Exhibit 10.3
EXECUTION COPY
ISSUER SECURITY AND PLEDGE AGREEMENT
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THIS ISSUER SECURITY AND PLEDGE AGREEMENT ("AGREEMENT") dated as of
September 30, 1997, is entered into by and between WESTERN MICRO TECHNOLOGY,
INC. ("GRANTOR"), and CANPARTNERS INVESTMENTS IV, LLC, as agent (in such
capacity, the "AGENT") for the Purchasers under (and as defined in) the Note
Purchase Agreement (as hereinafter defined). Capitalized terms used herein and
not otherwise defined herein have the meanings ascribed to such terms in the
Note Purchase Agreement.
W I T N E S S E T H
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WHEREAS, the Grantor, the Guarantors from time to time party thereto,
the Purchasers referred to therein, and the Agent have entered into a Note
Purchase Agreement of even date herewith (as amended, restated, supplemented or
otherwise modified from time to time, the "NOTE PURCHASE AGREEMENT"), pursuant
to which, the Purchasers have agreed to purchase $15,700,000 in aggregate
principal amount of the Grantor's 13.5% Second Priority Senior Secured Notes due
2000 (the "NOTES");
WHEREAS, each of the Grantor's Wholly-Owned Subsidiaries has entered
into the Note Purchase Agreement, pursuant to which, among other things, each
such Wholly-Owned Subsidiary unconditionally guaranteed the prompt and complete
payment and performance of the Grantor's Obligations under the Notes and the
Note Documents, as more fully set forth in the Note Purchase Agreement;
WHEREAS, each Wholly-Owned Subsidiary has entered into that certain
Contribution Agreement of even date herewith (the "CONTRIBUTION AGREEMENT") and
that certain Guarantor Security and Pledge Agreement of even date herewith (the
"GUARANTOR SECURITY AND PLEDGE AGREEMENT") in connection with the transactions
contemplated by the Note Purchase Agreement;
WHEREAS, it is a condition precedent to the purchase of the Notes by
the Purchasers under the Note Purchase Agreement that the Grantor shall have
executed and delivered this Agreement.
NOW, THEREFORE, in consideration of the premises set forth herein and
of the purchase of the Notes by the Purchasers or any other Holder, or any of
them, the Grantor hereby agrees with the Agent, for its benefit and the ratable
benefit of the Holders, as follows:
SECTION 1. Grant of Security. The Grantor hereby pledges to the Agent,
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for its benefit and the ratable benefit of the Holders, and hereby grants to the
Agent, for its benefit and the ratable benefit of the Holders, a security
interest in, all of the Grantor's right, title and interest in and to the
following, in each case whether now owned or existing or hereafter
acquired or arising and however and wherever arising or located (collectively,
the "COLLATERAL"):
(a) EQUIPMENT: All of the Grantor's equipment of every description,
including, without limitation, all machinery, manufacturing, distribution,
selling, data processing and office equipment, computers (including mainframe
processors and remote terminals), assembly systems, tools, tooling, molds, jigs,
dies, fixtures, appliances, furniture, furnishings, fork lifts, vehicles,
trucks, trailers, semi-trailers, rolling stock, vessels, aircraft, aircraft
engines, trade fixtures and related products constituting equipment, together
with any and all accessions, parts and equipment attached thereto or used in
connection therewith, and any substitutions therefor and replacements thereof
(all of the foregoing being the "EQUIPMENT");
(b) INVENTORY: All of the Grantor's inventory in all of its forms,
including, without limitation, (i) all goods, merchandise and other personal
property, finished or unfinished, furnished or to be furnished under any
contract of service, rental contract, lease or purchase order or intended for
sale or lease, including, without limitation, rental equipment, tools, toolings,
vehicles, trucks, trailers and semi-trailers, together with any and all
accessions, parts and inventory attached thereto or used in connection
therewith, and related products which constitute inventory, and all consigned
goods, (ii) all raw materials, mobile goods, work in process, parts, components,
assemblies, finished goods, and materials and supplies of any kind, nature or
description used or consumed in the Grantor's businesses or in connection with
the manufacture, production, packing, shipping, advertising, finishing, leasing
or sale of the foregoing, (iii) all goods in which the Grantor has an interest
in mass or a joint or other interest or right of any kind (including, without
limitation, goods in which the Grantor has an interest or right as consignee)
and (iv) all goods which are returned to or repossessed by the Grantor; in each
case wherever located and whether in the possession of the Grantor, a bailee, a
consignee, a lessee or any other Person for sale, lease, storage, transit,
processing, use or otherwise, and any and all documents for or relating to any
of the foregoing (all of the foregoing being the "INVENTORY");
(c) ACCOUNTS: All of the Grantor's accounts, contract rights, chattel
paper, instruments, documents, deposit and other bank accounts, book debts and
other rights to payment of any kind, whether or not arising out of or in
connection with the sale or lease of goods or the rendering of services, and
whether or not earned by performance, including, without limitation, (i) any of
the foregoing which are not evidenced by instruments or investment property,
(ii) reserves and credit balances for any account receivable or account debtor,
(iii) all intercompany receivables and all other intercompany obligations, and
any security documents executed in connection therewith, (iv) all proceeds of
any letters of credit or insurance policies on which the Grantor is named as
beneficiary, (v) all collateral supporting any account receivable or account
debtor, (vi) all claims against third parties for advances or other financial
accommodations or any other obligations whatsoever owing to the Grantor, and
(vii) all rights in and to all security agreements, leases, rental contracts,
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acquisition agreements, contracts of service, contracts of sale, distribution
agreements, purchase orders, guaranties, employment agreements, instruments,
covenants not to compete, securities, documents of title and other contracts
securing, evidencing, supporting or otherwise relating to any of the foregoing,
together with all rights in any goods, merchandise or Inventory which any of the
foregoing may represent, and all rights in returned or repossessed goods,
merchandise or Inventory which any of the same may represent, including, without
limitation, any rights to rescission, replevin, reclamation, and stoppage in
transit (all of the foregoing being the "ACCOUNTS", and any and all such
security agreements, employment agreements, acquisition agreements, leases,
rental contracts, contracts of service, contracts of sale, distribution
agreements, purchase order, guaranties, instruments and documents of title and
other contracts being the "RELATED CONTRACTS");
(d) GENERAL INTANGIBLES: All of the Grantor's general intangibles,
rights, interests, choses in action, causes of action, claims and other
intangible property, of every kind and nature (other than Accounts), including,
without limitation, (i) all corporate and other business books and records, (ii)
all loans, royalties, and other obligations receivable (other than Accounts),
(iii) all intellectual property, and all embodiments thereof, and rights
thereto, including, without limitation, all trademarks, registered trademarks,
trademark applications, service marks, registered service marks, service ▇▇▇▇
applications, patents, patent applications, trade names, rights of use of any
name, labels, fictitious names, inventions, designs, trade secrets, technical
knowledge and processes, technical specifications, computer programs, software
(including proprietary software), printouts and other computer materials,
goodwill, registrations, copyrights, copyright applications, permits, licenses
(including formal or informal licensing arrangements which are permitted to be
assigned or pledged), franchises, blueprints, customer lists, credit files,
correspondence, and advertising materials, and all of the Grantor's rights to
use the patents, trademarks, service marks, or other property of the aforesaid
nature of other Persons now or hereafter licensed to the Grantor, (iv) all
customer and supplier contracts, firm sale orders, rights under license and
franchise agreements, rights under tax sharing agreements, and other contracts
and contract rights, (v) all interests in partnerships, limited liability
companies, joint ventures and other unincorporated Persons, (vi) all tax refunds
and tax refund claims, (vii) all right, title and interest under leases,
subleases, licenses and concessions and other agreements relating to real or
personal property, (viii) all deposit accounts (general or special) with any
bank or other financial institution and all certificates of deposit, (ix) all
credits with and other claims against third parties (including carriers and
shippers), (x) all rights to indemnification, (xi) all reversionary interests in
pension and profit sharing plans and reversionary, beneficial and residual
interests in trusts, (xii) all proceeds of, or claims for unearned premiums with
respect to, insurance of which the Grantor is beneficiary, (xiii) all letters of
credit, guaranties, Liens, security interests and other security held by or
granted to the Grantor, (xiv) certificates of title and (xv) all other general
intangibles (all of the foregoing being the "GENERAL INTANGIBLES");
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(e) CHATTEL PAPER, INSTRUMENTS, DOCUMENTS AND INVESTMENT PROPERTY: All
of the Grantor's chattel paper, instruments, documents and investment property,
including, without limitation:
(i) all service agreements, employment agreements, acquisition
agreements, contracts of sale, distribution agreements, covenants not to
compete, contracts of service and other contracts with respect to computer
systems and related products, equipment and software and all rights
thereunder, including, without limitation, (A) all rights of the Grantor to
receive moneys due or to become due thereunder or pursuant thereto, (B) all
rights of the Grantor to receive proceeds of any insurance, indemnity,
warranty or guaranty with respect thereto, (C) all claims of the Grantor
for damages arising out of breach of or any default thereunder and (D) all
rights of the Grantor to terminate, amend, supplement, modify or exercise
rights, remedies or options thereunder;
(ii) the shares of the capital stock of each Subsidiary of the
Grantor, now or at any time or times hereafter owned by the Grantor, and
the certificates representing the shares of such capital stock (as
identified on Exhibit A attached hereto and made a part hereof), all
