1
Exhibit (10)(z)
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (as the same may from time to time be amended,
restated or otherwise modified, this "Agreement") is made as of August 7, 2001,
by LESCO, INC, an Ohio corporation ("Borrower"), in favor of XXXXX FARGO BANK
NORTHWEST, NATIONAL ASSOCIATION, as collateral agent (together with its
successors and assigns, "Collateral Agent"), for the benefit of the Creditors,
as hereinafter defined.
1. Recitals.
Borrower, the Credit Agreement Agent (such term, together with each
other capitalized term used in this Section and not defined in this Section,
being defined below) and the Banks are parties to the Credit Agreement, pursuant
to which the Banks have granted and will from time to time grant the Loans, as
defined in the Credit Agreement, and other extensions of credit provided for in
the Credit Agreement, pursuant to the terms and condition of the Credit
Agreement.
Each of the Noteholders has purchased certain Senior Notes from
Borrower, in accordance with the terms and conditions of the Note Purchase
Agreement.
Borrower is obligated to the Letter of Credit Bank pursuant to the
terms and conditions of the Reimbursement Agreement.
Borrower has requested that (a) the Noteholders and the Banks make
certain modifications and amendments to their respective Creditor Documents, and
(b) the Letter of Credit Bank consent to the liens and security interests
granted in this Agreement.
Borrower understands that the Creditors are willing to (a) make such
modifications or amendments to the Creditor Documents, and (b) continue to grant
or otherwise continue to make available financial accommodations to Borrower,
only upon certain terms and conditions, one of which is that Borrower grant to
Collateral Agent, for the benefit of the Creditors, a security interest in and
an assignment of the Collateral and this Agreement is being executed and
delivered in consideration of each financial accommodation granted to Borrower
by the Creditors and for other valuable considerations.
2. Definitions. As used in this Agreement, the following terms shall
have the following meanings:
"Actionable Default" shall mean an Actionable Default, as defined in
the Intercreditor Agreement.
"Administrative Expenses" shall mean any and all costs, liabilities and
expenses (including, without limitation, losses, damages, penalties, claims,
actions, attorneys' fees, legal expenses, judgments, suits and disbursements)
(a) incurred by Collateral Agent, or imposed upon or asserted against Collateral
Agent or any Creditor, in any attempt by Collateral Agent and the Creditors to
(i) obtain, preserve, perfect, or enforce any security interest evidenced by
this Agreement or any Creditor Document; (ii) obtain payment, performance or
observance of any and all of the Creditor Obligations; or (iii) maintain,
insure, audit, collect, preserve, repossess or
2
dispose of any of the Collateral or any other collateral securing the Creditor
Obligations, including, without limitation, costs and expenses for appraisals,
assessments and audits of Borrower or any such collateral; or (b) incidental or
related to (a) above, including, without limitation, interest thereupon from the
date incurred, imposed or asserted until paid at the Default Rate.
"Bank" shall mean each Lender, as defined in the Credit Agreement,
together with their respective successors and assigns.
"Bank Obligations" shall mean, collectively, (a) the Obligations, as
defined in the Credit Agreement and (b) all other indebtedness and other
obligations incurred by any Company to the Credit Agreement Agent and the Banks
pursuant to the Credit Agreement or any other Credit Agreement Document, whether
for principal, interest, fees, costs or indemnities, and whether now existing or
hereafter arising.
"Cash Collateral Account" shall mean a commercial Deposit Account
designated "cash collateral account" and maintained by Borrower with Collateral
Agent, without liability by Collateral Agent or any Creditor to pay interest
thereon, from which account Collateral Agent shall have the exclusive right to
withdraw funds until all of the Creditor Obligations are paid in full.
"Collateral" shall mean all of Borrower's existing and future (a)
Inventory, (b) Equipment, (c) all of the following types of personal property to
the extent that such personal property is proceeds of Inventory or Equipment,
investment property, letter-of-credit rights, deposit accounts, general
intangibles, instruments or chattel paper, and (d) all Proceeds, products,
profits, and rents of any of the foregoing; provided, however, that Collateral
shall exclude any Receivables Related Assets.
"Company" shall mean Borrower or a Subsidiary.
"Companies" shall mean Borrower and all Subsidiaries.
"Credit Agreement" shall mean the Credit Agreement executed by and
among Borrower, the Credit Agreement Agent and the Banks and dated as of April
24, 2001, as the same may from time to time be amended, restated or otherwise
modified.
"Credit Agreement Agent" shall mean National City Bank in its capacity
as the Administrative Agent under the Credit Agreement, together with any
successor or replacement Administrative Agent.
