EXECUTION COPY EXHIBIT 10.02
SECURITY AGREEMENT
DATED AS OF FEBRUARY 5, 1998
between
IFR SYSTEMS, INC.
AND
THE FIRST NATIONAL BANK OF CHICAGO,
AS AGENT
TABLE OF CONTENTS
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SECTION 1. DEFINED TERMS 1
SECTION 2. GRANT OF SECURITY 2
SECTION 3. AUTHORIZATION 4
SECTION 4. GRANTOR REMAINS LIABLE 4
SECTION 5. REPRESENTATIONS AND WARRANTIES 5
SECTION 6. PERFECTION AND MAINTENANCE OF SECURITY INTERESTS AND LIENS 6
SECTION 7. FINANCING STATEMENTS 6
SECTION 8. FILING COSTS 7
SECTION 9. SCHEDULE OF COLLATERAL 7
SECTION 10. EQUIPMENT AND INVENTORY 7
SECTION 11. ACCOUNTS 7
SECTION 12. LEASED REAL PROPERTY 8
SECTION 13. GENERAL COVENANTS 9
SECTION 14. AGENT APPOINTED ATTORNEY-IN-FACT 9
SECTION 15. AGENT MAY PERFORM 10
SECTION 16. AGENT'S DUTIES 10
SECTION 17. REMEDIES 10
SECTION 18. EXERCISE OF REMEDIES 11
SECTION 19. LICENSE 11
SECTION 20. INJUNCTIVE RELIEF 11
SECTION 21. INTERPRETATION AND INCONSISTENCIES; MERGER 11
SECTION 22. EXPENSES 12
SECTION 23. AMENDMENTS, ETC. 12
SECTION 24. NOTICES 12
SECTION 25. CONTINUING SECURITY INTEREST; TERMINATION 12
SECTION 26. SEVERABILITY; NO STRICT CONSTRUCTION 12
SECTION 27. GOVERNING LAW 13
SECTION 28. CONSENT TO JURISDICTION; SERVICE OF PROCESS; JURY TRIAL 13
(A) EXCLUSIVE JURISDICTION 13
(B) OTHER JURISDICTIONS 13
(C) SERVICE OF PROCESS 14
(D) WAIVER OF JURY TRIAL 14
(E) WAIVER OF BOND 14
(F) ADVICE OF COUNSEL 14
EXHIBITS AND SCHEDULES
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EXHIBITS
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EXHIBIT A -- Form of Landlord Agreement (with Mortgagee Provisions)
EXHIBIT B -- Form of Bailee Letter
EXHIBIT C -- Form of Restricted Account Agreement
SCHEDULES
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Schedule 1 -- Pledged Debt
Schedule 2 -- Locations of Collateral
Schedule 2-A -- Third Party Locations
Schedule 2-B -- Financing Statement Filing Locations
Schedule 3 -- Trade Names
Schedule 4 -- Deposit Accounts
SECURITY AGREEMENT
This SECURITY AGREEMENT ("AGREEMENT"), dated as of February 5, 1998 is
made by IFR SYSTEMS, INC., a Delaware corporation (together with its successors
and assigns, including a debtor-in-possession on behalf of IFR SYSTEMS, INC.,
"GRANTOR"), in favor of THE FIRST NATIONAL BANK OF CHICAGO (the "AGENT"), for
its benefit and for the benefit of the "Holders of Secured Obligations" (as
defined in the Credit Agreement referred to below) who are, or may hereafter
become, parties to the Credit Agreement referred to below.
PRELIMINARY STATEMENT
Grantor has entered into a certain Credit Agreement of even date
herewith among Grantor, the institutions from time to time parties thereto as
lenders (the "LENDERS") and the Agent as the contractual representative for the
Lenders (as the same may be amended, restated, supplemented or otherwise
modified from time to time, the "CREDIT AGREEMENT"), providing for the making of
loans, advances and other financial accommodations (including, without
limitation issuing letters of credit) (all such loans, advances and other
financial accommodations being hereinafter referred to collectively as the
"LOANS") to or for the benefit of Grantor. It is a condition precedent to the
making of the Loans under the Credit Agreement that Grantor shall have granted
the security interest contemplated by this Agreement.
NOW, THEREFORE, in consideration of the premises set forth herein and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
SECTION 1. DEFINED TERMS. Unless otherwise defined herein, terms
defined in the Credit Agreement are used herein as therein defined, and the
following terms shall have the following meanings (such meanings being equally
applicable to both the singular and the plural forms of the terms defined):
"AGREEMENT" shall mean this Security Agreement, as the same may from
time to time be amended, restated, modified or supplemented, and shall refer to
this Agreement as the same may be in effect at the time such reference becomes
operative.
"COLLATERAL" shall mean all property and rights in property now owned
or hereafter at any time acquired by Grantor in or upon which a Lien is granted
in favor of the Agent by Grantor or a Subsidiary of Grantor under this
Agreement, including, without limitation, the property described in SECTION 2.
"RESTRICTED ACCOUNT" shall mean any deposit account listed on SCHEDULE
4 hereof (i) that is maintained with The First National Bank of Chicago, in its
capacity as Agent or otherwise, or (ii) with respect to which the Grantor has
entered into a Restricted Account Agreement substantially in the form of EXHIBIT
C hereto with the financial institution at which such deposit account is
maintained.
"UCC" shall mean the Uniform Commercial Code as the same may, from
time to time, be in effect in the State of Illinois; PROVIDED, HOWEVER, in the
event that, by reason of mandatory provisions of law, any or all of the
attachment, perfection or priority of the Agent's and the Holders of Secured
Obligations' security interest in any Collateral is governed by the Uniform
Commercial Code as in effect in a jurisdiction other than the State of Illinois,
the term "UCC" shall mean the Uniform Commercial Code as in effect in such other
jurisdiction for purposes of the provisions hereof relating to such attachment,
perfection or priority and for purposes of definitions related to such
provisions.
