LOAN AND SECURITY AGREEMENT
BY AND BETWEEN
ALDILA GOLF CORP.
AND
FOOTHILL CAPITAL CORPORATION
DATED AS OF JULY 9, 1999
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT (THIS "AGREEMENT"), is entered into as
of July 9, 1999, between FOOTHILL CAPITAL CORPORATION, a California
corporation ("Foothill"), with a place of business located at 00000 Xxxxx
Xxxxxx Xxxxxxxxx, Xxxxx 0000, Xxx Xxxxxxx, Xxxxxxxxxx 00000-0000 and ALDILA
GOLF CORP., a Delaware corporation ("Borrower"), with its chief executive
office located at 00000 Xxxxxxxxx Xxxx, Xxxxx, Xxxxxxxxxx 00000-0000.
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION.
1.1 DEFINITIONS. As used in this Agreement, the following terms
shall have the following definitions:
"ACCOUNT DEBTOR" means any Person who is or who may become
obligated under, with respect to, or on account of, an Account, General
Intangible, Investment Property, or Negotiable Collateral of Borrower,
including, without limitation, any Issuer or Intermediary.
"ACCOUNTS" means all currently existing and hereafter
arising accounts, contract rights, and all other forms of obligations owing
to Borrower arising out of the sale or lease of goods or the rendition of
services by Borrower, irrespective of whether earned by performance, and any
and all credit insurance, guaranties, or security therefor.
"ADJUSTED EURODOLLAR RATE" means, with respect to each
Interest Period for any Eurodollar Rate Loan, the rate per annum (rounded
upwards, if necessary, to the next 1/16%) determined by dividing (a) the
Eurodollar Rate for such Interest Period by (b) a percentage equal to (i)
100% minus (ii) the Reserve Percentage. The Adjusted Eurodollar Rate shall
be adjusted on and as of the effective day of any change in the Reserve
Percentage.
"ADVANCES" has the meaning set forth in SECTION 2.1(a).
"AFFILIATE" means, as applied to any Person, any other
Person who directly or indirectly controls, is controlled by, is under common
control with or is a director, officer, partner, member, or manager of such
Person. For purposes of this definition, "control" means the possession,
directly or indirectly, of the power to vote 10% or more of the equity
interests having ordinary voting power for the election or appointment of
directors, managing partner, or manager, or the direct or indirect power to
direct the management and policies of a Person.
"AGREEMENT" has the meaning set forth in the preamble
hereto.
"AUTHORIZED PERSON" means any officer or other employee of
Borrower.
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"AVAILABILITY" means, as of any date of determination, the
amount that Borrower is entitled to borrow as Advances under SECTION 2.1,
such amount being the result of: (a) the lesser of (i) the Maximum Revolving
Amount LESS the Letter of Credit Usage, and (ii) the Borrowing Base LESS the
Letter of Credit Usage, MINUS (b) the sum of the principal amount of Advances
then outstanding (including amounts that Foothill may have paid for the
account of Borrower pursuant to any of the Loan Documents and that have not
been reimbursed by Borrower), MINUS (c) the aggregate amount, if any, of all
trade payables of Borrower aged in excess of their historical levels with
respect thereto and all book overdrafts in excess of their historical
practices with respect thereto, in each case as determined by Foothill in its
Permitted Discretion.
"AVERAGE UNUSED PORTION OF MAXIMUM AMOUNT" means, as of any
date of determination, the following amount (not less than zero): (a)
$10,000,000, LESS (b) the sum of (i) the average Daily Balance of Advances
that were outstanding during the immediately preceding month, PLUS (ii) the
average Daily Balance of the undrawn Letters of Credit that were outstanding
during the immediately preceding month, LESS (c) the unpaid principal balance
of the Term Loan, if any.
"BANKRUPTCY CODE" means the United States Bankruptcy Code
(11 U.S.C. Section 101 ET SEQ.), as amended, and any successor statute.
"BENEFIT PLAN" means a "defined benefit plan" (as defined
in Section 3(35) of ERISA) for which Parent Company, Borrower, any Subsidiary
of Borrower, or any ERISA Affiliate has been an "employer" (as defined in
Section 3(5) of ERISA) within the past six years.
"BORROWER" has the meaning set forth in the preamble to
this Agreement.
"BORROWER IP SECURITY AGREEMENT" means that certain
Intellectual Property Security Agreement, and all related documents therein
described, executed and delivered by Borrower to Foothill at or prior to the
Closing Date, in the form of EXHIBIT "A" hereto.
"BORROWER PLEDGE AND SECURITY AGREEMENT" means that certain
Stock Pledge and Security Agreement, and all related endorsements, stock
assignments and powers, executed by Borrower, in the form of EXHIBIT "B"
hereto.
"BORROWER'S BOOKS" means all of Borrower's books and
records including: ledgers; records indicating, summarizing, or evidencing
Borrower's properties or assets (including the Collateral of Borrower) or
liabilities; all information relating to Borrower's business operations or
financial condition; and all computer programs, disk or tape files,
printouts, runs, or other computer prepared information.
"BORROWING BASE" has the meaning set forth in SECTION
2.1(a).
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"BUSINESS DAY" means any day that is not a Saturday,
Sunday, or other day on which national banks are authorized or required to
close.
"CHANGE OF CONTROL" shall be deemed to have occurred at
such time as a "person" or "group" (within the meaning of Sections 13(d) and
14(d)(2) of the Securities Exchange Act of 1934) becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Securities Exchange Act of 1934),
directly or indirectly, of more than 10% of the total voting power of all
classes of stock then outstanding of Borrower entitled to vote in the
election of directors; provided, however, that said percentage shall be 40%
with respect to the total voting power of all classes of stock of the Parent
Company and the Parent Company shall at all times hereunder remain the sole
owner and shareholder of Borrower.
"CIGNA DEBENTURE" means that certain Note Purchase
Agreement dated as of November 1, 1993, in its original form, between Parent
Company and the original purchasers of the 6.13% Senior Notes therein
described, in the aggregate original principal sum of $20,000,000, due
September 30, 2001.
"CIGNA DEBT DIFFERENTIAL" means, as of any date of
determination, the amount, if any, by which (a) the total outstanding
principal balance of the CIGNA Indebtedness exceeds (b) the CIGNA Scheduled
Balance then in effect.
"CIGNA INDEBTEDNESS" means all indebtedness of Parent
Company under and arising out of the CIGNA Debenture.
"CIGNA LOAN DOCUMENTS" means the CIGNA Debenture, in its
original form, and any and all promissory notes originally executed by Parent
Company thereunder and all such replacements promissory notes issued
thereunder without modifying the CIGNA Debenture (other than with respect to
identities of the note holders).
"CIGNA SCHEDULED BALANCE" means (a) for the period from the
Closing Date to and including, September 30, 1999, the sum of $20,000,000,
(b) for the period beginning September 30, 1999, to and including, March 31,
2000, the sum of $16,000,000, (c) for the period beginning March 31, 2000, to
and including, September 30, 2000, the sum of $12,000,000, (d) for the period
beginning September 30, 2000, to and including March 31, 2001, the sum of
$8,000,000, (e) for the period beginning March 31, 2001, to and including,
September 30, 2001, the sum of $4,000,000, and (f) for the period beginning
after September 30, 2001, zero.
"CLOSING DATE" means the date of the first to occur of the
making of the initial Advance, the issuance of the initial Letter of Credit,
or the funding of the Term Loan.
"CODE" means the California Uniform Commercial Code.
"COLLATERAL" means each of the following:
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(a) the Accounts,
(b) Borrower's Books,
(c) the Equipment,
(d) the General Intangibles,
(e) the Investment Property,
(f) the Inventory,
(g) the Negotiable Collateral,
(h) any money, or other assets of Borrower that now or
hereafter come into the possession, custody, or control of Foothill, and
(i) the proceeds and products, whether tangible or
intangible, of any of the foregoing, including proceeds of insurance covering
any or all of the Collateral of Borrower, and any and all Accounts,
Borrower's Books, Equipment, General Intangibles, Investment Property,
Inventory, 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 acknowledgment 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 the form of EXHIBIT "C" hereto.
"COLLECTIONS" means all cash, checks, notes, instruments,
and other items of payment (including, insurance proceeds, proceeds of cash
sales, rental proceeds, and tax refunds).
"COMPLIANCE CERTIFICATE" means a certificate substantially
in the form of EXHIBIT "D" hereto and delivered by the chief accounting
officer of Borrower to Foothill.
"CONTROL AGREEMENT" means a written agreement in form and
content reasonably satisfactory to and in favor of Foothill, entered into by
an Intermediary, issuer of any Investment Property, or depository bank, with
respect to Investment Property or any deposit account of Borrower, pursuant
to which agreement said Intermediary, issuer or bank agrees to comply with
Foothill's entitlement orders, withdrawal orders, or transfer orders, without
conditioning such compliance upon obtaining Borrower's consent thereto, and
in order to perfect Foothill's security interest granted by Borrower
hereunder by control as defined and provided in the Code.
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"DAILY BALANCE" means the amount of an Obligation owed at
the end of a given day.
"DATED RECEIVABLES" means Accounts which provide for
selling terms of more than 60 days, but less than 150 days, from the invoice
date.
"DEFAULT" means an event, condition, or default that, with
or without the giving of notice, the passage of time, or both, would be an
Event of Default.
"DESIGNATED ACCOUNT" means account number Account #
4000-147708 of Borrower maintained with Borrower's Designated Account Bank,
or such other deposit account of Borrower (located within the United States)
which has been designated, in writing and from time to time, by Borrower to
Foothill.
"DESIGNATED ACCOUNT BANK" means Union Bank of California,
whose office is located at 0000 Xxxxxx Xxxxxx, Xxxxxxxx Xxxx, Xxxxxxxxxx
00000, and whose ABA number is ABA# 000000000.
"DILUTION" means, in each case based upon the experience of
the immediately prior 3 months, the result, expressed as a percentage, of
dividing (a) the Dollar amount of bad debt write-downs and other charge-offs,
discounts, advertising, returns, promotions, credits, or other dilution with
respect to the Accounts (the amount of any write-down with respect to any
such dilutive item which is included in any subsequent charge-off shall not
be double counted), by (b) the Dollar amount of Borrower's Collections over
said 3 month period (excluding extraordinary items) plus the Dollar amount of
clause (a).
"DILUTION RESERVE" means, as of any date of determination,
an amount sufficient to reduce Foothill's advance rate against Eligible
Accounts by one percentage point for each percentage point by which Dilution
is in excess of 5%.
"DISBURSEMENT LETTER" means an instructional letter
executed and delivered by Borrower to Foothill regarding the extensions of
credit to be made on the Closing Date, in the form of EXHIBIT "E" attached
hereto and incorporated herein by reference.
"DOLLARS" OR "$" means United States dollars.
"EARLY TERMINATION PREMIUM" has the meaning set forth in
SECTION 3.6.
"ELIGIBLE ACCOUNTS" means those Accounts created by
Borrower in the ordinary course of business, that strictly comply with each
and all of the representations and warranties respecting Accounts made by
Borrower to Foothill in the Loan Documents, and that are and at all times
continue to be acceptable to Foothill in all respects. Eligible Accounts
shall not include the following:
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(a) Accounts (i) other than Dated Receivables, that the
Account Debtor has failed to pay within 90 days of invoice date, (ii) other
than Dated Receivables, with selling terms of more than 60 days, or (iii)
Dated Receivables that the Account Debtor has failed to pay prior to 150 days
of invoice date;
(b) Accounts owed by an Account Debtor or its Affiliates
where 50% or more of all Accounts owed by that Account Debtor (and Accounts
owed by its Affiliates) are deemed ineligible under clause (a) above;
(c) Accounts with respect to which the Account Debtor is
a director, officer, member, partner, manager, employee, Affiliate, or agent
of Borrower;
(d) Accounts with respect to which goods are placed on
consignment, guaranteed sale, sale or return, sale on approval, xxxx and
hold, or other terms by reason of which the payment by the Account Debtor may
be conditional;
(e) Accounts that are not payable in Dollars or with
respect to which the Account Debtor: (i) does not maintain its chief
executive office in the United States, or (ii) is not organized under the
laws of the United States or any State thereof, or (iii) is the government of
any foreign country or sovereign state, or of any state, province,
municipality, or other political subdivision thereof, or of any department,
agency, public corporation, or other instrumentality thereof, unless (y) the
Account is supported by an irrevocable letter of credit satisfactory to
Foothill (as to form, substance, and issuer or domestic confirming bank) that
has been delivered to Foothill and is directly drawable by Foothill, or (z)
the Account is covered by credit insurance in form and amount, and by an
insurer, satisfactory to Foothill;
(f) Accounts with respect to which the Account Debtor is
either (i) the United States or any department, agency, or instrumentality of
the United States (exclusive, however, of Accounts with respect to which
Borrower has complied, to the satisfaction of Foothill, with the Assignment
of Claims Act, 31 U.S.C. Section 3727), or (ii) any State of the United
States (exclusive, however, of Accounts owed by any State that does not have
a statutory counterpart to the Assignment of Claims Act);
(g) Accounts with respect to which the Account Debtor is
a creditor of Borrower, has or has asserted a right of setoff, has disputed
its liability, or has made any other claim;
(h) Accounts with respect to which an Account Debtor
whose total indebtedness and other obligations owing to Borrower exceed 10%
of the net amount of all Eligible Accounts, to the extent of the amount of
all indebtedness and other obligations owing by such Account Debtor which
exceed such percentage, provided that said concentration percentage shall be
35% with respect to all Accounts as to which the Account Debtor is any one of
the principal manufacturers and distributors of Xxxxxx Made brand golf clubs,
Titleist brand golf clubs, Callaway brand golf clubs, Ping brand golf clubs,
and Xxxxxx Sports brand golf clubs
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(individually and collectively herein referred to as the "Principal Account
Debtors"); provided, further that Eligible Accounts shall not include that
portion of the total aggregate amount of all Accounts as to which the
Principal Account Debtors are Account Debtors which exceeds 70% of all
Eligible Accounts.
(i) Accounts with respect to which the Account Debtor is
subject to any Insolvency Proceeding, or becomes insolvent, or goes out of
business;
(j) Accounts the collection of which Foothill, in its
reasonable credit judgment, believes to be doubtful by reason of the Account
Debtor's financial condition;
(k) Accounts with respect to which the goods giving rise
to such Account have not been shipped and billed to the Account Debtor, the
services giving rise to such Account have not been performed and accepted by
the Account Debtor, or the Account otherwise does not represent a final sale
(subject to returns with respect to non-conforming or defective goods or with
respect to standard warranties pursuant to Borrower's historical practices);
(l) Accounts with respect to which the Account Debtor is
located in the states of New Jersey, Minnesota, Indiana, or West Virginia (or
any other state that requires a creditor to file a Business Activity Report
or similar document in order to bring suit or otherwise enforce its remedies
against such Account Debtor in the courts or through any judicial process of
such state), unless Borrower has qualified to do business in New Jersey,
Minnesota, Indiana, West Virginia, or such other states, or has filed a
Notice of Business Activities Report with the applicable division of
taxation, the department of revenue, or with such other state offices, as
appropriate, for the then-current year, or is exempt from such filing
requirement; and
(m) Accounts that represent progress payments or other
advance xxxxxxxx that are due prior to the completion of performance by
Borrower of the subject contract for goods or services.
"ELIGIBLE IN-TRANSIT INVENTORY" means those items of
Inventory that do not qualify as Eligible Landed Inventory solely because
they are not in a location set forth on SCHEDULE E-1 or transit between such
locations, but: (a) such Inventory is currently in-transit from a location
not set forth on SCHEDULE E-1 to a location set forth on SCHEDULE E-1, (b)
title to such Inventory has passed to Borrower, (c) documents of title with
respect to such Inventory have been delivered to Foothill or its agent, (d)
such Inventory is insured against types of loss, damage, hazards, and risks,
and in amounts, satisfactory to Foothill in its Permitted Discretion, and (e)
such Inventory has been paid for or, if purchased under an Inventory Letter
of Credit, such Inventory Letter of Credit either has been drawn upon in full
and reimbursed, or expired undrawn; in each case, with documentation therefor
in form and substance satisfactory to Foothill in its Permitted Discretion.
Notwithstanding any provision to the contrary contained in this Agreement,
the value of Eligible In-Transit Inventory, for any purpose under this
Agreement, unless otherwise agreed by Foothill in writing, shall be deemed
not to exceed, in the aggregate, the sum of
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$200,000, including, without limitation, for purposes of computing Advances
and Availability under this Agreement.
"ELIGIBLE INVENTORY" means the Eligible In-Transit
Inventory and the Eligible Landed Inventory.
"ELIGIBLE LANDED INVENTORY" means Inventory consisting of
first quality finished golf club shafts held for sale in the ordinary course
of Borrower's business, fabricated prepreg materials for such finished goods,
and raw materials for such prepreg materials, that are located at or
in-transit between Borrower's premises identified on SCHEDULE E-1, that
strictly comply with each and all of the representations and warranties
respecting Inventory made by Borrower to Foothill in the Loan Documents, and
that are and at all times continue to be acceptable to Foothill in all
respects. In determining the amount to be so included, Inventory shall be
valued at the lower of cost or market on a basis consistent with Borrower's
current and historical accounting practices. An item of Inventory shall not
be included in Eligible Landed Inventory if:
(a) it is not owned solely by Borrower, or Borrower does
not have good, valid, and marketable title thereto;
(b) it is not located at one of the locations set forth
on SCHEDULE E-1, and is not in transit between two locations set forth on
SCHEDULE E-1.
(c) it is not located on property owned or leased by
Borrower or in a contract warehouse, or in transit between two such places,
in each case, subject to a Collateral Access Agreement executed by the
mortgagee, lessor, the warehouseman, or other third party, as the case may
be, and segregated or otherwise separately identifiable from goods of others,
if any, stored on the premises;
(d) it is not subject to a valid and perfected first
priority security interest in favor of Foothill;
(e) it consists of goods returned or rejected by
Borrower's customers or goods in transit; or
(f) it is obsolete or has remained unsold within twelve
(12) months following its acquisition by Borrower, or it is work-in-process
(which shall include cut fabricated prepreg materials), a component that is
not part of finished goods, or constitutes spare parts, packaging and
shipping materials, supplies used or consumed in Borrower's business,
Inventory subject to a Lien in favor of any third Person, xxxx and hold
goods, defective goods, items to be "reworked," or Inventory acquired on
consignment.
"EQUIPMENT" means all of Borrower's present and hereafter
acquired machinery, machine tools, motors, equipment, furniture, furnishings,
fixtures, vehicles (including
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motor vehicles and trailers), tools, parts, goods (other than consumer goods,
farm products, or Inventory), wherever located, including, (a) any interest
of Borrower in any of the foregoing, and (b) all attachments, accessories,
accessions, replacements, substitutions, additions, and improvements to any
of the foregoing.
"ERISA" means the Employee Retirement Income Security Act
of 1974, 29 U.S.C. Sections 1000 et seq., amendments thereto, successor
statutes, and regulations or guidance promulgated thereunder.
"ERISA AFFILIATE" means (a) any corporation subject to
ERISA whose employees are treated as employed by the same employer as the
employees of Borrower under IRC Section 414(b), (b) any trade or business
subject to ERISA whose employees are treated as employed by the same employer
as the employees of Borrower under IRC Section 414(c), (c) solely for
purposes of Section 302 of ERISA and Section 412 of the IRC, any organization
subject to ERISA that is a member of an affiliated service group of which
Borrower is a member under IRC Section 414(m), or (d) solely for purposes of
Section 302 of ERISA and Section 412 of the IRC, any party subject to ERISA
that is a party to an arrangement with Borrower and whose employees are
aggregated with the employees of Borrower under IRC Section 414(o).
"ERISA EVENT" means (a) a Reportable Event with respect to
any Benefit Plan or Multiemployer Plan, (b) the withdrawal of Borrower, any
of its Subsidiaries or ERISA Affiliates from a Benefit Plan during a plan
year in which it was a "substantial employer" (as defined in Section
4001(a)(2) of ERISA), (c) the providing of notice of intent to terminate a
Benefit Plan in a distress termination (as described in Section 4041(c) of
ERISA), (d) the institution by the PBGC of proceedings to terminate a Benefit
Plan or Multiemployer Plan, (e) any event or condition (i) that provides a
basis under Section 4042(a)(1), (2), or (3) of ERISA for the termination of,
or the appointment of a trustee to administer, any Benefit Plan or
Multiemployer Plan, or (ii) that may result in termination of a Multiemployer
Plan pursuant to Section 4041A of ERISA, (f) the partial or complete
withdrawal within the meaning of Sections 4203 and 4205 of ERISA, of
Borrower, any of its Subsidiaries or ERISA Affiliates from a Multiemployer
Plan, or (g) providing any security to any Plan under Section 401(a)(29) of
the IRC by Borrower or its Subsidiaries or any of their ERISA Affiliates.
"EURODOLLAR RATE" means, with respect to the Interest
Period for a Eurodollar Rate Loan, the interest rate per annum at which
United States dollar deposits are offered to Foothill (or its Affiliates) by
major banks in the London interbank market (or other Eurodollar rate market
selected by Foothill) on or about 11:00 a.m. (New York time) two (2) Business
Days prior to the commencement of such Interest Period in amounts comparable
to the amount of the Eurodollar Rate Loans requested by and available to
Borrower in accordance with this Agreement, with a maturity of comparable
duration to the Interest Period selected by Borrower.
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"EURODOLLAR RATE LOANS" means any Advance (or any portion
thereof) made or outstanding hereunder during any period when interest on
such Advance (or portion thereof) is payable based on the Adjusted Eurodollar
Rate.
"EVENT OF DEFAULT" has the meaning set forth in SECTION 8.
"EXISTING LENDER" means Union Bank of California, N.A.
"FACILITY FEE" means the sum of $75,000.
"FEIN" means Federal Employer Identification Number.
"FOOTHILL" has the meaning set forth in the preamble to
this Agreement.
"FOOTHILL ACCOUNT" has the meaning set forth in SECTION 2.7.
"FOOTHILL EXPENSES" means all: costs or expenses
(including taxes, and insurance premiums) required to be paid by Borrower
under any of the Loan Documents that are paid or incurred by Foothill; fees
or charges paid or incurred by Foothill directly in connection with
Foothill's transactions with Borrower, including, fees or charges for
photocopying, notarization, couriers and messengers, telecommunication,
public record searches (including tax lien, litigation, and UCC searches and
including searches with the patent and trademark office, the copyright
office, or the department of motor vehicles), filing, recording, publication,
appraisal (including periodic Collateral appraisals), real estate surveys,
real estate title policies and endorsements, and environmental audits; costs
and expenses incurred by Foothill directly in the disbursement of funds to
Borrower (by wire transfer or otherwise); charges paid or incurred by
Foothill directly resulting from the dishonor of checks; costs and expenses
paid or incurred by Foothill directly to correct any default or enforce any
provision of the Loan Documents upon the occurrence of an Event of Default,
or in gaining possession of, maintaining, handling, preserving, storing,
shipping, selling, preparing for sale, or advertising to sell the Collateral,
or any portion thereof, irrespective of whether a sale is consummated; costs
and expenses paid or incurred by Foothill directly in examining Borrower's
Books; costs and expenses of third party claims or any other suit paid or
incurred by Foothill directly in enforcing the Loan Documents upon the
occurrence of an Event of Default or defending the Loan Documents or in
connection with the transactions contemplated by the Loan Documents or
Foothill's relationship with Borrower or any Affiliate of Borrower; and
Foothill's reasonable attorneys fees and expenses incurred in advising,
structuring, drafting, reviewing, administering, amending, terminating,
enforcing (including attorneys fees and expenses incurred in connection with
a "workout," a "restructuring," or an Insolvency Proceeding concerning
Borrower or any guarantor of the Obligations), defending, or concerning the
Loan Documents, irrespective of whether suit is brought.
"GAAP" means generally accepted accounting principles as in
effect from time to time in the United States, consistently applied.
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"GENERAL INTANGIBLES" means all present and future general
intangibles and other personal property of Borrower and of the Parent Company
(including all property described in the Borrower IP Security Agreement and
in the Parent IP Security Agreement, contract rights, rights arising under
common law, statutes, or regulations, choses or things in action, goodwill,
patents, patent rights, trade names, trademarks, trademark rights, service
marks, copyrights, copyright rights, blueprints, drawings, purchase orders,
customer lists, monies due or recoverable from pension funds, route lists,
rights to payment and other rights under any royalty or licensing agreements,
infringement claims, computer programs, information contained on computer
disks or tapes, literature, reports, catalogs, deposit accounts, insurance
premium rebates, tax refunds, and tax refund claims), (in the case of the
Parent Company, only to the extent of the Collateral described in the Parent
IP Security Agreement and the general intangibles described in the Parent
Pledge and Security Agreement) other than goods, Accounts, and Negotiable
Collateral.
"GOVERNING DOCUMENTS" means the certificate or articles of
incorporation, by-laws, or other organizational or governing documents of any
Person.
"GOVERNMENTAL AUTHORITY" means any federal, state, local,
or other governmental or administrative body, instrumentality, department, or
agency or any court, tribunal, administrative hearing body, arbitration
panel, commission, or other similar dispute-resolving panel or body.
"HAZARDOUS MATERIALS" means (a) substances that are defined
or listed in, or otherwise classified pursuant to, any applicable laws or
regulations as "hazardous substances," "hazardous materials," "hazardous
wastes," "toxic substances," or any other formulation intended to define,
list, or classify substances by reason of deleterious properties such as
ignitability, corrosivity, reactivity, carcinogenicity, reproductive
toxicity, or "EP toxicity", (b) oil, petroleum, or petroleum derived
substances, natural gas, natural gas liquids, synthetic gas, drilling fluids,
produced waters, and other wastes associated with the exploration,
development, or production of crude oil, natural gas, or geothermal
resources, (c) any flammable substances or explosives or any radioactive
materials, and (d) asbestos in any form or electrical equipment that contains
any oil or dielectric fluid containing levels of polychlorinated biphenyls in
excess of 50 parts per million.
"INDEBTEDNESS" means: (a) all obligations of Borrower for
borrowed money, (b) all obligations of Borrower evidenced by bonds,
debentures, notes, or other similar instruments and all reimbursement or
other obligations of Borrower in respect of letters of credit, bankers
acceptances, interest rate swaps, or other financial products, (c) all
obligations of Borrower under capital leases, (d) all obligations or
liabilities of others secured by a Lien on any property or asset of Borrower,
irrespective of whether such obligation or liability is assumed, and (e) any
obligation of Borrower guaranteeing or intended to guarantee (whether
guaranteed, endorsed, co-made, discounted, or sold with recourse to Borrower)
any indebtedness, lease, dividend, letter of credit, or other obligation of
any other Person.
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"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, assignment for the benefit of creditors,
formal or informal moratorium, composition, extension generally with
creditors, or proceedings seeking reorganization, arrangement, or other
similar relief.
"INTANGIBLE ASSETS" means, with respect to any Person, that
portion of the book value of all of such Person's assets that would be
treated as intangibles under GAAP.
"INTEREST PERIOD" means, for any Eurodollar Rate Loan, the
period commencing on the Business Day such Eurodollar Rate Loan is disbursed
or continued, or on the Business Day on which a Reference Rate Loan is
converted to such Eurodollar Rate Loan, and ending on the date 1, 2 or 3
months thereafter, as selected by Borrower and notified to Foothill pursuant
to SECTION 2.1(c), and as further provided in SECTION 2.12(a).
"INTERMEDIARY" means any securities intermediary or
commodity intermediary, as those terms are defined in the Code, with respect
to any Investment Property.
"INVENTORY" means all present and future inventory in which
Borrower has any interest, including goods held for sale or lease or to be
furnished under a contract of service and all of Borrower's present and
future raw materials, work in process, finished goods, and packing and
shipping materials, wherever located.
"INVENTORY LETTER OF CREDIT" means a documentary Letter of
Credit issued to support the purchase by Borrower of Inventory prior to
transit to a location set forth on SCHEDULE E-1, that provides that all draws
thereunder must require presentation of customary documentation (including,
if applicable, commercial invoices, packing list, certificate of origin, xxxx
of lading or airway xxxx, customs clearance documents, quota statement,
inspection certificate, beneficiary's statement, and xxxx of exchange, bills
of lading, dock warrants, dock receipts, warehouse receipts, or other
documents of title) in form and substance satisfactory to Foothill and
reflecting the passage to Borrower of title to first quality Inventory
conforming to Borrower's contract with the seller thereof. Any such Letter
of Credit shall cease to be an "Inventory Letter of Credit" at such time, if
any, as the goods purchased thereunder become Eligible Landed Inventory.
"INVENTORY RESERVES" means reserves (determined from time
to time by Foothill in its Permitted Discretion) for (a) the estimated costs
relating to unpaid freight charges, warehousing or storage charges, taxes,
duties, and other similar unpaid costs associated with the acquisition of
Eligible In-Transit Inventory by Borrower (but in no event to exceed the
value of such Eligible In-Transit Inventory), PLUS (b) the estimated
reclamation claims of unpaid sellers of Inventory sold to Borrower.
"INVESTMENT PROPERTY" means all present and hereafter
acquired investment property of Borrower and of the Parent Company,
including, without limitation, securities,
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security entitlements, securities accounts, commodity contracts, and
commodity accounts (in the case of the Parent Company, only to the extent of
the Collateral described in the Parent Pledge and Security Agreement).
"IRC" means the Internal Revenue Code of 1986, as amended,
and the regulations thereunder.
"ISSUER" means the issuer of any Investment Property.
"L/C" has the meaning set forth in SECTION 2.2(a).
"L/C GUARANTY" has the meaning set forth in SECTION 2.2(a).
"LETTER OF CREDIT" means an L/C or an L/C Guaranty, as the
context requires.
"LETTER OF CREDIT USAGE" means, as of any date of
determination, the aggregate undrawn amount of all outstanding Letters of
Credit.
"LIEN" means any interest in property securing an
obligation owed to, or a claim by, any Person other than the owner of the
property, whether such interest shall be based on the common law, statute, or
contract, whether such interest shall be recorded or perfected, and whether
such interest shall be contingent upon the occurrence of some future event or
events or the existence of some future circumstance or circumstances,
including the lien or security interest arising from a mortgage, deed of
trust, encumbrance, pledge, hypothecation, assignment, deposit arrangement,
security agreement, adverse claim or charge, conditional sale or trust
receipt, or from a lease, consignment, or bailment for security purposes and
also including reservations, exceptions, encroachments, easements,
rights-of-way, covenants, conditions, restrictions, leases, and other title
exceptions and encumbrances affecting Real Property. Notwithstanding any
provision to the contrary herein contained, the term "Lien" shall not include
the interests of any lessor of Real Property in premises leased by Borrower
or any of its Subsidiaries.
"LIQUIDATION VALUE" means the net orderly liquidation value
of the Collateral (or that portion thereof which is the subject of a
determination of Liquidation Value hereunder), as determined by any one of
the following appraisal firms: (1) Xxxxx Xxxxxxx, (2) MB Valuations, or (3)
any other appraiser mutually acceptable to Foothill and Borrower.
"LOAN ACCOUNT" has the meaning set forth in SECTION 2.10.
"LOAN DOCUMENTS" means this Agreement, the Disbursement
Letter, the Letters of Credit, the Lockbox Agreements, the Borrower IP
Security Agreement, the Parent IP Security Agreement, the Borrower Pledge and
Security Agreement, the Parent Pledge and Security Agreement, any note or
notes executed by Borrower and payable to Foothill, and any and all other
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agreements, instruments, or documents entered into, executed, or issued, now
or in the future, in connection with this Agreement or otherwise pertaining
to the Obligations.
"LOCKBOX ACCOUNT" shall mean a depositary account
established pursuant to one of the Lockbox Agreements.
"LOCKBOX AGREEMENTS" means those certain Lockbox Operating
Procedural Agreements and those certain Depository Account Agreements, in
form and substance satisfactory to Foothill, each of which is among Borrower,
Foothill, and one of the Lockbox Banks. The initial Lockbox Agreement shall
be in the form of EXHIBIT "F" hereto.
"LOCKBOX BANKS" means Union Bank of California, N.A., or
such other banks as may be agreed to by Borrower and Foothill from time to
time.
"LOCKBOXES" has the meaning set forth in SECTION 2.7.
"MATERIAL ADVERSE CHANGE" means (a) a material adverse
change in the business, prospects, operations, results of operations, assets,
liabilities or condition (financial or otherwise) of Borrower, (b) the
material impairment of Borrower's ability to perform its obligations under
the Loan Documents to which it is a party or of Foothill to enforce the Loan
Documents and the Obligations or realize upon the Collateral, in each case as
a whole, (c) a material adverse effect on the value of the Collateral or the
amount that Foothill would be likely to receive (after giving consideration
to delays in payment and costs of enforcement) in the liquidation of such
Collateral, in each case as a whole, or (d) a material impairment of the
priority of Foothill's Liens with respect to the Collateral as a whole.
"MAXIMUM AMOUNT" means the sum of $12,000,000.
"MAXIMUM REVOLVING AMOUNT" means, as of any date of
determination, the (a) the Maximum Amount, MINUS (b) the then outstanding
principal balance of the Term Loan.
"MULTIEMPLOYER PLAN" means a "multiemployer plan" (as
defined in Section 4001(a)(3) of ERISA) to which Parent Company, Borrower,
any of its Subsidiaries, or any ERISA Affiliate has contributed, or was
obligated to contribute, within the past six years.
"NEGOTIABLE COLLATERAL" means all of Borrower's present and
future letters of credit, notes, drafts, instruments, negotiable Investment
Property (including the shares of stock of Subsidiaries of Borrower),
documents (including documents of title), bills of lading, airbills,
warehouse receipts, personal property leases (wherein Borrower is the
lessor), chattel paper, and Borrower's Books relating to any of the foregoing.
"OBLIGATIONS" means all loans, Advances, debts, principal,
interest (including any interest that, but for the provisions of the
Bankruptcy Code, would have accrued), contingent reimbursement obligations
under any outstanding Letters of Credit, premiums
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(including Early Termination Premiums), liabilities (including all amounts
charged to Borrower's Loan Account pursuant hereto), obligations, fees,
charges, costs, or Foothill Expenses (including any fees or expenses that,
but for the provisions of the Bankruptcy Code, would have accrued), lease
payments, guaranties, covenants, and duties owing by Borrower to Foothill of
any kind and description under or arising out of the Loan Documents or the
Collateral, whether direct or indirect, absolute or contingent, due or to
become due, now existing or hereafter arising, and further including all
interest not paid when due and all Foothill Expenses that Borrower is
required to pay or reimburse by the Loan Documents or by law.
"OVERADVANCE" has the meaning set forth in SECTION 2.5.
"PARENT COMPANY" means Borrower's sole shareholder, Aldila,
Inc., a Delaware corporation.
"PARENT IP SECURITY AGREEMENT" means that certain
Intellectual Property Security Agreement, and all related documents therein
described, executed and delivered by the Parent Company to Foothill at or
prior to the Closing Date, in the form of EXHIBIT "G" hereto.
"PARENT PLEDGE AND SECURITY AGREEMENT" means that certain
Pledge and Security Agreement, and all related endorsements, stock
assignments and powers, executed by Parent Company, in the form of EXHIBIT
"H" hereto.
"PARTICIPANT" means any Person to which Foothill has sold
or may hereafter sell a participation interest in its rights under the Loan
Documents.
"PAY-OFF LETTER" means a letter, in form and substance
reasonably satisfactory to Foothill, from Existing Lender respecting the
amount necessary to repay in full all of the obligations of Borrower owing to
Existing Lender and obtain a termination or release of all of the Liens
existing in favor of Existing Lender in and to the properties or assets of
Borrower.
"PBGC" means the Pension Benefit Guaranty Corporation as
defined in Title IV of ERISA, or any successor thereto.
"PERMITTED DISCRETION" means, with respect to any
determination of Foothill, a determination made in good faith and in the
exercise of reasonable (from the perspective of a secured asset-based lender)
business judgment.
"PERMITTED LIENS" means (a) Liens held by Foothill, (b)
Liens for unpaid taxes that either (i) are not yet due and payable or (ii)
are the subject of Permitted Protests, (c) Liens set forth on SCHEDULE P-1,
(d) the interests of lessors under operating leases and purchase money Liens
of lessors under capital leases to the extent that the acquisition or lease
of the underlying asset is permitted under SECTION 7.21 and so long as the
Lien only attaches to the asset purchased or acquired and only secures the
purchase price of the asset, (e) Liens arising by
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operation of law in favor of warehousemen, landlords, carriers, mechanics,
materialmen, laborers, or suppliers, incurred in the ordinary course of
business of Borrower and not in connection with the borrowing of money, and
which Liens either (i) are for sums not yet due and payable, or (ii) are the
subject of Permitted Protests, (f) Liens arising from deposits made in
connection with obtaining worker's compensation or other unemployment
insurance, (g) Liens or deposits to secure performance of bids, tenders, or
leases (to the extent permitted under this Agreement), incurred in the
ordinary course of business of Borrower and not in connection with the
borrowing of money, (h) Liens arising by reason of security for surety or
appeal bonds in the ordinary course of business of Borrower, (i) Liens of or
resulting from any judgment or award that would not cause a Material Adverse
Change and as to which the time for the appeal or petition for rehearing of
which has not yet expired, or in respect of which Borrower is in good faith
prosecuting an appeal or proceeding for a review, and in respect of which a
stay of execution pending such appeal or proceeding for review has been
secured, (j) Liens arising by operation of the laws of the Peoples Republic
of China, Mexico, the U.S. Virgin Islands, or the United Kingdom, as
applicable, with respect to assets located in those jurisdictions or
securities of Subsidiaries formed under the laws of those jurisdictions, (k)
with respect to any Real Property, statutory Liens of lessors with respect to
any such leased property and their personal property located thereon, and
easements, rights of way, zoning and similar covenants and restrictions, and
similar encumbrances that customarily exist on properties of Persons engaged
in similar activities and similarly situated and that in any event do not
materially interfere with or impair the use or operation of the Borrower's
Collateral by Borrower or the value of Foothill's Lien thereon or therein, or
materially interfere with the ordinary conduct of the business of Borrower,
and (l) Liens in favor of the Internal Revenue Service of the U.S. Government
("IRS Liens"), which (A) individually, or in the aggregate as to all such
Liens, do not exceed $75,000, and (B) Borrower is contesting in good faith or
is diligently attempting to settle, adjust, or compromise, provided that the
full amount of all IRS Liens (whether or not such IRS Liens are Permitted
Liens hereunder), shall be included in reserves established by Foothill
pursuant to Section 2.1(b).
