EXHIBIT 10.3
EXECUTION COPY
JUNIOR SECURITY AGREEMENT
SECURITY AGREEMENT, made this 30th day of April, 2001, by Xxxxxxx
Jewelers, Inc. (the "Grantor"), in favor of each of the lenders (collectively,
the "Lenders") from time to time a party to the Loan Agreement by and among the
Grantor, the Lenders and DDJ Capital Management, LLC, as agent (the "Agent") to
the Lenders (the "Loan Agreement"). All capitalized terms used herein, unless
otherwise defined, shall be defined as provided in the Loan Agreement.
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, on October 2, 1998, Grantor, the financial institutions
party thereto, and Foothill Capital Corporation, as Agent, a California
Corporation, entered into a Loan and Security Agreement (as amended, modified or
supplemented from time to time, the "Senior Loan Agreement"). Pursuant to the
Senior Loan Agreement and related documents, all amounts owing under the Senior
Loan Agreement are secured by liens and security interest in substantially all
of the Grantor's assets.
WHEREAS, on the date hereof, the Grantor obtained additional loans
for working capital needs, capital expenditures and other general corporate
purposes from the Lenders pursuant to the Loan Agreement.
WHEREAS, pursuant to Amendment No. 6 to the Senior Loan Agreement,
the Senior Lenders have, among other things, consented to the incurrence of the
obligations to the Lenders pursuant to the Loan Agreement; provided, however,
that the Lenders, the Agent and the Senior Lender are contemporaneously herewith
entering into an Intercreditor and Subordination Agreement.
WHEREAS, as security for all of the obligations between the Grantor
and the Lenders, the Lenders are requiring the Grantor to execute and deliver
this Security Agreement and grant the security interest contemplated hereby.
NOW, THEREFORE, in consideration of the promises contained herein and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto hereby enter into this Security
Agreement and agree as follows:
Section 1. Defined Terms. The following terms shall have
the following meanings:
"Account Debtor" shall mean any "account debtor," as such
term is defined in section 9-105(1)(a) of the UCC.
"Accounts Receivable" shall mean any "account," as such
term is defined in section 9-106 of the UCC, now owned or hereafter acquired by
Grantor and, in any event, shall include, without limitation, all accounts,
accounts receivable, leases and lease receivables, including but not limited to
rights to rentals thereunder, the Grantor's reversionary interest in property
leased thereunder and any equity rights in leases sold to third parties, other
receivables, contract rights, chattel paper, instruments, documents, notes, and
other forms of obligations now owned or hereafter received or acquired by or
belonging or owing to Grantor whether arising out of goods sold or services
rendered by Grantor, including without limitation under installation agreements,
or from any other transaction, whether or not the same involves the sale of
goods or services by Grantor and all of Grantor's rights in, to and under all
purchase orders or receipts now owned or hereafter acquired by it for goods or
services, and all of Grantor's rights to any goods represented by any of the
foregoing (including, without limitation, unpaid seller's rights of rescission,
replevin, reclamation and stoppage in transit and rights to returned, reclaimed
or repossessed goods), and all moneys due or to become due to Grantor under all
contracts for the sale of goods or the performance of services or both by
Grantor (whether or not yet earned by performance on the part of Grantor or in
connection with any other transaction), and all security agreements, leases and
other contracts securing or otherwise relating to any of the foregoing, now in
existence or hereafter occurring, including, without limitation, the right to
receive the proceeds of said purchase orders and contracts, and all collateral
security and guarantees of any kind given by any Person with respect to any of
the foregoing.
"Agent" shall have the meaning set forth in the preamble of
this Agreement.
"Chattel Paper" shall mean any "chattel paper," as such
term is defined in section 9-105(1)(b) of the UCC, now owned or hereafter
acquired by Grantor.
"Collateral" shall have the meaning assigned to such term
in Section 2 of this Security Agreement.
"Contracts" shall mean all contracts, undertakings, or
other agreements (other than rights evidenced by Chattel Paper, Documents or
Instruments) in or under which Grantor may now or hereafter have any right,
title or interest, including, without limitation, with respect to an Account
Receivable, any agreement relating to the terms of payment or the terms of
performance thereof.
"Documents" shall mean any "documents," as such term is
defined in section 9-105(1)(f) of the UCC, now owned or hereafter acquired by
Grantor.
"Equipment" shall mean any "equipment," as such term is
defined in section 9-109(2) of the UCC, now owned or hereafter acquired by
Grantor and, in any event, shall include, without limitation, all machinery,
equipment, including without limitation, copiers and related equipment,
furnishings, fixtures, vehicles and computers and other electronic
data-processing and other office equipment now owned or hereafter acquired by
Grantor and any and all additions, substitutions and replacements of any of the
foregoing, wherever located, together with all attachments, components, parts,
equipment and accessories installed thereon or affixed thereto.
"Intangible Assets" shall mean any "general intangibles,"
as such term is defined in section 9-106 of the UCC, now owned or hereafter
acquired by Grantor and, in any event, shall include, without limitation, all
right, title and interest which Grantor may now or hereafter have in or under
any Contract, all customer lists, Trademarks, Patents, rights in intellectual
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property, Licenses, permits, copyrights, trade secrets, proprietary or
confidential information, inventions (whether patented or patentable or not),
technical information, procedures, designs, knowledge, know-how, software, data
bases, data, skill, expertise, experience, processes, models, drawings,
materials and records now owned or hereafter acquired by Grantor, goodwill and
rights of indemnification.
"Instruments" shall mean any "instrument," as such term is
defined in section 9-105(1)(i) of the UCC, now owned or hereafter acquired by
Grantor, other than instruments that constitute, or are a part of a group of
writings that constitute, Chattel Paper.
