Exhibit 10.20
ACKNOWLEDGMENT AND AGREEMENT
ACKNOWLEDGMENT AND AGREEMENT (the "Agreement"), dated as of March 28,
2002, by and between ▇▇▇▇▇▇ Electronics Corporation, a New York corporation,
with headquarters located at ▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
(the "Company"), and the investor listed on the Schedule of Investor attached
hereto (the "Investor").
WHEREAS:
A. The Company and the Investor have entered into that certain
Securities Purchase Agreement, dated as of October 5, 2000 (the "Securities
Purchase Agreement"), pursuant to which the Investor purchased from the Company
shares of the Company's Series C Convertible Preferred Stock (the "Series C
Preferred Stock"), which are convertible into shares of the Company's common
stock, par value $0.50 per share (the "Common Stock") (as converted, the
"Conversion Shares"), in accordance with the terms of the Company's Certificate
of Amendment of the Certificate of Incorporation of the Company for the Series C
Preferred Stock, as filed with the Secretary of State of the State of New York
on October 6, 2000 (the "Certificate of Amendment");
B. The Investor is the holder of that number of shares of Series
C Preferred Stock (each a "Preferred Share" and, collectively, the "Preferred
Shares") set forth opposite its name on the Schedule of Investor;
C. A Triggering Event (as defined in the Certificate of
Amendment) has occurred, and, upon the terms and conditions set forth in this
Agreement, the Investor and the Company desire that the parties enter into a
waiver agreement in the form attached hereto as Exhibit A (the "Waiver"); and
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D. As consideration for the Investor's agreement to execute the
Waiver and to secure payment of the aggregate Triggering Event Redemption Price
temporarily waived thereunder, the Company has agreed to provide the Investor
with a security interest, in all of the assets of the Company pursuant to the
terms of a Security Agreement, in the form attached as Exhibit B (the "Security
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Agreement"), to be executed and delivered at the closing of the transactions
contemplated hereby.
NOW THEREFORE, the Company and the Investor hereby agree as follows:
1. ACKNOWLEDGMENTS AND AGREEMENT TO WAIVE.
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a. Acknowledgments. The Company acknowledges and agrees
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that a Triggering Event has occurred and continues to exist as of the date
hereof under Section V(D)(2) of the Certificate of Amendment. The Company
further acknowledges that, as a result of such Triggering Event, the Investor
has the right to require the Company to redeem all of the Preferred Shares at a
price per Preferred Share equal to the Triggering Event Redemption Price. Each
of the parties acknowledges that, until the aggregate Triggering Event
Redemption Price is paid pursuant to the Waiver on April 1, 2007 with respect to
any Preferred Shares which remain outstanding on April 1, 2007, the Preferred
Shares remain outstanding under the Certificate of Amendment and the provisions
thereof shall continue to apply to the Preferred Shares, including, without
limitation, (i) the Investor's right to convert the Preferred Shares in
accordance with Section IV of the Certificate of Amendment, (ii) the conversion
of the Maturity Conversion Shares (as defined in the Certificate of Amendment)
on the Two Year Date (as defined in the Certificate of Amendment) in accordance
with Section IV(H) of the Certificate of Amendment and (iii) the Investor's
right to require the Company to redeem the Preferred Shares upon the occurrence
of a Triggering Event (other than as a result of any Triggering Events waived
pursuant to the Waiver, provided that the conditions of the Waiver are
satisfied).
b. Execution of Waiver at the Closing. Subject to
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satisfaction (or waiver) of the conditions set forth in Sections 5 and 6, the
Investor agrees that it shall, and the Company desires for the Investor to,
temporarily waive its right to receive the aggregate Triggering Event Redemption
Price with respect to all of the Preferred Shares with respect to certain
existing and future Triggering Events pursuant to the Waiver (the "Closing").
"Business Day" means any day other than Saturday, Sunday or other day on which
commercial banks in the city of New York are authorized or required by law to
remain closed.
c. The Closing Date. The date and time of the Closing
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(the "Closing Date") shall be 10:00 a.m. Central Time, within two (2) Business
Days following the date hereof, subject to satisfaction (or waiver) of the
conditions to the Closing set forth in Sections 5 and 6 (or such later date as
is mutually agreed to by the Company and the Investor). The Closing shall occur
on the Closing Date at the offices of ▇▇▇▇▇▇ ▇▇▇▇▇▇ Zavis, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇.
d. Additional Acknowledgment Regarding the Additional
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Amount for the Preferred Shares. The parties acknowledge that confusion has
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arisen regarding the definition of "N" set forth in Section III(H) of the
Certificate of Amendment and the application of such definition after the Two
Year Date. The parties therefore desire to clarify and confirm each of their
understandings of such definition. Accordingly, the parties hereby acknowledge
and agree that, for all purposes under the Certificate of Amendment, the literal
meaning of the language set forth in the definition of "N" in the Certificate of
Amendment shall apply, such that "N" shall include all days from, but excluding,
the Issuance Date through and including the Maturity Date, including any days
after the Two Year Date regardless of the reason for the extension of the
Maturity Date.
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2. INVESTOR'S REPRESENTATIONS AND WARRANTIES.
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The Investor represents and warrants that:
a. Authorization; Enforcement. This Agreement has been,
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and as of the Closing the Waiver shall be, duly and validly authorized, executed
and delivered on behalf of the Investor and are valid and binding agreements of
the Investor enforceable against the Investor in accordance with their terms,
subject as to enforceability to general principles of equity and to applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation and other
similar laws relating to, or affecting generally, the enforcement of applicable
creditors' rights and remedies.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
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The Company represents and warrants to the Investor that:
a. Organization and Qualification. The Company and its
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"Subsidiaries" (which for purposes of this Agreement means any entity in which
the Company, directly or indirectly, owns capital stock or holds an equity or
similar interest) (a complete list of which is set forth in Schedule 3(a)) are
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corporations duly organized and validly existing in good standing under the laws
of the jurisdiction in which they are incorporated, and have the requisite
corporate power and authorization to own properties and to carry on their
business as now being conducted. Each of the Company and its Subsidiaries is
duly qualified as a foreign corporation to do business and is in good standing
in every jurisdiction in which its ownership of property or the nature of the
business conducted by it makes such qualification necessary, except to the
extent that the failure to be so qualified or be in good standing would not have
a Material Adverse Effect. As used in this Agreement, "Material Adverse Effect"
means any material adverse effect on the business, properties, assets,
operations, results of operations or financial condition of the Company and its
Subsidiaries taken as a whole, or on the transactions contemplated hereby or by
the agreements and instruments to be entered into in connection herewith, or on
the authority or ability of the Company to perform its obligations under the
Transaction Documents (as defined below) or the Certificate of Amendment.
b. Authorization; Enforcement; Compliance with Other
-------------------------------------------------
Instruments. (i) The Company has the requisite corporate power and authority to
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enter into and perform its obligations under this Agreement, the Security
Agreement (including the pledge agreements referred to therein), the Waiver and
each of the other agreements entered into by the parties hereto in connection
with the transactions contemplated by this Agreement (collectively, the
"Transaction Documents"), (ii) the execution and delivery of the Transaction
Documents by the Company and the consummation by it of the transactions
contemplated hereby and thereby, have been duly authorized by the Company's
Board of Directors and no further consent or authorization is required by the
Company, its Board of Directors or its stockholders, (iii) this Agreement and
the other Transaction Documents dated as of even date herewith have been duly
executed and delivered by the Company and, as of the Closing Date, the
Transaction Documents dated after the date hereof shall have been duly executed
and delivered by the Company, (iv) this Agreement and, when executed and
delivered, the other
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Transaction Documents constitute the valid and binding obligations of the
Company enforceable against the Company in accordance with their terms, except
as such enforceability may be limited by general principles of equity or
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally, the enforcement of creditors'
rights and remedies, and (v) the Certificate of Amendment is in full force and
effect, enforceable against the Company in accordance with its terms.
c. Organizational Documents; Loan Agreement. The Company
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has furnished to the Investor true and correct copies of the Company's
Certificate of Incorporation, as amended and as in effect on the date hereof
(the "Certificate of Incorporation"), and the Company's By-laws, as in effect on
the date hereof (the "By-laws"). There are no amounts outstanding under the
Revolving Loan and Security Agreement dated September 23, 1997 between IBM
Credit Corporation and the Company.
d. No Conflicts. The execution, delivery and performance
------------
of the Transaction Documents by the Company and the consummation by the Company
of the transactions contemplated hereby and thereby will not (i) result in a
violation of the Certificate of Incorporation, any Certificate of Amendment,
Preferences and Rights of any outstanding series of Preferred Stock of the
Company or the By-laws; (ii) conflict with, or constitute a default (or an event
which with notice or lapse of time or both would become a default) under, or
give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument to which the Company or
any of its Subsidiaries is a party; or (iii) result in a violation of any law,
rule, regulation, order, judgment or decree (including federal and state
securities laws and regulations and the rules and regulations of the principal
market or exchange on which the Common Stock is traded or listed) applicable to
the Company or any of its Subsidiaries or by which any property or asset of the
Company or any of its Subsidiaries is bound or affected. Neither the Company
nor its Subsidiaries is in violation of any term of (i) its Certificate of
Incorporation, any Certificate of Amendment, Preferences and Rights of any
outstanding series of Preferred Stock or By-laws or their organizational charter
or by-laws, respectively, or (ii) any statute, rule or regulation applicable to
the Company or its Subsidiaries. Except as specifically contemplated by this
Agreement and except such as have been obtained as of the date hereof, the
Company is not required to obtain any consent, authorization or order of, or
make any filing or registration with, any court or governmental agency or any
regulatory or self-regulatory agency in order for it to execute, deliver or
perform any of its obligations under or contemplated by the Transaction
Documents in accordance with the terms hereof or thereof. All consents,
authorizations, orders, filings and registrations which the Company is required
to obtain pursuant to the preceding sentence have been obtained or effected on
or prior to the date hereof.
e. Material Nonpublic Information. Neither the Company
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nor any of its Subsidiaries or any of their officers, directors, employees or
agents have provided the Investor with any material, nonpublic information which
has not been publicly disclosed prior to the date of this Agreement.
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f. Solvency. The Company is not as of the date hereof,
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and after giving effect to the transactions contemplated hereby will not be,
Insolvent (as defined below). The Company has not taken any steps, and does not
currently expect to take any steps, to seek protection pursuant to any
bankruptcy law nor does the Company have any knowledge or reason to believe that
its creditors intend to initiate involuntary bankruptcy proceedings. For
purposes of this Section 3(f), "Insolvent" means (i) the present fair saleable
value of the Company's assets is less than the amount required to pay the
Company's total indebtedness, contingent or otherwise, (ii) the Company is
unable to pay its debts and liabilities, subordinated, contingent or otherwise,
as such debts and liabilities become absolute and matured, (iii) the Company
intends to incur or believes that it will incur debts that would be beyond its
ability to pay as such debts mature or (iv) the Company has unreasonably small
capital with which to conduct the business in which it is engaged as such
business is now conducted and is proposed to be conducted.
g. Fair Consideration. The Company, having been fully
------------------
involved in developing the transactions contemplated hereby, and having been
advised by the Company's financial and legal advisors, is satisfied that the
negotiations between the Company and the Investor were conducted properly and
were arm's length in nature and in good faith, and fair consideration for the
grant of the security interest pursuant to the Security Agreement was obtained.