"PERMITTED PROTEST" means the right of Borrower to protest
any Lien other than any such Lien that secures the Obligations, tax (other
than payroll taxes or taxes that are the subject of a United States federal
tax lien), or rental payment, provided that (a) to the extent permissible
under GAAP, a reserve with respect to such obligation is established on the
books of Borrower in an amount that is reasonably satisfactory to Foothill,
(b) any such protest is instituted and diligently prosecuted by Borrower in
good faith, and (c) Foothill is 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 Foothill in and to the Collateral.
"PERSON" means and includes natural persons, corporations,
limited liability companies, limited partnerships, general partnerships,
limited liability partnerships, joint ventures, trusts, land trusts, business
trusts, or other organizations, irrespective of whether they are legal
entities, and governments and agencies and political subdivisions thereof.
"PLAN" means any employee benefit plan, program, or
arrangement maintained or contributed to by Borrower or with respect to which
it may incur liability.
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"REAL PROPERTY" means any estates or interests in real
property now owned or hereafter acquired by Borrower.
"REFERENCE RATE" means the variable rate of interest, per
annum, most recently announced by Xxxxx Fargo Bank, N.A., or any successor
thereto, as its "prime rate," irrespective of whether such announced rate is
the best rate available from such financial institution.
"REFERENCE RATE LOAN" means any Advance (or any portion
thereof) made or outstanding hereunder during any period when interest on
such Advance (or portion thereof) is payable based on the Reference Rate.
"RENEWAL DATE" has the meaning set forth in SECTION 3.4.
"REPORTABLE EVENT" means any of the events described in
Section 4043(c) of ERISA or the regulations thereunder other than a
Reportable Event as to which the provision of 30 days notice to the PBGC is
waived under applicable regulations.
"REQUIREMENT OF LAW" means, as to any Person: all (i)
statutes and regulations and (ii) court orders and injunctions, arbitrators'
decisions, and/or similar rulings, in each instance by any Governmental
Authority, or other body which has jurisdiction over such Person, or any
property of such Person, or of any other Person for whose conduct such Person
would be responsible.
"RESERVE PERCENTAGE" means and refers to, as of the date of
determination thereof, the maximum percentage (rounded upward, if necessary
to the nearest 1/100th of 1%), as determined by Foothill (or its Affiliates)
in accordance with its (or their) usual procedures (which determination shall
be conclusive in the absence of manifest error), that is in effect on such
date as prescribed by the Federal Reserve Board for determining the reserve
requirements (including supplemental, marginal, and emergency reserve
requirements) with respect to eurocurrency funding (currently referred to as
"eurocurrency liabilities") by Foothill or its Affiliates.
"RETIREE HEALTH PLAN" means an "employee welfare benefit
plan" within the meaning of Section 3(1) of ERISA that provides benefits to
individuals after termination of their employment, other than as required by
Section 601 of ERISA.
"SOLVENT" means, with respect to any Person on a particular
date, that on such date (a) at fair valuations, all of the properties and
assets of such Person are greater than the sum of the debts, including
contingent liabilities, of such Person, (b) the present fair salable value of
the properties and assets of such Person is not less than the amount that
will be required to pay the probable liability of such Person on its debts as
they become absolute and matured, (c) such Person is able to realize upon its
properties and assets and pay its debts and other liabilities, contingent
obligations and other commitments as they mature in the normal course of
business, (d) such Person does not intend to, and does not believe that it
will, incur debts beyond such
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Person's ability to pay as such debts mature, and (e) such Person is not
engaged in business or a transaction, and is not about to engage in business
or a transaction, for which such Person's properties and assets would
constitute unreasonably small capital after giving due consideration to the
prevailing practices in the industry in which such Person is engaged. In
computing the amount of contingent liabilities at any time, it is intended
that such liabilities will be computed at the amount that, in light of all
the facts and circumstances existing at such time, represents the amount that
reasonably can be expected to become an actual or matured liability.
"SUBSIDIARY" of a Person means a corporation, partnership,
limited liability company, or other entity in which that Person directly or
indirectly owns or controls the shares of stock or other ownership interests
having ordinary voting power to elect a majority of the board of directors
(or to appoint other comparable managers, including, without limitation, one
or more managing partners or manager) of such corporation, partnership,
limited liability company, or other entity.
"TANGIBLE NET WORTH" means, as of any date of
determination, the difference of (a) the sum of (i) Parent Company's total
consolidated owner equity PLUS (ii) the CIGNA Indebtedness, MINUS (b) the sum
of: (i) all Intangible Assets, and (ii) all deferred financing fees.
"TERM LOAN" has the meaning set forth in SECTION 2.3.
"TRADE SECRETS" means all trade secrets of Borrower
designated as such by Borrower, in good faith, including software and
technology, know-how, labeling plates, product designs, formulas and
processes, other information regarding the design or manufacture of golf club
shafts licensed to, or acquired or developed by, Borrower in the ordinary
course of Borrower's business, customer and supplier lists, pricing and cost
information, business and marketing plans, and other confidential business
information, in each event owned, used, or licensed by Borrower.
"VOIDABLE TRANSFER" has the meaning set forth in SECTION
15.8.
1.2 ACCOUNTING TERMS. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP. When used herein,
the term "financial statements" shall include the notes and schedules
thereto. Whenever the term "Borrower" is used in respect of a financial
covenant or a related definition, it shall be understood to mean Borrower on
a consolidated basis unless the context clearly requires otherwise.
1.3 CODE. Any terms used in this Agreement that are defined in
the Code shall be construed and defined as set forth in the Code unless
otherwise defined herein; provided, that all terms used in this Agreement to
define and describe Collateral with reference to provisions of the Code shall
include (i) all such types and categories of collateral which are included in
the meanings of such terms under the Code in effect as of the date of this
Agreement, and (ii) all such additional types and categories of collateral
which may be added to the definitions and scope of such terms by subsequent
amendments of the Code.
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1.4 CONSTRUCTION. Unless the context of this Agreement clearly
requires otherwise, references to the plural include the singular, references
to the singular include 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. An Event of
Default shall "continue" or be "continuing" until such Event of Default has
been waived in writing by Foothill or cured as expressly permitted under the
Loan Documents. Section, subsection, clause, schedule, and exhibit
references are to this Agreement unless otherwise specified. Any reference
in this Agreement or in the Loan Documents to this Agreement or any of the
Loan Documents shall include all alterations, amendments, changes,
extensions, modifications, renewals, replacements, substitutions, and
supplements, thereto and thereof, as applicable.
1.5 SCHEDULES AND EXHIBITS. All of the schedules and exhibits
attached to this Agreement shall be deemed incorporated herein by reference.
2. LOAN AND TERMS OF PAYMENT.
2.1 REVOLVING ADVANCES.
(a) Subject to the terms and conditions of this
Agreement, Foothill agrees to make advances ("Advances") to Borrower in an
amount outstanding not to exceed at any one time the lesser of (i) the
Maximum Revolving Amount LESS the Letter of Credit Usage, and (ii) the
Borrowing Base LESS (A) the Letter of Credit Usage (excluding Inventory
Letters of Credit), LESS (B) 100% of the aggregate amount of all undrawn or
unreimbursed Inventory Letters of Credit, LESS (C) the aggregate amount of
the Inventory Reserves. For purposes of this Agreement, "Borrowing Base," as
of any date of determination, shall mean the result of:
(x) THE LESSER OF (i) the sum of (A) 85% of Eligible
Accounts other than Dated Receivables and (B) the lesser of (1)
$1,000,000 and (2) 85% of Dated Receivables which are Eligible
Accounts, after deducting from said total the amount, if any, of the
Dilution Reserve, and (ii) an amount equal to Borrower's Collections
with respect to Accounts for the immediately preceding 60 day
period, PLUS
(y) the lowest of (i) $6,500,000, (ii) the sum of
the following amounts based on values of the following Eligible
Inventory: (A) 25% of the value of all raw materials for prepreg
materials, (B) 35% of the value of all fabricated prepreg materials,
and (C) 65% of the value of all finished golf club shafts, (iii) 80%
of the Liquidation Value of Eligible Inventory, and (iv) 100% of the
amount of credit availability computed in accordance with
CLAUSE 2.1(a)(x) above, MINUS the Inventory Reserves, MINUS
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(z) the aggregate amount of reserves, if any,
established by Foothill under SECTION 2.1(b).
(b) Anything to the contrary in this Section 2.1
notwithstanding, Foothill shall have the right to establish reserves (without
duplication) in such amounts, and with respect to such matters, as Foothill
in its Permitted Discretion shall deem necessary or appropriate, against the
Borrowing Base, including reserves with respect to (i) unreconciled variances
in Borrower's Accounts with respect to Borrower's general ledger, (ii) sums
that Borrower is required to pay (such as taxes, assessments, insurance
premiums, or, in the case of leased assets, rents or other amounts payable
under such leases) and have failed to pay under any Section of this Agreement
or any other Loan Document, and (iii) amounts owing by Borrower to any Person
to the extent secured by a Lien on, or trust over, any of the Collateral,
which Lien or trust, in the reasonable determination of Lender (from the
perspective of an asset-based lender), would be likely to have a priority
superior to the Liens of Foothill (such as landlord liens, ad valorem taxes,
or sales or excise taxes where given priority under applicable law) in and to
such item of the Collateral.
(c) Foothill shall have no obligation to make Advances
hereunder to the extent they would cause the outstanding Obligations (other
than under the Term Loan) to exceed the Maximum Revolving Amount.
(d) Amounts borrowed pursuant to this SECTION 2.1 may be
repaid and, subject to the terms and conditions of this Agreement, reborrowed
at any time during the term of this Agreement.
2.2 LETTERS OF CREDIT.
(a) Subject to the terms and conditions of this
Agreement, Foothill agrees to issue letters of credit for the account of
Borrower (each, an "L/C") or to issue guarantees of payment (each such
guaranty, an "L/C Guaranty") with respect to letters of credit issued by an
issuing bank for the account of Borrower. Foothill shall have no obligation
to issue a Letter of Credit if, immediately thereafter, any of the following
would result:
(i) the sum of 100% of the aggregate amount of all
undrawn and unreimbursed Inventory Letters of Credit PLUS 100% of
the aggregate amount of all other types of undrawn and unreimbursed
Letters of Credit, would exceed the Borrowing Base LESS the amount
of outstanding Advances; or
(ii) the aggregate amount of all undrawn or
unreimbursed Letters of Credit (including Inventory Letters of
Credit) would exceed the lower of: (x) the Maximum Revolving Amount
LESS the amount of outstanding Advances, and (y) the sum of
$2,000,000; or
(iii) the outstanding Obligations (other than under
the Term Loan) would exceed the Maximum Revolving Amount.
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Borrower expressly understands and agrees that Foothill shall have no
obligation to arrange for the issuance by issuing banks of the letters of
credit that are to be the subject of L/C Guarantees. Borrower and Foothill
acknowledge and agree that certain of the letters of credit that are to be
the subject of L/C Guarantees may be outstanding on the Closing Date. Each
Letter of Credit shall have an expiry date no later than 14 days prior to the
date on which this Agreement is scheduled to terminate under SECTION 3.4
(without regard to any potential renewal term) and all such Letters of Credit
shall be in form and substance acceptable to Foothill in its sole discretion.
If Foothill is obligated to advance funds under a Letter of Credit, Borrower
immediately shall reimburse such amount to Foothill and, in the absence of
such reimbursement, the amount so advanced immediately and automatically
shall be deemed to be an Advance hereunder and, thereafter, shall bear
interest at the rate then applicable to Advances under SECTION 2.6.
(b) Borrower hereby agrees to indemnify, save, defend,
and hold Foothill harmless from any loss, cost, expense, or liability,
including payments made by Foothill, expenses, and reasonable attorneys fees
incurred by Foothill arising directly out of or in connection with any Letter
of Credit other than by virtue of Foothill's gross negligence or wilful
misconduct. Borrower agrees to be bound by the issuing bank's regulations and
interpretations of any Letters of Credit guarantied by Foothill and opened to
or for Borrower's account or by Foothill's interpretations (in its Permitted
Discretion) of any L/C issued by Foothill to or for Borrower's account, even
though this interpretation may be different from Borrower's own, and Borrower
understands and agrees that Foothill shall not be liable for any negligence,
(other than gross negligence) whether of omission or commission, in following
Borrower's instructions or those contained in the Letter of Credit or any
modifications, amendments, or supplements thereto. Borrower understands that
the L/C Guarantees may require Foothill to indemnify the issuing bank for
certain costs or liabilities arising out of claims by Borrower against such
issuing bank. Borrower hereby agrees to indemnify, save, defend, and hold
Foothill harmless with respect to any loss, cost, or expense (including
reasonable attorneys fees), or liability incurred by Foothill under any L/C
Guaranty as a result of Foothill's indemnification of any such issuing bank.
(c) Borrower hereby authorizes and directs any bank that
issues a letter of credit guaranteed by Foothill to deliver to Foothill all
instruments, documents, and other writings and property received by the
issuing bank pursuant to such letter of credit, and to accept and rely upon
Foothill's instructions and agreements with respect to all matters arising in
connection with such letter of credit and the related application. Borrower
may or may not be the "applicant" or "account party" with respect to such
letter of credit.
(d) Any and all charges, commissions, fees, and costs
incurred by Foothill directly relating to the letters of credit guaranteed by
Foothill shall be considered Foothill Expenses for purposes of this Agreement
and immediately shall be reimbursable by Borrower to Foothill.
(e) Immediately upon the termination of this Agreement,
with respect to each outstanding Letter of Credit, Borrower agrees to either
(i) provide cash collateral to be
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held by Foothill in an amount equal to 102% of the maximum amount of
Foothill's obligations under such outstanding Letter of Credit, or (ii) cause
to be surrendered to Foothill the originals of such outstanding Letter of
Credit and to be delivered to Foothill releases of all of Foothill's
obligations under such outstanding Letter of Credit. At Foothill's
discretion, any proceeds of Collateral received by Foothill after the
occurrence and during the continuation of an Event of Default may be held as
the cash collateral required by this SECTION 2.2(e).
(f) If by reason of (i) any change in any applicable
law, treaty, rule, or regulation or any change in the interpretation or
application by any Governmental Authority of any such applicable law, treaty,
rule, or regulation, or (ii) compliance by the issuing bank or Foothill with
any direction, request, or requirement (irrespective of whether having the
force of law) of any Governmental Authority or monetary authority including,
without limitation, Regulation D of the Board of Governors of the Federal
Reserve System as from time to time in effect (and any successor thereto):
(A) any reserve, deposit, or similar requirement
is or shall be imposed or modified in respect of any Letters of Credit issued
hereunder, or
(B) there shall be imposed on the issuing bank or
Foothill any other condition regarding any letter of credit, or Letter of
Credit, as applicable, issued pursuant hereto;
and the result of the foregoing is to increase, directly or indirectly, the
cost to the issuing bank or Foothill of issuing, making, guaranteeing, or
maintaining any letter of credit, or Letter of Credit, as applicable, or to
reduce the amount receivable in respect thereof by such issuing bank or
Foothill, then, and in any such case, Foothill may, at any time within a
reasonable period after the additional cost is incurred or the amount
received is reduced, notify Borrower, and Borrower shall pay on demand such
amounts as the issuing bank or Foothill may specify to be necessary to
compensate the issuing bank or Foothill for such additional cost or reduced
receipt, together with interest on such amount from the date of such demand
until payment in full thereof at the rate set forth in SECTION 2.6(a)(i) OR
(c)(i), as applicable. The determination by the issuing bank or Foothill, as
the case may be, of any amount due pursuant to this SECTION 2.2(f), as set
forth in a certificate setting forth the calculation thereof in reasonable
detail, shall, in the absence of manifest or demonstrable error, be final and
conclusive and binding on all of the parties hereto.
2.3 TERM LOAN. Foothill has agreed to make a term loan (the
"Term Loan") to Borrower in the original principal amount not to exceed the
lesser of (a) $4,000,000, (b) a sum equal to 80% of the Liquidation Value of
the Equipment as determined by Foothill at the time the Term Loan is funded,
and (c) the Maximum Amount MINUS all Advances made pursuant to Section 2.1,
MINUS the Letter of Credit Usage. Prior to the Termination Date, the Term
Loan shall be repaid in equal monthly installments of principal, each equal
to one-sixtieth (1/60th) of the original principal amount of the Term Loan.
Each such installment shall be due and payable on the first day of each month
commencing on the first day of the first month following the date the Term
Loan is funded, and continuing on the first day of each succeeding month
until the earlier of (i) the date on which the unpaid principal balance of
the Term Loan is repaid in full,
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and (ii) the Renewal Date (as defined in SECTION 3.4 below), at which time
the unpaid principal balance of the Term Loan and all accrued unpaid interest
thereon shall be immediately due and payable, without notice or demand. The
outstanding principal balance and all accrued and unpaid interest under the
Term Loan shall be due and payable upon the termination of this Agreement,
whether by its terms, by prepayment, by acceleration, or otherwise. The
unpaid principal balance of the Term Loan may be prepaid in whole or in part
without penalty or premium at any time during the term of this Agreement upon
30 days prior written notice by Borrower to Foothill, all such prepaid
amounts to be applied to the installments due on the Term Loan in the inverse
order of their maturity, subject to the provisions of SECTION 3.6 of this
Agreement. All amounts outstanding under the Term Loan shall constitute
Obligations.
2.4 [INTENTIONALLY OMITTED]
2.5 OVERADVANCES. If, at any time or for any reason, the
amount of Obligations owed by Borrower to Foothill pursuant to SECTIONS 2.1
AND 2.2 is greater than either the Dollar or percentage limitations set forth
in SECTIONS 2.1 OR 2.2 (an "Overadvance"), Borrower immediately shall pay to
Foothill, in cash, the amount of such excess to be used by Foothill first, to
repay Advances outstanding under SECTION 2.1 and, thereafter, to be held by
Foothill as cash collateral to secure Borrower's obligation to repay Foothill
for all amounts paid pursuant to Letters of Credit.
2.6 INTEREST AND LETTER OF CREDIT FEES: RATES, PAYMENTS, AND
CALCULATIONS.
(a) INTEREST RATE. Except as provided in clause (c)
below: (i) all Obligations (except for undrawn and unreimbursed Letters of
Credit and the Term Loan) shall bear interest as follows: (A) Each
Eurodollar Rate Loan shall bear interest at a per annum rate of 2.5
percentage points (2.5%) above the Adjusted Eurodollar Rate, and (B) all
other such Obligations shall bear interest at a per annum rate equal to the
Reference Rate; and (ii) the unpaid principal balance of the Term Loan shall
bear interest at a per annum rate, at Borrower's option (to be exercised
prior to the funding of the Term Loan in accordance with the provisions of
SECTION 2.12 below), equal to 3.0 percentage points (3%) above the Adjusted
Eurodollar Rate, or 0.75 percentage points (0.75%) above the Reference Rate.
(b) LETTER OF CREDIT FEE. Borrower shall pay Foothill a
fee (in addition to the charges, commissions, fees, and costs set forth in
SECTION 2.2(d)) equal to 1.5% per annum times the average Daily Balance of
the aggregate undrawn amount of all outstanding Letters of Credit during the
immediately preceding month. It is understood that Letter of Credit fees do
not constitute interest for purposes of this Agreement.
(c) DEFAULT RATE. Upon the occurrence and during the
continuation of an Event of Default, (i) all Obligations (except for undrawn
Letters of Credit and the Term Loan) shall bear interest at a per annum rate
equal to 2 percentage points above the Reference Rate, (ii) the Term Loan
shall bear interest at a per annum rate equal to 2.75 percentage points above
the Reference Rate, and (iii) the Letter of Credit fee provided in SECTION
2.6(b) shall be increased to
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3.5% per annum times the amount of the undrawn Letters of Credit that were
outstanding during the immediately preceding month.
(d) MINIMUM INTEREST. In no event shall the rate of
interest chargeable hereunder for any day be less than 7% per annum. To the
extent that interest accrued hereunder at the rate set forth herein would be
less than the forgoing minimum daily rate, the interest rate chargeable
hereunder for such day automatically shall be deemed increased to the minimum
rate. To the extent that interest accrued hereunder at the rate set forth
herein (including the minimum interest rate) would yield less than the
foregoing minimum amount, the interest rate chargeable hereunder for the
period in question automatically shall be deemed increased to that rate that
would result in the minimum amount of interest being accrued and payable
hereunder.
(e) PAYMENTS. Interest and Letter of Credit fees
payable hereunder shall be due and payable, in arrears, on the first day of
each month during the term hereof. Borrower hereby authorizes Foothill, at
its option, without prior notice to Borrower, to charge such interest and
Letter of Credit fees, all Foothill Expenses (as and when incurred), the
charges, commissions, fees, and costs provided for in SECTION 2.2(d) (as and
when accrued or incurred), the fees and charges provided for in SECTION 2.11
(as and when accrued or incurred), and all installments or other payments due
under the Term Loan, or any Loan Document to Borrower's Loan Account, which
amounts thereafter shall accrue interest at the rate then applicable to
Advances hereunder. Any interest not paid when due shall be compounded and
shall thereafter accrue interest at the rate then applicable to Advances
hereunder.
(f) COMPUTATION. The Reference Rate as of the date of
this Agreement is 8.0% per annum. In the event the Reference Rate is changed
from time to time hereafter, the applicable rate of interest hereunder
automatically and immediately shall be increased or decreased by an amount
equal to such change in the Reference Rate. All interest and fees chargeable
under the Loan Documents shall be computed on the basis of a 360 day year for
the actual number of days elapsed.
(g) INTENT TO LIMIT CHARGES TO MAXIMUM LAWFUL RATE. In
no event shall the interest rate or rates payable under this Agreement, plus
any other amounts paid in connection herewith, exceed the highest rate
permissible under any law that a court of competent jurisdiction shall, in a
final determination, deem applicable. Borrower and Foothill, in executing
and delivering this Agreement, intend legally to agree upon the rate or rates
of interest and manner of payment stated within it; PROVIDED, HOWEVER, that,
anything contained herein to the contrary notwithstanding, if said rate or
rates of interest or manner of payment exceeds the maximum allowable under
applicable law, then, IPSO FACTO as of the date of this Agreement, Borrower
is and shall be liable only for the payment of such maximum as allowed by
law, and payment received from Borrower in excess of such legal maximum,
whenever received, shall be applied to reduce the principal balance of the
Obligations to the extent of such excess.
2.7 COLLECTION OF ACCOUNTS. Borrower shall at all times
maintain lockboxes (the "Lockboxes") and, immediately after the Closing Date,
shall instruct all Account Debtors with respect to the Accounts, General
Intangibles, and Negotiable Collateral of Borrower to remit
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ALL Collections in respect thereof to such Lockboxes. Borrower, Foothill,
and the Lockbox Banks shall enter into the Lockbox Agreements, which among
other things shall provide for the opening of a Lockbox Account for the
deposit of Collections at a Lockbox Bank. Borrower agrees that all
Collections and other amounts received by Borrower from any Account Debtor or
any other source with respect to the Collateral immediately upon receipt
shall be deposited into a Lockbox Account. No Lockbox Agreement or
arrangement contemplated thereby shall be modified by Borrower without the
prior written consent of Foothill. Upon the terms and subject to the
conditions set forth in the Lockbox Agreements, all amounts received in each
Lockbox Account shall be wired each Business Day into an account of Borrower
(the "Foothill Account") maintained by Foothill at a depositary selected by
Foothill. So long as no Event of Default has occurred or is continuing,
Foothill will promptly remit to the Designated Account the amount by which
all amounts received in the Foothill Account exceed the amount of the
Obligations hereunder.
2.8 CREDITING PAYMENTS; APPLICATION OF COLLECTIONS. The
receipt of any Collections by Foothill (whether from transfers to Foothill by
the Lockbox Banks pursuant to the Lockbox Agreements or otherwise)
immediately shall be applied provisionally to reduce the Obligations
outstanding under SECTION 2.1, but shall not be considered a payment on
account unless such Collection item is a wire transfer of immediately
available federal funds and is made to the Foothill Account or unless and
until such Collection item is honored when presented for payment. From and
after the Closing Date, Foothill shall be entitled to charge Borrower for one
(1) Business Day of "clearance" or "float" at the rate set forth in SECTION
2.6(a)(i) or SECTION 2.6(c)(i), as applicable, on all Collections that are
received by Foothill (regardless of whether forwarded by the Lockbox Banks to
Foothill, whether provisionally applied to reduce the Obligations under
SECTION 2.1, or otherwise). This across-the-board one (1) Business Day
clearance or float charge on all Collections is acknowledged by the parties
to constitute an integral aspect of the pricing of Foothill's financing of
Borrower, and shall apply irrespective of the characterization of whether
receipts are owned by Borrower or Foothill, and whether or not there are any
outstanding Advances, the effect of such clearance or float charge being the
equivalent of charging one (1) Business Day of interest on such Collections.
Should any Collection item not be honored when presented for payment, then
Borrower shall be deemed not to have made such payment, and interest shall be
recalculated accordingly. Anything to the contrary contained herein
notwithstanding, any Collection item shall be deemed received by Foothill
only if it is received into the Foothill Account on a Business Day on or
before 11:00 a.m. California time. If any Collection item is received into
the Foothill Account on a non-Business Day or after 11:00 a.m. California
time on a Business Day, it shall be deemed to have been received by Foothill
as of the opening of business on the immediately following Business Day.
2.9 DESIGNATED ACCOUNT. Foothill is authorized to make the
Advances, the Letters of Credit and the Term Loan under this Agreement based
upon telephonic or other instructions received from anyone purporting to be
an Authorized Person, or without instructions if pursuant to SECTION 2.6(e).
Borrower agrees to establish and maintain the Designated Account with the
Designated Account Bank for the purpose of receiving the proceeds of the
Advances requested by Borrower and made by Foothill hereunder. Unless
otherwise agreed by Foothill and
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Borrower, in writing, any Advance requested by Borrower and made by Foothill
hereunder shall be made to the Designated Account.
2.10 MAINTENANCE OF LOAN ACCOUNT; STATEMENTS OF OBLIGATIONS.
Foothill shall maintain an account on its books in the name of Borrower (the
"Loan Account") on which Borrower will be charged with all Advances and the
Term Loan made by Foothill to Borrower or for Borrower's account, including,
accrued interest, Foothill Expenses, and any other payment Obligations of
Borrower. In accordance with SECTION 2.8, the Loan Account will be credited
with all payments received by Foothill from Borrower or for Borrower's
account, including all amounts received in the Foothill Account from any
Lockbox Bank. Foothill shall render statements regarding the Loan Account to
Borrower, including principal, interest, fees, and including an itemization
of all charges and expenses constituting Foothill Expenses owing, and such
statements shall be conclusively presumed to be correct and accurate and
constitute an account stated between Borrower and Foothill unless, within 30
days after receipt thereof by Borrower, Borrower shall deliver to Foothill
written objection thereto describing the error or errors contained in any
such statements.
2.11 FEES. Borrower shall pay to Foothill the following fees:
(a) FACILITY FEE. Foothill shall be entitled to receive
the Facility Fee which shall be (i) be deemed fully earned by Foothill upon
and as of the Closing Date, and (ii) shall be due and payable in one (1)
installment of $37,500 on the Closing Date and two (2) installments of
$18,750 each on each anniversary of the Closing Date;
(b) UNUSED LINE FEE. On the first day of each month
during the term of this Agreement, an unused line fee in an amount equal to
0.25% per annum times the Average Unused Portion of the Maximum Amount.
(c) [Intentionally Omitted]
(d) FINANCIAL EXAMINATION, DOCUMENTATION, AND APPRAISAL
FEES. Foothill's customary fee of $750 per day per examiner, plus
out-of-pocket expenses for each financial analysis and examination (i.e.,
audits) of Borrower performed by personnel employed by Foothill; Foothill's
customary appraisal fee of $1,500 per day per appraiser, plus out-of-pocket
expenses for each appraisal of the Collateral performed by personnel employed
by Foothill; and, the actual charges paid or incurred by Foothill if it
elects to employ the services of one or more third Persons to perform such
financial analyses and examinations (i.e., audits) of Borrower or to appraise
the Collateral, provided, however, that so long as no Event of Default has
occurred or is continuing, Borrower shall not be required to pay the expenses
of more than 1 standard appraisal of the Collateral (requiring physical
inspection of the Collateral) and 1 desktop appraisal (performed without
physical inspection of the Collateral), and the number of such audits
conducted at Borrower's premises shall not exceed 4 per year (each 12 month
period ending on the anniversary of the Closing Date; and
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(e) COLLATERAL MAINTENANCE FEE. On the first day of
each month during the term of this Agreement, and thereafter so long as any
Obligations are outstanding, a collateral maintenance fee in an amount equal
to $2,500 ($1,500 if Borrower uses electronic reporting in accordance with
Foothill's requirements).
2.12 EURODOLLAR RATE LOANS. Any other provisions herein to the
contrary notwithstanding, the following provisions shall govern with respect
to Eurodollar Rate Loans as to the matters covered:
(a) BORROWING; CONVERSION; CONTINUATION. Borrower may
from time to time, on or after the Closing Date, request in a written or
telephonic communication with Foothill: (i) Advances to constitute Eurodollar
Rate Loans (pursuant to SECTION 2.1(c)); (ii) that Reference Rate Loans be
converted into Eurodollar Rate Loans; or (iii) that existing Eurodollar Rate
Loans continue for an additional Interest Period. Any such request shall
specify the aggregate amount of the requested Eurodollar Rate Loans, the
proposed funding date therefor (which shall be a Business Day, and with
respect to continued Eurodollar Rate Loans shall be the last day of the
Interest Period of the existing Eurodollar Rate Loans being continued), and
the proposed Interest Period, in each case subject to the limitations set
forth below). Eurodollar Rate Loans may only be made, continued, or extended
if, as of the proposed funding date therefor each of the following conditions
is satisfied:
(v) no Event of Default exists;
(w) no more than five Interest Periods may be in
effect at any one time;
(x) the amount of each Eurodollar Rate Loan
borrowed, converted, or continued must be in an amount not less than
$200,000 and integral multiples of $100,000 in excess thereof;
(y) Foothill shall have determined that the Interest
Period or Adjusted Eurodollar Rate is available to Foothill and can
be readily determined as of the date of the request for such
Eurodollar Rate Loan by Borrower; and
(z) Foothill shall have received such request at
least two Business Days prior to the proposed funding date therefor.
Any request by Borrower to borrower Eurodollar Rate Loans, to
convert Reference Rate Loans to Eurodollar Rate Loans, or to continue any
existing Eurodollar Rate Loans shall be irrevocable, except to the extent
that Foothill shall determine under SECTIONS 2.12(a), 2.13 OR 2.14 that such
Eurodollar Rate Loans cannot be made or continued.
(b) DETERMINATION OF INTEREST PERIOD. By giving notice
as set forth in SECTION 2.12(a), the Borrower shall have the option of
selecting a one-, two-, three- or six-month
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Interest Period for such Eurodollar Rate Loan. The determination of Interest
Periods shall be subject to the following provisions:
(i) in the case of immediately successive Interest
Periods, each successive Interest Period shall commence on the day
on which the next preceding Interest Period expires;
(ii) if any Interest Period would otherwise expire on
a day which is not a Business Day, the Interest Period shall be
extended to expire on the next succeeding Business Day unless such
Business Day occurs in the following calendar month, then such
Interest Period shall expire on the immediately preceding Business
Day;
(iii) if any Interest Period begins on the last
Business Day of a month, or on a day for which there is no
numerically corresponding day in the calendar month at the end of
such Interest Period, then the Interest Period shall end on the last
Business Day of the calendar month at the end of such Interest
Period; and
(iv) the Borrower may not select an Interest Period,
which expires later than the Renewal Date (as defined in Section 3.4
below) or any anniversary date thereafter to which the term of this
Agreement may be extended.
(c) AUTOMATIC CONVERSION; OPTIONAL CONVERSION BY
FOOTHILL. Any Eurodollar Rate Loan shall automatically convert to a Reference
Rate Loan upon the last day of the applicable Interest Period, unless
Foothill has received a request to continue such Eurodollar Rate Loan at
least two Business Days prior to the end of such Interest Period in
accordance with the terms of SECTION 2.12(a).
2.13 ILLEGALITY. Any other provision herein to the contrary
notwithstanding, if the adoption of or any change in any Requirement of Law
or in the interpretation or application thereof shall make it unlawful for
Foothill to make or maintain Eurodollar Rate Loans as contemplated by this
Agreement, (a) the obligation of Foothill hereunder to make Eurodollar Rate
Loans, continue Eurodollar Rate Loans as such, and convert Reference Rate
Loans to Eurodollar Rate Loans shall forthwith be suspended and (b)
Foothill's then outstanding Eurodollar Rate Loans, if any, shall be converted
automatically to Reference Rate Loans on the respective last days of the then
current Interest Periods with respect thereto or within such earlier period
as required by law; PROVIDED, HOWEVER, that before making any such demand,
Foothill agrees to use reasonable efforts (consistent with its internal
policy and legal and regulatory restrictions and so long as such efforts
would not be disadvantageous to it, in its Permitted Discretion, in any
legal, economic, or regulatory manner) to designate a different lending
office if the making of such a designation would allow Foothill or its
lending office to continue to perform its obligations to make Eurodollar Rate
Loans or to continue to fund or maintain Eurodollar Rate Loans and avoid the
need for, or materially reduce the amount of, such increased cost. If any
such conversion of a Eurodollar Rate Loan occurs on a day which is not the
last day
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of the then current Interest Period with respect thereto, the
Borrower shall pay to such Lender such amounts, if any, as may be required
pursuant to SECTION 2.16. If circumstances subsequently change so that
Foothill shall determine that it is no longer so affected, Foothill will
promptly notify Borrower, and upon receipt of such notice, the obligations of
Foothill to make or continue Eurodollar Rate Loans or to convert Reference
Rate Loans into Eurodollar Rate Loans shall be reinstated.
2.14 REQUIREMENTS OF LAW. (a) If the adoption of or any change in
any Requirement of Law or in the interpretation or application thereof or
compliance by Foothill with any request or directive (whether or not having the
force of law) from any central bank or other Governmental Authority made
subsequent to the date hereof
(i) shall subject Foothill to any tax, levy, charge,
fee, reduction, or withholding of any kind whatsoever with respect
to this Agreement or any Advance, or change the basis of taxation of
payments to Foothill in respect thereof (except for taxes covered by
SECTION 2.15 and the establishment of a tax based on the net income
of Foothill or changes in the rate of tax on the net income of
Foothill);
(ii) shall impose, modify or hold applicable any
reserve, special deposit, compulsory loan, or similar requirement
against assets held by, deposits or other liabilities in or for the
account of, Advances or other extensions of credit by, or any other
acquisition of funds by, any office of Foothill; or
(iii) shall impose on Foothill any other condition
with respect to this Agreement or any Advance;
and the result of any of the foregoing is to increase the cost to Foothill,
by an amount which Foothill reasonably deems to be material, of making,
converting into, continuing, or maintaining Advances, or to reduce any amount
receivable hereunder in respect of Advances, or to forego any other sum
payable thereunder or make any payment on account thereof, then, in any such
case, Borrower shall promptly pay Foothill, upon its demand, any additional
amounts necessary to compensate Foothill for such increased cost or reduced
amount receivable; PROVIDED, HOWEVER, that before making any such demand,
Foothill agrees to use reasonable efforts (consistent with its internal
policy and legal and regulatory restrictions and so long as such efforts
would not be disadvantageous to it, in its Permitted Discretion, in any
legal, economic, or regulatory manner) to designate a different Eurodollar
lending office if the making of such designation would allow Foothill or its
Eurodollar lending office to continue to perform its obligations to make
Eurodollar Rate Loans or to continue to fund or maintain Eurodollar Rate
Loans and avoid the need for, or materially reduce the amount of, such
increased cost. If Foothill becomes entitled to claim any additional amounts
pursuant to this SECTION 2.14, Foothill shall promptly notify Borrower of the
event by reason of which it has become so entitled. A certificate as to any
additional amounts payable pursuant to this SECTION 2.14 submitted by
Foothill to Borrower shall be conclusive in the absence of manifest or
demonstrable error. If Borrower so notifies Foothill within 5 Business Days
after Foothill notifies Borrower of any increased cost pursuant to the
foregoing provisions
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of this SECTION 2.14, Borrower may convert all Eurodollar Rate Loans then
outstanding into Reference Rate Loans in accordance with SECTION 2.12 and,
additionally, reimburse Foothill for any cost in accordance with SECTION
2.16. This covenant shall survive the termination of this Agreement and the
payment of the Advances and all other amounts payable hereunder for nine
months following such termination and repayment.
(b) If Foothill shall have determined, in its Permitted
Discretion, that the adoption of or any change in any Requirement of Law
regarding capital adequacy or in the interpretation or application thereof or
compliance by Foothill or any Person controlling Foothill with any request or
directive regarding capital adequacy (whether or not having the force of law)
from any Governmental Authority made subsequent to the date hereof does or
shall have the effect of increasing the amount of capital required to be
maintained or reducing the rate of return on Foothill's or such Person's
capital as a consequence of its obligations hereunder to a level below that
which such Foothill or such Person could have achieved but for such change or
compliance (taking into consideration Foothill's or such Person's policies
with respect to capital adequacy) by an amount deemed by Foothill to be
material, then from time to time, after submission by Foothill to Borrower of
a prompt written request therefor, Borrower shall pay to Foothill such
additional amount or amounts as will compensate Foothill or such Person for
such reduction. This covenant shall survive the termination of this
Agreement and the payment of the Advances and all other amount payable
hereunder for nine months following such termination and repayment.