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options and warrants for the purchase of shares of the stock of each of
such Subsidiaries now or hereafter held in the name of the Grantor (all of
said capital stock, options and warrants and all capital stock held in the
name of the Grantor as a result of the exercise of such options or warrants
being hereinafter collectively referred to as the "PLEDGED STOCK"),
herewith delivered to the Agent accompanied by acknowledgments of such
Subsidiaries in the form of Exhibit B attached hereto and made a part
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hereof (the "ACKNOWLEDGMENTS") and stock powers in the form of Exhibit C
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attached hereto and made a part hereof (the "POWERS") duly executed in
blank, and all dividends, cash, instruments and other property from time to
time received, receivable or otherwise distributed in respect of, or in
exchange for, any or all of the Pledged Stock, and all other products and
proceeds of the foregoing;
(iii) all additional shares of stock of any Subsidiary of the Grantor
from time to time acquired by the Grantor in any manner, and the
certificates representing such additional shares (any such additional
shares shall constitute part of the Pledged Stock), and all dividends,
cash, instruments, equity securities, financial assets and other interests
which are, or are of a type, dealt in or traded on financial markets, or
which are recognized in any way as a medium for investment, whether
certificated or uncertificated, any property held by a financial or
securities intermediary for the Grantor, securities accounts to which any
of the foregoing are credited and warrants, options, puts and calls, and
other rights or securities entitlements from time to time received,
receivable or otherwise distributed in respect of or in exchange for any or
all of such shares, and all other products and proceeds of the foregoing;
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(iv) the promissory notes, intercompany notes and other instruments
identified on Exhibit A (the "PLEDGED NOTES"), and all products and
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proceeds of the Pledged Notes, including, without limitation, all interest
and principal payments, instruments, and other property from time to time
received, receivable or otherwise distributed in respect of or in exchange
for the Pledged Notes;
(v) all additional promissory notes, instruments, bonds or debt
securities, issued by any Person from time to time issued to, or held by,
the Grantor in any manner (any such additional promissory notes or
instruments shall constitute part of the Pledged Notes) and all products
and proceeds of any such additional promissory notes and instruments,
including, without limitation, all interest and principal payments,
instruments, and other property from time to time received, receivable or
otherwise distributed in respect of or in exchange for any such additional
promissory notes or instruments (the property described in clauses (e)(ii)
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through (e)(v) of this Section 1 is collectively referred to as the
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"PLEDGED COLLATERAL"); and
(vi) all bills of lading, warehouse receipts and other documents of
title;
(f) OTHER PROPERTY: All of the Grantor's property or interests in
property which now may be owned or hereafter may come into the possession,
custody or control of the Agent or any Holder, or any agent or affiliate of the
Agent or any Holder, in any way or for any purpose (whether for safekeeping,
deposit, custody, pledge, transmission, collection or otherwise), and all rights
and interests of the Grantor in respect of any and all (i) drafts and letters of
credit, (ii) interest rate and currency exchange agreements, including, without
limitation, cap, collar, floor, forward and similar agreements and interest rate
protection agreements, (iii) cash, money and cash equivalents and (iv) proceeds
of loans, advances and other financial accommodations, including, without
limitation, loans, advances and other financial accommodations made or extended
under the Note Purchase Agreement; and all other personal property of the
Grantor (all of the foregoing being the "OTHER PROPERTY"); and
(g) All accessions, additions and repairs to, substitutions,
documents, ledger sheets and files for, and replacements, proceeds (including,
without limitation, proceeds that constitute property of the types described in
clauses (a) through (f) of this Section 1), products, rents and profits of any
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of the foregoing Collateral. Proceeds hereunder shall include (i) all payments
under (or claims for payment under) insurance (whether or not the Agent is the
loss payee thereof) or any indemnity, warranty, guaranty or condemnation or
requisition payments payable by reason of loss or damage to or otherwise with
respect to any of the foregoing Collateral or any proceeds thereof, (ii)
whatever is now or hereafter received by the Grantor upon the sale, lease,
exchange, assignment, licensing, collection or other disposition of, or
realization upon any item of Collateral, whether such proceeds constitute
inventory, accounts, accounts receivable, general intangibles, instruments,
securities or investment property (including, without limitation, United States
of America Treasury Bills), credits, claims, demands, documents, letters of
credit and letter of credit proceeds, chattel paper, documents of
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title, certificates of title, certificates of deposit, warehouse receipts, bills
of lading, leases, deposit accounts, money, tax refund claims, contract rights,
goods or equipment, (iii) any such items which are now or hereafter acquired by
the Grantor with any proceeds of its Collateral hereunder and (iv) cash and cash
equivalents.
provided, however, that except with respect to the provisions of this Section 1,
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the foregoing grant of a security interest shall be deemed not to grant a
security interest in any of the property described below (such property being
hereinafter referred to as property subject to a "SECURITY INTEREST RESTRICTION"
and all other property being hereinafter referred to as "SECURITY PROPERTY"):
any property described on Exhibit G hereto, if, but only to the
extent that (x) the terms and provisions of a written agreement,
document or instrument in effect on the Closing Date prohibit the
granting of a security interest or condition the granting of a
security interest on the consent of a third party whose consent has
not been obtained or would cause, or allow a third party to cause, the
forfeiture of such property upon the granting of a security interest
therein; (y) the terms and provisions of a written agreement, document
or instrument entered into after the Closing Date (or any amendment to
any agreement described in clause (x) above entered into after the
Closing Date) prohibit the granting of a security interest or
condition the granting of a security interest on the consent of a
third party whose consent has not been obtained or would cause, or
allow a third party to cause, the forfeiture of such property upon the
granting of a security interest, provided that (i) the requirement of
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such prohibition or condition has not been initiated by an Obligor and
has been agreed or consented to by the Obligor in the ordinary course
of its business and such prohibition or condition is believed by the
Obligor in good faith to be reasonably necessary for the Obligor to
obtain the benefits of the agreement, document or instrument entered
into by the Obligor in order to conduct its normal business operations
and (ii) the Obligor has used its best efforts to have such
prohibition or condition eliminated or to obtain such consent; or (z)
applicable law either prohibits the granting of a security interest
therein or provides for the involuntary forfeiture of the property in
the event a security interest is granted therein without the consent
of the appropriate Governmental Authority, or at all; provided,
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however that with respect to clauses (x), (y) and (z) above, if such
prohibition or the condition requiring such consent relates only to
the foreclosure of a security interest or the exercise of other rights
or remedies upon a default but not to the granting of a security
interest therein, then a security interest in such property shall be
deemed to be granted by this Agreement subject to the condition that
the consent of such third party or Governmental Authority .is obtained
by the Agent prior to the foreclosure or exercising its other rights
or remedies hereunder, so that any involuntary forfeiture of the
property is thereby avoided; provided, further, that the
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property which is the subject of the lien granted to IBM pursuant to
the IBM Facility shall not be deemed to be subject to a Security
Interest Restriction; provided, further, that (A) the foregoing grant
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of a security interest shall be deemed to include all other Security
Property that becomes free from a Security Interest Restriction after
the date of this Agreement and any other Security Property that is
acquired after the date of this Agreement that is not subject to a
Security Interest Restriction permitted herein, and (B) in the event
of the termination or elimination of any Security Interest Restriction
to the extent sufficient to permit any Security Property to become
Collateral hereunder, such Security Property shall be deemed to be
assigned and pledged to the Agent and shall be included as Collateral
hereunder.
SECTION 2. Security for Obligations. This Agreement secures, with
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respect to the Grantor, and the Collateral of the Grantor is collateral security
for, the prompt and complete payment of all of the Obligations of the Grantor,
whether or not for the payment of money, whether direct or indirect (including
those acquired by assignment), absolute or contingent, due or to become due, now
existing or hereafter arising, and however acquired (all such obligations of the
Grantor, including, without limitation, the Obligations of the Grantor, being
the "SECURED OBLIGATIONS"). Without limiting the generality of the foregoing,
this Agreement secures, with respect to the Grantor, and the Collateral of the
Grantor is collateral security for, the payment of all amounts which constitute
part of the Secured Obligations of the Grantor and would be owed by the Grantor
to the Agent or any Holder but for the fact that they are unenforceable or not
allowable due to the occurrence of an Insolvency Event or any similar proceeding
involving the Grantor.