The Company has not entered into this Agreement with the actual intent to
hinder, delay or defraud any entity to which either it or any of its
subsidiaries was or is indebted.
h. Acknowledgment Regarding Investor's Status. The
------------------------------------------
Company acknowledges and agrees that the Investor is acting solely in an arm's
length capacity with respect to the Company in connection with the Transaction
Documents and the transactions contemplated thereby. The Company further
acknowledges that the Investor is not acting as a financial advisor or fiduciary
of the Company (or in any similar capacity) with respect to the Transaction
Documents and the transactions contemplated thereby and any advice given by the
Investor or any of its respective representatives or agents in connection with
the Transaction Documents and the transactions contemplated thereby is merely
incidental to the Investor's entering into this Agreement and the Waiver. The
Company further represents to the Investor that the Company's decision to enter
into the Transaction Documents has been based solely on the independent
evaluation by the Company and its representatives.
i. Conversion Share Matters. The Conversion Shares
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issuable upon conversion of the Preferred Shares were registered for resale with
the U.S. Securities and Exchange Commission (the "SEC") by the Company on
registration statements on Form S-3 (the "Resale Registration Statements") in
accordance with the Registration Rights Agreement (as defined above). Such
Resale Registration Statements were declared effective by the SEC on
February 14, 2001 and October 5, 2001, respectively, and remain effective as of
the date hereof. The Resale Registration Statements cover the resale of
Conversion Shares issuable upon conversion of the Preferred Shares and are not
affected by the transactions contemplated hereby. Upon the Company's filing of
the prospectus supplement referred to in Section 4(d), the Investor may sell
Conversion Shares upon exercise of the Preferred Shares pursuant to the Resale
Registration Statements in accordance with the terms thereof.
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On and after October 10, 2002, the Conversion Shares shall be freely tradeable
under Rule 144(k) promulgated under the 1933 Act, provided that at the time of a
sale the Investor is not, and has not at any time in the three months prior
thereto been, an "affiliate" of the Company within the meaning of paragraph
(a)(1) of Rule 144 promulgated under the 1933 Act.
4. COVENANTS.
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a. Best Efforts. Each party shall use its best efforts
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to timely satisfy each of the conditions to be satisfied by it as provided in
Sections 5 and 6 of this Agreement.
b. Expenses. Subject to Section 8(k) below, following
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the Closing, the Company shall reimburse the Investor for the Investor's
expenses, including legal expenses, in connection with negotiating and preparing
the Transaction Documents and consummating the transactions contemplated thereby
up to an aggregate of $10,000.
c. Disclosure of Transactions and Other Material
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Information. On or before March 31, 2002, the Company shall file its Form 10-K
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for the 12 months ended December 31, 2001, which shall include as exhibits
thereto the material Transaction Documents (including, without limitation, this
Agreement, the form of Waiver and the form of Security Agreement) (including all
attachments, the "10-K Filing"). The Company shall not, and shall cause each of
its Subsidiaries and its and each of their respective officers, directors,
employees and agents, not to, provide the Investor with any material nonpublic
information regarding the Company or any of its Subsidiaries from and after the
date of this Agreement without the express written consent of the Investor. In
the event of a breach of the foregoing covenant by the Company, any of its
Subsidiaries, or any of its or their respective officers, directors, employees
and agents, in addition to any other remedy provided herein or in the
Transaction Documents, the Investor shall have the right to make a public
disclosure, in the form of a press release, public advertisement or otherwise,
of such material nonpublic information without the prior approval of the
Company, its Subsidiaries, or any of its or their respective officers,
directors, employees or agents; provided that the Company does not publicly
disclose such information within 12 hours of the Investor notifying the Company
of the breach of the immediately preceding sentence; provided further that if
the Company publicly discloses such information with such 12-hour period, then
such breach of the immediately preceding sentence shall not constitute a failure
to comply in any material respect with the terms of this Agreement. The Investor
shall not have any liability to the Company, its Subsidiaries, or any of its or
their respective officers, directors, employees, shareholders or agents for any
such disclosure. Subject to the foregoing, neither the Company nor the Investor
shall issue any press releases or any other public statements with respect to
the transactions contemplated hereby; provided, however, that the Company shall
be entitled, without the prior approval of the Investor, to make any press
release or other public disclosure with respect to such transactions (i) in
substantial conformity with the 10-K Filing (and the Company's Form 8-K, filed
with the SEC on March 25, 2002) and contemporaneously therewith and (ii) as is
required by applicable law and regulations (provided that in the case of clause
(i) the Investor shall be consulted by the Company in connection with any such
press release or other public disclosure prior to its release).
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d. Prospectus Supplement. Within one (1) Business Day
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after the Closing Date, the Company shall file with the SEC, a prospectus
supplement, in a form reasonably acceptable to the Investor, to the prospectus
for the Resale Registration Statements disclosing the terms of this transaction
and all other information necessary to be included in a prospectus supplement to
keep the Resale Registration Statements current and available for use by the
Investor for the resale of the Conversion Shares. On or before the first (1st)
Business Day following the Closing Date, the Company shall deliver a copy of
such prospectus supplement to the Investor.
5. CONDITIONS TO THE COMPANY'S OBLIGATION TO CLOSE. The
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obligation of the Company hereunder to enter into the Security Agreement and the
Waiver at the Closing is subject to the satisfaction, at or before the Closing
Date, of each of the following conditions, provided that these conditions are
for the Company's sole benefit and may be waived by the Company at any time in
its sole discretion:
a. The Investor shall have executed each of the
Transaction Documents to which it is a party and delivered the same to the
Company.
b. The representations and warranties of the Investor
contained herein shall be true and correct as of the date when made and as of
the Closing Date as though made at that time (except for representations and
warranties that speak as of a specific date), and the Investor shall have
performed, satisfied and complied with the covenants, agreements and conditions
required by the Transaction Documents to be performed, satisfied or complied
with by the Investor at or prior to the Closing Date.
6. CONDITIONS TO INVESTOR'S OBLIGATION TO CLOSE. The obligation
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of the Investor hereunder to execute the Waiver at the Closing is subject to the
satisfaction, at or before the Closing Date, of each of the following
conditions, provided that these conditions are for the Investor's sole benefit
and may be waived by the Investor at any time in its sole discretion:
a. The Company shall have executed each of the
Transaction Documents and delivered the same to the Investor.
b. The Common Stock shall be designated for quotation on
AMEX or listed on the NYSE, and shall not have been suspended from trading on or
delisted from such exchanges nor shall delisting or suspension by such exchanges
have been threatened either (A) in writing by such exchanges or (B) by falling
below the minimum listing maintenance requirements of such exchanges.
c. The representations and warranties of the Company
contained herein shall be true and correct as of the date when made and as of
the Closing Date as though made at that time (except for representations and
warranties that speak as of a specific date) and the Company shall have
performed, satisfied and complied with the covenants, agreements and conditions
required by the Transaction Documents to be performed, satisfied or complied
with by the Company at or prior to the Closing Date. The Investor shall have
received a certificate, executed by the Chief Executive
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Officer of the Company, dated as of the Closing Date, to the foregoing effect.
d. The Investor shall have received the opinion of
▇▇▇▇▇▇▇ ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP, dated as of the Closing Date, in substantially
the form of Exhibit C attached hereto.
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e. The Investor shall have received the opinion of ▇▇▇▇▇
Peabody LLP, dated as of the Closing Date, in substantially the form of Exhibit
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D attached hereto.
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f. The Company shall have executed and delivered to the
Investor UCC-1 financing statements in the name of the Investor for such
jurisdictions requested by the Investor and in a form reasonably satisfactory to
the Investor.
g. The Board of Directors of the Company shall have
adopted resolutions consistent with Section 3(b)(ii) above and in a form
reasonably acceptable to the Investor (the "Resolutions").
h. The Company shall have delivered to the Investor a
certificate evidencing the incorporation and good standing of the Company [and
each U.S. Subsidiary] in such corporation's state of incorporation issued by the
Secretary of State of such state of incorporation as of a date within ten days
of the Closing Date.
i. The Company shall have delivered to the Investor a
secretary's certificate, dated as of the Closing Date, certifying as to (A) the
Resolutions, (B) the Certificate of Incorporation, (C) the By-laws, each as in
effect at the Closing Date.
j. The Company shall have delivered to the Investor a
certified copy of its Certificate of Incorporation as certified by the Secretary
of State of the State of New York within 10 days of the Closing Date.
k. The Company shall have delivered to the Investor such
other documents relating to the transactions contemplated by the Transaction
Documents as the Investor or its counsel may reasonably request.
7. INDEMNIFICATION. In consideration of the Investor's execution
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and delivery of the Transaction Documents and in addition to all of the
Company's other obligations under the Transaction Documents, the Company shall
defend, protect, indemnify and hold harmless the Investor and all of its
stockholders, officers, directors, employees and direct or indirect equity
investors and any of the foregoing persons' agents or other representatives
(including, without limitation, those retained in connection with the
transactions contemplated by this Agreement) (collectively, the "Indemnitees")
from and against any and all actions, causes of action, suits, claims, losses,
costs, penalties, fees, liabilities and damages, and expenses in connection
therewith
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(irrespective of whether any such Indemnitee is a party to the action for which
indemnification hereunder is sought), and including reasonable attorneys' fees
and disbursements (the "Indemnified Liabilities"), incurred by any Indemnitee as
a result of, or arising out of, or relating to (a) any misrepresentation or
breach of any representation or warranty made by the Company in the Transaction
Documents or any other certificate, instrument or document contemplated hereby
or thereby, (b) any breach of any covenant, agreement or obligation of the
Company contained in the Transaction Documents or any other certificate,
instrument or document contemplated hereby or thereby or (c) any cause of
action, suit or claim brought or made against such Indemnitee (other than a
cause of action, suit or claim which is (x) brought or made by the Company and
(y) is not a shareholder derivative suit) and arising out of or resulting from
the execution, delivery, performance or enforcement of the Transaction
Documents. Notwithstanding the foregoing, Indemnified Liabilities shall not
include any liability of any Indemnitee arising solely out of such Indemnitee's
willful misconduct or fraudulent action(s). To the extent that the foregoing
undertaking by the Company may be unenforceable for any reason, the Company
shall make the maximum contribution to the payment and satisfaction of each of
the Indemnified Liabilities which is permissible under applicable law. Except as
otherwise set forth herein, the mechanics and procedures with respect to the
rights and obligations under this Section 7 shall be the same as those set forth
in Sections 6(a) and (d) of the Registration Rights Agreement, including,
without limitation, those procedures with respect to the settlement of claims
and the Company's rights to assume the defense of claims.
