Document:

EXHIBIT

10.85

 

AMENDMENT NO. 5

TO

FINANCING AGREEMENT

 

This AMENDMENT NO. 5 TO FINANCING AGREEMENT (this “Amendment”),

made as of June 30, 2002, between U.S. BANK NATIONAL ASSOCIATION (formerly

known as Firstar Bank, National Association), a national banking association

(“Bank”) and VARI-LITE, INC., a Delaware corporation (“Borrower”),

 

WITNESSETH:

 

WHEREAS, Borrower and Bank have entered into that certain Financing

Agreement, dated as of December 29, 2000, as amended by that certain

Amendment No. 1 to Financing Agreement, dated as of March 30, 2001,

Amendment No. 2 to Financing Agreement, dated as of June 30, 2001,

Amendment No. 3 to Financing Agreement, dated as of December 31,

2001, and Amendment No. 4 to Financing Agreement, dated as of

March 31, 2002 (as so amended, the “Financing Agreement”), pursuant to

which Bank has made certain loans and financial accommodations available to

Borrower; and

 

WHEREAS, Borrower and Bank desire to further amend the Financing

Agreement as hereinafter set forth;

 

NOW, THEREFORE, in consideration of the mutual promises and agreements

contained herein and other good and valuable consideration, the receipt and

adequacy of which are hereby acknowledged, Bank and Borrower agree as follows:

 

1.  DEFINED TERMS.

 

Each defined term used herein and not otherwise defined herein has the

meaning ascribed to such term in the Financing Agreement.

 

2.  AMENDMENT TO FINANCING AGREEMENT.

 

The Financing Agreement is amended, effective as of

the date of this Agreement, as follows:

 

2.1           Amendment to Section 1.  Section 1 of the Financing Agreement

shall be amended by deleting the definitions of “Applicable LIBOR Rate Margin”

and “Applicable Prime Rate Margin” in their entirety and by substituting the

following new definitions in lieu thereof:

 

“Applicable LIBOR Rate

Margin” means (i) from August 1 through and excluding

November 15, 2002, a rate equal to (A) 3.50% per annum with respect

to Revolving Loans, and (B) 3.50% per annum with respect to the Term Loan

A and the CapEx Term Loans (collectively, the “Term Loans”), and

(ii) thereafter, so long as no Event of Default shall have occurred and be

continuing, a per annum rate which shall adjust as of each Applicable Margin

Adjustment Date based on the Leverage Ratio for the most recent four (4) fiscal

quarters preceding such Applicable Margin Adjustment Date, as determined by the

Bank from the

 

 

quarterly reports and annual reports required by Section

8.7 and Section 8.8, respectively, in accordance with the following

table:

 

	

  Leverage Ratio

  	

   

  	

  Applicable

  LIBOR

  Rate

  Margin for

  Revolving

  Loans

  	

   

  	

  Applicable

  LIBOR

  Rate

  Margin for

  Term Loans

  	

   

  
	

  Greater than or

  equal to 2.5 to 1

  	

   

  	

  3.50%

  	

   

  	

  3.50%

  	

   

  
	

  Greater than or

  equal to 2.0 to 1 but less than 2.5 to 1

  	

   

  	

  3.25%

  	

   

  	

  3.25%

  	

   

  
	

  Less than or

  equal to 2.0 to 1

  	

   

  	

  3.00%

  	

   

  	

  3.00%

  	

   

  

 

“Applicable

Prime Rate Margin” means (i)  from August 1 through and excluding

November 15, 2002, a rate equal to (A) 1.75% per annum with respect

to Revolving Loans, and (B) 1.75% per annum with respect to the Term Loans

and (ii) thereafter, so long as no Event of Default shall have occurred

and be continuing, a per annum rate which shall adjust as of each Applicable

Margin Adjustment Date based on the Leverage Ratio for the most recent four (4)

fiscal quarters preceding such Applicable Margin Adjustment Date, as determined

by the Bank from the quarterly reports and annual reports required by Section

8.7 and Section 8.8, respectively, in accordance with the following

table:

 

	

  Leverage Ratio

  	

   

  	

  Applicable

  Prime

  Rate Margin

  for

  Revolving

  Loans

  	

   

  	

  Applicable

  Prime

  Rate

  Margin for

  Term Loans

  	

   

  
	

  Greater than or

  equal to 2.5 to 1

  	

   

  	

  1.75%

  	

   

  	

  1.75%

  	

   

  
	

  Greater than or

  equal to 2.0 to 1 but less than to 2.5 to 1

  	

   

  	

  1.50%

  	

   

  	

  1.50%

  	

   

  
	

  Less than or

  equal to 2.0 to 1

  	

   

  	

  1.25%

  	

   

  	

  1.25%

  	

   

  

 

2.2           Amendment to Section 8.3(b).  Section 8.3(b) of the Financing

Agreement shall be amended by deleting Section 8.3(b) in its entirety and

by substituting the following new Section 8.3(b) in lieu thereof:

 

(b)         Borrower shall deliver to Bank a

borrowing base certificate in the form of Exhibit H attached hereto

and incorporated herein by reference (a “Borrowing Base Certificate”), (i) for

the period beginning on the first day of each month and ending on the fifteenth

day of such month, no later than thirty (30) days after the beginning of each

such month, and (ii) for the period beginning on the first day of each month

and ending on the last day of such month, no later than

 

J-2

 

fifteen (15) days after

the end of each such month.  The

Borrowing Base Certificate delivered with respect to the monthly period shall

be reconciled to the financial statements required to be delivered pursuant to Section 8.5

hereof, and, together with such Borrowing Base Certificate, Borrower shall

deliver to Bank monthly reports of Borrower’s sales, leases, credits to sales,

credits to leases, or credit memoranda applicable to sales, leases, collections

and non-cash charges (from whatever source, including, without limitation,

sales and noncash journals or other credits to Receivables).

 

2.3           Amendment to Section 12(b).  Section 12(b) of the Financing

Agreement shall be amended by deleting Section 12(b) in its entirety and

by substituting the following new Section 12(b) in lieu thereof:

 

(b)Borrower or International shall commit any breach of this Agreement

under Section 8, Section 10.1, Section 10.11

through Section 10.33, or Section 10.35 through Section 10.37

hereof;

 

2.4           Amendment to Section 10.  Section 10 of the Financing Agreement

shall be amended by adding the following new Section 10.38 thereto:

 

10.38       Asset Appraisal.

 

Borrower will, no

later than October 30, 2002, deliver an appraisal of Borrower’s Rental

Inventory, which appraisal shall be in form and substance satisfactory to Bank,

in its sole discretion.

 

2.5           Amendment to Exhibit J.

Exhibit J to the Financing Agreement is amended in its entirety to read as

set forth on Exhibit J attached hereto and by reference made a part

hereof.

 

3.  REPRESENTATIONS

AND WARRANTIES.

 

Borrower represents and warrants to Bank as follows:

 

3.1           The Amendment.  This Amendment has been duly and validly

executed by an authorized executive officer of Borrower and constitutes the

legal, valid and binding obligation of Borrower enforceable against Borrower in

accordance with its terms.

 

3.2           Financing Agreement.  The Financing Agreement as amended by this

Amendment remains in full force and effect and remains the valid and binding

obligation of Borrower enforceable against Borrower in accordance with its

terms.  Borrower hereby ratifies and

confirms the Financing Agreement as amended by this Amendment.

 

3.3           Nonwaiver.  Neither the execution, delivery, performance

or effectiveness of this Amendment shall operate nor be deemed to be nor

construed as a waiver (i) of any right, power or remedy of Bank under the

Financing Agreement, nor (ii) of any term, provision, representation, warranty

or covenant contained in the Financing Agreement or any other documentation

executed in connection therewith. 

Further, none of the provisions of this

 

J-3

 

Amendment shall constitute, or be deemed to be or

construed as, a waiver of any Event of Default under the Financing Agreement as

amended by this Amendment.

 

3.4           Reference to and Effect on the

Financing Agreement.  Upon the

effectiveness of this Amendment, each reference in the Financing Agreement to

“this Agreement”, “hereunder”, “hereof”, “herein”, or words of like import

shall mean and be a reference to the Financing Agreement as amended hereby, and

each reference to the Financing Agreement in any other document, instrument or

agreement executed and/or delivered in connection with the Financing Agreement

shall mean and be a reference to the Financing Agreement as amended hereby.