"Credit Agreement Documents" shall mean the Credit Agreement and each
other Credit Document, as defined in the Credit Agreement, together with any
other document, instrument or agreement executed in connection with the
foregoing, as any of the foregoing may from time to time be amended, restated or
otherwise modified.
"Creditor" shall mean any Bank, any Noteholder or the Letter of Credit
Bank.
2
3
"Creditor Documents" shall mean, collectively, (a) the Credit Agreement
Documents, (b) the Noteholder Documents, and (c) the Reimbursement Agreement,
together with each document instrument or agreement executed in connection
therewith.
"Creditor Obligations" shall mean, collectively, (a) the Bank
Obligations, (b) the Noteholder Obligations, (c) the Reimbursement Obligations,
and (d) all Administrative Expenses.
"Default Event" shall mean (a) the occurrence of an Event of Default,
as defined in the Credit Agreement, or (b) the occurrence of an Event of
Default, as defined in the Note Purchase Agreement.
"Default Rate" shall mean two percent (2%) above the interest rate from
time to time in effect that is applicable to Prime Rate Loans, as defined in the
Credit Agreement, under Section 2.8(a) of the Credit Agreement.
"Deposit Account" shall mean (a) a deposit account, as defined in
Chapter 1309 of the Ohio Revised Code as in effect from time to time, (b) any
other deposit account, and (c) any demand, time, savings, passbook, or a similar
account maintained with a bank, savings and loan association, credit union, or
similar organization.
"Equipment" shall mean all of Borrower's (a) equipment, as defined in
Chapter 1309 of the Ohio Revised Code as in effect from time to time, including
without limitation, machinery, motor vehicles, trade fixtures, office and other
furniture and furnishings; (b) goods that are used or bought for use primarily
in Borrower's business; (c) goods that are not consumer goods, farm products (as
defined in Chapter 1309 of the Ohio Revised Code as in effect from time to
time), or Inventory; and (d) substitutes or replacements for, and parts,
accessories, additions, attachments, or accessions to (a) through (c) above;
provided, however, that Equipment shall not include any equipment constituting
part of the "Mortgaged Property" pursuant to the Open-End Shared Mortgage and
Security Agreement dated as of January 1, 1988 between Borrower, as mortgagor,
and The Director of Development of the State of Ohio, Bank of New York (as
successor trustee), and PNC Bank, N.A. (as successor letter of credit bank), as
mortgagees.
"Intercreditor Agreement" shall mean the Intercreditor and Collateral
Agency Agreement dated as of the date hereof by and among Collateral Agent, the
Credit Agreement Agent, the Banks, the Letter of Credit Bank and the
Noteholders, as the same may from time to time be amended, restated or otherwise
modified.
"Inventory" shall mean all of Borrower's (a) inventory, as defined in
Chapter 1309 of the Ohio Revised Code as in effect from time to time; (b) goods
that are raw materials; (c) goods that are work-in-process; (d) goods that are
materials used or consumed in the ordinary course of Borrower's business; (e)
goods that are, in the ordinary course of Borrower's business, held for sale or
lease or furnished or to be furnished under contracts of service; and (f)
substitutes and replacements for, and parts, accessories, additions, attachments
or accessions to (a) through (e) above.
"Letter of Credit Bank" shall mean PNC Bank, National Association, as
the issuer of the letter of credit described in the Reimbursement Agreement,
together with its successors and assigns.
3
4
"Note Purchase Agreement" shall mean the Note Purchase Agreement dated
as of June 15, 1998, by and among Borrower, Canada Life Insurance Company of
America and the Noteholders, that provides for, among other things, the purchase
of the Senior Notes, as the same may from time to time be amended, restated or
otherwise modified.
"Noteholder Documents" shall mean the Note Purchase Agreement, the
Senior Notes and each other Operative Agreement, as defined in the Note Purchase
Agreement, together with any other document, instrument or agreement executed in
connection with the foregoing, as any of the foregoing may from time to time be
amended, restated or otherwise modified.
"Noteholders" shall mean, collectively, Pacific Life Insurance Company,
Provident Mutual Life Insurance Company, Providentmutual Life and Annuity
Company of America, GE Group Life Assurance Company (formerly known as Phoenix
American Life Insurance Company) and The Travelers Insurance Company, and their
respective successors and assigns.
"Noteholder Obligations" shall mean all indebtedness and other
obligations incurred by any Company to the Noteholders pursuant to the Note
Purchase Agreement, the Senior Notes and the other Noteholder Documents, whether
for principal, interest, fees, costs or indemnities, and whether now existing or
hereafter arising.
