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EXHIBIT 10.70
SECURITY AGREEMENT
This SECURITY AGREEMENT dated as of July 10, 2001, is made by
APPLIED THEORY CORPORATION, a corporation organized under the laws of the State
of Delaware ("Borrower"), with its principal offices located at 0000 Xxxxxxxx,
0xx Xxxxx, Xxx Xxxx, Xxx Xxxx 00000 and each of the Borrower's undersigned
subsidiaries ("Subsidiaries"), in favor of the undersigned Lenders ("Lenders")
and HALIFAX FUND, L.P., as collateral agent (the "Collateral Agent") (the
Borrower and Subsidiaries are hereinafter sometimes referred to collectively as
"Obligors" or individually as an "Obligor").
W I T N E S S E T H :
WHEREAS, pursuant to the terms of a certain Purchase
Agreement, dated as of June 5, 2000, as amended and restated (the "Purchase
Agreement") by and among the Borrower and the Lenders, the Lenders were issued
(i) 5% Convertible Debentures due June 5, 2003 (the "Debentures") and (ii)
certain warrants ("Warrants") to purchase shares of the Borrower's common stock,
par value $.01 per share ("Common Stock");
WHEREAS, pursuant to the terms of a certain Registration
Rights Agreement, dated as of June 5, 2000, by and among the Borrower and the
Lenders, as amended and restated (the "Registration Rights Agreement") the
Lenders received registration rights with respect to the Common Stock issuable
upon conversion of the Debentures and exercise of the Warrants;
WHEREAS, the Borrower and the Lenders have entered into a
certain letter agreement dated as of January 9, 2001 (the "Letter Agreement")
with respect to the Purchase Agreement, Debentures, Warrants and Registration
Rights Agreement and, pursuant to the Letter Agreement, have amended and
restated the Purchase Agreement, Debentures, and Registration Rights Agreement,
terminated the Warrants and the Borrower has issued new Warrants to the Lenders;
WHEREAS, the Lenders have agreed to certain amendments and
modifications to the Current Indebtedness at the request of the Borrower
pursuant to the Amendment Agreement dated the date hereof and to induce the
Lenders to agree to such changes, the Obligors have agreed to provide certain
security for the Current Indebtedness pursuant to the terms of this Agreement;
WHEREAS, the Borrower, the Subsidiaries and the Lenders agree
that all of the Borrower's obligations under the Debentures, Purchase Agreement,
Letter Agreement and Registration Rights Agreement, as the same may be amended
and/or supplemented on or after the date hereof, including by the Amendment
Agreement ("Current Indebtedness"), shall be secured by a first priority lien
(except as provided herein) on certain assets of the Obligors, pursuant to the
terms of this Agreement; and
WHEREAS, pursuant to the terms of a Revolving Credit
Agreement, dated as of the date hereof, by and between the Obligors and the
Lenders ("Revolving Credit Agreement") and the Revolving Credit Notes issued
thereunder ("Revolving Credit Notes"), the financing
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provided thereunder to the Obligors, together with all obligations of the
Obligors to the Lenders thereunder and under the Subsidiary Guarantees
("Subsidiary Guarantees") delivered by each of the Subsidiaries and the Parent
Guarantee ("Parent Guarantee") delivered by the Borrower (the "Receivables
Financing," and together with the "Current Indebtedness," the "Indebtedness")
shall be secured by a first priority lien (except as provided herein) on certain
assets of the Obligors, pursuant to the terms of this Agreement.
NOW, THEREFORE, in consideration of the mutual promises and
covenants contained herein and in order to induce the Lender to enter into the
Receivables Financing, the Obligors hereby agree with Lenders as follows:
SECTION 1. DEFINITIONS
1.1. Definitions. The following words shall have the following
meanings when used in this Security Agreement. All terms used herein not
otherwise defined in this Security Agreement shall have the meanings attributed
to such terms in the New York Uniform Commercial Code, as may be amended from
time to time. All references to dollar amounts shall mean amounts in lawful
money of the United States of America.
"Account Debtor" means any person who is or who may become
obligated under, with respect to, or on account of an Account.
"Accounts" means all presently existing and hereafter arising
accounts, contract rights, and all other forms of obligations owed or owing now
or in the future to an Obligor, including without limitation obligations arising
out of the sale or lease of goods or the rendition of services by an Obligor, or
arising out of the sale or lease of goods or the rendition of services by a
person other than an Obligor and acquired by an Obligor from such person by
assignment or purchase.
"Bankruptcy Code" means The Bankruptcy Reform Act of 1978, as
heretofore and hereinafter amended, and codified as 11 U.S.C. Section 101
et seq.
"Borrower's Books" means all of the Obligors' books and
records including: ledgers; records indicating, summarizing, or evidencing each
Obligor's assets or liabilities, or the Collateral; all information relating to
each Obligor's business operations or financial condition; and all computer
programs, disc or tape files, printouts, runs, or other computer prepared
information, and the equipment containing such information.
"Collateral" means each of the following (whether currently
owned or hereafter acquired or owned by an Obligor): the Pledged Securities;
Accounts; Borrower's Books; Equipment; General Intangibles; Goods; Inventory;
Negotiable Collateral (other than Pledged Securities); any money or other assets
of the Obligors which hereafter come into the possession, custody or control of
the Collateral Agent; and the proceeds and products, whether tangible or
intangible, of any of the foregoing including proceeds of insurance covering any
or all of the Collateral, and any and all Accounts, Equipment, General
Intangibles, Goods, Inventory, Negotiable Collateral, money, deposit accounts,
or other tangible or intangible, real or personal, property resulting from the
sale, exchange, collection, or other disposition of the Collateral, or any
portion thereof or interest therein, and the proceeds thereof.
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"Default" shall mean any condition, act or event which, with
notice or lapse of time or both, would constitute an Event of Default.
"Eligible Accounts" shall mean Accounts created by an Obligor
in the ordinary and regular course of its business, but only to the extent such
Accounts are and at all times continue to be acceptable to the Lenders in all
respects. Standards of eligibility may be fixed and revised from time to time
solely by the Lenders in their good faith judgment. In determining eligibility
the Lenders may, but need not, rely on agings reports and schedules of Accounts
furnished by Borrower, but reliance thereon by the Lenders from time to time
shall not be deemed to limit the Lenders' rights to revise standards of
eligibility for any item. Without limitation, an Account shall not be deemed
acceptable unless the Account Debtor on such Account is and at all times
continues to be acceptable to the Lenders in their good faith judgment and
unless each Account complies in all respects with representations, covenants and
warranties hereinafter set forth. Without limitation, non-governmental Accounts
shall not be treated as acceptable unless such Accounts are less than 90 days
old, and governmental Accounts shall not be treated as acceptable unless such
Accounts are less than 100 days old. Lenders shall have the right to require
that any or all Accounts be more current in order to be acceptable. No Account
that is contested by the Account Debtor shall be treated as an Eligible Account.
Except as contemplated by Section 2.2(r) hereof, no Account shall be treated as
an Eligible Account unless the Lenders have a perfected, first priority security
interest therein.
"Equipment" means all of Obligors' present and hereafter
acquired machinery, machine tools, motors, equipment, furniture, furnishings,
fixtures, vehicles (including motor vehicles and trailers), tools, parts, dies,
jigs, goods (other than consumer goods, farm products, or Inventory), and any
interest in any of the foregoing, wherever located, and all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, wherever located.
"Event of Default" means and includes any of the Events of
Default set forth in Section 3.1.
"General Intangibles" means all of the Obligors' present and
future general intangibles and other personal property (including contract
rights, rights arising under common law, statutes, or regulations, choses or
things in action, goodwill, patents, trade names, trademarks, service marks,
copyrights, blueprints, drawings, purchase orders, customer lists, monies due or
recoverable from pension funds, route lists, monies due under any royalty or
licensing agreements, infringements, claims, computer programs, computer discs,
computer tapes, seismic data, literature, reports, catalogs, deposit accounts,
insurance premium rebates, tax refunds, and tax refund claims, as well as all
cash collateral that is hypothecated to secure letters of credit or bonding
obligations) other than goods and Accounts.