 

3.5           Claims and Defenses.  As of the date of this Amendment, Borrower

has no defenses, claims, counterclaims or setoffs with respect to the Financing

Agreement or its Obligations thereunder or with respect to any actions of the

Bank or any of its officers, directors, shareholders, employees, agents or

attorneys, and Borrower irrevocably and absolutely waives any such defenses,

claims, counterclaims and setoffs and releases the Bank and each of its

officers, directors, shareholders, employees, agents and attorneys from the

same.

 

4.  CONDITIONS PRECEDENT TO EFFECTIVENESS OF

THIS AMENDMENT NO. 5.

 

In addition to all of the other conditions and

agreements set forth herein, the effectiveness of this Amendment is subject to

the each of the following conditions precedent:

 

4.1           Amendment No. 5 to Financing

Agreement.  Bank shall have received

an original counterpart of this Amendment No. 5 to Financing Agreement,

executed and delivered by a duly authorized officer of Borrower.

 

4.2           Acknowledgment of Guarantor.  Bank shall have received an original of the

attached Acknowledgment of Vari-Lite International, Inc., a Delaware

corporation, executed and delivered by a duly authorized officer of Vari-Lite

International, Inc..

 

4.3           No Material Adverse Change.  There shall have occurred no material and

adverse change in the Borrower’s assets, liabilities or financial condition

since the date of the last Financials delivered by Borrower to Bank nor shall

there have been any material damage to or loss of any of Borrower’s assets or

properties since such date.

 

4.4           Amendment Fee.  Borrower shall have paid Bank an amendment

fee in an amount of Twenty-Five Thousand Dollars ($25,000.00).

 

5.  MISCELLANEOUS.

 

5.1           Governing Law.  This Amendment has been delivered and

accepted at and shall be deemed to have been made at Cleveland, Ohio.  This Amendment shall be interpreted and the

rights and liabilities of the parties hereto determined in accordance with the

laws of the State of Ohio, without regard to principles of conflict of law, and

all other laws of mandatory application.

 

J-4

 

5.2           Severability.  Each provision of this Amendment shall be

interpreted in such manner as to be valid under applicable law, but if any

provision hereof shall be invalid under applicable law, such provision shall be

ineffective to the extent of such invalidity, without invalidating the

remainder of such provision or the remaining provisions hereof.

 

5.3           Counterparts.  This Amendment may be executed in one or

more counterparts, each of which, when taken together, shall constitute but one

and the same agreement.

 

 

[REMAINDER OF PAGE INTENTIONALLY BLANK]

 

J-5

 

IN WITNESS WHEREOF, Borrower has caused this Amendment No. 5 to

Financing Agreement to be duly executed and delivered by its duly authorized

officer as of the date first above written.

 

	

  Signed and

  acknowledged

  	

  VARI-LITE, INC.

  
	

  in the presence

  of:

  	

   

  
	

   

  	

   

  
	

   

  	

   

  	

  By:

  	

   

  	

   

  
	

  Name:

  	

   

  	

   

  	

   

  
	

   

  	

  Its:

  	

   

  	

   

  
	

   

  	

   

  	

   

  
	

  Name:

  	

   

  	

   

  	

   

  
	

   

  	

   

  

 

J-6

 

	

  STATE OF

  	

  )

  
	

   

  	

  ) ss:

  
	

  COUNTY OF

  	

  )

  

 

 

 

The foregoing instrument was acknowledged before me this

       day of August, 2002, by

                              ,

the

                                       

of Vari-Lite, Inc., a Delaware corporation, on behalf of the corporation.

 

 

 

 

	

   

  	

   

  	

   

  
	

   

  	

  Notary Public

  

 

 

 

 

 

 

Accepted at

Cleveland, Ohio,

Effective as of

June 30, 2002.

 

	

  U.S. BANK

  NATIONAL ASSOCIATION

  
	

   

  
	

  By:

  	

   

  
	

  Its:

  	

   

  

 

J-7

 

ACKNOWLEDGMENT OF

GUARANTOR

 

 

The undersigned, Vari-Lite

International, Inc., a Delaware corporation, having guaranteed all of the

obligations of Vari-Lite, Inc. to U.S. Bank National Association (formerly

known as Firstar Bank, National Association) (“Bank”), hereby acknowledges and

agrees, effective as of June 30, 2002, to the terms of the foregoing

Amendment No. 5 to Financing Agreement. 

The undersigned represents and warrants to Bank that the Guaranty

executed and delivered by the undersigned to Bank, dated as of

December 29, 2000, remains the valid and binding obligation of the

undersigned, enforceable against it in accordance with its terms.

 

	

   

  	

  VARI-LITE

  INTERNATIONAL, INC.

  
	

   

  	

   

  
	

   

  	

  By:

  	

   

  	

   

  
	

   

  	

   

  
	

   

  	

  Its:

  	

   

  	

   

  

 

 

 

	

  STATE OF

  	

  )

  
	

   

  	

  ) ss:

  
	

  COUNTY OF

  	

  )

  

 

The foregoing instrument

was acknowledged before me this        day of

August, 2002, by

                                    ,

the                     

of VARI-LITE INTERNATIONAL, INC., a Delaware corporation, on behalf of the

company.

 

 

 

	

   

  	

   

  	

   

  
	

   

  	

  Notary Public

  

 

J-8

 

Exhibit J

Financial Covenants

 

Financial Covenants.  Borrower

agrees that it shall:

 

(A)                              Net Capital Expenditures. 

Not make nor permit International to make Net Capital Expenditures in an

aggregate amount exceeding $6,000,000 for any fiscal year.

 

(B)                                Earnings Before Interest, Taxes,

Depreciation and Amortization.  Not permit

International’s Earnings Before Interest, Taxes, Depreciation and Amortization

(“EBITDA”) to be less than the following amounts for the following periods:

 

	

  EBIDTA

  	

   

  	

  Period

  	

   

  
	

  $2,931,000

  	

   

  	

   

  	

  10/01/00 - 12/31/00

  	

   

  
	

  $6,234,000

  	

   

  	

   

  	

  10/01/00 - 03/31/01

  	

   

  
	

  $7,461,000

  	

   

  	

   

  	

  10/01/00 - 06/30/01

  	

   

  
	

  $9,491,000

  	

   

  	

   

  	

  10/01/00 - 09/30/01

  	

   

  
	

  $7,650,000

  	

   

  	

   

  	

  01/01/01 - 12/31/01

  	

   

  
	

  $6,940,000

  	

   

  	

   

  	

  04/01/01 - 03/31/02

  	

   

  
	

  $7,247,000

  	

   

  	

   

  	

  07/01/01 - 06/30/02

  	

   

  
	

  $8,500,000

  	

   

  	

   

  	

  10/01/01 - 09/30/02

  	

   

  
	

  $16,314,000

  	

   

  	

   

  	

  01/01/02 - 12/31/02

  	

   

  
	

  $16,882,000

  	

   

  	

   

  	

  04/01/02 - 03/31/03

  	

   

  
	

  $17,385,000

  	

   

  	

   

  	

  07/01/02 - 06/30/03

  	

   

  
	

  $18,123,000

  	

   

  	

   

  	

  10/01/02 - 09/30/03

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  
	

  $1,110,000

  	

   

  	

   

  	

  07/01/02 - 07/31/02

  	

   

  
	

  $2,295,000

  	

   

  	

   

  	

  07/01/02 - 08/31/02

  	

   

  
	

  $3,555,000

  	

   

  	

   

  	

  07/01/02 - 09/30/02

  	

   

  

 

(C)                                Net Worth.  Not permit

International’s Net Worth to be less than the following amounts as of the

following dates:

 

	

  Net Worth

  	

   

  	

  Date

  	

   

  
	

  $45,000,000

  	

   

  	

  12/31/00

  	

   

  
	

  $45,000,000

  	

   

  	

  03/31/01

  	

   

  
	

  $45,000,000

  	

   

  	

  06/30/01

  	

   

  
	

  $44,600,000

  	

   

  	

  09/30/01

  	

   

  
	

  $44,000,000

  	

   

  	

  12/31/01

  	

   

  
	

  $43,041,000

  	

   

  	

  03/31/02

  	

   

  
	

  $37,200,000

  	

   

  	

  06/30/02

  	

   

  
	

  $37,200,000

  	

   

  	

  09/30/02

  	

   

  
	

  $47,750,000

  	

   

  	

  12/31/02

  	

   

  
	

  $47,750,000

  	

   

  	

  03/31/03

  	

   

  
	

  $47,750,000

  	

   

  	

  06/30/03

  	

   

  
	

  $47,750,000

  	

   

  	

  09/30/03

  	

   

  

 

 

(D)                               Maximum Debt. 