"Person" shall mean any individual, sole proprietorship, partnership,
joint venture, unincorporated organization, corporation, limited liability
company, institution, trust, estate, government or other agency or political
subdivision thereof or any other entity.
"Proceeds" shall mean (a) any proceeds, as defined in Chapter 1309 of
the Ohio Revised Code as in effect from time to time, and (b) whatever is
received upon the sale, exchange, collection or other disposition of Collateral
or proceeds, whether cash or non-cash, except in all cases any Receivables
Related Assets. Cash proceeds includes, without limitation, moneys, checks, and
Deposit Accounts. Proceeds includes, without limitation, any insurance payable
by reason of loss or damage to the Collateral, and any return or unearned
premium upon any cancellation of insurance. Except as expressly authorized in
this Agreement, the right of Collateral Agent and the Creditors to Proceeds
specifically set forth herein, or indicated in any financing statement, shall
never constitute an express or implied authorization on the part of Collateral
Agent or any Creditor to Borrower's sale, exchange, collection, or other
disposition of any or all of the Collateral.
"Receivables Related Assets" shall mean accounts receivable,
instruments, chattel paper, obligations, general intangibles and other similar
assets of Borrower, in each case relating to receivables subject to the
Receivables Securitization, including interests in merchandise or goods, the
sale or lease of which gave rise to such receivables, related contractual rights
(including rights under the documents executed in connection with the
Receivables Securitization), guaranties, insurance proceeds, collections and
proceeds of all of the foregoing.
"Receivables Securitization" shall mean the receivables securitization
facility among Borrower, Lesco Funding, Inc., a Delaware corporation, Market
Street Funding Corporation and PNC Bank, National Association established
pursuant to the Receivables Purchase Agreement, Purchase and Sale Agreement and
other documents dated as of April 24, 2001, as any of such documents may from
time to time be amended, restated or otherwise modified.
4
5
"Reimbursement Agreement" shall mean the Reimbursement Agreement dated
as of March 1, 1993, between Borrower and the Letter of Credit Bank, as amended
and as the same may from time to time be further amended, restated or otherwise
modified.
"Reimbursement Agreement Obligations" shall mean all indebtedness and
other obligations incurred by Borrower to the Letter of Credit Bank pursuant to
the Reimbursement Agreement, whether for principal, interest, fees, costs or
indemnities, and whether now existing or hereafter arising.
"Senior Notes" shall mean each of the (a) $15,000,000 6.64% Senior
Notes, Xxxxxx X, xxx Xxxx 00, 0000, (x) $5,000,000 6.71% Senior Notes, Series C,
due June 15, 2008, and (c) $25,000,000 7.00% Senior Notes, Series D, due June
15, 2008, all of which were issued pursuant to the Note Purchase Agreement, as
any of the foregoing may from time to time be amended, restated or otherwise
modified or replaced.
"Subsidiary" of Borrower or any of its Subsidiaries shall mean (a) a
corporation more than fifty percent (50%) of the Voting Power of which is owned,
directly or indirectly, by Borrower or by one or more other subsidiaries of
Borrower or by Borrower and one or more subsidiaries of Borrower, (b) a
partnership or limited liability company of which Borrower, one or more other
subsidiaries of Borrower or Borrower and one or more subsidiaries of Borrower,
directly or indirectly, own more than fifty percent (50%) of the equity
interests then outstanding, or (c) any other Person (other than a corporation)
in which Borrower, one or more other subsidiaries of Borrower or Borrower and
one or more subsidiaries of Borrower, directly or indirectly, has at least a
majority ownership interest.
"Voting Power" shall mean, with respect to any Person, the exclusive
ability to control, through the ownership of shares of capital stock,
partnership interests, membership interests or otherwise, the election of
members of the board of directors or other similar governing body of such
Person, and the holding of a designated percentage of Voting Power of a Person
means the ownership of shares of capital stock, partnership interests,
membership interests or other interests of such Person sufficient to control
exclusively the election of that percentage of the members of the board of
directors or similar governing body of such Person.
The definitions of terms herein shall apply equally to the singular and
plural forms of such terms. Unless otherwise defined in this Section 2, terms
that are defined in Chapter 1309 of the Ohio Revised Code as in effect from time
to time, are used herein as so defined.
3. Security Interest. In consideration of and as security for the
full and complete payment of all of the Creditor Obligations, Borrower hereby
agrees that Collateral Agent shall at all times have, and hereby grants to
Collateral Agent, for the benefit of the Creditors, a security interest in and
an assignment of all of the Collateral, including (without limitation) all of
Borrower's future Collateral, irrespective of any lack of knowledge by
Collateral Agent or the Creditors of the creation or acquisition thereof.