2.15 TAXES. (a) Except as provided below in this SECTION 2.15,
all payments made by Borrower under this Agreement and any other Loan
Documents shall be made free and clear of, and without deduction or
withholding for or on account of, any present or future income, stamp or
other taxes, levies, imposts, duties, charges, fees, deductions, or
withholdings, now or hereafter imposed, levied, collected, withheld, or
assessed by any Governmental Authority, excluding net income taxes and
franchise taxes imposed in lieu of net income taxes. If any such
non-excluded taxes, levies, imposts, duties, charges, fees, deductions or
withholdings ("Non-Excluded Taxes") are required to be withheld from any
amounts payable to Foothill hereunder or under any other Loan Documents, the
amounts so payable to Foothill shall be increased to the extent necessary to
yield to Foothill (after payment of all Non-Excluded Taxes) interest or any
such other amounts payable hereunder at the rates or in the amounts specified
in this Agreement and any other Loan Documents, PROVIDED, HOWEVER, that
Borrower shall be entitled to deduct and withhold any Non-Excluded Taxes and
shall not be required to increase any such amounts payable to Foothill if
Foothill fails or is unable to comply with the requirements of paragraph (b)
of this SECTION 2.15. Whenever any Non-Excluded Taxes are payable by
Borrower, as promptly as possible thereafter Borrower shall send to Foothill
a certified copy of an original official receipt received by Borrower showing
payment thereof. If Borrower fails to pay any Non-Excluded Taxes when due to
the appropriate taxing authority or fails to remit to Foothill the required
receipts or other required documentary evidence, Borrower shall indemnify
Foothill for any incremental taxes, interest or penalties that may become
payable by Foothill as a result of any such failure. The agreements in this
SECTION 2.15 shall survive the termination of this Agreement and the payment
of the Advances and all other amounts payable hereunder.
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(b) Any Participant or assignee of Foothill that is not
incorporated under the laws of the United States of America or a state
thereof (any such Person, a "Foreign Lender") shall:
(i) (x) on or before the date of any payment by
Borrower under this Agreement to such Foreign Lender, deliver to Borrower and
Foothill (A) two duly completed copies of United States Internal Revenue
Service Form 1001 or 4224, or successor applicable form, as the case may be,
certifying that it is entitled to receive payments under this Agreement
without any deduction or withholding of any United States federal income
taxes and (B) a duly completed Internal Revenue Service Form W-8 or W-9, or
successor applicable form, as the case may be, certifying that it is entitled
to an exemption from United States backup withholding tax;
(y) deliver to Borrower and Foothill two
further copies of any such form or certification on or before the date that
any such form or certification expires or becomes obsolete and after the
occurrence of any event requiring a change in the most recent form previously
delivered by it to Borrower, and
(z) obtain such extensions of time for filing
and complete such forms or certifications as may reasonably be required by
Borrower or Foothill; or
(ii) in the case of any such Foreign Lender that is
not a "bank" within the meaning of Section 881(c)(3)(A) of the IRC and that
does not comply with subparagraph (i) of this paragraph (b),
(x) represent to Borrower (for the benefit of
Borrower and Foothill) that it is not a bank within the meaning of Section
881(c)(3)(A) of the IRC,
(y) deliver to Borrower on or before the date
of any payment by Borrower, with a copy to Foothill: (1) a certificate
stating that such Foreign Lender (A) is not a "bank" under Section
881(c)(3)(A) of the IRC, is not subject to regulatory or other legal
requirements as a bank in any jurisdiction, and has not been treated as a
bank for purposes of any tax, securities law, or other filing or submission
made to any Governmental Authority, any application made to a rating agency
or qualification for any exemption from tax, securities law or other legal
requirements, (B) is not a 10-percent shareholder within the meaning of
Section 881(c)(3)(B) of the IRC, and (C) is not a controlled foreign
corporation receiving interest from a related person within the meaning of
Section 881(c)(3)(C) of the IRC (any such certificate a "U.S. TAX COMPLIANCE
CERTIFICATE"); and (2) two duly completed copies of Internal Revenue Service
From W-8, or successor applicable form, certifying to such Foreign Lender's
legal entitlement at the date of such certificate to an exemption from U.S.
withholding tax under the provisions of Section 881(c) of the IRC with
respect to payments to be made under this Agreement (and to deliver to
Borrower and Foothill two further copies of Form W-8 on or before the date it
expires or becomes obsolete and after the occurrence of any event requiring a
change in the most recently provided form and, if necessary, obtain any
extensions of time reasonably requested by Borrower or Foothill for filing
and completing such forms), and
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(z) agree, to the extent legally entitled to
do so, upon reasonable request by Borrower, to provide to Borrower (for the
benefit of Borrower and Foothill) such other forms as may be reasonably
required in order to establish the legal entitlement of such Foreign Lender
to an exemption from withholding with respect to payments under this
Agreement; unless in any such case any change in treaty, law, or regulation
has occurred after the date such Person becomes a Foreign Lender hereunder
which renders all such forms and certificates inapplicable or which would
prevent such Foreign Lender from duly completing and delivering any such form
or certificate with respect to it and such Foreign Lender so advises Borrower
and Foothill. Each Person that shall become an assignee or a Participant
shall, upon the effectiveness of the related transfer, be required to provide
all of the forms, certifications, and statements required pursuant to this
SECTION 2.15; PROVIDED, HOWEVER, that in the case of a Participant the
obligations of such Participant pursuant to this paragraph (b) shall be
determined as if such Participant were an assignee except that such
Participant shall furnish all such required forms, certifications, and
statements to Foothill.
(c) Foothill and each Foreign Lender shall, upon the
reasonable request by Borrower, deliver to Borrower or the applicable
Governmental Authority, as the case may be, any form or certificate required
in order that any payment by Borrower under this Agreement may be made free
and clear of, and without deduction or withholding for or on, Non-Excluded
Taxes (or to allow any such deduction or withholding to be at a reduced rate)
imposed on such payment under the laws of any jurisdiction, PROVIDED that
Foothill or such Foreign lender, as the case may be, is legally entitled to
complete, execute and deliver such form or certificate and such completion,
execution or submission would not materially prejudice the legal position of
Foothill or such Foreign Lender, as the case may be.
2.16 INDEMNITY. Borrower agrees to indemnify Foothill and to
hold Foothill harmless from any loss or expense which Foothill may sustain or
incur as a consequence of (a) default by Borrower in payment when due of the
principal amount of or interest on any Eurodollar Rate Loan, (b) default by
Borrower in making a borrowing of, conversion into, or continuation of
Eurodollar Rate Loans after Borrower has given a notice requesting the same
in accordance with the provisions of this Agreement, (c) default by Borrower
in making any prepayment after Borrower has given a notice thereof in
accordance with the provisions of this Agreement, or (d) the making of a
prepayment of Eurodollar Rate Loans on a day which is not the last day of an
Interest Period with respect thereto (whether due to the termination of this
Agreement upon an Event of Default or otherwise), including, in each case,
any such loss or expense (but excluding loss of margin) arising from the
reemployment of funds obtained by it or from fees payable to terminate the
deposits from which such funds were obtained. Calculation of all amounts
payable to Foothill under this SECTION 2.16 shall be made as though Foothill
had actually funded the relevant Eurodollar Rate Loan through the purchase of
a deposit bearing interest at the Eurodollar Rate in an amount equal to the
amount of such Eurodollar Rate Loan and having a maturity comparable to the
relevant Interest Period; PROVIDED, HOWEVER, that Foothill may fund each of
the Eurodollar Rate Loans in any manner it sees fit, and the foregoing
assumption shall be utilized only for the calculation of amounts payable
under this SECTION 2.16.
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This covenant shall survive the termination of this Agreement and the payment
of the Loans and all other amounts payable hereunder for a period of nine
months thereafter.
3. CONDITIONS; TERM OF AGREEMENT.
3.1 CONDITIONS PRECEDENT TO THE INITIAL ADVANCE, LETTER OF
CREDIT AND THE TERM LOAN. The obligation of Foothill to make the initial
Advance, to issue the initial Letter of Credit or to make the Term Loan is
subject to the fulfillment, to the satisfaction of Foothill and its counsel,
of each of the following conditions on or before the Closing Date:
(a) the Closing Date shall occur on or before July 22,
1999;
(b) Borrower and the Parent Company shall have executed
and delivered to Foothill UCC-1 financing statements covering the Collateral
in form sufficient to file with the Secretaries of State of the States of
California and Delaware, and Foothill shall have received searches reflecting
the filings of its financing statements and fixture filings with respect to
the Collateral;
(c) Foothill shall have received each of the following
documents, duly executed, and each such document shall be in full force and
effect:
a. the Lockbox Agreements;
b. the Disbursement Letter;
c. the Pay-Off Letter, together with UCC
termination statements and other documentation
evidencing the termination by Existing Lender of its
Liens in and to the properties and assets of Borrower;
d. the Borrower IP Security Agreement and related
documents;
e. the Parent IP Security Agreement and related
documents;
f. the Borrower Pledge and Security Agreement;
g. the Parent Pledge and Security Agreement;
(d) Foothill shall have received certificates from the
Secretaries of Borrower and of the Parent Company attesting to the
resolutions of the Boards of Directors of each corporation authorizing the
execution, delivery, and performance of the Loan Documents to which each such
corporation is a party and authorizing specific officers of such
corporations, respectively, to execute the same;
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(e) Foothill shall have received copies of Governing
Documents of Borrower and of the Parent Company, as amended, modified, or
supplemented to the Closing Date, certified by the Secretary of each
corporation;
(f) Foothill shall have received a certificate of status
with respect to Borrower and the Parent Company, dated within 10 days of the
Closing Date, such certificate to be issued by the appropriate officer of the
jurisdiction of organization of Borrower and Parent Company, which
certificate shall indicate that Borrower and Parent Company are in good
standing in such jurisdiction;
(g) Foothill shall have received certificates of status
with respect to Borrower and the Parent Company, each dated within 15 days of
the Closing Date, such certificates to be issued by the appropriate officer
of the jurisdictions in which its failure to be duly qualified or licensed
would constitute a Material Adverse Change, which certificates shall indicate
that Borrower and Parent Company are in good standing in such jurisdictions;
(h) Foothill shall have received a certificate of
insurance, together with the endorsements to policies of insurance therein
described, as are required by SECTION 6.10, the form and substance of which
shall be reasonably satisfactory to Foothill and its counsel;
(i) [Intentionally Omitted];
(j) Foothill shall have received such Collateral Access
Agreements or landlord waivers from lessors, warehousemen, bailees, and other
third persons as Foothill may require;
(k) Foothill shall have received an opinion of counsel
for Borrower and the Parent Company in the form of EXHIBIT "I" hereto;
(l) [Intentionally Omitted]
(m) [Intentionally Omitted]
(n) Foothill shall have received evidence reasonably
satisfactory to Foothill that all tax returns required to be filed by
Borrower have been timely filed and all taxes upon Borrower or its
properties, assets, income, and franchises (including real property taxes and
payroll taxes) have been paid prior to delinquency, except such taxes that
are the subject of a Permitted Protest;
(o) Foothill shall have received satisfactory evidence,
and shall have determined in its Permitted Discretion, that, immediately
after the initial Advance hereunder, Borrower's Availability hereunder shall
be no less than $3,000,000;
(p) With respect to the Term Loan, Foothill shall have
received thirty (30) days' prior written notice of Borrower's request for a
Term Loan within which to (1) obtain an appraisal of all Equipment, (2)
complete Foothill's processing of the Term Loan, (3) confirm
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Borrower's eligibility for the Term Loan, and (4) determine the principal
amount of the Term Loan; and
(q) all other documents and legal matters in connection
with the transactions contemplated by this Agreement shall have been
delivered, executed, or recorded and shall be in form and substance
reasonably satisfactory to Foothill and its counsel.
3.2 CONDITIONS PRECEDENT TO ALL ADVANCES, ALL LETTERS OF CREDIT
AND THE TERM LOAN. The following shall be conditions precedent to all
Advances, all Letters of Credit, and the Term Loan:
(a) the representations and warranties contained in this
Agreement and the other Loan Documents shall be true and correct in all
respects on and as of the date of such extension of credit, as though made on
and as of such date (except to the extent that such representations and
warranties relate solely to an earlier date);
(b) no Default or Event of Default shall have occurred
and be continuing on the date of such extension of credit, nor shall either
result from the making thereof; and
(c) no injunction, writ, restraining order, or other
order of any nature prohibiting, directly or indirectly, the extending of
such credit shall have been issued and remain in force by any Governmental
Authority against Borrower, Foothill, or any of their Affiliates.
3.3 CONDITION SUBSEQUENT. As a condition subsequent to the
initial closing hereunder, Borrower shall perform or cause to be performed
the following (the failure by Borrower to so perform or cause to be performed
constituting an Event of Default):
(a) within 30 days of the Closing Date, deliver to
Foothill the certified copies of the policies of insurance, together with the
endorsements thereto, as are required by SECTION 6.10, the form and substance
of which shall be reasonably satisfactory to Foothill and its counsel; and
(b) within 20 days of the Closing Date, take all steps
necessary to comply with the provisions of Section 6.16 as of said date.
3.4 TERM; AUTOMATIC RENEWAL. This Agreement shall become
effective upon the execution and delivery hereof by Borrower and Foothill and
shall continue in full force and effect for a term ending on the date (the
"Renewal Date") that is three (3) years from the Closing Date and
automatically shall be renewed for successive one (1) year periods
thereafter, unless sooner terminated pursuant to the terms hereof. Either
party may terminate this Agreement effective on the Renewal Date or on any
one (1) year anniversary of the Renewal Date by giving the other party at
least 90 days prior written notice. The foregoing notwithstanding, Foothill
shall be entitled to exercise all of its rights and remedies under
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SECTION 9 upon the occurrence of an Event of Default and continuation thereof
beyond any applicable cure period.
3.5 EFFECT OF TERMINATION. On the date of termination of this
Agreement, all Obligations (including contingent reimbursement obligations of
Borrower with respect to any outstanding Letters of Credit) immediately shall
become due and payable without notice or demand. No termination of this
Agreement, however, shall relieve or discharge Borrower of Borrower's duties,
Obligations, or covenants hereunder, and Foothill's continuing security
interests in the Collateral shall remain in effect, until all Obligations
have been fully and finally discharged and Foothill's obligation to provide
additional credit hereunder is terminated; provided that Foothill shall have
no obligation to make any further Advances hereunder other than to the extent
of any obligation Foothill may then or thereafter have under any undrawn
outstanding Letters of Credit. If Borrower has sent a notice of termination
pursuant to the provisions of SECTION 3.4, but fails to pay the Obligations
in full on the date set forth in said notice, then Foothill may, but shall
not be required to, renew this Agreement for an additional term of one (1)
year.
3.6 EARLY TERMINATION BY BORROWER. The provisions of SECTION
3.4 notwithstanding, Borrower has the option, at any time upon 90 days prior
written notice to Foothill, to terminate this Agreement prior to the
Termination Date by paying to Foothill, in cash, the Obligations (including
an amount equal to 102% of the undrawn amount of the Letters of Credit), in
full, together with a premium (the "Early Termination Premium") computed as
follows: (a) an amount equal to $300,000 if this Agreement is terminated
during the first year following the date of this Agreement, (b) an amount
equal to $200,000 if this Agreement is terminated during the second year
following the date of this Agreement, and (c) an amount equal to $100,000 if
this Agreement is terminated during the third year following the date of this
Agreement. Notwithstanding any provision to the contrary herein provided,
Borrower shall not be liable for an Early Termination Premium if this
Agreement is terminated as a direct result of Borrower's refinancing the
Obligations through a commercial banking unit of Xxxxx Fargo Bank, N.A.
3.7 TERMINATION UPON EVENT OF DEFAULT. If Foothill terminates
this Agreement upon the occurrence of an Event of Default, in view of the
impracticability and extreme difficulty of ascertaining actual damages and by
mutual agreement of the parties as to a reasonable calculation of Foothill's
lost profits as a result thereof, Borrower shall pay to Foothill upon the
effective date of such termination, a premium in an amount equal to the Early
Termination Premium. The Early Termination Premium shall be presumed to be
the amount of damages sustained by Foothill as the result of the early
termination and Borrower agrees that it is reasonable under the circumstances
currently existing. The Early Termination Premium provided for in SECTION
3.6 and in this SECTION 3.7 shall be deemed included in the Obligations.
4. CREATION OF SECURITY INTEREST.
4.1 GRANT OF SECURITY INTEREST. Borrower hereby grants to
Foothill a continuing security interest in all currently existing and
hereafter acquired or arising Collateral of
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Borrower in order to secure prompt repayment of any and all Obligations and
in order to secure prompt performance by Borrower of each of its covenants
and duties under the Loan Documents. Foothill's security interests in the
Collateral of Borrower shall attach to all Collateral of Borrower without
further act on the part of Foothill or Borrower. Except as permitted
pursuant to SECTION 7.4, or as may be expressly permitted under any of the
other Loan Documents, Borrower has no authority, express or implied, to
dispose of any item or portion of the Collateral.
4.2 NEGOTIABLE COLLATERAL AND OTHER EVIDENCE OF OWNERSHIP. In
the event that any Collateral, including proceeds, is evidenced by or
consists of Negotiable Collateral or certificates of title or other documents
evidencing ownership of equipment, Borrower, immediately upon the request of
Foothill, shall endorse and deliver to Foothill physical possession of such
Negotiable Collateral and all such certificates of title and other documents
evidencing ownership of such Equipment, PROVIDED that Foothill shall receive
and hold the foregoing only as a secured party and shall only exercise those
rights with respect thereto that are expressly permitted under the terms of
the Loan Documents or by operation of applicable law, for the protection,
perfection, and enforcement of Foothill's rights upon an Event of Default.
4.3 COLLECTION OF ACCOUNTS, GENERAL INTANGIBLES, INVESTMENT
PROPERTY, AND NEGOTIABLE COLLATERAL. At any time, Foothill or Foothill's
designee may (a) notify customers or Account Debtors of Borrower that the
Accounts, General Intangibles, Investment Property, or Negotiable Collateral
of Borrower have been collaterally assigned to Foothill or that Foothill has
a security interest therein, as the case may be, and (b) upon an Event of
Default that has not been cured as permitted and is continuing, collect the
Accounts, General Intangibles, Investment Property, and Negotiable Collateral
of Borrower directly and charge the collection costs and expenses to the Loan
Account. Borrower agrees that, to the extent any Obligations are outstanding,
it will hold in trust for Foothill, as Foothill's trustee, any and all
Collections that it receives and immediately will deliver said Collections to
Foothill in their original form as received by Borrower. Foothill shall
promptly account to Borrower for any surplus Collections received by Foothill
after repayment of all Obligations, in accordance with applicable law.
4.4 DELIVERY OF ADDITIONAL DOCUMENTATION REQUIRED. At any time
upon the request of Foothill, Borrower shall execute and deliver to Foothill
all financing statements, continuation financing statements, fixture filings,
security agreements, pledges, assignments, endorsements of certificates of
title, applications for title, affidavits, reports, notices, schedules of
accounts, letters of authority, control agreements, and all other documents
that Foothill reasonably may request, in form satisfactory to Foothill, to
perfect and continue perfected Foothill's security interests in the
Collateral of Borrower, and in order to fully consummate all of the
transactions contemplated hereby and under the other the Loan Documents.
4.5 POWER OF ATTORNEY. Borrower hereby irrevocably makes,
constitutes, and appoints Foothill (and any of Foothill's officers,
employees, or agents designated by Foothill) as Borrower's true and lawful
attorney, with power to (a) if Borrower refuses to, or fails timely to
execute and deliver any of the documents described in SECTION 4.4, sign the
name of Borrower on any of the documents described in SECTION 4.4, (b) at any
time that an Event of Default has occurred and is continuing, sign Borrower's
name on any invoice or xxxx of lading relating to any
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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) endorse Borrower's name on any
Collection item that may come into Foothill's possession, (e) at any time
that an Event of Default has occurred and is continuing, notify the post
office authorities to change the address for delivery of Borrower's mail to
an address designated by Foothill, to receive and open all mail addressed to
Borrower, and to retain all mail relating to the Collateral and forward all
other mail to Borrower, (f) at any time that an Event of Default has occurred
and is continuing make, settle, and adjust all claims under Borrower's
policies of insurance and make all determinations and decisions with respect
to such policies of insurance, (g) at any time that an Event of Default has
occurred and is continuing, settle and adjust disputes and claims respecting
the Accounts directly with Account Debtors, for amounts and upon terms that
Foothill determines to be reasonable, and Foothill may cause to be executed
and delivered any documents and releases that Foothill determines to be
necessary, and (h) upon Borrower's failure to comply with the provisions of
Section 6.16, to publish and file appropriate fictitious business name
statements as Foothill determines, in its Permitted Discretion, to reflect
any and all assumed or fictitious names previously used or hereafter used by
Borrower in connection with its Accounts. The appointment of Foothill as
Borrower's attorney, and each and every one of Foothill's rights and powers,
being coupled with an interest, is irrevocable until all of the Obligations
have been fully and finally repaid and performed and Foothill's obligation to
extend credit hereunder is terminated.
4.6 RIGHT TO INSPECT. Foothill (through any of its officers,
employees, or agents) shall have the right, from time to time hereafter to
inspect Borrower's Books and to check, test, and appraise the Collateral in
order to verify Borrower's financial condition or the amount, quality, value,
condition of, or any other matter relating to, the Collateral.
5. REPRESENTATIONS AND WARRANTIES.
In order to induce Foothill to enter into this Agreement, Borrower
makes the following representations and warranties which shall be true,
correct, and complete in all respects as of the date hereof, and shall be
true, correct, and complete in all respects as of the Closing Date, and at
and as of the date of the making of each Advance, Letter of Credit or Term
Loan made thereafter, as though made on and as of the date of such Advance,
Letter of Credit or Term Loan (except to the extent that such representations
and warranties relate solely to an earlier date) and such representations and
warranties shall survive the execution and delivery of this Agreement:
5.1 NO ENCUMBRANCES. Borrower has good and indefeasible title
to the Collateral (other than Collateral owned by the Parent Company and
described in the Parent IP Security Agreement and the Parent Pledge and
Security Agreement), free and clear of Liens except for Permitted Liens.
5.2 ELIGIBLE ACCOUNTS. The Eligible Accounts are bona fide
existing obligations created by the sale and delivery of Inventory or the
rendition of services to Account Debtors in the ordinary course of Borrower's
business, unconditionally owed to Borrower
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without defenses, disputes, offsets, counterclaims, or rights of return or
cancellation (except with respect to non-conforming or defective goods or
with respect to standard warranties pursuant to Borrower's then historical
practices). The property giving rise to such Eligible Accounts has been
delivered to the Account Debtor, or to the Account Debtor's agent for
immediate shipment to and unconditional acceptance by the Account Debtor
(subject to returns with respect to non-conforming or defective goods or with
respect to standard warranties pursuant to Borrower's historical practices).
Borrower has not received notice of actual or imminent bankruptcy,
insolvency, or material impairment of the financial condition of any Account
Debtor regarding any Eligible Account.
5.3 ELIGIBLE INVENTORY. All Eligible Inventory is of good and
merchantable quality, and is free from defects which are likely to have a
material effect on the value thereof, taken as a whole.
5.4 EQUIPMENT. All of the Equipment is used or held for use in
Borrower's business and is fit for such purposes.
5.5 LOCATION OF INVENTORY AND EQUIPMENT. The Inventory and
Equipment are not stored with a bailee, warehouseman, or similar party
(without Foothill's prior written consent) and are located only at, or are in
transit between, the locations identified on SCHEDULE 6.12 or otherwise
permitted by SECTION 6.12.
5.6 INVENTORY RECORDS. Borrower keeps correct and accurate
records itemizing and describing the kind, type, quality, and quantity of the
Inventory, and Borrower's cost therefor.
5.7 LOCATION OF CHIEF EXECUTIVE OFFICE; FEIN. The chief
executive office of Borrower is located at the address indicated in the
preamble to this Agreement and Borrower's FEIN is 00-0000000.
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5.8 DUE ORGANIZATION AND QUALIFICATION; SUBSIDIARIES.
(a) Borrower is duly organized and existing and in good
standing under the laws of the jurisdiction of its incorporation and
qualified and licensed to do business in, and in good standing in, any state
where the failure to be so licensed or qualified reasonably could be expected
to cause a Material Adverse Change.
(b) Set forth on SCHEDULE 5.8, is a complete and
accurate list of Parent Company's direct and indirect Subsidiaries, showing:
(i) the jurisdiction of their incorporation; (ii) the number of shares of
each class of common and preferred stock authorized for each of such
Subsidiaries (or, in the case of any foreign nation Subsidiary, each class of
shares); and (iii) the number and the percentage of the outstanding shares of
each such class owned directly or indirectly by Borrower. All of the
outstanding capital stock of each such Subsidiary has been validly issued and
is fully paid and non-assessable, or all of the registered capital of each
such Subsidiary has been paid in full and is free of any Lien, charge or
third party rights.
(c) Except as set forth on SCHEDULE 5.8, no capital
stock or other equity interests (or any securities, instruments, warrants,
options, purchase rights, conversion or exchange rights, calls, commitments
or claims of any character convertible into or exercisable for capital stock
or other equity interests) of or in any direct or indirect Subsidiary of
Parent Company is subject to the issuance of any security, instrument,
warrant, option, purchase right, conversion or exchange right, call,
commitment or claim of any right, title, or interest therein or thereto,
except that any transfer of such rights with respect to a Subsidiary formed
under the laws of a foreign nation jurisdiction may be subject to approval by
the relevant Governmental Authority.
5.9 DUE AUTHORIZATION; NO CONFLICT.
(a) The execution, delivery, and performance by Borrower
of this Agreement and the Loan Documents to which it is a party have been
duly authorized by all necessary organizational action.
(b) The execution, delivery, and performance by Borrower
of this Agreement and the Loan Documents to which it is a party do not and
will not (i) violate any provision of federal, state, or local law or
regulation (including Regulations T, U, and X of the Federal Reserve Board)
applicable to Borrower, the Governing Documents of Borrower, or any order,
judgment, or decree of any court or other Governmental Authority binding on
Borrower, (ii) conflict with, result in a breach of, or constitute (with due
notice or lapse of time or both) a default under any material contractual
obligation or material lease of Borrower, or under the CIGNA Indebtedness,
(iii) result in or require the creation or imposition of any Lien of any
nature whatsoever upon any properties or assets of Borrower, other than
Permitted Liens, or (iv) require any approval of stockholders or any approval
or consent of any Person under any material contractual obligation of
Borrower.
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(c) Other than the filing of appropriate financing
statements, fixture filings, and mortgages, and the existing security
agreement(s) and existing financing statement filed by Existing Lender
against certain of Borrower's assets which will be paid and terminated prior
to or as a concurrent condition of Foothill's initial Advance hereunder, the
execution, delivery, and performance by Borrower and the Parent Company, as
applicable, of this Agreement and the Loan Documents to which Borrower and
the Parent Company are parties do not and will not require any registration
with, consent, or approval of, or notice to, or other action with or by, any
federal, state, foreign, or other Governmental Authority or other Person
(excluding any representation or warranty regarding any such Requirement of
Law presently unknown to Borrower, of any foreign nation applicable to
Borrower's foreign nation Subsidiaries and property in possession of such
Subsidiaries).
(d) This Agreement and the Loan Documents to which
Borrower is a party, and all other documents contemplated hereby and thereby,
when executed and delivered by Borrower will be the legally valid and binding
obligations of Borrower, enforceable against Borrower in accordance with
their respective terms, except as enforcement may be limited by equitable
principles or by bankruptcy, insolvency, reorganization, moratorium, or
similar laws relating to or limiting creditors' rights generally.
(e) The Liens granted by Borrower to Foothill in and to
its properties and assets pursuant to this Agreement and the other Loan
Documents are validly created, perfected (to the extent regulated by the
Code), and first priority Liens, subject only to Permitted Liens and to
deliveries of documents described in SECTION 4.2 (excluding any
representation or warranty regarding any such Requirement of Law presently
unknown to Borrower, of any foreign nation applicable to Borrower's foreign
nation Subsidiaries and property in possession of such Subsidiaries).
5.10 LITIGATION. There are no actions or proceedings pending by
or against Borrower before any court or administrative agency and Borrower
does not have knowledge or belief of any pending, threatened, or imminent
litigation, governmental investigations, or claims, complaints, actions, or
prosecutions involving Borrower or any guarantor of the Obligations, except
for: (a) ongoing collection matters in which Borrower is the plaintiff; (b)
matters disclosed on SCHEDULE 5.10; and (c) matters arising after the date
hereof that, could reasonably be expected to result in a Material Adverse
Change.
5.11 NO MATERIAL ADVERSE CHANGE. All financial statements
relating to Borrower or any guarantor of the Obligations that have been
delivered by Borrower to Foothill have been prepared in accordance with GAAP
(except, in the case of unaudited financial statements, for the lack of
footnotes and being subject to year-end audit adjustments) and fairly present
Borrower's (or such guarantor's, as applicable) financial condition as of the
date thereof and Borrower's results of operations for the period then ended.
There has not been a Material Adverse Change with respect to Borrower (or the
Parent Company, as applicable) since the date of the latest financial
statements submitted to Foothill on or before the Closing Date.
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5.12 SOLVENCY. Borrower is Solvent. No transfer of property is
being made by Borrower and no obligation is being incurred by Borrower in
connection with the transactions contemplated by this Agreement or the other
Loan Documents with the intent to hinder, delay, or defraud either present or
future creditors of Borrower.
5.13 EMPLOYEE BENEFITS. None of Borrower, any of its
Subsidiaries, or any of their ERISA Affiliates maintains or contributes to
any Benefit Plan, other than those listed on SCHEDULE 5.13. Borrower, each
of its Subsidiaries and each ERISA Affiliate have satisfied the minimum
funding standards of ERISA and the IRC with respect to each Benefit Plan to
which it is obligated to contribute. No ERISA Event has occurred nor has any
other event occurred that may result in an ERISA Event that reasonably could
be expected to result in a Material Adverse Change. None of Borrower or its
Subsidiaries, any ERISA Affiliate, or any fiduciary of any Plan is subject to
any direct or indirect liability not in the ordinary course with respect to
any Plan under any applicable law, treaty, rule, regulation, or agreement.
None of Borrower or its Subsidiaries or any ERISA Affiliate is required to
provide security to any Plan under Section 401(a)(29) of the IRC.
5.14 ENVIRONMENTAL CONDITION. None of Borrower's properties or
assets has ever been used by Borrower or, to Borrower's knowledge, by
previous owners or operators in the disposal of, or to produce, store,
handle, treat, release, or transport, any Hazardous Materials other than
paints, resins and like materials used in the ordinary course of business
stored used and disposed of pursuant to applicable law. None of Borrower's
properties or assets has ever been designated or identified in any manner
pursuant to any environmental protection statute as a Hazardous Materials
disposal site, or, to Borrower's knowledge, a candidate for closure pursuant
to any environmental protection statute. To Borrower's knowledge, no Lien
arising under any environmental protection statute has attached to any
revenues or to any real or personal property owned or operated by Borrower.
Borrower has not received a summons, citation, notice, or directive from the
Environmental Protection Agency or any other federal or state governmental
agency concerning any action or omission by Borrower resulting in the
releasing or disposing of Hazardous Materials into the environment.
5.15 YEAR 2000 COMPLIANCE. On the basis of a comprehensive
review and assessment of Borrower's computer systems and equipment, and
inquiry made of Borrower's material suppliers, vendors, customers, and
affiliates, Borrower reasonably believes that the Year 2000 Problem
(hereinafter defined), including all costs of investigation, analysis,
testing, and remediation, could not reasonably be expected to result in or
cause a Material Adverse Change. Except for any reprogramming referred to
above, the Computer Software and Systems (hereinafter defined) of Borrower
and its affiliates are and, with ordinary course upgrading and maintenance,
will continue for the duration of this Agreement and all Obligations to be,
Year 2000 Compliant (hereinafter defined). For purposes of this Agreement,
(i) the term "Computer Software and Systems" means, with respect to any
Person, all computers, hardware, and computer components, software, data
processing equipment and media, and all accessories thereto, as well as
imbedded microchips in non-computing devices and equipment, (ii) the term
"Year 2000 Problem" means, with respect to the Borrower and any and all of
Borrower's material suppliers, vendors, customers, and affiliates, the
inability of each such Person's respective
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Computer Software and Systems to perform properly and for the purpose or
purposes intended, including performance of date-sensitive functions with
respect to any and all calendar days and dates after December 31, 1999, and
(iii) the term "Year 2000 Compliant" means, with respect to any Person, that
all such Computer Software and Systems of such Person do presently and will
continuously operate and perform properly and for the purpose or purposes
intended, including performance of all such date-sensitive functions.
5.16 CIGNA INDEBTEDNESS. No event or circumstance exists which,
with or without the giving of notice or the passage of time, constitutes or
will constitute an event of default under the CIGNA Loan Documents, or does
or will entitle the holder or holders of the CIGNA Indebtedness to accelerate
the maturity of said indebtedness, and the CIGNA Loan Documents have not been
modified to any extent or in any manner and remain in full force and effect,
and no modification thereof has been proposed by any party thereto, and no
negotiation for any modification or accelerated defeasance thereof is in
progress, in each case except for waived failures to meet the financial
covenant contained in Section 6.6 of the CIGNA Debenture, and any amendment
thereof, but only if such waivers or amendments will not cause or result in a
Material Adverse Change.
6. AFFIRMATIVE COVENANTS.
Borrower covenants and agrees that, so long as any credit
hereunder shall be available and until full and final payment of the
Obligations, Borrower shall do all of the following:
6.1 ACCOUNTING SYSTEM. Maintain a standard and modern system
of accounting that enables Borrower to produce financial statements in
accordance with GAAP, and maintain records pertaining to the Collateral of
Borrower that contain information as from time to time may be reasonably
requested by Foothill. Borrower also shall keep a modern inventory reporting
system that shows all additions, sales, claims, returns, and allowances with
respect to the Inventory.
6.2 COLLATERAL REPORTING. Provide Foothill with the following
documents at the following times in form satisfactory to Foothill: (a) on
each Business Day, a sales journal, collection journal, and credit register
since the last such schedule and a calculation of the Borrowing Base as of
such date, (b) on a monthly basis and, in any event, by no later than the
10th day of each month during the term of this Agreement, (i) a detailed
calculation of the Borrowing Base, and (ii) a detailed aging, by total, of
the Accounts, together with a reconciliation to the detailed calculation of
the Borrowing Base previously provided to Foothill, (c) on a monthly basis
and, in any event, by no later than the 10th day of each month during the
term of this Agreement, a summary aging, by vendor, of Borrower's accounts
payable and any book overdraft, (d) on a weekly basis, Inventory reports
specifying Borrower's cost and book adjustment to wholesale market value of
its Inventory by category and, upon Foothill's request, with additional
detail showing additions to and deletions from the Inventory, (e) on each
Business Day, notice of all returns, disputes, or claims, (f) upon request,
copies of invoices in connection with the Accounts, customer statements,
credit memos, remittance advices and
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reports, deposit slips, shipping and delivery documents in connection with
the Accounts and for Inventory and Equipment acquired by Borrower, purchase
orders and invoices, (g) on a quarterly basis, a detailed list of Borrower's
customers, (h) on a monthly basis, a calculation of the Dilution for the
prior month; and (i) such other reports as to the Collateral or the financial
condition of Borrower as Foothill may request from time to time.
Notwithstanding any provision to the contrary herein contained, Borrower
shall, at all times upon Foothill's request, during normal business hours,
permit Foothill to enter upon Borrower's premises at which Borrower's Books
are located and where all electronic data is processed and stored, regardless
of the manner or medium of storage, and shall provide Foothill with
unrestricted access to all such Borrower's Books and data, including direct
access by representatives of Foothill through Borrower's computer equipment
and systems or through on-line or network access (by use of Borrower's access
and source codes and otherwise), for purposes of verifying Borrower's
compliance with the provisions of this Agreement and obtaining, verifying or
determining such information regarding the Collateral as Foothill shall
require; provided, however, that in the absence of a Default or other exigent
circumstances, Foothill shall give Borrower at least one (1) Business Day's
notice, telephonically, by facsimile transmission, or otherwise in writing,
prior to entering such premises or locations for any such purposes. Foothill
shall be entitled to make copies of all such Borrower's Books, data and
information as Foothill shall determine to be necessary or appropriate under
the circumstances. In addition, at Foothill's reasonable request in writing,
and at Borrower's expense, Borrower shall make full and accurate copies of
any or all such Borrower's Books and data, including copies in the form of
computer diskettes and in such format, size, and configuration as shall be
designated by Foothill in such request. Original sales invoices evidencing
daily sales shall be mailed by Borrower to each Account Debtor and, at
Foothill's direction, the invoices shall indicate on their face that the
Account has been collaterally assigned to Foothill and that all payments are
to be made directly to Foothill.
6.3 FINANCIAL STATEMENTS, REPORTS, CERTIFICATES. Deliver to
Foothill: (a) as soon as available, but in any event within 30 days after
the end of each month (45 days after the last month of each calendar quarter)
during each of Borrower's fiscal years, a company prepared balance sheet,
income statement, and statement of cash flow covering Borrower's operations
during such period; and (b) as soon as available, but in any event within 90
days after the end of each of the fiscal years of Borrower and the Parent
Company, (i) consolidated and consolidating financial statements of the
Parent Company for each such fiscal year, audited by independent certified
public accountants reasonably acceptable to Foothill and certified, without
any qualifications, by such accountants to have been prepared in accordance
with GAAP, together with a certificate of such accountants addressed to
Foothill stating that such accountants do not have knowledge of the existence
of any Default or Event of Default, and (ii) unaudited consolidated financial
statements of Borrower for each such fiscal year, together with a certificate
of the chief financial officer of Borrower addressed to Foothill stating that
such officer does not have knowledge of the existence of any Default or Event
of Default. Such financial statements shall include a balance sheet, profit
and loss statement, and statement of cash flow and, if prepared, such
accountants' letter to management. If Borrower is a parent company of one or
more Subsidiaries, or is a Subsidiary of another company, then, in addition
to the financial statements referred to above, Borrower agrees to deliver
unaudited financial statements prepared
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on a consolidating basis so as to present Borrower and each such related
entity separately, and on a consolidated basis.
