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[LOGO OF FOOTHILL CAPITAL CORPORATION APPEARS HERE]
LOAN AND SECURITY AGREEMENT
BY AND BETWEEN
QMS, INC.
AND
FOOTHILL CAPITAL CORPORATION
DATED AS OF NOVEMBER 7, 1995
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TABLE OF CONTENTS
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1. DEFINITIONS AND CONSTRUCTION................................................................. 1
1.1 Definitions........................................................................... 1
1.2 Accounting Terms...................................................................... 20
1.3 Code.................................................................................. 20
1.4 Construction.......................................................................... 20
1.5 Schedules and Exhibits................................................................ 21
2. LOAN AND TERMS OF PAYMENT.................................................................... 21
2.1 Revolving Advances.................................................................... 21
2.2 Letters of Credit and Letter of Credit Guarantees..................................... 22
2.3 Term Loan............................................................................. 24
2.4 Overadvances.......................................................................... 25
2.5 Interest: Rates, Payments, and Calculations.......................................... 25
2.6 Crediting Payments; Application of Collections........................................ 26
2.7 Statements of Obligations............................................................. 27
2.8 Fees.................................................................................. 27
3. CONDITIONS; TERM OF AGREEMENT................................................................ 28
3.1 Conditions Precedent to Initial Advance, L/C, or L/C Guaranty and Term
Loans................................................................................. 28
3.2 Conditions Precedent to All Advances, L/Cs, or L/C Guarantees, or the
making of Term Loan B................................................................. 32
3.2A Conditions Subsequent................................................................. 32
3.3 Term; Automatic Renewal............................................................... 33
3.4 Effect of Termination................................................................. 33
3.5 Early Termination by Borrower......................................................... 34
3.6 Termination Upon Event of Default..................................................... 34
4. CREATION OF SECURITY INTEREST................................................................ 35
4.1 Grant of Security Interest............................................................ 35
4.2 Negotiable Collateral................................................................. 35
4.3 Collection of Accounts, General Intangibles, Negotiable Collateral.................... 35
4.4 Delivery of Additional Documentation Required......................................... 36
4.5 Power of Attorney..................................................................... 36
4.6 Right to Inspect...................................................................... 37
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5. REPRESENTATIONS AND WARRANTIES............................................................... 37
5.1 No Prior Encumbrances................................................................. 37
5.2 Eligible Accounts..................................................................... 37
5.3 Eligible Inventory.................................................................... 38
5.4 Equipment............................................................................. 38
5.5 Location of Inventory and Equipment................................................... 38
5.6 Inventory Records..................................................................... 38
5.7 Location of Chief Executive Office; FEIN.............................................. 38
5.8 Due Organization and Qualification; Subsidiaries...................................... 38
5.9 Due Authorization; No Conflict........................................................ 38
5.10 Litigation............................................................................ 39
5.11 No Material Adverse Change in Financial Condition..................................... 39
5.12 Solvency.............................................................................. 39
5.13 Employee Benefits..................................................................... 39
5.14 Environmental Condition............................................................... 40
5.15 Canadian Guarantor Intangible Assets.................................................. 41
5.16 Reliance by Foothill; Cumulative...................................................... 41
6. AFFIRMATIVE COVENANTS........................................................................ 41
6.1 Accounting System..................................................................... 41
6.2 Collateral Reports.................................................................... 41
6.3 Schedules of Accounts................................................................. 42
6.4 Financial Statements, Reports, Certificates........................................... 42
6.5 Tax Returns........................................................................... 43
6.6 Guarantor Reports..................................................................... 43
6.7 Designation of Inventory.............................................................. 44
6.8 Returns............................................................................... 44
6.9 Title to Equipment.................................................................... 44
6.10 Maintenance of Equipment.............................................................. 44
6.11 Taxes................................................................................. 44
6.12 Insurance............................................................................. 45
6.13 Financial Covenants................................................................... 46
6.14 No Setoffs or Counterclaims........................................................... 46
6.15 Location of Inventory and Equipment................................................... 46
6.16 Compliance with Laws.................................................................. 46
6.17 Employee Benefits..................................................................... 47
6.18 Leases................................................................................ 47
7. NEGATIVE COVENANTS........................................................................... 48
7.1 Indebtedness.......................................................................... 48
7.2 Liens................................................................................. 48
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7.3 Restrictions on Fundamental Changes................................................... 49
7.4 Extraordinary Transactions and Disposal of Assets..................................... 49
7.5 Change Name........................................................................... 49
7.6 Guarantee............................................................................. 49
7.7 Restructure........................................................................... 49
7.8 Prepayments........................................................................... 49
7.9 Change of Control..................................................................... 49
7.10 Capital Expenditures.................................................................. 50
7.11 Consignments.......................................................................... 50
7.12 Distributions......................................................................... 50
7.13 Accounting Methods.................................................................... 50
7.14 Investments........................................................................... 50
7.15 Transactions with Affiliates.......................................................... 50
7.16 Suspension............................................................................ 51
7.17 Use of Proceeds....................................................................... 51
7.18 Change in Location of Chief Executive Office; Inventory and Equipment
with Bailees.......................................................................... 51
7.19 Canadian Guarantor Security Documents................................................. 51
8. EVENTS OF DEFAULT............................................................................ 51
9. FOOTHILL'S RIGHTS AND REMEDIES............................................................... 54
9.1 Rights and Remedies................................................................... 54
9.2 Remedies Cumulative................................................................... 57
10. TAXES AND EXPENSES........................................................................... 57
11. WAIVERS; INDEMNIFICATION..................................................................... 58
11.1 Demand; Protest; etc.................................................................. 58
11.2 Foothill's Liability for Collateral................................................... 58
11.3 Indemnification....................................................................... 58
12. NOTICES...................................................................................... 58
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER................................................... 59
14. DESTRUCTION OF BORROWER'S DOCUMENTS.......................................................... 60
15. GENERAL PROVISIONS........................................................................... 60
15.1 Effectiveness......................................................................... 60
15.2 Successors and Assigns................................................................ 61
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15.3 Section Headings...................................................................... 61
15.4 Interpretation........................................................................ 61
15.5 Severability of Provisions............................................................ 61
15.6 Amendments in Writing................................................................. 61
15.7 Counterparts; Telefacsimile Execution................................................. 62
15.8 Revival and Reinstatement of Obligations.............................................. 62
15.9 Confidentiality....................................................................... 62
15.10 Integration........................................................................... 63
SCHEDULES AND EXHIBITS
Schedule E-1 Eligible Inventory
Schedule E-2 Equipment
Schedule P-1 Permitted Liens
Schedule R-1 Real Property
Schedule 5.8 Subsidiaries
Schedule 5.10 Litigation
Schedule 5.14 Environmental Condition
Schedule 6.15 Location of Inventory and Equipment
Exhibit C-1 Form of Canadian Security Agreement (GSA)
Exhibit C-2 Form of Canadian Security Agreement (Hypothec)
Exhibit G-1 Form of Guaranty (Canadian Guarantor)
Exhibit G-2 Form of Guaranty (Circuits)
Exhibit S-1 Form of Stock Pledge Agreement
Exhibit T-1 Form of Term Note A
Exhibit T-2 Form of Term Note B
Exhibit T-3 Form of Trademark Security Agreement
Exhibit U-1 Form of UCC Security Agreement (Canadian Guarantor)
Exhibit U-2 Form of UCC Security Agreement (Circuits)
Exhibit W-1 Form of Warrant
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LOAN AND SECURITY AGREEMENT
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THIS LOAN AND SECURITY AGREEMENT, is entered into as of November 7,
1995, between FOOTHILL CAPITAL CORPORATION, a California corporation
("Foothill"), with a place of business located at ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇, and QMS, INC., a Delaware
corporation ("Borrower"), with its chief executive office located at ▇▇▇ ▇▇▇▇▇▇
▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇.
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION.
1.1 DEFINITIONS. As used in this Agreement, the following terms
shall have the following definitions:
"Account Debtor" means any Person who is or who may become
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obligated under, with respect to, or on account of an Account.
"Accounts" means all currently existing and hereafter arising
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accounts, contract rights, and all other forms of obligations owing to Borrower
or Canadian Guarantor arising out of the sale or lease of goods or the rendition
of services by Borrower or Canadian Guarantor, irrespective of whether earned by
performance, and any and all credit insurance, guaranties, or security therefor.
"Affiliate" means, as applied to any Person, any other Person
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directly or indirectly controlling, controlled by, or under common control with,
that Person. For purposes of this definition, "control" as applied to any Person
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of that Person, whether through the
ownership of voting securities, by contract, or otherwise.
"Agreement" means this Loan and Security Agreement and any
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extensions, riders, supplements, notes, amendments, or modifications to or in
connection with this Loan and Security Agreement.
"Authorized Officer" means any officer of Borrower.
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"Availability" means, as of the date of determination, the result
(so long as such result is a positive number) of (a) the lesser of the Borrowing
Base or the Maximum
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Revolving Amount, minus (b) the Obligations outstanding under Sections 2.1 and
2.2 hereof.
"Average Unused Portion of Maximum Revolving Amount" means (a)
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the Maximum Revolving Amount; less (b) the sum of: (i) the average Daily Balance
of advances made by Foothill under Section 2.1 that were outstanding during the
immediately preceding month, plus (ii) the average Daily Balance of the undrawn
L/Cs and L/C Guarantees issued by Foothill under Section 2.2 that were
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outstanding during the immediately preceding month.
"Bankruptcy Code" means (a) the United States Bankruptcy Code (11
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U.S.C. (S)101 et seq.), as amended, and any successor statute, and (b) the
Bankruptcy and Insolvency Act (Canada), as amended, and any successor statute.
"Borrower" has the meaning set forth in the preamble to this
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Agreement.
"Borrower's Books" means all of Borrower's books and records
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including: ledgers; records indicating, summarizing, or evidencing Borrower's
properties or assets (including the Collateral or the Real Property) or
liabilities; all information relating to Borrower's business operations or
financial condition; and all computer programs, disc or tape files, printouts,
runs, or other computer prepared information.
"Borrowing Base" has the meaning set forth in Section 2.1. For
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purposes of this definition, any amount that is denominated in a currency other
than Dollars shall be valued in Dollars based on the applicable Exchange Rate
for such currency as of the date one Business Day prior to the date of
determination.
"Business Day" means any day that is not a Saturday, Sunday, or
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other day on which national banks are authorized or required to close.
"Canadian Accounts" means those Accounts with respect to which
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(a) the Account Debtor is a resident of Canada (but exclusive of the Canadian
Maritime Provinces) or (b) the payments thereunder are payable in Canadian
dollars instead of Dollars.
"Canadian Collateral" means the personal property collateral in
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which liens and security interests held by Foothill have been granted pursuant
to the Loan Documents to which Canadian Guarantor is party.
"Canadian GAAP" means generally accepted accounting principles as
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in effect from time to time in Canada, consistently applied.
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"Canadian Guarantor" means QMS Canada Inc., a corporation
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incorporated under the laws of Canada.
"Canadian Maritime Provinces" means ▇▇▇▇▇▇ ▇▇▇▇▇▇ Island, New
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Brunswick, Nova Scotia, and Newfoundland.
"Canadian Security Agreements" means, collectively, that certain
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General Security Agreement and that certain Hypothec, each dated as of even date
herewith, by Canadian Guarantor in favor of Foothill, in the form of Exhibits C-
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1 and C-2, respectively.
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"Change of Control" shall be deemed to have occurred at such time
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as a "person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of
the Securities Exchange Act of 1934) becomes the "beneficial owner" (as defined
in Rule 13d-3 under the Securities Exchange Act of 1934), directly or
indirectly, of more than 20% of the total voting power of all classes of stock
then outstanding of Borrower normally entitled to vote in the election of
directors.
"Circuits" means QMS Circuits, Inc., a Delaware corporation.
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"Circuits Collateral" means the personal property collateral in
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which liens and security interests held by Foothill have been granted pursuant
to the Loan Documents to which Circuits is a party.
"Closing Date" means the date of the initial advance hereunder or
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the date of the initial issuance of an L/C or an L/C Guaranty hereunder,
whichever occurs first.
"Code" means the California Uniform Commercial Code.
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"Collateral" means each of the following: the Accounts of
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Borrower; Borrower's Books; the Equipment; the General Intangibles; the
Inventory; the Negotiable Collateral; any money, or other assets of Borrower
which now or hereafter come into the possession, custody, or control of
Foothill; and the proceeds and products, whether tangible or intangible, of any
of the foregoing including proceeds of insurance covering any or all of the
Collateral, and any and all Accounts of Borrower, Borrower's Books, Equipment,
General Intangibles, Inventory, Negotiable Collateral, money, deposit accounts,
or other tangible or intangible property resulting from the sale, exchange,
collection, or other disposition of any of the foregoing, or any portion thereof
or interest therein, and the proceeds thereof.
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"Collections" means all cash, checks, notes, instruments, and
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other items of payment (including insurance proceeds, proceeds of cash sales,
rental proceeds, and tax refunds).
"Consolidated Current Assets" means, as of any date of
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determination, the aggregate amount of all current assets of Borrower and its
Subsidiaries calculated on a consolidated basis that would, in accordance with
GAAP, be classified on a balance sheet as current assets.
"Consolidated Current Liabilities" means, as of any date of
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determination, the aggregate amount of all current liabilities of Borrower and
its Subsidiaries, calculated on a consolidated basis that would, in accordance
with GAAP, be classified on a balance sheet as current liabilities. For purposes
of this definition, all advances outstanding under this Agreement shall be
deemed to be current liabilities without regard to whether they would be deemed
to be so under GAAP.
"Daily Balance" means the amount of an Obligation owed at the end
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of a given day.
"Debit Memo Reserve" means, as of the date of any determination,
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a reserve against Eligible Accounts in an amount equal to the aggregate amount
of Borrower's debit memos for the prior three (3) months.
"Dilution Reserve (Canadian)" means, as of the date of any
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determination, an amount sufficient to reduce Foothill's respective advance
rates against Eligible Domestic Accounts and Eligible Foreign Accounts by one
(1) percentage point for each percentage point by which the amount (expressed as
a percentage and based upon the immediately prior three (3) months) of
Borrower's and Canadian Guarantor's Canadian Accounts that are subject to bad
debt write-downs, discounts, advertising, returns, promotions, credits, or other
dilution is in excess of twelve percent (12%) of all Canadian Accounts.
"Dilution Reserve (Domestic)" means, as of the date of any
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determination, an amount sufficient to reduce Foothill's respective advance
rates against Eligible Domestic Accounts and Eligible Foreign Accounts by one
(1) percentage point for each percentage point by which the amount (expressed as
a percentage and based upon the immediately prior three (3) months) of
Borrower's and Canadian Guarantor's Domestic Accounts that are subject to bad
debt write-downs, discounts, advertising, returns, promotions, credits, or other
dilution is in excess of fifteen percent (15%) of all Domestic Accounts.
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"Dollars" and "$" mean and refer to United States dollars or such
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coin or currency of the United States as at the time of payment shall be legal
tender for payment of public and private debts in the United States.
"Domestic Accounts" means those Accounts with respect to which
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(a) the Account Debtor is a resident of the United States or (b) the payments
thereunder are payable in Dollars.
"Early Termination Premium" has the meaning set forth in Section
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3.5.
"Eligible Accounts" means Eligible Domestic Accounts and Eligible
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Foreign Accounts.
"Eligible Domestic Accounts" means those Accounts created by
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Borrower or Canadian Guarantor in the ordinary course of business that arise out
of Borrower's or Canadian Guarantor's sale of goods or rendition of services,
that strictly comply with all of Borrower's representations and warranties to
Foothill, and that are and at all times shall continue to be acceptable to
Foothill in all respects; provided, however, that standards of eligibility may
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be fixed and revised from time to time by Foothill in Foothill's reasonable
credit judgment. Eligible Domestic Accounts shall not include the following:
(a) Accounts that the Account Debtor has failed to pay
within ninety (90) days of invoice date or Accounts with selling terms of more
than sixty (60) days and all Accounts owed by an Account Debtor that has failed
to pay fifty percent (50%) or more of its Accounts owed to Borrower or Canadian
Guarantor within ninety (90) days of invoice date;
(b) Accounts with respect to which the Account Debtor is
an officer, employee, Affiliate, or agent of Borrower or Canadian Guarantor;
(c) Accounts with respect to which goods are placed on
consignment, guaranteed sale, sale or return, sale on approval, ▇▇▇▇ and hold,
or other terms by reason of which the payment by the Account Debtor may be
conditional;
(d) Accounts with respect to which the Account Debtor is
not a resident of the United States, and which are not either (i) covered by
credit insurance in form and amount, and by an insurer, satisfactory to
Foothill, or (ii) supported by one or more letters of credit that are assignable
by their terms and have been delivered to Foothill in an amount, of a tenor, and
issued by a financial institution, acceptable to Foothill;
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(e) Accounts with respect to which the Account Debtor is
the United States (except to the extent that the federal Assignment of Claims
Act shall have been complied with in respect of such Accounts) or any
department, agency, or instrumentality of the United States;
(f) Accounts with respect to which Borrower or Canadian
Guarantor is or may become liable to the Account Debtor for goods sold or
leased, or services rendered by the Account Debtor to Borrower or Canadian
Guarantor;
(g) Accounts with respect to an Account Debtor whose
total obligations owing to Borrower and Canadian Guarantor exceed ten percent
(10%) of all Eligible Accounts, to the extent of the obligations owing by such
Account Debtor in excess of such percentage; provided, however, that in the case
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of ▇▇▇▇▇▇ Micro Inc. and its Affiliates (taken as a whole), the foregoing
percentage may, in Foothill's reasonable discretion, be increased to up to
fifteen percent (15%) before the excess would be deemed ineligible;
(h) Accounts with respect to which the Account Debtor
disputes liability or makes any claim with respect thereto, or is subject to any
Insolvency Proceeding, or becomes insolvent, or goes out of business;
(i) Accounts the collection of which Foothill, in its
reasonable credit judgment, believes to be doubtful by reason of the Account
Debtor's financial condition;
(j) Accounts that are payable in other than Dollars; and
(k) Accounts (i) that represent progress payments or
other advance ▇▇▇▇▇▇▇▇ that are due prior to the completion of performance by
Borrower or Canadian Guarantor of the subject contract for goods or services or
(ii) in respect of which underlying goods have been delivered to the Account
Debtor but for which there is no proof of shipment of the underlying goods
(i.e., "▇▇▇▇▇▇▇▇ only" Accounts).
"Eligible Foreign Accounts" means those Accounts that do not
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qualify as Eligible Domestic Accounts solely because (a) the Account Debtor is a
resident of Canada (but exclusive of the Canadian Maritime Provinces), or (b)
the payments thereunder are payable in Canadian dollars instead of Dollars.
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"Eligible Inventory" means Inventory consisting of first quality
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finished goods held for sale in the ordinary course of Borrower's business and
raw materials for such finished goods, that are located at Borrower's premises
identified on Schedule E-1, are acceptable to Foothill in all respects, and
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strictly comply with all of Borrower's representations and warranties to
Foothill; provided, however, that standards of eligibility may be fixed and
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revised from time to time by Foothill in Foothill's reasonable credit judgment.
Eligible Inventory shall not include slow moving (as reasonably determined by
Foothill based on its appraisals of Inventory) or obsolete items, restrictive or
custom items, work-in-process, packaging and shipping materials, supplies used
or consumed in Borrower's business, Inventory at any location other than those
set forth on Schedule E-1, Inventory subject to a security interest or lien in
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favor of any third Person, ▇▇▇▇ and hold goods, Inventory that is not subject to
Foothill's perfected security interests, returned or defective goods, "seconds,"
and Inventory acquired on consignment. Eligible Inventory shall be valued at the
lower of Borrower's cost or market value as determined from time to time by
appraisals of Inventory to be performed by Foothill or any third Person on
behalf of Foothill, and shall be net of reserves as determined by Borrower in
amounts acceptable to Foothill.
"Equipment" means all of Borrower's present and hereafter
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acquired machinery, machine tools, motors, equipment, furniture, furnishings,
fixtures, vehicles (including motor vehicles and trailers), tools, parts, dies,
jigs, goods (other than consumer goods, farm products, or Inventory), wherever
located (including those assets set forth on Schedule E-2 attached hereto), and
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any interest of Borrower in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, wherever located; provided, however, that,
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unless and until the Mortgage on the Mobile Property shall have been executed
and delivered by Borrower to Foothill, Equipment shall not include any fixtures
located at the Mobile Property that are not used in the manufacturing and
distribution business of Borrower.
"ERISA" means (a) the Employee Retirement Income Security Act of
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1974, as amended from time to time, or any predecessor, successor, or
superseding laws of the United States of America, together with all regulations
promulgated thereunder, and (b) comparable provisions of Canadian law relative
to the establishment and regulation of pension and other employee benefit plans.
"ERISA Affiliate" means any trade or business (whether or not
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incorporated) which, within the meaning of Section 414 of the IRC, is: (i) under
common control with Borrower; (ii) treated, together with Borrower, as a single
employer; (iii) treated as a member of an affiliated service group of which
Borrower is also treated as a member; or (iv) is otherwise aggregated with the
Borrower for purposes of the employee benefits requirements listed in IRC
Section 414(m)(4).
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"ERISA Event" means any one or more of the following: (i) a
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Reportable Event with respect to a Qualified Plan or a Multiemployer Plan; (ii)
a Prohibited Transaction with respect to any Plan; (iii) a complete or partial
withdrawal by Borrower or any ERISA Affiliate from a Multiemployer Plan; (iv)
the complete or partial withdrawal of Borrower or an ERISA Affiliate from a
Qualified Plan during a plan year in which it was, or was treated as, a
"substantial employer" as defined in ERISA; (v) a failure to make full payment
when due of all contributions which, under the provisions of any Plan or
applicable law, Borrower or any ERISA Affiliate is required to make; (vi) the
filing of a notice of intent to terminate, or the treatment of a plan amendment
as a termination, under ERISA; (vii) an event or condition which might
reasonably be expected to constitute grounds under ERISA for the termination of,
or the appointment of a trustee to administer, any Qualified Plan or
Multiemployer Plan; (viii) the imposition of any liability under ERISA, other
than PBGC premiums due but not delinquent under ERISA, upon Borrower or any
ERISA Affiliate; and (ix) a violation, known to Borrower, of the applicable
requirements of ERISA, or the exclusive benefit rule under ERISA, by any
fiduciary or disqualified person with respect to any Plan for which Borrower or
any ERISA Affiliate may be directly or indirectly liable.
"Event of Default" has the meaning set forth in Section 8.
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"Exchange Rate" means and refers to the nominal rate of exchange
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available to Foothill in a chosen foreign exchange market for the purchase of
non-Dollar currency by Foothill at 12:00 noon, local time, one Business Day
prior to any date of determination, expressed as the number of units of such
currency per one (1) Dollar.
"FEIN" means Federal Employer Identification Number.
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"Foothill" has the meaning set forth in the preamble to this
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Agreement.
"Foothill Expenses" means all reasonable: costs or expenses
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(including taxes, photocopying, notarization, telecommunication and insurance
premiums) required to be paid by Borrower or any Guarantor under any of the Loan
Documents that are paid or advanced by Foothill; documentation, filing,
recording, publication, appraisal (including periodic
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Collateral, Canadian Collateral, Circuits Collateral or Real Property
appraisals), real estate survey, environmental audit, and search fees assessed,
paid, or incurred by Foothill in connection with Foothill's transactions with
Borrower or the Guarantors; costs and expenses incurred by Foothill in the
disbursement of funds to Borrower (by wire transfer or otherwise); charges paid
or incurred by Foothill resulting from the dishonor of checks; costs and
expenses paid or incurred by Foothill to correct any default or enforce any
provision of the Loan Documents, or in gaining possession of, maintaining,
handling, preserving, storing, shipping, selling, preparing for sale, or
advertising to sell the Collateral, Canadian Collateral, Circuits Collateral or
the Real Property, or any portion thereof, irrespective of whether a sale is
consummated; costs and expenses paid or incurred by Foothill in examining
Borrower's Books or Guarantor's Books (as that term is defined in the Security
Agreements); costs and expenses of third party claims or any other suit paid or
incurred by Foothill in enforcing or defending the Loan Documents; and
Foothill's reasonable attorneys fees and expenses incurred in advising,
structuring, drafting, reviewing, administering, amending, terminating,
enforcing (including attorneys fees and expenses incurred in connection with a
"workout," a "restructuring," or an Insolvency Proceeding concerning Borrower or
any guarantor of the Obligations), defending, or concerning the Loan Documents,
irrespective of whether suit is brought.
"Fort ▇▇▇▇▇▇ Property" means the Real Property owned by Circuits
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that is located in Fort ▇▇▇▇▇▇ Beach, Florida, as more particularly described in
Schedule R-1.
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"GAAP" means generally accepted accounting principles as in
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effect from time to time in the United States, consistently applied.
"General Intangibles" means all of Borrower's present and future
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general intangibles and other personal property (including contract rights,
rights arising under common law, statutes, or regulations, choses or things in
action, goodwill, patents, trade names, trademarks, servicemarks, copyrights,
source code, software, blueprints, drawings, purchase orders, customer lists,
monies due or recoverable from pension funds, route lists, rights to payment and
other rights under any royalty or licensing agreements, infringements, claims,
computer programs, computer discs, computer tapes, literature, reports,
catalogs, deposit accounts, insurance premium rebates, tax refunds, and tax
refund claims), other than goods, Accounts, and Negotiable Collateral.
"Guaranties" means, collectively, those certain General
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Continuing Guaranties, each dated as of even date herewith, executed and
delivered by Canadian Guarantor and Circuits, respectively, and each in the form
of Exhibits G-1 and G-2, respectively.
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"Guarantors" means Canadian Guarantor and Circuits, individually
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and collectively, jointly and severally.
"Hazardous Materials" means all or any of the following: (a)
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substances that are defined or listed in, or otherwise classified pursuant to,
any applicable laws or regulations as "hazardous substances," "hazardous
materials," "hazardous wastes," "toxic substances," or any other formulation
intended to define, list, or classify substances by reason of deleterious
properties such as ignitability, corrosivity, reactivity, carcinogenicity,
reproductive toxicity, or "EP toxicity"; (b) oil, petroleum, or petroleum
derived substances,
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natural gas, natural gas liquids, synthetic gas, drilling fluids, produced
waters, and other wastes associated with the exploration, development, or
production of crude oil, natural gas, or geothermal resources; (c) any flammable
substances or explosives or any radioactive materials; and (d) asbestos in any
form or electrical equipment which contains any oil or dielectric fluid
containing levels of polychlorinated biphenyls in excess of fifty (50) parts per
million.
"Indebtedness" means: (a) all obligations of Borrower for
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borrowed money; (b) all obligations of Borrower evidenced by bonds, debentures,
notes, or other similar instruments and all reimbursement or other obligations
of Borrower in respect of letters of credit, letter of credit guaranties,
bankers acceptances, interest rate swaps, controlled disbursement accounts, or
other financial products; (c) all obligations of Borrower under capital leases;
(d) all obligations or liabilities of others secured by a lien or security
interest on any property or asset of Borrower, irrespective of whether such
obligation or liability is assumed; and (e) any obligation of Borrower
guaranteeing or intended to guarantee (whether guaranteed, endorsed, co-made,
discounted, or sold with recourse to Borrower) any indebtedness, lease,
dividend, letter of credit, or other obligation of any other Person.
"Insolvency Proceeding" means any proceeding commenced by or
---------------------
against any Person under any provision of the Bankruptcy Code or under any other
bankruptcy or insolvency law, including assignments for the benefit of
creditors, formal or informal moratoria, compositions, extensions generally with
its creditors, or proceedings seeking reorganization, arrangement, or other
similar relief.
"Inventory" means all present and future inventory in which
---------
Borrower has any interest, including goods held for sale or lease or to be
furnished under a contract of service and all of Borrower's present and future
raw materials, work in process, finished goods, and packing and shipping
materials, wherever located, and any documents of title representing any of the
above.
"Inventory Advance Rate" means the applicable percentage set
----------------------
forth in the following table:
--------------------------------------------------------------------------------
During the period ..., | The Inventory Advance Rate shall be ...
--------------------------------------------------------------------------------
|
commencing on Closing Date and | Seventeen and one-half percent
ending on June 30, 1996 | (17.50%)
|
--------------------------------------------------------------------------------
|
commencing on July 1, 1996 and | Seventeen and one-quarter percent
ending on September 30, 1996 | (17.25%)
|
-------------------------------------------------------------------------------
10
--------------------------------------------------------------------------------
During the period ..., | The Inventory Advance Rate shall be ...
--------------------------------------------------------------------------------
commencing on October 1, 1996 and | Seventeen percent
ending on December 31, 1996 | (17.00%)
|
--------------------------------------------------------------------------------
|
commencing on January 1, 1997 and | Sixteen and one-half percent
ending on March 31, 1997 | (16.50%)
|
--------------------------------------------------------------------------------
|
commencing on April 1, 1997 and | Sixteen percent
ending on June 30, 1997 | (16.00%)
|
--------------------------------------------------------------------------------
|
commencing on July 1, 1997 and | Fifteen and one-half percent
ending on September 30, 1997 | (15.50%)
|
--------------------------------------------------------------------------------
| Fifteen percent
thereafter | (15.00%)
|
-------------------------------------------------------------------------------
"IRC" means the Internal Revenue Code of 1986, as amended, and
---
the regulations thereunder.
"Japan" means QMS Japan, Inc., a company organized under the laws
-----
of Japan.
"known to Borrower" or "to the knowledge of Borrower" means known
----------------- ----------------------------
by or reasonably should have been known by an Authorized Officer.
"L/C" has the meaning set forth in Section 2.2(a).
---
"L/C Guaranty" has the meaning set forth in Section 2.2(a).
---
"Loan Documents" means this Agreement, the Lockbox Agreements,
--------------
the Mortgages (if and when executed), the Stock Pledge Agreement, the Trademark
Security Agreement, the Security Agreements, the Guaranties, the Term Notes, any
other note or notes executed by Borrower and payable to Foothill, the Warrant,
and any other agreement entered into, now or in the future, in connection with
this Agreement.
"Lockbox Account" shall mean the depositary account established
---------------
pursuant to the respective Lockbox Agreement.
"Lockbox Agreements" means those certain Lockbox Operating
------------------
Procedural Agreements and those certain Depository Account Agreements, in form
and substance
11
satisfactory to Foothill, each of which is among Borrower, Foothill, and one of
the Lockbox Banks.
"Lockbox Banks" means, collectively, AmSouth Bank N.A.,
-------------
NationsBank of Georgia, N.A., and Bank of Nova Scotia.
"Maximum Amount" means Thirty Million Dollars ($30,000,000).
--------------
"Maximum Revolving Amount" means, as of any date of
------------------------
determination, the Maximum Amount less the then outstanding balance of the Term
Loans.
"Mobile Indebtedness" means Indebtedness of Borrower owing to the
-------------------
Mobile Noteholders as of the Closing Date in the aggregate amount of
$5,712,982.56 and secured by a first-priority mortgage on the Mobile Property in
favor of the Mobile Trustee.
"Mobile Indebtedness Conditions" means the execution and delivery
------------------------------
by the Mobile Noteholders of an agreement (in form and substance reasonably
satisfactory to Foothill) in favor of Borrower whereby the Mobile Noteholders:
(a) waive all then existing defaults by Borrower in respect of the Mobile
Indebtedness; (b) reschedule the maturity of the Mobile Indebtedness to a date
not earlier than April 1, 1998; and (c) give Foothill the right to cure payment
defaults in respect of the Mobile Indebtedness within ten (10) days following
the earlier of (i) Foothill's receipt of written notice of such payment default
from one or more of the Noteholders, or (ii) the date that Foothill first has
knowledge of the existence of such payment default.
"Mobile Indebtedness Reserve" means, as of the date of
---------------------------
determination, an amount equal to the greater of (a) zero, or (b) (i) the then
outstanding amount of the Mobile Indebtedness, minus (ii) $5,000,000.
"Mobile Noteholders" means, collectively, one or more or all of
------------------
Connecticut General Insurance Company, for itself and on behalf of one or more
separate accounts, and Life Insurance Company of North America.
"Mobile Property" means the Real Property owned by Borrower that
---------------
is located in Mobile, Alabama, as more particularly described in Schedule R-1.
------------
"Mobile Trustee" means First Alabama Bank, Mobile, as trustee for
--------------
the Mobile Noteholders.
"Mortgages" means one or more mortgages, deeds of trust, or deeds
---------
to secure debt, executed by Borrower or any Guarantor in favor of Foothill, the
form and substance
12
of which shall be satisfactory to Foothill, that encumber the Real Property and
the related improvements thereto.
"Multiemployer Plan" means a Plan within the meaning of ERISA
------------------
Section 4001(a)(3) in which employees of Borrower, Canadian Guarantor, or any
ERISA Affiliate participate or to which Borrower, Canadian Guarantor, or any
ERISA Affiliate contribute or are required to contribute.
"Negotiable Collateral" means all of Borrower's present and
---------------------
future letters of credit, notes (including the Pledged Note), drafts,
instruments, certificated and uncertificated securities (including the shares of
stock of subsidiaries of Borrower), documents, personal property leases (wherein
Borrower is the lessor), chattel paper, and Borrower's Books relating to any of
the foregoing.
"Obligations" means all loans, advances, debts, principal,
-----------
interest (including any interest that, but for the provisions of the Bankruptcy
Code, would have accrued), contingent reimbursement obligations owing to
Foothill under any outstanding L/Cs or L/C Guarantees, premiums (including Early
Termination Premiums), liabilities (including all amounts charged to Borrower's
loan account pursuant to any agreement authorizing Foothill to charge Borrower's
loan account), obligations, fees, lease payments, guaranties, covenants, and
duties owing by Borrower or any Guarantor to Foothill of any kind and
description (whether pursuant to or evidenced by the Loan Documents, by any note
or other instrument (including the Term Notes), or pursuant to any other
agreement between Foothill and Borrower, and irrespective of whether for the
payment of money), whether direct or indirect, absolute or contingent, due or to
become due, now existing or hereafter arising, and including any debt,
liability, or obligation owing from Borrower to others that Foothill may have
obtained by assignment or otherwise, and further including all interest not paid
when due and all Foothill Expenses that Borrower or any Guarantor is required to
pay or reimburse by the Loan Documents, by law, or otherwise.
"Old Lender" means: (a) Old Lender (AmSouth); and (b) Old Lender
----------
(Cigna).
"Old Lender (AmSouth)" means AmSouth Bank N.A., National City
--------------------
Bank, Kentucky (formerly known as First National Bank of Louisville), and
NationsBank of Georgia, N.A., and AmSouth Bank N.A. as agent of the foregoing.
"Old Lender (AmSouth) Indebtedness" means Indebtedness of
---------------------------------
Borrower owing to Old Lender (AmSouth) secured by liens on the Collateral.
"Old Lender (Cigna)" means Connecticut General Life Insurance
------------------
Company.
13
"Old Lender (Cigna) Indebtedness" means Indebtedness of Borrower
-------------------------------
owing to Old Lender (Cigna) secured by liens on the Collateral in favor of Old
Lender (AmSouth) as collateral agent for Old Lender.
"Overadvance" has the meaning set forth in Section 2.4.
----------- -----------
"Pay-Off Letters" means, collectively, (a) a letter, in form and
---------------
substance reasonably satisfactory to Foothill, from Old Lender (AmSouth)
respecting the amount necessary to repay in full all of the obligations of
Borrower owing to Old Lender (AmSouth) in respect of the Old Lender (AmSouth)
Indebtedness and obtain a termination or release of all of the security
interests or liens existing in favor of Old Lender (AmSouth) in and to the
properties or assets of Borrower, and (b) a letter, in form and substance
reasonably satisfactory to Foothill, from Old Lender (Cigna) respecting the
amount necessary to repay in full all of the obligations of Borrower owing to
Old Lender in respect of the Old Lender (Cigna) Indebtedness and obtain a
termination or release of all of the security interests or liens existing in
favor of Old Lender (Cigna) in and to the properties or assets of Borrower.
"PBGC" means (a) the Pension Benefit Guaranty Corporation as
----
defined in Title IV of ERISA, or any successor thereto, and (b) any entity
created under the laws of Canada or any of the provinces or territories thereof
having comparable rights and responsibilities.
"Permitted Asset Disposition" means: (a) the sale by Borrower of
---------------------------
Inventory, or the sale by any Guarantor of its inventory, to buyers in the
ordinary course of business as currently conducted; (b) the use of cash in the
ordinary course of business as currently conducted; (c) subject to the security
interests of Foothill therein, licenses by Borrower or any Guarantor of
intellectual property in the ordinary course of business as currently conducted;
(d) the sale of obsolete, worn-out, or no longer useful Equipment; (e) the sale
of the Fort ▇▇▇▇▇▇ Property solely in connection with the sale of Circuits
permitted under item (g)(ii) below; (f) to the extent that all net cash proceeds
of the disposition of the assets identified in this item (f) are applied to the
then outstanding Obligations not under the Term Loans (which amounts that are
applied to such Obligations may be reborrowed in accordance with the terms and
conditions of this Agreement) and the proceeds of any such disposition in the
form of Negotiable Collateral are pledged and delivered to Foothill, the sale of
Japan or all or substantially all of the assets thereof (provided that the
amount of net cash proceeds of such sale is not less than $1,000,000 and the
amount of proceeds of such sale in the form of Negotiable Collateral is not less
than $3,000,000); and (g) to the extent that all (unless otherwise indicated
below) net cash proceeds of the disposition of the assets identified below in
this item (g) are applied to the installments of Term Loan A (or, if Term Loan A
has been paid in full, of Term Loan B) in the inverse order of their
14
maturities until payment thereof in full and the proceeds of any such
disposition in the form of Negotiable Collateral are pledged and delivered to
Foothill: (i) isolated dispositions of other tangible personal property
constituting Collateral, Circuits Collateral, or Canadian Collateral that do not
aggregate in excess of $250,000, on a book basis, per annum; and (ii) the sale
of Circuits (provided that the amount of net cash proceeds of such sale is not
less than $1,500,000, of which not less than $250,000 are applied to the
installments of Term Loan A (or, if Term Loan A has been paid in full, of Term
Loan B). In the event Term Loan A has been paid in full and no Obligations under
Term Loan B are outstanding as of the date of a disposition of assets permitted
under item (g) of the preceding sentence, the net cash proceeds of such
disposition shall be applied to the then outstanding remaining Obligations
(which amounts that are applied to Obligations not under the Term Loans may be
reborrowed in accordance with the terms and conditions of this Agreement).
"Permitted Liens" means: (a) liens and security interests held by
---------------
Foothill; (b) liens for unpaid taxes, assessments, or charges that are not yet
due and payable or that are the subject of a Permitted Protest; (c) liens and
security interests set forth on Schedule P-1 attached hereto; (d) purchase money
------------
security interests and liens of lessors under capital leases to the extent that
the acquisition or lease of the underlying asset was permitted under Section
-------
7.10, and so long as the security interest or lien only secures the purchase
----
price of the asset; (e) easements, rights of way, reservations, covenants,
conditions, restrictions, zoning variances, and other similar encumbrances that
do not materially interfere with the use or value of the property subject
thereto; (f) obligations and duties as lessee under any lease existing on the
date of this Agreement; (g) mechanics', materialmen's, warehousemen's, or
similar liens that arise by operation of law; (h) if and so long as Term Loan B
is not made, the first priority mortgage on the Mobile Property in favor of the
Mobile Trustee as security for the Mobile Indebtedness; (i) exceptions listed in
the title insurance or commitment therefor to be delivered by Borrower hereunder
in respect of the Real Property and as are approved in the sole discretion of
Foothill; and (j) liens to secure pledges or deposits made in the ordinary
course of business to secure nondelinquent obligations arising under statutory
or regulatory requirements in respect of worker's compensation and unemployment
insurance.
"Permitted Protest" means the right of Borrower or any Guarantor
-----------------
to protest any lien, tax, rental payment, or other charge, other than any such
lien or charge that secures the Obligations, provided (i) a reserve with respect
to such obligation is established on the books of Borrower or such Guarantor, as
the case may be, in an amount that is reasonably satisfactory to Foothill, (ii)
any such protest is instituted and diligently prosecuted by Borrower or such
Guarantor, as the case may be, in good faith, and (iii) Foothill is satisfied
that, while any such protest is pending, there will be no impairment of the
enforceability, validity, or priority of any of the liens or security interests
of Foothill in and to the property or assets of Borrower or such Guarantor, as
the case may be.
15
"Person" means and includes natural persons, corporations,
------
limited partnerships, general partnerships, joint ventures, trusts, land trusts,
business trusts, or other organizations, irrespective of whether they are legal
entities, and governments and agencies and political subdivisions thereof.
"Plan" means an employee benefit plan (as defined in Section 3(3)
----
of ERISA) which Borrower or any ERISA Affiliate sponsors or maintains or to
which Borrower or any ERISA Affiliate makes, is making, or is obligated to make
contributions, including any Multiemployer Plan or Qualified Plan.
"Pledged Note" means that certain promissory note, dated October
------------
16, 1995, made by QMS Europe B.V. and QMS Australia PTY Ltd. to the order of
Borrower, in the original principal amount of $4,000,000.
"Prohibited Transaction" means (a) any transaction described in
----------------------
▇▇▇▇▇▇▇ ▇▇▇ ▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ERISA which is not exempt by reason of Section 408
of United States ERISA, and any transaction described in Section 4975(c) or (d)
of the IRC which is not exempt by reason of Section 4975(c) of the IRC, and (b)
any comparable transaction under Canadian law.
"Projections" means Borrower's forecasted consolidated and
-----------
consolidating: (a) balance sheets; (b) profit and loss statements; and (c) cash
flow statements, all prepared on a basis consistent with Borrower's historical
financial statements, together with appropriate supporting details and a
statement of underlying assumptions.
"Qualified Plan" means a pension Plan intended to be tax-
--------------
qualified under Section 401(a) of the IRC (or comparable provisions of Canadian
law) that Borrower, Canadian Guarantor, or any ERISA Affiliate sponsors,
maintains, or to which any such person makes, is making, or is obligated to
make, contributions, or, in the case of a multiple-employer Plan, has made
contributions at any time during the immediately preceding period covering at
least five (5) plan years, but excluding any Multiemployer Plan.
"Real Property" means the parcel or parcels of real property and
-------------
the related improvements thereto identified on Schedule R-1, and any estates or
------------
interests in real property hereafter acquired by Borrower or any Guarantor;
provided, however, that the Real Property shall not include the Fort ▇▇▇▇▇▇
-------- -------
Property unless the sale of Circuits by Borrower is not consummated on or before
the date ninety (90) days following the Closing Date.
16
"Reference Rate" means the highest of the variable rates of
--------------
interest, per annum, most recently announced by (a) Bank of America, N.T. &
S.A., (b) Mellon Bank, N.A., and (c) Citibank, N.A., or any successor to any of
the foregoing institutions, as its "prime rate" or "reference rate," as the case
may be, irrespective of whether such announced rate is the best rate available
from such financial institution.
"Renewal Date" has the meaning set forth in Section 3.3.
------------ -----------
"Reportable Event" means any event described in Section 4043
----------------
(other than Subsections (b)(7) and (b)(9)) of United States ERISA and any
comparable event described in comparable provisions of Canadian ERISA.
"Security Agreements" means the UCC Security Agreements and the
-------------------
Canadian Security Agreements.
"Solvent" means, with respect to any Person on a particular date,
-------
that on such date (a) at fair valuations, all of the properties and assets of
such Person are greater than the sum of the debts, including contingent
liabilities, of such Person, (b) the present fair salable value of the
properties and assets of such Person is not less than the amount that will be
required to pay the probable liability of such Person on its debts as they
become absolute and matured, (c) such Person is able to realize upon its
properties and assets and pay its debts and other liabilities, contingent
obligations and other commitments as they mature in the normal course of
business, (d) such Person does not intend to, and does not believe that it will,
incur debts beyond such Person's ability to pay as such debts mature, and (e)
such Person is not engaged in business or a transaction, and is not about to
engage in business or a transaction, for which such Person's properties and
assets would constitute unreasonably small capital after giving due
consideration to the prevailing practices in the industry in which such Person
is engaged. In computing the amount of contingent liabilities at any time, it is
intended that such liabilities will be computed at the amount that, in light of
all the facts and circumstances existing at such time, represents the amount
that reasonably can be expected to become an actual or matured liability.
"Stock Pledge Agreement" means a Security Agreement - Stock
----------------------
Pledge, in the form of Exhibit S-1 attached hereto, dated as of even date
-----------
herewith, between Borrower and Foothill.
"Subsidiary" of a Person means any corporation, association,
----------
partnership, joint venture, or other business entity of which that Person,
directly or indirectly, either (i) with respect to a corporation, owns or
controls fifty percent (50%) or more of the voting power and has the ability to
elect at least a majority of the board of directors or similar managing body,
irrespective of whether a class or classes shall or might have voting
17
power by reason of the happening of any contingency, or (ii) with respect to an
association, partnership, joint venture or other business entity, is entitled to
share in fifty percent (50%) or more of the profits and losses, however
determined, and has voting control with respect thereto.
"Tangible Net Worth" means, as of the date any determination
------------------
thereof is to be made, the difference of: (a) Borrower's total stockholder's
equity; minus (b) the sum of: (i) all intangible assets of Borrower (including
capitalized software costs, deferred software costs, and other "intangible
assets" (as defined by GAAP)); (ii) all of Borrower's prepaid expenses; and
(iii) all amounts due to Borrower from Affiliates, calculated on a consolidated
basis.
"Target Share Price Condition" means: (a) that, as of any date of
----------------------------
determination, the average of the daily closing prices of the common stock of
Borrower traded on the New York Stock Exchange for the thirty (30) consecutive
trading days immediately preceding such date shall be Fifteen Dollars ($15.00)
or more per share of such common stock (with appropriate adjustments to such
share price for stock dividends, stock splits, or reverse stock splits); or (b)
that Foothill shall have (i) exercised the Warrant in full, (ii) received the
common stock of Borrower issuable upon such exercise of the Warrant, and (iii)
received Fifteen Dollars ($15.00) or more per share of such common stock (with
appropriate adjustments to such share price for stock dividends, stock splits,
or reverse stock splits).
"Term Loan A" means the term loan made, or to be made, by
-----------
Foothill to Borrower pursuant to Section 2.3(a) hereof.
"Term Loan B" means the term loan made, or to be made, by
-----------
Foothill to Borrower pursuant to Section 2.3(b) hereof.
"Term Loan B Designated Date" means the date during the Term Loan
---------------------------
B Funding Window that Borrower has designated, in a written notice (which notice
must be received by Foothill no later than twenty (20) Business Days prior to
the proposed funding date), as the date on which, subject to the satisfaction of
the Term Loan B Funding Conditions, Term Loan B shall be funded.
"Term Loan B Funding Conditions" means that: (a) each of the
------------------------------
conditions set forth in Section 3.2 shall be satisfied as of the actual date of
funding of Term Loan B; (b) Term Note B and the Mortgage on the Mobile Property
shall have been duly executed and delivered by Borrower, and the same shall be
in full force and effect, and such Mortgage shall have been recorded in the
office of the county recorder for Mobile County, Alabama; and (c) Foothill shall
have received:
18
(i) (x) an appraisal of the Mobile Property satisfactory
to Foothill, and (y) a mortgagee title insurance policy (or a marked
commitment to issue the same) for the Real Property issued by a title
insurance company satisfactory to Foothill (a "Mortgage Policy") in
amounts satisfactory to Foothill assuring Foothill that the Mortgage on
the Mobile Property is a valid and enforceable first priority mortgage
lien on the Mobile Property free and clear of all defects and
encumbrances except Permitted Liens, and the Mortgage Policy shall
otherwise be in form and substance reasonably satisfactory to Foothill;
(ii) copies of a Phase-I environmental report and real
estate survey that shall have been completed with respect to the Mobile
Property; the environmental consultants retained for such environmental
report, the scope of the report, and the results of the report shall be
acceptable to Foothill in its sole discretion;
(iii) satisfactory evidence that all tax returns required
to be filed by Borrower have been timely filed and all Real Property
taxes upon the Mobile Property have been paid prior to delinquency; and
(iv) supplemental opinions of Borrower's counsel in form
and substance satisfactory to Foothill in its sole discretion.
"Term Loan B Funding Window" means the period commencing on the
--------------------------
Closing Date and ending on the date three (3) months after the Closing Date
(which end date Foothill in its sole discretion may (but shall not be obligated
to) extend upon Borrower's written request for such extension.
"Term Loans" means, individually and collectively, Term Loan A
----------
and (if made) Term Loan B.
"Term Note A" has the meaning set forth in Section 2.3(a) hereof,
----------- --------------
which note shall be in the form of that Exhibit T-1 attached hereto.
-----------
"Term Note B" has the meaning set forth in Section 2.3(b) hereof,
----------- --------------
which note shall be in the form of that Exhibit T-2 attached hereto.
-----------
"Term Notes" means, individually and collectively, Term Note A
----------
and (if made) Term Note B.
19
"Trademark Security Agreement" means a Trademark Security
----------------------------
Agreement, in the form of Exhibit T-3 attached hereto, dated as of even date
-----------
herewith, between Borrower and Foothill.
"UCC Security Agreements" means those certain Security
-----------------------
Agreements, each dated as of even date herewith, by the respective Guarantors in
favor of Foothill and in the form of Exhibits U-1 and U-2, respectively.
--------------------
"Unfunded Benefit Liability" means the excess of a Plan's benefit
--------------------------
liabilities over the current value of such Plan's assets, determined in
accordance with the assumptions used by the Plan's actuaries for funding the
Plan for the applicable plan year.
"United States" means the United States of America, its
-------------
territories and possessions and the Commonwealth of Puerto Rico, or any
department, agency, or instrumentality of the foregoing.
"Voidable Transfer" has the meaning set forth in Section 15.8.
----------------- ------------
"Warrant" means that certain Warrant Purchase Agreement, dated as
-------
of even date herewith, between Borrower and Foothill and in the form of Exhibit
-------
W-1.
---
"Working Capital" means the result of subtracting Consolidated
---------------
Current Liabilities from Consolidated Current Assets.
1.2 ACCOUNTING TERMS. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP. When used herein, the
term "financial statements" shall include the notes and schedules thereto.
Whenever the term "Borrower" is used in respect of a financial covenant or a
related definition, it shall be understood to mean Borrower on a consolidated
basis unless the context clearly requires otherwise.
1.3 CODE. Any terms used in this Agreement that are defined in
the Code shall be construed and defined as set forth in the Code unless
otherwise defined herein.
1.4 CONSTRUCTION. Unless the context of this Agreement clearly
requires otherwise, references to the plural include the singular, references to
the singular include the plural, the term "including" is not limiting, and the
term "or" has, except where otherwise indicated, the inclusive meaning
represented by the phrase "and/or." The words "hereof," "herein," "hereby,"
"hereunder," and similar terms in this Agreement refer to this Agreement as a
whole and not to any particular provision of this Agreement. Section,
subsection, clause, schedule, and exhibit references are to this Agreement
unless otherwise specified. Any reference in this Agreement or in the Loan
20
Documents to this Agreement or any of the Loan Documents shall include all
alterations, amendments, changes, extensions, modifications, renewals,
replacements, substitutions, and supplements, thereto and thereof, as
applicable.
1.5 SCHEDULES AND EXHIBITS. All of the schedules and exhibits
attached to this Agreement shall be deemed incorporated herein by reference.
2. LOAN AND TERMS OF PAYMENT.
2.1 REVOLVING ADVANCES. (a) Subject to the terms and conditions
of this Agreement, Foothill agrees to make revolving advances to Borrower in an
amount at any one time outstanding not to exceed the Borrowing Base less the
undrawn or unreimbursed amount of L/Cs and L/C Guarantees outstanding hereunder.
For purposes of this Agreement, "Borrowing Base", as of any date of
determination, shall mean the sum of: (i) the lesser of: (y) an amount equal to
the sum of: (A) (I) seventy-five percent (75%) of the amount of Eligible
Domestic Accounts, less (II) the amount, if any, of the Dilution Reserve
----
(Domestic) against the Domestic Accounts; plus (B) (I) seventy-five percent
----
(75%) of the amount of Eligible Foreign Accounts, less (II) the amount, if any,
----
of the Dilution Reserve (Canadian) against the Canadian Accounts; less (C) the
----
Debit Memo Reserve; and (z) an amount equal to Borrower's and Canadian
Guarantor's Collections with respect to Accounts for the immediately preceding
sixty (60) day period; plus (ii) an amount equal to the lowest of: (x) the
----
Inventory Advance Rate multiplied by the value of Eligible Inventory, (y) the
amount of credit availability created by Section 2.1(a)(i) above, and (z) Eight
-----------------
Million Dollars ($8,000,000); less (iii) the Mobile Indebtedness Reserve.
----
(b) Anything to the contrary in Section 2.1(a) above
--------------
notwithstanding, Foothill may reduce (i) its advance rates based upon Eligible
Domestic Accounts, Eligible Foreign Accounts, or Eligible Inventory without
declaring an Event of Default if it determines, in its reasonable discretion,
that there is a material impairment of the prospect of repayment of all or any
portion of the Obligations or a material impairment of the value or priority of
Foothill's security interests in the Collateral or the Canadian Collateral, and
(ii) its advance rates based upon Eligible Inventory without declaring an Event
of Default based upon the results of appraisals of the Inventory as Foothill may
conduct from time to time or any factor that Foothill believes in good faith
will or could reasonably be expected to adversely affect the value of any of the
Inventory or the amount that Foothill would be likely to receive (after giving
consideration to delays in payment and costs of enforcement) in the liquidation
of such Inventory.
(c) Foothill shall have no obligation to make advances
hereunder to the extent they would cause the outstanding Obligations (other than
those evidenced by the Term Notes) to exceed the Maximum Revolving Amount.
21
During the Term Loan B Funding Window, so long as Term Loan B has not been made
or the Mobile Indebtedness Conditions are not satisfied, Foothill shall have no
obligation to make advances hereunder to the extent they would cause the
outstanding Obligations to exceed the Maximum Amount less the then outstanding
amount of Mobile Indebtedness.
(d) Foothill is authorized to make advances under this
Agreement based upon telephonic or other instructions received from anyone
purporting to be an Authorized Officer of Borrower, or without instructions if
pursuant to Section 2.5(d). Borrower agrees to establish and maintain a single
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designated deposit account for the purpose of receiving the proceeds of the
advances requested by Borrower and made by Foothill hereunder. Unless otherwise
agreed to in writing by Foothill and an authorized officer of Borrower, any
advance requested by Borrower and made by Foothill hereunder shall be made to
such designated deposit account. Amounts borrowed pursuant to this Section 2.1
may be repaid and, subject to the terms and conditions of this Agreement,
reborrowed at any time during the term of this Agreement.
2.2 LETTERS OF CREDIT AND LETTER OF CREDIT GUARANTEES.
(a) Subject to the terms and conditions of this
Agreement, Foothill agrees to issue commercial or standby letters of credit for
the account of Borrower (each, an "L/C") or to issue standby letters of credit
or guarantees of payment (each such letter of credit or guaranty, an "L/C
Guaranty") with respect to commercial or standby letters of credit issued by
another Person for the account of Borrower in an aggregate face amount not to
exceed the least of: (i) the Borrowing Base less the amount of advances
outstanding pursuant to Section 2.1; (ii) the Maximum Revolving Amount less the
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amount of advances outstanding pursuant to Section 2.1; and (iii) Two Million
-----------
Dollars ($2,000,000). Borrower expressly understands and agrees that Foothill
shall have no obligation to arrange for the issuance by other financial
institutions of letters of credit that are to be the subject of L/C Guarantees.
