and the testing of all such systems and other equipment as so reprogrammed, will be completed by July 1, 1999. The costs to the Borrower and its Affiliates that have not been incurred as of the date hereof: a) for such reprogramming and testing; and b) for the other reasonably foreseeable consequences to them of any improper functioning of other computer systems and equipment containing embedded microchips due to the occurrence of the year 2000, could not reasonably be expected to result in a Default or Event of Default. Except for any reprogramming referred to above, the computer systems of the Borrower and its Affiliates are, and with ordinary course upgrading and maintenance will continue for the term of this Agreement to be, sufficient for the conduct of their business as currently conducted. Borrower represents only that it is compliant, that it is monitoring the compliance of its business partners and it has no reason to believe that they will not become compliant on a timely basis. 3.23 PATENTS, TRADEMARKS, ETC. All of the Borrower's owned or licensed franchises, patents, domain names, web sites, patent licenses, copyrights, trademarks, service marks, trade names, licenses and permits, and applications for any of the foregoing, and all rights with respect to the -24- 25 foregoing, necessary for the conduct of its business substantially as the same are now conducted, without any known conflict with any rights of others, are described on Schedule 3.23 attached hereto, subject to the rights of third parties under the agreements listed on Schedule 3.23. 3.24 LABOR RELATIONS; EMPLOYEES. Except as described on Schedule 3.24, there are no collective bargaining agreements currently in effect between the Borrower and any labor unions or organizations representing any of the employees of the Borrower. Except as described in Schedule 3.24 hereto, the Borrower has not made any promises or commitments of any kind for: (i) any employment or labor agreement; (ii) any agreement, arrangement or policy that contains or involves any severance pay or supplemental employment liabilities or obligations, including any bonus, deferred compensation, pension, stock option, profit-sharing, incentive compensation, fringe benefit or retirement plan or other arrangement; or (iii) any personnel-related agreement, guarantee or indemnification which involves, singly or in the aggregate, a potential significant liability. There is neither pending nor, to the Borrower's knowledge, threatened any labor dispute, strike or work stoppage. There is not now pending or, to the Borrower's knowledge, threatened any charge or complaint against the Borrower by the National Labor Relations Board, the Department of Labor or any other federal, state or local labor or employment agency or any representative thereof. There are no arrearage in the payment of any wages, withholding or Social Security taxes, unemployment insurance premiums, or other similar obligations of the Borrower. ARTICLE 4. CONDITIONS OF MAKING THE LOAN. 4.1 CONDITIONS TO LENDER'S OBLIGATIONS. The Lender shall have no obligation to make the initial Advance unless the following conditions are satisfied: (a) Representations and Warranties. The representations and warranties set forth in ARTICLE III hereof and in the Security Documents shall be true and correct, and the Borrower shall have performed all obligations which were to have been performed by it hereunder on or prior to the Closing Date; (b) Delivery of Documents. The Borrower shall have delivered, or caused to be delivered to the Lender, the following fully executed documents: (i) this Agreement; (ii) the Note; -25- 26 (iii) to the extent not previously delivered to the Lender, the Security Documents, together with any other documents required by the terms thereof; provided, however, that the Landlord's Consents and Waivers may be delivered after the Closing Date so long as the status of the delivery thereof is reasonably satisfactory to the Lender and so long as said Landlord's Consents and Waivers are delivered on or before July 31, 1999, otherwise failure to deliver same shall constitute an Event of Default hereunder; the Lender further agrees to hold the Leasehold Mortgages in escrow, unrecorded, until such time as the Borrower delivers the Landlord's Consents and Waivers and provided further that if Borrower is unable to deliver the Landlord's Consents and Waivers as required hereunder, then the Lender shall return the Leasehold Mortgages to the Borrower; (iv) the Guaranty; (v) a certificate of the Secretary of Borrower certifying to (1) the adoption of resolutions by its Board of Directors (and, if necessary, its stockholders) authorizing the execution, delivery and performance by Borrower of this Agreement, the Note, and the Security Documents, and the borrowings thereunder; (2) Borrower's bylaws; and (3) officers of Borrower and their signatures; (vi) a copy of Borrower's Articles of Incorporation certified as of a recent date as true and correct by the Secretary of State of Delaware; (vii) a certificate of valid existence for the Borrower issued by the Secretaries of State of Missouri and Delaware; (viii) to the extent not previously delivered to the Lender, the certificates of insurance required by SECTION 5.9 hereof and flood insurance determination; (ix) to the extent not previously delivered, any lease assignments and leasehold mortgages; (x) to the extent not previously delivered, true and correct copies of all Authorizations, material consents, contracts, licenses, permits, instruments and other documents of the Borrower, including those listed in Schedules 3.7, 3.8, and 3.9; (xi) the favorable written opinion of counsel for the Borrower dated the date of this Agreement in form and substance satisfactory to counsel to the Lender; (xii) the Projections; -26- 27 (xiii) Borrowing Base Compliance Certificate in the form of EXHIBIT B attached hereto completed as of the date of the Closing and further completed as of immediately after the disbursements requested in connection with the Closing; (xiv) A completed financial compliance covenant showing that the Borrower satisfies the covenants set forth at SECTIONS 5.6 THROUGH 5.10 hereof at Closing, in the form of EXHIBIT C annexed, and (xv) such further supporting documents as the Lender may reasonably request. (c) Facility Fee. The Borrower shall have paid the Facility Fee concurrently with the consummation of the transactions contemplated by this Agreement and all other expenses required to be paid on the Closing Date; (d) Results of Searches. The Lender shall have received written results of searches of the records of the filing offices in each jurisdiction where the Borrower and/or the Guarantor maintains an office, which searches confirm that, as of a date as close to the date hereof as practicable, except as specifically permitted by this Agreement, there are no financing statements, assignments or notices of tax Liens or litigation on file against or with respect to any assets of the Borrower or the Guarantor; (e) Other Matters. All legal matters incident to the transactions contemplated hereby shall be satisfactory to counsel for the Lender; (f) 10-Q Quarterly Report. The Borrower shall have delivered to the Lender a copy of the Borrower's 10-Q Quarterly Report, as filed with the SEC, for the Fiscal Quarter ending March 31, 1999. (g) Shareholders' Approval of Convertible Preferred Stock Offering. The Borrower's shareholders have approved the issuance of 20% or more of the outstanding shares of the Borrower's Common Stock upon the conversion of the Series C Convertible Preferred Stock of the Company and the exercise of certain Warrants to purchase Common Stock of the Borrower by the holder thereof, arising out of the Borrower's $15,000,000.00 Convertible Preferred Stock Offering entered into as of February 5, 1999; and (h) SEC Approval. The SEC shall have approved the Borrower's Proxy Statement for its 1999 Annual Meeting, dated as of July 7, 1999 (and the Borrower has delivered a copy of the SEC approved Proxy Statement to the Lender) and the SEC shall have cleared the Borrower's Form 10-K Annual Report as amended. -27- 28 4.2 ADDITIONAL CONDITIONS TO LENDER'S OBLIGATION TO MAKE ANY SUBSEQUENT ADVANCES UNDER THE LOAN. The Lender shall have no obligation to make any subsequent Advance of the Loan unless all conditions set forth at SECTION 4.1 have been satisfied, and, in addition, the following conditions are satisfied: (a) the provisions of SECTION 2.1(a) shall have been met; (b) The Borrower shall have delivered to the Lender a Borrowing Certificate in the form of EXHIBIT A annexed hereto for all Advances which are not for working capital or general corporate purposes; and (c) The Lender shall have a first priority security interest in the assets, if any, proposed to be acquired with the proceeds of the advance. ARTICLE 5. AFFIRMATIVE COVENANTS. The Borrower covenants and agrees that, from the date hereof and until payment in full of the principal of, and interest on, the Note, and the payment of all other Obligations, the Borrower will and Borrower will cause the Guarantor to: 5.1 MAINTENANCE OF PROPERTIES. (a) Do or cause to be done all things necessary to preserve, renew and keep in full force and effect its legal existence, and all material rights, distributor agreements, licenses, permits, and Authorizations and Material Contracts; (b) comply in all material respects with all material agreements to which either of them is a party, the violation of which could have a material adverse effect upon the Borrower and the Guarantor; (c) at all times maintain, preserve and protect its trade names and preserve all the remainder of its material properties used or useful in the conduct of its business and keep the same in good repair, working order and condition; and (d) from time to time, make, or cause to be made, all needful and proper repairs, renewals, replacements, betterments and improvements thereto, so that the business carried on in connection therewith may be properly and advantageously conducted at all times. 5.2 COMPLIANCE WITH LAWS. Comply in all material respects with all applicable local, state and federal laws and regulations, whether now in effect or hereafter enacted or promulgated by any governmental authority. Notwithstanding the foregoing, neither this SECTION 5.2 nor SECTION 5.1 above shall require the Borrower or the Guarantor to comply with laws, rules or regulations while the Borrower or the Guarantor, as the case may be, is in good faith contesting its obligation to do so by appropriate proceedings promptly initiated and diligently conducted, and the Borrower has set aside on its books such reserves as are required by GAAP and are deemed adequate by the Borrower and its independent accountants, and provided further that none of the Borrower's property is -28- 29 seized or attached in connection therewith. Borrower will file with the SEC in a timely matter any and all reports and other documents required of the Borrower under the Security Exchange Act of 1934, as amended and as required under the Securities Act of 1933, as amended. 5.3 PAYMENT OF TAXES; DEBTS. Except as provided in SECTION 5.19 hereof, pay and discharge as they become due all of its Indebtedness and all taxes, assessments and governmental charges or levies imposed upon it or upon its income and profits or upon any of its property, real, personal or mixed, or upon any part thereof, before the same shall become in default, as well as all lawful claims for labor, materials and supplies or otherwise, which, if unpaid, might become a lien or charge upon such properties or any part thereof, unless the Borrower or the Guarantor is contesting any such Indebtedness, levies, taxes, assessments, claims or charges in good faith and has set aside on its books any reserves required by GAAP in respect thereof; provided, however, that in any event all such Indebtedness, claims, levies and charges shall be paid before any property of the Borrower and the Guarantor is seized or attached in respect thereof. 5.4 REPORTS TO LENDER. Furnish to the Lender: (a) Within ninety (90) days of the end of each fiscal year: consolidated and consolidating balance sheets and statements of income, retained earnings and surplus, and a statement of cash flows, together with supporting schedules, setting forth in each case in comparative form the corresponding figures for the preceding fiscal year, in each case with an unqualified audited opinion by Rothstein, Kass & Co. of Roseland, New Jersey, or a certified public accountant selected by the Borrower and reasonably acceptable to the Lender, the form of opinion to be also reasonably satisfactory to the Lender, showing the Borrower's and the Guarantor's financial condition at the close of such fiscal year, and the results of operations during such year, and containing a statement to the effect that such accountants have examined the provisions of this Agreement and that, to the best of its knowledge, no covenant default has occurred under any of SECTIONS 5.6 THROUGH 5.13 hereof (or, if such event has occurred, a statement that a covenant default has occurred; provided however, that in issuing such statement, the accountants shall not be required to exceed the scope of normal auditing procedures conducted in connection with its opinion referred to above. Said financial statements shall be accompanied by a certificate in the form of EXHIBIT C attached hereto (the "Compliance Certificate") properly completed by the president or chief financial officer of Borrower. Along with such annual financial statements, the Borrower shall also deliver to the Lender a management letter to the Borrower from its accountants. (b) Within forty-five (45) days after the end of each Fiscal Quarter: unaudited balance sheets and statements of income, retained earnings and surplus, and statements of cash flow and sources and uses of funds for such Fiscal Quarter, together with supporting schedules setting forth in each case in comparative form the corresponding -29- 30 figures for the preceding fiscal period of the same duration in the prior fiscal year, in each case prepared by the Borrower and certified by the president or chief financial officer of Borrower, such balance sheets to be as of the close of such Fiscal Quarter, and such statements of Borrower's and Guarantor's income, retained earnings, cash flow and sources and uses of funds to be for the Fiscal Quarter then ended and for the period from the beginning of the then current fiscal year to the end of such Fiscal Quarter (in each case subject to normal audit and year-end adjustments) and to include a comparison of actual results to those set forth in the Projections for such periods. Said financial statements shall be accompanied by: (i) a Compliance Certificate issued by the president or chief financial officer of Borrower and the Guarantor in the form attached hereto as EXHIBIT C; (ii) a statement to the effect that no Event of Default, nor any Unmatured Default, has occurred, without having been waived in writing; or if there shall have been an Event of Default not previously waived in writing pursuant to the provisions hereof or an Unmatured Default, such certificate shall disclose the nature thereof. (c) Within thirty (30) days after the end of each month: (i) an unaudited statement of Borrower's and Guarantor's profit of and loss for such month and for the year-to-date period ended at the end of such month; and (ii) a certificate of the chief operating officer or chief financial officer of the Borrower and Guarantor setting forth the following information in reasonable detail with respect to such month: showing cancellations and credits, accounts receivable aging and the year to date activity report; and (iii) Borrower's and Guarantor's accounts receivable reporting and aging; and (iv) a Certificate of the chief operating officer or chief financial officer of the Borrower and Guarantor setting forth the Borrowing Base as of the end of said two weeks in the form of EXHIBIT B annexed hereto; and (d) At least thirty (30) days before the end of each fiscal year, a budget for the ensuing year projecting Borrower's and Guarantor's expected revenues, expenses, Net Income, and Capital Expenditures. (e) Annually, no later than September 30 of each year, beginning September 30, 1999, and at such other times as requested by the Lender, Borrower's and Guarantor's -30- 31 Federal Tax Returns in such detail as the Lender may require, and certified as complete by the Borrower and the Guarantor. (f) Promptly after the sending or filing thereof, as the case may be, copies of any proxy statements, financial statements or reports which the Borrower has made available to its shareholders and copies of any regular, periodic and special reports or registration statements which the Borrower files with the Securities and Exchange Commission or any governmental authority which may be substituted therefor, or any national securities exchange; and (g) Promptly, from time to time, such other information regarding its operations, assets, business, affairs and financial condition, as the Lender may reasonably request. 5.5 INSPECTION BY LENDER. Permit agents or representatives of the Lender to inspect, at reasonable hours and upon reasonable notice, its books and records and to make abstracts or reproductions thereof; such inspections to be conducted quarterly at the Borrower's expense. 5.6 MINIMUM PREPAID LINES. Maintain minimum Prepaid Lines commencing April, 1999, as follows, to be tested as follows:
Time Period Minimum Prepaid Lines ----------- --------------------- As of April 30, 1999 33,000 As of May 31, 1999 37,000 As of June 30, 1999 45,000 As of August 30, 1999 70,000 As of September 30, 1999 100,000 As of the last day of each To increase by an additional 75,000 Fiscal Quarter thereafter Prepaid Lines per Fiscal Quarter
-31- 32 5.7 MINIMUM CURRENT RATIO. Maintain at all times a minimum Current Ratio, to be tested as follows:
Time Period Minimum Current Ratio ----------- --------------------- June, 1999 0.25 : 1.00 July, 1999 0.30 : 1.00 August, 1999 0.35 : 1.00 September, 1999 0.40 : 1.00 October, 1999 0.50 : 1.00 November, 1999 0.60 : 1.00 December, 1999 0.65 : 1.00 Fiscal Quarter ending March 31, 2000 0.90 : 1.00 Commencing Fiscal Quarter ending June 30, 2000, and thereafter 1.00 : 1.00
5.8 MINIMUM NET INCOME. Maintain minimum Net Income for each Fiscal Quarter, commencing with the Fiscal Quarter ending September 30, 1999, to be tested quarterly as follows:
Time Period Minimum Net Income ----------- ------------------ October 1, 1999 through December 31, 1999 $500,000.00 Each Fiscal Quarter thereafter $600,000.00
5.9 MAXIMUM NET LOSS. Not permit maximum Net Loss to exceed the following amounts, to be tested quarterly:
Time Period Maximum Monthly Loss ----------- -------------------- Fiscal Quarter ending June 30, 1999 $ 3,600,000.00 Fiscal Quarter ending September 30, 1999 $ 1,800,000.00 Fiscal Quarter ending December 30, 1999 and each Fiscal Quarter thereafter $0
-32- 33 5.10 MINIMUM INCREASE TO STOCKHOLDER'S EQUITY. Maintain for each Fiscal Quarter commencing with the quarter ending December 30, 1999, a minimum increase to Stockholder's Equity as follows, to be tested quarterly:
Time Period Minimum Increase to Stockholder's Equity ----------- ---------------------------------------- Fiscal Quarter ending December 31, 1999 and Each Fiscal Quarter thereafter $ 500,000.00
5.11 REDUCTION OF TELECOM TAXES. Use its best efforts to reduce Borrower's and Guarantor's combined outstanding Telecom Taxes due and payable, to be reported on by Arthur Andersen LLP on a fiscal quarterly basis, in a report reasonable satisfactory to the Lender in form and substance, which report shall include, at a minimum, a statement of the aggregate outstanding Telecom Taxes as of the end of such fiscal quarter and a statement of the aggregate payments made by each of Borrower and Guarantor to reduce Telecom Taxes during such fiscal quarter. 5.12 BANK ACCOUNTS. Maintain a depository account at the Lender and maintain sufficient balances on the date payments are due to permit payment in full by the Borrower of all obligations when due under the Note and this Agreement, as authorized by the provisions of SECTION 2.3. 5.13 CASUALTY AND LIABILITY INSURANCE. Maintain or cause to be maintained property and casualty insurance on its Call Centers and other equipment with such carriers and in such amounts and on such other terms as shall be customarily carried by comparable companies and satisfactory to the Lender in its reasonable judgment, including, without limitation, all insurance required by the Authorizations and Material Contracts, but in any event in the amount approximately equal to or greater than the replacement cost of its Call Centers. The Borrower shall also carry public general comprehensive liability insurance and errors and omissions insurance in a manner and with companies reasonably satisfactory to the Lender and customarily carried by comparable companies in the Borrower's business; but in any event such general comprehensive liability policies shall have a single limit of liability in an amount not less than $1,000,000 for each occurrence and $5,000,000 in aggregate, and such errors and omissions policies shall have a single limit of liability in an amount not less than $1,000,000 per occurrence and $1,000,000 in aggregate. The Borrower shall also carry business interruption insurance in amounts and with companies satisfactory to the Lender in its reasonable judgment. The Lender shall be named as loss payee and additional insured, as applicable, under all such policies, and all such policies, or certificates evidencing the same, shall include a clause prohibiting cancellation or alteration of the policy without thirty (30) days' prior written notice to the Lender. Certificates evidencing such insurance coverage, and -33- 34 stating that the insurer has waived its subrogation rights against the Lender, shall be delivered to the Lender prior to the making of the Loan. 5.14 ADDITIONAL INTERESTS IN REAL PROPERTY. Forthwith upon the acquisition by Borrower of any real property or of any leasehold or other interest therein, the Borrower shall (a) execute and deliver to the Lender a mortgage, collateral assignment, or other appropriate security instrument, in form suitable for recording and otherwise in form and substance satisfactory to the Lender, such as to grant to the Lender a lien respecting such real property (including any improvements thereon) or interest therein subject only to encumbrances permitted under SECTION 6.2 hereof; and (b) cause to be executed and delivered to the Lender a consent and waiver in form suitable for recording and otherwise in form and substance satisfactory to the Lender, signed by each mortgagee other than the Lender in the case of a fee interest and by each owner or lessor in the case of a leasehold or other interest, whereby such person consents to the installation of Collateral on the premises, agrees that any Collateral installed will remain personal property regardless of the manner of installation, disclaims any title to the Collateral by reason of its installation, waives its right to levy upon the same, subordinates to the Lender any security interest in the Collateral claimed by such person, agrees that the Lender may remove Collateral from or dispose of Collateral on the premises, and grants the Lender a right of entry to do so. 5.15 NOTICE OF ADVERSE CHANGES AND OTHER MATTERS. The Borrower will promptly notify the Lender within ten (10) days of the occurrence of (i) any development, including, without limitation, developments relating to the Authorizations and Material Contracts, which would materially adversely affect the business of the Borrower or the Guarantor, its properties or affairs, or the ability of the Borrower or the Guarantor to perform its obligations under this Agreement, the Security Documents or the Note, (ii) any material adverse change in the condition of the Borrower or the Guarantor, financial or otherwise, (iii) the institution of proceedings against the Borrower or the Guarantor in any court or before any governmental body which, if adversely determined, would have a material adverse effect upon the Borrower and the Guarantor, and (iv) the occurrence of any Event of Default as defined in ARTICLE VII hereof, and the occurrence of any Unmatured Default. 5.16 COMPLIANCE WITH ENVIRONMENTAL LAWS. (a) The Borrower and the Guarantor shall comply in all respects with all Environmental Requirements and will not generate, store, handle, process, dispose of or otherwise use and will not permit any subtenant or sublessee of Borrower to generate, store, handle, process, dispose of or otherwise use Hazardous Materials in, on, under or about any Property in a manner that could lead or potentially lead to imposition on the Borrower or any lender or any of the Properties of any liability or lien of any nature whatsoever under any Environmental Requirement. -34- 35 (b) The Borrower shall notify the Lender promptly in the event of any spill or other release of any Hazardous Material in, on, under or about any of the Properties which is required to be reported to a governmental authority under any Environmental Requirement, will promptly forward to the Lender copies of any notices received by the Borrower relating to any alleged violation of any Environmental Requirement and will promptly pay when due any fine or assessment against the Lender, the Borrower or the Guarantor or any of the Properties relating to any Environmental Requirement. (c) If at any time it is determined that: (i) the operation or use of any of the Properties by the Borrower or the Guarantor violates any applicable Environmental Requirement, or (ii) that there is any Hazardous Material located in, on, under or about the Property which under any Environmental Requirement requires special handling by the Borrower or the Guarantor in collection, treatment, storage or disposal or any other form of cleanup or remedial or corrective action, the Borrower shall within thirty (30) days after receipt of notice thereof from a governmental authority (or such other time period as may be specified in the notice sent by such governmental authority) or from the Lender take, at its sole cost and expense, such actions as may be necessary to fully comply in all respects with all Environmental Requirements, provided, however, that if such compliance cannot reasonably be completed within such thirty (30) day period, the Borrower shall commence such necessary action within such thirty (30) day period and shall thereafter diligently and expeditiously comply with all Environmental Requirements. (d) If a lien is filed against any Property by any governmental authority resulting from the need to expend or the actual expending of monies arising from an action or omission, whether intentional or unintentional, of the Borrower or for which the Borrower is responsible, resulting in the releasing, spilling, leaking, leaching, pumping, emitting, pouring, emptying or dumping of any Hazardous Material, then the Borrower will, within thirty (30) days from the date that the Borrower is first given notice that such lien has been placed against the Property either (a) pay the claim and remove the lien or (b) furnish a cash deposit, bond or such other security with respect thereto as is satisfactory in all respects to the Lender in its reasonable judgment and is sufficient to effect a complete discharge of such lien on the Property. 5.17 FURTHER ASSURANCES. The Borrower and the Guarantor will take any action reasonably requested by the Lender to cause the Lender to enjoy the rights of the Lender under this Agreement and the Security Documents including, if requested by the Lender, executing written confirmations of the security interests, pledges and guarantees under the Security Documents. -35- 36 5.18 MANAGEMENT. Antonio D. Autorino will be Chairman and Chief Operating Officer, and Vincent DiVincenzo will be Chief Financial Officer of the Borrower unless either individual resigns or retires and a substitute therefor is chosen by the Borrower with comparable qualifications, experience and reputation within the Borrower's business reasonably acceptable to the Lender and commences management of the Borrower within ninety (90) days after such cessation. 5.19 PAYMENT OF TELECOM TAXES. The Borrower and the Guarantor will continue to accrue, in accordance with their historical practice, state and local Telecom Taxes based on known rates depending upon the site of origination, and to the extent unpaid the Borrower and Guarantor will accrue related interest on said Telecom Taxes. The Borrower and Guarantor will continue to utilize Arthur Andersen to approach the taxing authorities, in accordance with their historical procedure, to make arrangements for payment of outstanding taxes in the manner in which Borrower and Guarantor have done historically. 5.20 YEAR 2000 MATTERS. The Borrower will deliver to the Lender any documentation which the Lender may reasonably require to evidence the Borrower's and its material vendors' compliance with Year 2000 requirements. 5.21 CALCULATION OF FINANCIAL COVENANTS. Notwithstanding anything to the contrary in this Agreement, the calculation of any financial covenant as set forth in this ARTICLE V shall not take into account any effect of either (a) the payment of Premiums with respect to the Borrower's Series C Preferred Stock, or (b) the Warrant. ARTICLE 6. NEGATIVE COVENANTS The Borrower covenants and agrees that, until payment in full of the Note and payment of all other Obligations, unless the Lender shall otherwise consent in writing, it will not, and will not permit Guarantor to do so, directly or indirectly: 6.1 INDEBTEDNESS. Incur, create, assume, become or be liable in any manner with respect to, or permit to exist, any Indebtedness or liability (including Capital Lease obligations), except: (a) Indebtedness to the Lender under the Loan Documents; (b) Indebtedness with respect to trade obligations and other normal accruals in the ordinary course of business not yet due and payable, or with respect to which it is contesting in good faith the amount or validity thereof by appropriate proceedings, and then only to the extent they have set aside on its books adequate reserves therefor and only so long as no property of the Borrower or the Guarantor is seized or attached in satisfaction of or as security for the Indebtedness; -36- 37 (c) Indebtedness with respect to Capital Leases and/or purchase money security interests in an aggregate amount not exceeding One Hundred Thousand Dollars ($100,000.00) outstanding at any one time; (d) Current liabilities of the Borrower and the Guarantor (other than for borrowed money) and/or obligations of the Borrower and the Guarantor in respect of performance bonds provided on behalf of the Borrower or the Guarantor, in each case incurred in the ordinary course of business and in accordance with customary industry practice; and (e) Permitted Indebtedness, as approved by the Lender, as described on SCHEDULE 6.1(e) hereto. 6.2 LIENS. Create, incur, assume or suffer to exist any Liens on any of its assets, now or hereafter owned, other than: (a) Liens in favor of the Lender; (b) Liens securing the payment of taxes, and other government charges, either not yet due or the validity of which is being contested in good faith by appropriate proceedings, and as to which it shall have set aside on its books adequate reserves; (c) deposits under worker's compensation, unemployment insurance and social security laws, or to secure statutory obligations, or to secure surety or other similar bonds that the Borrower is required to obtain in the ordinary course of business; (d) purchase money security interests and leasehold interests under Capital Leases as permitted by and as limited in amount by SECTION 6.1(c) hereof; and (e) Liens securing indebtedness permitted by SECTION 6.1, as listed on SCHEDULE 6.2(e) hereto. 6.3 GUARANTEES. Except as otherwise explicitly permitted by this Agreement, guarantee, endorse or otherwise in any way become or be responsible for obligations of any other Person, whether by agreement to purchase the Indebtedness of any other Person, or agreement for the furnishing of funds to any other Person, through purchase of goods, supplies or services, or by way of stock purchase, capital contribution, advance or loan, for the purpose of paying or discharging any indebtedness or obligation of such other Person, or otherwise, except endorsements on negotiable instruments for collection in the ordinary course of business. 6.4 SALE OF ASSETS. Sell, lease, transfer or otherwise dispose of its properties, assets, rights or licenses other than inventory sold in the ordinary course of business. -37- 38 6.5 SALE AND LEASEBACK. Enter into any arrangement, directly or indirectly, with any Person whereby the Borrower or the Guarantor shall sell or transfer any property, real, personal or mixed, used or useful in its business, whether now owned or hereafter acquired, and thereafter rent or lease such property. 6.6 INVESTMENTS. Purchase or otherwise acquire or hold Investments or make loans or advances to, or enter into any arrangement for the purpose of providing funds or credit to, any other Person, except Permitted Investments. 6.7 REORGANIZATION; NAME CHANGE; REDEMPTIONS. Dissolve, liquidate, consolidate with or merge with, or except as permitted by SECTION 6.10 hereof otherwise acquire all or substantially all of the assets or properties of, any other corporation, partnership, business, firm, or other Person, amend its Articles of Incorporation in any way that could have a material adverse effect upon the business of the Borrower or the Guarantor or upon the Lender's rights hereunder or under any Security Document; or make any change in its legal name or the names under which it conducts business; or redeem any of its shares of capital stock. 6.8 RESTRICTED PAYMENTS. Directly or indirectly declare, order, pay or make any Restricted Payment or set aside any sum of property therefor. 6.9 TRANSACTIONS WITH AFFILIATES. Enter into any transaction, including, without limitation, the purchase, sale or exchange of property or assets or the rendering of any service, with or to any Affiliate of the Borrower, except in the ordinary course of business and pursuant to the reasonable requirements of the Borrower's business and upon fair and reasonable terms not less favorable to the Borrower than would be obtained in a comparable arm's-length transaction with a third party other than such Affiliate. 6.10 ACQUISITIONS; OFFICES. Acquire assets other than routine purchases of equipment and supplies in the ordinary course of business and acquisitions funded by the Loan; or without the prior written consent of the Lender open any office other than its sales offices and Call Stations listed on Schedule 3.10 attached hereto. 6.11 OTHER BUSINESSES. Engage, directly or indirectly, in any business other than rental of short-term portable cellular rentals, prepaid or debit cellular services and the provision of activation services, and related communications products and services. 6.12 SALE OF ACCOUNTS RECEIVABLE. Sell, assign, discount or dispose in any way of any accounts receivable, promissory notes or trade acceptances held by the Borrower or the Guarantor, with or without recourse, except for collection (including endorsements) and write-offs in the ordinary course of business. -38- 39 6.13 PENSION PLANS. Except for existing plans described on Schedule 3.20, enter into or otherwise adopt any pension, profit sharing or other similar plan covered by ERISA providing for a program of deferred compensation to any employee. ARTICLE 7. EVENTS OF DEFAULT. 