Not permit International’s Total Funded Indebtedness to exceed the

following amounts at any time during the following periods:

 

	

  Total Funded Indebtedness

  	

   

  	

  Period

  	

   

  
	

  $29,000,000

  	

   

  	

  01/01/01 - 06/30/01

  	

   

  
	

  $27,000,000

  	

   

  	

  07/01/01 - 09/30/01

  	

   

  
	

  $25,000,000

  	

   

  	

  10/01/01 - 12/31/01

  	

   

  
	

  $25,000,000

  	

   

  	

  01/01/02 - 03/31/02

  	

   

  
	

  $25,000,000

  	

   

  	

  04/01/02 - 06/30/02

  	

   

  
	

  $25,000,000

  	

   

  	

  07/01/02 - 09/30/02

  	

   

  
	

  $25,000,000

  	

   

  	

  10/01/02 - 12/31/02

  	

   

  
	

  $27,000,000

  	

   

  	

  01/01/03 - 03/31/03

  	

   

  
	

  $27,000,000

  	

   

  	

  04/01/03 - 06/30/03

  	

   

  
	

  $27,000,000

  	

   

  	

  07/01/03 - 09/30/03

  	

   

  
	

  $27,000,000

  	

   

  	

  at any time thereafter

  	

   

  

 

(E)                                 Leverage Ratio. 

Not permit International’s Leverage Ratio to exceed the following ratios

as of the following dates:

 

	

  Leverage Ratio

  	

   

  	

  Date

  	

   

  
	

  4.65 to 1

  	

   

  	

  03/31/01

  	

   

  
	

  3.23 to 1

  	

   

  	

  06/30/01

  	

   

  
	

  2.56 to 1

  	

   

  	

  09/30/01

  	

   

  
	

  2.90 to 1

  	

   

  	

  12/31/01

  	

   

  
	

  3.05 to 1

  	

   

  	

  03/31/02

  	

   

  
	

  3.21 to 1

  	

   

  	

  06/30/02

  	

   

  
	

  2.76 to 1

  	

   

  	

  09/30/02

  	

   

  
	

  1.80 to 1

  	

   

  	

  12/31/02

  	

   

  
	

  1.75 to 1

  	

   

  	

  03/31/03

  	

   

  
	

  1.65 to 1

  	

   

  	

  06/30/03

  	

   

  
	

  1.65 to 1

  	

   

  	

  09/30/03

  	

   

  

 

 

(F)                                 Total Debt Service Ratio. 

Not permit International’s Total Debt Service Ratio to be less than the

following ratios as of the following dates:

 

	

  Total Debt Service Ratio

  	

   

  	

  Date

  	

   

  
	

  0.61 to 1

  	

   

  	

  09/30/01

  	

   

  
	

  0.60 to 1

  	

   

  	

  12/31/01

  	

   

  
	

  0.53 to 1

  	

   

  	

  03/31/02

  	

   

  
	

  0.77 to 1

  	

   

  	

  06/30/02

  	

   

  
	

  0.81 to 1

  	

   

  	

  09/30/02

  	

   

  
	

  1.20 to 1

  	

   

  	

  12/31/02

  	

   

  
	

  1.20 to 1

  	

   

  	

  03/31/03

  	

   

  
	

  1.20 to 1

  	

   

  	

  06/30/03

  	

   

  
	

  1.20 to 1

  	

   

  	

  09/30/03

  	

   

  

 

II.                                     Definitions

 

(A)                              The term “Net Capital Expenditures”

for purposes of this Exhibit J shall mean the sum of  (a) International’s consolidated capital

expenditures (including, but not by way of limitation, expenditures for fixed

assets or leases capitalized or required to be capitalized on International’s

consolidated books by purchase, lease-purchase agreement, option or otherwise),

minus  (b) the net book

value of capital assets previously sold and replaced by such capital

expenditures.

 

(B)                                The term “Earnings Before Interest,

Taxes, Depreciation, and Amortization” or “EBITDA”  for

purposes of this Exhibit J shall mean International’s consolidated

earnings from operations before income taxes and interest income or expense plus

depreciation, plus amortization of all non-cash charges, all as

determined in accordance with generally accepted accounting principles, and

shall not include any gains or losses from the sale of assets outside the

normal course of business or any other extraordinary accounting adjustments or

non-recurring items of income or loss.

 

(C)                                The term “Net Worth” for purposes

of this Exhibit J shall mean the total of International’s

consolidated shareholders equity, as determined in accordance with generally

accepted accounting principles, consistently applied.

 

(D)                               The term “Total Funded Indebtedness”

for purposes of this Exhibit J shall have the meaning and be

determined in accordance with generally accepted accounting principles

consistently applied by International on a consolidated basis in accordance

with past practices.

 

 

(E)                                 The term “Leverage Ratio” for

purposes of this Exhibit J shall mean:

 

1.             As of 03/31/01,  the ratio of Total Funded Indebtedness as of

such date to EBITDA as measured from 10/01/00 to 03/31/01;

 

2.             As of 06/30/01, the

ratio of Total Funded Indebtedness as of such date to EBITDA as measured from

10/01/00 to 06/30/01;

 

3.             As of 09/30/01, the

ratio of Total Funded Indebtedness as of such date to EBITDA as measured from

10/01/00 to 09/30/01; and

 

4.             As of 12/31/01 and as of the last

day of any fiscal quarter thereafter, the ratio of Total Funded

Indebtedness as of such date to EBITDA as measured on a four quarter trailing

basis.

 

(F)                                 The term “Unfunded Capital Expenditure

Payments” for purposes of this Exhibit J shall mean the amount

of consolidated capital expenditures of International which are not financed

under the CapEx Facility nor any other financing arrangement with any other

person.

 

(G)                                The term “Total Debt Service Ratio”

for purposes of this Exhibit J shall mean:

 

1.             For the period commencing on the

07/01/01 and ending on 09/30/01, the ratio of (a) EBITDA as

measured from 01/01/01 to 09/30/01 to (b) the sum of  (i) the total consolidated and

regularly scheduled principal and interest payments of Total Funded

Indebtedness for the period 01/01/01 to 09/30/01,  plus  (ii) Unfunded

Capital Expenditure Payments for the period 01/01/01 to 09/30/01, minus

(iii) the US $1,000,000 Japanese principal payment paid by Vari-Lite Asia,

Inc. in March, 2001;

 

                                                2.             For the period commencing on the

10/01/01 and ending on 12/31/01, the ratio of (a) EBITDA as

measured on a four quarter trailing basis to (b) the sum of  (i) the total consolidated and

regularly scheduled principal and interest payments of Total Funded

Indebtedness for such four quarter trailing period,  plus (ii) Unfunded Capital Expenditure Payments for such

four quarter trailing period,  minus  (iii) the US $1,000,000 Japanese

principal payment paid by Vari-Lite Asia, Inc. in March, 2001, plus (iv)

the amount of taxes paid by International on a consolidated basis during such

four quarter trailing period, minus (v) the amount of Japanese taxes

paid by Vari-Lite Asia, Inc. in February, 2001; and

 

                                                3.             For all periods after 12/31/01,

the ratio of (a) EBITDA as measured on a four quarter trailing basis to (b) the

sum of  (i) the total

consolidated and regularly scheduled principal and interest payments of Total

Funded Indebtedness for such four quarter trailing period,  plus (ii) Unfunded Capital