SECTION 3. Grantor Remains Liable. Anything herein to the contrary
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notwithstanding, (a) the Grantor shall remain liable under its respective
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 Agent
of any of the rights hereunder shall not release the Grantor from any of its
duties or obligations under its respective contracts and agreements included in
the Collateral, and (c) neither the Agent nor any Holder shall have any
obligation or liability under the contracts and agreements included in the
Collateral by reason of this Agreement, nor shall the Agent or any Holder be
obligated to perform any of the obligations or duties of the Grantor thereunder
or to take any action to collect or enforce any claim for payment assigned
hereunder.
SECTION 4. Delivery of Pledged Collateral. Within thirty (30) days
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after the end of each calendar quarter, the Grantor shall deliver to the Agent,
for the benefit of the Holders, all certificates or instruments representing or
evidencing the Pledged Collateral acquired by the Grantor during such calendar
quarter, and such Pledged Collateral shall be held by or on behalf of the Agent
pursuant hereto and shall be in suitable form for transfer by delivery, or shall
be accompanied by duly executed instruments of transfer or assignment in
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blank and, in the case of Pledged Stock of Subsidiaries of the Grantor formed or
acquired after the date hereof, an Acknowledgment executed by such Subsidiary,
all in form and substance satisfactory to the Agent. If, during any such
calendar quarter, (a) any stock dividend, reclassification, readjustment or
other change is declared or made in the capital structure of any of the
Subsidiaries which have issued Pledged Stock, or any option included within the
Pledged Collateral is exercised, or both, or (b) any subscription warrant(s) or
any other right(s) or option(s) shall be issued in connection with the Pledged
Collateral, then all new, substituted and additional shares, warrants, rights,
options and other securities issued by reason of any of the foregoing shall be
delivered to the Agent within thirty (30) days after the end of such calendar
quarter and shall be held by the Agent under the terms of this Agreement and
shall constitute Pledged Collateral hereunder; provided, however, that nothing
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contained in this Section 4 shall be deemed to permit any stock dividend,
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issuance of additional stock, warrants, rights or options, reclassification,
readjustment or other change in the capital structure of any of the Obligors
which is not expressly permitted in the Note Purchase Agreement; provided,
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further, however, that the Grantor's failure to so deliver such property to the
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Agent shall in no way affect the Lien granted thereon as herein provided.
SECTION 5. Subsequent Changes Affecting Pledged Collateral. The
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Grantor represents and warrants that it has made its own arrangements for
keeping itself informed of changes and potential changes affecting its Pledged
Collateral (including, but not limited to, rights to convert, rights to
subscribe, payment of dividends, payments of interest and/or principal,
reorganization and other exchanges, tender offers and voting rights), and the
Grantor agrees that neither the Agent nor any Holder shall have any obligation
to inform the Grantor of any such changes or potential changes or to take any
action or omit to take any action with respect thereto. The Agent may, after the
occurrence and during the continuance of an Event of Default, without notice and
at its option, transfer or register the Pledged Collateral or any part thereof
into its or its nominee's name with or without any indication that such Pledged
Collateral is subject to the Lien hereunder. In addition, the Agent may at any
time after the occurrence and during the continuance of an Event of Default
exchange certificates or instruments representing or evidencing the Pledged
Collateral for certificates or instruments of smaller or larger denominations.
SECTION 6. Representations and Warranties. The Grantor represents and
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warrants as follows:
(a) The correct corporate name and federal tax identification number
of the Grantor on the date hereof is set forth on Exhibit D attached hereto and
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made a part hereof. Except as set forth on Exhibit D for the jurisdictions
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specified with respect thereto, the Grantor has no other corporate, trade or
fictitious name and has not, during the immediately preceding five (5) years,
been known by or used any other corporate, trade or fictitious name.
(b) The principal place of business and chief executive office of the
Grantor are located at the address specified on Exhibit E attached hereto and
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made a part hereof. All
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records concerning the Accounts are located at the same address specified on
Exhibit E for the Grantor. All records concerning the Related Contracts and all
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originals of all chattel paper are located at the same address specified on
Exhibit E for the Grantor or at the addresses specified as addresses of the
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Grantor on Exhibit F attached hereto and made a part hereof.
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(c) All of the Grantor's Inventory and Equipment is located at the
places specified on Exhibit F. If any location of its Inventory or Equipment is
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subject to a lease, sublease, mortgage or similar instrument, the name and
address of each lessor, sublessor and/or mortgagee (other than the Grantor) is
set forth on Exhibit F. The legal name and address of each bailee, processor,
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warehouseman, consignee, carrier and shipper or other Person (other than a
Lessee) in possession of any of the Grantor's Inventory or Equipment (each such
Person being a "BAILEE") on the date hereof is set forth on Exhibit F, together
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with the address of the location where such Inventory or Equipment is or may be
held. Except as otherwise indicated on Exhibit F, no Person (other than a Lessee
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or a Person identified on Exhibit F as being a consignee) in possession of any
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of the Grantor's Inventory or Equipment conducts a business at the location of
such Inventory or Equipment other than a business in the nature of warehousing
or transporting goods for others. In the event that any of the Grantor's
Inventory or Equipment is in the possession of a Bailee, none of the receipts,
instruments or documents received and to be received by the Grantor from any
Bailee state that the Inventory or Equipment covered thereby is to be delivered
to bearer or to the order of a named person or to a named person and such named
person's assigns.
(d) The amount represented by the Grantor from time to time to the
Agent as the amount owing by each account debtor or by all account debtors in
respect of any Accounts will, at such time, be the correct amount actually and
unconditionally owing by such account debtor(s) thereunder to the best of the
Grantor's knowledge (except to the extent, if any, that such account debtor(s)
may be entitled to normal trade discounts, adjustments, returns and allowances).
None of the Accounts is evidenced by a promissory note or other instrument,
except for promissory notes and instruments delivered to the Agent pursuant to
this Agreement.
(e) The Grantor is the sole legal and beneficial owner of its Pledged
Collateral (including, without limitation, the percentage of the issued and
outstanding capital stock of each of its Subsidiaries which is set forth
opposite the name of such Subsidiary on Exhibit A), free and clear of any Lien
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except for (i) Liens of the Agent, for the benefit of the Holders, under the
Note Documents, and (ii) Permitted Liens.
(f) All of the Pledged Stock has been duly authorized, validly issued
and is fully paid and non-assessable. The Pledged Notes have been duly
authorized and executed by the respective issuers thereof and constitute the
legal, valid and binding obligations of such respective issuers.
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(g) There are no restrictions upon the voting rights associated with,
or upon the transfer of, any of the Pledged Collateral (except as may be
required in connection with such disposition by laws affecting the offering and
sale of securities generally).
(h) The Grantor has the right to vote, pledge and grant a security
interest in or otherwise transfer its Pledged Collateral free of any Liens
except for (i) Liens of the Agent, for the benefit of the Holders, under the
Note Documents, and (ii) Permitted Liens.
(i) The Powers are duly executed and give the Agent the authority they
purport to confer.
(j) The Acknowledgments have been duly authorized, executed and
delivered by the applicable Subsidiary of Grantor.
(k) The Pledged Stock constitutes, as of the date hereof, all of the
shares of capital stock and voting securities of each Subsidiary of the Grantor
that are not subject to a Security Interest Restriction. The Pledged Notes
constitute the only promissory notes of any Person in favor of the Grantor as of
the date hereof.
(l) The pledge of the Pledged Collateral pursuant to this Agreement
does not violate Regulation G, T, U or X.
(m) No consent, authorization, permit, notice or filing is required
(i) in connection with the execution, delivery or performance of this Agreement
by the Grantor, (ii) for the creation, perfection or maintenance of the security
interest or the Liens created hereby (including the maintenance of the first
priority nature of such Lien except with respect to the property subject to (A)
liens created, or hereafter created, under that certain Inventory and Working
Capital Financing Agreement dated December 1, 1996 between IBM and Grantor, as
the same has been heretofore and may be hereafter amended, supplemented or
modified, and (B) Permitted Liens)) or (iii) for the exercise by the Agent of
its rights and remedies hereunder, except (w) those that have been obtained or
made, (x) filings necessary to create, perfect or retain the perfection or
priority of Liens against the Grantor's Collateral, (y) that certain
Subordination and Intercreditor Agreement between and among IBM, the Agent, the
Purchasers and Grantor of even date herewith and (z) with respect to the Pledged
Collateral, except as may be required in connection with such disposition by
laws affecting the offering and sale of securities generally.
(n) There are no conditions precedent to the effectiveness of this
Agreement that have not been satisfied or waived in writing.