Borrower and Foothill acknowledge and agree that certain of the letters of
credit that are to be the subject of L/C Guarantees may be outstanding on the
Closing Date. Each L/C and each letter of credit that is the subject of an L/C
Guaranty shall have an expiry date no later than sixty (60) days prior to the
date on which this Agreement is scheduled to terminate under Section 3.3
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(without regard to any potential renewal term) and all such L/Cs and letters of
credit (and the applicable L/C Guarantees) shall be in form and substance
acceptable to Foothill in its sole discretion. Foothill shall not have any
obligation to issue L/Cs or L/C Guarantees to the extent that the face amount of
all outstanding L/Cs and L/C Guarantees, plus the amount of advances outstanding
pursuant to Section 2.1, would exceed the Maximum Amount. The L/Cs and the L/C
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Guarantees issued under this Section 2.2 shall be used by Borrower, consistent
-----------
with this Agreement, for its general working capital purposes or to support its
obligations with respect to workers' compensation premiums or other similar
22
obligations. If Foothill is obligated to advance funds under an L/C or L/C
Guaranty, the amount so advanced immediately shall be deemed to be an advance
made by Foothill to Borrower pursuant to Section 2.1 and, thereafter, shall bear
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interest at the rates then applicable under Section 2.5.
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(b) Borrower hereby agrees to indemnify, save, defend,
and hold Foothill harmless from any loss, cost, expense, or liability, including
payments made by Foothill, reasonable expenses, and reasonable attorneys fees
incurred by Foothill arising out of or in connection with any L/Cs or L/C
Guarantees (except to the extent the same are proximately caused by the gross
negligence or wilful misconduct of Foothill). Borrower agrees to be bound by the
issuing bank's regulations and interpretations of any letters of credit
guarantied by Foothill and opened to or for Borrower's account or by Foothill's
interpretations of any L/C issued by Foothill to or for Borrower's account, even
though this interpretation may be different from Borrower's own, and Borrower
understands and agrees that Foothill shall not be liable for any error,
negligence, or mistakes, whether of omission or commission, in following
Borrower's instructions or those contained in the L/Cs or any modifications,
amendments, or supplements thereto (except to the extent the same are
proximately caused by the gross negligence or wilful misconduct of Foothill).
Borrower understands that the L/C Guarantees may require Foothill to indemnify
the issuing bank for certain costs or liabilities arising out of claims by
Borrower against such issuing bank. Borrower hereby agrees to indemnify, save,
defend, and hold Foothill harmless with respect to any loss, cost, expense
(including attorneys fees), or liability incurred by Foothill under any L/C
Guaranty as a result of Foothill's indemnification of any such issuing bank
(except to the extent the same are proximately caused by the gross negligence or
wilful misconduct of Foothill).
(c) Borrower hereby authorizes and directs any bank that
issues a letter of credit guaranteed by Foothill to deliver to Foothill all
instruments, documents, and other writings and property received by the issuing
bank pursuant to such letter of credit, and to accept and rely upon Foothill's
instructions and agreements with respect to all matters arising in connection
with such letter of credit and the related application; provided, however, that
so long as no Event of Default has occurred and is continuing, any such
instructions Foothill may give to such bank shall be given in consultation with
Borrower. Borrower may or may not be the "applicant" or "account party" with
respect to such letter of credit.
(d) Any and all service charges, commissions, fees, and
costs incurred by Foothill relating to the letters of credit guaranteed by
Foothill shall be considered Foothill Expenses for purposes of this Agreement
and immediately shall be reimbursable by Borrower to Foothill. On the first day
of each month, Borrower will pay Foothill a fee equal to two percent (2.00%) per
23
annum times the average Daily Balance of the L/Cs and L/C Guarantees that were
outstanding during the immediately preceding month. Service charges,
commissions, fees, and costs may be charged to Borrower's loan account at the
time the service is rendered or the cost is incurred.
(e) Immediately upon the termination of this Agreement,
Borrower agrees to either: (i) provide cash collateral to be held by Foothill in
an amount equal to the maximum amount of Foothill's obligations under L/Cs plus
the maximum amount of Foothill's obligations to any Person under outstanding L/C
Guarantees, or (ii) cause to be delivered to Foothill releases of all of
Foothill's obligations under its outstanding L/Cs and L/C Guarantees. At
Foothill's discretion, any proceeds of Collateral, Canadian Collateral, or
Circuits Collateral received by Foothill after the occurrence and during the
continuation of an Event of Default may be held as the cash collateral required
by this Section 2.2(e).
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2.3 TERM LOANS.
(a) Foothill has agreed to make a term loan to Borrower
on the Closing Date in the original principal amount of One Million Eight
Hundred Fifty Thousand Dollars ($1,750,000), to be evidenced by and repayable in
accordance with the terms and conditions of a promissory note ("Term Note A"),
of even date herewith, executed by Borrower in favor of Foothill. Such term loan
("Term Loan A") shall be repaid in monthly installments of principal of Thirty
Five Thousand Dollars ($35,000.00) each. Each such installment shall be due and
payable on the first day of each month commencing on December 1, 1995 and
continuing on the first day of each month thereafter until and including the
date on which the unpaid balance of Term Loan A is paid in full. The outstanding
principal balance and all accrued and unpaid interest under Term Loan A shall be
due and payable upon the termination of this Agreement, whether by its terms, by
prepayment, by acceleration, or otherwise. Term Loan A may be prepaid, in whole
or in part, without any premium or penalty. Partial prepayments of Term Loan A
shall be applied to the installments under Term Note A in inverse order of
maturity. All amounts evidenced by Term Note A shall constitute Obligations.
(b) In the event that the Mobile Indebtedness Conditions
are not satisfied on or before the Closing Date and subject to the Term Loan B
Funding Conditions, Foothill has agreed to make a term loan to Borrower on the
Term Loan B Designated Date in the original principal amount of Five Million
Dollars ($5,000,000), to be evidenced by and repayable in accordance with the
terms and conditions of a promissory note ("Term Note B"), dated as of the Term
Loan B Designated Date, executed by Borrower in favor of Foothill. Such term
loan ("Term Loan B") shall be repaid in monthly installments of principal of One
Hundred Thousand Dollars each. Each such installment shall be due and payable on
24
the first day of each month commencing on the first day of the thirteenth full
month following the Term Loan B Designated Date and continuing on the first day
of the each month thereafter until and including the date on which the unpaid
balance of Term Loan B is paid in full. The outstanding principal balance and
all accrued and unpaid interest under Term Loan B shall be due and payable upon
the termination of this Agreement, whether by its terms, by prepayment, by
acceleration, or otherwise. Term Loan B may be prepaid, in whole or in part,
without any premium or penalty. Partial prepayments of Term Loan B shall be
applied to the installments under Term Note B in inverse order of maturity. All
amounts evidenced by Term Note B shall constitute Obligations. Foothill shall
have no obligation to make Term Loan B after the end of the Term Loan B Funding
Window.
2.4 OVERADVANCES. If, at any time or for any reason, the
amount of Obligations owed by Borrower to Foothill pursuant to Sections 2.1 and
----------------
2.2 is greater than either the dollar or percentage limitations set forth in
---
Sections 2.1 or 2.2 (an "Overadvance"), Borrower immediately shall pay to
-------------------
Foothill, in cash, the amount of such excess to be used by Foothill first, to
repay non-contingent Obligations and, thereafter, to be held by Foothill as cash
collateral to secure Borrower's obligation to repay Foothill for all amounts
paid pursuant to L/Cs or L/C Guarantees.
2.5 INTEREST: RATES, PAYMENTS, AND CALCULATIONS.
(a) Interest Rate. All Obligations, except for undrawn
L/Cs and L/C Guarantees, shall bear interest at a per annum rate of one and one-
half (1.50) percentage points above the Reference Rate.
(b) Default Rate. (i) All Obligations, except for undrawn
L/Cs and L/C Guarantees, shall bear interest, from and after the occurrence and
during the continuance of an Event of Default, at a per annum rate equal to five
and one-half (5.50) percentage points above the Reference Rate; and (ii) from
and after the occurrence and during the continuance of an Event of Default, the
fee provided in Section 2.2(d) shall be increased to a fee equal to six percent
--------------
(6.00%) per annum times the average Daily Balance of the undrawn L/Cs and L/C
Guarantees that were outstanding during the immediately preceding month.
(c) Minimum Interest. In no event shall the rate of
interest chargeable hereunder be less than seven and one-half percent (7.50%)
per annum. To the extent that interest accrued hereunder at the rate set forth
herein would be less than the foregoing minimum rate, the interest rate
chargeable hereunder for the period in question automatically shall be deemed
increased to the minimum rate.
(d) Payments. Interest hereunder shall be due and
payable, in arrears, on the first day of each month during the term hereof.
Borrower hereby authorizes Foothill, at its option, without prior notice to
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Borrower, to charge such interest, all Foothill Expenses (as and when incurred),
and all installments or other payments due under the Term Notes or any other
note or other Loan Document to Borrower's loan account, which amounts thereafter
shall accrue interest at the rate then applicable hereunder. Any interest not
paid when due shall be compounded by becoming a part of the Obligations, and
such interest shall thereafter accrue interest at the rate then applicable
hereunder.
(e) Computation. The Reference Rate as of the date of
this Agreement is eight and three-quarters percent (8.75%) per annum. In the
event the Reference Rate is changed from time to time hereafter, the applicable
rate of interest hereunder automatically and immediately shall be increased or
decreased by an amount equal to such change in the Reference Rate. All interest
and fees chargeable under the Loan Documents shall be computed on the basis of a
three hundred sixty (360) day year for the actual number of days elapsed.
(f) Intent to Limit Charges to Maximum Lawful Rate. In no
event shall the interest rate or rates payable under this Agreement or the Term
Notes, plus any other amounts paid in connection herewith, exceed the highest
rate permissible under any law that a court of competent jurisdiction shall, in
a final determination, deem applicable. Borrower and Foothill, in executing this
Agreement and the Term Notes, intend legally to agree upon the rate or rates of
interest and manner of payment stated within it; provided, however, that,
-----------------
anything contained herein or in the Term Notes to the contrary notwithstanding,
if said rate or rates of interest or manner of payment exceeds the maximum
allowable under applicable law, then, ipso facto as of the date of this
Agreement and the Term Notes, Borrower is and shall be liable only for the
payment of such maximum as allowed by law, and payment received from Borrower in
excess of such legal maximum, whenever received, shall be applied to reduce the
principal balance of the Obligations to the extent of such excess.
2.6 CREDITING PAYMENTS; APPLICATION OF COLLECTIONS. The receipt
of any wire transfer of funds, check, or other item of payment by Foothill
(whether from transfers to Foothill by the Lockbox Banks pursuant to the Lockbox
Agreements or otherwise) immediately shall be applied to provisionally reduce
the Obligations, but shall not be considered a payment on account unless such
wire transfer is of immediately available federal funds and is made to the
appropriate deposit account of Foothill or unless and until such check or other
item of payment is honored when presented for payment. From and after the
Closing Date, Foothill shall be entitled to charge Borrower and Canadian
Guarantor for two (2) Business Days of `clearance' at the rate set forth in
Section 2.5(a) or Section 2.5(b)(i), as applicable, on all collections, checks,
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wire transfers, or other items of payment that are received by Foothill
(regardless of whether forwarded by the Lockbox Banks to Foothill, whether
provisionally applied to reduce the Obligations, or otherwise). This across-the-
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board two (2) Business Day clearance charge on all receipts is acknowledged by
the parties to constitute an integral aspect of the pricing of Foothill's
facility to Borrower, and shall apply irrespective of the characterization of
whether receipts are owned by Borrower, Canadian Guarantor, or Foothill, and
irrespective of the level of Borrower's Obligations to Foothill. Should any
check or item of payment not be honored when presented for payment, then
Borrower shall be deemed not to have made such payment, and interest shall be
recalculated accordingly. Anything to the contrary contained herein
notwithstanding, any wire transfer, check, or other item of payment shall be
deemed received by Foothill only if it is received into Foothill's Operating
Account (as such account is identified in the Lockbox Agreements) on or before
11:00 a.m. Los Angeles time. If any wire transfer, check, or other item of
payment is received into Foothill's Operating Account (as such account is
identified in the Lockbox Agreements) after 11:00 a.m. Los Angeles time it shall
be deemed to have been received by Foothill as of the opening of business on the
immediately following Business Day.
2.7 STATEMENTS OF OBLIGATIONS. Foothill shall render statements
to Borrower of the Obligations, including principal, interest, fees, and
including an itemization of all charges and expenses constituting Foothill
Expenses owing, and such statements shall be conclusively presumed to be correct
and accurate and constitute an account stated between Borrower and Foothill
unless, within thirty (30) days after receipt thereof by Borrower, Borrower
shall deliver to Foothill by registered or certified mail at its address
specified in Section 12, written objection thereto describing the error or
----------
errors contained in any such statements.
2.8 FEES. Borrower shall pay to Foothill the following fees:
(a) Commitment Fee. A one time commitment fee of Three
Hundred Thousand Dollars ($300,000) which is earned, in full, and due and
payable by Borrower to Foothill in connection with this Agreement on the Closing
Date;
(b) Closing Fee. A one time closing fee of Seventy Five
Thousand Dollars ($75,000) which is earned, in full, on the Closing Date and is
due and payable by Borrower to Foothill in connection with this Agreement on the
Closing Date;
(c) Term Loan B Closing Fee. In the event that Term Loan
B is made, a one time fee of Fifty Thousand Dollars ($50,000) which is earned,
in full, and is due and payable by Borrower to Foothill on the funding date of
Term Loan B;
(d) Unused Line Fee. On the first day of each month
during the term of this Agreement, a fee in an amount equal to three-eighths of
one percent (0.375%) per annum times the Average Unused Portion of the Maximum
Revolving Amount;
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(e) Annual Facility Fee. On each anniversary of the
Closing Date, a fee in an amount equal to Seventy Five Thousand Dollars
($75,000), such fee to be fully earned on each such anniversary; provided,
---------
however, that in the event the Target Share Price Condition is satisfied, on the
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immediately succeeding anniversary of the Closing Date, Borrower shall be
obligated to pay only the pro rata portion of such fee for the portion of the
year elapsed as of the date of satisfaction of the Target Share Price Condition,
and thereafter shall be zero; provided further that, in the event the Target
----------------
Share Price Condition is not satisfied solely because Foothill receives the
price per share specified in item (b)(iii) of the definition of "Target Share
Price Condition" for less than all of the shares that are issuable upon exercise
of the Warrant in full, then Borrower shall be obligated to pay only a pro rata
portion of the annual facility fee otherwise payable under this Section 2.8(e),
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such pro rata portion to be determined by the same percentage of shares that are
issuable upon exercise of the Warrant in full for which the price per share
specified in item (b)(iii) of the definition of "Target Share Price Condition"
is not received by Foothill.
(f) Financial Examination, Documentation, and Appraisal
Fees. Foothill's customary fee of Six Hundred Fifty Dollars ($650) per day per
examiner, plus reasonable out-of-pocket expenses for each financial analysis and
examination of Borrower performed by Foothill or its agents; Foothill's
customary appraisal fee of One Thousand Five Hundred Dollars ($1,500) per day
per appraiser, plus reasonable out-of-pocket expenses for each appraisal of the
Collateral, Canadian Collateral, Circuits Collateral, or Real Property (if any)
encumbered by a Mortgage, performed by Foothill or its agents;
(g) Term Loan B Monthly Fee. In the event that Term Loan
B is made, on the first day of each month during the term of this Agreement
after the making of Term Loan B, and thereafter so long as any Obligations in
respect of Term Loan B are outstanding, a fee in an amount equal to Four
Thousand Dollars ($4,000) per month; and
(h) Servicing Fee. On the first day of each month during
the term of this Agreement, and thereafter so long as any Obligations are
outstanding, a servicing fee in an amount equal to Ten Thousand Dollars
($10,000) per month; provided, however, that for any month after the first
-----------------
anniversary of the Closing Date during which the average daily Availability is
greater than or equal to Five Million Dollars ($5,000,000), the servicing fee
for that month shall be Seven Thousand Five Hundred Dollars ($7,500).
3. CONDITIONS; TERM OF AGREEMENT.
3.1 CONDITIONS PRECEDENT TO INITIAL ADVANCE, L/C, OR L/C GUARANTY
AND TERM LOANS. The obligation of Foothill to make the initial advance or to
provide the initial L/C or L/C Guaranty or to fund the Term Loans is subject to
28
the fulfillment, to the satisfaction of Foothill and its counsel, of each of the
following conditions on or before the Closing Date:
(a) the Closing Date shall occur on or before November
30, 1995;
(b) (i) Old Lender (AmSouth) shall have executed and
delivered its Pay-Off Letter, together with UCC termination statements and other
documentation evidencing the termination of its liens and security interests in
and to the properties and assets of Borrower in form and substance satisfactory
to Foothill in its sole discretion; and (ii) Old Lender (Cigna) shall have
executed and delivered its Pay-Off Letter, together with UCC termination
statements and other documentation evidencing the termination of its liens and
security interests in and to the properties and assets of Borrower (other than
in respect of the Mobile Property) in form and substance satisfactory to
Foothill in its sole discretion;
(c) Foothill shall have received satisfactory evidence
that the aggregate amount of the Old Lender (AmSouth) Indebtedness and the Old
Lender (Cigna) Indebtedness is not greater than $15,765,789 as of the Closing
Date;
(d) Foothill shall have received searches reflecting the
filing of its financing statements with the office of the Secretary of State of
Alabama;
(e) Foothill shall have received each of the following
documents, duly executed, and each such document shall be in full force and
effect (and, in the case of the Mortgages, shall have been recorded in the
appropriate recorder's office):
i) the Lockbox Agreements;
ii) Term Note A;
iii) the Stock Pledge Agreement;
iv) the Trademark Security Agreement;
v) the Guaranties;
vi) the Security Agreements; and
vii) the Warrant;
(f) Foothill shall have received possession of the
original stock certificates representing or evidencing all of the Pledged Shares
(as defined in the Stock Pledge Agreement), together with stock powers with
respect thereto duly endorsed in blank;
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(g) Foothill shall have received possession of the
original Pledged Note, together with an endorsement in respect thereof duly
executed in blank;
(h) Foothill shall have received a certificate from the
Secretary of Borrower attesting to the resolutions of Borrower's Board of
Directors authorizing its execution, delivery, and performance of this Agreement
and the other Loan Documents to which Borrower is a party and authorizing
specific officers of Borrower to execute same;
(i) Foothill shall have received copies of Borrower's By-
laws and Articles or Certificate of Incorporation, as amended, modified, or
supplemented to the Closing Date, certified by the Secretary of Borrower;
(j) Foothill shall have received a certificate of
corporate status with respect to Borrower, dated within ten (10) days of the
Closing Date, by the appropriate officer of the jurisdiction of incorporation of
Borrower, which certificate shall indicate that Borrower is in good standing in
such jurisdiction;
(k) Foothill shall have received: (i) certificates of
corporate status with respect to Borrower, each dated within fifteen (15) days
of the Closing Date, such certificates to be issued by the appropriate officer
of the States of Alabama, Florida, Indiana, Minnesota, New Jersey, and West
Virginia, which certificates shall indicate that Borrower is in good standing in
such jurisdictions; and (ii) a Certificate of the Secretary of Borrower
attesting that Borrower is in good standing and duly qualified or licensed to do
business in each of the jurisdictions in which its failure to be duly qualified
or licensed would have a material adverse effect on the financial condition or
properties and assets of Borrower;
(l) Foothill shall have received a certificate from the
Secretary of each of the Guarantors attesting to the resolutions of that
Guarantor's Board of Directors authorizing its execution, delivery, and
performance of the Loan Documents to which that Guarantor is a party and
authorizing specific officers of that Guarantor to execute same;
(m) Foothill shall have received copies of the By-laws
and Articles or Certificate of Incorporation (or the Canadian equivalent in the
case of Canadian Guarantor) of each of the Guarantors, as amended, modified, or
supplemented to the Closing Date, certified by the Secretary of that Guarantor;
30
(n) Foothill shall have received a certificate of
corporate status (or the Canadian equivalent in the case of Canadian Guarantor)
with respect to each of the Guarantors, dated within ten (10) days of the
Closing Date, by the appropriate officer of the jurisdiction of incorporation of
that Guarantor, which certificate shall indicate that that Guarantor is in good
standing in such jurisdiction;
(o) Foothill shall have received certificates of
corporate status (or the Canadian equivalent in the case of Canadian Guarantor)
with respect to each of the Guarantors, each dated within fifteen (15) days of
the Closing Date, such certificates to be issued by the appropriate officer of
the jurisdictions in which its failure to be duly qualified or licensed would
have a material adverse effect on the financial condition or properties and
assets of that Guarantor, which certificates shall indicate that Borrower is in
good standing in such jurisdictions;
(p) Foothill shall have received certificates of
insurance, together with a lender's loss payable endorsement, as are required by
Section 6.12 hereof, the form and substance of which shall be satisfactory to
------------
Foothill and its counsel;
(q) Foothill shall have received opinions of Borrower's
counsel in form and substance satisfactory to Foothill in its sole discretion;
(r) Foothill shall have received (i) appraisals, "field
surveys", and location inspections of the Inventory, and (ii) appraisals of the
Equipment, in each case satisfactory to Foothill;
(s) Foothill shall have received copies of all material
loan, security, and mortgage documents (as amended or modified) in respect of
the Mobile Indebtedness, certified by the Secretary of Borrower as being true,
correct, and complete copies of same;
(t) Foothill shall have received satisfactory reference
checks in respect of key management personnel of Borrower;
(u) after giving effect to the payment of fees due to
Foothill on or before the Closing Date and the aggregate payments of the "Payout
Amounts" (under and as defined in the Payoff Letters) to the Old Lenders, the
sum of Borrower's Availability plus Borrower's unrestricted cash and cash
equivalents shall not be less than Five Million Dollars ($5,000,000);
(v) Foothill shall have received satisfactory evidence
that all returns required to be filed by Borrower have been timely filed and all
taxes upon Borrower or its properties, assets, income and franchises (including
Real Property taxes and payroll taxes) have been paid prior to delinquency,
except such taxes that are the subject of a Permitted Protest; and
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(w) all other documents and legal matters in connection
with the transactions contemplated by this Agreement shall have been delivered
or executed or recorded and shall be in form and substance satisfactory to
Foothill and its counsel.
3.2 CONDITIONS PRECEDENT TO ALL ADVANCES, L/CS, OR L/C
GUARANTEES, OR THE MAKING OF TERM LOAN B. The following shall be conditions
precedent to all advances, L/Cs, or L/C Guarantees hereunder:
(a) the representations and warranties contained in this
Agreement and the other Loan Documents shall be true and correct in all material
respects on and as of the date of such advance, L/C, or L/C Guaranty, or the
making of Term Loan B, as though made on and as of such date (except to the
extent that such representations and warranties relate solely to an earlier
date);
(b) no Event of Default or event which with the giving of
notice or passage of time would constitute an Event of Default shall have
occurred and be continuing on the date of such advance, L/C, or L/C Guaranty, or
the making of Term Loan B, nor shall either result from the making thereof; and
(c) no injunction, writ, restraining order, or other
order of any nature prohibiting, directly or indirectly, the making of such
advance or the issuance of such L/C or L/C Guaranty, or the making of Term Loan
B, shall have been issued and remain in force by any governmental authority
against Borrower, Foothill, or any of their Affiliates.
3.2A CONDITIONS SUBSEQUENT.
(a) In the event that the Permitted Asset Disposition of
Japan (or, in the case of a Permitted Asset Disposition of all or substantially
all of the assets of Japan, the winding-up and dissolution (or equivalent under
applicable Japanese law) of Japan) is not completed on or before the date sixty
(60) days following the Closing Date, the delivery by Borrower to Foothill of
the original stock certificate representing or evidencing the largest whole
number of shares not greater than 66% of all issued and outstanding shares of
capital stock of Japan, together with stock powers with respect thereto duly
endorsed in blank, shall be a condition precedent to all advances, L/Cs, or L/C
Guarantees hereunder after sixty (60) days following the Closing Date.
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(b) Either (i) the satisfaction of the Mobile
Indebtedness Conditions, or (ii) the making of Term Loan B subject to the terms
and conditions hereof, or (iii) the use by Borrower of the proceeds of
Indebtedness permitted under Section 7.1(d) to pay in full the outstanding
--------------
obligations in respect of the Mobile Indebtedness, in each case on or before the
end of the Term Loan B Funding Window, shall be a condition subsequent and the
timely failure to satisfy such condition subsequent shall be an Event of
Default.
(c) The receipt by Foothill of certified copies of the
policies of insurance, together with the endorsements thereto, as are required
by Section 6.12 hereof, the form and substance of which shall be satisfactory to
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Foothill and its counsel, shall be a condition precedent to all advances, L/Cs,
or L/C Guarantees hereunder after thirty (30) days following the Closing Date.
3.3 TERM; AUTOMATIC RENEWAL. This Agreement shall become
effective upon the execution and delivery hereof by Borrower and Foothill and
shall continue in full force and effect for a term ending on the date (the
"Renewal Date") that is three (3) years from the Closing Date and automatically
shall be renewed for successive one (1) year periods thereafter, unless sooner
terminated pursuant to the terms hereof. Either party may terminate this
Agreement effective on the Renewal Date or on any one (1) year anniversary of
the Renewal Date by giving the other party at least ninety (90) days prior
written notice by registered or certified mail, return receipt requested. The
foregoing notwithstanding, upon the occurrence and during the continuation of an
Event of Default, Foothill shall have the right to terminate its obligations
under this Agreement immediately with notice to Borrower of such termination.
3.4 EFFECT OF TERMINATION. On the date of termination of this
Agreement, all Obligations (including contingent reimbursement obligations under
any outstanding L/Cs or L/C Guarantees) immediately shall become due and payable
without notice or demand. No termination of this Agreement, however, shall
relieve or discharge Borrower of Borrower's duties, Obligations, or covenants
hereunder, and Foothill's continuing security interests in the Collateral,
Canadian Collateral, Circuits Collateral and the Real Property (if any) shall
remain in effect until all Obligations have been fully and finally discharged
and Foothill's obligation to provide advances hereunder is terminated. If
Borrower has sent a notice of termination pursuant to the provisions of
Section 3.3, but fails to pay all Obligations on the date set forth in said
-----------
notice, then Foothill may, but shall not be required to, renew this Agreement
for an additional term of one (1) year.
3.5 EARLY TERMINATION BY BORROWER. The provisions of Section 3.3
----------
that allow termination of this Agreement by Borrower only on the Renewal Date
and certain anniversaries thereof notwithstanding, Borrower has the option, at
any time upon ninety (90) days prior written notice to Foothill, to terminate
33
this Agreement by paying to Foothill, in cash, the Obligations (including an
amount equal to the full amount of the L/Cs or L/C Guarantees), together with a
premium (the "Early Termination Premium") equal to: (a) if such prepayment is
made prior to the first anniversary of the Closing Date, the greater of (i) the
total interest and L/C and L/C Guaranty fees for the immediately preceding six
(6) months, and (ii) Five Hundred Thousand Dollars ($500,000); (b) if the
prepayment is made on or after the first anniversary of the Closing Date and
prior to the second anniversary of the Closing Date, (i) if the Target Share
Price Condition has not been satisfied prior to such prepayment, the greater of
(y) the total interest and L/C and L/C Guaranty fees for the immediately
preceding six (6) months, and (z) Five Hundred Thousand Dollars ($500,000), and
(ii) if the Target Share Price Condition has been satisfied prior to such
prepayment, the greater of (y) the total interest and L/C and L/C Guaranty fees
for the immediately preceding three (3) months, and (z) Two Hundred Fifty
Thousand Dollars ($250,000); and (c) if the prepayment is made on or after the
second anniversary of the Closing Date, (i) if the Target Share Price Condition
has not been satisfied prior to such prepayment, the greater of (y) the total
interest and L/C and L/C Guaranty fees for the immediately preceding three (3)
months, and (z) Two Hundred Fifty Thousand Dollars ($250,000), and (ii) if the
Target Share Price Condition has been satisfied prior to such prepayment, zero.
The foregoing notwithstanding, in the event the Target Share Price Condition is
not satisfied solely because Foothill receives the price per share specified in
item (b)(iii) of the definition of "Target Share Price Condition" for less than
all of the shares that are issuable upon exercise of the Warrant in full, then
Borrower shall be obligated to pay only a pro rata portion of the Early
Termination Premium otherwise payable under this Section 3.5, such pro rata
-----------
portion to be determined by the same percentage of shares that are issuable upon
exercise of the Warrant in full for which the price per share specified in item
(b)(iii) of the definition of "Target Share Price Condition" is not received by
Foothill.
3.6 TERMINATION UPON EVENT OF DEFAULT. If Foothill terminates
this Agreement upon the occurrence of an Event of Default that intentionally is
caused by Borrower for the purpose, in Foothill's reasonable judgment, of
avoiding payment of the Early Termination Premium provided in Section 3.5, in
-----------
view of the impracticability and extreme difficulty of ascertaining actual
damages and by mutual agreement of the parties as to a reasonable calculation of
Foothill's lost profits as a result thereof, Borrower shall pay to Foothill upon
the effective date of such termination, a premium in an amount equal to the
Early Termination Premium. The Early Termination Premium shall be presumed to be
the amount of damages sustained by Foothill as the result of the early
termination and Borrower agrees that it is reasonable under the circumstances
currently existing. The Early Termination Premium provided for in this
Section 3.6 shall be deemed included in the Obligations.
-----------
34
4. CREATION OF SECURITY INTEREST.
4.1 GRANT OF SECURITY INTEREST. Borrower hereby grants to
Foothill a continuing security interest in all currently existing and hereafter
acquired or arising Collateral in order to secure prompt repayment of any and
all Obligations and in order to secure prompt performance by Borrower of each of
its covenants and duties under the Loan Documents. Foothill's security interests
in the Collateral shall attach to all Collateral without further act on the part
of Foothill or Borrower. Anything contained in this Agreement or any other Loan
Document to the contrary notwithstanding, except for Permitted Asset
Dispositions, Borrower has no authority, express or implied, to dispose of any
item or portion of the Collateral or the Real Property.
4.2 NEGOTIABLE COLLATERAL. In the event that any Collateral,
including proceeds, is evidenced by or consists of Negotiable Collateral,
Borrower shall, immediately upon the request of Foothill, endorse and assign
such Negotiable Collateral to Foothill and deliver physical possession of such
Negotiable Collateral to Foothill.
4.3 COLLECTION OF ACCOUNTS, GENERAL INTANGIBLES, NEGOTIABLE
COLLATERAL. On or before the Closing Date, Foothill, Borrower, Circuits,
Canadian Guarantor, and the Lockbox Banks shall enter into the Lockbox
Agreements, in form and substance satisfactory to Foothill in its sole
discretion, (x) pursuant to which all of Borrower's and Circuits' cash receipts,
checks, and other items of payment (including, insurance proceeds, proceeds of
cash sales, rental proceeds, and tax refunds) will be forwarded to Foothill on a
daily basis, and (y) pursuant to which all of Canadian Guarantor's cash
receipts, checks, and other items of payment (including, insurance proceeds,
proceeds of cash sales, rental proceeds, and tax refunds) will be deposited to
an account of Foothill maintained with the Canadian Lockbox Bank and to be
transferred, so long as no Event of Default has occurred and is continuing, to
an account of Canadian Guarantor, and, upon the occurrence and during the
continuance of an Event of Default, to Foothill. At any time after the
occurrence and during the continuance of an Event of Default, Foothill or
Foothill's designee may: (a) notify customers or Account Debtors of Borrower,
Circuits, or Canadian Guarantor that the Accounts, General Intangibles, or
Negotiable Collateral have been assigned to Foothill or that Foothill has a
security interest therein; and (b) collect the Accounts, General Intangibles,
and Negotiable Collateral directly and charge the collection costs and expenses
to Borrower's loan account. Borrower agrees that it will hold in trust for
Foothill, as Foothill's trustee, any cash receipts, checks, and other items of
payment (including, insurance proceeds, proceeds of cash sales, rental proceeds,
and tax refunds) that it receives and immediately will deliver said cash
receipts, checks, and other items of payment to Foothill in their original form
as received by Borrower. Borrower agrees to cause Circuits and Canadian
Guarantor to hold in trust for Foothill, as Foothill's trustee, any cash
receipts, checks, and other items of payment (including, insurance proceeds,
35
proceeds of cash sales, rental proceeds, and tax refunds) that it receives and
immediately deliver said cash receipts, checks, and other items of payment to
the Lockbox in their original form as received by Circuits or Canadian
Guarantor.
4.4 DELIVERY OF ADDITIONAL DOCUMENTATION REQUIRED. At any time
upon the request of Foothill, Borrower shall execute and deliver, and cause each
Guarantor to execute and deliver, to Foothill all financing statements,
continuation financing statements, fixture filings, Mortgages, security
agreements, chattel mortgages, pledges, assignments, endorsements of
certificates of title, applications for title, affidavits, reports, notices,
schedules of accounts, letters of authority, and all other documents that
Foothill may reasonably request, in form satisfactory to Foothill, to perfect
and continue perfected Foothill's security interests in the Collateral, the
Canadian Collateral, the Circuits Collateral, and the Real Property, and in
order to fully consummate all of the transactions contemplated hereby and under
the other the Loan Documents; provided, however, that Borrower shall not be
-----------------
required to execute and deliver the Mortgage in respect of the Mobile Property
except in connection with the satisfaction of the Term Loan B Funding
Conditions.
4.5 POWER OF ATTORNEY. Borrower hereby irrevocably makes,
constitutes, and appoints Foothill (and any of Foothill's officers, employees,
or agents designated by Foothill) as Borrower's true and lawful attorney, with
power to: (a) if Borrower refuses to, or fails timely to execute and deliver any
of the documents described in Section 4.4, sign the name of Borrower on any of
-----------
the documents described in Section 4.4; (b) at any time that an Event of Default
-----------
has occurred and is continuing, sign Borrower's name on any invoice or ▇▇▇▇ of
lading relating to any Account, drafts against Account Debtors, schedules and
assignments of Accounts, verifications of Accounts, and notices to Account
Debtors; (c) send requests for verification of Accounts; (d) endorse Borrower's
name on any checks, notices, acceptances, money orders, drafts, or other item of
payment or security that may come into Foothill's possession; (e) at any time
that an Event of Default has occurred and is continuing, notify the post office
authorities to change the address for delivery of Borrower's mail to an address
designated by Foothill, to receive and open all mail addressed to Borrower, and
to retain all mail relating to the Collateral and forward all other mail to
Borrower; (f) at any time that an Event of Default has occurred and is
continuing, make, settle, and adjust all claims under Borrower's policies of
insurance and make all determinations and decisions with respect to such
policies of insurance; and (g) at any time that an Event of Default has occurred
and is continuing, settle and adjust disputes and claims respecting the Accounts
directly with Account Debtors, for amounts and upon terms which Foothill
determines to be reasonable, and Foothill may cause to be executed and delivered
any documents and releases which Foothill determines to be necessary. The
appointment of Foothill as Borrower's attorney, and each and every one of
Foothill's rights and powers, being coupled with an interest, is irrevocable
36
until all of the Obligations have been fully and finally repaid and performed
and Foothill's obligation to extend credit hereunder is terminated.
4.6 RIGHT TO INSPECT. Prior to the time that an Event of Default
has occurred and is continuing, Foothill (through any of its officers,
employees, or agents) shall have the right, from time to time hereafter upon
prior notification to Borrower and during normal business hours, to inspect
Borrower's Books and to check, test, and appraise the Collateral or the Real
Property in order to verify Borrower's financial condition or the amount,
quality, value, condition of, or any other matter relating to, the Collateral or
the Real Property. Upon the occurrence and during the continuance of an Event of
Default, Foothill (through any of its officers, employees, or agents) shall have
the right, from time to time hereafter without prior notification to Borrower
and at any time or times determined by Foothill, to inspect Borrower's Books and
to check, test, and appraise the Collateral or the Real Property in order to
verify Borrower's financial condition or the amount, quality, value, condition
of, or any other matter relating to, the Collateral or the Real Property.
5. REPRESENTATIONS AND WARRANTIES.
Borrower represents and warrants to Foothill as follows:
5.1 NO PRIOR ENCUMBRANCES. (a) Borrower has good and indefeasible
title to the Collateral and the Mobile Property and any other Real Property
owned by it, free and clear of liens, claims, security interests, or
encumbrances, except for Permitted Liens; (b) Circuits has good and indefeasible
title to the Circuits Collateral and (so long as the Permitted Asset Disposition
thereof has not been consummated) the Fort ▇▇▇▇▇▇ Property, free and clear of
liens, claims, security interests, or encumbrances, except for Permitted Liens;
and (c) Canadian Guarantor has good and indefeasible title to the Canadian
Collateral and any other Real Property owned by it, free and clear of liens,
claims, security interests, or encumbrances, except for Permitted Liens.
5.2 ELIGIBLE ACCOUNTS. The Eligible Accounts are, at the time of
the creation thereof and as of each date on which Borrower includes them in a
Borrowing Base calculation or certification, bona fide existing obligations
created by the sale and delivery of Inventory or the rendition of services to
Account Debtors in the ordinary course of Borrower's and Canadian Guarantor's
respective businesses, unconditionally owed to Borrower or Canadian Guarantor,
as the case may be, without defenses, disputes, offsets, counterclaims, or
rights of return or cancellation. The property giving rise to such Eligible
Accounts has been delivered to the Account Debtor, or to the Account Debtor's
agent for immediate shipment to and unconditional acceptance by the Account
Debtor. At the time of the creation of an Eligible Account and as of each date
on which Borrower includes an Eligible Account in a Borrowing Base calculation
37
or certification, neither Borrower nor Canadian Guarantor has received notice of
actual or imminent bankruptcy, insolvency, or material impairment of the
financial condition of any applicable Account Debtor regarding such Eligible
Account.
5.3 ELIGIBLE INVENTORY. All Eligible Inventory is now and at all
times hereafter shall be of good and merchantable quality, free from defects.
5.4 EQUIPMENT. All of the Equipment owned by Borrower is used or
held for use in Borrower's business and is fit for such purposes. Each item of
Borrower's Equipment having a book value in excess of $65,000 is accurately
described on Schedule E-2 attached hereto, as such Schedule may, from time to
------------
time, be modified to reflect additional items of such Equipment.
5.5 LOCATION OF INVENTORY AND EQUIPMENT. The Inventory and
Equipment are not stored with a bailee, warehouseman, or similar party (without
Foothill's prior written consent) and are located only at the locations
identified on Schedule 6.15 or otherwise permitted by Section 6.15.
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5.6 INVENTORY RECORDS. Borrower now keeps, and hereafter at all
times shall keep, correct and accurate records itemizing and describing the
kind, type, quality, and quantity of the Inventory, and Borrower's cost
therefor.
5.7 LOCATION OF CHIEF EXECUTIVE OFFICE; FEIN. (a) The chief
executive office of Borrower is located at the address indicated in the preamble
to this Agreement, and Borrower's FEIN is ▇▇-▇▇▇▇▇▇▇; (b) the chief executive
office of Circuits is located at ▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇
▇▇▇▇▇, and Circuits' FEIN is ▇▇-▇▇▇▇▇▇▇; and (c) the chief executive office of
Canadian Guarantor is located at ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇-▇▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇
▇▇▇ ▇▇▇▇▇▇.
5.8 DUE ORGANIZATION AND QUALIFICATION; SUBSIDIARIES. Each of
Borrower and the Guarantors is duly organized and existing and in good standing
under the laws of the jurisdiction of its respective incorporation and qualified
and licensed to do business in, and in good standing in, any jurisdiction where
the failure to be so licensed or qualified could reasonably be expected to have
a material adverse effect on the business, operations, condition (financial or
otherwise), finances, or prospects of that entity or on the value of the
Collateral, the Circuits Collateral, the Canadian Collateral, or the Real
Property to Foothill. Borrower has no Subsidiaries other than the Subsidiaries
listed on Schedule 5.8.
------------
5.9 DUE AUTHORIZATION; NO CONFLICT. (a) The execution, delivery,
and performance of the Loan Documents are within Borrower's corporate powers,
have been duly authorized, and are not in conflict with nor constitute a breach
38
of any provision contained in Borrower's Articles or Certificate of
Incorporation, or By-laws, nor will they constitute an event of default under
any material agreement to which Borrower is a party or by which its properties
or assets may be bound; (b) the execution, delivery, and performance of the Loan
Documents to which each Guarantor is party are within that Guarantor's corporate
powers, have been duly authorized, and are not in conflict with nor constitute a
breach of any provision contained in that Guarantor's Articles or Certificate of
Incorporation, or By-laws, nor will they constitute an event of default under
any material agreement to which that Guarantor is a party or by which its
properties or assets may be bound.
5.10 LITIGATION. There are no actions or proceedings pending by
or against Borrower before any court or administrative agency and Borrower does
not have knowledge or belief of any pending, threatened, or imminent litigation,
governmental investigations, or claims, complaints, actions, or prosecutions
involving Borrower or any guarantor of the Obligations, except for: (a) ongoing
collection matters in which Borrower is the plaintiff; (b) matters disclosed on
Schedule 5.10; and (c) matters arising after the date hereof that, if reasonably
-------------
likely to be decided adversely to Borrower, would not materially impair the
prospect of repayment of the Obligations or materially impair the value or
priority of Foothill's security interests in the Collateral or the Real
Property.
5.11 NO MATERIAL ADVERSE CHANGE IN FINANCIAL CONDITION. All
financial statements relating to Borrower or any guarantor of the Obligations
that have been delivered by Borrower to Foothill have been prepared in
accordance with GAAP and fairly present Borrower's (or such guarantor's, as
applicable) financial condition as of the date thereof and Borrower's results of
operations for the period then ended. There has not been a material adverse
change in the financial condition of Borrower (or such guarantor, as applicable)
since the date of the latest financial statements submitted to Foothill on or
before the Closing Date.
5.12 SOLVENCY. Borrower is Solvent. No transfer of property is
being made by Borrower and no obligation is being incurred by Borrower in
connection with the transactions contemplated by this Agreement or the other
Loan Documents with the intent to hinder, delay, or defraud either present or
future creditors of Borrower.
5.13 EMPLOYEE BENEFITS. Each Qualified Plan is in compliance in
all material respects with the applicable provisions of ERISA and the IRC (or
the comparable Canadian counterpart). Each Qualified Plan and Multiemployer Plan
has been determined by the Internal Revenue Service (or the comparable Canadian
counterpart) to qualify under Section 401 of the IRC (or the comparable Canadian
counterpart), and the trusts created thereunder have been determined to be
exempt from tax, and, to the best knowledge of Borrower, nothing has occurred
39
that would cause the loss of such qualification or tax-exempt status. There are
no outstanding liabilities under ERISA with respect to any Plan maintained or
sponsored by Borrower, Canadian Guarantor, or any ERISA Affiliate, nor with
respect to any Plan to which Borrower, Canadian Guarantor, or any ERISA
Affiliate contributes or is obligated to contribute which could reasonably be
expected to have a material adverse effect on the financial condition of
Borrower or Canadian Guarantor. No Qualified Plan has any Unfunded Benefit
Liability which could reasonably be expected to have a material adverse effect
on the financial condition of Borrower or Canadian Guarantor. Neither Borrower
nor Canadian Guarantor nor any ERISA Affiliate has transferred any Unfunded
Benefit Liability to a person other than Borrower or Canadian Guarantor or an
ERISA Affiliate or has otherwise engaged in a transaction that could reasonably
be expected to have a material adverse effect on the financial condition of
Borrower or Canadian Guarantor. Neither Borrower nor Canadian Guarantor nor any
ERISA Affiliate has incurred nor reasonably expects to incur (x) any liability
(and no event has occurred which, with the giving of notice under ERISA, would
result in such liability) under ERISA with respect to a Multiemployer Plan, or
(y) any liability under ERISA (other than premiums or contribution due but not
delinquent under ERISA) with respect to a Plan, which could, in either event,
reasonably be expected to have a material adverse effect on the financial
condition of Borrower or Canadian Guarantor. No application for a funding waiver
or an extension of any amortization period has been made with respect to any
Qualified Plan. To the knowledge of Borrower, no ERISA Event has occurred or is
reasonably expected to occur with respect to any Plan which could reasonably be
expected to have a material adverse effect on the financial condition of
Borrower or Canadian Guarantor. Borrower, Canadian Guarantor, and each ERISA
Affiliate have complied in all material respects with the notice and
continuation coverage requirements of Section 4980B of the IRC (or the
comparable Canadian counterpart).
5.14 ENVIRONMENTAL CONDITION. Except as set forth in Schedule
--------
5.14, to the knowledge of Borrower, none of Borrower's or any Guarantor's
----
properties or assets has ever been used by Borrower or any Guarantor or, to the
best of Borrower's knowledge, by previous owners or operators in the disposal
of, or to produce, store, handle, treat, release, or transport, any Hazardous
Materials. None of any of Borrower's or any Guarantor's properties or assets has
ever been designated or identified in any manner pursuant to any environmental
protection statute as a Hazardous Materials disposal site, or a candidate for
closure pursuant to any environmental protection statute. No lien arising under
any environmental protection statute has attached to any revenues or to any real
or personal property owned or operated by Borrower or any Guarantor. Neither
Borrower nor any Guarantor has received a summons, citation, notice, or
directive from the Environmental Protection Agency (or the comparable Canadian
counterpart) or any other federal or state or provincial governmental agency
concerning any action or omission by Borrower or any Guarantor resulting in the
releasing or disposing of Hazardous Materials into the environment.
40
5.15 CANADIAN GUARANTOR INTANGIBLE ASSETS. Canadian Guarantor
does not have assets (other than Accounts, inventory, and equipment) in excess
of $10,000 in the aggregate.
5.16 RELIANCE BY FOOTHILL; CUMULATIVE. Each warranty and
representation contained in this Agreement automatically shall be deemed
repeated with each advance or issuance of an L/C or L/C Guaranty and shall be
conclusively presumed to have been relied on by Foothill regardless of any
investigation made or information possessed by Foothill. The warranties and
representations set forth herein shall be cumulative and in addition to any and
all other warranties and representations that Borrower now or hereafter shall
give, or cause to be given, to Foothill.
6. AFFIRMATIVE COVENANTS.
Borrower covenants and agrees that, so long as any credit
hereunder shall be available and until full and final payment of the
Obligations, and unless Foothill shall otherwise consent in writing, Borrower
shall do all of the following:
6.1 ACCOUNTING SYSTEM. Maintain a standard and modern system of
accounting in accordance with GAAP, and cause Canadian Guarantor to maintain a
standard and modern system of accounting in accordance with Canadian GAAP, in
each case with ledger and account cards or computer tapes, discs, printouts, and
records pertaining to the Collateral or the Canadian Collateral, as the case may
be, which contain information as from time to time may be reasonably requested
by Foothill. Keep, and cause Canadian Guarantor to, keep proper books of account
showing all sales, claims, and allowances on its Inventory.
6.2 COLLATERAL REPORTS. Deliver, and cause Canadian Guarantor to
deliver, to Foothill, no later than the tenth (10th) day of each month during
the term of this Agreement, a detailed aging, by total, of the Accounts, a
reconciliation statement, and a summary aging, by vendor, of all accounts
payable and any book overdraft. Original sales invoices evidencing daily sales
shall be mailed by Borrower, or caused by Borrower to be mailed by Canadian
Guarantor, to each Account Debtor with, at Foothill's request, a copy to
Foothill, and, at Foothill's direction after the occurrence and during the
continuance of an Event of Default, the invoices shall indicate on their face
that the Account has been assigned to Foothill and that all payments are to be
41
made directly to Foothill. Borrower shall deliver, and cause Canadian Guarantor
to deliver, to Foothill, as Foothill may from time to time require, collection
reports, sales journals, invoices, original delivery receipts, customer's
purchase orders, shipping instructions, bills of lading, and other documentation
respecting shipment arrangements. Absent such a request by Foothill, copies of
all such documentation shall be held by Borrower, or caused by Borrower to be
held by Canadian Guarantor, as custodian for Foothill. In addition, from time to
time, Borrower shall deliver, or cause Canadian Guarantor to deliver, to
Foothill such other and additional financial and collateral financial and
collateral information or documentation as Foothill may reasonably request.
6.3 SCHEDULES OF ACCOUNTS. With such regularity as Foothill shall
require, provide, and cause Canadian Guarantor to provide, Foothill with
schedules describing all Accounts. Foothill's failure to request such schedules
or Borrower's failure to execute and deliver, or cause Canadian Guarantor to
execute and deliver, such schedules shall not affect or limit Foothill's
security interests or other rights in and to the Accounts.
6.4 FINANCIAL STATEMENTS, REPORTS, CERTIFICATES. Deliver to
Foothill: (a) as soon as available, but in any event within thirty (30) days
after the end of each month during each of Borrower's fiscal years, a company
prepared balance sheet, income statement, and cash flow statement covering
Borrower's operations during such period; and (b) as soon as available, but in
any event within ninety (90) days after the end of each of Borrower's fiscal
years, financial statements of Borrower for each such fiscal year, audited by
independent certified public accountants reasonably acceptable to Foothill and
certified, without any qualifications (other than a "going concern"
qualification, if any, based on financial information provided to Foothill in
writing prior to the Closing Date), by such accountants to have been prepared in
accordance with GAAP, together with a certificate of such accountants addressed
to Foothill stating that such accountants do not have knowledge of the existence
of any event or condition constituting an Event of Default, or that would, with
the passage of time or the giving of notice, constitute an Event of Default.
Such audited financial statements shall include a balance sheet, profit and loss
statement, and cash flow statement, and, if prepared, such accountants' letter
to management. Borrower agrees to deliver financial statements prepared on a
consolidating basis so as to present Borrower and each Subsidiary (including
Canadian Guarantor, with conversion to United States GAAP) separately, and on a
consolidated basis.
Together with the above, Borrower also shall deliver to Foothill
Borrower's Form 10-Q Quarterly Reports, Form 10-K Annual Reports, and Form 8-K
Current Reports, and any other filings made by Borrower with the Securities and
Exchange Commission, if any, as soon as the same are filed, or any other
information that is provided by Borrower to its shareholders, and any other
report reasonably requested by Foothill relating to the Collateral, the Canadian
Collateral, the Circuits Collateral, the Real Property, or the financial
condition of Borrower.
42
Each month, together with the financial statements provided
pursuant to Section 6.4(a), Borrower shall deliver to Foothill a certificate
--------------
signed by its chief financial officer to the effect that: (i) all reports,
statements, or computer prepared information of any kind or nature delivered or
caused to be delivered to Foothill hereunder (x) in the case of the financial
statements provided pursuant to Section 6.4(b), have been prepared in accordance
--------------
with GAAP and fairly present the financial condition and results of operations
of Borrower as of the date thereof, and (y) in the case of all other such
reports, statements or computer prepared information, have been prepared in a
manner consistent in all respects with the manner of preparation of those
previously provided to Foothill; (ii) each of Borrower and the Guarantors is in
timely compliance with all of its covenants and agreements hereunder and under
the other Loan Documents to which it is party; (iii) the representations and
warranties of Borrower and each Guarantor contained in this Agreement and the
other Loan Documents are true and correct in all material respects on and as of
the date of such certificate, as though made on and as of such date (except to
the extent that such representations and warranties relate solely to an earlier
date); and (iv) on the date of delivery of such certificate to Foothill there
does not exist any condition or event that constitutes an Event of Default (or,
in each case, to the extent of any non-compliance, describing such non-
compliance as to which he or she may have knowledge and what action Borrower or
that Guarantor, as the case may be, has taken, is taking, or proposes to take
with respect thereto).
Borrower (and, if applicable, Canadian Guarantor) shall have
issued written instructions to its independent certified public accountants
authorizing them to communicate with Foothill and to release to Foothill
whatever financial information in the possession of or previously prepared by
such Persons concerning Borrower or any Guarantor that Foothill may reasonably
request. Borrower hereby irrevocably authorizes and directs (and agrees to cause
Canadian Guarantor to authorize and direct) all auditors, accountants, or other
third parties to deliver to Foothill, at Borrower's expense, copies of
Borrower's and any Guarantor's financial statements, papers related thereto, and
other accounting records of any nature in their possession, and to disclose to
Foothill any information they may have regarding Borrower's or any Guarantor's
business affairs and financial conditions.
6.5 TAX RETURNS. Borrower agrees to deliver to Foothill copies of
each of Borrower's future federal income tax returns, and any amendments
thereto, within thirty (30) days of the filing thereof with the Internal Revenue
Service.
6.6 GUARANTOR REPORTS. Borrower agrees to cause any guarantor of
any of the Obligations to deliver copies of all federal income tax returns as
soon as the same are available and in any event no later than thirty (30) days
after the same are required to be filed by law.
43
6.7 DESIGNATION OF INVENTORY. Borrower shall now and from time to
time hereafter, but not less frequently than monthly, execute and deliver to
Foothill a designation of Inventory specifying Borrower's cost, and, if lower,
the market value, of Borrower's raw materials, work in process, and finished
goods, and further specifying such other information as Foothill may reasonably
request.
6.8 RETURNS. Returns and allowances, if any, as between Borrower
and Canadian Guarantor and their respective Account Debtors shall be on the same
basis and in accordance with the respective usual customary practices of
Borrower and Canadian Guarantor, as they exist at the time of the execution and
delivery of this Agreement. If, at a time when no Event of Default has occurred
and is continuing, any Account Debtor returns any Inventory to Borrower or
returns inventory to Canadian Guarantor, Borrower promptly shall, or (if
applicable) shall cause Canadian Guarantor to promptly, determine the reason for
such return and, if Borrower or Canadian Guarantor, as the case may be, accepts
such return, issue a credit memorandum (with a copy to be sent to Foothill) in
the appropriate amount to such Account Debtor. If, at a time when an Event of
Default has occurred and is continuing, any Account Debtor returns any Inventory
to Borrower or returns any inventory to Canadian Guarantor, Borrower promptly
shall, or (if applicable) shall cause Canadian Guarantor to promptly, determine
the reason for such return and, if Foothill consents (which consent shall not be
unreasonably withheld), issue a credit memorandum (with a copy to be sent to
Foothill) in the appropriate amount to such Account Debtor. On a daily basis,
Borrower shall, and shall cause Canadian Guarantor to, notify Foothill of all
returns and recoveries and of all disputes and claims.
6.9 TITLE TO EQUIPMENT. Upon Foothill's request, Borrower
immediately shall, and shall cause each Guarantor to, deliver to Foothill,
properly endorsed, any and all evidences of ownership of, certificates of title,
or applications for title to any items of Equipment.
6.10 MAINTENANCE OF EQUIPMENT. Borrower shall, and shall cause
each Guarantor to, keep and maintain the Equipment in good operating condition
and repair (ordinary wear and tear excepted), and make all necessary
replacements thereto so that the value and operating efficiency thereof shall at
all times be maintained and preserved. Borrower shall not, and shall cause each
Guarantor to not, suffer or permit any item of Equipment to become a fixture to
real estate or an accession to other property, and the Equipment is now and
shall at all times remain personal property.