Expenditure Payments for such four quarter trailing period, plus (iii)

the amount of taxes paid by International on a consolidated basis during such

four quarter trailing period.Exhibit

10.2

 

SECURITY

AGREEMENT

 

This SECURITY AGREEMENT (this

“Agreement”), is entered into as of June 26, 2002, by and among ELGAR

ELECTRONICS CORPORATION, a California corporation (“Borrower”), ELGAR

HOLDINGS, INC., a Delaware corporation (“Parent”; Borrower and

Parent are referred to hereinafter each individually as a “Debtor”, and

individually and collectively, jointly and severally, as the “Debtors”), and ABLECO

FINANCE LLC, a Delaware limited liability company, as collateral

agent for the Lender Group (in such capacity, together with its successors, if

any, in such capacity, “Collateral Agent”), with reference to the following:

 

WHEREAS, Borrower

and Parent are parties to that certain Financing Agreement (the “Financing

Agreement”), of even date herewith, with the Lenders (as hereinafter defined),

Ableco Finance LLC, a Delaware limited liability company, as administrative

agent for the Lender Group (in such capacity, together with its successors, if

any, in such capacity, “Administrative Agent”) and Collateral Agent, pursuant

to which (i) the Lender Group (as defined herein) has agreed to make certain

financial accommodations to Borrower, and (ii) Parent has agreed to guarantee

the obligations of Borrower to the Lender Group;

 

WHEREAS, Borrower

is a Subsidiary of Parent, and Parent will benefit by virtue of the financial

accommodations to Borrower; and

 

WHEREAS, each

Debtor desires to secure its obligations under the Loan Documents to which it

is party by granting to Collateral Agent, for the benefit of the Lender Group,

security interests in the Collateral as set forth herein.

 

NOW THEREFORE, in

consideration of the premises set forth above, the terms and conditions

contained herein and other good and valuable consideration, the receipt and

sufficiency of which are hereby acknowledged, and each intending to be bound

hereby, Collateral Agent and each Debtor agree as follows:

 

1.             DEFINITIONS

AND CONSTRUCTION.

 

1.1.         Definitions.

 All capitalized terms

used herein and not otherwise defined herein shall have the meanings ascribed

to them in the Financing Agreement.  As

used in this Agreement, the following terms shall have the following

definitions:

 

“Accounts”

means all currently existing and hereafter arising accounts, contract rights,

and all other forms of obligations owing to one or more of the Debtors arising

out of the sale, license, or lease of goods or General Intangibles or the

rendition of services by the Debtors, irrespective of whether earned by

performance, any and all such rights or obligations evidenced by chattel paper,

instruments or documents, any and all credit insurance, guaranties, or security

therefor, and any and all supporting obligations in respect of any of the

foregoing.

 

“Account Debtor”

means any Person who is or who may become obligated under, with respect to, or

on account of, an Account, chattel paper, or a General Intangible.

 

 

“Administrative

Agent” has the meaning ascribed thereto in the recitals to this Agreement.

 

“Agreement”

has the meaning ascribed thereto in the preamble to this Agreement and any

joinders, extensions, riders, supplements, notes, amendments, or modifications

to or in connection with this Agreement.

 

“Bankruptcy

Code” means the United States Bankruptcy Code (11 U.S.C. § 101 et seq.), as

amended, and any successor statute.

 

“Borrower”

has the meaning ascribed thereto in the preamble to this Agreement.

 

“Code”

means the Uniform Commercial Code in effect in the State of New York from time

to time.

 

“Collateral”

means all of each Debtor’s right, title, and interest in and to each of the

following: the Accounts; Debtors’ Books; the Equipment; the General

Intangibles; the Inventory; the Investment Property; the Negotiable Collateral;

any money, or other assets of any Debtor which now or hereafter come into the possession,

custody, or control of Collateral Agent or any other member of the Lender

Group; and the proceeds and products, whether tangible or intangible, of any of

the foregoing, including proceeds of insurance covering any or all of the

Collateral, and any and all Accounts, Debtors’ Books, Equipment, General

Intangibles, Inventory, Investment Property, Negotiable Collateral, real

property, money, deposit accounts, or other tangible or intangible property

resulting from the sale, exchange, collection, or other disposition of any of

the foregoing, or any portion thereof or interest therein, and the proceeds

thereof.

 

“Collateral

Access Agreement” means a landlord waiver, mortgagee waiver, bailee letter,

or acknowledgement agreement of any warehouseman, processor, lessor, consignee,

or other Person in possession of, having a Lien upon, or having rights or

interests in the Equipment or Inventory, in each case, in form and substance

satisfactory to Collateral Agent.

 

“Collateral

Agent” has the meaning ascribed thereto in the preamble to this Agreement.

 

“copyright”

shall have the meaning ascribed to such term in the Copyright Act, and includes

unregistered copyrights.

 

“Copyright Act”

means the United States Copyright Act of 1976, as amended, and any successor

statute, and the rules promulgated thereunder.

 

“Debtor”

and “Debtors” have the respective meanings set forth in the preamble to

this Agreement.

 

“Debtors’ Books”

means all of each Debtor’s now owned or hereafter acquired books and records,

including:  ledgers; records indicating,

summarizing, or evidencing such Debtor’s properties or assets (including the

Collateral) or liabilities; all information relating to such Debtor’s business

operations or financial condition; and all computer programs, disc or tape 

 

2

 

files,

printouts, runs, or other computer prepared information in respect of such

books and records.

 

“Equipment”

means all of each Debtor’s present and hereafter acquired right, title, and

interest with respect to machinery, machine tools, motors, equipment,

furniture, furnishings, fixtures, vehicles (including motor vehicles and

trailers), tools, parts, dies, jigs, goods (other than consumer goods, farm

products, or Inventory), wherever located, and any interest of any Debtor in

any of the foregoing, and all attachments, accessories, accessions,

replacements, substitutions, additions, and improvements to any of the

foregoing, wherever located.

 

“Event of

Default” has the meaning ascribed to it in Section 6.

 

“Financing

Agreement” has the meaning ascribed thereto in the recitals to this

Agreement.

 

“General

Intangibles” means all of each Debtor’s present and future general

intangibles and other personal property (including contract rights, rights

arising under common law, statutes, or regulations, choses or things in action,

goodwill, patents, trade names, trademarks, servicemarks, copyrights, source

code, mask works, internet-related general intangibles (including domain names,

web sites, and all contents contained therein and located thereat), blueprints,

drawings, purchase orders, customer lists, monies due or recoverable from

pension funds, route lists, rights to payment and other rights under any

agreements (whether royalty agreements, licensing agreements, or any other

agreements), infringements claims, computer programs, information contained in

or on computer discs or computer tapes or other information storage media,

literature, reports, catalogs, deposit accounts, insurance premium rebates, tax

refunds, and tax refund claims), other than goods, Accounts, Investment

Property, and Negotiable Collateral, and any and all supporting obligations in

respect of any of the foregoing.

 

“Inventory”

means all present and future inventory in which any Debtor has any right,

title, or interest, including goods held for sale, license, or lease or to be

furnished under a contract of service and all of each Debtor’s present and

future raw materials, work in process, piece goods, trim and finished goods,

and packing and shipping materials, wherever located, and any documents of

title representing any of the above, and all such other property the sale,

license, lease, or other disposition of which would give rise to an Account or

cash (including intellectual property the license of which would give rise to

an Account or cash).

 

“Investment

Property” means all of each Debtor’s now owned or hereafter acquired right,

title and interest with respect to “investment property” as that term is

defined in the Code, and any and all supporting obligations in respect thereof.

 

“Insolvency

Proceeding” means any proceeding commenced by or against any Person under

any provision of the Bankruptcy Code or under any other bankruptcy or

insolvency law, assignments for the benefit of creditors, formal or informal

moratoria, compositions, extensions generally with creditors, or proceedings

seeking reorganization, arrangement, or other similar relief.

 

3

 

“Lender Group”

means collectively the Lenders, Administrative Agent and Collateral Agent.

 

“Lenders”

means, individually and collectively, each of the lenders identified on the

signature pages of the Financing Agreement, and any other Person made a party

thereto in accordance with the provisions of Section 12.07 thereof

(together with their respective successors and assigns).

