EXHIBIT 10.2
SECURITY AGREEMENT
SECURITY AGREEMENT, dated as of December 14, 2004 (this
"AGREEMENT"), among Tarrant Apparel Group, a California corporation (the
"COMPANY" or the "DEBTOR") and the holder or holders of the Company's 6% Secured
Convertible Debentures due December 14, 2007 in the original aggregate principal
amount of $10,000,000 (the "DEBENTURES"), signatory hereto, their endorsees,
transferees and assigns (collectively referred to as, the "SECURED PARTIES").
W I T N E S S E T H:
WHEREAS, pursuant to the Purchase Agreement and the Debentures, the
Secured Parties have severally agreed to extend the loans to the Company
evidenced by the Debenture; and
WHEREAS, in order to induce the Secured Parties to extend the loans
evidenced by the Debentures, the Debtor has agreed to execute and deliver to the
Secured Parties this Agreement and to grant the Secured Parties, PARI PASSU with
each other Secured Party, a perfected security interest in certain property of
such Debtor to secure the prompt payment, performance and discharge in full of
all of the Company's obligations under the Debenture.
NOW, THEREFORE, in consideration of the agreements herein contained
and for other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties hereto hereby agree as follows:
1. CERTAIN DEFINITIONS. As used in this Agreement, the following
terms shall have the meanings set forth in this Section 1. Terms used but not
otherwise defined in this Agreement that are defined in Article 9 of the UCC
(such as "account", "chattel paper", "commercial tort claim", "deposit account",
"document", "equipment", "fixtures", "general intangibles", "goods",
"instruments", "inventory", "investment property", "letter-of-credit rights",
"proceeds" and "supporting obligations") shall have the respective meanings
given such terms in Article 9 of the UCC.
(a) "COLLATERAL" means the collateral in which the Secured
Parties are granted a security interest by this Agreement and which
shall consist of all of Debtor's present and future Accounts, Chattel
Paper and Instruments, and all Supporting Obligations, General
Intangibles and Documents arising out of or relating to the foregoing;
Retained Goods; credit balances and other property of Debtor held or
received by Secured Parties; rights of stoppage in transit, replevin,
repossession, reclamation and other rights and remedies of an unpaid
vendor; and all of Debtor's Records relating to and all proceeds of the
foregoing property and rights.
Notwithstanding the foregoing, nothing herein shall be deemed to
constitute an assignment of any asset which, in the event of an assignment,
becomes void by operation of applicable law or the assignment of which is
otherwise prohibited by applicable law (in each case to the extent that such
applicable law is not overridden by Sections 9-406, 9-407 and/or 9-408 of the
UCC or other similar applicable law); provided, however, that to the extent
permitted
by applicable law, this Agreement shall create a valid security interest in such
asset and, to the extent permitted by applicable law, this Agreement shall
create a valid security interest in the proceeds of such asset.
(b) "MAJORITY IN INTEREST" shall mean, at any time of
determination, the majority in interest (based on then-outstanding
principal amounts of Debentures at the time of such determination) of
the Secured Parties.
(c) "Intercreditor Agreement" means that certain Intercreditor
Agreement, dated as of the date hereof, among GMAC Commercial Finance
LLC, UPS Capital Global Trade Finance Corporation, the Agent, and
Debtor.
(d) "OBLIGATIONS" means all of the Debtor's obligations under
this Agreement, the Purchase Agreement, the Debentures, and any other
instruments, agreements or other documents executed and/or delivered in
connection herewith or therewith, in each case, whether now or
hereafter existing, voluntary or involuntary, direct or indirect,
absolute or contingent, liquidated or unliquidated, whether or not
jointly owed with others, and whether or not from time to time
decreased or extinguished and later increased, created or incurred, and
all or any portion of such obligations or liabilities that are paid, to
the extent all or any part of such payment is avoided or recovered
directly or indirectly from any of the Secured Parties as a preference,
fraudulent transfer or otherwise as such obligations may be amended,
supplemented, converted, extended or modified from time to time.
Without limiting the generality of the foregoing, the term
"Obligations" shall include, without limitation: (i) principal of, and
interest on the Debentures and the loans extended pursuant thereto;
(ii) any and all other fees, indemnities, costs, obligations and
liabilities of the Debtor from time to time under or in connection with
this Agreement, the Debentures, and any other instruments, agreements
or other documents executed and/or delivered in connection herewith or
therewith; and (iii) all amounts (including but not limited to
post-petition interest) in respect of the foregoing that would be
payable but for the fact that the obligations to pay such amounts are
unenforceable or not allowable due to the existence of a bankruptcy,
reorganization or similar proceeding involving the Debtor.
(e) "ORGANIZATIONAL DOCUMENTS" means with respect to the
Debtor, the documents by which Debtor was organized (such as a
certificate of incorporation, certificate of limited partnership or
articles of organization, and including, without limitation, any
certificates of designation for preferred stock or other forms of
preferred equity) and which relate to the internal governance of Debtor
(such as bylaws, a partnership agreement or an operating, limited
liability or members agreement).
(f) "UCC" means the Uniform Commercial Code of the State of
California and or any other applicable law of any state or states which
has jurisdiction with respect to all, or any portion of, the Collateral
or this Agreement, from time to time. It is the intent of the parties
that defined terms in the UCC should be construed in their broadest
sense so that the term "Collateral" will be construed in its broadest
sense. Accordingly if there are, from time to time, changes to defined
terms in the UCC that broaden the
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definitions, they are incorporated herein and if existing definitions
in the UCC are broader than the amended definitions, the existing ones
shall be controlling.
2. GRANT OF PERFECTED SECURITY INTEREST. As an inducement for the
Secured Parties to extend the loans as evidenced by the Debentures and to secure
the complete and timely payment, performance and discharge in full, as the case
may be, of all of the Obligations, Debtor hereby unconditionally and irrevocably
pledges, grants and hypothecates to the Secured Parties a continuing and
perfected security interest in and to, a lien upon and a right of set-off
against all of their respective right, title and interest of whatsoever kind and
nature in and to, the Collateral (the "SECURITY INTEREST").
3. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF THE DEBTOR.
Debtor represents and warrants to, and covenants and agrees with, the Secured
Parties as follows:
(a) Debtor has the requisite corporate power and authority to
enter into this Agreement and otherwise to carry out its obligations
hereunder. The execution, delivery and performance by Debtor of this
Agreement and the filings contemplated therein have been duly
authorized by all necessary action on the part of Debtor and no further
action is required by Debtor. This Agreement has been duly executed by
Debtor. This Agreement constitutes the legal, valid and binding
obligation of Debtor, enforceable against Debtor in accordance with its
terms except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization and similar laws of general
application relating to or affecting the rights and remedies of
creditors and by general principles of equity.
(b) The Debtor has no place of business or offices where its
books of account and records are kept (other than temporarily at the
offices of its attorneys or accountants) or places where Collateral is
stored or located, except as set forth on SCHEDULE A attached hereto.
Except as disclosed on SCHEDULE A, none of such Collateral is in the
possession of any consignee, bailee, warehouseman, agent or processor.