7.1 EVENTS OF DEFAULT. The happening of any of the following events shall constitute an "Event of Default": (a) if any material representation or warranty made herein, or in any report, certificate, financial statement or other instrument furnished by the Borrower or Guarantor in connection with this Agreement, or the borrowing hereunder, shall prove to have been false or misleading when made in any material respect; (b) if a default occurs in the payment of: (i) any interest on the Note, or (ii) any fee required to be paid under this Agreement, or (iii) any installment of the principal of the Note or any other Obligations, in any such case whether at the due date thereof or at a date fixed for prepayment or by acceleration or otherwise and such default continues for five (5) days (a "Payment Event of Default"); (c) if a default occurs in the due observance or performance of any covenant, condition or agreement contained in any of SECTIONS 5.6 THROUGH 5.13 hereof or in ARTICLE VI hereof; (d) if a default occurs in the due observance or performance of any covenant, condition or agreement on the part of the Borrower or the Guarantor to be observed or performed pursuant to the terms of this Agreement (excluding those specified in subparagraph (c) above) or pursuant to the terms of the Security Documents and such default shall continue unremedied for thirty (30) days after the earlier of (i) notice thereof by the Lender to the Borrower or the Guarantor or (ii) discovery of such default by the Borrower or the Guarantor; if such default, provided, however, if cannot be cured within thirty (30) days, then Borrower or Guarantor shall diligently undertake to cure and complete as soon as possible provided the cure period will not exceed ninety (90) days without the Lender's prior written consent; -39- 40 (e) if a default occurs in the payment or performance of any other obligation or liability of either the Borrower or the Guarantor to the Lender, and such default continues past any applicable cure period; (f) if a default occurs with respect to any Indebtedness of Borrower or Guarantor to any Person other than the Lender exceeding Fifty Thousand Dollars ($50,000.00) in aggregate principal amount if the effect of such default is to accelerate the maturity of such Indebtedness or to permit the holder thereof to cause such Indebtedness to become due prior to the stated maturity thereof, provided that it shall not be an Event of Default if such obligation is being contested in good faith by the Borrower or Guarantor by appropriate proceedings, and the Borrower or Guarantor has set aside adequate reserves with respect thereto or such default is waived by the holder thereof; (g) if Borrower, the Guarantor, or any other Person liable in whole or in part for payment of the Obligations shall (i) except at the request of the Lender, apply for or consent to the appointment of a receiver, trustee, custodian or liquidator of it or any of its property, (ii) admit in writing its inability to pay its debts as they mature, (iii) make a general assignment for the benefit of creditors, (iv) be adjudicated bankrupt or insolvent or be the subject of an order for relief under Title 11 of the United States Code or (v) file a voluntary petition in bankruptcy, or a petition or an answer seeking reorganization or an arrangement with creditors or to take advantage (as a debtor) of any bankruptcy, reorganization, insolvency, readjustment of debt, dissolution or liquidation law or statute, or an answer admitting the material allegations of a petition filed against it in any proceeding under any such law or if corporate action shall be taken for the purpose of effecting any of the foregoing; (h) an involuntary case in respect of the Borrower or the Guarantor under the federal bankruptcy laws, as now or hereafter constituted, or any other applicable federal or state bankruptcy, insolvency or other similar law which is not vacated or dismissed within thirty (30) days of the entry thereof, or there shall be entered a decree or order in respect of the Borrower or the Guarantor appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of the Borrower or the Guarantor or for any substantial part of the property of the Borrower or the Guarantor or there shall be entered a decree or order in respect of the Borrower or the Guarantor ordering the winding-up or liquidation of the Borrower's or the Guarantor's affairs (any of the foregoing petitions being hereinafter referred to as an "Involuntary Petition"); (i) a voluntary case commenced by the Borrower or the Guarantor under the federal bankruptcy laws, as now constituted or hereafter amended, or any other applicable federal or state bankruptcy, insolvency or other similar law, or it shall consent to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian, sequestrator (or other similar official) of the Borrower or the Guarantor or for any substantial part of their respective property, or the failure of the Borrower or the Guarantor -40- 41 generally to pay their respective debts as such debts become due in the ordinary course, or the making of a general assignment for the benefit of creditors, or the taking of corporate action by the Borrower or the Guarantor in furtherance of any of the foregoing; (j) if a final judgment is rendered for the payment of money in excess of $50,000 against Borrower or the Guarantor, and the same shall remain undischarged, unbonded or uninsured for a period of thirty (30) consecutive days, during which period execution has not been effectively stayed; (k) if there occurs any attachment of any deposits or other property of Borrower or the Guarantor in the hands or possession of the Lender, or if there occurs any attachment of any other property of the Borrower or the Guarantor in an amount exceeding Fifty Thousand Dollars ($50,000) which shall not be discharged or effectively stayed within thirty (30) days of the date of such attachment; (l) if Borrower or the Guarantor shall lose, fail to keep in force, suffer the termination, suspension or revocation of or terminate, forfeit or suffer a material adverse amendment to any material Authorization, the loss, termination, amendment, suspension or revocation of which would have a material adverse effect on the operations of the Borrower or the Borrower's or the Guarantor's ability to perform its obligations under this Agreement or the Note which circumstance shall continue for a period of thirty (30) days after the Borrower or the Guarantor discovers such circumstance; or Borrower or Guarantor shall suffer a material adverse change in its operations, finances or business as determined by the Lender in its sole discretion reasonably exercised; or (m) termination of the Prepaid Cellular Reseller Agreement dated as of February 19, 1999 between Borrower and MCI Telecommunications Corporation and WorldCom Technologies, Inc.; (n) if the Borrower's capital stock is delisted with Nasdaq or any other national securities exchange; or (o) if the SEC or the Federal Communications Commission commences investigation of Borrower and such investigation is not terminated in Borrower's favor within ninety (90) days of the commencement thereof. 7.2 EFFECT OF EVENT OF DEFAULT. If any Event of Default occurs, then at any time thereafter during the continuance of such Event of Default, the Note and any and all other Obligations shall, at the option of the Lender, become immediately due and payable (except that upon the occurrence of an Event of Default described in paragraph (g) or (h) of SECTION 7.1 of this ARTICLE VII, the Note shall become immediately due and payable without any action on the part of the Lender), both as to principal and interest, without presentment, demand, protest or notice of any kind, all of which are hereby expressly -41- 42 waived, anything contained herein or in the Note or other evidence of such indebtedness to the contrary notwithstanding. In the event of an acceleration of the Borrower's indebtedness hereunder as a result of the filing of an Involuntary Petition as specified in paragraph (h) of SECTION 7.1 of this ARTICLE VII, such acceleration shall be rescinded and the Event of Default shall be deemed not to have occurred, and the Borrower's rights hereunder reinstated, if, within sixty (60) days following the filing of such Involuntary Petition, such Involuntary Petition shall have been dismissed or stayed unless said stay is lifted or expires by its terms (in which event such acceleration shall be revived), and there shall exist no other Event of Default under this Agreement. 7.3 ADDITIONAL REMEDIES. In addition to the foregoing, if any Event of Default occurs, then at any time thereafter during the continuance of such Event of Default the Lender is hereby authorized and empowered to exercise any rights of foreclosure or as otherwise provided for the realization of any security for the Note covered by any of the Security Documents and all other remedies available to the Lender under this Agreement or at law or in equity may be exercised by the Lender at any time and from time to time, whether or not the indebtedness evidenced by the Note shall be due and payable, and whether or not the Lender shall have instituted any foreclosure proceedings or other action for the enforcement of its rights under the Note or any of the Security Documents. 7.4 CONSENT TO RECEIVER. In addition to the foregoing remedies, the Lender may upon the occurrence and during the continuance of an Event of Default under clause (b) of SECTION 7.1 above, proceed to protect and enforce its rights by an action at law, suit in equity or other appropriate proceeding, whether for the specific performance of any agreement contained in any of the Loan Documents, or for an injunction against a violation of any of the terms hereof or thereof. If the Lender applies for the employment of, or taking possession by, a trustee, receiver, liquidator or other similar official, of the Borrower to hold or liquidate all or any substantial part of the properties or assets of the Borrower, the Borrower hereby consents to such appointment and agrees to execute and deliver any and all documents requested by the Lender relating to the appointment of such trustee, receiver, liquidator or other similar official (whether by joining in a petition for the voluntary appointment of such an official, by entering no contest to a petition for the appointment of such an official or otherwise, as appropriate under applicable law), sixty (60) days after the occurrence of a Payment Event of Default. No right conferred upon the Lender hereby or by any Loan Document or the Note shall be exclusive of any other right referred to herein or therein or now or hereafter available at law, in equity, by statute or otherwise. ARTICLE 8. SETOFF; ASSIGNMENTS; PARTICIPATIONS -42- 43 8.1 SETOFF. In addition to, and without limitation of, any rights of the Lender under applicable law, if any Event of Default occurs and is continuing, any indebtedness of the Lender to the Borrower (including all account balances, whether provisional or final and whether or not collected or available) may be offset and applied toward the payment of the Obligations owing to the Lender, whether or not the Obligations, or any part thereof, shall then be due. 8.2 SUCCESSORS AND ASSIGNS. The terms and provisions of the Loan Documents shall be binding upon and inure to the benefit of the Borrower and the Lender and their respective successors and assigns, except that the Borrower shall not have the right to assign its rights or obligations under the Loan Documents. Any assignee or transferee of the Note agrees by acceptance thereof to be bound by all the terms and provisions of the Loan Documents. Any request, authority or consent of any Person, who at the time of making such request or giving such authority or consent is the holder of the Note, shall be conclusive and binding on any subsequent holder, transferee or assignee of the Note or of any note or notes issued in exchange therefor. 8.3 PARTICIPATIONS. (a) Permitted Participants; Effect. The Lender may, in the ordinary course of its commercial banking business and in accordance with applicable law, at any time sell to one or more banks or other entities ("Participants") participating interests in any Loan owing to the Lender, the Note, or any other interest of the Lender under the Loan Documents. In the event of any such sale by the Lender of participating interests to a Participant, the Lender's obligations under the Loan Documents shall remain unchanged, the Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, the Lender shall remain the holder of the Note for all purposes under the Loan Documents, all amounts payable by the Borrower under this Agreement shall be determined as if the Lender had not sold such participating interests, and the Borrower and the Lender shall continue to deal solely and directly with each other in connection with the Lender's rights and obligations under the Loan Documents. The Borrower shall not be required to pay legal fees or other administrative expenses or other costs or expenses of the Lender or its participants relating to the Participations. (b) Benefit of Setoff. The Borrower agrees that each Participant of which the Borrower is notified shall be deemed to have the right of setoff provided in SECTION 8.1 in respect of its participating interest as if the amount of its participating interest were owing directly to it as a lender under the Loan Documents, provided that the Lender shall retain the right of setoff provided in SECTION 8.1 with respect to the amount of participating interests sold to each Participant. The Lender agrees to share with each Participant, and each Participant, by exercising the right of setoff provided in SECTION 8.1 agrees to share with the Lender, any amount received pursuant to the exercise of its right of setoff. -43- 44 8.4 ASSIGNMENTS. (a) Permitted Assignments. Subject to SECTION 8.4(b) the Lender may, in the ordinary course of its commercial banking business and in accordance with applicable law, at any time assign to one or more banks or other entities ("Purchasers") all or any part of its rights and obligations under the Loan Documents; provided, that any such assignment (other than an assignment to a Purchaser which is an Affiliate of the Lender) shall be in a minimum amount of $500,000. (b) Effect; Effective Date. Upon (i) delivery to the Borrower of a notice of assignment (a "Notice of Assignment"), identifying the Assignee and the aggregate principal amount being assigned, such assignment shall become effective on the effective date specified in such Notice of Assignment. On and after the effective date of such assignment, such Purchaser shall for all purposes be a lender party to this Agreement and any other Loan Document executed by the Lender and shall have all the rights and obligations of the Lender under the Loan Documents, to the same extent as if it were an original party hereto, and no further action by the Borrower or the Lender shall be required to release the transferor Lender with respect to the percentage of the Loan assigned to such Purchaser. Upon consummation of any assignment to a Purchaser pursuant to this SECTION 8.4(b), the transferor Lender and the Borrower shall make appropriate arrangements so that replacement Note(s) are issued to such transferor Lender and new Note or, as appropriate, replacement Note, are issued to such Purchaser, in each case in principal amounts reflecting their respective, portions of the Loan, as adjusted pursuant to such assignment. 8.5 DISSEMINATION OF INFORMATION. The Borrower authorizes the Lender to disclose to any Participant or Purchaser or any other Person acquiring an interest in the Loan Documents by operation of law (each a "Transferee") and any prospective Transferee any and all information in the Lender's possession concerning the credit-worthiness of the Borrower, provided that such Transferee is first informed of the confidential nature of such information and acknowledges such confidentiality, and provided further that information shall not be disseminated to Persons that the Lender reasonably believes to be actual competitors of the Borrower. ARTICLE 9. MISCELLANEOUS 9.1 SURVIVAL OF WARRANTIES. This Agreement and all covenants, agreements, representations and warranties made herein and in the certificates delivered pursuant hereto, shall survive the making by the Lender of the Loan hereunder and the execution and delivery to the Lender of the Note, and shall continue in full force and effect so long as any of the Note or any other Obligations are outstanding and unpaid. Whenever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the successors and assigns of such party; and all covenants, promises and -44- 45 agreements in this Agreement contained, by or on behalf of the Borrower or the Lender, shall inure to the benefit of and be binding upon the successors and assigns of the Lender. 9.2 EXPENSES; INDEMNIFICATION. The Borrower shall reimburse the Lender (a) for any reasonable costs and out-of-pocket expenses (including reasonable attorneys' fees and time charges of attorneys for the Lender) paid or incurred by the Lender in connection with (i) the preparation, review and execution of the Loan Documents; and (ii) delivery, amendment and modification of the Loan Documents; and (b) for any reasonable costs and out-of-pocket expenses (including reasonable attorneys' fees and time charges of attorneys of the Lender), paid or incurred by the Lender in connection with the collection of the Loan and enforcement of the Loan Documents. Expenses to be reimbursed by the Borrower under this Section include, without limitation, the reasonable cost and expense of obtaining appraisals of real property owned by the Borrower or interests in real property owned by the Borrower described in the Security Documents which appraisals shall be in conformity with the applicable requirements of any law or any governmental rule, regulation, policy, guideline or directive (whether or not having the force of law), or any interpretation thereof, including, without limitation, the provisions of Title XI of the Financial Institutions Reform, Recovery and Enforcement Act of 1989, as amended, reformed or otherwise modified from time to time, and any rules promulgated to implement such provisions. 9.3 NONLIABILITY OF LENDER. The relationship between the Borrower and the Lender shall be solely that of borrower and lender. The Lender shall not have any fiduciary responsibilities to the Borrower. The Lender undertakes no responsibility to the Borrower to review or inform the Borrower of any matter in connection with any phase of the Borrower's business or operations. 9.4 CHOICE OF LAW. The Loan Documents (other than those containing a contrary express choice of law provision) shall be construed in accordance with the internal laws (and not the law of conflicts) of The Commonwealth of Massachusetts. 9.5 CONSENT TO JURISDICTION. The Borrower hereby irrevocably submits to the non-exclusive jurisdiction of any United States Federal or Massachusetts state court sitting in Boston in any action or proceeding arising out of or relating to any Loan Documents, and the Borrower hereby irrevocably agrees that all claims in respect of such action or proceeding may be heard and determined in any such court and irrevocably waives any objection it now or hereafter has as to the venue of any such suit, action or proceeding brought in such a court or that such court is an inconvenient forum. Nothing herein shall limit the right of the Lender to bring proceedings against the Borrower in the courts of any other jurisdiction. 9.6 WAIVER OF JURY TRIAL. THE BORROWER AND THE LENDER HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, -45- 46 DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY LOAN DOCUMENT OR THE RELATIONSHIP ESTABLISHED THEREUNDER. 9.7 WAIVERS AND AMENDMENTS. No amendment, modification or waiver of any provisions of this Agreement, or of the Note, or of the Security Documents shall be effective unless in writing and executed by the Borrower and the Lender. No consent to any departure by the Borrower therefrom, shall in any event be effective unless the same shall be in writing and executed by the Lender, and then such waiver or consent shall be effective only in the specific instance, and for the purpose, for which given. No notice to or demand of the Borrower, in any case, shall entitle the Borrower to any other or future notice or demand in the same, similar or other circumstances except to the extent provided herein. 9.8 NO IMPLIED WAIVERS. Neither any failure nor any delay on the part of the Lender in exercising any right, power or privilege hereunder, or under the Note, or under any other instrument given as security therefor, shall operate as a waiver thereof, nor shall a single or partial exercise thereof preclude any other or future exercise, or the exercise of any other right, power or privilege. 9.9 NOTICES. All notices, requests, demands and other communications provided for hereunder shall be in writing and shall be either mailed by certified mail, return receipt requested or delivered by overnight courier service or facsimile transmission to the applicable party at the following addresses: If to the Borrower: Shared Technologies Cellular, Inc. 100 Great Meadow Road, Suite 104 Weathersfield, Connecticut 06109 Attn: Legal Department Fax: (860) 258-2513 with a copy to: Day, Berry & Howard, LLP 260 Franklin Street Boston, Massachusetts 02110 Attn: Jeffrey A. Clopeck, Esq. Fax: (617) 345-4745 -46- 47 If to the Lender: State Street Bank and Trust Company 225 Franklin Street Boston, Massachusetts 02110 Attn: Michael S. St. Jean, Vice President Fax: (617) 338-4041 with a copy to: Amy L. Mower, Esq. Cameron & Mittleman 56 Exchange Terrace Providence, Rhode Island 02903 Fax: (401) 331-5787 or, as to each party, at such other address as shall be designated by such parties in a written notice to the other party complying as to delivery with the terms of this Section. All such notices, requests, demands and other communication shall be effective three (3) days after deposited in the U.S. Mail or, in the case of delivery by courier, on the date of delivery at the address set forth above. 9.10 COUNTERPARTS. This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all the counterparts shall together constitute one and the same instrument. This Agreement shall become effective when the parties hereto have signed a copy hereof (whether or not the same or different copies) and shall have delivered the same to the Lender. 9.11 SAVINGS CLAUSE. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or affecting the validity or enforceability of such provision in any other jurisdiction. 9.12 HEADINGS. Article and Section headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose. THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK -47- 48 IN WITNESS WHEREOF, the Lender and the Borrower have caused this Agreement to be duly executed by their duly authorized representatives as an instrument under seal, all as of the day and year first above written. WITNESS: STATE STREET BANK AND TRUST COMPANY \s\ Keisha Macklin By:\s\ Michael S. St. Jean - ------------------------ ------------------------------------- Michael S. St. Jean, Vice President SHARED TECHNOLOGIES CELLULAR, INC. \s\ Sean Hayes By:\s\ Vincent DiVincenzo - ------------------------ ------------------------------------- Vincent DiVincenzo, Chief Financial Officer -48- 49 EXHIBITS AND SCHEDULES