"Negotiable Collateral" means all of an Obligor's present and
future letters of credit, notes, drafts, instruments, certificated securities,
documents, personal property leases (wherein the Obligor is the lessor), chattel
paper, and Borrower's books relating to any of the foregoing.
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"Net Worth" of an entity shall mean (A) the sum of such
entity's property at fair valuation, exclusive of property transferred,
concealed, or removed with intent to hinder, delay or defraud such entity's
creditors and property that may be exempted from property of the estate under
section 522 of the Bankruptcy Code, less (B) the sum of such entity's debts
(including contingent liabilities). In construing this definition, words used
herein that are also used in Section 101(32) of the Bankruptcy Code shall be
interpreted in the same manner as such words are interpreted with respect to
such Section.
"Pledged Securities" means (i) all capital stock of all
current and future Subsidiaries, whether currently issued or issued in the
future ("Subsidiary Shares"); (ii) any capital stock or other securities
currently owned or received by the Obligors in the future, other than securities
received by the Obligors in respect of the stock of Red Hat and Center for
American Jobs now owned by them ("Further Securities"); (iii) all other
securities which may be delivered to and held by the Collateral Agent in respect
of the Further Securities and Subsidiary Shares pursuant to the terms hereof;
(iv) all dividends, cash, instruments, securities and other property from time
to time received, receivable or otherwise distributed, in respect of, in, for,
or upon the exchange or conversion of the securities referred to in clauses (i),
(ii) and (iii) above; and (v) all rights and privileges of the Obligors with
respect to the Pledged Securities and other properties referred to in clauses
(i), (ii), (iii) and (iv).
"Receivables Ratio" shall mean 44.44 percent.
"Security Agreement" means this Security Agreement, as this
Security Agreement may be amended or modified from time to time, together with
all exhibits and schedules attached to this Security Agreement from time to
time.
"Subsidiaries" shall mean all current subsidiaries (as defined
in Rule 405 of the Securities Act of 1933) of the Borrower, each of which is a
party hereto, as well as all future subsidiaries.
SECTION 2. GRANT OF SECURITY INTEREST; OBLIGATIONS OF BORROWER
2.1. Grant of Security Interest.
(a) As collateral security for all of the
Indebtedness, the Obligors hereby grant to the Collateral Agent for its benefit
and the ratable benefit of the Lenders a continuing first priority (subject to
any express exceptions herein) security interest in all currently existing and
hereafter acquired or arising Collateral to secure prompt repayment of any and
all Indebtedness and to secure prompt performance by Obligors of each of their
respective covenants and duties under (i) the Debentures, the Purchase
Agreement, the Registration Rights Agreement, the Letter Agreement and the
Amendment Agreement in each case as may be amended on or after the date hereof
("the Debenture Documents") and (ii) the Revolving Credit Agreement, the
Revolving Credit Notes, the Subsidiary Guarantees and the Parent Guarantee (the
"Revolving Credit Documents", and collectively with the Debenture Documents, the
"Related Documents"). Each of the Obligors further agrees that the Collateral
Agent and the
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Lenders shall have the rights stated in this Security Agreement with respect to
the Collateral in addition to all other rights which they may have by law.
(b) Concurrently with the execution of this Security
Agreement, the Borrower is delivering to the Collateral Agent, certificates
representing all of the outstanding Subsidiary Shares, together with all stock
powers duly executed in blank. Upon the issuance of any additional Subsidiary
Shares, Borrower shall immediately deliver such Shares to the Collateral Agent,
together with stock powers duly executed in blank and corporate resolutions
authorizing the transfer of title of such stock to Lenders, the Collateral Agent
or their respective designee or designees upon an Event of Default pursuant to
the terms of this Security Agreement.
(c) Upon receipt of Further Securities by any
Obligor, such Obligor shall immediately deliver the certificates representing
such securities, together with stock powers duly executed in blank to the
Collateral Agent and corporate resolutions of the type described in (b) above.
(d) A reasonably detailed list of the Collateral
existing as of the date hereof is set forth on Schedule A attached hereto.
Schedule A identifies Accounts, including Eligible Accounts, sorted by the Loan
Obligor owning such Accounts and ageing, and also identifies any liens (other
than the liens created by this Agreement) with respect to such Accounts. For
other items of Collateral, Schedule A provides the location, description and
ownership and, for items of Collateral which have a certificate of title, the
jurisdiction of such certificates, and for those items of Collateral which are
mobile goods (goods that are mobile and generally used in more than one
jurisdiction such as motor vehicles, trailers and similar items) the present
location of such goods.
2.2. Representations, Warranties and Covenants of the
Obligors. Each of the Obligors jointly and severally represents, warrants and
covenants as follows:
(a) Perfection of Security Interest. Each Obligor
agrees to execute at any time and from time to time such financing statements
and to take whatever other actions are reasonably requested by the Collateral
Agent to perfect and continue the Collateral Agent's security interest in the
Collateral. Upon request of the Collateral Agent, each Obligor will deliver to
the Collateral Agent any and all of the documents constituting the Collateral or
possession of which is required in order for the Collateral Agent and the
Lenders to perfect their security interests therein, and such Obligor will note
the Collateral Agent's interest, as the case may be, upon any and all Accounts
if not delivered to the Collateral Agent for possession by the Collateral Agent.
The Collateral Agent may at any time and from time to time, and without further
authorization from the Obligors, file a carbon, photographic or other
reproduction of any financing statement or of this Security Agreement for use as
a financing statement. Borrower will reimburse the Collateral Agent for all
expenses for the perfection and the continuation of the perfection of the
Collateral Agent's security interest in the Collateral. Borrower promptly will
notify the Collateral Agent of any change in an Obligor's name including any
change to the assumed business names of an Obligor. This is a continuing
Security Agreement and will continue in effect until all of the Indebtedness is
paid in full and the Collateral Agent shall release its interest in the
Collateral upon the full and final payment and satisfaction of the
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Indebtedness. Upon such release, the Collateral Agent will execute and deliver
to Borrower such Uniform Commercial Code termination statements and such other
documentation as Borrower shall reasonably request to effect the termination and
release of the security interest in the Collateral. If payment is made by or on
behalf of Borrower, whether voluntarily or otherwise, or by any third party, on
the Indebtedness and thereafter the Collateral Agent is forced to remit the
amount of that payment to an Obligor's trustee in bankruptcy or to any similar
person under any federal, state or foreign bankruptcy law or other law for the
relief of debtors, the Indebtedness shall be considered unpaid for the purpose
of enforcement of this Security Agreement. If permitted or required under
applicable law, the Collateral Agent may file any financing statements with
respect to the Collateral without the signatures of any of the Obligors. Any
financing statements may state that the Lenders have a lien in all of the
Obligors' assets.