SECTION 7. Further Assurances. (a) The Grantor agrees that, at its own
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expense, the Grantor will, and will cause each of its Subsidiaries to, promptly
execute and deliver all further instruments and documents, and take all further
action which may be
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reasonably necessary or desirable in the opinion of the Agent, in order to (x)
perfect and protect any Lien created or purported to be created hereby, (y)
enable the Agent to exercise and enforce its rights and remedies hereunder with
respect to any of the Grantor's Collateral, and (z) cause the execution,
delivery and performance of this Agreement to be duly authorized, and the
Grantor shall, and shall cause each of its Subsidiaries to, in any event take
such action as may be required to maintain the truthfulness and accuracy of the
representations and warranties contained in Section 6. Without limiting the
generality of the foregoing, the Grantor will: (i) if any Account or other
amount payable to the Grantor under or in connection with any of its Collateral
shall be or becomes evidenced by any promissory note, chattel paper, letter of
credit or other negotiable or non-negotiable instrument, such note, chattel
paper, letter of credit or instrument shall, within five (5) days after the
Grantor's receipt thereof, be delivered to the Agent duly indorsed and
accompanied by duly executed instruments of transfer or assignment, all in form
and substance reasonably satisfactory to the Agent; (ii) execute and file such
financing or continuation statements, or amendments thereto, and such other
instruments or notices, as may be necessary or desirable, or as the Agent may
reasonably determine in its sole discretion to be necessary or desirable, in
order to perfect and preserve the Lien created or purported to be created
hereby; (iii) execute and deliver to the Agent notices, agreements (including,
without limitation, subordination agreements) and other documents which the
Agent may reasonably determine in its sole discretion to be necessary or
desirable, for the purpose of giving advice of and perfecting the Liens granted
to the Agent for its benefit and the ratable benefit of the Holders and
establishing the senior priority thereof over such other parties' rights and
interests in respect of any of the Grantor's Equipment, Inventory or other
Collateral held in the possession of Bailees, lessors, mortgagees or other third
parties, and shall use its best efforts to cause such third parties to
acknowledge or consent to such notices, agreements and other documents; (iv)
within thirty (30) days after the end of each calendar quarter, deliver to the
Agent with respect to any item for which a certificate of title has been issued
by the California Department of Motor Vehicles during such calendar quarter
(other than such certificates subject to Permitted Liens); (v) except with
respect to the deliveries made pursuant to Section 7(a)(iv), upon the request of
----------------
the Agent, after the occurrence and during the continuance of an Event of
Default, with respect to any item of Equipment or Inventory of the Grantor, in
either case which is covered by a certificate of title under a statute of any
jurisdiction under the law of which indication of a security interest on such
certificate is required as a condition of perfection thereof, execute and file
with the registrar of motor vehicles or other appropriate authority in such
jurisdiction an application or other document requesting the notation or other
indication of the Lien created hereunder on such certificate of title; (vi) upon
the request of the Agent, within thirty (30) days after the end of each calendar
quarter, deliver to the Agent copies of all such applications or other documents
filed pursuant to a request by the Agent under Section 7(a)(v) during such
---------------
calendar quarter and copies of all such certificates of title issued during such
calendar quarter indicating the Lien created hereunder in the items of Equipment
or Inventory covered thereby; and (vii) at the Agent's reasonable request,
appear in and defend any action or proceeding that may adversely affect
Grantor's title to or the Agent's Lien on all or any material part of the
Collateral.
-11-
(b) The Grantor hereby authorizes the Agent to file one or more
financing or continuation statements, and amendments thereto, relating to all or
any part of the Grantor's Collateral without the signature of the Grantor where
permitted by law. The Grantor hereby agrees that a photocopy or other
reproduction of this Agreement or any financing statement covering its
Collateral or any part thereof shall be sufficient as a financing statement
where permitted by law.
(c) The Grantor will keep and maintain at its own cost and expense,
and will cause each of its Subsidiaries to keep and maintain at their own cost
and expense, records of the Collateral in detail, form and scope consistent with
good business practice, including, without limitation, a record of all payments
received and all credits granted with respect to the Collateral and all other
dealings with the Collateral. If an Event of Default has occurred and is
continuing, for the Agent's further security, upon the Agent's request therefor,
the Grantor shall, and shall cause each of its Subsidiaries to, deliver copies
of, or if reasonably necessary in the opinion of the Agent, turn over originals
of, any such records to the Agent or to its representatives.
(d) The Grantor will, and will cause each of its Subsidiaries to,
furnish to the Agent from time to time statements and schedules further
identifying and describing the Collateral and such other reports in connection
with the Collateral as the Agent may reasonably request, all in reasonable
detail, and the Grantor agrees that the Agent or its agents may enter upon the
premises of the Grantor or any of its Subsidiaries, at the expense, as
applicable, of the Grantor or the applicable Subsidiary, during normal business
hours and upon reasonable notice, all as often as may be requested, and at any
time at all on and after the occurrence of a Default which continues beyond the
expiration of any grace or cure period applicable thereto, and which has not
otherwise been waived pursuant to the Note Purchase Agreement or cured, for the
purposes of (i) inspecting and verifying the Collateral, (ii) inspecting and/or
copying (at the Grantor's expense) any and all records pertaining thereto and
(iii) discussing the affairs, finances and business of the Grantor with any
officers, employees and directors of the Grantor or with the Grantor's auditors.
Upon reasonable notice to the Grantor, the Agent or any of the Agent's officers,
employees, agents or auditors shall have the right at any time or times
hereafter to verify with account debtors or other obligors of the Grantor the
validity and amount or any other matter (including, without limitation, the
assertion by account debtors of claims, offsets or counterclaims) with respect
to any of the Collateral.
(e) The Grantor will, and will cause each of its Subsidiaries to,
advise the Agent promptly, in reasonable detail, (i) of any material Lien or
claim made or asserted against any of the Collateral, (ii) of any material
change in the composition of the Collateral, and (iii) of the occurrence of any
other event which would have a material adverse effect on the aggregate value of
the Collateral or on the Liens created hereunder.
-12-
SECTION 8. Transfers of Collateral. The Grantor agrees that it will
-----------------------
not, nor will it permit any of its Subsidiaries to (a) directly or indirectly,
sell, lease, assign, transfer or otherwise dispose of, or grant any option with
respect to, any of the Collateral, or any part thereof or interest therein,
except as expressly authorized under the Note Purchase Agreement, (b) directly
or indirectly create, incur, assume, or suffer to exist any Lien on any of the
Pledged Collateral now owned or hereafter acquired except for the Lien under
this Agreement and Permitted Liens, or (c) enter into any agreement or
understanding that purports to or may restrict or inhibit the Agent's rights or
remedies hereunder, including, without limitation, the Agent's right to sell or
otherwise dispose of the Pledged Collateral.
SECTION 9. Place of Perfection; Name Changes; Records. The Grantor
------------------------------------------
shall not (a) change its name, identity or structure or adopt or use any trade
or fictitious name not specified as a current trade or fictitious name on
Exhibit D, or use any existing trade or fictitious name in any jurisdiction not
---------
specified for such name on Exhibit D, (b) change any location of its chief
---------
executive office, place of business or place where records concerning its
Accounts, Related Contracts and chattel paper are maintained from the locations
specified on Exhibit E or Exhibit F or (c) change any location of any Collateral
--------- ---------
or jurisdiction where Lessees are located from the locations specified in
Exhibit F, unless, in each case, the Grantor shall have given the Agent at least
---------
thirty (30) Business Days' prior written notice of any such change. At least
ten (10) Business Days prior to any such change referred to in the preceding
sentence, the Grantor shall prepare and deliver to the Agent amended exhibit(s)
reflecting such change(s) and execute and deliver to the Agent any financing
statements or other documents required by the Agent, all in form and substance
reasonably satisfactory to the Agent, and take all other actions required by
Section 7.
---------
SECTION 10. Covenants Regarding Accounts and Related Contracts. (a)
--------------------------------------------------
The Grantor shall, at its expense, perform and observe all of the material terms
and provisions of the Related Contracts, service agreements, contracts of sale,
distribution agreements, employment agreements, acquisition agreements, rental
contracts, leases and chattel paper to be performed or observed by it, maintain
the Related Contracts, service agreements, contracts of sale, distribution
agreements, employment agreements, acquisition agreements, rental contracts,
leases and chattel paper in full force and effect and enforce the Related
Contracts in accordance with their terms, except for such Related Contracts,
service agreements, employment agreements, acquisition agreements, contracts of
sale, distribution agreements, rental contracts, leases and chattel paper with
respect to which the aggregate amount payable thereunder is not Material.
(b) In any suit, proceeding or action brought by the Agent under any
account comprising part of the Collateral, the Grantor agrees to save, indemnify
and keep the Agent and each Holder harmless from and against all expense, loss
or damages suffered breach by the Grantor of any obligation or arising out of
any other agreement, indebtedness or liability at any time owing to or in favor
of such obligor
-13-
or its successors from the Grantor, and all such obligations of the Grantor
shall be and shall remain enforceable against and only against the Grantor and
shall not be enforceable against the Agent or any Holder.
SECTION 11. Covenants Regarding Equipment and Inventory. (a) If any
-------------------------------------------
Equipment or Inventory of the Grantor is in the possession or control of any
Bailee or any of the Grantor's agents, the Grantor shall notify such Bailee or
agent of the Agent's Lien on such Equipment or Inventory and, upon the Agent's
request, direct such Bailee or agent to hold all such Equipment or Inventory for
the Agent's account and subject to the Agent's instructions.