(c) Except for Permitted Liens (as defined in the Debentures)
and except as set forth on SCHEDULE B attached hereto, the Debtor is
the sole owner of the Collateral (except for non-exclusive licenses
granted by any Debtor in the ordinary course of business), free and
clear of any liens, security interests, encumbrances, rights or claims,
and is fully authorized to grant the Security Interest (subject to
obtaining the consent of (i) GMAC under that certain Factoring
Agreement by and among GMAC, Debtor and certain of its Affiliates,
dated as of September 29, 2004, as amend to date (the " FACTORING
AGREEMENT") and (ii) UPS Capital Global Trade Finance ("UPS") under
that certain Guaranty and Security Agreement by and among Debtor,
certain of its Affiliates and UPS, dated as of May 30, 2002, as amended
to date (the "GUARANTY"). There is not on file in any governmental or
regulatory authority, agency or recording office an effective financing
statement, security agreement, license or transfer or any notice of any
of the foregoing (other than those that will be filed in favor of the
Secured Parties pursuant to this Agreement and pursuant to the
Factoring Agreement and Guaranty) covering or affecting any of the
Collateral. So long as this Agreement shall be in effect, except as
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otherwise provided herein, the Debtor shall not execute and shall not
knowingly permit to be on file in any such office or agency any such
financing statement or other document or instrument (except to the
extent filed or recorded in favor of the Secured Parties pursuant to
the terms of this Agreement or in favor of GMAC or UPS pursuant to the
Factoring Agreement or Guaranty).
(d) No written claim has been received that any Collateral or
Debtor's use of any Collateral violates the rights of any third party.
There has been no adverse decision to any Debtor's claim of ownership
rights in or exclusive rights to use the Collateral in any jurisdiction
or to Debtor's right to keep and maintain such Collateral in full force
and effect, and there is no proceeding involving said rights pending
or, to the best knowledge of Debtor, threatened before any court,
judicial body, administrative or regulatory agency, arbitrator or other
governmental authority.
(e) Debtor shall at all times maintain its books of account
and records relating to the Collateral at its principal place of
business and its Collateral at the locations set forth on SCHEDULE A
attached hereto and may not relocate such books of account and records
or tangible Collateral unless it delivers to the Secured Parties at
least 30 days prior to such relocation (i) written notice of such
relocation and the new location thereof (which must be within the
United States) and (ii) evidence that appropriate financing statements
under the UCC and other necessary documents have been filed and
recorded and other steps have been taken to perfect the Security
Interest to create in favor of the Secured Parties a valid, perfected
and continuing perfected lien in the Collateral.
(f) This Agreement creates in favor of the Secured Parties a
valid security interest in the Collateral, subject only to Permitted
Liens (as defined in the Debentures) and the liens in favor of GMAC and
UPS, securing the payment and performance of the Obligations. Upon
making the filings described in the immediately following paragraph,
all security interests created hereunder in any Collateral which may be
perfected by filing Uniform Commercial Code financing statements shall
have been duly perfected. Except for the filing of the Uniform
Commercial Code financing statements referred to in the immediately
following paragraph no action is necessary to create, perfect or
protect the security interests created hereunder. Without limiting the
generality of the foregoing, except for the filing of said financing
statements, obtaining the consent of GMAC under the Factoring
Agreement, the consent of UPS under the Guaranty, no consent of any
third parties and no authorization, approval or other action by, and no
notice to or filing with, any governmental authority or regulatory body
is required for (i) the execution, delivery and performance of this
Agreement, (ii) the creation or perfection of the Security Interests
created hereunder in the Collateral or (iii) the enforcement of the
rights of the Secured Parties hereunder.
(g) Debtor hereby authorizes the Secured Parties, or any of
them, to file one or more financing statements under the UCC, with
respect to the Security Interest with the proper filing and recording
agencies in any jurisdiction deemed proper by them.
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(h) The execution, delivery and performance of this Agreement
by the Debtor does not (i) violate any of the provisions of any
Organizational Documents of Debtor or any judgment, decree, order or
award of any court, governmental body or arbitrator or any applicable
law, rule or regulation applicable to Debtor or (ii) conflict with, or
constitute a default (or an event that with notice or lapse of time or
both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation (with or without
notice, lapse of time or both) of, any agreement, credit facility, debt
or other instrument (evidencing Debtor's debt or otherwise) or other
understanding to which Debtor is a party or by which any property or
asset of Debtor is bound or affected (except for any conflict under the
Factoring Agreement and the Guaranty, which conflicts will be resolved
by consents obtained from GMAC and UPS concurrent with the closing of
this Agreement).
(i) Debtor shall at all times maintain the liens and Security
Interest provided for hereunder as valid and perfected liens and
security interests in the Collateral in favor of the Secured Parties
until this Agreement and the Security Interest hereunder shall be
terminated pursuant to Section 11 hereof. Debtor hereby agrees to
defend the same against the claims of any and all persons and entities.
Debtor shall safeguard and protect all Collateral for the account of
the Secured Parties. At the request of the Secured Parties, Debtor will
sign and deliver to the Secured Parties at any time or from time to
time one or more financing statements pursuant to the UCC in form
reasonably satisfactory to the Secured Parties and will pay the cost of
filing the same in all public offices wherever filing is, or is deemed
by the Secured Parties to be, necessary or desirable to effect the
rights and obligations provided for herein. Without limiting the
generality of the foregoing, Debtor shall pay all fees, taxes and other
amounts necessary to maintain the Collateral and the Security Interest
hereunder, and Debtor shall obtain and furnish to the Secured Parties
from time to time, upon demand, such releases and/or subordinations of
claims and liens which may be required to maintain the priority of the
Security Interest hereunder.
(j) Debtor will not transfer, pledge, hypothecate, encumber,
license, sell or otherwise dispose of any of the Collateral (except for
non-exclusive licenses granted by Debtor in its ordinary course of
business) without the prior written consent of a Majority in Interest;
provided that nothing herein shall limit or restrict GMAC's or UPS's
rights with respect to the Collateral.
(k) Debtor shall keep and preserve its equipment, inventory
and other tangible Collateral in good condition, repair and order and
shall not operate or locate any such Collateral (or cause to be
operated or located) in any area excluded from insurance coverage.