8. GOVERNING LAW; MISCELLANEOUS.
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a. Governing Law; Jurisdiction; Jury Trial. The
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corporate laws of the State of New York shall govern all issues concerning the
relative rights of the Company and its stockholders. All other questions
concerning the construction, validity, enforcement and interpretation of this
Agreement shall be governed by the internal laws of the State of New York,
without giving effect to any choice of law or conflict of law provision or rule
(whether of the State of New York or any other jurisdictions) that would cause
the application of the laws of any jurisdictions other than the State of New
York. Each party hereby irrevocably submits to the non-exclusive jurisdiction of
the state and federal courts sitting in the City of New York, borough of
Manhattan for the adjudication of any dispute hereunder or in connection
herewith or with any transaction contemplated hereby or discussed herein, and
hereby irrevocably waives, and agrees not to assert in any suit, action or
proceeding, any claim that it is not personally subject to the jurisdiction of
any such court, that such suit, action or proceeding is brought in an
inconvenient forum or that the venue of such suit, action or proceeding is
improper. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address for such notices to it under
this Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law.
EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO
REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN
CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION
CONTEMPLATED HEREBY.
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b. Counterparts. This Agreement may be executed in two
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or more identical counterparts, all of which shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party; provided that a facsimile signature
shall be considered due execution and shall be binding upon the signatory
thereto with the same force and effect as if the signature were an original, not
a facsimile signature.
c. Headings. The headings of this Agreement are for
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convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement.
d. Severability. If any provision of this Agreement
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shall be invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.
e. Entire Agreement; Amendments. This Agreement
----------------------------
supersedes all other prior oral or written agreements between the Investor, the
Company, their affiliates and persons acting on their behalf with respect to the
matters discussed herein, and this Agreement and the instruments referenced
herein contain the entire understanding of the parties with respect to the
matters covered herein and therein and, except as specifically set forth herein
or therein, neither the Company nor the Investor makes any representation,
warranty, covenant or undertaking with respect to such matters; provided,
however, that nothing in this Section 8(e) shall be deemed to supersede or
affect the agreements or understandings between the parties with respect to (i)
the Company's Series B Preferred Stock and the warrants issued in connection
therewith and (ii) the Securities Purchase Agreement, the Registration Rights
Agreement and the other documents entered into by the parties relating to the
Preferred Shares except as specifically set forth in the Transaction Documents.
No provision of this Agreement may be amended other than by an instrument in
writing signed by the Company and the Investor, and no provision hereof may be
waived other than by an instrument in writing signed by the party against whom
enforcement is sought. No such amendment shall be effective to the extent that
it applies to less than all of the holders of the Preferred Shares then
outstanding. No consideration shall be offered or paid to any person to amend or
consent to a waiver or modification of any provision of any of the Transaction
Documents unless the same consideration also is offered to all of the parties to
the Transaction Documents or holders of the Preferred Shares, as the case may
be.
f. Notices. Any notices, consents, waivers or other
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communications required or permitted to be given under the terms of this
Agreement must be in writing and will be deemed to have been delivered (i) upon
receipt, when delivered personally; (ii) upon receipt, when sent by facsimile
(provided confirmation of transmission is mechanically or electronically
generated and
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kept on file by the sending party); or (iii) upon delivery by a nationally
recognized delivery service, in each case properly addressed to the party to
receive the same. The addresses and facsimile numbers for such communications
shall be:
If to the Company:
▇▇▇▇▇▇ Electronics Corporation
▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: President, Chief Operating Officer
With a copy to:
▇▇▇▇▇▇ Electronics Corporation
▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: Executive Vice President, Chief Financial Officer
If to the Investor, to it at the address and facsimile number set forth
on the Schedule of Investors, with copies to the Investor's representatives as
set forth on the Schedule of Investors, or at such other address and/or
facsimile number and/or to the attention of such other person as the recipient
party has specified by written notice given to each other party five days prior
to the effectiveness of such change. Written confirmation of receipt (A) given
by the recipient of such notice, consent, waiver or other communications, (B)
mechanically or electronically generated by the sender's facsimile machine
containing the time, date, recipient facsimile number and an image of the first
page of such transmission or (C) provided by a nationally recognized overnight
delivery service shall be rebuttable evidence of personal service, receipt by
facsimile or receipt from a nationally recognized overnight delivery service in
accordance with clause (i), (ii) or (iii) above, respectively.
g. Successors and Assigns. This Agreement shall be
----------------------
binding upon and inure to the benefit of the parties and their respective
successors and assigns, including any purchasers of the Preferred Shares. The
Company shall not assign this Agreement or any rights or obligations hereunder
without the prior written consent of the Investor, including by merger or
consolidation, except pursuant to a Major Transaction (as defined in Section
V(C) of the Certificate of Amendment) or an Excluded Redemption Event described
in Section V(H)(4) of the Certificate of Amendment with respect to which the
Company is in compliance with its obligations under Sections V and IV(E)(3) of
the Certificate of Amendment. The rights under this Agreement shall be
assignable by the Investor without consent of the Company. Notwithstanding the
foregoing, any assignment by
11
the Investor shall not release the Investor from its obligations hereunder
unless such obligations are assumed by such assignee and the Company has
consented to such assignment and assumption, which consent shall not be
unreasonably withheld.
h. No Third Party Beneficiaries. This Agreement is
----------------------------
intended for the benefit of the parties hereto and their respective permitted
successors and assigns, and is not for the benefit of, nor may any provision
hereof be enforced by, any other person.
i. Survival. Unless this Agreement is terminated under
--------
Section 8(k), the representations and warranties of the Company and the Investor
contained in Sections 2 and 3, the agreements and covenants set forth in
Sections 4 and 8, and the indemnification provisions set forth in Section 7,
shall survive the Closing.
j. Further Assurances. Each party shall do and perform,
------------------
or cause to be done and performed, all such further acts and things, and shall
execute and deliver all such other agreements, certificates, instruments and
documents, as the other party may reasonably request in order to carry out the
intent and accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
k. Termination. In the event that the Closing shall not
-----------
have occurred with respect to the Investor on or before three (3) Business Days
from the date hereof due to the Company's or the Investor's failure to satisfy
the conditions set forth in Sections 5 and 6 above (and the non-breaching
party's failure to waive such unsatisfied condition(s)), the non-breaching party
shall have the option to terminate this Agreement with respect to such breaching
party at the close of business on such date without liability of any party to
any other party; provided, however, that if this Agreement is terminated
pursuant to this Section 8(k), the Company shall remain obligated to reimburse
the non-breaching Investor for expenses up to the amount described in Section
4(b) above.
l. No Strict Construction. The language used in this
----------------------
Agreement will be deemed to be the language chosen by the parties to express
their mutual intent, and no rules of strict construction will be applied against
any party.
m. Remedies. The Investor and each holder of the
--------
Preferred Shares shall have all rights and remedies set forth in the Transaction
Documents and all rights and remedies which such holders have been granted at
any time under any other agreement or contract and all of the rights which such
holders have under any law. Any person having any rights under any provision of
this Agreement shall be entitled to enforce such rights specifically (without
posting a bond or other security), to recover damages by reason of any breach of
any provision of this Agreement and to exercise all other rights granted by law.
n. Payment Set Aside. To the extent that the Company
-----------------
makes a payment or payments to the Investor hereunder or pursuant to the Waiver
or the Investor enforces or exercises its rights hereunder or thereunder, and
such payment or payments or the proceeds of such
12
enforcement or exercise or any part thereof are subsequently invalidated,
declared to be fraudulent or preferential, set aside, recovered from, disgorged
by or are required to be refunded, repaid or otherwise restored to the Company,
a trustee, receiver or any other person under any law (including, without
limitation, any bankruptcy law, state or federal law, common law or equitable
cause of action), then to the extent of any such restoration the obligation or
part thereof originally intended to be satisfied shall be revived and continued
in full force and effect as if such payment had not been made or such
enforcement or setoff had not occurred.
* * * * * *
13
IN WITNESS WHEREOF, the Investor and the Company have caused this
Acknowledgment and Agreement to be duly executed as of the date first written
above.
COMPANY: INVESTOR:
▇▇▇▇▇▇ ELECTRONICS HFTP INVESTMENT L.L.C.
CORPORATION By: Promethean Asset Management, L.L.C.
Its: Investment Manager
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇ By: /s/ ▇▇▇▇▇ ▇. ▇'▇▇▇▇▇, ▇▇.
-------------------------------- -------------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇ Name: ▇▇▇▇▇ ▇. ▇'▇▇▇▇▇, ▇▇.
--------------------------- Its: Managing Member
Title: Chief Financial Officer
and Corporate Secretary
---------------------------
SCHEDULE OF INVESTORS
Number of
Initial
Investor Address Preferred Investor's Representatives' Address
Investor Name and Facsimile Number Shares and Facsimile Number
---------------------- --------------------------------------- --------- -----------------------------------------
HFTP Investment L.L.C. c/o Promethean Asset Management, L.L.C. 750 Promethean Investment Group, L.L.C.
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ Attn: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇
Telephone: ▇▇▇-▇▇▇-▇▇▇▇ Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇ Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
Residence: New York
▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile: 312-902-1061
SCHEDULES
---------
Schedule 3(a) - Subsidiaries
EXHIBITS
--------
Exhibit A - Form of Waver
Exhibit B - Form of Security Agreement
Exhibit C - Form of Company Counsel Opinion (Corporate Issues)
Exhibit D - Form of Company Counsel Opinion (Security Issues)
SCHEDULE 3(a)
-------------
SUBSIDIARIES
------------
▇▇▇▇▇▇ Digital Technologies, Inc.
▇▇▇▇▇▇ ANC Manufacturing, Inc.
▇▇▇▇▇▇ Direct Marketing, Inc.
▇▇▇▇▇▇ Marketing, Inc.
▇▇▇▇▇▇ Electronics Europe, Inc.
▇▇▇▇▇ Signal Processing, Ltd.
EXHIBIT A
---------
WAIVER AGREEMENT
This Waiver Agreement (this "Waiver") is made and entered into as of
March 28, 2002, by and among ▇▇▇▇▇▇ Electronics Corporation, a New York
corporation (the "Company"), and the undersigned investor (the "Investor").
Capitalized terms used herein and not otherwise defined herein shall
have the respective meanings set forth in the Company's Certificate of Amendment
of the Certificate of Incorporation of the Company for the Company's Series C
Convertible Preferred Stock, as filed with the Secretary of State of the State
of new York on October 6, 2000 (the "Certificate of Amendment").
RECITAL
-------
WHEREAS, the parties hereto are entering into this Waiver pursuant to
that certain Acknowledgment and Agreement dated as of March 27, 2002 between the
Company and the Investor (the "Agreement"); and
WHEREAS, the recitals set forth on the first page of the Agreement are
incorporated herein by this reference.