SECTION 2. GRANT OF SECURITY. To secure the prompt and complete
payment, observance and performance of the Secured Obligations, Grantor hereby
assigns and pledges to Agent, for the benefit of itself and the Holders of
Secured Obligations, and hereby grants to Agent, for the benefit of itself and
the Holders of Secured Obligations, a security interest in all of Grantor's
right, title and interest in and to the following, whether now owned or existing
or hereafter arising or acquired and wheresoever located:
ACCOUNTS: All "accounts" as such term is defined in Section 9-106 of
the UCC, whether now owned or hereafter acquired or arising; Grantor intends
that the term "accounts", as used herein, be construed in its broadest sense,
and such term shall include, without limitation, all present and future
accounts, accounts receivable and other rights of Grantor to payment for goods
sold or leased or for services rendered (except those evidenced by instruments
or chattel paper), whether now existing or hereafter arising and wherever
arising, and whether or not they have been earned by performance (collectively,
"ACCOUNTS");
INVENTORY: All "inventory" as defined in Section 9-109(4) of the UCC,
whether now owned or hereafter acquired or arising; Grantor intends that the
term "inventory", as used herein, be construed in its broadest sense, and such
term shall include, without limitation, all goods now owned or hereafter
acquired by Grantor (wherever located, whether in the possession of Grantor or
of a bailee or other person for sale, storage, transit, processing, use or
otherwise and whether consisting of whole goods, spare parts, components,
supplies, materials, or consigned, returned or repossessed goods) which are held
for sale or lease, which are to be furnished (or have been furnished) under any
contract of service or which are raw materials, work in process or materials
used or consumed in Grantor's business (collectively, "INVENTORY");
EQUIPMENT: All "equipment" as such term is defined in Section
9-109(2) of the UCC, whether now owned or hereafter acquired or arising; Grantor
intends that the term "equipment", as used herein, be construed in its broadest
sense, and such term shall include, without limitation, all machinery, all
manufacturing, distribution, selling, data processing and office equipment, all
furniture, furnishings, appliances, fixtures and trade fixtures, tools, tooling,
molds, dies, vehicles, vessels, trucks, buses, motor vehicles and all other
goods of every type and description (other than Inventory), in each instance
whether now owned or hereafter acquired by Grantor and wherever located
(collectively, "EQUIPMENT");
GENERAL INTANGIBLES: All "general intangibles" as defined in Section
9-106 of the UCC, whether now owned or hereafter acquired or arising; Grantor
intends that the term "general intangibles", as used herein, be construed in its
broadest sense, and such term shall include, without limitation, all rights,
interests, choses in action, causes of actions, claims and all other intangible
property of Grantor of every kind and nature (other than Accounts), in each
instance whether now owned or hereafter acquired by Grantor and however and
whenever arising, including, without limitation, all corporate and other
business records; all loans, royalties, and other obligations receivable;
customer lists, credit files, correspondence, and advertising materials; firm
sale orders, other contracts and contract rights; all interests in partnerships
and joint ventures; all tax refunds and tax refund claims; all right, title and
interest under leases, subleases, licenses and concessions and other agreements
relating to real or personal property; all payments due or made to Grantor in
connection with any requisition, confiscation, condemnation, seizure or
forfeiture of any property by any person or governmental authority; all deposit
accounts (general or special) with any bank or other financial institution,
including, without limitation, any deposits or other sums at any time credited
by or due to Grantor from any of the Holders of Secured Obligations or any of
their respective Affiliates with the same rights therein as if the deposits or
other sums were credited by or due from such Holder of Secured Obligations; all
credits with and other claims against carriers and shippers; all rights to
indemnification; all patents, and patent applications (including all reissues,
divisions, continuations and extensions); all service marks and service ▇▇▇▇
applications; all trade secrets and inventions; all copyrights and copyright
applications (including all computer software and related documentation); all
rights and interests in and to trademarks, trademark registrations and
applications therefor, trade names, corporate names, brand names, slogans, all
goodwill associated with the foregoing; all license agreements and franchise
agreements, all reversionary interests in pension and profit sharing plans and
reversionary, beneficial and residual interest in trusts; all proceeds of
insurance of which Grantor is beneficiary; and all letters of credit,
guaranties, liens, security interests and other security held by or granted to
Grantor; and all other intangible property, whether or not similar to the
foregoing; PROVIDED, that in no event shall the Grantor be deemed to have
granted a security interest hereunder in excess of 65% of the Capital Stock of
any Foreign Incorporated Subsidiary of the Grantor;
LAB PROCESSING AND ENGINEERING INFORMATION: All rights and interests
in and to processes, lab journals, and notebooks, data, trade secrets, know-how,
product formulae and information, manufacturing, engineering and other drawings
and manuals, technology, blueprints, research and development reports, agency
agreements, technical information, technical assistance, engineering data,
design and engineering specifications, and similar materials recording or
evidencing expertise used in or employed by Grantor (including any license for
the foregoing);
CONTRACT RIGHTS: All rights and interests in and to any pending or
executory contracts, requests for quotations, invitations for bid, agreements,
leases and arrangements of which Grantor is a party to or in which Grantor has
an interest; including, without limitation, all right and interest to receive
monies due, or to become due, under that certain Stock Sale and Purchase
Agreement dated as of February 5, 1998 made by and among the Grantor, IFR