6.11 TAXES. All assessments and taxes, whether real, personal, or
otherwise, due or payable by, or imposed, levied, or assessed against Borrower
or any Guarantor or any of its property have been paid, and shall hereafter be
paid in full, before delinquency or before the expiration of any extension
period. Borrower shall, and shall cause each Guarantor to, make due and timely
44
payment or deposit of all federal, state or provincial, and local taxes,
assessments, or contributions required of it by law, and will execute and
deliver to Foothill, on demand, appropriate certificates attesting to the
payment thereof or deposit with respect thereto. Borrower will, and will cause
each Guarantor to, make timely payment or deposit of all tax payments and
withholding taxes required of it by applicable laws, including those laws
concerning F.I.C.A., F.U.T.A., state disability, and local, state or provincial,
and federal income taxes, and will, upon request, furnish Foothill with proof
satisfactory to Foothill indicating that Borrower or such Guarantor has made
such payments or deposits. The foregoing to the contrary notwithstanding,
Borrower and Guarantor shall not be required to pay or discharge any such
assessment or tax (other than payroll taxes or taxes that are the subject of a
United States federal tax lien, a Canadian federal tax lien, or a Canadian
provincial tax lien) so long as and to the extent that the validity thereof
shall be the subject of a Permitted Protest.
6.12 INSURANCE.
(a) Borrower, at its expense, shall, and shall cause each
Guarantor to, keep the Collateral, the Canadian Collateral, the Circuits
Collateral, and the Real Property insured against loss or damage by fire, theft,
explosion, sprinklers, and all other hazards and risks, and in such amounts, as
are ordinarily insured against by other owners in similar businesses. Borrower
also shall, and shall cause each Guarantor to, maintain business interruption,
public liability, product liability, and property damage insurance relating to
Borrower's or any Guarantor's ownership and use of the Collateral, the Canadian
Collateral, the Circuits Collateral, and the Real Property, as well as insurance
against larceny, embezzlement, and criminal misappropriation.
(b) All such policies of insurance shall be in such form,
with such companies, and in such amounts as may be reasonably satisfactory to
Foothill (Foothill hereby confirms that, as of the Closing Date, the identity of
the issuer, and amount of coverage, of such insurance policies, based solely on
copies of certificates of insurance provided by Borrower to Foothill on or
before the Closing Date, are satisfactory). All such policies of insurance
(except those of public liability and property damage) shall contain a 438BFU
lender's loss payable endorsement, or an equivalent endorsement in a form
satisfactory to Foothill, showing Foothill as sole loss payee thereof, and shall
contain a waiver of warranties, and shall specify that the insurer must give at
least ten (10) days prior written notice to Foothill before canceling its policy
for any reason. Borrower shall, and shall cause each Guarantor to, deliver to
Foothill certified copies of such policies of insurance and evidence of the
payment of all premiums therefor. All proceeds payable under any such policy
shall be payable to Foothill to be applied on account of the Obligations.
45
6.13 FINANCIAL COVENANTS. BORROWER SHALL MAINTAIN:
(a) Current Ratio. A ratio of Consolidated Current Assets
divided by Consolidated Current Liabilities of at least one to one (1.0 : 1.0),
measured on a fiscal quarter-end basis;
(b) Total Liabilities to Tangible Net Worth Ratio. A
ratio of Borrower's total liabilities divided by Tangible Net Worth of not more
than two and nine-tenths to one (2.9 : 1.0), measured on a fiscal quarter-end
basis;
(c) Tangible Net Worth. Tangible Net Worth of at least
Thirty Two Million Dollars ($32,000,000), measured on a fiscal quarter-end
basis; and
(d) Working Capital. Working Capital of not less than Ten
Million Dollars ($10,000,000), measured on a fiscal quarter-end basis.
6.14 NO SETOFFS OR COUNTERCLAIMS. All payments hereunder and
under the other Loan Documents made by or on behalf of Borrower shall be made
without setoff or counterclaim and free and clear of, and without deduction or
withholding for or on account of, any federal, state or provincial, or local
taxes.
6.15 LOCATION OF INVENTORY AND EQUIPMENT. Borrower shall keep the
Inventory and Equipment only at the locations identified on Schedule 6.15;
-------------
provided, however, that Borrower may amend Schedule 6.15 so long as such
----------------- -------------
amendment occurs by written notice to Foothill not less than thirty (30) days
prior to the date on which the Inventory or Equipment is moved to such new
location, so long as such new location is within the continental United States,
and so long as, at the time of such written notification, Borrower provides any
financing statements or fixture filings necessary to perfect and continue
perfected Foothill's security interests in such assets and also provides to
Foothill a landlord's waiver in form and substance satisfactory to Foothill.
6.16 COMPLIANCE WITH LAWS. Borrower shall, and shall cause each
Guarantor to, comply with the requirements of all applicable laws, rules,
regulations, and orders of any governmental authority, including the Fair Labor
Standards Act and the Americans With Disabilities Act (or the comparable
Canadian counterparts), other than laws, rules, regulations, and orders the non-
compliance with which, individually or in the aggregate, would not have and
could not reasonably be expected to have a material adverse effect on the
business, operations, condition (financial or otherwise), finances, or prospects
of Borrower or any Guarantor or on the value of the Collateral, the Canadian
Collateral, the Circuits Collateral, or the Real Property to Foothill.
46
6.17 EMPLOYEE BENEFITS.
(a) Borrower promptly shall deliver to Foothill a written
statement by the chief financial officer of Borrower specifying the nature of
any of the following events and the actions which Borrower proposes to take with
respect thereto, and in any event within thirty (30) days of the date that
Borrower first has knowledge of any of them, and when known, any action taken or
threatened by the Internal Revenue Service, PBGC, Department of Labor, or other
party with respect thereto: (i) an ERISA Event with respect to any Plan; (ii)
the incurrence of an obligation to pay additional premium to the PBGC under
ERISA with respect to any Qualified Plan; and (iii) any lien on the assets of
Borrower or any Guarantor arising in connection with any Plan.
(b) Borrower shall also promptly furnish to Foothill copies
prepared or received by Borrower, Canadian Guarantor, or any ERISA Affiliate of:
(i) at the request of Foothill, each annual report (Internal Revenue Service
Form 5500 series or the comparable Canadian counterpart) and all accompanying
schedules, actuarial reports, financial information concerning the financial
status of each Plan, and schedules showing the amounts contributed to each Plan
by or on behalf of Borrower, Canadian Guarantor, or their ERISA Affiliates for
the most recent three (3) plan years; (ii) all notices of intent to terminate or
to have a trustee appointed to administer any Plan; (iii) all written demands by
the PBGC under ERISA; (iv) all notices required to be sent to employees or to
the PBGC under ERISA or Section 412 of the IRC (or the comparable Canadian
counterpart); (v) all written notices received with respect to a Multiemployer
Plan concerning (x) the imposition or amount of withdrawal liability pursuant to
ERISA, (y) a termination described in ERISA, or (z) a reorganization or
insolvency described in ERISA; (vi) the adoption of any new Plan that is subject
to Section 412 of the IRC (or the comparable Canadian counterpart) by Borrower,
Canadian Guarantor, or any ERISA Affiliate; (vii) the adoption of any amendment
to any Plan that is subject to Section 412 of the IRC (or the comparable
Canadian counterpart), if such amendment results in a material increase in
benefits or Unfunded Benefit Liability; or (viii) the commencement of
contributions by Borrower, Canadian Guarantor, or any ERISA Affiliate to any
Plan that is subject to Section 412 of the IRC (or the comparable Canadian
counterpart).
6.18 LEASES. Borrower shall, and shall cause each Guarantor to,
pay when due all rents and other amounts payable under any leases to which
Borrower or that Guarantor is a party or by which Borrower's or that Guarantor's
properties and assets are bound, unless such payments are the subject of a
Permitted Protest. To the extent that Borrower or any Guarantor fails timely to
make payment of such rents and other amounts payable when due under its leases,
Foothill shall be entitled, in its discretion, and without the necessity of
declaring an Event of Default, to reserve an amount equal to such unpaid amounts
from the loan availability created under Section 2.1 hereof.
-----------
47
7. NEGATIVE COVENANTS.
Borrower covenants and agrees that, so long as any credit
hereunder shall be available and until full and final payment of the
Obligations, Borrower will not do any of the following without Foothill's prior
written consent:
7.1 INDEBTEDNESS. Create, incur, assume, permit, guarantee, or
otherwise become or remain, directly or indirectly, liable with respect to any
Indebtedness, except:
(a) Indebtedness evidenced by this Agreement or the Term
Notes;
(b) Indebtedness set forth in the latest financial
statements of Borrower submitted to Foothill on or prior to the Closing Date;
(c) Indebtedness secured by Permitted Liens;
(d) in the sole event that Term Loan B is not made, non-
recourse Indebtedness secured by the Mobile Property and otherwise on terms and
conditions reasonably satisfactory to Foothill; and
(e) refinancings, renewals, or extensions of Indebtedness
permitted under clauses (b), (c), and (d) of this Section 7.1 (and continuance
-----------
or renewal of any Permitted Liens associated therewith) so long as: (i) the
terms and conditions of such refinancings, renewals, or extensions do not
materially impair the prospects of repayment of the Obligations by Borrower,
(ii) except for Indebtedness secured by the Mobile Property, the net cash
proceeds of such refinancings, renewals, or extensions do not result in an
increase in the aggregate principal amount of the Indebtedness so refinanced,
renewed, or extended, (iii) such refinancings, renewals, refundings, or
extensions do not result in a shortening of the average weighted maturity of the
Indebtedness so refinanced, renewed, or extended, and (iv) to the extent that
Indebtedness that is refinanced was subordinated in right of payment to the
Obligations, then the subordination terms and conditions of the refinancing
Indebtedness must be at least as favorable to Foothill as those applicable to
the refinanced Indebtedness.
7.2 LIENS. Create, incur, assume, or permit to exist, directly or
indirectly, any lien on or with respect to any of its property or assets, of any
kind, whether now owned or hereafter acquired, or any income or profits
therefrom, except for Permitted Liens (including liens that are replacements of
Permitted Liens to the extent that the original Indebtedness is refinanced under
Section 7.1(e) and so long as the replacement liens secure only those assets or
--------------
property that secured the original Indebtedness).
48
7.3 RESTRICTIONS ON FUNDAMENTAL CHANGES. (a) Enter into any
acquisition, merger, consolidation, reorganization, or recapitalization, or
reclassify its capital stock, or liquidate, wind up, or dissolve itself (or
suffer any liquidation or dissolution); or (b) except for Permitted Asset
Dispositions, convey, sell, assign, lease, transfer, or otherwise dispose of, in
one transaction or a series of transactions, all or any substantial part of its
business, property, or assets, whether now owned or hereafter acquired; or (c)
acquire by purchase or otherwise all or substantially all of the properties,
assets, stock, or other evidence of beneficial ownership of any Person; or (d)
cause, suffer, or permit any Guarantor to do any of the foregoing.
7.4 EXTRAORDINARY TRANSACTIONS AND DISPOSAL OF ASSETS. Enter (or
cause, suffer, or permit any Guarantor to enter) into any transaction not in the
ordinary and usual course of Borrower's or that Guarantor's (as the case may be)
business, including the sale, lease, or other disposition of, moving,
relocation, or transfer, whether by sale or otherwise, of any of Borrower's or
that Guarantor's (as the case may be) properties or assets (other than Permitted
Asset Dispositions).
7.5 CHANGE NAME. Change Borrower's (or cause, suffer, or permit
any Guarantor to change that Guarantor's) name, FEIN, business structure, or
identity, or add (or cause, suffer, or permit any Guarantor to add) any new
fictitious name.
7.6 GUARANTEE. Guarantee or otherwise become in any way liable
with respect to the obligations of any third Person (or cause, suffer, or permit
Canadian Guarantor to do the same), except (a) by endorsement of instruments or
items of payment for deposit to the account of Borrower (or Canadian Guarantor,
as the case may be) or which are transmitted or turned over to Foothill; (b)
under the Guaranty by Canadian Guarantor; (c) in connection with the purchase of
services, supplies, and Equipment in the ordinary course of its business as
currently conducted; and (d) prior to the Permitted Asset Disposition of Japan
or its assets, in respect of indebtedness of Japan owing to Hitachi in an amount
not to exceed $750,000.
7.7 RESTRUCTURE. Make (or cause, suffer, or permit any Guarantor
to make) any change in its corporate structure, the principal nature of its
business operations, or the date of its fiscal year.
7.8 PREPAYMENTS. Subject to Section 7.1(d) and except in
--------------
connection with a refinancing permitted by Section 7.1(e), prepay any
--------------
Indebtedness owing to any third Person.
7.9 CHANGE OF CONTROL. Cause, permit, or suffer, directly or
indirectly, any Change of Control.
49
7.10 CAPITAL EXPENDITURES. Make any capital expenditure, or any
commitment therefor, in excess of One Million Dollars ($1,000,000) for any
individual transaction or where the aggregate amount of such capital
expenditures, made or committed for in any fiscal year, is in excess of Five
Million Dollars ($5,000,000).
7.11 CONSIGNMENTS. Consign any Inventory or sell any Inventory on
▇▇▇▇ and hold, sale or return, sale on approval, or other conditional terms of
sale.
7.12 DISTRIBUTIONS. Make any distribution or declare or pay any
dividends (in cash or other property, other than capital stock) on, or purchase,
acquire, redeem, or retire any of its capital stock, of any class, whether now
or hereafter outstanding (or cause, suffer, or permit any Guarantor to do the
same).
7.13 ACCOUNTING METHODS. Modify or change its method of
accounting or enter into, modify, or terminate (or cause, suffer, or permit any
Guarantor to do any of the foregoing) any agreement currently existing, or at
any time hereafter entered into with any third party accounting firm or service
bureau for the preparation or storage of Borrower's (or such Guarantor's, as the
case may be) accounting records without said accounting firm or service bureau
agreeing to provide Foothill information regarding the Collateral, the Canadian
Collateral, the Circuits Collateral, and the Real Property or Borrower's (or
such Guarantor's, as the case may be) financial condition. Borrower waives, and
shall cause each Guarantor to waive, the right to assert a confidential
relationship, if any, it may have with any accounting firm or service bureau in
connection with any information requested by Foothill pursuant to or in
accordance with this Agreement, and agrees that Foothill may contact directly
any such accounting firm or service bureau in order to obtain such information.
7.14 INVESTMENTS. Directly or indirectly make or acquire any
beneficial interest in (including stock, partnership interest, or other
securities of), or make any loan, advance, or capital contribution to, any
Person, except that (a) Borrower may make loans and advances to any Guarantor
(so long as such loan or advance is not evidenced by a promissory note and so
long as such Person remains a guarantor of the "Guarantied Obligations" (as
defined in the applicable Loan Documents)), and (b) Borrower or Guarantor may
make loans and advances to its employees in the ordinary course of its business
as currently conducted.
7.15 TRANSACTIONS WITH AFFILIATES. Directly or indirectly enter
into or permit to exist any material transaction with any Affiliate of Borrower
except for transactions that are in the ordinary course of Borrower's business,
upon fair and reasonable terms, that are fully disclosed to Foothill, and that
are no less favorable to Borrower than would be obtained in an arm's length
transaction with a non-Affiliate.
50
7.16 SUSPENSION. Suspend or go out of a substantial portion of
its business (or cause, suffer, or permit any Guarantor to do the same).
7.17 USE OF PROCEEDS. Use the proceeds of the loans and advances
made hereunder for any purpose other than: (a) on the Closing Date, to repay in
full the outstanding principal, accrued interest, and accrued fees and expenses
owing to Old Lender in respect of the Old Lender (AmSouth) Indebtedness and the
Old Lender (Cigna) Indebtedness and, on the Term Loan B Designated Date, if Term
Loan B is made, the Mobile Indebtedness; (b) to pay transactional costs and
expenses incurred in connection with this Agreement; and (c) thereafter,
consistent with the terms and conditions hereof, for its lawful and permitted
corporate purposes.
7.18 CHANGE IN LOCATION OF CHIEF EXECUTIVE OFFICE; INVENTORY AND
EQUIPMENT WITH BAILEES. Borrower shall not, and shall not cause, suffer, or
permit any Guarantor to, without thirty (30) days prior written notification to
Foothill, relocate its chief executive office to a new location, unless, at the
time of such written notification, Borrower or such Guarantor provides any
financing statements or fixture filings necessary to perfect and continue
perfected Foothill's security interests and also provides to Foothill a
landlord's waiver in form and substance satisfactory to Foothill. The Inventory
and Equipment shall not at any time now or hereafter be stored with a bailee,
warehouseman, or similar party without Foothill's prior written consent.
7.19 CANADIAN GUARANTOR SECURITY DOCUMENTS. Cause, suffer, or
permit Canadian Guarantor to enter into or amend any security documents in favor
of third parties to grant security interests in any assets of Canadian
Guarantor, other than equipment subject to existing Permitted Liens.
8. EVENTS OF DEFAULT.
Any one or more of the following events shall constitute an event
of default (each, an "Event of Default") under this Agreement:
8.1 If Borrower fails to pay when due and payable or when
declared due and payable, any portion of the Obligations (whether of principal,
interest (including any interest which, but for the provisions of the Bankruptcy
Code, would have accrued on such amounts), fees and charges due Foothill,
reimbursement of Foothill Expenses, or other amounts constituting Obligations);
8.2 (a) If Borrower fails or neglects to perform, keep, or
observe, in any material respect, any term, provision, condition, covenant, or
agreement contained in Sections 6.2 (Collateral Reports) or 6.7 (Designation of
--------------------------------------------------------
Inventory) of this Agreement and such failure continues for a period of five (5)
----------
51
days from the date of such failure or neglect; (b) If Borrower fails or neglects
to perform, keep, or observe, in any material respect, any term, provision,
condition, covenant, or agreement contained in Sections 6.3 (Schedule of
-------------------------
Accounts), 6.4 (Financial Statements), 6.5 (Tax Returns), 6.6 (Guarantor
------------------------------------------------------------------------
Reports), 6.9 (Title to Equipment), 6.15 (Location of Inventory and Equipment),
-------------------------------------------------------------------------------
6.16 (Compliance with Laws), or 6.18 (Leases) of this Agreement and such failure
---------------------------------------------
continues for a period of ten (10) days from the date of such failure or
neglect; (c) If Borrower fails or neglects to perform, keep, or observe, in any
material respect, any term, provision, condition, covenant, or agreement
contained in Section 6.10 (Maintenance of Equipment) of this Agreement and such
---------------------------------------
failure continues for a period of fifteen (15) days from the date Foothill sends
Borrower written notice of such failure or neglect; (d) If Borrower fails or
neglects to perform, keep, or observe, in any material respect, any other term,
provision, condition, covenant, or agreement contained in this Agreement, in any
of the Loan Documents, or in any other present or future agreement between
Borrower and Foothill (other than any such term, provision, condition, covenant,
or agreement that is the subject of another provision of this Section 8);
8.3 If there is a material impairment of the prospect of
repayment of any portion of the Obligations owing to Foothill or a material
impairment of the value or priority of Foothill's security interests in the
Collateral, the Canadian Collateral, the Circuits Collateral, or the Real
Property;
8.4 If any material portion of Borrower's properties or assets is
attached, seized, subjected to a writ or distress warrant, or is levied upon, or
comes into the possession of any third Person and such attachment, seizure,
writ, warrant, levy, or possession is not released, discharged, stayed, or
bonded against within ten (10) days of the date of inception thereof;
8.5 If an Insolvency Proceeding is commenced by Borrower;
8.6 If an Insolvency Proceeding is commenced against Borrower and
any of the following events occur: (a) Borrower consents to the institution of
the Insolvency Proceeding against it; (b) the petition commencing the Insolvency
Proceeding is not timely controverted; (c) the petition commencing the
Insolvency Proceeding is not dismissed within sixty (60) calendar days of the
date of the filing thereof; provided, however, that, during the pendency of such
-----------------
period, Foothill shall be relieved of its obligation to make additional advances
or issue additional L/Cs or L/C Guarantees hereunder; (d) an interim trustee is
appointed to take possession of all or a substantial portion of the properties
or assets of, or to operate all or any substantial portion of the business of,
Borrower; or (e) an order for relief shall have been issued or entered therein;
52
8.7 If Borrower or any Guarantor is enjoined, restrained, or in
any way prevented by court order from continuing to conduct all or any material
part of its business affairs, for so long as such injunction, restraint, or
order shall remain effective;
8.8 (a) If a notice of lien, levy, or assessment is filed of
record with respect to any of Borrower's or any Guarantor's properties or assets
by the United States or Canada, or any department, agency, or instrumentality
thereof, or by any state or province, county, municipal, or governmental agency,
or if any taxes or debts owing at any time hereafter to any one or more of such
entities becomes a lien, whether ▇▇▇▇▇▇ or otherwise, upon any of Borrower's or
any Guarantor's properties or assets and, in any such case, the aggregate amount
of such taxes or debt is less than One Hundred Thousand Dollars ($100,000), and
the same is not discharged or bonded against within thirty (30) days of the date
of attachment of such lien, levy, or assessment; provided, however, that during
-----------------
such period Foothill shall be entitled to create a reserve against the Borrowing
Base in an amount sufficient to discharge such lien, levy. or assessment and any
and all penalties or interest payable in connection therewith; or (b) if a
notice of lien, levy, or assessment is filed of record with respect to any of
Borrower's or any Guarantor's properties or assets by the United States or
Canada, or any department, agency, or instrumentality thereof, or by any state
or province, county, municipal, or governmental agency, or if any taxes or debts
owing at any time hereafter to any one or more of such entities becomes a lien,
whether ▇▇▇▇▇▇ or otherwise, upon any of Borrower's or any Guarantor's
properties or assets and, in any such case, the aggregate mount of such taxes or
debts is in equal to or in excess of One Hundred Thousand Dollars ($100,000);
8.9 If a judgment or other claim in excess of $100,000 (after
giving effect to insurance proceeds, if any, actually applied thereto) becomes a
lien or encumbrance upon any material portion of Borrower's properties or
assets;
8.10 If there is a material default in any material agreement to
which Borrower is a party with one or more third Persons resulting in a right by
such third Persons, irrespective of whether exercised, to accelerate the
maturity of Borrower's obligations thereunder;
8.11 If Borrower or any Guarantor makes any payment on account of
Indebtedness that has been contractually subordinated in right of payment to the
payment of the Obligations, except to the extent such payment is permitted by
the terms of the subordination provisions applicable to such Indebtedness;
8.12 If any material misstatement or misrepresentation exists now
or hereafter in any warranty, representation, statement, or report made to
Foothill by Borrower or any Guarantor or any officer, director, or senior
manager thereof or any financial/treasury/accounting department employee
thereof, or if any such warranty or representation is withdrawn;
53
8.13 If Foothill believes in good faith that there has occurred
an act or event constituting fraud, misrepresentation, or conversion of
Collateral, Circuits Collateral, Canadian Collateral, or Real Property by
Borrower or any Guarantor;
8.14 If the obligation of any Guarantor or other third Person
under any Loan Document is limited, revoked, or terminated by operation of law
or by such Guarantor or other third Person thereunder, or any such Guarantor or
other third Person becomes the subject of an Insolvency Proceeding; or
8.15 If (a) with respect to any Plan, there shall occur any of
the following which could reasonably be expected to have a material adverse
effect on the financial condition of Borrower or Canadian Guarantor: (i) the
loss by a Plan intended to be a Qualified Plan of its qualification under
Section 401(a) of the IRC (or the comparable Canadian counterpart); (ii) the
incurrence of liability under ERISA; (iii) a failure to make full payment when
due of all amounts which, under the provisions of any Plan or applicable law,
Borrower or any ERISA Affiliate is required to make; (iv) the filing of a notice
of intent to terminate a Plan under ERISA; (v) a complete or partial withdrawal
of Borrower, Canadian Guarantor, or any ERISA Affiliate from any Plan; (vi) the
receipt of a notice by the plan administrator of a Plan that the PBGC has
instituted proceedings to terminate such Plan or appoint a trustee to administer
such Plan; (vii) the adoption of or the amendment of a Plan; and (viii) the
assessment against Borrower, Canadian Guarantor, or any ERISA Affiliate of a tax
under Section 4980B of the IRC (or the comparable Canadian counterpart); or (b)
the Unfunded Benefit Liability of all of the Qualified Plans of Borrower,
Canadian Guarantor, and their ERISA Affiliates shall, in the aggregate, exceed
One Hundred Thousand Dollars ($100,000).
9. FOOTHILL'S RIGHTS AND REMEDIES.
9.1 RIGHTS AND REMEDIES. Upon the occurrence, and during the
continuation, of an Event of Default Foothill may, at its election, without
notice of its election and without demand, do any one or more of the following,
all of which are authorized by Borrower:
(a) Declare all Obligations, whether evidenced by this
Agreement, by any of the other Loan Documents, or otherwise, immediately due and
payable;
54
(b) Cease advancing money or extending credit to or for
the benefit of Borrower under this Agreement, under any of the Loan Documents,
or under any other agreement between Borrower and Foothill;
(c) Terminate this Agreement and any of the other Loan
Documents as to any future liability or obligation of Foothill, but without
affecting Foothill's rights and security interests in the Collateral, the
Canadian Collateral, the Circuits Collateral, or the Real Property and without
affecting the Obligations;
(d) Settle or adjust disputes and claims directly with
Account Debtors for amounts and upon terms which Foothill considers advisable,
and in such cases, Foothill will credit Borrower's loan account with only the
net amounts received by Foothill in payment of such disputed Accounts after
deducting all Foothill Expenses incurred or expended in connection therewith;
(e) Cause Borrower to hold all returned Inventory in
trust for Foothill, segregate all returned Inventory from all other property of
Borrower or in Borrower's possession and conspicuously label said returned
Inventory as the property of Foothill;
(f) Without notice to or demand upon Borrower or any
Guarantor, make such payments and do such acts as Foothill considers necessary
or reasonable to protect its security interests in the Collateral. Borrower
agrees to assemble the Collateral if Foothill so requires, and to make the
Collateral available to Foothill as Foothill may designate. Borrower authorizes
Foothill to enter the premises where the Collateral is located, to take and
maintain possession of the Collateral, or any part of it, and to pay, purchase,
contest, or compromise any encumbrance, charge, or lien that in Foothill's
determination appears to conflict with its security interests and to pay all
expenses incurred in connection therewith. With respect to any of Borrower's
owned premises, Borrower hereby grants Foothill a license to enter into
possession of such premises and to occupy the same, without charge, for up to
one hundred twenty (120) days in order to exercise any of Foothill's rights or
remedies provided herein, at law, in equity, or otherwise;
(g) Without notice to Borrower (such notice being
expressly waived), and without constituting a retention of any collateral in
satisfaction of an obligation (within the meaning of Section 9505 of the Code),
set off and apply to the Obligations any and all (i) balances and deposits of
Borrower held by Foothill (including any amounts received in the Lockbox
Accounts), or (ii) indebtedness at any time owing to or for the credit or the
account of Borrower held by Foothill;
55
(h) Hold, as cash collateral, any and all balances and
deposits of Borrower held by Foothill, and any amounts received in the Lockbox
Accounts, to secure the full and final repayment of all of the Obligations;
(i) Ship, reclaim, recover, store, finish, maintain,
repair, prepare for sale, advertise for sale, and sell (in the manner provided
for herein) the Collateral. Foothill is hereby granted a license or other right
to use, without charge, Borrower's labels, patents, copyrights, rights of use of
any name, trade secrets, trade names, trademarks, service marks, and advertising
matter, or any property of a similar nature, as it pertains to the Collateral,
the Canadian Collateral, or the Circuits Collateral, in completing production
of, advertising for sale, and selling any Collateral and Borrower's rights under
all licenses and all franchise agreements shall inure to Foothill's benefit;
(j) Sell the Collateral at either a public or private
sale, or both, by way of one or more contracts or transactions, for cash or on
terms, in such manner and at such places (including Borrower's premises) as
Foothill determines is commercially reasonable. It is not necessary that the
Collateral be present at any such sale;
(k) Foothill shall give notice of the disposition of the
Collateral as follows:
(1) Foothill shall give Borrower and each holder
of a security interest in the Collateral who has filed with Foothill a written
request for notice, a notice in writing of the time and place of public sale,
or, if the sale is a private sale or some other disposition other than a public
sale is to be made of the Collateral, then the time on or after which the
private sale or other disposition is to be made;
(2) The notice shall be personally delivered or
mailed, postage prepaid, to Borrower as provided in Section 12, at least five
----------
(5) days before the date fixed for the sale, or at least five (5) days before
the date on or after which the private sale or other disposition is to be made;
no notice needs to be given prior to the disposition of any portion of the
Collateral that is perishable or threatens to decline speedily in value or that
is of a type customarily sold on a recognized market. Notice to Persons other
than Borrower claiming an interest in the Collateral shall be sent to such
addresses as they have furnished to Foothill;
(3) If the sale is to be a public sale, Foothill
also shall give notice of the time and place by publishing a notice one time at
least five (5) days before the date of the sale in a newspaper of general
circulation in the county in which the sale is to be held;
56
(l) Foothill may credit bid and purchase at any public
sale; and
(m) Any deficiency that exists after disposition of the
Collateral as provided above will be paid immediately by Borrower. Any excess
will be returned, without interest and subject to the rights of third Persons,
by Foothill to Borrower.
9.2 REMEDIES CUMULATIVE. Foothill's rights and remedies under
this Agreement, the Loan Documents, and all other agreements shall be
cumulative. Foothill shall have all other rights and remedies not inconsistent
herewith as provided under the Code, by law, or in equity. No exercise by
Foothill of one right or remedy shall be deemed an election, and no waiver by
Foothill of any Event of Default shall be deemed a continuing waiver. No delay
by Foothill shall constitute a waiver, election, or acquiescence by it.
10. TAXES AND EXPENSES.
If Borrower fails to pay any monies (whether taxes, rents, assessments,
insurance premiums, or otherwise) due to third Persons, or fails to make any
deposits or furnish any required proof of payment or deposit, all as required
under the terms of this Agreement, then, to the extent that Foothill reasonably
determines that such failure by Borrower could have a material adverse effect on
Foothill's interests in the Collateral or the Real Property, in its discretion
and without prior notice to Borrower, Foothill may do any or all of the
following: (a) make payment of the same or any part thereof; (b) set up such
reserves in Borrower's loan account as Foothill deems necessary to protect
Foothill from the exposure created by such failure; or (c) obtain and maintain
insurance policies of the type described in Section 6.12, and take any action
------------
with respect to such policies as Foothill deems prudent. The preceding sentence
notwithstanding, Foothill agrees to use reasonable efforts to give Borrower
prior notice of the taking by Foothill of any action described in items (a),
(b), or (c) of the preceding sentence; provided, however, that Borrower's
-----------------
failure to receive such prior notice despite the exercise by Foothill of such
reasonable efforts shall not restrict the ability of Foothill to take such
action, shall not affect the validity of such action taken, and shall not result
in any liability by Foothill to Borrower for any such failure. Any such amounts
paid by Foothill shall constitute Foothill Expenses. Any such payments made by
Foothill shall not constitute an agreement by Foothill to make similar payments
in the future or a waiver by Foothill of any Event of Default under this
Agreement. Foothill need not inquire as to, or contest the validity of, any such
expense, tax, security interest, encumbrance, or lien and the receipt of the
usual official notice for the payment thereof shall be conclusive evidence that
the same was validly due and owing.
57
11. WAIVERS; INDEMNIFICATION.
11.1 DEMAND; PROTEST; ETC. Borrower waives demand, protest,
notice of protest, notice of default or dishonor, notice of payment and
nonpayment, notice of any default, nonpayment at maturity, release, compromise,
settlement, extension, or renewal of accounts, documents, instruments, chattel
paper, and guarantees at any time held by Foothill on which Borrower may in any
way be liable.
11.2 FOOTHILL'S LIABILITY FOR COLLATERAL. So long as Foothill
complies with its obligations, if any, under Section 9207 of the Code, Foothill
shall not in any way or manner be liable or responsible for: (a) the safekeeping
of the Collateral; (b) any loss or damage thereto occurring or arising in any
manner or fashion from any cause; (c) any diminution in the value thereof; or
(d) any act or default of any carrier, warehouseman, bailee, forwarding agency,
or other Person. All risk of loss, damage, or destruction of the Collateral
shall be borne by Borrower.
11.3 INDEMNIFICATION. Borrower agrees to defend, indemnify, save,
and hold Foothill and its officers, employees, and agents harmless against: (a)
all obligations, demands, claims, and liabilities claimed or asserted by any
other Person arising out of or relating to the transactions contemplated by this
Agreement or any other Loan Document, including any claim of any broker or
finder, and (b) all losses (including reasonable attorneys fees and
disbursements) in any way suffered, incurred, or paid by Foothill as a result of
or in any way arising out of, following, or consequential to the transactions
contemplated by this Agreement or any other Loan Document (except to the extent
the same are proximately caused by the gross negligence or wilful misconduct of
Foothill). This provision shall survive the termination of this Agreement.
12. NOTICES.
Unless otherwise provided in this Agreement, all notices or
demands by any party relating to this Agreement or any other Loan Document shall
be in writing and (except for financial statements and other informational
documents which may be sent by first-class mail, postage prepaid) shall be
personally delivered or sent by reputable overnight delivery service, registered
or certified mail, postage prepaid, return receipt requested, or by prepaid
telex, TWX, telefacsimile, or telegram (with messenger delivery specified) to
Borrower or to Foothill, as the case may be, at its address set forth below:
58
If to Borrower: QMS, INC.
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇. ▇▇▇▇▇ ▇. ▇▇▇▇
Telefacsimile: (▇▇▇) ▇▇▇-▇▇▇▇
with copies to: QMS, INC.
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇▇▇▇▇, Esq.
Telefacsimile: (▇▇▇) ▇▇▇-▇▇▇▇
If to Foothill: FOOTHILL CAPITAL CORPORATION
▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: Business Finance Division Manager
Telefacsimile: (▇▇▇) ▇▇▇-▇▇▇▇
with copies to: ▇▇▇▇▇▇▇, PHLEGER & ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇ ▇▇▇▇▇▇▇ Hilson, Esq.
Telefacsimile: (▇▇▇) ▇▇▇-▇▇▇▇
The parties hereto may change the address at which they are to
receive notices hereunder, by notice in writing in the foregoing manner given to
the other. All notices or demands sent in accordance with this Section 12, other
----------
than notices by Foothill in connection with Sections 9504 or 9505 of the Code,
shall be deemed received on the earlier of the date of actual receipt or three
(3) days after the deposit thereof in the mail. Borrower acknowledges and agrees
that notices sent by Foothill in connection with Sections 9504 or 9505 of the
Code shall be deemed sent when deposited in the mail or transmitted by
telefacsimile or other similar method set forth above.
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.
THE VALIDITY OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS
(UNLESS EXPRESSLY PROVIDED TO THE CONTRARY IN AN ANOTHER LOAN DOCUMENT), THE
CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF AND THEREOF, AND THE RIGHTS
OF THE PARTIES HERETO AND THERETO WITH RESPECT TO ALL MATTERS ARISING HEREUNDER
OR THEREUNDER OR RELATED HERETO OR THERETO SHALL BE DETERMINED UNDER, GOVERNED
59
BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA. THE
PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE TRIED AND LITIGATED ONLY IN THE
STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF LOS ANGELES, STATE OF
CALIFORNIA OR, AT THE SOLE OPTION OF FOOTHILL, IN ANY OTHER COURT IN WHICH
FOOTHILL SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND WHICH HAS SUBJECT
MATTER JURISDICTION OVER THE MATTER IN CONTROVERSY. EACH OF BORROWER AND
FOOTHILL WAIVES, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH
MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO
THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 13.
----------
BORROWER AND FOOTHILL HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF
ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN
DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT
CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR
STATUTORY CLAIMS. BORROWER AND FOOTHILL REPRESENT THAT EACH HAS REVIEWED THIS
WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING
CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF THIS
AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
14. DESTRUCTION OF BORROWER'S DOCUMENTS.
All documents, schedules, invoices, agings, or other papers
delivered to Foothill may be destroyed or otherwise disposed of by Foothill four
(4) months after they are delivered to or received by Foothill, unless Borrower
requests, in writing, the return of said documents, schedules, or other papers
and makes arrangements, at Borrower's expense, for their return.
15. GENERAL PROVISIONS.
15.1 EFFECTIVENESS. This Agreement shall be binding and deemed
effective when executed by Borrower and Foothill.
60
15.2 SUCCESSORS AND ASSIGNS. This Agreement shall bind and inure
to the benefit of the respective successors and assigns of each of the parties;
provided, however, that Borrower may not assign this Agreement or any rights or
-----------------
duties hereunder without Foothill's prior written consent and any prohibited
assignment shall be absolutely void. No consent to an assignment by Foothill
shall release Borrower from its Obligations. Foothill may assign this Agreement
and its rights and duties hereunder and no consent or approval by Borrower is
required in connection with any such assignment. Foothill reserves the right to
sell, assign, transfer, negotiate, or grant participations in all or any part
of, or any interest in Foothill's rights and benefits hereunder. In connection
with any such assignment or participation, Foothill may disclose all documents
and information which Foothill now or hereafter may have relating to Borrower or
Borrower's business. To the extent that Foothill assigns its rights and
obligations hereunder to a third Person, Foothill thereafter shall be released
from such assigned obligations to Borrower and such assignment shall effect a
novation between Borrower and such third Person. Anything contained in this
Section 15.2 to the contrary notwithstanding, Foothill agrees that, so long as
------------
no Event of Default has occurred and is continuing, Foothill will not assign or
grant participations of interests in all or any part of Foothill's rights and
duties hereunder without the prior written consent of Borrower if the effect of
any such assignment or participation is to reduce the percentage interest
retained by Foothill of all rights and duties hereunder to less than thirty
three and one-third percent (33.33%); provided, however, that Borrower's consent
-----------------
shall not be required in connection with the assignment of Foothill's rights and
duties hereunder made in connection with the sale of all or a substantial
portion of Foothill's commercial loan portfolio.
15.3 SECTION HEADINGS. Headings and numbers have been set forth
herein for convenience only. Unless the contrary is compelled by the context,
everything contained in each section applies equally to this entire Agreement.
15.4 INTERPRETATION. Neither this Agreement nor any uncertainty
or ambiguity herein shall be construed or resolved against Foothill or Borrower,
whether under any rule of construction or otherwise. On the contrary, this
Agreement has been reviewed by all parties and shall be construed and
interpreted according to the ordinary meaning of the words used so as to fairly
accomplish the purposes and intentions of all parties hereto.
15.5 SEVERABILITY OF PROVISIONS. Each provision of this Agreement
shall be severable from every other provision of this Agreement for the purpose
of determining the legal enforceability of any specific provision.
15.6 AMENDMENTS IN WRITING. This Agreement can only be amended by
a writing signed by both Foothill and Borrower.
61
15.7 COUNTERPARTS; TELEFACSIMILE EXECUTION. This Agreement may be
executed in any number of counterparts and by different parties on separate
counterparts, each of which, when executed and delivered, shall be deemed to be
an original, and all of which, when taken together, shall constitute but one and
the same Agreement. Delivery of an executed counterpart of this Agreement by
telefacsimile shall be equally as effective as delivery of a manually executed
counterpart of this Agreement. Any party delivering an executed counterpart of
this Agreement by telefacsimile also shall deliver a manually executed
counterpart of this Agreement but the failure to deliver a manually executed
counterpart shall not affect the validity, enforceability, and binding effect of
this Agreement.
15.8 REVIVAL AND REINSTATEMENT OF OBLIGATIONS. If the incurrence
or payment of the Obligations by Borrower or any Guarantor or the transfer by
either or both of such parties to Foothill of any property of either or both of
such parties should for any reason subsequently be declared to be void or
voidable under any provincial or state or federal law relating to creditors'
rights, including provisions of the Bankruptcy Code relating to fraudulent
conveyances, preferences, and other voidable or recoverable payments of money or
transfers of property (collectively, a "Voidable Transfer"), and if Foothill is
required to repay or restore, in whole or in part, any such Voidable Transfer,
or elects to do so upon the reasonable advice of its counsel, then, as to any
such Voidable Transfer, or the amount thereof that Foothill is required or
elects to repay or restore, and as to all reasonable costs, expenses, and
attorneys fees of Foothill related thereto, the liability of Borrower or such
Guarantor automatically shall be revived, reinstated, and restored and shall
exist as though such Voidable Transfer had never been made.
15.9 CONFIDENTIALITY. Foothill agrees to hold all material
information obtained by it pursuant to the requirements of this Agreement in
accordance with its reasonable customary procedures for handling confidential
information; it being understood and agreed by Borrower that in any event
Foothill may make disclosures (a) reasonably required by any bona fide potential
or actual assignee, transferee, or participant in connection with any
contemplated or actual assignment or transfer by Foothill of an interest herein
or any participation interest in Foothill's rights hereunder, (b) of information
that has become public by disclosures made by Persons other than Foothill, its
Affiliates, assignees, transferees, or participants, or (c) as required or
requested by any court, governmental or administrative agency, pursuant to any
subpoena or other legal process, or by any law, statute, regulation, or court
order; provided, however, that, unless prohibited by applicable law, statute,
-----------------
regulation, or court order, Foothill shall notify Borrower of any request by any
court, governmental or administrative agency, or pursuant to any subpoena or
other legal process for disclosure of any such non-public material information
concurrent with, or where practicable, prior to the disclosure thereof.
62
15.10 INTEGRATION. This Agreement, together with the other Loan
Documents, reflects the entire understanding of the parties with respect to the
transactions contemplated hereby and shall not be contradicted or qualified by
any other agreement, oral or written, before the date hereof.
63
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed in Los Angeles, California.
FOOTHILL CAPITAL CORPORATION,
a California corporation
By /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
-------------------------------
Title: Vice President
---------------------------
QMS, INC.,
a Delaware corporation
By /s/ ▇▇▇▇▇ ▇. ▇▇▇▇
-------------------------------
Title: Chief Financial Officer,
---------------------------
Executive Vice President,
Finance and Administrative
S-1
STOCK PLEDGE AGREEMENT
----------------------
THIS STOCK PLEDGE AGREEMENT (this "Agreement"), dated as of
November 7, 1995, is entered into between QMS, Inc., a Delaware corporation
("Pledgor"), and Foothill Capital Corporation, a California corporation
("Secured Party"), with reference to the following:
WHEREAS, Pledgor beneficially owns: (i) one hundred (100) shares of
the common stock of QMS Circuits, Inc., a Delaware corporation ("Circuits"); and
(ii) ninety thousand two hundred fifty (90,250) shares of the Class A common
stock of QMS Canada Inc., a corporation organized under the laws of Canada
("Canada");
WHEREAS, Borrower and Secured Party are parties to that certain
Loan and Security Agreement (the "Loan Agreement"), of even date herewith,
pursuant to which Secured Party has agreed to make certain financial
accommodations to Borrower;
WHEREAS, to induce Secured Party to make the financial
accommodations provided to Borrower pursuant to the Loan Agreement, Pledgor
desires to pledge, grant, transfer, and assign to Secured Party a security
interest in the Collateral (as hereinafter defined) to secure the Secured
Obligations (as hereinafter defined), as provided herein.
NOW, THEREFORE, in consideration of the mutual promises, covenants,
representations, and warranties set forth herein and for other good and valuable
consideration, the parties hereto agree as follows:
1. Definitions and Construction.
----------------------------
(a) Definitions. All initially capitalized terms used herein
-----------
and not otherwise defined herein shall have the meaning ascribed thereto in the
Loan Agreement. As used in this Agreement:
"Agreement" shall mean this Stock Pledge Agreement.
---------
"Borrower" shall mean QMS, Inc., a Delaware
--------
corporation.
"Chief Executive Office" shall mean where Pledgor is
----------------------
deemed located pursuant to (S)9-103(3)(d) of the Code.
"Collateral" shall mean the Pledged Shares, the Future
----------
Rights, and the Proceeds, collectively.
"Future Rights" shall mean: (a) all shares of stock
-------------
(other than Pledged Shares) of the Issuers, and all securities convertible or
exchangeable into, and all
1
warrants, options, or other rights to purchase, shares of stock of the Issuers;
(b) to the extent of Pledgor's interest therein, all shares of, all securities
convertible or exchangeable into, and all warrants, options, or other rights to
purchase shares of stock of any Person in which Pledgor, after the date of this
Agreement, acquires a direct equity interest, irrespective of whether such
Person is or becomes a Subsidiary of Pledgor; and (c) the certificates or
instruments representing such additional shares, convertible or exchangeable
securities, warrants, and other rights and all dividends, cash, options,
warrants, rights, instruments, and other property or proceeds from time to time
received, receivable, or otherwise distributed in respect of or in exchange for
any or all of such shares.
"Holder" and "Holders" shall have the meanings
------ -------
ascribed thereto in Section 3 of this Agreement.
"Issuers" shall mean Circuits and Canada, and any
-------
other Person identified as an Issuer on Schedule A attached hereto (or any
----------
addendum thereto), and any successors thereto, whether by merger or otherwise.
"Lien" shall mean any lien, mortgage, pledge,
----
assignment (including any assignment of rights to receive payments of money),
security interest, charge, or encumbrance of any kind (including any conditional
sale or other title retention agreement, any lease in the nature thereof, or any
agreement to give any security interest).
"Loan Agreement" shall have the meaning ascribed
--------------
thereto in the recitals to this Agreement.
"Pledged Shares" shall mean all of the shares
--------------
described in the recitals to this Agreement and any other shares identified as
Pledged Shares on Schedule A attached hereto (or any addendum thereto).
"Pledgor" shall have the meaning ascribed thereto in
-------
the preamble to this Agreement.
"Proceeds" shall mean all proceeds (including proceeds
--------
of proceeds) of the Pledged Shares and Future Rights including all: (a) rights,
benefits, distributions, premiums, profits, dividends, interest, cash,
instruments, documents of title, accounts, contract rights, inventory,
equipment, general intangibles, deposit accounts, chattel paper, and other
property from time to time received, receivable, or otherwise distributed in
respect of or in exchange for, or as a replacement of or a substitution for, any
of the Pledged Shares, Future Rights, or proceeds thereof (including any cash,
stock, or other securities or instruments issued after any recapitalization,
readjustment, reclassification, merger or consolidation with respect to the
Issuers and any claims against financial intermediaries under (S)8-313(2) of the
Code or otherwise); (b) "proceeds," as such term is used in (S)9-306 of the
Code; (c) proceeds of any insurance, indemnity, warranty, or guaranty (including
guaranties of delivery) payable from time to time with respect to any
2
of the Pledged Shares, Future Rights, or proceeds thereof; (d) payments (in any
form whatsoever) made or due and payable to Pledgor from time to time in
connection with any requisition, confiscation, condemnation, seizure or
forfeiture of all or any part of the Pledged Shares, Future Rights, or proceeds
thereof; and (e) other amounts from time to time paid or payable under or in
connection with any of the Pledged Shares, Future Rights, or proceeds thereof.
"Secured Obligations" shall mean all liabilities,
-------------------
obligations, or undertakings owing by Borrower to Secured Party of any kind or
description arising out of or outstanding under, advanced or issued pursuant to,
or evidenced by the Loan Agreement, the other Loan Documents, or this Agreement,
irrespective of whether for the payment of money, whether direct or indirect,
absolute or contingent, due or to become due, voluntary or involuntary, whether
now existing or hereafter arising, and including all interest (including
interest that accrues after the filing of a case under the Bankruptcy Code) and
any and all costs, fees (including attorneys fees), and expenses which Borrower
is required to pay pursuant to any of the foregoing, by law, or otherwise.
"Secured Party" shall have the meaning ascribed
-------------
thereto in the preamble to this Agreement, together with its successors or
assigns.
"Securities Act" shall have the meaning ascribed
--------------
thereto in Section 9(c) of this Agreement.
(b) Construction.
------------
(i) Unless the context of this Agreement clearly
requires otherwise, references to the plural include the singular and to the
singular include the plural, the part includes the whole, the term "including"
is not limiting, and the term "or" has, except where otherwise indicated, the
inclusive meaning represented by the phrase "and/or." The words "hereof,"
"herein," "hereby," "hereunder," and other similar terms in this Agreement refer
to this Agreement as a whole and not exclusively to any particular provision of
this Agreement. Article, section, subsection, exhibit, and schedule references
are to this Agreement unless otherwise specified. All of the exhibits or
schedules attached to this Agreement shall be deemed incorporated herein by
reference. Any reference to any of the following documents includes any and all
alterations, amendments, restatements, extensions, modifications, renewals, or
supplements thereto or thereof, as applicable: this Agreement, the Loan
Agreement, or any of the other Loan Documents.
(ii) Neither this Agreement nor any uncertainty or
ambiguity herein shall be construed or resolved against Secured Party or
Pledgor, whether under any rule of construction or otherwise. On the contrary,
this Agreement has been reviewed by both of the parties and their respective
counsel and shall be construed and
3
interpreted according to the ordinary meaning of the words used so as to fairly
accomplish the purposes and intentions of the parties hereto.
(iii) In the event of any direct conflict between
the express terms and provisions of this Agreement and of the Loan Agreement,
the terms and provisions of the Loan Agreement shall control.
2. Pledge. As security for the prompt payment and performance of
------
the Secured Obligations in full by Borrower when due, whether at stated
maturity, by acceleration or otherwise (including amounts that would become due
but for the operation of the provisions of the Bankruptcy Code), Pledgor hereby
pledges, grants, transfers, and assigns to Secured Party a security interest in
all of Pledgor's right, title, and interest in and to the Collateral.
3. Delivery and Registration of Collateral.
---------------------------------------
(a) All certificates or instruments representing or
evidencing the Collateral shall be promptly delivered by Pledgor to Secured
Party or Secured Party's designee pursuant hereto at a location designated by
Secured Party and shall be held by or on behalf of Secured Party pursuant
hereto, and shall be in suitable form for transfer by delivery, or shall be
accompanied by duly executed instruments of transfer or assignment in blank, all
in form and substance satisfactory to Secured Party.
(b) After the occurrence and during the continuance of an
Event of Default, Secured Party shall have the right, at any time in its
discretion and without notice to Pledgor, to transfer to or to register on the
books of the Issuers (or of any other Person maintaining records with respect to
the Collateral) in the name of Secured Party or any of its nominees any or all
of the Collateral. In addition, Secured Party shall have the right at any time
to exchange certificates or instruments representing or evidencing Collateral
for certificates or instruments of smaller or larger denominations.
(c) If, at any time and from time to time, any Collateral
(including any certificate or instrument representing or evidencing any
Collateral) is in the possession of a Person other than Secured Party or Pledgor
(a "Holder") (except as may be the result of actions taken by Secured Party),
then Pledgor shall immediately, at Secured Party's option, either cause such
Collateral to be delivered into Secured Party's possession, or execute and
deliver to such Holder a written notification/instruction, and take all other
steps necessary to perfect the security interest of Secured Party in such
Collateral, including obtaining from such Holder a written acknowledgement that
such Holder holds such Collateral for Secured Party, all pursuant to (S)(S)8-313
and 8-321 of the Code or other applicable law governing the perfection of
Secured Party's security interest in the Collateral in the possession of such
Holder. Each such notification/instruction and acknowledgement shall be in form
and substance satisfactory to Secured Party.
4
(d) Any and all Collateral (including dividends, interest,
and other cash distributions) at any time received or held by Pledgor shall be
so received or held in trust for Secured Party, shall be segregated from other
funds and property of Pledgor and shall be forthwith delivered to Secured Party
in the same form as so received or held, with any necessary endorsements;
provided that cash dividends or distributions received by Pledgor, if and to the
extent they are not prohibited by the Loan Agreement, may be retained by Pledgor
in accordance with Section 4 and used in the ordinary course of Pledgor's
---------
business.
(e) If at any time and from time to time any Collateral
consists of an uncertificated security or a security in book entry form, then
Pledgor shall immediately cause such Collateral to be registered or entered, as
the case may be, in the name of Secured Party, or otherwise cause Secured
Party's security interest thereon to be perfected in accordance with applicable
law.
4. Voting Rights and Dividends.
---------------------------
(a) So long as no Event of Default shall have occurred and
be continuing, Pledgor shall be entitled to exercise any and all voting and
other consensual rights pertaining to the Collateral or any part thereof for any
purpose not inconsistent with the terms of the Loan Documents and, subject to
the Loan Agreement, shall be entitled to receive and retain any cash dividends
or distributions paid in respect of the Collateral.
(b) Upon the occurrence and during the continuance of an
Event of Default, all rights of Pledgor to exercise the voting and other
consensual rights or receive and retain cash dividends or distributions that it
would otherwise be entitled to exercise or receive and retain, as applicable
pursuant to Section 4(a), shall cease, and all such rights shall thereupon
------------
become vested in Secured Party, who shall thereupon have the sole right to
exercise such voting or other consensual rights and to receive and retain such
cash dividends and distributions. Pledgor shall execute and deliver (or cause to
be executed and delivered) to Secured Party all such proxies and other
instruments as Secured Party may reasonably request for the purpose of enabling
Secured Party to exercise the voting and other rights which it is entitled to
exercise and to receive the dividends and distributions that it is entitled to
receive and retain pursuant to the preceding sentence.
5. Representations and Warranties. Pledgor represents, warrants,
------------------------------
and covenants as follows:
(a) Pledgor has taken all steps it deems necessary or
appropriate to be informed on a continuing basis of changes or potential changes
affecting the Collateral (including rights of conversion and exchange, rights to
subscribe, payment of dividends, reorganizations or recapitalization, tender
offers and voting rights), and Pledgor agrees that Secured Party shall have no
responsibility or liability for informing Pledgor of
5
any such changes or potential changes or for taking any action or omitting to
take any action with respect thereto;
(b) All information herein or hereafter supplied to Secured
Party by or on behalf of Pledgor in writing with respect to the Collateral is,
or in the case of information hereafter supplied will be, accurate and complete
in all material respects;
(c) Pledgor is and will be the sole legal and beneficial
owner of the Collateral (including the Pledged Shares and all other Collateral
acquired by Pledgor after the date hereof) free and clear of any adverse claim,
Lien, or other right, title, or interest of any party (other than the Lien in
favor of Secured Party);
(d) This Agreement, and the delivery to Secured Party of the
Pledged Shares representing Collateral (or the delivery to all Holders of the
Pledged Shares representing Collateral of the notification/instruction referred
to in Section 3 of this Agreement), creates a valid, perfected, and first
---------
priority security interest in one hundred percent (100%) of the Pledged Shares
in favor of Secured Party securing payment of the Secured Obligations, and all
actions necessary to achieve such perfection have been duly taken;
(e) Schedule A to this Agreement is true and correct and
----------
complete in all material respects; without limiting the generality of the
foregoing: (i) all the Pledged Shares are in certificated form, and, except to
the extent registered in the name of Secured Party or its nominee pursuant to
the provisions of this Agreement, are registered in the name of Pledgor; and
(ii) the Pledged Shares as to each of the Issuers constitute at least the
percentage of all the fully diluted issued and outstanding shares of stock of
such Issuer as set forth in Schedule A to this Agreement;
(f) There are no presently existing Future Rights or
Proceeds owned by Pledgor, except as set forth in Schedule B hereto;
----------
(g) The Pledged Shares have been duly authorized and validly
issued and are fully paid and nonassessable; and
(h) Neither the pledge of the Collateral pursuant to this
Agreement nor the extensions of credit represented by the Secured Obligations
violates Regulation G, T, U or X of the Board of Governors of the Federal
Reserve System.