4. Representations and Warranties. Borrower hereby represents and
warrants to Collateral Agent and each Creditor as follows:
5
6
4.1. Borrower is a corporation duly organized, validly existing and in
good standing under the laws of its state of incorporation and is duly qualified
to do business in each state in which a failure to so qualify would have a
material adverse effect on Borrower.
4.2. Borrower has full power, authority and legal right to grant a
security interest in and collateral assignment of the Collateral, to execute and
deliver this Agreement, and to perform and observe the provisions hereof. The
officers acting on Borrower's behalf have been duly authorized to execute and
deliver this Agreement and to execute and file appropriate financing statements
in respect hereof. This Agreement is valid and binding upon, and enforceable
against, Borrower in accordance with the terms hereof.
4.3. Neither the execution and delivery of this Agreement, nor the
performance and observance of the provisions hereof, by Borrower will conflict
with, or constitute a violation or default under, any provision of any
applicable law or of any contract (including, without limitation, Borrower's
articles of incorporation or regulations) or of any other writing binding upon
Borrower in any manner.
4.4. Borrower has places of business or maintains Collateral at the
locations set forth on Schedule 4.4 hereto.
4.5. Borrower has furnished its most recent financial statements to
Collateral Agent and each of the Creditors and such financial statements are
true and complete in all material respects, have been prepared in accordance
with generally accepted accounting principles, in a manner consistent with that
used for the immediately preceding fiscal period, and fairly present Borrower's
financial condition as of the date of such financial statements and the results
of Borrower's operations for the period then ending, subject, in the case of
unaudited financial statements, to normal audit adjustments. Since such date,
there has been no material adverse change in Borrower's financial condition,
business and properties other than such changes, if any, as have been
specifically disclosed to the Creditors in writing.
4.6. At the execution and delivery hereof, except as expressly
permitted pursuant to the Credit Agreement and the Note Purchase Agreement, (a)
there is no financing statement outstanding covering the Collateral, or any part
thereof, other than a financing statement in favor of Collateral Agent, for the
benefit of the Creditors; (b) none of the Collateral is subject to any security
interest or lien of any kind other than the security interest herein granted to
Collateral Agent, for the benefit of the Creditors, or previously granted to
Collateral Agent, for the benefit of the Creditors; (c) the Internal Revenue
Service has not alleged the nonpayment or underpayment of any tax by Borrower or
threatened to make any assessment in respect thereof; (d) upon execution of this
Agreement and the filing of the U.C.C. financing statements in connection
herewith, Collateral Agent will have, for the benefit of the Creditors, a valid
and enforceable first priority security interest in the Collateral; and (e)
Borrower has not entered into any contract or agreement that would prohibit
Collateral Agent and the Creditors from acquiring a security interest, mortgage
or other lien on, or a collateral assignment of, any of the property or assets
of Borrower.
4.7. Borrower has received consideration that is the reasonable
equivalent value of the obligations and liabilities that Borrower has incurred
to the Creditors. Borrower is not insolvent, as defined in any applicable state
or federal statute, nor will Borrower be rendered insolvent by the execution and
delivery of this Agreement to Collateral Agent or any other documents
6
7
executed and delivered to Collateral Agent or the Creditors in connection
herewith. Borrower has not engaged, nor is Borrower about to engage, in any
business or transaction for which the assets retained by it are or will be an
unreasonably small amount of capital, taking into consideration the obligations
to the Creditors incurred hereunder. Borrower does not intend to, nor does it
believe that it will, incur debts beyond its ability to pay such debts as they
mature.
4.8. At the execution and delivery hereof, after taking into account
the amendments to the Creditor Documents, of even date herewith, no Default
Event will exist.
5. Insurance. Borrower shall at all times maintain with financially
sound and reputable insurers reasonably appropriate considering the amount and
type of insurance being provided by such insurers, insurance upon the Collateral
against casualties and contingencies, in each case, of such types and in such
amounts as is customary and appropriate in the case of companies engaged in the
same or similar businesses and similarly situated and otherwise as may be
reasonably required by Collateral Agent and each of the Creditors, with
provisions satisfactory to Collateral Agent, for payment of all losses
thereunder to Collateral Agent, for the benefit of the Creditors, and Borrower
as their interests may appear (loss payable endorsement in favor of Collateral
Agent, for the benefit of the Creditors), and, if required by Collateral Agent,
Borrower shall deposit the policies or certificates of insurance with Collateral
Agent. Any such policies of insurance shall provide for no fewer than thirty
(30) days prior written notice of cancellation to Collateral Agent and each of
the Creditors. Any sums received by Collateral Agent, for the benefit of the
Creditors, in payment of insurance losses, returns, or unearned premiums under
the policies shall be held as Collateral and distributed pursuant to the
Intercreditor Agreement. In the event of failure to provide such insurance as
herein provided, Collateral Agent may, at its option, provide such insurance and
Borrower shall pay to Collateral Agent, upon demand, the cost thereof. Should
Borrower fail to pay such sum to Collateral Agent upon demand, interest shall
accrue thereon, from the date of demand until paid in full, at the Default Rate.