NOW, THEREFORE, in consideration of the foregoing:
1. Waiver. The Investor hereby waives (a) its right to receive
------
the aggregate Triggering Event Redemption Price with respect to all of its
Preferred Shares outstanding on the date hereof pursuant to Section V(B) of the
Certificate of Amendment as a result of (i) the Triggering Event which exists as
of the date hereof pursuant to Section V(D)(2) of the Certificate of Amendment,
(ii) any future Triggering Event which may occur pursuant to Section V(D)(2) of
the Certificate of Amendment, provided that the Resale Registration Statements
(as defined in the Agreement) remain effective and available to the Investor for
the resale of the Conversion Shares covered by the Resale Registration
Statements, (iii) any future Triggering Event which may occur pursuant to
Section V(D)(3) of the Certificate of Amendment as a result of the delisting of
the Common Stock from AMEX, provided that the Common Stock is authorized for
trading on the OTC Bulletin Board effective upon such delisting, (b) its right
to receive interest at the rate of 2.0% per month with respect to such aggregate
Triggering Event Redemption Price being waived pursuant to the immediately
preceding clause (a), (c) its right to receive the payments set forth in Section
2(e) of the Registration Rights Agreement for the Company's failure to have
registered for resale any number of shares of Common Stock in excess of the
number of Conversion Shares covered by the Resale Registration Statements,
provided that the Resale Registration Statements remain effective and available
to the Investor for the resale of the Conversion Shares covered by the Resale
Registration Statements, and (d) the Company's obligations in Section 2(f) of
the Registration Rights Agreement
and any other provision of the Registration Rights Agreement which would require
the Company to register for resale by the Investor a number of shares of Common
Stock in excess of the number of Conversion Shares covered by the Resale
Registration Statements, provided that the Resale Registration Statements remain
effective and available to the Investor for the resale of the Conversion Shares
covered by the Resale Registration Statements; provided that the Company pays,
on April 1, 2007, the Triggering Event Redemption Price (calculated as of April
1, 2007) with respect to each Preferred Share outstanding on April 1, 2007 to
the holder of such Preferred Share. The Investor's waivers set forth in the
immediately preceding sentence shall not be effective and shall be null and void
immediately upon the earlier of (I) April 1, 2007, if the such Triggering Event
Redemption Price is not paid on April 1, 2007, (II) the first date on which the
Company fails to comply in any material respect with the terms of this Waiver,
the Agreement or the Security Agreement (as defined in the Agreement) and (III)
the first date on which the Company is insolvent.
2. Agreements by the Company. The Company agrees that it (a)
------------------------
shall pay, on April 1, 2007, the Triggering Event Redemption Price (calculated
as of April 1, 2007) with respect to each Preferred Share outstanding on April
1, 2007 to the holder of such Preferred Share, and (B) shall not deliver any
notice to any holder of Preferred Shares pursuant to the last sentence of
Section V(F).
3. Acknowledgment by the Investor. The Investor acknowledges
-----------------------------
that, in accordance with Section IV(H) of the Certificate of Amendment, no
Maturity Date Redemption Price is due on the Two Year Date.
4. Miscellaneous.
-------------
4.1 Other Provisions. All other provisions of the
----------------
Certificate of Amendment shall remain in full force and effect.
4.2 Counterparts. This Waiver may be executed in any
------------
number of counterparts, each of which shall be an original, but all of which
together shall constitute one instrument and shall become effective when
counterparts have been signed by each party and delivered to the other party;
provided that a facsimile signature shall be considered due execution and shall
be binding upon the signatory thereto with the same force and effect as if the
signature were an original, not a facsimile signature.
4.3 Successors and Assigns. This Waiver shall be binding
----------------------
upon and inure to the benefit of the parties and their respective successors and
assigns, including any purchasers of the Preferred Shares.
IN WITNESS WHEREOF, the parties have caused this Waiver to be duly
executed as of the day and year first written above.
COMPANY: INVESTOR:
▇▇▇▇▇▇ ELECTRONICS CORPORATION HFTP INVESTMENT L.L.C.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇ By: /s/ ▇▇▇▇▇ ▇. ▇'▇▇▇▇▇, ▇▇.
------------------------------ ------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇ Name: ▇▇▇▇▇ ▇. ▇'▇▇▇▇▇, ▇▇.
Its: Chief Financial Officer and Its: Managing Member
Corporate Secretary
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this "Agreement") is dated as of March 28,
2002 between ▇▇▇▇▇▇ ELECTRONICS CORPORATION, a New York corporation ("Debtor"),
and HFTP INVESTMENT L.L.C. (the "Investor").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Debtor and the Investor are parties to that certain Securities
Purchase Agreement, dated as of October 5, 2000 (as the same may be amended,
restated, supplemented or otherwise modified and in effect from time to time,
the "Securities Purchase Agreement"), pursuant to which the Investor purchased
from the Debtor shares of the Debtor's Series C Convertible Preferred Stock (the
"Series C Preferred Stock"), which are convertible into shares of the Debtor's
common stock, par value $.50 per share (the "Common Stock") (as converted, the
"Conversion Shares"), in accordance with the terms of the Debtor's Certificate
of Amendment of the Certificate of Incorporation of the Debtor for the Series C
Preferred Stock, as filed with the Secretary of State of the State of New York
on October 6, 2000 (the "Certificate of Amendment");
WHEREAS, the Investor is the holder of that number of shares of the
Series C Preferred Stock (each individually, a "Preferred Share" and,
collectively, the "Preferred Shares") set forth opposite its name on the
Schedule of Investors, a schedule to the Acknowledgment Agreement described
below;
WHEREAS, a Triggering Event (as defined in the Certificate of
Amendment) has occurred, and upon the terms and conditions set forth in that
certain Acknowledgment and Agreement by and between the Debtor and the Investor,
dated as of the date hereof (as the same may be amended, restated, supplemented
or otherwise modified and in effect from time to time, the "Acknowledgement
Agreement"), and attached hereto as Exhibit A, the Investor and the Debtor
---------
desire to enter into that certain Waiver Agreement dated as of the date hereof
(as the same may be amended, restated, supplemented or otherwise modified and in
effect from time to time, the "Waiver Agreement"), a copy of which is attached
hereto as Exhibit B;
---------
WHEREAS, as consideration for Investor's agreement to execute the
Acknowledgment Agreement and the Waiver Agreement and to secure payment of the
aggregate Triggering Event Redemption Price temporarily waived thereunder, among
other things, the Debtor has agreed to enter into this Agreement and grant the
security interests contemplated hereby in order to secure the payment and
performance of Debtor's obligations to the Investor pursuant to the
Acknowledgment Agreement and the Waiver Agreement;
NOW, THEREFORE, in consideration of the premises and in order to induce
the Investor to enter into the Acknowledgment Agreement and the Waiver
Agreement, Debtor hereby agrees with the Investor as follows:
SECTION 1. Definitions
-----------
1.1 Certain Defined Terms. Terms defined in the Acknowledgment
---------------------
Agreement and the Waiver Agreement and not otherwise defined herein shall have
the respective meanings provided for in such agreements. The following terms
shall have the respective meanings provided for in the UCC (as defined below):
"Accounts", "Account Debtor", "Buyer in Ordinary Course of Business", "Chattel
Paper", "Commercial Tort Claim", "Deposit Account", "Documents", "Electronic
Chattel Paper", "Equipment", "Fixtures", "General Intangibles", "Goods",
"Instruments", "Inventory", "Investment Property", "Letter of Credit",
"Letter-of-Credit Rights", "Licensee in Ordinary Course of Business",
"Proceeds", "Record", "Software", "Supporting Obligations" and "Tangible Chattel
Paper". The following terms, as used herein, have the meanings set forth below:
"Bank Transaction" means a transaction pursuant to which Debtor
receives new financing from a non-affiliate third-party bank or other similar
asset based lending institution.
"Collateral" has the meaning assigned to that term in Section 2.
"Control" means the manner in which "control" is achieved under the UCC
with respect to a particular item of Collateral.
"Copyrights" means collectively all of the following: (a) all
copyrights, rights and interests in copyrights, works protectable by copyright,
copyright registrations and copyright applications, including those listed on
Schedule V attached hereto; (b) all renewals of any of the foregoing; (c) all
----------
income, royalties, damages and payments now or hereafter due and/or payable
under any of the foregoing or with respect to any of the foregoing, including
damages or payments for past, present or future infringements of any of the
foregoing; (d) the right to ▇▇▇ for past, present and future infringements of
any of the foregoing; and (e) all rights corresponding to any of the foregoing
throughout the world.
"Depository Account" has the meaning assigned to that term in
Section 7.
---------
"Event of Default" means the occurrence or existence of any one or more
of the following: (1) (a) a court enters a decree or order for relief with
respect to Debtor or any of its Subsidiaries in an involuntary case under the
Bankruptcy Code, which decree or order is not stayed or other similar relief is
not granted under any applicable federal or state law; or (b) the continuance of
any of the following events for forty-five (45) days unless dismissed, bonded or
discharged: (i) an involuntary case is commenced against Debtor or any of its
Subsidiaries, under any applicable bankruptcy, insolvency or other similar law
now or hereafter in effect; or (ii) a decree or order of a court for the
appointment of a receiver, liquidator, sequestrator, trustee, custodian or other
officer having similar powers over Debtor or any of its Subsidiaries, or over
all or a substantial part of its property, is entered; or (iii) an interim
receiver, trustee or other custodian is appointed without the consent of Debtor
or any of its Subsidiaries, for all or a substantial part of the property of
Debtor or any of its subsidiaries; (2) (a) Debtor or any of its Subsidiaries
commences a voluntary case under the Bankruptcy Code, or consents to the entry
of an order for relief in an involuntary case or to the conversion of an
involuntary case to a
2
voluntary case under any such law or consents to the appointment of or taking
possession by a receiver, trustee or other custodian for all or a substantial
part of its property; or (b) Debtor or any of its Subsidiaries makes any
assignment for the benefit of creditors; or (c) the Board of Directors of Debtor
or any of its Subsidiaries adopts any resolution or otherwise authorizes action
to approve any of the actions referred to in this subsection; or (3) (a) failure
of Debtor to perform or comply in any material respect with any term or
condition contained in this Agreement or the other Transaction Documents, or (b)
any representation or warranty made or deemed to have been made by or on behalf
of Debtor in any Transaction Document shall prove to be false or misleading in
any material respect, provided that in either case, such failure to perform or
comply, or such misrepresentation, if capable of cure, is not cured within
thirty (30) days after the occurrence of such failure or misrepresentation,
provided further than no grace period shall apply to a breach of Debtor's
obligation to provide Bank Agency and Control Agreements within the 45 day
period specified in the first sentence of Section 7 hereof.
"Intellectual Property" means collectively all of the following:
Copyrights, Patents and Trademarks.
"Patents" means collectively all of the following: (a) all patents and
patent applications including those listed on Schedule VI attached hereto, and
-----------
the inventions and improvements described and claimed therein, and patentable
inventions; (b) the reissues, divisions, continuations, renewals, extensions and
continuations-in-part of any of the foregoing; (c) all income, royalties,
damages and payments now or hereafter due and/or payable under any of the
foregoing or with respect to any of the foregoing, including, without
limitation, damages and payments for past, present and future infringements of
any of the foregoing; (d) the right to ▇▇▇ for past, present and future
infringements of any of the foregoing; and (e) all rights corresponding to any
of the foregoing throughout the world.
"Permitted Financing Transaction" means any Strategic Transaction or
any Bank Transaction.
"Secured Obligations" has the meaning assigned to that term in
Section 3.
---------
"Security Interests" means the security interests granted or provided
for pursuant to Section 2 hereof, as well as all other security interests
---------
created, assigned or provided as additional security for the Secured Obligations
pursuant to the provisions of this Agreement.
"Strategic Transaction" means a transaction pursuant to which Debtor
receives new financing from a non-affiliated third-party in connection with a
strategic transaction where there is a significant commercial relationship (in
addition to such financing) between Debtor and such third-party, which financing
may be secured by liens on assets of Debtor so long as the value of the assets
subject to such liens does not exceed the amount of such financing.