6. Further Assurances.
------------------
(a) Pledgor agrees that from time to time, at the expense of
Pledgor, Pledgor will promptly execute and deliver all further instruments and
documents, and take all further action that may be necessary or reasonably
desirable, or that Secured Party may reasonably request, in order to perfect and
protect any security interest granted
6
or purported to be granted hereby or to enable Secured Party to exercise and
enforce its rights and remedies hereunder with respect to any Collateral.
Without limiting the generality of the foregoing, Pledgor will: (i) at the
request of Secured Party, ▇▇▇▇ conspicuously each of its records pertaining to
the Collateral with a legend, in form and substance reasonably satisfactory to
Secured Party, indicating that such Collateral is subject to the security
interest granted hereby; (ii) execute and file such financing or continuation
statements, or amendments thereto, and such other instruments or notices, as may
be reasonably necessary, or as Secured Party may reasonably request, in order to
perfect and preserve the security interests granted or purported to be granted
hereby; and (iii) appear in and defend any action or proceeding that may affect
Pledgor's title to or Secured Party's security interest in the Collateral.
(b) Pledgor hereby authorizes Secured Party to file one or
more financing or continuation statements, and amendments thereto, relative to
all or any part of the Collateral without the signature of Pledgor where
permitted by law. A carbon, photographic, or other reproduction of this
Agreement or any financing statement covering the Collateral or any part thereof
shall be sufficient as a financing statement where permitted by law.
(c) Pledgor will furnish to Secured Party, upon the
reasonable request of Secured Party: (i) a certificate executed by an authorized
officer of Pledgor, and dated as of the date of delivery to Secured Party,
itemizing in such detail as Secured Party may request, the Collateral which, as
of the date of such certificate, has been delivered to Secured Party by Pledgor
pursuant to the provisions of this Agreement; and (ii) such statements and
schedules further identifying and describing the Collateral and such other
reports in connection with the Collateral as Secured Party may request.
7. Covenants of Pledgor. Pledgor shall:
--------------------
(a) Perform each and every covenant in the Loan Documents
applicable to Pledgor;
(b) To the extent it may lawfully do so, use its best
efforts to prevent the Issuers from issuing Future Rights or Proceeds, except
for cash dividends and other distributions, if any, that are not prohibited by
the terms of the Loan Agreement to be paid by any Issuer to Pledgor; and
(c) Upon receipt by Pledgor of any material notice, report,
or other communication from any of the Issuers or any Holder relating to all or
any part of the Collateral, deliver such notice, report or other communication
to Secured Party as soon as possible, but in no event later than five (5) days
following the receipt thereof by Pledgor.
8. Secured Party as Pledgor's Attorney-in-Fact.
-------------------------------------------
7
(a) Pledgor hereby irrevocably appoints Secured Party as
Pledgor's attorney-in-fact, with full authority in the place and stead of
Pledgor and in the name of Pledgor, Secured Party or otherwise, from time to
time at Secured Party's discretion, to take any action and to execute any
instrument that Secured Party may reasonably deem necessary or advisable to
accomplish the purposes of this Agreement, including: (i) after the occurrence
and during the continuance of an Event of Default, to receive, endorse, and
collect all instruments made payable to Pledgor representing any dividend,
interest payment or other distribution in respect of the Collateral or any part
thereof to the extent permitted hereunder and to give full discharge for the
same and to execute and file governmental notifications and reporting forms;
(ii) to issue any notifications/instructions Secured Party deems necessary
pursuant to Section 3 of this Agreement; or (iii) to arrange for the transfer of
---------
the Collateral on the books of any of the Issuers or any other Person to the
name of Secured Party or to the name of Secured Party's nominee.
(b) In addition to the designation of Secured Party as
Pledgor's attorney-in-fact in subsection (a), Pledgor hereby irrevocably
--------------
appoints Secured Party as Pledgor's agent and attorney-in-fact to make, execute
and deliver any and all documents and writings which may be necessary or
appropriate for approval of, or be required by, any regulatory authority located
in any city, county, state or country where Pledgor or any of the Issuers engage
in business, in order to transfer or to more effectively transfer any of the
Pledged Shares or otherwise enforce Secured Party's rights hereunder.
9. Remedies upon Default. Upon the occurrence and during the
---------------------
continuance of an Event of Default:
(a) Secured Party may exercise in respect of the Collateral,
in addition to other rights and remedies provided for herein or otherwise
available to it, all the rights and remedies of a secured party on default under
the Code (irrespective of whether the Code applies to the affected items of
Collateral), and Secured Party may also without notice (except as specified
below) sell the Collateral or any part thereof in one or more parcels at public
or private sale, at any exchange, broker's board or at any of Secured Party's
offices or elsewhere, for cash, on credit or for future delivery, at such time
or times and at such price or prices and upon such other terms as Secured Party
may deem commercially reasonable, irrespective of the impact of any such sales
on the market price of the Collateral. To the maximum extent permitted by
applicable law, Secured Party may be the purchaser of any or all of the
Collateral at any such sale and shall be entitled, for the purpose of bidding
and making settlement or payment of the purchase price for all or any portion of
the Collateral sold at any such public sale, to use and apply all or any part of
the Secured Obligations as a credit on account of the purchase price of any
Collateral payable at such sale. Each purchaser at any such sale shall hold the
property sold absolutely free from any claim or right on the part of Pledgor,
and Pledgor hereby waives (to the extent permitted by law) all rights of
redemption, stay, or appraisal that it now has or may at any time in the future
have under any rule of law or statute now existing or hereafter enacted. Pledgor
agrees that, to the extent notice of sale shall be required by
8
law, at least ten (10) calendar days notice to Pledgor of the time and place of
any public sale or the time after which a private sale is to be made shall
constitute reasonable notification. Secured Party shall not be obligated to make
any sale of Collateral regardless of notice of sale having been given. Secured
Party may adjourn any public or private sale from time to time by announcement
at the time and place fixed therefor, and such sale may, without further notice,
be made at the time and place to which it was so adjourned. To the maximum
extent permitted by law, Pledgor hereby waives any claims against Secured Party
arising because the price at which any Collateral may have been sold at such a
private sale was less than the price that might have been obtained at a public
sale, even if Secured Party accepts the first offer received and does not offer
such Collateral to more than one offeree.
(b) Pledgor hereby agrees that any sale or other disposition
of the Collateral conducted in conformity with reasonable commercial practices
of banks, insurance companies, or other financial institutions in the City of
Los Angeles, California in disposing of property similar to the Collateral shall
be deemed to be commercially reasonable.
(c) Pledgor hereby acknowledges that the sale by Secured
Party of any Collateral pursuant to the terms hereof in compliance with the
Securities Act of 1933 as now in effect or as hereafter amended, or any similar
statute hereafter adopted with similar purpose or effect (the "Securities Act"),
as well as applicable "Blue Sky" or other state securities laws may require
strict limitations as to the manner in which Secured Party or any subsequent
transferee of the Collateral may dispose thereof. Pledgor acknowledges and
agrees that in order to protect Secured Party's interest it may be necessary to
sell the Collateral at a price less than the maximum price attainable if a sale
were delayed or were made in another manner, such as a public offering under the
Securities Act. Pledgor has no objection to sale in such a manner and agrees
that Secured Party shall have no obligation to obtain the maximum possible price
for the Collateral. Without limiting the generality of the foregoing, Pledgor
agrees that, upon the occurrence and during the continuation of an Event of
Default, Secured Party may, subject to applicable law, from time to time attempt
to sell all or any part of the Collateral by a private placement, restricting
the bidders and prospective purchasers to those who will represent and agree
that they are purchasing for investment only and not for distribution. In so
doing, Secured Party may solicit offers to buy the Collateral or any part
thereof for cash, from a limited number of investors deemed by Secured Party, in
its reasonable judgment, to be institutional investors or other responsible
parties who might be interested in purchasing the Collateral. If Secured Party
shall solicit such offers, then the acceptance by Secured Party of one of the
offers shall be deemed to be a commercially reasonable method of disposition of
the Collateral.
(d) If Secured Party shall determine to exercise its right
to sell all or any portion of the Collateral pursuant to this Section, Pledgor
agrees that, upon request of Secured Party, Pledgor will, at its own expense:
9
(i) use its best efforts to execute and deliver,
and cause the Issuers and the directors and officers thereof to execute and
deliver, all such instruments and documents, and to do or cause to be done all
such other acts and things, as may be necessary or, in the opinion of Secured
Party, advisable to register such Collateral under the provisions of the
Securities Act, and to cause the registration statement relating thereto to
become effective and to remain effective for such period as prospectuses are
required by law to be furnished, and to make all amendments and supplements
thereto and to the related prospectuses which, in the opinion of Secured Party,
are necessary or advisable, all in conformity with the requirements of the
Securities Act and the rules and regulations of the Securities and Exchange
Commission applicable thereto;
(ii) use its best efforts to qualify the Collateral
under the state securities laws or "Blue Sky" laws and to obtain all necessary
governmental approvals for the sale of the Collateral, as requested by Secured
Party;
(iii) cause the Issuers to make available to their
respective security holders, as soon as practicable, an earnings statement which
will satisfy the provisions of Section 11(a) of the Securities Act;
(iv) execute and deliver, or cause the officers and
directors of the Issuers to execute and deliver, to any person, entity or
governmental authority as Secured Party may choose, any and all documents and
writings which, in Secured Party's reasonable judgment, may be necessary or
appropriate for approval, or be required by, any regulatory authority located in
any city, county, state or country where Pledgor or the Issuers engage in
business, in order to transfer or to more effectively transfer the Pledged
Shares or otherwise enforce Secured Party's rights hereunder; and
(v) do or cause to be done all such other acts and
things as may be necessary to make such sale of the Collateral or any part
thereof valid and binding and in compliance with applicable law.
Pledgor acknowledges that there is no adequate remedy at law for failure by it
to comply with the provisions of this Section and that such failure would not be
adequately compensable in damages, and therefore agrees that its agreements
contained in this Section may be specifically enforced.
(e) PLEDGOR EXPRESSLY WAIVES TO THE MAXIMUM EXTENT PERMITTED
BY LAW: (i) ANY CONSTITUTIONAL OR OTHER RIGHT TO A JUDICIAL HEARING PRIOR TO THE
TIME SECURED PARTY DISPOSES OF ALL OR ANY PART OF THE COLLATERAL AS PROVIDED IN
THIS SECTION; (ii) ALL RIGHTS OF REDEMPTION, STAY, OR APPRAISAL THAT IT NOW HAS
OR MAY AT ANY TIME IN THE FUTURE HAVE UNDER ANY RULE OF LAW OR STATUTE NOW
EXISTING OR HEREAFTER ENACTED;
10
AND (iii) EXCEPT AS SET FORTH IN SUBSECTION (a) OF THIS SECTION, ANY REQUIREMENT
OF NOTICE, DEMAND, OR ADVERTISEMENT FOR SALE.
10. Application of Proceeds. After the occurrence and during the
-----------------------
continuance of an Event of Default, any cash held by Secured Party as Collateral
and all cash proceeds received by Secured Party in respect of any sale of,
collection from, or other realization upon all or any part of the Collateral
pursuant to the exercise by Secured Party of its remedies as a secured creditor
as provided in Section 9 shall be applied from time to time by Secured Party as
---------
provided in the Loan Agreement.
11. Duties of Secured Party. The powers conferred on Secured Party
-----------------------
hereunder are solely to protect its interests in the Collateral and shall not
impose on it any duty to exercise such powers. Except as provided in Section 9-
207 of the Code, Secured Party shall have no duty with respect to the Collateral
or any responsibility for taking any necessary steps to preserve rights against
any Persons with respect to any Collateral.
12. Choice of Law and Venue. THE VALIDITY OF THIS AGREEMENT, ITS
-----------------------
CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT, AND THE RIGHTS OF THE PARTIES
HERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF CALIFORNIA. THE PARTIES AGREE THAT ALL ACTIONS OR
PROCEEDINGS ARISING IN CONNECTION WITH THIS AGREEMENT SHALL BE TRIED AND
LITIGATED ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF LOS
ANGELES, STATE OF CALIFORNIA OR, AT THE SOLE OPTION OF SECURED PARTY, IN ANY
OTHER COURT IN WHICH SECURED PARTY SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS
AND WHICH HAS SUBJECT MATTER JURISDICTION OVER THE MATTER IN CONTROVERSY. EACH
OF PLEDGOR AND SECURED PARTY WAIVES, TO THE EXTENT PERMITTED UNDER APPLICABLE
LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR
TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH
THIS SECTION 12.
----------
13. Amendments; Etc. No amendment or waiver of any provision of
---------------
this Agreement nor consent to any departure by Pledgor herefrom shall in any
event be effective unless the same shall be in writing and signed by Secured
Party, and then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given. No failure on the part of
Secured Party to exercise, and no delay in exercising any right under this
Agreement, any other Loan Document, or otherwise with respect to any of the
Secured Obligations, shall operate as a waiver thereof; nor shall any single or
partial exercise of any right under this Agreement, any other Loan Document, or
otherwise with respect to any of the Secured Obligations preclude any other or
further exercise thereof or the exercise of any other right. The remedies
provided for in this
11
Agreement or otherwise with respect to any of the Secured Obligations are
cumulative and not exclusive of any remedies provided by law.
14. Notices. Unless otherwise specifically provided herein, any
-------
notice or other communication herein required or permitted to be given shall be
in writing and shall be delivered in the manner set forth in the Loan Agreement.
15. Continuing Security Interest. This Agreement shall create a
----------------------------
continuing security interest in the Collateral and shall: (i) remain in full
force and effect until the indefeasible payment in full of the Secured
Obligations, including the cash collateralization, expiration, or cancellation
of all Secured Obligations, if any, consisting of letters of credit, and the
full and final termination of any commitment to extend any financial
accommodations under the Loan Agreement; (ii) be binding upon Pledgor and its
successors and assigns; and (iii) inure to the benefit of Secured Party and its
successors, transferees, and assigns. Upon the indefeasible payment in full of
the Secured Obligations, including the cash collateralization, expiration, or
cancellation of all Secured Obligations, if any, consisting of letters of
credit, and the full and final termination of any commitment to extend any
financial accommodations under the Loan Agreement, the security interests
granted herein shall automatically terminate and all rights to the Collateral
shall revert to Pledgor. Upon any such termination, Secured Party will, at
Pledgor's expense, execute and deliver to Pledgor such documents as Pledgor
shall reasonably request to evidence such termination. Such documents shall be
prepared by Pledgor and shall be in form and substance reasonably satisfactory
to Secured Party.
16. Security Interest Absolute. To the maximum extent permitted by
--------------------------
law, all rights of Secured Party, all security interests hereunder, and all
obligations of Pledgor hereunder, shall be absolute and unconditional
irrespective of:
(a) any lack of validity or enforceability of any of the
Secured Obligations or any other agreement or instrument relating thereto,
including any of the Loan Documents;
(b) any change in the time, manner, or place of payment of,
or in any other term of, all or any of the Secured Obligations, or any other
amendment or waiver of or any consent to any departure from any of the Loan
Documents, or any other agreement or instrument relating thereto;
(c) any exchange, release, or non-perfection of any other
collateral, or any release or amendment or waiver of or consent to departure
from any guaranty for all or any of the Secured Obligations; or
(d) any other circumstances that might otherwise constitute
a defense available to, or a discharge of, Pledgor.
12
To the maximum extent permitted by law, Pledgor hereby waives any right to
require Secured Party to: (A) proceed against or exhaust any security held from
Pledgor; or (B) pursue any other remedy in Secured Party's power whatsoever.
17. Headings. Section and subsection headings in this Agreement are
--------
included herein for convenience of reference only and shall not constitute a
part of this Agreement or be given any substantive effect.
18. Severability. In case any provision in or obligation under this
------------
Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the
validity, legality and enforceability of the remaining provisions or
obligations, or of such provision or obligation in any other jurisdiction, shall
not in any way be affected or impaired thereby.
19. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same Agreement.
20. Waiver of Marshaling. Each of Pledgor and Secured Party
--------------------
acknowledges and agrees that in exercising any rights under or with respect to
the Collateral: (i) Secured Party is under no obligation to marshal any
Collateral; (ii) may, in its absolute discretion, realize upon the Collateral in
any order and in any manner it so elects; and (iii) may, in its absolute
discretion, apply the proceeds of any or all of the Collateral to the Secured
Obligations in any order and in any manner it so elects. Pledgor and Secured
Party waive any right to require the marshaling of any of the Collateral.
21. Waiver of Jury Trial. PLEDGOR AND SECURED PARTY HEREBY WAIVE
--------------------
THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED
UPON OR ARISING OUT OF THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED
HEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL
OTHER COMMON LAW OR STATUTORY CLAIMS. PLEDGOR AND SECURED PARTY REPRESENT THAT
EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY
TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF
LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A
TRIAL BY THE COURT.
13
IN WITNESS WHEREOF, Pledgor and Secured Party have caused this
Agreement to be duly executed and delivered by their officers thereunto duly
authorized as of the date first written above.
FOOTHILL CAPITAL QMS, INC.,
CORPORATION, a Delaware corporation
a California corporation
By By
---------------------------------- ---------------------------------
Title: Title:
14
SCHEDULE A
----------
TO
STOCK PLEDGE AGREEMENT
----------------------
Pledgor: QMS, Inc., a Delaware corporation
Pledged Shares
--------------
Former Name, if Pledgor's
Number of Certificate any, in which Percentage Jurisdiction of
Issuer Shares Class Number(s) Certificate Issued Ownership Incorporation
----- --------- ------ --------- ------------------ ---------- ---------------
Circuits 100 common 2 Quality Circuits, 100% Delaware
Canada 90,250 Class A common 1A, 2A, and 3A 100% Canada
SCHEDULE B
----------
TO
STOCK PLEDGE AGREEMENT
----------------------
EXISTING FUTURE RIGHTS AND PROCEEDS: NONE.
TERM NOTE A
$1,750,000 Los Angeles, California
November 7, 1995
FOR VALUE RECEIVED, QMS, INC., a Delaware corporation ("Maker")
hereby promises to pay to FOOTHILL CAPITAL CORPORATION, a California corporation
("Foothill"), or order, at ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇, or at such other address as the holder may
specify in writing, the principal sum of One Million Seven Hundred Fifty
Thousand and 00/100 Dollars ($1,750,000.00), plus interest in the manner and
upon the terms and conditions set forth below. This Term Note A ("Note") is made
pursuant to the terms and conditions of that certain Loan and Security Agreement
(the "Loan Agreement"), dated as of November 7, 1995, between Maker and
Foothill, the provisions of which are incorporated herein by this reference. All
capitalized terms used herein, unless otherwise defined herein, shall have the
meanings ascribed to them in the Loan Agreement.
1. Rate and Payment of Interest.
----------------------------
The principal balance of this Note shall bear interest at the
applicable rates set forth in, and shall be payable in accordance with the terms
of, Section 2.5 of the Loan Agreement.
2. Schedule of Principal Payments
------------------------------
The principal balance of this shall be due and payable in the
amounts, at the times, and in the manner set forth in Section 2.3(a) of the Loan
Agreement.
3. Holder's Right of Acceleration
------------------------------
Anything herein to the contrary notwithstanding, upon the
termination of the Loan Agreement or upon the occurrence of an Event of Default
thereunder, then the entire unpaid principal balance of this Note, together with
all accrued but unpaid interest and all Foothill Expenses, shall become due and
payable on the effective date of such termination without presentment, notice,
or demand of any kind unless expressly required under the Loan Agreement.
1
4. Additional Rights of Holder
---------------------------
If any installment of principal or interest hereunder is not
paid when due, the holder shall have, in addition to the rights set forth
herein, in the Loan Agreement, and under law, the right to compound interest by
adding the unpaid interest to principal, with such amount thereafter bearing
interest at the rate then applicable under this Note.
5. General Provisions
------------------
(i) If this Note is not paid when due, Maker further promises
to pay all reasonable costs of collection incurred by the holder hereof,
including foreclosure fees, reasonable attorneys fees (irrespective of whether
suit is filed hereon), and any other fees, costs, and expenses provided for in
the Loan Agreement;
(ii) Maker hereby consents to any and all renewals,
replacements, and/or extensions of time for payment of this Note before, at, or
after maturity;
(iii) Maker hereby consents to the acceptance, release, or
substitution of security for this Note;
(iv) Presentment for payment, demand, notice of dishonor,
protest, and notice of protest are hereby expressly waived;
(v) No delay or omission on the part of the holder of this Note
in exercising any right shall operate as a waiver thereof or of any other right;
(vi) A waiver by the holder of this Note upon any one occasion
shall not be construed as a bar or waiver of any right or remedy on any future
occasion;
(vii) Should any one or more of the provisions of this Note be
determined illegal or unenforceable, such provision shall be severed and all
other provisions shall nevertheless remain effective;
(viii) Each person or entity composing Maker hereby waives any
defenses they might have based upon suretyship or impairment of collateral, such
waiver being intended to be a waiver contemplated by Section 3605(i) of the
Commercial Code;
(ix) This Note cannot be changed, modified, amended, or
terminated orally. A waiver of any rights by the holder of this Note is neither
valid nor effective unless made in writing and signed by the holder of this
Note; and
(x) The validity of this Note, its construction,
interpretation, and enforcement, and the rights of the parties hereto shall be
determined under, governed by, and construed in accordance with the laws of the
2
State of California; provided, however, that California Code of Civil Procedure
(S)(S) 580a, 580b, 580c, 580d, and 726, and Chapter 2 of Title 14 of the
California Civil Code shall apply only to real property located in the State of
California, and the applicable laws of a state other than California shall apply
to real property located in such other state. The parties agree that all actions
or proceedings arising in connection with this Note shall be tried and litigated
only in the state and federal courts located in the County of Los Angeles, State
of California or, at the sole option of Foothill, in any other court in which
Foothill shall initiate legal or equitable proceedings and which has subject
matter jurisdiction over the matter in controversy.
6. Security For The Note
---------------------
This Note is secured by, among other things, the security
interest granted by Maker to Foothill under the Loan Agreement in the
"Collateral" described in the Loan Agreement and is subject to all of the terms
and conditions thereof and of the other applicable Loan Documents, including,
but not limited to, the remedies specified therein.
IN WITNESS WHEREOF, this Note has been executed and delivered on the
date first set forth above.
QMS, INC.,
a Delaware corporation
By
-------------------------------
Title:
---------------------------
3
TERM NOTE B
$5,000,000 Los Angeles, California
__________, 199__
FOR VALUE RECEIVED, QMS, INC., a Delaware corporation ("Maker")
hereby promises to pay to FOOTHILL CAPITAL CORPORATION, a California corporation
("Foothill"), or order, at ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇, or at such other address as the holder may
specify in writing, the principal sum of Five Million and 00/100 Dollars
($5,000,000.00), plus interest in the manner and upon the terms and conditions
set forth below. This Term Note B ("Note") is made pursuant to the terms and
conditions of that certain Loan and Security Agreement (the "Loan Agreement"),
dated as of November 7, 1995, between Maker and Foothill, the provisions of
which are incorporated herein by this reference. All capitalized terms used
herein, unless otherwise defined herein, shall have the meanings ascribed to
them in the Loan Agreement.
1. Rate and Payment of Interest.
----------------------------
The principal balance of this Note shall bear interest at the
applicable rates set forth in, and shall be payable in accordance with the terms
of, Section 2.5 of the Loan Agreement.
2. Schedule of Principal Payments
------------------------------
The principal balance of this shall be due and payable in the
amounts, at the times, and in the manner set forth in Section 2.3(b) of the Loan
Agreement.
3. Holder's Right of Acceleration
------------------------------
Anything herein to the contrary notwithstanding, upon the
termination of the Loan Agreement or upon the occurrence of an Event of Default
thereunder, then the entire unpaid principal balance of this Note, together with
all accrued but unpaid interest and all Foothill Expenses, shall become due and
payable on the effective date of such termination without presentment, notice,
or demand of any kind unless expressly required under the Loan Agreement.
1
4. Additional Rights of Holder
---------------------------
If any installment of principal or interest hereunder is not
paid when due, the holder shall have, in addition to the rights set forth
herein, in the Loan Agreement, and under law, the right to compound interest by
adding the unpaid interest to principal, with such amount thereafter bearing
interest at the rate then applicable under this Note.
5. General Provisions
------------------
(i) If this Note is not paid when due, Maker further promises
to pay all reasonable costs of collection incurred by the holder hereof,
including foreclosure fees, reasonable attorneys fees (irrespective of whether
suit is filed hereon), and any other fees, costs, and expenses provided for in
the Loan Agreement;
(ii) Maker hereby consents to any and all renewals,
replacements, and/or extensions of time for payment of this Note before, at, or
after maturity;
(iii) Maker hereby consents to the acceptance, release, or
substitution of security for this Note;
(iv) Presentment for payment, demand, notice of dishonor,
protest, and notice of protest are hereby expressly waived;
(v) No delay or omission on the part of the holder of this Note
in exercising any right shall operate as a waiver thereof or of any other right;
(vi) A waiver by the holder of this Note upon any one occasion
shall not be construed as a bar or waiver of any right or remedy on any future
occasion;
(vii) Should any one or more of the provisions of this Note be
determined illegal or unenforceable, such provision shall be severed and all
other provisions shall nevertheless remain effective;
(viii) Each person or entity composing Maker hereby waives any
defenses they might have based upon suretyship or impairment of collateral, such
waiver being intended to be a waiver contemplated by Section 3605(i) of the
Commercial Code;
(ix) This Note cannot be changed, modified, amended, or
terminated orally. A waiver of any rights by the holder of this Note is neither
valid nor effective unless made in writing and signed by the holder of this
Note; and
(x) The validity of this Note, its construction,
interpretation, and enforcement, and the rights of the parties hereto shall be
2
determined under, governed by, and construed in accordance with the laws of the
State of California; provided, however, that California Code of Civil Procedure
-----------------
(S)(S) 580a, 580b, 580c, 580d, and 726, and Chapter 2 of Title 14 of the
California Civil Code shall apply only to real property located in the State of
California, and the applicable laws of a state other than California shall apply
to real property located in such other state. The parties agree that all actions
or proceedings arising in connection with this Note shall be tried and litigated
only in the state and federal courts located in the County of Los Angeles, State
of California or, at the sole option of Foothill, in any other court in which
Foothill shall initiate legal or equitable proceedings and which has subject
matter jurisdiction over the matter in controversy.
6. Security For The Note
---------------------
This Note is secured by, among other things, the security
interest granted by Maker to Foothill under the Loan Agreement in the
"Collateral" described in the Loan Agreement and is subject to all of the terms
and conditions thereof and of the other applicable Loan Documents, including,
but not limited to, the remedies specified therein.
IN WITNESS WHEREOF, this Note has been executed and delivered on the
date first set forth above.
QMS, INC.,
a Delaware corporation
By
------------------------------
Title:
--------------------------
3
TRADEMARK SECURITY AGREEMENT
----------------------------
THIS TRADEMARK SECURITY AGREEMENT (this "Agreement"),
dated as of November 7, 1995, is made by QMS, INC., a Delaware corporation
("Debtor"), in favor of FOOTHILL CAPITAL CORPORATION, a California
corporation ("Secured Party").
RECITALS
--------
A. Debtor and Secured Party have entered into that certain Loan and
Security Agreement, dated as of the date hereof (as amended, restated, modified,
renewed or extended from time to time, the "Loan Agreement"), pursuant to which
Secured Party has agreed to make certain financial accommodations to Debtor and
Debtor has granted to Secured Party a security interest in (among other things)
all of Debtor's general intangibles.
B. Pursuant to the Loan Agreement and as one of the conditions
precedent to the obligations of Secured Party under the Loan Agreement, Debtor
has agreed to execute and deliver this Agreement to Secured Party for filing
with the United States Patent and Trademark Office and with any other relevant
recording systems in any domestic or foreign jurisdiction, and as further
evidence of and to effectuate Secured Party's existing security interests in the
trademarks and other general intangibles described herein.
ASSIGNMENT
----------
NOW, THEREFORE, for valuable consideration, the receipt and
adequacy of which is hereby acknowledged, Debtor hereby agrees in favor of
Secured Party as follows:
1. Definitions; Interpretation.
---------------------------
(a) Certain Defined Terms. As used in this Agreement, the
---------------------
following terms shall have the following meanings:
"Event of Default" shall have the meaning ascribed thereto in the
----------------
Loan Agreement.
1
"Lien" means any pledge, security interest, assignment, charge or
----
encum-brance, lien (statutory or other), or other preferential arrangement
(including any agreement to give any security interest).
"Proceeds" means whatever is receivable or received from or upon the
--------
sale, lease, license, collection, use, exchange or other disposition, whether
voluntary or involuntary, of any Trademark Collateral, including "proceeds" as
defined at California UCC Section 9306, all insurance proceeds and all proceeds
of proceeds. Proceeds shall include (i) any and all accounts, chattel paper,
instruments, general intangibles, cash and other proceeds, payable to or for the
account of Debtor, from time to time in respect of any of the Trademark
Collateral, (ii) any and all proceeds of any insurance, indemnity, warranty or
guaranty payable to or for the account of Debtor from time to time with respect
to any of the Trademark Collateral, (iii) any and all claims and payments (in
any form whatsoever) made or due and payable to Debtor from time to time in
connection with any requisition, confiscation, condemnation, seizure or
forfeiture of all or any part of the Trademark Collateral by any Person acting
under color of governmental authority, and (iv) any and all other amounts from
time to time paid or payable under or in connection with any of the Trademark
Collateral or for or on account of any damage or injury to or conversion of any
Trademark Collateral by any Person.
"PTO" means the United States Patent and Trademark Office and any
---
successor thereto.
"Secured Obligations" means all liabilities, obligations, or
-------------------
undertakings owing by Debtor to Secured Party of any kind or description arising
out of or outstanding under, advanced or issued pursuant to, or evidenced by the
Loan Agreement, the other Loan Documents, or this Agreement, irrespective of
whether for the payment of money, whether direct or indirect, absolute or
contingent, due or to become due, voluntary or involuntary, whether now existing
or hereafter arising, and including all interest (including interest that
accrues after the filing of a case under the Bankruptcy Code) and any and all
costs, fees (including attorneys fees), and expenses which Debtor is required to
pay pursuant to any of the foregoing, by law, or otherwise.
"Trademark Collateral" has the meaning set forth in Section 2.
--------------------
"Trademarks" has the meaning set forth in Section 2.
----------
"UCC" means the Uniform Commercial Code as in effect from time to
---
time in the State of California.
2
"United States" and "U.S." each mean the United States of America.
------------- ----
(b) Terms Defined in UCC. Where applicable and except as
--------------------
otherwise defined herein, terms used in this Agreement shall have the meanings
assigned to them in the UCC.
(c) Interpretation. In this Agreement, except to the extent
--------------
the context otherwise requires:
(i) Any reference to a Section or a Schedule is a
reference to a section hereof, or a schedule hereto, respectively, and to
a subsection or a clause is, unless otherwise stated, a reference to a
subsection or a clause of the Section or subsection in which the reference
appears.
(ii) The words "hereof," "herein," "hereto," "hereunder"
and the like mean and refer to this Agreement as a whole and not merely to
the specific Section, subsection, paragraph or clause in which the
respective word appears.
(iii) The meaning of defined terms shall be equally
applicable to both the singular and plural forms of the terms defined.
(iv) The words "including," "includes" and "include"
shall be deemed to be followed by the words "without limitation."
(v) References to agreements and other contractual
instruments shall be deemed to include all subsequent amendments and other
modifications thereto.
(vi) References to statutes or regulations are to be
construed as including all statutory and regulatory provisions
consolidating, amending or replacing the statute or regulation referred
to.
(vii) Any captions and headings are for convenience of
reference only and shall not affect the construction of this Agreement.
(viii) Capitalized words not otherwise defined herein
shall have the respective meanings assigned to them in the Loan Agreement.
(ix) In the event of a direct conflict between the terms
and provisions of this Agreement and the Loan Agreement, it is the intention of
the parties hereto that both such documents shall be read together and
3
construed, to the fullest extent possible, to be in concert with each other. In
the event of any actual, irreconcilable conflict that cannot be resolved as
aforesaid, the terms and provisions of the Loan Agreement shall control and
govern; provided, however, that the inclusion herein of additional obligations
on the part of Debtor and supplemental rights and remedies in favor of Secured
Party (whether under California law or applicable federal law), in each case in
respect of the Trademark Collateral, shall not be deemed a conflict in the Loan
Agreement.
2. Security Interest.
-----------------
(a) Assignment and Grant of Security Interest. To secure the
-----------------------------------------
Secured Obligations, Debtor hereby grants, assigns, transfers and conveys to
Secured Party a continuing security interest in all of Debtor's right, title and
interest in and to the following property, whether now existing or hereafter
acquired or arising and whether registered or unregistered (collectively, the
"Trademark Collateral"):
(i) all state (including common law), federal and
foreign trademarks, service marks and trade names, corporate names,
company names, business names, fictitious business names, trade styles,
trade dress, logos, other source or business identifiers, designs and
general intangibles of like nature, now existing or hereafter adopted or
acquired, together with and including all licenses therefor held by Debtor
(unless otherwise prohibited by any license or related licensing agreement
under circumstances where the granting of the security interest would have
the effect under applicable law of the termination or permitting
termination of the license for breach), and all registrations and
recordings thereof, and all applications filed or to be filed in
connection therewith, including registrations and applications in the PTO,
any State of the United States or any other country or any political
subdivision thereof, and all extensions or renewals thereof, including
without limitation any of the foregoing identified on Schedule A hereto
----------
(as the same may be amended, modified or supplemented from time to time),
and the right (but not the obligation) to register claims under any state
or federal trademark law or regulation or any trademark law or regulation
of any foreign country and to apply for, renew and extend any of the same,
to ▇▇▇ or bring opposition or cancellation proceedings in the name of
Debtor or in the name of Secured Party for past, present or future
infringe-ment or unconsented use thereof, and all rights arising therefrom
throughout the world (collectively, the "Trademarks");
4
(ii) all claims, causes of action and rights to ▇▇▇ for
past, present or future infringement or unconsented use of any Trademarks
and all rights arising therefrom and pertaining thereto;
(iii) all general intangibles related to or arising out of
any of the Trademarks and all the goodwill of Debtor's business symbolized
by the Trademarks or associated therewith; and
(iv) all products and Proceeds of any and all of the
foregoing.
(b) Continuing Security Interest. Debtor agrees that this
----------------------------
Agreement shall create a continuing security interest in the Trademark
Collateral which shall remain in effect until terminated in accordance with
Section 17.
(c) Incorporation into Loan Agreement. This Agreement shall be
---------------------------------
fully incorporated into the Loan Agreement and all understandings, agreements
and provisions contained in the Loan Agreement shall be fully incorporated into
this Agreement. Without limiting the foregoing, the Trademark Collateral
described in this Agreement shall constitute part of the Collateral in the Loan
Agreement.
3. Further Assurances; Appointment of Secured Party as Attorney-in-
----------------------------------------------------------------
Fact. Debtor at its expense shall execute and deliver, or cause to be executed
----
and delivered, to Secured Party any and all documents and instruments, in form
and substance satisfactory to Secured Party, and take any and all action, which
Secured Party may reasonably request from time to time, to perfect and continue
perfected, maintain the priority of or provide notice of Secured Party's
security interest in the Trademark Collateral and to accomplish the purposes of
this Agreement. Secured Party shall have the right, in the name of Debtor, or in
the name of Secured Party or otherwise, without notice to or assent by Debtor,
and Debtor hereby irrevocably consti-tutes and appoints Secured Party (and any
of Secured Party's officers or employees or agents designated by Secured Party)
as Debtor's true and lawful attorney-in-fact with full power and authority, (i)
to sign the name of Debtor on all or any of such documents or instruments and
perform all other acts that Secured Party deems necessary or advisable in order
to perfect or continue perfected, maintain the priority or enforceability of or
provide notice of Secured Party's security interest in, the Trademark
Collateral, and (ii) to execute any and all other documents and instruments, and
to perform any and all acts and things for and on behalf of Debtor, which
Secured Party may deem necessary or advisable to maintain, preserve and protect
the Trademark Collateral and to accomplish the purposes of this Agreement,
including (A) after the occurrence and during the continuance of any Event of
Default, to defend, settle, adjust or institute any action, suit or proceeding
with respect to the Trademark Collateral, (B) to assert or retain any rights
under any license agreement for any of the Trademark Collateral, and (C) after
the occurrence and during the continuance of any Event of Default, to execute
any and all applications, documents, papers and instruments for Secured Party to
use the Trademark Collateral, to grant or issue any exclusive or non-exclusive
license with respect to any Trademark Collateral, and to assign, convey or
5
otherwise transfer title in or dispose of the Trademark Collateral; provided,
--------
however, that so long as no Event of Default has occurred and is continuing, any
-------
such action described in the foregoing item (ii) that Secured Party may take
shall be taken in consultation with Debtor. The power of attorney set forth in
this Section 3, being coupled with an interest, is irrevocable so long as this
---------
Agreement shall not have terminated in accordance with Section 17.
----------
4. Representations and Warranties. Debtor represents and warrants to
------------------------------
Secured Party as follows:
(a) No Other Trademarks. Schedule A sets forth, as of the
------------------- ----------
Closing Date, a true and correct list of all of the existing Trademarks that are
registered, or for which any application for registration has been filed with
the PTO or any corresponding or similar trademark office of any other U.S. or
foreign jurisdiction, and that are owned or held (whether pursuant to a license
or otherwise) and used by Debtor.
(b) Trademarks Subsisting. Each of the Trademarks listed in
---------------------
Schedule A is subsisting and has not been adjudged invalid or unenforceable, in
whole or in part, and, to the best of Debtor's knowledge, each of the Trademarks
is valid and enforceable.
(c) Ownership of Trademark Collateral; No Violation. (i)
-----------------------------------------------
Debtor has rights in and good and defensible title to the existing Trademark
Collateral, (ii) with respect to the Trademark Collateral shown on Schedule A
----------
hereto as owned by it, Debtor is the sole and exclusive owner thereof, free and
clear of any Liens and rights of others (other than the security interest
created hereunder), including licenses, registered user agreements and covenants
by Debtor not to ▇▇▇ third persons and (iii) with respect to any Trademarks for
which Debtor is either a licensor or a licensee pursuant to a license or
licensee agreement regarding such Trademark, each such license or licensing
agreement is in full force and effect, Debtor is not in default of any of its
obligations thereunder and, other than the parties to such licenses or licensing
agreements, no other Person has any rights in or to any of the Trademark
Collateral. To the best of Debtor's knowledge, the past, present and
contemplated future use of the Trademark Collateral by Debtor has not, does not
and will not infringe upon or violate any right, privilege or license agreement
of or with any other Person.
6
(d) No Infringement. To the best of Debtor's knowledge, no
---------------
material infringement or unauthorized use presently is being made of any of the
Trademark Collateral by any Person.
(e) Powers. Debtor has the unqualified right, power and
------
authority to pledge and to grant to Secured Party a security interest in all of
the Trademark Collateral pursuant to this Agreement, and to execute, deliver and
perform its obligations in accordance with the terms of this Agreement, without
the consent or approval of any other Person except as already obtained.
5. Covenants. So long as any of the Secured Obligations remain
---------
unsatisfied, Debtor agrees that it will comply with all of the covenants, terms
and provisions of this Agreement, the Loan Agreement and the other Loan
Documents, and Debtor will promptly give Secured Party written notice of the
occurrence of any event that could have a material adverse effect on any of the
Trademarks or the Trademark Collateral, including any petition under the
Bankruptcy Code filed by or against any licensor of any of the Trademarks for
which Debtor is a licensee.
6. Future Rights. For so long as any of the Secured Obligations
-------------
shall remain outstanding, or, if earlier, until Secured Party shall have
released or terminated, in whole but not in part, its interest in the Trademark
Collateral, if and when Debtor shall obtain rights to any new Trademarks, or any
reissue, renewal or extension of any Trademarks, the provisions of Section 2
---------
shall automatically apply thereto and Debtor shall give to Secured Party prompt
notice thereof. Debtor shall do all things deemed necessary or advisable by
Secured Party to ensure the validity, perfection, priority and enforceability of
the security interests of Secured Party in such future acquired Trademark
Collateral. Debtor hereby authorizes Secured Party to modify, amend or
supplement the Schedules hereto and to re-execute this Agreement from time to
time on Debtor's behalf and as its attorney-in-fact to include any future
Trademarks which are or become Trademark Collateral and to cause such re-
executed Agreement or such modified, amended or supplemented Schedules to be
filed with the PTO.
7. Secured Party's Duties. Notwithstanding any provision contained
----------------------
in this Agreement, Secured Party shall have no duty to exercise any of the
rights, privileges or powers afforded to it and shall not be responsible to
Debtor or any other Person for any failure to do so or delay in doing so. Except
for the accounting for moneys actually received by Secured Party hereunder or in
connection herewith, Secured Party shall have no duty or liability to exercise
or preserve any rights, privileges or powers pertaining to the Trademark
Collateral.
7
8. Remedies. From and after the occurrence and during the
--------
continuation of an Event of Default, Secured Party shall have all rights and
remedies available to it under the Loan Agreement and applicable law (which
rights and remedies are cumulative) with respect to the security interests in
any of the Trademark Collateral or any other Collateral. Debtor agrees that such
rights and remedies include the right of Secured Party as a secured party to
sell or otherwise dispose of its Collateral after default, pursuant to UCC
Section 9-504. Debtor agrees that Secured Party shall at all times have such
royalty-free licenses, to the extent permitted by law, for any Trademark
Collateral that is reasonably necessary to permit the exercise of any of Secured
Party's rights or remedies upon or after the occurrence of (and during the
continuance of) an Event of Default with respect to (among other things) any
tangible asset of Debtor in which Secured Party has a security interest,
including Secured Party's rights to sell inventory, tooling or packaging which
is acquired by Debtor (or its successor, assignee or trustee in bankruptcy). In
addition to and without limiting any of the foregoing, upon the occurrence and
during the continuance of an Event of Default, Secured Party shall have the
right but shall in no way be obligated to bring suit, or to take such other
action as Secured Party deems necessary or advisable, in the name of Debtor or
Secured Party, to enforce or protect any of the Trademark Collateral, in which
event Debtor shall, at the request of Secured Party, do any and all lawful acts
and execute any and all documents required by Secured Party in aid of such
enforcement. To the extent that Secured Party shall elect not to bring suit to
enforce such Trademark Collateral, Debtor agrees to use all reasonable measures
and its diligent efforts, whether by action, suit, proceeding or otherwise, to
prevent the infringement, misappropriation or violation thereof by others and
for that purpose agrees diligently to maintain any action, suit or proceeding
against any Person necessary to prevent such infringement, misappropriation or
violation.
9. Binding Effect. This Agreement shall be binding upon, inure to
--------------
the benefit of and be enforceable by Debtor and Secured Party and their
respective succes-sors and assigns.
10. Notices. All notices and other communications hereunder shall be
-------
in writing and shall be mailed, sent or delivered in accordance with the Loan
Agreement.
11. Governing Law. This Agreement shall be governed by, and
-------------
construed and enforced in accordance with, the laws of the State of California,
except to the extent that the validity or perfection of the assignment and
security interests hereunder in respect of any Trademark Collateral are governed
by federal law, in which case such choice of California law shall not be deemed
to deprive Secured Party of such rights and remedies as may be available under
federal law.
8
12. Entire Agreement; Amendment. This Agreement, together with the
---------------------------
Schedules hereto, contains the entire agreement of the parties with respect to
the subject matter hereof and supersedes all prior drafts and communications
relating to such subject matter. Neither this Agreement nor any provision hereof
may be modified, amended or waived except by the written agreement of the
parties as provided in the Loan Agreement. Notwithstanding the foregoing,
Secured Party may re-execute this Agreement or modify, amend or supplement the
Schedules hereto as provided in Section 6 hereof.
---------
13. Severability. If one or more provisions contained in this
------------
Agreement shall be invalid, illegal or unenforceable in any respect in any
jurisdiction or with respect to any party, such invalidity, illegality or
unenforceability in such jurisdiction or with respect to such party shall, to
the fullest extent permitted by applicable law, not invalidate or render illegal
or unenforceable any such provision in any other jurisdiction or with respect to
any other party, or any other provisions of this Agreement.
14. Counterparts. This Agreement may be executed in any number of
------------
counterparts and by different parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute but one and the same agreement.
15. Loan Agreement. Debtor acknowledges that the rights and remedies
--------------
of Secured Party with respect to the security interest in the Trademark
Collateral granted hereby are more fully set forth in the Loan Agreement and all
such rights and remedies are cumulative.
16. No Inconsistent Requirements. Debtor acknowledges that this
----------------------------
Agreement and the other Loan Documents may contain covenants and other terms and
provisions variously stated regarding the same or similar matters, and Debtor
agrees that all such covenants, terms and provisions are cumulative and all
shall be performed and satisfied in accordance with their respective terms. To
the extent of any conflict between the provisions of this Agreement and the Loan
Agreement, however, the provisions of the Loan Agreement shall govern.
17. Termination. Upon the indefeasible payment in full of the
-----------
Secured Obligations, including the cash collateralization, expiration, or
cancellation of all Secured Obligations, if any, consisting of letters of
credit, and the full and final termination of any commitment to extend any
financial accommodations under the Loan Agreement, this Agreement shall
terminate and Secured Party shall execute and deliver such documents and
instruments and take such further action reasonably requested by Debtor, at
9
Debtor's expense, as shall be necessary to evidence termination of the security
interest granted by Debtor to Secured Party hereunder, including cancellation of
this Agreement by written notice from Secured Party to the PTO.
[remainder of page intentionally left blank]
10
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement, as of the date first above written.
QMS, INC.,
a Delaware Corporation
By:
----------------------------
Title:
FOOTHILL CAPITAL CORPORATION,
a California corporation
By:
----------------------------
Title:
▇▇
▇▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇▇▇▇ )
) ss
COUNTY OF LOS ANGELES )
On November 7, 1995, before me, ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Notary Public,
personally appeared ▇▇▇▇▇ ▇▇▇▇, proved to me on the basis of satisfactory
evidence to be the person whose name is subscribed to the within instrument and
acknowledged to me that he executed the same in his authorized capacity, and
that by his signature on the instrument the entity upon behalf of which the
person acted executed the instrument.
WITNESS my hand and official seal.
---------------------------
Signature
[SEAL]
STATE OF CALIFORNIA )
) ss
COUNTY OF LOS ANGELES )
On November 7, 1995, before me, ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Notary Public,
personally appeared ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, proved to me on the basis of
satisfactory evidence to be the person whose name is subscribed to the within
instrument and acknowledged to me that she executed the same in her authorized
capacity, and that by her signature on the instrument the entity upon behalf of
which the person acted executed the instrument.
WITNESS my hand and official seal.
-----------------------
Signature
[SEAL]
SCHEDULE A
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to the Trademark Security Agreement
U.S. Trademarks of Debtor
-------------------------
Registration Registration
No. (if any) Date (if any) Owner ▇▇▇▇
--------------- ------------- ------- ------
A-1
SCHEDULE A
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to the Trademark Security Agreement
Foreign Trademarks of Debtor
----------------------------
Registration
Country Registration No. Date Owner Registered ▇▇▇▇
------- --------------- ------------ ------ ---------------
A-2
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED OR ANY STATE SECURITIES LAWS. NO SALE OR
DISPOSITION MAY BE EFFECTED WITHOUT (i) AN EFFECTIVE
REGISTRATION STATEMENT RELATED THERETO, (ii) AN OPINION OF
COUNSEL FOR THE HOLDER, REASONABLY SATISFACTORY TO THE
COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED, (iii) RECEIPT OF
A NO-ACTION LETTER(S) FROM THE APPROPRIATE GOVERNMENTAL
AUTHORITY(IES), OR (iv) OTHERWISE COMPLYING WITH THE PROVISIONS
OF SECTION 7 OF THIS WARRANT.
QMS, INC.
---------
WARRANT TO PURCHASE 100,000 SHARES
OF COMMON STOCK (this "Warrant")
QMS, Inc., a Delaware corporation (the "Company"), hereby certifies
that, for value received, Foothill Capital Corporation, a California
corporation, or registered assigns, is the registered holder of warrants (the
"Warrants") to subscribe for and purchase One Hundred Thousand (100,000) shares
of the fully paid and nonassessable Common Stock (as adjusted pursuant to
Section 4 hereof, the "Shares") of the Company, at the price of Five Dollars
($5.00) per share (such price and such other price as shall result, from time to
time, from the adjustments specified in Section 4 hereof is herein referred to
as the "Warrant Price"), subject to the provisions and upon the terms and
conditions hereinafter set forth. As used herein, (a) the term "Common Stock"
shall mean the Company's presently authorized Common Stock, $.01 par value per
share, and any stock into or for which such Common Stock may hereafter be
converted or exchanged, (b) the term "Date of Grant" shall mean November 7,
1995, and (c) the term "Other Warrants" shall mean any warrant issued upon
transfer or partial exercise of this Warrant. The term "Warrant" as used herein
shall be deemed to include Other Warrants unless the context hereof or thereof
clearly requires otherwise.
1. Term. The purchase right represented by this Warrant is
----
exercisable, in whole or in part, at any time and from time to time from the
Date of Grant through November 7, 1999.
2. Method of Exercise; Payment; Issuance of New Warrant. Subject to
----------------------------------------------------
Section 1 hereof, the purchase right represented by this Warrant may be
exercised by the holder hereof, in whole or in part and from time to time, by
the surrender of this Warrant (with the notice of exercise form attached hereto
as Exhibit A duly executed) at the principal office of the Company and by the
payment to the Company of an amount equal to the then applicable Warrant Price
multiplied by the number of Shares then being purchased. The person or persons
in whose name(s) any certificate(s) representing shares of Common Stock shall be
issuable upon exercise of this Warrant shall be deemed to have become the
holder(s) of record of, and shall be treated for all purposes as the record
holder(s) of, the shares represented thereby (and such shares shall
be deemed to have been issued) immediately prior to the close of business on the
date or dates upon which this Warrant is exercised. In the event of any exercise
of the rights represented by this Warrant, certificates for the shares of stock
so purchased shall be delivered to the holder hereof as soon as possible and in
any event within thirty (30) days after such exercise and, unless this Warrant
has been fully exercised or expired, a new Warrant representing the portion of
the Shares, if any, with respect to which this Warrant shall not then have been
exercised shall also be issued to the holder hereof as soon as possible and in
any event within such thirty-day period.
3. Stock Fully Paid; Reservation of Shares. All Shares that may be
---------------------------------------
issued upon the exercise of the rights represented by this Warrant will, upon
issuance pursuant to the terms and conditions herein, be fully paid and
nonassessable, and free from all taxes, liens, charges, and pre-emptive rights
with respect to the issue thereof. The Company shall pay all transfer taxes, if
any, attributable to the issuance of Shares upon the exercise of the Warrants.
During the period within which the rights represented by this Warrant may be
exercised, the Company will at all times have authorized, and reserved for the
purpose of the issue upon exercise of the purchase rights evidenced by this
Warrant, a sufficient number of shares of its Common Stock to provide for the
exercise of the rights represented by this Warrant.
4. Adjustment of Warrant Price and Number of Shares. The number and
------------------------------------------------
kind of securities purchasable upon the exercise of this Warrant and the Warrant
Price shall be subject to adjustment from time to time upon the occurrence of
certain events, as follows:
a. Reclassification or Merger. In case of any reclassification,
--------------------------
change or conversion of securities of the class issuable upon exercise of this
Warrant (other than a change in par value, or from par value to no par value, or
from no par value to par value, or as a result of a subdivision or combination),
or in case of any merger of the Company with or into another corporation (other
than a merger with another corporation in which the Company is the acquiring and
the surviving corporation and which does not result in any reclassification or
change of outstanding securities issuable upon exercise of this Warrant), or in
case of any sale of all or substantially all of the assets of the Company, the
Company, or such successor or purchasing corporation, as the case may be, shall
duly execute and deliver to the holder of this Warrant a new Warrant (in form
and substance satisfactory to the holder of this Warrant), so that the holder of
this Warrant shall have the right to receive, at a total purchase price not to
exceed that payable upon the exercise of the unexercised portion of this
Warrant, and in lieu of the shares of Common Stock theretofore issuable upon
exercise of this Warrant, the kind and amount of shares of stock, other
securities, money and property receivable upon such reclassification, change or
merger by a holder of the number of shares of Common Stock then purchasable
under this Warrant. Such new Warrant shall provide for adjustments that shall be
as nearly equivalent as may be practicable to the adjustments provided for in
this Section 4. The provisions of this subparagraph (a) shall similarly apply to
successive reclassifications, changes, mergers and transfers.
b. Subdivision or Combination of Shares. If the Company at any
------------------------------------
time while this Warrant remains outstanding and unexpired shall subdivide or
combine its outstanding shares of Common Stock, the Warrant Price shall be
proportionately decreased in the case of
2
a subdivision or increased in the case of a combination, effective at the close
of business on the date the subdivision or combination becomes effective.
c. Stock Dividends and Other Distributions. If the Company at any
---------------------------------------
time while this Warrant is outstanding and unexpired shall (i) pay a dividend
with respect to Common Stock payable in Common Stock, or (ii) make any other
distribution with respect to Common Stock (except any distribution specifically
provided for in the foregoing sub-paragraphs (a) and (b)) of Common Stock, then
the Warrant Price shall be adjusted, from and after the date of determination of
shareholders entitled to receive such dividend or distribution, to that price
determined by multiplying the Warrant Price in effect immediately prior to such
date of determination by a fraction (i) the numerator of which shall be the
total number of shares of Common Stock outstanding immediately prior to such
dividend or distribution, and (ii) the denominator of which shall be the total
number of shares of Common Stock outstanding immediately after such dividend or
distribution.
d. Rights Offerings. In case the Company shall issue rights,
----------------
options or warrants to any person or persons who are at the time of such
issuance the holders of equity securities of the Company, entitling them to
subscribe for or purchase shares of Common Stock (or securities convertible or
exchangeable into Common Stock) at a price per share of Common Stock (or having
a conversion or exchange price per share of Common Stock if a security
convertible or exchangeable into Common Stock) less than the fair market value
per share of Common Stock on the record date for such issuance (or the date of
issuance, if there is no record date), the Warrant Price to be in effect on and
after such record date (or issuance date, as the case may be) shall be
determined by multiplying the Warrant Price in effect immediately prior to such
record date (or issuance date, as the case may be) by a fraction (i) the
numerator of which shall be the number of shares of Common Stock outstanding on
such record date (or issuance date, as the case may be) plus the number of
shares of Common Stock which the aggregate offering price of the total number of
shares of such Common Stock so to be offered (or the aggregate initial exchange
or conversion price of the exchangeable or convertible securities so to be
offered) would purchase at such fair market value on such record date (or
issuance date, as the case may be) and (ii) the denominator of which shall be
the number of shares of Common Stock outstanding on such record date (or
issuance date, as the case may be) plus the number of additional shares of
Common Stock to be offered for subscription or purchase (or into which the
convertible securities to be offered are initially exchangeable or convertible).
In case such subscription price may be paid in part or in whole in a form other
than cash, the fair value of such consideration shall be determined by the Board
of Directors of the Company in good faith as set forth in a duly adopted board
resolution certified by the Company's Secretary or Assistant Secretary. Such
adjustment shall be made successively whenever such an issuance occurs; and in
the event that such rights, options, warrants, or convertible or exchangeable
securities are not so issued or expire or cease to be convertible or
exchangeable before they are exercised, converted, or exchanged (as the case may
be), then the Warrant Price shall again be adjusted to be the Warrant Price that
would then be in effect if such issuance had not occurred, but such subsequent
adjustment shall not affect the number of Shares issued upon any exercise of
Warrants prior to the date such subsequent adjustment is made.