(l) Debtor shall maintain with financially sound and reputable
insurers, insurance with respect to the Collateral against loss or
damage of the kinds and in the amounts customarily insured against by
entities of established reputation having similar properties similarly
situated and in such amounts as are customarily carried under similar
circumstances by other such entities and otherwise as is prudent for
entities engaged in
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similar businesses but in any event sufficient to cover the full
replacement cost thereof. Debtor shall cause each insurance policy
issued in connection herewith to provide, and the insurer issuing such
policy to certify to the Agent that (a) the Agent will be named as
lender loss payee and additional insured under each such insurance
policy; (b) if such insurance be proposed to be cancelled or materially
changed for any reason whatsoever, such insurer will promptly notify
the Agent and such cancellation or change shall not be effective as to
the Agent for at least thirty (30) days after receipt by the Agent of
such notice, unless the effect of such change is to extend or increase
coverage under the policy; and (c) the Agent will have the right (but
no obligation) at its election to remedy any default in the payment of
premiums within thirty (30) days of notice from the insurer of such
default. If no Event of Default (as defined in the Debenture) exists
and if the proceeds arising out of any claim or series of related
claims do not exceed $100,000, loss payments in each instance will be
applied by the applicable Debtor to the repair and/or replacement of
property with respect to which the loss was incurred to the extent
reasonably feasible, and any loss payments or the balance thereof
remaining, to the extent not so applied, shall be payable to the
applicable Debtor, provided, however, that payments received by any
Debtor after an Event of Default occurs and is continuing or in excess
of $100,000 for any occurrence or series of related occurrences shall
be paid to the Agent and, if received by such Debtor, shall be held in
trust for and immediately paid over to the Agent unless otherwise
directed in writing by the Agent. Copies of such policies or the
related certificates, in each case, naming the Agent as lender loss
payee and additional insured shall be delivered to the Agent at least
annually and at the time any new policy of insurance is issued.
(m) Debtor shall, within ten (10) days of obtaining knowledge
thereof, advise the Secured Parties promptly, in sufficient detail, of
any substantial change in the Collateral, and of the occurrence of any
event which would have a material adverse effect on the value of the
Collateral or on the Secured Parties' security interest therein.
(n) Debtor shall promptly execute and deliver to the Secured
Parties such further deeds, mortgages, assignments, security
agreements, financing statements or other instruments, documents,
certificates and assurances and take such further action as the Secured
Parties may from time to time request and may in its sole discretion
deem necessary to perfect, protect or enforce its security interest in
the Collateral.
(o) Debtor shall permit the Secured Parties and their
representatives and agents to inspect the Collateral at any time, and
to make copies of records pertaining to the Collateral as may be
requested by a Secured Party from time to time.
(p) Debtor shall take all steps reasonably necessary to
diligently pursue and seek to preserve, enforce and collect any rights,
claims, causes of action and accounts receivable in respect of the
Collateral.
(q) Debtor shall promptly notify the Secured Parties in
sufficient detail upon becoming aware of any attachment, garnishment,
execution or other legal process levied against any Collateral and of
any other information received by Debtor that may
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materially affect the value of the Collateral, the Security Interest or
the rights and remedies of the Secured Parties hereunder.
(r) All information heretofore, herein or hereafter supplied
to the Secured Parties by or on behalf of Debtor with respect to the
Collateral is accurate and complete in all material respects as of the
date furnished.
(s) The Debtor shall at all times preserve and keep in full
force and effect its valid existence and good standing and any rights
and franchises material to its business.
(t) Debtor will not change its name, type of organization,
jurisdiction of organization, organizational identification number (if
it has one), legal or corporate structure, or identity, or add any new
fictitious name unless it provides at least 30 days prior written
notice to the Secured Parties of such change and, at the time of such
written notification, Debtor provides any financing statements or
fixture filings necessary to perfect and continue perfected the
perfected security Interest granted and evidenced by this Agreement.
(u) Debtor may not relocate its chief executive office to a
new location without providing 30 days prior written notification
thereof to the Secured Parties and so long as, at the time of such
written notification, Debtor provides any financing statements or
fixture filings necessary to perfect and continue perfected the
perfected security Interest granted and evidenced by this Agreement.
(v) Debtor was organized and remains organized solely under
the laws of the state set forth next to such Debtor's name in the first
paragraph of this Agreement. SCHEDULE D attached hereto sets forth
Debtor's organizational identification number.
(w) (i) The actual name of Debtor is the name set forth in the
preamble above; (ii) Debtor has no trade names other than "Fashion
Resource"; (iii) Debtor has not used any name other than that stated in
the preamble hereto or "Fashion Resource" for the preceding five years;
and (iv) no entity has merged into Debtor or been acquired by Debtor
within the past five years.
(x) At any time and from time to time that any Collateral
consists of instruments, certificated securities or other items that
require or permit possession by the secured party to perfect the
security interest created hereby, the Debtor shall deliver such
Collateral to the Agent.
(y) To the extent that any Collateral is in the possession of
any third party, the Debtor shall join with the Secured Parties in
notifying such third party of the Secured Parties' security interest in
such Collateral and shall use its best efforts to obtain an
acknowledgement and agreement from such third party with respect to the
Collateral, in form and substance satisfactory to the Secured Parties.
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(z) If any Debtor shall at any time hold or acquire a
commercial tort claim, such Debtor shall promptly notify the Secured
Parties in a writing signed by such Debtor of the particulars thereof
and grant to the Secured Parties in such writing a security interest
therein and in the proceeds thereof, all upon the terms of this
Agreement, with such writing to be in form and substance satisfactory
to the Secured Parties.
(aa) Debtor will from time to time, at the expense of the
Debtor, promptly execute and deliver all such further instruments and
documents, and take all such further action as may be necessary or
desirable, or as the Secured Parties may reasonably request, in order
to perfect and protect any security interest granted or purported to be
granted hereby or to enable the Secured Parties to exercise and enforce
their rights and remedies hereunder and with respect to any Collateral
or to otherwise carry out the purposes of this Agreement.
(bb) None of the account debtors or other persons or entities
obligated on any of the Collateral is a governmental authority covered
by the Federal Assignment of Claims Act or any similar federal, state
or local statute or rule in respect of such Collateral.
4. DEFAULTS. The following events shall be "EVENTS OF DEFAULT":
(a) The occurrence of an Event of Default (as defined in the
Debentures) under the Debentures;
(b) Any representation or warranty of Debtor in this Agreement
shall prove to have been incorrect in any material respect when made;
(c) The failure by Debtor to observe or perform any of its
obligations hereunder for five (5) days after delivery to such Debtor
of notice of such failure by or on behalf of a Secured Party unless
such default is capable of cure but cannot be cured within such time
frame and such Debtor is using best efforts to cure same in a timely
fashion; or
(d) If any provision of this Agreement shall at any time for
any reason be declared to be null and void, or the validity or
enforceability thereof shall be contested by Debtor, or a proceeding
shall be commenced by Debtor, or by any governmental authority having
jurisdiction over Debtor, seeking to establish the invalidity or
unenforceability thereof, or Debtor shall deny that Debtor has any
liability or obligation purported to be created under this Agreement.
5. DUTY TO HOLD IN TRUST.
(a) Upon the occurrence of any Event of Default and at any
time thereafter, Debtor shall, upon receipt of any revenue, income,
dividend, interest or other sums subject to the Security Interest,
whether payable pursuant to the Debenture or otherwise, or of any
check, draft, note, trade acceptance or other instrument evidencing an
obligation to pay any such sum, hold the same in trust for the Secured
Parties and shall forthwith
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endorse and transfer any such sums or instruments, or both, to the
Secured Parties, pro-rata in proportion to their initial purchases of
Debentures for application to the satisfaction of the Obligations (and
if any Debenture is not outstanding, pro-rata in proportion to the
initial purchases of the remaining Debentures).