Systems Limited, and The General Electric Corporation p.l.c., as "Seller";
CHATTEL PAPER, INSTRUMENTS AND DOCUMENTS: All chattel paper, leases,
all instruments, including, without limitation, the notes and debt instruments
described in SCHEDULE 1 (the "PLEDGED DEBT") and all payments thereunder and
instruments and other property from time to time delivered in respect thereof or
in exchange therefor, and all bills of sale, bills of lading, warehouse receipts
and other documents of title, in each instance whether now owned or hereafter
acquired by Grantor;
INTEREST AND CURRENCY CONTRACTS: Any and all interest rate, commodity
or currency exchange agreements or derivative agreements, including without
limitation, cap, collar, floor, forward or similar agreements or other rate,
currency or price protection arrangements; and
OTHER PROPERTY: All property or interests in property now owned or
hereafter acquired by Grantor which now may be owned or hereafter may come into
the possession, custody or control of Agent or any of the Holders of Secured
Obligations or any agent or Affiliate of any of them in any way and for any
purpose (whether for safekeeping, deposit, custody, pledge, transmission,
collection or otherwise); and all rights and interests of Grantor, now existing
or hereafter arising and however and wherever arising, in respect of any and all
(i) notes, drafts, letters of credit, stocks, bonds, and debt and equity
securities, whether or not certificated, investment property (as defined in
Section 9-115(1)(f) of the UCC) and warrants, options, puts and calls and other
rights to acquire or otherwise relating to the same; PROVIDED, that in no event
shall the Grantor be deemed to have granted a security interest hereunder in
excess of 65% of the Capital Stock of any Foreign Incorporated Subsidiary of the
Grantor; (ii) money; (iii) proceeds of loans, including, without limitation,
loans made under the Credit Agreement; and (iv) insurance proceeds and books and
records relating to any of the property covered by this Agreement; together, in
each instance, with all accessions and additions thereto, substitutions
therefor, and replacements, proceeds and products thereof.
SECTION 3. AUTHORIZATION. Grantor hereby authorizes Agent to retain
and each Holder of Secured Obligations, and each Affiliate of Agent and of each
Holder of Secured Obligations, to pay or deliver to Agent, for the benefit of
the Holders of Secured Obligations, without any necessity on any Holder of
Secured Obligation's part to resort to other security or sources of
reimbursement for the Secured Obligations, at any time following the occurrence
and during the continuance of any Default, and without further notice to Grantor
(such notice being expressly waived), any of the deposits referred to in SECTION
2 (whether general or special, time or demand, provisional or final) or other
sums or property held by such Person, for application against any portion of the
Secured Obligations, irrespective of whether any demand has been made or whether
such portion of the Secured Obligations is mature. Agent will promptly notify
Grantor of Agent's receipt of such funds or other property for application
against the Secured Obligations, but failure to do so will not affect the
validity or enforceability thereof. Agent may give notice of the above grant of
security interest and assignment of the aforesaid deposits and other sums, and
authorization, to, and make any suitable arrangements with, any such Holder of
Secured Obligations for effectuation thereof, and Grantor hereby irrevocably
appoints Agent as its attorney to collect any and all such deposits or other
sums to the extent any such payment is not made to Agent by such Holder of
Secured Obligations or Affiliate thereof; PROVIDED, that the Agent agrees
not to exercise such powers as attorney-in-fact unless a Default has occurred
and is continuing.
SECTION 4. GRANTOR REMAINS LIABLE. Anything herein to the contrary
notwithstanding, (a) Grantor shall remain solely 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 Agent of any of its rights
hereunder shall not release Grantor from any of its duties or obligations under
the contracts and agreements included in the Collateral, and (c) neither Agent
nor the Holders of Secured Obligations shall have any responsibility, obligation
or liability under the contracts and agreements included in the Collateral by
reason of this Agreement, nor shall Agent or the Holders of Secured Obligations
be required or obligated, in any manner, to (i) perform or fulfill any of the
obligations or duties of Grantor thereunder, (ii) make any payment, or make any
inquiry as to the nature or sufficiency of any payment received by Grantor or
the sufficiency of any performance by any party under any such contract or
agreement or (iii) present or file any claim, or take any action to collect or
enforce any claim for payment assigned hereunder.
SECTION 5. REPRESENTATIONS AND WARRANTIES. Grantor represents and
warrants, as of the date of this Agreement and as of each date hereafter (except
for changes permitted or contemplated by this Agreement) until termination of
this Agreement pursuant to SECTION 25:
(a) The correct corporate name of Grantor is set forth in the
first paragraph of this Agreement. The locations listed on SCHEDULE 2
constitute all locations at which Inventory and/or Equipment is located and
Grantor has exclusive possession and control of such Equipment and Inventory,
except for such Inventory and Equipment which is (i) temporarily in transit
between such locations, or (ii) temporarily stored with third parties or held
by third parties for processing, storage, engineering, evaluation, repairs or
sale, the proper corporate names of which third parties, the location of such
Inventory and/or Equipment, and the nature of the relationship between
Grantor and such third parties is set forth in SCHEDULE 2-A. SCHEDULE 2 may
be amended to reflect additional locations acquired in connection with
Permitted Acquisitions. The chief place of business and chief executive
office of Grantor are located at the address of Grantor set forth below the
Grantor's signature on the Credit Agreement. All records concerning any
Accounts and all originals of all chattel paper which evidence any Account
are located at the addresses listed on SCHEDULE 2 and none of the Accounts is
evidenced by a promissory note or other instrument except for such notes and
other instruments delivered to Agent as Pledged Debt listed on SCHEDULE 1.