3
e. Special Distributions. In case the Company shall fix a record
---------------------
date for the making of a distribution to all holders of shares of Common Stock
(including any such distribution made in connection with a consolidation or
merger in which the Company is the surviving corporation) of evidences of
indebtedness or assets (other than dividends and distributions referred to in
subparagraphs (b) and (c) above and other than cash dividends) or of
subscription rights, options, warrants, or exchangeable or convertible
securities containing the right to subscribe for or purchase shares of any class
of equity securities of the Company (excluding those referred to in subparagraph
(d) above), the Warrant Price to be in effect on and after such record date
shall be adjusted by multiplying the Warrant Price in effect immediately prior
to such record date by a fraction (i) the numerator of which shall be the fair
market value per share of Common Stock on such record date, less the fair value
(as determined by the Board of Directors of the Company in good faith as set
forth in a duly adopted board resolution certified by the Company's Secretary or
Assistant Secretary) of the portion of the assets or evidences of indebtedness
so to be distributed or of such subscription rights, options, warrants, or
exchangeable or convertible securities applicable to one (1) share of the Common
Stock outstanding as of such record date, and (ii) the denominator of which
shall be such fair market value per share of Common Stock. Such adjustment shall
be made successively whenever such a record date is fixed; and in the event that
such distribution is not so made, the Warrant Price shall again be adjusted to
be the Warrant Price which would then be in effect if such record date had not
been fixed, but such subsequent adjustment shall not affect the number of Shares
issued upon any exercise of Warrants prior to the date such subsequent
adjustment was made.
f. Other Issuances of Securities. In case the Company or any
-----------------------------
subsidiary shall issue shares of Common Stock, or rights, options, warrants or
convertible or exchangeable securities containing the right to subscribe for or
purchase shares of Common Stock (excluding (i) shares, rights, options,
warrants, or convertible or exchangeable securities outstanding or issued on the
date of the original issuance of Warrants hereunder or issued in any of the
transactions described in subparagraphs (b), (c), (d) or (e) above, (ii) shares
issued upon the exercise of such rights, options or warrants or upon conversion
or exchange of such convertible or exchangeable securities, and (iii) the
Warrants and any shares issued upon exercise thereof), at a price per share of
Common Stock (determined in the case of such rights, options, warrants, or
convertible or exchangeable securities by dividing (x) the total amount
receivable by the Company in consideration of the sale and issuance of such
rights, options, warrants, or convertible or exchangeable securities, plus the
total minimum consideration payable to the Company upon exercise, conversion, or
exchange thereof by (y) the total maximum number of shares of Common Stock
covered by such rights, options, warrants, or convertible or exchangeable
securities) lower than the fair market value per share of Common Stock on the
date the Company fixes the offering price of such shares, rights, options,
warrants, or convertible or exchangeable securities, then the Warrant Price
shall be adjusted so that it shall equal the price determined by multiplying the
Warrant Price in effect immediately prior thereto by a fraction (i) the
numerator of which shall be the sum of (A) the number of shares of Common Stock
outstanding immediately prior to such sale and issuance plus (B) the number of
shares of Common Stock which the aggregate consideration received (determined as
provided below) for such sale or issuance would purchase at such fair market
value per share, and (ii) the denominator of which shall be the total number of
shares of Common Stock outstanding immediately after such sale and issuance.
Such adjustment shall be made successively whenever
4
such an issuance is made. For the purposes of such adjustment, the maximum
number of shares of Common Stock which the holder of any such rights, options,
warrants or convertible or exchangeable securities shall be entitled to
subscribe for or purchase shall be deemed to be issued and outstanding as of the
date of such sale and issuance and the consideration received by the Company
therefor shall be deemed to be the consideration received by the Company for
such rights, options, warrants, or convertible or exchangeable securities, plus
the minimum consideration or premium stated in such rights, options, warrants,
or convertible or exchangeable securities to be paid for the shares of Common
Stock covered thereby. In case the Company shall sell and issue shares of Common
Stock, or rights, options, warrants, or convertible or exchangeable securities
containing the right to subscribe for or purchase shares of Common Stock for a
consideration consisting, in whole or in part, of property other than cash or
its equivalent, then in determining the price per share of Common Stock and the
consideration received by the Company for purposes of the first sentence of this
subparagraph (f), the Board of Directors of the Company shall determine, in good
faith, the fair value of said property, and such determination shall be
described in a duly adopted board resolution certified by the Company's
Secretary or Assistant Secretary. In case the Company shall sell and issue
rights, options, warrants, or convertible or exchangeable securities containing
the right to subscribe for or purchase shares of Common Stock together with one
or more other securities as a part of a unit at a price per unit, then in
determining the price per share of Common Stock and the consideration received
by the Company for purposes of the first sentence of this subparagraph (f), the
Board of Directors of the Company shall determine, in good faith, which
determination shall be described in a duly adopted board resolution certified by
the Company's Secretary or Assistant Secretary, the fair value of the rights,
options, warrants, or convertible or exchangeable securities then being sold as
part of such unit. Such adjustment shall be made successively whenever such an
issuance occurs, and in the event that such rights, options, warrants, or
convertible or exchangeable securities expire or cease to be convertible or
exchangeable before they are exercised, converted, or exchanged (as the case may
be), then the Warrant Price shall again be adjusted to the Warrant Price that
would then be in effect if such sale and issuance had not occurred, but such
subsequent adjustment shall not affect the number of Shares issued upon any
exercise of Warrants prior to the date such subsequent adjustment is made.
g. Adjustment of Number of Shares. Upon each adjustment in the
------------------------------
Warrant Price, the number of Shares of Common Stock purchasable hereunder shall
be adjusted, to the nearest whole share, to the product obtained by multiplying
the number of Shares purchasable immediately prior to such adjustment in the
Warrant Price by a fraction, the numerator of which shall be the Warrant Price
immediately prior to such adjustment and the denominator of which shall be the
Warrant Price immediately thereafter.
h. Determination of Fair Market Value. For purposes of this
----------------------------------
Section 4, "fair market value" of a share of Common Stock as of a particular
date (the "Determination Date") shall mean the closing price of a share of the
Common Stock of the Company on the last trading day prior to the Determination
Date reported on the New York Stock Exchange (the "NYSE") as reported in The
---
Wall Street Journal.
-------------------
5
5. Notice of Adjustments. Whenever the Warrant Price or the number of
---------------------
Shares purchasable hereunder shall be adjusted pursuant to Section 4 hereof, the
Company shall make a certificate signed by its chief financial officer setting
forth, in reasonable detail, the event requiring the adjustment, the amount of
the adjustment, the method by which such adjustment was calculated, and the
Warrant Price and the number of Shares purchasable hereunder after giving effect
to such adjustment, which shall be mailed (without regard to Section 13 hereof,
by first class mail, postage prepaid) to the holder of this Warrant.
6. Fractional Shares. No fractional shares of Common Stock will be
-----------------
issued in connection with any exercise hereunder, but in lieu of such fractional
shares the Company shall make a cash payment therefor based on the closing price
of the Common Stock on the last trading date prior to the date of exercise
reported on the NYSE as reported in The Wall Street Journal.
-----------------------
7. Compliance with Securities Act; Disposition of Warrant or Shares of
-------------------------------------------------------------------
Common Stock.
------------
a. Compliance with Securities Act. The holder of this Warrant, by
------------------------------
acceptance hereof, agrees that this Warrant, the shares of Common Stock to be
issued upon exercise hereof are being acquired for investment and that such
holder will not offer, sell or otherwise dispose of this Warrant, or any shares
of Common Stock to be issued upon exercise hereof except under circumstances
which will not result in a violation of the Securities Act of 1933, as amended
(the "Act"). Upon exercise of this Warrant, the holder hereof shall confirm in
writing, by executing the form attached as Schedule 1 to Exhibit A hereto, that
the shares of Common Stock so purchased are being acquired for investment and
not with a view toward distribution or resale. This Warrant and all shares of
Common Stock issued upon exercise of this Warrant (unless registered under the
Act) shall be stamped or imprinted with a legend in substantially the following
form:
"THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. NO SALE
OR DISPOSITION MAY BE EFFECTED WITHOUT (i) AN EFFECTIVE REGISTRATION
STATEMENT RELATED THERETO, (ii) AN OPINION OF COUNSEL FOR THE HOLDER,
REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS REQUIRED,
(iii) RECEIPT OF A NO-ACTION LETTER(S) FROM THE APPROPRIATE GOVERNMENTAL
AUTHORITY(IES), OR (iv) OTHERWISE COMPLYING WITH THE PROVISIONS OF SECTION
7 OF THE WARRANT UNDER WHICH THESE SECURITIES WERE ISSUED DIRECTLY OR
INDIRECTLY."
In addition, in connection with the issuance of this Warrant, the
holder specifically represents to the Company by acceptance of this Warrant as
follows:
(1) The holder is aware of the Company's business affairs
and financial condition, and has acquired information about the Company
sufficient to reach an informed and knowledgeable decision to acquire this
Warrant. The holder is acquiring this
6
Warrant for its own account for investment purposes only and not with a view to,
or for the resale in connection with, any "distribution" thereof for purposes of
the Act.
(2) The holder understands that this Warrant and the Shares
have not been registered under the Act in reliance upon a specific exemption
therefrom, which exemption depends upon, among other things, the bona fide
nature of the holder's investment intent as expressed herein. In this
connection, the holder understands that, in the view of the Securities and
Exchange Commission (the "SEC), the statutory basis for such exemption may be
unavailable if the holder's representation was predicated solely upon a present
intention to hold the Warrant and the Shares for the minimum capital gains
period specified under applicable tax laws, for a deferred sale, for or until an
increase or decrease in the market price of the Warrant and the Shares, or for a
period of one (1) year or any other fixed period in the future.
(3) The holder further understands that this Warrant and the
Shares must be held indefinitely unless subsequently registered under the Act
and any applicable state securities laws, or unless exemptions from registration
are otherwise available.
(4) The holder is aware of the provisions of Rule 144 and
144A, promulgated under the Act, which, in substance, permit limited public
resale of "restricted securities" acquired, directly or indirectly, from the
issuer thereof (or from an affiliate of such issuer), in a non-public offering
subject to the satisfaction of certain conditions, if applicable, including,
among other things: The availability of certain public information about the
Company, the resale occurring not less than two (2) years after the party has
purchased and paid for the securities to be sold; the sale being made through a
broker in an unsolicited "broker's transaction" or in transactions directly with
a market maker (as said term is defined under the Securities Exchange Act of
1934, as amended) and the amount of securities being sold during any three-month
period not exceeding the specified limitations stated therein.
(5) The holder further understands that at the time it
wishes to sell this Warrant and the Shares there may be no public market upon
which to make such a sale, and that, even if such a public market then exists,
the Company may not be satisfying the current public information requirements of
Rule 144 and 144A, and that, in such event, the holder may be precluded from
selling this Warrant and the Shares under Rule 144 and 144A even if the two-year
minimum holding period had been satisfied.
(6) The holder further understands that in the event all of
the requirements of Rule 144 and 144A are not satisfied, registration under the
Act, compliance with Regulation A, or some other registration exemption will be
required; and that, notwithstanding the fact that Rule 144 and 144A is not
exclusive, the Staff of the SEC has expressed its opinion that persons proposing
to sell private placement securities other than in a registered offering and
otherwise than pursuant to Rule 144 and 144A will have a substantial burden of
proof in establishing that an exemption from registration is available for such
offers or sales, and that such persons and their respective brokers who
participate in such transactions do so at their own risk.
7
b. Disposition of Warrant or Shares. With respect to any offer,
--------------------------------
sale or other disposition of this Warrant, or any Shares acquired pursuant to
the exercise of this Warrant prior to registration of such Warrant or Shares,
the holder hereof and each subsequent holder of this Warrant agrees to give
written notice to the Company prior thereto, describing briefly the manner
thereof, together with a written opinion of such holder's counsel, if reasonably
requested by the Company, to the effect that such offer, sale or other
disposition may be effected without registration or qualification (under the Act
as then in effect or any federal or state law then in effect) of this Warrant or
such Shares and indicating whether or not under the Act certificates for this
Warrant or such Shares to be sold or otherwise disposed of require any
restrictive legend as to applicable restrictions on transferability in order to
ensure compliance with applicable law. Promptly upon receiving such written
notice and reasonably satisfactory opinion, if so requested, the Company, as
promptly as practicable, shall notify such holder that such holder may sell or
otherwise dispose of this Warrant or such Shares, all in accordance with the
terms of the notice delivered to the Company. If a determination has been made
pursuant to this subsection (b) that the opinion of counsel for the holder is
not reasonably satisfactory to the Company, the Company shall so notify the
holder promptly after such determination has been made. The foregoing
notwithstanding, this Warrant or such Shares may, as to such federal laws, be
offered, sold or otherwise disposed of in accordance with Rule 144 and 144A
under the Act, provided that the Company shall have been furnished with such
information as the Company may reasonably request to provide a reasonable
assurance that the provisions of Rule 144 and 144A have been satisfied. Each
certificate representing this Warrant or the Shares thus transferred (except a
transfer pursuant to Rule 144) shall bear a legend as to the applicable
restrictions on transferability in order to ensure compliance with such laws,
unless in the aforesaid opinion of counsel for the holder, such legend is not
required in order to ensure compliance with such laws. The Company may issue
stop transfer instructions to its transfer agent or if acting as its own
transfer agent, the Company may stop transfer on its corporate books, in
connection with such restrictions.
8. Rights as Shareholders; Information. No holder of this Warrant, as
-----------------------------------
such, shall be entitled to vote or receive dividends or be deemed the holder of
Common Stock or any other securities of the Company which may at any time be
issuable on the exercise hereof for any purpose, nor shall anything contained
herein be construed to confer upon the holder of this Warrant, as such, any of
the rights of a shareholder of the Company or any right to vote for the election
of the directors or upon any matter submitted to shareholders at any meeting
thereof, or to receive notice of meetings, or to receive dividends or
subscription rights or otherwise until this Warrant shall have been exercised
and the Shares purchasable upon the exercise hereof shall have become
deliverable, as provided herein. The foregoing notwithstanding, the Company will
transmit to the holder of this Warrant such information, documents and reports
as are generally distributed to the holders of any class or series of the
securities of the Company concurrently with the distribution thereof to the
shareholders.
9. Registration Rights.
-------------------
9.1.a. The Company covenants and agrees that at any time after
receipt of a written request (a "Demand Registration Request") from the holders
of this Warrant and the Other Warrants and/or holders of Shares (this Warrant,
the Other Warrants, and the Shares
8
are referred to herein, collectively, as the "Securities") (hereinafter, the
"Securityholders") constituting, in the first instance, at least fifty percent
(50%), and, in the second instance, one hundred percent (100%), of the
Securities outstanding on such date and then eligible for inclusion in a
registration pursuant to this Section 9.1, stating that the Initiating
Securityholders (as defined below) desire and intend to transfer all or a
portion of the Securities held by them under such circumstances, the Company
shall give notice (the "Registration Notice") to all of the Securityholders
within fifteen (15) days of the Company's receipt of such registration request,
and the Company shall cause to be included in such registration all Securities
requested to be included therein by any such Securityholder within fifteen (15)
days after such Registration Notice is effective (subject to the provisions of
the final sentence of this Section 9.1(a)). After such 15-day period, the
Company shall file as promptly as practicable a registration statement and use
its reasonable best efforts to cause such registration statement to become
effective under the Act and remain effective for one hundred and twenty (120)
days or such shorter period as may be required if all such Securities covered by
such registration statement are sold prior to the expiration of such 120-day
period; provided that the Company shall not be obligated to effect any such
registration pursuant to this Section 9.1 after the Company has effected two (2)
such registrations pursuant to this Section 9.1. Each Securityholder making a
demand for registration under this Section 9.1 is referred to herein as an
"Initiating Securityholder." For purposes of this Section 9, a registration
shall not be deemed to have been effected unless a registration statement with
regard thereto has been declared effective and remained effective for a period
of one hundred and twenty (120) days (or such shorter period as is permitted in
the first sentence of this Section 9.1). The foregoing notwithstanding, in the
event of an underwritten offering pursuant to this Section 9.1, if the managing
underwriter of such offering shall advise the Securityholders in writing that,
in its opinion, the distribution of a specified portion of the securities
requested to be included in the registration would materially adversely affect
the distribution of such securities by increasing the aggregate amount of the
offering in excess of the maximum amount of securities which such managing
underwriter believes can reasonably be sold in the contemplated distribution,
then the securities to be included in the registration shall include (i) first,
all of the Securities requested to be included therein, (ii) second, the maximum
number of Securities such managing underwriter will permit to be included
therein to prevent such material adverse effect, pro rata among the Holders
according to the number of Securities held by each such Securityholder
requesting inclusion therein, (iii) third, the securities the Company proposes
to include therein and (iv) fourth, the maximum number of such other securities
such managing underwriter will permit to be included therein to prevent such
material adverse effect.
b. For purposes of this Section 9.1, the Securityholders who
have requested registration of Shares to be acquired upon the exercise of
Warrants not theretofore exercised shall furnish the Company with an undertaking
that they or the underwriters or other persons to whom such Warrants will be
transferred have undertaken to exercise such Warrants and to sell, transfer or
otherwise dispose of the Shares received upon exercise of such Warrants in such
registration.
c. In the event of an underwritten offering pursuant to this
Section 9.1, the Initiating Securityholders requesting registration of the
Securities being
9
registered shall be entitled to select the underwriter; provided, that the
underwriter so selected shall be subject to approval by the Company, which
approval shall not be withheld unreasonably.
d. Notwithstanding the terms of Section 9.1(a), the Company
shall not be required to register the Securities of Securityholders pursuant to
Section 9.1, if the Company elects, at its sole option and to the extent that it
may legally do so, to purchase such Securities and completes such purchase
pursuant to the provisions of this Section 9.1(d). Within fifteen (15) days
after receipt of a Demand Registration Request, the Company may elect to
purchase all and not less than all of the Securities that would otherwise be
subject to registration pursuant to Section 9.1(a) by providing written notice
(the "Purchase Notice") to all of the Securityholders setting forth (i) its
election to purchase such Securities, (ii) the purchase price of the Securities,
and (iii) the closing date for such purchase. The Company shall thereafter
purchase all of the Securities requested to be included in such purchase by the
Securityholders within fifteen (15) days after the Purchase Notice becomes
effective. The purchase price for each Share shall be the fair market value (as
defined in Section 4) of a share of Common Stock on the date of the Demand
Registration Request; the purchase price for each Warrant shall be (x) the fair
market value (as defined in Section 4) of a share of Common Stock on the date of
the Demand Registration Request less (y) the Warrant Price. The closing of the
purchase of the Securities shall take place on the date set forth in the
Purchase Notice, which date shall be not less than fifteen (15) not more than
forty-five (45) days after the date of the Purchase Notice. At the closing, the
Company shall deliver to each Securityholder, in cash, the purchase price for
the Securities surrendered by such Securityholder.
9.2.a. The Company covenants and agrees with the Securityholders
that in the event that the Company proposes to file a registration statement
under the Act with respect to any of its equity securities (other than pursuant
to registration statements on Form S-4 or Form S-8 or any successor or similar
forms), whether or not for its own account, then the Company shall give written
notice of such proposed filing to all Securityholders promptly (and in any event
at least twenty (20) days before the anticipated filing date). Such notice shall
offer to such Securityholders, together with others who have similar rights, the
opportunity to include in such registration statement such number of Securities
as they may request. The Company shall cause the managing underwriter of a
proposed underwritten offering (unless the offering is an underwritten offering
of a class of the Company's equity securities other than Common Stock and the
managing underwriter has advised the Company in writing that, in its opinion,
the inclusion in such offering of Common Stock would materially adversely affect
the distribution of such offering) to permit the holders of Securities requested
to be included in the registration to include such Securities in the proposed
offering and the Company shall use its reasonable best efforts to include such
Securities in such proposed offering on the same terms and conditions as any
similar securities of the Company included therein. If the offering of which the
Company gives notice is a public offering involving an underwriter, the right of
a Securityholder to registration pursuant to this Section 9.2 shall be
conditioned upon such Securityholder's participation in such underwriting and
the inclusion of the Securities to be sold by such Securityholder in the
underwriting. All Securityholders proposing to distribute Securities through
such underwriting shall enter into an underwriting agreement in customary form
with the representative of the underwriter or underwriters. The foregoing
notwithstanding, in the case of a firm commitment offering on underwriting terms
appropriate for such a transaction, other
10
than a registration requested by Securityholders pursuant to Section 9.1, if any
such managing underwriter of recognized standing shall advise the Company and
the Securityholders in writing that, in its opinion, the distribution of all or
a specified portion of the Securities requested to be included in the
registration concurrently with the securities being registered by the Company
would materially adversely affect the distribution of such securities by
increasing the aggregate amount of the offering in excess of the maximum amount
of securities which such managing underwriter believes can reasonably be sold in
the contemplated distribution, then the securities to be included in a
registration which is a primary underwritten offering on behalf of the Company
shall include (i) first, the maximum number of securities the Company proposes
to include therein and (ii) second, the maximum number of such other securities
(including the Securities) such managing underwriter will permit to be included
therein to prevent such material adverse effect, pro rata among the holders
(including the Securityholders) of such other securities according to the number
of securities requested to be included by each such holder requesting inclusion
therein.
b. In the event that a holder or holders of the Company's
securities (other than a Securityholder or Securityholders) requests, pursuant
to rights granted to such holder or holders, that the Company file a
registration statement for the public offering of securities and the Company and
the other holders of the Company's securities (including the Securityholders)
who have rights to be included in such registration, request to be included in
such registration and the managing underwriter of such offering shall advise the
Company and the holders requesting inclusion in the offering that, in its
opinion, the distribution of a specified portion of the securities requested to
be included in the registration would materially adversely affect the
distribution of such securities by increasing the aggregate amount of the
offering in excess of the maximum amount of securities which such managing
underwriter believes can reasonably be sold in the contemplated distribution
then, the securities to be included in the registration shall include (i) first,
all of the securities requested to be included therein by the holder or holders
making the initial request for the registration, (ii) second, the maximum number
of securities such managing underwriter will permit to be included therein to
prevent such material adverse effect, pro rata among the holders making the
initial request according to the number of securities requested to be included
by each such holder initially requesting inclusion therein (or in such other
proportions as such holders may agree), and (iii) third, the maximum number of
such other securities such managing underwriter will permit to be included
therein to prevent such material adverse effect, pro rata among the Company and
the holders of such other securities according to the number of securities
requested to be included by the Company and each such holder requesting
inclusion therein. For purposes of this Section 9.2(b), the Company agrees to
request for inclusion in the registration only that number of securities that
the Company intends, in good faith, to sell, if all such securities so requested
by the Company were permitted to be included by the managing underwriter in such
registration and sold pursuant thereto.
9.3.a. In connection with the registration of Securities on behalf
of the holders thereof (such Securityholders being referred to herein as
"Sellers") in accordance with Section 9.1 or Section 9.2 above, the Company
agrees to:
11
(i) enter into a cross-indemnity agreement, in customary
form, with each underwriter, if any, and each Seller;
(ii) subject to the provisions of Section 9.1(a) and
Section 9.2(a) regarding reductions by the managing underwriter, include in the
registration statement filed with the SEC, the Securities for which requests for
registration have been made; provided, however, that promptly after filing a
registration statement or prospectus or any amendments or supplements thereto,
the Company shall furnish to each Seller copies of all such documents proposed
to be filed including documents incorporated by reference in the registration
statement; and notify each Seller of any stop order issued or threatened by the
SEC and use its best efforts to prevent the entry of such stop order or to
remove it if entered;
(iii) prepare and file with the SEC such amendments of and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective (A)
in the case of a registration pursuant to Section 9.1, for a period of one
hundred and twenty (120) days, or, in the case of a registration pursuant to
Section 9.2, for a period of ninety (90) days or (B) such shorter period as may
be required if all such Securities covered by such registration statement are
sold prior to the expiration of such periods, and comply with the provisions of
the Act with respect to the disposition of all securities covered by such
registration statement during such period in accordance with the intended
methods of disposition by the Sellers set forth in such registration statement;
(iv) furnish to each Seller and each underwriter, if any,
without charge, such number of copies of the registration statement, each
amendment and supplement thereto (in each case including all exhibits thereto),
the prospectus included in such registration statement (including each
preliminary prospectus) and such other documents as such Seller may reasonably
request in order to facilitate the disposition of the Securities proposed to be
sold by such Seller;
(v) use its reasonable best efforts to register or qualify
such Securities under such other securities or Blue Sky laws of such
jurisdictions as any Seller or any such underwriter reasonably requests and keep
such registrations or qualifications in effect for so long as such registration
statement remains in effect and do any and all acts and things which may be
reasonably necessary or advisable to enable such Seller to consummate the
disposition in such jurisdictions of the Securities owned by such Seller;
provided, however, that the Company shall not be required to (i) qualify
generally to do business in any jurisdiction where it would not otherwise be
required to qualify but for this subsection (v), (ii) subject itself to taxation
in any such jurisdiction, or (iii) consent to general service of process in any
jurisdiction;
(vi) notify each Seller, at any time when a prospectus
relating to such Seller's Securities is required to be delivered under the Act,
of the occurrence of any event as a result of which the prospectus included in
such registration statement contains an untrue statement of a material fact or
omits to state any material fact necessary to make the statements therein not
misleading, and as soon as practicable prepare a supplement or
12
amendment to such prospectus so that, as thereafter delivered to the purchasers
of such Securities, such prospectus will not contain an untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein not misleading;
(vii) cause all such Securities to be listed on the NYSE or
such other securities exchange on which similar securities issued by the Company
are then listed;
(viii) provide a transfer agent, registrar and CUSIP number
for all such Securities not later than the effective date of such registration
statement;
(ix) enter into such customary agreements (including an
underwriting agreement in customary form) and take all such other actions that
the Sellers or the underwriters, if any, reasonably request in order to expedite
or facilitate the disposition of such Securities;
(x) make available for inspection by the Sellers and their
counsel, any underwriter participating in any disposition pursuant to such
registration statement, and any counsel retained by any such underwriter, all
pertinent financial and other information and corporate documents of the
Company, and cause the Company's officers, directors and employees to supply all
information reasonably requested by any such Seller, underwriter or counsel in
connection with such registration statement;
(xi) use its reasonable best efforts to obtain a "cold
comfort" letter from the Company's independent public accountants in customary
form and covering such matters of the type customarily covered by "cold comfort"
letters as the Sellers or any underwriter may reasonably request;
(xii) obtain an opinion of counsel to the Company, addressed
to the Sellers and any underwriter, in customary form and including such matters
as are customarily covered by such opinions in underwritten registered offerings
of equity securities as the Sellers or any underwriter may reasonably request,
such opinion to be reasonably satisfactory in form and substance to each Seller;
and
(xiii) otherwise use its best efforts to comply with all
applicable rules and regulations of the SEC, and make available to its
securityholders, as soon as reasonably practicable, an earnings statement
covering the period of at least twelve (12) months subsequent to the effective
date of the registration statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Act and Rule 158 thereunder.
b. Any other provisions of this Section 9 notwithstanding,
upon receipt by the Securityholders of a written notice signed by the chief
executive officer, chief operating officer or chief financial officer of the
Company to the effect set forth below, the Company shall not be obligated during
a reasonable period of time thereafter to effect any registrations pursuant to
this Section 9, and the Securityholders agree that they will immediately suspend
sales of shares under any effective registration statement for a reasonable
period of time,
13
in either case not to exceed ninety (90) days, at any time at which, in the
Company's reasonable judgment, (i) there is a development involving the Company
or any of its affiliates which is material but which has not yet been publicly
disclosed or (ii) sales pursuant to the registration statement would materially
and adversely affect an underwritten public offering for the account of the
Company or any other material financing project or a proposed or pending
material merger or other material acquisition or material business combination
or material disposition of the Company's assets, to which the Company or any of
its affiliates is, or is expected to be, a party. In the event a registration is
postponed or sales by the Securityholders pursuant to an effective registration
statement are suspended in accordance with this Section 9.3(b), there shall be
added to the period during which the Company is obligated to keep a registration
effective the number of days for which the registration was postponed or sales
were suspended pursuant to this Section 9.3(b).
c. The Company may require each Seller to furnish to the
Company such information regarding the distribution of the Securities proposed
to be sold by such Seller as the Company may from time to time reasonably
request in writing.
d. Each Seller agrees that, upon receipt of any notice from
the Company of the occurrence of any event of the kind described in subsection
(vi) of Section 9.3(a) above, such Seller shall forthwith discontinue
disposition of Securities pursuant to the registration statement covering such
Securities until such Seller's receipt of copies of the supplemented or amended
prospectus contemplated by Section 9.3(a)(vi) above and, if so directed by the
Company, such Seller will deliver to the Company (at the Company's expense) all
copies, other than permanent file copies in such Seller's possession, of the
prospectus covering such Securities current at the time of receipt of such
notice. In the event the Company shall give any such notice, the period
mentioned in Section 9.3(a)(iii) above shall be extended by the number of days
during the period from and including the date of giving of such notice to and
including the date when each Seller shall have received the copies of the
supplemented or amended prospectus contemplated by Section 9.3(a)(vi) above.
e. The Company shall not file or permit the filing of any
registration or comparable statement which refers to any Seller by name or
otherwise as the Seller of any securities of the Company unless such reference
to such Seller is specifically required by the Act or any similar federal
statute then in force.
9.4 All expenses incident to the Company's performance of or
compliance with this Warrant, including without limitation all registration and
filing fees, fees and expenses relating to filings with the NYSE, fees and
expenses of compliance with securities or Blue Sky laws in jurisdictions
reasonably requested by any Seller or underwriter pursuant to Section 9.3(a)(v)
(including reasonable fees and disbursements of counsel in connection with Blue
Sky qualifications of the Securities), all word processing, duplicating and
printing expenses, messenger and delivery expenses, fees and disbursements of
counsel for the Company and one (1) counsel for the Sellers, independent public
accountants (including the expenses of any special audit or "cold comfort"
letters required by or incident to such performance) and underwriters (excluding
discounts, commissions or fees of underwriters, selling brokers, dealer managers
or similar securities industry professionals attributable to the securities
being
14
registered, or legal expenses of any person other than the Company and the
Sellers, but including liability insurance if the Company so desires), all the
Company's internal expenses (including, without limitation, all salaries and
expenses of its officers and employees performing legal or accounting duties),
the expense of any annual audit, the expense of any liability insurance (if the
Company determines to obtain such insurance) and the fees and expenses incurred
in connection with the listing of the securities to be registered on each
securities exchange on which such securities issued by the Company are then
listed, the reasonable fees and expenses of any special experts (including
attorneys) retained by the Company (if it so desires) in connection with such
registration and fees and expenses of other persons retained by the Company (all
such expenses being herein called "Registration Expenses"), shall be borne by
the Company.
9.5 In connection with the preparation and filing of each
registration statement under the Act pursuant to this Section 9, the Company
shall give the Sellers under such registration statement, their underwriters, if
any, and their respective counsel and accountants, the opportunity to
participate in the preparation of such registration statement, each prospectus
included therein or filed with the Commission, and each amendment thereof or
supplement thereto, and will give each of them such access to its books and
records and such opportunities to discuss the business of the Company with its
officers and the independent public accountants who have certified its financial
statements as shall be necessary, in the opinion of such Sellers' and such
underwriters' respective counsel, to conduct a reasonable investigation within
the meaning of the Act.
9.6.a. In the event of any registration of any securities of the
Company under the Act, the Company shall, and hereby does, indemnify and hold
harmless in the case of any registration statement filed pursuant to Section 9.1
or Section 9.2, the Seller of any Securities covered by such registration
statement, its directors, officers and employees, each other person who
participates as an underwriter in the offering or sale of such Securities and
each other person, if any, who controls such Securityholder or any such
underwriter within the meaning of the Act against any losses, claims, damages,
or liabilities (or actions or proceedings whether commenced or threatened in
respect thereof), joint or several, to which such Seller or any such director or
officer or underwriter or controlling person may become subject under the Act or
otherwise, insofar as such losses, claims, damages, or liabilities (or actions
or proceedings, whether commenced or threatened, in respect thereof) arise out
of or are based upon any untrue statement or alleged untrue statement of any
material fact contained in any registration statement under which such
Securities were registered under the Act, any preliminary prospectus, final
prospectus or summary prospectus contained therein, or any amendment or
supplement thereto, or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and the Company shall reimburse such Seller and each
such director, officer, employee, underwriter and controlling person for any
legal or any other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, liability, action, or
proceeding; provided, however, that the Company shall not be liable in any such
case to the extent that any such loss, claim, damage, liability (or action or
proceeding, whether commenced or threatened in respect thereof), or expense
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in such registration
15
statement, any such preliminary prospectus, final prospectus, summary
prospectus, amendment, or supplement in reliance upon and in conformity with
written information furnished to the Company through an instrument duly executed
by such Seller specifically stating that it is for use in the preparation
thereof and, provided, further, that the Company shall not be liable in any such
case to the extent that any such loss, claim, damage, liability (or action or
proceeding, whether commenced or threatened, in respect thereof), or expense
arises out of such person's failure to send or give a copy of the final
prospectus, as the same may be then supplemented or amended, within the time
required by the Act to the person asserting an untrue statement or alleged
untrue statement or omission or alleged omission if such statement or omission
was corrected in such final prospectus. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf of such
Seller or any such director, officer, underwriter or controlling person and
shall survive the transfer of such Securities by such Seller.
b. The Company may require, as a condition to including any
Securities in any registration statement filed pursuant to Section 9.3, that the
Company shall have received an undertaking satisfactory to it from the
prospective Seller, to indemnify and hold harmless (in the same manner and to
the same extent as set forth in Section 9.6(a)) the Company, each director,
officer and employee of the Company, and each other person, if any, who controls
the Company within the meaning of the Act, with respect to any statement or
alleged statement in or omission or alleged omission from such registration
statement, any preliminary prospectus, final prospectus, or summary prospectus
contained therein, or any amendment or supplement thereto, if such statement or
alleged statement or omission or alleged omission was made in reliance upon and
in conformity with written information furnished to the Company through an
instrument duly executed by such Seller specifically stating that it is for use
in the preparation of such registration statement, preliminary prospectus, final
prospectus, summary prospectus, amendment, or supplement. Such indemnity shall
remain in full force and effect, regardless of any investigation made by or on
behalf of the Company or any such director, officer, or controlling person and
shall survive the transfer of such Securities by such Seller. In no event shall
the liability of any selling Securityholder hereunder be greater in amount than
the dollar amount of the proceeds received by such Securityholder upon the sale
of the Securities giving rise to such indemnification obligation. The Company
shall be entitled to receive indemnities from underwriters, selling brokers,
dealer managers, and similar securities industry professionals participating in
the distribution to the same extent as provided above with respect to
information so furnished in writing by such persons specifically for inclusion
in any prospectus or registration statement.
c. Promptly after receipt by an indemnified party of notice
of the commencement of any action or proceeding involving a claim referred to in
this Section 9.6, such indemnified party shall, if a claim in respect thereof is
to be made against an indemnifying party, give written notice to the latter of
the commencement of such action; provided, however, that the failure of any
indemnified party to give notice as provided herein shall not relieve the
indemnifying party of its obligations under the preceding subdivisions of this
Section 9.6, except to the extent that the indemnifying party is actually
prejudiced by such failure to give notice. In case any such action is brought
against an indemnified party, unless in such indemnified party's reasonable
judgment a conflict of interest between such indemnified and indemnifying
parties may exist in respect of such claim, the indemnifying party shall be
entitled to participate
16
in and to assume the defense thereof, jointly with any other indemnifying party
similarly notified, to the extent that the indemnifying party may wish, with
counsel reasonably satisfactory to such indemnified party, and after notice from
the indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party shall not be liable to such
indemnified party for any legal or other expenses subsequently incurred by the
latter in connection with the defense thereof other than reasonable costs of
investigation. If, in the indemnified party's reasonable judgment a conflict of
interest between such indemnified and indemnifying parties may exist in respect
of such claim, the indemnified party may assume the defense of such claim,
jointly with any other indemnified party that reasonably determines such
conflict of interest to exist, and the indemnifying party shall be liable to
such indemnified parties for the reasonable legal fees and expenses of one
counsel for all such indemnified parties and for other expenses reasonably
incurred in connection with the defense thereof incurred by the indemnified
party. No indemnifying party shall, without the consent of the indemnified
party, consent to entry of any judgment or enter into any settlement of any such
action which does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such indemnified party of a release from all liability,
or a covenant not to ▇▇▇, in respect of such claim or litigation. No indemnified
party shall consent to entry of any judgment or enter into any settlement of any
such action the defense of which has been assumed by an indemnifying party
without the consent of such indemnifying party.
d. Indemnification and contribution similar to that
specified in this Section 9.6 (with appropriate modifications) shall be given by
the Company and each Seller with respect to any required registration or other
qualification of Securities under any Federal or state law or regulation of any
governmental authority, other than the Act.
e. The indemnification required by this Section 9.6 shall be
made by periodic payments of the amount thereof during the course of the
investigation or defense, as and when bills are received or expense, loss,
damage or liability is incurred.
f. If the indemnification provided for in this Section 9.6
from the indemnifying party is unavailable to an indemnified party hereunder in
respect of any losses, claims, damages, liabilities, or expenses referred to
herein, then the indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of losses, claims, damages, liabilities, or expenses in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party and indemnified party in connection with the actions which resulted in
such losses, claims, damages, liabilities, or expenses, as well as any other
relevant equitable considerations. The relative fault of such indemnifying party
and indemnified party shall be determined by reference to, among other things,
whether any action in question, including any untrue or alleged untrue statement
of a material fact or omission or alleged omission to state a material fact, has
been made by, or relates to information supplied by, such indemnifying party or
indemnified party, and the parties' relative intent, knowledge, access to
information, and opportunity to correct or prevent such action. The amount paid
or payable by a party as a result of the losses, claims, damages, liabilities,
and expenses referred to above shall be deemed to include any legal or other
fees or expenses reasonably incurred by such party in connection with any
investigation or proceeding. In no event shall the liability of any selling
Securityholder hereunder be greater in amount than
17
the dollar amount of the proceeds received by such Securityholder upon the sale
of the Securities giving rise to such contribution obligation. The parties
hereto agree that it would not be just and equitable if contribution pursuant to
this Section 9.6(f) were determined by pro rata allocation or by any other
method of allocation which does not take into account the equitable
considerations referred to in this Section 9.6(f). No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person or entity who was not guilty
of such fraudulent misrepresentation.
9.7 The Company shall not after the Date of ▇▇▇▇▇ ▇▇▇▇▇ any
additional registration rights which conflict with the rights under this Section
9.
9.8 If requested by the managing underwriter of the initial
public offering on behalf of the Company of its Common Stock, or by the managing
underwriter of an offering for which Shares of such Securityholder have been
registered, a Securityholder shall not sell or otherwise transfer or dispose of
any Securities held by such Securityholder (other than those included in the
registration) during such period following the effective date of such
registration as is usual and customary at such time in similar public offerings
of similar securities; provided, however, that the Company shall use its
reasonable best efforts to cause each holder of a material number of shares of
Common Stock to enter into similar "lock-up" agreements in respect of such
offering. The obligations described in this Section 9.8 shall not apply to
offerings pursuant to a registration statement on Form S-4 or Form S-8 or any
successor or similar form.
10. Additional Rights.
-----------------
10.1 Secondary Sales. The Company agrees that it will cooperate
---------------
with the holder of this Warrant in obtaining liquidity if opportunities to make
secondary sales of the Company's securities become available. To this end, the
Company will promptly provide the holder of this Warrant with notice of any
offer to acquire from the Company's security holders more than five percent (5%)
of the total voting power of the Company and will cooperate with the holder in
arranging the sale of this Warrant to the person or persons making such offer.
10.2 Mergers. In the event that the Company undertakes to (i)
-------
sell, lease, exchange, convey or otherwise dispose of all or substantially all
of its property or business, or (ii) merge into or consolidate with any other
corporation (other than a wholly-owned subsidiary of the Company), or effect any
transaction (including a merger or other reorganization) or series of related
transactions, in which more than 50% of the voting power of the Company is
disposed of the Company will use its best efforts to provide at least thirty
(30) days notice of the terms and conditions of the proposed transaction. The
Company will cooperate with the holder in consummating the sale of this Warrant
in connection with any such transaction.
18
10.3 Right to Convert Warrant into Common Stock; Net Issuance.
--------------------------------------------------------
a. Right to Convert. In addition to and without limiting the
----------------
rights of the holder under the terms of this Warrant, the holder shall have the
right to convert this Warrant or any portion thereof (the "Conversion Right")
into shares of Common Stock as provided in this Section 10.3 at any time or from
time to time during the term of this Warrant. Upon exercise of the Conversion
Right with respect to a particular number of shares subject to this Warrant (the
"Converted Warrant Shares"), the Company shall deliver to the holder (without
payment by the holder of any exercise price or any cash or other consideration)
that number of shares of fully paid and nonassessable Common Stock equal to the
quotient obtained by dividing (x) the value of this Warrant (or the specified
portion hereof) on the Conversion Date (as defined in subsection (b) hereof),
which value shall be determined by subtracting (2) the aggregate Warrant Price
of the Converted Warrant Shares immediately prior to the exercise of the
Conversion Right from (1) the aggregate fair market value of the Converted
Warrant Shares issuable upon exercise of this Warrant (or the specified portion
hereof) on the Conversion Date (as herein defined) by (y) the fair market value
of one share of Common Stock on the Conversion Date (as herein defined).
Expressed as a formula, such conversion shall be computed as follows:
X= A - B
-----
Y
Where: X = the number of shares of Common Stock that may be
issued to holder
Y = the fair market value (FMV) of one share of
Common Stock
A = the aggregate FMV (i.e., FMV x Converted
Warrant Shares)
B = the aggregate Warrant Price (i.e., Converted
Warrant Shares x Warrant Price)
No fractional shares shall be issuable upon exercise of the Conversion
Right, and, if the number of shares to be issued determined in accordance with
the foregoing formula is other than a whole number, the Company shall pay to the
holder an amount in cash equal to the fair market value of the resulting
fractional share on the Conversion Date (as hereinafter defined). For purposes
of Section 9 of this Warrant, shares issued pursuant to the Conversion Right
shall be treated as if they were issued upon the exercise of this Warrant.
b. Method of Exercise. The Conversion Right may be exercised by
------------------
the holder by the surrender of this Warrant at the principal office of the
Company together with a written statement specifying that the holder thereby
intends to exercise the Conversion Right and indicating the number of shares
subject to this Warrant which are being surrendered
19
(referred to in subsection (a) hereof as the Converted Warrant Shares) in
exercise of the Conversion Right. Such conversion shall be effective upon
receipt by the Company of this Warrant together with the aforesaid written
statement, or on such later date as is specified therein (the "Conversion
Date"). Certificates for the shares issuable upon exercise of the Conversion
Right and, if applicable, a new warrant evidencing the balance of the shares
remaining subject to this Warrant, shall be issued as of the Conversion Date and
shall be delivered to the holder within thirty (30) days following the
Conversion Date.
c. Determination of Fair Market Value. For purposes of this
----------------------------------
Section 10.3, "fair market value" of a share of Common Stock shall have the
meaning set forth in Section 4(h) above.
11. Representations and Warranties. The Company represents and
------------------------------
warrants to the holder of this Warrant as follows:
a. This Warrant has been duly authorized and executed by the
Company and is a valid and binding obligation of the Company enforceable in
accordance with its terms, subject to laws of general application relating to
bankruptcy, insolvency and the relief of debtors and the rules of law or
principles at equity governing specific performance, injunctive relief and other
equitable remedies;
b. The Shares have been duly authorized and reserved for issuance
by the Company and, when issued in accordance with the terms hereof, will be
validly issued, fully paid and nonassessable;
c. The rights, preferences, privileges and restrictions granted
to or imposed upon the Common Stock and the holders thereof are as set forth in
the Charter, as amended to the Date of Grant, a true and complete copy of which
has been delivered to the original holder of this Warrant;
d. The execution and delivery of this Warrant are not, and the
issuance of the Shares upon exercise of this Warrant in accordance with the
terms hereof will not be, inconsistent with the Charter or by-laws, do not and
will not contravene, in any material respect, any governmental rule or
regulation, judgment or order applicable to the Company, and do not and will not
conflict with or contravene any provision of, or constitute a default under, any
indenture, mortgage, contract or other instrument of which the Company is a
party or by which it is bound or require the consent or approval of, the giving
of notice to, the registration or filing with or the taking of any action in
respect of or by, any Federal, state or local government authority or agency or
other person, except for the filing of notices pursuant to federal and state
securities laws, which filings will be effected by the time required thereby;
e. There are no actions, suits, audits, investigations or
proceedings pending or, to the knowledge of the Company, threatened against the
Company in any court or before any governmental commission, board or authority
which, if adversely determined, will have a material adverse effect on the
ability of the Company to perform its obligations under this Warrant;
20
f. The authorized capital stock of the Company consists of Fifty
Million (50,000,000) shares of Common Stock, of which approximately Ten Million
Six Hundred Seventy-Six Thousand Eight Hundred Fifteen (10,676,815) shares were
issued and outstanding as of the close of business on October 27, 1995, and Five
Hundred Thousand (500,000) shares of Preferred Stock, no par value, of which no
shares are issued and outstanding as of the date hereof. All such outstanding
shares have been validly issued and are fully paid, nonassessable shares free of
preemptive rights;
g. Other than the Warrants and except as disclosed in the
Company's most recent Proxy Statement and Form 10-K, there are no subscriptions,
options, warrants, or calls relating to any shares of the Company's capital
stock, including any right of conversion or exchange under any outstanding
security or other instrument; and
h. Except as disclosed in the Company's most recent Proxy
Statement and Form 10-K, the Company is not subject to any obligation
(contingent or otherwise) to repurchase or otherwise acquire or retire any
shares of its capital stock or any security convertible into or exchangeable for
any of its capital stock.
12. Modification and Waiver. This Warrant and any provision hereof may
-----------------------
be changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of the same is sought.
13. Notices. Any notice, request, communication or other document
-------
required or permitted to be given or delivered to the holder hereof or the
Company shall be delivered, or shall be sent by private courier or certified or
registered mail, postage prepaid, to each such holder at its address as shown on
the books of the Company or to the Company at the address indicated therefor on
the signature page of this Warrant.
14. Binding Effect on Successors. This Warrant shall be binding upon
----------------------------
any corporation succeeding the Company by merger, consolidation or acquisition
of all or substantially all of the Company's assets, and all of the obligations
of the Company relating to the Common Stock issuable upon the exercise or
conversion of this Warrant shall survive the exercise, conversion and
termination of this Warrant and all of the covenants and agreements of the
Company shall inure to the benefit of the successors and assigns of the holder
hereof. The Company will, at the time of the exercise or conversion of this
Warrant, in whole or in part, upon request of the holder hereof but at the
Company's expense, acknowledge in writing its continuing obligation to the
holder hereof in respect of any rights to which the holder hereof shall continue
to be entitled after such exercise or conversion in accordance with this
Warrant; provided, that the failure of the holder hereof to make any such
request shall not affect the continuing obligation of the Company to the holder
hereof in respect of such rights.
15. Lost Warrants or Stock Certificates. The Company covenants to the
-----------------------------------
holder hereof that, upon receipt of evidence reasonably satisfactory to the
Company of the loss, theft, destruction or mutilation of this Warrant or any
stock certificate and, in the case of any loss, theft or destruction, upon
receipt of all executed lost securities bond or indemnity reasonably
satisfactory to the Company, or in the case of any such mutilation upon
surrender and
21
cancellation of such Warrant or stock certificate, the Company will make and
deliver a new Warrant or stock certificate, of like tenor, in lieu of the lost,
stolen, destroyed or mutilated Warrant or stock certificate.
16. Descriptive Headings. The descriptive headings of the several
--------------------
paragraphs of this Warrant are inserted for convenience only and do not
constitute a part of this Warrant.
17. Governing Law. This Warrant shall be construed and enforced in
-------------
accordance with, and the rights of the parties shall be governed by, the laws of
the State of California.
18. Survival of Representations, Warranties and Agreements. All
------------------------------------------------------
representations and warranties of the Company and the holder hereof contained
herein shall survive the Date of Grant, the exercise or conversion of this
Warrant (or any part hereof) or the termination or expiration of rights
hereunder. All agreements of the Company and the holder hereof contained herein
shall survive indefinitely until, by their respective terms, they are no longer
operative.
19. Remedies. In case any one or more of the covenants and agreements
--------
contained in this Warrant shall have been breached, the holders hereof (in the
case of a breach by the Company), or the Company (in the case of a breach by a
holder), may proceed to protect and enforce their or its rights either by suit
in equity and/or by action at law, including, but not limited to, an action for
damages as a result of any such breach and/or an action for specific performance
of any such covenant or agreement contained in this Warrant.
20. Acceptance. Receipt of this Warrant by the holder hereof shall
----------
constitute acceptance of and agreement to the foregoing terms and conditions.
21. No Impairment of Rights. The Company will not, by amendment of its
-----------------------
Charter or through any other means, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all such
action as may be necessary or appropriate in order to protect the rights of the
holder of this Warrant against impairment.
QMS, INC.
By:
--------------------------------------
Title: -----------------------------------
Address: ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Date: November 7, 1995
22
EXHIBIT A
NOTICE OF EXERCISE
To: QMS, Inc.
1. The undersigned hereby elects to purchase ___________ shares of
Common Stock of QMS, Inc. pursuant to the terms of the attached Warrant, and
tenders herewith payment of the purchase price of such shares in full.
2. Please issue a certificate or certificates representing said shares
in the name of the undersigned or in such other name or names as are specified
below:
------------------------------------------
(Name)
------------------------------------------
------------------------------------------
(Address)
3. The undersigned represents that the aforesaid shares are being
acquired for the account of the undersigned for investment and not with a view
to, or for resale in connection with, the distribution thereof and that the
undersigned has no present intention of distributing or reselling such shares.
In support thereof, the undesigned has executed an Investment Representation
Statement attached hereto as Schedule 1.
------------------------------------------
(Signature)
--------------------------
(Date)
Schedule 1
----------
INVESTMENT REPRESENTATION STATEMENT
Purchaser:
Company: QMS, Inc.
Security: Common Stock
Amount:
Date:
In connection with the purchase of the above-listed securities (the
"Securities"), the undersigned (the "Purchaser") represents to the Company as
follows:
(a) The Purchaser is aware of the Company's business affairs and
financial condition, and has acquired sufficient information about the Company
to reach an informed and knowledgeable decision to acquire the Securities. The
Purchaser is purchasing the Securities for its own account for investment
purposes only and not with a view to, or for the resale in connection with, any
"distribution" thereof for purposes of the Securities Act of 1933, as amended
(the "Act").
(b) The Purchaser understands that the Securities have not been
registered under the Act in reliance upon a specific exemption therefrom, which
exemption depends upon, among other things, the bona fide nature of the
Purchaser's investment intent as expressed herein. In this connection, the
Purchaser understands that, in the view of the Securities and Exchange
Commission ("SEC"), the statutory basis for such exemption may be unavailable if
the Purchaser's representation was predicated solely upon a present intention to
hold these Securities for the minimum capital gains period specified under
applicable tax laws, for a deferred sale, for or until an increase or decrease
in the market price of the Securities, or for a period of one year or any other
fixed period in the future.
(c) The Purchaser further understands that the Securities must be held
indefinitely unless subsequently registered under the Act or unless an exemption
from registration is otherwise available. In addition, the Purchaser understands
that the certificate evidencing the Securities will be imprinted with the legend
referred to in the Warrant under which the Securities are being purchased.
(d) The Purchaser is aware of the provisions of Rule 144 and 144A,
promulgated under the Act, which, in substance, permit limited public resale of
"restricted securities" acquired, directly or indirectly, from the issuer
thereof (or from an affiliate of such issuer), in a non-public offering subject
to the satisfaction of certain conditions, if applicable, including, among other
things: The availability of certain public information about the Company, the
resale occurring not less than two (2) years after the party has purchased and
paid for the securities to be sold; the sale being made through a broker in an
unsolicited "broker's transaction" or in transactions directly with a market
maker (as said term is defined under the Securities Exchange Act of 1934, as
amended) and the amount of securities being sold during any three-month period
not exceeding the specified limitations stated therein.
(e) The Purchaser further understands that at the time it wishes to
sell the Securities there may be no public market upon which to make such a
sale, and that, even if such a public market then exists, the Company may not be
satisfying the current public information requirements of Rule 144 and 144A, and
that, in such event, the Purchaser may be precluded from selling the Securities
under Rule 144 and 144A even if the two-year minimum holding period had been
satisfied.
(f) The Purchaser further understands that in the event all of the
requirements of Rule 144 and 144A are not satisfied, registration under the Act,
compliance with Regulation A, or some other registration exemption will be
required; and that, notwithstanding the fact that Rule 144 is not exclusive, the
Staff of the SEC has expressed its opinion that persons proposing to sell
private placement securities other than in a registered offering and otherwise
than pursuant to Rule 144 will have a substantial burden or proof in
establishing that an exemption from registration is available for such offers or
sales, and that such persons and their respective brokers who participate in
such transactions do so at their own risk.
Purchaser:
------------------------------------------
Date: , 19
-------------------- ------------
GENERAL SECURITY AGREEMENT
--------------------------
THIS SECURITY AGREEMENT is made as of November 7, 1995 BETWEEN:
QMS CANADA INC., with a place of business at ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇-▇▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇ ▇▇▇
(the "Debtor")
OF THE FIRST PART
AND:
FOOTHILL CAPITAL CORPORATION, with a place of business at ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, 90025-
33333
(the "Secured Party")
OF THE SECOND PART
1. SECURITY INTEREST
-----------------
1.1 For valuable consideration and as continuing security for the payment and
performance of the obligations referred to in Clause 3 hereof, the Debtor,
subject to the exceptions set out in Clause 2, hereby mortgages, charges,
assigns and transfers to the Secured Party, and grants to the Secured Party a
continuing, specific and fixed security interest in all the Debtor's right,
title and interest in and to all presently owned or held and after acquired or
held personal property, assets, rights and undertakings of the Debtor (other
than real property), of whatever nature or kind and wheresoever situate and all
proceeds thereof and therefrom (all of which is hereinafter collectively called
the "Collateral") including, without limiting the generality of the foregoing:
(a) Equipment
---------
All equipment, including, without limiting the generality of the
foregoing, machinery, tools, fixtures, furniture, furnishings,
chattels, motor vehicles, vessels and other tangible personal
property that is not Inventory (as defined below), and all parts,
components, attachments, accessories, accessions, replacements,
substitutions, additions and improvements to any of the foregoing
(all of which is hereinafter collectively called the "Equipment"),
(b) Inventory
---------
All inventory, including, without limiting the generality of the
foregoing, goods acquired or held for sale, license, or lease or
furnished or to be furnished under contracts of license, rental or
service, all raw materials, goods in process, finished goods,
returned goods, repossessed goods, and all packaging materials,
supplies and containers relating to or used or consumed in
connection with any of the foregoing (all of which is hereinafter
collectively called the "Inventory"),
(c) Accounts
--------
All debts, accounts, demands, claims, modes and choses in action
which now are, or which may at any time hereafter be, due or owing
to or owned by the Debtor and all books, records, documents, papers
and electronically recorded data recording, evidencing or relating
to the said debts, accounts, claims, monies and choses in action or
any part thereof (all of which is hereinafter collectively called
the "Accounts"),
(d) Intangibles
-----------
All contractual rights, licenses, goodwill, patents, trade-marks,
trade names, copyrights, source codes, software, and other
intellectual property of the Debtor, all other choses in action of
the Debtor of every kind which now are, or which may at any time
hereafter be, due or owing to or owned by the Debtor, and all other
intangible property of the Debtor that is not Accounts, chattel
paper, instruments, documents of title, securities or money (all of
which is hereinafter collectively called the "Intangibles"),
(e) Other Personal Property
-----------------------
All documents of title, chattel paper, instruments, securities and
money, and all other personal property of the Debtor that are not
Equipment, Inventory, Accounts or Intangibles, and
(f) Proceeds
--------
All proceeds of the Accounts, Inventory, Equipment, Intangibles and
the other personal property described in sub-clause 1.1(e) herein,
present and future, including but not limited to all goods,
intangibles, securities, documents of title, chattel paper,
instruments, money, crops or licenses, as the case may be, and all
proceeds of proceeds (all of which is hereinafter collectively
called the "Proceeds").