"Inventory" shall mean any "inventory," as such term is
defined in section 9-109(4) of the UCC, now owned or hereafter acquired by
Grantor and, in any event, shall include, without limitation, all inventory,
merchandise, goods and other personal property now owned or hereafter acquired
by Grantor which are held for sale or lease or are furnished or are to be
furnished under a contract of service or which constitute raw materials, work in
process or materials used or consumed or to be used or consumed in Grantor'
business, or the processing, packaging, delivery or shipping of the same, and
all finished goods.
"License" shall mean any Patent License, Trademark License
or other license as to which the Lenders have been granted a security interest
hereunder.
"Obligations" shall mean any and all indebtedness,
obligations, agreements and liabilities of Grantor to the Lenders including,
without limitation, all indebtedness and obligations of Grantor under the
Agreement, the Loan Agreement, the Notes executed pursuant thereto, and any
other indebtedness, obligations, agreements and liabilities of Grantor to the
Lenders of every kind and description, direct or indirect, absolute or
contingent, due or to become due now existing or hereafter arising, under the
Agreement, the Loan Agreement or the Notes executed pursuant thereto.
"Patent License" shall mean any written agreement granting
any right to practice any invention on which a Patent is in existence.
"Patents" shall mean all of the following now or hereafter
owned by Grantor: (i) all letters patent of the United States or any other
country, all registrations and recordings thereof, and all applications for
letters patent of the United States or any other country, including, without
limitation, registrations, recordings and applications in the United States
Patent and Trademark Office or in any similar office or agency of the United
States, any State thereof or any other country, and (ii) all reissues,
continuations, continuations-in-part or extensions thereof.
"Person" shall mean an individual, a partnership, a
corporation (including a business trust), a joint stock company, a trust, an
unincorporated association, a joint venture or other entity or a government or
any agency, instrumentality or political subdivision thereof.
"Proceeds" shall mean "proceeds," as such term is defined
in section 9-306(1) of the UCC and, in any event, shall include, without
limitation, (i) any and all proceeds of any insurance, indemnity, warranty or
guaranty payable to Grantor from time to time with respect to any of the
Collateral, (ii) any and all payments (in any form whatsoever) made or due and
payable to Grantor from time to time in connection with any requisition,
confiscation, condemnation, seizure or forfeiture of all or any part of the
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Collateral by any governmental body, authority, bureau or agency (or any person
acting under color of governmental authority), and (iii) any and all other
amounts from time to time paid or payable under or in connection with any of the
Collateral.
"Trademark License" shall mean any written agreement
granting any right to use any Trademark or Trademark registration.
"Trademarks" shall mean all of the following now owned or
hereafter acquired by Grantor: (i) all trademarks, trade names, corporate names,
business names, trade styles, service marks, logos, other source or business
identifiers, prints and labels on which any of the foregoing have appeared or
appear, designs and general intangibles of like nature, now existing or
hereafter adopted or acquired, all registrations and recordings thereof, and all
applications in connection therewith, including, without limitation,
registrations, recordings and applications in the United States Patent and
Trademark Office or in any similar office or agency of the United States, any
State thereof or any other country or any political subdivision thereof, and
(ii) all reissues, extensions or renewals thereof.
"UCC" shall mean the Uniform Commercial Code as the same
may, from time to time, be in effect in the Commonwealth of Massachusetts;
provided, however, in the event that, by reason of mandatory provisions of law,
any or all of the attachment, perfection or the Lenders' security interest in
any Collateral is governed by the Uniform Commercial Code as in effect in a
jurisdiction other than the Commonwealth of Massachusetts, the term "UCC" shall
mean the Uniform Commercial Code as in effect in such other jurisdiction for
purposes of the provisions hereof relating to such attachment, perfection or
priority and for purposes of definitions related to such provisions.
Section 2. Grant of Security Interest.
(a) As collateral security for the prompt and complete
payment and performance of the Obligations and to induce the Lenders to enter
into the Loan Agreement, Grantor hereby assigns, conveys, mortgages, pledges,
hypothecates and transfers to the Lenders, and hereby grant to the Lenders a
security interest in all of Grantor's right, title and interest in, to and under
the following (all of which being hereinafter collectively called the
"Collateral"):
(i) all Accounts Receivable;
(ii) all Chattel Paper;
(iii) all Contracts;
(iv) all Documents;
(v) all Equipment;
(vi) all Intangible Assets;
(vii) all Instruments;
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(viii) all Inventory;
(ix) all money, cash, bank accounts, other goods and
personal property of Grantor whether tangible or
intangible or whether now owned or hereafter acquired
by Grantor and wherever located;
(x) all Investment Property (as defined in the UCC); and
(xi) all Proceeds of each of the foregoing and all
accessions to, substitutions and replacements for,
and rents, profits and products of each of the
foregoing and, to the extent not otherwise included,
all payments under insurance (whether or not the Bank
is the loss payee thereof), or any indemnity,
warranty or guaranty, payable by any reason of loss
damage to or otherwise with respect to any of the
foregoing Collateral.
(b) In addition, as collateral security for the prompt and
complete payment of the Obligations and to induce the Lenders as aforesaid, the
Lenders are hereby granted a lien and security interest in all property of
Grantor held by the Lenders, including, without limitation, all property of
every description, now or hereafter in the possession or custody of or in
transit to the Lenders for any purpose, including safekeeping, collection or
pledge, for the account of Grantor, or as to which Grantor may have any right or
power.