Within the times required in Section 6.3(a), together with
the financial statements provided pursuant to Section 6.3(a), Borrower shall
deliver to Foothill a certificate signed by its chief financial officer to
the effect that: (i) all financial statements delivered or caused to be
delivered to Foothill hereunder have been prepared in accordance with GAAP
(except, in the case of unaudited financial statements, for the lack of
footnotes and being subject to year-end audit adjustments) and fairly present
the financial condition of Borrower, (ii) the representations and warranties
of Borrower contained in this Agreement and the other Loan Documents are true
and correct in all material respects on and as of the date of such
certificate, as though made on and as of such date (except to the extent that
such representations and warranties relate solely to an earlier date), (iii)
for each quarter that also is the date on which a financial covenant in
SECTION 7.20 is to be tested, a Compliance Certificate demonstrating in
reasonable detail compliance at the end of such period with the applicable
financial covenants contained in SECTION 7.20, and (iv) on the date of
delivery of such certificate to Foothill there does not exist any condition
or event that constitutes a Default or Event of Default (or, in the case of
clauses (i), (ii), or (iii), to the extent of any non-compliance, describing
such non-compliance as to which he or she may have knowledge and what action
Borrower has taken, is taking, or proposes to take with respect thereto).
Borrower shall have issued written instructions to its
independent certified public accountants authorizing them to communicate with
Foothill and to release to Foothill whatever financial information concerning
Borrower that Foothill may request. Borrower hereby irrevocably authorizes
and directs all auditors, accountants, or other third parties to deliver to
Foothill, at Borrower's expense, copies of Borrower's financial statements,
papers related thereto, and other accounting records of any nature in their
possession, and to disclose to Foothill, in its Permitted Discretion, any
information they may have regarding Borrower's financial transactions and
financial condition (except any information or documentation which is
protected from disclosure to Foothill by the attorney-client privilege or the
disclosure of which would violate securities laws pertaining to the
securities of the Parent Company).
6.4 TAX RETURNS. Deliver to Foothill copies of each of
Borrower's future federal income tax returns, and any amendments thereto,
within 30 days of the filing thereof with the Internal Revenue Service.
6.5 PARENT COMPANY REPORTS. Together with all financial
statements, reports and certificates described above, cause to be delivered
to Foothill the Parent Company's Form 10-Q Quarterly Reports, Form 10-K
Annual Reports, and Form 8-K Current Reports, and any other filings made by
the Parent Company with the Securities and Exchange Commission, if any, as
soon as the same are filed, or any other information that is provided by
Borrower to its shareholders, and any other report reasonably requested by
Foothill relating to the financial condition of Borrower; and cause the
Parent Company to deliver to Foothill true and complete copies of all federal
income tax returns as soon as the same are available and in any event no
later than 30 days after the same are required to be filed by law.
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6.6 RETURNS. Cause returns and allowances, if any, as between
Borrower and its Account Debtors to be on the same basis and in accordance
with the usual customary practices of Borrower, as they exist at the time of
the execution and delivery of this Agreement. If, at a time when no Event of
Default has occurred and is continuing, any Account Debtor returns any
Inventory to Borrower, Borrower promptly shall determine the reason for such
return and, if Borrower accepts such return, issue a credit memorandum (and
upon Foothill's request, send copies thereof to Foothill) in the appropriate
amount to such Account Debtor. If, at a time when an Event of Default has
occurred and is continuing, any Account Debtor returns any Inventory to
Borrower, Borrower promptly shall determine the reason for such return and,
if Foothill consents (which consent shall not be unreasonably withheld),
issue a credit memorandum (with a copy to be sent to Foothill) in the
appropriate amount to such Account Debtor.
6.7 [Intentionally Omitted].
6.8 MAINTENANCE OF EQUIPMENT. 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. Other than those
items of Equipment that constitute fixtures on the Closing Date, Borrower
shall not permit any item of Equipment to become a fixture to real estate or
an accession to other property, and such Equipment shall at all times remain
personal property.
6.9 TAXES. Cause all assessments and taxes, whether real,
personal, or otherwise, due or payable by, or imposed, levied, or assessed
against Borrower or any of its 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. Borrower shall make due and timely payment or deposit of
all such federal, state, and local taxes, assessments, or contributions
required of it by law, and will execute and deliver to Foothill, on demand,
appropriate certificates attesting to the payment thereof or deposit with
respect thereto. Borrower will make timely payment or deposit of all tax
payments and withholding taxes required of it by applicable laws, including
those laws concerning F.I.C.A., F.U.T.A., state disability, and local, state,
and federal income taxes, and will, upon request, furnish Foothill with proof
satisfactory to Foothill indicating that Borrower has made such payments or
deposits.
6.10 INSURANCE.
(a) At its expense, keep the Collateral of Borrower
insured against loss or damage by fire, theft, explosion, sprinklers, and all
other hazards and risks, and in such amounts, as are ordinarily insured
against by other owners in similar businesses. Borrower also shall maintain
business interruption, public liability, product liability, and property
damage insurance relating to Borrower's ownership and use of the Collateral
of Borrower, as well as insurance against larceny, and embezzlement.
(b) [Intentionally Omitted]
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(c) [Intentionally Omitted]
(d) All such policies of insurance shall be in such
form, with such companies, and in such amounts as may be reasonably
satisfactory to Foothill. All insurance required herein shall be written by
companies which are authorized to do insurance business in the State of
California. All hazard insurance and such other insurance as Foothill shall
specify, shall contain a California Form 438BFU (NS) mortgagee endorsement,
or an equivalent endorsement satisfactory to Foothill, showing Foothill as
sole loss payee thereof, and shall contain a waiver of warranties. Every
policy of insurance referred to in this SECTION 6.10 shall contain an
agreement by the insurer that it will not cancel such policy except after 30
days prior written notice to Foothill and that any loss payable thereunder
shall be payable notwithstanding any act or negligence of Borrower or
Foothill which might, absent such agreement, result in a forfeiture of all or
a part of such insurance payment. Borrower shall deliver to Foothill
certified copies of such policies of insurance and evidence of the payment of
all premiums therefor.
(e) Original policies or certificates thereof
satisfactory to Foothill evidencing such insurance shall be delivered to
Foothill at least 30 days prior to the expiration of the existing or
preceding policies. Borrower shall give Foothill prompt notice of any loss
covered by such insurance, and Foothill shall have the right to adjust any
loss. Foothill shall have the exclusive right to adjust all losses payable
under any such insurance policies in excess of $250,000, without any
liability to Borrower whatsoever in respect of such adjustments. To the
extent any Obligations are outstanding, any monies received as payment for
any loss under any insurance policy including the insurance policies
mentioned above, shall be paid over to Foothill to be applied at the option
of Foothill either to the prepayment of the Obligations without premium, in
such order or manner as Foothill may elect, or shall be disbursed to Borrower
under stage payment terms satisfactory to Foothill for application to the
cost of repairs, replacements, or restorations. All repairs, replacements,
or restorations shall be effected with reasonable promptness and shall be of
a value at least equal to the value of the items or property destroyed prior
to such damage or destruction. Upon the occurrence of an Event of Default,
Foothill shall have the right to apply all prepaid premiums to the payment of
the Obligations in such order or form as Foothill shall determine.
(f) Borrower shall not take out separate insurance
concurrent in form or contributing in the event of loss with that required to
be maintained under this SECTION 6.10, unless Foothill is included thereon as
named insured with the loss payable to Foothill under a standard California
438BFU (NS) Mortgagee endorsement, or its local equivalent. Borrower
immediately shall notify Foothill whenever such separate insurance is taken
out, specifying the insurer thereunder and full particulars as to the
policies evidencing the same, and originals of such policies immediately
shall be provided to Foothill.
6.11 NO SETOFFS OR COUNTERCLAIMS. Make payments hereunder and
under the other Loan Documents by or on behalf of Borrower without setoff or
counterclaim and free and clear of, and without deduction or withholding for
or on account of, any federal, state, or local taxes.
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6.12 LOCATION OF INVENTORY AND EQUIPMENT. Keep the Inventory
and Equipment only at the locations identified on SCHEDULE 6.12 or in transit
between such locations; PROVIDED, HOWEVER, that Borrower may amend SCHEDULE
6.12 so long as such amendment occurs by written notice to Foothill not less
than 21 days prior to 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,
Borrower provides any financing statements or fixture filings necessary to
perfect and continue perfected (to the extent regulated by the Code)
Foothill's security interests in such assets and also provides to Foothill a
Collateral Access Agreement.
6.13 COMPLIANCE WITH LAWS. Comply with the requirements of all
applicable laws, rules, regulations, and orders of any Governmental
Authority, including the Fair Labor Standards Act and the Americans With
Disabilities Act, other than a failure to comply with laws, rules,
regulations, and orders which, individually or in the aggregate, would not
cause and could not reasonably be expected to cause a Material Adverse Change.
6.14 EMPLOYEE BENEFITS.
(a) Cause to be delivered to Foothill: (i) promptly, and
in any event within 10 Business Days after the Parent Company, Borrower or
any of its Subsidiaries knows that an ERISA Event has occurred that
reasonably could be expected to result in a Material Adverse Change, a
written statement of the chief financial officer of Borrower describing such
ERISA Event and any action that is being taking with respect thereto by
Borrower, any such Subsidiary or, to Borrower's knowledge, ERISA Affiliate,
and any action taken or threatened by the IRS, Department of Labor, or PBGC,
(ii) promptly, and in any event within 3 Business Days after the filing
thereof with the IRS, a copy of each funding waiver request filed with
respect to any Benefit Plan and all communications received by Borrower, any
of its Subsidiaries or, to the knowledge of Borrower, any ERISA Affiliate
with respect to such request, and (iii) promptly, and in any event within 3
Business Days after receipt by Borrower, any of its Subsidiaries or, to the
knowledge of Borrower, any ERISA Affiliate, of the PBGC's intention to
terminate a Benefit Plan or to have a trustee appointed to administer a
Benefit Plan, copies of each such notice. Borrower or such Subsidiary, as
applicable, shall be deemed to know all facts known by the administrator of
any Benefit Plan of which it is the plan sponsor.
(b) Cause to be delivered to Foothill, upon Foothill's
request, each of the following: (i) a copy of each Plan (or, where any such
plan is not in writing, complete description thereof) (and if applicable,
related trust agreements or other funding instruments) and all amendments
thereto, all written interpretations thereof and written descriptions thereof
that have been distributed to employees or former employees of the Parent
Company, Borrower or its Subsidiaries; (ii) the most recent determination
letter issued by the IRS with respect to each Benefit Plan; (iii) for the
three most recent plan years, annual reports on Form 5500 Series required to
be filed with any governmental agency for each Benefit Plan; (iv) all
actuarial reports prepared for the last three plan years for each Benefit
Plan; (v) a listing of all Multiemployer Plans, with the aggregate amount of
the most recent annual contributions required to be made by
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Borrower or any ERISA Affiliate to each such plan and copies of the
collective bargaining agreements requiring such contributions; (vi) any
information that has been provided to the Parent Company, Borrower or, to
Borrower's knowledge, any ERISA Affiliate regarding withdrawal liability
under any Multiemployer Plan; and (vii) the aggregate amount of the most
recent annual payments made to former employees of the Parent Company,
Borrower or its Subsidiaries under any Retiree Health Plan.
6.15 LEASES. Pay when due all rents and other amounts payable
under any leases to which Borrower is a party or by which Borrower's
properties and assets are bound, unless such payments are the subject of a
Permitted Protest. To the extent that Borrower fails timely to make payment
of such rents and other amounts payable when due under its leases, Foothill
shall be entitled, in its Permitted Discretion, to reserve an amount equal to
such unpaid amounts against the Borrowing Base.
6.16 INVOICE PRACTICES. Commencing no later than the time
provided by SECTION 3.3(b) above, expressly provide in writing, in all
invoices and other contracts generating or otherwise evidencing the creation
of Accounts, that Borrower is the seller of the goods or provider of the
Services therein described, using the Borrower's full legal name, Aldila Golf
Corp.
7. NEGATIVE COVENANTS.
Borrower covenants and agrees that, so long as any credit
hereunder shall be available and until full and final payment of the
Obligations, Borrower will not do any of the following without Foothill's
prior written consent:
7.1 INDEBTEDNESS. Create, incur, assume, permit, guarantee, or
otherwise become or remain, directly or indirectly, liable with respect to
any Indebtedness, except:
(a) Indebtedness evidenced by this Agreement, together
with Indebtedness to issuers of letters of credit that are the subject of L/C
Guarantees;
(b) Indebtedness set forth in the latest financial
statements of Borrower submitted to Foothill on or prior to the Closing Date;
(c) Indebtedness secured by Permitted Liens;
(d) Other than the CIGNA Indebtedness, refinancings,
renewals, or extensions of Indebtedness permitted under clauses (b) and (c)
of this SECTION 7.1 (and continuance or renewal of any Permitted Liens
associated therewith) so long as: (i) the terms and conditions of such
refinancings, renewals, or extensions do not materially impair the prospects
of repayment of the Obligations by Borrower, (ii) the net cash proceeds of
such refinancings, renewals, or extensions do not result in an increase in
the aggregate principal amount of the Indebtedness so refinanced, renewed, or
extended, (iii) such refinancings, renewals, refundings, or extensions do not
result in a shortening of the average weighted maturity of the Indebtedness
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so refinanced, renewed, or extended, and (iv) to the extent that Indebtedness
that is refinanced was subordinated in right of payment to the Obligations,
then the subordination terms and conditions of the refinancing Indebtedness
must be at least as favorable to Foothill as those applicable to the
refinanced Indebtedness; and
(e) With respect to the CIGNA Indebtedness, those
waivers of failures to meet the financial covenant, contained in Section 6.6
of the CIGNA Debenture, and any amendment thereof, but only if such waivers
or amendments will not cause or result in a Material Adverse Change.
7.2 LIENS. Create, incur, assume, or permit to exist, directly
or indirectly, any Lien on or with respect to any of its property or assets,
of any kind, whether now owned or hereafter acquired, or any income or
profits therefrom, except for Permitted Liens (including Liens that are
replacements of Permitted Liens to the extent that the original Indebtedness
is refinanced under SECTION 7.1(d) and so long as the replacement Liens only
encumber those assets or property that secured the original Indebtedness or
permitted replacements thereof).
7.3 RESTRICTIONS ON FUNDAMENTAL CHANGES. Enter into any
merger, consolidation, reorganization, or recapitalization, or reclassify its
capital stock, or liquidate, wind up, or dissolve itself (or suffer any
liquidation or dissolution), or convey, sell, assign, lease, transfer, or
otherwise dispose of, in one transaction or a series of transactions, all or
any substantial part of its property or assets.
7.4 DISPOSAL OF ASSETS. Sell, lease, assign, transfer, or
otherwise dispose of any of Borrower's properties or assets other than the
following, in each case in the ordinary course of Borrower's business as
currently conducted: (i) sales of Inventory to buyers, and other dispositions
of damaged, defective, or commercially unsaleable Inventory; (ii) so long as
there is no outstanding balance owing to Foothill under the Term Loan, (A)
sales of obsolete Equipment, and (B) sales of replaced Equipment, provided
that all corresponding replacement Equipment shall become Collateral
hereunder subject to Foothill's first priority security interest therein;
(iii) so long as there is and remains an outstanding balance under the Term
Loan, sales or other dispositions of defective or obsolete Equipment for
cash, provided that (A) the total aggregate value of all such Equipment for
which values have not been assigned by Foothill pursuant to Foothill's most
recent appraisal ("Appraised Value"), and which is sold or otherwise disposed
of in any one (1) year commencing on the Closing Date, shall not exceed
$50,000, (B) the total aggregate value of all such Equipment for which
Appraised Values have been assigned by Foothill ("Appraised Collateral"), and
which is sold or otherwise disposed of in any such year, shall not exceed
$10,000, (C) Borrower shall notify Foothill of the terms of each sale or
other disposition of such Appraised Collateral in writing (identifying each
item of Equipment and the corresponding cash payment received or to be
received therefor) (1) at least five (5) Business Days in advance of each
such sale or other disposition if the Appraised Value thereof would cause the
total aggregate Appraised Value of such Appraised Collateral sold or disposed
of in any such loan year to exceed $10,000, and (2) within thirty (30) days
following the end of each such year if the total aggregate Appraised Value of
such Appraised Collateral sold or disposed of in such loan year does not
exceed $10,000, and (D) Borrower shall pay to Foothill all proceeds of
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any and all such sales or other dispositions under clause (iii)(A) or (B) of
this Section 7.4, immediately upon Borrower's receipt of payment therefor.
7.5 CHANGE NAME. Change Borrower's name, FEIN, organizational
structure (within the meaning of Section 9402(7) of the Code), or identity,
or add any new fictitious name.
7.6 GUARANTEE. Guarantee or otherwise become in any way liable
with respect to the obligations of any third Person except by endorsement of
instruments or items of payment for deposit to the account of Borrower or
which are transmitted or turned over to Foothill.
7.7 NATURE OF BUSINESS. Make any change in the principal
nature of Borrower's business.
7.8 PREPAYMENTS AND AMENDMENTS.
(a) Except in connection with a refinancing permitted by
SECTION 7.1(d), prepay, redeem, retire, defease, purchase, or otherwise
acquire any Indebtedness owing to any third Person, other than the
Obligations in accordance with this Agreement, and
(b) Directly or indirectly, amend, modify, alter,
increase, or change any of the terms or conditions of any agreement,
instrument, document, indenture, or other writing evidencing or concerning
Indebtedness permitted under SECTIONS 7.1(b), (c), (d), OR (e), EXCEPT AS
EXPRESSLY PERMITTED BY SECTIONS 7.1(d) AND 7.1(e).
7.9 CHANGE OF CONTROL. Cause, permit, or suffer, directly or
indirectly, any Change of Control.
7.10 CONSIGNMENTS. Consign any Inventory or sell any Inventory
on xxxx and hold, sale or return, sale on approval, or other conditional
terms of sale.
7.11 DISTRIBUTIONS. Make any distribution or declare or pay any
dividends (in cash or other property, other than capital stock) on, or
purchase, acquire, redeem, or retire any of Borrower's capital stock, of any
class, whether now or hereafter outstanding; provided, however, that so long
as no Event of Default has occurred and is then continuing, or would result
therefrom, Borrower shall be entitled to make distributions to or for the
account of the Parent Company for purposes of, and to the extent reasonably
necessary for, paying off the existing indebtedness owed to the Existing
Lender as herein contemplated and to make regularly scheduled payments upon
the CIGNA Indebtedness.
7.12 ACCOUNTING METHODS. Unless required under GAAP, modify or
change its method of accounting or enter into, modify, or terminate any
agreement currently existing, or at any time hereafter entered into with any
third party accounting firm or service bureau for the preparation or storage
of Borrower's accounting records without said accounting firm or service
bureau agreeing to provide Foothill information regarding the Collateral or
Borrower's financial
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condition. Borrower waives the right to assert a confidential relationship,
if any, it may have with any accounting firm or service bureau in connection
with any accounting information requested by Foothill pursuant to or in
accordance with this Agreement, and agrees that Foothill may contact directly
any such accounting firm or service bureau in order to obtain such accounting
information.
7.13 INVESTMENTS. Except for investments of excess cash in
accordance with Borrower's investment policy which are pledged to Foothill
subject to an exclusive Control Agreement, directly or indirectly make,
acquire, or incur any liabilities (including contingent obligations) for or
in connection with (a) the acquisition of the securities (whether debt or
equity) of, or other interests in, a Person, (b) loans, advances, capital
contributions, or transfers of property to a Person, except that so long as
no Event of Default has occurred and is continuing, Borrower shall have the
right (i) to make advances of funds to Aldila Materials Technology Corp.
("AMTC") to produce carbon fiber and fabricated prepreg materials and to fund
its operations, at a rate of interest not lower than 5% per annum, provided
that the outstanding unpaid balance of such indebtedness (the "AMTC Debt")
shall not exceed at any time the sum of $24,500,000, provided, further, that
to the extent the AMTC Debt is reduced, directly or indirectly, with proceeds
of a sale or other transfer of all or any portion of Parent Company's equity
ownership interest in AMTC or other joint venture or joint enterprise with
one or more Persons other than the Borrower or any of its Affiliates (to the
extent expressly permitted by Foothill), the maximum balance of the AMTC Debt
permitted under this Section 7.13 shall likewise be reduced by the same
amount, and (ii) so long as Borrower's Availability is and remains at least
$1,000,000, to make advances of funds to any Subsidiary of Borrower to
finance the operations of such Subsidiary in the ordinary course of its
business, or (c) the acquisition of all or substantially all of the
properties or assets of a Person.
7.14 TRANSACTIONS WITH AFFILIATES. Directly or indirectly enter
into or permit to exist any material transaction with any Affiliate of
Borrower except for transactions that are in the ordinary course of
Borrower's business, upon fair and reasonable terms, that are fully disclosed
to Foothill, and that are no less favorable to Borrower than would be
obtained in an arm's length transaction with a non-Affiliate.
7.15 SUSPENSION. Suspend or cease to continuously conduct a
substantial portion of its business.
7.16 [Intentionally omitted].
7.17 USE OF PROCEEDS. Use the proceeds of the Advances and the
Term Loan made hereunder for any purpose other than (i) on the Closing Date,
(y) to repay in full the outstanding principal, accrued interest, and accrued
fees and expenses owing to Existing Lender, and (z) to pay transactional
costs and expenses incurred in connection with this Agreement, and (ii)
thereafter, consistent with the terms and conditions hereof, for its lawful
and permitted corporate purposes.
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7.18 CHANGE IN LOCATION OF CHIEF EXECUTIVE OFFICE; INVENTORY AND
EQUIPMENT WITH BAILEES. Relocate its chief executive office to a new
location without providing 30 days prior written notification thereof to
Foothill and so long as, at the time of such written notification, Borrower
provides any financing statements or fixture filings necessary to perfect and
continue perfected Foothill's security interests and also provides to
Foothill a Collateral Access Agreement with respect to such new location.
The Inventory and Equipment shall not at any time now or hereafter be stored
with a bailee, warehouseman, or similar party without Foothill's prior
written consent.
7.19 NO PROHIBITED TRANSACTIONS UNDER ERISA. Directly or
indirectly:
(a) engage, or permit any Subsidiary of Borrower to
engage, in any prohibited transaction which is reasonably likely to result in
a civil penalty or excise tax described in Sections 406 of ERISA or 4975 of
the IRC for which a statutory or class exemption is not available or a
private exemption has not been previously obtained from the Department of
Labor;
(b) permit to exist with respect to any Benefit Plan any
accumulated funding deficiency (as defined in Sections 302 of ERISA and 412
of the IRC), whether or not waived;
(c) fail, or permit any Subsidiary of Borrower to fail,
to pay timely required contributions or annual installments due with respect
to any waived funding deficiency to any Benefit Plan;
(d) terminate, or permit any Subsidiary of Borrower to
terminate, any Benefit Plan where such event would result in any liability of
Borrower, any of its Subsidiaries or any ERISA Affiliate under Title IV of
ERISA;
(e) fail, or permit any Subsidiary of Borrower to fail,
to make any required contribution or payment to any Multiemployer Plan;
(f) fail, or permit any Subsidiary of Borrower to fail,
to pay any required installment or any other payment required under Section
412 of the IRC on or before the due date for such installment or other
payment;
(g) amend, or permit any Subsidiary of Borrower to
amend, a Plan resulting in an increase in current liability for the plan year
such that either of Borrower, any Subsidiary of Borrower or any ERISA
Affiliate is required to provide security to such Plan under Section
401(a)(29) of the IRC; or
(h) withdraw, or permit any Subsidiary of Borrower to
withdraw, from any Multiemployer Plan where such withdrawal is reasonably
likely to result in any liability of any such entity under Title IV of ERISA;
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which, individually or in the aggregate, results in or reasonably would be
expected to result in a claim against or liability of Borrower, any of its
Subsidiaries or any ERISA Affiliate in excess of $50,000.
7.20 FINANCIAL COVENANTS. Fail to maintain, or fail to cause
the Parent Company to maintain, Tangible Net Worth at all times during and as
of the end of each calendar quarter of the Parent Company's fiscal years, in
the following amounts: (i) the sum of $29,000,000 PLUS the CIGNA Debt
Differential, during and as of the end of each calendar quarter of Borrower's
fiscal year ending December 31, 1999, (ii) the sum of $25,000,000 PLUS the
CIGNA Debt Differential, during and as of the end of each calendar quarter of
Borrower's fiscal year ending December 31, 2000, and (iii) the sum of
$22,000,000 PLUS the CIGNA Debt Differential, during and as of the end of
each calendar quarter of Borrower's fiscal year ending December 31, 2001.
Each quarterly determination of Tangible Net Worth shall be adjusted to
reflect the results contained in the audited consolidated and consolidating
financial statements of the Parent Company for the corresponding fiscal year.
8. EVENTS OF DEFAULT.
Any one or more of the following events shall constitute an event
of default (each, an "Event of Default") under this Agreement:
8.1 If Borrower fails to pay when due and payable or when
declared due and payable, any portion of the Obligations (whether of
principal, interest (including any interest which, but for the provisions of
the Bankruptcy Code, would have accrued on such amounts), fees and charges
due Foothill, reimbursement of Foothill Expenses, or other amounts
constituting Obligations); PROVIDED, HOWEVER, that in the case of
Overadvances that are caused by the charging of interest, fees, or Foothill
Expenses to the Loan Account, such event shall not constitute an Event of
Default if, within 3 Business Days of Borrower's receipt of telephonic or
other notice of such Overadvance, Borrower eliminates such Overadvance;
8.2 (a) If Borrower fails to perform, keep, or observe any
term, provision, condition, covenant, or agreement contained in Sections 6.2
[Collateral Reporting], 6.3 [Financial Statements, Reports, Certificates],
6.12 [Location of Equipment], 6.13 [Compliance with Laws], and 6.14
[Employee Benefits] hereof and such failure or neglect continues for a period
of 5 days after the date of which such failure or neglect first occurs, (b)
If Borrower fails to perform, keep, or observe any term, condition, covenant,
or agreement contained in Sections 2 [Loans and Terms of Payment] (other than
as expressly dealt with in Section 8.1), 6 [Affirmative Covenants] (other
than a subsection of Section 6 that is dealt with elsewhere in this Section
8), 7 [Negative Covenants], and 11.3 [Indemnification] of this Agreement, or
any comparable provision contained in any of the other Loan Documents; or (c)
If Borrower fails to perform, keep, or observe any other term, provision,
condition, covenant, or agreement contained in any Section of this Agreement
(other than a Section that is expressly dealt with elsewhere in this Section
8), or under any of the other Loan Documents, and such failure or neglect is
not cured within 15 days after the date on which such failure or neglect
first occurs.
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8.3 If there is a Material Adverse Change (it being agreed
that, if by virtue of a waiver or amendment permitted under Sections 5.16 and
7.1(e), any portion of the CIGNA Indebtedness becomes reclassified as a
current liability under GAAP, such reclassification, in and of itself, shall
not be deemed to constitute a Material Adverse Change, provided that such
reclassification does not result in an acceleration of or any modification
whatsoever of the payment schedule concerning the CIGNA Indebtedness or any
material contractual obligation of Borrower);
8.4 If any material portion of Borrower's properties or assets
is attached, seized, subjected to a writ or distress warrant, or is levied
upon, or comes into the possession of any third Person; and the same is not
discharged before the earlier of 30 days after the date it first arises or 5
days prior to the date on which such property or asset is subject to
forfeiture by Borrower; or
8.5 If an Insolvency Proceeding is commenced by Borrower;
8.6 If an Insolvency Proceeding is commenced against Borrower
and any of the following events occur: (a) Borrower consents to the
institution of the Insolvency Proceeding against it; (b) the petition
commencing the Insolvency Proceeding is not timely controverted; (c) the
petition commencing the Insolvency Proceeding is not dismissed within 45
calendar days of the date of the filing thereof; PROVIDED, HOWEVER, that,
during the pendency of such period, Foothill shall be relieved of its
obligation to extend credit hereunder; (d) an interim trustee is appointed to
take possession of all or a substantial portion of the properties or assets
of, or to operate all or any substantial portion of the business of,
Borrower; or (e) an order for relief shall have been issued or entered
therein;
8.7 If Borrower is enjoined, restrained, or in any way
prevented by court order from continuing to conduct all or any material part
of its business affairs, and such injunction, restraint, or other stay (i)
does not cause or result in a Material Adverse Change, and (ii) is dismissed,
discharged, set aside, removed, terminated or lifted, as a matter of law or
order of a court of competent jurisdiction or other governmental agency or
authority having jurisdiction to do so, within three (3) Business Days of the
initial effective date thereof;
8.8 If a notice of Lien (other than a Permitted Lien), levy, or
assessment is filed of record with respect to any of Borrower's properties or
assets by the United States Government, or any department, agency, or
instrumentality thereof, or by any state, county, municipal, or governmental
agency, or if any taxes or debts owing at any time hereafter to any one or
more of such entities becomes a Lien, whether xxxxxx or otherwise, upon any
of Borrower's properties or assets and the same is not paid on the payment
date thereof; and the same is not released, discharged, or bonded against
before the earlier of 30 days after the date it first arises or 5 days prior
to the date when such asset is subject to being forfeited by Borrower;
8.9 If a judgment or other claim becomes a Lien or encumbrance
upon any material portion of Borrower's properties or assets; and the same is
not released, discharged,
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bonded against, or stayed pending appeal before the earlier of 30 days after
the date it first arises or 5 days prior to the date on which such asset is
subject to being forfeited by Borrower;
8.10 If there is a default in any material agreement to which
Borrower is a party with one or more third Persons (including, without
limitation, the CIGNA Loan Documents), and such default (a) constitutes a
failure to pay or perform Borrower's obligations thereunder at the final
maturity thereof, or (b) results in a right by such third Person(s),
irrespective of whether exercised, to accelerate the maturity of Borrower's
obligations thereunder;
8.11 If Borrower makes any payment on account of Indebtedness
that has been contractually subordinated in right of payment to the payment
of the Obligations, except to the extent such payment is permitted by the
terms of the subordination provisions applicable to such Indebtedness;
8.12 If any material misstatement or misrepresentation exists
now or hereafter in any warranty, representation, statement, or report made
to Foothill by Borrower or any officer, employee, agent, or director of
Borrower, including, without limitation, Borrower's warranties and
representations set forth in Section 5 of this Agreement, or if any such
warranty or representation is withdrawn;
8.13 If the security interest granted to Foothill by the Parent
Company or any other Affiliate of Borrower under any Loan Document is limited
or terminated by operation of law or by said grantor, or any such grantor
becomes the subject of an Insolvency Proceeding; or
8.14 If, at the time any payment of principal or interest is
made by or for the account of the Parent Company upon the CIGNA Indebtedness,
any Obligation hereunder in the form of the Term Loan remains unpaid and
Borrower's Availability, computed immediately after making such payment, is
less than $1,000,000.
9. FOOTHILL'S RIGHTS AND REMEDIES.
9.1 RIGHTS AND REMEDIES. Upon the occurrence, and during the
continuation, of an Event of Default Foothill may, at its election, without
notice of its election and without demand, do any one or more of the
following, all of which are authorized by Borrower:
(a) Declare all Obligations, whether evidenced by this
Agreement, by any of the other Loan Documents, or otherwise, immediately due
and payable;
(b) Cease advancing money or extending credit to or for
the benefit of Borrower under this Agreement, under any of the Loan
Documents, or under any other agreement between Borrower and Foothill;
(c) Terminate this Agreement and any of the other Loan
Documents as to any future liability or obligation of Foothill, but without
affecting Foothill's rights and security interests in the Collateral and
without affecting the Obligations;
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(d) Settle or adjust disputes and claims directly with
Account Debtors for amounts and upon terms which Foothill reasonably
considers advisable, and in such cases, Foothill will credit Borrower's Loan
Account with only the net amounts received by Foothill in payment of such
disputed Accounts after deducting all Foothill Expenses incurred or expended
in connection therewith;
(e) Cause Borrower to hold all returned Inventory in
trust for Foothill, segregate all returned Inventory from all other property
of Borrower or in Borrower's possession and conspicuously label said returned
Inventory as the property of Foothill;
(f) Without notice to or demand upon Borrower or any
guarantor, make such payments and do such acts as Foothill considers
necessary or reasonable to protect its security interests in the Collateral
of Borrower. Borrower agrees to assemble the Collateral of Borrower if
Foothill so requires, and to make the Collateral of Borrower available to
Foothill as Foothill may designate. Borrower authorizes Foothill to enter
the premises where the Collateral of Borrower is located, to take and
maintain possession of the Collateral of Borrower, or any part of it, and to
pay, purchase, contest, or compromise any encumbrance, charge, or Lien that
in Foothill's determination appears to conflict with its security interests
and to pay all expenses incurred in connection therewith. With respect to
any of Borrower's owned or leased premises, Borrower hereby grants Foothill a
license to enter into possession of such premises and to occupy the same,
without charge, for up to 120 days in order to exercise any of Foothill's
rights or remedies provided herein, at law, in equity, or otherwise;
(g) Without notice to Borrower (such notice being
expressly waived), and without constituting a retention of any collateral in
satisfaction of an obligation (within the meaning of Section 9505 of the
Code), set off and apply to the Obligations any and all (i) balances and
deposits of Borrower held by Foothill (including any amounts received in the
Lockbox Accounts), or (ii) indebtedness at any time owing to or for the
credit or the account of Borrower held by Foothill;
(h) Hold, as cash collateral, any and all balances and
deposits of Borrower held by Foothill, and any amounts received in the
Lockbox Accounts, to secure the full and final repayment of all of the
Obligations;
(i) Ship, reclaim, recover, store, finish, maintain,
repair, prepare for sale, advertise for sale, and sell (in the manner
provided for herein) the Collateral (other than Collateral owned by the
Parent Company and covered by the Parent IP security Agreement or Parent
Pledge and Security Agreement). Foothill is hereby granted a license or
other right to use, without charge, Borrower'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 Collateral (other than Collateral owned by the Parent Company
and covered by the Parent IP security Agreement or Parent Pledge and Security
Agreement), in completing production of, advertising for sale, and selling
any Collateral (other than Collateral owned by the Parent Company and covered
by the Parent IP security Agreement or Parent Pledge
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and Security Agreement) and Borrower's rights under all licenses and all
franchise agreements shall inure to Foothill's benefit;
(j) Sell the Collateral (other than Collateral owned by
the Parent Company and covered by the Parent IP security Agreement or Parent
Pledge and Security Agreement) 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 Borrower's premises) as Foothill
determines is commercially reasonable. It is not necessary that the
Collateral be present at any such sale;
(k) Foothill shall give notice of the disposition of the
Collateral as follows:
(1) Foothill shall give Borrower and each holder
of a security interest in the Collateral who has filed with Foothill 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;
(2) The notice shall be personally delivered or
mailed, postage prepaid, to Borrower as provided in SECTION 12, at least 5
days before the date fixed for the sale, or at least 5 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 Borrower claiming an interest in the Collateral shall be sent to
such addresses as they have furnished to Foothill;
(3) If the sale is to be a public sale, Foothill
also shall give notice of the time and place by publishing a notice one time
at least 5 days before the date of the sale in a newspaper of general
circulation in the county in which the sale is to be held;
(l) Foothill may credit bid and purchase at any public
sale; and
(m) Any deficiency that exists after disposition of the
Collateral as provided above will be paid immediately by Borrower. Any
excess will be returned, without interest and subject to the rights of third
Persons, by Foothill to Borrower.
9.2 REMEDIES CUMULATIVE. Foothill's rights and remedies under
this Agreement, the Loan Documents, and all other agreements shall be
cumulative. Foothill shall have all other rights and remedies not
inconsistent herewith as provided under the Code, by law, or in equity. No
exercise by Foothill of one right or remedy shall be deemed an election, and
no waiver by Foothill of any Event of Default shall be deemed a continuing
waiver. No delay by Foothill shall constitute a waiver, election, or
acquiescence by it.
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10. TAXES AND EXPENSES.
If Borrower fails to pay any monies (whether taxes, assessments,
insurance premiums, or, in the case of leased properties or assets, rents or
other amounts payable under such leases) due to third Persons, 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 Foothill
determines, in Foothill's Permitted Discretion, that such failure by Borrower
could result in a Material Adverse Change, in its discretion and without
prior notice to Borrower, Foothill may do any or all of the following: (a)
make payment of the same or any part thereof; (b) set up such reserves in
Borrower's Loan Account as Foothill deems necessary to protect Foothill from
the exposure created by such failure; or (c) obtain and maintain insurance
policies of the type described in SECTION 6.10, and take any action with
respect to such policies as Foothill deems prudent. Any such amounts paid by
Foothill shall constitute Foothill Expenses. Any such payments made by
Foothill shall not constitute an agreement by Foothill to make similar
payments in the future or a waiver by Foothill of any Event of Default under
this Agreement. Foothill need not inquire as to, or contest the validity of,
any such expense, tax, or Lien and the receipt of the usual official notice
for the payment thereof shall be conclusive evidence that the same was
validly due and owing.
11. WAIVERS; INDEMNIFICATION.
11.1 DEMAND; PROTEST; ETC. Borrower waives demand, protest,
notice of protest, notice of default or dishonor, notice of payment and
nonpayment, nonpayment at maturity, release, compromise, settlement,
extension, or renewal of accounts, documents, instruments, chattel paper, and
guarantees at any time held by Foothill on which Borrower may in any way be
liable.
11.2 FOOTHILL'S LIABILITY FOR COLLATERAL. So long as Foothill
complies with its obligations, if any, under Section 9207 of the Code,
Foothill 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 Borrower.