Exhibit A - Request for Advance Exhibit B - Borrowing Base Certificate Exhibit C - Compliance Certificate Exhibit D - Promissory Note Exhibit E - Warrant Schedule 3.3 - Conflicts Schedule 3.4 - Required Consents Schedule 3.5 - Litigation Schedule 3.6 - Encumbrances, Defaults, Restrictions Schedule 3.7 - Governmental Licenses and Permits Schedule 3.8 (b) - Other Material Agreements Schedule 3.9 - Real Estate Schedule 3.10 - Sales Office Locations Schedule 3.13 - Indebtedness and Liens; Contingent Obligations Schedule 3.19 - Plans covered by ERISA Schedule 3.23 - Patent, Trademarks, Copyrights, Licenses, Domain Names Schedule 3.24 - Labor Relations; Employees Schedule 6.1 (e) - Permitted Indebtedness Schedule 6.2 (e) - List of liens securing Indebtedness
-49- EX-4.2 3 EXHIBIT 4.2 1 SECURITY AGREEMENT AND ASSIGNMENT THIS SECURITY AGREEMENT AND ASSIGNMENT (THE "AGREEMENT") is dated as of July 7, 1999 and is entered into by and among SHARED TECHNOLOGIES CELLULAR, INC., a corporation organized under the laws of the State of Delaware, with its principal place of business at 100 Great Meadow Road, Suite 104, Wethersfield, Connecticut 06109 (the "Debtor") and STATE STREET BANK AND TRUST COMPANY, a Massachusetts trust company with its principal place of business located at 225 Franklin Street, Boston, Massachusetts 02110 (the "Secured Party"). NOW THEREFORE, in consideration of the provisions herein contained, and for other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the parties hereto agree as follows: I. DEFINITIONS 1.1. "ACCOUNTS" shall mean "accounts" within the meaning of SECTION 9-106 of the Code and, to the extent not otherwise included therein, all Contract Rights, accounts receivable, instruments, documents and chattel paper; any other obligations or indebtedness owed to the Debtor from whatever sources arising; all rights of the Debtor to receive any payments in money or kind; all guarantees of Accounts and security therefor; all cash or non-cash Proceeds of all of the foregoing; all of the right, title and interest of the Debtor in and with respect to the goods, services or other property which gave rise to or which secure any of the accounts and insurance policies and proceeds relating thereto, and all of the rights of the Debtor as unpaid sellers of goods or services, including, without limitation, the rights of stoppage in transit, replevin, reclamation and resale; and all of the foregoing, whether now existing or hereafter created or acquired. 1.2. "CODE" shall mean the Uniform Commercial Code as the same may be in effect from time to time in the Commonwealth of Massachusetts. 1.3. "COLLATERAL" shall have the meaning assigned to it in SECTION 2.1 of this Agreement. 1.4. "CONTRACT RIGHTS", shall mean all rights to payment or performance under a Contract not yet earned by performance and not evidenced by an instrument or chattel paper, for which monies are due or to become due for services rendered or goods sold. 1.5. "CONTRACT" OR "CONTRACTS" shall mean all contracts, agreements and other undertakings of any nature whatsoever pursuant to which the Debtor has entered into a sale or agreement to sell or provide goods or services now or in the future, and for which monies are due or to become due. 2 1.6. "DEBTOR'S ADDRESS" shall mean any of 100 Great Meadow Road, Suite 104, Wethersfield, Connecticut 06109 and Suite 1100, 100 Constitution Plaza, Hartford, Connecticut 06103, and 149 Weldon Parkway, Suite 109, Maryland Heights, Missouri. 1.7. "DOCUMENTS" shall mean "documents" within the meaning of SECTION 9-105(1)(f) of the Code. 1.8. "EQUIPMENT" shall include "equipment" within the meaning of SECTION 9-109(2) of the Code and, to the extent not otherwise included therein, all machinery, equipment, furniture, parts, tools and dies, of every kind and description, of the Debtor now owned or hereafter acquired by the Debtor, and used or acquired for use in the business(es) of the Debtor, together with all accessions thereto and all substitutions and replacements thereof and parts therefor; and all cash or non-cash Proceeds thereof. 1.9. "EVENT OF DEFAULT" shall mean an Event of Default set forth in SECTION 7.1 hereof. 1.10. "FIXTURES" shall mean "fixtures" within the meaning of SECTION 9-313(1)(a) of the Code and, to the extent not otherwise included therein, all goods which are so related to particular real estate that an interest in them arises under real estate law and all accessions thereto, replacements thereof and substitutions therefor, including, but not limited to, plumbing, heating and lighting apparatus, mantels, floor coverings, furniture, furnishings, draperies, screens, storm windows and doors, awnings, shrubbery, plants, boilers, tanks, machinery, stoves, gas and electric ranges, wall cabinets, appliances, furnaces, dynamos, motors, elevators and elevator machinery, radiators, blinds and all laundry, refrigerating, gas, electric, ventilating, air-refrigerating, air-conditioning, incinerating and sprinkling and other fire prevention or extinguishing equipment of any kind and nature and any replacements, accessions and additions thereto, Proceeds thereof and substitutions therefor. 1.11. "GENERAL INTANGIBLES" shall mean "general intangibles" within the meaning of SECTION 9-106 of the Code and, to the extent they arise from the sale of goods or services or are used in connection with the production of Inventory, all tax refunds and other claims of the Debtor against any Governmental Authority, and all choses in action, assignment of proofs of claim in bankruptcy proceedings, web sites, domain names, insurance proceeds, goodwill, patents, copyrights, trademarks, trade names, customer lists, formulae, trade secrets, all general intangibles and documents and Investment Property, whether now owned or hereafter acquired, service marks, other intellectual property rights, permits, rights, franchises, contract rights and other intangible property, licenses, designs, computer software, research and literary rights, all instruments, securities, Investment Property, cash and property, owned by the Debtor or in which the Debtor has an interest, which now or hereafter at any time are in the possession and control of the Secured Party or are in transit by mail or carrier to or from the Secured Party -2- 3 or are in the possession of any third party acting on behalf of the Secured Party, without regard to whether the Secured Party received the same in pledge, for safekeeping, as agent for collection or transmission or otherwise or whether the Secured Party had conditionally released the same. 1.12. "GOVERNMENTAL AUTHORITY" shall mean any instrumentality exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, and any corporation or other entity owned or controlled (through stock or capital ownership or otherwise) by any of the foregoing. 1.13. "INVENTORY" shall mean "inventory" within the meaning of SECTION 9-109 (4) of the Code, and to the extent not otherwise included therein, all goods, merchandise and other personal property now owned or hereafter acquired by the Debtor which are held for sale or lease, or are furnished or to be furnished under any contract of service or are raw materials, work-in-process, supplies or materials used or consumed in the Debtor's business(es), and all products thereof, and all substitutions, replacements, additions or accessions therefor and thereto; and any cash or non-cash Proceeds of all of the foregoing, including insurance proceeds. 1.14. "INVESTMENT PROPERTY" shall mean "investment property" within the meaning of SECTION 9-116 of the Code. 1.15. "LIEN" shall mean any mortgage, pledge, hypothecation, assignment, security interest, lien, charge or encumbrance, or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, any conditional sale or other title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, and the filing of, or agreement to give, any financing statement under the Uniform Commercial Code or comparable law of any jurisdiction). 1.16. "LOAN AGREEMENT" shall mean that certain Loan Agreement of even date herewith between the Debtor and the Secured Party, as the same may from time to time be amended. 1.17. "OBLIGATIONS" means all indebtedness, obligations and liabilities of the Debtor to the Secured Party of every kind and description, direct or indirect, secured or unsecured, joint or several, absolute or contingent, due or to become due, whether for payment or performance, now existing or hereafter arising, regardless of how the same arise or by what instrument, agreement or book account they may be evidenced, or whether or not evidenced by any instrument, agreement or book account, including, without limitation, all obligations of the Debtor under the Loan Agreement and the Note, all undertakings to take or refrain from taking any action, all indebtedness, liabilities or obligations owing from the Debtor to others which the Secured Party may have obtained -3- 4 by purchase, negotiation, discount, assignment or otherwise, and all interest, taxes, fees, charges, expenses and attorneys' fees chargeable to the Debtor or incurred by the Secured Party under this Agreement, or any other document or instrument delivered in connection herewith. 1.18. "PERMITTED LIENS" means: (a) Liens securing the payment of taxes, either (i) not yet due or (ii) the validity of which is being contested in good faith by appropriate proceedings, and as to which adequate reserves shall have been set aside on the Debtor's books; (b) Liens permitted by the Loan Agreement; and (c) Liens securing the Debtor's payment and performance in accordance with the terms of the Note and the Loan Agreement. 1.19. "PROCEEDS" shall mean "proceeds" as defined in the Code and, to the extent not otherwise included therein, (a) any and all proceeds of any insurance, indemnity, warranty, guaranty, or other agreement, instrument or undertaking similar to any of the foregoing, payable to the Debtor or any of them from time to time with respect to any of the Collateral, (b) any and all payments (in any form whatsoever) made or due and payable to the Debtor from time to time in connection with any requisition, confiscation, condemnation, seizure or forfeiture of all or any part of the Collateral, (c) any and all other amounts from time to time paid or payable under or in connection with any of the Collateral, and (d) any products or rents of any of the Collateral. 1.20. "NOTE" shall mean that certain Revolving Credit Note of the Debtor payable to the order of the Secured Party of even date herewith in the principal amount of $10,000,000. 1.21. "SECURED PARTY'S ADDRESS" shall mean 225 Franklin Street, Boston, Massachusetts 02110, Attention: Michael S. St. Jean, Vice President. II. GRANT OF SECURITY INTEREST -4- 5 2.1. COLLATERAL AND GRANT OF SECURITY INTEREST. As collateral security for the payment and performance of all of the Obligations, the Debtor hereby grants, assigns, conveys, pledges and transfers to the Secured Party a continuing security interest in the following assets and properties of the Debtor, any and all substitutions therefor and replacements thereof, and any and all additions and accessions thereto whether now owned or hereafter acquired by the Debtor or in which the Debtor may now have or hereafter acquire an interest, wherever located (all of which are hereinafter collectively referred to as the "Collateral"): (a) All Accounts now existing or arising in the future, whether in the ordinary course of the Debtor's business(es), in connection with the sale of Inventory or otherwise (including, without limitation, (i) all monies due and to become due under any Contract or Account, (ii) any damages arising out of or for a breach or default with respect to any such Contract or Account, (iii) all other amounts from time to time paid or payable under or in connection with any such Contract or Account and (iv) the right of the Debtor to terminate any Contract or to perform and to exercise all remedies thereunder); and (b) All Inventory, whether now owned or hereafter acquired; (c) All Equipment and Fixtures of the Debtor, and all other tangible property of the Debtor, whether now owned or hereafter acquired, and wherever located, and all accessions and additions thereto; (d) All General Intangibles, Documents and Investment Property, whether now owned or hereafter acquired; (e) All ledger sheets, files, records, documents and instruments (including, without limitation, computer programs, tapes and related data processing software) evidencing an interest in or relating to the foregoing Collateral; and (f) All Proceeds of any and all of the foregoing. 2.2. POSSESSION OF THE COLLATERAL. Until the occurrence of an Event of Default and the expiration of any applicable cure period, the Debtor may have possession of the Collateral and use the same in any lawful manner not inconsistent with this Agreement or with the terms or conditions of any policy of insurance thereon. III. REPRESENTATIONS AND WARRANTIES The Debtor hereby represents and warrants to the Secured Party, and such representations and warranties shall be continuing representations and warranties so long as any Obligations shall remain outstanding, as follows: -5- 6 3.1. TITLE TO COLLATERAL. Except for the security interest granted hereby and the Permitted Liens, the Debtor has, or in the case of after-acquired Collateral will have, good and marketable title to the Collateral, free from any adverse lien, security interest or encumbrance; and the Debtor will defend the Collateral against all claims and demands of all persons claiming the same or any interest therein. 3.2. ACCURACY OF STATEMENTS. All warranties, representations, statements and other information furnished to the Secured Party by or on behalf of the Debtor are, or will be when the same are made or furnished, accurate and complete in all material respects. 3.3. LOCATION OF COLLATERAL. The Collateral, to the extent possible, is or will be kept at the Debtor's business location at the Debtor's Address and the Debtor will give the Secured Party ten (10) days prior written notice of any change in, addition to or discontinuance of the location where the Collateral is kept, and, unless otherwise provided herein, the Debtor will not remove any Collateral from such locations without the prior written consent of the Secured Party. 3.4. LANDLORD WAIVERS. If the Collateral or any part thereof has been attached to real estate prior to the perfection of the security interest granted hereby, the Debtor will, upon demand of the Secured Party, use their best efforts to furnish to the Secured Party a disclaimer or disclaimers satisfactory to the Secured Party and signed by all persons having an interest in such real estate. 3.5. FINANCING STATEMENTS. Except as disclosed in the schedules to the Loan Agreement, no financing statement covering any of the Collateral or any of the proceeds thereof is on file in any public office, except financing statements in favor of the Secured Party; and, at the request of the Secured Party, the Debtor will join with the Secured Party in executing one or more financing statements pursuant to the Code or comparable law of any jurisdiction, the form and substance of which will be satisfactory to the Secured Party, and will pay the cost of filing the same in all public offices wherever filing is deemed by the Secured Party to be necessary or desirable. 3.6. TRADE NAMES. Except as set forth on Schedule 3.6 hereto, the Debtor: (a) does not utilize any trade names in connection with the operation of its businesses; and (b) has not changed its name, been the surviving entity in a merger or acquired any businesses. 3.7. LEGALLY ENFORCEABLE AGREEMENT. To the knowledge of the Debtor, after the exercise of reasonable due diligence, this Agreement and any document or instrument delivered in connection herewith, and the transactions contemplated hereby or thereby, have been duly authorized, executed and delivered; and this Agreement and such other documents and instruments constitute valid and legally binding obligations of the Debtor and are enforceable against the Debtor in accordance with their respective terms, except -6- 7 to the extent that such enforcement may be limited by applicable bankruptcy, insolvency and similar laws affecting creditors' rights generally and except as certain remedies thereunder may be subject to equitable principles. IV. GENERAL COVENANTS The Debtor hereby covenants and agrees that so long as any of the Obligations remain outstanding: 4.1. SALE OF COLLATERAL. Except as provided in SECTION 5.1.1 hereof, the Debtor will not sell or offer to sell or otherwise transfer the Collateral or any interest therein without the prior written consent of the Secured Party. Notwithstanding the foregoing, and without limitation thereto, the Debtor shall be entitled to receive any dividends, distributions or other payments to Debtor pursuant to the SmarTalk Claims (defined in SECTION 6.4 hereof) so long as Debtor is not in default hereunder and so long as Debtor retains all of such dividends, distributions or payments for use as working capital in the Debtor's business. 4.2. INSURANCE. The Debtor shall possess and maintain insurance at all times as set forth in Section 5.13 of the Loan Agreement. 