"Trademarks" means collectively all of the following: (a) all
trademarks, trade names, corporate names, company names, business names,
fictitious business names, trade styles, service marks, logos, other business
identifiers, prints and labels on which any of the foregoing
3
have appeared or appear, all registrations and recordings thereof, and all
applications in connection therewith including those listed on Schedule VII
------------
attached hereto; (b) all renewals thereof; (c) all income, royalties, damages
and payments now or hereafter due and/or payable under any of the foregoing or
with respect to any of the foregoing including damages and payments for past,
present and future infringements of any of the foregoing; (d) the right to ▇▇▇
for past, present and future infringements of any of the foregoing; (e) all
rights corresponding to any of the foregoing throughout the world; and (f) all
goodwill associated with and symbolized by any of the foregoing.
"Transaction Documents" means this Agreement, the Acknowledgment
Agreement, the Waiver Agreement, the Pledge Agreement between Investor and
Debtor of even date herewith, the Securities Purchase Agreement, the Certificate
of Amendment, the Registration Rights Agreement (as defined in the Securities
Purchase Agreement), and all agreements, documents and instruments executed and
delivered in connection therewith.
"Senior Security Interest" means and includes any perfected security
interest granted in connection with a Permitted Financing Transaction.
"UCC" means the Uniform Commercial Code as in effect from time to time
in the State of New York.
1.2 Other Definition Provisions. References to "Sections,"
---------------------------
"subsections" and "Schedules" shall be to Sections, subsections and Schedules,
respectively, of this Agreement unless otherwise specifically provided. For
purposes hereof, "including" is not limiting and "or" is not exclusive. Any of
the terms defined in subsection 1.1 may, unless the context otherwise requires,
be used in the singular or the plural depending on the reference. All references
to statutes and related regulations shall include (unless otherwise specifically
provided herein) any amendments of same and any successor statutes and
regulations.
SECTION 2. Grant of Security Interests
---------------------------
To secure the payment, performance and observance of the Secured
Obligations, Debtor hereby grants to the Investor, a continuing security
interest in, right of setoff against, and an assignment to the Investor of all
of Debtor's personal property and rights to personal property, in each case,
whether now owned or existing or hereafter acquired or arising and regardless of
where located and shall include the following (all being collectively referred
to herein as the "Collateral"):
(a) Accounts;
(b) Chattel Paper;
(c) Commercial Tort Claims including those specified on
Schedule IV;
-----------
4
(d) Deposit Accounts, all cash, and other property
deposited therein from time to time and other monies
and property in the possession or under the control
of the Investor or any affiliate, representative,
agent or correspondent of the Investor;
(e) Documents;
(f) Equipment;
(g) Fixtures;
(h) General Intangibles;
(i) Goods;
(j) Instruments;
(k) Inventory;
(l) Investment Property;
(m) Letter-of-Credit Rights;
(n) Supporting Obligations;
(o) All other personal property whether or not subject to
the UCC;
(p) All books, records, ledger cards, files,
correspondence, computer programs, tapes, disks and
related data processing Software that at any time
evidence or contain information relating to any of
the property described in subparts (a) - (o) above or
are otherwise necessary or helpful in the collection
thereof or realization thereon; and
(q) Proceeds and products of all or any of the property
described in subparts (a) - (p) above.
SECTION 3. Security for Obligations
------------------------
This Agreement secures the payment and performance of all indebtedness,
liabilities and obligations of Debtor now existing or hereafter created or
arising under or related to the Transaction Documents, the Series C Preferred
Stock, the Certificate of Amendment (including, without limitation, payment of
any Triggering Event Redemption Price now or hereafter payable) and all
renewals, extensions, restructurings and refinancings of any of the above
including, without limitation, any additional indebtedness which may be extended
to Debtor pursuant to any restructuring or refinancing of Debtor's indebtedness
under the any of the
5
Transaction Documents, and including any post-petition interest accruing during
any bankruptcy, reorganization or other similar proceeding (all such
indebtedness, liabilities and obligations of Debtor being collectively referred
to herein as the "Secured Obligations").
SECTION 4. Debtor Remains Liable
---------------------
Anything herein to the contrary notwithstanding: (a) Debtor shall
remain liable under the contracts and agreements included in the Collateral to
the extent set forth therein to perform all of its duties and obligations
thereunder to the same extent as if this Agreement had not been executed; (b)
the exercise by the Investor of any of the rights hereunder shall not release
Debtor from any of its duties or obligations under the contracts and agreements
included in the Collateral; (c) the Investor shall not have any obligation or
liability under the contracts and agreements included in the Collateral by
reason of this Agreement, nor shall the Investor be obligated to perform any of
the obligations or duties of Debtor thereunder or to take any action to collect
or enforce any claim for payment assigned hereunder; and (d) the Investor shall
not have any liability in contract or tort for Debtor's acts or omissions.
SECTION 5. Representations and Warranties
------------------------------
In order to induce the Investor to enter into this Agreement, Debtor
represents and warrants to the Investor as follows:
5.1 Binding Obligation. This Agreement is the legally valid and
------------------
binding obligation of Debtor, enforceable against it in accordance with its
terms, except as enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium, or similar laws or equitable principles relating to
or limiting creditor's rights generally.
5.2 State of Organization. Debtor was organized and remains
---------------------
organized solely under the laws of the state identified in the first paragraph
of this Agreement and on Schedule I. Schedule I sets forth the Debtor's
---------- ----------
organizational identification number or states that one does not exist.
5.3 Location of Equipment, Inventory and Fixtures. All of the
---------------------------------------------
Equipment, Inventory and Fixtures are located at the places specified on
Schedule I.
----------
5.4 Ownership of Collateral. Except for (i) matters disclosed on
-----------------------
Schedule II, (ii) the Security Interests and (iii) liens in favor of a
-----------
non-affiliated third party in connection with a Permitted Financing Transaction
(collectively, "Permitted Encumbrances"), Debtor owns the Collateral, and will
own all after-acquired Collateral, free and clear of any Lien. No effective
financing statement or other form of lien notice covering all or any part of the
Collateral is on file in any recording office, except for those in favor of the
Investor, those filed in connection with a Permitted Financing Transaction, and
as disclosed on Schedule II. Debtor shall deliver to Investor a copy of an
-----------
authenticated demand in accordance with Section 9-513(c) of the UCC, requesting
termination statements be filed with respect to the financing statements of
record filed by IBM Credit Corporation and described on Schedule II and, in the
-----------
event such termination
6
statements are not received within twenty (20) days, Debtor shall file such
termination statements.
5.5 Office Locations; Fictitious Names. The mailing address,
----------------------------------
principal place of business, chief executive office and office where Debtor
keeps its books and records relating to the Accounts, Chattel Paper, Documents,
General Intangibles, Instruments and Investment Property is located at the place
specified on Schedule I. Debtor has no other places of business except those
----------
separately specified on Schedule I. Debtor does not do business and has not done
----------
business during the past five years under any name, tradename or fictitious
business name except as disclosed on Schedule III.
------------
5.6 Perfection. The Investor has a valid, perfected and, except
----------
for (i) the Permitted Encumbrances set forth on Schedule II and (ii) liens
-----------
granted pursuant to a Permitted Financing Transaction, first priority security
interest in the Collateral, securing the payment of the Secured Obligations, and
such Security Interests are entitled to all of the rights, priorities and
benefits afforded by the UCC or other applicable law as enacted in any relevant
jurisdiction which relates to perfected security interests.
5.7 Governmental Authorizations; Consents. No authorization,
-------------------------------------
approval or other action by, and no notice to or filing with, any domestic or
foreign governmental authority or regulatory body or consent of any other Person
is required for (a) the grant by Debtor of the Security Interests granted hereby
or for the execution, delivery or performance of this Agreement by Debtor; (b)
the perfection of the Security Interests granted hereby and pursuant to any
other Transaction Documents; or (c) the exercise by the Investor of its rights
and remedies hereunder (except as may have been taken by or at the direction of
Debtor or the Investor).
5.8 Intentionally Omitted.
---------------------
5.9 Chattel Paper. Debtor does not hold Chattel Paper in the
-------------
ordinary course of its business.
5.10 Commercial Tort Claims. Except for matters disclosed on
----------------------
Schedule IV, Debtor does not own any Commercial Tort Claims.
-----------
5.11 Intellectual Property. The Copyrights, Patents and Trademarks
---------------------
listed on the Schedules V, VI and VII constitute all of the Patents, Trademarks
----------- -- ---
and federally registered Copyrights owned by Debtor. Debtor has no notice of any
suits or action commenced or threatened with reference to any Patent, Trademark
and federally registered Copyright, except as disclosed in its SEC filings.
5.12 Intentionally Omitted.
---------------------
5.13 Accurate Information. All information heretofore, herein or
--------------------
hereafter supplied to the Investor by or on behalf of Debtor with respect to the
Collateral is and will be accurate and complete in all material respects.
7
5.14 Non-Contravention of other Agreements. The execution, delivery
-------------------------------------
and performance by Debtor of each Transaction Document to which it is a party:
(a) is within its corporate or similar organizational power; (b) is duly
authorized by all necessary corporate or similar organizational action; (c) is
not in contravention of any applicable law or any indenture, contract, lease,
agreement, instrument, document or other commitment to which it is a party or by
which it or any of its properties are bound; and (d) will not, except as
contemplated herein, result in the imposition of any liens upon any of its
properties.
SECTION 6. Further Assurances; Covenants
-----------------------------
6.1 Other Documents and Actions. Debtor will, from time to time,
---------------------------
at its expense, promptly execute and deliver all further instruments and
documents and take all further action that may be necessary or desirable, and
upon the reasonable request of the Investor, in order to create, perfect and
protect any Security Interests or to enable the Investor to exercise and enforce
its rights and remedies hereunder, or under any other Transaction Document with
respect to any Collateral. Without limiting the generality of the foregoing,
Debtor will: (a) execute and file such financing or continuation statements, or
amendments thereto, and such other instruments, documents or notices, as may be
necessary or desirable, or as the Investor may reasonably request, in order to
create, perfect and protect the Security Interests and (b) upon the Investor's
reasonable request, appear in and defend any action or proceeding that may
affect the Investor's title to or the Investor's security interest in the
Collateral.
6.2 Investor Authorized. Debtor hereby authorizes the Investor to
-------------------
file one or more financing or continuation statements, and amendments thereto
(or similar documents required by any laws of any applicable jurisdiction),
relating to all or any part of the Collateral without the signature of Debtor.
6.3 Corporate or Name Change. Debtor will give the Investor at
------------------------
least thirty (30) days prior written notice of any change in Debtor's name,
identity, mailing address, jurisdiction of organization or corporate structure.
With respect to any such change, Debtor will promptly execute and deliver such
instruments, documents and notices and take such actions, as the Investor deems
necessary or desirable to create, perfect and protect the security interests of
the Investor in the Collateral.
6.4 Business Locations. Debtor will give the Investor at least
------------------
thirty (30) days prior written notice of any change in Debtor's chief executive
office and principal place of business. With respect to any new location for any
of the Collateral and upon the reasonable request of the Investor, Debtor will
execute and deliver such instruments, documents and notices and take such
actions, as the Investor deems necessary to create, perfect and protect the
security interests of the Investor in the Collateral.