(b) Upon the request of the Agent, the Grantor will promptly deliver
to the Agent a schedule, if available, listing all Equipment disposed of by the
Grantor, and the book value thereof, in the then-current (or any prior) fiscal
year.
(c) The Grantor will, upon request of the Agent, submit to the Agent
a current listing, if available, of all of the Grantor's Equipment, which
listing shall indicate the type, model, serial number and location of such
Equipment.
(d) The Grantor shall promptly upon the issuance and delivery to the
Grantor of any negotiable document of title, upon the request of the Agent after
the occurrence and during the continuance of an Event of Default, deliver such
negotiable document of title to the Agent.
SECTION 12. Voting Rights. During the term of this Agreement, and
-------------
except as provided in the next sentence of this Section 12, the Grantor shall
----------
have the right to vote its Pledged Stock on all corporate questions in a manner
not inconsistent with the terms of this Agreement, the Note Purchase Agreement
and any other agreement, instrument or document executed pursuant thereto or in
connection therewith, and in a manner that would not have a material adverse
effect on the value of the Pledged Stock and the related Pledged Collateral or
any part thereof. After the occurrence and during the continuance of an Event
of Default, the Agent may, at the Agent's option and following written notice
from the Agent to the Grantor, exercise all voting powers pertaining to the
Grantor's Pledged Collateral, including the right to take shareholder action by
written consent, and the Grantor hereby irrevocably constitutes and appoints the
Agent as the Grantor's proxy and attorney-in-fact, with full power of
substitution, to do so. This proxy shall be irrevocable and shall continue
until the termination of this Agreement in accordance with Section 23.
----------
SECTION 13. Dividends and Other Distributions. (a) So long as no
---------------------------------
Event of Default shall have occurred or would result therefrom:
(i) subject to Section 4 hereof and the provisions of the Note
---------
Purchase Agreement, the Grantor shall be entitled to receive, retain and utilize
all dividends, interest
-14-
and principal paid in respect of its Pledged Collateral unless any such
dividend, interest or principal is not permitted to be paid under the terms of
the Note Purchase Agreement; and
(ii) the Agent shall execute and deliver (or cause to be executed and
delivered) to the Grantor all such proxies and other instruments as the Grantor
may reasonably request for the purpose of enabling the Grantor to receive the
dividends, interest or principal payments which it is authorized to receive,
retain and utilize pursuant to clause (i) above.
----------
(b) Except as may otherwise be provided in the Note Purchase
Agreement, after the occurrence and during the continuance of an Event of
Default, or if any of the following would result in an Event of Default if paid
to a Grantor:
(i) all rights of the Grantor to receive dividends, interest and
principal payments in respect of the Pledged Collateral shall cease, and all
such rights shall thereupon become vested in the Agent, for the benefit of the
Agent and the ratable benefit of the Holders, which shall thereupon have the
sole right to receive and hold as Pledged Collateral such dividends, interest
and principal payments; and
(ii) all dividends, interest and principal payments which are
received by the Grantor contrary to the provisions of clause (i) of this Section
---------- -------
13(b) shall be received in trust for the Agent, for the benefit of the Agent and
-----
the ratable benefit of the Holders, shall be segregated from other funds of the
Grantor and shall be paid over immediately to the Agent as Pledged Collateral in
the same form as so received (with any necessary indorsements).
(c) Except as may otherwise be provided in the Note Purchase
Agreement, any and all (i) dividends, interest and principal paid or payable
other than in cash in respect of, and instruments and other property received,
receivable or otherwise distributed in respect of, or in exchange for, any
Pledged Collateral, (ii) dividends and other distributions paid or payable in
cash received, receivable or otherwise distributed in respect of any Pledged
Stock in connection with a partial or total liquidation or dissolution or in
connection with a reduction of capital, capital surplus or paid-in-surplus, and
(iii) cash paid, payable or otherwise distributed in redemption of, or in
exchange for, any Pledged Stock, shall in each case be delivered forthwith to
the Agent to hold as Pledged Collateral and shall, if received by Grantor, be
received in trust for the Agent, for the benefit of Holders, be segregated from
other funds of the Grantor, and be paid over immediately to the Agent as Pledged
Collateral in the same form as so received (with any necessary indorsements).
SECTION 14. Intentionally Omitted.
---------------------
SECTION 15. Agent Appointed Attorney-in-Fact. The Grantor hereby
--------------------------------
irrevocably appoints the Agent the Grantor's attorney-in-fact, with full
authority in the place and stead of the Grantor and in the name of the Grantor
or otherwise, from time to time in the Agent's discretion, to take any action
and to execute any instrument which the Agent may
-15-
deem necessary or advisable to accomplish the purposes of this Agreement,
subject to the Agent's authority as provided in the Note Purchase Agreement,
including, without limitation:
(a) after the occurrence and during the continuance of an Event of
Default, to ask, demand, collect, ▇▇▇ for, recover, compromise, receive and give
acquittance and receipts for moneys due and to become due under or in connection
with any of the Collateral;
(b) after the occurrence and during the continuance of an Event of
Default, to receive, indorse, and collect any drafts or other instruments,
documents and chattel paper, in connection with clause (a) above;
----------
(c) after the occurrence and during the continuance of an Event of
Default, to file any claims or take any action or institute any proceedings
which the Agent may deem necessary or desirable for the collection of any of the
Collateral or otherwise to enforce the rights of the Agent with respect to any
of the Collateral;
(d) after the occurrence and during the continuance of an Event of
Default, to discharge any Lien or encumbrance on or against any of the
Collateral or bond the same;
(e) to give any notices and record any Liens;
(f) to make any payments or take any acts which the Agent deems
reasonably necessary or desirable to protect the Lien of the Agent, for the
benefit of the Holders, on the Collateral;
(g) after the occurrence and during the continuance of an Event of
Default, to execute and give receipt for any certificate of ownership or any
document of title; and
(h) after the occurrence and during the continuance of an Event of
Default, to transfer title to any item of Collateral.
All Persons dealing with the Agent, or any employee or agent of the Agent acting
pursuant hereto, or any substitute attorney-in-fact for the Agent, shall be
fully protected in treating the powers and authorities conferred by this Section
-------
15 as existing and continuing in full force and effect. The Grantor hereby
--
ratifies all that such attorney-in- fact shall lawfully do or cause to be done
by virtue hereof. This power of attorney is coupled with an interest and shall
be irrevocable. This power of attorney shall terminate upon the termination of
this Agreement pursuant to Section 23.
----------
SECTION 16. Agent May Perform. If the Grantor fails to perform any
-----------------
agreement contained herein, the Agent, after giving prior notice to the Grantor,
may itself perform, or cause performance of, such agreement, and the expenses of
the Agent incurred in connection therewith shall be payable by the Grantor to
the Agent upon demand by the Agent.
-16-
SECTION 17. The Agent's Rights and Duties. The powers conferred on
-----------------------------
the Agent and the Holders hereunder are solely to protect their interest in the
Collateral and shall not impose any duty upon any of them 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, the Agent shall have no
duty as to any Collateral. Without limiting the generality of the foregoing
sentence, the Agent shall be under no obligation to (a) ascertain or take action
with respect to calls, conversions, exchanges, maturities, tenders or other
matters relative to any Pledged Collateral, whether or not the Agent has or is
deemed to have knowledge of such matters, but may do so at its option or (b)
take any steps necessary to preserve rights in the Pledged Collateral against
any other parties but may do so at its option. All expenses incurred in
connection therewith shall be for the sole account of the Grantor, and shall
constitute part of its Obligations secured hereby. Any action taken or omitted
to be taken by the Agent in connection with any of the Collateral shall not
result in any liability of the Agent to the Grantor unless such action or
omission shall be determined by a court of competent jurisdiction to have arisen
solely out of the gross negligence or willful misconduct of the Agent. The
Agent may exercise any of its rights and execute any of its duties hereunder by
or through agents or employees and shall be entitled to advice of counsel
concerning all matters pertaining to its rights and duties hereunder.
