Document:

twin20160201_8k.htm

Exhibit 10.2

 

 EXECUTION VERSION

SECURITY AGREEMENT

 

This SECURITY AGREEMENT (this “Agreement”), dated as of February 1, 2016, among the Persons listed on the signature pages hereof as “Grantors” and those additional entities that hereafter become parties hereto by executing the form of Joinder attached hereto as Annex 1 (each, a “Grantor” and collectively, the “Grantors”), and WELLS FARGO BANK, NATIONAL ASSOCIATION, a national banking association, in its capacity as collateral agent for each Senior Lender (in such capacity, together with its successors and assigns in such capacity, “Agent”).

 

W I T N E S S E T H:

 

WHEREAS, contemporaneously herewith, Twin Disc, Incorporated (“Parent”), Twin Disc International, S.P.R.L. (together with Parent, the “Borrowers”) and Wells Fargo Bank, National Association in its individual capacity (“Lender”) are entering into an Amended and Restated Credit Agreement dated as the date hereof (as from time to time amended, restated, supplemented, or otherwise modified from time to time, the “Credit Agreement”) pursuant to which Lender agrees to make certain financial accommodations available to the Borrowers from time to time pursuant to the terms and conditions thereof. As a condition to the effectiveness of the Credit Agreement Grantors are required to enter into this Agreement;

 

WHEREAS, pursuant to that certain Note Purchase and Private Shelf Agreement dated as of June 30, 2014 (as previously amended, the “Original Note Agreement”) by and among Parent and PGIM, Inc., The Prudential Insurance Company of America, Pruco Life Insurance Company, Pruco Life Insurance Company of New Jersey, Security Benefit Life Insurance Company, Inc., Prudential Annuities Life Assurance Corporation, Mutual of Omaha Insurance Company, the Noteholders have made certain financial accommodations available to Parent pursuant to the terms and conditions thereof; 

 

WHEREAS, contemporaneously herewith the Noteholders and Parent are entering into an Amendment No. 2 to Amended and Restated Note Purchase and Private Shelf Agreement (the “Second Amendment to Note Agreement”; the Original Note Agreement, as so amended and as hereafter further amended, restated, supplemented, or otherwise modified from time to time, the “Note Agreement”) pursuant to which the Grantors, as a condition thereof, are required to enter into this Agreement;

 

WHEREAS, contemporaneously herewith, the Grantors (other than Parent) are entering into (a) a Subsidiary Guaranty with the Lender (the “Wells Guaranty”) and (b) a Subsidiary Guaranty with the Noteholders (together with the Wells Guaranty, the “Secured Guarantees”) pursuant to which certain of the the Grantors irrevocably and unconditionally guarantee the obligations of the Borrowers under the Senior Agreements, as applicable. 

 

WHEREAS, contemporaneously herewith Lender, the Noteholders and Agent are entering into an Intercreditor and Collateral Agency Agreement dated as of the date hereof (as amended, restated, supplemented, or otherwise modified from time to time, the “Intercreditor Agreement”) pursuant to which Lender and the Noteholders appoint Agent to act on their behalf in executing and delivering this Agreement and which agreement provides for, among other things, the sharing of the benefits of the collateral pledged pursuant to this Agreement; 

 

 

 

 

 

WHEREAS, in order to induce Lender to enter into the Credit Agreement and to extend credit under the Credit Agreement and to induce the Noteholders to enter into the Second Amendment to Note Agreement and continue to extend credit under the Note Agreement Grantors have agreed to grant to Agent, for the benefit of the Senior Lender Group, a continuing security interest in and to the Collateral in order to secure the prompt and complete payment, observance and performance of the Secured Obligations.

 

NOW, THEREFORE, for and in consideration of the recitals made above and other good and valuable consideration, the receipt, sufficiency and adequacy of which are hereby acknowledged, the parties hereto agree as follows: 

 

1.     Definitions; Construction.

 

(a)     All initially capitalized terms used herein (including in the preamble and recitals hereof) without definition shall (except as otherwise provided herein) have the meanings ascribed thereto in the Intercreditor Agreement. Any terms (whether capitalized or lower case) used in this Agreement that are defined in the Code shall be construed and defined as set forth in the Code unless otherwise defined herein or in the Intercreditor Agreement; provided that to the extent that the Code is used to define any term used herein and if such term is defined differently in different Articles of the Code, the definition of such term contained in Article 9 of the Code shall govern. In addition to those terms defined elsewhere in this Agreement, as used in this Agreement, the following terms shall have the following meanings:

 

(i)     “Account” means an account (as that term is defined in Article 9 of the Code).

 

(ii)     “Account Debtor” means an account debtor (as that term is defined in the Code).

 

(iii)     “Agent” has the meaning specified therefor in the preamble to this Agreement.

 

(iv)     “Agreement” has the meaning specified therefor in the preamble to this Agreement.

 

(v)     “Bankruptcy Code” means title 11 of the United States Code, as in effect from time to time.

 

(vi)     “Books” means books and records (including each Grantor’s Records indicating, summarizing, or evidencing such Grantor’s assets (including the Collateral) or liabilities, each Grantor’s Records relating to such Grantor’s business operations or financial condition, and each Grantor’s goods or General Intangibles related to such information).

 

 

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(vii)     “Borrowers” has the meaning specified therefor in the recitals to this Agreement; provided, however, that such term shall be interpreted giving effect to Section 10.23 of the Credit Agreement1.

 

(viii)     “CFC” has the meaning specified therefor in the Credit Agreement.

 

(ix)     “Chattel Paper” means chattel paper (as that term is defined in the Code), and includes tangible chattel paper and electronic chattel paper.

 

(x)     “Code” means the New York Uniform Commercial Code, as in effect from time to time; provided, however, that in the event that, by reason of mandatory provisions of law, any or all of the attachment, perfection, priority, or remedies with respect to the Lien created hereby on any Collateral is governed by the Uniform Commercial Code as enacted and in effect in a jurisdiction other than the State of New York, the term “Code” shall mean the Uniform Commercial Code as enacted and in effect in such other jurisdiction solely for purposes of the provisions thereof relating to such attachment, perfection, priority, or remedies.

 

(xi)     “Collateral” has the meaning specified therefor in Section 2.

 

(xii)     “Commercial Tort Claims” means commercial tort claims (as that term is defined in the Code), and includes those commercial tort claims listed on Schedule 8.

 

(xiii)     “Copyrights” means any and all rights in any works of authorship, including (A) copyrights and moral rights, (B) copyright registrations and recordings thereof and all applications in connection therewith including those listed on Schedule 2, (C) income, license fees, royalties, damages, and payments now and hereafter due or payable under and with respect thereto, including payments under all licenses entered into in connection therewith and damages and payments for past, present, or future infringements thereof, (D) the right to sue for past, present, and future infringements thereof, and (E) all of each Grantor’s rights corresponding thereto throughout the world.

 

(xiv)     “Copyright Security Agreement” means each Copyright Security Agreement executed and delivered by the Grantors, or any of them, and Agent, in a form satisfactory to Agent.

 

(xv)     “Credit Agreement” has the meaning specified therefor in the recitals to this Agreement.

 

(xvi)     “Deposit Account” means a deposit account (as that term is defined in the Code).

 

(xvii)     “Equipment” means equipment (as that term is defined in the Code).

 

(xviii)     “Equity Interests” has the meaning specified therefor in the Credit Agreement. 

 

 

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(xix)     “Fixtures” means fixtures (as that term is defined in the Code).

 

(xx)     “Grantors” and “Grantor” have the respective meanings specified therefor in the preamble to this Agreement.

 

(xxi)     “Guarantied Obligations” means all obligations of the Guarantors arising under the Guarantees.

 

(xxii)     “Guarantors” means each of the Grantors except for Parent.

 

(xxiii)     “General Intangibles” means general intangibles (as that term is defined in the Code), and includes payment intangibles, software, contract rights, rights to payment, rights under Hedge Agreements (including the right to receive payment on account of the termination (voluntarily or involuntarily) of such Hedge Agreements), rights arising under common law, statutes, or regulations, choses or things in action, goodwill, Intellectual Property, Intellectual Property Licenses, purchase orders, customer lists, monies due or recoverable from pension funds, route lists, rights to payment and other rights under any royalty or licensing agreements, including Intellectual Property Licenses, infringement claims, pension plan refunds, pension plan refund claims, insurance premium rebates, tax refunds, and tax refund claims, interests in a partnership or limited liability company which do not constitute a security under Article 8 of the Code, and any other personal property other than Commercial Tort Claims, money, Accounts, Chattel Paper, Deposit Accounts, goods, Investment Property, Negotiable Collateral, and oil, gas, or other minerals before extraction.

 

(xxiv)     “Hedge Agreement” means a “swap agreement” as that term is defined in Section 101(53B)(A) of the Bankruptcy Code.

 

(xxv)     “Insolvency Proceeding” means any proceeding commenced by or against any Person under any provision of the Bankruptcy Code or under any other state or federal bankruptcy or insolvency law, assignments for the benefit of creditors, formal or informal moratoria, compositions, extensions generally with creditors, or proceedings seeking reorganization, arrangement, or other similar relief.

 

(xxvi)     “Intellectual Property” means any and all Patents, Copyrights, Trademarks, trade secrets, know-how, inventions (whether or not patentable), algorithms, software programs (including source code and object code), processes, product designs, industrial designs, blueprints, drawings, data, customer lists, URLs and domain names, specifications, documentations, reports, catalogs, literature, and any other forms of technology or proprietary information of any kind, including all rights therein and all applications for registration or registrations thereof.

 

(xxvii)     “Intellectual Property Licenses” means, with respect to any Person (the “Specified Party”), (A) any licenses or other similar rights provided to the Specified Party in or with respect to Intellectual Property owned or controlled by any other Person, and (B) any licenses or other similar rights provided to any other Person in or with respect to Intellectual Property owned or controlled by the Specified Party, in each case, including (x) any software license agreements (other than license agreements for commercially available off-the-shelf software that is generally available to the public which have been licensed to a Grantor pursuant to end-user licenses), (y) the license agreements listed on Schedule 3 and (z) the right to use any of the licenses or other similar rights described in this definition in connection with the enforcement of the Senior Lender Group’s rights under the Senior Agreements.

 

 

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(xxviii)     “Inventory” means inventory (as that term is defined in the Code).

 

(xxix)     “Investment Property” means (A) any and all investment property (as that term is defined in the Code), and (B) any and all of the following (regardless of whether classified as investment property under the Code): all Pledged Interests, Pledged Operating Agreements, and Pledged Partnership Agreements.

 

(xxx)     “Joinder” means each Joinder to this Agreement executed and delivered by Agent and each of the other parties listed on the signature pages thereto, in substantially the form of Annex 1.

 

(xxxi)     “Lender” has the meaning specified therefor in the recitals to this Agreement.

 

(xxxii)     “Letter of Credit” has the meaning specified therefor in the Credit Agreement.

 

(xxxiii)     “Liens” has the meaning specified therefor in the Credit Agreement.

 

(xxxiv)     “Negotiable Collateral” means letters of credit, letter-of-credit rights, instruments, promissory notes, drafts and documents (as each such term is defined in the Code).

 

(xxxv)     “Noteholder” means each from time to time holder of a Note (as defined in the Note Agreement).

 

(xxxvi)     “Parent” has the meaning specified therefor in the recitals to this Agreement.

 

(xxxvii)     “Patents” means patents and patent applications, including (A) the patents and patent applications listed on Schedule 4, all continuations, divisionals, continuations-in-part, re-examinations, reissues, and renewals thereof and improvements thereon, (B) all income, royalties, damages and payments now and hereafter due or payable under and with respect thereto, including payments under all licenses entered into in connection therewith and damages and payments for past, present, or future infringements thereof, (C) the right to sue for past, present, and future infringements thereof, and (D) all of each Grantor’s rights corresponding thereto throughout the world.

 

(xxxviii)     “Patent Security Agreement” means each Patent Security Agreement executed and delivered by the Grantors, or any of them, and Agent, in form satisfactory to Agent.

 

 

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(xxxix)     “Permitted Liens” means Liens which are “Permitted Liens” as defined in both the Credit Agreement and the Note Agreement.

 

(xl)     “Person” has the meaning specified therefor in the Credit Agreement.

 

(xli)     “Pledged Companies” means each Person listed on Schedule 5 as a “Pledged Company”, together with each other Person, all or a portion of whose Equity Interests are acquired or otherwise owned by a Grantor after the Closing Date.

 

(xlii)     “Pledged Interests” means all of each Grantor’s right, title and interest in and to all of the Equity Interests now owned or hereafter acquired by such Grantor, regardless of class or designation, including in each of the Pledged Companies, and all substitutions therefor and replacements thereof, all proceeds thereof and all rights relating thereto, also including any certificates representing the Equity Interests, the right to receive any certificates representing any of the Equity Interests, all warrants, options, share appreciation rights and other rights, contractual or otherwise, in respect thereof and the right to receive all dividends, distributions of income, profits, surplus, or other compensation by way of income or liquidating distributions, in cash or in kind, and all cash, instruments, and other property from time to time received, receivable, or otherwise distributed in respect of or in addition to, in substitution of, on account of, or in exchange for any or all of the foregoing.

 

(xliii)     “Pledged Interests Addendum” means a Pledged Interests Addendum in form satisfactory to Agent.

 

(xliv)     “Pledged Operating Agreements” means all of each Grantor’s rights, powers, and remedies under the limited liability company operating agreements of each of the Pledged Companies that are limited liability companies.

 

(xlv)     “Pledged Partnership Agreements” means all of each Grantor’s rights, powers, and remedies under the partnership agreements of each of the Pledged Companies that are partnerships.

 

(xlvi)     “Proceeds” has the meaning specified therefor in Section 2(q).

 

(xlvii)     “Prudential Guaranty” means that certain Guaranty Agreement entered into between the Noteholders and the Guarantors contemporaneously herewith.

 

(xlviii)     “PTO” means the United States Patent and Trademark Office.

 

(xlix)     “Record” means information that is inscribed on a tangible medium or which is stored in an electronic or other medium and is retrievable in perceivable form.

 

(l)     “Revolving Credit Commitment” has the meaning specified therefor in the Credit Agreement.

 

 

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(li)     “Secured Obligations” means all obligations of the Borrowers under the Senior Agreements (including without limitation all “Obligations” (as defined in the Credit Agreement), all Collateral Agent Obligations of Parent and all Guarantied Obligations).

 

(lii)     “Securities Account” means a securities account (as that term is defined in the Code).

 

(liii)     “Security Interest” has the meaning specified therefor in Section 2.

 

(liv)     “Senior Agreements” means the Loan Documents (as defined in the Credit Agreement), the Note Agreement and the other Transaction Documents (as defined in the Note Agreement).