(b) Power of Attorney. Each of the Obligors hereby
irrevocably makes, constitutes, and appoints the Collateral Agent (and any of
the Collateral Agent's officers, employees, or agents designated by the
Collateral Agent) as such Obligor's true and lawful attorney, with power to: (i)
sign such Obligor's name on any of the documents described hereunder or on any
other similar documents to be executed, recorded, or filed in order to perfect
or continue perfected the Collateral Agent's security interest in the
Collateral; (ii) at any time that an Event of Default has occurred and is
continuing, execute, sign and endorse such Obligor's name on any invoice or xxxx
of lading relating to any Account, drafts against Account Debtors, schedules and
assignments of Accounts, verifications of Accounts, and notices to Account
Debtors; (iii) send requests for verification of Accounts; (iv) at any time that
an Event of Default has occurred and is continuing, execute, sign and endorse
such Obligor's name on any checks, notices, instruments, acceptances, money
orders, drafts, warrants or other item of payment or security that may come into
the Collateral Agent's possession; (v) at any time that an Event of Default has
occurred is continuing, demand, collect, receive, receipt for, xxx and recover
all sums of money or other property which may now or hereafter become due, owing
or payable from the Collateral; (vi) at any time that an Event of Default has
occurred and is continuing, file any claim or claims or to take any action or
institute or take part in any proceedings, either in its own name or in the name
of such Obligor, or otherwise, which in the discretion of the Collateral Agent
may seem to be necessary or advisable to protect, preserve or realize upon the
Collateral; (vii) 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 such Obligor's mail to an address designated by the Collateral
Agent, to receive and open all mail addressed to such Obligor, and to retain all
mail relating to the Collateral and forward all other mail to such Obligor;
(viii) at any time that an Event of Default has occurred and is continuing,
make, settle, and adjust all claims under such Obligor's policies of insurance
and make all determinations and decisions with respect to such policies of
insurance; and (ix) 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 which the Collateral
Agent determines to be reasonable, and the Collateral Agent may cause to be
executed and delivered any documents and releases which the Collateral Agent
determines to be necessary. The appointment of the Collateral Agent as the
Obligor's attorney, and each and every one of the Collateral Agent's rights and
powers, being coupled with an interest, is irrevocable and shall remain in full
force and effect until all of the Indebtedness has been fully repaid and
performed and the Collateral Agent renounces such appointment.
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(c) No Violation. The execution and delivery of this
Security Agreement will not violate any law or agreement governing the Obligors
or to which the Obligors are parties, and Obligors' certificates or articles of
incorporation and bylaws or other organizational documents do not prohibit any
term or condition of this Security Agreement. The execution and delivery hereof
is in the interest of the each of the Obligors.
(d) Enforceability of Collateral. With respect to the
Accounts, the Collateral is enforceable in accordance with its terms, is
genuine, and complies with applicable laws concerning form, content and manner
of preparation and execution, and, to the best knowledge of the Obligors, all
persons appearing to be obligated on the Collateral have authority and capacity
to contract and are in fact obligated as they appear to be on the Collateral. At
the time any Accounts included in the calculation of Eligible Accounts, the
Account shall be a good and valid Account representing an undisputed, bona fide
indebtedness incurred by the Account Debtor; there shall be no set-offs or
counterclaims against any such Account; and no agreement under which any
deductions or discounts may be claimed shall have been made with the Account
Debtor.
(e) Removal of Collateral; Transactions Involving
Collateral.
(i) To the extent the Collateral consists of
Accounts, General Intangibles, Negotiable Collateral or Borrower's
Books, the records and other documents pertaining to the Collateral
shall be kept at 0000 Xxxxxxxx, Xxx Xxxx, Xxx Xxxx 00000 and 000
Xxxxxxxx Xxxxxx, Xxxxxxxx, Xxx Xxxx 00000, which are the offices of
the Borrower, the offices of the Obligor owning such Collateral, or at
such other locations as are acceptable to the Collateral Agent.
Schedule A lists the Borrower's Books and other documentation and
records with respect to the Collateral and the particular offices at
which they are kept. Obligors shall keep the non-mobile tangible
Collateral at the location(s) and the particular office at which they
are kept specified on Schedule A attached hereto and shall maintain
any certificate of title of any tangible Collateral in the same
jurisdiction as indicated on Schedule A. Except for transactions in
the ordinary course of business, Obligors shall not sell, offer to
sell, or otherwise transfer, dispose of or encumber the Collateral
(except that Obligors may encumber the Accounts, to the extent
permitted by Section 2.2(r)). However, the Obligors may dispose of
Collateral consisting of
(A) General Intangibles relating to the Telecom Network
provided that the following three conditions are satisfied:
(a) the disposition is pursuant to an arm's length
transaction to an unaffiliated third party in which
Borrower receives a fair market price and the consideration
received by Borrower is made up of at least 50% cash and
any non-cash consideration is limited to an in-kind credit
for services from the buyer that is for a period not longer
than 2 years; (b) the following amounts are applied to
prepay Debentures (A) 50% of cash proceeds up to $2,000,000
and (B) 50% of cash proceeds over $2,500,000; and (c) the
Debenture holders get credit (in the form of cash payment)
for such in-kind consideration in a cash amount equal to
the Credit Amount (as defined below), if the total
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Net Proceeds (as defined below) from asset sales under this
Section 2.2(e)(i) (including both subparagraphs (A) and
(B)) exceeds $7,500,000.
(B) General Intangibles relating to Delta Edge provided that
the following two conditions are satisfied: (a) the
disposition is pursuant to an arm's length transaction to
an unaffiliated third party in which Borrower receives a
fair market price and the consideration received by
Borrower is made up of at least 80% cash and non-cash
consideration is limited to an in-kind credit for services
from the buyer that is for a period not longer than 2
years; and (b) the following amounts are applied to prepay
Debentures (i) 50% of the cash proceeds and (ii) cash in an
amount equal to the Credit Amount, if the total Net
Proceeds from asset sales under this Section 2.2(e)(i)
(including both subparagraphs (A) and (B)) exceeds
$7,500,000.
(C) Tangible assets with total aggregate book value of $100,000
in accordance with Section 7.2 of the Revolving Credit
Agreement.
(D) Custom or customized software code developed in the
ordinary course of business of Obligor pursuant to a
contract with a Customer consistent with past practice.
(E) The stock of Red Hat and Center for American Jobs or Center
for American Jobs now owned by the Obligors or received in
the future in respect of such stock, provided that the
proceeds from the sale of such stock are used in the
business of the Obligor that owned such stock.
The definition of Net Proceeds for purposes of Section
2.2(e)(i)(A) and (B) shall be the same as the definition contained in the
Revolving Credit Agreement with the following modifications: (i) only clause (a)
of such definition shall apply, (ii) service credits received by an Obligor in
respect of the sale or other disposition of an asset shall be included under
(a)(i) of the definition and (iii) the reserves referred to in (a)(ii)(D) of the
definition shall be limited to a maximum of $2,000,000 in the aggregate and must
solely and directly relate to the sale of the asset with respect to which the
Net Proceeds is being determined.
The term "Credit Amount" shall mean an amount equal to the product
of (i) (x) the total credits to be received by the Loan Obligors resulting from
a disposition referred to in either Section 2.2(e)(i)(A) or (B), divided by (y)
the number of whole months over which such credits are to be received and (ii)
12 (or if less, the number of whole months over which such credits are to be
received by the Loan Obligors) and (iii) .5.
(ii) Obligors shall not pledge, mortgage, encumber or
otherwise permit the Collateral to be subject to any lien, security
interest, encumbrance, or charge, other than the security interest provided
for in this Security Agreement or security agreements granted in connection
with New Financings (as defined below), or Permitted Liens under the
Revolving Credit Agreement, without the prior written consent of the
Lenders which may be withheld for any reason in the Lender's reasonable
discretion. Notwithstanding the foregoing, the Collateral Agent and the
Lenders hereby
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consent to the grant by the Borrower of a lien on an undivided percentage
of the Collateral (excluding General Intangibles and Accounts), that does
not exceed in value 25% of the Collateral value (that excludes the
Collateral value deriving from General Intangibles and Accounts), which
shall rank pari passu with the Lender's lien on the Collateral, for the
purpose of securing certain settlement obligations, which hereafter may
exist with regard to certain claims against Borrower existing on the date
hereof. The grant of such lien shall be subject to the recipient of such
lien entering into an intercreditor agreement with the Lenders in form and
substance reasonably satisfactory to the Lenders.
(f) Title. Each of the Obligors represents and warrants to the
Collateral Agent that it holds good and marketable title to its Collateral, free
and clear of all liens and encumbrances except for the lien of this Security
Agreement and as expressly permitted herein. No financing statement or other
evidence of a lien or transfer covering any of the Collateral is on file in any
public office in any jurisdiction other than those which reflect the security
interest created by this Security Agreement or as otherwise permitted hereunder.
Each of the Obligors shall defend the Collateral Agent's rights in the
Collateral against any and all claims and demands.