SECTION 18. Remedies. If any Event of Default shall have occurred
--------
and be continuing:
(a) The Agent may exercise in respect of the Collateral, in addition
to other rights and remedies provided for herein, in the Note Purchase
Agreement, or otherwise available to it, all the rights and remedies of a
secured party upon default under the Uniform Commercial Code in effect in any
relevant jurisdiction at that time (the "UNIFORM COMMERCIAL CODE") (whether or
not the Uniform Commercial Code applies to the affected Collateral), and also
may (i) without notice, demand or legal process of any kind, all of which the
Grantor hereby waives to the extent permitted by applicable law, at any time or
times notify the account debtors or obligors under any Accounts, chattel paper,
instruments or General Intangibles of the assignment of such Collateral to the
Agent and to direct such account debtors or obligors to make payment of all
amounts due or to become due to the Grantor thereunder directly to the Agent, to
notify each Person maintaining a lockbox or similar arrangement to which account
debtors or obligors under any Accounts, chattel paper, instruments or General
Intangibles have been directed to make payment to remit all amounts representing
collections on checks and other payment items from time to time sent to or
deposited in such lockbox or other arrangement directly to the Agent and, upon
such notification and at the expense of the Grantor, to accelerate or extend the
time of payment, compromise, issue credits, or bring suit on such Collateral (in
the name of the Grantor or the Holders) and otherwise administer and collect
such Collateral, in the same manner and to the same extent as the Grantor might
have done; (ii) without notice, demand or legal process of any kind, all of
which the Grantor hereby waives to the extent permitted by applicable law, at
any time or times enter any premises where any Collateral may be located and
take physical
-17-
possession of the Collateral and maintain such possession on the premises, at no
cost to the Agent, or remove the Collateral or any part thereof, to such other
places as the Agent may desire; (iii) without notice, demand or legal process of
any kind, all of which the Grantor hereby waives to the extent permitted by
applicable law, at any time or times enter any premises where any Collateral may
be located and use, manage, operate and control the Collateral thereon and the
relevant business and property to preserve the Collateral; exclude any third
parties, whether or not claiming under the Grantor, from any such premises and
property; complete any unfinished Inventory, make repairs, replacements,
alterations, additions and improvements to the Collateral; and, dispose of all
or any portion of the Collateral in the ordinary course of business; (iv)
require the Grantor to, and the Grantor hereby agrees that it will at its own
expense and upon request of the Agent forthwith, assemble all or part of its
Collateral as directed by the Agent and make it available to the Agent at a
place or places to be designated by the Agent that is reasonably convenient for
both parties, and deliver possession of said Collateral or any part thereof to
the Agent; and (v) 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 in one or more parcels with or without
advertisement, at any exchange, broker's board, public or private sale, at any
of the Agent's offices or elsewhere, for cash, on credit, for future delivery,
or otherwise, and upon such other terms as the Agent may deem commercially
reasonable. Any repossession, retaking, sale, or other disposition of the
Collateral by the Agent shall not operate to release the Grantor from its
obligations hereunder. The Agent and each Holder may, in its own name or in the
name of a designee or nominee, bid for or purchase the Collateral at any public
sale and, if permitted by applicable law, buy the Collateral at any private
sale. Each purchaser of any or all of the Collateral so sold shall thereafter
own the same, absolutely free from any claim, encumbrance or right of any kind
whatsoever on the part of the Grantor, and the Grantor hereby waives, to the
extent permitted by applicable law, all rights of redemption, appraisal,
valuation, stay, extension or moratorium now or hereafter in force in order to
prevent or delay the enforcement of this Agreement, or the absolute sale of the
whole or any part of the Collateral or the possession thereof by any purchaser
at any sale hereunder. The Agent agrees that, to the extent notice of sale shall
be required by law, the Agent shall provide such notice as is commercially
reasonable, which shall not be less than five (5) Business Days' notice to the
Grantor of the time and place of any public sale or the time after which any
private sale is to be made. The Agent shall not be obligated to make any sale of
Collateral regardless of notice of sale having been given. The 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, provided that Agent provides
--------
commercially reasonable notice to Grantor of the time and place to which the
sale was adjourned. The Grantor hereby waives any claims against the Agent
arising by reason of the fact that the price at which any Collateral may have
been sold at such a private sale was less than the price which might have been
obtained at a public sale, even if the Agent accepts the first offer received
and does not offer such Collateral to more than one offeree; provided that
--------
such sale was conducted in a commercially reasonable manner.
-18-
(b) Any cash held by the Agent as Collateral and all cash proceeds
received by the Agent in respect of any sale of, collection from, or other
realization upon all or any part of the Collateral may, in the discretion of the
Agent, be held by the Agent as collateral for, and/or then or at any time
thereafter be applied in whole or in part by the Agent for its benefit and for
the ratable benefit of the Holders against, all or any part of the Grantor's
Secured Obligations in such order as the Agent shall elect, subject to any
provision of the Note Purchase Agreement governing the application of such cash,
proceeds, or other realization upon the Collateral. If the proceeds of any sale
or other disposition of the Collateral of Grantor are insufficient to pay all
of the Secured Obligations of the Grantor, the Grantor shall be liable for the
deficiency, in addition to any fees, expenses or other amounts required to be
paid pursuant to the Note Purchase Agreement to collect such deficiency. Any
surplus of such cash or cash proceeds held by the Agent and remaining after
payment in full of all Secured Obligations shall be promptly paid to the Grantor
or to whomsoever may be lawfully entitled to receive such surplus.
(c) The Grantor hereby consents to the voluntary dismissal by the
Agent of any judicial action, prejudgment or otherwise, brought by the Agent,
and the Grantor further consents to the exoneration of any bond that the Agent
files in such action.
SECTION 19. Registration Rights. (a) In the event that the Agent
-------------------
determines, after the occurrence and during the continuance of an Event of
Default, to exercise its right to sell the Pledged Stock pursuant to Section 18,
----------
the Grantor shall, upon the request of the Agent, at the Grantor's expense:
(i) execute and deliver, and cause each issuer of Pledged Stock and
its respective officers and directors to execute and deliver, all such
instruments and documents, and do or cause to be done all such other acts
and things, as may be necessary or, in the opinion of the Agent, the
Grantor or its or their counsel, advisable to register the applicable
Pledged Collateral under the provisions of the Securities Act of 1933, as
amended (the "SECURITIES ACT") and to exercise its reasonable efforts to
cause the registration statement relating thereto to become effective and
to remain effective for such period as prospectuses are required by law to
be furnished, and to make all amendments and supplements thereto and to the
related prospectus which, in the opinion of the Agent, the Grantor or its
or their counsel, are necessary or advisable, all in conformity with the
requirements of the Securities Act and the rules and regulations of the
Securities and Exchange Commission applicable thereto;
(ii) use its reasonable efforts to qualify its Pledged Collateral
under state securities or "Blue Sky" laws and to obtain all necessary
governmental approvals for the sale of its Pledged Collateral, as requested
by the Agent;
-19-
(iii) cause any Subsidiary which has issued Pledged Collateral (or
any of them) to make available to the holders of its securities, as soon as
practicable, earnings statements which will satisfy the provisions of
Section 11(a) of the Securities Act; and
(iv) do or cause to be done all such other acts and things as may be
reasonably necessary to make such sale of its Pledged Collateral or any
part thereof valid and binding and in compliance with applicable law.
The Grantor will reimburse the Agent for all expenses incurred by the Agent,
including, without limitation, reasonable attorneys' and accountants' fees and
expenses in connection with the foregoing. Upon or at any time after the
occurrence and during the continuance of an Event of Default, if the Agent
determines that, prior to any public offering of any securities constituting
part of the Pledged Collateral, such securities should be registered under the
Securities Act and/or registered or qualified under any other federal or state
law and such registration and/or qualification is not practicable, then the
Grantor agrees that it will be commercially reasonable if a private sale is
arranged so as to avoid a public offering, even though the sales price
established and/or obtained at such private sale may be substantially less than
prices which could have been obtained for such security on any market or
exchange or in any other public sale. In so doing, the Agent may restrict the
bidders and prospective purchasers to those who are qualified and will represent
and agree that they are purchasing for investment only and not for distribution,
and the Agent may solicit offers to buy the Pledged Collateral, or any part of
it, from a limited number of investors deemed by the Agent, in its reasonable
judgment, to be financially responsible parties who might be interested in so
purchasing the Pledged Collateral. If the Agent solicits such offers from not
less than four (4) such investors, then the acceptance by the Agent of the
highest offer obtained therefrom shall be deemed to be a commercially reasonable
method of disposing of such Pledged Collateral. The Agent shall be under no
obligation to delay a sale of any of the Pledged Collateral for the period of
time necessary to permit the registrant to register such securities for public
sale under the Securities Act, or under applicable state securities laws, even
if the Grantor or the issuer of the Pledged Collateral would agree to do so.
(b) In addition to a private sale as provided above in Section 19(a),
-------------
if any of the Pledged Collateral shall not be freely distributable to the public
without registration under the Securities Act (or similar statute) at the time
of any proposed sale pursuant to this Section 19, then the Agent shall not be
----------
required to effect such registration or cause the same to be effected but, in
its discretion (subject only to applicable requirements of law), may require
that any sale hereunder (including a sale at auction) be conducted subject to
restrictions (i) as to the financial sophistication and ability of any Person
permitted to bid or purchase at any such sale, (ii) as to the content of legends
to be placed upon any certificates representing the Pledged Collateral sold in
such sale, including restrictions on future transfer thereof, (iii) as to the
representations required to be made by each Person bidding or purchasing at such
sale relating to that Person's access to financial information about the
pertinent issuer of Pledged Collateral and such Person's intentions as to the
holding of the Pledged Collateral so sold for investment,
-20-
for its own account, and not with a view of the distribution thereof, and (iv)
as to such other matters as the Agent may, in its discretion, deem necessary or
appropriate in order that such sale (notwithstanding any failure so to register)
may be effected in compliance with the Uniform Commercial Code as in effect in
the State of California or any other relevant jurisdiction and other laws
affecting the enforcement of creditors' rights and the Securities Act and all
applicable state securities laws.