Within ten (10) days of the written request of Collateral Agent or any Creditor,
Borrower shall furnish to Collateral Agent or such Creditor such information
about Borrower's insurance as Collateral Agent or such Creditor may from time to
time reasonably request, which information shall be prepared in form and detail
satisfactory to Collateral Agent or such Creditor and certified by an officer of
Borrower.
6. Taxes and Other Borrower Obligations. Borrower shall pay in full
all of its obligations calling for the payment of money in accordance with the
terms of any of the Creditor Documents.
7. Corporate Names and Location of Collateral. Borrower shall not
change its name, unless, in each case, Borrower shall provide Collateral Agent
with at least thirty (30) days prior written notice thereof. Borrower shall not
use trade names, assumed names or fictitious names without giving Collateral
Agent at least thirty (30) days prior written notice thereof. Borrower shall
also provide Collateral Agent with at least thirty (30) days prior written
notification of (a) any change, other than in the ordinary course of Borrower's
business, in any location where any of the Inventory or Equipment is maintained,
and any new locations where any of the Inventory or Equipment is to be
maintained; (b) the location of any new places of business and the changing or
closing of any of its existing places of business; and (c) any change in
Borrower's chief executive office or state of organization. In the event of any
of the foregoing or as a result of any change of applicable law with respect to
the taking of security interests, Borrower hereby authorizes Collateral Agent to
file new U.C.C. financing statements (and Borrower agrees that
7
8
Collateral Agent may execute and deliver the same as Borrower's irrevocable
attorney-in-fact) describing the Collateral and otherwise in form and substance
sufficient for recordation wherever necessary or appropriate, as determined in
Collateral Agent's sole discretion, to perfect or continue perfected the
security interest of Collateral Agent, for the benefit of the Creditors, in the
Collateral, based upon such new places of business or names or such change in
applicable law or state of organization, and Borrower shall pay all filing and
recording fees and taxes in connection with the filing or recordation of such
financing statements and shall immediately reimburse Collateral Agent therefor
if Collateral Agent pays the same. Such amounts not so paid or reimbursed shall
be Administrative Expenses hereunder.
8. Notice. Borrower shall give Collateral Agent and each Creditor
prompt written notice if any Default Event shall occur or if the Internal
Revenue Service shall allege the nonpayment or underpayment of any tax by
Borrower or threaten to make any assessment in respect thereof.
9. Financial Records. Borrower shall (a) render to Collateral Agent,
forthwith upon each request of Collateral Agent or any Creditor, such financial
statements of Borrower's financial condition and operations, as may be required
by any of the Creditor Documents; and (b) forward to Collateral Agent, upon
reasonable request of Collateral Agent, whenever made, such reports and other
documents that are satisfactory to Collateral Agent and the Creditors.
10. Transfers, Liens and Modifications Regarding Collateral. Except as
expressly permitted pursuant to this Agreement, Borrower shall not, without
Collateral Agent's prior written consent, sell, assign, transfer or otherwise
dispose of, or grant any option with respect to, or create, incur, or permit to
exist any pledge, lien, mortgage, hypothecation, security interest, charge,
option or any other encumbrance with respect to any of the Collateral, or any
interest therein, or any proceeds thereof, except for the lien and security
interest provided for by this Agreement and any security agreement securing only
Collateral Agent, for the benefit of the Creditors.
11. Collateral. Borrower shall:
(a) at all reasonable times allow Collateral Agent and each of the
Creditors by or through any of their respective officers, agents, employees,
attorneys or accountants to (i) examine, inspect and make extracts from
Borrower's books and other records, including, without limitation, the tax
returns of Borrower and (ii) examine and inspect the Inventory and Equipment,
wherever located;
(b) promptly furnish to Collateral Agent and the Creditors, upon
reasonable request, additional statements and information with respect to the
Collateral and any other writings and information as Collateral Agent or any
Creditor may reasonably request;
(c) promptly notify Collateral Agent and each of the Creditors in
writing of any information that Borrower has or may receive with respect to the
Collateral that might in any manner materially and adversely affect the value of
the Collateral in the aggregate or the rights of Collateral Agent or the
Creditors with respect thereto;
(d) maintain the Equipment in good operating condition and repair,
ordinary wear and tear excepted, making all necessary replacements thereof so
that the value and operating
8
9
efficiency thereof shall at all times be maintained and preserved, and inform
Collateral Agent and each of the Creditors together with the delivery of
required financial statements of any additions to or deletions from the
Equipment; provided that Borrower shall at all times have the right to dispose
of obsolete or worn out equipment or replace equipment in the ordinary course of
business to the extent permitted under the Creditor Documents; and
(e) upon request of Collateral Agent, promptly take such action and
promptly make, execute, and deliver all such additional and further items,
deeds, assurances, instruments and any other writings as Collateral Agent may
from time to time deem necessary or appropriate, including, without limitation,
financing statements, to carry into effect the intention of this Agreement or so
as to completely vest in and ensure to Collateral Agent and the Creditors their
rights hereunder and in or to the Collateral.