(g) Receivables Ratio. While any Indebtedness pursuant to the
Receivables Financing ("Receivables Financing Indebtedness") shall be
outstanding, the amount of Receivables Financing Indebtedness for each Obligor
shall at all times be equal to, or less than, 44.44% (the "Receivables Ratio")
of the amount of the Eligible Accounts for such Obligor. To the extent that the
ratio of Receivables Financing Indebtedness to Eligible Accounts (expressed as a
percentage) ("Debt Ratio") becomes greater than 44.44% with respect to an
Obligor, then such Obligor shall within 3 business days, either: (i) prepay
Receivables Financing Indebtedness in an amount sufficient to lower the Debt
Ratio to 44.44% or less or (ii) provide additional Eligible Accounts, such that
the Debt Ratio is restored to 44.44% or less.
(h) Collateral Schedules and Locations. On a monthly basis,
Obligors shall deliver to the Collateral Agent schedules of such Collateral,
including such information as the Collateral Agent may reasonably require,
including without limitation names and addresses of Account Debtors and agings
of Accounts, whether such Accounts are Eligible Accounts and the location of
mobile goods or changes in any certificates of title. The Obligors will not
identify any Account as an Eligible Account unless such Account satisfies the
criteria in the definition of Eligible Account. Schedule A attached hereto is
true, accurate and complete in all respects on the date hereof and shall be
updated, as set forth in the preceding sentence, to reflect any changes thereto.
(i) Application of Payments Received With Respect to
Collateral. Unless an Event of Default has occurred and is continuing, any
amounts received by or on behalf of an Obligor upon collection in the ordinary
course with respect to any Account pledged as collateral may be used by such
Obligor in the ordinary course of its business. Following the occurrence and
continuation of an Event of Default, any amounts received by or on behalf of an
Obligor with respect to any Account or other item of Collateral pledged as
Collateral hereunder shall be applied in the following order: (i) costs and
expenses of the Lenders incurred in connection with collecting the Indebtedness
and enforcing this Agreement; (ii) unpaid interest
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due and owing on the Indebtedness as of such date; and (iii) unpaid principal
due and owing with respect to the Indebtedness as of such date.
(j) Maintenance and Inspection of Collateral. The Obligors
shall maintain or cause to be maintained all tangible Collateral in good
condition and repair except for ordinary wear and tear. The Obligors will not
commit or permit damage to or destruction of the Collateral or any part of the
Collateral. The Collateral Agent and its designated representatives and agents
shall have the right at all reasonable times to examine, inspect, and audit the
Collateral wherever located and the books, records or any property which is
otherwise used in connection with the Collateral. The Obligors shall immediately
notify the Collateral Agent of all material cases involving the return,
rejection, repossession, loss or damage of or to any Collateral; of any material
request for credit or adjustment or of any other dispute arising with respect to
the Collateral; and generally of all happenings and events materially adversely
affecting the Collateral or the value or the amount of the Collateral.
(k) Taxes, Assessments and Liens. Obligors will pay when due
all taxes, assessments and liens upon the Collateral, its use or operation, upon
this Security Agreement, upon any promissory note or notes evidencing the
Indebtedness, or upon any of the other Related Documents. An Obligor may
withhold any such payment or may elect to contest any lien if such Obligor is in
good faith conducting an appropriate proceeding to contest the obligation to pay
and so long as the Collateral Agent's interest in the Collateral is not
jeopardized in the Collateral Agent's sole reasonable opinion. If any of the
Collateral is subjected to a lien which is not discharged or bonded, or the
enforcement thereof stayed (in either case without granting any security
interests in any of the assets of any Obligor), within fifteen (15) days,
Obligors shall deposit with the Collateral Agent cash, a sufficient corporate
surety bond or other security satisfactory to the Collateral Agent in an amount
adequate to provide for the discharge of the lien plus any interest, costs,
attorneys' fees or other charges that could accrue as a result of foreclosure or
sale of the applicable Collateral. In any contest the Obligor or Obligors shall
defend itself or themselves and the Collateral Agent and shall satisfy any final
adverse judgment before enforcement against the Collateral. The Obligors shall
name the Collateral Agent as an additional obligee under any surety bond
furnished in such contest proceedings.
(l) Incorporation by Reference. The Obligors hereby represent,
restate and affirm all representations, warranties and agreements contained in
the Related Documents (as of each date and time such representations and
warranties are made under each of the Related Documents), the terms and
conditions of which are hereby incorporated herein by reference.
(m) Compliance With Governmental Requirements. The Obligors
shall comply promptly with all laws, ordinances and regulations of all
governmental authorities applicable to the production, disposition, or use of
the Collateral. Obligors may contest in good faith any such law, ordinance or
regulation and withhold compliance during any proceeding, including appropriate
appeals, so long as the Collateral Agent's interest in the Collateral, in the
Collateral Agent's sole reasonable opinion, is not jeopardized.
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(n) Insurance. The Obligors shall comply with all insurance
requirements and provisions set forth in the Related Documents.
(o) Obligors' Rights to Possession and to Collect Accounts.
Until the occurrence and continuance of an Event of Default or acceleration of
Indebtedness and except as otherwise provided in Section 2.2(i) herein, and any
arrangement entered into in connection with the Receivables Financing, Obligors
may have possession of the tangible personal property and beneficial use of all
the Collateral and may use it in any lawful manner not inconsistent with this
Security Agreement or the Related Documents, provided that the Obligors' rights
to possession and beneficial use shall not apply to any Collateral where
possession of the Collateral by the Collateral Agent is required by law to
perfect the Collateral Agent's security interest in such Collateral. After the
occurrence and during the continuation of an Event of Default, the Collateral
Agent may exercise its right to directly collect the Accounts and to notify
Account Debtors to make payments directly to the Collateral Agent for
application to the Indebtedness, and Obligors authorize and direct the Account
Debtors, if the Collateral Agent exercises such right, to make payments on the
Account to the Collateral Agent. If the Collateral Agent at any time has
possession of any Collateral, whether before or after an Event of Default, the
Collateral Agent shall be deemed to have exercised reasonable care in the
custody and preservation of the Collateral if the Collateral Agent takes such
action for that purpose as the Obligors shall request or as the Collateral
Agent, in the Collateral Agent's sole reasonable discretion, shall deem
appropriate under the circumstances, but failure to honor any request by the
Obligors shall not of itself be deemed to be a failure to exercise reasonable
care. The Collateral Agent shall not be required to take any steps necessary to
preserve any rights in the Collateral against prior parties, nor to protect,
preserve or maintain any security interest given to secure the Collateral. The
Collateral Agent shall have the right to direct who shall collect and service
the Accounts.
(p) Transactions with Others. After the occurrence and during
the continuation of an Event of Default, the Lenders may (i) extend time for
payment or other performance, (ii) grant a renewal or change in terms or
conditions, or (iii) compromise, compound or release any obligation, with an
Account Obligor, as the Lenders deem advisable, without obtaining the prior
written consent of the Obligors, and no such act or failure to act shall affect
the Lenders' rights against the Obligors or the Collateral.
(q) Expenditures by the Collateral Agent. If not discharged or
paid when due, the Collateral Agent may (but shall not be obligated to)
discharge or pay any amounts required to be discharged or paid by or any other
Obligor under this Security Agreement, including without limitation all taxes,
liens, security interests, encumbrances, and other claims, at any time levied or
placed on the Collateral, other than liens, security interests and other
encumbrances placed on the Collateral in connection with a New Financing. The
Collateral Agent also may (but shall not be obligated to) pay all costs for
insuring, maintaining and preserving the Collateral. All such expenditures
incurred or paid by the Collateral Agent for such purposes will then bear
interest at the rate charged under the Debentures from the date incurred or paid
by the Collateral Agent to the date of repayment by Borrower or Other Obligor.
All such expenses shall become a part of the Indebtedness and, at the Collateral
Agent's option, will (i) be payable on demand or (ii) be added to the balance of
the Debentures. This Security Agreement also will secure payment of these
amounts. Such right under this Subsection shall be
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in addition to all other rights and remedies to which the Collateral Agent may
be entitled upon the occurrence of an Event of Default.