4.3. TAXES AND ASSESSMENTS. The Debtor will pay promptly when due all taxes, assessments and governmental charges or levies imposed upon the Collateral or with respect to its income or the profits therefrom, as well as all claims thereon of any kind (including claims for labor, materials and supplies), except that the Debtor shall not be required to pay such charge when due if: (a) the validity thereof is being contested in good faith by appropriate proceedings; (b) such proceedings do not permit any sale, forfeiture or loss of any of the Collateral or any interest therein; and (c) such charge is adequately reserved against in accordance with generally accepted accounting principles consistently applied. 4.4. DEFENSE OF COLLATERAL. The Debtor will not create, permit or suffer to exist, and will defend the Collateral against and take such other action as is necessary to remove, any Lien, claim or right on or to the Collateral, other than the Lien created hereunder and the Permitted Liens, and will defend the right, title and interest of the Secured Party in and to any of the Collateral against the Liens, claims and demands of all other parties. -7- 8 4.5. ACCESS. The Secured Party shall, at reasonable times and upon reasonable notice, have complete access, during normal business hours, to all of the books, correspondence and records of the Debtor relating to the Collateral. The Secured Party or its representatives may examine such books, correspondence and records, take extracts therefrom and make photocopies thereof, and the Debtor hereby agrees to render to the Secured Party, at the Debtor's cost and expense, such clerical and other assistance as may be reasonably requested with regard thereto. The Secured Party and its representatives shall, at reasonable times and upon reasonable notice, have the right to enter into and upon any premises where any of the Collateral is located for the purpose of inspecting the same, observing its use, or otherwise protecting the Secured Party's interest therein. So long as Debtor is not in default hereunder, such access and inspections to be conducted quarterly, at Debtor's expense. 4.6. NOTICE OF LOSS OR DEFAULT. The Debtor will immediately notify the Secured Party of any event causing a substantial loss or diminution in the value of all or any material part of the Collateral and the amount or an estimate of the amount of such loss or diminution. The Debtor shall promptly notify the Secured Party of any condition or event which constitutes, or would constitute with the passage of time or provision of notice or both, an Event of Default under this Agreement, and shall promptly inform the Secured Party of any events or changes in the financial condition of the Debtor occurring since the date of the last financial statements of the Debtor delivered to the Secured Party, which, individually or cumulatively when viewed in light of prior financial statements, may result in a material adverse change in the financial condition of the Debtor. 4.7. ADDITIONAL INSTRUMENTS. At any time and from time to time upon request of the Secured Party, the Debtor shall execute and deliver to the Secured Party, in form and substance satisfactory to the Secured Party, such documents and chattel paper as the Secured Party shall deem necessary or desirable to perfect or maintain perfected the security interest of the Secured Party in the Collateral or which may be necessary to comply with the provisions of the law of the Commonwealth of Massachusetts or the law of any other jurisdiction in which the Debtor may then be conducting business or in which any of the Collateral may be located. -8- 9 V. SPECIFIC REPRESENTATIONS, WARRANTIES AND COVENANTS WITH RESPECT TO THE COLLATERAL With respect to the Collateral, the Debtor hereby represents, warrants and covenants with the Secured Party, as follows: 5.1. INVENTORY. As to the Inventory: 5.1.1. The Debtor shall not sell, lease or otherwise transfer any interest in the Inventory, provided that the Debtor may, until an Event of Default occurs and any applicable cure period expires, hold, process, sell, use or consume the Inventory in the ordinary course of its business, provided, however, that any sale or transfer made in partial or total satisfaction of a debt shall not be considered in the ordinary course of business. 5.1.2. The Debtor shall keep current stock, cost and sales records of the Inventory, accurately itemizing and describing the types and quantities of the Inventory and the cost and selling price thereof; and all books, records and documents relating to the Inventory are and will be genuine, complete and correct. 5.1.3. None of the Inventory is or at any time or times hereafter will be, stored with a bailee or consignee without the prior written consent of the Secured Party. 5.1.4. The Debtor shall, at the Secured Party's request, deliver to the Secured Party any and all evidence of ownership of, certificates of title to or other documents evidencing any interest in, any and all of the Inventory. 5.2. ACCOUNTS. As to the Accounts: 5.2.1. Accounts constituting a portion of the Collateral and all papers and Documents relating thereto are genuine and in all respects what they purport to be; the same are valid and subsisting and arise out of bona fide sales of goods, or out of or for services heretofore rendered by the Debtor to the account debtors and each of them; and the amount of the Accounts represented by the Debtor's records as owing by each such account debtor, except for normal cash discounts, is not disputed, and except for such normal cash discounts, is not subject to any set-offs, credits, deductions or counter charges. Similar representations and warranties will be assumed to exist as to Accounts hereafter arising, except with regard to set-offs, credits, deductions, counter charges and disputes as to which the Debtor gives prompt written notice to the Secured Party. 5.2.2. Following the occurrence and during the continuance of an Event of Default, and following the expiration of any applicable cure period, the Secured Party shall have the right, in its own name or in the name of the Debtor, to demand, collect, receive, sue for, compromise and give acquittance for any and all amounts due or to become due on the -9- 10 Accounts constituting a portion of the Collateral and to endorse the name of the Debtor on all commercial paper given in payment or partial payment thereof, and in its discretion, to file any claim or take any other action which the Secured Party may deem necessary or appropriate to protect, preserve and realize upon its security interest in the Accounts and the Proceeds thereof. 5.2.3. Following the occurrence and during the continuance of an Event of Default, and following the expiration of any applicable cure period: (i) the Secured Party shall have the right to notify any and all account debtors to make payment thereof directly to the Secured Party; but to the extent the Secured Party does not elect to so notify said account debtors, the Debtor shall continue to collect the Accounts; and (ii) all proceeds of the Accounts, in whatever form received by the Debtor, shall be immediately delivered by the Debtor to the Secured Party in the form received by the Debtor, and until so delivered, the Debtor agrees that all sums so collected shall be the property of the Secured Party, held in trust by the Debtor for the Secured Party, and shall not be commingled with the Debtor's other funds; provided, however, that the Secured Party, in its discretion and to such extent and for such periods, if any, as it sees fit, may authorize the Debtor to use or retain some or all of the sums so collected from such Accounts for other purposes. Proceeds transmitted to the Secured Party may be handled and administered by the Secured Party in and through a remittance account or similar mechanism; but the Debtor hereby acknowledges that the maintenance of such an account is solely for the convenience of the Secured Party in facilitating its own operations, and that the Debtor has not and shall not have any right, title or interest in said account or in the amounts at any time appearing to the credit thereof. Except to the extent the Secured Party may from time to time in its discretion release proceeds to the Debtor for use in their respective businesses, all proceeds received by the Secured Party shall be applied to the due and payable indebtedness secured hereby, but the Secured Party need not apply nor give credit for any item included in such proceeds until the Secured Party has received final payment thereof at its office in cash or solvent credit accepted by the Secured Party as such. 5.2.4. If any Account arises out of a purchase order or other Contract with the United States or any other Governmental Authority, which purchase order or Contract provides for aggregate payments to the Debtor of One Thousand Dollars ($1,000) or more, the Debtor shall immediately notify the Secured Party thereof in writing and shall execute any instruments furnished by the Secured Party and reasonably necessary to provide that: (a) all monies due or to become due under such purchase order or other Contract shall be assigned to the Secured Party; and (b) notice of such assignment shall be given to such Governmental Authority under the Federal Assignment of Claims Act or other applicable law or regulation. 5.2.5. The Debtor shall provide to the Secured Party, at its request, from time to time: (a) confirmatory assignment schedules, (b) copies of all invoices relating to the Accounts, (c) evidence of the shipment or delivery of the Inventory, and (d) such further -10- 11 information and/or schedules as the Secured Party may reasonably require, all in a form satisfactory to the Secured Party. 5.3. EQUIPMENT. As to the Equipment: 5.3.1. The Debtor shall keep and maintain all Equipment in good operating condition and repair, shall make all necessary repairs thereto and replacement of parts thereof so that the value and operating efficiency of such Equipment shall at all times be maintained and preserved; and the Debtor shall keep complete and accurate books and records with respect to the Equipment, including maintenance records. 5.3.2. The Debtor shall deliver to the Secured Party any and all certificates of title (and any other regulatory evidence of title) to, any and all of the Equipment. 5.3.3. The Debtor shall not, without the prior written consent of the Secured Party, sell, offer to sell, lease or in any other manner dispose of any of the Equipment, other than the sale of obsolete Equipment in the ordinary course of business. VI. SECURED PARTY'S APPOINTMENT AS ATTORNEY-IN-FACT 6.1. APPOINTMENT AND POWERS. The Debtor hereby irrevocably constitutes and appoints the Secured Party, and any officer or agent thereof, with full power of substitution, effective upon the occurrence of an Event of Default and thereafter only so long as the same continues, as its true and lawful attorney-in-fact with full irrevocable power and authority in the name and stead of the Debtor or in its own name, from time to time in the Secured Party's discretion, for the purpose of carrying out the terms of this Agreement, to take any and all appropriate action and to execute any and all documents and instruments which may be necessary or desirable to accomplish the purposes of this Agreement and, without limiting the generality of the foregoing, hereby gives the Secured Party the power and right, on behalf of the Debtor, after an Event of Default and acceleration of the obligations under the Loan Agreement has occurred and, if required under the terms of the Loan Agreement, notice thereof has been given to the Debtor, to do the following: (a) To communicate with any party to any Contract or any account debtor with regard to any aspect of any Contract or Account and to ask, demand, collect, receive or give acquittances and receipt for any and all monies due or to become due under any Account or Contract and, in the name of the Debtor or its own name or otherwise, to take possession of and endorse and collect any checks, drafts, notes, acceptances or other instruments for the payment of monies due under any Account or Contract and to file any claim or to take any other action or proceeding in any court of law or equity or otherwise -11- 12 deemed appropriate by the Secured Party for the purpose of collecting any and all such monies due under any Account or Contract whenever payable; (b) To pay or discharge taxes, Liens, security interests or other encumbrances levied or placed on or threatened against the Collateral; (c) To effect any required repairs to the Collateral; (d) To obtain any insurance required pursuant to this Agreement and to pay all or any part of the premiums therefor; (e) To receive payment of and receipt for any and all monies, claims and other amounts due or to become due at any time with respect to or arising out of any Collateral; (f) To sign and endorse any invoices, freight or express bills, bills of lading, storage or warehouse receipts, drafts against debtors, assignments, verifications and notices in connection with Accounts and other documents relating to the Collateral; (g) To commence and prosecute any suits, actions or proceedings at law or in equity in any court of competent jurisdiction to collect the Collateral or any part thereof and to enforce any other right with respect to any of the Collateral; (h) To defend any suit, action or proceeding brought against the Debtor with respect to any Collateral; (i) To settle, compromise or adjust any suit, action or proceeding described in clause (h) above and, in connection therewith, to give such discharges or releases as the Secured Party may deem appropriate; (j) Generally, to sell, transfer, pledge, make any agreement with respect to or otherwise deal with any of the Collateral as fully and completely as though the Secured Party was the absolute owner thereof for all purposes, including, without limitation, the execution of assignments, bills of sale or other instruments of conveyance or transfer with respect to the Collateral; and (k) To do, at the Secured Party's option and at the Debtor's expense, at any time or from time to time, all acts or things which the Secured Party deems necessary to protect, preserve or realize upon the Collateral and the security interest granted by this Agreement, all as fully and effectively as the Debtor might do. -12- 13 6.2. IRREVOCABLE POWER OF ATTORNEY. The power of attorney granted under SECTION 6.1 hereof is a power coupled with an interest and shall be irrevocable until all Obligations are paid and performed in full. 6.3. THE SECURED PARTY'S LACK OF DUTY. The Debtor hereby agrees that the powers conferred on the Secured Party hereunder are solely to protect the Secured Party's interests in the Collateral and shall not impose any duty upon the Secured Party to exercise any such powers. 6.4. SMARTALK CLAIM. Notwithstanding anything to the contrary in this Agreement or any other Loan Document (as defined in the Loan Agreement), the Debtor is expressly authorized hereby, so long as Debtor is not in default under this Security Agreement, to retain full and complete control over the assertion, prosecution, negotiation, settlement, compromise, release or other disposition, whether or not in exchange for consideration, of any and all claims that it now holds or hereafter may hold against SmarTalk TeleService, Inc. or any of the other debtors in the jointly administered cases presently pending in the Bankruptcy Court for the District of Delaware, captioned "In re WorldWide Direct, Inc., et al.," Case Nos. 99-108 to 99-127, whether or not any such claim is evidenced by one or more proofs of claim filed with the Bankruptcy Court at any time, (collectively referred to herein as the "SmarTalk Claim"), and including without limitation the right to retain and pay reasonable compensation to counsel and to incur such other reasonable expenses in connection with the foregoing as may be necessary. Upon request of Debtor in connection with any disposition of the claim or claims referred to in the preceding sentence, or of any portion of such claims, so long as Debtor is not in default under this Security Agreement, Secured Party shall execute such documents and instruments as may be reasonably be required to evidence its consent thereto, all without the payment of any other consideration to Secured Party therefor. Debtor acknowledges and agrees that all of the rights and authority conferred upon in the preceding sentences are subject to Secured Party's security interest in and lien upon all such claims and proceeds, if any, therefrom. VII. EVENTS OF DEFAULT AND ACCELERATION 7.1. EVENTS OF DEFAULT. The occurrence of any Event of Default (as defined in the Loan Agreement) or the breach of any terms hereunder shall constitute an Event of Default hereunder. 7.2. ACCELERATION. If any Event of Default shall occur, then or at any time thereafter while such Event of Default shall continue, the Secured Party may declare all Obligations to be immediately due and payable, without notice, protest, presentment or demand, all of which are hereby expressly waived by the Debtor. -13- 14 VIII. REMEDIES 8.1. IN GENERAL. If an Event of Default shall occur and be continuing and any applicable cure period shall have lapsed and the Secured Party shall have accelerated the Debtor's obligations under the Loan Agreement: 8.1.1. All payments received by the Debtor under or in connection with any of the Collateral shall be held by the Debtor in trust for the Secured Party, shall be segregated from other funds of the Debtor, and shall forthwith, upon receipt by the Debtor, be turned over to the Secured Party in the same form as received by the Debtor (duly endorsed by the Debtor to the Secured Party, if required). 8.1.2. Any and all such payments so received by the Secured Party (whether from the Debtor or otherwise) may, in the sole discretion of the Secured Party, be held by the Secured Party as collateral security for, and/or then or at any time thereafter, applied in whole or in part by the Secured Party against all or any part of the Obligations, in such order as the Secured Party shall elect. Any balance of such payments held by the Secured Party and remaining after payment in full of all of the Obligations shall be paid over to the Debtor or to whomsoever may be lawfully entitled to receive the same. 8.2. THE SECURED PARTY'S RIGHTS AND REMEDIES UPON ACCELERATION. The Debtor hereby agrees that if an Event of Default shall occur and be continuing and the Secured Party shall have accelerated the Debtor's obligations under the Loan Agreement: 8.2.1. The Secured Party may exercise, in addition to all other rights and remedies granted to it pursuant to this Agreement and in any other instrument or agreement securing, evidencing or relating to the Obligations, all rights and remedies of a Secured Party under the Code or under the applicable law of any other jurisdiction, including, without limitation, any jurisdiction where the Collateral may be located. 