 

(lv)     “Senior Lender Group” means the Senior Lenders and Agent.

 

(lvi)     “Senior Lenders” means the Lender and the Noteholders.

 

(lvii)     “Supporting Obligations” means supporting obligations (as such term is defined in the Code), and includes letters of credit and guaranties issued in support of Accounts, Chattel Paper, documents, General Intangibles, instruments or Investment Property.

 

(lviii)      “Trademarks” means any and all trademarks, trade names, registered trademarks, trademark applications, service marks, registered service marks and service mark applications, including (A) the trade names, registered trademarks, trademark applications, registered service marks and service mark applications listed on Schedule 6, (B) all renewals thereof, (C) all income, royalties, damages and payments now and hereafter due or payable under and with respect thereto, including payments under all licenses entered into in connection therewith and damages and payments for past or future infringements or dilutions thereof, (D) the right to sue for past, present and future infringements and dilutions thereof, (E) the goodwill of each Grantor’s business symbolized by the foregoing or connected therewith, and (F) all of each Grantor’s rights corresponding thereto throughout the world.

 

(lix)     “Trademark Security Agreement” means each Trademark Security Agreement executed and delivered by Grantors, or any of them, and Agent, in a form satisfactory to Agent.

 

(lx)     “URL” means “uniform resource locator,” an internet web address.

 

 

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(b)     Unless the context of this Agreement clearly requires otherwise, references to the plural include the singular, references to the singular include the plural, the terms “includes” and “including” are not limiting, and the term “or” has, except where otherwise indicated, the inclusive meaning represented by the phrase “and/or.” The words “hereof,” “herein,” “hereby,” “hereunder,” and similar terms in this Agreement refer to this Agreement as a whole and not to any particular provision of this Agreement. Section, subsection, clause, schedule, and exhibit references herein are to this Agreement unless otherwise specified. Any reference in this Agreement to any agreement, instrument, or document shall include all alterations, amendments, changes, extensions, modifications, renewals, replacements, substitutions, joinders, and supplements, thereto and thereof, as applicable (subject to any restrictions on such alterations, amendments, changes, extensions, modifications, renewals, replacements, substitutions, joinders, and supplements set forth herein or in the applicable Senior Agreement). The words “asset” and “property” shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties. Any reference herein to the satisfaction, repayment, or payment in full of the Secured Obligations shall mean (i) the payment or repayment in full in immediately available funds of (A) the principal amount of, and interest accrued with respect to, all loans and notes outstanding under the Senior Agreements, together with the payment of any premium applicable to the repayment of such loans and notes and (B) all fees, expenses and charges payable by Parent pursuant to any Senior Agreement that have accrued regardless of whether demand has been made therefor, (ii) in the case of contingent reimbursement obligations with respect to Letters of Credit, providing cash collateralization therefor as provided in the Credit Agreement, (iii) the receipt by Agent of cash collateral in order to secure any other contingent Secured Obligations for which a claim or demand for payment has been made at such time or in respect of matters or circumstances known to Agent or a Senior Lender at the time that are reasonably expected to result in any loss, cost, damage or expense (including attorneys’ fees and legal expenses), such cash collateral to be in such amount as Agent reasonably determines is appropriate to secure such contingent Secured Obligations, (iv) the payment or repayment in full in immediately available funds of all other Secured Obligations and (v) the termination of the Revolving Credit Commitment. Any reference herein to any Person shall be construed to include such Person’s successors and assigns. Any requirement of a writing contained herein shall be satisfied by the transmission of a Record. 

 

(c)     All of the schedules attached to this Agreement shall be deemed incorporated herein by reference.

 

2.     Grant of Security. Each Grantor hereby unconditionally grants, assigns, and pledges to Agent, for the benefit of Agent and each Senior Lender, to secure the Secured Obligations, a continuing security interest (hereinafter referred to as the “Security Interest”) in all of such Grantor’s right, title, and interest in and to all of such Grantor’s personal property of every kind and nature, whether now owned or hereafter acquired or arising and wherever located, including without limitation the following (the “Collateral”):

 

(a)     all of such Grantor’s Accounts;

 

(b)     all of such Grantor’s Books;

 

(c)     all of such Grantor’s Chattel Paper;

 

(d)     all of such Grantor’s Commercial Tort Claims;

 

(e)     all of such Grantor’s Deposit Accounts;

 

(f)     all of such Grantor’s Equipment;

 

 

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(g)     all of such Grantor’s Fixtures;

 

(h)     all of such Grantor’s General Intangibles;

 

(i)     all of such Grantor’s Inventory;

 

(j)     all of such Grantor’s Investment Property;

 

(k)     all of such Grantor’s Intellectual Property and Intellectual Property Licenses;

 

(l)     all of such Grantor’s Negotiable Collateral;

 

(m)     all of such Grantor’s Pledged Interests (including all of such Grantor’s Pledged Operating Agreements and Pledged Partnership Agreements); provided that the Pledged Interests shall not constitute Collateral until the earlier of the date that is sixty (60) days after the Closing Date and the date upon which Parent has satisfied its obligations under Section 7.17(f) of the Credit Agreement;

 

(n)     all of such Grantor’s Securities Accounts;

 

(o)     all of such Grantor’s Supporting Obligations;

 

(p)     all of such Grantor’s money, cash equivalents, or other assets of such Grantor that now or hereafter come into the possession, custody, or control of Agent (or its agent or designee) or any member of the Senior Lender Group; and

 

(q)     all of the proceeds (as such term is defined in the Code) and products, whether tangible or intangible, of any of the foregoing, including proceeds of insurance or Commercial Tort Claims covering or relating to any or all of the foregoing, and any and all Accounts, Books, Chattel Paper, Deposit Accounts, Equipment, Fixtures, General Intangibles, Inventory, Investment Property, Intellectual Property, Negotiable Collateral, Pledged Interests (subject to the proviso contained in Section 2(m)), Securities Accounts, Supporting Obligations, money, or other tangible or intangible property resulting from the sale, lease, license, exchange, collection, or other disposition of any of the foregoing, the proceeds of any award in condemnation with respect to any of the foregoing, any rebates or refunds, whether for taxes or otherwise, and all proceeds of any such proceeds, or any portion thereof or interest therein, and the proceeds thereof, and all proceeds of any loss of, damage to, or destruction of the above, whether insured or not insured, and, to the extent not otherwise included, any indemnity, warranty, or guaranty payable by reason of loss or damage to, or otherwise with respect to any of the foregoing (the “Proceeds”). Without limiting the generality of the foregoing, the term “Proceeds” includes whatever is receivable or received when Investment Property or proceeds are sold, exchanged, collected, or otherwise disposed of, whether such disposition is voluntary or involuntary, and includes proceeds of any indemnity or guaranty payable to any Grantor or Agent from time to time with respect to any of the Investment Property.

 

 

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Notwithstanding anything contained in this Agreement to the contrary, the term “Collateral” shall not include: (i) voting Equity Interests of any CFC, solely to the extent that (y) such Equity Interests represent more than 65% of the outstanding voting Equity Interests of such CFC, and (z) pledging or hypothecating more than 65% of the total outstanding voting Equity Interests of such CFC would result in adverse tax consequences or the costs to the Grantors of providing such pledge are unreasonably excessive (as determined by Agent in consultation with Borrower) in relation to the benefits to Agent and the Senior Lenders of the security afforded thereby (which pledge, if reasonably requested by Agent, shall be governed by the laws of the jurisdiction of such Subsidiary); (ii) Equity Interests in any Subsidiary that is not a Domestic Subsidiary except for the Equity Interests in (A) Twin Disc International, S.P.R.L., (B) Mill Log Wilson Equipment and (C) Twin Disc S.r.l. or (iii) any rights or interest in any contract, lease, permit, license, or license agreement covering real or personal property of any Grantor if under the terms of such contract, lease, permit, license, or license agreement, or applicable law with respect thereto, the grant of a security interest or lien therein is prohibited as a matter of law or under the terms of such contract, lease, permit, license, or license agreement and such prohibition or restriction has not been waived or the consent of the other party to such contract, lease, permit, license, or license agreement has not been obtained (provided, that, (A) the foregoing exclusions of this clause (iii) shall in no way be construed (1) to apply to the extent that any described prohibition or restriction is ineffective under Section 9-406, 9-407, 9-408, or 9-409 of the Code or other applicable law, or (2) to apply to the extent that any consent or waiver has been obtained that would permit Agent’s security interest or lien to attach notwithstanding the prohibition or restriction on the pledge of such contract, lease, permit, license, or license agreement and (B) the foregoing exclusions of clauses (i), (ii) and (iii) shall in no way be construed to limit, impair, or otherwise affect any of Agent’s or any Senior Lenders’ continuing security interests in and liens upon any rights or interests of any Grantor in or to (1) monies due or to become due under or in connection with any described contract, lease, permit, license, license agreement, or Equity Interests (including any Accounts or Equity Interests), or (2) any proceeds from the sale, license, lease, or other dispositions of any such contract, lease, permit, license, license agreement, or Equity Interests); or (iv) any United States intent-to-use trademark applications to the extent that, and solely during the period in which, the grant of a security interest therein would impair the validity or enforceability of such intent-to-use trademark applications under applicable federal law, provided that upon submission and acceptance by the PTO of an amendment to allege use pursuant to 15 U.S.C. Section 1060(a) (or any successor provision), such intent-to-use trademark application shall be considered Collateral.

 

3.     Security for Secured Obligations. The Security Interest created hereby secures the payment and performance of the Secured Obligations, whether now existing or arising hereafter. Without limiting the generality of the foregoing, this Agreement secures the payment of all amounts which constitute part of the Secured Obligations and would be owed by Grantors to Agent, the Senior Lenders, or any of them, but for the fact that they are unenforceable or not allowable (in whole or in part) as a claim in an Insolvency Proceeding involving any Grantor due to the existence of such Insolvency Proceeding.

 

4.     Grantors Remain Liable. Anything herein to the contrary notwithstanding, (a) each of the Grantors shall remain liable under the contracts and agreements included in the Collateral, to perform all of the duties and obligations thereunder to the same extent as if this Agreement had not been executed, (b) the exercise by Agent or any other Senior Lender of any of the rights hereunder shall not release any Grantor from any of its duties or obligations under such contracts and agreements included in the Collateral, and (c) no Senior Lender shall have any obligation or liability under such contracts and agreements included in the Collateral by reason of this Agreement, nor shall any Senior Lender be obligated to perform any of the obligations or duties of any Grantors thereunder or to take any action to collect or enforce any claim for payment assigned hereunder. Until an Event of Default shall occur and be continuing, except as otherwise provided in this Agreement or any Senior Agreement, Grantors shall have the right to possession and enjoyment of the Collateral for the purpose of conducting the ordinary course of its business, subject to and upon the terms hereof and of the Senior Agreements. Without limiting the generality of the foregoing, it is the intention of the parties hereto that, after Pledged Interests have become Collateral pursuant to the proviso to Section 2(m), record and beneficial ownership of the Pledged Interests, including all voting, consensual, dividend, and distribution rights, shall remain in the applicable Grantor until (i) the occurrence and continuance of an Event of Default and (ii) Agent has notified the applicable Grantor of Agent’s election to exercise such rights with respect to the Pledged Interests pursuant to Section 16.

 

 

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5.     Representations and Warranties. In order to induce Agent to enter into this Agreement for the benefit of the Senior Lender Group, each Grantor makes the following representations and warranties to the Senior Lenders which shall be true, correct, and complete, as of the date hereof, and shall be true, correct, and complete, as of the date of the making of each loan (or other extension of credit) made thereafter pursuant to the Credit Agreement and each issuance of a Note (as defined in the Note Agreement) pursuant to the Note Agreement, as though made on and as of the date of such loan (or other extension of credit) or the issuance of such Note and such representations and warranties shall survive the execution and delivery of this Agreement:

 

(a)     The name (within the meaning of Section 9-503 of the Code) and jurisdiction of organization of each Grantor is set forth on Schedule 1 (as such Schedule may be updated from time to time to reflect changes resulting from transactions permitted under all applicable Senior Agreements).

 

(b)     The chief executive office of each Grantor is located at the address indicated on Schedule 1 (as such Schedule may be updated from time to time to reflect changes resulting from transactions permitted under all applicable Senior Agreements).

 

(c)     Each Grantor’s tax identification number and organizational identification number, if any, are identified on Schedule 1 (as such Schedule may be updated from time to time to reflect changes resulting from transactions permitted under all applicable Senior Agreements).

 

(d)     As of the Closing Date, no Grantor holds any commercial tort claims that exceed $$1,000,000 in amount, except as set forth on Schedule 8.

  

(e)     (i) Schedule 2 provides a complete and correct list of all registered Copyrights owned by any Grantor, all applications for registration of Copyrights owned by any Grantor, and all other Copyrights owned by any Grantor and material to the conduct of the business of any Grantor; (ii) Schedule 3 provides a complete and correct list of all Intellectual Property Licenses entered into by any Grantor pursuant to which (A) any Grantor has provided any license or other rights in Intellectual Property owned or controlled by such Grantor to any other Person (other than non-exclusive software licenses granted in the ordinary course of business) or (B) any Person has granted to any Grantor any license or other rights in Intellectual Property owned or controlled by such Person that is material to the business of such Grantor, including any Intellectual Property that is incorporated in any Inventory, software, or other product marketed, sold, licensed, or distributed by such Grantor; (iii) Schedule 4 provides a complete and correct list of all Patents owned by any Grantor and all applications for Patents owned by any Grantor; and (iv) Schedule 6 provides a complete and correct list of all registered Trademarks owned by any Grantor, all applications for registration of Trademarks owned by any Grantor, and all other Trademarks owned by any Grantor and material to the conduct of the business of any Grantor. The foregoing representation shall not be deemed made until, and shall be deemed made only as of, the date the Grantors comply with Section 28.

 

 

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(f)     Each Grantor owns exclusively or holds licenses in all Intellectual Property that is necessary in or material to the conduct of its business, and all employees and contractors of each Grantor who were involved in the creation or development of any Intellectual Property for such Grantor that is necessary in or material to the business of such Grantor have signed agreements containing assignment of Intellectual Property rights to such Grantor and obligations of confidentiality;

 

(g)     This Agreement creates a valid security interest in the Collateral of each Grantor, to the extent a security interest therein can be created under the Code, securing the payment of the Secured Obligations. Except to the extent a security interest in the Collateral cannot be perfected by the filing of a financing statement under the Code, all filings and other actions necessary or desirable to perfect and protect such security interest have been duly taken or will have been taken upon the filing of financing statements listing each applicable Grantor, as a debtor, and Agent, as secured party, in the jurisdictions listed next to such Grantor’s name on Schedule 7. Upon the making of such filings, Agent shall have a first priority perfected security interest in the Collateral of each Grantor to the extent such security interest can be perfected by the filing of a financing statement. All action by any Grantor necessary to protect and perfect such security interest on each item of Collateral has been duly taken.