6. RIGHTS AND REMEDIES UPON DEFAULT.
(a) Upon the occurrence of any Event of Default and at any
time thereafter, the Secured Parties, acting through any agent
appointed by them for such purpose, shall have the right to exercise
all of the remedies conferred hereunder and under the Debentures, and
the Secured Parties shall have all the rights and remedies of a secured
party under the UCC. Without limitation, the Secured Parties shall have
the following rights and powers:
(i) The Secured Parties shall have the right to take
possession of the Collateral and, for that purpose, enter,
with the aid and assistance of any person, any premises where
the Collateral, or any part thereof, is or may be placed and
remove the same, and Debtor shall assemble the Collateral and
make it available to the Secured Parties at places which the
Secured Parties shall reasonably select, whether at Debtor's
premises or elsewhere, and make available to the Secured
Parties, without rent, all of Debtor's respective premises and
facilities for the purpose of the Secured Parties taking
possession of, removing or putting the Collateral in saleable
or disposable form.
(ii) Upon notice to the Debtor by Agent, all rights
of Debtor to exercise the voting and other consensual rights
which it would otherwise be entitled to exercise and all
rights of Debtor to receive the dividends and interest which
it would otherwise be authorized to receive and retain, shall
cease. Upon such notice, Agent shall have the right to receive
any interest, cash dividends or other payments on the
Collateral and, at the option of Agent, to exercise in such
Agent's discretion all voting rights pertaining thereto.
Without limiting the generality of the foregoing, Agent shall
have the right (but not the obligation) to exercise all rights
with respect to the Collateral as if it were the sole and
absolute owner thereof.
(iii) The Secured Parties shall have the right to
assign, sell, lease or otherwise dispose of and deliver all or
any part of the Collateral, at public or private sale or
otherwise, either with or without special conditions or
stipulations, for cash or on credit or for future delivery, in
such parcel or parcels and at such time or times and at such
place or places, and upon such terms and conditions as the
Secured Parties may deem commercially reasonable, all without
(except as shall be required by applicable statute and cannot
be waived) advertisement or demand upon or notice to Debtor or
right of redemption of Debtor, which are hereby expressly
waived. Upon each such sale, lease, assignment or other
transfer of Collateral, the Secured Parties may, unless
prohibited by applicable law which cannot be waived, purchase
all or any part of the Collateral being sold,
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free from and discharged of all trusts, claims, right of
redemption and equities of Debtor, which are hereby waived and
released.
(iv) The Secured Parties shall have the right (but
not the obligation) to notify any account debtors and any
obligors under instruments or accounts to make payments
directly to the Secured Parties and to enforce the Debtors'
rights against such account debtors and obligors.
(b) The Agent may comply with any applicable law in connection
with a disposition of Collateral and such compliance will not be
considered adversely to affect the commercial reasonableness of any
sale of the Collateral. The Agent may sell the Collateral without
giving any warranties and may specifically disclaim such warranties. If
the Agent sells any of the Collateral on credit, the Debtor will only
be credited with payments actually made by the purchaser. In addition,
Debtor waives any and all rights that it may have to a judicial hearing
in advance of the enforcement of any of the Agent's rights and remedies
hereunder, including, without limitation, its right following an Event
of Default to take immediate possession of the Collateral and to
exercise its rights and remedies with respect thereto.
7. APPLICATIONS OF PROCEEDS. The proceeds of any such sale, lease or
other disposition of the Collateral hereunder shall be applied first, to the
expenses of retaking, holding, storing, processing and preparing for sale,
selling, and the like (including, without limitation, any taxes, fees and other
costs incurred in connection therewith) of the Collateral, to the reasonable
attorneys' fees and expenses incurred by the Secured Parties in enforcing their
rights hereunder and in connection with collecting, storing and disposing of the
Collateral, and then to satisfaction of the Obligations pro rata among the
Secured Parties (based on then-outstanding principal amounts of Debentures at
the time of any such determination), and to the payment of any other amounts
required by applicable law, after which the Secured Parties shall pay to the
Debtor any surplus proceeds. If, upon the sale, license or other disposition of
the Collateral, the proceeds thereof are insufficient to pay all amounts to
which the Secured Parties are legally entitled, the Debtor will be liable for
the deficiency, together with interest thereon, at the rate of 10% per annum or
the lesser amount permitted by applicable law (the "Default Rate"), and the
reasonable fees of any attorneys employed by the Secured Parties to collect such
deficiency. To the extent permitted by applicable law, Debtor waives all claims,
damages and demands against the Secured Parties arising out of the repossession,
removal, retention or sale of the Collateral, unless due solely to the gross
negligence or willful misconduct of the Secured Parties as determined by a final
judgment (not further appealed) of a court of competent jurisdiction.
8. COSTS AND EXPENSES. Debtor agrees to pay all reasonable
out-of-pocket fees, costs and expenses incurred in connection with any filing
required hereunder, including without limitation, any financing statements
pursuant to the UCC, continuation statements, partial releases and/or
termination statements related thereto or any expenses of any searches
reasonably required by the Secured Parties. Debtor shall also pay all other
claims and charges which in the reasonable opinion of the Secured Parties might
prejudice, imperil or otherwise affect the
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Collateral or the Security Interest therein. Debtor will also, upon demand, pay
to the Secured Parties the amount of any and all reasonable expenses, including
the reasonable fees and expenses of its counsel and of any experts and agents,
which the Secured Parties may incur in connection with (i) the enforcement of
this Agreement, (ii) the custody or preservation of, or the sale of, collection
from, or other realization upon, any of the Collateral, or (iii) the exercise or
enforcement of any of the rights of the Secured Parties under the Debentures.
Until so paid, any fees payable hereunder shall be added to the principal amount
of the Debentures and shall bear interest at the Default Rate.
9. RESPONSIBILITY FOR COLLATERAL. The Debtor assumes all liabilities
and responsibility in connection with all Collateral, and the Obligations shall
in no way be affected or diminished by reason of the loss, destruction, damage
or theft of any of the Collateral or its unavailability for any reason. Without
limiting the generality of the foregoing, (a) neither the Agent nor any Secured
Party (i) has any duty (either before or after an Event of Default) to collect
any amounts in respect of the Collateral or to preserve any rights relating to
the Collateral, or (ii) has any obligation to clean-up or otherwise prepare the
Collateral for sale, and (b) Debtor shall remain obligated and liable under each
contract or agreement included in the Collateral to be observed or performed by
Debtor thereunder. Neither the Agent nor any Secured Party shall have any
obligation or liability under any such contract or agreement by reason of or
arising out of this Agreement or the receipt by the Agent or any Secured Party
of any payment relating to any of the Collateral, nor shall the Agent or any
Secured Party be obligated in any manner to perform any of the obligations of
Debtor under or pursuant to any such contract or agreement, to make inquiry as
to the nature or sufficiency of any payment received by the Agent or any Secured
Party in respect of the Collateral or as to the sufficiency of any performance
by any party under any such contract or agreement, to present or file any claim,
to take any action to enforce any performance or to collect the payment of any
amounts which may have been assigned to the Agent or to which the Agent or any
Secured Party may be entitled at any time or times.