8.2.2. Without limiting the generality of the foregoing, the Secured Party, without (to the fullest extent permitted by law) demand of performance or other demand, advertisement or notice of any kind (except the notice specified below of the time and place of a public or private sale) to or upon the Debtor or any other party (all of which demands, advertisements and/or notices are hereby expressly waived by the debtor, except the notice specified below of the time and place of a public or private sale), may forthwith collect, receive, appropriate and realize upon the Collateral or any part thereof and/or may forthwith sell, lease, assign, give an option or options to purchase or sell or otherwise dispose of and deliver said Collateral (or contract to do so) or any part thereof, in one or more parcels at a public or private sale or sales, at any exchange or broker's board or at any of the Secured Party's offices or elsewhere, at such prices as it may deem best, for cash or on credit or for future delivery without assumption of any credit risk. -14- 15 8.2.3. The Secured Party shall have the right, upon any such public sale or sales, and, to the extent permitted by law, upon any such private sale or sales, to purchase the whole or any part of said Collateral so sold, free of any right or equity of redemption of the Debtor, which right or equity is hereby expressly waived and released by the Debtor. 8.2.4. At the Secured Party's request, the Debtor shall assemble the Collateral and make it available to the Secured Party at a place or places which the Secured Party shall reasonably select, whether at the Debtor's premises or elsewhere. 8.2.5. The Secured Party shall retain the net proceeds of the Collateral arising from any collection, sale, recovery, receipt or appropriation, after the payment of all expenses of every kind incurred with regard thereto or incidental to the care, safekeeping or maintenance of any or all of the Collateral or in any way relating to the rights of the Secured Party hereunder, including reasonable attorneys' fees and legal expenses, for application by it to the payment of the Obligations in such order as the Secured Party shall elect and the Debtor shall remain liable for any deficiency remaining unpaid after such application. After applying such net proceeds in the manner set forth above, and after the payment by the Secured Party of any other amount otherwise required to be paid, the Secured Party shall account for the surplus, if any, to the Debtor. 8.2.6. Unless the Collateral is perishable or threatens to decline speedily in value or is of the type customarily sold on a recognized market, the Secured Party must give at least ten (10) days' notice of the time and place of any public or private sale may take place; the Debtor hereby agrees that such notice is reasonable notification of such matters and that no notification need be given by the Secured Party to the Debtor if the Debtor has executed, after the occurrence of an Event of Default, a statement renouncing or modifying any right to notification of such sale or other intended disposition. 8.2.7. The Debtor shall pay to the Secured Party, on demand, any and all expenses, including all reasonable attorneys' fees and legal expenses, incurred or paid by the Secured Party in protecting or enforcing its rights, powers and remedies hereunder or under any other agreement between the parties. -15- 16 IX. SET-OFF The Secured Party shall, at all times after the occurrence and during the continuance of an Event of Default, have the right to set-off, without notice to the Debtor, any and all deposits or other sums at any time or times credited by or due from the Secured Party to the Debtor, regardless of whether the same are held in a special account or other account or represented by a certificate of deposit (regardless of whether such certificate of deposit is matured or not). Such deposits and other sums shall at all times constitute additional security for the Obligations and may be set-off against all or any part of the Obligations at any time. X. LIMITATION ON SECURED PARTY'S DUTY WITH RESPECT TO CARE OF COLLATERAL The Secured Party shall not have any duty as to any Collateral which is not in its possession or control. XI. NOTICES Any demand or notice required or permitted to be given hereunder shall be given and shall be deemed effective in accordance with the notice provisions of the Loan Agreement. -16- 17 XII. RELEASE OF SECURITY INTEREST When the Debtor shall have paid and performed the Obligations in full, and shall have also paid to the Secured Party all such further sums as may become due under the terms of this Agreement as hereinafter provided, the Secured Party shall automatically release to Debtor all right, title and interest in and to the Collateral. The Secured Party at any time thereafter, at the request and expense of the Debtor, shall execute such releases and terminations of the security interest in the Collateral to the Debtor in a form suitable for recording by Debtor in the respective Connecticut and Missouri financing statement recording offices. XIII. GENERAL PROVISIONS 13.1. SEVERABILITY. Any provision of this Security Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable that provision in any other jurisdiction. 13.2. NO WAIVER BY THE SECURED PARTY; CUMULATIVE REMEDIES. The Secured Party shall not by any act, delay, omission or otherwise be deemed to have waived any of its rights or remedies hereunder, and no waiver shall be valid unless in writing and signed by the Secured Party, and then only to the extent therein set forth. A waiver by the Secured Party of any right or remedy hereunder on any one occasion shall not be construed as a bar to the exercise of any right or remedy which the Secured Party would otherwise have had on any future occasion. No failure to exercise, nor any delay on the part of the Secured Party in exercising, any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies hereunder provided are cumulative and may be exercised singly or concurrently, and are not exclusive of any rights or remedies provided by law. None of the terms or provisions of this Agreement may be waived, modified, amended or supplemented except by an instrument in writing, duly executed by the Secured Party and the Debtor. 13.3. SUCCESSORS AND ASSIGNS. Each reference herein to the Secured Party shall be deemed to include its successors and assigns, and each reference to the Debtor or the Secured Party, and any pronouns referring thereto as used herein, shall be construed in the masculine, feminine, neuter, singular or plural, as the context may require, and shall be deemed to include the legal representatives, successors and assigns of the Debtor, all of whom shall be bound by the provisions hereof. -17- 18 13.4. GOVERNING LAW. This Agreement is delivered in the Commonwealth of Massachusetts to the Secured Party and the rights, remedies, duties and obligations of the parties hereto and all provisions hereof shall be governed by and construed in accordance with the internal laws (and not the law of conflicts) of the Commonwealth of Massachusetts. 13.5. FURTHER INDEMNIFICATION. The Debtor agrees to pay, and to save the Secured Party harmless from, any and all liabilities with respect to or resulting from any delay in paying any and all excise, sales or other taxes which may be payable or determined to be payable with respect to any of the Collateral or in connection with any of the transactions contemplated by this Agreement, provided, however, that Debtor shall not be liable for the Secured Party's bad faith, gross negligence, or wilful misconduct. 13.6. COMPLETE AGREEMENT. This Agreement contains the entire understanding between the parties hereto with respect to the transactions contemplated herein and such understanding shall not be modified except in writing signed by or in behalf of the parties hereto. 13.7. SECTION HEADINGS. The section headings herein are included for convenience only and shall not be deemed to be a part of this Agreement. 13.8. ASSIGNMENT BY SECURED PARTY. Subject to the terms of the Loan Agreement, the Secured Party may, from time to time, without notice to the Debtor, sell, assign, transfer or otherwise dispose of all or any part of the Obligations and/or the Collateral therefor. In such event, each and every immediate and successive purchaser, assignee, transferee or holder of all or any part of the Obligations and/or the Collateral shall have the right to enforce this Agreement by legal action or otherwise for its own benefit as fully as if such purchaser, assignee, transferee or holder were herein by name specifically given such rights. The Secured Party shall have an unimpaired right to enforce this Agreement for its benefit with regard to that portion of the Obligations of the Debtor that the Secured Party has not sold, assigned, transferred or otherwise disposed of. 13.9 WAIVER OF TRIAL BY JURY. THE DEBTOR, TO THE EXTENT THAT DEBTOR MAY LAWFULLY DO SO, WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION BROUGHT ON OR WITH RESPECT TO THIS SECURITY AGREEMENT, THE CREDIT AGREEMENT OR ANY OTHER AGREEMENTS EXECUTED IN CONNECTION THEREWITH. 13.10 CONSENT TO JURISDICTION. The Debtor, to the extent that it may lawfully do so, hereby consents to the jurisdiction of the courts of The Commonwealth of Massachusetts and the United States District Court for the District of Massachusetts, as well as to the jurisdiction of all courts from which an appeal may be taken from the aforesaid courts, for the purpose of any suit, action or other proceeding arising out of any of its obligations -18- 19 under or with respect to this Security Agreement and Assignment, and expressly waives any and all objections it may have as to venue in any of such courts. IN WITNESS WHEREOF, this Agreement has been executed by the duly authorized officers of the parties hereto as of the date first above written. WITNESS: DEBTOR SHARED TECHNOLOGIES CELLULAR, INC. \s\ Sean Hayes By:\s\ Vincent DiVincenzo - ------------------------ ------------------------------------- Vincent DiVincenzo, Chief Financial Officer SECURED PARTY STATE STREET BANK AND TRUST COMPANY \s\ Keisha Macklin By:\s\ Michael S. St. Jean - ------------------------ ------------------------------------- Michael S. St. Jean, Vice President -19- 20 SCHEDULE 3.6 TRADE NAMES ACQUISITIONS (IDENTIFICATION OF SELLER) WITHIN PRIOR 5 YEARS -20- EX-4.3 4 EXHIBIT 4.3 1 THIS WARRANT AND THE SECURITIES THAT MAY BE ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "FEDERAL ACT"), OR UNDER THE PROVISIONS OF ANY APPLICABLE STATE SECURITIES LAWS. NEITHER THIS WARRANT NOR THE SECURITIES THAT MAY BE ACQUIRED UPON THE EXERCISE OF THIS WARRANT MAY BE SOLD, PLEDGED, TRANSFERRED, ASSIGNED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER PROVISIONS OF THE FEDERAL ACT AND ALL APPLICABLE STATE SECURITIES LAWS, AND IN THE CASE OF ANY EXEMPTION, ONLY IF THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH TRANSACTION DOES NOT REQUIRE REGISTRATION OF THE WARRANT OR SUCH OTHER SECURITIES. SHARED TECHNOLOGIES CELLULAR, INC. COMMON STOCK WARRANT SHARED TECHNOLOGIES CELLULAR, INC., a Delaware corporation (the "Company"), hereby certifies that, for good and valuable consideration, including but not limited to that certain loan relationship between State Street Bank and Trust Company and the Company ("SSBT") the receipt and sufficiency of which are hereby acknowledged, SSB INVESTMENTS, INC. ("SSBI") or permitted assigns (SSBI or such permitted assigns at the time being the registered holder or holders hereof being hereinafter referred to as "Holder") is entitled, subject to the terms set forth below, to acquire from the Company, at no charge or cost to the Holder, at any time or from time to time on or after the date hereof and prior to 5:00 P.M., Boston time, on the Expiration Date, that number of aggregate fully paid and non assessable shares of Common Stock of the Company equal to the Net Number in effect from time to time as calculated in accordance with the terms of SECTION 1.2 hereof. The Net Number is based in part on the Base Number of Shares, which is to be adjusted pursuant to the terms of this Common Stock Warrant. On the date hereof, and subject to such adjustment, the Base Number of Shares is 150,000. Certain capitalized terms used herein shall have the meanings set forth in SECTION 8. 2 SECTION I. EXERCISE OF WARRANT. 1.1. EXERCISE. This Warrant may be exercised by Holder, in whole or in part, at any time and from time to time on or before the Expiration Date, AT NO CHARGE OR COST TO THE HOLDER, by surrender of this Warrant, together with the form of subscription at the end hereof duly executed by Holder, to the Company at its principal office. In the event the Warrant is not exercised in full, the Base Number of Shares shall be reduced by the portion of such previous Base Number of Shares to which such partial exercise relates, and the Company, at its expense, shall forthwith issue and deliver to or upon the order of Holder a new Warrant of like tenor in the name of Holder or as Holder (upon payment by Holder of any applicable transfer taxes) may request, reflecting such adjusted Base Number of Shares. Notwithstanding the foregoing, this Warrant may not be exercised at any one time for fewer than the Net Number of shares of Common Stock based on 10% (or the remaining balance) of the Base Number of Shares. 1.2 CALCULATION OF NET NUMBER. The aggregate number of shares of Common Stock with respect to which this Warrant may be exercised from time to time shall be equal to the Net Number, which shall be calculated in accordance with the following formula: Net Number = (A x B) - (A x C) ----------------- B Where: A equals the Base Number of Shares then in effect at the time of such calculation; and Where: B equals the Market Price then in effect at the time of such calculation; and Where: C equals the Base Index then in effect at the time of such calculation. Whenever the Base Index is adjusted pursuant to SECTION 2, the Base Number of Shares shall be adjusted by multiplying such Base Number of Shares immediately prior to such adjustment by a fraction the numerator of which is the Base Index prior to such adjustment and the denominator of which is the Base Index after such adjustment. 1.3 DELIVERY OF STOCK CERTIFICATES. Subject to the terms and conditions of this Warrant, as soon as practicable after the exercise of this Warrant in full or in part, and in any event within 10 days thereafter, the Company at its expense (including, without limitation, the payment by it of any applicable issue taxes) will cause to be issued in the name of and delivered to Holder, or as Holder (upon payment by Holder of any applicable transfer taxes) may lawfully direct, a certificate or certificates for the number of fully paid -2- 3 and non assessable shares of Common Stock to which Holder shall be entitled on such exercise, together with any other stock or other securities and property (including cash, where applicable) to which Holder is entitled upon such exercise. 1.4 FRACTIONAL SHARES. This Warrant may not be exercised as to fractional shares of Common Stock. In the event that the exercise of this Warrant, in full or in part, would result in the issuance of any fractional share of Common Stock, then in such event Holder shall be entitled to cash equal to the Market Price of such fractional share. SECTION 2. ADJUSTMENT OF BASE INDEX. 2.1. ADJUSTMENT FOR STOCK DIVIDENDS. In case the Company shall pay a dividend of securities or property (including cash) or make any other distribution on any class of capital stock of the Company in shares of Common Stock (other than in connection with the payment of the Premium on the Company's Series C Convertible Preferred Stock), the Base Index in effect at the close of business on the date fixed for the determination of stockholders entitled to receive such dividend or other distribution shall be reduced by multiplying such Base Index by a fraction of which the numerator shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination and the denominator shall be the sum of such number of shares and the total number of shares of Common Stock constituting such dividend or other distribution, such reduction to become effective immediately prior to the opening of business on the day following the date fixed for such determination. For the purposes of this SECTION 2.1, the number of shares of Common Stock at any time outstanding shall not include shares held in the treasury of the Company. 2.2. ADJUSTMENT FOR ISSUANCE OF CERTAIN RIGHTS OR WARRANTS. If the Company either: (a) shall issue rights, options or warrants after the date hereof to any persons (including holders of the Company's capital stock) entitling them to subscribe for or purchase shares of Common Stock, or (b) shall offer after the date hereof for purchase such shares of Common Stock, at a price per share less than the Market Price on the date fixed for such issuance or purchase, then the Base Index in effect at the close of business on such date shall be reduced by multiplying such Base Index by a fraction of which: (i) the numerator shall be (1) the number of shares of Common Stock outstanding at the close of business on such date plus (2) the number of shares -3- 4 of Common Stock that the aggregate of the offering price of the total number of shares of Common Stock so offered for subscription or purchase would purchase at such Market Price; and (ii) the denominator shall be (1) the number of shares of Common Stock outstanding at the close of business on such date plus (2) the number of shares of Common Stock so offered for subscription or purchase; such reduction to become effective immediately prior to the opening of business on the day following such date. For the purposes of this SECTION 2.2, the issuance of rights, options, or warrants to subscribe for or purchase securities convertible into Common Stock shall be deemed to be the issuance of rights, options, or warrants to purchase the number of shares of Common Stock into which such securities are convertible at an aggregate offering price equal to the aggregate offering price of such securities plus the minimum aggregate amount (if any) payable upon conversion of such securities into Common Stock. For the purposes of this SECTION 2.2, the number of shares of Common Stock at any time outstanding shall not include shares held in the treasury of the Company. Notwithstanding the foregoing, subsections (a) and (b) above shall not apply to the following: (1) Options granted under stock options plans approved by the Company's Board of Directors; and (2) Shares to be issued to Retail Distributors, Inc. ("RDI") pursuit to a Stock Purchase Agreement dated in 1999; and (3) Warrants to be issued to RDI pursuant to a Services Agreement dated in 1999. 2.3. ADJUSTMENT FOR STOCK SUBDIVISIONS AND COMBINATIONS. In case outstanding shares of Common Stock shall be subdivided into a greater number of shares of Common Stock, the Base Index in effect at the close of business on the day upon which such subdivision becomes effective shall be proportionately reduced and, conversely, in case outstanding shares of Common Stock shall be combined into a smaller number of shares of Common Stock, the Base Index in effect at the opening of business on the day upon which such combination becomes effective shall be proportionately increased, such reduction or increase, as the case may be, to become effective immediately prior to the opening of business on the day following the day upon which such subdivision or combination becomes effective. 