11.3 INDEMNIFICATION. Borrower shall pay, indemnify, defend,
and hold Foothill, each Participant, and each of their respective officers,
directors, employees, counsel, agents, and attorneys-in-fact (each, an
"Indemnified Person") harmless (to the fullest extent permitted by law) from
and against any and all claims, demands, suits, actions, investigations,
proceedings, and damages, and all reasonable attorneys fees and disbursements
and other costs and expenses actually incurred in connection therewith (as
and when they are incurred and irrespective of whether suit is brought), at
any time asserted against, imposed upon, or incurred by any of them in
connection with or as a result of or related to the execution, delivery,
enforcement, performance, and administration of this Agreement and any other
Loan Documents or the transactions contemplated herein, and with respect to
any investigation, litigation, or
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proceeding related to this Agreement, any other Loan Document, or the use of
the proceeds of the credit provided hereunder (irrespective of whether any
Indemnified Person is a party thereto), or any act, omission, event or
circumstance in any manner related thereto (all the foregoing, collectively,
the "Indemnified Liabilities"). Borrower shall have no obligation to any
Indemnified Person under this SECTION 11.3 with respect to any Indemnified
Liability that a court of competent jurisdiction finally determines to have
resulted from the gross negligence or willful misconduct of such Indemnified
Person. This provision shall survive the termination of this Agreement and
the repayment of the Obligations.
12. NOTICES.
Unless otherwise provided in this Agreement, all notices or
demands by any party relating to this Agreement or any other Loan Document
shall be in writing and (except for financial statements and other
informational documents which may be sent by first-class mail, postage
prepaid) shall be personally delivered or sent by registered or certified
mail (postage prepaid, return receipt requested), overnight courier, or
telefacsimile to Borrower or to Foothill, as the case may be, at its address
set forth below:
IF TO BORROWER: Aldila Golf Corp.
00000 Xxxxxxxxx Xxxx
Xxxxx, Xxxxxxxxxx 00000-0000
Attn: Xxxxxx Xxxxxxx, Vice President
Fax No. 000.000.0000
WITH COPIES TO: Fried, Frank, Harris, Xxxxxxx & Xxxxxxxx
000 Xxxxx Xxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attn: Xxxxxx Xxxxxxxxx, Esq.
Fax No. 000.000.0000
IF TO FOOTHILL: FOOTHILL CAPITAL CORPORATION
00000 Xxxxx Xxxxxx Xxxxxxxxx
Xxxxx 0000
Xxx Xxxxxxx, Xxxxxxxxxx 00000-0000
Attn: Business Finance Division Manager
Fax No. 000.000.0000
WITH COPIES TO: Jeffer, Mangels, Xxxxxx & Marmaro LLP
2121 Avenue of the Stars, 00xx Xxxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000-0000
Attn: Xxxxxxx X. Xxxxxx, Esq.
Fax No. 000.000.0000
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The parties hereto may change the address at which they are to
receive notices hereunder, by notice in writing in the foregoing manner given
to the other. All notices or demands sent in accordance with this SECTION
12, other than notices by Foothill in connection with Sections 9504 or 9505
of the Code, shall be deemed received on the earlier of the date of actual
receipt or 3 days after the deposit thereof (with certification) in the mail.
Borrower acknowledges and agrees that notices sent by Foothill in connection
with Sections 9504 or 9505 of the Code shall be deemed sent when deposited in
the mail (with certification) or personally delivered, or, where permitted by
law, transmitted telefacsimile or other similar method set forth above.
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.
THE VALIDITY OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS
(UNLESS EXPRESSLY PROVIDED TO THE CONTRARY IN AN ANOTHER LOAN DOCUMENT), THE
CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF AND THEREOF, AND THE
RIGHTS OF THE PARTIES HERETO AND THERETO WITH RESPECT TO ALL MATTERS ARISING
HEREUNDER OR THEREUNDER OR RELATED HERETO OR THERETO SHALL BE DETERMINED
UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
CALIFORNIA (EXCEPT AS OTHERWISE EXPRESSLY PROVIDED BY THE CODE). THE PARTIES
AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE TRIED AND LITIGATED ONLY IN
THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF LOS ANGELES, STATE OF
CALIFORNIA OR, AT THE SOLE OPTION OF FOOTHILL, IN ANY OTHER COURT IN WHICH
FOOTHILL SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS TO ENFORCE THE LOAN
DOCUMENTS WITH RESPECT TO THE COLLATERAL UPON THE OCCURRENCE OF A DEFAULT
THEREUNDER OR TO PERFECT ITS RIGHTS, REMEDIES AND INTERESTS WITH RESPECT TO
THE COLLATERAL, AND WHICH HAS SUBJECT MATTER JURISDICTION OVER THE MATTER IN
CONTROVERSY. EACH OF BORROWER AND FOOTHILL WAIVES, TO THE EXTENT PERMITTED
UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM
NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT
IN ACCORDANCE WITH THIS SECTION 13. BORROWER AND FOOTHILL HEREBY WAIVE THEIR
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON
OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS
CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY
CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. EACH OF BORROWER AND
FOOTHILL REPRESENTS THAT IT HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND
VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL
COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED
AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
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14. DESTRUCTION OF BORROWER'S DOCUMENTS.
All documents, schedules, invoices, agings, or other papers
delivered to Foothill may be destroyed or otherwise disposed of by Foothill 4
months after they are delivered to or received by Foothill, unless Borrower
requests, in writing, the return of said documents, schedules, or other
papers and makes arrangements, at Borrower's expense, for their return.
15. CONFIDENTIALITY
With respect to any of Borrower's Trade Secrets, Foothill shall
use its best efforts to maintain the confidentiality of such information
consistent with and without limiting or restricting its rights, interests,
and remedies as a lender and secured creditor of Borrower; provided, however,
that Foothill shall not be prohibited from disclosing any information (a) to
any assignees and participants as permitted under Section 16.2, (b) as
required by law, rule, or regulation applicable to or governing the
operations and administration of Foothill or any of its Affiliates, (c) which
is readily available in public records or otherwise in the public domain,
(d) which has been disclosed to or known by any third party to whom Foothill
discloses any such information, (e) to Foothill's auditors (internal and
external), who shall be subject to the confidentiality provisions of this
SECTION 15, (f) as Foothill reasonably deems to be necessary or appropriate
in connection with the performance and enforcement of the Loan Documents upon
the occurrence of a Default, or (g) as otherwise permitted in writing by
Borrower; provided, further, that Foothill shall not be liable for any
consequential or punitive damages for any breach of the provisions of this
SECTION 15 or for any damages for any unauthorized disclosure by any third
party agent of Foothill.
16. GENERAL PROVISIONS.
16.1 EFFECTIVENESS. This Agreement shall be binding and deemed
effective when executed by Borrower and Foothill.
16.2 SUCCESSORS AND ASSIGNS. This Agreement shall bind and
inure to the benefit of the respective successors and assigns of each of the
parties (including, without limitation, the provisions of SECTION 15 above);
PROVIDED, HOWEVER, that Borrower may not assign this Agreement or any rights
or duties hereunder without Foothill's prior written consent and any
prohibited assignment shall be absolutely void. No consent to an assignment
by Foothill shall release Borrower from its Obligations. Foothill may assign
this Agreement and its rights and duties hereunder and no consent or approval
by Borrower is required in connection with any such assignment. Foothill
reserves the right to sell, assign, transfer, negotiate, or grant
participations in all or any part of, or any interest in Foothill's rights
and benefits hereunder, provided that all such assignees and participants
shall be bound by the provisions of Section 15. In connection with any such
assignment or participation, Foothill may disclose all documents and
information which Foothill now or hereafter may have relating to Borrower or
Borrower's business. To the extent that Foothill assigns its rights and
obligations hereunder to a third Person, Foothill
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thereafter shall be released from such assigned obligations to Borrower and
such assignment shall effect a novation between Borrower and such third
Person.
16.3 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.
16.4 INTERPRETATION. Neither this Agreement nor any uncertainty
or ambiguity herein shall be construed or resolved against Foothill or
Borrower, 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.
16.5 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.
16.6 AMENDMENTS IN WRITING. This Agreement can only be amended
by a writing signed by both Foothill and Borrower.
16.7 COUNTERPARTS; TELEFACSIMILE EXECUTION. This Agreement may
be executed in any number of counterparts and by different parties on
separate counterparts, each of which, when executed and delivered, shall be
deemed to be an original, and all of which, when taken together, shall
constitute but one and the same Agreement. Delivery of an executed
counterpart of this Agreement by telefacsimile shall be equally as effective
as delivery of an original executed counterpart of this Agreement. Any party
delivering an executed counterpart of this Agreement by telefacsimile also
shall deliver an original executed counterpart of this Agreement but the
failure to deliver an original executed counterpart shall not affect the
validity, enforceability, and binding effect of this Agreement.
16.8 REVIVAL AND REINSTATEMENT OF OBLIGATIONS. If the
incurrence or payment of the Obligations by Borrower, or any security
interest granted by the Parent Company or any other Affiliate of Borrower
hereunder, or the transfer by either or both of such parties to Foothill of
any property of either or both of such parties 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 Foothill 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 Foothill is required or elects to repay or restore,
and as to all reasonable costs, expenses, and attorneys fees of Foothill
related thereto, the liability of Borrower or the Parent Company or such
other grantor automatically shall be revived, reinstated, and restored and
shall exist as though such Voidable Transfer had never been made.
-63-
16.9 INTEGRATION. This Agreement, together with the other Loan
Documents, reflects the entire understanding of the parties with respect to
the transactions contemplated hereby and shall not be contradicted or
qualified by any other agreement, oral or written, before the date hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed in Los Angeles, California.
ALDILA GOLF CORP.,
a Delaware corporation
By: /s/ Xxxxxx X. Xxxxxxx
-------------------------------------
Title: Vice President
FOOTHILL CAPITAL CORPORATION,
a California corporation
By: /s/ Xxxxx Xxxxx
-------------------------------------
Title: Vice President
-64-
SCHEDULES AND EXHIBITS
Schedule E-1 Eligible Inventory Locations
Schedule P-1 Permitted Liens
Schedule 5.8 Subsidiaries
Schedule 5.10 Litigation
Schedule 5.13 ERISA Benefit Plans
Schedule 6.12 Location of Inventory and Equipment
Exhibit A Borrower IP Security Agreement
Exhibit B Borrower Pledge and Security Agreement
Exhibit C Collateral Access Agreement
Exhibit D Compliance Certificate
Exhibit E Disbursement Letter
Exhibit F Lockbox Agreement
Exhibit G Parent IP Security Agreement
Exhibit H Parent Pledge and Security Agreement
Exhibit I Opinion of Counsel
-65-
Exhibit A
INTELLECTUAL PROPERTY SECURITY AGREEMENT
[Aldila Golf Corp.]
This Intellectual Property Security Agreement (the "Agreement"), dated
as of July 9, 1999 is made by and between ALDILA GOLF CORP., a Delaware
corporation (together with its successors and assigns "Borrower"), and
FOOTHILL CAPITAL CORP., a California corporation (together with its
successors and assigns, "Foothill"); with respect to the following facts:
A. Borrower and Foothill have entered into that certain Loan and
Security Agreement dated of even date herewith (as from time to time amended,
modified or supplemented in accordance with its terms, the "Loan Agreement"),
pursuant to which Foothill has agreed to extend credit to or for the account
of Borrower in the form of a revolving credit facility and term loan (such
revolving credit facility and term loan are collectively referred to herein
as the "Loans"), and Borrower granted a security interest in substantially
all of Borrower's assets as security for all obligations and liabilities of
Borrower for payment and performance under, arising out of or in connection
with the Loan Agreement (all of such obligations and liabilities being
hereinafter referred to as the "Obligations").
B. Borrower and/or its parent has adopted certain trademarks and
service marks, including those that have been registered, or for which
registration applications are pending, that are identified herein and in
SCHEDULE A annexed hereto and made a part hereof.
C. Borrower and/or the Parent Company is the owner and holder of
certain patents and patent applications, including those that have been
registered, or for which registration applications are pending, that are
identified herein and in SCHEDULE B annexed hereto and made a part hereof.
D. Borrower is the owner of the copyrights in certain works of
authorship, as described herein and in SCHEDULE C annexed hereto and made a
part hereof.
E. To induce Foothill to enter into the Loan Agreement and to extend
credit thereunder, and to better evidence and perfect the liens granted to
Foothill in the Loan Agreement, Borrower has agreed to pledge and grant a
security interest in the IP Collateral (as hereinafter defined) as security
for the Obligations.
F. This Agreement is the Borrower IP Security Agreement as defined
and described in the Loan Agreement. Except as otherwise expressly provided
herein, all terms used in this Agreement beginning with a capital letter
shall have the meanings ascribed to them in the Loan Agreement.
NOW, THEREFORE, IT IS AGREED that, for and 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,
1
and as collateral security for the prompt payment in full when due (whether
at stated maturity, by acceleration or otherwise) of the Obligations,
Borrower hereby pledges and grants to Foothill a lien and security interest,
subject only to Permitted Liens, in all of Borrower's right, title and
interest in and to the following property and interests in property, whether
now owned by Borrower or hereafter acquired and whether now existing or
hereafter coming into existence (all being collectively referred to herein as
"IP Collateral"):
(a) all of Borrower's right, title and interest in and to
trademarks, trade names, service marks, and all general intangibles of like
nature, now existing or hereafter adopted or acquired by Borrower, together
with the goodwill of Borrower's business connected with the use thereof and
symbolized thereby, and all registration applications, registrations and
recordings thereof, including, without limitation, registration applications,
registrations and recordings in the United States Patent and Trademark Office
or in any similar office or agency of the United States or in any office of
the Secretary of State (or equivalent) of any state thereof, or in any
similar office or agency of any country or political subdivision thereof
throughout the world, whether now owned or hereafter acquired by Borrower,
including, but not limited to, those described in SCHEDULE A annexed hereto
and made a part hereof (to the extent owned by Borrower and not Parent
Company), together with all extensions, renewals and corrections thereof and
all licenses thereof or pertaining thereto (all of the foregoing assets
encompassed by this subparagraph 1(a) being hereinafter collectively referred
to as the "Trademarks");
(b) all of Borrower's right, title and interest in and to all
inventions and letters patent and registration applications therefor, and all
registrations and recordings thereof, including, without limitation,
registration applications, registrations and recordings in the United States
Patent and Trademark Office or in any similar office or agency of the United
States or any state thereof, or in any similar office or agency of any
country or political subdivision thereof throughout the world, whether now
owned or hereafter acquired by Borrower, including, but not limited to, those
described in SCHEDULE B annexed hereto and made a part hereof (to the extent
owned by Borrower and not Parent Company), together with all re-examinations,
reissues, continuations, continuations-in-part, divisions, improvements and
extensions thereof and all licenses thereof or pertaining thereto and all
licenses of patent rights to Borrower now in effect or entered into during
the term of this Agreement and the rights to make, use and sell, and all
other rights with respect to, the inventions disclosed or claimed therein,
all patentable inventions, designs, proprietary or technical information,
know-how, other data or information, software, databases, all embodiments or
fixations thereof and related documentation (all of the foregoing assets
encompassed by this subparagraph 1(b) being hereinafter collectively referred
to as the "Patents");
(c) all of Borrower's right, title and interest in and to
copyrights in works of authorship of any kind, and all registration
applications, registrations and recordings thereof in the Office of the
United States Register of Copyrights, Library of Congress, or in any similar
office or agency of any country or political subdivision thereof throughout
the world, whether now owned or hereafter acquired by Borrower, including,
2
but not limited to, those described in SCHEDULE C annexed hereto and made a
part hereof, together with all extensions, renewals, reversionary rights, and
corrections thereof and all licenses thereof or pertaining thereto (all of
the foregoing assets encompassed by this subparagraph 1(c) hereinafter
collectively referred to as the "Copyrights");
(d) all of Borrower's customer lists and other records of
Borrower relating to the distribution of products bearing, constituting or
incorporating the Trademarks, Patents and Copyrights; and
(e) any and all proceeds of the foregoing, including, without
limitation, the proceeds from any claims by Borrower against third parties
for past, present or future infringement of the Trademarks, Patents or
Copyrights and any royalties from licenses to third parties of the
Trademarks, Patents or Copyrights.
Notwithstanding any of the foregoing premises to the contrary, the grant of a
security interest as provided herein shall not extend to, and the term "IP
Collateral" shall not include, any right, title or interest in or to property
or interests of Borrower (whether owned or held as licensee or lessee, or
otherwise), to the extent that (i) to the extent required, Borrower has not
received permission from licensor to grant such a security interest, or (ii)
such property is otherwise not assignable or capable of being encumbered as a
matter of law or under the terms of the license or other agreement applicable
thereto, whether such license or agreement is written, oral or implicit (but
solely to the extent that any such restriction shall be enforceable under
applicable law), without the consent of the licensor thereof or other
applicable party thereto, and such consent has not been obtained; PROVIDED,
HOWEVER, that the foregoing grant of security interest shall extend to, and
the term "IP Collateral" shall include, any proceeds of any property which is
otherwise excluded under phrase (i) to the extent that assignment or
encumbrance of such proceeds is not restricted.
1. Borrower hereby represents, warrants, covenants and agrees
as follows:
(a) Borrower and/or Parent Company has the sole, full
and clear title to the Trademarks listed in SCHEDULE A for the goods and
services with which such Trademarks are used (except as provided in paragraph
1(g) below and in SCHEDULE A attached hereto). Except as noted in SCHEDULE
A, the registrations of the Trademarks are valid and subsisting and in full
force and effect. Borrower has not granted a license or otherwise agreed to
allow any third party, other than such licenses as are immaterial
individually and in the aggregate, other than to Parent Company and
Borrower's Subsidiaries in the ordinary course of their business, and other
than as set forth in paragraph 2, to use any Trademark (except as provided in
SCHEDULE A attached hereto). Borrower has used and will continue to use for
the duration of this Agreement standards of quality in the manufacture of
products sold under the Trademarks that are at least equal to those standards
in effect as of the date of this Agreement to the extent that the failure to
do so would cause a Material Adverse Change.
3
(b) To the extent Borrower now uses such Trademarks,
Borrower (either itself or through its licensees) will continue to use the
Trademarks listed in SCHEDULE A on each and every trademark class of goods
applicable to its current lines of goods as reflected in its current
catalogs, brochures and price lists in order to maintain the Trademarks in
full force and effect, in the ordinary course of business, free from any
claim of abandonment for nonuse and Borrower will not (and will not permit
any licensee thereof to) do any act or knowingly omit to do any act whereby
any Trademark may become invalidated, provided, however, that Borrower may
abandon any Trademark if Borrower believes in its reasonable business
judgment that such abandonment is in the best interest of Borrower's
business, provided, further, that (i) to the extent practicable, Borrower
gives Foothill prompt notice of Borrower's intent to abandon any Trademark,
and (ii) such abandonment will not, solely by virtue of such abandonment,
materially decrease the value of the IP Collateral.
(c) Borrower and/or Parent Company has the sole, full
and clear title to the Patents shown on SCHEDULE B hereto and to Parent
Company and such patents are valid and subsisting and in full force and
effect and have not been adjudged or, to Borrower's knowledge, claimed
invalid or unenforceable in whole or in part (except as provided in paragraph
l(g) below and in SCHEDULE B attached hereto). Borrower has not granted a
license or otherwise agreed to allow any third party, other than to Parent
Company and Subsidiaries of Parent Company or Borrower in the ordinary course
of business, and other than as set forth in paragraph 2, to use any Patent
(except as provided in SCHEDULE B attached hereto). Borrower shall
diligently prosecute any patent application now pending or acquired or made
by it during the term of this Agreement, and shall preserve and maintain all
rights of any kind in the Patents, which, in each case, Borrower believes in
its reasonable business judgment are in the best business interests of
Borrower. Borrower believes that none of the Patents has been abandoned or
dedicated and Borrower will not do any act, or omit to do any act, nor permit
any licensee thereof to do any act whereby any Patent may become abandoned or
dedicated and shall notify Foothill immediately if it knows that any material
Patent may become abandoned or dedicated, provided, however, that Borrower
may abandon any Patent if Borrower believes in its reasonable business
judgment that such abandonment is in the best interest of Borrower's
business, provided, further, that (i) to the extent practicable, Borrower
gives Foothill prompt notice of Borrower's intent to abandon any Patent, and
(ii) such abandonment will not, solely by virtue of such abandonment,
materially decrease the value of the IP Collateral.
(d) Borrower (either itself or through its licensees)
will place appropriate notice of copyright on all copies embodying registered
copyrighted works which are publicly distributed and Borrower will not (and
will not permit any licensee thereof to) do any act or knowingly omit to do
any act whereby any Copyright may become invalidated or dedicated to the
public domain except to the extent that Borrower, in its reasonable business
judgment, determines otherwise.
(e) Borrower will promptly perform all acts and execute
all documents, including, without limitation, grants of security in forms
acceptable to
4
Foothill and suitable for recording with (i) the United States Patent and
Trademark Office and the United States Register of Copyrights, and (ii) the
appropriate offices and agencies of foreign jurisdictions reasonably
requested by Foothill at any time to evidence, perfect, maintain, record or
enforce Foothill's interest in the IP Collateral or otherwise in furtherance
of the provisions of this Agreement. Borrower hereby authorizes Foothill to
execute and file one or more financing statements (and any similar documents)
or copies thereof or of this Agreement with respect to the IP Collateral
signed only by Foothill (with a copy sent to Borrower).
(f) In the event that Borrower, either itself or through
any subsidiary, affiliate, agent, employee, licensee or designee, shall file
an application for the issuance of any Patent or registration of any
Trademark with the United States Patent and Trademark Office, or any similar
office of the United States or in any office of the Secretary of State (or
equivalent) of any state thereof, or for the registration of any Copyright
with the United States Register of Copyrights, or for the registration of any
Patent, Trademark or Copyright in any similar office or agency of any country
or political subdivision thereof throughout the world, or shall obtain
issuance of any Patent or registration of any Trademark or Copyright
previously applied for, or shall adopt, acquire or obtain rights to any new
trademark, patent application or work for which a copyright application has
been or is expected to be filed (except as a licensee), or become entitled to
the benefit of any patent application or any patent or any part thereof for
reissue, re-examination, continuation, continuation-in-part, division,
improvement or extension (except as a licensee), Borrower shall execute and
deliver any and all assignments, agreements, instruments, documents and
papers as are necessary or appropriate or as Foothill may reasonably request
to evidence Foothill's interest in such Trademark, Patent or Copyright and
the goodwill and general intangibles of Borrower relating thereto or
represented thereby. Borrower hereby constitutes Foothill, or its agent, or
its attorney-in-fact, to execute and file all such writings for the foregoing
purposes, all acts of such attorney being hereby ratified and confirmed; such
power being coupled with an interest is irrevocable until the Obligations are
paid in full. Borrower authorizes the amendment of the schedules hereto to
include any future Trademark, Patent or Copyright registrations or
registration applications which may be acquired or made by Borrower (except
as a licensee).
(g) Borrower has the authority, right and power to enter
into this Agreement and to perform its terms and to grant the security
interest herein granted, and has not entered and will not enter into any oral
or written agreements which would prevent Borrower from complying with the
terms hereof, provided, however, Borrower may enter into or maintain in
effect such license agreements (including, without limitation, those set
forth on SCHEDULES A, B AND C hereto) with respect to the IP Collateral as
Borrower believes in its reasonable business judgment are in the best
interest of Borrower's business. The IP Collateral is not, to Borrower's
knowledge, now, and at all times will not be, subject to any liens, charges,
mortgages, assignments, security interests, licenses, claims, shop rights,
covenants not to xxx third persons, or encumbrances of any nature whatsoever,
except in favor of Foothill and except for Permitted Liens; provided,
however, Borrower may enter into such license agreements
5
with respect to the IP Collateral as Borrower believes in its reasonable
business judgment are in the best interest of Borrower's business. To the
best knowledge of Borrower, none of the IP Collateral is subject to any
claims of any other party (except (i) for permitted use by licensees or (ii)
with respect to any use of any IP Collateral of which Borrower is the
licensee), except as may be indicated on SCHEDULES A, B AND C to this
Agreement.
(h) Except for Permitted Liens, for licenses to
licensees, and to the extent that Foothill, upon prior notice from Borrower,
shall consent, Borrower will not assign, sell, mortgage, lease, transfer,
pledge, hypothecate, grant a security interest in or lien upon, encumber,
grant any exclusive licenses that are material individually or in the
aggregate, or otherwise dispose of any of the IP Collateral, and nothing in
this Agreement shall be deemed a consent by Foothill to any such action
except as expressly permitted herein or to the extent that Borrower, in its
reasonable business judgment, determines otherwise.
(i) As of the date hereof Borrower has no Trademarks,
Patents or Copyrights registered, or which are the subject of any pending
application, in the United States Patent and Trademark Office, or any similar
office of the United States or in any office of the Secretary of State (or
equivalent) of any state thereof, or the United States Register of
Copyrights, or in any similar office or agency of any country or political
subdivision thereof throughout the world, other than those of Borrower and/or
Parent Company identified in SCHEDULES A, B AND C hereto.
(j) Borrower will take all commercially reasonable steps
in any proceeding before the United States Patent and Trademark Office,
United States Register of Copyrights or similar office or agency of the
United States or any office of the Secretary of State (or equivalent) of any
state thereof, or in any similar office or agency of any country or political
subdivision thereof throughout the world, to maintain each registration
application and registration of the IP Collateral, including, without
limitation, filing of renewals, extensions, affidavits of use and
incontestability, and opposition, interference and cancellation proceedings
(except to the extent that dedication, abandonment or invalidation is
permitted under paragraphs 1(b) and 1(c) hereof). To the extent practicable,
Borrower shall notify Foothill promptly if any registration application or
registration relating to any IP Collateral may become abandoned or dedicated
or subject to an adverse final determination in any proceeding in the United
States Patent and Trademark Office or United States Register of Copyrights or
in any similar office or agency of any country or political subdivision
thereof throughout the world or in any court regarding Borrower's ownership
of such Patent or Trademark, its right to register same, or to keep or
maintain the validity of same.
(k) In the event that Borrower acquires actual knowledge
that any Trademark, Patent or Copyright is infringed, misappropriated or
diluted by a third party, Borrower shall promptly xxx for infringement,
misappropriation and/or dilution and to obtain injunctive relief and recover
damages therefor, unless Borrower shall determine in its reasonable business
judgment that such suit is not in the best interest of Borrower's business,
and Borrower shall take such other actions reasonably required to protect
such
6
Trademark, Patent or Copyright as Borrower shall deem appropriate in its
reasonable business judgment under the circumstances. Upon and during the
continuance of an Event of Default, Foothill shall have the right, but in no
way shall be obligated, to bring suit in its own name to enforce the
Trademarks, Patents and Copyrights and any licenses thereunder, in which
event Borrower shall, at the reasonable request of Foothill, do any and all
lawful acts requested by Foothill and execute any and all documents required
by Foothill to aid such enforcement, and Borrower shall, upon demand,
promptly reimburse and indemnify Foothill for all costs and expenses
reasonably incurred in such enforcement.
2. Notwithstanding anything in this Agreement to the contrary:
(a) Foothill acknowledges that, in Borrower's normal
business practices, Borrower (including its Subsidiaries) has been granted
certain licenses to do, among other things, the following: (i) to access and
use intellectual property rights (such as product designs) owned by its
customers and others in the design, manufacture and sale of products to or on
behalf of such customers, (ii) to affix evidence of ownership of intellectual
property rights (such as trademarks) by its customers and others to products
manufactured and sold to or on behalf of such customers, and (iii) to affix
evidence of ownership of intellectual property rights by its customers and
others, and/or to affix evidence of ownership of intellectual property rights
by Borrower (or Parent Company), to products manufactured by third parties.
Foothill understands that many of those licenses are not evidenced in
writing, but are oral or implied. Foothill agrees that, to the extent such
licenses do not entitle any person other than Foothill, or its successors and
assigns, to realize on the Collateral, (i) the existence and use of such
licenses shall in no event constitute a breach of the terms of this Agreement
and the other Loan Documents and (ii) Borrower makes no representation or
warranty as to whether Foothill can create an enforceable security interest
in such licenses or in the intellectual property rights owned by any person
other than Borrower.
(b) Foothill acknowledges that, in Borrower's normal
business practices, Borrower (including its Subsidiaries) routinely (but not
always) does not affix any of Borrower or Parent Company's trademarks, or
other evidence of ownership of intellectual property rights (such as patents)
by Borrower or Parent Company, on products that Borrower manufactures and
sells. Foothill agrees that such practices shall in no event constitute a
breach of the terms of this Agreement and the other Loan Documents.
3. Upon an Event of Default, in addition to all other rights
and remedies provided for in the Loan Documents (as defined in the Loan
Agreement), all such rights and remedies being cumulative, not exclusive, and
enforceable alternatively, successively or concurrently, without (except as
provided herein) notice to, or consent by, Borrower, Foothill shall have the
following rights and remedies:
(a) Foothill may (without assuming any obligations or
liability thereunder), at any time and in a commercially reasonable manner,
enforce (and shall have the exclusive right to enforce) against any licensee
or sublicensee all rights and
7
remedies of Borrower in, to and under any one or more license agreements with
respect to the IP Collateral, and take or refrain from taking any action
under any thereof, and Borrower hereby releases Foothill from, and agrees to
hold Foothill free and harmless from and against any claims arising out of,
any action taken or omitted to be taken with respect to any such license
agreement except for such acts or omissions that constitute gross negligence
or willful misconduct;
(b) Foothill may, at any time and from time to time,
upon five (5) days' prior notice to Borrower, assign, sell, or otherwise
dispose of the IP Collateral or any of it, either with or without special or
other conditions or stipulations, with power to buy the IP Collateral or any
part of it, and do all other acts and things for completing the assignment,
sale or disposition which Foothill shall, in its sole discretion, deem
appropriate or proper, but in all cases in accordance with the provisions of
Section 9.1(k) of the Loan Agreement;
(c) In addition to the foregoing, in order to implement
the assignment, sale, license or other disposal of any of the IP Collateral
pursuant to subparagraphs 3(a) and (b) hereof, Foothill may, at any time,
pursuant to the authority granted in the Power of Attorney described in
paragraph 4 hereof (such authority becoming effective upon an Event of
Default), execute and deliver on behalf of Borrower one or more instruments
of assignment sale, license or other disposition of the IP Collateral.
Borrower agrees to pay when due all reasonable costs incurred in any such
transfer of the IP Collateral, including any taxes, fees and reasonable
attorneys' fees, and all such costs shall be added to the Obligations.
Foothill may apply the proceeds actually received from any such license,
assignment, sale or other disposition in accordance with paragraph (d) of
this Section 3; and Borrower shall remain liable and will pay Foothill on
demand any deficiency remaining, together with interest thereon at a rate
equal to the rate then payable on the Obligations and the balance of any
expenses unpaid. Nothing herein contained shall be construed as requiring
Foothill to take any such action at any time; and
(d) Except as otherwise herein expressly provided, the
proceeds of any collection, sale or other realization of all or any part of
the IP Collateral pursuant hereto, shall be applied to the Obligations until
the Obligations shall have been paid in full in cash.
4. Concurrently with the execution and delivery hereof,
Borrower is executing and delivering to Foothill, in the form of EXHIBIT A
and EXHIBIT B hereto, respectively, two originals of a Power of Attorney for
the implementation of any assignment, sale or other disposition of the
Trademarks or Patents or any of them pursuant to paragraphs 3(a) and (b)
hereof.
5. No provision hereof shall be modified, altered or limited
except by a written instrument expressly referring to this Agreement and
executed by the party to be charged. The execution and delivery of this
Agreement has been properly authorized by the board of directors of Borrower
and by any necessary vote or consent of stockholders thereof. This Agreement
shall be binding upon the successors, permitted assigns or other
8
legal representatives of Borrower, and shall, together with the rights and
remedies of Foothill hereunder inure to the benefit of Foothill, its
successors, permitted assigns or other legal representatives. This
Agreement, the Obligations and the IP Collateral shall be governed in all
respects by the laws of the United States and the laws of the State of
California. If any term of this Agreement shall be held to be invalid,
illegal or unenforceable, the validity of all other terms hereof shall in no
way be affected thereby.
6. This Agreement shall continue to be effective and shall be
reinstated in the event that at any time after the Obligations have been paid
in full, any payment of the Obligations is rescinded or must otherwise be
restored or returned by Foothill.
7. Upon payment and performance by Borrower of all of the
Obligations (other than indemnification obligations for which no claim has
been made) and upon the termination of the Loan Agreement, this Agreement
shall terminate and Foothill shall execute, file and record in each office in
which any financing statement or assignment relative to the IP Collateral, or
any part thereof, shall have been filed, a termination statement, assignment
or other appropriate instrument releasing its interest therein, all without
recourse to or warranty by Foothill and at the sole cost and expense of the
Borrower.
8. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument and any of the parties hereto may execute this Agreement by
signing any such counterpart.
IN WITNESS WHEREOF, the undersigned has caused this Agreement to
be duly executed and delivered on the day and year first above written.
ALDILA GOLF CORP.
By:
---------------------------------
Its:
--------------------------------
9
INTELLECTUAL PROPERTY SECURITY AGREEMENT
[ALDILA GOLF CORP.]
SCHEDULE A
DESCRIPTION OF TRADEMARKS
TRADEMARKS Registered with The United States Patent and Trademark Office
TRADEMARK STATUS APP. NO. REG. NO. CLASS
--------- ------ -------- -------- -----
A (STYLIZED LETTERS) Registered Registered 1,101,602 28
A-S-D Registered Registered 1,847,770 28
XXXX XX-40 Registered Registered 1,503,141 28
XXXX V Registered Registered 1,959,949 28
ALDALITE Registered Registered 1,774,311 28
ALDILA Registered Registered 1,029,465 28
FLOPSTER PENDING 75/290,832 PENDING 28
GLT Registered Registered 1,216,930 28
HM-30 Registered Registered 1,643,734 28
HM-35 Registered Registered 1,895,198 28
HM-40 Registered Registered 1,895,199 28
HM-50 Registered Registered 1,630,971 28
HM-55 Registered Registered 1,630,973 28
LOBSTER Registered Registered 2,204,505 28
LONGWOOD PENDING 75/122,477 PENDING 28
POWERED BY ALDILA (& DESIGN) PENDING 75/122,477 PENDING 28
PROVEN BY Registered Registered 1,519,962 28
PERFORMANCE
SMOOTH FLEX Registered Registered 2,005,036 28
TGI Registered Registered 1,855,842 28
TRU TORQUE Registered Registered 1,216,013 28
VELOCITOR Registered Registered 1,659,896 28
DESIGN (STYLIZED LETTER A) PENDING 75/553,601 PENDING 28
10
TRADEMARKS Registered in Foreigh Jurisdictions
TRADEMARK STATUS APP. NO. REG. NO. CLASS COUNTRY
--------- ------ -------- -------- ----- -------
ALDILA (STYLIZED LETTERS) Registered Registered 1045484 28 United Kingdom
ALDILA Registered Registered 1018307 28 United Kingdom
ALDILA PENDING 223081 PENDING 28 Community
XXXXXX(1) Registered Registered TMA218,790 28 Canada
XXXX VIII Registered Registered TMA215,996 28 Canada
ALDILA (& DESIGN) Registered Registered TMA217,731 28 Canada
A (& DESIGN) Registered Registered TMA219,934 28 Canada
ALDILA GOLF SHAFTS Registered Registered TMA233,609 28 Canada
(& DESIGN)
ALDILA (& DESIGN) Registered Registered TMA201,477 28 Canada
ALDILA Registered Registered TMA201,476 28 Canada
ALDILA Registered Registered A289273 28 Australia
ALDILA Registered Registered 21526 28 Brunei
ALDILA Registered Registered 992059 28 China P.R.
ALDILA Registered Registered 1447316 00 Xxxxx
ALDILA Registered Registered 1456029 24 Japan
ALDILA IN KATAKANA Registered Registered 1320939 00 Xxxxx
XXXX XX-20 Registered Registered 230141 00000 South Korea
XXXX XX-30 Registered Registered 230142 00000 South Korea
XXXX XX-40 Registered Registered 230143 00000 South Korea
XXXX XX-55 Registered Registered 230144 00000 South Korea
ALDILA PENDING 96-18205 PENDING 43 South Korea
ALDILA Registered Registered 93/03076 28 Malaysia
ALDILA Registered Registered 414427 28 Mexico
--------
(1) It is unclear whether this xxxx is owned (a) by Borrower or Parent Company
or (b) by an unrelated entity with a name similar to that of Parent
Company. Borrower and Parent Company make no representations, warranties,
covenants or other agreements with respect to this xxxx.
11
HM-30 Registered Registered 416409 28 Mexico
HM-40 Registered Registered 416410 28 Mexico
HM-55 Registered Registered 416411 28 Mexico
QUESTAR Registered Registered 41642 28 Mexico
ALDILA PENDING 85873 PENDING 28 Philippines
ALDILA Registered Registered 3413/93 28 Singapore
XXXX VIII Registered Registered 161920 28 Sweden
XXXX XX Registered Registered 527732 00000 Taiwan
ALDILA PENDING 7950427 PENDING Taiwan
ALDILA Registered Registered KOR 15577 28 Thailand
12
INTELLECTUAL PROPERTY SECURITY AGREEMENT
[ALDILA GOLF CORP.]
SCHEDULE B
DESCRIPTION OF PATENTS
None.
13
INTELLECTUAL PROPERTY SECURITY AGREEMENT
[ALDILA GOLF CORP.]