 

(h)      (i) Except for the Security Interest created hereby, each Grantor is and will at all times be the sole holder of record and the legal and beneficial owner, free and clear of all Liens other than Permitted Liens, of the Pledged Interests indicated on Schedule 5 as being owned by such Grantor and, when acquired by such Grantor, any Pledged Interests acquired after the Closing Date; (ii) all of the Pledged Interests are duly authorized, validly issued, fully paid and nonassessable and the Pledged Interests constitute or will constitute the percentage of the issued and outstanding Equity Interests of the Pledged Companies of such Grantor identified on Schedule 5 as supplemented or modified by any Pledged Interests Addendum or any Joinder to this Agreement; (iii) such Grantor has the right and requisite authority to pledge, the Investment Property pledged by such Grantor to Agent as provided herein; (iv) all actions necessary or desirable to perfect and establish the first priority of, or otherwise protect, Agent’s Liens in the Investment Property, and the proceeds thereof, have been duly taken, upon (A) the execution and delivery of this Agreement; (B) the taking of possession by Agent (or its agent or designee) of any certificates representing the Pledged Interests, together with undated powers (or other documents of transfer acceptable to Agent) endorsed in blank by the applicable Grantor; (C) the filing of financing statements in the applicable jurisdiction set forth on Schedule 7 for such Grantor with respect to the Pledged Interests of such Grantor that are not represented by certificates, and (D) with respect to any Securities Accounts, the delivery of Control Agreements with respect thereto; and (v) each Grantor has delivered to and deposited with Agent all certificates representing the Pledged Interests owned by such Grantor to the extent such Pledged Interests are represented by certificates, and undated powers (or other documents of transfer acceptable to Agent) endorsed in blank with respect to such certificates. None of the Pledged Interests owned or held by such Grantor has been issued or transferred in violation of any securities registration, securities disclosure, or similar laws of any jurisdiction to which such issuance or transfer may be subject. The foregoing representation shall not be deemed made until the date Pledged Interests become Collateral pursuant to the proviso to Section 2(m).

 

 

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(i)     No consent, approval, authorization, or other order or other action by, and no notice to or filing with, any Governmental Authority or any other Person is required (i) for the grant of a Security Interest by such Grantor in and to the Collateral pursuant to this Agreement or for the execution, delivery, or performance of this Agreement by such Grantor, or (ii) for the exercise by Agent of the voting or other rights provided for in this Agreement with respect to the Investment Property or the remedies in respect of the Collateral pursuant to this Agreement, except as may be required in connection with such disposition of Investment Property by laws affecting the offering and sale of securities generally and except for consents, approvals, authorizations, or other orders or actions that have been obtained or given (as applicable) and that are still in force. No Intellectual Property License of any Grantor that is necessary in or material to the conduct of such Grantor’s business requires any consent of any other Person that has not been obtained in order for such Grantor to grant the security interest granted hereunder in such Grantor’s right, title or interest in or to such Intellectual Property License.

 

(j)     As to all limited liability company or partnership interests issued under any Pledged Operating Agreement or Pledged Partnership Agreement, each Grantor hereby represents and warrants that the Pledged Interests issued pursuant to such agreement (A) are not dealt in or traded on securities exchanges or in securities markets, (B) do not constitute investment company securities, and (C) are not held by such Grantor in a Securities Account. In addition, subject to the proviso contained in Section 2(m), none of the Pledged Operating Agreements, the Pledged Partnership Agreements, or any other agreements governing any of the Pledged Interests issued under any Pledged Operating Agreement or Pledged Partnership Agreement, provide that such Pledged Interests are securities governed by Article 8 of the Uniform Commercial Code as in effect in any relevant jurisdiction. The foregoing representation shall not be deemed made until the date Pledged Interests become Collateral pursuant to the proviso to Section 2(m).

 

6.     Covenants. Each Grantor, jointly and severally, covenants and agrees with Agent that from and after the date of this Agreement and until the date of termination of this Agreement in accordance with Section 23:

 

(a)     Possession of Collateral. In the event that any Collateral, including Proceeds, is evidenced by or consists of Negotiable Collateral, Investment Property, or Chattel Paper having an aggregate value or face amount of $1,000,000 or more for all such Negotiable Collateral, Investment Property, or Chattel Paper, the Grantors shall promptly (and in any event within five (5) Business Days after acquisition thereof), notify Agent thereof, and if and to the extent that perfection or priority of Agent’s Security Interest is dependent on or enhanced by possession, the applicable Grantor, promptly (and in any event within five (5) Business Days) after request by Agent, shall execute such other documents and instruments as shall be requested by Agent or, if applicable, endorse and deliver physical possession of such Negotiable Collateral, Investment Property, or Chattel Paper to Agent, together with such undated powers (or other relevant document of transfer acceptable to Agent) endorsed in blank as shall be requested by Agent, and shall do such other acts or things deemed necessary or desirable by Agent to protect Agent’s Security Interest therein;

 

 

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(b)     Chattel Paper. 

 

(i)     Promptly (and in any event within five (5) Business Days) after request by Agent, each Grantor shall take all steps reasonably necessary to grant Agent control of all electronic Chattel Paper in accordance with the Code and all “transferable records” as that term is defined in Section 16 of the Uniform Electronic Transaction Act and Section 201 of the federal Electronic Signatures in Global and National Commerce Act as in effect in any relevant jurisdiction, to the extent that the aggregate value or face amount of such electronic Chattel Paper equals or exceeds $1,000,000;

 

(ii)     If any Grantor retains possession of any Chattel Paper or instruments (which retention of possession shall be subject to the extent permitted hereby and by the Credit Agreement), promptly upon the request of Agent, such Chattel Paper and instruments shall be marked with the following legend: “This writing and the obligations evidenced or secured hereby are subject to the Security Interest of Wells Fargo Bank, National Association, as Agent for the benefit of the Senior Lender Group”.

 

(c)     Letter-of-Credit Rights. If the Grantors (or any of them) are or become the beneficiary of letters of credit having a face amount or value of $1,000,000 or more in the aggregate, then the applicable Grantor or Grantors shall promptly (and in any event within five (5) Business Days after becoming a beneficiary), notify Agent thereof and, promptly (and in any event within five (5) Business Days) after request by Agent, enter into a tri-party agreement with Agent and the issuer or confirming bank with respect to letter-of-credit rights assigning such letter-of-credit rights to Agent and directing all payments thereunder to Agent’s Account, all in form and substance reasonably satisfactory to Agent;

 

(d)     Commercial Tort Claims. If the Grantors (or any of them) obtain Commercial Tort Claims having a value, or involving an asserted claim, in the amount of $1,000,000 or more in the aggregate for all Commercial Tort Claims, then the applicable Grantor or Grantors shall promptly (and in any event within five (5) Business Days of obtaining such Commercial Tort Claim), notify Agent upon incurring or otherwise obtaining such Commercial Tort Claims and, promptly (and in any event within five (5) Business Days) after request by Agent, amend Schedule 8 to describe such Commercial Tort Claims in a manner that reasonably identifies such Commercial Tort Claims and which is otherwise reasonably satisfactory to Agent, and hereby authorizes the filing of additional financing statements or amendments to existing financing statements describing such Commercial Tort Claims, and agrees to do such other acts or things deemed necessary or desirable by Agent to give Agent a first priority, perfected security interest in any such Commercial Tort Claim;

 

 

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(e)     Government Contracts. Other than Accounts and Chattel Paper the aggregate value of which does not at any one time exceed $1,000,000, if any Account or Chattel Paper arises out of a contract or contracts with the United States of America or any department, agency, or instrumentality thereof, Grantors shall promptly (and in any event within five (5) Business Days of the creation thereof) notify Agent thereof and, promptly (and in any event within five (5) Business Days) after request by Agent, execute any instruments or take any steps reasonably required by Agent in order that all moneys due or to become due under such contract or contracts shall be assigned to Agent, for the benefit of the Senior Lender Group, and shall provide written notice thereof under the Assignment of Claims Act or other applicable law; 

 

(f)     Intellectual Property.

 

(i)     Upon the request of Agent, in order to facilitate filings with the PTO and the United States Copyright Office, each Grantor shall execute and deliver to Agent one or more Copyright Security Agreements, Trademark Security Agreements, or Patent Security Agreements to further evidence Agent’s Lien on such Grantor’s Patents, Trademarks, or Copyrights, and the General Intangibles of such Grantor relating thereto or represented thereby;

 

(ii)     Each Grantor shall have the duty, with respect to Intellectual Property that is necessary in or material to the conduct of such Grantor’s business, to protect and diligently enforce and defend at such Grantor’s expense its Intellectual Property, including (A) to diligently enforce and defend, including promptly suing for infringement, misappropriation, or dilution and to recover any and all damages for such infringement, misappropriation, or dilution, and filing for opposition, interference, and cancellation against conflicting Intellectual Property rights of any Person, (B) to prosecute diligently any trademark application or service mark application that is part of the Trademarks pending as of the date hereof or hereafter until the termination of this Agreement, (C) to prosecute diligently any patent application that is part of the Patents pending as of the date hereof or hereafter until the termination of this Agreement, (D) to take all reasonable and necessary action to preserve and maintain all of such Grantor’s Trademarks, Patents, Copyrights, Intellectual Property Licenses, and its rights therein, including paying all maintenance fees and filing of applications for renewal, affidavits of use, and affidavits of noncontestability, and (E) to require all employees, consultants, and contractors of each Grantor who were involved in the creation or development of such Intellectual Property to sign agreements containing assignment of Intellectual Property rights and obligations of confidentiality. Each Grantor further agrees not to abandon any Intellectual Property or Intellectual Property License that is necessary in or material to the conduct of such Grantor’s business. Each Grantor hereby agrees to take the steps described in this Section 6(f)(ii) with respect to all new or acquired Intellectual Property to which it or any of its Subsidiaries is now or later becomes entitled that is necessary in or material to the conduct of such Grantor’s business;

 

(iii)     Grantors acknowledge and agree that the Senior Lender Group shall have no duties with respect to any Intellectual Property or Intellectual Property Licenses of any Grantor. 

 

 

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(g)     Investment Property.

 

(i)     If any Grantor shall acquire, obtain, receive or become entitled to receive any Pledged Interests after the Closing Date, it shall promptly (and in any event within five (5) Business Days of acquiring or obtaining such Collateral) deliver to Agent a duly executed Pledged Interests Addendum identifying such Pledged Interests;

 

(ii)     Upon the occurrence and during the continuance of an Event of Default, following the request of Agent, all sums of money and property paid or distributed in respect of the Investment Property that are received by any Grantor shall be held by the Grantors in trust for the benefit of Agent segregated from such Grantor’s other property, and such Grantor shall deliver it forthwith to Agent in the exact form received;

 

(iii)     Each Grantor shall promptly deliver to Agent a copy of each material notice or other material communication received by it in respect of any Pledged Interests;

 

(iv)     No Grantor shall make or consent to any amendment or other modification or waiver with respect to any Pledged Interests, Pledged Operating Agreement, or Pledged Partnership Agreement, or enter into any agreement or permit to exist any restriction with respect to any Pledged Interests if the same is prohibited pursuant to the Senior Agreements;

 

(v)     Each Grantor agrees that it will cooperate with Agent in obtaining all necessary approvals and making all necessary filings under federal, state, local, or foreign law to effect the perfection of the Security Interest on the Investment Property or to effect any sale or transfer thereof;

 

(vi)     As to all limited liability company or partnership interests, issued under any Pledged Operating Agreement or Pledged Partnership Agreement, each Grantor hereby covenants that the Pledged Interests issued pursuant to such agreement (A) are not and shall not be dealt in or traded on securities exchanges or in securities markets, (B) do not and will not constitute investment company securities, and (C) are not and will not be held by such Grantor in a securities account. In addition, subject to the proviso contained in Section 2(m), none of the Pledged Operating Agreements, the Pledged Partnership Agreements, or any other agreements governing any of the Pledged Interests issued under any Pledged Operating Agreement or Pledged Partnership Agreement, provide or shall provide that such Pledged Interests are securities governed by Article 8 of the Uniform Commercial Code as in effect in any relevant jurisdiction.

 

(vii)     The provisions of this Section 6(g) shall be applicable to Pledged Interests only at such time as they constitute Collateral pursuant to Section 2(m).

 

(h)     Transfers and Other Liens. Grantors shall not (i) sell, assign (by operation of law or otherwise) or otherwise dispose of, or grant any option with respect to, any of the Collateral, except as expressly permitted by the Credit Agreement and the Note Agreement, or (ii) create or permit to exist any Lien upon or with respect to any of the Collateral of any Grantor, except for Permitted Liens. The inclusion of Proceeds in the Collateral shall not be deemed to constitute Agent’s consent to any sale or other disposition of any of the Collateral except as expressly permitted in this Agreement or the other Senior Agreements;.

 

 

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(i)     Name, Etc. No Grantor will change its name, organizational identification number, jurisdiction of organization or organizational identity; provided, that any Grantor may change its name upon at least 10 days prior written notice to Agent of such change. 

 

7.     Relation to Other Documents. In the event of any conflict between any provision in this Agreement and a provision in the Intercreditor Agreement, such provision of the Intercreditor Agreement shall control.

 

8.     Patent, Trademark, Copyright Security Agreements. The provisions of any Copyright Security Agreements, Trademark Security Agreements, and Patent Security Agreements are supplemental to the provisions of this Agreement, and nothing contained in any Copyright Security Agreements, Trademark Security Agreements, or the Patent Security Agreements shall limit any of the rights or remedies of Agent hereunder. In the event of any conflict between any provision in this Agreement and a provision in a Copyright Security Agreement, Trademark Security Agreement or Patent Security Agreement, such provision of this Agreement shall control. 

 

9.     Further Assurances.

 

(a)     Each Grantor agrees that from time to time, at its own expense, such Grantor will promptly execute and deliver all further instruments and documents, and take all further action, that Agent may reasonably request, in order to perfect and protect the Security Interest granted hereby, to create, perfect or protect the Security Interest purported to be granted hereby or to enable Agent to exercise and enforce its rights and remedies hereunder with respect to any of the Collateral.

 

(b)     Each Grantor authorizes the filing by Agent of financing or continuation statements, or amendments thereto, and such Grantor will execute and deliver to Agent such other instruments or notices, as Agent may reasonably request, in order to perfect and preserve the Security Interest granted or purported to be granted hereby.