(c) The security interests in and liens on the Collateral
are subject to the terms and conditions of the Intercreditor and Subordination
Agreement, dated of even date herewith, among the Senior Lender, the Agent and
the Lenders (the "Intercreditor Agreement").
Section 3. Rights of the Lenders; Limitations on the
Lenders' Obligations.
(a) It is expressly agreed by Grantor that, anything herein
to the contrary notwithstanding, Grantor shall remain liable under each of its
Contracts and each of its Licenses to observe and perform all the conditions and
obligations to be observed and performed by it thereunder and Grantor shall
perform all of its duties and obligations thereunder, all in accordance with and
pursuant to the terms and provisions of each such Contract or License, in a
manner consistent with industry and good business practice. The Lenders shall
not have any obligation or liability under any Contract or License by reason of
or arising out of this Security Agreement or the granting to the Lenders of a
security interest therein or the receipt by the Lenders of any payment relating
to any Contract or License pursuant hereto, nor shall the Lenders be required or
obligated in any manner to perform or fulfill any of the obligations of Grantor
under or pursuant to any Contract or License, or to make any payment, or to make
any inquiry as to the nature or the sufficiency of any payment received by it or
the sufficiency of any performance by any party under any Contract or License,
or to present or file any claim, or to take any action to collect or enforce any
performance or the payment of any amounts which may have been assigned to it or
to which it may be entitled at any time or times.
(b) Grantor hereby authorizes the Agent, at the direction
of the Majority Lenders, following the occurrence of an Event of Default, to
notify any or all Account Debtors that the Accounts Receivables have been
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assigned to the Lenders and that the Lenders have a security interest therein.
The Agent shall promptly furnish Grantor with a copy of any such notice sent.
(c) The Agent, on behalf of the Lenders, shall have the
right, at all reasonable times prior to the occurrence of an Event of Default
(and at all times after the occurrence of an Event of Default), to make on-site
test verifications of the Accounts Receivable and physical verifications of the
Inventory in any manner and through any commercially reasonable medium that it
considers advisable, and Grantor agrees to furnish all such assistance and
information as the Agent may require in connection therewith. Grantor will
deliver to the Agent promptly upon request a summary of all reserves for
uncollectible accounts, discounts, credits, returns, and allowances reflected on
Grantor' books.
Section 4. Representations and Warranties. Grantor hereby
represents and warrants that:
(a) Except as set forth on Schedule 5.11(a) of the Loan
Agreement, and the security interest granted to (i) the Lenders pursuant to this
Security Agreement and (ii) the Senior Lender pursuant to the Senior Loan
Agreement, Grantor is the sole owner of each item of the Collateral in which it
purports to grant a security interest hereunder, having good and marketable
title thereto, free and clear of any and all liens, except Permitted Liens. No
material amounts payable under or in connection with any of its Accounts
Receivable or Contracts are evidenced by Instruments or Chattel Paper which have
not been delivered to the Lenders.
(b) This Security Agreement is effective to create a valid
and continuing lien on, and perfected security interest in, the Collateral with
respect to which a security interest may be perfected by filing financing
statements pursuant to the UCC in favor of the Lenders, and to the extent
provided for in the UCC, are enforceable as such as against creditors of, and
Lenders from, Grantor (other than Lenders of Inventory in the ordinary course of
business) and as against any purchaser of real property where any of the
Equipment is located and any present or future creditor obtaining a lien on such
real property.
(c) The principal place of business of the Grantor and the
place where its records concerning the Collateral is kept is set forth in
Exhibit A attached hereto, and Grantor will not change the principal place of
its business or remove such records unless they have taken such action as is
necessary to cause the security interest of the Lenders in the Collateral to
continue to be perfected. Grantor will not change the principal place of its
business or the place where its records concerning the Collateral is kept
without giving thirty (30) days prior written notice thereof to the Agent. The
Grantor's trade names are listed in Exhibit B attached hereto.
(d) With respect to the Accounts Receivable, the Lenders
may rely on all statements or representations made by Grantor on or with respect
to any schedule of accounts furnished to the Lenders by Grantor and, that:
(i) they are genuine (subject to reasonable reserves for
uncollectible accounts, discounts, credits, returns,
and allowances taken or allowed in the ordinary
course of business and reflected on Grantor's books
from time to time), are in all respects what they
purport to be, are not evidenced by a judgment and
are evidenced by only one, if any, executed original
Instrument, which has been delivered to the Lenders;
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(ii) they represent undisputed, bona fide transactions
completed in accordance with the terms and provisions
contained in any documents related thereto;
(iii) the net face amounts shown on any such schedule of
accounts provided to the Lenders and all statements
delivered to the Lenders with respect to the Accounts
Receivable are actually and absolutely owing to
Grantor (except as reflected in reasonable reserves
for uncollectible accounts) and are not contingent
for any reason;
(iv) to the Grantor's best knowledge, there are no
setoffs, counterclaims or disputes existing or
asserted with respect thereto and Grantor has not
made any agreement with any Account Debtor thereunder
for any deduction therefrom, except discounts,
credits, returns or allowances allowed by Grantor in
the ordinary course of its business for prompt
payment, all of which discounts, credits, returns or
allowances are reflected in the calculation of the
net face amount of the Accounts Receivable to which
such discounts, credits, returns or allowances
relate;
(v) there are no facts, events or occurrences which in
any way impair the validity or enforcement thereof or
tend to reduce the amount payable thereunder from the
net face amount shown on any schedule of accounts
furnished to the Lenders and on all statements
delivered to the Lenders with respect thereto;
(vi) the goods giving rise thereto are not, and were not
at the time of the sale thereof, subject to any lien,
claim, encumbrance or security interest described in
Section 4(a) hereof, or those removed or terminated
prior to the date hereof.