(b) Grantor is the legal and beneficial owner of the Collateral free
and clear of all Liens except for Liens permitted by SECTION 7.3(C) of the
Credit Agreement. Grantor currently conducts business under the name IFR
SYSTEMS, INC. and, in certain areas and for certain operations, the trade names
listed on SCHEDULE 3. The Grantor uses no trade names or fictitious names,
except as set forth on SCHEDULE 3.
(c) This Agreement creates in favor of Agent a legal, valid and
enforceable security interest in the Collateral. When financing statements have
been filed in the appropriate offices against Grantor in the locations listed on
SCHEDULE 2-B, Agent will have a
fully perfected first priority lien on, and security interest in, the Collateral
in which a security interest may be perfected by such filing, subject only to
Liens permitted by SECTION 7.3(C) of the Credit Agreement.
(d) No authorization, approval or other action by, and no notice to
or filing with, any Governmental Authority that has not already been taken or
made and which is in full force and effect is required (i) for the grant by
Grantor of the security interest in the Collateral granted hereby; (ii) for the
execution, delivery or performance of this Agreement by Grantor; or (iii) for
the exercise by Agent of any of its rights or remedies hereunder.
(e) The Pledged Debt issued by any Affiliate of Grantor, and to the
best of Grantor's knowledge, all other Pledged Debt, has been duly authorized,
issued and delivered, and is the legal, valid, binding and enforceable
obligation of the respective issuer thereof.
(f) SCHEDULE 4 contains a complete list of all of the deposit
accounts of Grantor, and Grantor will amend and update SCHEDULE 4 by delivering
supplemental reports to Agent promptly following the establishment of any
additional deposit accounts, but in any event not less frequently than on a
calendar quarterly basis, and at any time requested by the Agent. Each deposit
account so scheduled is a Restricted Account.
SECTION 6. PERFECTION AND MAINTENANCE OF SECURITY INTERESTS AND
LIENS. Grantor agrees that until all of the Obligations (other than contingent
indemnity Obligations) have been fully satisfied and the Credit Agreement has
been terminated, Agent's security interests in and Liens on and against the
Collateral and all proceeds and products thereof shall continue in full force
and effect. Grantor shall perform any and all steps reasonably requested by
Agent to perfect, maintain and protect Agent's security interests in and Liens
on and against the Collateral granted or purported to be granted hereby or to
enable Agent to exercise its rights and remedies hereunder with respect to any
Collateral, including, without limitation, (i) executing and filing financing or
continuation statements, or amendments thereof, in form and substance reasonably
satisfactory to Agent, (ii) delivering to Agent all certificates, notes and
other instruments (including, without limitation, all letters of credit on which
Grantor is named as a beneficiary) representing or evidencing Collateral, which
certificates, notes and other instruments have been duly endorsed or are
accompanied by duly executed instruments of transfer or assignment, including,
but not limited to, note powers, all in form and substance satisfactory to
Agent, (iii) at the reasonable direction of Required Lenders, delivering to
Agent warehouse receipts covering that portion of the Collateral, if any,
located in warehouses and for which warehouse receipts are issued, (iv) after
the occurrence and during the continuance of a Default, transferring Inventory
and Equipment to warehouses designated by Agent or taking such other steps as
are deemed necessary by Agent to maintain Agent's control of the Inventory and
Equipment, (v) marking conspicuously each document, contract, chattel paper and
all records pertaining to the Collateral with a legend, in form and substance
satisfactory to Agent, indicating that such document, contract, chattel paper,
or Collateral is subject to the security interest granted hereby, (vi) using its
best efforts to obtain waivers of Liens and access agreements in substantially
the form of EXHIBIT A hereto (or such other form as may be agreed to by the
Agent) from landlords and mortgagees with respect to Grantor's leased premises
as of the Closing Date and to obtain waivers of Liens and access agreements in
substantially the form of EXHIBIT B (or such other form as may be agreed to by
Agent) from the appropriate Person
with respect to any of the Inventory temporarily stored with third parties or
held by third parties for storage, processing, engineering, repair or sale as of
the Closing Date, (vii) obtaining waivers of Liens and access agreements in
substantially the form of EXHIBIT A hereto (or such other form as may be agreed
to by Agent) from landlords and mortgagees with respect to all leases executed
by the Grantor after the Closing Date and obtaining waivers of Liens and access
agreements in substantially the form of EXHIBIT B hereto (or such other form as
may be agreed to by Agent) from the appropriate Person with respect to all
arrangements pursuant to which Inventory will be temporarily stored with third
parties or held by third parties for storage, processing, engineering, repair or
sale after the Closing Date (in connection with which the Grantor shall be
permitted to and hereby required to update SCHEDULE 2-A), and (vii) executing
and delivering all further instruments and documents, and taking all further
action, as Agent may reasonably request. Notwithstanding the foregoing, (a)
Grantor shall not permit Equipment or any other Collateral to be located in
Maryland unless such Collateral is exempt from recordation tax pursuant to
Section 12-108(k) of the Maryland Uniform Commercial Code, unless Grantor
provides the Agent with satisfactory written evidence that all such applicable
recordation taxes have been paid, and (b) within ninety (90) days after the
Closing Date, Grantor will remove all Inventory from any public warehouse
facilities with respect to which Grantor shall not have obtained from the
applicable bailee, either before or after the Closing Date, a waiver of Liens
and access agreement in substantially the form of EXHIBIT B hereto.
SECTION 7. FINANCING STATEMENTS. To the extent permitted by
applicable law, Grantor hereby authorizes Agent to file one or more financing or
continuation statements and amendments thereto, disclosing the security interest
granted to Agent under this Agreement without Grantor's signature appearing
thereon, and Agent agrees to notify Grantor when such a filing has been made.