SECTION 20. Waivers. The Grantor waives presentment and demand for
-------
payment of any of the Obligations, protest and notice of dishonor or Event of
Default with respect to any of the Obligations and all other notices to which
the Grantor might otherwise be entitled, except as otherwise expressly provided
herein or in the Note Purchase Agreement.
SECTION 21. Amendments, Etc. No amendment or waiver of any provision
---------------
of this Agreement, and no consent to any departure by the Grantor herefrom,
shall in any event be effective unless the same shall be in writing and signed
by the Grantor and the Holders (or by the Agent on their behalf), except as
otherwise provided in the Note Purchase Agreement, and then such waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given.
SECTION 22. Notices, Etc. All notices and other communications
-------------
provided for hereunder shall be given in the manner and to the addresses set
forth in the Note Purchase Agreement, except that any notice provided by the
Grantor to the Agent hereunder shall be effective only upon receipt thereof by
the Agent.
SECTION 23. Continuing Lien; Assignments under Note Purchase
------------------------------------------------
Agreement; Termination; Payments Set Aside. This Agreement shall create a
------------------------------------------
continuing Lien on the Collateral and shall (i) remain in full force and effect
until the payment in full of the Secured Obligations, (ii) be binding upon the
Grantor, its successors and permitted assigns (which shall include, without
limitation, the Grantor's receivers, trustees or debtors-in-possession), and
(iii) inure to the benefit of, and be enforceable by, the Agent, the Holders and
their respective successors, transferees and permitted assigns. Without
limiting the generality of the foregoing clause (iii), any Holder may assign or
------------
otherwise transfer all or any portion of its rights and obligations under the
Note Purchase Agreement in accordance with the terms thereof and any Note held
by it (subject to the terms of the Note Purchase Agreement), to any other
Person, and such other Person shall thereupon become vested with all the
benefits in respect thereof granted to such Holder herein or otherwise. The
Grantor shall not assign this Agreement, or any rights or obligations hereunder,
without the prior written consent of the Agent and the Holders. Upon the
payment in full of the Secured Obligations, the Lien granted hereby shall
terminate and all rights to the Collateral shall revert to the Grantor. At such
time, the Agent shall, at the request and expense of the Grantor, reassign and
redeliver to the Grantor all of the Collateral hereunder which has not been
sold, disposed of, retained or applied by the Agent in accordance with the terms
of this Agreement. Such reassignment and redelivery shall be without warranty
by or recourse to the Agent, except as to the absence of any prior
-21-
assignments by the Agent of its interest in the Collateral, and shall be at the
expense of the Grantor. To the extent that the Grantor makes a payment or
payments to the Agent or any Holder, or the Agent or the Holders enforce their
Liens or exercise their rights of set-off, and such payment or payments or the
proceeds of such enforcement or set-off or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside and/or
required to be repaid to a trustee, receiver or any other party under any
bankruptcy law, state or federal law, common law or equitable cause, then, to
the extent of such recovery, the obligation or part thereof originally intended
to be satisfied, and all Liens, rights and remedies therefor, shall be revived
and continued in full force and effect as if such payment had not been made or
such enforcement or set-off had not occurred.
SECTION 24. Survival of Representations and Warranties. The Grantor
------------------------------------------
covenants, warrants, and represents to the Agent and the Holders that all
representations and warranties of the Grantor contained in this Agreement shall
be true at the time of the Grantor's execution of this Agreement, shall survive
the execution, delivery and acceptance hereof by the parties hereto and the
closing of the transactions described in the Note Purchase Agreement and the
other Transaction Documents and shall continue in effect until all of the
Secured Obligations shall have been paid in full and the Note Purchase Agreement
has been terminated.
SECTION 25. GOVERNING LAW. THE VALIDITY, INTERPRETATION AND
-------------
ENFORCEMENT OF THIS AGREEMENT AND ANY DISPUTE ARISING OUT OF OR IN CONNECTION
WITH THIS AGREEMENT, WHETHER SOUNDING IN CONTRACT, TORT, EQUITY OR OTHERWISE,
SHALL BE GOVERNED BY THE INTERNAL LAWS (AS OPPOSED TO THE CONFLICTS OF LAWS
PROVISIONS) AND DECISIONS OF THE STATE OF CALIFORNIA, EXCEPT AS REQUIRED BY
MANDATORY PROVISIONS OF LAW AND EXCEPT TO THE EXTENT THAT THE VALIDITY OR
PERFECTION OF THE LIEN HEREUNDER, OR ANY OF THE REMEDIES HEREUNDER, IN RESPECT
OF ANY PARTICULAR COLLATERAL, MAY BE GOVERNED BY THE LAWS OF A JURISDICTION
OTHER THAN THE STATE OF CALIFORNIA.
SECTION 26. SUBMISSION TO JURISDICTION. ALL DISPUTES BETWEEN THE
--------------------------
GRANTOR AND THE HOLDERS (OR THE AGENT ACTING ON THEIR BEHALF), WHETHER SOUNDING
IN CONTRACT, TORT, EQUITY OR OTHERWISE, SHALL BE RESOLVED ONLY BY STATE AND
FEDERAL COURTS LOCATED IN LOS ANGELES, CALIFORNIA, AND THE COURTS TO WHICH AN
APPEAL THEREFROM MAY BE TAKEN; PROVIDED, HOWEVER, THAT THE AGENT, ON BEHALF OF
-------- -------
THE HOLDERS, SHALL HAVE THE RIGHT, TO THE EXTENT PERMITTED BY APPLICABLE LAW, TO
PROCEED AGAINST THE GRANTOR OR ITS RESPECTIVE PROPERTY IN ANY LOCATION
REASONABLY SELECTED BY THE AGENT IN GOOD FAITH TO ENABLE THE AGENT TO REALIZE ON
SUCH PROPERTY, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF THE
AGENT. THE GRANTOR AGREES THAT IT WILL NOT ASSERT
-22-
ANY PERMISSIVE COUNTERCLAIMS, SETOFFS OR CROSS-CLAIMS IN ANY COLLECTION
PROCEEDING BROUGHT BY THE AGENT. THE GRANTOR WAIVES ANY OBJECTION THAT IT MAY
HAVE TO THE LOCATION OF THE COURT IN WHICH THE AGENT HAS COMMENCED A PROCEEDING,
INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON
FORUM NON CONVENIENS.
SECTION 27. INTENTIONALLY OMITTED.
---------------------
SECTION 28. JURY TRIAL. THE GRANTOR, THE AGENT AND THE PURCHASERS
----------
EACH HEREBY WAIVE ANY RIGHT TO A TRIAL BY JURY. INSTEAD, ANY DISPUTES WILL BE
RESOLVED IN A BENCH TRIAL.
SECTION 29. LIMITATION OF LIABILITY. NONE OF THE AGENT OR THE
-----------------------
HOLDERS SHALL HAVE ANY LIABILITY TO THE GRANTOR (WHETHER SOUNDING IN TORT,
CONTRACT, OR OTHERWISE) FOR LOSSES SUFFERED BY THE GRANTOR OR ITS RESPECTIVE
SUBSIDIARIES, AND THE GRANTOR HEREBY WAIVES AND RELEASES ANY CLAIMS, IN
CONNECTION WITH, ARISING OUT OF, OR IN ANY WAY RELATED TO THE TRANSACTIONS OR
RELATIONSHIPS CONTEMPLATED BY THIS AGREEMENT, OR ANY ACT, OMISSION OR EVENT
OCCURRING IN CONNECTION HEREWITH, UNLESS IT IS DETERMINED BY A FINAL AND
NONAPPEALABLE JUDGMENT OR COURT ORDER BINDING ON THE AGENT OR ANY SUCH HOLDER,
THAT THE LOSSES WERE THE RESULT OF ACTS OR OMISSIONS CONSTITUTING GROSS
NEGLIGENCE, WILLFUL MISCONDUCT, BREACH OF CONTRACT OR KNOWING OR GROSSLY
NEGLIGENT VIOLATIONS OF APPLICABLE REQUIREMENTS OF LAW. THE GRANTOR AGREES NOT
TO ASSERT ANY CLAIM AGAINST ANY OF THE AGENT OR ANY HOLDER ON ANY THEORY OF
LIABILITY FOR SPECIAL, INDIRECT, CONSEQUENTIAL OR PUNITIVE DAMAGES ARISING OUT
OF, OR IN ANY WAY IN CONNECTION WITH, THE OBLIGATIONS OR ANY OTHER MATTERS
GOVERNED BY THIS AGREEMENT OR THE OTHER NOTE DOCUMENTS.