6.5 Bailees. After the occurrence and during the continuance of an
-------
Event of Default, Debtor shall, upon the reasonable request of the Investor,
notify any warehouse, bailee, agent or processor in possession or control of any
Collateral of the Investor's Security Interests, and shall
8
instruct such Person to hold all such Collateral for the Investor's account
subject to the Investor's instructions and shall obtain an acknowledgement from
such Person that such Person holds the Collateral for the Investor's benefit.
6.6 Instruments. Debtor will notify Investor in the event it
-----------
receives any Instruments with a value equal to or greater than $100,000, and if
reasonably requested by Investor will deliver such Instrument(s) to Investor
duly endorsed and accompanied by duly executed instruments of transfer or
assignment, all in form and substance satisfactory to the Investor. Debtor will
also deliver to the Investor all security agreements securing any Instruments
and execute UCC financing statement amendments assigning to the Investor any UCC
financing statements filed by Debtor in connection with such security
agreements.
6.7 Chattel Paper. Debtor will notify Investor in the event it
-------------
possesses Tangible Chattel Paper with a value equal to or greater than $100,000,
and if reasonably requested by Investor will deliver such Tangible Chattel Paper
to Investor, duly endorsed and accompanied by duly executed instruments of
transfer or assignment, all in form and substance satisfactory to the Investor.
Debtor will provide the Investor with Control of all Electronic Chattel Paper,
by having the Investor identified as the assignee of the Records(s) pertaining
to the single authoritative copy thereof and otherwise complying with the
applicable elements of Control set forth in the UCC. Debtor will also deliver to
the Investor all security agreements securing any Chattel Paper and execute UCC
financing statement amendments assigning to the Investor any UCC financing
statements filed by Debtor in connection with such security agreements. Debtor
will ▇▇▇▇ conspicuously all Chattel Paper with a legend, in form and substance
satisfactory to the Investor, indicating that such Chattel Paper is subject to
the Security Interests.
6.8 Letters of Credit. Debtor will notify Investor in the event it
-----------------
posses Letters of Credit with a value equal to or greater than $100,000, and if
reasonably requested by Investor will deliver such Letters of Credit to
Investor, duly endorsed and accompanied by duly executed instruments of transfer
or assignment, all in form and substance satisfactory to the Investor. Debtor
will also deliver to the Investor all security agreements securing any Letters
of Credit and execute UCC financing statement amendments assigning to the
Investor any UCC financing statements filed by Debtor in connection with such
security agreements. Debtor will take any and all actions necessary, and if
reasonably requested by the Investor, from time to time, to cause the Investor
to obtain exclusive Control of any Letter-of-Credit Rights owned by Debtor in a
manner acceptable to the Investor.
6.9 Filing Requirements. Debtor will notify Investor if it obtains
-------------------
Equipment valued equal to or greater than $100,000 which is covered by any
certificate of title. Upon reasonable request of the Investor, Debtor shall
promptly deliver to the Investor any and all certificates of title, applications
for title or similar evidence of ownership of all Equipment with a value equal
to or greater than $100,000 and shall cause the Investor to be named as
lienholder on any such certificate of title or other evidence of ownership. None
of the Collateral is of a type in which security interests or liens may be
registered, recorded or filed under, or notice thereof given under, any federal
statute or regulation except for Collateral described on Schedules V, VI and
---------------
VII. Debtor shall promptly notify the Investor in writing upon acquiring any
---
interest hereafter in
9
Collateral that is of a type where a security interest or lien may be
registered, recorded of filed under, or notice thereof given under, any federal
statute or regulation. The legal description and street address of the property
on which any Fixtures are located is set forth on Schedule I, together with the
----------
name and common address of the record owner of each such property.
6.10 Investment Property. Debtor will notify Investor if it obtains
-------------------
Investment Property with a value equal to or greater than $100,000. Debtor
agrees that it will take any and all actions necessary, and if reasonably
requested by the Investor, from time to time, to (a) cause the Investor to
obtain exclusive Control of any such Investment Property in a manner acceptable
to the Investor and (b) obtain from any issuers of such Investment Property and
such other Persons, for the benefit of the Investor, written confirmation of the
Investor's Control over such Investment Property upon terms and conditions
acceptable to the Investor. For purposes of this subsection 6.10, the Investor
shall have Control of such Investment Property if (i) such Investment Property
consists of certificated securities and Debtor delivers such certificated
securities to the Investor (provided that in the case of certificated securities
of a foreign subsidiary, Debtor shall pledge and deliver sixty-five percent
(65%) of such certificated securities) (with appropriate endorsements if such
certificated securities are in registered form); (ii) such Investment Property
consists of uncertificated securities and either (x) Debtor delivers such
uncertificated securities to the Investor or (y) the issuer thereof agrees,
pursuant to documentation in form and substance satisfactory to the Investor,
that it will comply with instructions originated by the Investor without further
consent by Debtor; and (iii) such Investment Property consists of security
entitlements and either (x) the Investor becomes the entitlement holder thereof
or (y) the appropriate securities intermediary agrees, pursuant to documentation
in form and substance satisfactory to the Investor, that it will comply with
entitlement orders originated by the Investor without further consent by Debtor.
6.11 Accounts. Except as otherwise provided in this subsection
--------
6.11, Debtor shall continue to collect, at its own expense, all amounts due or
to become due Debtor under the Accounts and apply such amounts as are so
collected to the outstanding balances thereof. In connection with such
collections, Debtor may take such action as Debtor may deem necessary or
advisable to enforce collection of the Accounts; provided, that upon the
--------
occurrence and during the continuance of an Event of Default, the Investor shall
have the right to: (a) notify the Account Debtor under any Accounts (or any
other Person obligated thereon) of the assignment of such Accounts to the
Investor and to direct such Account Debtors and other Persons to make payment of
all amounts due or to become due or otherwise render performance directly to the
Investor; (b) exercise the rights of Debtor with respect to the obligation of
the Account Debtor to make payment or otherwise render performance to Debtor and
with respect to any property that secures the obligations of the Account Debtor
or any other Person obligated on the Collateral; and (c) adjust, settle or
compromise the amount or payment of such Accounts. Upon the occurrence and
during the continuance of an Event of Default, all amounts and Proceeds received
by Debtor with respect to the Accounts shall be received in trust for the
benefit of the Investor, shall be segregated from other funds of Debtor and
shall be forthwith paid over to the Investor in the same form as so received
(with any necessary endorsement) to be held in the Depository Account pursuant
to Section 7 or applied pursuant to Section 14. Debtor shall not adjust, settle
--------- ----------
or compromise the amount or payment of any Account, or release wholly or partly
10
any customer or obligor thereof, or allow any credit or discount thereon (other
than credits and discounts in the ordinary course of business and in amounts
which are not material to Debtor) without the prior consent of the Investor.
6.12 Intellectual Property. After the occurrence and during the
---------------------
continuance of an Event of Default, if reasonably requested by Investor, Debtor
shall promptly file this agreement, and/or such other documents as may be
required to give effect to the terms of this Agreement, with the Patent Division
of the United States Patent and Trademark Office ("USPTO"). If Debtor does not
promptly cause such filing to occur, Investor is hereby authorized to cause such
filing to occur and to take such reasonable actions as may be necessary to cause
such filing to occur. Debtor hereby covenants and agrees that it will not
consent to the filing by any third-party of a security interest with the USPTO,
except in connection with a Permitted Financing Transaction. If, before the
Secured Obligations are paid in full, Debtor acquires or becomes entitled to any
new or additional material Patents, Trademarks or federally registered
Copyrights, or rights thereto, Debtor shall give to the Investor prompt written
notice thereof, and shall amend Schedules V, VI or VII or enter into new or
--------------- ---
additional security agreements to include any such new Patents, Trademarks or
federally registered Copyrights. Debtor shall, after the occurrence and during
the continuance of an Event of Default: (a) prosecute diligently any copyright,
patent or trademark application at any time pending; (b) make application for
registration or issuance of all new copyrights, patents and trademarks as
reasonably deemed appropriate by Debtor; (c) preserve and maintain all rights in
the Intellectual Property; (d) use its best efforts to obtain any consents,
waivers or agreements necessary to enable the Investor to exercise its remedies
with respect to the Intellectual Property; and (e) maintain the quality of any
and all products in connection with which the Intellectual Property is used,
consistent with any commercially reasonable business practices. Debtor
represents and warrants to the Investor that the execution, delivery and
performance of this Agreement by Debtor will not violate or cause a default
under any of the Intellectual Property or any agreement in connection therewith.
Notwithstanding anything to the contrary in this Agreement, Debtor shall have
the ability, in its sole discretion, if it determines that the value of any
Intellectual Property has been sufficiently impaired (the "Impaired Intellectual
Property") to "write-off" the Impaired Intellectual Property in accordance with
GAAP and cease to preserve and maintain the Impaired Intellectual Property.
6.13 Debt at Subsidiaries. Debtor will not, without the consent of
--------------------
Investor, which consent shall not be unreasonably withheld, permit any of its
Subsidiaries to incur material indebtedness.
6.14 General Intangibles. Upon the occurrence and during the
-------------------
continuance of an Event of Default, Debtor shall use its best efforts to obtain
any consents, waivers or agreements necessary to enable the Investor to exercise
remedies hereunder and under the other Transaction Documents with respect to any
of Debtor's rights under any General Intangibles, including Debtor's rights as a
licensee of Software.
6.15 Commercial Tort Claims. Debtor shall advise the Investor
----------------------
promptly upon Debtor becoming aware that it owns any additional Commercial Tort
Claims. With respect to any new Commercial Tort Claim, Debtor will execute and
deliver such documents as the Investor deems
11
necessary to create, perfect and protect the Investor's security interest in
such Commercial Tort Claim.
6.16 Protection of Collateral; Insurance. Debtor will take
-----------------------------------
commercially reasonable actions to preserve Investor's rights in the Collateral.
Debtor shall maintain insurance with respect to the Collateral in amounts and
under terms and conditions deemed reasonably appropriate by Debtor. Debtor
assumes all liability and responsibility in connection with the Collateral
acquired by it, and the liability of Debtor to pay the Secured Obligations shall
in no way be affected or diminished by reason of the fact that such Collateral
may be lost, stolen, damaged, or for any reason whatsoever unavailable to
Debtor.
6.17 Taxes and Claims. Debtor will pay when due all property and
----------------
other taxes, assessments and governmental charges imposed upon, and all claims
against, the Collateral (including claims for labor, materials and supplies);
provided that no such tax, assessment or charge need be paid if Debtor is
contesting the same in good faith by appropriate proceedings promptly instituted
and diligently conducted and if Debtor has established such reserve or other
appropriate provision, if any, as shall be required in conformity with GAAP; and
provided further that the same can be contested without risk of loss or
forfeiture or material impairment of the Collateral or the use thereof.
6.18 Collateral Description. Debtor will furnish to the Investor,
----------------------
from time to time upon reasonable request, statements and schedules further
identifying, updating, and describing the Collateral and such other information,
reports and evidence concerning the Collateral (and in particular the Accounts)
as the Investor may reasonably request, all in reasonable detail.
6.19 Use of Collateral. Debtor will not intentionally use or permit
-----------------
any Collateral to be used unlawfully or in violation of any provision of
applicable law, or any policy of insurance covering any of the Collateral.