(r) Sale or Factoring of Accounts; Release of Accounts. The
Obligors shall not sell or otherwise transfer or encumber any of the Accounts or
other Collateral (except as permitted in Section 4(e) above) without the
Lenders' written consent. It is expressly agreed that the Lenders are under no
obligation to grant such a consent and will do so only in its sole and absolute
discretion on terms and conditions it deems acceptable in its sole and absolute
discretion. Notwithstanding the foregoing, the Collateral Agent and the Lenders
hereby agree to the grant by the Obligors of a first priority lien in its
Accounts for the purpose of securing obligations providing new financing (the
"New Financing") to the Obligors and that the lien granted hereunder with
respect to Accounts securing the Indebtedness shall be second to such first
priority lien so long as the New Financing obligations remain outstanding;
provided however, that: (i) the amount of the New Financing as to any Obligor
shall not at any time exceed 60% of the Eligible Accounts of such Obligor; (ii)
the value of the Eligible Accounts of the Obligors must at all times exceed the
amount of the indebtedness under the New Financing by at least $7,000,000, (iii)
all of the proceeds thereof must be used to repay the Receivable Financing, (iv)
all Obligations of the Loan Obligors under the Receivables Financing must be
completely satisfied and paid in full to the Lenders and (iv) all commitments to
loan of the Lenders under the Receivables Financing must be terminated.
(s) Compliance Certificate. The Loan Obligors shall furnish to
Lenders the certificate referred to in Section 6.5 of the Revolving Credit
Agreement at the times specified therein and within five (5) days of a request
of the Lenders while this Security Agreement remains in force, whether or not
the Receivables Financing has been terminated, for the purpose, among other
things, of demonstrating that an Event of Default described in either Sections
3.1(i) and (j) has not occurred.
SECTION 3. EVENTS OF DEFAULT; REMEDIES
3.1. Events of Default. Each of the following shall constitute an Event
of Default under this Security Agreement:
(a) Default on Indebtedness. Failure of any Obligor to make any
payment when due on the Indebtedness.
(b) Other Defaults. Failure of any Obligor to comply with or to
perform when due or required (after the expiration of applicable stated cure
periods) any term, obligation, covenant or condition contained in this Security
Agreement,. If any failure, other than a failure to pay money, is curable and
the Obligors have not been given a prior notice of a breach of the same
provision of this Security Agreement, it may be cured (and no Event of Default
will have occurred) if Borrower or Other Obligor, after receiving written notice
from the Collateral Agent or Lenders demanding cure of such failure, (i) cures
the failure within ten (10) days; or (ii) if the cure requires more than ten
(10) days, immediately initiates steps sufficient to cure the failure and
thereafter continues and completes all reasonable and necessary steps sufficient
to produce compliance as soon as reasonably practical but in no event more than
twenty (20) days.
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(c) False Statements. Any warranty, representation or
statement made or furnished to Lender by or on behalf of any Obligor under this
Security Agreement or any schedule, certificate or exhibit delivered pursuant to
the Security Agreement is false or misleading in any material respect, either
now or at the time made or furnished.
(d) Defective Collateralization. This Security Agreement or
any of the Related Documents ceases to be in full force and effect (including
failure to create a valid and perfected security interest or lien as intended)
at any time and for any reason, other than by reason of actions or failures to
act of the Lenders or the Collateral Agent.
(e) Insolvency. The dissolution or termination of any Obligor
as a going business, the insolvency of any Obligor, the appointment of a
receiver for any part of an Obligor's property, any assignment for the benefit
of creditors, or the commencement of any insolvency proceeding by or against any
Obligor, unless, in the case of the commencement of any such proceeding against
such Obligor, such proceeding is dismissed within forty-five (45) days.
(f) Creditor Proceedings. Commencement of foreclosure, whether
by judicial proceeding, self-help, repossession or any other method, by any
creditor of any Obligor against the Collateral or any other collateral securing
the Indebtedness. This includes a garnishment of any of an Obligor's accounts,
including without limitation deposit accounts. However, this Event of Default
shall not apply if there is a good faith dispute by an Obligor as to the
validity or reasonableness of the claim which is the basis of the creditor
proceeding and if Obligor gives the Collateral Agent written notice of the
creditor proceeding and Obligor diligently contests such proceedings.
(g) Event of Default under Related Documents. The occurrence
of an Event of Default under any of the Related Documents.
(h) The Debt Ratio for any Obligor shall exceed 44.44% for
more than 3 business days.
(i) The aggregate Eligible Accounts of all Obligors less the
total outstanding indebtedness of all Obligors, if any, under the Receivables
Financing or the New Financing (the "Eligible Account Cushion") is less than
$7,000,000. If the Eligible Account Cushion is less than $7,000,000 and can be
restored to a number greater than or equal to $7,000,000 by a prepayment of the
Receivables Financing or the New Financing, an Event of Default shall not exist
by means of this paragraph (i) if such prepayment is made concurrently with
delivery of the certificate referred to in Section 2.2(s).
(j) The aggregate Eligible Accounts of all Obligors is less
than $7,000,000 at any time the Loan Obligors are required to determine the
Eligible Accounts pursuant to Section 2.2(s).
3.2. Rights and Remedies on Default. If an Event of Default occurs
and is continuing under this Security Agreement, at any time thereafter, the
Collateral Agent and the Lender shall have all the rights and remedies of a
secured party under the New York Uniform
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Commercial Code. In addition and without limitation, the Collateral Agent and
Lenders may exercise any one or more of the following rights and remedies:
(a) Assemble Collateral. The Collateral Agent may require the
Obligors to deliver to the Collateral Agent all or any portion of the Collateral
and other documents relating to the Collateral Agent. The Collateral Agent may
require the Obligors to assemble the Collateral and make it available to the
Collateral Agent at a place to be designated by the Collateral Agent. The
Collateral Agent also shall have full power to enter upon the property of the
Obligors to take possession of and remove the Collateral. If the Collateral
contains other goods not covered by this Security Agreement at the time of
repossession, the Obligors agree Lenders may take such other goods, provided
that Lenders makes reasonable efforts to return them to the appropriate Obligor
after repossession.
(b) Sell the Collateral. The Collateral Agent shall have full
power to sell, lease, transfer, or otherwise deal with the Collateral or
proceeds thereof in its own name or that of any Obligor. The Collateral Agent
may sell the Collateral at public auction or private sale. Unless the Collateral
threatens to decline speedily in value or is of a type customarily sold on a
recognized market, the Collateral Agent will give the Obligors reasonable notice
of the time after which any private sale or any other intended disposition of
the Collateral is to be made. The requirements of reasonable notice shall be met
if such notice is given at least ten (10) days before the time of the sale or
disposition. All expenses relating to the disposition of the Collateral,
including without limitation the expenses of retaking, holding, insuring,
preparing for sale and selling the Collateral, shall become a part of the
Indebtedness secured by this Security Agreement and shall be payable on demand,
with interest at the lower of eighteen percent (18%) per annum or the highest
rate permitted by law from date of expenditure until repaid.
(c) Foreclosure. Maintain a judicial suit for foreclosure and
sale of the Collateral.
(d) Appoint Receiver. To the extent permitted by applicable
law, the Collateral Agent shall have the following rights and remedies regarding
the appointment of a receiver: (i) the Collateral Agent may have a receiver
appointed as a matter of right, (ii) the receiver may be an employee of the
Collateral Agent and may serve without bond, and (iii) all fees of the receiver
and his attorney shall become part of the Indebtedness secured by this Security
Agreement and shall be payable on demand, with interest at the lower of eighteen
percent (18%) per annum or the highest rate permitted by law from date of
expenditure until repaid.
(e) Transfer Title. Effect transfer of title upon sale of all
or part of the Collateral. For this purpose, each Obligor irrevocably appoints
the Collateral Agent as its attorney-in-fact to execute endorsements,
assignments and instruments in the name of such Obligor as shall be necessary or
reasonable.