(e) With respect to Grantor's Inventory and/or Equipment,
the Lenders may rely on all statements or representations made by Grantor on or
with respect to any schedule of inventory or equipment furnished to the Lenders
by Grantor and, unless otherwise indicated in writing by Grantor, that:
(i) all Inventory and Equipment is located at locations
listed on Exhibit A attached hereto or is Inventory
or Equipment which is in transit and is so identified
on the relevant schedule thereof;
(ii) except as set forth on Exhibit C attached hereto, no
Inventory or Equipment is under consignment to or
from any Person; and
(iii) all Inventory (subject to reserves) is currently
usable or currently salable in the normal course of
Grantor's business and all Equipment other than
obsolete Equipment and Equipment not being used in
Grantor's business is in good condition, repair and
working order.
Section 5. Covenants. Grantor covenants and agrees with the
Lenders that from and after the date of this Security Agreement and until the
Loan Agreement is terminated and all of the Obligations are irrevocably and
unconditionally satisfied in full:
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(a) Financing Statements and Further Documentation. Grantor
will join with the Agent in the execution and filing of such financing statement
or statements in the form and content reasonably required by the Lenders.
Grantor will pay all costs of filing any financing, continuation or termination
statements with respect to the security interest created by this Security
Agreement, together with costs and expenses of any lien search reasonably
required by the Agent, during the term hereof. At any time and from time to
time, upon the written request of the Agent, on behalf of the Lenders, and at
the sole expense of Grantor, Grantor will promptly and duly execute and deliver
any and all such further instruments and documents and take such further action
as the Agent may reasonably deem desirable to obtain the full benefits of this
Security Agreement and of the rights and powers herein granted, including,
without limitation, using its reasonable best efforts to secure all consents and
approvals necessary or appropriate for the assignment to the Lenders of any
License or Contract held by Grantor or in which Grantor has any rights not
heretofore assigned, the filing of any financing or continuation statements
under the UCC with respect to the liens and security interests granted hereby,
transferring Collateral to the Agent's possession (if a security interest in
such Collateral can be perfected by possession), placing the interest of the
Lenders as lienholder on the certificate of title or Certificate of Origin of
any vehicle, placing the interest of the Lenders as lienholder on all contracts
or agreements constituting Chattel Paper and using its best efforts to obtain
waivers of liens from landlords and, if and to the extent required by the Agent,
from mortgagees; provided, that the foregoing is subject to the senior rights of
the Senior Lender as set forth in the Intercreditor Agreement. Grantor also
hereby authorizes the Agent, on behalf of the Lenders, to file any such
financing or continuation statement without the signature of Grantor to the
extent permitted by applicable law.
(b) Special Collateral. Upon the Grantor's satisfaction of
its obligations to the Senior Lenders under the Senior Loan Agreement, Grantor
immediately upon Grantor's receipt of that portion of Collateral which is or
becomes evidenced by an agreement, Chattel Paper, Instrument and/or Document,
including, without limitation, promissory notes, trade acceptances, documents of
title and warehouse receipts (the "Special Collateral"), shall deliver the
original thereof to the Agent, on behalf of the Lenders, together with
appropriate endorsements or other specific evidence (in form and substance
acceptable to the Agent) of assignment thereof to the Lenders.
(c) Indemnification. In any suit, proceeding or action
brought by the Agent, on behalf of the Lenders, relating to any Account
Receivable, Chattel Paper, Contract, Intangible Asset or Instrument for any sum
owing thereunder, or to enforce any provision of any Account Receivable, Chattel
Paper, Contract, Intangible Asset or Instrument, Grantor will save, indemnify
and keep the Agent, in its capacity as agent, and each of the Lenders harmless
from and against all reasonable expenses, loss or damage suffered by reason of
any defense, setoff, counterclaim, recoupment or reduction of liability
whatsoever of the obligor thereunder, arising out of a breach by Grantor of any
obligation thereunder, and all such obligations of Grantor shall be and remain
enforceable against and only against Grantor and shall not be enforceable
against the Agent or Lenders.
(d) Compliance with Laws, Etc. Grantor will comply with all
material acts, rules, regulations, orders, decrees and directions of any
governmental authority, applicable to the Collateral or any part thereof or to
the operation of Grantor's business; provided, however, that Grantor may contest
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any act, regulation, order, decree or direction in any reasonable manner which
shall not in the opinion of the Agent or the Majority Lenders, adversely affect
the Lenders' rights hereunder or adversely affect the priority of its security
interest in the Collateral.
(e) Payment of Obligations. Grantor will pay promptly when
due all charges imposed upon the Collateral or in respect of its income or
profits therefrom and all claims of any kind (including, without limitation,
claims for labor, material and supplies) which are not subject to bona fide
dispute, except as otherwise provided in the Loan Agreement.
(f) Compliance with Terms of Accounts, Etc. Except as
expressly contemplated by the Loan Agreement, Grantor will perform and comply
with all material obligations in respect of Accounts Receivable, Chattel Paper,
Contracts and Licenses and all other agreements to which they are a party or by
which they are bound.
(g) Limitation on Liens on Collateral. Subject to the
senior rights of the Senior Lender, Grantor will not create, permit or suffer to
exist, and will defend the Collateral against and take such other action as is
necessary to remove, any lien on the Collateral, and will defend the right,
title and interest of the Lenders in and to any of Grantor' rights under the
Chattel Paper, Contracts, Documents, Intangible Assets and Instruments and to
the Equipment and Inventory and in and to the Proceeds thereof against the
claims and demands of all persons whomsoever.