10. SECURITY INTEREST ABSOLUTE. All rights of the Secured Parties and
all obligations of the Debtor hereunder, shall be absolute and unconditional,
irrespective of: (a) any lack of validity or enforceability of this Agreement,
the Debentures or any agreement entered into in connection with the foregoing,
or any portion hereof or thereof; (b) any change in the time, manner or place of
payment or performance of, or in any other term of, all or any of the
Obligations, or any other amendment or waiver of or any consent to any departure
from the Debentures or any other agreement entered into in connection with the
foregoing; (c) any exchange, release or nonperfection of any of the Collateral,
or any release or amendment or waiver of or consent to departure from any other
collateral for, or any guaranty, or any other security, for all or any of the
Obligations; (d) any action by the Secured Parties to obtain, adjust, settle and
cancel in its sole discretion any insurance claims or matters made or arising in
connection with the Collateral; or (e) any other circumstance which might
otherwise constitute any legal or equitable defense available to Debtor, or a
discharge of all or any part of the Security Interest granted hereby. Until the
Obligations shall have been paid and performed in full, the rights of the
Secured Parties shall continue even if the Obligations are barred for any
reason, including, without limitation, the running of the statute of limitations
or bankruptcy. Debtor expressly waives presentment, protest, notice of protest,
demand, notice of nonpayment
11
and demand for performance. In the event that at any time any transfer of any
Collateral or any payment received by the Secured Parties hereunder shall be
deemed by final order of a court of competent jurisdiction to have been a
voidable preference or fraudulent conveyance under the bankruptcy or insolvency
laws of the United States, or shall be deemed to be otherwise due to any party
other than the Secured Parties, then, in any such event, Debtor's obligations
hereunder shall survive cancellation of this Agreement, and shall not be
discharged or satisfied by any prior payment thereof and/or cancellation of this
Agreement, but shall remain a valid and binding obligation enforceable in
accordance with the terms and provisions hereof. Debtor waives all right to
require the Secured Parties to proceed against any other person or entity or to
apply any Collateral which the Secured Parties may hold at any time, or to
marshal assets, or to pursue any other remedy. Debtor waives any defense arising
by reason of the application of the statute of limitations to any obligation
secured hereby.
11. TERM OF AGREEMENT. This Agreement and the Security Interest
shall terminate on the date on which all payments under the Debentures have been
indefeasibly paid in full and all other Obligations have been paid or
discharged; provided, however, that all indemnities of the Debtor contained in
this Agreement (including, without limitation, Annex A hereto) shall survive and
remain operative and in full force and effect regardless of the termination of
this Agreement.
12. POWER OF ATTORNEY; FURTHER ASSURANCES.
(a) Debtor authorizes the Secured Parties, and does hereby
make, constitute and appoint the Secured Parties and their respective
officers, agents, successors or assigns with full power of
substitution, as such Debtor's true and lawful attorney-in-fact, with
power, in the name of the various Secured Parties or Debtor, to, after
the occurrence and during the continuance of an Event of Default, (i)
endorse any note, checks, drafts, money orders or other instruments of
payment (including payments payable under or in respect of any policy
of insurance) in respect of the Collateral that may come into
possession of the Secured Parties; (ii) to sign and endorse any
financing statement pursuant to the UCC or any invoice, freight or
express xxxx, xxxx of lading, storage or warehouse receipts, drafts
against debtors, assignments, verifications and notices in connection
with accounts, and other documents relating to the Collateral; (iii) to
pay or discharge taxes, liens, security interests or other encumbrances
at any time levied or placed on or threatened against the Collateral;
(iv) to demand, collect, receipt for, compromise, settle and xxx for
monies due in respect of the Collateral; and (v) generally, at the
option of the Secured Parties, and at the expense of the Debtor, at any
time, or from time to time, to execute and deliver any and all
documents and instruments and to do all acts and things which the
Secured Parties deem necessary to protect, preserve and realize upon
the Collateral and the Security Interest granted therein in order to
effect the intent of this Agreement and the Debentures all as fully and
effectually as the Debtor might or could do; and Debtor hereby ratifies
all that said attorney shall lawfully do or cause to be done by virtue
hereof. This power of attorney is coupled with an interest and shall be
irrevocable for the term of this Agreement and thereafter as long as
any of the Obligations shall be outstanding.
(b) On a continuing basis, Debtor will make, execute,
acknowledge, deliver, file and record, as the case may be, with the
proper filing and recording agencies in any jurisdiction, including,
without limitation, the jurisdictions indicated on SCHEDULE C attached
hereto, all such
12
instruments, and take all such action as may reasonably be deemed
necessary or advisable, or as reasonably requested by the Secured
Parties, to perfect the Security Interest granted hereunder and
otherwise to carry out the intent and purposes of this Agreement, or
for assuring and confirming to the Secured Parties the grant or
perfection of a perfected security interest in all the Collateral under
the UCC.
(c) Debtor hereby irrevocably appoints the Secured Parties as
Debtor's attorney-in-fact, with full authority in the place and instead
of Debtor and in the name of Debtor, from time to time in the Secured
Parties' discretion, to take any action and to execute any instrument
which the Secured Parties may deem necessary or advisable to accomplish
the purposes of this Agreement, including the filing, in its sole
discretion, of one or more financing or continuation statements and
amendments thereto, relative to any of the Collateral without the
signature of Debtor where permitted by law. This power of attorney is
coupled with an interest and shall be irrevocable for the term of this
Agreement and thereafter as long as any of the Obligations shall be
outstanding.
13. NOTICES. All notices, requests, demands and other communications
hereunder shall be subject to the notice provision of the Purchase Agreement (as
such term is defined in the Debentures).
14. OTHER SECURITY. To the extent that the Obligations are now or
hereafter secured by property other than the Collateral or by the guarantee,
endorsement or property of any other person, firm, corporation or other entity,
then the Secured Parties shall have the right, in their sole discretion, to
pursue, relinquish, subordinate, modify or take any other action with respect
thereto, without in any way modifying or affecting any of the Secured Parties'
rights and remedies hereunder.
15. APPOINTMENT OF AGENT. The Secured Parties hereby appoint X.X.
Xxxxxxx & Company (the "AGENT") to act as their agent for purposes of exercising
any and all rights and remedies of the Secured Parties hereunder. Additionally,
the Secured Parties hereby appoint the Agent to act as their agent for purposes
of negotiating and binding the Secured Parties to the Intercreditor Agreement by
and among Agent, Debtor, GMAC and UPS, substantially in the form of EXHIBIT A
attached hereto (the "INTERCREDITOR AGREEMENT"), which Intercreditor Agreement
shall be binding on the Secured Parties, their successors and assigns, by virtue
of Agent's signature thereto. Such appointment shall continue until revoked in
writing by a Majority in Interest, at which time a Majority in Interest shall
appoint a new Agent. The Agent shall have the rights, responsibilities and
immunities set forth in ANNEX A hereto.