6.20 Records of Collateral. Debtor shall keep full and accurate
---------------------
books and records relating to the Collateral and shall stamp or otherwise ▇▇▇▇
such books and records in such manner as the Investor may reasonably request
indicating that the Collateral is subject to the Security Interests.
6.21 Federal Claims. Upon reasonable request by Investor, Debtor
--------------
shall notify the Investor of any Collateral which constitutes a claim against
the United States government or any instrumentality or agency thereof, the
assignment of which claim is restricted by federal law. Upon the reasonable
request of the Investor, Debtor shall take such steps as may be necessary to
comply with any applicable federal assignment of claims laws and other
comparable laws.
6.22 Hot Goods. None of the Inventory of Debtor has been or will be
---------
knowingly produced in violation of any provision of the Fair Labor Standards Act
of 1938, as amended, or in violation of any other law.
SECTION 7. Bank Accounts; Collection of Accounts and Payments
--------------------------------------------------
12
Debtor shall, as soon as practicable but in any event no later than 45
days after the date of this Agreement, enter into a bank agency and control
agreement ("Bank Agency and Control Agreement"), in a form specified by the
Investor, which will state, among other things, that in no event will the
Investor prohibit Debtor access to its Deposit Accounts unless an Event of
Default of the type described in subsections (1) and (2) of the definition of
Event of Default has occurred, with each financial institution with which Debtor
maintains from time to time any Deposit Accounts. Debtor hereby grants to the
Investor, for its benefit, a continuing lien upon, and security interest in, all
such accounts and all funds at any time paid, deposited, credited or held in
such accounts (whether for collection, provisionally or otherwise) or otherwise
in the possession of such financial institutions, and each such financial
institution shall act as the Investor's agent in connection therewith. Debtor
shall not establish any Deposit Account with any financial institution unless
prior thereto the Investor and Debtor shall have entered into a Bank Agency and
Control Agreement with such financial institution.
Upon the occurrence and during the continuance of an Event of Default
described in Subsections (1) or (2) of the definition of Event of Default, and
upon request by the Investor, Debtor shall establish lock-box or blocked
accounts (collectively, "Blocked Accounts") in Debtor's name with such banks as
are acceptable to the Investor ("Collecting Banks"), subject to irrevocable
instructions in a form specified by the Investor ("Blocked Account and Control
Agreement"), to which the obligors of all Accounts shall directly remit all
payments on Accounts and in which Debtor will immediately deposit all cash
payments for Inventory or other cash payments constituting proceeds of
Collateral in the identical form in which such payment was made, whether by cash
or check. In addition, the Investor may establish one or more depository
accounts at each Collecting Bank or at a centrally located bank in the name of
the Investor or Debtor as customer (collectively, the "Depository Account").
From and after receipt by any Collecting Bank of written notice from the
Investor to such Collecting Bank that an Event of Default, of the type described
in subsections (1) or (2) of the definition of Event of Default, has occurred
and is continuing, all amounts held or deposited in the Blocked Accounts held by
such Collecting Bank shall be transferred to the Depository Account. Subject to
the foregoing, Debtor hereby agrees that all payments received by the Investor
whether by cash, check, wire transfer or any other instrument, made to such
Blocked Accounts or otherwise received by the Investor and whether on the
Accounts or as proceeds of other Collateral or otherwise will be the sole and
exclusive property of the Investor. Debtor, and any of its Affiliates,
employees, agents and other Persons acting for or in concert with Debtor shall,
acting as trustee for the Investor, receive, as the sole and exclusive property
of Investor, any moneys, checks, notes, drafts or other payments relating to
and/or constituting proceeds of Accounts or other Collateral which come into the
possession or under the control of Debtor or any Affiliates, employees, agent,
or other Persons acting for or in concert with Debtor, and immediately upon
receipt thereof, Debtor or such Persons shall deposit the same or cause the same
to be deposited in kind, in a Blocked Account.
SECTION 8. Investor Appointed Attorney-in-Fact
-----------------------------------
Debtor hereby irrevocably appoints the Investor as Debtor's
attorney-in-fact, with full authority in the place and stead of Debtor and in
the name of Debtor, the Investor or otherwise,
13
upon the occurrence or during the continuance of an Event of Default, to take
any action and to execute any instrument that the Investor may deem necessary or
advisable to accomplish the purposes of this Agreement, including, without
limitation:
(a) to obtain and adjust insurance required to be paid to
the Investor;
(b) to ask, demand, collect, ▇▇▇ for, recover, compound,
receive and give acquittance and receipts for moneys due and to become
due under or in respect of any of the Collateral;
(c) to receive, endorse, and collect any drafts or other
Instruments, Documents and Chattel Paper, in connection with clauses
(a) and (b) above;
(d) to file any claims or take any action or institute
any proceedings that the Investor may deem necessary or desirable for
the collection of, or to preserve the value of, any of the Collateral
or otherwise to enforce the rights of the Investor with respect to any
of the Collateral;
(e) to pay or discharge taxes or Liens levied or placed
upon or threatened against the Collateral, the legality or validity
thereof and the amounts necessary to discharge the same to be
determined by the Investor in its sole discretion, and such payments
made by the Investor to become obligations of Debtor to the Investor,
due and payable immediately without demand;
(f) to endorse Debtor's name on all applications,
documents, papers and instruments necessary or desirable for the
Investor in the use of all Patents, Trademarks and Copyrights or to
take any other action with respect to the Patents, Trademarks and
Copyrights as the Investor deems to be in its best interest;
(g) to grant or issue any exclusive or non-exclusive
license under any Patents, Trademarks or Copyrights to anyone or to
assign, pledge, convey or otherwise transfer title in or dispose of any
Patents, Trademarks or Copyrights to anyone;
(h) to sign and endorse any invoices, freight or express
bills, bills of lading, storage or warehouse receipts, assignments,
verifications and notices in connection with Accounts, Chattel Paper
and other documents relating to the Collateral; and
(i) generally to take any act required of Debtor by
Section 6 and to sell, transfer, pledge, make any agreement with
---------
respect to or otherwise deal with any of the Collateral as fully and
completely as though the Investor were the absolute owner thereof for
all purposes, and to do, at the Investor's option and Debtor's expense,
at any time or from time to time, all acts and things that the Investor
deems necessary to protect, preserve or realize upon the Collateral.
14
Debtor hereby ratifies and approves all acts of the Investor made or taken
pursuant to this Section 8. Neither the Investor nor any Person designated by
---------
the Investor shall be liable for any acts or omissions or for any error of
judgment or mistake of fact or law. This power, being coupled with an interest,
is irrevocable so long as this Agreement shall remain in force.
SECTION 9. Transfers and Other Liens
-------------------------
Except as otherwise permitted herein, Debtor shall not create or suffer
to exist any lien, security interest or other charge or encumbrance upon or with
respect to any of the Collateral to secure indebtedness of any Person except for
(i) the security interest created by this Agreement or (ii) a security interest
granted pursuant to a Permitted Financing Transaction.
SECTION 10. Remedies
--------
(a) Upon the occurrence and during the continuance of an Event of
Default, the Investor may exercise in respect of the Collateral, in addition to
all 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 UCC (whether
or not the UCC applies to the affected Collateral) and also may: (i) require
Debtor to, and Debtor hereby agrees that it will, at its expense and upon
reasonable request of the Investor forthwith, assemble all or part of the
Collateral as directed by the Investor and make it available to the Investor at
any place or places designated by the Investor which is reasonably convenient to
the Investor and Debtor in which event Debtor shall at its own expense (A)
forthwith cause the same to be moved to the place or places so designated by the
Investor and thereby delivered to the Investor, (B) store and keep any
Collateral so delivered to the Investor at such place or places pending further
action by the Investor, and (C) while Collateral shall be so stored and kept,
provide such guards and maintenance services as shall be necessary to protect
the same and to preserve and maintain the Collateral in good condition; (ii)
withdraw all cash in the Depository Accounts and apply such monies in payment of
the Secured Obligations; and (iii) without notice except as specified below,
sell, lease, license or otherwise dispose of the Collateral or any part thereof
by one or more contracts, in one or more parcels at public or private sale, and
without the necessity of gathering at the place of sale of the property to be
sold, at any of the Investor's offices or elsewhere, at such time or times, for
cash, on credit or for future delivery, and at such price or prices and upon
such other terms as the Investor may deem commercially reasonable.
(b) Debtor agrees that, to the extent notice of sale shall be
required by law, a reasonable authenticated notification of disposition shall be
a notification given at least ten (10) days prior to any such sale and such
notice shall (i) describe the Investor and Debtor, (ii) describe the Collateral
that is the subject of the intended disposition, (iii) state the method of
intended disposition, (iv) state that the Debtor is entitled to an accounting of
the Secured Obligations and stating the charge, if any, for an accounting, and
(v) state the time and place of any public disposition or the time after which
any private sale is to be made. At any sale of the Collateral, if permitted by
law, the Investor may bid (which bid may be, in whole or in part, in the form of
cancellation of indebtedness) for the purchase, lease, license or other
disposition of the Collateral or any portion thereof for the account of the
Investor. The Investor shall not be
15
obligated to make any sale of Collateral regardless of notice of sale having
been given. The Investor may disclaim any warranties that might arise in
connection with the sale, lease, license or other disposition of the Collateral
and have no obligation to provide any warranties at such time. The Investor 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 extent permitted by law,
Debtor hereby specifically waives all rights of redemption, stay or appraisal
which it has or may have under any law now existing or hereafter enacted.
(c) Upon the occurrence and during the continuance of an Event of
Default, the Investor or its agents or attorneys shall have the right without
notice or demand or legal process (unless the same shall be required by
applicable law), personally, or by agents or attorneys, (i) to enter upon,
occupy and use any premises owned or leased by Debtor or where the Collateral is
located (or is believed to be located) until the Secured Obligations are paid in
full without any obligation to pay rent to Debtor, to render the Collateral
useable or saleable and to remove the Collateral or any part thereof therefrom
to the premises of the Investor or any agent of the Investor for such time as
the Investor may desire in order to effectively collect or liquidate the
Collateral and use in connection with such removal any and all services,
supplies and other facilities of Debtor; (ii) to take possession of Debtor's
original books and records, to obtain access to Debtor's data processing
equipment, computer hardware and Software relating to the Collateral and to use
all of the foregoing and the information contained therein in any manner the
Investor deems appropriate; and (iii) to notify postal authorities to change the
address for delivery of Debtor's mail to an address designated by the Investor
and to receive, open and dispose of all mail addressed to Debtor.
(d) Debtor acknowledges and agrees that a material breach of any
of the covenants contained in Sections 6, 7 and 9 hereof will cause irreparable
---------- - -
injury to the Investor and that the Investor has no adequate remedy at law in
respect of such breaches and therefore agrees, without limiting the right of the
Investor to seek and obtain specific performance of other obligations of Debtor
contained in this Agreement, that the covenants of Debtor contained in the
Sections referred to in this Section shall be specifically enforceable against
Debtor.
SECTION 11. Assignment of Intellectual Property
-----------------------------------
Debtor hereby assigns, transfers and conveys to the Investor all
Intellectual Property owned or used by Debtor to the extent necessary to enable
the Investor, effective upon the occurrence and during the continuance of an
Event of Default, to realize on the Collateral and any successor or assign to
enjoy the benefits of the Collateral. This right and assignment shall inure to
the benefit of the Investor and its successors, assigns and transferees, whether
by voluntary conveyance, operation of law, assignment, transfer, foreclosure,
deed in lieu of foreclosure or otherwise. Such right and assignment is granted
free of charge, without requirement that any monetary payment whatsoever
including, without limitation, any royalty or license fee, be made to Debtor or
any other Person by the Investor.