 

(c)     Each Grantor authorizes Agent at any time and from time to time to file, transmit, or communicate, as applicable, financing statements and amendments (i) describing the Collateral as “all personal property of debtor” or “all assets of debtor” or words of similar effect, (ii) describing the Collateral as being of equal or lesser scope or with greater detail, or (iii) that contain any information required by part 5 of Article 9 of the Code for the sufficiency or filing office acceptance. Each Grantor also hereby ratifies any and all financing statements or amendments previously filed by Agent in any jurisdiction.

 

(d)     Each Grantor acknowledges that it is not authorized to file any financing statement or amendment or termination statement with respect to any financing statement filed in connection with this Agreement without the prior written consent of Agent, subject to such Grantor’s rights under Section 9-509(d)(2) of the Code.

 

 

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10.     Agent’s Right to Perform Contracts, Exercise Rights, etc. Upon the occurrence and during the continuance of an Event of Default that has not been waived, Agent (or its designee) (a) may proceed to perform any and all of the obligations of any Grantor contained in any contract, lease, or other agreement and exercise any and all rights of any Grantor therein contained as fully as such Grantor itself could, (b) shall have the right to use any Grantor’s rights under Intellectual Property Licenses in connection with the enforcement of Agent’s rights hereunder, including the right to prepare for sale and sell any and all Inventory and Equipment now or hereafter owned by any Grantor and now or hereafter covered by such licenses and (c) shall have the right to request that any Equity Interests that are pledged hereunder be registered in the name of Agent or any of its nominees.

 

11.     Agent Appointed Attorney-in-Fact. Each Grantor hereby irrevocably appoints Agent its attorney-in-fact, with full authority in the place and stead of such Grantor and in the name of such Grantor or otherwise, at such time as an Event of Default has occurred and is continuing and which has not been waived, to take any action and to execute any instrument which Agent may reasonably deem necessary or advisable to accomplish the purposes of this Agreement, including:

 

(a)     to ask, demand, collect, sue for, recover, compromise, receive and give acquittance and receipts for moneys due and to become due under or in connection with the Accounts or any other Collateral of such Grantor;

 

(b)     to receive, indorse, and collect any drafts or other instruments, documents,, Negotiable Collateral or Chattel Paper;

 

(c)     to 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 of such Grantor or otherwise to enforce the rights of Agent with respect to any of the Collateral;

 

(d)     to repair, alter, or supply goods, if any, necessary to fulfill in whole or in part the purchase order of any Person obligated to such Grantor in respect of any Account of such Grantor; 

 

(e)     to use any Intellectual Property or Intellectual Property Licenses of such Grantor, including but not limited to any labels, Patents, Trademarks, trade names, URLs, domain names, industrial designs, Copyrights, or advertising matter, in preparing for sale, advertising for sale, or selling Inventory or other Collateral and to collect any amounts due under Accounts, contracts or Negotiable Collateral of such Grantor; and

 

(f)     Agent, on behalf of the Senior Lender Group, shall have the right, but shall not be obligated, to bring suit in its own name to enforce the Intellectual Property and Intellectual Property Licenses and, if Agent shall commence any such suit, the appropriate Grantor shall, at the request of Agent, do any and all lawful acts and execute any and all proper documents reasonably required by Agent in aid of such enforcement. 

 

 

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To the extent permitted by law, each 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 until this Agreement is terminated.

 

12.     Agent May Perform. If any Grantor fails to perform any agreement contained herein, Agent may itself perform, or cause performance of, such agreement, and the reasonable expenses of Agent incurred in connection therewith shall be payable, jointly and severally, by Grantors.

 

13.     Agent’s Duties. The powers conferred on Agent hereunder are solely to protect Agent’s interest in the Collateral, for the benefit of the Senior Lender Group, and shall not impose any duty upon Agent to exercise any such powers. Except for the safe custody of any Collateral in its actual possession and the accounting for moneys actually received by it hereunder, Agent shall have no duty as to any Collateral or as to the taking of any necessary steps to preserve rights against prior parties or any other rights pertaining to any Collateral. Agent shall be deemed to have exercised reasonable care in the custody and preservation of any Collateral in its actual possession if such Collateral is accorded treatment substantially equal to that which Agent accords its own property.

 

14.     Collection of Accounts. At any time upon the occurrence and during the continuance of an Event of Default, Agent or Agent’s designee may (a) notify Account Debtors of any Grantor that the Accounts, General Intangibles, Chattel Paper or Negotiable Collateral of such Grantor have been assigned to Agent, for the benefit of the Senior Lender Group, or that Agent has a security interest therein, and (b) collect the Accounts, General Intangibles and Negotiable Collateral of any Grantor directly, and any collection costs and expenses shall constitute part of the Secured Obligations.

 

15.     Disposition of Pledged Interests by Agent. None of the Pledged Interests existing as of the date of this Agreement are, and none of the Pledged Interests hereafter acquired on the date of acquisition thereof will be, registered or qualified under the various federal or state securities laws of the United States and disposition thereof after an Event of Default may be restricted to one or more private (instead of public) sales in view of the lack of such registration. Each Grantor understands that in connection with such disposition, Agent may approach only a restricted number of potential purchasers and further understands that a sale under such circumstances may yield a lower price for the Pledged Interests than if the Pledged Interests were registered and qualified pursuant to federal and state securities laws and sold on the open market. Each Grantor, therefore, agrees that: (a) if Agent shall, pursuant to the terms of this Agreement, sell or cause the Pledged Interests or any portion thereof to be sold at a private sale, Agent shall have the right to rely upon the advice and opinion of any nationally recognized brokerage or investment firm (but shall not be obligated to seek such advice and the failure to do so shall not be considered in determining the commercial reasonableness of such action) as to the best manner in which to offer the Pledged Interest or any portion thereof for sale and as to the best price reasonably obtainable at the private sale thereof; and (b) such reliance shall be conclusive evidence that Agent has handled the disposition in a commercially reasonable manner.

 

 

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16.     Voting and Other Rights in Respect of Pledged Interests.

 

(a)     Upon the occurrence and during the continuation of an Event of Default, (i) Agent may, at its option, and with two (2) Business Days prior notice to any Grantor, and in addition to all rights and remedies available to Agent under any other agreement, at law, in equity, or otherwise, exercise all voting rights, or any other ownership or consensual rights (including any dividend or distribution rights) in respect of the Pledged Interests owned by such Grantor, but under no circumstances is Agent obligated by the terms of this Agreement to exercise such rights, and (ii) if Agent duly exercises its right to vote any of such Pledged Interests, each Grantor hereby appoints Agent, such Grantor’s true and lawful attorney-in-fact and IRREVOCABLE PROXY to vote such Pledged Interests in any manner Agent deems advisable for or against all matters submitted or which may be submitted to a vote of shareholders, partners or members, as the case may be. The power-of-attorney and proxy granted hereby is coupled with an interest and shall be irrevocable.

 

(b)     For so long as any Grantor shall have the right to vote the Pledged Interests owned by it, such Grantor covenants and agrees that it will not, without the prior written consent of Agent, vote or take any consensual action with respect to such Pledged Interests which would materially adversely affect the rights of Agent, the other members of the Senior Lender Group, or the value of the Pledged Interests.

 

(c)     The provisions of Sections 16(a) and 16(b) shall become effective upon the date upon which Pledged Interests become Collateral pursuant to Section 2(m).

 

17.     Remedies. Upon the occurrence and during the continuance of an Event of Default which has not been waived:

 

(a)     Agent may, and, at the instruction of the Required Senior Lenders, shall exercise in respect of the Collateral, in addition to other rights and remedies provided for herein, in the Senior Agreements, or otherwise available to it, all the rights and remedies of a secured party under the Code or any other applicable law. Without limiting the generality of the foregoing, each Grantor expressly agrees that, in any such event, Agent without demand of performance or other demand, advertisement or notice of any kind (except a notice specified below of time and place of public or private sale) to or upon any Grantor or any other Person (all and each of which demands, advertisements and notices are hereby expressly waived to the maximum extent permitted by the Code or any other applicable law), may take immediate possession of all or any portion of the Collateral and (i) require Grantors to, and each Grantor hereby agrees that it will at its own expense and upon request of Agent forthwith, assemble all or part of the Collateral as directed by Agent and make it available to Agent at one or more locations where such Grantor regularly maintains Inventory, and (ii) without notice except as specified below, sell the Collateral or any part thereof in one or more parcels at public or private sale, at any of Agent’s offices or elsewhere, for cash, on credit, and upon such other terms as Agent may deem commercially reasonable. Each Grantor agrees that, to the extent notification of sale shall be required by law, at least ten (10) days notification by mail to the applicable 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 and specifically such notification shall constitute a reasonable “authenticated notification of disposition” within the meaning of Section 9-611 of the Code. Agent shall not be obligated to make any sale of Collateral regardless of notification of sale having been given. Agent may adjourn any public 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. Each Grantor agrees that (A) the internet shall constitute a “place” for purposes of Section 9-610(b) of the Code and (B) to the extent notification of sale shall be required by law, notification by mail of the URL where a sale will occur and the time when a sale will commence at least ten (10) days prior to the sale shall constitute a reasonable notification for purposes of Section 9-611(b) of the Code. Each Grantor agrees that any sale of Collateral to a licensor pursuant to the terms of a license agreement between such licensor and a Grantor is sufficient to constitute a commercially reasonable sale (including as to method, terms, manner, and time) within the meaning of Section 9-610 of the Code.

 

 

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(b)     Agent is hereby granted a license or other right to use, without liability for royalties or any other charge, each Grantor’s Intellectual Property, including but not limited to, any labels, Patents, Trademarks, trade names, URLs, domain names, industrial designs, Copyrights, and advertising matter, whether owned by any Grantor or with respect to which any Grantor has rights under license, sublicense, or other agreements (including any Intellectual Property License), as it pertains to the Collateral, in preparing for sale, advertising for sale and selling any Collateral, and each Grantor’s rights under all licenses and all franchise agreements shall inure to the benefit of Agent.

 

(c)     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 shall be applied against the Secured Obligations in the order set forth in Section 5 of the Intercreditor Agreement. In the event the proceeds of Collateral are insufficient to satisfy all of the Secured Obligations in full, each Grantor shall remain jointly and severally liable for any such deficiency.

 

(d)     Each Grantor hereby acknowledges that the Secured Obligations arise out of a commercial transaction, and agrees that if an Event of Default shall occur and be continuing (and has not been waived) Agent shall have the right to an immediate writ of possession without notice of a hearing. Agent shall have the right to the appointment of a receiver for the properties and assets of each Grantor, and each Grantor hereby consents to such rights and such appointment and hereby waives any objection such Grantor may have thereto or the right to have a bond or other security posted by Agent.

 

(e)     Agent may, in addition to other rights and remedies provided for herein, in the other Senior Agreements or otherwise available to it under applicable law and without the requirement of notice to or upon any Grantor or any other Person (which notice is hereby expressly waived to the maximum extent permitted by the Code or any other applicable law), (i) with respect to any Grantor’s Deposit Accounts in which Agent’s Liens are perfected by control under Section 9-104 of the Code, instruct the bank maintaining such Deposit Account for the applicable Grantor to pay the balance of such Deposit Account to or for the benefit of Agent, and (ii) with respect to any Grantor’s Securities Accounts in which Agent’s Liens are perfected by control under Section 9-106 of the Code, instruct the securities intermediary maintaining such Securities Account for the applicable Grantor to (A) transfer any cash in such Securities Account to or for the benefit of Agent, or (B) liquidate any financial assets in such Securities Account that are customarily sold on a recognized market and transfer the cash proceeds thereof to or for the benefit of Agent.

 

 

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18.     Remedies Cumulative. Each right, power, and remedy of Agent or any Senior Lender, as provided for in this Agreement or any Senior Agreement, now or hereafter existing at law or in equity or by statute or otherwise shall be cumulative and concurrent and shall be in addition to every other right, power, or remedy provided for in this Agreement or the Senior Agreements, now or hereafter existing at law or in equity or by statute or otherwise, and the exercise or beginning of the exercise by Agent or any Senior Lender of any one or more of such rights, powers, or remedies shall not preclude the simultaneous or later exercise by Agent, such Senior Lender of any or all such other rights, powers, or remedies.

 

19.     Marshaling. Agent shall not be required to marshal any present or future collateral security (including but not limited to the Collateral) for, or other assurances of payment of, the Secured Obligations or any of them or to resort to such collateral security or other assurances of payment in any particular order, and all of its rights and remedies hereunder and in respect of such collateral security and other assurances of payment shall be cumulative and in addition to all other rights and remedies, however existing or arising. To the extent that it lawfully may, each Grantor hereby agrees that it will not invoke any law relating to the marshaling of collateral which might cause delay in or impede the enforcement of Agent’s rights and remedies under this Agreement or under any other instrument creating or evidencing any of the Secured Obligations or under which any of the Secured Obligations is outstanding or by which any of the Secured Obligations is secured or payment thereof is otherwise assured, and, to the extent that it lawfully may, each Grantor hereby irrevocably waives the benefits of all such laws.

 

20.     Indemnity and Expenses.

 

(a)     Each Grantor agrees to indemnify Agent and the Senior Lenders from and against all claims, lawsuits and liabilities (including reasonable attorneys’ fees) growing out of or resulting from this Agreement (including enforcement of this Agreement) or any other Senior Agreement to which such Grantor is a party, except claims, losses or liabilities resulting from the gross negligence or willful misconduct of the party seeking indemnification as determined by a final non-appealable order of a court of competent jurisdiction. This provision shall survive the termination of this Agreement and Senior Agreements and the repayment of the Secured Obligations.

 

(b)     Grantors, jointly and severally, shall, upon demand, pay to Agent the full amount of all payments, advances, charges, costs and expenses (including attorney’s fees and all reasonable field examination, appraisal, and valuation fees and expenses) which Agent may incur in connection with (i) the administration of this Agreement, (ii) the custody, preservation, use or operation of, or, upon an Event of Default, the sale of, collection from, or other realization upon, any of the Collateral in accordance with this Agreement and the Senior Agreements, (iii) the exercise or enforcement of any of the rights of Agent hereunder or (iv) the failure by Grantor to perform or observe any of the provisions hereof. 

 

(c)     No payment shall be required to be made by Grantors pursuant to this Section 20 to the extent it is duplicative of a payment made pursuant to Section 2(i) of the Intercreditor Agreement.

 

 

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21.     Merger, Amendments; Etc. THIS AGREEMENT, TOGETHER WITH THE SENIOR AGREEMENTS, REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN AGREEMENTS BETWEEN THE PARTIES. No waiver of any provision of this Agreement, and no consent to any departure by any Grantor herefrom, shall in any event be effective unless the same shall be in writing and signed by Agent, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. No amendment of any provision of this Agreement shall be effective unless the same shall be in writing and signed by Agent and each Grantor to which such amendment applies.