SCHEDULE C
DESCRIPTION OF COPYRIGHTS
COPYRIGHTS Recorded with The United States Copyright Office
Copyright No. Reg. Date Title
-------------- --------- -----
VU 515-407 08/27/92 ALDILA CUSTOMER SHAFT
ADVERTISEMENT
VU 515-406 07/31/92 ALDILA NEW PRODUCT SHAFT
ADVERTISEMENT
14
POWER OF ATTORNEY
TRADEMARK ASSETS
Pursuant to the terms of that certain Loan and Security Agreement and
that certain Intellectual Property Security Agreement, both of even date
herewith, as each may be amended, restated, modified or supplemented and in
effect from time to time, Aldila Golf Corp., formerly known as Aldila, Inc.,
a Delaware corporation (the "Company"), hereby grants to Foothill Capital
Corporation, a California corporation (together with its successors and
assigns, "Foothill"), a power of attorney, exercisable only upon an Event of
Default (as defined in the Loan and Security Agreement, dated July 9, 1999,
between the Company and Foothill):
(i) to offer to sell, to sell, to assign, to license, or to
otherwise transfer (collectively, "transfer") any or all of
the Company's right, title and interest around the world in
and to the trademarks listed on SCHEDULE A attached hereto,
including the registrations and applications to register such
trademarks and all goodwill associated with such trademarks;
(ii) to execute all documents on its behalf and do all acts
necessary or desirable to effect the above stated transfers
of right, as if Foothill were the Company at all appropriate
times; and
(iii) to receive and retain consideration, including money, in
connection with and in payment for any such transfer.
All transfers and such acts as described above are hereby ratified
and confirmed by the Company.
This Power of Attorney is coupled with an interest and is
irrevocable except with the consent of Foothill.
Dated as of July 9, 1999.
ALDILA GOLF CORP.,
a Delaware corporation
By:
----------------------------------
Name:
Title:
SUBSCRIBED AND SWORN TO
before me this 9th day of July, 1999.
Notary Public [Seal]
15
POWER OF ATTORNEY-TRADEMARK ASSETS
[ALDILA GOLF CORP.]
SCHEDULE A
DESCRIPTION OF TRADEMARKS
TRADEMARKS Registered with The United States Patent and Trademark Office
TRADEMARK STATUS APP. NO. REG. NO. CLASS
--------- ------ -------- -------- -----
A (STYLIZED LETTERS) Registered Registered 1,101,602 28
A-S-D Registered Registered 1,847,770 28
XXXX XX-40 Registered Registered 1,503,141 28
XXXX V Registered Registered 1,959,949 28
ALDALITE Registered Registered 1,774,311 28
ALDILA Registered Registered 1,029,465 28
FLOPSTER PENDING 75/290,832 PENDING 28
GLT Registered Registered 1,216,930 28
HM-30 Registered Registered 1,643,734 28
HM-35 Registered Registered 1,895,198 28
HM-40 Registered Registered 1,895,199 28
HM-50 Registered Registered 1,630,971 28
HM-55 Registered Registered 1,630,973 28
LOBSTER Registered Registered 2,204,505 28
LONGWOOD PENDING 75/122,477 PENDING 28
POWERED BY ALDILA (& DESIGN) PENDING 75/122,477 PENDING 28
PROVEN BY Registered Registered 1,519,962 28
PERFORMANCE
SMOOTH FLEX Registered Registered 2,005,036 28
TGI Registered Registered 1,855,842 28
TRU TORQUE Registered Registered 1,216,013 28
VELOCITOR Registered Registered 1,659,896 28
DESIGN (STYLIZED LETTER A) PENDING 75/553,601 PENDING 28
17
TRADEMARKS Registered in Foreigh Jurisdictions
TRADEMARK STATUS APP. NO. REG. NO. CLASS COUNTRY
--------- ------ -------- -------- ----- -------
ALDILA (STYLIZED LETTERS) Registered Registered 1045484 28 United Kingdom
ALDILA Registered Registered 1018307 28 United Kingdom
ALDILA PENDING 223081 PENDING 28 Community
XXXXXX(2) Registered Registered TMA218,790 28 Canada
XXXX VIII Registered Registered TMA215,996 28 Canada
ALDILA (& DESIGN) Registered Registered TMA217,731 28 Canada
A (& DESIGN) Registered Registered TMA219,934 28 Canada
ALDILA GOLF SHAFTS Registered Registered TMA233,609 28 Canada
(& DESIGN)
ALDILA (& DESIGN) Registered Registered TMA201,477 28 Canada
ALDILA Registered Registered TMA201,476 28 Canada
ALDILA Registered Registered A289273 28 Australia
ALDILA Registered Registered 21526 28 Brunei
ALDILA Registered Registered 992059 28 China P.R.
ALDILA Registered Registered 1447316 00 Xxxxx
ALDILA Registered Registered 1456029 24 Japan
ALDILA IN KATAKANA Registered Registered 1320939 00 Xxxxx
XXXX XX-20 Registered Registered 230141 00000 South Korea
XXXX XX-30 Registered Registered 230142 00000 South Korea
XXXX XX-40 Registered Registered 230143 00000 South Korea
XXXX XX-55 Registered Registered 230144 00000 South Korea
ALDILA PENDING 96-18205 PENDING 43 South Korea
ALDILA Registered Registered 93/03076 28 Malaysia
ALDILA Registered Registered 414427 28 Mexico
--------
(2) It is unclear whether this xxxx is owned (a) by Borrower or Parent Company
or (b) by an unrelated entity with a name similar to that of Parent
Company. Borrower and Parent Company make no representations, warranties,
covenants or other agreements with respect to this xxxx.
18
HM-30 Registered Registered 416409 28 Mexico
HM-40 Registered Registered 416410 28 Mexico
HM-55 Registered Registered 416411 28 Mexico
QUESTAR Registered Registered 41642 28 Mexico
ALDILA PENDING 85873 PENDING 28 Philippines
ALDILA Registered Registered 3413/93 28 Singapore
XXXX VIII Registered Registered 161920 28 Sweden
XXXX XX Registered Registered 527732 00000 Taiwan
ALDILA PENDING 7950427 PENDING Taiwan
ALDILA Registered Registered KOR 15577 28 Thailand
19
POWER OF ATTORNEY
PATENT ASSETS
Pursuant to the terms of that certain Loan and Security Agreement
and that certain Intellectual Property Security Agreement, both of even date
herewith, as each may be amended, restated, modified or supplemented and in
effect from time to time, Aldila Golf Corp., formerly known as Aldila, Inc.,
a Delaware corporation (the "Company"), hereby grants to Foothill Capital
Corporation, a California corporation (together with its successors and
assigns, "Foothill"), a power of attorney, exercisable only upon an Event of
Default (as defined in the Loan and Security Agreement, dated July 9, 1999,
between the Company and Foothill):
(i) to offer to sell, to sell, to assign, to license, or to otherwise
transfer (collectively, "transfer") any or all of the Company's
right, title and interest around the world in and to the patents
listed on SCHEDULE A attached hereto, including the registrations
and applications to register such patents;
(ii) to execute all documents on its behalf and do all acts necessary or
desirable to effect the above stated transfers of right, as if
Foothill were the Company at all appropriate times; and
(iii) to receive and retain consideration, including money, in connection
with and in payment for any such transfer.
All transfers and such acts as described above are hereby
ratified and confirmed by the Company.
This Power of Attorney is coupled with an interest and is
irrevocable except with the consent of Foothill.
Dated as of July 9, 1999.
ALDILA GOLF CORP.,
a Delaware corporation
By:
----------------------------------
Name:
Title:
SUBSCRIBED AND SWORN TO
before me this 9th day of July, 1999.
Notary Public [Seal]
20
POWER OF ATTORNEY-PATENT ASSETS
[ALDILA GOLF CORP.]
SCHEDULE A
DESCRIPTION OF PATENTS
None.
21
Exhibit B
STOCK PLEDGE AND SECURITY AGREEMENT
[Aldila Golf Corp.]
This Stock Pledge and Security Agreement (this "Pledge Agreement") is
executed and delivered as of the 9th day of July, 1999, by ALDILA GOLF CORP.,
a Delaware corporation ("Pledgor"), to and in favor of FOOTHILL CAPITAL
CORPORATION, a California corporation ("Foothill"), with respect to the
following facts:
A. Pledgor and Foothill have entered into that certain Loan and
Security Agreement (the "Loan Agreement"), and certain other agreements in
connection therewith, all of even date herewith (collectively hereinafter
referred to as the "Loan Documents"), pursuant to which Loan Documents
Foothill has agreed to extend credit to or for the account of Pledgor.
B. In order to induce Foothill to enter into the Loan Agreement and
to accept all of the Loan Documents, and to make advances and otherwise
extend credit to Pledgor thereunder, Pledgor has agreed to secure the payment
and performance of the Obligations (as hereinafter defined) and to accomplish
same by (i) executing and delivering to Foothill this Pledge Agreement, (ii)
delivering to Foothill the Pledged Securities (hereinafter defined), together
with appropriate powers and/or endorsements duly executed in blank by
Pledgor, and (iii) delivering to Foothill any and all other documents which
Foothill deems necessary to protect Foothill's interests hereunder or with
respect to the Obligations.
C. This Pledge Agreement is the Borrower Pledge and Security
Agreement as defined and described in the Loan Agreement.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, receipt of which is hereby acknowledged, Pledgor
hereby agrees as follows:
1. DEFINITIONS.
(a) "Issuer" shall mean and include each of the corporations
identified in EXHIBIT "A" hereto, which is incorporated herein by this
reference, individually and collectively.
(b) "Event of Default" shall have the meaning given in the Loan
Agreement.
(c) "Obligations" shall have the meaning set forth in the Loan
Agreement.
(d) "Pledge Agreement" shall mean and include this Stock Pledge
and Security Agreement, as amended, modified or supplemented from time to
time.
(e) "Pledged Property" shall mean and include (i) the Pledged
Securities together with all cash dividends, stock dividends, interest,
profits, redemption, warrants, subscription rights, stock, securities,
options, substitutions, exchanges and other distributions now or hereafter
paid, delivered or distributed by Issuer or which may hereinafter be acquired
by or delivered to the possession of Pledgor or Foothill with respect to the
Pledged Property, (ii) Pledgor's records with respect to the foregoing and
(iii) all proceeds of all of the foregoing, regardless of form.
(f) "Pledged Securities" shall mean the shares of stock
described in EXHIBIT "A" attached hereto and incorporated herein by reference.
(g) All other terms hereinbefore or hereinafter defined in this
Pledge Agreement shall have the meanings herein assigned to such terms.
(h) All terms not specifically defined herein which are defined
in the California Uniform Commercial Code shall be construed in accordance
with the definitions set forth therein. All references herein to the "UCC"
shall mean the Uniform Commercial Code adopted by the California as the same
may be amended from time to time.
2. GRANT OF SECURITY INTEREST
As collateral security for the prompt and unconditional payment
and performance when due of each and every one of the Obligations, Pledgor
hereby assigns, mortgages, pledges, hypothecates, transfers and sets over to
Foothill and grants to Foothill a security interest in and lien upon all of
the Pledged Property.
3. REPRESENTATIONS, WARRANTIES, COVENANTS AND WAIVERS
Pledgor hereby covenants, represents and warrants with and to
Foothill that (all of such covenants, representations and warranties being
continuing in nature so long as any of the Obligations are outstanding):
(a) The Pledged Securities are duly authorized, validly issued,
fully paid and nonassessable securities of the Issuer; and are not
registered, nor has Pledgor authorized the registration thereof, in the name
of any person or entity other than Pledgor or Foothill; and, except as
otherwise shown in Exhibit "A" hereto, constitute all issued and outstanding
shares of the Issuers.
(b) The Pledged Property is directly, legally and beneficially
owned by Pledgor free and clear of all claims, liens, pledges and
encumbrances of any kind, nature or description except for the first and
prior pledge and security interest with respect thereto in favor of Foothill
and restrictions under applicable securities law.
(c) The Pledged Property is not subject to any restrictions
relative to the pledge or transfer thereof, except as noted on the
certificates evidencing the Pledged Securities, and Pledgor has the right to
transfer and hypothecate the Pledged Property free and clear of any liens,
encumbrances or restrictions except as otherwise provided herein and
restrictions under applicable securities law.
2
(d) The Pledged Property is duly and validly pledged to
Foothill, and no consent or approval of any governmental or regulatory
authority or of any securities exchange or the like, nor any consent or
approval of any other third party was or is necessary to the validity and
enforceability of this Pledge Agreement.
(e) Pledgor authorizes Foothill to (i) store, deposit and
safeguard the Pledged Property, (ii) perform any and all other acts which
Foothill in good xxxxx xxxxx reasonable and/or necessary for the protection
and preservation of the Pledged Property or its value or Foothill's security
interest therein, including, without limitation, but only upon an Event of
Default, transferring, registering or arranging for the transfer or
registration of the Pledged Property to or in Foothill's own name and
receiving the income therefrom as additional collateral for the Obligations
and (iii) pay any charges or expenses which Foothill deems necessary for the
foregoing purposes, but without any obligation to do so. Any obligation of
Foothill for reasonable care for the Pledged Property in Foothill's
possession shall be limited to the same degree of care required by Section
9207 of the UCC.
(f) Pledgor will not exercise any right under any corporate
security which might constitute the exercise of control by Foothill so as to
make the Issuer thereof an affiliate of Foothill until after occurrence of an
Event of Default.
(g) Pledgor will pay all charges and assessments of any nature
against the Pledged Property or with respect hereto prior to said charges
and/or assessments being delinquent.
(h) Pledgor shall promptly reimburse Foothill on demand,
together with interest at the rate provided in the Loan Documents, for any
charges, assessments or expenses paid or incurred by Foothill in its
Permitted Discretion (as defined in the Loan Agreement) for the protection
and preservation and maintenance of the Pledged Property and the enforcement
of Foothill's rights hereunder, including, without limitation, reasonable
attorneys' fees and legal expenses incurred by Foothill in seeking to
protect, collect or enforce its rights in the Pledged Property or otherwise
hereunder.
(i) Pledgor shall furnish Foothill with such information
concerning Issuer and the Pledged Property as Foothill may from time to time
request, including, without limitation, current financial statements;
PROVIDED that such information shall be deemed to be Trade Secrets within the
meaning of the Loan Agreement if such information is of a type included in
the definition of Trade Secrets contained in the Loan Agreement.
(j) During the term of this Pledge Agreement, if Pledgor shall
receive, have registered in its name or become entitled to receive or acquire
or have registered in its name any stock certificate, option or warrant with
respect to the securities of Issuer (including, without limitation, any
certificate representing a dividend on or a distribution or exchange of or in
connection with any reclassification of the Pledged Securities) whether as an
addition to, in substitution of, or in exchange for any of the Pledged
Property or otherwise, Pledgor agrees to accept same as Foothill's agent, to
hold same in trust for Foothill and to deliver same
3
forthwith to Foothill or Foothill's agent or bailee in the form received,
with the endorsement(s) of Pledgor where necessary and/or duly executed
appropriate powers and/or assignments, to be held by Foothill or Foothill's
agent or bailee subject to the terms hereof. If any of the foregoing is at
any time in uncertificated form, Pledgor shall register same with Foothill's
security interest noted therein, as further security for the Obligations,
unless such registration is not permitted under the laws of any nation in
which any Issuer is incorporated.
(k) During the term of this Pledge Agreement, Pledgor shall not
directly or indirectly sell, assign, transfer, or otherwise dispose of, or
grant any option with respect to the Pledged Property, nor shall Pledgor
create, incur or permit any further pledge, hypothecation, encumbrance, lien,
mortgage or security interest with respect to the Pledged Property.
(l) So long as no Event of Default (as hereinafter defined) has
occurred, Pledgor shall have the right to vote and exercise all corporate
rights with respect to the Pledged Securities except as expressly prohibited
herein.
(m) Foothill may notify Issuer or the appropriate transfer
agent of the Pledged Securities to register the security interest and pledge
granted herein and honor the rights of Foothill with respect thereto.
(n) Pledgor shall perform such further acts and execute such
additional instruments as are reasonably required by Foothill to effectuate
and implement this Pledge Agreement and the provisions hereof.
(o) No action has been taken or is being taken by or is
currently planned by Pledgor, or any agent acting on its behalf, which would
cause this Pledge Agreement, the Obligations or the Loan Documents to violate
any regulation of the Securities Exchange Act of 1934 or any other applicable
law or regulation, in each case as now in effect or as the same may hereafter
be amended or supplemented. Pledgor is not in the business of extending
credit for the purpose of purchasing or carrying margin stocks or other
securities.
(p) Pledgor waives (i) all rights to require Foothill to
proceed against any other person, entity or collateral or to exercise any
remedy, (ii) the defense of the statute of limitations in any action upon any
of the Obligations or other collateral. Foothill is entitled to all of the
benefits of a secured party set forth in Section 9207 of the UCC.
4. REMEDIES AFTER DEFAULT
Upon or subsequent to the occurrence of an Event of Default and
continuation thereof, unless such Event of Default is waived, and subject to
any restrictions set forth in the Loan Documents:
(a) Foothill, at its option, shall be empowered to exercise its
right to instruct the Issuer of the Pledged Securities (or the appropriate
transfer agent of the Pledged Securities) to register any or all of the
Pledged Securities and/or other Pledged Property in the name of
4
Foothill or in the name of Foothill's nominee, and Foothill may complete, in
any manner Foothill may deem expedient, any and all stock powers, assignments
or other documents heretofore or hereafter executed in blank by Pledgor and
delivered to Foothill. After said instruction, and without further notice,
Foothill, in its sole and absolute discretion, shall have the exclusive right
to exercise all voting and corporate rights with respect to the Pledged
Securities and other Pledged Property and exercise any and all rights of
conversion, redemption, exchange, subscription or any other rights,
privileges, or options pertaining to any shares of the Pledged Securities or
the other Pledged Property as if Foothill were the absolute owner thereof,
including, without limitation, the right to exchange, in its discretion, any
and all of the Pledged Securities and other Pledged Property upon any merger,
consolidation, reorganization, recapitalization or other readjustment with
respect to Issuer. Upon the exercise of any such rights, privileges or
options by Foothill, Foothill shall have the right to deposit and deliver any
and all of the Pledged Securities and other pledged property to any
committee, depository, transfer agent, registrar or other designated agency
upon such terms and conditions as Foothill may determine, all without
liability to Pledgor, except to account for property actually received by
Foothill. However, Foothill shall have no duty to exercise any of the
aforesaid rights, privileges or options (all of which are exercisable in the
sole discretion of Foothill) and shall not be responsible for any failure to
do so or delay in doing so.
(b) In addition to all the rights and remedies of a secured
party under the California Uniform Commercial Code, Foothill shall have the
right, at any time and without demand of performance or other demand,
advertisement or notice of any kind (except the notice specified below of
time and place of public or private sale) to or upon Pledgor or any other
person, to proceed forthwith to collect, redeem, receive, appropriate, sell,
or otherwise dispose of and deliver the Pledged Property or any part thereof
in one or more lots at public or private sale or sales at any exchange,
brokers board or at any of Foothill's offices or elsewhere at such prices and
on such terms as Foothill may deem commercially reasonable. The foregoing
disposition(s) must be for cash or on credit or for future delivery without
assumption of any credit risk by Foothill, with Foothill having the right to
purchase all or any part of said Pledged Property so sold at any such sale or
sales, public or private, free of any right or equity or redemption in
Pledgor, which right or equity is hereby expressly waived or released by
Pledgor. The proceeds of any such collection, redemption, recovery, receipt,
appropriation, realization, sale or other disposition, after deducting all
costs and expenses of every kind incurred relative thereto or incidental to
the care, safekeeping, maintenance, or disposition of any and all Pledged
Property or in any way relating to the rights of Foothill hereunder
(including, without limitation, reasonable attorneys' fees and legal
expenses, including, without limitation, a reasonable estimate of the
allocated cost of Foothill's in-house counsel and legal staff) shall be
applied first to the satisfaction of the Obligations (in such order as
Foothill may elect and whether or not due) and then to the payment of any
amounts required by applicable law, including Section 9504(l)(c) of the UCC.
Pledgor shall be liable to Foothill for the payment on demand of all such
reasonable costs and expenses, together with interest at the rateset forth in
the Loan Documents, together with any reasonable attorneys' fees if placed
with an attorney for collection or enforcement. Pledgor agrees that notice
given to it in the same manner given to Pledgor pursuant to Section 9.1(k) of
the Loan Agreement is reasonable notification of such matters.
5
(c) Pledgor recognizes that Foothill may be unable to effect a
public sale of all or part of the Pledged Property by reason of certain
prohibitions contained in the Securities Act of 1933, as amended, as now or
hereafter in effect or in applicable Blue Sky or other state securities law,
as now or hereafter in effect, but may be compelled to resort to one or more
private sales to a restricted group of purchasers who will be obliged to
agree, among other things, to acquire such Pledged Property for their own
account for investment and not with a view to the distribution or resale
thereof. If at the time of any sale of the Pledged Property or any part
thereof, the same shall not, for any reason whatsoever, be effectively
registered (if required) under the Securities Act of 1933 (or other
applicable state securities law), as then in effect, Foothill in its sole and
absolute discretion is authorized to sell such Pledged Property or such part
thereof by private sale in such matter and under such circumstances as
Foothill or its counsel may deem necessary or advisable in order that such
sale may legally be effected without registration, as long as such sale is
made in a commercially reasonable manner. Pledgor acknowledges that private
sales so made may be at prices and other terms less favorable to the seller
than if such Pledged Property were sold at public sale, and that Foothill has
no obligation to delay the sale of any such Pledged Property for the period
of time necessary to permit the Issuer of such Pledged Property, even if such
Issuer would agree, to register such Pledged Property for public sale under
such applicable securities laws. Pledgor agrees that any private sales made
under the foregoing circumstances shall not be deemed to have been in a
commercially unreasonable manner for the sole reason that it is a private
sale.
(d) All of Foothill's rights and remedies, including but not
limited to the foregoing and those otherwise arising under this Pledge
Agreement, the Loan Documents, the instruments and securities comprising the
Pledged Property, applicable law or otherwise, shall be cumulative and not
exclusive and shall be enforceable alternatively, successively or
concurrently as Foothill may deem expedient. No failure or delay on the part
of Foothill in exercising any of its options, powers or rights or partial or
single exercise thereof shall constitute a waiver of such option, power or
right.
5. FURTHER ASSURANCES
Pledgor agrees that at any time and from time to time upon the
written request of Foothill, Pledgor will execute and deliver such further
documents, including but not limited to irrevocable proxies or stock powers,
in form satisfactory to counsel for Foothill, and will take or cause to be
taken such further acts as Foothill may request in order to effect the
purposes of this Pledge Agreement and perfect or continue the perfection of
the security interest in the Pledged Property granted to Foothill hereunder.
6
6. MISCELLANEOUS
(a) Beyond the exercise of reasonable care to assure the safe
custody of the Pledged Property while held by Foothill hereunder, as provided
in Section 3(e) hereof, Foothill or Foothill's agent or bailee shall have no
duty or liability to protect or preserve any rights pertaining thereto.
Foothill shall be obligated to return or release its security interest in the
Pledged Property, at the sole expense of Pledgor, after all Obligations are
indefeasibly paid in full and Foothill is under no further obligation to
extend credit under the Loan Agreement.
(b) No course of dealing between Pledgor and Foothill, nor any
failure or delay by Foothill to exercise any right, power or privilege under
this Pledge Agreement, the Loan Documents or under any other agreements,
instruments and documents executed and delivered in connection therewith
shall operate as a waiver hereof or 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. No waiver of any provision of this Pledge Agreement shall
be effective unless the same shall be in writing and signed by Foothill, and
then such waiver shall be effective only in the specific instance and for the
purpose for which given.
(c) This Pledge Agreement may not be changed, modified or
amended, in whole or in part, except by a writing signed by Pledgor and
Foothill.
(d) The provisions of this Pledge Agreement and the Loan
Documents are severable, and if any clause or provision hereof or thereof
shall be held invalid or unenforceable in whole or in part or in any
jurisdiction, then such invalidity or unenforceability shall attach only to
such clause or provision in any such jurisdiction or part hereof and shall
not in any manner affect such clause or provision in any other jurisdiction
or any other clause or provision in this Pledge Agreement or the Loan
Documents in any jurisdiction.
(e) This Pledge Agreement shall inure to the benefit of Pledgor
and Foothill and their respective successors and assigns (but said
assignee(s) shall be bound by Sections 16.2 and 15 of the Loan Agreement),
and shall be binding upon Pledgor and its successors and assigns until all of
the Obligations have been indefeasibly paid in full.
7
7. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.
THE VALIDITY OF THIS PLEDGE AGREEMENT, THE CONSTRUCTION,
INTERPRETATION, AND ENFORCEMENT HEREOF AND THEREOF, AND THE RIGHTS OF THE
PARTIES HERETO AND THERETO WITH RESPECT TO ALL MATTERS ARISING HEREUNDER OR
THEREUNDER OR RELATED HERETO OR THERETO SHALL BE DETERMINED UNDER, GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA
(EXCEPT AS OTHERWISE PROVIDED BY THE UCC). THE PARTIES AGREE THAT ALL
ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS PLEDGE AGREEMENT AND
THE OTHER LOAN DOCUMENTS SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND
FEDERAL COURTS LOCATED IN THE COUNTY OF LOS ANGELES, STATE OF CALIFORNIA OR,
IF SUCH COURTS DO NOT HAVE SUBJECT MATTER JURISDICTION, THEN, AT THE SOLE
OPTION OF FOOTHILL, IN ANY OTHER COURT IN WHICH FOOTHILL SHALL INITIATE LEGAL
OR EQUITABLE PROCEEDINGS PERTAINING TO THE COLLATERAL AND WHICH HAS SUBJECT
MATTER JURISDICTION OVER THE MATTER IN CONTROVERSY. EACH OF PLEDGOR AND
FOOTHILL WAIVES, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH
MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE
TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 7.
PLEDGOR AND FOOTHILL HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF
ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN
DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT
CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR
STATUTORY CLAIMS. EACH OF PLEDGOR AND FOOTHILL REPRESENTS THAT IT HAS
REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL
RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF
LITIGATION, A COPY OF THIS PLEDGE AGREEMENT MAY BE FILED AS A WRITTEN CONSENT
TO A TRIAL BY THE COURT.
8. EXCEPTION FOR SECURITIES OF FOREIGN NATION SUBSIDIARIES
Notwithstanding anything in the Loan Documents (including this
Pledge Agreement) to the contrary, Foothill acknowledges that certain of the
Pledged Property consists of certificated and uncertificated securities
representing Pledgor's ownership interests in a Mexican entity, a Chinese
entity, a United Kingdom entity, and a Virgin Islands entity, and nothing in
the Loan Documents shall be deemed to constitute a representation, warranty,
covenant, promise or other obligation with respect to the validity of any
pledge or other transfer thereof or the creation, priority or perfection of
any security interest therein, in each case solely to the extent prohibited
or otherwise restricted by the applicable foreign nation laws.
8
IN WITNESS WHEREOF, the undersigned has caused this Pledge Agreement to
be duly executed and delivered on the day and year first above written.
ALDILA GOLF CORP.
By:
----------------------------------
Its:
---------------------------------
Address:
Aldila Golf Corp.
00000 Xxxxxxxxx Xxxx
Xxxxx, Xxxxxxxxxx 00000-0000
0
XXXXXXX "X"
Xxxxx or Nation Certificate Number Percentage of
Issuer of Organization Number of Shares Total Shares
---------------------------------------------------------------------------------------------------------------------
Xxxxxx xx Xxxxxx, Xxxxxx 0 6,500 65%
S.A. de C.V. 9 3,496 34.96%
Aldila Graphite Peoples Republic of N/A N/A 100% of capital
Products (Zhuhai) China
Company Limited
Aldila Foreign Sales U.S. Virgin Islands 2 1,000 100%
Corporation
Aldila Limited United Kingdom 2 99 99%
10
Exhibit C
COLLATERAL ACCESS AGREEMENT
This Collateral Access Agreement is made by _________________,
a __________________ (the "Company") having one or more places of business in
the locations described in Schedule A attached hereto and incorporated herein
by reference (collectively, the "Premises"), in favor of FOOTHILL CAPITAL
CORPORATION, a California corporation ("Foothill"), with an address at 00000
Xxxxx Xxxxxx Xxxx., Xxx. 0000, Xxx Xxxxxxx, Xxxxxxxxxx 00000-0000, with
reference to the following:
A. The Company is engaged in the business of manufacturing
golf club shafts and fabricating certain raw materials for prepreg materials for
such goods, and sells and/or transfers finished products and work in process to
or for the account of Aldila Golf Corp., a Delaware corporation ("AGC"), among
others (said materials and related products which have been and may hereafter be
acquired from and/or sold and transferred to or for the account of AGC are
hereinafter collectively referred to as the "AGC Inventory").
B. AGC and Foothill have entered into that certain Loan and
Security Agreement dated as of July 9, 1999 (the "Loan Agreement"), pursuant to
which AGC has granted, or will grant, to Foothill a security interest in and to
all AGC Inventory, and other assets of AGC.
C. The Company will derive a substantial benefit from the
financing provided by Foothill to AGC, and is entering into this Agreement in
order to induce Foothill to extend credit to AGC pursuant to the Loan Agreement.
NOW THEREFORE, THE COMPANY HEREBY ACKNOWLEDGES that Foothill
has a lien on and a security interest in all AGC Inventory in the Company's
possession, and related books and records of AGC in the Company's possession, if
any, and all proceeds and products thereof, and that the Company will hold all
such collateral in its possession for the benefit of Foothill, as well as for
the benefit of AGC.
The Company hereby grants to Foothill a license to enter upon
the Company's premises for purposes of identifying, inspecting, assembling,
segregating, appraising, or removal of all AGC Inventory in connection with the
exercise and enforcement of Foothill's rights and remedies provided for under,
and in all events in accordance with the terms of, the Loan Documents.
The Company acknowledges and agrees that Foothill, in
exercising any of its rights granted under this Agreement or the Loan Agreement,
is not assuming any liability or responsibility for any indebtedness or other
obligation of AGC to the Company with respect to the AGC Inventory or any
proceeds thereof. The Company hereby releases and holds harmless Foothill from
and against any and all claims, losses, liabilities, damages, costs, and
expenses (including attorney's fees and related costs) which may be incurred or
suffered by the
Company as a result of the lawful exercise by Foothill of its rights under this
Agreement (other than arising from Foothill's gross negligence or wilful
misconduct).
This Agreement shall continue until such time as Foothill has
no further obligation to advance credit to or for the account of AGC under the
Loan Agreement and all of the indebtedness and other obligations of AGC owing to
Foothill have been paid and performed in full and all then outstanding undrawn
letters of credit have expired or have been drawn and fully reimbursed to
Foothill. This Agreement shall be governed and controlled by, and interpreted
under, the laws of the State of California, and shall inure to the benefit of
and be binding upon the successors and assigns of Company and Foothill.
DATED: July 9, 1999
"Company"
----------------------------------
By:
-----------------------------
Its:
----------------------------
SCHEDULE A
COMPANY BUSINESS LOCATIONS
3
Exhibit D
ALDILA GOLF CORP.
00000 XXXXXXXXX XXXX
XXXXX, XXXXXXXXXX 00000-0000
Date
Foothill Capital Corporation
00000 Xxxxx Xxxxxx Xxxx. Xxxxx 0000
Xxx Xxxxxxx, XX 00000
RE: COMPLIANCE CERTIFICATE
MONTH ENDED ##/##/##
In accordance with our Loan and Security Agreement ("Agreement") dated July 9,
1999, I hereby certify:
All reports, statements or computer prepared information of any kind or
nature delivered or caused to be delivered to Foothill have been
prepared in accordance with GAAP consistently applied and fairly
present the financial condition of Borrower or Parent Company, as
applicable, except as follows:
Borrower is in timely compliance with all representations, warranties,
and covenants as defined within the Agreement, except as follows:
On the date of delivery of this Certificate to Foothill, there does not
exist any condition or event which constitutes an Event Of Default, as
defined within the Agreement, except as follows:
Except as otherwise herein expressly defined, all capitalized terms used in this
Certificate shall have the meanigns ascribed to them in the Agreement.
---------------
Authorized Signer
For Aldila Golf Corp.
Exhibit E
FOOTHILL CAPITAL CORPORATION
DISBURSEMENT OF PROCEEDS
Date: July 23, 1999
FOOTHILL CAPITAL CORPORATION ("Foothill"), 00000 Xxxxx Xxxxxx Xxxxxxxxx, Xxxxx
0000, Xxx Xxxxxxx, Xxxxxxxxxx 00000-0000, is hereby directed and authorized to
release the proceeds of that certain Loan And Security Agreement dated as of
July 9, 1999, by and between Aldila Golf Corp., a Delaware corporation
("Borrower"), and Foothill to the below listed parties in the amount(s)
specified:
To:
----------------------------------------------- --------------
Foothill Capital Corporation (Facility Fee) $37,500.00
----------------------------------------------- --------------
Union Bank of California, N.A. (Payoff) $600.00
----------------------------------------------- --------------
----------------------------------------------- --------------
----------------------------------------------- --------------
----------------------------------------------- --------------
----------------------------------------------- --------------
----------------------------------------------- --------------
----------------------------------------------- --------------
TOTAL DISBURSEMENTS $38,100.00
----------------------------------------------- --------------
ALDILA GOLF CORP.
By:
---------------------------------------
Its:
--------------------------------------
EXHIBIT F
LOCKBOX OPERATING PROCEDURAL AGREEMENT
This document, executed as of June 25, 1999, represents the Operating
Procedural Agreement (the "Agreement") and Processing Requirements to be
performed by UNION BANK OF CALIFORNIA, N.A., ("Bank"), 0000 Xxxxxx Xxxxxx,
Xxxxxxxx Xxxx, XX 00000 for ALDILA GOLF CORP a Delaware corporation, 00000
Xxxxxxxxx Xxxx, Xxxxx, XX 00000-0000 (the "Company") and FOOTHILL CAPITAL
CORPORATION, a California corporation, 00000 Xxxxx Xxxxxx Xxxxxxxxx, Xxxxx
0000, Xxx Xxxxxxx, Xxxxxxxxxx 00000-0000 ("Foothill").
WHEREAS, Company has entered into a financing agreement with Foothill in
which Company has granted to Foothill a security interest in Company's
present and future accounts receivable and all proceeds thereof, and Company
has agreed that all collections and proceeds of such accounts receivable
shall be remitted in kind to Foothill; and
WHEREAS, in order to provide for more efficient and faster collection
and deposit of said collections and proceeds Foothill and Company desire to
use the lockbox service of Bank; and
WHEREAS, Bank is willing to provide said service for Company and
Foothill commencing as of July 23, 1999;
NOW, THEREFORE, the parties hereto agree as follows:
1. LOCKBOX. Bank has rented a United States Post Office Box in the
name of Company into which checks for Company are to be processed. All
customers of Company have been, or will be, instructed to remit all envelopes
containing items to be processed through the lockbox to the following address
(and any other address agreed to between Bank and Foothill):
ALDILA GOLF CORP
X.X. XXX 000000
Xxx Xxxxxxx, XX 00000-0000
In conjunction with this Agreement, the United States Post Office
requires a letter to the Postmaster on Company's stationery authorizing Bank
unrestricted and exclusive access to the lockbox for the purpose of
collecting mail therein at any time for delivery to Bank. Bank's bonded
messengers will pick up the remittances from the lockbox on a regular basis
and deliver them to the Wholesale Lockbox Department at Bank's
Computer and Service Center. Lockbox personnel will check each envelope for
the proper address and post office box number. Lockbox personnel will open,
remove and inspect the contents for invoices, checks, currency and/or
correspondence and insure the envelope is empty before processing. Lockbox
personnel will inspect the check and the customer remittances. Each will be
processed per the instructions in this Agreement.
2. FOOTHILL ACCOUNT. Bank will process all checks and other evidences
of payment and will, each working day, credit the total amount thereof to
Foothill's Account Number 0700-498360 at Bank (the "Foothill Account").
The Foothill Account may also receive deposits directly in the form of
checks, credit card receipts, A.C.H.s and/or wire transfers. All such forms
of payment shall be the sole and exclusive property of Foothill and will be
immediately processed, endorsed and the funds credited to the Foothill
Account.
3. MICROFILM RECORD. Bank will maintain a microfilm record of all
checks and other negotiable instruments which accompany the remittance in
order to reconstruct any specific deposit, should the need arise and the
request be made by any party. It is understood that Bank will not be
responsible for any failure to provide such a record due to oversight, film
or equipment failure, or inability to obtain film or equipment. Microfilm
records of all deposited checks will be retained by Bank for five (5) years
as legal records.
4. PROCESSING OF CHECKS. Checks will be processed by Bank according
to the following procedures:
4.1 Checks will generally be made payable to Aldila Golf Corp.
or any abbreviations thereof.
4.2 When the payee is blank and either the written or numeric
amount agrees with the invoice, the check will be processed. When the
payee is blank and neither the written nor numeric amount agrees with the
invoice; check, envelope and remittance papers will be forwarded to the
Company.
4.3 When the date is missing on the check, the check will be
processed. Checks post-dated by more than three days from the date of
collection will be forwarded to Company. Checks stale-dated by more than
six (6) months from the date of collection will be returned to Company.
2
4.4 If either the written or numeric amount of the check agrees
with the invoice amount, the check will be processed for that amount. If
neither written nor numeric amount agrees with the invoice, check and any
remittance papers will be forwarded to the Company. In the event of
partial payments whereby the written and numeric amounts agree but do not
agree with the invoice amount, Bank will process and credit said check to
the Foothill Account.
4.5 When the signature is missing on a check, the check will be
returned to Company.
4.6 For checks containing on their face any conditions or
notations, such as "Paid in Full", "Final Payment" or words of similar
meaning, the Lockbox personnel will attempt to (a) inspect the face of such
checks and (b) forward any checks bearing such a phrase to Company for
disposition. However, Company agrees that Bank shall not have any
liability in the event that a check bearing such phraseology is not
detected and is processed. In no case will the Bank be liable for
processing and depositing checks bearing such phraseology on their back
side, or when it is preprinted as part of the check form.
4.7 Checks drawn in foreign currency or on a foreign bank will
be processed on a collection basis only. Credit will be posted upon
receipt of paid collections, less any fees and charges.
4.8 Second-party checks will not be processed. Such checks will
be forwarded to Company.
4.9 Checks received without an invoice will be photocopied and
deposited. The photocopy will be forwarded to Company.