2
1.2 The security interests created hereby will operate as a fixed and specific
charge of all of the Collateral presently existing, and with respect to all
future Collateral, will operate as a fixed and specific charge of such future
Collateral which will attach as of the moment the Debtor acquires any rights
therein. The security interests created hereby are not intended as and will not
be interpreted or construed as a floating charge.
2. EXCEPTIONS
----------
2.1 The last day of any term reserved by any lease, verbal or written, or any
agreement therefor, now held or hereafter acquired by the Debtor is hereby
excepted out of the charge hereby or by any other instrument created, but the
Debtor will assign and dispose of the same in such manner as the Secured Party
may from time to time direct in writing and, upon any sale of any such leasehold
premises by the Secured Party as provided for herein, the Secured Party will,
for the purpose of vesting the aforesaid residue of any such term in any
purchaser or any other person, firm or partnership, be entitled by deed or other
written instrument to assign to such purchaser or other person, firm or
partnership the aforesaid residue of any such term in place of the Debtor and to
vest the same freed and discharged from any obligation whatsoever respecting the
same.
2.2 There will be excluded from the security interests hereby created any
consumer goods of the Debtor.
3. OBLIGATIONS SECURED
-------------------
3.1 This Security Agreement and the security interests hereby created are in
addition to and not in substitution for any other security interest now or
hereafter held by the Secured Party from the Debtor or from any other person
whomsoever and will be general and continuing security for the payment of all
indebtedness and liability of the Debtor to the Secured Party (including any
interest, bonus or penalty thereon), present and future, absolute or contingent,
joint or several, direct or indirect, matured or not, extended or renewed,
wheresoever and howsoever incurred, and any ultimate balance thereof, including
all future advances and re-advances or guarantees thereof, and for the
performance of all obligations, agreements, warranties, representations,
covenants and conditions of the Debtor made pursuant to this Security Agreement
or any other agreement between the Debtor and the Secured Party, including
without limitation that certain General Continuing Guaranty, of even date
herewith, all as now in effect or as hereinafter entered into or amended (all of
which indebtedness, liability, and obligations are hereinafter collectively
called the "Obligations").
3.2 The Debtor will and will be deemed to hold all proceeds separate and in
trust for the benefit of the Secured Party until all amounts owing by the Debtor
to the Secured Party have been paid in full to the Secured Party.
3
4. PROHIBITIONS
------------
Without the prior written consent of the Secured Party the Debtor will not
have power to:
(a) except for Permitted Liens, create or permit to exist any security
interest in, charge, encumbrance or lien over, or claim against any
of its property, assets, or undertakings, or
(b) grant, sell, or otherwise assign its chattel paper.
5. ATTACHMENT
----------
The Debtor agrees and acknowledges that the security interests hereby
created attach upon the execution of this Security Agreement (or in the case of
any after acquired property, upon the date of acquisition thereof), that value
has been given, and that the Debtor has, or in the case of after acquired
property will have, rights in the Collateral.
6. REPRESENTATIONS AND WARRANTIES
------------------------------
6.1 The Debtor, if a company or a partnership, represents and warrants that this
Security Agreement is granted in accordance with resolutions of the directors
(and of the shareholders as applicable) or of the partners, as the case may be,
of the Debtor and all other matters and things have been done and performed so
as to authorize and make the execution and delivery of this Security Agreement,
and the performance of the Obligations, legal, valid and binding.
6.2 The Debtor represents and warrants that the Debtor lawfully owns and
possesses all presently held Collateral and has good title thereto, free from
all security interests, charges, encumbrances, liens and claims, save only the
charges or security interests, if any, shown on the Schedule hereto under "Other
Charges and Security Interests" and those consented to in writing by the Secured
Party, and the Debtor has good right and lawful authority to grant a security
interest in the Collateral as provided by this Security Agreement.
6.3 QMS CANADA INC. is duly incorporated, properly organized and validly
existing under the laws of Canada and is duly registered and qualified to do
business under the laws of each and every jurisdiction in which the character of
the properties owned by it or the nature of the activities conducted by it make
such registration or qualification advisable or necessary.
6.4 The Debtor has its chief executive office located at:
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇-▇▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇ ▇▇▇
4
6.5 There is no action or proceeding pending or to the knowledge of the Debtor
threatened against the Debtor before any court, administrative agency, tribunal,
arbitrator, government or governmental agency or any fact known to the Debtor
and not disclosed to the Secured Party which might involve any material adverse
change in the properties, business prospects or condition of the Debtor, or
question the validity of this Security Agreement or any other material agreement
to which the Debtor is a party (or the Debtor's ability to perform the
Obligations under this Security Agreement) and there are no outstanding
judgments, writs of execution, work orders, injunctions, or directives against
the Debtor or its properties.
6.6 Each debt, chattel paper and instrument constituting Collateral is genuine
and enforceable in accordance with its terms against the party obligated to pay
thereunder (the "Account Debtor").
6.7 The amount represented by the Debtor to the Secured Party from time to time
as owing by each Account Debtor or by all Account Debtors will, to the best of
the Debtor's knowledge, be the correct amount actually and unconditionally owed
by such Account Debtor or Account Debtors, without known defenses, disputes,
offsets, counterclaims, or rights of return or cancellation.
7. COVENANTS OF THE DEBTOR
-----------------------
7.1 The Debtor covenants that at all times while this Security Agreement remains
in effect the Debtor will:
(a) defend, at the Debtor's expense, the title to the Collateral for the
benefit of the Secured Party against the claims and demands of all
persons (except those persons listed in the Schedule attached hereto
under "Other Charges and Security Interests", to the extent of such
charges and security interest in favour of such persons in the
Collateral listed in the Schedule) and notify the Secured Party
promptly of any claim, lien, charge, security interest or other
encumbrance made or asserted against any of the Collateral and of
any suit, action or proceeding affecting any of the Collateral,
(b) fully and effectually maintain and keep maintained the security
interests hereby created valid and effective,
(c) maintain the Collateral in good order, condition and repair and will
not use the Collateral in violation of this Security Agreement or
any other agreement relating to the Collateral or any policy
insuring the Collateral or any applicable statute, law, by-law,
rule, regulation, court order or ordinance,
(d) forthwith:
5
(i) comply with all the Obligations referred to in clause 3,
(ii) pay all amounts owing to the charge holders, if any,
shown in the Schedule hereto under "Other Charges and
Security interests, and will otherwise comply with the
terms, covenants and conditions of all such Other
Charges and Security Interests,
(iii) pay all taxes, assessments, rates, duties, levies,
government fees, claims and dues lawfully levied,
assessed or imposed upon the Debtor or the Collateral
when due, unless and except to the extent the validity
of such tax, assessment, rate, duty, levy, government
fee, claim or due is the subject of a Permitted Protest
(as defined in the Loan Agreement),
(iv) discharge and cause to be released all security
interests, charges, encumbrances, liens and claims which
rank or could rank in priority to any security interest
created by this Security Agreement, other than the
charges or security interests, if any, shown in the
Schedule hereto under "Other Charges and Security
Interests" or those consented to in writing by the
Secured Party;
(e) forthwith pay all actual costs, charges, expenses and legal fees and
disbursements (on an indemnity basis) which may be incurred by the
Secured Party in:
(i) inspecting the Collateral,
(ii) negotiating, preparing, perfecting and registering this
Security Agreement and other documents, whether or not
relating to this Security Agreement,
(iii) investigating title to the Collateral,
(iv) taking, recovering, keeping possession of and insuring
the Collateral, and
(v) all other actions and proceedings taken in connection
with the preservation of the Collateral and the
enforcement of this Security Agreement and of any other
security interest held by the Secured Party as security
for the Obligations,
(f) at the Secured Party's request at any time and from time to time
execute and deliver such further and other documents and instruments
and do all acts and things as the Secured Party in its absolute
discretion requires in order to confirm and perfect, and maintain
perfection of, the security interests and charges hereby created in
favour of the Secured Party upon any of the Collateral,
6
(g) notify the Secured Party promptly and accurately of:
(i) any change in the information contained herein relating
to the Debtor, its name, address, business or the
Collateral,
(ii) the details of any material acquisition or disposition
of the Collateral,
(iii) any material default by any Account Debtor in payment or
other performance of his, her or its obligations to the
Debtor with respect to any Accounts, and
(iv) the return to or repossession by the Debtor of
Collateral,
(h) prevent the Collateral, other than Inventory, from being sold,
licensed, leased, or otherwise disposed of (except as permitted
hereby or by the Loan Agreement), from being or becoming an
accession to other property not covered by this Security Agreement,
or from being or becoming a fixture to real property,
(i) the Secured Party or its agents will have the right to inspect the
Collateral and review and copy any and all information and data
relating to the Collateral or to any other transactions between the
parties hereto wherever and however such information and data may be
stored. In the event that the use of a computer system is required
to access such information and data, the Debtor will allow the
Secured Party the use of its computer system for such purpose and
will provide assistance in that regard. If for any reason the said
information and data cannot be accessed and retrieved at the
Debtor's premises the Secured Party may remove the medium in which
such information or data is stored from the Debtor's premises to any
other place which has a computer system that will give the Secured
Party the opportunity to retrieve, record or copy such information
and data. The Secured Party will be entitled to reproduce and retain
a copy of any such information and data in any format whatsoever,
(j) deliver to the Secured Party from time to time promptly upon
request:
(i) any documents of title, instruments, securities and
chattel paper constituting, representing or relating to
Collateral,
(ii) all books of account and all records, ledgers, reports,
correspondence, schedules, documents, statements, lists
and other writings relating to the Collateral for the
purpose of inspecting, auditing or copying the same,
7
(iii) all financial statements prepared by or for the Debtor
regarding the Debtor's business,
(iv) all policies and certificates of insurance relating to
the Collateral, and
(v) such information concerning the Collateral, the Debtor
and the Debtor's business and affairs as the Secured
Party may require,
(k) keep the Collateral at its principal place(s) of business as set out
in sub-clause 6.4 herein,
(l) give immediate written notice to the Secured Party of all loss or
damage to or loss of possession of the Collateral other than by sale
in the ordinary course of the Debtor's business,
(m) not carry on business under or use any name or style other than the
name(s) specified in this Security Agreement, without first
informing the Secured Party in writing, and
(n) carry on and conduct business in a proper and efficient manner so as
to protect and preserve the Collateral and at all times keep
accurate and complete records of the Collateral as well as proper
books of account for its business all in accordance with the
generally accepted accounting principles, consistently applied.
7.2 The Debtor, if a company, covenants that, subject to the Loan Agreement, at
all times while this Security Agreement remains in effect, without the prior
written consent of the Secured Party, it will not:
(a) declare or pay any dividends,
(b) purchase or redeem any of its shares or otherwise reduce its share
capital,
(c) guarantee any obligation,
(d) endorse any obligation or otherwise become liable upon any note or
other obligation other than bills of exchange deposited to the bank
account of the Debtor, or
8
(e) change its chief executive office or the location of any of the
Collateral or the records in respect thereof without giving the Secured Party 30
days prior written notice and unless, at the time of such written notification,
the Debtor provides any financing statements, fixture filings, or other
security-related documents necessary to perfect and continue perfected the
Secured Party's security interests and, if requested, also provides to the
Secured Party a landlord's waiver in form and substance satisfactory to the
Secured Party.
8. PERFORMANCE OF OBLIGATIONS
--------------------------
If the Debtor fails to perform any or all the Obligations hereunder, the
Secured Party may, but will not be obliged to, perform any or all of such
Obligations without prejudice to any other rights and remedies of the Secured
Party hereunder, and any payments made and any costs, charges, expenses and
legal fees and disbursements incurred in connection therewith will be payable by
the Debtor on an indemnity basis to the Secured Party forthwith with interest
until fully paid at the highest rate borne by any of the Obligations and such
amounts will be a charge upon and security interest in the Collateral in favour
of the Secured Party prior to all claims subsequent to this Security Agreement.
9. RESTRICTIONS ON SALE OR DISPOSAL OF COLLATERAL
----------------------------------------------
Except as provided herein or in the Loan Agreement, without the prior
written consent of the Secured Party the Debtor will not:
(a) sell, license, lease or otherwise dispose of Collateral, except to
buyers in the ordinary course of business;
(b) release, surrender or abandon possession of Collateral; or
(c) move or transfer the Collateral from any location.
10. DEFAULT
-------
The Debtor will be in default under this Security Agreement, unless
expressly and specifically waived in writing by the Secured Party, in any of the
events referred to and defined as an "Event of Default" in the Loan Agreement.
11. ENFORCEMENT
-----------
11.1 Upon any default under this Security Agreement the Secured Party may
declare any or all of the Obligations not payable on demand to become
immediately due and payable and the security hereby constituted will immediately
become enforceable. To enforce and realize on the security constituted by this
9
Security Agreement the Secured Party may take any action permitted by law or in
equity, as it may deem expedient, and in particular, without limiting the
generality of the foregoing, the Secured Party may do any of the following:
(a) appoint by instrument a receiver, receiver and manager or receiver-
manager (the person so appointed is hereinafter called the
"Receiver") of the Collateral, with or without bond as the Secured
Party may determine, and from time to time in its absolute
discretion remove such Receiver and appoint another in its stead,
(b) enter upon any premises of the Debtor and take possession of the
Collateral with power to exclude the Debtor, its agents and its
servants therefrom, without becoming liable as a mortgagee in
possession,
(c) preserve, protect and maintain the Collateral and make such
replacements thereof and repairs and additions thereto as the
Secured Party may deem advisable,
(d) retain and administer the Collateral in the Secured Party's sole and
unfettered discretion, which the Debtor hereby acknowledges is
commercially reasonable,
(e) sell, lease or otherwise dispose of all or any part of the
Collateral, whether by public or private sale or lease or otherwise,
in such manner, at such price as can be reasonably obtained therefor
and on such terms as to credit and with such conditions of sale and
stipulations as to title or conveyance or evidence of title or
otherwise as to the Secured Party may seem reasonable, provided that
if any sale is on credit the Debtor will not be entitled to be
credited with the proceeds of any such sale, lease or other
disposition until the monies therefor are actually received, and
(f) exercise any or all of the rights and remedies of a secured party
under the Act.
11.2 To assist the Secured Party in the implementation of such rights and
remedies, the Debtor will, at its own risk and expense and at the Secured
Party's request, assemble and prepare for removal of such items of the
Collateral as are selected by the Secured Party and will, in the Secured Party's
sole judgment, but without prejudice to the Secured Party's right to realize on
further items of the Collateral, have a value sufficient to cover all the
Obligations.
11.3 The Secured Party will not be liable or accountable for any failure to
exercise its remedies, take possession of, seize, collect, realize, sell, lease
or otherwise dispose of or obtain payment for the Collateral and will not be
bound to institute proceedings for such purposes for the purpose of preserving
any rights of the Secured Party, the Debtor or any other person, firm, or
corporation in respect of same.
11.4 A Receiver appointed pursuant to this Security Agreement will be the agent
of the Debtor and not of the Secured Party and, to the extent permitted by law
10
or to such lesser extent permitted by its appointment, will have all the powers
of the Secured Party hereunder, and in addition will have power to carry on the
business of the Debtor and for such purpose from time to time to borrow money
either secured or unsecured, and if secured, by granting a security interest on
any of the Collateral; such security interest may rank before or pari passu with
or behind any security interest created by this Security Agreement, and if it
does not so specify such security interest will rank before the security
interest created by this Security Agreement.
11.5 Subject to the claims, if any, of the creditors of the Debtor ranking in
priority to this Security Agreement, all amounts realized from the disposition
of Collateral pursuant to this Security Agreement will be applied as the Secured
Party, in its absolute discretion, may direct as follows:
(a) in payment of all actual costs, charges and expenses (including
legal fees and disbursements on an indemnity basis) incurred by the
Secured Party in connection with or incidental to:
(b) the exercise by the Secured Party of all or any of the powers
granted to it pursuant to this Security Agreement, and
(c) the appointment of the Receiver and the exercise by the Receiver of
all or any of the powers wanted to it pursuant to this Security
Agreement, including the Receiver's reasonable remuneration and all
outgoings properly payable by the Receiver,
(d) in or toward payment to the Secured Party of all principal and other
monies (except interest) due in respect of the Obligations, and
(e) in or toward payment to the Secured Party of all interest remaining
unpaid in respect of the Obligations.
Subject to applicable law and the claims, if any, of other creditors of the
Debtor, any surplus will be paid to the Debtor.
12. DEFICIENCY
----------
If the amounts realized from the disposition of the Collateral are not
sufficient to pay and discharge the Obligations in full the Debtor will
immediately pay to the Secured Party the amount of such deficiency.
13. RIGHTS CUMULATIVE
-----------------
All rights and remedies of the Secured Party set out in this Security
Agreement, the Act or existing otherwise at law are cumulative and concurrent
11
and no right or remedy contained herein or in the Act is intended to be
exclusive but each will be in addition to every other right or remedy continued
herein or in the Act or in any existing or future security agreement or now or
hereafter existing at law, in equity or by statute, or pursuant to any other
agreement between the Debtor and the Secured Party that may be in effect from
time to time.
14. LIABILITY OF SECURED PARTY
--------------------------
The Secured Party will not be responsible or liable for any debts
contracted by it, for damages to persons or property or for salaries or non-
fulfillment of contracts during any period when the Secured Party will manage
the Collateral upon entry, as herein provided, nor will the Secured Party be
liable to account as mortgagee in possession or for anything except actual
receipts or be liable for any loss on realization or for any default or omission
for which a mortgagee in possession may be liable. The Secured Party will not be
bound to do, observe or perform or to see to the observance or performance by
the Debtor of any of the Obligations or covenants imposed upon the Debtor nor
will the Secured Party, in the case of securities, instruments or chattel paper,
be obliged to preserve rights against other persons, nor will the Secured Party
be obliged to keep any of the Collateral identifiable. The Debtor hereby waives
any applicable provision of law permitted to be waived by it which imposes
higher or greater obligations upon the Secured Party than aforesaid.
15. APPOINTMENT OF ATTORNEY
-----------------------
The Debtor hereby irrevocably constitutes and appoints the Secured Parry
or the Receiver, as the case may be, with full power of substitution, the true
and lawful attorney of the Debtor for and in the name of the Debtor to sign,
endorse, or execute under seal or otherwise any deeds, documents, transfers,
cheques, instruments, demands, assignments, assurances or consents that the
Debtor is obliged to sign, endorse or execute and generally to use the name of
the Debtor and to do all things as may be necessary or incidental to the
exercise of all or any of the powers conferred on the Secured Party or the
Receiver, as the case may be, pursuant to this Security Agreement. The Debtor
hereby declares that the irrevocable power of attorney granted hereby, being
coupled with an interest, is given for valuable consideration.
16. ACCOUNTS
--------
Notwithstanding any other provision of this Security Agreement, the
Secured Party may collect, realize, sell or otherwise deal with the Accounts or
any part thereof in such manner, upon such terms and conditions and at such time
or times, whether before or after default, as may seem to it advisable, and
without notice to the Debtor, except in the case of disposition after default
and then subject to the provisions of Part V of the Act. All monies or other
forms of payment received by the Debtor in payment of any or all of the Accounts
will be received and held by the Debtor in trust for the Secured Party, and in
such event, the Debtor, if in default under this Security Agreement, will
immediately forward such payment to the Secured Party without the necessity of
the Secured Party requesting or demanding same.
12
17. APPROPRIATION OF PAYMENTS
-------------------------
Any and all payments made in respect of the Obligations from time to time
and monies realized from any security interests held therefor (including monies
collected in accordance with or realized on any enforcement of this Security
Agreement) may be applied to such part or parts of the Obligations as the
Secured Party may see fit and the Secured Party may at all times and from time
to time change any such appropriation as the Secured Party may see fit.
18. OBLIGATION TO ADVANCE
---------------------
The preparation, execution, perfection or registration of this Security
Agreement or the advance of any money will not bind the Secured Party to make
any further advance or loan or further advance or loan, or extend any further
credit or renew any note or extend any time for payment of any indebtedness or
liability of the Debtor to the Secured Party.
19. WAIVER
------
The Secured Party may in writing from time to time and at any time waive
in whole or in part any right, benefit or default under any clause of this
Security Agreement but any such waiver of any right, benefit or default on any
occasion will be deemed not to be a waiver of any such right, benefit or default
thereafter, or of any other right, benefit or default, as the case may be,
present or future.
20. NOTICE
------
All notices and other communications hereunder to the Secured Party shall
be in writing and shall be mailed, sent or delivered in accordance with the Loan
Agreement and all notices and other communications hereunder to the Debtor shall
be in writing and shall be mailed, sent or delivered in care of QMS, Inc. in
accordance with the Loan Agreement.
21. EXTENSIONS
----------
The Secured Party may grant extensions of time and other indulgences, take
and give up security, accept compositions, compound, compromise, settle, grant
releases and discharges, refrain from perfecting or maintaining perfection of
security interests, and otherwise deal with the Debtor, account debtors of the
Debtor, sureties and others and with the Collateral and other security interests
as the Secured Party may see fit without prejudice to the liability of the
Debtor or the Secured Party's right to hold and realize on the security
constituted by this Security Agreement.
13
22. NO MERGER
---------
This Security Agreement will not operate so as to create any merger or
discharge of any of the Obligations, or any assignment, transfer, guarantee,
lien, contract, promissory note, ▇▇▇▇ of exchange or security interest of any
form held or which may hereafter be held by the Secured Party from the Debtor or
from any other person whomsoever. The taking of a judgment with respect to any
of the Obligations will not operate as a merger of any of the covenants
contained in this Security Agreement.
23. ASSIGNMENT
----------
The Secured Party may, without further notice to the Debtor, at any time
assign, transfer or grant a security interest in this Security Agreement and the
security interests granted hereby. The Debtor expressly agrees that the
assignee, transferee or secured party, as the case may be, will have all of the
Secured Party's rights and remedies under this Security Agreement and the Debtor
will not assert any defence, counterclaim, right of set-off or any other claim
which it now has or hereafter acquires against the Secured Party in any action
commenced by such assignee, transferee or secured party, as the case may be, and
will pay any or all of the Obligations to the assignee, transferee or secured
party, as the case may be, as such Obligations become due.
24. SATISFACTION AND DISCHARGE
--------------------------
Any partial payment or satisfaction of the Obligations, or the Debtor
ceasing to be indebted to the Secured Party, will be deemed not to be redemption
or discharge of this Security Agreement. The Debtor will be entitled to a
release and discharge of this Security Agreement upon full payment and
satisfaction of all Obligations and upon written request by the Debtor and
payment to the Secured Party of all costs, charges, expense and legal fees and
disbursements (on a solicitor and his own client basis) incurred by the Secured
Party in connection with the Obligations and such release and discharge.
25. RISK AND INSURANCE
------------------
The Debtor will bear the sole risk of any loss, damage, destruction or
confiscation of or to the Collateral while in the Debtor's possession before or
after default hereunder. The Debtor will insure the Collateral against loss or
damage by fire, theft and other insurable perils for the full insurable value
thereof with loss payable to the Secured Party as its interest may appear. All
such policies of insurance will provide that the insurance coverage provided
thereunder will not be changed or cancelled except on 30 days notice to the
Secured Party. If the Debtor fails to so insure, the Secured Party may, but is
not obligated to, insure the Collateral and the premiums for such insurance will
be added to the balance of the Obligations secured hereunder as they exist at
the date of the payment of such premium by the Secured Party.
14
26. INDEMNITY
---------
The Debtor will indemnify and save the Secured Party harmless from any and
all costs, expenses, liabilities and damages which may be incurred by the
Secured Party in connection with the Collateral and the enforcement of its
rights hereunder, save only any costs, expenses, liabilities or damages
resulting from any gross neglect or willful misconduct by the Secured Party or
its servants or agents.
27. LIMITATION OF LIABILITY
-----------------------
The Secured Party will not be liable by reason of any entry into or taking
possession of any or all of the Collateral hereby charged, to account as
mortgagee in possession or for anything except actual receipts or to be liable
for any loss and realization or any act or omission for which a Secured Party in
possession might be liable. The Debtor hereby releases and discharges the
Secured Party and the Receiver from every claim of every nature, whether
sounding in damages or not, which may arise on the part of or be caused by the
Debtor or any person claiming through or under the Debtor by reason or as a
result of anything done by the Secured Party or any successor or assign claiming
through or under the Secured Party or the Receiver under the provisions of this
Security Agreement unless such claim be the result of gross neglect or wilful
misconduct.
28. SECURITY IN ADDITION AND NOT IN SUBSTITUTION
--------------------------------------------
This Security Agreement and the security interests created hereby are in
addition to and not in substitution for any other security or rights now or
hereafter held by the Secured Party for the performance of any of the
Obligations.
29. FURTHER ASSURANCES
------------------
The Debtor will sign further and other documents and will do and perform
and cause to be done and performed such further and other acts and things as may
be necessary or desirable in order to give full effect to this Security
Agreement and every part hereof and to protect, preserve and perfect the
security interests hereby created.
30. ENUREMENT
---------
This Security Agreement will enure to the benefit of the Secured Party and
its successors and assigns, and will be binding upon the respective heirs,
executors, personal representatives, successors and permitted assigns of the
Debtor.
15
31. INTERPRETATION
--------------
31.1 In this Security Agreement:
(a) "Collateral" has the meaning set out in Clause 1 hereof and any
reference to Collateral will, unless the context otherwise requires,
be deemed a reference to Collateral as a whole or any part thereof,
(b) "Debtor" and the personal pronoun "it" or "its" and any verb
relating thereto and used therewith will be read and construed as
required by and in accordance with the context in which such words
are used depending upon whether the Debtor is one or more
individuals, corporations or partnerships and if more than one, will
apply and be binding upon each of them jointly and severally, and
(c) "the Act" means the Personal Property Security Act of British
Columbia and all regulations thereunder as amended from time to
time.
(d) "Loan Agreement" refers to the Loan and Security Agreement of even
date herewith made by and between QMS, Inc., a Delaware corporation
and sole shareholder of the Debtor and the Secured Party.
(e) In the event of a direct conflict between the terms and provisions
of this Security Agreement and the Loan Agreement, it is the
intention of the parties hereto that both such documents shall be
read together and construed, to the fullest extent possible, to be
in concert with each other. In the event of any actual,
irreconcilable conflict that cannot be resolved as aforesaid: (a)
the terms and provisions of this Security Agreement shall control
and govern in respect of the treatment of Collateral and the Debtor,
in each case, under Canadian law; provided, however, that the
inclusion herein of additional obligations on the part of the Debtor
and supplemental rights and remedies in favor of the Secured Party,
in each case in respect of the Collateral and under Canadian law,
shall not be deemed a conflict between the Loan Agreement and this
Security Agreement; and (b) the provisions of the Loan Agreement
shall control in all other respects.
31.2 Words, phrases and expressions used herein that have been defined in the
Act will be interpreted in accordance with their respective meanings given in
the Act unless otherwise defined herein or unless the context otherwise
requires.
31.3 The invalidity or unenforceability of the whole or any part of any clause
of this Security Agreement will not affect the validity or enforceability of any
other clauses or the remainder of such clause and such invalid or unenforceable
clause or part thereof will be ineffective only to the extent of such invalidity
or unenforceability and will be severable without invalidating or otherwise
affecting the remaining provisions hereof.
16
31.4 The headings of the clauses of this Security Agreement have been inserted
for reference only and do not define, limit, alter or enlarge the meaning of any
provision of this Security Agreement.
31.5 This Security Agreement will be governed by the laws of British Columbia.
32. COPY OF AGREEMENT AND FINANCING STATEMENT
-----------------------------------------
The Debtor hereby:
(a) acknowledges receiving copies of this Security Agreement and the
Loan Agreement, and
(b) waives all rights to receive from the Secured Party a copy of any
financing statement, financing change statement or verification
statement filed or received at any time in respect of this Security
Agreement.
IN WITNESS WHEREOF the Debtor has executed this Security Agreement as of
November 7, 1995.
QMS CANADA INC.
Per:
-------------------------------------
Authorized Signatory
17
SCHEDULE to GENERAL SECURITY AGREEMENT made by QMS CANADA INC.
in favour of FOOTHILL CAPITAL CORPORATION as of November 7, 1995
OTHER CHARGES AND SECURITY INTERESTS
------------------------------------
Those charges and security interests referred to in the definition of "Permitted
Liens" in the Loan Agreement.
18
GENERAL CONTINUING GUARANTY
---------------------------
THIS GENERAL CONTINUING GUARANTY ("Guaranty"), dated as of
November 7, 1995, is executed and delivered by QMS Canada Inc., a corporation
organized under the laws of Canada ("Guarantor"), in favor of Foothill Capital
Corporation, a California corporation ("Guarantied Party"), in light of the
following:
WHEREAS, Debtor and Guarantied Party are, contemporaneously herewith,
entering into the Loan Agreement;
WHEREAS, Debtor presently owns one hundred percent of the issued and
outstanding stock of Guarantor, and Guarantor shall receive direct economic
benefit from Debtor by virtue of the loans, advances, and credit from Guarantied
Party; and
WHEREAS, in order to induce Guarantied Party to extend financial
accommodations to Debtor pursuant to the Loan Agreement, and in consideration
thereof, and in consideration of any loans or other financial accommodations
heretofore or hereafter extended by Guarantied Party to Debtor, whether pursuant
to the Loan Agreement or otherwise, Guarantor has agreed to guaranty the
Guarantied Obligations.
NOW, THEREFORE, in consideration of the foregoing, Guarantor hereby
agrees, in favor of Guarantied Party, as follows:
1. Definitions and Construction.
----------------------------
(a) Definitions. Capitalized terms used herein and not
-----------
otherwise defined herein shall have the meanings ascribed to them in the Loan
Agreement. The following terms, as used in this Guaranty, shall have the
following meanings:
"Debtor" shall mean QMS, Inc., a Delaware corporation.
------
"Guarantied Obligations" shall mean: (a) the due and
----------------------
punctual payment of the principal of, and interest (including, any and all
interest which, but for the application of the provisions of the Bankruptcy
Code, would have accrued on such amounts) on, and premium, if any, on the
Indebtedness owed by Debtor to Guarantied Party pursuant to the terms of the
Loan Documents; and (b) the due and punctual payment of all other present or
future Indebtedness owing by Debtor to Guarantied Party.
1
"Guarantied Party" shall have the meaning set forth in the
----------------
preamble to this Guaranty.
"Guarantor" shall have the meaning set forth in the
---------
preamble to this Guaranty.
"Guaranty" shall have the meaning set forth in the
--------
preamble to this document.
"Indebtedness" shall mean any and all obligations,
------------
indebtedness, or liabilities of any kind or character owed by Debtor to
Guarantied Party and arising directly or indirectly out of or in connection with
the Loan Agreement or the other Loan Documents, including all such obligations,
indebtedness, or liabilities, whether for principal, interest (including any and
all interest which, but for the application of the provisions of the Bankruptcy
Code, would have accrued on such amounts), premium, reimbursement obligations,
fees, costs, expenses (including attorneys and legal fees and disbursements, on
an indemnity basis), or indemnity obligations, whether heretofore, now, or
hereafter made, incurred, or created, whether voluntarily or involuntarily made,
incurred, or created, whether secured or unsecured (and if secured, regardless
of the nature or extent of the security), whether absolute or contingent,
liquidated or unliquidated, or determined or indeterminate, whether Debtor is
liable individually or jointly with others, and whether recovery is or hereafter
becomes barred by any statute of limitations or otherwise becomes unenforceable
for any reason whatsoever, including any act or failure to act by Guarantied
Party.
"Loan Agreement" shall mean that certain Loan and Security
--------------
Agreement, dated as of November 7, 1995, entered into between Debtor and
Guarantied Party.
(b) Construction. Unless the context of this Guaranty clearly
-----------
requires otherwise, references to the plural include the singular, references to
the singular include the plural, the part includes the whole, the terms
"include" and "including" are not limiting, and the term "or" has the inclusive
meaning represented by the phrase "and/or." The words "hereof," "herein,"
"hereby," "hereunder," and other similar terms refer to this Guaranty as a whole
and not to any particular provision of this Guaranty. Any reference in this
Guaranty to any of the following documents includes any and all alterations,
amendments, restatements, extensions, modifications, renewals, or supplements
thereto or thereof, as applicable: the Loan Agreement; this Guaranty; and the
other Loan Documents. Neither this Guaranty nor any uncertainty or ambiguity
herein shall be construed or resolved against Guarantied Party or Guarantor,
whether under any rule of construction or otherwise. On the contrary, this
Guaranty has been reviewed by Guarantor, Guarantied Party, and their respective
counsel, and shall be construed and interpreted according to the ordinary
meaning of the words used so as to fairly accomplish the purposes and intentions
of Guarantied Party and Guarantor.
2
2. Guarantied Obligations. Guarantor hereby irrevocably and
----------------------
unconditionally guaranties to Guarantied Party, as and for its own debt, until
final and indefeasible payment thereof has been made, (a) the payment of the
Guarantied Obligations, in each case when and as the same shall become due and
payable, whether at maturity, pursuant to a mandatory prepayment requirement, by
acceleration, or otherwise; it being the intent of Guarantor that the guaranty
set forth herein shall be a guaranty of payment and not a guaranty of
collection; and (b) the punctual and faithful performance, keeping, observance,
and fulfillment by Debtor of all of the agreements, conditions, covenants, and
obligations of Debtor contained in the Loan Agreement, and under each of the
other Loan Documents. Any interest to which this Guaranty applies which is based
on a rate calculated or determined on an annual period of 360 days (the
"Determined Rate") shall be considered, for the purposes of the Interest Act,
Canada, to be expressed as a nominal annual rate equivalent to such Determined
Rate multiplied by the actual number of days in the calendar year in which the
same is to be ascertained and divided by three hundred and sixty (360). In
respect to any matter under this Guaranty requiring the expression, calculation
or payment of interest, the concept or requirement of a deemed re-investment of
interest shall not be applied.
3. Continuing Guaranty. This Guaranty includes Guarantied Obligations
-------------------
arising under successive transactions continuing, compromising, extending,
increasing, modifying, releasing, or renewing the Guarantied Obligations,
changing the interest rate, payment terms, or other terms and conditions
thereof, or creating new or additional Guarantied Obligations after prior
Guarantied Obligations have been satisfied in whole or in part. To the maximum
extent permitted by law, Guarantor hereby waives any right to revoke this
Guaranty as to future Indebtedness. If such a revocation is effective
notwithstanding the foregoing waiver, Guarantor acknowledges and agrees that (a)
no such revocation shall be effective until written notice thereof has been
received by Guarantied Party, (b) no such revocation shall apply to any
Guarantied Obligations in existence on such date (including any subsequent
continuation, extension, or renewal thereof, or change in the interest rate,
payment terms, or other terms and conditions thereof), (c) no such revocation
shall apply to any Guarantied Obligations made or created after such date to the
extent made or created pursuant to a legally binding commitment of Guarantied
Party in existence on the date of such revocation, (d) no payment by Guarantor,
Debtor, or from any other source, prior to the date of such revocation shall
reduce the maximum obligation of Guarantor hereunder, and (e) any payment by
Debtor or from any source other than Guarantor subsequent to the date of such
revocation shall first be applied to that portion of the Guarantied Obligations
as to which the revocation is effective and which are not, therefore, guarantied
hereunder, and to the extent so applied shall not reduce the maximum obligation
of Guarantor hereunder.
3
4. Performance Under this Guaranty. In the event that Debtor fails to
-------------------------------
make any payment of any Guarantied Obligations, on or before the due date
thereof, or if Debtor shall fail to perform, keep, observe, or fulfill any other
obligation referred to in clause (b) of Section 2 hereof in the manner provided
in the Loan Agreement or the other Loan Documents, as applicable, Guarantor
immediately shall cause such payment to be made and each of such obligations to
be performed, kept, observed, or fulfilled.
5. Primary Obligations. This Guaranty is a primary and original
-------------------
obligation of Guarantor, is not merely the creation of a surety relationship,
and is an absolute, unconditional, and continuing guaranty of payment and
performance which shall remain in full force and effect without respect to
future changes in conditions, and Guarantor so intends. Guarantor agrees that it
is directly, and with any other guarantor of the Guarantied Obligations, jointly
and severally, liable to Guarantied Party, that the obligations of Guarantor
hereunder are independent of the obligations of Debtor or any other guarantor,
and that a separate action may be brought against Guarantor, whether such action
is brought against Debtor or any other guarantor, or whether Debtor, any other
guarantor, or any other Person is joined in such action. Guarantor agrees that
its liability hereunder shall be immediate and shall not be contingent upon the
exercise or enforcement by Guarantied Party of whatever remedies it may have
against Debtor, any other guarantor, or any other Person, or the enforcement of
any lien or realization upon any security Guarantied Party may at any time
possess. Guarantor agrees that any release which may be given by Guarantied
Party to Debtor, any other guarantor, or any other Person shall not release
Guarantor. Guarantor consents and agrees that Guarantied Party shall be under no
obligation to marshal any property or assets of Debtor or any other guarantor in
favor of Guarantor, or against or in payment of any or all of the Guarantied
Obligations.
6. Waivers.
-------
(a) Guarantor hereby waives: (i) notice of acceptance hereof;
(ii) notice of any loans or other financial accommodations made or extended
under the Loan Agreement, or the creation or existence of any Guarantied
Obligations; (iii) notice of the amount of the Guarantied Obligations, subject,
however, to Guarantor's right to make inquiry of Guarantied Party to ascertain
the amount of the Guarantied Obligations at any reasonable time; (iv) notice of
any adverse change in the financial condition of Debtor or of any other fact
that might increase Guarantor's risk hereunder; (v) notice of presentment for
payment, demand, protest, and notice thereof as to any instrument among the Loan
Documents; (vi) notice of any unmatured event of default or event of default
under the Loan Agreement; and (vii) all other notices (except if such notice is
specifically required to be given to Guarantor under this Guaranty or any other
Loan Documents to which Guarantor is a party) and demands to which Guarantor
might otherwise be entitled.
4
(b) To the fullest extent permitted by applicable law,
Guarantor waives the right by statute or otherwise to require Guarantied Party
to institute suit against Debtor or to exhaust any rights and remedies which
Guarantied Party has or may have against Debtor. In this regard, Guarantor
agrees that it is bound to the payment of each and all Guarantied Obligations,
whether now existing or hereafter arising, as fully as if such Guarantied
Obligations were directly owing to Guarantied Party by Guarantor. Guarantor
further waives any defense arising by reason of any disability or other defense
(other than the defense that the Guarantied Obligations shall have been fully
and finally performed and indefeasibly paid) of Debtor or by reason of the
cessation from any cause whatsoever of the liability of Debtor in respect
thereof.
(c) To the maximum extent permitted by law, Guarantor hereby
waives: (i) any rights to assert against Guarantied Party any defense (legal or
equitable), set-off, counterclaim, or claim which Guarantor may now or at any
time hereafter have against Debtor or any other party liable to Guarantied
Party; (ii) any defense, set-off, counterclaim, or claim, of any kind or nature,
arising directly or indirectly from the present or future lack of perfection,
sufficiency, validity, or enforceability of the Guarantied Obligations or any
security therefor; (iii) any defense arising by reason of any claim or defense
based upon an election of remedies by Guarantied Party including any defense
based upon an election of remedies by Guarantied Party under the provisions of
(S)(S) 580d and 726 of the California Code of Civil Procedure, or any similar
law of California or any other jurisdiction; (iv) the benefit of any statute of
limitations affecting Guarantor's liability hereunder or the enforcement
thereof, and any act which shall defer or delay the operation of any statute of
limitations applicable to the Guarantied Obligations shall similarly operate to
defer or delay the operation of such statute of limitations applicable to
Guarantor's liability hereunder.
(d) Until such time as all of the Guarantied Obligations have
been fully, finally, and indefeasibly paid in full in cash: (i) Guarantor hereby
waives and postpones any right of subrogation Guarantor has or may have as
against Debtor with respect to the Guarantied Obligations; (ii) in addition,
Guarantor hereby waives and postpones any right to proceed against Debtor or any
other Person, now or hereafter, for contribution, indemnity, reimbursement, or
any other suretyship rights and claims (irrespective of whether direct or
indirect, liquidated or contingent), with respect to the Guarantied Obligations;
and (iii) in addition, Guarantor also hereby waives and postpones any right to
proceed or to seek recourse against or with respect to any property or asset of
Debtor.
(e) If any of the Guarantied Obligations at any time are
secured by a mortgage or deed of trust upon real property, Guarantied Party may
elect, in its sole discretion, upon a default with respect to the Guarantied
Obligations, to foreclose such mortgage or deed of trust judicially or
5
nonjudicially in any manner permitted by law, before or after enforcing this
Guaranty, without diminishing or affecting the liability of Guarantor hereunder.
Guarantor understands that (a) by virtue of the operation of California's
antideficiency law applicable to nonjudicial foreclosures, an election by
Guarantied Party nonjudicially to foreclose such a mortgage or deed of trust
probably would have the effect of impairing or destroying rights of subrogation,
reimbursement, contribution, or indemnity of Guarantor against Debtor or other
guarantors or sureties, and (b) absent the waiver given by Guarantor herein,
such an election would estop Guarantied Party from enforcing this Guaranty
against Guarantor. Understanding the foregoing, and understanding that Guarantor
is hereby relinquishing a defense to the enforceability of this Guaranty,
Guarantor hereby waives any right to assert against Guarantied Party any defense
to the enforcement of this Guaranty, whether denominated "estoppel" or
otherwise, based on or arising from an election by Guarantied Party
nonjudicially to foreclose any such mortgage or deed of trust. Guarantor
understands that the effect of the foregoing waiver may be that Guarantor may
have liability hereunder for amounts with respect to which Guarantor may be left
without rights of subrogation, reimbursement, contribution, or indemnity against
Debtor or other guarantors or sureties. Guarantor also agrees that the "fair
market value" provisions of Section 580a of the California Code of Civil
Procedure shall have no applicability with respect to the determination of
Guarantor's liability under this Guaranty.
(f) WITHOUT LIMITING THE GENERALITY OF ANY OTHER WAIVER OR
OTHER PROVISION SET FORTH IN THIS GUARANTY, GUARANTOR HEREBY WAIVES, TO THE
MAXIMUM EXTENT SUCH WAIVER IS PERMITTED BY LAW, ANY AND ALL BENEFITS OR DEFENSES
ARISING DIRECTLY OR INDIRECTLY UNDER ANY ONE OR MORE OF CALIFORNIA CIVIL CODE
(S)(S) 2799, 2808, 2809, 2810, 2815, 2819, 2820, 2821, 2822, 2838, 2839, 2845,
2847, 2848, 2849, AND 2850, CALIFORNIA CODE OF CIVIL PROCEDURE (S)(S) 580a,
580b, 580c, 580d, AND 726, AND CHAPTER 2 OF TITLE 14 OF THE CALIFORNIA CIVIL
CODE.
(g) WITHOUT LIMITING THE GENERALITY OF ANY OTHER WAIVER OR
OTHER PROVISION SET FORTH IN THIS GUARANTY, GUARANTOR WAIVES ALL RIGHTS AND
DEFENSES ARISING OUT OF AN ELECTION OF REMEDIES BY THE CREDITOR, EVEN THOUGH
THAT ELECTION OF REMEDIES, SUCH AS A NONJUDICIAL FORECLOSURE WITH RESPECT TO
SECURITY FOR A GUARANTEED OBLIGATION, HAS DESTROYED THE GUARANTOR'S RIGHTS OF
SUBROGATION AND REIMBURSEMENT AGAINST THE PRINCIPAL BY THE OPERATION OF SECTION
580d OF THE CODE OF CIVIL PROCEDURE OR OTHERWISE.
6
7. Releases. Guarantor consents and agrees that, without notice to or
--------
by Guarantor and without affecting or impairing the obligations of Guarantor
hereunder, Guarantied Party may, by action or inaction, compromise or settle,
extend the period of duration or the time for the payment, or discharge the
performance of, or may refuse to, or otherwise not enforce, or may, by action or
inaction, release all or any one or more parties to, any one or more of the
terms and provisions of the Loan Agreement or any of the other Loan Documents or
may grant other indulgences to Debtor in respect thereof, or may amend or modify
in any manner and at any time (or from time to time) any one or more of the Loan
Agreement or any of the other Loan Documents, or may, by action or inaction,
release or substitute any other guarantor, if any, of the Guarantied
Obligations, or may enforce, exchange, release, or waive, by action or inaction,
any security for the Guarantied Obligations or any other guaranty of the
Guarantied Obligations, or any portion thereof.
8. No Election. Guarantied Party shall have the right to seek
-----------
recourse against Guarantor to the fullest extent provided for herein and no
election by Guarantied Party to proceed in one form of action or proceeding, or
against any party, or on any obligation, shall constitute a waiver of Guarantied
Party's right to proceed in any other form of action or proceeding or against
other parties unless Guarantied Party has expressly waived such right in
writing. Specifically, but without limiting the generality of the foregoing, no
action or proceeding by Guarantied Party under any document or instrument
evidencing the Guarantied Obligations shall serve to diminish the liability of
Guarantor under this Guaranty except to the extent that Guarantied Party finally
and unconditionally shall have realized indefeasible payment by such action or
proceeding.
9. Indefeasible Payment. The Guarantied Obligations shall not be
--------------------
considered indefeasibly paid for purposes of this Guaranty unless and until all
payments to Guarantied Party are no longer subject to any right on the part of
any person whomsoever, including Debtor, Debtor as a debtor in possession, or
any trustee (whether appointed under the Bankruptcy Code or otherwise) of
Debtor's assets to invalidate or set aside such payments or to seek to recoup
the amount of such payments or any portion thereof, or to declare same to be
fraudulent or preferential. In the event that, for any reason, all or any
portion of such payments to Guarantied Party is set aside or restored, whether
voluntarily or involuntarily, after the making thereof, the obligation or part
thereof intended to be satisfied thereby shall be revived and continued in full
force and effect as if said payment or payments had not been made and Guarantor
shall be liable for the full amount Guarantied Party is required to repay plus
any and all costs and expenses (including attorneys fees) paid by Guarantied
Party in connection therewith.
10. Financial Condition of Debtor. Guarantor represents and warrants
-----------------------------
to Guarantied Party that it is currently informed of the financial condition of
Debtor and of all other circumstances which a diligent inquiry would reveal and
7
which bear upon the risk of nonpayment of the Guarantied Obligations. Guarantor
further represents and warrants to Guarantied Party that it has read and
understands the terms and conditions of the Loan Agreement and the other Loan
Documents. Guarantor hereby covenants that it will continue to keep itself
informed of Debtor's financial condition, the financial condition of other
guarantors, if any, and of all other circumstances which bear upon the risk of
nonpayment or nonperformance of the Guarantied Obligations.
11. Subordination. Guarantor hereby agrees that any and all present
-------------
and future indebtedness of Debtor owing to Guarantor is postponed in favor of
and subordinated to payment, in full, in cash, of the Guarantied Obligations. In
this regard, no payment of any kind whatsoever shall be made with respect to
such indebtedness until the Guarantied Obligations have been indefeasibly paid
in full.
12. Payments; Application. All payments to be made hereunder by
---------------------
Guarantor shall be made in lawful money of the United States of America at the
time of payment, shall be made in immediately available funds, and shall be made
without deduction (whether for taxes or otherwise) or offset. All payments made
by Guarantor hereunder shall be applied as follows: first, to all reasonable
costs and expenses (including attorneys fees) incurred by Guarantied Party in
enforcing this Guaranty or in collecting the Guarantied Obligations; second, to
all accrued and unpaid interest, premium, if any, and fees owing to Guarantied
Party constituting Guarantied Obligations; and third, to the balance of the
Guarantied Obligations.
13. Attorneys Fees and Costs. Guarantor agrees to pay, indemnify, and
------------------------
save harmless Guarantied Party, on demand, all reasonable attorneys and legal
fees and disbursements and all other reasonable costs and expenses which may be
incurred by Guarantied Party in the enforcement of this Guaranty or in any way
arising out of, or consequential to the protection, assertion, or enforcement of
the Guarantied Obligations (or any security therefor), irrespective of whether
suit is brought.
14. Notices. All notices and other communications hereunder to
-------
Guarantied Party shall be in writing and shall be mailed, sent or delivered in
accordance with the Loan Agreement and all notices and other communications
hereunder to Guarantor shall be in writing and shall be mailed, sent or
delivered in care of Debtor in accordance with the Loan Agreement.
15. Cumulative Remedies. No remedy under this Guaranty, under the
-------------------
Loan Agreement, or any other Loan Document is intended to be exclusive of any
other remedy, but each and every remedy shall be cumulative and in addition to
any and every other remedy given under this Guaranty, under the Loan Agreement,
8
or any other Loan Document, and those provided by law. No delay or omission by
Guarantied Party to exercise any right under this Guaranty shall impair any such
right nor be construed to be a waiver thereof. No failure on the part of
Guarantied Party to exercise, and no delay in exercising, any right under this
Guaranty shall operate as a waiver thereof; nor shall any single or partial
exercise of any right under this Guaranty preclude any other or further exercise
thereof or the exercise of any other right.
16. Severability of Provisions. Any provision of this Guaranty which
--------------------------
is prohibited or unenforceable under applicable law shall be ineffective to the
extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof.
17. Entire Agreement; Amendments. This Guaranty constitutes the
----------------------------
entire agreement between Guarantor and Guarantied Party pertaining to the
subject matter contained herein. This Guaranty may not be altered, amended, or
modified, nor may any provision hereof be waived or noncompliance therewith
consented to, except by means of a writing executed by both Guarantor and
Guarantied Party. Any such alteration, amendment, modification, waiver, or
consent shall be effective only to the extent specified therein and for the
specific purpose for which given. No course of dealing and no delay or waiver of
any right or default under this Guaranty shall be deemed a waiver of any other,
similar or dissimilar, right or default or otherwise prejudice the rights and
remedies hereunder.
18. Successors and Assigns. This Guaranty shall be binding upon
----------------------
Guarantor and its successors and assigns and shall inure to the benefit of the
successors and assigns of Guarantied Party; provided, however, Guarantor shall
not assign this Guaranty or delegate any of its duties hereunder without
Guarantied Party's prior written consent and any unconsented to assignment shall
be absolutely void. In the event of any assignment or other transfer of rights
by Guarantied Party, the rights and benefits herein conferred upon Guarantied
Party shall automatically extend to and be vested in such assignee or other
transferee.
19. No Third Party Beneficiary. This Guaranty is solely for the
--------------------------
benefit of Guarantied Party and its successors and assigns and may not be relied
on by any other Person.
20. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER
------------------------------------------
THE VALIDITY OF THIS GUARANTY, ITS CONSTRUCTION,
INTERPRETATION, AND ENFORCEMENT, AND THE RIGHTS OF THE PARTIES HERETO WITH
RESPECT TO ALL MATTERS ARISING HEREUNDER OR RELATED HERETO SHALL BE DETERMINED
UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
CALIFORNIA.
9
THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN
CONNECTION WITH THIS GUARANTY SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND
FEDERAL COURTS LOCATED IN THE COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, OR AT
THE SOLE OPTION OF GUARANTIED PARTY, IN ANY OTHER COURT IN WHICH GUARANTIED
PARTY SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND WHICH HAS SUBJECT MATTER
JURISDICTION OVER THE MATTER IN CONTROVERSY. EACH OF GUARANTOR AND GUARANTIED
PARTY WAIVES, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY
HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE
EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 20.
GUARANTOR AND GUARANTIED PARTY HEREBY WAIVE THEIR RESPECTIVE
RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT
OF THIS GUARANTY OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN, INCLUDING
CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR
STATUTORY CLAIMS. GUARANTOR AND GUARANTIED PARTY REPRESENT THAT EACH HAS
REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL
RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A
COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE
COURT.
21. Compensation Limit. Notwithstanding any other provision contained
------------------
herein, it is expressly agreed that the Guarantor shall not be required to make
any payment to Guarantied Party whether in the form of interest, fees, charges,
expenses or otherwise (the "Compensation"), which in the aggregate would exceed
the maximum amount permitted under applicable law (the "Legal Maximum"). If, for
any reason, the Compensation received by Guarnatied Party hereunder at any time
exceeds the Legal Maximum, the parties agree that such excess shall be applied
by Guarantied Party against the principal of the Guaranteed Obligations then
outstanding and that all subsequent calculations of any Compensation payable by
the Guarantor hereunder shall be appropriately readjusted.
10
IN WITNESS WHEREOF, the undersigned has executed and delivered this
Guaranty as of the date first written above.
QMS Canada Inc.,
a corporation organized under the laws
of Canada
By
-------------------------------
Title:
---------------------------
S-1
SECURITY AGREEMENT
This SECURITY AGREEMENT (this "Agreement"), is entered into as of
November 7, 1995, between FOOTHILL CAPITAL CORPORATION, a California corporation
("Foothill"), with a place of business located at ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇, and QMS Canada Inc., a
corporation incorporated under the laws of Canada ("Guarantor"), with its chief
executive office located at ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇-▇▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇ ▇▇▇
▇▇▇▇▇▇.
WHEREAS, Borrower and Foothill are, contemporaneously herewith,
entering into the Loan Agreement;
WHEREAS, Borrower owns one hundred percent (100%) of the issued and
outstanding stock of Guarantor; and
WHEREAS, Guarantor has executed that certain General Continuing
Guaranty, of even date herewith, in favor of Foothill (the "Guaranty"),
respecting certain obligations of Borrower owing to Foothill under the Loan
Agreement;
WHEREAS, Guarantor desires to collateralize its obligations under
the Guaranty by granting to Foothill a security interest in certain of its
assets; and
WHEREAS, Guarantor will benefit by virtue of the loan from Foothill
to Borrower.
NOW THEREFORE, in consideration of the premises set forth above,
the terms and conditions contained herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, and
each intending to be bound hereby, Foothill and Guarantor agree as follows:
1. DEFINITIONS AND CONSTRUCTION.
1.1 DEFINITIONS. All capitalized terms used herein and not
-----------
otherwise defined herein shall have the meanings ascribed to them in the Loan
Agreement. As used in this Agreement, the following terms shall have the
following definitions:
"Accounts" means all currently existing and hereafter
----------
arising accounts, contract rights, and all other forms of obligations owing to
Guarantor arising out of the sale or lease of goods or General Intangibles or
the rendition of services by Guarantor, irrespective of whether earned by
performance, and any and all credit insurance, guaranties, or security therefor.
1
"Agreement" means this Security Agreement and any
-----------
extensions, riders, supplements, notes, amendments, or modifications to or in
connection with this Security Agreement.