(f) Collect Revenues, Apply Accounts. The Collateral Agent,
either itself or through a receiver, may collect the payments, rents, income,
and revenues from the Collateral. the Collateral Agent may at any time in its
discretion transfer any Collateral into its own name or that of its nominee and
receive the payments, rents, income, and revenues
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therefrom and hold the same as security for the Indebtedness or apply it to
payment of the Indebtedness in such order of preference as the Collateral Agent
may determine. The Collateral Agent may demand, collect, receipt for, settle,
compromise, adjust, xxx for, foreclose, or realize on the Collateral as the
Collateral Agent may determine. For these purposes, the Collateral Agent may, on
behalf of and in the name of an Obligor, receive, open and dispose of mail
addressed to such Obligor; change any address to which mail and payments are to
be sent; and endorse notes, checks, drafts, money orders, documents of title,
instruments and items pertaining to payment, shipment, or storage of any
Collateral. To facilitate collection, the Collateral Agent may notify Account
Debtors and obligors on any Collateral to make payments directly to the
Collateral Agent.
(g) Obtain Deficiency. If the Collateral Agent chooses to sell
any or all of the Collateral, the Collateral Agent may obtain a judgment against
Obligors for any deficiency remaining on the Indebtedness due to the Lenders
after application of all amounts received from the exercise of the rights
provided in this Security Agreement. The Obligors shall be liable for a
deficiency even if the transaction described in this Subsection is a sale of
accounts or chattel paper.
(h) Application of Proceeds. The proceeds of any foreclosure
or realization upon the Collateral shall be applied:
(i) First, to the costs and expenses of collection;
(ii) Second, to overdue interest;
(iii) Third, to the outstanding principal amount of the
Indebtedness; and
(iv) Fourth, any excess to Borrower or other party or
parties in accordance with applicable law or court order.
(i) Other Rights and Remedies. The Collateral Agent and the
Lenders shall have all the rights and remedies of a secured creditor under the
provisions of the New York Uniform Commercial Code, as may be amended from time
to time. In addition, the Collateral Agent and the Lenders shall have and may
exercise any or all other rights and remedies it may have available at law, in
equity, or otherwise.
3.3. Cumulative Remedies. All of Lenders' rights and remedies,
whether evidenced by this Security Agreement, or the Related Documents or by any
other writing, shall be cumulative and may be exercised singularly or
concurrently. Election by Lenders to pursue any remedy shall not exclude pursuit
of any other remedy, and an election to make expenditures or to take action to
perform an obligation of an Obligor under this Security Agreement, after such
Obligor's failure to perform, shall not affect Lender's right to declare a
default and to exercise its remedies.
SECTION 3A. PLEDGED SECURITIES
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(a) So long as no Event of Default shall have occurred and be
continuing:
(i) The applicable Obligor shall be entitled to
exercise any and all voting and other consensual rights pertaining to
the Pledged Securities or any part thereof for any purpose not
inconsistent with the terms of this Security Agreement or the Related
Documents; provided, however, that the Borrower shall not exercise or
refrain from exercising any such right if such action would have a
material adverse effect on the value of the Pledged Securities or any
part thereof; and provided further that the Borrower shall give the
Collateral Agent at least five days' prior written notice of the manner
in which it intends to exercise, or the reasons for refraining from
exercising, any such right.
(ii) The applicable Obligor shall be entitled to
receive and retain any and all dividends and interest paid in respect
of the Pledged Securities; provided, however, that in the case of
Pledged Securities other than Subsidiary Shares, any and all
(A) dividends and interest paid or payable other
than in cash in respect of, and instruments and other
property received, receivable or otherwise
distributed in respect of, or in exchange for, such
Pledged Securities,
(B) dividends and other distributions paid or
payable in cash in respect of such Pledged Securities
in connection with a partial or total liquidation or
dissolution or in connection with a reduction of
capital, capital surplus or paid-in-surplus, and
(C) cash paid, payable or otherwise distributed
in respect of principal of, or in redemption of, or
in exchange for, such Pledged Securities
shall be, and shall be forthwith delivered to the Collateral Agent to
hold as, Collateral and shall, if received by an Obligor, be received
in trust for the benefit of the Collateral Agent, be segregated from
the other property or funds of such Obligor and be forthwith delivered
to the Collateral Agent as Collateral in the same form as so received
(with any necessary endorsement) and such cash received by the
Collateral Agent will be deposited in an account held by the Collateral
Agent. The Obligors, promptly upon the request of the Collateral Agent,
shall execute such documents and do such acts as may be necessary or
desirable in the reasonable judgment of the Collateral Agent to give
effect to this clause (ii).
(iii) The Borrower shall deliver to the Collateral
Agent any distribution consisting of Subsidiary Shares or Further
Securities immediately upon receipt, together with executed stock
powers and corporate resolutions authorizing the transfer of title of
such shares after an Event of Default pursuant to the terms of this
Security Agreement.
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(iv) The Collateral Agent shall execute and deliver
(or cause to be executed and delivered) to the Obligors all such
proxies and other instruments as Obligors may reasonably request for
the purpose of enabling the Obligors to exercise the voting and other
rights that they are entitled to exercise pursuant to clause (i) above
and to receive the dividends or interest payments that it is authorized
to receive and retain pursuant to clause (ii) above.
(b) Upon the occurrence and during the continuance of an
Event of Default:
(i) All rights of Obligors to exercise or refrain
from exercising the voting and other consensual rights that it would
otherwise be entitled to exercise pursuant to Section 3A(a)(i) shall,
upon notice to the Obligors by the Collateral Agent, cease and (y) to
receive the dividends and interest payments that it would otherwise be
authorized to receive and retain pursuant to Section 3A(a)(ii) shall
automatically cease, and all such rights shall thereupon become vested
in the Collateral Agent, which shall thereupon have the sole right to
exercise or refrain from exercising such voting and other consensual
rights and to receive and hold as Pledge Securities such dividends,
interest payments and other distributions. For the avoidance of doubt,
the Collateral Agent is hereby granted an irrevocable proxy coupled
with an interest to exercise all voting power with respect to the
Subsidiary Shares and/or Further Securities, effective upon the
occurrence of an Event of Default.
(ii) All dividends, interest payments and other
distributions that are received by an Obligor contrary to the
provisions of clause (i) of this Section 3A(b) shall be received in
trust for the benefit of the Collateral Agent, shall be segregated from
other funds of such Obligor and shall be forthwith paid over to the
Collateral Agent as Collateral in the same form as so received (with
any necessary endorsement).
SECTION 3B. The Collateral Agent's Duties.
(a) Other than as specified in this Security Agreement and any
amendment hereto, the Collateral Agent shall not be required to take or
refrain from taking any actions, to exercise or refrain from exercising any
rights, or to make or refrain from making any requests unless it shall
first receive proper instructions from the Lenders (or their respective
successors or assigns).
(b) The Collateral Agent shall hold all Collateral received by it,
and shall make disposition thereof, only in accordance with this Security
Agreement or any amendment thereto. Except for the safe custody of any
Collateral in its possession and the accounting for moneys actually
received by it hereunder, the Collateral Agent shall have no duty as to any
Collateral, as to ascertaining or taking action with respect to calls,
conversions, exchanges, maturities, tenders or other matters relative to
any Pledged Securities, whether or not the Collateral Agent or any Lender
has or is deemed to have knowledge of such matters, or as to the taking of
any necessary steps to preserve rights against any parties or any other
rights pertaining to any Collateral.
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(c) The Collateral Agent shall not be under any duty or obligation to
inspect, review or examine any document, instrument, certificate, agreement
or other papers to determine that they are enforceable or that they are
other than what they purport to be on their face. The Collateral Agent
shall hold any Collateral delivered to the Collateral Agent as the agent of
the Lenders.