2.4 DILUTION IN CASE OF OTHER SECURITIES. In case any other securities than Common Stock (the "Other Securities") shall be issued or sold by the Company after the date hereof, or shall become subject to issue, after the date hereof, upon the conversion or exchange of any securities (or Other Securities) of the Company (or any other issuer of Other Securities or any other person referred to in SECTION 5) or to subscription, purchase or other -4- 5 acquisition pursuant to any rights or options granted by the Company (or such other issuer or person), after the date hereof, for a consideration per share of Common Stock such as to dilute the purchase rights evidenced by this Warrant, the computations, adjustments and readjustments provided for in this SECTION 2 with respect to the number of shares of Common Stock issuable upon exercise of this Warrant shall be made as nearly as possible in the manner so provided and applied to determine the amount of Other Securities from time to time receivable on the exercise of the Warrant, so as to protect the holders of the Warrant against the effect of such dilution. 2.5. ADJUSTMENT FOR DISTRIBUTION OF ASSETS. In case the Company shall, by dividend or otherwise, distribute to all holders of its Common Stock evidences of its indebtedness or assets (including securities, but excluding any rights, warrants or Common Stock referred to in SECTION 2.2, any dividend or distribution paid in cash out of the earned surplus or capital surplus of the Company, and any dividend or distribution referred to in SECTION 2.1), the Base Index shall be adjusted so that the same shall equal the price determined by multiplying the Base Index in effect immediately prior to the close of business on the date fixed for the determination of stockholders entitled to receive such distribution by a fraction of which the numerator shall be the Market Price on the date fixed for such determination less the then fair market value (as reasonably determined by the Company's Board of Directors) of the portion of the assets or evidences of indebtedness so distributed (net of the fair market value, as so determined, of any consideration paid or exchanged with respect thereto) applicable to one share of Common Stock and the denominator shall be such Market Price, such adjustment to become effective immediately prior to the opening of business on the day following the date fixed for the determination of stockholders entitled to receive such distribution. 2.6. COMPUTATION OF ADJUSTED BASE INDEX. Whenever the Base Index is adjusted as provided in this SECTION 2: (a) The Company shall compute the adjusted Base Index to the nearest one hundredth of a cent in accordance with this SECTION 2 and shall prepare a certificate signed by the Chief Financial Officer or the Treasurer of the Company setting forth the adjusted Base Index and showing in reasonable detail the facts upon which such adjustment is based, and such certificate shall forthwith be filed at the office maintained pursuant to SECTION 4.3; (b) A notice stating that the Base Index has been adjusted and setting forth the adjusted Base Index shall, as -5- 6 soon as practicable after it is required, be mailed to Holder; and (c) At its option, Holder may confirm the adjustment noted on the certificate by causing such adjustment to be computed by an independent certified public accountant at the expense of the Company. 2.7. MINIMUM ADJUSTMENT. No adjustment in the Base Index shall be required under this SECTION 2 unless such adjustment would require an increase or decrease of at least one percent in such price; provided, however, that any adjustments that by reason of this SECTION 2.7 are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this SECTION 2 shall be made to the nearest one hundredth of a cent or to the nearest one hundredth of a share as the case may be. 2.8. ACCOUNTANTS' CERTIFICATE AS TO ADJUSTMENTS. In each case of any adjustment or readjustment in the Base Number of Shares (or other securities) issuable on the exercise of the Warrant, the Company at its expense will promptly cause independent certified public accountants of recognized standing selected by the Company to compute such adjustment or readjustment in accordance with the terms of the Warrant and prepare a certificate setting forth such adjustment or readjustment is based, including a statement of (a) the consideration received or receivable by the Company for any additional shares of Common Stock (or other securities) issued or sold or deemed to have been issued or sold, (b) the number of shares of Common Stock (or other securities) outstanding or deemed to be outstanding, and (c) the Purchase Price and the number of shares of Common Stock to be received upon exercise of the Warrant, in effect immediately prior to such issue or sale and as adjusted and readjusted as provided in the Warrant. The Company will forthwith mail a copy of each such certificate to each Holder of a Warrant. SECTION 3. REDEMPTION OF THIS WARRANT. At the option of Holder, at any time after the third (3rd) anniversary of the date of this Warrant, the Company shall redeem this Warrant for a price equal to the GREATER OF: (i) the number of shares of Common Stock for which this Warrant is exercisable on the date on which written notice of the request for redemption is given by the Holder to the Company (the "Request Date"), multiplied by the Market Price at the close of business on the business day immediately prior to the Request Date; or -6- 7 (ii) The balance of: (x) Two Hundred Thousand Dollars ($200,000.00), minus (y) the product of the number of shares of Warrant Stock then held times the Market Price, and minus (z) the amount of any proceeds theretofore received by the Holder from the sales of any shares of Warrant Stock. The closing of the redemption shall take place at the principal office of the Company no later than thirty days following the date of any such notice unless a different time and/or place is agreed to by the Company and Holder. At the closing, Holder shall deliver to the Company the Warrant to be redeemed, and the Company shall deliver to Holder a certified check in the full amount due upon the redemption. -7- 8 SECTION 4. CERTAIN OBLIGATIONS OF THE COMPANY. 4.1. RESERVATION OF STOCK. The Company covenants that it will at all times reserve and keep available out of its authorized and unissued Common Stock or out of shares of its treasury stock, solely for the purpose of issue upon exercise of the purchase rights evidenced by this Warrant, a number of shares of Common Stock equal to the number of shares of Common Stock issuable hereunder. The Company will from time to time, in accordance with the laws of the State of Delaware, take action to increase the authorized amount of its Common Stock if at any time the number of shares of Common Stock authorized but remaining unissued and unreserved for other purposes shall be insufficient to permit the exercise of this Warrant. 4.2. NO VALUATION OR IMPAIRMENT. The Company will not, by amendment of its Certificate of Incorporation, including, without limitation, amendment of the par value of its Common Stock, or through reorganization, consolidation, merger, dissolution, issuance of capital stock or sale of treasury stock (otherwise than upon exercise of this Warrant) or sale of assets, or by any other voluntary act or deed, avoid or seek to avoid the material performance or observance of any of the covenants, stipulations or conditions in this Warrant to be observed or performed by the Company. The Company will at all times in good faith assist, insofar as it is able, in the carrying out of all of the provisions of this Warrant in a reasonable manner and in the taking of all other action that may be necessary in order to protect the rights of the holder of this Warrant Against dilution in the manner required by the provisions of this Warrant. 4.3. MAINTENANCE OF OFFICE. The Company will maintain an office where presentations and demands to or upon the Company in respect of this warrant may be made. The Company will give notice in writing to Holder, at the address of Holder appearing on the books of the Company, of each change in the location of such office. SECTION 5 REORGANIZATION, ETC. 5.1 REORGANIZATION, CONSOLIDATION, MERGER. If any spin off, split up, similar corporate rearrangement, reorganization or reclassification of the capital stock of the Company, or consolidation or merger of the Company with another corporation that after the transaction will be required to file reports with the Securities and Exchange Commission (the "SEC") pursuant to Section 13 or 15 of the Securities Exchange Act of 1934, as amended (a "Public Corporation"), or sale of all or substantially all of its assets to another Public Corporation shall be effected, then, as a condition of such reorganization, reclassification, -8- 9 consolidation, merger or sale, lawful and adequate provision shall be made whereby Holder shall thereafter have the right to receive upon the terms and conditions herein specified, and, in lieu of the shares of Common Stock of the Company immediately theretofore receivable upon exercise of this Warrant, such securities or property as may be issued or payable with respect to or in exchange for a number of outstanding shares of Common Stock equal to the number of shares of Common Stock immediately theretofore receivable upon the exercise of this Warrant had such reorganization, reclassification, consolidation, merger or sale not taken place, and in any such case appropriate provision shall be made with respect to the rights and interests of Holder to the end that the provisions hereof (including, without limitation, provisions for adjustments of the Base Index and of the number of shares purchasable upon the exercise of this Warrant) shall thereafter be applicable, as nearly as may be, in relation to any securities or property thereafter deliverable upon the exercise hereof. The Company shall not effect any such spin off, split up, similar corporate rearrangement, reorganization, consolidation, merger or sale unless, prior to or contemporaneously with the consummation thereof, the successor corporation (if other than the Company) resulting from such consolidation or merger or the corporation purchasing such assets shall assume by written instrument executed and delivered to Holder, the obligation hereunder and become bound by all the terms hereof to deliver to Holder such securities or property as, in accordance with the foregoing provisions, Holder may be entitled to purchase or receive. 5.2. DISSOLUTION. In any event of any dissolution of the Company following the transfer of all or substantially all of its properties or assets, the Company, prior to such dissolution, shall at its expense deliver or cause to be delivered the stock and other securities and property (including cash, where applicable) receivable by the Holders of the Warrants after the effective date of such dissolution pursuant to this SECTION 5 to the Holder or Holders of the Warrants. 5.3. CONTINUATION OF TERMS. Upon any reorganization, consolidation, merger or transfer (and any dissolution following any transfer) referred to in this SECTION 5, this Warrant shall continue in full force and effect, subject to expiration in accordance with SECTION 1.1 hereof, and the terms hereof shall be applicable to the shares of stock and other securities and property receivable on the exercise of this Warrant after the consummation of such reorganization, consolidation or merger or the effective date of dissolution following any such transfer, as the case may -9- 10 be, and shall be binding upon the issuer of any such stock or other securities, including, in the case of any such transfer, the person acquiring all or substantially all of the properties or assets of the Company, whether or not such person shall have expressly assumed the terms of this Warrant as provided in SECTION 5.1. SECTION 6. NOTICES OF RECORD DATE. In the event of: (a) any taking by the Company of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive, any dividend or other distribution, or any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right; or (b) any capital reorganization of the Company, any reclassification of the capital stock of the Company or any transfer of all or substantially all the assets of the Company to or any consolidation or merger of the Company with or into any other Person; or (c) any voluntary or involuntary dissolution, liquidation or winding up of the Company, then, and in each such event, the Company will give to Holder a notice specifying (i) the date on which any such record is to be taken for the purpose of such dividend, distribution or right, and stating the amount and character of such dividend, distribution or right, and (ii) the date on which any such reorganization, reclassification, transfer, consolidation, merger, dissolution, liquidation or winding up is to take place, and the time, if any is to be f fixed, as of which the holders of record of Common Stock for securities or other property deliverable on such reorganization, reclassification, transfer, consolidation, merger, dissolution, liquidation or winding up is to take place, and the time, if any is to be fixed, as of which the holders of record of Common Stock shall be entitled to exchange their shares of Common Stock for securities or other property deliverable on such reorganization, reclassification, transfer, consolidation, merger, dissolution, liquidation or winding up. Such notice shall be mailed at least 30 days prior to the date specified in such notice on which any such action is to be taken. SECTION 7. REGISTRATION RIGHTS. 7.1. GENERAL. For purposes of this SECTION 7, the terms "register," "registered," and "registration" refer to a registration effected by preparing and filing a registration -10- 11 statement in compliance with the Federal Act and the declaration or ordering of effectiveness of such registration statement. The Company represents and warrants that it has not granted rights to cause the Company to register any of its securities to anyone, except to the Holder pursuant hereto and such other persons or entities with the registration rights existing on the date hereof and described in Schedule 7.1 hereto (the "Existing Registration Rights"). 7.2. COMPANY REGISTRATION. (a) If at any time the Company proposes to register any of its Common Stock under the Federal Act in connection with the public offering of such securities for its own account or for the accounts of its shareholders, solely for cash on a form that would also permit the registration of the Warrant Stock, the Company shall, each such time, promptly give Holder or any transferee of registration rights under this SECTION 7 written notice of such proposal. Upon the written request of any such Holder or Warrant Stock Holder (a "Selling Holder") given within thirty (30) days after mailing of any such notice by the Company, the Company shall use its reasonable best efforts to cause to be registered under the Federal Act all of the Warrant Stock that Selling Holder has requested be registered; provided that if, in the opinion of the managing underwriter for an underwritten offering, the registration of all, or part of, the Warrant Stock which the Holders have requested be included in such offering would have an adverse effect thereon, then the Company shall be required to include in the underwriting only that number of Warrant Stock, if any, which the managing underwriter reasonably believes may be sold without causing such adverse effect. (b) If the number of shares to be included in the offering in accordance with the foregoing is less than the number of shares which the Holders and the persons or entities listed on Schedule 7.1 as holding Existing Registration Rights have requested be included (pursuant to the exercise of such Holder's registration rights, or such persons' or entities' Existing Registration Rights, as the case may be), the Company shall be entitled to include all shares which it had intended to register, after which the Holders shall (subject to any superior rights in favor of persons holding Existing Registration Rights) be entitled to participate in the underwriting pro rata with such persons or entities holding Existing Registration Rights, based upon their respective total owned number of shares of Common Stock. (c) Notwithstanding the foregoing, the Company may withdraw any registration statement referred to in this SECTION 7.2 (but not including any registration statement referred to in SECTION 7.3) without incurring liability to any Selling Holder on account of such withdrawal. -11- 12 7.3. REGISTRATION UPON SELLING HOLDER'S REQUEST. (a) Each Selling Holder shall have the right, at any time from and after the third (3rd) anniversary of the date of this Warrant, to request and require the Company, by written notice to the Company, to register all or part of the Warrant Stock of such Selling Holder under the Federal Act; provided that the Company shall not be obligated to register Warrant Shares on more than one occasion under this Section 7.3. (b) Upon receipt of any such notice from such Selling Holder, the Company shall use its reasonable best efforts to cause to be registered under the Federal Act all of the Warrant Stock that such Selling Holder has requested be registered; provided that if, in the opinion of the managing underwriter for an underwritten offering, the registration of all, or part of, the Warrant Stock which the Holders have requested be included in such offering would have an adverse effect thereon, then, the Company shall be required to include in the underwriting only that number of Warrant Stock, if any, which the managing underwriter reasonably believes may be sold without causing such adverse effect. (c) If the number of shares to be included in the offering in accordance with the foregoing is less than the number of shares which the Holders and the persons or entities listed on Schedule 7.1 as holding Existing Registration Rights have requested be included (pursuant to the exercise of such Holder's registration rights, or such persons, or entities' Existing Registration Rights, as the case may be), the Holders shall (subject to any superior rights in favor of persons holding Existing Registration Rights) be entitled to participate in the underwriting pro rata with such persons or entities holding Existing Registration Rights, based upon their respective total ownership of shares of Common Stock. 