 

22.     Addresses for Notices. All notices and other communications provided for hereunder shall be given in the form and manner and delivered to Agent at its address specified in the Credit Agreement, and to any of the Grantors at their respective notice addresses specified in the Credit Agreement or Guaranty, as applicable, or, as to any party, at such other address as shall be designated by such party in a written notice to the other party.

 

23.     Continuing Security Interest: Assignments under Senior Agreements.

 

(a)     This Agreement shall create a continuing security interest in the Collateral and shall (i) remain in full force and effect until the Secured Obligations have been paid in full in accordance with the provisions of the Senior Agreements and the Revolving Credit Commitment has expired or have been terminated, (ii) be binding upon each Grantor, and its respective successors and assigns, and (iii) inure to the benefit of, and be enforceable by, Agent, and its successors, transferees and assigns. Without limiting the generality of the foregoing clause (iii), any Senior Lender may, in accordance with the provisions of the applicable Senior Agreement, assign or otherwise transfer all or any portion of its rights and obligations under such Senior Agreement to any other Person, and such other Person shall thereupon become vested with all the benefits in respect thereof granted to such Senior Lender herein or otherwise. Upon payment in full of the Secured Obligations in accordance with the provisions of the applicable Senior Agreements and the expiration or termination of the Revolving Credit Commitment, the Security Interest granted hereby shall terminate and all rights to the Collateral shall revert to Grantors or any other Person entitled thereto. At such time, upon Parent’s request, Agent will authorize the filing of appropriate termination statements to terminate such Security Interest. No transfer or renewal, extension, assignment, or termination of this Agreement or the Senior Agreements, or any other instrument or document executed and delivered by any Grantor to Agent nor any additional loans made by any Senior Lender to Parent, nor the taking of further security, nor the retaking or re-delivery of the Collateral to Grantors, or any of them, by Agent, nor any other act of the Senior Lenders, or any of them, shall release any Grantor from any obligation, except a release or discharge executed in writing by Agent in accordance with the provisions of the Intercreditor Agreement. Agent shall not by any act, delay, omission or otherwise, be deemed to have waived any of its rights or remedies hereunder, unless such waiver is in writing and signed by Agent and then only to the extent therein set forth. A waiver by Agent of any right or remedy on any occasion shall not be construed as a bar to the exercise of any such right or remedy which Agent would otherwise have had on any other occasion.

 

 

23

 

 

(b)     Each Grantor agrees that, if any payment made by any Grantor or other Person and applied to the Secured Obligations is at any time annulled, avoided, set aside, rescinded, invalidated, declared to be fraudulent or preferential or otherwise required to be refunded or repaid, or the proceeds of any Collateral are required to be returned by Agent or any Senior Lender to such Grantor, its estate, trustee, receiver or any other party, including any Grantor, under any bankruptcy law, state or federal law, common law or equitable cause, then, to the extent of such payment or repayment, any Lien or other Collateral securing such liability shall be and remain in full force and effect, as fully as if such payment had never been made. If, prior to any of the foregoing, (i) any Lien or other Collateral securing such Grantor’s liability hereunder shall have been released or terminated by virtue of the foregoing clause (a), or (ii) any provision of the Guaranty hereunder shall have been terminated, cancelled or surrendered, such Lien, other Collateral or provision shall be reinstated in full force and effect and such prior release, termination, cancellation or surrender shall not diminish, release, discharge, impair or otherwise affect the obligations of any such Grantor in respect of any Lien or other Collateral securing such obligation or the amount of such payment.

 

24.     Survival. All representations and warranties made by the Grantors in this Agreement and in the certificates or other instruments delivered in connection with or pursuant to this Agreement shall be considered to have been relied upon by the other parties hereto and shall survive the execution and delivery of this Agreement and the making of any loans and issuance of any Letters of Credit, regardless of any investigation made by any such other party or on its behalf and notwithstanding that Agent or any Senior Lender may have had notice or knowledge of any Default (as defined in either the Credit Agreement or the Note Agreement) or Event of Default or incorrect representation or warranty at the time any credit is extended hereunder, and shall continue in full force and effect as long as the principal of or any accrued interest on any loan or note or any fee or any other amount payable under a Senior Agreement is outstanding and unpaid or any Letter of Credit is outstanding and so long as the Revolving Credit Commitment has not expired or terminated.

 

25.     CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER; JUDICIAL REFERENCE PROVISION. 

 

(a)     THE VALIDITY OF THIS AGREEMENT, THE CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF, THE RIGHTS OF THE PARTIES HERETO WITH RESPECT TO ALL MATTERS ARISING HEREUNDER OR RELATED HERETO, AND ANY CLAIMS, CONTROVERSIES OR DISPUTES ARISING HEREUNDER OR RELATED HERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

 

(b)     THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS AGREEMENT SHALL BE TRIED AND LITIGATED ONLY IN THE STATE OF NEW YORK AND, TO THE EXTENT PERMITTED BY APPLICABLE LAW, FEDERAL COURTS LOCATED IN THE COUNTY OF NEW YORK, STATE OF NEW YORK; PROVIDED, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT AGENT’S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE AGENT ELECTS TO BRING SUCH ACTION OR WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. GRANTOR AND AGENT WAIVE, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 25(b).

 

 

24

 

 

(c)     TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, EACH GRANTOR AND AGENT HEREBY WAIVE THEIR RESPECTIVE RIGHTS, IF ANY, TO A JURY TRIAL OF ANY CLAIM, CONTROVERSY, DISPUTE OR CAUSE OF ACTION DIRECTLY OR INDIRECTLY BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS (EACH A “CLAIM”). EACH GRANTOR AND AGENT REPRESENT THAT EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.

 

(d)     EACH GRANTOR HEREBY IRREVOCABLY AND UNCONDITIONALLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF NEW YORK AND THE STATE OF NEW YORK, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT. EACH OF THE PARTIES HERETO AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. NOTHING IN THIS AGREEMENT SHALL AFFECT ANY RIGHT THAT AGENT MAY OTHERWISE HAVE TO BRING ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT AGAINST ANY GRANTOR OR ITS PROPERTIES IN THE COURTS OF ANY JURISDICTION.

 

(e)     NO CLAIM MAY BE MADE BY ANY GRANTOR AGAINST AGENT, ANY SENIOR LENDER OR ANY AFFILIATE, DIRECTOR, OFFICER, EMPLOYEE, COUNSEL, REPRESENTATIVE, AGENT, OR ATTORNEY-IN-FACT OF ANY OF THEM FOR ANY SPECIAL, INDIRECT, CONSEQUENTIAL, OR PUNITIVE DAMAGES IN RESPECT OF ANY CLAIM FOR BREACH OF CONTRACT OR ANY OTHER THEORY OF LIABILITY ARISING OUT OF OR RELATED TO THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT, OR ANY ACT, OMISSION, OR EVENT OCCURRING IN CONNECTION HEREWITH, AND EACH GRANTOR HEREBY WAIVES, RELEASES, AND AGREES NOT TO SUE UPON ANY CLAIM FOR SUCH DAMAGES, WHETHER OR NOT ACCRUED AND WHETHER OR NOT KNOWN OR SUSPECTED TO EXIST IN ITS FAVOR.

 

26.     New Subsidiaries. Pursuant to Section 7.12 of the Credit Agreement and Section 5L of the Note Agreement, certain Subsidiaries (whether by acquisition or creation) of any Grantor are required to enter into this Agreement by executing and delivering in favor of Agent a Joinder to this Agreement in substantially the form of Annex 1. Upon the execution and delivery of Annex 1 by any such new Subsidiary, such Subsidiary shall become a Grantor hereunder with the same force and effect as if originally named as a Grantor herein. The execution and delivery of any instrument adding an additional Grantor as a party to this Agreement shall not require the consent of any Grantor hereunder. The rights and obligations of each Grantor hereunder shall remain in full force and effect notwithstanding the addition of any new Grantor hereunder.

 

 

25

 

 

27.     Agent. Each reference herein to any right granted to, benefit conferred upon or power exercisable by “Agent” shall be a reference to Agent, for the benefit of each Senior Lender.

 

28.     Schedules. Notwithstanding anything herein to the contrary, the Grantors shall not be required to provide Schedules 2, 3, 4, 5 and 6 to this Agreement prior to the date that is thirty (30) days after the Closing Date and the Grantors shall provide such Schedules to the Collateral Agent by such date, whereupon this Agreement shall be automatically amended to include such Schedules.

 

29.     Miscellaneous.

 

(a)     This Agreement is a Loan Document (as defined in the Credit Agreement) and a Transaction Document (as defined in the Note Agreement). This Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, shall be deemed to be an original, and all of which, when taken together, shall constitute but one and the same Agreement. Delivery of an executed counterpart of this Agreement by telefacsimile or other electronic method of transmission shall be equally as effective as delivery of an original executed counterpart of this Agreement. Any party delivering an executed counterpart of this Agreement by telefacsimile or other electronic method of transmission also shall deliver an original executed counterpart of this Agreement but the failure to deliver an original executed counterpart shall not affect the validity, enforceability, and binding effect of this Agreement. 

 

(b)     Any provision of this Agreement which is prohibited or unenforceable shall be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof in that jurisdiction or affecting the validity or enforceability of such provision in any other jurisdiction. Each provision of this Agreement shall be severable from every other provision of this Agreement for the purpose of determining the legal enforceability of any specific provision.

 

(c)     Headings and numbers have been set forth herein for convenience only. Unless the contrary is compelled by the context, everything contained in each Section applies equally to this entire Agreement.

 

(d)     Neither this Agreement nor any uncertainty or ambiguity herein shall be construed against Agent, any Senior Lender or any Grantor, whether under any rule of construction or otherwise. This Agreement has been reviewed by all parties and shall be construed and interpreted according to the ordinary meaning of the words used so as to accomplish fairly the purposes and intentions of all parties hereto.

 

[signature pages follow]

 

 

26

 

 

IN WITNESS WHEREOF, the undersigned parties hereto have caused this Agreement to be executed and delivered as of the day and year first above written.

 

	
 
	
TWIN DISC, INCORPORATED, as Grantor
	
 

	 	 	 	 
	
 
	
 
	
 
	
 

	
 
	
By: 
	
 
	
 

	
 
	
 
	Name:	
 

	
 
	
 
	
Title:
	
 

 

 

 

	
 
	
MILL-LOG EQUIPMENT CO., INC., as Grantor
	
 

	
 
	
 
	
 
	
 

	
 
	
 
	
 
	
 

	
 
	
By: 
	
 
	
 

	
 
	
 
	
Name:
	
 

	
 
	
 
	
Title:
	
 

 

 

 

 

[SIGNATURE PAGE TO SECURITY AGREEMENT]

 

 

 

 

 

	
 
	
WELLS FARGO BANK, NATIONAL ASSOCIATION, a national banking association, as Agent
	
 

	
 
	
 
	
 
	
 

	
 
	
 
	
 
	
 

	
 
	
By: 
	 	
 

	
 
	
 
	
Name:
	
 

	
 
	
 
	
Title:
	
 

 

 

 

 

[SIGNATURE PAGE TO SECURITY AGREEMENT]

 

 

 

 

ANNEX 1

FORM OF JOINDER

 

Joinder No. ____ (this “Joinder”), dated as of ____________ 20___, to the Security Agreement, dated as of February 1, 2016 (as amended, restated, supplemented, or otherwise modified from time to time, the “Security Agreement”), by and among each of the parties listed on the signature pages thereto and those additional entities that thereafter become parties thereto (collectively, jointly and severally, “Grantors” and each, individually, a “Grantor”) and WELLS FARGO BANK, NATIONAL ASSOCIATION, a national banking association (“Wells Fargo”), in its capacity as agent for each Senior Lender (in such capacity, together with its successors and assigns in such capacity, “Agent”).

 

W I T N E S S E T H:

 

WHEREAS, pursuant to that certain Credit Agreement dated as of February 1, 2016 (as amended, restated, supplemented, or otherwise modified from time to time, the “Credit Agreement”) by and among Twin Disc, Incorporated (“Parent”), Twin Disc International, S.P.R.L. (together with Parent, the “Borrowers”) and Wells Fargo Bank, National Association, in its individual capacity (“Lender”), the Lender has agreed to make certain financial accommodations available to Borrowers from time to time pursuant to the terms and conditions thereof; 

 

WHEREAS, pursuant to the Note Agreement, the Noteholders have made certain financial accommodations available to Parent pursuant to the terms and conditions thereof; and

 

WHEREAS, initially capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Security Agreement or, if not defined therein, in the Intercreditor Agreement, and this Joinder shall be subject to the rules of construction set forth in Section 1(b) of the Security Agreement, which rules of construction are incorporated herein by this reference, mutatis mutandis; and

 

WHEREAS, Grantors have entered into the Security Agreement in order to induce the Lender and the Noteholders to make certain financial accommodations to Borrowers as provided for in the Credit Agreement, the Note Agreement and the other Senior Agreements; and

 

WHEREAS, pursuant to Section 7.12 of the Credit Agreement, Section 5L of the Note Agreement and Section 26 of the Security Agreement, certain Subsidiaries of the Loan Parties, must execute and deliver certain documents, including the Security Agreement, and the joinder to the Security Agreement by the undersigned new Grantor or Grantors (collectively, the “New Grantors”) may be accomplished by the execution of this Joinder in favor of Agent, for the benefit of the Senior Lenders; and

 

WHEREAS, each New Grantor (a) is [an Affiliate] [a Subsidiary] of Borrower and, as such, will benefit by virtue of the financial accommodations extended to Borrower by the Senior Lenders and (b) by becoming a Grantor will benefit from certain rights granted to the Grantors pursuant to the terms of the Senior Agreements; 

 

NOW, THEREFORE, for and in consideration of the foregoing and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, each New Grantor hereby agrees as follows: 

 

 

 

 

1.     In accordance with Section 26 of the Security Agreement, each New Grantor, by its signature below, becomes a “Grantor” under the Security Agreement with the same force and effect as if originally named therein as a “Grantor” and each New Grantor hereby (a) agrees to all of the terms and provisions of the Security Agreement applicable to it as a “Grantor” thereunder and (b) represents and warrants that the representations and warranties made by it as a “Grantor” thereunder are true and correct in all material respects (except that such materiality qualifier shall not be applicable to any representations and warranties that are already qualified or modified by materiality in the text thereof) on and as of the date hereof. In furtherance of the foregoing, each New Grantor hereby unconditionally grants, assigns, and pledges to Agent, for the benefit of the Senior Lenders, to secure the Secured Obligations, a continuing security interest in and to all of such New Grantor’s right, title and interest in and to the Collateral. Each reference to a “Grantor” in the Security Agreement shall be deemed to include each New Grantor. The Security Agreement is incorporated herein by reference. 