Grantor agrees that a carbon, photographic, photostatic, or other reproduction
of this Agreement or of a financing statement is sufficient as a financing
statement. If any Inventory or Equipment is in the possession or control of any
warehouseman or Grantor's agents or processors, Grantor shall, upon Agent's
request, notify such warehouseman, agent or processor of Agent's security
interest in such Inventory and Equipment and, upon Agent's request, instruct
them to hold all such Inventory or Equipment for Agent's account and subject to
Agent's instructions.
SECTION 8. FILING COSTS. Grantor shall pay the costs of, or
incidental to, all recordings or filings of all financing statements, including,
without limitation, any filing expenses incurred by Agent pursuant to SECTION 7.
SECTION 9. SCHEDULE OF COLLATERAL. Grantor shall furnish to Agent
from time to time statements and schedules further identifying and describing
the Collateral and such other reports in connection with the Collateral as Agent
may reasonably request, all in reasonable detail.
SECTION 10. EQUIPMENT AND INVENTORY. Grantor covenants and agrees
with Agent that from the date of this Agreement and until termination of this
Agreement pursuant to SECTION 25, Grantor shall:
(a) Keep the Equipment and Inventory (other than Equipment or
Inventory sold or disposed of as permitted by the Credit Agreement) at the
places specified in SECTION
5(a), except for Equipment and Inventory (i) temporarily in transit between such
locations or (ii) temporarily stored with the third parties or held by third
parties for storage, processing, engineering, evaluation, repair or sale and set
forth on SCHEDULE 2-A, and deliver written notice to Agent at least thirty (30)
days prior to establishing any other location at which or third party with which
it reasonably expects to maintain Inventory and/or Equipment in which location
or with which third party all action required by this Agreement shall have been
taken with respect to all such Equipment and Inventory;
(b) Maintain or cause to be maintained in good repair, working order
and condition, excepting ordinary wear and tear and damage due to casualty, all
of the Equipment, and make or cause to be made all appropriate repairs, renewals
and replacements thereof, as quickly as practicable after the occurrence of any
loss or damage thereto which are necessary or desirable to such end; and
(c) Comply with the terms of the Credit Agreement with respect to
such Equipment and Inventory, including, without limitation, the maintenance and
insurance provisions set forth in SECTION 7.2 (E), (G) AND (I) of the Credit
Agreement.
SECTION 11. ACCOUNTS. Grantor covenants and agrees with Agent that
from and after the date of this Agreement and until termination of this
Agreement pursuant to SECTION 25, Grantor shall:
(a) Keep its chief place of business and chief executive office and
the office where it keeps its records concerning the Accounts at its address set
forth below the Grantor's signature on the Credit Agreement, and keep the
offices where it keeps all originals of all chattel paper which evidence
Accounts at the locations therefor specified in SECTION 5(a) or, upon thirty
(30) days' prior written notice to Agent, at such other locations within the
United States in a jurisdiction where all actions required by SECTION 6 shall
have been taken with respect to the Accounts. Grantor will hold and preserve
such records (in accordance with Grantor's usual document retention practices)
and chattel paper and will permit representatives of Agent at any time during
normal business hours to inspect and make abstracts from such records and
chattel paper; and
(b) In any suit, proceeding or action brought by Agent under any
Account comprising part of the Collateral, Grantor will save, indemnify and keep
each of the Holders of Secured Obligations harmless from and against all
expenses, loss or damage suffered by reason of any defense, setoff,
counterclaim, recoupment or reduction of liability whatsoever of the obligor
thereunder, arising out of a breach by Grantor of any obligation or arising out
of any other agreement, indebtedness or liability at any time owing to or in
favor of such Holder of Secured Obligations from Grantor, and all such
obligations of Grantor shall be and shall remain enforceable against and only
against Grantor and shall not be enforceable against any of the Holders of
Secured Obligations.
(c) When Grantor or any of its Subsidiaries (or any Affiliates,
shareholders, directors, officers, employees, agents or those Persons acting
for or in concert with Grantor or a Subsidiary of Grantor) shall receive or
come into the possession or control of any monies, checks, notes, drafts or
any other payment relating to, or proceeds of, Grantor's Accounts or other
property constituting Collateral hereunder (individually, a "PAYMENT ITEM",
and, collectively, "PAYMENT ITEMS"), then, except as otherwise permitted in a
writing
signed by the Agent, Grantor shall, or shall cause such Subsidiary or such other
Person to, deposit the same in kind in precisely the form in which such Payment
Item was received (with all Payment Items endorsed if necessary for collection)
into a Restricted Account. The Grantor further agrees that it will not, during
the term of this Agreement, without the written consent of the Agent, transfer
any funds from a Restricted Account to any deposit account that is not a
Restricted Account described on SCHEDULE 4. Prior to the Closing Date the
Grantor has entered into Restricted Account Agreements in the form of Exhibit C
with all banks at which Grantor maintains accounts.
SECTION 12. LEASED REAL PROPERTY. Grantor covenants and agrees with
Agent that from and after the date of this Agreement and until termination of
this Agreement pursuant to SECTION 25, that:
(a) Promptly following, but not later than ninety (90) days after,
the close of each fiscal year Grantor will furnish to Agent a report certified
to be true and correct by Grantor containing a list of each of the Grantor's
leased premises; the name or names of all owners; rentals being paid; and
whether Grantor has obtained waivers of Liens and access agreements from
landlords and mortgagees with respect to such premises in accordance with
SECTION 6; and
(b) Grantor agrees that, from and after the occurrence of a Default,
Agent may, but need not, make any payment or perform any act hereinbefore
required of Grantor with respect to the Grantor's leased premises in any form
and manner deemed expedient. All money paid for any of the purposes herein
authorized and all other moneys advanced by Agent to protect the lien hereof
shall be additional Secured Obligations secured hereby and shall become
immediately due and payable without notice and shall bear interest thereon at
the default interest rate as provided in SECTION 2.11 of the Credit Agreement
until paid to Agent in full.