 

“Lender Group

Expenses” means all costs or expenses (including taxes, and insurance

premiums) required to be paid by any Debtor under this Agreement, the Financing

Agreement, or any other Loan Document that are paid or incurred by the Lender

Group.

 

“Lender-Related

Person” means, with respect to any Lender, such Lender, together with such

Lender’s Affiliates, and the officers, directors, employees, counsel, agents,

and attorneys-in-fact of such Lender and such Lender’s Affiliates.

 

“Negotiable

Collateral” means all of each Debtor’s present and future letters of

credit, notes, drafts, instruments, Investment Property, documents, personal

property leases (wherein any Debtor is the lessor), chattel paper, Debtors’

Books relating to any of the foregoing, and any and all supporting obligations

in respect of the foregoing.

 

“Parent”

has the meaning ascribed thereto in the preamble to this Agreement.

 

“Permitted

Protest” means the right of Debtors to protest any Lien (other than any

such Lien that secures the Secured Obligations), or tax (other than payroll

taxes or taxes that are the subject of a United States federal tax lien with

respect to which a notice of Lien has been filed), provided that (a) a reserve

with respect to such obligation is established on the books of Debtors in an

amount that is reasonably satisfactory to Collateral Agent, (b) any such

protest is instituted and diligently prosecuted by Debtors in good faith, and (c)

Collateral Agent is reasonably satisfied that, while any such protest is

pending, there will be no impairment of the enforceability, validity, or

priority of any of the Liens of Collateral Agent in and to the Collateral for

the benefit of the Lender Group.

 

“Secured

Obligations” shall mean, with respect to each Debtor, all liabilities,

Obligations, or undertakings owing by such Debtor to Agent or the Lender Group

of any kind or description arising out of or outstanding under, advanced or

issued pursuant to, or evidenced by the Financing Agreement, the other Loan

Documents to which such Debtor is a party, or this Agreement, irrespective of

whether for the payment of money, whether direct or indirect, absolute or

contingent, due or to become due, voluntary or involuntary, whether now

existing or hereafter arising, and including all interest (including interest

that accrues after the filing of a case under the Bankruptcy Code) and any and

all costs, fees (including attorneys fees), and expenses which such Debtor is

required to pay pursuant to any of the foregoing.

 

1.2.         Code.  Any terms used in this Agreement which are

defined in the Code shall be construed and defined as set forth in the Code

unless otherwise defined herein.

 

1.3.         Construction.  Unless the context of this Agreement clearly

requires otherwise, references to the plural include the singular, references

to the singular include 

 

4

 

the

plural, the term “including” is not limiting, and the term “or” has, except

where otherwise indicated, the inclusive meaning represented by the phrase

“and/or.”  The words “hereof,” “herein,”

“hereby,” “hereunder,” and similar terms in this Agreement refer to this

Agreement as a whole and not to any particular provision of this

Agreement.  Section,  subsection, clause, schedule, and exhibit

references are to this Agreement unless otherwise specified.  Any reference in this Agreement or in any of

the other Loan Documents to this Agreement or any of the other Loan Documents

shall include all alterations, amendments, restatements, changes, extensions,

modifications, renewals, replacements, substitutions, and supplements, thereto

and thereof, as applicable.  In the

event of a direct conflict between the terms and provisions of this Agreement

and the Financing Agreement, it is the intention of the parties hereto that

both such documents shall be read together and construed, to the fullest extent

possible, to be in concert with each other. 

In the event of any actual, irreconcilable conflict that cannot be

resolved as aforesaid, the terms and provisions of the Financing Agreement

shall control and govern; provided, however, that the inclusion herein of

additional obligations on the part of a Debtor and supplemental rights and remedies

in favor of Collateral Agent, in each case in respect of the Collateral, shall

not be deemed a conflict with the Financing Agreement.

 

1.4.         Schedules

and Exhibits.  All

of the schedules and exhibits attached to this Agreement shall be deemed incorporated

herein by reference.

 

2.             CREATION OF

SECURITY INTEREST.

 

2.1.         Grant of Security Interest.

 

(a)           Each Debtor hereby grants to

Collateral Agent, for the benefit of the Lender Group, continuing security

interests in all currently existing and hereafter acquired or arising

Collateral in order to secure prompt repayment of any and all of the Secured

Obligations in accordance with the terms and conditions of the Loan Documents

and in order to secure prompt performance by each Debtor of each such Debtor’s covenants

and duties under the Loan Documents.

 

(b)           Notwithstanding anything herein to

the contrary, the Collateral shall not include any agreement with a third party

existing on the date hereof that prohibits the grant of a Lien on such

agreement or any of any Debtor’s rights thereunder without the consent of such

party or under which a consent to such grant is otherwise required, which

consent has not been obtained, except to the extent rights under any such

prohibition are invalidated by Sections 9-406, 9-407, 9-408, and 9-409 of the

Code; provided, however, that the Collateral shall include (A)

the proceeds of the above to the extent such proceeds are otherwise included in

the Collateral, and (B) all items excluded pursuant to this subsection (b) from

and after the date on which the requisite consent is obtained.  Furthermore, each Debtor agrees to use its

commercially reasonable efforts to obtain and maintain in full force and effect

all consents contemplated pursuant to this subsection (b).

 

(c)           Collateral Agent’s security interests

in the Collateral for the benefit of the Lender Group shall attach to all

Collateral without further act on the part of the Lender Group or any Debtor.

 

5

 

(d)           Except as expressly set forth in this

Agreement or any other Loan Document, no Debtor has any authority, express or

implied, to dispose of any item or portion of the Collateral.

 

2.2.         Negotiable

Collateral.  In

the event that any Collateral, including proceeds, is evidenced by or consists

of Negotiable Collateral in the form of notes, drafts, instruments, documents,

or chattel paper, Debtor shall, promptly upon the request of Collateral Agent,

endorse and assign such notes, drafts, instruments, documents, or chattel paper

to Collateral Agent and deliver physical possession of such notes, drafts,

instruments, documents, or chattel paper to Collateral Agent.

 

2.3.         Collection

of Accounts, General Intangibles, Negotiable Collateral.  At anytime after and during the continuance

of an Event of Default, Collateral Agent or Collateral Agent’s designee may:

(a) notify customers or Account Debtors of any Debtor that the Accounts,

General Intangibles, or Negotiable Collateral have been assigned to Collateral

Agent or that Collateral Agent has a security interest therein for the benefit

of the Lender Group ; and (b) collect the Accounts, General Intangibles, and

Negotiable Collateral directly and charge, or cause Administrative Agent to

charge for the benefit of Collateral Agent, the collection costs and expenses

incurred by Collateral Agent in connection with any such collection of the

Accounts to the Loan Account.

 

2.4.         Delivery

of Additional Documentation Required.  Each Debtor shall execute, and deliver to

Collateral Agent, prior to or concurrently with such Debtor’s execution and

delivery of this Agreement and at any time thereafter at the request of

Collateral Agent, all financing statements, continuation financing statements,

fixture filings, security agreements, chattel mortgages, pledges, mortgages,

deeds of trust, assignments, endorsements of certificates of title,

applications for title, affidavits, reports, notices, schedules of accounts,

letters of authority, and all other documents that Collateral Agent may

reasonably request, in form satisfactory to Collateral Agent, to perfect and

continue perfected Collateral Agent’s security interests in the Collateral for

the benefit of the Lender Group and in order to fully consummate all of the

transactions contemplated under the Loan Documents.