(h) Limitations on Disposition. Grantor will not sell,
lease, transfer or otherwise dispose of any of the Collateral, or attempt or
contract to do so except as permitted by the Loan Agreement.
(i) Further Identification of Collateral. Grantor will
furnish to the Agent, as often as the Agent reasonably requests, statements and
schedules further identifying and describing the Collateral and such other
reports in connection with the Collateral as the Agent may reasonably request,
all in reasonable detail.
(j) Notices. After the date hereof, Grantor will advise the
Agent promptly after Grantor becomes aware, in reasonable detail, (i) of any
lien, security interest, encumbrance or claim made or asserted against any of
the Collateral, and (ii) of the occurrence of any other event which would have a
material adverse effect on the aggregate value of the Collateral or on the
security interests created hereunder.
(k) Maintenance of Collateral. Grantor covenants to
preserve the Collateral for the benefit of the Lenders. Without limiting the
generality of the foregoing, and except as otherwise permitted by the Loan
Agreement, Grantor shall:
(i) cause the Equipment to be maintained and preserved in
good condition, repair and working order, ordinary
wear and tear excepted, and make all repairs,
replacements, additions and other improvements as are
reasonably necessary to maintain such Equipment in
such good condition;
(ii) maintain Inventory sufficient to meet the needs of
its business;
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(iii) preserve all beneficial Contracts;
(iv) use its reasonable best efforts to assure that (i)
the net Accounts Receivable are not or shall not be
subject to any defense, offset, counterclaim,
discount or allowance except as may be stated in a
copy of the schedule of accounts invoice delivered by
Grantor to the Agent and that the net Accounts
Receivable shall be paid in full when due; (ii) no
agreement under which any deduction, discount, credit
or allowance of any kind may be granted or allowed
other than in the ordinary course of Grantor's
business shall have been or shall thereafter be made
by Grantor with any account party except as indicated
in writing to the Agent at or before the time such
agreement is made; (iii) all statements made and all
net unpaid balances appearing in the schedule of
accounts relating to each Account Receivable shall be
true and correct in all material respects; and (iv)
all signatures and endorsements that appear therein
shall be genuine and all signatories shall have full
capacity to contract;
(v) take all commercially reasonable steps necessary to
collect all Accounts Receivable; and
(vi) pay promptly when due all taxes, assessments, or
other charges or liens on the Collateral or any
claims (including claims for labor, materials and
supplies against the Equipment and Inventory), except
for claims being contested in good faith.
(l) Continuous Perfection. Grantor will not change its
name, identity or structure in any manner which might make any financing or
continuation statement filed in connection herewith seriously misleading within
the meaning of section 9-402(7) of the UCC (or any other then applicable
provision of the UCC) unless Grantor shall have given the Agent at least thirty
(30) days prior written notice thereof and shall have taken all action (or made
arrangements to take such action substantially simultaneously with such change
if it is impossible to take such action in advance) necessary or reasonably
requested by the Agent to amend such financing statement or continuation
statement so that it is not seriously misleading.
(m) Insurance. Grantor will, at its own expense, maintain
insurance covering the Collateral against such risks, with such insurers, in
such form, and in such amounts as shall from time to time be required by the
Majority Lenders but in any event, in such amounts and with such coverage as is
customary in Grantor's type of business. All insurance policies (i) shall be
written so as to be payable in the event of loss to the Lenders as a secondary
loss payee so long as the Senior Loan Agreement remains outstanding, and,
thereafter, shall name the Lenders as sole loss payee and (ii) shall provide for
thirty (30) days written notice to the Agent of cancellation or modification. At
the request of the Agent all insurance policies shall be furnished to and held
by the Agent, on behalf of the Lenders. Grantor hereby assigns to the Lenders
return premiums, dividends and other amounts which may be or become due upon
cancellation of any such policies for any reason whatsoever and directs the
insurers to pay the Lenders any sums so due. The Agent is hereby irrevocably
appointed as attorney-in-fact to collect return premiums, dividends and other
amounts due on any insurance policy and the proceeds of such insurance, to
settle any claims with the insurers in the event of loss or damage, to endorse
settlement drafts and in the event of a default under this Security Agreement to
cancel, assign or surrender any insurance policies. If, while any Obligations
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are outstanding, any return premiums, dividends, other amounts or proceeds are
paid to the Lenders under such policies, the Agent, at the direction of the
Majority Lenders, may at its option take either or both of the following
actions: (i) apply such return premiums, dividends, other amounts and proceeds
in whole or in part to the payment or satisfaction of any of the Obligations in
whatever order the Agent determines or (ii) pay over such return premiums,
dividends, other amounts and proceeds in whole or in part to Grantor for the
purpose of repairing or replacing the Collateral destroyed or damaged, any
return premiums, dividends, other amounts and proceeds so paid over by the
Grantor to be secured by this Security Agreement. Notwithstanding any provisions
contained herein, the rights of the Agent and the Lenders herein are subject and
subordinate to the senior rights of the Senior Lender pursuant to the Senior
Loan Agreement and the Intercreditor Agreement.
(n) Collection of Receivables. The Agent may communicate
with Account Debtors in order to verify the existence, amount and terms of any
Accounts Receivable. The Agent may at any time notify Account Debtors of the
Lenders' security interest created hereunder and after an Event of Default
require that payments on Accounts Receivable and returns of goods be made
directly to the Agent, on behalf of the Lenders. When requested by the Agent,
Grantor shall notify Account Debtors and indicate on all xxxxxxxx that payments
and returns are to be made directly to the Agent, on behalf of the Lenders. The
Agent shall have full power to collect, compromise, endorse, sell or otherwise
deal with the Accounts Receivable or proceeds thereof and to perform the terms
of any contract in order to create Accounts Receivable in the Agent's name or in
the name of Grantor. Notwithstanding any provisions contained herein, the rights
of the Agent and the Lenders herein are subject and subordinate to the senior
rights of the Senior Lender pursuant to the Senior Loan Agreement and the
Intercreditor Agreement.