5. STATEMENTS. At the end of each month, Bank's regular statement
covering the deposits to and withdrawals from the Foothill Account shall be sent
to Foothill Capital Corporation, 00000 Xxxxx Xxxxxx Xxxxxxxxx, Xxxxx 0000, Xxx
Xxxxxxx, Xxxxxxxxxx 00000-0000, Attention: Treasury Dept., with a copy of said
statement to Company, 00000 Xxxxxxxxx Xxxx, Xxxxx, XX 00000-0000, Attention:
Xxx-Xxx Yeh.
6. INFORMATION. Each business day Bank will provide Company with the
following:
(a) A photocopy of the face of each check received in the
lockbox;
3
(b) A listing of checks credited to the account with a copy of
the deposit slip; and
(c) Any envelopes, remittance papers, and other detail which
might be included in the envelope with remittances.
(d) Company may have access to electronic balance and
transaction reporting on the Foothill Account.
If requested by Foothill, Bank will also, on a daily basis, provide a
photocopy of the face of each check received to the Operations Manager at
Foothill.
7. RETURNED ITEMS. All items returned to Bank unpaid or returned for
any reason will be handled by the Lockbox Department in the following manner:
7.1 Any dishonored check for an amount less than $1,000 which is
returned because of insufficient or uncollected funds will be automatically
redeposited by Bank a second time.
7.2 Any dishonored check which has been returned the second time or
any item which has been returned for reasons other than insufficient or
uncollected funds will be charged back to Company's Account No. 4000-147708 (the
"Company Account").
7.3 Any dishonored check for an amount in excess of $1,000 will be
charged back to the Company Account.
7.4 Any check returned for valid reason other than dishonor will be
charged back to the Company Account.
7.5 In the event there are insufficient funds in the Company Account
to cover any chargeback, Foothill agrees that Bank may charge the Foothill
Account for the amount of the insufficiency, up to the amount of the return
item(s). If there are insufficient funds in the Foothill Account, upon receipt
of physical evidence of said chargeback, via facsimile number (000) 000-0000 or
(000) 000-0000 sent to the attention of Operations Manager at Foothill, Company
and Foothill agree to pay the amount of the chargeback to the Foothill Account,
in immediately available funds, within one business day after receipt of said
physical evidence.
4
7.6 Bank will notify Company and Foothill immediately of any returned
items to be charged back to the Company Account or the Foothill Account, by
advising the persons specified in Sections 9.2 and 9.3 below of such returned
items.
7.7 Any physical evidence of charges for insufficient funds will be
sent to Company if the Company Account is charged for them, or to Foothill,
should it become necessary to charge the Foothill Account.
8. TRANSFERS FROM FOOTHILL ACCOUNT. Each day, Bank will wire transfer
the collected balance in the Foothill Account any less amounts indicated in the
Irrevocable Assignment Agreement to Foothill's Operating Account by 11:00am PST
as follows:
Chase Manhattan Bank
New York, New York
ABA# 000000000
Credit to: Foothill Capital Corporation
Account No. 323-266193
Re: Aldila Golf Corp
9. CONTACTS.
9.1 Any contact with Bank regarding operational matters should be
directed to Customer Service, telephone number 0-000-000-0000, or if unable
to reach a representative, Xxxxx Xxxxxx, telephone number (000) 000-0000.
9.2 Any contact with Company regarding operational matters should be
directed to Xxx-Xxx Yeh, telephone number 858-513-1403 ext. 112 or in her
absence, Xxxxx Xxxx, telephone number 858-513-1403 ext. 111.
9.3 Any contact with Foothill regarding operational matters should be
directed to Assistant Account Executive, telephone number (000) 000-0000.
Please reference Aldila Golf Corp when calling.
10. ACCOUNT ANALYSIS. The Foothill Account will be set up on Account
Analysis, and all maintenance charges and fees relating to the arrangements
under this Agreement will be offset against earnings. Should a net deficit
occur, Bank will debit Company Account monthly for such deficit. Should there
be insufficient funds in the Company Account to cover a net deficit, Foothill
agrees to immediately pay Bank by
5
check the amount of any net deficit upon receipt of a billing statement of
said net deficit. Foothill's agreement to pay Bank for any net deficit shall
be limited to either the current month or previous month's service charges.
Bank's billing statement must be sent to Foothill within thirty (30) days of
the occurrence of the net deficit. Thereafter, Foothill shall not be liable
for any net deficit.
11. MONTHLY FEES. Company agrees to pay a monthly fee through Account
Analysis to Bank for Wholesale Lockbox service fees as specified in Exhibit "A"
attached hereto and incorporated herein by this reference. Bank fees are based
upon current operating costs, procedural requirements and service volumes. As
changes in any of these may affect future cost of processing, Bank will
periodically review its service fees. Should the results of such periodic
review warrant adjustment of prices, Company and Foothill will receive a minimum
of thirty (30) days' written notice prior to implementing such adjustment.
12. POST OFFICE CHARGES. United States Post Office rental fees will be
paid by the Company.
13. INDEMNIFICATION. In order to induce Bank to agree to the terms of
this Agreement, Company agrees to defend, indemnify and hold harmless the Bank,
its directors, officers, employees, attorneys, successors and assigns, from and
against any and all loss, liability, cost, damage and expense, including but not
limited to attorneys fees and expenses, arising in any manner out of: (a) the
acts, errors or omissions of Company or Foothill, or (b) Bank acting in
accordance with the provisions of this Agreement, except for liability resulting
from Bank's gross negligence or willful misconduct.
14. AMENDMENTS AND SUCCESSORS AND ASSIGNS. With the exception of price
changes, which require prior written notice to Company, this Agreement shall be
modified only upon agreement in writing of all of the parties hereto. This
Agreement shall be binding on the parties and their successors or assigns.
15. COURT ORDER. In the event that Bank is served with a court order
which affects the Foothill Account, Bank will act in accordance with such court
order. Until a court order is received by Bank, whether such order is issued by
the Bankruptcy Court or any other court of competent jurisdiction, Bank shall
not have the right nor will it place a hold on funds in, or in the process of
being deposited to, the Foothill Account and will process funds in strict
accordance with the terms and conditions of this Agreement. Foothill
represents, warrants, and agrees that upon the filing of voluntary or
involuntary proceedings under the U.S. Bankruptcy Code involving Company,
6
Foothill shall at all times comply with applicable bankruptcy statutes, rules,
and other laws as they may relate to funds deposited to the Foothill Account.
16. TERMINATION. Bank may terminate this Agreement by written notice to
Foothill and Company not less than thirty (30) days prior to the effective date
of such termination. Foothill may terminate this Agreement at any time by
written notice to Company and Bank. Such notice shall be transmitted by
Certified Mail, Return Receipt Requested, courier, or by personal delivery to
the address designated in this Agreement. No such termination shall impair the
rights of any party with respect to items processed prior to the effective date
of termination. Company may not terminate this Agreement without prior written
consent of Foothill.
17. CALIFORNIA LAW. This Agreement shall be governed and construed in
accordance with the laws of the State of California.
7
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their duly authorized officers as of the date first above written.
FOOTHILL CAPITAL CORPORATION UNION BANK OF CALIFORNIA, N.A.
By By
-------------------------- -------------------------
Name: Xxx Xxxxxxxxx Name XXXXX XXXXXXX
-------------------------
Title: VP/ Asst. Treasurer Title VICE PRESIDENT
-------------------------
By By
-------------------------- -------------------------
Name: Xxxxx X. Xxxxx Name XXXXX XXXXXX
-------------------------
Title: Vice President Title ASSISTANT VICE PRESIDENT
ALDILA GOLF CORPORATION
By
-------------------------
Name XXXXXX X. XXXXXX
-------------------------
Title VICE PRESIDENT-CONTROLLER
-------------------------
By
-------------------------
Name XXXXXX X. XXXXXXX
-------------------------
Title VICE PRESIDENT
-------------------------
8
UNION BANK OF CALIFORNIA, N.A.
LOCKBOX OPERATING PROCEDURAL AGREEMENT
EXHIBIT "A"
Company Name: Aldila Golf Corp
Date: June 25, 1999
A. Wholesale Lockbox Service Fees
1. Fees
Basic Charge $150.00 per month
Per Item Processed $ .36 per item
Basic Plan $ per item
Photocopies $ .08 per item
Reassociate Invoice to Photocopy $ .05 per item
Data Entry $ per item
Wholesale Lockbox Deposit $ 1.20 per deposit
Returned Items Reclear $ 1.50 per item
Returned Items - Chargeback $ 5.00 per item
Daily Deposit Notification $ per month
Early Release Deposit $ per month
Customer Reporting $ per month
Options (add to per item charge above):
Additional photocopy $ .12 per item
Special Request Photocopy $ 1.00 per item
------------------------- --------
2. Prices effective as of April 1, 1999. Refer to the Schedule of
Fees-for other possible fees under this Agreement.
B. Method of Compensation
Service fees are to be charged via
Account Analysis--Account No. 4000-147708
C. Wholesale Lockbox Service Contacts
COMPANY CONTACT
Company Name: Aldila Golf Corp
Company Contact: Xxx-Xxx Yeh
Phone Number: 858-513-1403 ext. 112
9
BANK CONTACT
a. Wholesale Lockbox Cash Management Installation and Servicing
Representative
Phone Number: (000) 000-0000
b. Your Account Officer is:
Xxxxx Xxxxxx
000 Xxxxxxxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxxxxxxx, XX 00000
Phone: (000) 000-0000
FOOTHILL CONTACT
Name: Treasury Department, regarding Aldila Golf Corp
Foothill Capital Corporation
00000 Xxxxx Xxxxxx Xxxx., #0000, Xxx Xxxxxxx, XX 00000-0000
Phone Number: (000) 000-0000
FOOTHILL CAPITAL CORPORATION UNION BANK OF CALIFORNIA, N.A.
By By
--------------------- --------------------
Name XXX XXXXXXXXX Name XXXXX XXXXXXX
--------------------- --------------------
Title VP/ASST. TREASURER Title VICE PRESIDENT
--------------------- --------------------
Date: Date:
--------------------- --------------------
By By
--------------------- --------------------
Name XXXXX X. XXXXX Name XXXXX XXXXXX
--------------------- --------------------
Title VICE PRESIDENT Title ASST. VICE PRESIDENT
--------------------- --------------------
COMPANY
By
---------------------
Name XXXXXX X. XXXXXX
---------------------
Title VP CONTROLLER
---------------------
Date:
---------------------
By
---------------------
Name XXXXXX X. XXXXXXX
---------------------
Title VICE PRESIDENT
---------------------
Date:
---------------------
10
Exhibit G
INTELLECTUAL PROPERTY SECURITY AGREEMENT
[Aldila, Inc.]
This Intellectual Property Security Agreement (the "Agreement"), dated
as of July 9, 1999 is made by and between ALDILA, INC., a Delaware
corporation (together with its successors and assigns "Grantor"), and
FOOTHILL CAPITAL CORP., a California corporation (together with its
successors and assigns, "Foothill"); with respect to the following facts:
A. Grantor and/or its wholly owned subsidiary, Aldila Golf Corp., a
Delaware corporation ("Borrower"), has adopted certain trademarks and service
marks, including those that have been registered, or for which registration
applications are pending, that are identified herein and in SCHEDULE A
annexed hereto and made a part hereof.
B. Grantor and/or Borrower is the owner and holder of certain patents
and patent applications, including those that have been registered or for
which registration applications are pending, that are identified herein and
in SCHEDULE B annexed hereto and made a part hereof.
C. Grantor is the owner of the copyrights in certain works of
authorship, as described herein and in SCHEDULE C annexed hereto and made a
part hereof.
D. Borrower and Foothill have entered into that certain Loan and
Security Agreement (the "Loan Agreement"), and certain other agreements in
connection therewith, all of even date herewith (collectively hereinafter
referred to as the "Loan Documents"), pursuant to which Loan Documents
Foothill has agreed to extend credit to or for the account of Borrower.
Except as otherwise herein expressly provided, all terms used herein
beginning with a capital letter shall have the meanings ascribed to them in
the Loan Agreement.
E. In order to induce Foothill to enter into the Loan Agreement and to
accept all of the Loan Documents, and to make advances and otherwise extend
credit to Borrower thereunder, Grantor has agreed to secure the payment and
performance of the Obligations (as hereinafter defined) and to accomplish
same by (i) executing and delivering to Foothill this Agreement, (ii)
executing and delivering to Foothill the Collateral Assignments and Powers of
Attorney, and (iii) delivering to Foothill any and all other documents which
Foothill deems necessary to protect Foothill's interests hereunder or with
respect to the Obligations.
F. This Agreement is the Parent IP Security Agreement as defined and
described in the Loan Agreement. Except as otherwise expressly provided
herein, all terms used in this Agreement beginning with a capital letter
shall have the meanings ascribed to them in the Loan Agreement.
NOW, THEREFORE, IT IS AGREED that, for and 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 as collateral security for the prompt payment in
full when due (whether at stated maturity, by
1
acceleration or otherwise) of the Obligations, Grantor hereby pledges and
grants to Foothill a lien and security interest in all of Grantor's right,
title and interest in and to the following property and interests in
property, whether now owned by Grantor or hereafter acquired and whether now
existing or hereafter coming into existence (all being collectively referred
to herein as "IP Collateral"):
(a) all of Grantor's right, title and interest in and to trademarks,
trade names, service marks, and all general intangibles of like nature, now
existing or hereafter adopted or acquired by Grantor, together with the
goodwill of Grantor's business connected with the use thereof and symbolized
thereby, and all registration applications, registrations and recordings
thereof, including, without limitation, registration applications,
registrations and recordings in the United States Patent and Trademark Office
or in any similar office or agency of the United States or in any office of
the Secretary of State (or equivalent) of any state thereof, or in any
similar office or agency of any country or political subdivision thereof
throughout the world, whether now owned or hereafter acquired by Grantor,
including, but not limited to, those described in SCHEDULE A annexed hereto
and made a part hereof (to the extent owned by Grantor and not Borrower),
together with all extensions, renewals and corrections thereof and all
licenses thereof or pertaining thereto (all of the foregoing assets
encompassed by this subparagraph 1(a) being hereinafter collectively referred
to as the "Trademarks");
(b) all of Grantor's right, title and interest in and to all inventions
and letters patent and registration applications therefor, and all
registrations and recordings thereof, including, without limitation,
registration applications, registrations and recordings in the United States
Patent and Trademark Office or in any similar office or agency of the United
States or any state thereof, or in any similar office or agency of any
country or political subdivision thereof throughout the world, whether now
owned or hereafter acquired by Grantor, including, but not limited to, those
described in SCHEDULE B annexed hereto and made a part hereof (to the extent
owned by Grantor and not Borrower), together with all re-examinations,
reissues, continuations, continuations-in-part, divisions, improvements and
extensions thereof and all licenses thereof or pertaining thereto and all
licenses of patent rights to Grantor now in effect or entered into during the
term of this Agreement and the rights to make, use and sell, and all other
rights with respect to, the inventions disclosed or claimed therein, all
establish inventions, designs, proprietary or technical information,
know-how, other data or information, software, databases, all embodiments or
fixations thereof and related documentation (all of the foregoing assets
encompassed by this subparagraph 1(b) being hereinafter collectively referred
to as the "Patents");
(c) all of Grantor's right, title and interest in and to copyrights in
works of authorship of any kind, and all registration applications,
registrations and recordings thereof in the Office of the United States
Register of Copyrights, Library of Congress, or in any similar office or
agency of any country or political subdivision thereof throughout the world,
whether now owned or hereafter acquired by Grantor, including, but not
limited to, those described in SCHEDULE C annexed hereto and made a part
hereof, together with all extensions, renewals, reversionary rights, and
corrections thereof and all licenses thereof or pertaining thereto (all of
the foregoing assets encompassed by this subparagraph 1(c) hereinafter
collectively referred to as the "Copyrights");
2
(d) all of Grantor's customer lists and other records of Grantor
relating to the distribution of products bearing, constituting or
incorporating the Trademarks, Patents and Copyrights; and
(e) any and all proceeds of the foregoing, including, without
limitation, the proceeds from any claims by Grantor against third parties for
past, present or future infringement of the Trademarks, Patents or Copyrights
and any royalties from licenses to third parties of the Trademarks, Patents
or Copyrights.
Notwithstanding any of the foregoing premises to the contrary, the grant of a
security interest as provided herein shall not extend to, and the term "IP
Collateral" shall not include, any right, title or interest in, or to
property or interests of Grantor (whether owned or held as licensee or
lessee, or otherwise), to the extent that (i) to the extent required, Grantor
has not received permission from licensor to grant such a security interest,
or (ii) such property is otherwise not assignable or capable of being
encumbered as a matter of law or under the terms of the license or other
agreement applicable thereto, whether such license or agreement is written,
oral or implicit (but solely to the extent that any such restriction shall be
enforceable under applicable law), without the consent of the licensor
thereof or other applicable party thereto, and such consent has not been
obtained; PROVIDED, HOWEVER, that the foregoing grant of security interest
shall extend to, and the term "IP Collateral" shall include, any proceeds of
any property which is otherwise excluded under phrase (i) to the extent that
assignment or encumbrance of such proceeds is not restricted.
1. Grantor hereby represents, warrants, covenants and agrees as
follows:
(a) Grantor and/or Borrower has the sole, full and clear title to
the Trademarks listed in SCHEDULE A for the goods and services with which
such Trademarks are used (except as provided in paragraph 1(g) below and in
SCHEDULE A attached hereto). Except as noted in SCHEDULE A, the
registrations of the Trademarks are valid and subsisting and in full force
and effect. Grantor has not granted a license or otherwise agreed to allow
any third party, other than such licenses as are immaterial individually or
in the aggregate, other than to Borrower and its Subsidiaries in the ordinary
course of their business, and other than as set forth in paragraph 2, to use
any Trademark (except as provided in SCHEDULE A attached hereto). Grantor
has used and will continue to use for the duration of this Agreement
standards of quality in the manufacture of products sold under the Trademarks
that are at least equal to those standards in effect as of the date of this
Agreement to the extent that the failure to do so would cause a Material
Adverse Change.
(b) To the extent Grantor now uses such Trademarks, Grantor
(either itself or through its licensees) will continue to use the Trademarks
listed in SCHEDULE A on each and every trademark class of goods applicable to
its current lines of goods as reflected in its current catalogs, brochures
and price lists in order to maintain the Trademarks in full force and effect,
in the ordinary course of business, free from any claim of abandonment for
nonuse and Grantor will not (and will not permit any licensee thereof to) do
any act or knowingly omit to do any act whereby any Trademark may become
invalidated, provided, however, that Grantor may abandon any Trademark if
Grantor believes in its reasonable business judgment that such abandonment is
in the best interest of Grantor's business, provided, further, that (i) to
the
3
extent practicable, Grantor gives Foothill prompt notice of Grantor's intent
to abandon any Trademark, and (ii) such abandonment will not solely by virtue
of such abandonment, materially decrease the value of the IP Collateral.
(c) Grantor and/or Borrower has the sole, full and clear title to
the Patents shown on SCHEDULE B hereto and to Borrower and such patents are
valid and subsisting and in full force and effect and have not been adjudged
or, to Grantor's knowledge, claimed invalid or unenforceable in whole or in
part (except as provided in paragraph l(g) below and in SCHEDULE B attached
hereto). Grantor has not granted a license or otherwise agreed to allow any
third party, other than to Borrower and Grantor's and Borrower's Subsidiaries
in the ordinary course of business, and other than as set forth in paragraph
2, to use any Patent (except as provided in SCHEDULE B attached hereto).
Grantor shall diligently prosecute any patent application now pending or
acquired or made by it during the term of this Agreement, and shall preserve
and maintain all rights of any kind in the Patents, which, in each case,
Grantor believes in its reasonable business judgment are in the best business
interests of Grantor. Grantor believes that none of the Patents has been
abandoned or dedicated and Grantor will not do any act, or omit to do any
act, nor permit any licensee thereof to do any act whereby any Patent may
become abandoned or dedicated and shall notify Foothill immediately if it
knows that any material Patent may become abandoned or dedicated, provided,
however, that Grantor may abandon any Patent if Grantor believes in its
reasonable business judgment that such abandonment is in the best interest of
Grantor's business, provided, further, that (i) to the extent practicable,
Grantor gives Foothill prompt notice of Grantor's intent to abandon any
Patent, and (ii) such abandonment will not, solely by virtue of such
abandonment, materially decrease the value of the IP Collateral.
(d) Grantor (either itself or through its licensees) will place
appropriate notice of copyright on all copies embodying registered
copyrighted works which are publicly distributed and Grantor will not (and
will not permit any licensee thereof to) do any act or knowingly omit to do
any act whereby any Copyright may become invalidated or dedicated to the
public domain except to the extent that Grantor, in its reasonable business
judgment, determines otherwise.
(e) Grantor will promptly perform all acts and execute all
documents, including, without limitation, grants of security in forms
acceptable to Foothill and suitable for recording with (i) the United States
Patent and Trademark Office and the United States Register of Copyrights, and
(ii) the appropriate offices and agencies of foreign jurisdictions reasonably
requested by Foothill at any time to evidence, perfect, maintain, record or
enforce Foothill's interest in the IP Collateral or otherwise in furtherance
of the provisions of this Agreement. Grantor hereby authorizes Foothill to
execute and file one or more financing statements (and any similar documents)
or copies thereof or of this Agreement with respect to the IP Collateral
signed only by Foothill (with a copy sent to Grantor).
(f) In the event that Grantor, either itself or through any
subsidiary, affiliate, agent, employee, licensee or designee, shall file an
application for the issuance of any Patent or registration of any Trademark
with the United States Patent and Trademark Office, or any similar office of
the United States or in any office of the Secretary of State (or equivalent)
of any state thereof, or for the registration of any Copyright with the
United States
4
Register of Copyrights, or for the registration of any Patent, Trademark or
Copyright in any similar office or agency of any country or political
subdivision thereof throughout the world, or shall obtain issuance of any
Patent or registration of any Trademark or Copyright previously applied for,
or shall adopt, acquire or obtain rights to any new trademark, patent
application or work for which a copyright application has been or is expected
to be filed (except as a licensee), or become entitled to the benefit of any
patent application or any patent or any part thereof for reissue,
re-examination, continuation, continuation-in-part, division, improvement or
extension (except as a licensee), Grantor shall execute and deliver any and
all assignments, agreements, instruments, documents and papers as are
necessary or appropriate or as Foothill may reasonably request to evidence
Foothill's interest in such Trademark, Patent or Copyright and the goodwill
and general intangibles of Grantor relating thereto or represented thereby.
Grantor hereby constitutes Foothill, or its agent, or its attorney-in-fact,
to execute and file all such writings for the foregoing purposes, all acts of
such attorney being hereby ratified and confirmed; such power being coupled
with an interest is irrevocable until the Obligations are paid in full.
Grantor authorizes the amendment of the schedules hereto to include any
future Trademark, Patent or Copyright registrations or registration
applications which may be acquired or made by Grantor (except as a licensee).
(g) Grantor has the authority, right and power to enter into this
Agreement and to perform its terms and to grant the security interest herein
granted, and has not entered and will not enter into any oral or written
agreements which would prevent Grantor from complying with the terms hereof,
provided, however, Grantor may enter into or maintain in effect such license
agreements (including, without limitation, those set forth on SCHEDULES A, B
AND C hereto) with respect to the IP Collateral as Grantor believes in its
reasonable business judgment are in the best interest of Grantor's business.
The IP Collateral is not, to Grantor's knowledge, now, and at all times will
not be, subject to any liens, charges, mortgages, assignments, security
interests, licenses, claims, shop rights, covenants not to xxx third persons,
or encumbrances of any nature whatsoever, except in favor of Foothill and
except for Permitted Liens; provided, however, Grantor may enter into such
license agreements with respect to the IP Collateral as Grantor believes in
its reasonable business judgment are in the best interest of Grantor's
business. To the best knowledge of Grantor, none of the IP Collateral is
subject to any claims of any other party (except (i) for permitted use by
licensee or (ii) with respect to any use of any IP Collateral of which
Grantor is the licensee), except as may be indicated on SCHEDULES A, B AND C
to this Agreement.
(h) Except for Permitted Liens, for licenses to licensees, and to
the extent that Foothill, upon prior notice from Grantor, shall consent,
Grantor will not assign, sell, mortgage, lease, transfer, pledge,
hypothecate, grant a security interest in or lien upon, encumber, grant any
exclusive licenses that are material, individually or in the aggregate, or
otherwise dispose of any of the IP Collateral, and nothing in this Agreement
shall be deemed a consent by Foothill to any such action except as expressly
permitted herein or to the extent that Grantor, in its reasonable business
judgment, determines otherwise.
(i) As of the date hereof Grantor has no Trademarks, Patents or
Copyrights registered, or which are the subject of any pending application,
in the United States Patent and Trademark Office, or any similar office of
the United States or in any office of the Secretary of State (or equivalent)
of any state thereof, or the United States Register of
5
Copyrights, or in any similar office or agency of any country or political
subdivision thereof throughout the world, other than those of Grantor and/or
Borrower identified in SCHEDULES A, B AND C hereto.
(j) Grantor will take all commercially reasonable steps in any
proceeding before the United States Patent and Trademark Office, United
States Register of Copyrights or similar office or agency of the United
States or any office of the Secretary of State (or equivalent) of any state
thereof, or in any similar office or agency of any country or political
subdivision thereof throughout the world, to maintain each registration
application and registration of the IP Collateral, including, without
limitation, filing of renewals, extensions, affidavits of use and
incontestability, and opposition, interference and cancellation proceedings
(except to the extent that dedication, abandonment or invalidation is
permitted under paragraphs 1(b) and 1(c) hereof). To the extent practicable,
Grantor shall notify Foothill promptly if any registration application or
registration relating to any IP Collateral may become abandoned or dedicated
or subject to an adverse final determination in any proceeding in the United
States Patent and Trademark Office or United States Register of Copyrights or
in any similar office or agency of any country or political subdivision
thereof throughout the world or in any court regarding Grantor's ownership of
such Patent or Trademark, its right to register same, or to keep or maintain
the validity of same.
(k) In the event that Grantor acquires actual knowledge that any
Trademark, Patent or Copyright is infringed, misappropriated or diluted by a
third party, Grantor shall promptly xxx for infringement, misappropriation
and/or dilution and to obtain injunctive relief and recover damages therefor,
unless Grantor shall determine in its reasonable business judgment that such
suit is not in the best interest of Grantor's business, and Grantor shall
take such other actions reasonably required to protect such Trademark, Patent
or Copyright as Grantor shall deem appropriate in its reasonable business
judgment under the circumstances. Upon and during the continuance of an
Event of Default, Foothill shall have the right, but in no way shall be
obligated, to bring suit in its own name to enforce the Trademarks, Patents
and Copyrights and any licenses thereunder, in which event Grantor shall, at
the reasonable request of Foothill, do any and all lawful acts requested by
Foothill and execute any and all documents required by Foothill to aid such
enforcement, and Grantor shall, upon demand, promptly reimburse and indemnify
Foothill for all costs and expenses reasonably incurred in such enforcement.
6
2. Notwithstanding anything in this Agreement to the contrary:
(a) Foothill acknowledges that, Grantor or Borrower has been
granted certain licenses to do, among other things, the following: (i) to
access and use intellectual property rights (such as product designs) owned
by Borrower's customers and others in the design, manufacture and sale of
products to or on behalf of such customers, (ii) to affix evidence of
ownership of intellectual property rights (such as trademarks) by Borrower's
customers and others to products manufactured and sold to or on behalf of
such customers, and (iii) to affix evidence of ownership of intellectual
property rights by Borrower's customers and others, and/or to affix evidence
of ownership of intellectual property rights by Grantor (or Borrower), to
products manufactured by third parties. Foothill understands that many of
those licenses are not evidenced in writing, but are oral or implied.
Foothill agrees that, to the extent such licenses do not entitle any person
other than Foothill, or its successors and assigns to realize on the
Collateral, (i) the existence and use of such licenses shall in no event
constitute a breach of the terms of this Agreement and the other Loan
Documents and (ii) Grantor makes no representation or warranty as to whether
Foothill can create an enforceable security interest in such licenses or in
the intellectual property rights owned by any person other than Grantor.
(b) Foothill acknowledges that Borrower routinely (but not always)
does not affix any of trademarks of Grantor or Borrower, or other evidence of
ownership of intellectual property rights (such as patents) by Grantor or
Borrower, on products that Borrower manufactures and sells. Foothill agrees
that such practices shall in no event constitute a breach of the terms of
this Agreement and the other Loan Documents.
3. Upon an Event of Default, in addition to all other rights and
remedies provided for in the Loan Documents (as defined in the Loan
Agreement), all such rights and remedies being cumulative, not exclusive, and
enforceable alternatively, successively or concurrently, without (except as
provided herein) notice to, or consent by, Grantor, Foothill shall have the
following rights and remedies:
(a) Foothill may (without assuming any obligations or liability
thereunder), at any time and in a commercially reasonable manner, enforce
(and shall have the exclusive right to enforce) against any licensee or
sublicensee all rights and remedies of Grantor in, to and under any one or
more license agreements with respect to the IP Collateral, and take or
refrain from taking any action under any thereof, and Grantor hereby releases
Foothill from, and agrees to hold Foothill free and harmless from and against
any claims arising out of, any action taken or omitted to be taken with
respect to any such license agreement except for such acts or omissions that
constitute gross negligence or willful misconduct;
(b) Foothill may, at any time and from time to time, upon five (5)
days' prior notice to Grantor, assign, sell, or otherwise dispose of the IP
Collateral or any of it, either with or without special or other conditions
or stipulations, with power to buy the IP Collateral or any part of it, and
do all other acts and things for completing the assignment, sale
7
or disposition which Foothill shall, in its sole discretion, deem appropriate
or proper, but in all cases in accordance with the provisions of Section
9.1(k) of the Loan Agreement;
(c) In addition to the foregoing, in order to implement the
assignment, sale, license or other disposal of any of the IP Collateral
pursuant to subparagraphs 3(a) and (b) hereof, Foothill may, at any time,
pursuant to the authority granted in the Power of Attorney described in
paragraph 4 hereof (such authority becoming effective upon an Event of
Default), execute and deliver on behalf of Grantor one or more instruments of
assignment sale, license or other disposition of the IP Collateral. Grantor
agrees to pay when due all reasonable costs incurred in any such transfer of
the IP Collateral, including any taxes, fees and reasonable attorneys' fees,
and all such costs shall be added to the Obligations. Foothill may apply the
proceeds actually received from any such license, assignment, sale or other
disposition in accordance with paragraph (d) of this Section 3; and Grantor
shall remain liable and will pay Foothill on demand any deficiency remaining,
together with interest thereon at a rate equal to the rate then payable on
the Obligations and the balance of any expenses unpaid. Nothing herein
contained shall be construed as requiring Foothill to take any such action at
any time; and
(d) Except as otherwise herein expressly provided, the proceeds of
any collection, sale or other realization of all or any part of the IP
Collateral pursuant hereto, shall be applied to the Obligations until the
Obligations shall have been paid in full in cash.
4. Concurrently with the execution and delivery hereof, Grantor is
executing and delivering to Foothill, in the form of EXHIBIT A and EXHIBIT B
hereto, respectively, two originals of a Power of Attorney for the
implementation of any assignment, sale or other disposition of the Trademarks
or Patents or any of them pursuant to paragraphs 3(a) and (b) hereof.
5. No provision hereof shall be modified, altered or limited except by
a written instrument expressly referring to this Agreement and executed by
the party to be charged. The execution and delivery of this Agreement has
been properly authorized by the board of directors of Grantor and by any
necessary vote or consent of stockholders thereof. This Agreement shall be
binding upon the successors, permitted assigns or other legal representatives
of Grantor, and shall, together with the rights and remedies of Foothill
hereunder inure to the benefit of Foothill, its successors, permitted assigns
or other legal representatives. This Agreement, the Obligations and the IP
Collateral shall be governed in all respects by the laws of the United States
and the laws of the State of California. If any term of this Agreement shall
be held to be invalid, illegal or unenforceable, the validity of all other
terms hereof shall in no way be affected thereby.
6. This Agreement shall continue to be effective and shall be
reinstated in the event that at any time after the Obligations have been paid
in full, any payment of the Obligations is rescinded or must otherwise be
restored or returned by Foothill.
7. Upon payment and performance by Borrower of all of the Obligations
(other than indemnification obligations for which no claim has been made) and
upon the termination of the Loan Agreement, this Agreement shall terminate
and Foothill shall execute,
8
file and record in each office in which any financing statement or assignment
relative to the IP Collateral, or any part thereof, shall have been filed, a
termination statement, assignment or other appropriate instrument releasing
its interest therein, all without recourse to or warranty by Foothill and at
the sole cost and expense of the Grantor.
8. This Agreement may be executed in any number of counterparts, all
of which taken together shall constitute one and the same instrument and any
of the parties hereto may execute this Agreement by signing any such
counterpart.
9. (a) Except to the extent otherwise expressly restricted or
prohibited pursuant to any of the other Loan Documents, at any time and in
any manner, upon such terms and at such times as it considers best and with
or without notice to Grantor, Foothill may alter, compromise, accelerate,
extend, or change the time or manner for payment of the indebtedness,
increase or reduce the rate of interest thereon, release or add any one or
more obligors, guarantors, endorsers or Borrower, accept additional or
substituted security therefor, or release or subordinate any security
therefor, without in any way affecting the security interest of this
Agreement or any covenant of Grantor.
(b) Grantor waives any right to require Foothill to proceed
against the Borrower or any other person, firm or corporation at any time or
to pursue any other remedy in its power, and Grantor agrees that Foothill
shall not be obligated to resort to any other security, including security
given by the Borrower, with any priority, in any particular order, or at all,
even if such action, or lack thereof, destroys, alters or otherwise impairs
subrogation rights of Grantor or the rights of Grantor to proceed against
Borrower for reimbursement, or both.
(c) Grantor waives and agrees not to assert or take advantage of:
(i) any defense that may arise by reason of the incapacity, lack of
authority, insolvency, suspension or dissolution of Borrower or any other
person, or the failure of Foothill to file or enforce a claim against the
estate (either in administration, bankruptcy or other proceedings) of
Borrower or any other person; or (ii) any defense or right based upon
election of remedies by Foothill, including, without limitation, an election
to proceed by nonjudicial rather than judicial foreclosure, even if such
election destroys, alters or otherwise impairs subrogation rights of Grantor
or the right of Grantor to proceed against Borrower or any other person for
reimbursement, or both.
(d) Grantor, by execution hereof, represents to Foothill that the
relationship between Grantor and Borrower is such that Grantor has access to
all relevant facts and information concerning the debt and Borrower and that
Foothill can rely upon Grantor having such access. Grantor waives and agrees
not to assert any duty on the part of Foothill to disclose to Grantor any
facts that Foothill may now or hereafter know about the Borrower, regardless
of whether Foothill has reason to believe that any such facts materially
increase the risk beyond that which Grantor intends to assume or has reason
to believe that such facts are unknown to Grantor or has a reasonable
opportunity to communicate such facts to Grantor. Grantor is fully
responsible for being and keeping informed of the financial condition and
operations of Borrower and all circumstances bearing on the risk of
nonpayment of any indebtedness hereby secured.
9
(e) Grantor waives demand, protest and notice (except as set forth
in Section 3(b)) of any kind, including, without limiting the generality of
the foregoing, notice of the existence, creation or incurring of new or
additional indebtedness or of any action or non-action on the part of the
Borrower, Foothill, any endorser, any creditor of Borrower or Grantor under
this of any other instrument, or any other person whosoever, in connection
with any obligation or evidence of indebtedness held by Foothill as
collateral or in connection with any indebtedness secured hereby.
(f) Until all Obligations of Borrower to Foothill under the Loan
Documents have been paid in full, Grantor waives the right of subrogation and
waives any right to enforce any remedy which Foothill now has or may
hereafter have against Borrower and any benefit of, and any right to
participate in, any security now or hereafter held by Foothill.
(g) With or without notice to Grantor, Foothill, in its sole
discretion, at any time and from time to time, in such manner and upon such
terms as it considers reasonable, may (a) apply any and all payments or
recoveries from any security, in such manner, order and priority as Foothill
elects, to any indebtedness of Borrower to Foothill, whether or not such
indebtedness is secured hereby or is otherwise secured or is due at the time
of such application; and (b) refund to Borrower any payment received by
Foothill upon any indebtedness hereby secured and payment of the amount
refunded shall be fully secured hereby.
(h) No exercise or nonexercise of Foothill of any right hereby
given it and no dealing by Foothill with Borrower or any other person shall
in any way affect any of the obligations of Grantor hereunder or give Grantor
any recourse against Foothill.
(i) Notwithstanding that Grantor and Borrower may have entered
into a separate agreement relating to their rights and duties with each
other, no right, remedy or provision thereof shall be binding upon or affect
or delay Foothill's rights or remedies under this Agreement or by operation
of law.
(j) Grantor understands that the exercise by Foothill of certain
rights and remedies contained in the Loan Documents may affect or eliminate
Foothill's right to seek a money judgment against Borrower and, therefore,
Grantor's right of subrogation to seek a money judgment against Borrower, and
that Grantor, upon completion of a foreclosure of this Agreement by Foothill
may therefore succeed to a partially or totally non-reimbursable liability on
the part of Borrower. Nevertheless, Grantor hereby authorizes and empowers
Foothill, at its sole option, without notice or demand (except as set forth
in Section 3(b)) and without affecting the validity or enforceability of this
Agreement, as herein modified, to exercise, in its sole discretion, any and
all rights and remedies, or any combination thereof, which may be available
to it, including the right to foreclose this Agreement by nonjudicial sale,
subject to any restrictions contained in the Loan Documents.
Grantor acknowledges that Grantor may have certain rights
under applicable law which, if not waived by Grantor, might provide Grantor
with defenses against
10
Grantor's liability under this Agreement. Among those rights, are certain
rights provided in sections 2808, 2819, 2821, 2845, 2848, 2850, 2854, 2899
and 3433 of the California Civil Code. Grantor waives all of Grantor's
rights and defenses that are or may become available to Grantor by reason of
any or all of California Civil Code sections 2808, 2819, 2821, 2845, 2899,
and 3433. So long as any Obligation remains outstanding under the Loan
Agreement, Grantor further waives all rights and defenses that are or may
become available to Grantor by reason of any or all of California Civil Code
sections 2848, 2850, and 2854.