 

2.5.         Power of

Attorney.  Each

Debtor hereby irrevocably makes, constitutes, and appoints Collateral Agent

(and any of Collateral Agent’s officers, employees, or agents (including

Administrative Agent) designated by Collateral Agent) as such Debtor’s true and

lawful attorney, with power to:  (a) if

such Debtor refuses to, or fails timely to execute and deliver any of the

documents described in Section 2.4, sign the name of such Debtor on any

of the documents described in Section 2.4; (b) at any time that an Event

of Default has occurred and is continuing or the Lender Group, or Collateral

Agent on behalf thereof, deems itself insecure (in accordance with Section

1-208 of the Code), sign such Debtor’s name on any invoice or bill of lading

relating to any Account, drafts against Account Debtors, schedules and

assignments of Accounts, verifications of Accounts, and notices to Account

Debtors; (c) send requests for verification of Accounts; (d) after the

occurrence and during the continuance of an Event of Default, endorse such

Debtor’s name on any checks, notices, acceptances, money orders, drafts, or

other item of payment or security that may come into Collateral Agent’s or any

other member of the Lender Group’s possession; (e) at any time that an Event of

Default has occurred and is continuing or the Lender Group, or Collateral Agent

on behalf thereof, deems itself insecure (in

 

6

 

accordance

with Section 1-208 of the Code), notify the post office authorities to change

the address for delivery of such Debtor’s mail to an address designated by

Collateral Agent, to receive and open all mail addressed to such Debtor, and to

retain all mail relating to the Collateral and forward all other mail to such

Debtor; (f) at any time that an Event of Default has occurred and is continuing

or the Lender Group, or Collateral Agent on behalf thereof, deems itself

insecure (in accordance with Section 1-208 of the Code), make, settle, and

adjust all claims under such Debtor’s policies of insurance and make all

determinations and decisions with respect to such policies of insurance; and

(g) at any time that an Event of Default has occurred and is continuing or the

Lender Group, or Collateral Agent on behalf thereof, deems itself insecure (in

accordance with Section 1-208 of the Code), settle and adjust disputes and

claims respecting the Accounts directly with Account Debtors, for amounts and

upon terms which Collateral Agent determines to be reasonable, and Collateral

Agent may cause to be executed and delivered any documents and releases which

Collateral Agent determines to be necessary. 

The appointment of Collateral Agent as each Debtor’s attorney, and each

and every one of Collateral Agent’s rights and powers, being coupled with an

interest, is irrevocable until all of the Secured Obligations have been fully

and finally performed and paid in cash and the obligations of the Lender Group

to extend credit under the Financing Agreement have been irrevocably

terminated.

 

2.6.         Right to

Inspect. 

Collateral Agent (through any of its officers, employees, or agents)

shall have the right, from time to time during normal business hours, at the

expense of such Debtor, to inspect Debtors’ Books and to check, test, and

appraise the Collateral in order to verify each Debtor’s financial condition or

the amount, quality, value, condition of, or any other matter relating to, the

Collateral.

 

3.             REPRESENTATIONS

AND WARRANTIES.

 

Each Debtor

represents and warrants as follows:

 

3.1.         No Prior

Encumbrances. 

Each Debtor has good and defensible title to the Collateral, free and

clear of all Liens except Permitted Liens.

 

3.2.         Location

of Inventory and Equipment.  The Inventory and Equipment are not stored with a bailee,

warehouseman, or similar party (without Collateral Agent’s prior written

consent) and are located only at the locations identified on Schedule

6.01(ff) of the Financing Agreement or otherwise permitted by Section

4.2.

 

3.3.         Inventory

Records.  Each

Debtor now keeps, and hereafter at all times shall keep, correct and accurate

records itemizing and describing the kind, type, quality, and quantity of the

Inventory, and each Debtor’s cost therefor.

 

3.4.         [Intentionally Omitted].

 

3.5.         Reliance

by Collateral Agent; Cumulative.  The warranties, representations, and

agreements set forth herein shall be conclusively presumed to have been relied

upon by Collateral Agent and the Lender Group, and shall be cumulative and in

addition to any and all other warranties, representations, and agreements which

any Debtor shall now or hereinafter give, or cause to be given, to Collateral

Agent or the Lender Group.

 

7

 

4.             AFFIRMATIVE

COVENANTS.

 

Each Debtor

covenants and agrees that, until payment in full in cash of the Secured

Obligations, and unless Collateral Agent shall otherwise consent in writing,

each Debtor shall do all of the following:

 

4.1.         [Intentionally Omitted].

 

4.2.         Location

of Inventory and Equipment.  Keep the Inventory and Equipment only at the locations identified

on Schedule 6.01(ff) of the Financing Agreement; provided, however, that

any Debtor may amend such schedule so long as such amendment occurs by written

notice to Collateral Agent within 30 days after the date on which the Inventory

or Equipment is moved to such new location, so long as such new location is

within the continental United States, and so long as, at the time of such

written notification, Debtors provide or authorize, as applicable, any

financing statements or fixture filings necessary to perfect and continue

perfected Collateral Agent’s security interests in such assets and also provide

to Collateral Agent a Collateral Access Agreement with respect to such new

location, if such assets have a book value in excess of $250,000 (when

aggregated with all other Collateral at the same location).

 

4.3.         Title to

Equipment.  Upon

Collateral Agent’s request, deliver to Collateral Agent, properly endorsed, any

and all evidences of ownership of, certificates of title, or applications for

title to any items of Equipment.

 

4.4.         Maintenance

of Equipment. 

Keep and maintain the Equipment in good operating condition and repair

(ordinary wear and tear excepted), and make all necessary replacements thereto

so that the value and operating efficiency thereof shall at all times be

maintained and preserved.  Except by

operation of law, no Debtor shall permit any item of Equipment to become a

fixture to real estate or an accession to other property, and the Equipment is

now and shall at all times remain personal property.

 

4.5.         Taxes.  Cause all assessments and taxes, whether

real, personal, or otherwise, due or payable by, or imposed, levied, or

assessed against any Debtor or any of such Debtor’s property to be paid in

full, before delinquency or before the expiration of any extension period,

except to the extent that the validity of such assessment or tax shall be the

subject of a Permitted Protest.  Each

Debtor shall make due and timely payment or deposit of all taxes, assessments,

or contributions required of it by law, and will deliver to Collateral Agent

upon request an official receipt (or, if an official receipt is not available,

such other documentation as shall be satisfactory to the Collateral Agent)

showing payment thereof.  Each Debtor

will make timely payment or deposit of all tax payments and withholding taxes

required of it by applicable laws, and will, upon request, furnish Collateral

Agent with proof satisfactory to Collateral Agent indicating that each Debtor

has made such payments or deposits, other than assessments or taxes that are

the subject of a Permitted Protest. 

Upon request, each Debtor shall deliver satisfactory evidence of payment

of applicable excise taxes in each jurisdictions in which (a) such Debtor

conducts business or is required to pay any such excise tax, (b) where such

Debtor’s failure to pay any such applicable excise tax would result in a Lien

on the properties or assets of such 

 

8

 

Debtor,

or (c) where such Debtor’s failure to pay any such applicable excise tax would

constitute a Material Adverse Effect.

 

4.6.         Lender

Group Expenses. 

Such Debtor shall immediately and without demand reimburse Collateral

Agent for all sums expended by Collateral Agent which constitute Lender Group

Expenses and each Debtor hereby authorizes and approves all advances and

payments by Collateral Agent for items constituting Lender Group Expenses.

 

5.             NEGATIVE

COVENANTS.

 

Each Debtor

covenants and agrees that until payment in full in cash of the Secured

Obligations, it will not do any of the following without the prior written

consent of the Collateral Agent:

 

5.1.         Change

Name.  Except as

permitted by Section 7.02 of the Financing Agreement, change such

Debtor’s name, FEIN, business structure, or identity, or add any new fictitious

name.

 

5.2.         Nature

of Business; Fiscal Year.  (a) Make any change in the principal nature of such Debtor’s

business, as such business is described in Section 6.01(l) of the

Financing Agreement, or (b) without the prior written consent of Collateral

Agent, which consent shall not unreasonably be withheld, change the date of its

fiscal year.

 

5.3.         Inventory

and Equipment with Bailees.  The Inventory and Equipment shall not at any time now or hereafter

be stored with a bailee, warehouseman, or similar party without Collateral

Agent’s prior written consent.

 

6.             EVENTS

OF DEFAULT.

 

The occurrence of

an “Event of Default” as defined in the Financing Agreement shall constitute an

“Event of Default” under this Agreement.

 

7.             COLLATERAL

AGENT’S RIGHTS AND REMEDIES.

 

7.1.         Rights

and Remedies. 