(o) Federal Government Receivables. If any of Grantor's
Accounts Receivable or contract rights arise out of contracts with a
governmental body and are subject to the Federal Assignment of Claims Act, as
amended, or a similar statute, Grantor shall promptly notify the Agent thereof
in writing and execute any instruments and take any action required by the Agent
to assure that all monies due and to become due under such contract shall be
assigned to the Lenders.
(p) Separate Assignment. This Security Agreement may but
need not be supplemented by separate assignments of Accounts Receivable and
contract rights and if such assignments are given, the rights and security
interests given thereby shall be in addition to and not in limitation of the
rights and security interests given by this Security Agreement.
Section 6. The Agent's Appointment as Attorney-in-Fact.
(a) Grantor hereby irrevocably constitutes and appoints the
Agent, on behalf of the Lenders, and any officer or agent thereof, with full
power of substitution, as its true and lawful attorney-in-fact with full
irrevocable power and authority in the place and stead of Grantor and in the
name of Grantor or in its own name, following the occurrence of an Event of
Default or at any time that the Agent, at the direction of the Majority Lenders,
reasonably determines it is necessary to protect the validity or perfection of
the liens granted hereunder or the Lenders' interest in the Collateral, from
time to time at the reasonable discretion of the Majority Lenders, for the
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purpose of carrying out the terms of this Security Agreement, to take any and
all appropriate action and to execute and deliver any and all documents and
instruments which may be necessary or desirable to protect the Lenders' interest
in the Collateral under this Security Agreement and, without limiting the
generality of the foregoing, hereby gives the Agent, on behalf of the Lenders,
the power and right, on behalf of Grantor, without notice to or assent by
Grantor to do the following:
(i) to ask, demand, collect, receive and give
acquittances and receipts for any and all moneys due
and to become due under any Collateral and, in the
name of Grantor or its own name or otherwise, to take
possession of and endorse and collect any checks,
drafts, notes, acceptances or other Instruments for
the payment of moneys due under any Collateral and to
file any claim or to take any other action or
proceeding in any court of law or equity or otherwise
deemed appropriate by the Agent for the purpose of
collecting any and all such moneys due under any
Collateral whenever payable and to file any claim or
to take any other action or proceeding in any court
of law or equity or otherwise deemed appropriate by
the Agent for the purpose of collecting any and all
such moneys due under any Collateral whenever
payable;
(ii) to pay or discharge taxes, liens, security interests
or other encumbrances levied or placed on or
threatened against the Collateral, to effect any
repairs or any insurance called for by the terms of
this Security Agreement and to pay all or any part of
the premiums therefor and the costs thereof; and
(iii) (A) to direct any party liable for any payment under
any of the Collateral to make payment of any and all
moneys due, and to become due thereunder, directly to
the Agent, on behalf of the Lenders, or as the Agent
shall direct; (B) to receive payment of and receipt
for any and all moneys, claims and other amounts due,
and to become due at any time, in respect of or
arising out of any Collateral; (C) to sign and
indorse any invoices, freight or express bills, bills
of lading, storage or warehouse receipts, drafts
against debtors, assignments, verifications and
notices in connection with accounts and other
Documents constituting or relating to the Collateral;
(D) to commence and prosecute any suits, actions or
proceedings at law or in equity in any court of
competent jurisdiction to collect the Collateral or
any part thereof and to enforce any other right in
respect of any Collateral; (E) to defend any suit,
action or proceeding brought against Grantor with
respect to any Collateral; (F) to settle, compromise
or adjust any suit, action or proceeding described in
clauses (D) and (E) above and, in connection
therewith, to give such discharges or releases as the
Agent may deem appropriate; (G) to license or, to the
extent permitted by an applicable license,
sublicense, whether general, special or otherwise,
and whether on an exclusive or non-exclusive basis,
any Patent or Trademark, throughout the world for
such term or terms, on such conditions, and in such
manner, as the Agent shall determine; and (H)
generally to sell, transfer, pledge, make any
agreement with respect to or otherwise deal with any
of the Collateral as fully and completely as though
the Lenders were the absolute owner thereof for all
purposes, and to do, at the Agent's option and
Grantor's expense, at any time, or from time to time,
all acts and things which the Agent deems necessary
to protect, preserve or realize upon the Collateral
and the Lenders' lien therein, in order to effect the
intent of this Security Agreement, all as fully and
effectively as Grantor might do.
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(b) Grantor hereby ratifies, to the extent permitted by
law, all that said attorneys shall lawfully do or cause to be done by virtue
hereof. The power of attorney granted pursuant to this Section 6 is a power
coupled with an interest and shall be irrevocable until the Loan Agreement has
been terminated.
(c) The powers conferred on the Agent and the Lenders
hereunder are solely to protect the Lenders' interests in the Collateral and
shall not impose any duty upon them to exercise any such powers. The Lenders
shall be accountable only for amounts that they actually receive as a result of
the exercise of such powers and neither the Lenders nor any of their officers,
directors, employees or agents shall be responsible to Grantor for any act or
failure to act, except for its own gross negligence or willful misconduct.
(d) Grantor also authorizes the Agent, following the
occurrence of an Event of Default, (i) to communicate with any party to any
Contract with regard to the assignment of the right, title and interest of
Grantor in and under the Contracts hereunder and other matters relating thereto
and (ii) to execute, in connection with the sale provided for in Section 9
hereof, any endorsements, assignments or other instruments of conveyance or
transfer with respect to the Collateral.