IN WITNESS WHEREOF, the undersigned has caused this Agreement to be duly
executed and delivered on the day and year first above written.
ALDILA, INC.
By:
---------------------------------
Its:
--------------------------------
11
INTELLECTUAL PROPERTY SECURITY AGREEMENT
[ALDILA, INC.]
SCHEDULE A
DESCRIPTION OF TRADEMARKS
TRADEMARKS Registered with The United States Patent and Trademark Office
TRADEMARK STATUS APP. NO. REG. NO. CLASS
----------- ------ -------- -------- -----
A (STYLIZED LETTERS) Registered Registered 1,101,602 28
A-S-D Registered Registered 1,847,770 28
XXXX XX-40 Registered Registered 1,503,141 28
XXXX V Registered Registered 1,959,949 28
ALDALITE Registered Registered 1,774,311 28
ALDILA Registered Registered 1,029,465 28
FLOPSTER PENDING 75/290,832 PENDING 28
GLT Registered Registered 1,216,930 28
HM-30 Registered Registered 1,643,734 28
HM-35 Registered Registered 1,895,198 28
HM-40 Registered Registered 1,895,199 28
HM-50 Registered Registered 1,630,971 28
HM-55 Registered Registered 1,630,973 28
LOBSTER Registered Registered 2,204,505 28
LONGWOOD PENDING 75/122,477 PENDING 28
POWERED BY ALDILA (& PENDING 75/122,477 PENDING 28
DESIGN)
PROVEN BY Registered Registered 1,519,962 28
PERFORMANCE
SMOOTH FLEX Registered Registered 2,005,036 28
TGI Registered Registered 1,855,842 28
TRU TORQUE Registered Registered 1,216,013 28
VELOCITOR Registered Registered 1,659,896 28
DESIGN (STYLIZED PENDING 75/553,601 PENDING 28
LETTER A)
12
TRADEMARKS Registered in Foreigh Jurisdictions
TRADEMARK STATUS APP. NO. REG. NO. CLASS COUNTRY
----------- ------ -------- -------- ----- -------
ALDILA (STYLIZED LETTERS) Registered Registered 1045484 28 United Kingdom
ALDILA Registered Registered 1018307 28 United Kingdom
ALDILA PENDING 223081 PENDING 28 Community
XXXXXX(1) Registered Registered TMA218,790 28 Canada
XXXX VIII Registered Registered TMA215,996 28 Canada
ALDILA (& DESIGN) Registered Registered TMA217,731 28 Canada
A (& DESIGN) Registered Registered TMA219,934 28 Canada
ALDILA GOLF SHAFTS Registered Registered TMA233,609 28 Canada
(& DESIGN)
ALDILA (& DESIGN) Registered Registered TMA201,477 28 Canada
ALDILA Registered Registered TMA201,476 28 Canada
ALDILA Registered Registered A289273 28 Australia
ALDILA Registered Registered 21526 28 Brunei
ALDILA Registered Registered 992059 28 China P.R.
ALDILA Registered Registered 1447316 00 Xxxxx
ALDILA Registered Registered 1456029 24 Japan
ALDILA IN KATAKANA Registered Registered 1320939 00 Xxxxx
XXXX XX-20 Registered Registered 230141 00000 South Korea
XXXX XX-30 Registered Registered 230142 00000 South Korea
XXXX XX-40 Registered Registered 230143 00000 South Korea
XXXX XX-55 Registered Registered 230144 00000 South Korea
ALDILA PENDING 96-18205 PENDING 43 South Korea
ALDILA Registered Registered 93/03076 28 Malaysia
ALDILA Registered Registered 414427 28 Mexico
HM-30 Registered Registered 416409 28 Mexico
---------------
(1) It is unclear whether this xxxx is owned (a) by Borrower or Parent
Company or (b) by an unrelated entity with a name similar to that of
Parent Company. Borrower and Parent Company make no representations,
warranties, covenants or other agreements with respect to this xxxx.
13
HM-40 Registered Registered 416410 28 Mexico
HM-55 Registered Registered 416411 28 Mexico
QUESTAR Registered Registered 41642 28 Mexico
ALDILA PENDING 85873 PENDING 28 Philippines
ALDILA Registered Registered 3413/93 28 Singapore
XXXX VIII Registered Registered 161920 28 Sweden
XXXX XX Registered Registered 527732 00000 Taiwan
ALDILA PENDING 7950427 PENDING Taiwan
ALDILA Registered Registered KOR 15577 28 Thailand
14
INTELLECTUAL PROPERTY SECURITY AGREEMENT
[ALDILA, INC.]
SCHEDULE B
DESCRIPTION OF PATENTS
None.
15
INTELLECTUAL PROPERTY SECURITY AGREEMENT
[ALDILA, INC.]
SCHEDULE C
DESCRIPTION OF COPYRIGHTS
COPYRIGHTS Recorded with The United States Copyright Office
COPYRIGHT NO. REG. DATE TITLE
--------------- --------- -----
VU 515-407 08/27/92 ALDILA CUSTOMER SHAFT ADVERTISEMENT
VU 515-406 07/31/92 ALDILA NEW PRODUCT SHAFT ADVERTISEMENT
16
POWER OF ATTORNEY
TRADEMARK ASSETS
Pursuant to the terms of that certain Loan and Security Agreement and
that certain Intellectual Property Security Agreement, both of even date
herewith, as each may be amended, restated, modified or supplemented and in
effect from time to time, Aldila, Inc., a Delaware corporation (the
"Company"), hereby grants to Foothill Capital Corporation, a California
corporation (together with its successors and assigns, "Foothill"), a power
of attorney, exercisable only upon an Event of Default (as defined in the
Loan and Security Agreement, dated July 9, 1999, between Aldila Golf Corp., a
Delaware corporation, and Foothill):
(i) to offer to sell, to sell, to assign, to license, or to
otherwise transfer (collectively, "transfer") any or all of the
Company's right, title and interest around the world in and to
the trademarks listed on SCHEDULE A attached hereto, including
the registrations and applications to register such trademarks
and all goodwill associated with such trademarks;
(ii) to execute all documents on its behalf and do all acts
necessary or desirable to effect the above stated transfers of
right, as if Foothill were the Company at all appropriate
times; and
(iii) to receive and retain consideration, including money, in
connection with and in payment for any such transfer.
All transfers and such acts as described above are hereby ratified and
confirmed by the Company.
This Power of Attorney is coupled with an interest and is irrevocable
except with the consent of Foothill.
Dated as of July 9, 1999.
ALDILA, INC.,
a Delaware corporation
By:
-----------------------------------
Name:
Title:
SUBSCRIBED AND SWORN TO
before me this 9th day of July, 1999.
Notary Public [Seal]
17
POWER OF ATTORNEY-TRADEMARK ASSETS
[ALDILA, INC.]
SCHEDULE A
DESCRIPTION OF TRADEMARKS
TRADEMARKS Registered with The United States Patent and Trademark Office
TRADEMARK STATUS APP. NO. REG. NO. CLASS
----------- ------ -------- -------- -----
A (STYLIZED LETTERS) Registered Registered 1,101,602 28
A-S-D Registered Registered 1,847,770 28
XXXX XX-40 Registered Registered 1,503,141 28
XXXX V Registered Registered 1,959,949 28
ALDALITE Registered Registered 1,774,311 28
ALDILA Registered Registered 1,029,465 28
FLOPSTER PENDING 75/290,832 PENDING 28
GLT Registered Registered 1,216,930 28
HM-30 Registered Registered 1,643,734 28
HM-35 Registered Registered 1,895,198 28
HM-40 Registered Registered 1,895,199 28
HM-50 Registered Registered 1,630,971 28
HM-55 Registered Registered 1,630,973 28
LOBSTER Registered Registered 2,204,505 28
LONGWOOD PENDING 75/122,477 PENDING 28
POWERED BY ALDILA PENDING 75/122,477 PENDING 28
(& DESIGN)
PROVEN BY Registered Registered 1,519,962 28
PERFORMANCE
SMOOTH FLEX Registered Registered 2,005,036 28
TGI Registered Registered 1,855,842 28
TRU TORQUE Registered Registered 1,216,013 28
VELOCITOR Registered Registered 1,659,896 28
DESIGN (STYLIZED
LETTER A) PENDING 75/553,601 PENDING 28
18
TRADEMARKS Registered in Foreigh Jurisdictions
TRADEMARK STATUS APP. NO. REG. NO. CLASS COUNTRY
----------- ------ -------- -------- ----- -------
ALDILA (STYLIZED LETTERS) Registered Registered 1045484 28 United Kingdom
ALDILA Registered Registered 1018307 28 United Kingdom
ALDILA PENDING 223081 PENDING 28 Community
XXXXXX(2) Registered Registered TMA218,790 28 Canada
XXXX VIII Registered Registered TMA215,996 28 Canada
ALDILA (& DESIGN) Registered Registered TMA217,731 28 Canada
A (& DESIGN) Registered Registered TMA219,934 28 Canada
ALDILA GOLF SHAFTS Registered Registered TMA233,609 28 Canada
(& DESIGN)
ALDILA (& DESIGN) Registered Registered TMA201,477 28 Canada
ALDILA Registered Registered TMA201,476 28 Canada
ALDILA Registered Registered A289273 28 Australia
ALDILA Registered Registered 21526 28 Brunei
ALDILA Registered Registered 992059 28 China P.R.
ALDILA Registered Registered 1447316 00 Xxxxx
ALDILA Registered Registered 1456029 24 Japan
ALDILA IN KATAKANA Registered Registered 1320939 00 Xxxxx
XXXX XX-20 Registered Registered 230141 00000 South Korea
XXXX XX-30 Registered Registered 230142 00000 South Korea
XXXX XX-40 Registered Registered 230143 00000 South Korea
XXXX XX-55 Registered Registered 230144 00000 South Korea
ALDILA PENDING 96-18205 PENDING 43 South Korea
ALDILA Registered Registered 93/03076 28 Malaysia
ALDILA Registered Registered 414427 28 Mexico
HM-30 Registered Registered 416409 28 Mexico
---------------
(2) It is unclear whether this xxxx is owned (a) by Borrower or Parent
Company or (b) by an unrelated entity with a name similar to that of
Parent Company. Borrower and Parent Company make no representations,
warranties, covenants or other agreements with respect to this xxxx.
19
HM-40 Registered Registered 416410 28 Mexico
HM-55 Registered Registered 416411 28 Mexico
QUESTAR Registered Registered 41642 28 Mexico
ALDILA PENDING 85873 PENDING 28 Philippines
ALDILA Registered Registered 3413/93 28 Singapore
XXXX VIII Registered Registered 161920 28 Sweden
XXXX XX Registered Registered 527732 00000 Taiwan
ALDILA PENDING 7950427 PENDING Taiwan
ALDILA Registered Registered KOR 15577 28 Thailand
20
POWER OF ATTORNEY
PATENT ASSETS
Pursuant to the terms of that certain Loan and Security Agreement and
that certain Intellectual Property Security Agreement, both of even date
herewith, as each may be amended, restated, modified or supplemented and in
effect from time to time, Aldila, Inc., formerly known as Aldila, Inc., a
Delaware corporation (the "Company"), hereby grants to Foothill Capital
Corporation, a California corporation (together with its successors and
assigns, "Foothill"), a power of attorney, exercisable only upon an Event of
Default (as defined in the Loan and Security Agreement, dated July 9, 1999,
between Aldila Golf Corp., a Delaware corporation, and Foothill):
(i) to offer to sell, to sell, to assign, to license, or to otherwise
transfer (collectively, "transfer") any or all of the Company's
right, title and interest around the world in and to the patents
listed on SCHEDULE A attached hereto, including the registrations
and applications to register such patents;
(ii) to execute all documents on its behalf and do all acts necessary or
desirable to effect the above stated transfers of right, as if
Foothill were the Company at all appropriate times; and
(iii) to receive and retain consideration, including money, in connection
with and in payment for any such transfer.
All transfers and such acts as described above are hereby ratified and
confirmed by the Company.
This Power of Attorney is coupled with an interest and is irrevocable
except with the consent of Foothill.
Dated as of July 9, 1999.
ALDILA, INC.,
a Delaware corporation
By:
-----------------------------------
Name:
Title:
SUBSCRIBED AND SWORN TO
before me this 9th day of June, 1999.
Notary Public [Seal]
21
POWER OF ATTORNEY-PATENT ASSETS
[ALDILA, INC.]
SCHEDULE A
DESCRIPTION OF PATENTS
None.
22
Exhibit H
PLEDGE AND SECURITY AGREEMENT
[Aldila, Inc.]
This Pledge and Security Agreement (this "Pledge Agreement") is
executed and delivered as of the 9th day of July, 1999, by ALDILA, INC., a
Delaware corporation ("Pledgor"), to and in favor of FOOTHILL CAPITAL
CORPORATION, a California corporation ("Foothill"), with respect to the
following facts:
A. Pledgor's wholly owned subsidiary, Aldila Golf Corp., a Delaware
corporation ("Borrower"), and Foothill have entered into that certain Loan
and Security Agreement (the "Loan Agreement"), and certain other agreements
in connection therewith, all of even date herewith (collectively hereinafter
referred to as the "Loan Documents"), pursuant to which Loan Documents
Foothill has agreed to extend credit to or for the account of Borrower.
B. In order to induce Foothill to enter into the Loan Agreement and
to accept all of the Loan Documents, and to make advances and otherwise
extend credit to Borrower thereunder, Pledgor has agreed to secure the
payment and performance of the Obligations (as hereinafter defined) and to
accomplish same by (i) executing and delivering to Foothill this Pledge
Agreement, (ii) delivering to Foothill the Pledged Securities (hereinafter
defined), together with appropriate powers and/or endorsements duly executed
in blank by Pledgor, and (iii) delivering to Foothill any and all other
documents which Foothill deems necessary to protect Foothill's interests
hereunder or with respect to the Obligations.
C. This Pledge Agreement is the Parent Pledge and Security Agreement
as defined and described in the Loan Agreement.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, receipt of which is hereby acknowledged, Pledgor
hereby agrees as follows:
1. DEFINITIONS.
(a) "Issuer" shall mean and include each of the corporations
identified in EXHIBIT "A" hereto, which is incorporated herein by this
reference, individually and collectively.
(b) "Event of Default" shall have the meaning given in the Loan
Agreement.
(c) "Obligations" shall have the meaning set forth in the Loan
Agreement.
(d) "Pledge Agreement" shall mean and include this Stock Pledge
and Security Agreement, as amended, modified or supplemented from time to
time.
(e) "Pledged Property" shall mean and include (i) the Pledged
Securities together with all cash dividends, stock dividends, interest,
profits, redemption, warrants, subscription rights, stock, securities,
options, substitutions, exchanges and other distributions now or hereafter
paid, delivered or distributed by Issuer or which may hereinafter be acquired
by or delivered to the possession of Pledgor or Foothill with respect to the
Pledged Property, (ii) all membership interests of Pledgor in limited
liability companies as more particularly described in Section 2 of this
Pledge Agreement, (iii) Pledgor's records with respect to the foregoing and
(iv) all proceeds of all of the foregoing, regardless of form.
(f) "Pledged Securities" shall mean the shares of stock
described in EXHIBIT "A" attached hereto and incorporated herein by reference.
(g) All other terms hereinbefore or hereinafter defined in this
Pledge Agreement shall have the meanings herein assigned to such terms.
(h) All terms not specifically defined herein which are defined
in the California Uniform Commercial Code shall be construed in accordance
with the definitions set forth therein. All references herein to the "UCC"
shall mean the Uniform Commercial Code adopted by the California as the same
may be amended from time to time.
2. GRANT OF SECURITY INTEREST
As collateral security for the prompt and unconditional payment
and performance when due of each and every one of the Obligations, Pledgor
hereby assigns, mortgages, pledges, hypothecates, transfers and sets over to
Foothill and grants to Foothill a security interest in and lien upon all of
the Pledged Property. Pledgor further grants to Foothill a security interest
in all membership interests Pledgor now owns or hereafter acquires in any and
all limited liability companies, including, without limitation, any such
company formed for the purpose of acquiring, by merger or stock transfer, all
of Pledgor's equity interests in Aldila Materials Technology Corp. All such
membership interests shall become Pledged Property automatically upon the
formation of each such company.
3. REPRESENTATIONS, WARRANTIES, COVENANTS AND WAIVERS
Pledgor hereby covenants, represents and warrants with and to
Foothill that (all of such covenants, representations and warranties being
continuing in nature so long as any of the Obligations are outstanding):
(a) The Pledged Securities are duly authorized, validly issued,
fully paid and nonassessable securities of the Issuer; and are not
registered, nor has Pledgor authorized the registration thereof, in the name
of any person or entity other than Pledgor or Foothill; and constitute all
issued and outstanding shares of the Issuers.
2
(b) The Pledged Property is directly, legally and beneficially
owned by Pledgor free and clear of all claims, liens, pledges and
encumbrances of any kind, nature or description except for the first and
prior pledge and security interest with respect thereto in favor of Foothill
and restrictions under applicable securities law.
(c) The Pledged Property is not subject to any restrictions
relative to the pledge or transfer thereof, except as noted on the
certificates evidencing the Pledged Securities, and Pledgor has the right to
transfer and hypothecate the Pledged Property free and clear of any liens,
encumbrances or restrictions except as otherwise provided herein and
restrictions under applicable securities law.
(d) The Pledged Property is duly and validly pledged to
Foothill, and no consent or approval of any governmental or regulatory
authority or of any securities exchange or the like, nor any consent or
approval of any other third party was or is necessary to the validity and
enforceability of this Pledge Agreement.
(e) Pledgor authorizes Foothill to (i) store, deposit and
safeguard the Pledged Property, (ii) perform any and all other acts which
Foothill in good xxxxx xxxxx reasonable and/or necessary for the protection
and preservation of the Pledged Property or its value or Foothill's security
interest therein, including, without limitation, but only upon an Event of
Default, transferring, registering or arranging for the transfer or
registration of the Pledged Property to or in Foothill's own name and
receiving the income therefrom as additional collateral for the Obligations
and (iii) pay any charges or expenses which Foothill deems necessary for the
foregoing purposes, but without any obligation to do so. Any obligation of
Foothill for reasonable care for the Pledged Property in Foothill's
possession shall be limited to the same degree of care required by Section
9207 of the UCC.
(f) Pledgor will not exercise any right under any corporate
security which might constitute the exercise of control by Foothill so as to
make the Issuer thereof an affiliate of Foothill until after occurrence of an
Event of Default.
(g) Pledgor will pay all charges and assessments of any nature
against the Pledged Property or with respect hereto prior to said charges
and/or assessments being delinquent.
(h) Pledgor shall promptly reimburse Foothill on demand,
together with interest at the rate provided in the Loan Documents, for any
charges, assessments or expenses paid or incurred by Foothill in its
Permitted Discretion (as defined in the Loan Agreement) for the protection
and preservation and maintenance of the Pledged Property and the enforcement
of Foothill's rights hereunder, including, without limitation, reasonable
attorneys' fees and legal expenses incurred by Foothill in seeking to
protect, collect or enforce its rights in the Pledged Property or otherwise
hereunder.
(i) Pledgor shall furnish Foothill with such information
concerning Issuer and the Pledged Property as Foothill may from time to time
request, including, without
3
limitation, current financial statements; PROVIDED that such information
shall be deemed to be Trade Secrets within the meaning of the Loan Agreement
if such information is of a type included in the definition of Trade Secrets
contained in the Loan Agreement.
(j) During the term of this Pledge Agreement, if Pledgor shall
receive, have registered in its name or become entitled to receive or acquire
or have registered in its name any stock certificate, option or warrant with
respect to the securities of Issuer (including, without limitation, any
certificate representing a dividend on or a distribution or exchange of or in
connection with any reclassification of the Pledged Securities) whether as an
addition to, in substitution of, or in exchange for any of the Pledged
Property or otherwise, Pledgor agrees to accept same as Foothill's agent, to
hold same in trust for Foothill and to deliver same forthwith to Foothill or
Foothill's agent or bailee in the form received, with the endorsement(s) of
Pledgor where necessary and/or duly executed appropriate powers and/or
assignments, to be held by Foothill or Foothill's agent or bailee subject to
the terms hereof. If any of the foregoing is at any time in uncertificated
form, Pledgor shall register same with Foothill's security interest noted
therein, as further security for the Obligations, unless such registration is
not permitted under the laws of any nation in which any Issuer is
incorporated.
(k) During the term of this Pledge Agreement, Pledgor shall not
directly or indirectly sell, assign, transfer, or otherwise dispose of, or
grant any option with respect to the Pledged Property, nor shall Pledgor
create, incur or permit any further pledge, hypothecation, encumbrance, lien,
mortgage or security interest with respect to the Pledged Property, and
except for the transfers concerning Aldila Materials Technology Corp. that
are contemplated by Section 2.
(l) So long as no Event of Default (as hereinafter defined) has
occurred, Pledgor shall have the right to vote and exercise all corporate
rights with respect to the Pledged Securities except as expressly prohibited
herein.
(m) Foothill may notify Issuer or the appropriate transfer
agent of the Pledged Securities to register the security interest and pledge
granted herein and honor the rights of Foothill with respect thereto.
(n) Pledgor shall perform such further acts and execute such
additional instruments as are reasonably required by Foothill to effectuate
and implement this Pledge Agreement and the provisions hereof.
(o) No action has been taken or is being taken by or is
currently planned by Pledgor, or any agent acting on its behalf, which would
cause this Pledge Agreement, the Obligations or the Loan Documents to violate
any regulation of the Securities Exchange Act of 1934 or any other applicable
law or regulation, in each case as now in effect or as the same may hereafter
be amended or supplemented. Pledgor is not in the business of extending
credit for the purpose of purchasing or carrying margin stocks or other
securities.
4
(p) Pledgor waives (i) all rights to require Foothill to
proceed against any other person, entity or collateral or to exercise any
remedy, (ii) the defense of the statute of limitations in any action upon any
of the Obligations or other collateral. Foothill is entitled to all of the
benefits of a secured party set forth in Section 9207 of the UCC.
4. REMEDIES AFTER DEFAULT
Upon or subsequent to the occurrence of an Event of Default and
continuation thereof, unless such Event of Default is waived, and subject to
any restrictions set forth in the Loan Documents:
(a) Foothill, at its option, shall be empowered to exercise its
right to instruct the Issuer of the Pledged Securities (or the appropriate
transfer agent of the Pledged Securities) or other Pledged Property, to
register any or all of the Pledged Securities and/or other Pledged Property
in the name of Foothill or in the name of Foothill's nominee, and Foothill
may complete, in any manner Foothill may deem expedient, any and all stock
powers, assignments or other documents heretofore or hereafter executed in
blank by Pledgor and delivered to Foothill. After said instruction, and
without further notice, Foothill, in its sole and absolute discretion, shall
have the exclusive right to exercise all voting and corporate rights with
respect to the Pledged Securities and other Pledged Property and exercise any
and all rights of conversion, redemption, exchange, subscription or any other
rights, privileges, or options pertaining to any shares of the Pledged
Securities or the other Pledged Property as if Foothill were the absolute
owner thereof, including, without limitation, the right to exchange, in its
discretion, any and all of the Pledged Securities and other Pledged Property
upon any merger, consolidation, reorganization, recapitalization or other
readjustment with respect to Issuer. Upon the exercise of any such rights,
privileges or options by Foothill, Foothill shall have the right to deposit
and deliver any and all of the Pledged Securities and other pledged property
to any committee, depository, transfer agent, registrar or other designated
agency upon such terms and conditions as Foothill may determine, all without
liability to Pledgor, except to account for property actually received by
Foothill. However, Foothill shall have no duty to exercise any of the
aforesaid rights, privileges or options (all of which are exercisable in the
sole discretion of Foothill) and shall not be responsible for any failure to
do so or delay in doing so.
(b) In addition to all the rights and remedies of a secured
party under the California Uniform Commercial Code, Foothill shall have the
right, at any time and without demand of performance or other demand,
advertisement or notice of any kind (except the notice specified below of
time and place of public or private sale) to or upon Pledgor or any other
person, to proceed forthwith to collect, redeem, receive, appropriate, sell,
or otherwise dispose of and deliver the Pledged Property or any part thereof
in one or more lots at public or private sale or sales at any exchange,
brokers board or at any of Foothill's offices or elsewhere at such prices and
on such terms as Foothill may deem commercially reasonable. The foregoing
disposition(s) must be for cash or on credit or for future delivery without
assumption of any credit risk by Foothill, with Foothill having the right to
purchase all or any part of said Pledged Property so sold at any such sale or
sales, public or private, free of any right or equity
5
or redemption in Pledgor, which right or equity is hereby expressly waived or
released by Pledgor. The proceeds of any such collection, redemption,
recovery, receipt, appropriation, realization, sale or other disposition,
after deducting all costs and expenses of every kind incurred relative
thereto or incidental to the care, safekeeping, maintenance or disposition of
any and all Pledged Property or in any way relating to the rights of Foothill
hereunder (including, without limitation, reasonable attorneys' fees and
legal expenses, including, without limitation, a reasonable estimate of the
allocated cost of Foothill's in-house counsel and legal staff) shall be
applied first to the satisfaction of the Obligations (in such order as
Foothill may elect and whether or not due) and then to the payment of any
amounts required by applicable law, including Section 9504(l)(c) of the UCC.
Pledgor shall be liable to Foothill for the payment on demand of all such
reasonable costs and expenses, together with interest at the rate et forth in
the Loan Documents, together with any reasonable attorneys' fees if placed
with an attorney for collection or enforcement. Pledgor agrees that notice
given to it in the same manner given to Borrower pursuant to Section 9.1(k)
of the Loan Agreement is reasonable notification of such matters.
(c) Pledgor recognizes that Foothill may be unable to effect a
public sale of all or part of the Pledged Property by reason of certain
prohibitions contained in the Securities Act of 1933, as amended, as now or
hereafter in effect or in applicable Blue Sky or other state securities law,
as now or hereafter in effect, but may be compelled to resort to one or more
private sales to a restricted group of purchasers who will be obliged to
agree, among other things, to acquire such Pledged Property for their own
account for investment and not with a view to the distribution or resale
thereof. If at the time of any sale of the Pledged Property or any part
thereof, the same shall not, for any reason whatsoever, be effectively
registered (if required) under the Securities Act of 1933 (or other
applicable state securities law), as then in effect, Foothill in its sole and
absolute discretion is authorized to sell such Pledged Property or such part
thereof by private sale in such matter and under such circumstances as
Foothill or its counsel may deem necessary or advisable in order that such
sale may legally be effected without registration, as long as such sale is
made in a commercially reasonable manner. Pledgor acknowledges that private
sales so made may be at prices and other terms less favorable to the seller
than if such Pledged Property were sold at public sale, and that Foothill has
no obligation to delay the sale of any such Pledged Property for the period
of time necessary to permit the Issuer of such Pledged Property, even if such
Issuer would agree, to register such Pledged Property for public sale under
such applicable securities laws. Pledgor agrees that any private sales made
under the foregoing circumstances shall not be deemed to have been in a
commercially unreasonable manner for the sole reason that it is a private
sale.
(d) All of Foothill's rights and remedies, including but not
limited to the foregoing and those otherwise arising under this Pledge
Agreement, the Loan Documents, the instruments and securities comprising the
Pledged Property, applicable law or otherwise, shall be cumulative and not
exclusive and shall be enforceable alternatively, successively or
concurrently as Foothill may deem expedient. No failure or delay on the part
of Foothill in exercising any of its options, powers or rights or partial or
single exercise thereof shall constitute a waiver of such option, power or
right.
6
5. FURTHER ASSURANCES
Pledgor agrees that at any time and from time to time upon the
written request of Foothill, Pledgor will execute and deliver such further
documents, including but not limited to irrevocable proxies or stock powers,
in form satisfactory to counsel for Foothill, and will take or cause to be
taken such further acts as Foothill may request in order to effect the
purposes of this Pledge Agreement and perfect or continue the perfection of
the security interest in the Pledged Property granted to Foothill hereunder.
6. SURETY WAIVERS
(a) Except to the extent otherwise expressly restricted or
prohibited pursuant to any of the other Loan Documents, at any time and in
any manner, upon such terms and at such times as it considers best and with
or without notice to Pledgor, Foothill may alter, compromise, accelerate,
extend, or change the time or manner for payment of the indebtedness,
increase or reduce the rate of interest thereon, release or add any one or
more obligors, guarantors, endorsers or Borrower, accept additional or
substituted security therefor, or release or subordinate any security
therefor, without in any way affecting the security interest of this Pledge
Agreement or any covenant of Pledgor.
(b) Pledgor waives any right to require Foothill to proceed
against the Borrower or any other person, firm or corporation at any time or
to pursue any other remedy in its power, and Pledgor agrees that Foothill
shall not be obligated to resort to any other security, including security
given by the Borrower, with any priority, in any particular order, or at all,
even if such action, or lack thereof, destroys, alters or otherwise impairs
subrogation rights of Pledgor or the rights of Pledgor to proceed against
Borrower for reimbursement, or both.
(c) Pledgor waives and agrees not to assert or take advantage
of: (i) any defense that may arise by reason of the incapacity, lack of
authority, insolvency, suspension or dissolution of Borrower or any other
person, or the failure of Foothill to file or enforce a claim against the
estate (either in administration, bankruptcy or other proceedings) of
Borrower or any other person; or (ii) any defense or right based upon
election of remedies by Foothill, including, without limitation, an election
to proceed by nonjudicial rather than judicial foreclosure, even if such
election destroys, alters or otherwise impairs subrogation rights of Pledgor
or the right of Pledgor to proceed against Borrower or any other person for
reimbursement, or both.
(d) Pledgor, by execution hereof, represents to Foothill that
the relationship between Pledgor and Borrower is such that Pledgor has access
to all relevant facts and information concerning the debt and Borrower and
that Foothill can rely upon Pledgor having such access. Pledgor waives and
agrees not to assert any duty on the part of Foothill to disclose to Pledgor
any facts that Foothill may now or hereafter know about the Borrower,
regardless of whether Foothill has reason to believe that any such facts
materially increase the
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risk beyond that which Pledgor intends to assume or has reason to believe
that such facts are unknown to Pledgor or has a reasonable opportunity to
communicate such facts to Pledgor. Pledgor is fully responsible for being
and keeping informed of the financial condition and operations of Borrower
and all circumstances bearing on the risk of nonpayment of any indebtedness
hereby secured.
(e) Pledgor waives demand, protest and notice (except as set
forth in Section 4(b)) of any kind, including, without limiting the
generality of the foregoing, notice of the existence, creation or incurring
of new or additional indebtedness or of any action or non-action on the part
of the Borrower, Foothill, any endorser, any creditor of Borrower or Pledgor
under this of any other instrument, or any other person whosoever, in
connection with any obligation or evidence of indebtedness held by Foothill
as collateral or in connection with any indebtedness secured hereby.
(f) Until all Obligations of Borrower to Foothill under the
Loan Documents have been paid in full, Pledgor waives the right of
subrogation and waives any right to enforce any remedy which Foothill now has
or may hereafter have against Borrower and any benefit of, and any right to
participate in, any security now or hereafter held by Foothill.
(g) With or without notice to Pledgor, Foothill, in its sole
discretion, at any time and from time to time, in such manner and upon such
terms as it considers reasonable, may (a) apply any and all payments or
recoveries from any security, in such manner, order and priority as Foothill
elects, to any indebtedness of Borrower to Foothill, whether or not such
indebtedness is secured hereby or is otherwise secured or is due at the time
of such application; and (b) refund to Borrower any payment received by
Foothill upon any indebtedness hereby secured and payment of the amount
refunded shall be fully secured hereby.
(h) No exercise or nonexercise of Foothill of any right hereby
given it and no dealing by Foothill with Borrower or any other person shall
in any way affect any of the obligations of Pledgor hereunder or give Pledgor
any recourse against Foothill.
(i) Notwithstanding that Pledgor and Borrower may have entered
into a separate agreement relating to their rights and duties with each
other, no right, remedy or provision thereof shall be binding upon or affect
or delay Foothill's rights or remedies under this Pledge Agreement or by
operation of law.
(j) Pledgor understands that the exercise by Foothill of
certain rights and remedies contained in the Loan Documents may affect or
eliminate Foothill's right to seek a money judgment against Borrower and,
therefore, Pledgor's right of subrogation to seek a money judgment against
Borrower, and that Pledgor, upon completion of a foreclosure of this Pledge
Agreement by Foothill may therefore succeed to a partially or totally
non-reimbursable liability on the part of Borrower. Nevertheless, Pledgor
hereby authorizes and empowers Foothill, at its sole option, without notice
or demand (except as set forth in Section 4(b)) and without affecting the
validity or enforceability of this Pledge Agreement, as herein modified, to
exercise, in its sole discretion, any and all rights and remedies, or any
combination thereof,
8
which may be available to it, including the right to foreclose this Pledge
Agreement by nonjudicial sale, subject to any restrictions contained in the
Loan Documents.
Pledgor acknowledges that Pledgor may have certain rights
under applicable law which, if not waived by Pledgor, might provide Pledgor
with defenses against Pledgor's liability under this Pledge Agreement. Among
those rights, are certain rights provided in sections 2808, 2819, 2821, 2845,
2848, 2850, 2854, 2899 and 3433 of the California Civil Code. Pledgor waives
all of Pledgor's rights and defenses that are or may become available to
Pledgor by reason of any or all of California Civil Code sections 2808, 2819,
2821, 2845, 2899, and 3433. So long as any Obligation remains outstanding
under the Loan Agreement, Pledgor further waives all rights and defenses that
are or may become available to Pledgor by reason of any or all of California
Civil Code sections 2848, 2850, and 2854.
7. MISCELLANEOUS
(a) Beyond the exercise of reasonable care to assure the safe
custody of the Pledged Property while held by Foothill hereunder, as provided
in Section 3(e) hereof, Foothill or Foothill's agent or bailee shall have no
duty or liability to protect or preserve any rights pertaining thereto.
Foothill shall be obligated to return or release its security interest in the
Pledged Property, at the sole expense of Pledgor, after all Obligations are
indefeasibly paid in full and Foothill is under no further obligation to
extend credit under the Loan Agreement.
(b) No course of dealing between Pledgor and Foothill, nor any
failure or delay by Foothill to exercise any right, power or privilege under
this Pledge Agreement, the Loan Documents or under any other agreements,
instruments and documents executed and delivered in connection therewith
shall operate as a waiver hereof or 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. No waiver of any provision of this Pledge Agreement shall
be effective unless the same shall be in writing and signed by Foothill, and
then such waiver shall be effective only in the specific instance and for the
purpose for which given.
(c) This Pledge Agreement may not be changed, modified or
amended, in whole or in part, except by a writing signed by Pledgor and
Foothill.
(d) The provisions of this Pledge Agreement and the Loan
Documents are severable, and if any clause or provision hereof or thereof
shall be held invalid or unenforceable in whole or in part or in any
jurisdiction, then such invalidity or unenforceability shall attach only to
such clause or provision in any such jurisdiction or part hereof and shall
not in any manner affect such clause or provision in any other jurisdiction
or any other clause or provision in this Pledge Agreement or the Loan
Documents in any jurisdiction.
9
(e) This Pledge Agreement shall inure to the benefit of Pledgor
and Foothill and their respective successors and assigns of the Loan
Agreement (but said assignee(s) shall be bound by Sections 16.2 and 15 of the
Loan Agreement), and shall be binding upon Pledgor and its successors and
assigns until all of the Obligations have been indefeasibly paid in full.
8. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.
THE VALIDITY OF THIS PLEDGE AGREEMENT, THE CONSTRUCTION,
INTERPRETATION, AND ENFORCEMENT HEREOF AND THEREOF, AND THE RIGHTS OF THE
PARTIES HERETO AND THERETO WITH RESPECT TO ALL MATTERS ARISING HEREUNDER OR
THEREUNDER OR RELATED HERETO OR THERETO SHALL BE DETERMINED UNDER, GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA
(EXCEPT AS OTHERWISE PROVIDED BY THE UCC). THE PARTIES AGREE THAT ALL
ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS PLEDGE AGREEMENT AND
THE OTHER LOAN DOCUMENTS SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND
FEDERAL COURTS LOCATED IN THE COUNTY OF LOS ANGELES, STATE OF CALIFORNIA OR,
IF SUCH COURTS DO NOT HAVE SUBJECT MATTER JURISDICTION, THEN, AT THE SOLE
OPTION OF FOOTHILL, IN ANY OTHER COURT IN WHICH FOOTHILL SHALL INITIATE LEGAL
OR EQUITABLE PROCEEDINGS PERTAINING TO THE COLLATERAL AND WHICH HAS SUBJECT
MATTER JURISDICTION OVER THE MATTER IN CONTROVERSY. EACH OF PLEDGOR AND
FOOTHILL WAIVES, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH
MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE
TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 8.
PLEDGOR AND FOOTHILL HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF
ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN
DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT
CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR
STATUTORY CLAIMS. EACH OF PLEDGOR AND FOOTHILL REPRESENTS THAT IT HAS
REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL
RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF
LITIGATION, A COPY OF THIS PLEDGE AGREEMENT MAY BE FILED AS A WRITTEN CONSENT
TO A TRIAL BY THE COURT.
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IN WITNESS WHEREOF, the undersigned has caused this Pledge Agreement to
be duly executed and delivered on the day and year first above written.
ALDILA, INC.
By:
----------------------------------
Its:
---------------------------------
Address:
Aldila, Inc.
00000 Xxxxxxxxx Xxxx
Xxxxx, Xxxxxxxxxx 00000-0000
00
XXXXXXX "X"
Xxxxx or Nation Certificate Number Percentage of
Issuer of Organization Number of Shares Total Shares
--------------------------------------------------------------------------------------
Aldila Golf Corp. Delaware 1 10 100%
Aldila Materials
Technology Corp. Delaware 1 100 100%
Aldila Wyoming Delaware
Building Corp. 1 100 100%
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