16. AGREEMENT TO SUBORDINATE TO SENIOR INDEBTEDNESS. The Secured
Parties hereby agree that if Debtor desires to incur additional secured
indebtedness from any of GMAC Commercial Finance LLC, UPS Capital Global Trade
Finance Corporation or DBS Bank (Hong Kong) Limited (formerly known as Xxx Xxxx
Bank), or any of their respective affiliates
13
("EXISTING SENIOR LENDERS"), or to replace existing secured indebtedness held by
any of the Existing Senior Lenders (such additional or replacement indebtedness,
the "SENIOR INDEBTEDNESS"), the Secured Parties shall (i) consent to the
incurrence of such Senior Indebtedness, and (ii) subordinate their right to
payment of the Secured Obligations to the prior payment in full of the Senior
Indebtedness, and subordinate their rights in the Collateral to the prior rights
in the Collateral of the holder or holders of Senior Indebtedness on terms
substantially similar to the payment and Collateral subordination terms set
forth in the Intercreditor Agreement; provided that (W) the holder of such
Senior Indebtedness is an Existing Senior Lender or, in the case of a
replacement of Senior Indebtedness, one or more commercial banks or other
financial institutions whose primary business is not investing in equity
securities, (X) the Secured Parties shall not be obligated to subordinate their
rights to receive payment to the prior payment of any of the Senior Indebtedness
unless and until the occurrence of, and then only for the continuation of, an
event of default under the Senior Indebtedness, and (Y) any indebtedness
incurred to replace existing secured indebtedness shall be pursuant to a credit
facility primarily to fund working capital.
17. MISCELLANEOUS.
(a) No course of dealing between the Debtor and the Secured
Parties, nor any failure to exercise, nor any delay in exercising, on
the part of the Secured Parties, any right, power or privilege
hereunder or under the Debentures shall operate as a waiver thereof;
nor shall any single or partial exercise of any right, power or
privilege hereunder or thereunder preclude any other or further
exercise thereof or the exercise of any other right, power or
privilege.
(b) All of the rights and remedies of the Secured Parties with
respect to the Collateral, whether established hereby or by the
Debentures or by any other agreements, instruments or documents or by
law shall be cumulative and may be exercised singly or concurrently.
(c) This Agreement constitutes the entire agreement of the
parties with respect to the subject matter hereof and is intended to
supersede all prior negotiations, understandings and agreements with
respect thereto. Except as specifically set forth in this Agreement, no
provision of this Agreement may be modified or amended except by a
written agreement specifically referring to this Agreement and signed
by the parties hereto.
(d) In the event any provision of this Agreement is held to be
invalid, prohibited or unenforceable in any jurisdiction for any
reason, unless such provision is narrowed by judicial construction,
this Agreement shall, as to such jurisdiction, be construed as if such
invalid, prohibited or unenforceable provision had been more narrowly
drawn so as not to be invalid, prohibited or unenforceable. If,
notwithstanding the foregoing, any provision of this Agreement is held
to be invalid, prohibited or unenforceable in any jurisdiction, such
provision, as to such jurisdiction, shall be ineffective to the extent
of such invalidity, prohibition or unenforceability without
invalidating the remaining portion of such provision or the other
14
provisions of this Agreement and without affecting the validity or
enforceability of such provision or the other provisions of this
Agreement in any other jurisdiction.
(e) No waiver of any breach or default or any right under this
Agreement shall be considered valid unless in writing and signed by the
party giving such waiver, and no such waiver shall be deemed a waiver
of any subsequent breach or default or right, whether of the same or
similar nature or otherwise.
(f) This Agreement shall be binding upon and inure to the
benefit of each party hereto and its successors and assigns.
(g) Each party shall take such further action and execute and
deliver such further documents as may be necessary or appropriate in
order to carry out the provisions and purposes of this Agreement.
(h) All questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be governed by
and construed and enforced in accordance with the internal laws of the
State of New York, without regard to the principles of conflicts of law
thereof. Debtor agrees that all proceedings concerning the
interpretations, enforcement and defense of the transactions
contemplated by this Agreement and the Debenture (whether brought
against a party hereto or its respective affiliates, directors,
officers, shareholders, partners, members, employees or agents) shall
be commenced exclusively in the state and federal courts sitting in the
City of New York, Borough of Manhattan. Each Debtor hereby irrevocably
submits to the exclusive jurisdiction of the state and federal courts
sitting in the City of New York, Borough of Manhattan for the
adjudication of any dispute hereunder or in connection herewith or with
any transaction contemplated hereby or discussed herein, and hereby
irrevocably waives, and agrees not to assert in any proceeding, any
claim that it is not personally subject to the jurisdiction of any such
court, that such proceeding is improper. Each party hereto hereby
irrevocably waives personal service of process and consents to process
being served in any such proceeding by mailing a copy thereof via
registered or certified mail or overnight delivery (with evidence of
delivery) to such party at the address in effect for notices to it
under this Agreement and agrees that such service shall constitute good
and sufficient service of process and notice thereof. Nothing contained
herein shall be deemed to limit in any way any right to serve process
in any manner permitted by law. Each party hereto hereby irrevocably
waives, to the fullest extent permitted by applicable law, any and all
right to trial by jury in any legal proceeding arising out of or
relating to this Agreement or the transactions contemplated hereby. If
any party shall commence a proceeding to enforce any provisions of this
Agreement, then the prevailing party in such proceeding shall be
reimbursed by the other party for its reasonable attorneys' fees and
other costs and expenses incurred with the investigation, preparation
and prosecution of such proceeding.
(i) This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an
original and, all of which taken together shall constitute one and the
same Agreement. In the event that any signature is
15
delivered by facsimile transmission, such signature shall create a
valid binding obligation of the party executing (or on whose behalf
such signature is executed) the same with the same force and effect as
if such facsimile signature were the original thereof.
(j) Debtor shall indemnify, reimburse and hold harmless the
Secured Parties and their respective partners, members, shareholders,
officers, directors, employees and agents (collectively, "INDEMNITEES")
from and against any and all losses, claims, liabilities, damages,
penalties, suits, costs and expenses, of any kind or nature, (including
fees relating to the cost of investigating and defending any of the
foregoing) imposed on, incurred by or asserted against such Indemnitee
in any way related to or arising from or alleged to arise from this
Agreement or the Collateral, except any such losses, claims,
liabilities, damages, penalties, suits, costs and expenses which result
from the gross negligence or willful misconduct of the Indemnitee as
determined by a final, nonappealable decision of a court of competent
jurisdiction. This indemnification provision is in addition to, and not
in limitation of, any other indemnification provision in the
Debentures, the Purchase Agreement (as such term is defined in the
Debentures) or any other agreement, instrument or other document
executed or delivered in connection herewith or therewith.
[SIGNATURE PAGES FOLLOW]
16
IN WITNESS WHEREOF, the parties hereto have caused this Security
Agreement to be duly executed on the day and year first above written.