7.4. OBLIGATIONS OF THE COMPANY. Whenever required hereunder to use "its reasonable best efforts to effect the registration of any Warrant Stock", the Company shall, as expeditiously as reasonably possible: (a) Prepare and file with the SEC a registration statement with respect to such Warrant Stock and use its reasonable best efforts to cause such registration statement to become and remain effective; provided, however, that in connection with any proposed registration intended to permit an offering of any securities from time to time (i.e., a so called "shelf registration"), the Company shall in no event be obligated to cause any such registration to remain effective for more than one hundred eighty (180) days. -12- 13 (b) Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Federal Act with respect to the disposition of all securities covered by such registration statement. (c) Furnish to Selling Holder such numbers of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Federal Act, and such other documents as it may reasonably request in order to facilitate the disposition of Warrant Stock owned by it. (d) Use its reasonable best efforts to register and qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably appropriate for the distribution of the securities covered by the registration statement, provided that (anything in this section to the contrary notwithstanding with respect to the bearing of expenses) if any jurisdiction in which the securities shall be qualified shall require that expenses incurred in connection with the qualification of the securities in that jurisdiction be borne by selling shareholders, then such expenses shall be payable by selling shareholders pro rata, to the extent required by such jurisdiction. (e) Provide a transfer agent for the Warrant Stock no later than the effective date of the first registration of any Warrant Stock. 7.5. FURNISH INFORMATION. It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Section that Selling Holder shall furnish to the Company such information regarding it and the Warrant Stock held by it and the intended method of disposition of such securities as the Company shall reasonably request and as shall be required in connection with the action to be taken by the Company. 7.6. EXPENSES. All expenses incurred in connection with registrations pursuant to this SECTION 7 (excluding underwriters, discounts and commissions) including, without limitation, all registration and qualification fees, printers' and accounting fees, fees and disbursements of counsel for the Corporation, shall be payable and duly paid by the Company, provided that the Selling Holder shall be responsible for any fees and disbursements of counsel of Selling Holder. 7.7. UNDERWRITING REQUIREMENTS. In connection with any offering involving an underwriting of shares being issued by the Company, the Company shall not be required under SECTION 7.2 to include any of Selling Holder's Warrant Stock in such underwriting -13- 14 unless Selling Holder accepts the terms of the underwriting as agreed upon between the Company and the underwriters selected by it (provided such terms are customary for underwritings of like kind), and then only in such quantity as will not, in the reasonable opinion of the underwriters, jeopardize the success of the offering by the Company. 7.8. INDEMNIFICATION. In the event any Warrant Stock is included in a registration statement as a result of this Section: (a) To the extent permitted by law, the Company will indemnify and hold harmless each Selling Holder, any underwriter, and each person, if any, who controls such Selling Holder or any such underwriter within the meaning of the Federal Act, against any losses, claims, damages or liabilities, joint or several, to which they may become subject under the Federal Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based on any untrue or alleged untrue statement of any material fact contained in such registration statement or any other document, instrument, certificate or filing in connection with the offering to which such registration statement relates, including, without limitation, any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading or arise out of any violation by the Company of any rule or regulation promulgated under the Federal Act or state securities (or so called "Blue Sky") laws, or regulations promulgated thereunder, of any jurisdiction applicable to the Company and relating to action or inaction required of the Company in connection with any such registration or such offering; and will reimburse such Selling Holder, and each such underwriter or controlling person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability, or action; provided, however, that the Company shall not be liable in any such case for any such loss, claim, damage, liability or action to the extent that it arises solely out of or is based solely upon an untrue statement or alleged untrue statement or omission or alleged omission made in connection with such registration statement, document, instrument, certificate, filing, preliminary prospectus, final prospectus, or amendments or supplements thereto, and made solely in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by such Selling Holder, or any such underwriter or controlling person. -14- 15 (b) To the extent permitted by law, each Selling Holder will indemnify and hold harmless the Company against any losses, claims, damages or liabilities, to which it may become subject under the Federal Act or otherwise; insofar as any loss, claim, damage, or liability arises solely out of or is based solely upon an untrue statement or alleged untrue statement or omission or alleged omission made in connection with such registration statement, document, instrument, certificate, filing, preliminary prospectus, final prospectus, or amendments or supplements thereto, and made solely in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by such Selling Holder. (c) Promptly after receipt by a indemnified party under this SECTION 7.8 of, notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under this Section, notify the indemnifying party in writing of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, to assume the defense thereof with counsel mutually satisfactory to the parties, but the failure to notify the indemnifying party Company promptly of the commencement of any such action will not relieve the indemnifying party of any liability that it may have to any indemnified party. If any such action is against both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded that there may be reasonable defenses available to it that are different from or additional to those available to the indemnifying party or that its interests conflict with the interests of the indemnifying party, the indemnified party shall have the right to select a separate counsel and to assume such legal defenses and otherwise to participate in the defense of such action, with the expenses and fees of such separate counsel and other expenses related to such participation to be reimbursed by the indemnifying party as incurred. 7.9 REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934. With a view to making available to Holder the benefits of Rule 144 promulgated under the Act and any other rule or regulation of the SEC that may at any time permit Holder to sell securities of the Company to the public without registration, the Company agrees to use its best efforts to: (a) make and keep public information available, as those terms are understood and defined in Rule 144, at all times; (b) file with the SEC in a timely manner all reports and other documents required of the Company under the -15- 16 Federal Act and the Securities Exchange Act of 1934, as amended (the "1934 Act"); and (c) furnish to any Holder forthwith upon request a written statement by the Company that it has, complied with the reporting requirements of Rule 144 and of the Federal Act and the 1934 Act (at any time after it hat become subject to such reporting requirements), a copy of the most recent annual or quarterly report of the Company, and such other reports and documents so filed by the Company as may be reasonably requested in availing any such Molder to take advantage of any rule or regulation of the SEC permitting the selling of any such securities without registration. 7.10 TRANSFER OF REGISTRATION RIGHTS. The registration rights of Holder may be transferred to any transferee who acquires (otherwise than in a registered public offering) this Warrant or Warrant Stock, provided, however, that such rights may be held by no more than ten Persons at any one time and that the Company is given written notice by Holder at the time of such transfer stating the name and address of the transferee and identifying the securities with respect to which the rights are being assigned. SECTION 8. DEFINITIONS. As used herein, the following terms, unless the context otherwise requires, have the following respective meanings: 8.1. The term COMMON STOCK includes the Company's Common Stock, par value $0.01 per share, and any other securities or rights into which or for which the Common Stock is converted or exchanged, whether pursuant to a plan of reclassification, reorganization, consolidation, merger, sale of assets, dissolution, liquidation, or otherwise. 8.2. The term EXPIRATION DATE shall mean the tenth (10th) anniversary of the date of this Warrant. 8.3. The term MARKET PRICE shall mean the average of the per share daily closing prices of Common Stock for the ten (10) consecutive business days immediately prior to the day in question. The closing price for each day shall be: (a) the last reported sales price or, in case no such reported sale takes place on such day, the average of the reported closing bid and ask prices, in either case on the principal national securities exchange on which the Common Stock is listed or admitted to trading or, if the Common Stock is not listed or admitted to trading on any national securities exchange, on the National Association of Securities Dealers Automated Quotation National Market System; or -16- 17 (b) if the Common Stock is not listed or admitted to trading on any national securities exchange or quoted in such National Market System, the average of the closing bid and asked prices in the over-the-counter market as furnished by any New York Stock Exchange member firm reasonably selected from time to time by the Company for that purpose; or (c) if the Common Stock is not listed or admitted to trading on any national securities exchange or quoted on such National Market System and the average price cannot be determined as contemplated by clause (b), the fair market value as, reasonably determined in good faith by the Company's Board of Directors or in any manner reasonably prescribed by the Company's Board of Directors. For the purposes of this SECTION 8.3, the term "BUSINESS DAY" shall mean each Monday, Tuesday, Wednesday, Thursday and Friday, other than any day on which securities are not traded on such exchange or in such market, 8.4. The term NET NUMBER shall mean the number of fully paid and non-assessable shares of Common Stock of the Company with respect to which the Warrant is exercisable, as calculated in accordance with SECTION 1.2 hereof. 8.5. The term BASE INDEX shall mean $10.00 as of the date hereof, to be adjusted pursuant to SECTION 2. 8.6. The term BASE NUMBER OF SHARES shall mean 150,000 shares as of the date hereof, to be adjusted pursuant to SECTION 1.2 hereof. 8.7. The term WARRANT STOCK shall mean any equity security issued upon exercise of this Warrant. 8.8. The term PERSON shall mean an individual, partnership, corporation, association, trust, joint venture, unincorporated organization or any government, governmental department or agency or political subdivision thereof. SECTION 9. REPLACEMENT OF WARRANTS. Upon (a) surrender of this Warrant in mutilated form or receipt of evidence satisfactory to the Company of the loss, theft or destruction of this Warrant and (b) in the case of any loss, theft or destruction of any Warrant, receipt of an indemnity agreement or security reasonably satisfactory in form and amount to the Company, then, in the absence of actual notice to the Company that this Warrant has been acquired by a bona fide purchaser, the Company, at its expense, shall execute and deliver, in lieu of this Warrant, a new Warrant identical in form to this Warrant. -17- 18 SECTION 10. REMEDIES. The Company stipulates that the remedies at law of the Holder in the event of any breach or threatened breach by the Company of the terms of this Warrant are not and will not be adequate, and that such terms may be specifically enforced by a decree for the specific performance of any agreement contained herein or by an injunction against a breach of any of the terms hereof or otherwise. SECTION 11. TRANSFER. This Warrant and the shares of Common Stock issuable hereunder shall not be sold, transferred, pledged or hypothecated unless the proposed disposition is the subject of a currently effective registration statement under the Federal Act or unless the Company has received any opinion of counsel, in form and substance reasonably satisfactory to the Company, to the effect that such registration is not required in connection with such disposition. Subject to the first sentence of this Section, this Warrant and all rights hereunder are freely transferable, in whole or in part, but to no more than ten (10) transferees in the aggregate (including the transferor if it retains a part of this Warrant), at the office or agency of the Company by the registered holder thereof in person or by a duly authorized attorney, upon surrender of this Warrant together with an assignment hereof properly endorsed. Until transfer hereof on the registration books of the Company, the Company may treat the existing registered holder hereof as the owner hereof for all purposes. Any transferee of this Warrant and any rights hereunder, by acceptance thereof, agrees to assume all of the obligations of Holder and to be bound by all of the terms and provisions of this Warrant. SECTION 12. NOTICES. Where this Warrant provides for notice of any event such notice shall be given (unless otherwise herein expressly provided) in writing and either (a) delivered personally, (b) sent by certified, registered or express mail, postage prepaid, (c) telegraphed or (d) telexed or sent by facsimile transmission, and shall be deemed given when so delivered personally, telegraphed, telexed, sent by facsimile transmission (confirmed in writing) or mailed. Notices shall be addressed, if to Holder, to the address of Holder appearing in the register referred to in SECTION 11 or, if to the Company, to its office maintained pursuant to SECTION 4.3. SECTION 13. MISCELLANEOUS. (a) This Warrant shall be binding upon the Company and Holder and their legal representatives, successors and assigns. -18- 19 (b) In case any provision of this Warrant shall be invalid, illegal or unenforceable, or partially invalid, illegal or unenforceable, the provision shall be enforced to the extent, if any, that it may legally be enforced and the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. (c) This Warrant and any term hereof may be changed, waived, discharged or terminated only by a statement in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought. (d) This Warrant shall be governed by, and construed and enforced in accordance with the laws of The Commonwealth of Massachusetts without regard to its principles of conflicts of laws. (e) The headings in this Warrant are for purposes of reference only, and shall not limit or otherwise affect any of the terms hereof. (f) This Warrant shall take effect as an instrument under seal. (g) Reference is made to that certain Loan Agreement of even date between SSBT and the Company, (the "Loan Agreement"). The Company acknowledges that SSBT would not have entered into the Loan Agreement but for the execution and delivery of this Common Stock Warrant. (h) The provisions of Section 7 shall survive the termination or expiration of this Warrant and shall continue to be effective with respect to any Warrant Stock issued. IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its duly authorized officer and its corporate seal to be impressed hereon and attested by its Secretary or Assistant Secretary. Dated as of July 7, 1999 SHARED TECHNOLOGIES CELLULAR, INC. By \s\ Vincent DiVincenzo ----------------------- Name: Vincent DiVincenzo Title: Chief Financial Officer Attest: \s\ Ismael Pinho (Corporate Seal) - ---------------- Ass't Secretary -19- 20 FORM OF SUBSCRIPTION (To be signed only on exercise of Common Stock Warrant) TO: SHARED TECHNOLOGIES CELLULAR, INC. The undersigned, the holder of the within Common Stock Warrant, hereby irrevocably elects to exercise this Common Stock Warrant for, and to receive thereunder ___________ shares of Common Stock of SHARED TECHNOLOGIES CELLULAR, INC. (the "Company"), and requests that the certificates for such shares be issued in the name ______________ of, and delivered to whose address is _______________________. Dated: ____________ ________________________________________ (Signature must conform in all respects to name of Holder as specified on the face of the Warrant) ________________________________________ (Address) *Insert here the number of shares (all or part of the number of shares called for in the Common Stock) as to which the Common Stock Warrant is being exercised without making any adjustment for any other stock or other securities or property or cash that, pursuant to the adjustment provisions of the Common Stock Warrant, may be deliverable on exercise. -20- 21 FORM OF ASSIGNMENT (To be signed only on transfer of Common Stock Warrant) For value received, the undersigned hereby sells, assigns, and transfers unto __________________ of _____________________ the right represented by the within Common Stock Warrant to receive the Net Number of shares of Common Stock of SHARED TECHNOLOGIES CELLULAR, INC. to which the within Common Stock Warrant relates, and appoints_________________, Attorney to transfer such right, on the books of SHARED TECHNOLOGIES CELLULAR, INC. with full power of substitution in the premises. Dated: __________ ________________________________________ (Signature must conform in all respects to name of Holder as specified on the face of the Warrant) ________________________________________ (Address) Signed in the presence of: ____________________ -21- 22 SCHEDULE 7.1 Existing Registration Rights 1. Registration rights in favor of Retail Distributors, Inc. pursuant to a Registration Rights Agreement to be entered into with RDI. 2. Registration rights in favor of the holders of the Company's Series C Convertible Preferred Stock and related Warrants to purchase Common Stock pursuant to a Registration Rights Agreement dated January 28, 1999. A Registration Statement on Form S-3 was filed with the Securities and Exchange Commission in satisfaction of these rights, but has not yet been effective by the SEC (the "Pending S-3"). 3. Registration rights in favor of the holders of the Company's 5% Convertible Notes pursuant to the terms of such notes issued in May, 1998. The shares of Common Stock issuable upon conversion of these notes are included in the Pending S-3. 4. The Company currently has two additional Form S-3 Registration Statements in effect in satisfaction of registration rights in favor of the holders of shares of Common Stock and Warrants to purchase Common Stock that were previously issued by the Company in private placements. -22- -----END PRIVACY-ENHANCED MESSAGE-----