(d) The duties and obligations of the Collateral Agent shall be
determined solely by the express provisions of this Security Agreement or
any amendment hereto or any instructions permitted hereby. The Collateral
Agent shall have no obligation with respect to any other matters covered in
any other document other than as expressly provided herein, or any
amendment hereto. The Collateral Agent shall not be liable except for the
performance of such duties and obligations as are specifically set forth in
this Security Agreement or as set forth in a written amendment to this
Security Agreement executed by the parties hereto or their successors or
assigns. No representations, warranties, covenants or obligations of the
Collateral Agent shall be implied with respect to this Agreement or the
Collateral Agent's services hereunder. Without limiting the generality of
the foregoing, the Collateral Agent:
(i) shall use the same degree of care and skill as a reasonably
prudent person would use in similar circumstances (without limiting
the generality of the foregoing, the Collateral Agent shall be deemed
to have exercised reasonable care in the custody and preservation of
any Collateral in its possession if such Collateral is accorded
treatment substantially equal to that which the Collateral Agent
accords its own property of like tenor);
(ii) shall not be obligated to take any legal action hereunder
that might in its reasonable judgment involve any expense or liability
unless it has been furnished with reasonable indemnity;
(iii) may rely on and shall be protected in acting in good faith
upon any certificate, instrument, opinion, notice, letter, telegram or
other document, or any security, delivered to it and in good faith
believed by it to be genuine and to have been signed by the proper
party or parties;
(iv) may rely on and shall be protected in acting in good faith
upon the written instructions of the Lenders;
(v) may consult its own independent counsel satisfactory to it
and the opinion of such counsel shall be full and complete
authorization and protection in respect of any action taken, suffered,
or omitted by it hereunder in good faith and in furtherance of its
duties hereunder, in accordance with the opinion of such counsel;
(vi) may execute any of the powers hereunder or perform any
duties hereunder either directly or through agents or attorneys; and
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(vii) will be regarded as making no representation and having no
responsibilities (except as expressly set forth herein) as to the
validity, sufficiency, value, genuineness, ownership or
transferability of any portion of the Collateral, and will not be
required to and will not make any representations as to the validity,
value or genuineness of any portion of the Collateral.
(e) Neither the Collateral Agent nor any of its partners, agents or
employees, shall be liable for any error in judgment, for any mistake of
fact or for any action taken or omitted to be taken by it or them hereunder
or in connection herewith in good faith and believed by it or them to be
within the purview of this Security Agreement, except for its or their own
gross negligence, lack of good faith or willful misconduct. In no event
shall the Collateral Agent or its partners, officers, agents and employees
be held liable for any special, indirect or consequential damages resulting
from any action taken or omitted to be taken by it or them hereunder in
connection herewith even if advised of the possibility of such damages.
(f) Whenever, in the administration of this Security Agreement, the
Collateral Agent reasonably shall deem it necessary that a matter be proved
or established prior to taking, suffering or omitting any action under this
Security Agreement, such matter (unless other evidence in respect thereof
be herein specifically prescribed) may be deemed to be conclusively proved
and established by a certificate of the Lenders, and such certificate shall
be full warranty to the Collateral Agent for any action taken, suffered or
omitted under the provisions of this Agreement, upon the faith thereof.
SECTION 4. MISCELLANEOUS PROVISIONS
4.1. Entire Agreement; Amendments. This Security Agreement, together
with the Related Documents, constitutes the entire understanding and agreement
of the parties as to the matters set forth in this Security Agreement. No
alteration of or amendment to this Security Agreement shall be effective unless
given in writing and signed by the party or parties sought to be charged or
bound by the alteration or amendment.
4.2. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER. THE VALIDITY OF THIS
SECURITY AGREEMENT, ITS CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT, AND THE
RIGHTS OF THE PARTIES HERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK. THE
PARTIES IRREVOCABLY AND UNCONDITIONALLY AGREE (1) THAT ALL ACTIONS OR
PROCEEDINGS ARISING IN CONNECTION WITH THIS AGREEMENT SHALL BE TRIED AND
LITIGATED ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE STATE OF NEW YORK,
NEW YORK COUNTY AND THAT THE PARTIES SHALL BE SUBJECT TO THE JURISDICTION OF
SUCH COURTS, AND (2) THAT SERVICE OF PROCESS BY CERTIFIED MAIL, RETURN RECEIPT
REQUESTED, SHALL CONSTITUTE PERSONAL SERVICE. EACH OBLIGOR AND THE COLLATERAL
AGENT AND THE LENDERS 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
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PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 4.2. EACH OBLIGOR AND THE
COLLATERAL AGENT AND THE LENDERS HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY
TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS SECURITY
AGREEMENT OR ANY OF THE ACTIONS CONTEMPLATED HEREIN, INCLUDING WITHOUT
LIMITATION CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER
COMMON LAW OR STATUTORY CLAIMS. EACH OBLIGOR AND THE COLLATERAL AGENT AND THE
LENDERS REPRESENT THAT EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND
VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL
COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A
WRITTEN CONSENT TO A TRIAL BY THE COURT.
4.3. Attorneys' Fees; Expenses. The Obligors agree to pay upon demand
all of Lenders' costs and expenses, including reasonable attorneys' fees and
legal expenses, incurred in connection with the enforcement of this Security
Agreement. The Collateral Agent may pay someone else to help enforce this
Security Agreement, and the Obligors shall pay the costs and expenses of such
enforcement. Costs and expenses include the Collateral Agent's reasonable
attorneys' fees and legal expenses whether or not there is a lawsuit, including
reasonable attorneys' fees and legal expenses for bankruptcy proceedings (and
including efforts to modify or vacate any automatic stay or injunction),
appeals, and any anticipated post-judgment collection services. The Obligors
also shall pay all court costs and such additional fees as may be directed by
the court.
4.4. Caption Headings. Caption headings in this Security Agreement are
for convenience purposes only and are not to be used to interpret or define the
provisions of this Security Agreement.
4.5. Notices. All notices required to be given under this Security
Agreement shall be given in writing and shall be effective when actually
delivered or two (2) days after being deposited in the United States mail, first
class, postage prepaid, addressed to the party to whom the notice is to be given
or, if via facsimile, when sent via facsimile transmission to the party to whom
the notice is to be given and confirmation of such transmission has been
received, at the address and/or facsimile number shown below:
If to Borrower or other Obligor:
000 Xxxxxxxx Xxxxxx, 0xx Xxxxx
Xxxxxxxx, Xxx Xxxx 00000
Attn: Chief Executive Officer
Facsimile No.: (000) 000-0000
with a copy to:
000 Xxxxxxxx Xxxxxx, 0xx Xxxxx
Xxxxxxxx, Xxx Xxxx 00000
Attn: Chief Financial Officer
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Facsimile No.: (000) 000-0000
And a copy to:
000 Xxxxxxxx Xxxxxx, 0xx Xxxxx
Xxxxxxxx, Xxx Xxxx 00000
Attn: General Counsel
Facsimile No.: (000) 000-0000
If to the Collateral Agent:
c/o The Palladin Group, L.P.
000 Xxxxxxxxx Xxxxxx
Xxxxxxxxx, Xxx Xxxxxx 00000
Facsimile No: (000) 000-0000
Attn: Xxxxxx X. Xxxxxxx, Esq.
with a copy to:
Kleinberg, Kaplan, Xxxxx & Xxxxx, P.C.
000 Xxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Facsimile No: (000) 000-0000
Attn: Xxxxxxx X. Xxxxxxx, Esq.
If to Lenders:
To each Lender at the address
and or fax number set forth on
Schedule I to the Purchase Agreement
with a copy to: Kleinberg, Kaplan, Xxxxx & Xxxxx, P.C.
000 Xxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Facsimile No: (000) 000-0000
Attn: Xxxxxxx X. Xxxxxxx, Esq.
Any party may change its address for notices under this Security Agreement by
giving formal written notice to the other parties, specifying that the purpose
of the notice is to change the party's address. For notice purposes, the
Obligors agree to keep the Collateral Agent informed at all Obligors' current
addresses.