TARRANT APPAREL GROUP
By: /s/ Xxxxxxx Xxxxx
------------------------------
Name: Xxxxxxx Xxxxx
Title: Chief Financial Officer
[SIGNATURE PAGE OF HOLDERS FOLLOWS]
17
[SIGNATURE PAGE OF HOLDERS TO TAGS SECURITY AGREEMENT]
Name of Investing Entity: G. Xxxxx Xxxxxxx or Jasmine Xxxxxx Xxxxxxx TTEES The
Xxxxxxx Family Trust DTD 1-11-2000
SIGNATURE OF AUTHORIZED SIGNATORY OF INVESTING ENTITY: /s/ G. Xxxxx Xxxxxxx
--------------------
Name of Authorized Signatory: G. Xxxxx Xxxxxxx
Title of Authorized Signatory: Trustee
Name of Investing Entity: High Tide, LLC
SIGNATURE OF AUTHORIZED SIGNATORY OF INVESTING ENTITY: /s/ G. Xxxxx Xxxxxxx
--------------------
Name of Authorized Signatory: G. Xxxxx Xxxxxxx
Title of Authorized Signatory: Manager
Name of Investing Entity: Bear Xxxxxxx Securities Corp. Custodian FBO J. Xxxxxx
Xxxxxxx XXX XX
SIGNATURE OF AUTHORIZED SIGNATORY OF INVESTING ENTITY: /s/ J. Xxxxxx Xxxxxxx
---------------------
Name of Authorized Signatory: J. Xxxxxx Xxxxxxx
Title of Authorized Signatory: Sole Ben., Self Directed XXX
Name of Investing Entity: Bear Xxxxxxx Securities Corp. Custodian FBO J. Xxxxxx
Xxxxxxx Xxxx XXX
SIGNATURE OF AUTHORIZED SIGNATORY OF INVESTING ENTITY: /s/ J. Xxxxxx Xxxxxxx
---------------------
Name of Authorized Signatory: J. Xxxxxx Xxxxxxx
Title of Authorized Signatory: Sole Ben., Self Directed XXX
Name of Investing Entity: Bristol Investment Fund, Ltd.
SIGNATURE OF AUTHORIZED SIGNATORY OF INVESTING ENTITY: /s/ Xxxx Xxxxxxx
----------------
Name of Authorized Signatory: Xxxx Xxxxxxx
Title of Authorized Signatory: Director
Name of Investing Entity: MM & B Holdings, a California general partnership
SIGNATURE OF AUTHORIZED SIGNATORY OF INVESTING ENTITY: /s/ Xxxxx Xxxxxxx
-----------------
Name of Authorized Signatory: Xxxxx Xxxxxxx, TTEE of the Xxxxx Xxxxxxx 1994
Trust
Title of Authorized Signatory: General Partner
Name of Investing Entity: Xxxxxxxx Xxxx Investment Partnership
18
SIGNATURE OF AUTHORIZED SIGNATORY OF INVESTING ENTITY: /s/ Xxxxx Xxxx, Trustee
-----------------------
Name of Authorized Signatory: Xxxxx Xxxx as Trustee of the Xxxxx Xxxx Family
Trust
Title of Authorized Signatory: General Partner
Name of Investing Entity: Bank Xxxxxxxx de Beaufort Safe Custody NV
SIGNATURE OF AUTHORIZED SIGNATORY OF INVESTING ENTITY: /s/ Xxxxx Xxx-Xxxxx
-------------------
Name of Authorized Signatory: Xxxxx Xxx-Xxxxx
Title of Authorized Signatory: Director of Private Banking
Name of Investing Entity: JMG Triton Offshore Fund, Ltd.
SIGNATURE OF AUTHORIZED SIGNATORY OF INVESTING ENTITY: /s/ Xxxxxxxx Xxxxxx
-------------------
Name of Authorized Signatory: Xxxxxxxx Xxxxxx
Title of Authorized Signatory: Member Manager of the Investment Manager
Name of Investing Entity: JMB Capital Partners L.P.
SIGNATURE OF AUTHORIZED SIGNATORY OF INVESTING ENTITY: /s/ Cyrus (Illegible)
---------------------
Name of Authorized Signatory: Cyrus (Illegible)
Title of Authorized Signatory: Analyst
Name of Investing Entity: JMG Capital Partners
SIGNATURE OF AUTHORIZED SIGNATORY OF INVESTING ENTITY: /s/ Xxxxxxxx Xxxxxx
-------------------
Name of Authorized Signatory: Xxxxxxxx Xxxxxx
Title of Authorized Signatory: Member Manager of the GP
19
EXHIBIT A
INTERCREDITOR AGREEMENT
20
SCHEDULE A
Principal Place of Business of Debtor:
0000 Xxxx Xxxxxxxxxx Xxxxxxxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Locations Where Collateral is Located or Stored:
0000 Xxxx Xxxxxxxxxx Xxxxxxxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000
21
SCHEDULE B
1. Tarrant Company Limited ("TCL"), Marble Limited ("ML") and Trade Link
Holdings Limited ("TLHL" and together with TCL and ML, collectively,
"Tarrant Subsidiaries" and each, a "Tarrant Subsidiary"), each a
corporation organized under the laws of Hong Kong, and UPS Capital
Global Trade Finance Corporation ("UPS") are each party to that certain
Syndicated Letter of Credit Facility Agreement dated June 13, 2002 (the
"UPS Credit Facility") pursuant to which UPS has extended a revolving
letter of credit facility to Tarrant Subsidiaries to finance the
purchase and processing of certain inventory from time to time by, or
for the benefit of, Tarrant Subsidiaries. The Company executed and
delivered that certain Guaranty and Security Agreement dated as of May
30, 2002, in favor of UPS, guaranteeing the obligations of Tarrant
Subsidiaries to UPS arising under the UPS Credit Facility (the
"Guaranteed UPS Obligations") and, to secure the Guaranteed UPS
Obligations, each of Tarrant and certain other controlled subsidiaries
of Tarrant has granted therein in favor of UPS a security interest in
certain of its personal property as more fully set forth in the
Guaranty and Security Agreement.
2. GMAC Commercial Finance LLC ("GMAC"), the Company and certain other
controlled subsidiaries of the Company are parties to that certain
Factoring Agreement effective as of September 29, 2004 (the "Factoring
Agreement"). To secure its obligations pursuant to the Factoring
Agreement, the Company and its controlled subsidiaries a party thereto
each granted in favor of GMAC, a security interest in certain of its
accounts receivable and related personal property.
The security interest granted in favor of UPS and GMAC is senior to the security
interests granted to the purchasers of debentures under the Securities Purchase
Agreement and related agreements.
22
SCHEDULE C
1. Secretary of State of the State of California
23
SCHEDULE D
Organizational Identification Number
C1446349
24
ANNEX A
TO
SECURITY
AGREEMENT
THE AGENT
1. APPOINTMENT. The Secured Parties (all capitalized terms
used herein and not otherwise defined shall have the respective
meanings provided in the Security Agreement to which this Annex A is
attached (the "AGREEMENT")), by their acceptance of the benefits of the
Agreement, hereby designate X.X. Xxxxxxx & Company (the "Agent") as the
Agent to act as specified herein and in the Agreement. Each Secured
Party shall be deemed irrevocably to authorize the Agent to take such
action on its behalf under the provisions of the Agreement and any
other Transaction Document (as such term is defined in the Debentures)
and to exercise such powers and to perform such duties hereunder and
thereunder as are specifically delegated to or required of the Agent by
the terms hereof and thereof and such other powers as are reasonably
incidental thereto. The Agent may perform any of its duties hereunder
by or through its agents or employees.