 

2.     Schedule 1, “Name; Chief Executive Office; Tax Identification Numbers and Organizational Numbers”, Schedule 2, “Copyrights”, Schedule 3, “Intellectual Property Licenses”, Schedule 4, “Patents”, Schedule 5, “Pledged Companies”, Schedule 6, “Trademarks”, Schedule 7, “List of Uniform Commercial Code Filing Jurisdictions” and Schedule 8, “Commercial Tort Claims”, attached hereto supplement Schedule 1, Schedule 2, Schedule 3, Schedule 4, Schedule 5, Schedule 6, Schedule 7 and Schedule 8, respectively, to the Security Agreement and shall be deemed a part thereof for all purposes of the Security Agreement. 

 

3.     Each New Grantor authorizes Agent at any time and from time to time to file, transmit, or communicate, as applicable, financing statements and amendments thereto (i) describing the Collateral as “all personal property of debtor” or “all assets of debtor” or words of similar effect, (ii) describing the Collateral as being of equal or lesser scope or with greater detail, or (iii) that contain any information required by part 5 of Article 9 of the Code for the sufficiency or filing office acceptance. Each New Grantor also hereby ratifies any and all financing statements or amendments previously filed by Agent in any jurisdiction in connection with the Senior Agreements.

 

4.     Each New Grantor represents and warrants to Agent and the Senior Lenders that this Joinder has been duly executed and delivered by such New Grantor and constitutes its legal, valid, and binding obligation, enforceable against it in accordance with its terms, except as enforceability thereof may be limited by bankruptcy, insolvency, reorganization, fraudulent transfer, moratorium, or other similar laws affecting creditors’ rights generally and general principles of equity (regardless of whether such enforceability is considered in a proceeding at law or in equity). 

 

5.     This Joinder is a Loan Document and a Transaction Document. This Joinder may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, shall be deemed to be an original, and all of which, when taken together, shall constitute but one and the same Joinder. Delivery of an executed counterpart of this Joinder by telefacsimile or other electronic method of transmission shall be equally as effective as delivery of an original executed counterpart of this Joinder. Any party delivering an executed counterpart of this Joinder by telefacsimile or other electronic method of transmission also shall deliver an original executed counterpart of this Joinder but the failure to deliver an original executed counterpart shall not affect the validity, enforceability, and binding effect of this Joinder.

 

 

 

 

6.     The Security Agreement, as supplemented hereby, shall remain in full force and effect.

 

7.     THIS JOINDER SHALL BE SUBJECT TO THE PROVISIONS REGARDING CHOICE OF LAW AND VENUE, JURY TRIAL WAIVER, AND JUDICIAL REFERENCE SET FORTH IN SECTION 25 OF THE SECURITY AGREEMENT, AND SUCH PROVISIONS ARE INCORPORATED HEREIN BY THIS REFERENCE, MUTATIS MUTANDIS.

 

 

 

[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

 

 

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Joinder to the Security Agreement to be executed and delivered as of the day and year first above written.

 

 

	
NEW GRANTORS:
	
[Name of New Grantor]
	
 

	
 
	
 
	
 
	
 

	
 
	
 
	
 
	
 

	
 
	
By: 
	 	
 

	
 
	
 
	
Name:
	
 

	
 
	
 
	
Title:
	
 

 

 

 

	
 
	
[NAME OF NEW GRANTOR]
	
 

	
 
	
 
	
 
	
 

	
 
	
 
	
 
	
 

	
 
	
By: 
	 	
 

	
 
	
 
	
Name:
	
 

	
 
	
 
	
Title:
	
 

 

 

 

	
AGENT:
	
WELLS FARGO BANK, NATIONAL ASSOCIATION, a national banking association
	
 

	
 
	
 
	
 
	
 

	
 
	
 
	
 
	
 

	
 
	
By: 
	 	
 

	
 
	
 
	
Name:
	
 

	
 
	
 
	
Title:
	
 

 

 

 

 

SCHEDULE 1

 

NAME; JURISDICTION; CHIEF EXECUTIVE OFFICE; TAX IDENTIFICATION NUMBERS AND ORGANIZATIONAL NUMBERS

 

 

 

Twin Disc, Incorporated, a Wisconsin corporation

1328 Racine Street

Racine, WI 53403

Tax Identification Number:     39-0667110

Entity ID from the Wisconsin Department of Financial Institutions web site: 1T00778

 

 

Mill-Log Equipment Co., Inc., an Oregon corporation

90895 Roberts Road

Coburg, OR 97408

Tax Identification Number:     93-0453196

Registry No. from the Oregon Secretary of State (Corporation Division) web site: 057105-12

 

 

 

 

SCHEDULE 2

 

COPYRIGHTS

 

 

 

 

 

 

SCHEDULE 3

 

INTELLECTUAL PROPERTY LICENSES

 

 

 

 

 

 

SCHEDULE 4

 

PATENTS

 

 

 

 

 

 

SCHEDULE 5

 

PLEDGED COMPANIES

 

 

 

 

 

 

SCHEDULE 6

 

TRADEMARKS

 

 

 

 

 

 

SCHEDULE 7

 

LIST OF UNIFORM COMMERCIAL CODE FILING JURISDICTIONS

 

 

	
Twin Disc, Incorporated
	
Wisconsin Department of Financial Institutions

	
 
	
 

	
Mill-Log Equipment Co., Inc.
	
Oregon Secretary of State

               

 

 

 

SCHEDULE 8

 

COMMERCIAL TORT CLAIMS

 

 

None.ex10-3.htm

Exhibit 10.3

 

EXECUTION VERSION

 

February 1, 2016

 

Twin Disc, Incorporated 

1328 Racine Street
Racine, Wisconsin 5340311208 

Attention: Mr. Jeff Knutson

 

 

	 	
Re:
	
Amendment No. 2 to Amended and Restated Note Purchase and Private Shelf Agreement

 

Ladies and Gentlemen:

 

This letter amendment (this “Letter”) makes reference to that certain Amended and Restated Note Purchase and Private Shelf Agreement, dated as of June 30, 2014 (as amended by Amendment No. 1 thereto dated August 3, 2015, the “Note Agreement”), among PGIM, Inc., The Prudential Insurance Company of America, Pruco Life Insurance Company, Pruco Life Insurance Company of New Jersey, Security Benefit Life Insurance Company, Inc., Prudential Annuities Life Assurance Corporation, Mutual of Omaha Insurance Company (collectively, the “Holders” and each, a “Holder”) and Twin Disc, Incorporated, a Wisconsin corporation (the “Company”). Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Note Agreement, as amended hereby.

 

The Company has advised the Holders that Notice Events of Default exist or will exist because of: (i) the Company’s failure to satisfy the minimum EBITDA covenant required pursuant to paragraph 5M(ii) of the Note Agreement (as in effect prior to this Letter) for the fiscal quarter ended December 25, 2015 and (ii) a Notice Event of Default under the Credit Agreement resulting from clause (i) above (items (i) and (ii) being, collectively, the “Existing Events of Default”). The Company has requested that the Holders waive any Events of Default arising solely from the Existing Events of Default.

 

The Company has requested that the Holders agree to waive the Existing Events of Default and amend the Note Agreement as set forth below. Subject to the terms and conditions hereof, the Holders are willing to agree to such requests.

 

Accordingly, and in accordance with the provisions of paragraph 11C of the Note Agreement, the parties hereto agree as follows:

 

 

 

 

  

SECTION 1.     Limited Waiver. Effective upon the Effective Date (as defined in Section 3 below), the Holders hereby acknowledge and agree that any Event of Default existing under the Note Agreement or any other Transaction Document (as defined under the Note Agreement), including each Existing Event of Default immediately prior to the Effective Date, is hereby waived and that no such Event of Default shall survive the Effective Date; provided, however, that to the extent any event or circumstance exists after the Effective Date that constitutes an Event of Default under the terms of the Note Agreement (as amended by this Letter) or any other Transaction Document (as defined in the Note Agreement as amended by this Letter), the Holders are not hereby waiving such event or circumstance and no right or remedy of a Holder or the Collateral Agent with respect thereto under and pursuant to the terms of the Note Agreement (as amended by this Letter) or any other Transaction Document (as defined in the Note Agreement as amended by this Letter) is hereby waived. The Company is relying upon such understanding and such understanding is consideration for entering into this Letter.

 

SECTION 2.     Amendments. Effective upon the Effective Date (as defined in Section 3 below), the Holders party hereto and the Company agree that the Note Agreement is hereby amended as follows:

 

2.1.     Paragraph 4A of the Note Agreement is amended to add a new paragraph 4A(3) at the end thereof to read as follows:

 

4A(3). Required Prepayments of Notes re Sale of Assets. Upon the occurrence of the Specified Disposition, the Company shall, within two Business Days of the receipt of the net proceeds thereof, prepay each Note in an aggregate principal amount equal to the Ratable Portion of such net proceeds at 100% of the principal amount so prepaid plus interest accrued thereon to the prepayment date and the Yield-Maintenance Amount, if any, with respect to such principal amount. 

 

2.2.     Paragraph 5D of the Note Agreement is hereby amended by (i) deleting “and” after paragraph 5D(vi), (ii) redesignating paragraph 5D(vii) as paragraph 5D(ix), and (iii) adding new paragraphs 5D(vii) and 5D(viii), to read as follows:

 

(vii)     from time to time such information with respect to the Collateral as any Significant Holder may reasonably request; 

 

(viii)     copies of each borrowing base certificate concurrently with delivery thereof to the Bank under the Credit Agreement; and

 

2.3.     Paragraph 5F of the Note Agreement is hereby amended by adding the following sentence at the end thereof:

 

 

2

 

  

Without limiting the foregoing, the Company will permit each Significant Holder and each of its duly authorized representatives or agents to conduct appraisals and valuations of the Collateral and real estate owned by the Domestic Transaction Parties at such reasonable times and intervals as such Significant Holder may designate and at the Company’s expense; provided, however that, so long as no Default or Event of Default shall have occurred and be continuing, (a) only two such appraisals (with respect to each type of Collateral) and two field exams per year shall be at the Company’s expense and (b) to the extent requested by a Significant Holder, any such real estate appraisal shall be at the expense of the holders of the Notes.

 

2.4.     Paragraph 5K of the Note Agreement is hereby amended by adding the following at the end of the conclusion thereof:

 

All property insurance policies covering the Collateral shall be made payable to the Collateral Agent for the benefit of Collateral Agent, the holders of the Notes and the Bank, as their interests may appear, in case of loss, pursuant to a standard loss payable endorsement with a standard non-contributory “lender” or “secured party” clause and are to contain such other provisions as the Collateral Agent may reasonably require to fully protect interest of the Bank and each holder of a Note in the Collateral and to any payments to be made under such policies. All certificates of property and general liability insurance are to be delivered to the holders of the Notes, with the loss payable (but only in respect of Collateral) and additional insured endorsements in favor of the Collateral Agent. If the Company fails to maintain such property or casualty insurance, the holders of the Notes or the Collateral Agent may arrange for such insurance, but at the Company’s expense and without any responsibility on the holders of the Notes’ or the Collateral Agent’s part for obtaining the insurance, the solvency of the insurance companies, the adequacy of the coverage, or the collection of claims.

 

2.5.     Paragraph 5L of the Note Agreement is hereby amended by adding the following at the end of the conclusion thereof:

 

The Company will, at the time that any Domestic Transaction Party forms a Material Subsidiary or acquires any direct or indirect Material Subsidiary after the Amendment No. 2 Effective Date or, as applicable, at the time that any Subsidiary existing on the date hereof which is not a Material Subsidiary becomes a Material Subsidiary, within 10 days of such formation or acquisition or becoming a Material Subsidiary (or such later date as permitted by the Required Holder(s) in their sole discretion) (a) cause such Material Subsidiary to provide to the holders of the Notes a joinder to the Subsidiary Guaranty and to the Security Agreement, together with such other security agreements as well as appropriate financing statements, all in form and substance reasonably satisfactory to the Required Holder(s) (including being sufficient to grant the Collateral Agent a first priority Lien (subject to Permitted Liens) in and to the assets of such Material Subsidiary); provided, that, without limiting the requirements of paragraph 6H, the joinder to the Subsidiary Guaranty and the Security Agreement, and such other security agreements shall not be required to be provided to the holders of the Notes with respect to any Subsidiary that is a CFC if providing such agreements would result in adverse tax consequences or the costs to the Domestic Transaction Parties of providing such guaranty or such security agreements are excessive (as determined by the Required Holder(s) in consultation with the Company) in relation to the benefits to holders of the Notes of the security or guarantee afforded thereby, (b) provide, or cause the applicable Domestic Transaction Party to provide, to the Collateral Agent and the holders of the Notes a pledge agreement (or an addendum to the Security Agreement) and appropriate certificates and powers or financing statements, pledging all of the direct or beneficial ownership interest in such Material Subsidiary in form and substance reasonably satisfactory to the Required Holder(s); provided, that only 65% of the total outstanding voting Equity Interests of any first tier Subsidiary of the Company or a Domestic Transaction Party that is a CFC (and none of the Equity Interests of any Subsidiary of such CFC) shall be required to be pledged if pledging a greater amount would result in adverse tax consequences or the costs to the Domestic Transaction Parties of providing such pledge are excessive (as determined by the Required Holder(s) in consultation with the Company) in relation to the benefits to the holders of the Notes of the security afforded thereby (which pledge, if reasonably requested by the Required Holder(s), shall be governed by the laws of the jurisdiction of such Subsidiary), and (c) provide to the holders of the Notes all other documentation, including one or more opinions of counsel reasonably satisfactory to the Required Holder(s), which, in their opinion, is appropriate with respect to the execution and delivery of the applicable documentation referred to above. Any document, agreement, or instrument executed or issued pursuant to this paragraph 5L shall constitute a Transaction Document. 

 

 

3

 

  

2.6.      Clauses (ii) and (iii) of Paragraph 5M of the Note Agreement are hereby amended and restated in their entirety and a new clause (iv) added at the end thereof, each to read as follows:

 

(ii)      Minimum EBITDA. The Company and its consolidated Subsidiaries shall achieve EBITDA of at least the amount specified below for each period of four fiscal quarters of the Company and its consolidated Subsidiaries ending on (or, as applicable, after) the date indicated below:

 

	
Fiscal Quarter Ending
	
Minimum EBITDA

	 	 
	
March 25, 2016
	
$0

	 	 
	
Thereafter
	
$11,000,000

 

 

This covenant shall be tested quarterly at the end of each fiscal quarter, commencing March 25, 2016 and at the end of each fiscal quarter thereafter.