If certificates of title or applications for title are issued or
outstanding with respect to any of the Inventory or Equipment, Borrower shall,
upon request of Collateral Agent, (i) execute and deliver to Collateral Agent a
short form security agreement, in form and substance satisfactory to Collateral
Agent, and (ii) deliver such certificate or application to Collateral Agent and
cause the interests of Collateral Agent, on behalf of the Creditors, to be
properly noted thereon. Borrower hereby authorizes Collateral Agent or
Collateral Agent's designated agent (but without obligation by Collateral Agent
to do so) to incur reasonable Administrative Expenses (whether prior to, upon,
or subsequent to any Default Event hereunder), and Borrower shall promptly
repay, reimburse and indemnify Collateral Agent for any and all Administrative
Expenses. If Borrower fails to keep and maintain the Equipment in good operating
condition, Collateral Agent may (but shall not be required to) so maintain or
repair all or any part of the Equipment and the cost thereof shall be an
Administrative Expense. All Administrative Expenses are payable to Collateral
Agent upon demand therefor.
12. Collections and Receipt of Proceeds by Borrower. Prior to exercise
by Collateral Agent of the rights of the Creditors under this Agreement, the
lawful receipt and retention by Borrower of all Proceeds of all of the Inventory
shall be as the agent of Collateral Agent and the Creditors. Upon written notice
to Borrower from Collateral Agent after a Default Event, a Cash Collateral
Account shall be opened by Borrower at the main office of Collateral Agent and
all such lawful collections of the Proceeds of the Inventory shall be remitted
daily by Borrower to Collateral Agent in the form in which they are received by
Borrower, either by mailing or by delivering such collections and Proceeds to
Collateral Agent, appropriately endorsed for deposit in the Cash Collateral
Account. In the event that such notice is given to Borrower from Collateral
Agent, Borrower shall not commingle such collections or Proceeds with any of
Borrower's other funds or property, but shall hold such collections and Proceeds
separate and apart therefrom upon an express trust for Collateral Agent, for the
benefit of the Creditors. In such case, Collateral Agent shall apply all or any
portion of the account balance in the Cash Collateral Account in accordance with
the terms of the Intercreditor Agreement. If any item shall be dishonored, or
if, upon final payment, any claim with respect thereto shall be made against
Collateral Agent on its warranties of collection, Collateral Agent may charge
the amount of such item against the Cash Collateral Account, and, in any event,
retain such item and Borrower's interest therein as additional security for the
Creditor Obligations. Collateral Agent may release funds from the Cash
Collateral Account to Borrower in accordance with the terms of the Intercreditor
Agreement. The balance in the Cash Collateral Account may be withdrawn by
Borrower upon termination of this Agreement and irrevocable payment in full of
all of the Creditor Obligations. At Collateral Agent's request, Borrower shall
cause all remittances
9
10
representing Proceeds of Collateral to be mailed to a lock box in Cleveland,
Ohio, to which Collateral Agent shall have access for the processing of such
items in accordance with the provisions, terms, and conditions of a customary
lock box agreement in form and substance satisfactory to the Creditors.
13. Collections and Receipt of Proceeds by Collateral Agent. Borrower
hereby constitutes and appoints Collateral Agent, or Collateral Agent's
designated agent, as Borrower's attorney-in-fact to exercise, at any time after
the occurrence of a Default Event, all or any of the following powers which,
being coupled with an interest, shall be irrevocable until the complete and full
payment of all of the Creditor Obligations:
(a) to receive, retain, acquire, take, endorse, assign, deliver,
accept and deposit, in Collateral Agent's name or Borrower's name, any and all
Proceeds of Inventory, and any other writings relating to any of the Collateral.