Upon the occurrence, and during the continuation, of an Event of

Default, the Required Lenders (at their election but without notice of their

election and without demand) may, except to the extent otherwise expressly

provided or required below, authorize and instruct Collateral Agent to do any

one or more of the following on behalf of the Lender Group (and Collateral

Agent, acting upon the instructions of the Required Lenders, shall do the same

on behalf of the Lender Group), all of which are authorized by each Debtor:

 

(a)           Proceed

directly and at once, without notice, against any Debtor to collect and recover

the full amount or any portion of the Secured Obligations, without first

proceeding against any other Debtor, or against any security or collateral for

the Secured Obligations.

 

9

 

(b)           Without

notice to any Debtor (such notice being expressly waived), and without

constituting a retention of any collateral in satisfaction of an obligation

(within the meaning of the Code), set off and apply to the Secured Obligations

any and all (i) balances and deposits of any Debtor held by the Lender Group

(including any amounts received in the Blocked Account or any lockbox

accounts), or (ii) indebtedness at any time owing to or for the credit or the

account of any Debtor held by the Lender Group;

 

(c)           Hold

or cause to be held, as cash collateral, any and all balances and deposits of

any Debtor held by the Lender Group, and any amounts received in the Blocked

Account or any lockbox accounts, to secure the full and final repayment in cash

of all of the Secured Obligations;

 

(d)           Exercise

in respect of the Collateral, in addition to other rights and remedies provided

for herein and in the Financing Agreement and the other Loan Documents or

otherwise available to it, all the rights and remedies available to it at law

(including those of a secured party under the Code) or in equity.

 

(e)           Settle

or adjust disputes and claims directly with Account Debtors for amounts and

upon terms which Collateral Agent considers advisable, and in such cases,

Collateral Agent shall credit, or shall cause Administrative Agent to credit,

the Loan Account with only the net amounts received by Collateral Agent in

payment of such disputed Accounts after deducting all Lender Group Expenses

incurred or expended in connection therewith;

 

(f)            Cause

each Debtor to hold all returned Inventory in trust for Collateral Agent,

segregate all returned Inventory from all other property of any Debtor or in

such Debtor’s possession and conspicuously label said returned Inventory as the

property of Collateral Agent;

 

(g)           Without

notice or demand, make such payments and do such acts as Collateral Agent considers

necessary or reasonable to protect its security interest in the

Collateral.  Each Debtor agrees to

assemble the Collateral if Collateral Agent so requires, and to make the

Collateral available to Collateral Agent as Collateral Agent may

designate.  Each Debtor authorizes

Collateral Agent to enter the premises where the Collateral is located, to take

and maintain possession of the Collateral, or any part of it, and to pay,

purchase, contest, or compromise any encumbrance, charge, or lien which in Collateral

Agent’s determination appears to be prior or superior to its security interest

and to pay all expenses incurred in connection therewith.  With respect to each Debtor’s owned

premises, each Debtor hereby grants Collateral Agent a license to enter into

possession of such premises and to occupy the same, without charge, for up to

one hundred twenty (120) days in order to exercise any of Collateral Agent’s

rights or remedies provided herein, at law, in equity, or otherwise;

 

(h)           Ship,

reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise

for sale, and sell (in the manner provided for herein) the Collateral.  Collateral Agent is hereby granted a license

or other right to use, without charge, each Debtor’s labels, patents,

copyrights, rights of use of any name, trade secrets, trade names, trademarks,

service marks, and advertising matter, or any property of a similar nature, as

it pertains to the 

 

10

 

Collateral, in

completing production of advertising for sale and selling any Collateral, and

each Debtor’s rights under all licenses and all franchise agreements shall

inure to the Lender Group’s benefit;

 

(i)            Sell

all or any part of the Collateral at either a public or private sale, or both,

by way of one or more contracts or transactions, for cash or on terms, in such

manner and at such places (including each Debtor’s premises) as Collateral

Agent determines is commercially reasonable. 

It is not necessary that the Collateral be present at any such

sale.  Collateral Agent on behalf of the

Lender Group shall have the right upon any such public sale or sales, and, to

the extent permitted by law, upon any such private sale or sales, to purchase

the whole or any part of the Collateral so sold, free of any right or equity of

redemption in any Debtor, which right or equity is hereby waived or released to

the extent permitted by law;

 

(j)            Collateral

Agent shall give notice of any disposition of the Collateral as follows:

 

(i) Collateral Agent shall

give Debtors and each holder of a security interest in the Collateral who has

filed with Collateral Agent a written request for notice, a notice in writing

of the time and place of public sale, or, if the sale is a private sale or some

other disposition other than a public sale is to be made of the Collateral,

then the time on or after which the private sale or other disposition is to be

made;

 

(ii) The notice shall be

personally delivered or mailed, postage prepaid, to Debtors as provided in Section

12.01 of the Financing Agreement, at least 10 days before the date fixed

for the sale, or at least 10 days before the date on or after which the private

sale or other disposition is to be made; no notice needs to be given prior to

the disposition of any portion of the Collateral that is perishable or

threatens to decline speedily in value or that is of a type customarily sold on

a recognized market.  Notice to Persons

other than Debtors claiming an interest in the Collateral, shall be sent to

such addresses as they have furnished in writing to Collateral Agent;

 

(iii) If the sale is to

be a public sale, Collateral Agent also shall give notice of the time and place

by publishing a notice one time at least 10 days before the date of the sale in

a newspaper of general circulation in the county in which the sale is to be

held;

 

(k)           By

an instrument in writing, appoint a receiver (which term shall include a

receiver and manager) of all or any part of the Collateral and may remove or

replace such receiver from time to time or may institute proceedings in any

court of competent jurisdiction for the appointment of such receiver;

 

(l)            Require

Debtors to establish one or more lockbox or other restricted accounts

satisfactory to Collateral Agent for the collection of Accounts, General

Intangibles, or Negotiable Collateral;

 

(m)          Notify

customers or Account Debtors that the Accounts, General Intangibles, or

Negotiable Collateral have been assigned to Collateral Agent or that Collateral

Agent has a security interest therein;

 

11

 

(n)           Collect

the Accounts of Debtors, General Intangibles, and Negotiable Collateral

directly, and charge the collection costs and expenses as Lender Group

Expenses; but, unless and until the Collateral Agent does so or gives Debtors

other written instructions, each Debtor shall collect all of Accounts, General

Intangibles, and Negotiable Collateral for the Lender Group, receive in trust

all payments thereon as the Collateral Agent’s trustee, and promptly deliver

said payments to Administrative Agent for the benefit of the Lender Group in

their original form as received from such Account Debtor;

 

(o)           Any

deficiency which exists after disposition of the Collateral as provided above

will be paid promptly by Debtors up to the maximum amount, if any, of each

Debtor’s liability under the Financing Agreement or any other Loan

Document.  Any excess will be returned

to Debtors, without interest and subject to the rights of third parties, by

Collateral Agent as provided in the Loan Documents.

 

Except as required

by law, Collateral Agent may take any or all of the foregoing action without

demand, presentment, protest, advertisement or notice of any kind to or upon

Debtors or any other Person.

 

7.2.         Remedies

Cumulative.  The

rights and remedies of Collateral Agent and the Lender Group under this

Agreement, the Loan Documents, and all other agreements shall be

cumulative.  Collateral Agent and the

Lender Group shall have all other rights and remedies not inconsistent herewith

as provided under the Code, by law, or in equity.  No exercise by Collateral Agent or the Lender Group of one right

or remedy shall be deemed an election, and no waiver by Collateral Agent or the

Lender Group of any Event of Default on any Debtor’s part shall be deemed a

continuing waiver. No delay by Collateral Agent or the Lender Group shall

constitute a waiver, election, or acquiescence by it.