(c) Grantor agrees that it will not amend any lease in a manner that
adversely affects the interests of the Holders of Secured Obligations without
Agent's prior written consent.
SECTION 13. GENERAL COVENANTS. Grantor covenants and agrees with
Agent that from and after the date of this Agreement and until termination of
this Agreement pursuant to SECTION 25, Grantor shall:
(a) Keep and maintain at Grantor's own cost and expense satisfactory
and complete records of Grantor's Collateral in a manner consistent with
Grantor's current business practice, including, without limitation, a record of
all payments received and all credits granted with respect to such Collateral.
Grantor shall, for Agent's further security, deliver and turn over to Agent or
Agent's designated representatives at any time following the occurrence and
during the continuation of a Default, any such books and records (including,
without limitation, any and all computer tapes, programs and source and object
codes relating to such Collateral in which Grantor has an interest or any part
or parts thereof); and
(b) Grantor will not create, permit or suffer to exist, and will
defend the Collateral against, and take such other action as is necessary to
remove, any Lien on such Collateral other than Liens permitted under SECTION
7.3(C) of the Credit Agreement, and will defend the right, title and interest of
Agent in and to Grantor's rights to such Collateral, including, without
limitation, the proceeds and products thereof, against the claims and demands of
all Persons whatsoever.
SECTION 14. AGENT APPOINTED ATTORNEY-IN-FACT. Grantor hereby
irrevocably appoints and constitutes Agent as Grantor's attorney-in-fact, with
full authority in the place and stead of Grantor and in the name of Grantor or
otherwise, from time to time in Agent's discretion, to take any action and to
execute any instrument which Agent may deem necessary or advisable to accomplish
the purposes of this Agreement, including, without limitation, (a) following the
occurrence and during the continuance of a Default, to:
(i) obtain and adjust insurance required to be paid to the Agent
or any Holders of Secured Obligations pursuant to the Credit
Agreement;
(ii) ask, demand, collect, ▇▇▇ for, recover, compromise, receive
and give acquittance and receipts for moneys due and to become due
under or in respect of any of the Collateral;
(iii) receive, endorse, and collect any drafts or other
instruments, documents and chattel paper, in connection with CLAUSE
(i) or (ii) above; and
(iv) file any claims or take any action or institute any
proceedings which Agent may deem necessary or desirable for the
collection of any of the Collateral, or otherwise to enforce the
rights of Agent with respect to any of the Collateral;
and (b) at any time, to:
(i) obtain access to records maintained for Grantor by computer
services companies and other service companies or bureaus;
(ii) send requests under Grantor's, the Agent's or a fictitious
name to Grantor's customers or account debtors for verification of
Accounts provided that the Agent gives the Grantor notice prior to
initiating any such verifications; and
(iii) do all other things reasonably necessary to carry out this
Agreement.
SECTION 15. AGENT MAY PERFORM. If Grantor fails to perform any
agreement contained herein or in the Credit Agreement, Agent may, upon three
days' prior notice to the Grantor, perform, or cause performance of, such
agreement, and the expenses of Agent incurred in connection therewith shall be
payable by Grantor under SECTION 22.
SECTION 16. AGENT'S DUTIES. The powers conferred on Agent hereunder
are solely to protect its interest in the Collateral and shall not impose any
duty upon it to
exercise any such powers. Except for the safe custody of any Collateral in its
possession and the accounting for moneys actually received by it hereunder,
Agent shall not have any duty as to any Collateral. Agent 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 Agent accords its own property, it being understood that Agent shall
be under no obligation to take any necessary steps to preserve rights against
prior parties or any other rights pertaining to any Collateral, but may do so at
its option, and all reasonable expenses incurred in connection therewith shall
be for the sole account of Grantor and shall be added to the Secured
Obligations.
SECTION 17. REMEDIES. (a) If any Default shall have occurred and be
continuing:
(i) Agent shall have, in addition to other rights and remedies provided
for herein or otherwise available to it, all the rights and remedies of a
secured party upon default under the UCC (whether or not the UCC applies to the
affected Collateral) and further, Agent may, without notice, demand or legal
process of any kind (except as may be required by law), all of which Grantor
waives, at any time or times, (x) enter Grantor's owned or leased premises and
take physical possession of the Collateral and maintain such possession on
Grantor's owned or leased premises, at no cost to Agent or any of the Holders of
Secured Obligations, or remove the Collateral, or any part thereof, to such
other place(s) as Agent may desire, (y) require Grantor to, and Grantor hereby
agrees that it will at its expense and upon request of Agent forthwith, assemble
all or any part of the Collateral as directed by Agent and make it available to
Agent at a place to be designated by Agent which is reasonably convenient to
Agent and (z) without notice except as specified below, sell, lease, assign,
grant an option or options to purchase or otherwise dispose of the Collateral or
any part thereof at public or private sale, at any exchange, broker's board or
at any of the offices of Agent or elsewhere, for cash, on credit or for future
delivery, and upon such other terms as Agent may deem commercially reasonable.