2. NATURE OF DUTIES. The Agent shall have no duties or
responsibilities except those expressly set forth in the Agreement.
Neither the Agent nor any of its partners, members, shareholders,
officers, directors, employees or agents shall be liable for any action
taken or omitted by it as such under the Agreement or hereunder or in
connection herewith or therewith, be responsible for the consequence of
any oversight or error of judgment or answerable for any loss, unless
caused solely by its or their gross negligence or willful conduct as
determined by a final judgment (not subject to further appeal) of a
court of competent jurisdiction. The duties of the Agent shall be
mechanical and administrative in nature; the Agent shall not have by
reason of the Agreement or any other Transaction Document a fiduciary
relationship in respect of any Debtor or any Secured Party; and nothing
in the Agreement or any other Transaction Document, expressed or
implied, is intended to or shall be so construed as to impose upon the
Agent any obligations in respect of the Agreement or any other
Transaction Document except as expressly set forth herein and therein.
3. LACK OF RELIANCE ON THE AGENT. Independently and without
reliance upon the Agent, each Secured Party, to the extent it deems
appropriate, has made and shall continue to make (i) its own
independent investigation of the financial condition and affairs of the
Company and its subsidiaries in connection with such Secured Party's
investment in the Debtor, the creation and continuance of the
Obligations, the transactions contemplated by the Transaction
Documents, and the taking or not taking of any action in connection
therewith, and (ii) its own appraisal of the creditworthiness of the
Company and its subsidiaries, and of the value of the Collateral from
time to time, and the Agent shall have no duty or responsibility,
either initially or on a continuing basis, to provide any Secured Party
with any credit, market or other information with respect thereto,
whether coming into its possession before any Obligations are incurred
or at any time or times thereafter. The Agent shall not be responsible
to the Debtor or any Secured Party for any recitals, statements,
information, representations or warranties herein or in any document,
certificate or other writing delivered in connection herewith, or for
the execution,
25
effectiveness, genuineness, validity, enforceability, perfection,
collectibility, priority or sufficiency of the Agreement or any other
Transaction Document, or for the financial condition of the Debtor or
the value of any of the Collateral, or be required to make any inquiry
concerning either the performance or observance of any of the terms,
provisions or conditions of the Agreement or any other Transaction
Document, or the financial condition of the Debtor, or the value of any
of the Collateral, or the existence or possible existence of any
default or Event of Default under the Agreement, the Debentures or any
of the other Transaction Documents.
4. CERTAIN RIGHTS OF THE AGENT. The Agent shall have the right
to take any action with respect to the Collateral, on behalf of all of
the Secured Parties. To the extent practical, the Agent shall request
instructions from the Secured Parties with respect to any material act
or action (including failure to act) in connection with the Agreement
or any other Transaction Document, and shall be entitled to act or
refrain from acting in accordance with the instructions of Secured
Parties holding a majority in principal amount of Debentures (based on
then-outstanding principal amounts of Debentures at the time of any
such determination); if such instructions are not provided despite the
Agent's request therefor, the Agent shall be entitled to refrain from
such act or taking such action, and if such action is taken, shall be
entitled to appropriate indemnification from the Secured Parties in
respect of actions to be taken by the Agent; and the Agent shall not
incur liability to any person or entity by reason of so refraining.
Without limiting the foregoing, (a) no Secured Party shall have any
right of action whatsoever against the Agent as a result of the Agent
acting or refraining from acting hereunder in accordance with the terms
of the Agreement or any other Transaction Document, and the Debtor
shall have no right to question or challenge the authority of, or the
instructions given to, the Agent pursuant to the foregoing and (b) the
Agent shall not be required to take any action which the Agent believes
(i) could reasonably be expected to expose it to personal liability or
(ii) is contrary to this Agreement, the Transaction Documents or
applicable law.
5. RELIANCE. The Agent shall be entitled to rely, and shall be
fully protected in relying, upon any writing, resolution, notice,
statement, certificate, telex, teletype or telecopier message,
cablegram, radiogram, order or other document or telephone message
signed, sent or made by the proper person or entity, and, with respect
to all legal matters pertaining to the Agreement and the other
Transaction Documents and its duties thereunder, upon advice of counsel
selected by it and upon all other matters pertaining to this Agreement
and the other Transaction Documents and its duties thereunder, upon
advice of other experts selected by it.
6. INDEMNIFICATION. To the extent that the Agent is not
reimbursed and indemnified by the Debtor, the Secured Parties will
jointly and severally reimburse and indemnify the Agent, in proportion
to their initially purchased respective principal amounts of
Debentures, from and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses
or disbursements of any kind or nature whatsoever which may be imposed
on, incurred by or asserted against the Agent in performing its duties
hereunder or under the Agreement or any other Transaction Document, or
in any way relating to or arising out of the Agreement or any other
Transaction Document except for those determined by a final judgment
(not subject to further appeal) of a court of competent jurisdiction to
have resulted solely from the Agent's own gross negligence or willful
misconduct. Prior to taking any action hereunder as Agent, the Agent
may require each Secured Party to deposit with it sufficient
26
sums as it determines in good faith is necessary to protect the Agent
for costs and expenses associated with taking such action.
7. RESIGNATION BY THE AGENT.
(a) The Agent may resign from the performance of all its
functions and duties under the Agreement and the other Transaction
Documents at any time by giving 30 days' prior written notice (as
provided in the Agreement) to the Debtor and the Secured Parties. Such
resignation shall take effect upon the appointment of a successor Agent
pursuant to clauses (b) and (c) below.
(b) Upon any such notice of resignation, the Secured Parties,
acting by a Majority in Interest, shall appoint a successor Agent
hereunder.
(c) If a successor Agent shall not have been so appointed
within said 30-day period, the Agent shall then appoint a successor
Agent who shall serve as Agent until such time, if any, as the Secured
Parties appoint a successor Agent as provided above. If a successor
Agent has not been appointed within such 30-day period, the Agent may
petition any court of competent jurisdiction or may interplead the
Debtor and the Secured Parties in a proceeding for the appointment of a
successor Agent, and all fees, including, but not limited to,
extraordinary fees associated with the filing of interpleader and
expenses associated therewith, shall be payable by the Debtor on
demand.
8. RIGHTS WITH RESPECT TO COLLATERAL. Each Secured Party
agrees with all other Secured Parties and the Agent (i) that it shall
not, and shall not attempt to, exercise any rights with respect to its
security interest in the Collateral, whether pursuant to any other
agreement or otherwise (other than pursuant to this Agreement), or take
or institute any action against the Agent or any of the other Secured
Parties in respect of the Collateral or its rights hereunder (other
than any such action arising from the breach of this Agreement) and
(ii) that such Secured Party has no other rights with respect to the
Collateral other than as set forth in this Agreement and the other
Transaction Documents.
27