"Borrower" means QMS, Inc., a Delaware corporation.
----------
"Collateral" means each of the following: the
------------
Accounts; the Guarantor's Books; the Equipment; the General Intangibles; the
Inventory; the Negotiable Collateral; any money, or other assets of Guarantor
which now or hereafter come into the possession, custody, or control of
Foothill; and the proceeds and products, whether tangible or intangible, of any
of the foregoing, including proceeds of insurance covering any or all of the
Collateral, and any and all Accounts, Guarantor's Books, Equipment, General
Intangibles, Inventory, Negotiable Collateral, money, deposit accounts, or other
tangible or intangible property resulting from the sale, exchange, collection,
or other disposition of any of the foregoing, or any portion thereof or interest
therein, and the proceeds thereof.
"Equipment" means all of Guarantor's present and
-----------
hereafter acquired machinery, machine tools, motors, equipment, furniture,
furnishings, fixtures, vehicles (including motor vehicles and trailers), tools,
parts, dies, jigs, goods (other than consumer goods, farm products, or
Inventory), wherever located, and any interest of Guarantor in any of the
foregoing, and all attachments, accessories, accessions, replacements,
substitutions, additions, and improvements to any of the foregoing, wherever
located.
"Event of Default" has the meaning ascribed to it in
------------------
Section 6.
"General Intangibles" means all of Guarantor's present
---------------------
and future general intangibles and other personal property (including contract
rights, rights arising under common law, statutes, or regulations, choses or
things in action, goodwill, patents, trade names, trademarks, servicemarks,
copyrights, source code, software, blueprints, drawings, purchase orders,
customer lists, monies due or recoverable from pension funds, route lists,
rights to payment and other rights under any royalty or licensing agreements,
infringements, claims, computer programs, computer discs, computer tapes,
literature, reports, catalogs, deposit accounts, insurance premium rebates, tax
refunds, and tax refund claims), other than goods, Accounts, and Negotiable
Collateral.
"Guarantied Obligations" shall have the meaning
------------------------
ascribed to it in each of the Guaranties and shall mean and refer to the same,
collectively.
2
"Guarantor's Books" means all of Guarantor's books and
-------------------
records, including: ledgers; records indicating, summarizing, or evidencing
Guarantor's properties or assets (including the Collateral) or liabilities; all
information relating to Guarantor's business operations or financial condition;
and all computer programs, disc or tape files, printouts, runs, or other
computer prepared information in respect of such books and records.
"Guarantor" has the meaning ascribed thereto in the
-----------
preamble to this Agreement.
"Guaranty" means that certain General Continuing
----------
Guaranty of Guarantor to Foothill of even date herewith.
"Inventory" means all present and future inventory in
-----------
which Guarantor has any interest, including goods held for sale, license, or
lease or to be furnished under a contract of service and all of Guarantor's
present and future raw materials, work in process, finished goods, and packing
and shipping materials, wherever located, and any documents of title
representing any of the above.
"Loan Agreement" means that certain Loan and Security
----------------
Agreement, dated as of even date herewith, between Borrower and Foothill.
"Negotiable Collateral" means all of Guarantor's
-----------------------
present and future letters of credit, notes, drafts, instruments, certificated
and uncertificated securities (including the shares of stock of Subsidiaries of
Guarantor), documents, personal property leases (wherein Guarantor is the
lessor), chattel paper, and Guarantor's Books relating to any of the foregoing.
1.2 CODE. Any terms used in this Agreement which are defined
----
in the Code shall be construed and defined as set forth in the Code unless
otherwise defined herein.
1.3 CONSTRUCTION. Unless the context of this Agreement
------------
clearly requires otherwise, references to the plural include the singular,
references to the singular include the plural, the term "including" is not
limiting, and the term "or" has, except where otherwise indicated, the inclusive
meaning represented by the phrase "and/or." The words "hereof," "herein,"
"hereby," "hereunder," and similar terms in this Agreement refer to this
Agreement as a whole and not to any particular provision of this Agreement.
Section, subsection, clause, schedule, and exhibit references are to this
Agreement unless otherwise specified. Any reference in this Agreement or in any
of the other Loan Documents to this Agreement or any of the other Loan Documents
shall include all alterations, amendments, restatements, changes, extensions,
3
modifications, renewals, replacements, substitutions, and supplements, thereto
and thereof, as applicable. In the event of a direct conflict between the terms
and provisions of this Agreement and the Loan Agreement, it is the intention of
the parties hereto that both such documents shall be read together and
construed, to the fullest extent possible, to be in concert with each other. In
the event of any actual, irreconcilable conflict that cannot be resolved as
aforesaid, the terms and provisions of the Loan Agreement shall control and
govern; provided, however, that the inclusion herein of additional obligations
on the part of Guarantor and supplemental rights and remedies in favor of
Foothill, in each case in respect of the Collateral, shall not be deemed a
conflict with the Loan Agreement.
1.4 SCHEDULES AND EXHIBITS. All of the schedules and
----------------------
exhibits attached to this Agreement shall be deemed incorporated herein by
reference.
2. CREATION OF SECURITY INTEREST.
2.1 GRANT OF SECURITY INTEREST. Guarantor hereby grants to
--------------------------
Foothill a continuing security interest in all currently existing and hereafter
acquired or arising Collateral in order to secure its performance pursuant to
the Guaranty. Foothill's security interests in the Collateral shall attach to
all Collateral without further act on the part of Foothill or Guarantor.
Anything contained in this Agreement or any other Loan Document to the contrary
notwithstanding, except for Permitted Asset Dispositions, Guarantor has no
authority, express or implied, to dispose of any item or portion of the
Collateral.
2.2 NEGOTIABLE COLLATERAL. In the event that any Collateral,
---------------------
including proceeds, is evidenced by or consists of Negotiable Collateral,
Guarantor shall, immediately upon the request of Foothill, endorse and assign
such Negotiable Collateral to Foothill and deliver physical possession of such
Negotiable Collateral to Foothill.
2.3 COLLECTION OF ACCOUNTS, GENERAL INTANGIBLES, NEGOTIABLE
-------------------------------------------------------
COLLATERAL. At any time after the occurrence and during the continuance of an
----------
Event of Default, Foothill or Foothill's designee may: (a) notify customers or
Account Debtors of Guarantor that the Accounts, General Intangibles, or
Negotiable Collateral have been assigned to Foothill or that Foothill has a
security interest therein; and (b) collect the Accounts, General Intangibles,
and Negotiable Collateral directly and charge the collection costs and expenses
to Borrower's loan account. Guarantor agrees that it will hold in trust for
Foothill, as Foothill's trustee, any cash receipts, checks, and other items of
payment (including, insurance proceeds, proceeds of cash sales, rental proceeds,
and tax refunds) that it receives and immediately will deliver said cash
receipts, checks, and other items of payment to Foothill in their original form
as received by Guarantor.
4
2.4 DELIVERY OF ADDITIONAL DOCUMENTATION REQUIRED. Guarantor
---------------------------------------------
shall execute, and deliver to Foothill, prior to or concurrently with
Guarantor's execution and delivery of this Agreement and at any time thereafter
at the request of Foothill, all financing statements, continuation and amendment
financing statements, fixture filings, security agreements, chattel mortgages,
pledges, mortgages, deeds of trust, assignments, endorsements of certificates of
title, applications for title, affidavits, reports, notices, schedules of
accounts, letters of authority, and all other documents that Foothill may
reasonably request, in form satisfactory to Foothill, to perfect and continue
perfected Foothill's security interests in the Collateral and in order to fully
consummate all of the transactions contemplated under the Loan Documents.
2.5 POWER OF ATTORNEY. Guarantor hereby irrevocably makes,
-----------------
constitutes, and appoints Foothill (and any of Foothill's officers, employees,
or agents designated by Foothill) as Guarantor's true and lawful attorney, with
power to: (a) if Guarantor refuses to, or fails timely to execute and deliver
any of the documents described in Section 2.4, sign the name of Guarantor on any
of the documents described in Section 2.4; (b) at any time that an Event of
Default has occurred and is continuing, sign Guarantor's name on any invoice or
▇▇▇▇ of lading relating to any Account, drafts against Account Debtors,
schedules and assignments of Accounts, verifications of Accounts, and notices to
Account Debtors; (c) send requests for verification of Accounts; (d) endorse
Guarantor's name on any checks, notices, acceptances, money orders, drafts, or
other item of payment or security that may come into Foothill's possession; (e)
at any time that an Event of Default has occurred and is continuing, notify the
post office authorities to change the address for delivery of Guarantor's mail
to an address designated by Foothill, to receive and open all mail addressed to
Guarantor, and to retain all mail relating to the Collateral and forward all
other mail to Guarantor; (f) at any time that an Event of Default has occurred
and is continuing, make, settle, and adjust all claims under Guarantor's
policies of insurance and make all determinations and decisions with respect to
such policies of insurance; and (g) at any time that an Event of Default has
occurred and is continuing, settle and adjust disputes and claims respecting the
Accounts directly with Account Debtors, for amounts and upon terms which
Foothill determines to be reasonable, and Foothill may cause to be executed and
delivered any documents and releases which Foothill determines to be necessary.
The appointment of Foothill as Guarantor's attorney, and each and every one of
Foothill's rights and powers, being coupled with an interest, is irrevocable
until all of the Guarantied Obligations have been fully and finally repaid and
performed and Foothill's obligation to extend credit under the Loan Agreement is
terminated.
2.6 RIGHT TO INSPECT. Prior to the time that an Event of
----------------
Default has occurred and is continuing, Foothill (through any of its officers,
employees, or agents) shall have the right, from time to time hereafter upon
prior notification to Guarantor and during normal business hours to inspect
5
Guarantor's Books and to check, test, and appraise the Collateral in order to
verify Guarantor's financial condition or the amount, quality, value, condition
of, or any other matter relating to, the Collateral or the Real Property. After
the occurrence and during the continuance of an Event of Default, Foothill
(through any of its officers, employees, or agents) shall have the right, from
time to time hereafter without prior notification to Guarantor and at any time
or times determined by Foothill, to inspect Guarantor's Books and to check,
test, and appraise the Collateral in order to verify Guarantor's financial
condition or the amount, quality, value, condition of, or any other matter
relating to, the Collateral or the Real Property.
3. REPRESENTATIONS AND WARRANTIES.
Guarantor represents and warrants as follows:
3.1 NO PRIOR ENCUMBRANCES. Guarantor has good and
---------------------
indefeasible title to the Collateral, free and clear of liens, claims, security
interests, or encumbrances except for Permitted Liens.
3.2 PLACE OF BUSINESS/CHIEF EXECUTIVE OFFICE. The chief
----------------------------------------
executive office of Guarantor is at the address indicated in the first paragraph
of this Agreement and all other locations at which Guarantor has a place of
business are set forth on Schedule 3.2.
------------
3.3 INVENTORY. All Inventory is now and at all times
---------
hereafter shall be of good and servicable quality, free from defects.
3.4 LOCATION OF INVENTORY AND EQUIPMENT. The Inventory and
-----------------------------------
Equipment are not stored with a bailee, warehouseman, or similar party (without
Foothill's prior written consent) and are located only at the locations
identified on Schedule 3.4.
------------
3.5 INVENTORY RECORDS. Guarantor now keeps, and hereafter at
-----------------
all times shall keep, correct and accurate records itemizing and describing the
kind, type, quality, and quantity of the Inventory, and Guarantor's cost
therefor.
3.6 DUE ORGANIZATION AND QUALIFICATION; SUBSIDIARIES.
-------------------------------------------------
Guarantor is a corporation incorporated under the laws of Canada, and it is and
shall at all times hereafter be duly organized and existing and in good standing
under the laws of Canada and qualified and licensed to do business in, and in
good standing in, any jurisdiction where the failure to be so licensed or
qualified could reasonably be expected to have a material adverse effect on the
business, operations, condition (financial or otherwise), finances, or prospects
of Guarantor or on the value of the Collateral.
6
3.7 DUE AUTHORIZATION; NO CONFLICT. The execution, delivery,
------------------------------
and performance of this Agreement, the Guaranties, and any other Loan Document
to which Guarantor is a party are within Guarantor's corporate powers, have been
duly authorized, and are not in conflict with nor, constitute a breach of any
provision contained in Guarantor's Articles or Certificate of Incorporation, By-
laws, or any partnership or trust agreement pertaining to Guarantor, nor will
they constitute an event of default under any material agreement to which
Guarantor is now or may hereafter become a party.
3.8 LITIGATION. There are no actions or proceedings pending
----------
by or against Guarantor before any court or administrative agency and Guarantor
does not have knowledge or belief of any pending, threatened, or imminent
litigation, governmental investigations, or claims, complaints, actions, or
prosecutions involving Guarantor, except for: (a) ongoing collection matters in
which Guarantor is the plaintiff; (b) matters disclosed on Schedule 3.8; and (c)
------------
matters arising after the date hereof that, if reasonably likely to be decided
adversely to Guarantor, would not materially impair the prospect of repayment of
the Guarantied Obligations or materially impair the value or priority of
Foothill's security interests in the Collateral.
3.9 SOLVENCY. Guarantor is Solvent. No transfer of property
--------
is being made by Guarantor and no obligation is being incurred by Guarantor in
connection with the transactions contemplated by this Agreement or the other
Loan Documents with the intent to hinder, delay, or defraud either present or
future creditors of Guarantor.
3.10 RELIANCE BY FOOTHILL; CUMULATIVE. The warranties,
--------------------------------
representations, and agreements set forth herein shall be conclusively presumed
to have been relied upon by Foothill and shall be cumulative and in addition to
any and all other warranties, representations, and agreements which Guarantor
shall now or hereinafter give, or cause to be given, to Foothill.
4. AFFIRMATIVE COVENANTS.
Guarantor covenants and agrees that, until payment in full
of the Guarantied Obligations, and unless Foothill shall otherwise consent in
writing, Guarantor shall do all of the following:
4.1 SCHEDULES OF ACCOUNTS. With such regularity as Foothill
---------------------
shall require, provide Foothill with schedules describing all Accounts.
Foothill's failure to request such schedules or Guarantor's failure to execute
and deliver such schedules shall not affect or limit Foothill's security
interests or other rights in and to the Accounts.
7
4.2 INVENTORY REPORTING. From time to time hereafter, but
-------------------
not less frequently than monthly, execute and deliver to Foothill a report
regarding Guarantor's Inventory specifying Guarantor's cost (and, if lower,
market value) thereof, and further specifying such other information as Foothill
may reasonably request.
4.3 TITLE TO EQUIPMENT. Upon Foothill's request, deliver to
------------------
Foothill, properly endorsed, any and all evidences of ownership of, certificates
of title, or applications for title to any items of Equipment.
4.4 MAINTENANCE OF EQUIPMENT. Keep and maintain the
------------------------
Equipment in good operating condition and repair (ordinary wear and tear
excepted), and make all necessary replacements thereto so that the value and
operating efficiency thereof shall at all times be maintained and preserved.
Guarantor shall not permit any item of Equipment to become a fixture to real
estate or an accession to other property, and the Equipment is now and shall at
all times remain personal property.
4.5 TAXES. All assessments and taxes, whether real,
-----
personal, or otherwise, due or payable by, or imposed, levied, or assessed
against Guarantor or any of its property have been paid, and shall hereafter be
paid in full, before delinquency or before the expiration of any extension
period. Guarantor shall make due and timely payment or deposit of all taxes,
assessments, or contributions required of it by law, and will execute and
deliver to Foothill, on demand, appropriate certificates attesting to the
payment or deposit thereof. Guarantor will make timely payment or deposit of all
tax payments and withholding taxes required of it by applicable laws, and will,
upon request, furnish Foothill with proof satisfactory to Foothill indicating
that Guarantor has made such payments or deposits. The foregoing to the contrary
notwithstanding, Guarantor shall not be required to pay or discharge any such
assessment or tax (other than payroll taxes or taxes that are the subject of a
United States federal tax lien, a Canadian federal tax lien, or a Canadian
provincial tax lien) so long as and to the extent that the validity thereof
shall be subject of a Permitted Protest.
4.6 INSURANCE.
(a) At its expense, keep the Collateral insured
against loss or damage by fire, theft, explosion, sprinklers, and all other
hazards and risks, and in such amounts, as are ordinarily insured against by
other owners in similar businesses. Guarantor also shall maintain business
interruption, public liability, product liability, and property damage insurance
relating to their ownership and use of the Collateral, as well as insurance
against larceny, embezzlement, and criminal misappropriation.
(b) All such policies of insurance shall be in such
form, with such companies, and in such amounts as may be reasonably satisfactory
to Foothill. All such policies of insurance (except those of public liability
8
and property damage) shall contain a 438BFU lender's loss payable endorsement,
or an equivalent endorsement in a form satisfactory to Foothill, showing
Foothill as a loss payee thereof as its interest may appear, shall contain a
waiver of warranties, and shall specify that the insurer must give at least ten
(10) days prior written notice to Foothill before canceling its policy for any
reason. Guarantor shall deliver to Foothill certified copies of such policies of
insurance and evidence of the payment of all premiums therefor. All proceeds
payable under any such policy shall be payable to Foothill to be applied on
account of the Guarantied Obligations.
4.7 FOOTHILL EXPENSES. Guarantor shall immediately and
-----------------
without demand reimburse Foothill for all sums expended by Foothill which
constitute Foothill Expenses and Guarantor hereby authorizes and approves all
advances and payments by Foothill for items constituting Foothill Expenses.
5. NEGATIVE COVENANTS.
Guarantor covenants and agrees that until payment in full of
the Guarantied Obligations, it will not do any of the following without
Foothill's prior written consent:
5.1 LIENS. Create, incur, assume, or permit to exist,
-----
directly or indirectly, any lien on or with respect to any of its property or
assets, of any kind, whether now owned or hereafter acquired, or any income or
profits therefrom, except for Permitted Liens (including liens that are
replacements of Permitted Liens to the extent that the original indebtedness is
refinanced under Section 7.1(d) of the Loan Agreement and so long as the
replacement liens secure only those assets or property that secured the original
indebtedness).
5.2 RESTRICTIONS ON FUNDAMENTAL CHANGES. (a) Enter into any
-----------------------------------
acquisition, merger, consolidation, reorganization, or recapitalization, or
reclassify its capital stock, or liquidate, wind up, or dissolve itself (or
suffer any liquidation or dissolution); or (b) convey, sell, assign, lease,
transfer, or otherwise dispose of, in one transaction or a series of
transactions, all or any substantial part of its business, property, or assets,
whether now owned or hereafter acquired, or acquire by purchase or otherwise all
or substantially all of the properties, assets, stock, or other evidence of
beneficial ownership of any Person.
5.3 EXTRAORDINARY TRANSACTIONS AND DISPOSAL OF ASSETS. Enter
--------------------------------------------------
into any transaction not in the ordinary and usual course of Guarantor's
business, including the sale, lease, or other disposition of, moving,
relocation, or transfer, whether by sale or otherwise, of any of Guarantor's
properties or assets (other than Permitted Asset Dispositions).
9
5.4 CHANGE NAME. Change Guarantor's name, business
-----------
structure, or identity, or add any new fictitious name.
5.5 GUARANTEE. Guarantee or otherwise become in any way
---------
liable with respect to the obligations of any third Person except by endorsement
of instruments or items of payment for deposit to the account of Guarantor or
which are transmitted or turned over to Foothill and except for the guarantee of
the payment and performance of the Guarantied Obligations.
5.6 NATURE OF BUSINESS; FISCAL YEAR. (a) Make any change in
-------------------------------
the principal nature of Guarantor's business, or (b) without the prior written
consent of Foothill, which consent shall not unreasonably be withheld, change
the date of its fiscal year.
5.7 TRANSACTIONS WITH AFFILIATES. Guarantor will not
----------------------------
directly or indirectly enter into or permit to exist any material transaction
with any Affiliate of Guarantor except for transactions which are in the
ordinary course of Guarantor's business, upon fair and reasonable terms and
which are fully disclosed to Foothill and, no less favorable to Guarantor than
would be obtained in arm's length transaction with a non-Affiliate.
5.8 SUSPENSION. Suspend or go out of business.
----------
5.9 CHANGE IN LOCATION OF CHIEF EXECUTIVE OFFICE; INVENTORY
-------------------------------------------------------
AND EQUIPMENT WITH BAILEES. Without thirty (30) days prior written notification
--------------------------
to Foothill, relocate its chief executive office to a new location, unless, at
the time of such written notification, Guarantor provides any financing
statements or fixture filings necessary to perfect and continue perfected
Foothill's security interests and also provides to Foothill a landlord's waiver
in form and substance satisfactory to Foothill. The Inventory and Equipment
shall not at any time now or hereafter be stored with a bailee, warehouseman, or
similar party without Foothill's prior written consent.
6. EVENTS OF DEFAULT.
Any one or more of the following events shall constitute an
event of default (each, an "Event of Default") under this Agreement:
10
6.1 The occurrence of an Event of Default (as defined in the
Loan Agreement);
6.2 (a) If Guarantor fails or neglects to perform, keep, or
observe, in any material respect, any term, provision, condition, covenant, or
agreement contained in Section 4.2 (Inventory Reporting) of this Agreement and
---------------------------------
such failure continues for a period of five (5) days from the date of such
failure or neglect; (b) If Guarantor fails or neglects to perform, keep, or
observe, in any material respect, any term, provision, condition, covenant, or
agreement contained in Sections 4.1 (Schedule of Accounts) or 4.3 (Title to
----------------------------------------------------
Equipment) of this Agreement and such failure continues for a period of ten (10)
----------
days from the date of such failure or neglect; (c) If Guarantor fails or
neglects to perform, keep, or observe, in any material respect, any term,
provision, condition, covenant, or agreement contained in Section 4.4
-----------
(Maintenance of Equipment) of this Agreement and such failure continues for a
--------------------------
period of fifteen (15) days from the date Foothill sends Guarantor written
notice of such failure or neglect; (d) If Guarantor fails or neglects to
perform, keep, or observe, in any material respect, any other term, provision,
condition, covenant, or agreement contained in this Agreement, in any of the
Loan Documents, or in any other present or future agreement between Guarantor
and Foothill (other than any such term, provision, condition, covenant, or
agreement that is the subject of another provision of this Section 6).
6.3 If there is a material impairment of the prospect of
repayment of any portion of the Guarantied Obligations owing to Foothill or a
material impairment of the value or priority of Foothill's security interests in
the Collateral;
6.4 [intentionally omitted]
6.5 If a judgment or other claim in excess of $100,000
(after giving effect to insurance proceeds, if any, actually applied thereto)
becomes a lien or encumbrance upon any material portion of Guarantor's
properties or assets; and
6.6 If there is a material default in any material agreement
to which Guarantor is a party with one or more third Persons resulting in a
right by such third Persons, irrespective of whether exercised, to accelerate
the maturity of Guarantor's obligations thereunder.
6.7 [intentionally omitted]
6.8 [intentionally omitted]
11
7. FOOTHILL'S RIGHTS AND REMEDIES.
7.1 Rights and Remedies. Upon the occurrence of an Event of
-------------------
Default, the security hereby constituted shall become enforceable and, in
addition to all other rights and remedies available to Foothill as provided
hereafter, Foothill may, at its election, without notice of its election and
without demand, do any one or more of the following, all of which are authorized
by Guarantor:
(a) Proceed directly and at once, without notice,
against the Guarantor to collect and recover the full amount or any portion of
the Guarantied Obligations, without first proceeding against Borrower, or
against any security or collateral for the Guarantied Obligations.
(b) Without notice to the Guarantor and regardless of
the acceptance of any security or collateral for the payment hereof, appropriate
and apply toward the payment of the Guarantied Obligations (i) any indebtedness
due or to become due from Foothill to the Guarantor and (ii) any moneys, credits
or other property belonging to the Guarantor at any time held by or coming into
the possession of Foothill.
(c) May exercise in respect of the Collateral, in
addition to other rights and remedies provided for herein and the Guaranty or
otherwise available to it, all the rights and remedies available to it at law
(including those of a secured party under the Code) or in equity.
(d) Settle or adjust disputes and claims directly with
Account Debtors for amounts and upon terms which Foothill considers advisable,
and in such cases, Foothill will credit Borrower's loan account with only the
net amounts received by Foothill in payment of such disputed Accounts after
deducting all Foothill Expenses incurred or expended in connection therewith;
(e) Cause Guarantor to hold all returned Inventory in
trust for Foothill, segregate all returned Inventory from all other property of
Guarantor or in Guarantor's possession and conspicuously label said returned
Inventory as the property of Foothill;
(f) Without notice or demand, make such payments and
do such acts as Foothill considers necessary or reasonable to protect its
security interest in the Collateral. Guarantor agrees to assemble the Collateral
if Foothill so requires, and to make the Collateral available to Foothill as
Foothill may designate. Guarantor authorizes Foothill to enter the premises
where the Collateral is located, to take and maintain possession of the
Collateral, or any part of it, and to pay, purchase, contest, or compromise any
encumbrance, charge, or lien which in Foothill's determination appears to be
prior or superior to its security interest and to pay all expenses incurred in
12
connection therewith. With respect to any of Guarantor's owned premises,
Guarantor hereby grants Foothill a license to enter into possession of such
premises and to occupy the same, without charge, for up to one hundred twenty
(120) days in order to exercise any of Foothill's rights or remedies provided
herein, at law, in equity, or otherwise;
(g) Ship, reclaim, recover, store, finish, maintain,
repair, prepare for sale, advertise for sale, and sell (in the manner provided
for herein) the Collateral. Foothill is hereby granted a license or other right
to use, without charge, Guarantor's labels, patents, copyrights, rights of use
of any name, trade secrets, trade names, trademarks, service marks, and
advertising matter, or any property of a similar nature, as it pertains to the
Collateral, in completing production of advertising for sale and selling any
Collateral, and Guarantor's rights under all licenses and all franchise
agreements shall inure to Foothill's benefit;
(h) Sell all or any part of the Collateral at either a
public or private sale, or both, by way of one or more contracts or
transactions, for cash or on terms, in such manner and at such places (including
Guarantor's premises) as Foothill determines is commercially reasonable. It is
not necessary that the Collateral be present at any such sale. Foothill 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 the Collateral so sold, free of any right or equity of redemption in
Guarantor, which right or equity is hereby waived or released to the extent
permitted by law;
(i) By an instrument in writing, appoint a receiver
(which term shall include a receiver and manager) of all or any part of the
Collateral and may remove or replace such receiver from time to time or may
institute proceedings in any court of competent jurisdiction for the appointment
of such receiver;
(j) Require Guarantor to establish a lockbox or other
restricted account satisfactory to Foothill for the collection of Accounts of
Debtor, General Intangibles, or Negotiable Collateral;
(k) Notify customers or Account Debtors of Guarantor
that the Accounts of Guarantor, General Intangibles, or Negotiable Collateral
have been assigned to Foothill or that Foothill has a security interest therein;
(l) Collect the Accounts of Debtor, General
Intangibles, and Negotiable Collateral directly, and charge the collection costs
and expenses as Foothill Expenses; but, unless and until Foothill does so or
gives Guarantor other written instructions, Guarantor shall collect all Accounts
of Guarantor, General Intangibles, and Negotiable Collateral for Foothill,
receive in trust all payments thereon as Foothill's trustee, and immediately
deliver said payments to Foothill in their original form as received from such
Account Debtor;
13
(m) Any deficiency which exists after disposition of
the Collateral as provided above will be paid immediately by Guarantor up to the
maximum amount, if any, of Guarantor's liability under the Guaranty. Any excess
will be returned to Guarantor, without interest and subject to the rights of
third parties, by Foothill.
Except as required by law, Foothill may take any or all of the foregoing action
without demand, presentment, protest, advertisement or notice of any kind to or
upon Guarantor or any other person.
7.2 REMEDIES CUMULATIVE. Foothill's rights and remedies
-------------------
under this Agreement, the Loan Documents, and all other agreements shall be
cumulative. Foothill shall have all other rights and remedies not inconsistent
herewith as provided under the Code, by law, or in equity. No exercise by
Foothill of one right or remedy shall be deemed an election,and no waiver by
Foothill of any Event of Default on Borrower's part shall be deemed a continuing
waiver. No delay by Foothill shall constitute a waiver, election, or
acquiescence by it.
8. TAXES AND EXPENSES REGARDING THE COLLATERAL.
If Guarantor fails to pay any monies (whether taxes, rents,
assessments, insurance premiums, or otherwise) due to third persons or entities,
or fails to make any deposits or furnish any required proof of payment or
deposit, all as required under the terms of this Agreement, then, to the extent
that Foothill reasonably determines that such failure, by Guarantor could have a
material adverse effect on Foothill's interests in the Collateral, in its
discretion and without prior notice to Guarantor, Foothill may do any or all of
the following: (a) make payment of the same or any part thereof; (b) set up such
reserves in Borrower's loan account as Foothill deems necessary to protect
Foothill from the exposure created by such failure; or (c) obtain and maintain
insurance policies insuring Guarantor's ownership and use of the Collateral, and
take any action with respect to such policies as Foothill deems prudent. The
preceding sentence notwithstanding, Foothill agrees to use reasonable efforts to
give Guarantor prior notice of the taking by Foothill of any action described in
items (a), (b), or (c) of the preceding sentence; provided, however, that
Guarantor's failure to receive such prior notice despite the exercise by
Foothill of such reasonable efforts shall not restrict the ability of Foothill
to take such action, shall not affect the validity of such action taken, and
shall not result in any liability by Foothill to Guarantor for any such failure.
Any amounts paid or deposited by Foothill shall constitute Foothill Expenses,
shall immediately become additional Guarantied Obligations, shall bear interest
at the applicable rate described in the Loan Document, and shall be secured by
the Collateral. Any payments made by Foothill shall not constitute an agreement
by Foothill to make similar payments in the future or a waiver by Foothill of
14
any Event of Default under this Agreement. Foothill need not inquire as to, or
contest the validity of, any such expense, tax, security interest, encumbrance,
or lien and the receipt of the usual official notice for the payment thereof
shall be conclusive evidence that the same was validly due and owing. Foothill
shall use its best efforts to provide notice to Guarantor of any action taken by
it under this Section 8.
9. WAIVERS; INDEMNIFICATION.
9.1 DEMAND; PROTEST; ETC. To the extent permitted by law,
--------------------
Guarantor waives demand, protest, notice of protest, notice of default or
dishonor, notice of payment and nonpayment, notice of any default, nonpayment at
maturity, release, compromise, settlement, extension, or renewal of accounts,
documents, instruments, chattel paper, and guarantees at any time held by
Foothill on which Guarantor may in any way be liable.
9.2 FOOTHILL'S LIABILITY FOR COLLATERAL. So long as Foothill
-----------------------------------
complies with its obligations, if any, under Section 9207 of the Code, Foothill
shall not in any way or manner be liable or responsible for: (a) the safekeeping
of the Collateral; (b) any loss or damage thereto occurring or arising in any
manner or fashion from any cause; (c) any diminution in the value thereof; or
(d) any act or default of any carrier, warehouseman, bailee, forwarding agency,
or other Person. All risk of loss, damage, or destruction of the Collateral
shall be borne by Guarantor.
9.3 INDEMNIFICATION. Guarantor agrees to defend, indemnify,
---------------
save, and hold Foothill and its officers, employees, and agents harmless
against: (a) all obligations, demands, claims, and liabilities claimed or
asserted by any other Person, and (b) all losses (including reasonable attorneys
fees and disbursements) in any way suffered, incurred, or paid by Foothill as a
result of or in any way arising out of, following, or consequential to
transactions with Borrower or Guarantor, whether under this Agreement, the other
Loan Documents or otherwise (except to the extent the same are proximately
caused by the gross negligence or wilful misconduct of Foothill). This provision
shall survive the termination of this Agreement.
9.4 WAIVERS. (a) To the maximum extent permitted by law,
-------
Guarantor hereby waives: (i) notice of acceptance hereof; (ii) notice of any
loans or other financial accommodations made or extended under the Loan
Agreement, or the creation or existence of any Obligations; (iii) notice of the
amount of the Obligations, subject, however, to Section 2.7 of the Loan
Agreement and Guarantor's right to make inquiry of Foothill to ascertain the
amount of the Obligations at any reasonable time; (iv) notice of any adverse
15
change in the financial condition of Borrower or of any other fact that might
increase Guarantor's risk hereunder; (v) notice of presentment for payment,
demand, protest, and notice thereof as to any instrument among the Loan
Documents; (vi) notice of any unmatured Event of Default or Event of Default
under the Loan Agreement; and (vii) all other notices (except if such notice is
specifically required to be given to Guarantor under this Agreement) and demands
to which Guarantor might otherwise be entitled.
(b) To the fullest extent permitted by applicable law, Guarantor
waives the right by statute or otherwise to require Foothill to institute suit
against Borrower or to exhaust any rights and remedies which Foothill has or may
have against Borrower. Guarantor further waives any defense arising by reason of
any disability or other defense (other than the defense that the Obligations
shall have been fully and finally indefeasibly paid) of Borrower or by reason of
the cessation from any cause (other than that the Obligations shall have been
fully and finally indefeasibly paid) whatsoever of the liability of Borrower in
respect thereof.
(c) To the maximum extent permitted by law, Guarantor hereby
waives: (i) any rights to assert against Foothill any defense (legal or
equitable), set-off, counterclaim, or claim which Guarantor may now or at any
time hereafter have against Borrower or any other party liable to Foothill on
account of or with respect to the Obligations; (ii) any defense, set-off,
counterclaim, or claim, of any kind or nature, arising directly or indirectly
from the present or future sufficiency, validity, or enforceability of the
Obligations; (iii) any defense arising by reason of any claim or defense based
upon an election of remedies by Foothill including, to the extent applicable,
the provisions of (S)(S) 580d and 726 of the California Code of Civil Procedure,
or any similar law of California or any other jurisdiction; (iv) the benefit of
any statute of limitations affecting Guarantor's liability hereunder or the
enforcement thereof.
(d) To the maximum extent permitted by law, Guarantor hereby waives
any right of subrogation Guarantor has or may have as against Borrower with
respect to the Obligations. In addition, Guarantor hereby waives any right to
proceed against Borrower, now or hereafter, for contribution, indemnity,
reimbursement, or any other suretyship rights and claims (irrespective of
whether direct or indirect, liquidated or contingent), with respect to the
Obligations. Guarantor also hereby waives any right to proceed or to seek
recourse against or with respect to any property or asset of Borrower. Guarantor
hereby agrees that, in light of the waivers contained in this Section, Guarantor
shall not be deemed to be a "creditor" (as that term is defined in the
Bankruptcy Code or otherwise) of Borrower, whether for purposes of the
application of Sections 547 or 550 of the United States Bankruptcy Code or
otherwise.
16
(e) If any of the Secured Obligations at any time are secured by a
mortgage or deed of trust upon real property, Foothill may elect, in its sole
discretion, upon a default with respect to the Secured Obligations, to foreclose
such mortgage or deed of trust judicially or nonjudicially in any manner
permitted by law, before or after enforcing this Agreement, without diminishing
or affecting the liability of Guarantor hereunder. Guarantor understands that
(a) by virtue of the operation of California's antideficiency law applicable to
nonjudicial foreclosures, an election by Foothill nonjudicially to foreclose
such a mortgage or deed of trust probably would have the effect of impairing or
destroying rights of subrogation, reimbursement, contribution, or indemnity of
Guarantor against Borrower or guarantors or sureties, and (b) absent the waiver
given by Guarantor herein, such an election might estop Foothill from enforcing
this Agreement against Guarantor. Understanding the foregoing, and understanding
that Guarantor is hereby relinquishing a defense to the enforceability of this
Agreement, Guarantor hereby waives any right to assert against Foothill any
defense to the enforcement of this Agreement, whether denominated "estoppel" or
otherwise, based on or arising from an election by Foothill nonjudicially to
foreclose any such mortgage or deed of trust. Guarantor understands that the
effect of the foregoing waiver may be that Guarantor may have liability
hereunder for amounts with respect to which Guarantor may be left without rights
of subrogation, reimbursement, contribution, or indemnity against Borrower or
guarantors or sureties. Guarantor also agrees that the "fair market value"
provisions of Section 580a of the California Code of Civil Procedure shall have
no applicability with respect to the determination of Guarantor's liability
under this Agreement.
(f) WITHOUT LIMITING THE GENERALITY OF ANY OTHER WAIVER OR OTHER
PROVISION SET FORTH IN THIS AGREEMENT, GUARANTOR HEREBY WAIVES, TO THE MAXIMUM
EXTENT SUCH WAIVER IS PERMITTED BY LAW, ANY AND ALL DEFENSES ARISING DIRECTLY OR
INDIRECTLY UNDER ANY ONE OR MORE OF CALIFORNIA CIVIL CODE (S)(S) 2808, 2809,
2810, 2815, 2819, 2820, 2821, 2838, 2839, 2845, 2848, 2849, AND 2850, TO THE
EXTENT APPLICABLE, CALIFORNIA CODE OF CIVIL PROCEDURE (S)(S) 580a, 580b, 580c,
580d, AND 726, AND, TO THE EXTENT APPLICABLE, CHAPTER 2 OF TITLE 14 OF THE
CALIFORNIA CIVIL CODE.
(g) WITHOUT LIMITING THE GENERALITY OF ANY OTHER WAIVER OR OTHER
PROVISION SET FORTH IN THIS AGREEMENT, GUARANTOR HEREBY WAIVES ALL RIGHTS AND
DEFENSES ARISING OUT OF AN ELECTION OF REMEDIES BY FOOTHILL, EVEN THOUGH THAT
ELECTION OF REMEDIES, SUCH AS A NONJUDICIAL FORECLOSURE WITH RESPECT TO SECURITY
FOR A SECURED OBLIGATION, HAS DESTROYED GUARANTOR'S RIGHTS OF SUBROGATION AND
REIMBURSEMENT AGAINST THE PRINCIPAL BY THE OPERATION OF SECTION 580d OF THE CODE
OF CIVIL PROCEDURE OR OTHERWISE.
17
10. NOTICES.
All notices and other communications hereunder to Foothill
shall be in writing and shall be mailed, sent or delivered in accordance with
the Loan Agreement and all notices and other communications hereunder to
Guarantor shall be in writing and shall be mailed, sent or delivered in care of
Borrower in accordance with the Loan Agreement.
11. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.
THE VALIDITY OF THIS AGREEMENT, ITS CONSTRUCTION,
INTERPRETATION, AND ENFORCEMENT, AND THE RIGHTS OF THE PARTIES HERETO SHALL BE
DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF CALIFORNIA. THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING
IN CONNECTION WITH THIS AGREEMENT SHALL BE TRIED AND LITIGATED ONLY IN THE STATE
AND FEDERAL COURTS LOCATED IN THE COUNTY OF LOS ANGELES, STATE OF CALIFORNIA OR,
AT THE SOLE OPTION OF FOOTHILL, IN ANY OTHER COURT IN WHICH FOOTHILL SHALL
INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND WHICH HAS SUBJECT MATTER
JURISDICTION OVER THE MATTER IN CONTROVERSY. EACH OF GUARANTOR AND FOOTHILL
WAIVES, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO
ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT
ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 11.
GUARANTOR AND FOOTHILL HEREBY WAIVE THEIR RESPECTIVE RIGHTS
TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF
THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN, INCLUDING
CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR
STATUTORY CLAIMS. GUARANTOR AND FOOTHILL REPRESENT THAT EACH HAS REVIEWED THIS
WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING
CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF THIS
AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
18
12. DESTRUCTION OF GUARANTOR'S DOCUMENTS.
All documents, schedules, agings, or other papers delivered
to Foothill may be destroyed or otherwise disposed of by Foothill four (4)
months after they are delivered to or received by Foothill, unless Guarantor
requests, in writing, the return of said documents, schedules or other papers
and makes arrangements, at Guarantor's expense, for their return.
13. GENERAL PROVISIONS.
13.1 EFFECTIVENESS. This Agreement shall be binding and
-------------
deemed effective when executed by Guarantor and accepted and executed by
Foothill.
13.2 SUCCESSORS AND ASSIGNS. Subject to Section 15.2 of the
----------------------
Loan Agreement: This Agreement shall bind and inure to the benefit of the
respective successors and assigns of each of the parties; provided, however,
that Guarantor may not assign this Agreement or any rights or duties hereunder
without Foothill's prior written consent and any prohibited assignment shall be
absolutely void. No consent to an assignment by Foothill shall release Guarantor
from its Guarantied Obligations. Foothill may assign this Agreement and its
rights and duties hereunder and no consent or approval by Guarantor is required
in connection with any such assignment. Foothill reserves the right to sell,
assign, transfer, negotiate, or grant participations in all or any part of, or
any interest in Foothill's rights and benefits hereunder. In connection
therewith, Foothill may disclose all documents and information which Foothill
now or hereafter may have relating to Guarantor or Guarantor's business. To the
extent that Foothill assigns its rights and obligations to a third Person,
Foothill thereafter shall be released from such assigned obligations to
Guarantor and such assignment shall effect a novation between Guarantor and such
third Person.
13.3 SECTION HEADINGS. Headings and numbers have been set
----------------
forth herein for convenience only. Unless the contrary is compelled by the
context, everything contained in each section applies equally to this entire
Agreement.
13.4 INTERPRETATION. Neither this Agreement nor any
--------------
uncertainty or ambiguity herein shall be construed or resolved against Foothill
or Guarantor, whether under any rule of construction or otherwise. On the
contrary, this Agreement has been reviewed by all parties and shall be construed
and interpreted according to the ordinary meaning of the words used so as to
fairly accomplish the purposes and intentions of all parties hereto.
19
13.5 SEVERABILITY OF PROVISIONS. Each provision of this
--------------------------
Agreement shall be severable from every other provision of this Agreement for
the purpose of determining the legal enforceability of any specific provision.
13.6 AMENDMENTS IN WRITING. This Agreement can only be
---------------------
amended by a writing signed by both Foothill and Guarantor.
13.7 COUNTERPARTS. This Agreement may be executed in any
------------
number of counterparts and by different parties on separate counterparts, each
of which, when executed and delivered, shall be deemed to be an original, and
all of which, when taken together, shall constitute but one and the same
Agreement.
13.8 REVIVAL AND REINSTATEMENT OF OBLIGATIONS. If the
----------------------------------------
incurrence or payment of the Guarantied Obligations by Guarantor or the transfer
by Guarantor to Foothill of any property of Guarantor should for any reason
subsequently be declared to be void or voidable under any state or federal law
relating to creditors' rights, including provisions of the Bankruptcy Code
relating to fraudulent conveyances, preferences, and other voidable or
recoverable payments of money or transfers of property (collectively, a
"Voidable Transfer"), and if Foothill is required to repay or restore, in whole
or in part, any such Voidable Transfer, or elects to do so upon the reasonable
advice of its counsel, then, as to any such Voidable Transfer, or the amount
thereof that Foothill is required or elects to repay or restore, and as to all
reasonable costs, expenses, and attorneys fees of Foothill related thereto, the
liability of Guarantor automatically shall be revived, reinstated, and restored
and shall exist as though such Voidable Transfer had never been made.
20
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed at Los Angeles, California.
QMS CANADA INC.,
a corporation incorporated under the laws
of Canada
By
---------------------------------------
Its
--------------------------------------
FOOTHILL CAPITAL CORPORATION, a
California corporation
By
---------------------------------------
Its
--------------------------------------
21
GENERAL CONTINUING GUARANTY
---------------------------
THIS GENERAL CONTINUING GUARANTY ("Guaranty"), dated as of
November 7, 1995, is executed and delivered by QMS Circuits, Inc., a Delaware
corporation ("Guarantor"), in favor of Foothill Capital Corporation, a
California corporation ("Guarantied Party"), in light of the following:
WHEREAS, Debtor and Guarantied Party are, contemporaneously herewith,
entering into the Loan Agreement; and
WHEREAS, in order to induce Guarantied Party to extend financial
accommodations to Debtor pursuant to the Loan Agreement, and in consideration
thereof, and in consideration of any loans or other financial accommodations
heretofore or hereafter extended by Guarantied Party to Debtor, whether pursuant
to the Loan Agreement or otherwise, Guarantor has agreed to guaranty the
Guarantied Obligations.
NOW, THEREFORE, in consideration of the foregoing, Guarantor hereby
agrees, in favor of Guarantied Party, as follows:
1. Definitions and Construction.
----------------------------
(a) Definitions. Capitalized terms used herein and not
-----------
otherwise defined herein shall have the meanings ascribed to them in the Loan
Agreement. The following terms, as used in this Guaranty, shall have the
following meanings:
"Debtor" shall mean QMS, Inc., a Delaware corporation.
------
"Guarantied Obligations" shall mean: (a) the due and
----------------------
punctual payment of the principal of, and interest (including, any and all
interest which, but for the application of the provisions of the Bankruptcy
Code, would have accrued on such amounts) on, and premium, if any, on the
Indebtedness owed by Debtor to Guarantied Party pursuant to the terms of the
Loan Documents; and (b) the due and punctual payment of all other present or
future Indebtedness owing by Debtor to Guarantied Party.
"Guarantied Party" shall have the meaning set forth in the
----------------
preamble to this Guaranty.
"Guarantor" shall have the meaning set forth in the
---------
preamble to this Guaranty.
"Guaranty" shall have the meaning set forth in the
--------
preamble to this document.
1
"Indebtedness" shall mean any and all obligations,
------------
indebtedness, or liabilities of any kind or character owed by Debtor to
Guarantied Party and arising directly or indirectly out of or in connection with
the Loan Agreement or the other Loan Documents, including all such obligations,
indebtedness, or liabilities, whether for principal, interest (including any and
all interest which, but for the application of the provisions of the Bankruptcy
Code, would have accrued on such amounts), premium, reimbursement obligations,
fees, costs, expenses (including attorneys fees), or indemnity obligations,
whether heretofore, now, or hereafter made, incurred, or created, whether
voluntarily or involuntarily made, incurred, or created, whether secured or
unsecured (and if secured, regardless of the nature or extent of the security),
whether absolute or contingent, liquidated or unliquidated, or determined or
indeterminate, whether Debtor is liable individually or jointly with others, and
whether recovery is or hereafter becomes barred by any statute of limitations or
otherwise becomes unenforceable for any reason whatsoever, including any act or
failure to act by Guarantied Party.
"Loan Agreement" shall mean that certain Loan and Security
--------------
Agreement, dated as of November 7, 1995, entered into between Debtor and
Guarantied Party.
(b) Construction. Unless the context of this Guaranty clearly
------------
requires otherwise, references to the plural include the singular, references to
the singular include the plural, the part includes the whole, the terms
"include" and "including" are not limiting, and the term "or" has the inclusive
meaning represented by the phrase "and/or." The words "hereof," "herein,"
"hereby," "hereunder," and other similar terms refer to this Guaranty as a whole
and not to any particular provision of this Guaranty. Any reference in this
Guaranty to any of the following documents includes any and all alterations,
amendments, restatements, extensions, modifications, renewals, or supplements
thereto or thereof, as applicable: the Loan Agreement; this Guaranty; and the
other Loan Documents. Neither this Guaranty nor any uncertainty or ambiguity
herein shall be construed or resolved against Guarantied Party or Guarantor,
whether under any rule of construction or otherwise. On the contrary, this
Guaranty has been reviewed by Guarantor, Guarantied Party, and their respective
counsel, and shall be construed and interpreted according to the ordinary
meaning of the words used so as to fairly accomplish the purposes and intentions
of Guarantied Party and Guarantor.
2. Guarantied Obligations. Guarantor hereby irrevocably and
----------------------
unconditionally guaranties to Guarantied Party, as and for its own debt, until
final and indefeasible payment thereof has been made, (a) the payment of the
Guarantied Obligations, in each case when and as the same shall become due and
2
payable, whether at maturity, pursuant to a mandatory prepayment requirement, by
acceleration, or otherwise; it being the intent of Guarantor that the guaranty
set forth herein shall be a guaranty of payment and not a guaranty of
collection; and (b) the punctual and faithful performance, keeping, observance,
and fulfillment by Debtor of all of the agreements, conditions, covenants, and
obligations of Debtor contained in the Loan Agreement, and under each of the
other Loan Documents.
3. Continuing Guaranty. This Guaranty includes Guarantied Obligations
-------------------
arising under successive transactions continuing, compromising, extending,
increasing, modifying, releasing, or renewing the Guarantied Obligations,
changing the interest rate, payment terms, or other terms and conditions
thereof, or creating new or additional Guarantied Obligations after prior
Guarantied Obligations have been satisfied in whole or in part. To the maximum
extent permitted by law, Guarantor hereby waives any right to revoke this
Guaranty as to future Indebtedness. If such a revocation is effective
notwithstanding the foregoing waiver, Guarantor acknowledges and agrees that (a)
no such revocation shall be effective until written notice thereof has been
received by Guarantied Party, (b) no such revocation shall apply to any
Guarantied Obligations in existence on such date (including any subsequent
continuation, extension, or renewal thereof, or change in the interest rate,
payment terms, or other terms and conditions thereof), (c) no such revocation
shall apply to any Guarantied Obligations made or created after such date to the
extent made or created pursuant to a legally binding commitment of Guarantied
Party in existence on the date of such revocation, (d) no payment by Guarantor,
Debtor, or from any other source, prior to the date of such revocation shall
reduce the maximum obligation of Guarantor hereunder, and (e) any payment by
Debtor or from any source other than Guarantor subsequent to the date of such
revocation shall first be applied to that portion of the Guarantied Obligations
as to which the revocation is effective and which are not, therefore, guarantied
hereunder, and to the extent so applied shall not reduce the maximum obligation
of Guarantor hereunder.
4. Performance Under this Guaranty. In the event that Debtor fails to
-------------------------------
make any payment of any Guarantied Obligations, on or before the due date
thereof, or if Debtor shall fail to perform, keep, observe, or fulfill any other
obligation referred to in clause (b) of Section 2 hereof in the manner provided
-----------------------
in the Loan Agreement or the other Loan Documents, as applicable, Guarantor
immediately shall cause such payment to be made or each of such obligations to
be performed, kept, observed, or fulfilled.
5. Primary Obligations. This Guaranty is a primary and original
-------------------
obligation of Guarantor, is not merely the creation of a surety relationship,
and is an absolute, unconditional, and continuing guaranty of payment and
performance which shall remain in full force and effect without respect to
3
future changes in conditions. Guarantor agrees that it is directly, jointly and
severally with any other guarantor of the Guarantied Obligations, liable to
Guarantied Party, that the obligations of Guarantor hereunder are independent of
the obligations of Debtor or any other guarantor, and that a separate action may
be brought against Guarantor, whether such action is brought against Debtor or
any other guarantor or whether Debtor or any other guarantor is joined in such
action. Guarantor agrees that its liability hereunder shall be immediate and
shall not be contingent upon the exercise or enforcement by Guarantied Party of
whatever remedies it may have against Debtor or any other guarantor, or the
enforcement of any lien or realization upon any security Guarantied Party may at
any time possess. Guarantor agrees that any release which may be given by
Guarantied Party to Debtor or any other guarantor shall not release Guarantor.
Guarantor consents and agrees that Guarantied Party shall be under no obligation
to marshal any property or assets of Debtor or any other guarantor in favor of
Guarantor, or against or in payment of any or all of the Guarantied Obligations.
6. Waivers.
-------
(a) Guarantor hereby waives: (i) notice of acceptance hereof;
(ii) notice of any loans or other financial accommodations made or extended
under the Loan Agreement, or the creation or existence of any Guarantied
Obligations; (iii) notice of the amount of the Guarantied Obligations, subject,
however, to Guarantor's right to make inquiry of Guarantied Party to ascertain
the amount of the Guarantied Obligations at any reasonable time; (iv) notice of
any adverse change in the financial condition of Debtor or of any other fact
that might increase Guarantor's risk hereunder; (v) notice of presentment for
payment, demand, protest, and notice thereof as to any instrument among the Loan
Documents; (vi) notice of any unmatured event of default or event of default
under the Loan Agreement; and (vii) all other notices (except if such notice is
specifically required to be given to Guarantor under this Guaranty or any other
Loan Documents to which Guarantor is a party) and demands to which Guarantor
might otherwise be entitled.
(b) To the fullest extent permitted by applicable law,
Guarantor waives the right by statute or otherwise to require Guarantied Party
to institute suit against Debtor or to exhaust any rights and remedies which
Guarantied Party has or may have against Debtor. In this regard, Guarantor
agrees that it is bound to the payment of each and all Guarantied Obligations,
whether now existing or hereafter arising, as fully as if such Guarantied
Obligations were directly owing to Guarantied Party by Guarantor. Guarantor
further waives any defense arising by reason of any disability or other defense
(other than the defense that the Guarantied Obligations shall have been fully
and finally performed and indefeasibly paid) of Debtor or by reason of the
cessation from any cause whatsoever of the liability of Debtor in respect
thereof.
4
(c) To the maximum extent permitted by law, Guarantor hereby
waives: (i) any rights to assert against Guarantied Party any defense (legal or
equitable), set-off, counterclaim, or claim which Guarantor may now or at any
time hereafter have against Debtor or any other party liable to Guarantied
Party; (ii) any defense, set-off, counterclaim, or claim, of any kind or nature,
arising directly or indirectly from the present or future lack of perfection,
sufficiency, validity, or enforceability of the Guarantied Obligations or any
security therefor; (iii) any defense arising by reason of any claim or defense
based upon an election of remedies by Guarantied Party including any defense
based upon an election of remedies by Guarantied Party under the provisions of
(S)(S) 580d and 726 of the California Code of Civil Procedure, or any similar
law of California or any other jurisdiction; (iv) the benefit of any statute of
limitations affecting Guarantor's liability hereunder or the enforcement
thereof, and any act which shall defer or delay the operation of any statute of
limitations applicable to the Guarantied Obligations shall similarly operate to
defer or delay the operation of such statute of limitations applicable to
Guarantor's liability hereunder.
(d) Until such time as all of the Guarantied Obligations have
been fully, finally, and indefeasibly paid in full in cash: (i) Guarantor hereby
waives and postpones any right of subrogation Guarantor has or may have as
against Debtor with respect to the Guarantied Obligations; (ii) in addition,
Guarantor hereby waives and postpones any right to proceed against Debtor or any
other Person, now or hereafter, for contribution, indemnity, reimbursement, or
any other suretyship rights and claims (irrespective of whether direct or
indirect, liquidated or contingent), with respect to the Guarantied Obligations;
and (iii) in addition, Guarantor also hereby waives and postpones any right to
proceed or to seek recourse against or with respect to any property or asset of
Debtor.
(e) If any of the Guarantied Obligations at any time are
secured by a mortgage or deed of trust upon real property, Guarantied Party may
elect, in its sole discretion, upon a default with respect to the Guarantied
Obligations, to foreclose such mortgage or deed of trust judicially or
nonjudicially in any manner permitted by law, before or after enforcing this
Guaranty, without diminishing or affecting the liability of Guarantor hereunder.