Grantor agrees that, to the extent notice of sale shall be required by law, at
least ten (10) days' notice to Grantor of the time and place of any public sale
or the time after which any private sale is to be made shall constitute
reasonable notification. Agent shall not be obligated to make any sale of
Collateral regardless of notice of sale having been given. Agent 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;
(ii) Agent shall apply all cash proceeds received by Agent in respect
of any sale of, collection from, or other realization upon all or any part of
the Collateral (after payment of any amounts payable to Agent pursuant to
SECTION 22), for the benefit of the Holders of Secured Obligations, against all
or any part of the Secured Obligations in such order as may be required by the
Credit Agreement or, to the extent not specified therein, as is determined by
the Required Lenders. Any surplus of such cash or cash proceeds held by Agent
and remaining after payment in full of all the Secured Obligations shall be paid
over to Grantor or to whomsoever may be lawfully entitled to receive such
surplus;
(b) Grantor waives all claims, damages and demands against Agent
arising out of the repossession, retention or sale of any of the Collateral or
any part or parts thereof, except any such claims, damages and awards arising
out of the Gross Negligence or willful
misconduct of Agent or any of the Holders of Secured Obligations, as the case
may be, as determined in a final non-appealed judgment of a court of competent
jurisdiction; and
(c) The rights and remedies provided under this Agreement are
cumulative and may be exercised singly or concurrently and are not exclusive of
any rights and remedies provided by law or equity.
SECTION 18. EXERCISE OF REMEDIES. In connection with the exercise
of its remedies pursuant to SECTION 17, Agent may, (i) exchange, enforce, waive
or release any portion of the Collateral and any other security for the Secured
Obligations; (ii) apply such Collateral or security and direct the order or
manner of sale thereof as Agent may, from time to time, determine; and
(iii) settle, compromise, collect or otherwise liquidate any such Collateral or
security in any manner following the occurrence of a Default, without affecting
or impairing Agent's right to take any other further action with respect to any
Collateral or security or any part thereof.
SECTION 19. LICENSE. Agent is hereby granted a license or other
right to use, following the occurrence and during the continuance of a Default,
without charge, (a) Grantor's labels, patents, copyrights, trade secrets, trade
names, trademarks, service marks, customer lists and advertising matter, or any
property of a similar nature, as it pertains to the Collateral, in completing
production of, advertising for sale, and selling any Collateral, provided that
Agent uses quality standards at least substantially equivalent to those of
Grantor for the manufacture, advertising, sale and distribution of Grantor's
products and services and (b) Grantor's rights under all licenses and all
franchise agreements shall inure to Agent's benefit.
SECTION 20. INJUNCTIVE RELIEF. Grantor recognizes that in the event
Grantor fails to perform, observe or discharge any of its obligations or
liabilities under this Agreement, any remedy of law may prove to be inadequate
relief to the Holders of Secured Obligations; therefore, Grantor agrees that the
Holders of Secured Obligations, if Agent so determines and requests, shall be
entitled to temporary and permanent injunctive relief in any such case without
the necessity of proving actual damages.
SECTION 21. INTERPRETATION AND INCONSISTENCIES; MERGER.
(a) The rights and duties created by this Agreement shall, in all
cases, be interpreted consistently with, and shall be in addition to (and not in
lieu of), the rights and duties created by the Credit Agreement and the other
Loan Documents. In the event that any provision of this Agreement shall be
inconsistent with any provision of any other Loan Document, such provision of
the other Loan Document shall govern.
(b) Except as provided in subsection (a) above, this Agreement
represents the final agreement of the Grantor and the Agent with respect to the
matters contained herein and may not be contradicted by evidence of prior or
contemporaneous agreements, or subsequent oral agreements, between the Grantor
and the Agent or any other Holder of Secured Obligations.
SECTION 22. EXPENSES. Grantor will upon demand pay to Agent and/or
the Holders of Secured Obligations the amount of any and all reasonable
expenses, including the reasonable fees and disbursements of their counsel and
of any experts and agents, as provided in SECTION 9.7 of the Credit Agreement.
SECTION 23. AMENDMENTS, ETC. No amendment or waiver of any provision
of this Agreement nor consent to any departure by Grantor herefrom shall in any
event be effective unless the same shall be in writing and signed by Agent and
Grantor, and then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.
SECTION 24. NOTICES. All notices and other communications provided
for hereunder shall be delivered in the manner set forth in SECTION 14.1 of the
Credit Agreement.
SECTION 25. CONTINUING SECURITY INTEREST; TERMINATION. (a) Except
as provided in SECTION 25(b), this Agreement shall create a continuing
security interest in the Collateral and shall (i) remain in full force and
effect until the later of the payment or satisfaction in full of the
Obligations (other than contingent indemnity obligations) and the termination
of the Credit Agreement, (ii) be binding upon Grantor, its successors and
assigns and (iii) except to the extent that the rights of any transferor or
assignor are limited by the terms of the Credit Agreement, inure, together
with the rights and remedies of Agent hereunder, to the benefit of Agent and
any of the Holders of Secured Obligations. Nothing set forth herein or in
any other Loan Document is intended or shall be construed to give any other
Person any right, remedy or claim under, to or in respect of this Agreement
or any other Loan Document or any Collateral. Grantor's successors and
assigns shall include, without limitation, a receiver, trustee or
debtor-in-possession thereof or therefor.
(b) Upon the payment in full in cash of the Obligations (other than
contingent indemnity obligations) and the termination of the Credit Agreement,
this Agreement and the security interest granted hereby shall terminate and all
rights to the Collateral shall revert to Grantor. Upon any such termination of
security interest, Grantor shall be entitled to the return, upon its request and
at its expense, of such of the Collateral held by Agent as shall not have been
sold or otherwise applied pursuant to the terms hereof and Agent will, at
Grantor's expense, execute and deliver to Grantor such other documents as
Grantor shall reasonably request to evidence such termination. In connection
with any sales of assets permitted under the Credit Agreement, the Agent will
release and terminate the liens and security interests granted under this
Agreement with respect to such assets.