(e) Notwithstanding any provisions contained herein, the
rights of the Agent and the Lenders herein are subject and subordinate to the
senior rights of the Senior Lender pursuant to the Senior Loan Agreement and the
Intercreditor Agreement.
Section 7. Performance by the Lenders of Grantor'
Obligations. If Grantor fails to perform or comply with any of its agreements
contained herein and the Agent or the Lenders, as the case may be, as provided
for by the terms of this Security Agreement, shall perform or comply, or
otherwise cause performance or compliance, with such agreement, the expenses of
the Agent or the Lenders, as the case may be, incurred in connection with such
performance or compliance, together with interest thereon at the highest rate
then in effect in respect of the Loan Agreement, shall be payable by Grantor to
the Agent or the Lenders, as the case may be, on demand and shall constitute
Obligations secured hereby.
Section 8. Acts Constituting Default. For the purposes of
this Security Agreement, the term "Default" or "Event of Default" shall mean the
occurrence of any of the following events: (i) failure by the Grantor to perform
or comply with any of the terms of this Security Agreement; (ii) failure by the
Grantor to make timely payment of any obligation or indebtedness secured by this
Security Agreement; or (iii) failure by the Grantor to perform any term,
condition or covenant under the Loan Agreement, including, without limitation,
failure by Grantor to make any payment under the Notes when due.
Section 9. Remedies, Rights Upon Default.
(a) Upon the occurrence of any Event of Default, the Agent,
on behalf of the Lenders, may exercise in addition to all other rights and
remedies granted to it in this Security Agreement and in any other instrument or
agreement securing, evidencing or relating to the Obligations, all rights and
remedies of a secured party under the UCC. Without limiting the generality of
the foregoing, Grantor expressly agrees that in any such event the Lenders,
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without demand of performance or other demand, advertisement or notice of any
kind (except notice of a public or private sale as provided in this Section
9(a)) of any kind to or upon Grantor or any other person (all and each of which
demands, advertisements and/or notices are hereby expressly waived to the
maximum extent permitted by the UCC and other applicable law), may forthwith
collect, receive, appropriate and realize upon the Collateral, or any part
thereof, and/or may forthwith sell, lease, assign, give an option or options to
purchase, or sell or otherwise dispose of and deliver said Collateral (or
contract to do so), or any part thereof, in one or more parcels at public or
private sale or sales, at any exchange or broker's board or at any of the
Lenders' offices or elsewhere at such prices as it may deem best, for cash or on
credit or for future delivery without assumption of any credit risk. The Lenders
shall have the right upon any such public sale or sales, and, to the extent
permitted by law, upon any such private sale or sales, to purchase the whole or
any part of said Collateral so sold, free of any right or equity of redemption,
which equity of redemption Grantor hereby releases. Grantor further agrees, at
Agent's request, to assemble the Collateral and make it available to Agent or
Lenders at places which the Agent shall reasonably select, whether at Grantor's
premises or elsewhere. The Agent shall apply the net proceeds of any such
collection, recovery, receipt, appropriation, realization or sale, as provided
in Section 9(d) hereof, Grantor remaining liable for any deficiency remaining
unpaid after such application, and only after so paying over such net proceeds
and after the payment by the Agent of any other amount required by any provision
of law, including section 9-504(1)(c) of the UCC, need the Agent account for the
surplus, if any, to Grantor. To the maximum extent permitted by applicable law,
Grantor waives all claims, damages and demands against the Lenders arising out
of the repossession, retention or sale of the Collateral except such as arise
out of the gross negligence or willful misconduct of the Agent or the Lenders.
Grantor agrees that the Agent need not give more than ten (10) days notice
(which notification shall be deemed given when mailed or delivered on an
overnight basis, postage prepaid, addressed to Grantor at its address referred
to in Section 12 hereof) of the time and place of any public sale or of the time
after which a private sale may take place and that such notice is reasonable
notification of such matters. Grantor shall remain liable for any deficiency if
the proceeds of any sale or disposition of the Collateral are insufficient to
pay all amounts to which the Lenders, for their benefit, are entitled, Grantor
also being liable for the reasonable fees of any attorneys employed by the
Lenders to collect such deficiency.
(b) Grantor also agrees to pay all costs of the Agent,
including, without limitation, reasonable attorneys' fees, incurred in
connection with the enforcement of any of the Lenders' rights and remedies
hereunder.
(c) Grantor hereby waives presentment, demand, protest or
any notice (to the maximum extent permitted by applicable law) of any kind in
connection with this Security Agreement or any Collateral.
(d) The proceeds of any sale, disposition or other
realization upon all or any part of the Collateral shall be distributed by the
Lenders in the following order of priorities:
first, to the payment of or reimbursement of, the
Agent for or in respect of all costs, expenses, disbursements and
losses which shall have been incurred or sustained by the Agent in
connection with the collection of such monies by the Agent, or in
connection with the exercise, protection or enforcement by the Agent
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of all or any rights, remedies, powers and privileges of the Agent or
the Lenders under this Agreement and/or the Loan Agreement;
second, to the payment of all interest, including
interest on overdue amounts and late charges, then due and payable
with respect to the Tranche B Loans, allocated among Lenders in
proportion to their respective Commitment Percentages;
third, to the payment of the outstanding
principal balance of the Tranche B Loans, allocated among the Lenders
in proportions to their respective Commitment Percentages;
fourth, to the payment of all interest, including
interest on overdue amounts and late charges, the due and payable
with respect to the Tranche C Loan, allocated among the Lenders in
proportion to their respective Commitment Percentages; and
fifth, to the payment of the outstanding
principal balance of the Tranche C Loan, allocated among the Lenders
in proportion to their respective Commitment Percentages; and
sixth, the excess, if any, shall be returned to
the Grantor or to such other Persons as are entitled thereto.