Borrower hereby waives presentment, demand, notice of dishonor, protest, notice
of protest and any and all other similar notices with respect thereto,
regardless of the form of any endorsement thereof. Neither Collateral Agent,
Credit Agreement Agent nor any Creditor shall be bound or obligated to take any
action to preserve any rights therein against prior parties thereto; and
(b) to accept all collections in any form relating to the Collateral,
including remittances that may reflect deductions, and, at the option of
Collateral Agent, to deposit such collections into the Cash Collateral Account,
if any, or to apply such collections as a payment on the Creditor Obligations in
accordance with the term of the Intercreditor Agreement.
14. Use of Inventory, Equipment and Proceeds. Until a Default Event
shall occur, Borrower may, to the extent permitted under the Creditor Documents,
(a) retain possession of and use the Inventory and Equipment in any lawful
manner not inconsistent with this Agreement or with the terms, conditions, or
provisions of any policy of insurance thereon; (b) sell or lease the Inventory
in the ordinary course of business, provided, however, that a sale or lease in
the ordinary course of business does not include a transfer in partial or total
satisfaction of any indebtedness; (c) use and consume raw materials or supplies,
the use and consumption of which are necessary in order to carry on Borrower's
business (d) retain, use and expend Proceeds for any lawful purpose; and (e)
replace or dispose of equipment that is obsolete or no longer useful in
Borrower's business.
15. Returned or Repossessed Property. If any merchandise or other
property constituting part of the Collateral shall for any reason be returned to
or repossessed by Borrower in any manner, Collateral Agent shall have, for the
benefit of the Creditors, a security interest in such property as security for
the Creditor Obligations. Borrower shall receive the same in trust for
Collateral Agent, and upon Collateral Agent's request whenever made, segregate
such property and label the same as being held for Collateral Agent and
immediately give Collateral Agent a detailed written notice of such return or
repossession and the reason therefor.
16. Default and Remedies. Upon the occurrence of an Actionable
Default, and at all times thereafter, Collateral Agent, acting on behalf of the
Creditors, shall have the rights and remedies of a secured party under the Ohio
Revised Code as in effect from time to time, in addition to the rights and
remedies of a secured party provided elsewhere within this Agreement or in any
other Creditor Document or otherwise provided in law or equity. Collateral Agent
may require Borrower to assemble the Collateral, which Borrower agrees to do,
and make it available
10
11
to Collateral Agent at a reasonably convenient place to be designated by
Collateral Agent. Collateral Agent may, with or without notice to or demand upon
Borrower and with or without the aid of legal process, make use of such force as
may be necessary to enter any premises where the Collateral, or any thereof, may
be found and to take possession thereof (including anything found in or on the
Collateral that is not specifically described in this Agreement, each of which
findings shall be considered to be an accession to and a part of the Collateral)
and for that purpose may pursue the Collateral wherever the same may be found,
without liability for trespass or damage caused thereby to Borrower. After any
delivery or taking of possession of the Collateral, or any thereof, pursuant to
this Agreement, then, with or without resort to Borrower or any other Person or
property, all of which Borrower hereby waives, and upon such terms and in such
manner as Collateral Agent may deem advisable, Collateral Agent, in its
discretion, may sell, assign, transfer and deliver any of the Collateral at any
time, or from time to time. No prior notice need be given to Borrower or to any
other Person in the case of any sale of Collateral that Collateral Agent
determines to be perishable or to be declining speedily in value or that is
customarily sold in any recognized market, but in any other case Collateral
Agent shall give Borrower no fewer than ten (10) days prior notice of either the
time and place of any public sale of the Collateral or of the time after which
any private sale or other intended disposition thereof is to be made. Borrower
waives advertisement of any such sale and (except to the extent specifically
required by the preceding sentence) waives notice of any kind in respect of any
such sale. At any such public sale, Collateral Agent or any Creditor may
purchase the Collateral, or any part thereof, free from any right of redemption,
all of which rights Borrower hereby waives and releases. After deducting all
Administrative Expenses, and after paying all claims, if any, secured by liens
having precedence over this Agreement, Collateral Agent may apply the net
proceeds of each such sale to or toward the payment of the Creditor Obligations,
whether or not then due, in such order as set forth in the Intercreditor
Agreement. Any excess, to the extent permitted by law, shall be paid to
Borrower, and the obligors on the Creditor Obligations shall remain liable for
any deficiency. In addition, Collateral Agent shall at all times have the right
to obtain new appraisals of Borrower or the Collateral, the cost of which shall
be paid by Borrower.