SECTION 26. SEVERABILITY; NO STRICT CONSTRUCTION.
(a) It is the parties' intention that this Agreement be interpreted
in such a way that it is valid and effective under applicable law. However, if
one or more of the provisions of this Agreement shall for any reason be found to
be invalid or unenforceable, the remaining provisions of this Agreement shall be
unimpaired.
(b) The parties hereto have participated jointly in the negotiation
and drafting of this Agreement. In the event an ambiguity or question of intent
or interpretation arises, this Agreement shall be construed as if drafted
jointly by the parties hereto and no
presumption or burden of proof shall arise favoring or disfavoring any party by
virtue of the authorship of any provisions of this Agreement.
SECTION 27. GOVERNING LAW. THE AGENT ACCEPTS THIS AGREEMENT, ON
BEHALF OF ITSELF AND THE LENDERS, AT CHICAGO, ILLINOIS BY ACKNOWLEDGING AND
AGREEING TO IT THERE. THIS AGREEMENT SHALL BE GOVERNED BY AND INTERPRETED AND
ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF ILLINOIS. WITHOUT
LIMITING THE FOREGOING, ANY DISPUTE BETWEEN THE GRANTOR AND THE AGENT, ANY
LENDER, OR ANY OTHER HOLDER OF SECURED OBLIGATIONS ARISING OUT OF, CONNECTED
WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN
CONNECTION WITH, THIS AGREEMENT, AND WHETHER ARISING IN CONTRACT, TORT, EQUITY,
OR OTHERWISE, SHALL BE RESOLVED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE
STATE OF ILLINOIS.
SECTION 28. CONSENT TO JURISDICTION; SERVICE OF PROCESS; JURY TRIAL.
(A) EXCLUSIVE JURISDICTION. EXCEPT AS PROVIDED IN SUBSECTION (B),
EACH OF THE PARTIES HERETO AGREES THAT ALL DISPUTES BETWEEN THEM ARISING OUT OF,
CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED
BETWEEN THEM IN CONNECTION WITH THIS AGREEMENT, WHETHER ARISING IN CONTRACT,
TORT, EQUITY, OR OTHERWISE, SHALL BE RESOLVED EXCLUSIVELY BY STATE OR FEDERAL
COURTS LOCATED IN CHICAGO, ILLINOIS, BUT THE PARTIES HERETO ACKNOWLEDGE THAT ANY
APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF
CHICAGO, ILLINOIS. EACH OF THE PARTIES HERETO WAIVES IN ALL DISPUTES BROUGHT
PURSUANT TO THIS SUBSECTION ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF
THE COURT CONSIDERING THE DISPUTE.
(B) OTHER JURISDICTIONS. GRANTOR AGREES THAT THE AGENT, ANY LENDER
OR ANY HOLDER OF SECURED OBLIGATIONS SHALL HAVE THE RIGHT TO PROCEED AGAINST
GRANTOR OR ITS PROPERTY IN A COURT IN ANY LOCATION TO ENABLE SUCH PERSON TO (1)
OBTAIN PERSONAL JURISDICTION OVER THE GRANTOR OR (2) REALIZE ON THE COLLATERAL
OR ANY OTHER SECURITY FOR THE OBLIGATIONS OR TO ENFORCE A JUDGMENT OR OTHER
COURT ORDER ENTERED IN FAVOR OF SUCH PERSON. GRANTOR AGREES THAT IT WILL NOT
ASSERT ANY PERMISSIVE COUNTERCLAIMS IN ANY PROCEEDING BROUGHT BY SUCH PERSON TO
REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS OR TO
ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF SUCH PERSON. GRANTOR WAIVES
ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT IN WHICH SUCH PERSON
HAS COMMENCED A PROCEEDING DESCRIBED IN THIS SUBSECTION.
(C) WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO IRREVOCABLY
WAIVES ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER
SOUNDING IN CONTRACT, TORT, OR OTHERWISE, ARISING OUT OF, CONNECTED WITH,
RELATED TO OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN
CONNECTION WITH THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT
EXECUTED OR DELIVERED IN CONNECTION HEREWITH. EACH OF THE PARTIES HERETO AGREES
AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE
DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT ANY PARTY HERETO MAY FILE AN
ORIGINAL COUNTERPART OR A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN
EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO
TRIAL BY JURY.
(D) WAIVER OF BOND. GRANTOR WAIVES THE POSTING OF ANY BOND OTHERWISE
REQUIRED OF ANY PARTY HERETO IN CONNECTION WITH ANY JUDICIAL PROCESS OR
PROCEEDING TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE SECURED
OBLIGATIONS OR TO ENFORCE ANY JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF
SUCH PARTY, OR TO ENFORCE BY SPECIFIC PERFORMANCE, TEMPORARY RESTRAINING ORDER,
PRELIMINARY OR PERMANENT INJUNCTION, THIS AGREEMENT.
(E) ADVICE OF COUNSEL. EACH OF THE PARTIES REPRESENTS TO EACH OTHER
PARTY HERETO THAT IT HAS DISCUSSED THIS AGREEMENT AND, SPECIFICALLY, THE
PROVISIONS OF THIS SECTION 28, WITH ITS COUNSEL.
IN WITNESS WHEREOF, Grantor has caused this Agreement to be duly
executed and delivered by its officer thereunto duly authorized as of the date
first above written.
IFR SYSTEMS, INC.
By:
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Name:
Title:
THE FIRST NATIONAL BANK OF CHICAGO,
as AGENT
By:
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Name:
Title:
Signature Page to Borrower's Security Agreement