 

 

4

 

  

(iii)      Maximum Total Funded Debt to EBITDA Ratio. The Company and its consolidated Subsidiaries shall not permit the ratio of Total Funded Debt to EBITDA to exceed 3.00 to 1.00, tested at the end of each fiscal quarter of Company, commencing June 30, 2016, all as determined, in the case of Total Funded Debt, on the date of determination, and in the case of EBITDA, for the preceding four fiscal quarters of the Company and its consolidated Subsidiaries ending on the date of determination. This covenant shall be tested quarterly at the end of each fiscal quarter.

 

(iv)      Capital Expenditures. The Company shall not permit the aggregate Capital Expenditures of itself and its Subsidiaries to exceed $2,500,000 in any fiscal quarter; provided, however that the Company shall be deemed in compliance with this paragraph 5M(iv) with respect to its fiscal quarters ending March 25, 2016 and June 30, 2016 if the aggregate amount of Capital Expenditures of itself and its Subsidiaries for such two fiscal quarters is less than or equal to $5,000,000. 

 

2.7.      Paragraph 5 of the Note Agreement is hereby amended by adding new paragraphs 5Q, 5R and 5S, respectively, at the end thereof to read as follows:

 

5Q.     Location of Inventory. The Company will, and will cause each other Domestic Transaction Party to, keep its Inventory only at the locations identified on Schedule 5Q or other locations as to which a Collateral Access Agreement is in place and maintain its chief executive offices only at the locations identified on Schedule 5Q; provided, that the Company may amend Schedule 5Q or change the location of its chief executive offices so long as such amendment occurs by written notice to each Significant Holder and the Collateral Agent not less than 10 days prior to the date on which such Inventory is moved to such new location or such chief executive office is relocated and so long as such new location is within the continental United States. To the extent that a Collateral Access Agreement is not in place at any time more than 30 days after the Amendment No. 2 Effective Date with respect to a location identified on Schedule 5Q (other than locations owned by a Domestic Transaction Party), the Company will, or will cause, Inventory located at such location to be promptly moved to a location which is either owned by a Domestic Transaction Party or subject to a Collateral Access Agreement.

 

5R.     Further Assurances. The Company will at any time upon the reasonable request of any Significant Holder or the Collateral Agent, execute or deliver to the holders of the Notes and the Collateral Agent any and all financing statements, security agreements, pledges, assignments, opinions of counsel and all other documents (the “Additional Documents”) that any Significant Holder or the Collateral Agent may reasonably request in form and substance reasonably satisfactory to the Required Holder(s) or the Collateral Agent, as applicable, to create, perfect, and continue perfected or to better perfect the Collateral Agent’s Liens in the Collateral and in order to fully consummate all of the transactions contemplated hereby and under the other Transaction Documents. To the maximum extent permitted by applicable law, if the Company refuses or fails to execute or deliver any reasonably requested Additional Documents within a reasonable period of time following the request to do so, the Company hereby authorizes the Collateral Agent to execute any such Additional Documents in the Company’s name and authorizes the Collateral Agent to file such executed Additional Documents in any appropriate filing office.

 

 

5

 

  

5S.     Post-Closing Matters. The Company shall:

 

(i)     within 10 Business Days after the Amendment No. 2 Effective Date, deliver to the holders of the Notes certificates of insurance, together with the endorsements thereto as are required by paragraph 5K, the form and substance of which shall be reasonably satisfactory to the Required Holder(s);

 

(ii)     within 10 Business Days after the Amendment No. 2 Effective Date, deliver to the holders of the Notes a good standing certificate from the Subsidiary Guarantor’s jurisdiction of organization (to the extent not delivered on the Amendment No. 2 Effective Date);

 

(iii)     within 10 Business Days after the Amendment No. 2 Effective Date, deliver to the holders of the Notes a copy of the updated borrowing base certificate reflecting the Borrowing Base (as defined in the Credit Agreement) as of December 25, 2015 as delivered to the Bank to more precisely conform to the eligibility requirements set forth in the Credit Agreement;

 

(iv)     within 30 days after the Amendment No. 2 Effective Date, deliver to the holders of the Notes a certificate of the secretary, assistant secretary, director, officer or other authorized person, as the case may be, of the Subsidiary Guarantor (as of the Amendment No. 2 Effective Date) certifying as to the incumbency and genuineness of the signature of each officer of such Subsidiary Guarantor or other authorized person executing Transaction Documents to which it is a party and certifying that attached thereto is a true, correct and complete copy of (A) the articles or certificate of incorporation or formation of such Subsidiary Guarantor and all amendments thereto, certified as of a recent date by the appropriate Governmental Authority in its jurisdiction of incorporation or formation, (B) the bylaws or other governing document of such Subsidiary Guarantor as in effect on the Amendment No.2 Effective Date, and (C) resolutions duly adopted by the board of directors (or other governing body) of such Subsidiary Guarantor authorizing the transactions contemplated under the Subsidiary Guaranty and the other Transaction Documents to which it is a party and the execution, delivery and performance of the Subsidiary Guaranty and the other Transaction Documents to which it is a party; 

 

(v)     within 60 days after the Amendment No. 2 Effective Date, deliver to the Collateral Agent such supplemental pledge documentation and Additional Documents (including, as applicable, stock certificates) as the Required Holder(s) may reasonably request with respect to Parent’s pledge of 65% of the Equity Interests of TD International, Twin Disc S.r.l, (an Italian corporation) and Mill-Log Wilson Equipment Ltd. (a Canadian corporation) and 100% of the Equity Interests of the Subsidiary Guarantor; and

 

 

6

 

  

(vi)     without limiting the provisions of paragraph 11B hereof, within 5 Business Days after the receipt of an invoice therefor, the Company shall have paid the fees, charges and disbursements of special counsel to each holder of a Note for which an invoice has been delivered. 

 

2.8.      Clause (ii) in paragraph 6C of the Note Agreement is hereby amended by adding the following language after the word “thereby” contained therein: “and the Required Holder(s), in their good faith discretion, shall have consented to such acquisition,”. 

 

2.9.      Clause (iv) in paragraph 6D of the Note Agreement is hereby amended by adding the following parenthetical after the second use of the word “dispositions” contained therein: “(other than the possible disposition of the assets of a Subsidiary that has been previously identified to the holders of the Notes by the Company (such disposition, the “Specified Disposition”))”. 

 

2.10.      Paragraph 6 of the Note Agreement is hereby amended by adding a new paragraph 6L at the end thereof to read as follows:

 

6L.     Restricted Payments. The Company shall not declare or pay any dividend on, or make any payment or other distribution on account of, or purchase, redeem, retire or otherwise acquire (directly or indirectly), or set apart assets for a sinking or other analogous fund for the purchase, redemption, retirement or other acquisition of, any class of its Equity Interests, or make any distribution of cash, property or assets to the holders of its Equity Interests; provided that:

 

(a)     the Company may pay dividends in shares of its own common stock; and

 

(b)     so long as no Default or Event of Default has occurred and is continuing immediately prior to or immediately after giving effect thereto the Company may declare and pay regular quarterly dividends on its common stock at the rate of up to $0.09 per share per calendar quarter (which amount shall, at the discretion of the Required Holder(s), be adjusted to reflect any share issuances, recapitalizations or other changes in the capital structure of the Company after the Amendment No. 2 Effective Date).

 

2.11.     Paragraph 7D of the Note Agreement is hereby amended and restated in its entirety to read as follows:

 

7D.     Other Remedies. If any Event of Default or Default shall occur and be continuing, the holder of any Note may proceed to protect and enforce its rights under this Agreement, the Security Documents and such Note by exercising such remedies as are available to such holder in respect thereof under applicable law, either by suit in equity or by action at law, or both, whether for specific performance of any covenant or other agreement contained in this Agreement or the Security Documents or in aid of the exercise of any power granted in this Agreement or any Security Document. No remedy conferred in this Agreement or the Security Documents upon the holder of any Note or the Collateral Agent is intended to be exclusive of any other remedy, and each and every such remedy shall be cumulative and shall be in addition to every other remedy conferred herein or now or hereafter existing at law or in equity or by statute or otherwise.

 

 

7

 

  

2.12.     Paragraph 8C of the Note Agreement is hereby amended by amending and restating the second sentence thereof in its entirety to read as follows:

 

This Agreement, the Notes and the other Transaction Documents are the valid and binding obligations of each Domestic Transaction Party party thereto enforceable against such Domestic Transaction Party in accordance with their respective terms, except as the enforcement thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar Laws generally affecting the rights of creditors and subject to general equity principles.

 

2.13.     Paragraph 10B of the Note Agreement is hereby amended to amend and restate or add, in the appropriate alphabetical order, as applicable, the following definitions:

 

“Additional Documents” shall have the meaning given in paragraph 5R hereof. 

 

“Amendment No. 2” shall mean that certain Amendment No. 2 to Amended and Restated Note Purchase and Private Shelf Agreement dated as of February 1, 2016. 

 

“Amendment No. 2 Effective Date” shall mean the Effective Date as defined in Amendment No. 2. 

 

“Capital Expenditures” shall mean, with respect to any Person for any period, the amount of all expenditures by such Person and its Subsidiaries during such period that are capital expenditures as determined in accordance with generally accepted accounting principles, whether such expenditures are paid in cash or financed. 

 

“CFC” shall mean a controlled foreign corporation (as that term is defined in the Code).

 

“Collateral” shall mean all property of a Domestic Transaction Party in which such Domestic Transaction Party from time to time grants a security interest in favor of the Collateral Agent, including all “Collateral” (under and as defined in the Security Agreement).

 

“Collateral Access Agreement” shall mean a landlord waiver, bailee letter, or acknowledgement agreement of any lessor, warehouseman, processor, consignee, or other Person in possession of, having a Lien upon, or having rights or interests in a Domestic Transaction Party’s books and records or Inventory, in each case, in form and substance reasonably satisfactory to the Collateral Agent.

 

 

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“Collateral Agent” shall mean Wells Fargo Bank, National Association, in its capacity as collateral agent pursuant to the Intercreditor Agreement.

 

“Credit Agreement” shall mean the Amended and Restated Credit Agreement, dated as of February 1, 2016 by and among the Company, Twin Disc International, S.P.R.L., a Belgian corporation, and Bank, and as amended, restated, supplemented or otherwise modified from time to time.

 

“Domestic Subsidiaries” shall mean those Subsidiaries of the Company that are organized under the laws of the United States or any state thereof.

 

“Domestic Transaction Parties” shall mean the Company and each Subsidiary Guarantor.

 

“EBITDA” shall mean the sum of (i) Net Income plus (ii) solely with respect to periods of four consecutive fiscal quarters ending on and including June 30, 2015 to and including March 25, 2016, $3,300,000, plus (iii) to the extent deducted in the calculation of Net Income, (a) interest expense, (b) depreciation and amortization expense, (c) income tax expense, (d) restructuring charges not to exceed $515,000 in the fiscal quarter ending December 25, 2015, $300,000 in the fiscal quarter ending March 25. 2016, and $250,000 in each subsequent fiscal quarter (such amounts are to be applied cumulatively for each four consecutive fiscal quarter period); and (e) non-cash stock based compensation expenses; provided, however, such expenses are acceptable to the Required Holder(s) in their discretion. For purposes of calculating EBITDA for any period of four consecutive fiscal quarters, if during such period any the Company or any Subsidiary shall have consummated and closed an acquisition permitted under paragraph 6C, EBITDA for such period shall be calculated after giving pro forma effect thereto as if such acquisition occurred on the first day of such period, with adjustments made by the Company and approved by the Required Holder(s) in their judgment (which approval shall not be unreasonably withheld), all as determined for the Company and its Subsidiaries on a consolidated basis for the four fiscal quarters ending on the date of determination, without duplication, and in accordance with generally accepted accounting principles applied on a consistent basis.

 

“Equity Interest” shall mean, with respect to a Person, all of the shares, options, warrants, interests, participations, or other equivalents (regardless of how designated) of or in such Person, whether voting or nonvoting, including capital stock (or other ownership or profit interests or units), preferred stock, or any other “equity security” (as such term is defined in Rule 3a11-1 of the General Rules and Regulations promulgated by the SEC under the Exchange Act).

 

“Intercreditor Agreement” shall mean the Intercreditor and Collateral Agency Agreement dated as of February 1, 2016 by and among the Bank, the holders of the Notes and the Collateral Agent and acknowledged by the Company, as amended, restated, supplemented or otherwise modified from time to time.

 

 

9 

 

  

“Inventory” shall mean inventory (as that term is defined in the UCC).

 

“Material Subsidiary” shall mean a Subsidiary having assets or revenue (for the most recently ended four fiscal quarter period), in each case determined in accordance with generally accepted accounting principles, in excess of $1,000,000.

 

“Permitted Indebtedness” shall mean (i) the Notes, (ii) Indebtedness under the Credit Agreement, the outstanding principal amount of which shall not exceed $50,000,000 at any time other than as a result of currency fluctuations, provided that (a) such Indebtedness is only secured by liens referenced in clause (vi) of the definition of “Permitted Liens” and is subject to the Intercreditor Agreement, (b) the outstanding principal amount of such Indebtedness of all Subsidiaries which are Credit Agreement Borrowers shall not in the aggregate exceed $15,000,000 (which sub-limit shall be included in calculating the above limit of Indebtedness under the Credit Agreement) and (c) the Foreign Currency Outstandings (under and as defined in the Credit Agreement) shall not in the aggregate exceed $15,000,000 thereafter (which sub-limit shall be included in calculating the above limit of Indebtedness under the Credit Agreement); (iii) purchase money Indebtedness secured by Purchase Money Liens, which Indebtedness shall not exceed $1,000,000 per year on a noncumulative consolidated basis; (iv) unsecured accounts payable and other unsecured obligations of the Company or any Subsidiary incurred in the ordinary course of business of the Company or any Subsidiary and not as a result of any borrowing; (v) Indebtedness owed by the Company to a Subsidiary; and (vi) unsecured Indebtedness of the Company or any Subsidiary in an aggregate principal amount not to exceed $1,000,000 at any time outstanding.

 

“Ratable Portion” for any Note shall mean at any time an amount equal to the product of (a) the net proceeds from the Specified Disposition multiplied by (b) a fraction, the numerator of which is the aggregate outstanding principal amount of such Note at such time and the denominator of which is the sum of (x) the aggregate outstanding principal amount of all Notes and (y) the aggregate outstanding principal amount of Indebtedness under the Credit Agreement (including “L/C Obligations” (as defined in the Credit Agreement).

 

“Security Agreement” shall mean a security agreement between the Domestic Transaction Parties and the Collateral Agent for the benefit of the Bank and the holders of the Notes in form and substance reasonably satisfactory to the Required Holder(s). 

 

“Security Documents” shall mean the Security Agreement together with any and all collateral or security documents agreements executed by the Domestic Transaction Parties from time to time in favor of the Collateral Agent pursuant to or in connection herewith.