 

8.             TAXES

AND EXPENSES REGARDING THE COLLATERAL.  If any Debtor fails

to pay any monies (whether taxes, rents, assessments, insurance premiums, or

otherwise) due to third persons or entities, or fails to make any deposits or

furnish any required proof of payment or deposit, all as required under the

terms of this Agreement, then, to the extent that Collateral Agent determines

that such failure by such Debtor could have a material adverse effect on the

Lender Group’s security interest in the Collateral, in Collateral Agent’s

discretion and without prior notice to Debtors, Collateral Agent may do any or

all of the following: (a) make payment of the same or any part thereof; (b) set

up, or cause Administrative Agent to set up, such reserves in the Loan Account

as Collateral Agent deems necessary to protect the Lender Group from the

exposure created by such failure; or (c) obtain and maintain insurance policies

insuring such Debtor’s ownership and use of the Collateral, and take any action

with respect to such policies as Collateral Agent deems prudent.  Any amounts paid or deposited by Collateral

Agent shall constitute Lender Group Expenses, shall immediately become

additional Secured Obligations, shall bear interest at the applicable rate

described in the Financing Agreement, and shall be secured by the

Collateral.  Any payments made by

Collateral Agent shall not constitute an agreement by Collateral Agent to make

similar payments in the future or a waiver by Collateral Agent of any Event of

Default under this Agreement. 

Collateral Agent need not inquire as to, or contest the validity of, any

such expense, tax, security interest, encumbrance, or lien and the receipt of

the usual official notice for the payment thereof shall be conclusive 

 

12

 

evidence

that the same was validly due and owing. 

Collateral Agent shall use its reasonable efforts to provide notice to

Debtors of any action taken by it under this Section 8.

 

9.             WAIVERS;

INDEMNIFICATION.

 

9.1.         Demand;

Protest; etc.  To

the extent permitted by law, each Debtor waives demand, protest, notice of

protest, notice of default or dishonor, notice of payment and nonpayment,

notice of any default, nonpayment at maturity, release, compromise, settlement,

extension, or renewal of accounts, documents, instruments, chattel paper, and

guarantees at any time held by Collateral Agent on which such Debtor may in any

way be liable.

 

9.2.         Collateral

Agent’s Liability for Collateral.  So long as Collateral Agent complies with

its obligations, if any, under the Code, Collateral Agent shall not in any way

or manner be liable or responsible for: 

(a) the safekeeping of the Collateral; (b) any loss or damage thereto

occurring or arising in any manner or fashion from any cause; (c) any

diminution in the value thereof; or (d) any act or default of any carrier,

warehouseman, bailee, forwarding agency, or other Person.  All risk of loss, damage, or destruction of

the Collateral shall be borne by the Debtors.

 

9.3.         Indemnification.  Each Debtor agrees to defend, indemnify,

save, and hold Collateral Agent and each Lender-Related Person harmless against:

(a) all obligations, demands, claims, and liabilities claimed or asserted by

any other Person, and (b) all losses (including attorneys fees and

disbursements) in any way suffered, incurred, or paid by Collateral Agent or

any Lender-Related Person as a result of or in any way arising out of,

following, or consequential to transactions with Debtors or any Debtor, whether

under this Agreement, the Financing Agreement, or the other Loan Documents, but

excluding any obligations, demands, claims, liabilities, and losses caused by

Collateral Agent’s or any Lender-Related Person’s gross negligence or willful

misconduct as determined by a final judgment of a court of competent

jurisdiction.  This provision shall

survive the termination of this Agreement.

 

10.          NOTICES.

 All notices and other communications

hereunder to Collateral Agent shall be in writing and shall be mailed, sent or

delivered in accordance with the Financing Agreement and all notices and other

communications hereunder to Debtors shall be in writing and shall be mailed,

sent or delivered in care of Borrower in accordance with the Financing

Agreement.

 

11.          GOVERNING

LAW.  THIS AGREEMENT SHALL BE

GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW

YORK.

 

12.          DESTRUCTION

OF DEBTORS’ DOCUMENTS.  All written information, schedules,

agings, reports or similar papers delivered to Collateral Agent may be

destroyed or otherwise disposed of by Collateral Agent four (4) months after

they are delivered to or received by Collateral Agent, unless Debtors request,

in writing, the return of said documents, schedules or other papers and makes

arrangements, at Debtors’ expense, for their return.

 

13

 

13.          GENERAL

PROVISIONS.

 

13.1.       Effectiveness.

 This Agreement shall

be binding and deemed effective when executed by each Debtor and executed by

Collateral Agent.

 

13.2.       Successors

and Assigns.  This

Agreement shall bind and inure to the benefit of the respective successors and

assigns of each of the parties; provided, however, that no Debtor may assign

this Agreement or any rights or duties hereunder without prior written consent

of the Lender Group and any prohibited assignment shall be absolutely

void.  No consent to an assignment by

the Lender Group shall release Debtors from their Secured Obligations.  On behalf of the Lender Group, Collateral

Agent may assign this Agreement and its rights and duties hereunder and no

consent or approval by Debtors is required in connection with any such

assignment.

 

13.3.       Section

Headings. 

Headings and numbers have been set forth herein for convenience

only.  Unless the contrary is compelled

by the context, everything contained in each section applies equally to this

entire Agreement.

 

13.4.       Interpretation.

 Neither this

Agreement nor any uncertainty or ambiguity herein shall be construed or

resolved against Collateral Agent, the Lender Group, or the Debtors, whether

under any rule of construction or otherwise. 

On the contrary, this Agreement has been reviewed by all parties and

shall be construed and interpreted according to the ordinary meaning of the

words used so as to fairly accomplish the purposes and intentions of all

parties hereto.

 

13.5.       Severability

of Provisions. 

Each provision of this Agreement shall be severable from every other

provision of this Agreement for the purpose of determining the legal

enforceability of any specific provision.

 

13.6.       Amendments

in Writing.  This

Agreement can only be amended by a writing signed by both Collateral Agent and each

Debtor.

 

13.7.       Counterparts.  This Agreement may be executed in any number

of counterparts and by different parties on separate counterparts, each of

which, when executed and delivered, shall be deemed to be an original, and all

of which, when taken together, shall constitute but one and the same Agreement.

 

13.8.       [Intentionally Omitted]

 

13.9.       Revival

and Reinstatement of Obligations.  If the incurrence or payment of the Secured

Obligations by any Debtor or the transfer by Debtors to Collateral Agent or the

Lender Group of any property of any Debtor should for any reason subsequently

be declared to be void or voidable under any state or federal law relating to

creditors’ rights, including provisions of the Bankruptcy Code relating to

fraudulent conveyances, preferences, and other voidable or recoverable payments

of money or transfers of property (collectively, a “Voidable Transfer”), and if

Collateral Agent or the Lender Group is required to repay or restore, in whole

or in part, any such Voidable Transfer, or elects to do so upon the reasonable

advice of its counsel, then, as to any such Voidable Transfer, or the amount

thereof that Collateral Agent or the Lender Group is required or elects to

repay or restore, and as to all reasonable costs, expenses, and attorneys fees

of Collateral Agent or the Lender Group related thereto, the liability 

 

14

 

of

Debtors automatically shall be revived, reinstated, and restored and shall

exist as though such Voidable Transfer had never been made.

 

 

[Signature page follows.]

 

15

 

IN WITNESS

WHEREOF, the parties hereto have caused this Agreement to be executed and

delivered as of the date first above written.

 

	

   

  	

  ELGAR ELECTRONICS CORPORATION,  

  a California corporation   

  
	

   

  	

   

  
	

   

  	

   

  
	

   

  	

  By:

  	

  /s/ Joseph A. Stroud

  	

   

  
	

   

  	

  Name:

  	

  Joseph A. Stroud 

  
	

   

  	

  Title:

  	

  Chief Financial Officer

  
	

   

  	

   

  
	

   

  	

   

  
	

   

  	

  ELGAR HOLDINGS, INC.,  

  a Delaware corporation     

  
	

   

  	

   

  
	

   

  	

   

  
	

   

  	

  By:

  	

  /s/ Joseph A. Stroud

  	

   

  
	

   

  	

  Name:

  	

  Joseph A. Stroud

  
	

   

  	

  Title:

  	

  Chief Financial Officer

  

 

S-1

 

	

   

  	

  ABLECO FINANCE LLC,

  a Delaware limited liability company

  
	

   

  	

   

  
	

   

  	

   

  
	

   

  	

  By: 

  	

  /s/ Kevin Genda 

  	

   

  
	

   

  	

  Name:

  	

  Kevin Genda

  
	

   

  	

  Title:

  	

  Senior Vice President

  

 

S-2

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