4.6. Severability. If a court of competent jurisdiction finds any
provision of this Security Agreement to be invalid or unenforceable as to any
person or circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible, any such
offending provision shall be deemed to be modified to be within the limits of
enforceability or validity; however, if the offending provision cannot be so
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modified, it shall be stricken, and all other provisions of this Security
Agreement in all other respects shall remain valid and enforceable and such
offending provision shall not be affected in any other jurisdiction.
4.7. Successor Interests. Subject to the limitations set forth above
on transfer of the Collateral, this Security Agreement shall be binding upon and
inure to the benefit of the parties, their successors and assigns. The Obligors
shall not, however, have the right to assign this Security Agreement without the
prior written consent of the Collateral Agent which may be withheld for any
reason in the Collateral Agent's sole discretion.
4.8. Waiver. No party shall be deemed to have waived any rights under
this Security Agreement unless such waiver is given in writing and signed by
such party. No delay or omission on the part of a party in exercising any right
shall operate as a waiver of such right or any other right. A waiver by the
Collateral Agent or a Lender of a provision of this Security Agreement shall not
prejudice or constitute a waiver of such party right otherwise to demand strict
compliance with that provision or any other provision of this Security
Agreement. No prior waiver by a party, nor any course of dealing among the
parties, shall constitute a waiver of any of such party's rights or of any of
the other party's obligations as to any future transactions. Whenever the
consent of the Collateral Agent or Lenders is required under this Security
Agreement, the granting of such consent by the Collateral Agent in any instance
shall not constitute continuing consent to subsequent instances where such
consent is required and in all cases such consent may be granted or withheld in
the sole discretion of the Collateral Agent.
4.9. Indemnity. Except to the extent caused directly by the Collateral
Agent or the Lenders' gross negligence or willful misconduct, as the case may
be, the Obligors agree to indemnify, pay and hold the Collateral Agent and each
Lender and their respective officers, partners, directors, employees, agents and
affiliates (collectively, the "indemnitees") harmless from and against any and
all liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, claims, costs, expenses and disbursements of any kind or nature
whatsoever (including, without limitation, the reasonable fees and disbursements
of counsel) that may be imposed on, incurred by, or asserted against any
indemnitee, in any manner relating to or arising out of this Security Agreement
and any action undertaken or contemplated hereby, including the enforcement of
this Section 4.9. This indemnification shall survive the satisfaction and
payment of the Indebtedness and termination of this Security Agreement.
4.10. Subsidiary Liability. Anything herein or in any other document
related to the Indebtedness ("Indebtedness Documents") to the contrary
notwithstanding, the maximum liability of each Subsidiary hereunder and under
the other Indebtedness Documents shall in no event exceed the amount allowed
under applicable federal and state laws, including laws relating to the
insolvency of debtors, fraudulent conveyance or transfer or laws affecting the
rights of creditors generally (after giving effect to the right of contribution
established in Section 4.11).
4.11. Right Of Contribution. Each Obligor hereby agrees that to the
extent that a Obligor shall have paid more than its proportionate share of any
payment made hereunder, such Obligor shall be entitled to seek and receive
contribution from and against any other Obligor hereunder which has not paid its
proportionate share of such payment. Each Obligor's right of contribution shall
be subject to the terms and conditions of Section 4.12. The provisions of this
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Section 4.11 shall in no respect limit the obligations and liabilities of any
Obligor to the Lenders, and each Obligor shall remain liable to the Lenders for
the full amount for which such Obligor is obligated hereunder.
4.12. No Subrogation. Notwithstanding any payment made by any Obligor
hereunder or any set-off or application of funds of any Obligor by the Lenders,
no Obligor shall be entitled to be subrogated to any of the rights of the
Lenders against a Obligor or any collateral security or guarantee or right of
offset held by the Lenders for the payment of the Obligations, nor shall any
Obligor seek or be entitled to seek any contribution or reimbursement from
another Obligor in respect of payments made by such Obligor hereunder, until all
amounts owing to the Lenders by the Obligors under any Indebtedness Documents
are paid in full. If any amount shall be paid to any Obligor on account of such
subrogation rights at any time when any such amounts shall not have been paid in
full, such amount shall be held by such Obligor in trust for the Lenders,
segregated from other funds of such Obligor, and shall, forthwith upon receipt
by such Obligor, be turned over to the Lenders in the exact form received by
such Obligor (duly indorsed by such Obligor to the Lenders, if required), to be
applied against the Obligations of the Obligors under the Indebtedness
Documents, whether matured or unmatured, in such order as the Lenders may
determine.
[Signature Page to Follow]
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IN WITNESS WHEREOF, the parties hereto have caused this
Security Agreement to be executed as of the date first written above.
BORROWER:
APPLIEDTHEORY CORPORATION
By: /s/ Xxxxx X. Xxxxxx
------------------------------------
Name: Xxxxx X. Xxxxxx
Title: President and CEO
SUBSIDIARIES:
APPLIEDTHEORY GEORGIA CORPORATION
By: /s/ Xxxxx X. Xxxxxx
------------------------------------------
Xxxxx X. Xxxxxx, President
APPLIEDTHEORY SEATTLE CORPORATION
By: /s/ Xxxxx X. Xxxxxx
------------------------------------------
Xxxxx X. Xxxxxx, President
APPLIEDTHEORY CALIFORNIA CORPORATION
By: /s/ Xxxxx X. Xxxxxx
------------------------------------------
Xxxxx X. Xxxxxx, President
APPLIEDTHEORY VIRGINIA CORPORATION
By: /s/ Xxxxx X. Xxxxxx
------------------------------------------
Xxxxx X. Xxxxxx, President
APPLIEDTHEORY AUSTIN CORPORATION
By: /s/ Xxxxx X. Xxxxxx
------------------------------------------
Xxxxx X. Xxxxxx, President
APPLIEDTHEORY COLORADO CORPORATION
By: /s/ Xxxxx X. Xxxxxx
------------------------------------------
Xxxxx X. Xxxxxx, President
25
LENDERS:
HALIFAX FUND, L.P.
By: THE PALLADIN GROUP, L.P.
Attorney-in-Fact
By: /s/ Xxxxxxx Xxxxxxx
------------------------------------
Name: Xxxxxxx Xxxxxxx
Title: Counsel
PALLADIN PARTNERS I, L.P.
By: THE PALLADIN GROUP, L.P.
Attorney-in-Fact
By: /s/ Xxxxxxx Xxxxxxx
------------------------------------
Name: Xxxxxxx Xxxxxxx
Title: Counsel
PALLADIN OVERSEAS FUND LTD.
By: THE PALLADIN GROUP, L.P.
Attorney-in-Fact
By: /s/ Xxxxxxx Xxxxxxx
------------------------------------
Name: Xxxxxxx Xxxxxxx
Title: Counsel
XXXX CONVERTIBLE ARBITRAGE FUND, LTD.
By: /s/ Xxxxxxx Xxxxxxx
------------------------------------
Name: Xxxxxxx Xxxxxxx
Title: Counsel
SIGNATURE PAGE TO APPLIED THEORY CORPORATION SECURITY AGREEMENT
26
LANCER SECURITIES (CAYMAN) LTD.
By: THE PALLADIN GROUP, L.P.
Attorney-in-Fact
By: By: /s/ Xxxxxxx Xxxxxxx
-------------------------------
Name: Xxxxxxx Xxxxxxx
Title: Counsel
XXXXXXX ASSOCIATES, L.P.
By: /s/ Xxxx X. Xxxxxx
----------------------------------------
Name: Xxxx X. Xxxxxx
Title: General Partner
XXXXXXX INTERNATIONAL, L.P.
By: XXXXXXX INTERNATIONAL CAPITAL
ADVISORS INC.
Attorney-in-Fact
By: /s/ Xxxx X. Xxxxxx
----------------------------------------
Name: Xxxx X. Xxxxxx
Title: President
COLLATERAL AGENT:
By: HALIFAX FUND, L.P.
By: By: /s/ Xxxxxxx Xxxxxxx
-------------------------------
Name: Xxxxxxx Xxxxxxx
Title: Counsel
Signature page to Applied Theory Corporation Security Agreement