 

 

10 

 

  

“Solvent” and “Solvency” shall mean, with respect to any Person on any date of determination, that on such date (a) the fair value of the property of such Person is greater than the total amount of liabilities, including contingent liabilities, of such Person, (b) the present fair salable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured, (c) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person’s ability to pay such debts and liabilities as they mature, (d) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person’s property would constitute an unreasonably small capital, and (e) such Person is able to pay its debts and liabilities, contingent obligations and other commitments as they mature in the ordinary course of business. The amount of contingent liabilities at any time shall be computed as the amount that, in the light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability (irrespective of whether such contingent liabilities meet the criteria for accrual under Statement of Financial Accounting Standard No. 5. 

 

“Specified Disposition” shall have the meaning given in paragraph 6D hereof. 

 

“Subsidiary Guarantor” shall mean a Domestic Subsidiary which is a party to the Subsidiary Guaranty, whether by execution thereof on the Amendment No. 2 Effective Date or execution of a joinder thereto thereafter. The only Subsidiary Guarantor as of the Amendment No. 2 Effective Date is Mill-Log Equipment Co., Inc., an Oregon corporation. 

 

“Subsidiary Guaranty” shall mean a guaranty by the Subsidiary Guarantors in form and substance satisfactory to the Required Holder(s) (including any joinders thereto). 

 

“TD International” shall mean Twin Disc International, S.P.R.L., a Belgian corporation and successor by merger to Twin Disc International, S.A. 

 

“Transaction Documents” shall mean collectively, this Agreement, the Notes, the Security Documents, the Intercreditor Agreement, the Subsidiary Guaranty and any guaranty provided under paragraph 6H herein, pursuant to any of the foregoing, all as may be amended, restated, supplemented or otherwise modified from time to time. 

 

“UCC” shall mean the New York Uniform Commercial Code, as in effect from time to time.

 

2.14.      The definition of “Notice Event of Default” contained in paragraph 10B of the Note Agreement is hereby amended by (i) deleting the period at the end of clause (ix) contained therein and inserting “; or” in lieu thereof and (ii) adding new clauses (x) and (xi) to read as follows:

 

 

11

 

  

(x)      any material provision of this Agreement or any provision of any other Transaction Document shall for any reason cease to be valid and binding on the Company or any Subsidiary thereof party thereto or any such Person shall so state in writing, or any Transaction Document shall for any reason cease to create a valid and perfected first priority Lien (subject to Permitted Liens) on, or security interest in, any material part of the Collateral purported to be covered thereby, in each case other than in accordance with the express terms hereof or thereof; or

 

(xi)     EBITDA for the Company and its consolidated Subsidiaries shall have been less than $7,000,000 for the period of four fiscal quarters ended December 25, 2015 or the Company shall have failed to comply with paragraph 5M(iii) of this Agreement (as in effect prior to the Amendment No. 2 Effective Date) with respect to the period of four fiscal quarters ended December 25, 2015.

 

2.15.      The definition of “Permitted Liens” contained in paragraph 10B of the Note Agreement is hereby amended by (i) deleting the “and” at the end of clause (v) thereof, (ii) redesignating clause (vi) as clause (vii), and adding a new clause (vi), to read as follows:

 

(vi)     Liens in favor of the Collateral Agent which are subject to the terms of the Intercreditor Agreement; and

 

2.16.      Paragraph 11B of the Note Agreement is hereby amended and restated in its entirety to read as follows:

 

11B.     Expenses. Whether or not the transactions contemplated hereby shall be consummated, the Company shall pay, and save Prudential, each Purchaser and any Transferee harmless against liability for the payment of, all out-of-pocket expenses arising in connection with such transactions, including:

 

(i)     (a) all stamp and documentary taxes and similar charges, (b) costs or obtaining a private placement number from Standard and Poor’s Ratings Group for the Notes and (c) fees and expenses of brokers, agents, dealers, investment banks or other intermediaries or placement agents in each case as a result of the execution and delivery of this Agreement or the issuance of the Notes;

 

(ii)     document production and duplication charges and the fees and expenses of any special counsel engaged by such Purchaser or such Transferee in connection with (a) this Agreement and the other Transaction Documents and the transactions contemplated hereby and thereby and (b) any subsequent proposed waiver, amendment or modification of, or proposed consent under, this Agreement or the other Transaction Documents, whether or not such proposed waiver, amendment, modification or consent shall be effected or granted;

 

(iii)     the costs and expenses, including attorneys’ and financial advisory fees, incurred by such Purchaser or such Transferee in enforcing (or determining whether or how to enforce or cause the Collateral Agent to enforce) any rights under this Agreement, the Notes or the other Transaction Documents (including, without limitation, to protect, collect, lease, sell, take possession of, release or liquidate any of the Collateral) or in responding to any subpoena or other legal process or informal investigative demand issued in connection with this Agreement or the other Transaction Documents or the transactions contemplated hereby or thereby or by reason of your or such Transferee’s having acquired any Note, including without limitation costs and expenses incurred in any workout, restructuring or renegotiation proceeding or bankruptcy case; 

 

 

12

 

  

(iv)    all fees, costs and expenses, including without limitation attorneys’ fees, of the Collateral Agent; 

 

(v)     all costs and expenses, including without limitation attorneys’ fees, preparing, recording and filing all financing statements, instruments and other documents to create, perfect and fully preserve and protect the Liens granted in the Security Documents and the rights of the holders of the Notes or of the Collateral Agent for the benefit of the holders of the Notes; and

 

(vi)     any judgment, liability, claim, order, decree, cost, fee, expense, action or obligation resulting from the consummation of the transactions contemplated hereby, including the use of the proceeds of the Notes by the Company.

 

The Company also will promptly pay or reimburse each Purchaser or holder of a Note (upon demand, in accordance with each such Purchaser’s or holder’s written instruction) for all fees and costs paid or payable by such Purchaser or holder to the Capital Markets & Investment Analysis Office of the National Association of Insurance Commissioners in connection with the initial filing of this Agreement and all related documents and financial information, and all subsequent annual and interim filings of documents and financial information related to this Agreement, with such Capital Markets & Investment Analysis Office or any successor organization acceding to the authority thereof. 

 

The obligations of the Company under this paragraph 11B shall survive the transfer of any Note or portion thereof or interest therein by any Purchaser or Transferee and the payment of any Note.

 

2.17.      The Note Agreement is hereby amended to add Schedule 5Q thereto in the form of Schedule 5Q attached hereto.

 

SECTION 3.     Effectiveness. The waiver described in Section 1 above and the amendments described in Section 2 above shall become effective on the date (the “Effective Date”) of satisfaction of the following:

 

(a)     Receipt by each Holder of counterparts of this Letter executed by the Company and the Required Holder(s); 

 

 

13

 

  

(b)     Receipt by each Holder of a copy of an amendment under the Credit Agreement, modifying the Credit Agreement consistent with the amendments set forth herein and otherwise in form and substance satisfactory to the Required Holder(s), duly executed by the Company and the Bank, and such amendment shall be in full force and effect; 

 

(c)     Receipt by each Holder of a copy of the Security Agreement between the Company and the Collateral Agent in form and substance satisfactory to the Required Holder(s), duly executed by the Company and the Collateral Agent, and such agreement shall be in full force and effect;

 

(d)     Receipt by each Holder of a copy of the Intercreditor Agreement between the Bank, the holders of the Notes, and the Collateral Agent in form and substance satisfactory to the Required Holder(s), duly executed by the Bank, the holders of the Notes, and the Collateral Agent and such agreement shall be in full force and effect;

 

(e)     Receipt by each Holder of a copy of the Subsidiary Guaranty duly executed by the Subsidiary Guarantor in favor of the holders of the Notes and in form and substance satisfactory to the Required Holder(s), and such agreement shall be in full force and effect;

 

(f)     Receipt by each Holder of such corporate certificates, resolutions, legal opinion, lien searches, certificates of insurance and other documents as the Required Holder(s) may reasonably request in connection with the transactions contemplated hereby; and

 

(g)     All corporate and other proceedings in connection with the transactions contemplated by this Letter shall be satisfactory to the Required Holder(s), and each Holder party hereto shall have received all such counterpart originals or certified or other copies of such documents as it may reasonably request.

 

SECTION 4.     Representations and Warranties. The Company represents and warrants to the Holders that (i) after giving effect hereto (a) each representation and warranty set forth in paragraph 8 of the Note Agreement is true and correct as of the date of the execution and delivery of this Letter by the Company with the same effect as if made on such date (except to the extent such representations and warranties expressly refer to an earlier date, in which case they were true and correct as of such earlier date), (b) after giving effect to the waiver in Section 1 of this Letter and the amendments in Section 2 of this Letter, no Event of Default or Default exists, (c) neither the Company nor any of its Subsidiaries has paid or agreed to pay, and neither the Company nor any of its Subsidiaries will pay or agree to pay, any fees or other consideration to any Person in connection with the amendment referenced in Section 3(b) hereof, (d) the Liens granted by the Security Documents constitute valid Liens on the properties and assets of the Domestic Transaction Parties covered by the Security Documents, to the extent required by the Security Documents and subject to no prior or equal Lien except for Permitted Liens, and (e) the Inventory of the Domestic Transaction Parties is stored only (x) at or in- transit between, the locations identified on Schedule 5Q or (y) with a bailee, wharehouseman or similar party at, or in transit between, locations within the continental United States as to which a Collateral Access Agreement has been delivered to the Collateral Agent or as identified on Schedule 5Q and (ii) as of the date hereof and prior to giving effect hereto, to the best of the Company’s knowledge, no Event of Default or Default exists other than the Existing Events of Default,

 

 

14

 

  

SECTION 5.     Reference to and Effect on Note Agreement. Upon the effectiveness of the waiver in Section 1 of this Letter and the amendments in Section 2 of this Letter, each reference to the Note Agreement in any other document, instrument or agreement shall mean and be a reference to the Note Agreement as modified by this Letter. Except as specifically set forth in Section 1 and Section 2 hereof, the Note Agreement shall remain in full force and effect and is hereby ratified and confirmed in all respects. The Company hereby represents and warrants that all necessary or required consents to this Letter have been obtained and are in full force and effect and is hereby ratified and confirmed in all respects. Except as specifically stated in Section 1 and Section 2 of this Letter, the execution, delivery and effectiveness of this Letter shall not (a) amend the Note Agreement or any Note, (b) operate as a waiver of any right, power or remedy of the holder of any Note, or (c) constitute a waiver of, or consent to any departure from, any provision of the Note Agreement or any Note at any time. The execution, delivery and effectiveness of this Letter shall not be construed as a course of dealing or other implication that any Holder has agreed to or is prepared to grant any amendments to the Note Agreement or any Note in the future, whether or not under similar circumstances.

 

SECTION 6.     Expenses. The Company hereby confirms its obligations under the Note Agreement, whether or not the transactions hereby contemplated are consummated, to pay, promptly after request by any Holder, all reasonable out-of-pocket costs and expenses, including attorneys’ fees and expenses, incurred by the Holders in connection with this Letter or the transactions contemplated hereby, in enforcing any rights under this Letter, or in responding to any subpoena or other legal process or informal investigative demand issued in connection with this Letter or the transactions contemplated hereby. The obligations of the Company under this Section 6 shall survive transfer by any Holder of any Note and payment of any Note.

 

SECTION 7.     Governing Law. THIS LETTER SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS OF SUCH STATE WHICH WOULD OTHERWISE CAUSE THIS LETTER TO BE CONSTRUED OR ENFORCED OTHER THAN IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

 

SECTION 8.     Counterparts; Section Titles. This Letter may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same instrument. Delivery of an executed counterpart of a signature page to this Letter by facsimile or electronic transmission shall be effective as delivery of a manually executed counterpart of this Letter. The section titles contained in this Letter are and shall be without substance, meaning or content of any kind whatsoever and are not a part of the agreement between the parties hereto.

 

[remainder of page intentionally left blank; signature page follows]

 

 

15

 

  

	
 
	
Very truly yours,
	
 

	 	 	 
	 	PGIM, INC. 	 
	
 
	
 
	
 
	
 

	
 
	
 
	
 
	
 

	
 
	
By: 
	
 
	
 

	
 
	
 
	
Vice President
	
 

	
 
	
 
	
 
	
 

	 	 	 	 
	 	THE PRUDENTIAL INSURANCE COMPANY OF AMERICA	 
	 	 	 	 
	 	 	 	 
	 	By:	 	 
	 	 	Vice President	 
	 	 	 	 
	 	 	 	 
	 	PRUCO LIFE INSURANCE COMPANY	 
	 	 	 	 
	 	 	 	 
	 	By:	 	 
	 	 	Assistant Vice President	 
	 	 	 	 
	 	 	 	 
	 	PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY	 
	 	 	 	 
	 	 	 	 
	 	By: 	 	 
	 	 	Assistant Vice President	 
	 	 	 	 
	 	 	 	 
	 	SECURITY BENEFIT LIFE INSURANCE COMPANY, INC.	 
	 	 	 	 
	 	By: 	Prudential Private Placement Investors,	 
	 	 	L.P. (as Investment Advisor)	 
	 	 	 	 
	 	By:	Prudential Private Placement Investors, Inc.	 
	 	 	(as its General Partner)	 
	 	 	 	 
	 	 	 	 
	 	 	By: ______________________________	 
	 	 	Vice President	 

 

Signature Page to

Amendment No. 2 to Amended and Restated Twin Disc Note Agreement

 

 

 

 

 

	
 
	
PRUDENTIAL ANNUITIES LIFE ASSURANCE COMPANY
	
 

	
 
	
 
	
 
	
 

	
 
	
By: 
	
PGIM, Inc.,
	
 

	
 
	
 
	
as investment manager
	
 

	 	 	 	 
	 	 	 	 
	 	 	By:______________________________	 
	 	 	Vice President	 
	
 
	
 
	
 
	
 

	 	 	 	 
	 	MUTUAL OF OMAHA INSURANCE COMPANY	 
	 	 	 	 
	 	By:	Prudential Private Placement Investors,	 
	 	 	L.P. (as Investment Advisor)	 
	 	 	 	 
	 	By: 	Prudential Private Placement Investors, Inc.	 
	 	 	(as its General Partner)	 
	 	 	 	 
	 	 	 	 
	 	 	By: ______________________________	 
	 	 	Vice President	 

 

Signature Page to

Amendment No. 2 to Amended and Restated Twin Disc Note Agreement

 

 

 

 

  

THE LETTER IS AGREED TO
AND ACCEPTED BY:

 

TWIN DISC, INCORPORATED

 

 

By:______________________________

Name: ___________________________

Title: ____________________________

 

 

 

 

Amendment No. 2 to Amended and Restated Twin Disc Note Agreement Signature Page to

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