Guarantor understands that (a) by virtue of the operation of California's
antideficiency law applicable to nonjudicial foreclosures, an election by
Guarantied Party nonjudicially to foreclose such a mortgage or deed of trust
probably would have the effect of impairing or destroying rights of subrogation,
reimbursement, contribution, or indemnity of Guarantor against Debtor or other
guarantors or sureties, and (b) absent the waiver given by Guarantor herein,
such an election would estop Guarantied Party from enforcing this Guaranty
against Guarantor. Understanding the foregoing, and understanding that Guarantor
is hereby relinquishing a defense to the enforceability of this Guaranty,
Guarantor hereby waives any right to assert against Guarantied Party any defense
5
to the enforcement of this Guaranty, whether denominated "estoppel" or
otherwise, based on or arising from an election by Guarantied Party
nonjudicially to foreclose any such mortgage or deed of trust. Guarantor
understands that the effect of the foregoing waiver may be that Guarantor may
have liability hereunder for amounts with respect to which Guarantor may be left
without rights of subrogation, reimbursement, contribution, or indemnity against
Debtor or other guarantors or sureties. Guarantor also agrees that the "fair
market value" provisions of Section 580a of the California Code of Civil
Procedure shall have no applicability with respect to the determination of
Guarantor's liability under this Guaranty.
(f) WITHOUT LIMITING THE GENERALITY OF ANY OTHER WAIVER OR
OTHER PROVISION SET FORTH IN THIS GUARANTY, GUARANTOR HEREBY WAIVES, TO THE
MAXIMUM EXTENT SUCH WAIVER IS PERMITTED BY LAW, ANY AND ALL BENEFITS OR DEFENSES
ARISING DIRECTLY OR INDIRECTLY UNDER ANY ONE OR MORE OF CALIFORNIA CIVIL CODE
(S)(S) 2799, 2808, 2809, 2810, 2815, 2819, 2820, 2821, 2822, 2838, 2839, 2845,
2847, 2848, 2849, AND 2850, CALIFORNIA CODE OF CIVIL PROCEDURE (S)(S) 580a,
580b, 580c, 580d, AND 726, AND CHAPTER 2 OF TITLE 14 OF THE CALIFORNIA CIVIL
CODE.
(g) WITHOUT LIMITING THE GENERALITY OF ANY OTHER WAIVER OR
OTHER PROVISION SET FORTH IN THIS GUARANTY, GUARANTOR WAIVES ALL RIGHTS AND
DEFENSES ARISING OUT OF AN ELECTION OF REMEDIES BY THE CREDITOR, EVEN THOUGH
THAT ELECTION OF REMEDIES, SUCH AS A NONJUDICIAL FORECLOSURE WITH RESPECT TO
SECURITY FOR A GUARANTEED OBLIGATION, HAS DESTROYED THE GUARANTOR'S RIGHTS OF
SUBROGATION AND REIMBURSEMENT AGAINST THE PRINCIPAL BY THE OPERATION OF SECTION
580d OF THE CODE OF CIVIL PROCEDURE OR OTHERWISE.
7. Releases. Guarantor consents and agrees that, without notice to or
--------
by Guarantor and without affecting or impairing the obligations of Guarantor
hereunder, Guarantied Party may, by action or inaction, compromise or settle,
extend the period of duration or the time for the payment, or discharge the
performance of, or may refuse to, or otherwise not enforce, or may, by action or
inaction, release all or any one or more parties to, any one or more of the
terms and provisions of the Loan Agreement or any of the other Loan Documents or
may grant other indulgences to Debtor in respect thereof, or may amend or modify
in any manner and at any time (or from time to time) any one or more of the Loan
Agreement or any of the other Loan Documents, or may, by action or inaction,
release or substitute any other guarantor, if any, of the Guarantied
Obligations, or may enforce, exchange, release, or waive, by action or inaction,
any security for the Guarantied Obligations or any other guaranty of the
Guarantied Obligations, or any portion thereof.
6
8. No Election. Guarantied Party shall have the right to seek
-----------
recourse against Guarantor to the fullest extent provided for herein and no
election by Guarantied Party to proceed in one form of action or proceeding, or
against any party, or on any obligation, shall constitute a waiver of Guarantied
Party's right to proceed in any other form of action or proceeding or against
other parties unless Guarantied Party has expressly waived such right in
writing. Specifically, but without limiting the generality of the foregoing, no
action or proceeding by Guarantied Party under any document or instrument
evidencing the Guarantied Obligations shall serve to diminish the liability of
Guarantor under this Guaranty except to the extent that Guarantied Party finally
and unconditionally shall have realized indefeasible payment by such action or
proceeding.
9. Indefeasible Payment. The Guarantied Obligations shall not be
--------------------
considered indefeasibly paid for purposes of this Guaranty unless and until all
payments to Guarantied Party are no longer subject to any right on the part of
any person whomsoever, including Debtor, Debtor as a debtor in possession, or
any trustee (whether appointed under the Bankruptcy Code or otherwise) of
Debtor's assets to invalidate or set aside such payments or to seek to recoup
the amount of such payments or any portion thereof, or to declare same to be
fraudulent or preferential. In the event that, for any reason, all or any
portion of such payments to Guarantied Party is set aside or restored, whether
voluntarily or involuntarily, after the making thereof, the obligation or part
thereof intended to be satisfied thereby shall be revived and continued in full
force and effect as if said payment or payments had not been made and Guarantor
shall be liable for the full amount Guarantied Party is required to repay plus
any and all costs and expenses (including attorneys fees) paid by Guarantied
Party in connection therewith.
10. Financial Condition of Debtor. Guarantor represents and warrants
-----------------------------
to Guarantied Party that it is currently informed of the financial condition of
Debtor and of all other circumstances which a diligent inquiry would reveal and
which bear upon the risk of nonpayment of the Guarantied Obligations. Guarantor
further represents and warrants to Guarantied Party that it has read and
understands the terms and conditions of the Loan Agreement and the other Loan
Documents. Guarantor hereby covenants that it will continue to keep itself
informed of Debtor's financial condition, the financial condition of other
guarantors, if any, and of all other circumstances which bear upon the risk of
nonpayment or nonperformance of the Guarantied Obligations.
11. Subordination. Guarantor hereby agrees that any and all present
-------------
and future indebtedness of Debtor owing to Guarantor is postponed in favor of
and subordinated to payment, in full, in cash, of the Guarantied Obligations. In
this regard, no payment of any kind whatsoever shall be made with respect to
such indebtedness until the Guarantied Obligations have been indefeasibly paid
in full.
7
12. Payments; Application. All payments to be made hereunder by
---------------------
Guarantor shall be made in lawful money of the United States of America at the
time of payment, shall be made in immediately available funds, and shall be made
without deduction (whether for taxes or otherwise) or offset. All payments made
by Guarantor hereunder shall be applied as follows: first, to all reasonable
costs and expenses (including attorneys fees) incurred by Guarantied Party in
enforcing this Guaranty or in collecting the Guarantied Obligations; second, to
all accrued and unpaid interest, premium, if any, and fees owing to Guarantied
Party constituting Guarantied Obligations; and third, to the balance of the
Guarantied Obligations.
13. Attorneys Fees and Costs. Guarantor agrees to pay, on demand, all
------------------------
reasonable attorneys fees and all other reasonable costs and expenses which may
be incurred by Guarantied Party in the enforcement of this Guaranty or in any
way arising out of, or consequential to the protection, assertion, or
enforcement of the Guarantied Obligations (or any security therefor),
irrespective of whether suit is brought.
14. Notices. All notices and other communications hereunder to
-------
Guarantied Party shall be in writing and shall be mailed, sent or delivered in
accordance with the Loan Agreement and all notices and other communications
hereunder to Guarantor shall be in writing and shall be mailed, sent or
delivered in care of Debtor in accordance with the Loan Agreement.
15. Cumulative Remedies. No remedy under this Guaranty, under the
-------------------
Loan Agreement, or any other Loan Document is intended to be exclusive of any
other remedy, but each and every remedy shall be cumulative and in addition to
any and every other remedy given under this Guaranty, under the Loan Agreement,
or any other Loan Document, and those provided by law. No delay or omission by
Guarantied Party to exercise any right under this Guaranty shall impair any such
right nor be construed to be a waiver thereof. No failure on the part of
Guarantied Party to exercise, and no delay in exercising, any right under this
Guaranty shall operate as a waiver thereof; nor shall any single or partial
exercise of any right under this Guaranty preclude any other or further exercise
thereof or the exercise of any other right.
16. Severability of Provisions. Any provision of this Guaranty which
--------------------------
is prohibited or unenforceable under applicable law shall be ineffective to the
extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof.
8
17. Entire Agreement; Amendments. This Guaranty constitutes the
----------------------------
entire agreement between Guarantor and Guarantied Party pertaining to the
subject matter contained herein. This Guaranty may not be altered, amended, or
modified, nor may any provision hereof be waived or noncompliance therewith
consented to, except by means of a writing executed by both Guarantor and
Guarantied Party. Any such alteration, amendment, modification, waiver, or
consent shall be effective only to the extent specified therein and for the
specific purpose for which given. No course of dealing and no delay or waiver of
any right or default under this Guaranty shall be deemed a waiver of any other,
similar or dissimilar, right or default or otherwise prejudice the rights and
remedies hereunder.
18. Successors and Assigns. This Guaranty shall be binding upon
----------------------
Guarantor and its successors and assigns and shall inure to the benefit of the
successors and assigns of Guarantied Party; provided, however, Guarantor shall
not assign this Guaranty or delegate any of its duties hereunder without
Guarantied Party's prior written consent and any unconsented to assignment shall
be absolutely void. In the event of any assignment or other transfer of rights
by Guarantied Party, the rights and benefits herein conferred upon Guarantied
Party shall automatically extend to and be vested in such assignee or other
transferee.
19. No Third Party Beneficiary. This Guaranty is solely for the
--------------------------
benefit of Guarantied Party and its successors and assigns and may not be relied
on by any other Person.
20. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER
-----------------------------------------
THE VALIDITY OF THIS GUARANTY, ITS CONSTRUCTION,
INTERPRETATION, AND ENFORCEMENT, AND THE RIGHTS OF THE PARTIES HERETO WITH
RESPECT TO ALL MATTERS ARISING HEREUNDER OR RELATED HERETO SHALL BE DETERMINED
UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
CALIFORNIA.
THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN
CONNECTION WITH THIS GUARANTY SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND
FEDERAL COURTS LOCATED IN THE COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, OR AT
THE SOLE OPTION OF GUARANTIED PARTY, IN ANY OTHER COURT IN WHICH GUARANTIED
9
PARTY SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND WHICH HAS SUBJECT MATTER
JURISDICTION OVER THE MATTER IN CONTROVERSY. EACH OF GUARANTOR AND GUARANTIED
PARTY WAIVES, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY
HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE
EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 20.
----------
GUARANTOR AND GUARANTIED PARTY HEREBY WAIVE THEIR RESPECTIVE
RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT
OF THIS GUARANTY OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN, INCLUDING
CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR
STATUTORY CLAIMS. GUARANTOR AND GUARANTIED PARTY REPRESENT THAT EACH HAS
REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL
RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A
COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE
COURT.
10
IN WITNESS WHEREOF, the undersigned has executed and delivered this
Guaranty as of the date first written above.
QMS Circuits, Inc.
a Delaware corporation
By
------------------------------
Title:
--------------------------
S-1
SECURITY AGREEMENT
This SECURITY AGREEMENT (this "Agreement"), is entered into as of
November 7, 1995, between FOOTHILL CAPITAL CORPORATION, a California corporation
("Foothill"), with a place of business located at ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇, and QMS CIRCUITS, INC., a
Delaware corporation ("Guarantor"), with its chief executive office located at
▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇.
WHEREAS, Borrower and Foothill are, contemporaneously herewith,
entering into the Loan Agreement;
WHEREAS, Borrower owns one hundred percent (100%) of the issued and
outstanding stock of Guarantor; and
WHEREAS, Guarantor has executed that certain General Continuing
Guaranty, of even date herewith, in favor of Foothill (the "Guaranty"),
respecting certain obligations of Borrower owing to Foothill under the Loan
Agreement;
WHEREAS, Guarantor desires to collateralize its obligations under
the Guaranty by granting to Foothill a security interest in certain of its
assets; and
WHEREAS, Guarantor will benefit by virtue of the loan from Foothill
to Borrower.
NOW THEREFORE, in consideration of the premises set forth above,
the terms and conditions contained herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, and
each intending to be bound hereby, Foothill and Guarantor agree as follows:
1. DEFINITIONS AND CONSTRUCTION.
1.1 DEFINITIONS. All capitalized terms used herein and not
-----------
otherwise defined herein shall have the meanings ascribed to them in the Loan
Agreement. As used in this Agreement, the following terms shall have the
following definitions:
"Accounts" means all currently existing and hereafter
----------
arising accounts, contract rights, and all other forms of obligations owing to
Guarantor arising out of the sale or lease of goods or General Intangibles or
the rendition of services by Guarantor, irrespective of whether earned by
performance, and any and all credit insurance, guaranties, or security therefor.
1
"Agreement" means this Security Agreement and any
-----------
extensions, riders, supplements, notes, amendments, or modifications to or in
connection with this Security Agreement.
"Borrower" means QMS, Inc., a Delaware corporation.
----------
"Collateral" means each of the following: the
------------
Accounts; the Guarantor's Books; the Equipment; the General Intangibles; the
Inventory; the Negotiable Collateral; any money, or other assets of Guarantor
which now or hereafter come into the possession, custody, or control of
Foothill; and the proceeds and products, whether tangible or intangible, of any
of the foregoing, including proceeds of insurance covering any or all of the
Collateral, and any and all Accounts, Guarantor's Books, Equipment, General
Intangibles, Inventory, Negotiable Collateral, money, deposit accounts, or other
tangible or intangible property resulting from the sale, exchange, collection,
or other disposition of any of the foregoing, or any portion thereof or interest
therein, and the proceeds thereof.
"Equipment" means all of Guarantor's present and
-----------
hereafter acquired machinery, machine tools, motors, equipment, furniture,
furnishings, fixtures, vehicles (including motor vehicles and trailers), tools,
parts, dies, jigs, goods (other than consumer goods, farm products, or
Inventory), wherever located, and any interest of Guarantor in any of the
foregoing, and all attachments, accessories, accessions, replacements,
substitutions, additions, and improvements to any of the foregoing, wherever
located.
"Event of Default" has the meaning ascribed to it in
------------------
Section 6.
"General Intangibles" means all of Guarantor's present
---------------------
and future general intangibles and other personal property (including contract
rights, rights arising under common law, statutes, or regulations, choses or
things in action, goodwill, patents, trade names, trademarks, servicemarks,
copyrights, source code, software, blueprints, drawings, purchase orders,
customer lists, monies due or recoverable from pension funds, route lists,
rights to payment and other rights under any royalty or licensing agreements,
infringements, claims, computer programs, computer discs, computer tapes,
literature, reports, catalogs, deposit accounts, insurance premium rebates, tax
refunds, and tax refund claims), other than goods, Accounts, and Negotiable
Collateral.
"Guarantied Obligations" shall have the meaning
------------------------
ascribed to it in each of the Guaranties and shall mean and refer to the same,
collectively.
2
"Guarantor's Books" means all of Guarantor's books and
-------------------
records, including: ledgers; records indicating, summarizing, or evidencing
Guarantor's properties or assets (including the Collateral) or liabilities; all
information relating to Guarantor's business operations or financial condition;
and all computer programs, disc or tape files, printouts, runs, or other
computer prepared information in respect of such books and records.
"Guarantor" has the meaning ascribed thereto in the
-----------
preamble to this Agreement.
"Guaranty" means that certain General Continuing
----------
Guaranty of Guarantor to Foothill of even date herewith.
"Inventory" means all present and future inventory in
-----------
which Guarantor has any interest, including goods held for sale, license, or
lease or to be furnished under a contract of service and all of Guarantor's
present and future raw materials, work in process, finished goods, and packing
and shipping materials, wherever located, and any documents of title
representing any of the above.
"Loan Agreement" means that certain Loan and Security
----------------
Agreement, dated as of even date herewith, between Borrower and Foothill.
"Negotiable Collateral" means all of Guarantor's
-----------------------
present and future letters of credit, notes, drafts, instruments, certificated
and uncertificated securities (including the shares of stock of Subsidiaries of
Guarantor), documents, personal property leases (wherein Guarantor is the
lessor), chattel paper, and Guarantor's Books relating to any of the foregoing.
1.2 CODE. Any terms used in this Agreement which are defined
----
in the Code shall be construed and defined as set forth in the Code unless
otherwise defined herein.
1.3 CONSTRUCTION. Unless the context of this Agreement
------------
clearly requires otherwise, references to the plural include the singular,
references to the singular include the plural, the term "including" is not
limiting, and the term "or" has, except where otherwise indicated, the inclusive
meaning represented by the phrase "and/or." The words "hereof," "herein,"
"hereby," "hereunder," and similar terms in this Agreement refer to this
Agreement as a whole and not to any particular provision of this Agreement.
Section, subsection, clause, schedule, and exhibit references are to this
Agreement unless otherwise specified. Any reference in this Agreement or in any
of the other Loan Documents to this Agreement or any of the other Loan Documents
shall include all alterations, amendments, restatements, changes, extensions,
3
modifications, renewals, replacements, substitutions, and supplements, thereto
and thereof, as applicable. In the event of a direct conflict between the terms
and provisions of this Agreement and the Loan Agreement, it is the intention of
the parties hereto that both such documents shall be read together and
construed, to the fullest extent possible, to be in concert with each other. In
the event of any actual, irreconcilable conflict that cannot be resolved as
aforesaid, the terms and provisions of the Loan Agreement shall control and
govern; provided, however, that the inclusion herein of additional obligations
on the part of Guarantor and supplemental rights and remedies in favor of
Foothill, in each case in respect of the Collateral, shall not be deemed a
conflict with the Loan Agreement.
1.4 SCHEDULES AND EXHIBITS. All of the schedules and
----------------------
exhibits attached to this Agreement shall be deemed incorporated herein by
reference.
2. CREATION OF SECURITY INTEREST.
2.1 GRANT OF SECURITY INTEREST. Guarantor hereby grants to
--------------------------
Foothill a continuing security interest in all currently existing and hereafter
acquired or arising Collateral in order to secure its performance pursuant to
the Guaranty. Foothill's security interests in the Collateral shall attach to
all Collateral without further act on the part of Foothill or Guarantor.
Anything contained in this Agreement or any other Loan Document to the contrary
notwithstanding, except for Permitted Asset Dispositions, Guarantor has no
authority, express or implied, to dispose of any item or portion of the
Collateral.
2.2 NEGOTIABLE COLLATERAL. In the event that any Collateral,
---------------------
including proceeds, is evidenced by or consists of Negotiable Collateral,
Guarantor shall, immediately upon the request of Foothill, endorse and assign
such Negotiable Collateral to Foothill and deliver physical possession of such
Negotiable Collateral to Foothill.
2.3 COLLECTION OF ACCOUNTS, GENERAL INTANGIBLES, NEGOTIABLE
-------------------------------------------------------
COLLATERAL. At any time after the occurrence and during the continuance of an
----------
Event of Default, Foothill or Foothill's designee may: (a) notify customers or
Account Debtors of Guarantor that the Accounts, General Intangibles, or
Negotiable Collateral have been assigned to Foothill or that Foothill has a
security interest therein; and (b) collect the Accounts, General Intangibles,
and Negotiable Collateral directly and charge the collection costs and expenses
to Borrower's loan account. Guarantor agrees that it will hold in trust for
Foothill, as Foothill's trustee, any cash receipts, checks, and other items of
payment (including, insurance proceeds, proceeds of cash sales, rental proceeds,
and tax refunds) that it receives and immediately will deliver said cash
receipts, checks, and other items of payment to Foothill in their original form
as received by Guarantor.
4
2.4 DELIVERY OF ADDITIONAL DOCUMENTATION REQUIRED. Guarantor
---------------------------------------------
shall execute, and deliver to Foothill, prior to or concurrently with
Guarantor's execution and delivery of this Agreement and at any time thereafter
at the request of Foothill, all financing statements, continuation and amendment
financing statements, fixture filings, security agreements, chattel mortgages,
pledges, mortgages, deeds of trust, assignments, endorsements of certificates of
title, applications for title, affidavits, reports, notices, schedules of
accounts, letters of authority, and all other documents that Foothill may
reasonably request, in form satisfactory to Foothill, to perfect and continue
perfected Foothill's security interests in the Collateral and in order to fully
consummate all of the transactions contemplated under the Loan Documents.
2.5 POWER OF ATTORNEY. Guarantor hereby irrevocably makes,
-----------------
constitutes, and appoints Foothill (and any of Foothill's officers, employees,
or agents designated by Foothill) as Guarantor's true and lawful attorney, with
power to: (a) if Guarantor refuses to, or fails timely to execute and deliver
any of the documents described in Section 2.4, sign the name of Guarantor on any
of the documents described in Section 2.4; (b) at any time that an Event of
Default has occurred and is continuing, sign Guarantor's name on any invoice or
▇▇▇▇ of lading relating to any Account, drafts against Account Debtors,
schedules and assignments of Accounts, verifications of Accounts, and notices to
Account Debtors; (c) send requests for verification of Accounts; (d) endorse
Guarantor's name on any checks, notices, acceptances, money orders, drafts, or
other item of payment or security that may come into Foothill's possession; (e)
at any time that an Event of Default has occurred and is continuing, notify the
post office authorities to change the address for delivery of Guarantor's mail
to an address designated by Foothill, to receive and open all mail addressed to
Guarantor, and to retain all mail relating to the Collateral and forward all
other mail to Guarantor; (f) at any time that an Event of Default has occurred
and is continuing, make, settle, and adjust all claims under Guarantor's
policies of insurance and make all determinations and decisions with respect to
such policies of insurance; and (g) at any time that an Event of Default has
occurred and is continuing, settle and adjust disputes and claims respecting the
Accounts directly with Account Debtors, for amounts and upon terms which
Foothill determines to be reasonable, and Foothill may cause to be executed and
delivered any documents and releases which Foothill determines to be necessary.
The appointment of Foothill as Guarantor's attorney, and each and every one of
Foothill's rights and powers, being coupled with an interest, is irrevocable
until all of the Guarantied Obligations have been fully and finally repaid and
performed and Foothill's obligation to extend credit under the Loan Agreement is
terminated.
2.6 RIGHT TO INSPECT. Prior to the time that an Event of
----------------
Default has occurred and is continuing, Foothill (through any of its officers,
employees, or agents) shall have the right, from time to time hereafter upon
prior notification to Guarantor and during normal business hours to inspect
5
Guarantor's Books and to check, test, and appraise the Collateral in order to
verify Guarantor's financial condition or the amount, quality, value, condition
of, or any other matter relating to, the Collateral or the Real Property. After
the occurrence and during the continuance of an Event of Default, Foothill
(through any of its officers, employees, or agents) shall have the right, from
time to time hereafter without prior notification to Guarantor and at any time
or times determined by Foothill, to inspect Guarantor's Books and to check,
test, and appraise the Collateral in order to verify Guarantor's financial
condition or the amount, quality, value, condition of, or any other matter
relating to, the Collateral or the Real Property.
3. REPRESENTATIONS AND WARRANTIES.
Guarantor represents and warrants as follows:
3.1 NO PRIOR ENCUMBRANCES. Guarantor has good and
---------------------
indefeasible title to the Collateral, free and clear of liens, claims, security
interests, or encumbrances except for Permitted Liens.
3.2 PLACE OF BUSINESS/CHIEF EXECUTIVE OFFICE. The chief
----------------------------------------
executive office of Guarantor is at the address indicated in the first paragraph
of this Agreement and all other locations at which Guarantor has a place of
business are set forth on Schedule 3.2.
3.3 INVENTORY. All Inventory is now and at all times
---------
hereafter shall be of good and servicable quality, free from defects.
3.4 LOCATION OF INVENTORY AND EQUIPMENT. The Inventory and
-----------------------------------
Equipment are not stored with a bailee, warehouseman, or similar party (without
Foothill's prior written consent) and are located only at the locations
identified on Schedule 3.4.
3.5 INVENTORY RECORDS. Guarantor now keeps, and hereafter at
-----------------
all times shall keep, correct and accurate records itemizing and describing the
kind, type, quality, and quantity of the Inventory, and Guarantor's cost
therefor.
3.6 DUE ORGANIZATION AND QUALIFICATION; SUBSIDIARIES.
-------------------------------------------------
Guarantor is a corporation incorporated under the laws of Delaware, and it is
and shall at all times hereafter be duly organized and existing and in good
standing under the laws of Canada and qualified and licensed to do business in,
and in good standing in, any jurisdiction where the failure to be so licensed or
qualified could reasonably be expected to have a material adverse effect on the
business, operations, condition (financial or otherwise), finances, or prospects
of Guarantor or on the value of the Collateral.
6
3.7 DUE AUTHORIZATION; NO CONFLICT. The execution, delivery,
------------------------------
and performance of this Agreement, the Guaranties, and any other Loan Document
to which Guarantor is a party are within Guarantor's corporate powers, have been
duly authorized, and are not in conflict with nor, constitute a breach of any
provision contained in Guarantor's Articles or Certificate of Incorporation, By-
laws, or any partnership or trust agreement pertaining to Guarantor, nor will
they constitute an event of default under any material agreement to which
Guarantor is now or may hereafter become a party.
3.8 LITIGATION. There are no actions or proceedings pending
----------
by or against Guarantor before any court or administrative agency and Guarantor
does not have knowledge or belief of any pending, threatened, or imminent
litigation, governmental investigations, or claims, complaints, actions, or
prosecutions involving Guarantor, except for: (a) ongoing collection matters in
which Guarantor is the plaintiff; (b) matters disclosed on Schedule 3.8; and (c)
------------
matters arising after the date hereof that, if reasonably likely to be decided
adversely to Guarantor, would not materially impair the prospect of repayment of
the Guarantied Obligations or materially impair the value or priority of
Foothill's security interests in the Collateral.
3.9 SOLVENCY. Guarantor is Solvent. No transfer of property
--------
is being made by Guarantor and no obligation is being incurred by Guarantor in
connection with the transactions contemplated by this Agreement or the other
Loan Documents with the intent to hinder, delay, or defraud either present or
future creditors of Guarantor.
3.10 RELIANCE BY FOOTHILL; CUMULATIVE. The warranties,
--------------------------------
representations, and agreements set forth herein shall be conclusively presumed
to have been relied upon by Foothill and shall be cumulative and in addition to
any and all other warranties, representations, and agreements which Guarantor
shall now or hereinafter give, or cause to be given, to Foothill.
4. AFFIRMATIVE COVENANTS.
Guarantor covenants and agrees that, until payment in full
of the Guarantied Obligations, and unless Foothill shall otherwise consent in
writing, Guarantor shall do all of the following:
4.1 SCHEDULES OF ACCOUNTS. With such regularity as Foothill
---------------------
shall require, provide Foothill with schedules describing all Accounts.
Foothill's failure to request such schedules or Guarantor's failure to execute
and deliver such schedules shall not affect or limit Foothill's security
interests or other rights in and to the Accounts.
7
4.2 INVENTORY REPORTING. From time to time hereafter, but
-------------------
not less frequently than monthly, execute and deliver to Foothill a report
regarding Guarantor's Inventory specifying Guarantor's cost (and, if lower,
market value) thereof, and further specifying such other information as Foothill
may reasonably request.
4.3 [intentionally omitted]
4.4 MAINTENANCE OF EQUIPMENT. Keep and maintain the
------------------------
Equipment in good operating condition and repair (ordinary wear and tear
excepted), and make all necessary replacements thereto so that the value and
operating efficiency thereof shall at all times be maintained and preserved.
Guarantor shall not permit any item of Equipment to become a fixture to real
estate or an accession to other property, and the Equipment is now and shall at
all times remain personal property.
4.5 TAXES. All assessments and taxes, whether real,
-----
personal, or otherwise, due or payable by, or imposed, levied, or assessed
against Guarantor or any of its property have been paid, and shall hereafter be
paid in full, before delinquency or before the expiration of any extension
period. Guarantor shall make due and timely payment or deposit of all taxes,
assessments, or contributions required of it by law, and will execute and
deliver to Foothill, on demand, appropriate certificates attesting to the
payment or deposit thereof. Guarantor will make timely payment or deposit of all
tax payments and withholding taxes required of it by applicable laws, and will,
upon request, furnish Foothill with proof satisfactory to Foothill indicating
that Guarantor has made such payments or deposits. The foregoing to the contrary
notwithstanding, Guarantor shall not be required to pay or discharge any such
assessment or tax (other than payroll taxes or taxes that are the subject of a
United States federal tax lien, a Canadian federal tax lien, or a Canadian
provincial tax lien) so long as and to the extent that the validity thereof
shall be subject of a Permitted Protest.
4.6 INSURANCE.
(a) At its expense, keep the Collateral insured
against loss or damage by fire, theft, explosion, sprinklers, and all other
hazards and risks, and in such amounts, as are ordinarily insured against by
other owners in similar businesses. Guarantor also shall maintain business
interruption, public liability, product liability, and property damage insurance
relating to their ownership and use of the Collateral, as well as insurance
against larceny, embezzlement, and criminal misappropriation.
(b) All such policies of insurance shall be in such
form, with such companies, and in such amounts as may be reasonably satisfactory
to Foothill. All such policies of insurance (except those of public liability
8
and property damage) shall contain a 438BFU lender's loss payable endorsement,
or an equivalent endorsement in a form satisfactory to Foothill, showing
Foothill as a loss payee thereof as its interest may appear, shall contain a
waiver of warranties, and shall specify that the insurer must give at least ten
(10) days prior written notice to Foothill before canceling its policy for any
reason. Guarantor shall deliver to Foothill certified copies of such policies of
insurance and evidence of the payment of all premiums therefor. All proceeds
payable under any such policy shall be payable to Foothill to be applied on
account of the Guarantied Obligations.
4.7 FOOTHILL EXPENSES. Guarantor shall immediately and
-----------------
without demand reimburse Foothill for all sums expended by Foothill which
constitute Foothill Expenses and Guarantor hereby authorizes and approves all
advances and payments by Foothill for items constituting Foothill Expenses.
5. NEGATIVE COVENANTS.
Guarantor covenants and agrees that until payment in full of
the Guarantied Obligations, it will not do any of the following without
Foothill's prior written consent:
5.1 LIENS. Create, incur, assume, or permit to exist,
-----
directly or indirectly, any lien on or with respect to any of its property or
assets, of any kind, whether now owned or hereafter acquired, or any income or
profits therefrom, except for Permitted Liens (including liens that are
replacements of Permitted Liens to the extent that the original indebtedness is
refinanced under Section 7.1(d) of the Loan Agreement and so long as the
replacement liens secure only those assets or property that secured the original
indebtedness).
5.2 RESTRICTIONS ON FUNDAMENTAL CHANGES. (a) Enter into any
-----------------------------------
acquisition, merger, consolidation, reorganization, or recapitalization, or
reclassify its capital stock, or liquidate, wind up, or dissolve itself (or
suffer any liquidation or dissolution); or (b) except for Permitted Asset
Dispositions convey, sell, assign, lease, transfer, or otherwise dispose of, in
one transaction or a series of transactions, all or any substantial part of its
business, property, or assets, whether now owned or hereafter acquired, or
acquire by purchase or otherwise all or substantially all of the properties,
assets, stock, or other evidence of beneficial ownership of any Person.
5.3 EXTRAORDINARY TRANSACTIONS AND DISPOSAL OF ASSETS. Enter
--------------------------------------------------
into any transaction not in the ordinary and usual course of Guarantor's
business, including the sale, lease, or other disposition of, moving,
relocation, or transfer, whether by sale or otherwise, of any of Guarantor's
properties or assets (other than Permitted Asset Dispositions).
9
5.4 CHANGE NAME. Change Guarantor's FEIN name, business
-----------
structure, or identity, or add any new fictitious name.
5.5 GUARANTEE. Guarantee or otherwise become in any way
---------
liable with respect to the obligations of any third Person except: (a) by
endrosement of instruments or items of payment for deposit to the account of
Guarantor or which are transmitted or turned over to Foothill; and (b) for the
guarantee of the payment and performance of the Guarantied Obligations.
5.6 NATURE OF BUSINESS; FISCAL YEAR. (a) Make any change in
-------------------------------
the principal nature of Guarantor's business, or (b) without the prior written
consent of Foothill, which consent shall not unreasonably be withheld, change
the date of its fiscal year.
5.7 TRANSACTIONS WITH AFFILIATES. Guarantor will not
----------------------------
directly or indirectly enter into or permit to exist any material transaction
with any Affiliate of Guarantor except for transactions which are in the
ordinary course of Guarantor's business, upon fair and reasonable terms and
which are fully disclosed to Foothill and, no less favorable to Guarantor than
would be obtained in arm's length transaction with a non-Affiliate.
5.8 SUSPENSION. Suspend or go out of business.
----------
5.9 CHANGE IN LOCATION OF CHIEF EXECUTIVE OFFICE; INVENTORY
-------------------------------------------------------
AND EQUIPMENT WITH BAILEES. Without thirty (30) days prior written notification
--------------------------
to Foothill, relocate its chief executive office to a new location, unless, at
the time of such written notification, Guarantor provides any financing
statements or fixture filings necessary to perfect and continue perfected
Foothill's security interests and also provides to Foothill a landlord's waiver
in form and substance satisfactory to Foothill. The Inventory and Equipment
shall not at any time now or hereafter be stored with a bailee, warehouseman, or
similar party without Foothill's prior written consent.
6. EVENTS OF DEFAULT.
Any one or more of the following events shall constitute an
event of default (each, an "Event of Default") under this Agreement:
10
6.1 The occurrence of an Event of Default (as defined in the
Loan Agreement);
6.2 (a) If Guarantor fails or neglects to perform, keep, or
observe, in any material respect, any term, provision, condition, covenant, or
agreement contained in Section 4.2 (Inventory Reporting) of this Agreement and
---------------------------------
such failure continues for a period of five (5) days from the date of such
failure or neglect; (b) If Guarantor fails or neglects to perform, keep, or
observe, in any material respect, any term, provision, condition, covenant, or
agreement contained in Sections 4.1 (Schedule of Accounts)
-----------------------------------
of this Agreement and such failure continues for a period of ten (10)
days from the date of such failure or neglect; (c) If Guarantor fails or
neglects to perform, keep, or observe, in any material respect, any term,
provision, condition, covenant, or agreement contained in Section 4.4
-----------
(Maintenance of Equipment) of this Agreement and such failure continues for a
--------------------------
period of fifteen (15) days from the date Foothill sends Guarantor written
notice of such failure or neglect; (d) If Guarantor fails or neglects to
perform, keep, or observe, in any material respect, any other term, provision,
condition, covenant, or agreement contained in this Agreement, in any of the
Loan Documents, or in any other present or future agreement between Guarantor
and Foothill (other than any such term, provision, condition, covenant, or
agreement that is the subject of another provision of this Section 6);
6.3 If there is a material impairment of the prospect of
repayment of any portion of the Guarantied Obligations owing to Foothill or a
material impairment of the value or priority of Foothill's security interests in
the Collateral;
6.4 [intentionally omitted]
6.5 If a judgment or other claim in excess of $100,000
(after giving effect to insurance proceeds, if any, actually applied thereto)
becomes a lien or encumbrance upon any material portion of Guarantor's
properties or assets; and
6.6 If there is a material default in any material agreement
to which Guarantor is a party with one or more third Persons resulting in a
right by such third Persons, irrespective of whether exercised, to accelerate
the maturity of Guarantor's obligations thereunder.
6.7 [intentionally omitted]
6.8 [intentionally omitted]
11
7. FOOTHILL'S RIGHTS AND REMEDIES.
7.1 Rights and Remedies. Upon the occurrence of an Event of
-------------------
Default, the security hereby constituted shall become enforceable and, in
addition to all other rights and remedies available to Foothill as provided
hereafter, Foothill may, at its election, without notice of its election and
without demand, do any one or more of the following, all of which are authorized
by Guarantor:
(a) Proceed directly and at once, without notice,
against the Guarantor to collect and recover the full amount or any portion of
the Guarantied Obligations, without first proceeding against Borrower, or
against any security or collateral for the Guarantied Obligations.
(b) Without notice to the Guarantor and regardless of
the acceptance of any security or collateral for the payment hereof, appropriate
and apply toward the payment of the Guarantied Obligations (i) any indebtedness
due or to become due from Foothill to the Guarantor and (ii) any moneys, credits
or other property belonging to the Guarantor at any time held by or coming into
the possession of Foothill.
(c) May exercise in respect of the Collateral, in
addition to other rights and remedies provided for herein and the Guaranty or
otherwise available to it, all the rights and remedies available to it at law
(including those of a secured party under the Code) or in equity.
(d) Settle or adjust disputes and claims directly with
Account Debtors for amounts and upon terms which Foothill considers advisable,
and in such cases, Foothill will credit Borrower's loan account with only the
net amounts received by Foothill in payment of such disputed Accounts after
deducting all Foothill Expenses incurred or expended in connection therewith;
(e) Cause Guarantor to hold all returned Inventory in
trust for Foothill, segregate all returned Inventory from all other property of
Guarantor or in Guarantor's possession and conspicuously label said returned
Inventory as the property of Foothill;
(f) Without notice or demand, make such payments and
do such acts as Foothill considers necessary or reasonable to protect its
security interest in the Collateral. Guarantor agrees to assemble the Collateral
if Foothill so requires, and to make the Collateral available to Foothill as
Foothill may designate. Guarantor authorizes Foothill to enter the premises
where the Collateral is located, to take and maintain possession of the
Collateral, or any part of it, and to pay, purchase, contest, or compromise any
encumbrance, charge, or lien which in Foothill's determination appears to be
prior or superior to its security interest and to pay all expenses incurred in
12
connection therewith. With respect to any of Guarantor's owned premises,
Guarantor hereby grants Foothill a license to enter into possession of such
premises and to occupy the same, without charge, for up to one hundred twenty
(120) days in order to exercise any of Foothill's rights or remedies provided
herein, at law, in equity, or otherwise;
(g) Ship, reclaim, recover, store, finish, maintain,
repair, prepare for sale, advertise for sale, and sell (in the manner provided
for herein) the Collateral. Foothill is hereby granted a license or other right
to use, without charge, Guarantor's labels, patents, copyrights, rights of use
of any name, trade secrets, trade names, trademarks, service marks, and
advertising matter, or any property of a similar nature, as it pertains to the
Collateral, in completing production of advertising for sale and selling any
Collateral, and Guarantor's rights under all licenses and all franchise
agreements shall inure to Foothill's benefit;
(h) Sell all or any part of the Collateral at either a
public or private sale, or both, by way of one or more contracts or
transactions, for cash or on terms, in such manner and at such places (including
Guarantor's premises) as Foothill determines is commercially reasonable. It is
not necessary that the Collateral be present at any such sale. Foothill 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 the Collateral so sold, free of any right or equity of redemption in
Guarantor, which right or equity is hereby waived or released to the extent
permitted by law;
(i) By an instrument in writing, appoint a receiver
(which term shall include a receiver and manager) of all or any part of the
Collateral and may remove or replace such receiver from time to time or may
institute proceedings in any court of competent jurisdiction for the appointment
of such receiver;
(j) Require Guarantor to establish a lockbox or other
restricted account satisfactory to Foothill for the collection of Accounts of
Debtor, General Intangibles, or Negotiable Collateral;
(k) Notify customers or Account Debtors of Guarantor
that the Accounts of Guarantor, General Intangibles, or Negotiable Collateral
have been assigned to Foothill or that Foothill has a security interest therein;
(l) Collect the Accounts of Debtor, General
Intangibles, and Negotiable Collateral directly, and charge the collection costs
and expenses as Foothill Expenses; but, unless and until Foothill does so or
gives Guarantor other written instructions, Guarantor shall collect all Accounts
of Guarantor, General Intangibles, and Negotiable Collateral for Foothill,
receive in trust all payments thereon as Foothill's trustee, and immediately
deliver said payments to Foothill in their original form as received from such
Account Debtor;
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(m) Any deficiency which exists after disposition of
the Collateral as provided above will be paid immediately by Guarantor up to the
maximum amount, if any, of Guarantor's liability under the Guaranty. Any excess
will be returned to Guarantor, without interest and subject to the rights of
third parties, by Foothill.
Except as required by law, Foothill may take any or all of the foregoing action
without demand, presentment, protest, advertisement or notice of any kind to or
upon Guarantor or any other person.
7.2 REMEDIES CUMULATIVE. Foothill's rights and remedies
-------------------
under this Agreement, the Loan Documents, and all other agreements shall be
cumulative. Foothill shall have all other rights and remedies not inconsistent
herewith as provided under the Code, by law, or in equity. No exercise by
Foothill of one right or remedy shall be deemed an election,and no waiver by
Foothill of any Event of Default on Borrower's part shall be deemed a continuing
waiver. No delay by Foothill shall constitute a waiver, election, or
acquiescence by it.
8. TAXES AND EXPENSES REGARDING THE COLLATERAL.
If Guarantor fails to pay any monies (whether taxes, rents,
assessments, insurance premiums, or otherwise) due to third persons or entities,
or fails to make any deposits or furnish any required proof of payment or
deposit, all as required under the terms of this Agreement, then, to the extent
that Foothill reasonably determines that such failure, by Guarantor could have a
material adverse effect on Foothill's interests in the Collateral, in its
discretion and without prior notice to Guarantor, Foothill may do any or all of
the following: (a) make payment of the same or any part thereof; (b) set up such
reserves in Borrower's loan account as Foothill deems necessary to protect
Foothill from the exposure created by such failure; or (c) obtain and maintain
insurance policies insuring Guarantor's ownership and use of the Collateral, and
take any action with respect to such policies as Foothill deems prudent. The
preceding sentence notwithstanding, Foothill agrees to use reasonable efforts to
give Guarantor prior notice of the taking by Foothill of any action described in
items (a), (b), or (c) of the preceding sentence; provided, however, that
Guarantor's failure to receive such prior notice despite the exercise by
Foothill of such reasonable efforts shall not restrict the ability of Foothill
to take such action, shall not affect the validity of such action taken, and
shall not result in any liability by Foothill to Guarantor for any such failure.
Any amounts paid or deposited by Foothill shall constitute Foothill Expenses,
shall immediately become additional Guarantied Obligations, shall bear interest
at the applicable rate described in the Loan Document, and shall be secured by
the Collateral. Any payments made by Foothill shall not constitute an agreement
by Foothill to make similar payments in the future or a waiver by Foothill of
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any Event of Default under this Agreement. Foothill need not inquire as to, or
contest the validity of, any such expense, tax, security interest, encumbrance,
or lien and the receipt of the usual official notice for the payment thereof
shall be conclusive evidence that the same was validly due and owing. Foothill
shall use its best efforts to provide notice to Guarantor of any action taken by
it under this Section 8.
9. WAIVERS; INDEMNIFICATION.
9.1 DEMAND; PROTEST; ETC. To the extent permitted by law,
--------------------
Guarantor waives demand, protest, notice of protest, notice of default or
dishonor, notice of payment and nonpayment, notice of any default, nonpayment at
maturity, release, compromise, settlement, extension, or renewal of accounts,
documents, instruments, chattel paper, and guarantees at any time held by
Foothill on which Guarantor may in any way be liable.
9.2 FOOTHILL'S LIABILITY FOR COLLATERAL. So long as Foothill
-----------------------------------
complies with its obligations, if any, under Section 9207 of the Code, Foothill
shall not in any way or manner be liable or responsible for: (a) the safekeeping
of the Collateral; (b) any loss or damage thereto occurring or arising in any
manner or fashion from any cause; (c) any diminution in the value thereof; or
(d) any act or default of any carrier, warehouseman, bailee, forwarding agency,
or other Person. All risk of loss, damage, or destruction of the Collateral
shall be borne by Guarantor.
9.3 INDEMNIFICATION. Guarantor agrees to defend, indemnify,
---------------
save, and hold Foothill and its officers, employees, and agents harmless
against: (a) all obligations, demands, claims, and liabilities claimed or
asserted by any other Person, and (b) all losses (including reasonable attorneys
fees and disbursements) in any way suffered, incurred, or paid by Foothill as a
result of or in any way arising out of, following, or consequential to
transactions with Borrower or Guarantor, whether under this Agreement, the other
Loan Documents or otherwise (except to the extent the same are proximately
caused by the gross negligence or wilful misconduct of Foothill). This provision
shall survive the termination of this Agreement.
9.4 WAIVERS. (a) To the maximum extent permitted by law,
-------
Guarantor hereby waives: (i) notice of acceptance hereof; (ii) notice of any
loans or other financial accommodations made or extended under the Loan
Agreement, or the creation or existence of any Obligations; (iii) notice of the
amount of the Obligations, subject, however, to Section 2.7 of the Loan
Agreement and Guarantor's right to make inquiry of Foothill to ascertain the
amount of the Obligations at any reasonable time; (iv) notice of any adverse
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change in the financial condition of Borrower or of any other fact that might
increase Guarantor's risk hereunder; (v) notice of presentment for payment,
demand, protest, and notice thereof as to any instrument among the Loan
Documents; (vi) notice of any unmatured Event of Default or Event of Default
under the Loan Agreement; and (vii) all other notices (except if such notice is
specifically required to be given to Guarantor under this Agreement) and demands
to which Guarantor might otherwise be entitled.
(b) To the fullest extent permitted by applicable law, Guarantor
waives the right by statute or otherwise to require Foothill to institute suit
against Borrower or to exhaust any rights and remedies which Foothill has or may
have against Borrower. Guarantor further waives any defense arising by reason of
any disability or other defense (other than the defense that the Obligations
shall have been fully and finally indefeasibly paid) of Borrower or by reason of
the cessation from any cause (other than that the Obligations shall have been
fully and finally indefeasibly paid) whatsoever of the liability of Borrower in
respect thereof.
(c) To the maximum extent permitted by law, Guarantor hereby
waives: (i) any rights to assert against Foothill any defense (legal or
equitable), set-off, counterclaim, or claim which Guarantor may now or at any
time hereafter have against Borrower or any other party liable to Foothill on
account of or with respect to the Obligations; (ii) any defense, set-off,
counterclaim, or claim, of any kind or nature, arising directly or indirectly
from the present or future sufficiency, validity, or enforceability of the
Obligations; (iii) any defense arising by reason of any claim or defense based
upon an election of remedies by Foothill including, to the extent applicable,
the provisions of (S)(S) 580d and 726 of the California Code of Civil Procedure,
or any similar law of California or any other jurisdiction; (iv) the benefit of
any statute of limitations affecting Guarantor's liability hereunder or the
enforcement thereof.
(d) To the maximum extent permitted by law, Guarantor hereby waives
any right of subrogation Guarantor has or may have as against Borrower with
respect to the Obligations. In addition, Guarantor hereby waives any right to
proceed against Borrower, now or hereafter, for contribution, indemnity,
reimbursement, or any other suretyship rights and claims (irrespective of
whether direct or indirect, liquidated or contingent), with respect to the
Obligations. Guarantor also hereby waives any right to proceed or to seek
recourse against or with respect to any property or asset of Borrower. Guarantor
hereby agrees that, in light of the waivers contained in this Section, Guarantor
shall not be deemed to be a "creditor" (as that term is defined in the
Bankruptcy Code or otherwise) of Borrower, whether for purposes of the
application of Sections 547 or 550 of the United States Bankruptcy Code or
otherwise.
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(e) If any of the Secured Obligations at any time are secured by a
mortgage or deed of trust upon real property, Foothill may elect, in its sole
discretion, upon a default with respect to the Secured Obligations, to foreclose
such mortgage or deed of trust judicially or nonjudicially in any manner
permitted by law, before or after enforcing this Agreement, without diminishing
or affecting the liability of Guarantor hereunder. Guarantor understands that
(a) by virtue of the operation of California's antideficiency law applicable to
nonjudicial foreclosures, an election by Foothill nonjudicially to foreclose
such a mortgage or deed of trust probably would have the effect of impairing or
destroying rights of subrogation, reimbursement, contribution, or indemnity of
Guarantor against Borrower or guarantors or sureties, and (b) absent the waiver
given by Guarantor herein, such an election might estop Foothill from enforcing
this Agreement against Guarantor. Understanding the foregoing, and understanding
that Guarantor is hereby relinquishing a defense to the enforceability of this
Agreement, Guarantor hereby waives any right to assert against Foothill any
defense to the enforcement of this Agreement, whether denominated "estoppel" or
otherwise, based on or arising from an election by Foothill nonjudicially to
foreclose any such mortgage or deed of trust. Guarantor understands that the
effect of the foregoing waiver may be that Guarantor may have liability
hereunder for amounts with respect to which Guarantor may be left without rights
of subrogation, reimbursement, contribution, or indemnity against Borrower or
guarantors or sureties. Guarantor also agrees that the "fair market value"
provisions of Section 580a of the California Code of Civil Procedure shall have
no applicability with respect to the determination of Guarantor's liability
under this Agreement.
(f) WITHOUT LIMITING THE GENERALITY OF ANY OTHER WAIVER OR OTHER
PROVISION SET FORTH IN THIS AGREEMENT, GUARANTOR HEREBY WAIVES, TO THE MAXIMUM
EXTENT SUCH WAIVER IS PERMITTED BY LAW, ANY AND ALL DEFENSES ARISING DIRECTLY OR
INDIRECTLY UNDER ANY ONE OR MORE OF CALIFORNIA CIVIL CODE (S)(S) 2808, 2809,
2810, 2815, 2819, 2820, 2821, 2838, 2839, 2845, 2848, 2849, AND 2850, TO THE
EXTENT APPLICABLE, CALIFORNIA CODE OF CIVIL PROCEDURE (S)(S) 580a, 580b, 580c,
580d, AND 726, AND, TO THE EXTENT APPLICABLE, CHAPTER 2 OF TITLE 14 OF THE
CALIFORNIA CIVIL CODE.
(g) WITHOUT LIMITING THE GENERALITY OF ANY OTHER WAIVER OR OTHER
PROVISION SET FORTH IN THIS AGREEMENT, GUARANTOR HEREBY WAIVES ALL RIGHTS AND
DEFENSES ARISING OUT OF AN ELECTION OF REMEDIES BY FOOTHILL, EVEN THOUGH THAT
ELECTION OF REMEDIES, SUCH AS A NONJUDICIAL FORECLOSURE WITH RESPECT TO SECURITY
FOR A SECURED OBLIGATION, HAS DESTROYED GUARANTOR'S RIGHTS OF SUBROGATION AND
REIMBURSEMENT AGAINST THE PRINCIPAL BY THE OPERATION OF SECTION 580d OF THE CODE
OF CIVIL PROCEDURE OR OTHERWISE.
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10. NOTICES.
All notices and other communications hereunder to Foothill
shall be in writing and shall be mailed, sent or delivered in accordance with
the Loan Agreement and all notices and other communications hereunder to
Guarantor shall be in writing and shall be mailed, sent or delivered in care of
Borrower in accordance with the Loan Agreement.
11. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.
THE VALIDITY OF THIS AGREEMENT, ITS CONSTRUCTION,
INTERPRETATION, AND ENFORCEMENT, AND THE RIGHTS OF THE PARTIES HERETO SHALL BE
DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF CALIFORNIA. THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING
IN CONNECTION WITH THIS AGREEMENT SHALL BE TRIED AND LITIGATED ONLY IN THE STATE
AND FEDERAL COURTS LOCATED IN THE COUNTY OF LOS ANGELES, STATE OF CALIFORNIA OR,
AT THE SOLE OPTION OF FOOTHILL, IN ANY OTHER COURT IN WHICH FOOTHILL SHALL
INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND WHICH HAS SUBJECT MATTER
JURISDICTION OVER THE MATTER IN CONTROVERSY. EACH OF GUARANTOR AND FOOTHILL
WAIVES, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO
ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT
ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 11.
GUARANTOR AND FOOTHILL HEREBY WAIVE THEIR RESPECTIVE RIGHTS
TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF
THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN, INCLUDING
CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR
STATUTORY CLAIMS. GUARANTOR AND FOOTHILL REPRESENT THAT EACH HAS REVIEWED THIS
WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING
CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF THIS
AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
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12. DESTRUCTION OF GUARANTOR'S DOCUMENTS.
All documents, schedules, agings, or other papers delivered
to Foothill may be destroyed or otherwise disposed of by Foothill four (4)
months after they are delivered to or received by Foothill, unless Guarantor
requests, in writing, the return of said documents, schedules or other papers
and makes arrangements, at Guarantor's expense, for their return.
13. GENERAL PROVISIONS.
13.1 EFFECTIVENESS. This Agreement shall be binding and
-------------
deemed effective when executed by Guarantor and accepted and executed by
Foothill.
13.2 SUCCESSORS AND ASSIGNS. Subject to Section 15.2 of the
----------------------
Loan Agreement: This Agreement shall bind and inure to the benefit of the
respective successors and assigns of each of the parties; provided, however,
that Guarantor may not assign this Agreement or any rights or duties hereunder
without Foothill's prior written consent and any prohibited assignment shall be
absolutely void. No consent to an assignment by Foothill shall release Guarantor
from its Guarantied Obligations. Foothill may assign this Agreement and its
rights and duties hereunder and no consent or approval by Guarantor is required
in connection with any such assignment. Foothill reserves the right to sell,
assign, transfer, negotiate, or grant participations in all or any part of, or
any interest in Foothill's rights and benefits hereunder. In connection
therewith, Foothill may disclose all documents and information which Foothill
now or hereafter may have relating to Guarantor or Guarantor's business. To the
extent that Foothill assigns its rights and obligations to a third Person,
Foothill thereafter shall be released from such assigned obligations to
Guarantor and such assignment shall effect a novation between Guarantor and such
third Person.
13.3 SECTION HEADINGS. Headings and numbers have been set
----------------
forth herein for convenience only. Unless the contrary is compelled by the
context, everything contained in each section applies equally to this entire
Agreement.
13.4 INTERPRETATION. Neither this Agreement nor any
--------------
uncertainty or ambiguity herein shall be construed or resolved against Foothill
or Guarantor, whether under any rule of construction or otherwise. On the
contrary, this Agreement has been reviewed by all parties and shall be construed
and interpreted according to the ordinary meaning of the words used so as to
fairly accomplish the purposes and intentions of all parties hereto.
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13.5 SEVERABILITY OF PROVISIONS. Each provision of this
--------------------------
Agreement shall be severable from every other provision of this Agreement for
the purpose of determining the legal enforceability of any specific provision.
13.6 AMENDMENTS IN WRITING. This Agreement can only be
---------------------
amended by a writing signed by both Foothill and Guarantor.
13.7 COUNTERPARTS. This Agreement may be executed in any
------------
number of counterparts and by different parties on separate counterparts, each
of which, when executed and delivered, shall be deemed to be an original, and
all of which, when taken together, shall constitute but one and the same
Agreement.
13.8 REVIVAL AND REINSTATEMENT OF OBLIGATIONS. If the
----------------------------------------
incurrence or payment of the Guarantied Obligations by Guarantor or the transfer
by Guarantor to Foothill of any property of Guarantor should for any reason
subsequently be declared to be void or voidable under any state or federal law
relating to creditors' rights, including provisions of the Bankruptcy Code
relating to fraudulent conveyances, preferences, and other voidable or
recoverable payments of money or transfers of property (collectively, a
"Voidable Transfer"), and if Foothill is required to repay or restore, in whole
or in part, any such Voidable Transfer, or elects to do so upon the reasonable
advice of its counsel, then, as to any such Voidable Transfer, or the amount
thereof that Foothill is required or elects to repay or restore, and as to all
reasonable costs, expenses, and attorneys fees of Foothill related thereto, the
liability of Guarantor automatically shall be revived, reinstated, and restored
and shall exist as though such Voidable Transfer had never been made.
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed at Los Angeles, California.
QMS CIRCUIT, INC.,
a Delaware incorporated
By
---------------------------------------
Its
--------------------------------------
FOOTHILL CAPITAL CORPORATION, a
California corporation
By
---------------------------------------
Its
--------------------------------------
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