SECTION 12. Assigned Agreements
-------------------
16
Upon the occurrence and during the continuance of an Event of Default,
Debtor hereby irrevocably authorizes and empowers the Investor, without limiting
any other authorizations or empowerments contained in any of the Transaction
Documents, to assert, either directly or on behalf of Debtor, any claims Debtor
may have, from time to time, against any other party to any of the agreements to
which Debtor is a party or to otherwise exercise any right or remedy of Debtor
under any such agreements (including, without limitation, the right to enforce
directly against any party to any such agreement all of Debtor's rights
thereunder, to make all demands and give all notices and to make all requests
required or permitted to be made by Debtor thereunder).
SECTION 13. Limitation on Duty of the Investor with Respect to Collateral
-------------------------------------------------------------
Beyond the safe custody thereof, the Investor shall have no duties
concerning the custody and preservation of any Collateral in its possession (or
in the possession of any agent or bailee) or with respect to any income thereon
or the preservation of rights against prior parties or any other rights
pertaining thereto. The Investor shall be deemed to have exercised reasonable
care in the custody and preservation of the Collateral in its possession if the
Collateral is accorded treatment substantially equal to that which it accords
its own property. The Investor shall not be liable or responsible for any loss
or damage to any of the Collateral, or for any diminution in the value thereof,
by reason of the act or omission of any warehouseman, carrier, forwarding
agency, consignee or other agent or bailee selected by the Investor in good
faith.
SECTION 14. Indemnification
---------------
Debtor shall and hereby agrees to indemnify, defend and hold harmless
the Investor and its respective directors, officers, agents, employees, counsel,
advisors and Affiliates from and against (a) any and all losses, claims,
damages, liabilities, deficiencies, judgments or expenses incurred by any of
them (except to the extent that such losses, claims, damages, liabilities,
deficiencies, judgment or expenses have been judicially determined in a final
non-appealable judgment to have resulted from their own willful misconduct or
fraudulent actions) arising out of or by reason of any litigation,
investigations, claims or proceedings which arise out of or are in any way
related to this Agreement or the transactions contemplated hereby, including
amounts paid in settlement, court costs and the reasonable fees and
disbursements of counsel incurred in connection with any such litigation,
investigation, claim or proceeding or any advice rendered in connection with any
of the foregoing; and (b) any such losses, claims, damages, liabilities,
deficiencies, judgments or expenses that arise directly or indirectly from or in
connection with any federal, state or local environmental laws, acts, rules,
regulations, orders, directions, ordinances, criteria or guidelines. If and to
the extent that any of the Secured Obligations are unenforceable for any reason,
Debtor hereby agrees to make the maximum contribution to the payment and
satisfaction of such Secured Obligations which is permissible under applicable
law. Debtor's Secured Obligations under this Section 14 shall survive any
termination of this Agreement and the other Transaction Documents.
SECTION 15. Expenses
--------
17
Upon the occurrence and during the continuance of an Event of Default,
Debtor shall pay all reasonable costs, fees and expenses of the Investor (a)
protecting, storing, warehousing, appraising, insuring, handling, maintaining
and shipping the Collateral, (b) creating, perfecting, maintaining and enforcing
the Security Interests, and (c) collecting, enforcing, retaking, holding,
preparing for disposition, processing and disposing of the Collateral. Debtor
shall also pay any and all excise, property, sales and use taxes imposed by any
federal, state, local or foreign authority on any of the Collateral, or with
respect to periodic appraisals and inspections of the Collateral, or with
respect to the sale or other disposition thereof. If Debtor fails to promptly
pay any portion of the above costs, fees and expenses when due or to perform any
other obligation of Debtor under this Agreement, the Investor may, at its
option, but shall not be required to, pay or perform the same and charge
Debtor's account for all fees, costs and expenses incurred therefor, and Debtor
agrees to reimburse the Investor therefor on demand. All sums so paid or
incurred by the Investor for any of the foregoing, any and all other sums for
which Debtor may become liable hereunder and all fees, costs and expenses
(including attorneys' fees, legal expenses and court costs) incurred by the
Investor in enforcing or protecting the Security Interests or any of their
rights or remedies under this Agreement shall be payable on demand, shall
constitute Secured Obligations and shall be secured by the Collateral.
SECTION 16. Termination of Security Interests; Release of Collateral;
---------------------------------------------------------
Subordination of Lien
---------------------
Upon payment in full of all Secured Obligations, the Security Interests
shall terminate and all rights to the Collateral shall revert to Debtor. Upon
such termination of the Security Interests or release of any Collateral, the
Investor will, at the expense of Debtor, execute and deliver to Debtor such
documents as Debtor shall reasonably request to evidence the termination of the
Security Interests or the release of such Collateral, as the case may be.
Investor agrees that it will, upon Debtor's providing reasonable
written notice to Investor and at Debtor's expense release its lien on and
security interest in assets of Debtor which are being sold for cash at
fair-market value so long as Investor is assured to its satisfaction that it
will have a perfected first priority lien on and security interest in the
proceeds of such asset sale.
All Security Interests are subordinate in priority of lien, regardless
of the date of attachment or perfection, to: (i) any Senior Security Interest,
provided that the amount of Collateral subject to such Senior Security Interest
granted to secure a Strategic Transaction shall not exceed the amount of
financing provided by such Strategic Transaction, and (ii) any and all rights of
each licensee of any Intellectual Property in and to the Intellectual Property
being licensed, to the extent required by the license to which such Intellectual
Property is subject.
SECTION 17. Notices
-------
All notices, approvals, requests, demands and other communications
hereunder must be in writing and will be deemed to have been delivered (i) upon
receipt, when delivered personally; (ii) upon receipt, when sent by facsimile
(provided confirmation of transmission is mechanically or electronically
generated and kept on file by the sending party); or (iii) upon delivery by a
18
nationally recognized delivery service, in each case properly addressed to the
party to receive the same. The addresses and facsimile numbers for such
communications shall be:
If to the Debtor:
▇▇▇▇▇▇ Electronics Corporation
▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attn: President, Chief Executive Officer
Executive Vice President, Chief Financial Officer
If to the Investor:
HFTP Investment L.L.C.
c/o Promethean Asset Management, L.L.C.
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attn: ▇▇▇▇ ▇▇▇▇▇▇▇
SECTION 18. Successors and Assigns
----------------------
This Agreement is for the benefit of the Investor and its successors
and assigns, and in the event of an assignment of all or any of the Secured
Obligations, the rights hereunder, to the extent applicable to the Secured
Obligations so assigned, may be transferred with such Secured Obligations. This
Agreement shall be binding on Debtor and its successors and assigns; provided
that Debtor may not delegate its obligations under this Agreement without the
Investor's prior written consent.
SECTION 19. Changes in Writing
------------------
No amendment, modification, termination or waiver of any provision of
this Agreement shall be effective unless the same shall be in writing signed by
the Investor.
SECTION 20. Applicable Law
--------------
THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS AGREEMENT SHALL,
PURSUANT TO NEW YORK GENERAL OBLIGATIONS LAW SECTION 5-1401, BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS AND DECISIONS OF THE STATE OF NEW
YORK.
SECTION 21. Failure or Indulgence Not Waiver; Remedies Cumulative
-----------------------------------------------------
19
No failure or delay on the part of the Investor in the exercise of any
power, right or privilege hereunder shall impair such power, right or privilege
or be construed to be a waiver of any default or acquiescence therein, nor shall
any single or partial exercise of any such power, right or privilege preclude
other or further exercise thereof or any other right, power or privilege. All
rights and remedies existing under this Agreement are cumulative to, and not
exclusive of, any rights or remedies otherwise available.
SECTION 22. 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 for any other purpose or be given any substantive effect.
SECTION 23. Counterparts
------------
This Agreement may be executed in any number of counterparts, all of
which taken together shall constitute one and the same instrument and any of the
parties hereto may execute this Agreement by signing any such counterpart. A
counterpart executed via facsimile shall for all purposes be deemed to
constitute an original counterpart.
SECTION 24. Survival
--------
All representations and warranties of Debtor contained in this
Agreement shall survive the execution and delivery of this Agreement.
SECTION 25. Entire Agreement
----------------
The Transaction Documents constitute the entire understanding of the
parties thereto with respect to the subject matter thereof, and neither party
has relied on any other statements or agreements, whether written or oral, with
respect thereto.
SECTION 26. Construction
------------
The parties hereto acknowledge and agree that neither this Agreement
nor the other Transaction Documents shall be construed more favorably in favor
of one then the other based upon which party drafted the same, it being
acknowledged that all parties hereto were represented by attorneys of their
choice and contributed substantially to the negotiation of this Agreement and
the other Transaction Documents.
[remainder of page intentionally left blank;
signature page follows]
20
Witness the due execution hereof by the respective duly authorized
officers of the undersigned as of the date first written above.
▇▇▇▇▇▇ ELECTRONICS CORPORATION
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇
-------------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇
-----------------------------------
Title: Chief Financial Officer and
Corporate Secretary
----------------------------------
HFTP INVESTMENT L.L.C.
By: /s/ ▇▇▇▇▇ ▇. ▇'▇▇▇▇▇, ▇▇.
-------------------------------------
Name: ▇▇▇▇▇ ▇. ▇'▇▇▇▇▇, ▇▇.
-----------------------------------
Title: Managing Member
----------------------------------
SCHEDULE I
Chief Executive Office; Locations of Books and
Records, Equipment, Inventory and Fixtures;
State of Organization; Organizational Identification Number
1. Chief Executive Office _______________________________
and Location of Books and _______________________________
Records:
2. Locations of Equipment, _______________________________
Inventory and Fixtures: _______________________________
3. State of Organization: _______________________________
4. Organizational Identification _______________________________
Number:
SCHEDULE II
Liens; Financing Statements; Permitted Encumbrances; Goods
in Possession of Consignees, Bailees, Warehousemen,
Agents and Processors
SCHEDULE III
Tradenames and Fictitious Names
(Present and Past Five Years)
SCHEDULE IV
Commercial Tort Claims
SCHEDULE V
Copyright Registrations
Copyright Title U.S. Registration Number
--------------- ------------------------
Copyright Applications
Copyright Application Title Application Number
--------------------------- ------------------
SCHEDULE VI
Patent Registrations
Title Inventor Name Patent Description U.S. Patent Number Issue Date
----- ------------- ------------------ ------------------ ----------
Patent Applications
Patent Application U.S. Patent
------------------ -----------
Title Inventor Name Description Application Number Date Applied
----- ------------- ----------- ------------------ ------------
SCHEDULE VII
Trademark Registrations
Trademark Description U.S. Registration Number Date Registered
--------------------- ------------------------ ---------------
Trademark Applications
Trademark Application U.S. Application Number Date Applied
--------------------- ----------------------- ------------
Description
-----------
EXHIBIT A
---------
Acknowledgment Agreement
See attached.
EXHIBIT B
---------
Waiver Agreement
See attached.