SECTION 30. Severability. In case any provision in or obligation
------------
under this Agreement shall be invalid, illegal or unenforceable in any
jurisdiction, the validity, legality and enforceability of the remaining
provisions or obligations shall not in any way be affected or impaired thereby.
SECTION 31. Protection of Collateral. The Agent shall have the right
------------------------
(but shall not be obligated) to make payments and take actions it deems
reasonably necessary to protect its Lien on the Collateral. Grantor shall
reimburse the Agent for all such payments made, and expenses incurred with
respect to such actions taken, by the Agent, which amounts and expenses shall be
secured under this Agreement, and the Grantor shall be bound by any such payment
made or action taken by the Agent.
-23-
SECTION 32. No Waiver; Remedies. No failure on the part of any
-------------------
Holder or the Agent to exercise, and no delay in exercising, any right hereunder
shall operate as a waiver thereof; nor shall any single or partial exercise of
any right hereunder preclude any other or further exercise thereof or the
exercise of any other right. The remedies herein provided are cumulative and not
exclusive of any remedies provided in the Note Purchase Agreement, any other
Note Document, in equity, or by law.
SECTION 33. Marshalling; Recourse to Security. None of the Holders
---------------------------------
or the Agent shall be under any obligation to ▇▇▇▇▇▇▇▇ any assets in favor of
the Grantor or any other party or against or in payment of any or all of the
Secured Obligations. Recourse to security shall not be required at any time.
SECTION 34. Construction. (a) The parties acknowledge that each
------------
party and its counsel have reviewed and revised this Agreement and that the
normal rule of construction to the effect that any ambiguities are to be
resolved against the drafting party shall not be employed in the interpretation
of this Agreement or any amendments or exhibits hereto.
(b) The words "hereof", "herein" and "hereunder" and words of like
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement and section and exhibit
references are to this Agreement and to its attachments unless otherwise
specified.
(c) All terms defined in this Agreement in the singular shall have
comparable meanings when used in the plural, and vice versa, unless otherwise
---- -----
specified.
(d) Unless otherwise defined herein or in the Note Purchase
Agreement, terms used in Article 9 of the Uniform Commercial Code in effect in
the State of California are used herein as therein defined.
SECTION 35. Headings. Section headings in this Agreement are
--------
included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose.
SECTION 36. Additional Grantor. The initial Grantor hereunder shall
------------------
be the Issuer under the Note Purchase Agreement. From time to time after the
date hereof, additional Subsidiaries of the Obligors may become Guarantors under
the Note Purchase Agreement in accordance with Section 6.17 of the Note Purchase
Agreement. Such additional Subsidiaries (each, an "ADDITIONAL GRANTOR") shall
become a party to the Guarantor Security and Pledge Agreement by executing a
counterpart of such Agreement. Upon delivery of any such counterpart to the
Agent, notice of which is hereby waived by the other Grantors, each Additional
Grantor shall be a Grantor and shall be as fully a party thereto as if such
Additional Grantor were an original signatory thereof. Each Additional Grantor
shall deliver at the time of delivery of such counterpart additional schedules
thereto, and deliver or cause to be
-24-
delivered such Pledged Collateral, Acknowledgments and Powers, which are
necessary to make its representations and warranties made therein true and
correct, together with any other documents which the Agent may reasonably
request. The Grantor expressly agrees that its obligations arising hereunder
shall not be affected or diminished by the addition or release of any other
Grantor thereunder, nor by any election of the Agent or the Holders not to cause
any Subsidiary of any Obligor to become an Additional Grantor thereunder. This
Agreement shall be fully effective as to any Grantor that is or becomes a party
hereto or thereto regardless of whether any other Person becomes or fails to
become or ceases to be a Grantor hereunder or thereunder.
SECTION 37. Execution in Counterparts; Effectiveness. This Agreement
----------------------------------------
and any waiver or amendment hereto may be executed in any number of counterparts
and by the different parties hereto in separate counterparts, each of which when
so executed and delivered shall be an original, but all of which shall together
constitute one and the same instrument. This Agreement shall become effective on
the date on which all of the parties hereto shall have signed a copy hereof
(whether the same or different copies) and shall have delivered the same to the
Agent pursuant to the provisions of the Note Purchase Agreement and of this
Agreement concerning notices.
* * *
-25-
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized, as of the
date first above written.
GRANTOR: WESTERN MICRO TECHNOLOGY, INC.
-------
a Delaware corporation
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
-------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇
Chief Financial Officer
AGENT: CANPARTNERS INVESTMENTS IV, LLC,
-----
a California limited liability company,
as Agent
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Attorney-In-Fact
EXHIBIT A
to
ISSUER SECURITY AND PLEDGE AGREEMENT
dated as of September 30, 1997
Pledged Collateral
------------------
Pledged Stock Certificates
--------------------------
Percentage of Issued and Shares of Capital Stock
and Outstanding Capital Owned by the Pledgor
Name Stock Owned by Pledgor Subject to Pledge
---- ---------------------- -----------------
WMT Acquisition Corp. 100% 1,000
Savoir Technology Group, Inc. 100% 1,000
Star Management Services, Inc. 100% 3,000
Pledged Notes
-------------
None.
EXHIBIT B
to
ISSUER SECURITY AND PLEDGE AGREEMENT
dated as of September 30, 1997
Form of Acknowledgment
----------------------
ACKNOWLEDGMENT
The undersigned hereby acknowledges receipt of a copy of the foregoing
Issuer Security and Pledge Agreement, agrees promptly to note on its books and
records the Liens granted under such Issuer Security and Pledge Agreement, and
waives any rights or requirement at any time hereafter to receive a copy of such
Issuer Security and Pledge Agreement in connection with the registration of any
Pledged Collateral in the name of the Agent or its nominee or the exercise of
voting rights by the Agent.
[NAME OF ISSUER OF PLEDGED STOCK]
By: _______________________
Name:
Title:
2
EXHIBIT C
to
ISSUER SECURITY AND PLEDGE AGREEMENT
dated as of September 30, 1997
Form of Stock Power
-------------------
STOCK POWER
FOR VALUE RECEIVED, the undersigned does hereby sell, assign and
transfer to ______________ all of its right, title and interest in and to ______
______ shares of the capital stock of ______________, a ____________
corporation, represented by Certificate No. _____________ (the "Stock"),
standing in the name of the undersigned on the books of said corporation and
does hereby irrevocably constitute and appoint ____________ as the undersigned s
true and lawful attorney, for it and in its name and stead, to sell, assign and
transfer all or any of the Stock and for that purpose to make and execute all
necessary acts of assignment and transfer thereof.
Dated: _____________
[NAME OF GRANTOR]
By: ________________________
Name:
Title:
3
EXHIBIT D
to
ISSUER SECURITY AND PLEDGE AGREEMENT
dated as of September 30, 1997
Corporate or Fictitious Names; Tax Identification Number
--------------------------------------------------------
WESTERN MICRO TECHNOLOGY, INC.
-----------------------------
Exact Corporate Name: Western Micro Technology, Inc.
Tax Identification Number: ▇▇-▇▇▇▇▇▇▇
Other Corporate,
Trade or Fictitious Names Jurisdictions Used
------------------------- ------------------
None.
4
EXHIBIT E
to
ISSUER SECURITY AND PLEDGE AGREEMENT
dated as of September 30, 1997
Address Where Records Concerning Accounts Are Located
-----------------------------------------------------
and Principal Place of Business
-------------------------------
WESTERN MICRO TECHNOLOGY, INC.
-----------------------------
Chief Executive Office and Principal Place of Business
------------------------------------------------------
▇▇▇ ▇. ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Other Addresses
---------------
None.
5
EXHIBIT F
to
ISSUER SECURITY AND PLEDGE AGREEMENT
dated as of September 30, 1997
Locations of Inventory and Equipment
------------------------------------
WESTERN MICRO TECHNOLOGY, INC.
-----------------------------
Locations Owned or Leased by the Grantor
----------------------------------------
Name and Address of Lessor,
Sublessor, Lessee, Sublessee
Address and/or Mortgagee, if any
------- ------------------------
▇▇▇ ▇. ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇ ▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ c/o South Bay Construction
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ c/o Investment Building Group
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, #▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ Technology
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇ ▇▇▇., #▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇. Sebastian Place LLLC
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇ ▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ ▇▇▇ ▇. ▇▇▇▇▇▇▇ ▇▇▇., #▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇ & ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇ c/o Northwestern Terrazzo
▇.▇. ▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
6
Jurisdictions where Lessees are Located
---------------------------------------
None.
Bailees
-------
None.
Names and Mailing Address of Bailees/
-------------------------------------
Address where Bailee Holds Collateral
-------------------------------------
None.
7
EXHIBIT G
to
ISSUER SECURITY AND PLEDGE AGREEMENT
dated as of September 30, 1997
Property Subject to a Security Interest Restriction
---------------------------------------------------
None.
8