17. Interpretation. Each right, power or privilege specified or
referred to in this Agreement is cumulative and in addition to and not in
limitation of any other rights, powers and privileges that Collateral Agent or
the Creditors may otherwise have or acquire by operation of law, by contract or
otherwise. No course of dealing by Collateral Agent or the Creditors in respect
of, nor any omission or delay by Collateral Agent or the Creditors in the
exercise of, any right, power or privilege shall operate as a waiver thereof,
nor shall any single or partial exercise of any such right, power or privilege
preclude any other or further exercise thereof or of any other right, power or
privilege, as Collateral Agent and the Creditors may exercise each such right,
power or privilege either independently or concurrently with others and as often
and in such order as Collateral Agent and the Creditors may deem expedient. No
waiver, consent or other agreement shall be deemed to have been made by
Collateral Agent or the Creditors or be binding upon Collateral Agent or the
Creditors in any case unless specifically granted by Collateral Agent in
writing, and each such writing shall be strictly construed. If, at any time, one
or more provisions of this Agreement is or becomes invalid, illegal or
unenforceable in whole or in part, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
Borrower hereby authorizes Collateral Agent to file financing statements with
respect to the Collateral. A carbon, photographic, or other reproduction of this
Agreement may be used as a financing statement. The captions to sections herein
are inserted for convenience only and shall be ignored in interpreting the
provisions of this Agreement.
11
12
18. Notice. All notices, requests, demands and other communications
provided for hereunder shall be in writing and, if to Borrower, Collateral Agent
or any Creditor, mailed or delivered to it, addressed to it at the address
specified in the Intercreditor Agreement. All notices, statements, requests,
demands and other communications provided for hereunder shall be deemed to be
given or made when delivered or forty-eight (48) hours after being deposited in
the mails with postage prepaid by registered or certified mail, addressed as
aforesaid, or sent by facsimile with telephonic confirmation of receipt, except
that notices from Borrower to Collateral Agent or any Creditor pursuant to any
of the provisions hereof shall not be effective until received by Collateral
Agent or such Creditor.
19. Governing Law; Submission to Jurisdiction. The provisions of this
Agreement and the respective rights and duties of Borrower, Collateral Agent and
the Creditors hereunder shall be governed by and construed in accordance with
Ohio law, without regard to principles of conflict of laws. Borrower hereby
irrevocably submits to the non-exclusive jurisdiction of any Ohio state or
federal court sitting in Cleveland, Ohio, over any action or proceeding arising
out of or relating to this Agreement, any Creditor Document or any other
document, instrument or agreement executed or delivered in connection with any
of the foregoing, and Borrower hereby irrevocably agrees that all claims in
respect of such action or proceeding may be heard and determined in such Ohio
state or federal court. Borrower hereby irrevocably waives, to the fullest
extent permitted by law, any objection it may now or hereafter have to the
laying of venue in any action or proceeding in any such court as well as any
right it may now or hereafter have to remove such action or proceeding, once
commenced, to another court on the grounds of FORUM NON CONVENIENS or otherwise.
Borrower agrees that a final, nonappealable judgment in any such action or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on the judgment or in any other manner provided by law.
20. Successors and Assigns. This Agreement shall be binding upon
Borrower and Borrower's successors and assigns and shall inure to the benefit of
and be enforceable and exercisable by Collateral Agent on behalf of and for the
benefit of the Creditors and their respective successors and assigns.
21. Termination. At such time as the Creditor Obligations shall have
been irrevocably paid in full, any commitments under the Creditor Documents
terminated, and the Creditor Documents terminated, Borrower shall have the right
to terminate this Agreement. Upon written request of Borrower, Collateral Agent
shall promptly execute and deliver to Borrower appropriate termination
statements.
22. Entire Agreement. This Agreement integrates all of the terms and
conditions with respect to the Collateral and supersedes all oral
representations and negotiations and prior writings with respect to the subject
matter hereof.
[Remainder of page intentionally left blank.]
12
13
23. JURY TRIAL WAIVER. BORROWER, THE CREDIT AGREEMENT AGENT,
COLLATERAL AGENT AND THE CREDITORS WAIVE ANY RIGHT TO HAVE A JURY PARTICIPATE IN
RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE, AMONG
BORROWER, THE CREDIT AGREEMENT AGENT, COLLATERAL AGENT AND THE CREDITORS, OR ANY
THEREOF, ARISING OUT OF, IN CONNECTION WITH, RELATED TO, OR INCIDENTAL TO THE
RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH THIS AGREEMENT OR ANY
NOTE OR OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN
CONNECTION HEREWITH OR THE TRANSACTIONS RELATED THERETO.
This Agreement is executed as of the date first written above at
Cleveland, Ohio.
LESCO, INC.
By:___________________________
Name:_________________________
Title:________________________
13
14
SCHEDULE 4.4
(Locations)
[TO BE PROVIDED BY BORROWER]
14