(e) Notwithstanding any provisions contained herein, the
rights, remedies and interests of the Agent and the Lenders herein are subject
and subordinate to the senior rights, remedies and interests of the Senior
Lender pursuant to the Senior Loan Agreement and the Intercreditor Agreement.
Section 10. Limitation on the Agent's Duty in Respect of
Collateral. The Agent shall use reasonable care with respect to the Collateral
in its possession or under its control. The Agent shall not have any other duty
as to any Collateral in its possession or control or in the possession or
control of any agent or nominee or any income thereon or as to the preservation
of rights against prior parties or any other rights pertaining thereto. Upon
request of Grantor, the Agent shall account for any moneys received by it in
respect of any foreclosure on or disposition of the Collateral.
Section 11. Reinstatement. This Security Agreement shall
remain in full force and effect and continue to be effective or be reinstated,
as the case may be, if at any time payment and performance of the Obligations,
or any part thereof, is, pursuant to applicable law, rescinded or reduced in
amount, or must otherwise be restored or returned by any obligee of the
Obligations, whether as a "voidable preference," "fraudulent conveyance," or
otherwise, all as though such payment or performance had not been made. In the
event that any payment, or any part thereof, is rescinded, reduced, restored or
returned, the Obligations shall be reinstated and deemed reduced only by such
amount paid and not so rescinded, reduced, restored or returned.
Section 12. Notices. Except as otherwise specifically
provided in this Security Agreement, all notices and other communications
hereunder shall be in writing and shall be delivered in person, mailed by United
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States registered or certified first class mail, postage prepaid, sent by
overnight courier, telecopied or telefaxed to the parties hereto addressed as
set forth below, or as to each party set forth below, at such other address as
shall be designated by written notice to the other parties hereto from time to
time, as follows:
To the Agent: DDJ Capital Management, LLC
000 Xxxxxx Xxxxxx
Xxxxxxxxx, XX 00000
Attention: Xxxxx Xxxxxx
Telefax Number: (000) 000-0000
With copies to: Xxxxxxx Procter LLP
Exchange Place
Boston, MA 02109
Attention: Xxx X. Xxxxxxxxx, P.C.
Telefax Number: (617) 523-l23l
To the Grantor: Xxxxxxx Jewelers, Inc.
0000 Xxxxxxxxxx Xxxxx
Xxxxx 000
Xxxxxx, XX 00000
Attention: Xxxxx X. Xxxx
Telefax Number: (000) 000-0000
With copies to: Weil, Gotshal & Xxxxxx, LLP
000 Xxxxxxxxx, Xxxxx 0000
Xxxxxxx, XX 00000
Attention: Xxxxxxx X. Xxxxxxx
Telefax Number: (000) 000-0000
Any such notice or demand shall be deemed to have been duly given or
made and to have become effective (a) if delivered by hand or overnight courier,
or sent by telefax or telex, at the time of the receipt thereof or the sending
of such telecopy or facsimile, if during normal business hours on a Business
Day, and (b) if sent by registered or certified first-class mail, postage
prepaid, on the third Business Day following the mailing thereof.
Section 13. Severability. Any provision of this Security
Agreement which is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
Section 14. No Waiver; Cumulative Remedies. The Lenders
shall not by any act, delay, omission or otherwise be deemed to have waived any
of its rights or remedies hereunder and no waiver shall be valid unless in
writing, signed by the Lenders and then only to the extent therein set forth. A
waiver by the Lenders of any right or remedy hereunder on any one occasion shall
16
not be construed as a bar to any right or remedy which the Lenders would
otherwise have had on any future occasion. No failure to exercise nor any delay
in exercising on the part of the Lenders, any right, power or privilege
hereunder, shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, power or privilege hereunder preclude any other or future
exercise thereof or the exercise of any other right, power or privilege. The
rights and remedies hereunder provided are cumulative and may be exercised
singly or concurrently, and are not exclusive of any rights and remedies
provided by law. None of the terms or provisions of this Security Agreement may
be waived, altered, modified or amended except by an instrument in writing, duly
executed by the Agent, at the direction of the Majority Lenders, and, where
applicable by Grantor.
Section 15. Successor and Assigns. This Security Agreement
and all obligations of Grantor hereunder shall be binding upon the successors
and assigns of Grantor, and shall, together with the rights and remedies the
Lenders' hereunder, inure to the benefit of the Lenders, and all future holders
of instruments or agreements evidencing the Obligations and their respective
successors and assigns. No sales of participations, other sales, assignments,
transfers or other dispositions of any agreement governing or instrument
evidencing the Obligations or any portion thereof or interest therein shall in
any manner affect the security interest granted to the Lenders hereunder.
Section 16. Construction. This Security Agreement shall be
deemed to be a contract made under the laws of the Commonwealth of
Massachusetts, and shall be construed in accordance with the laws of the
Commonwealth of Massachusetts. The descriptive headings of the several Sections
hereof are for convenience only and shall not control or affect the meaning or
construction of any of the provisions hereof.
Section 17. Conflict of Terms. Except as otherwise
explicitly provided in this Security Agreement, a conflict or inconsistency, if
any, between the terms and provisions of this Security Agreement and the terms
and provisions of the Loan Agreement, shall be controlled by the terms and
provisions of this Security Agreement to the extent of such conflict or
inconsistency.
Section 18. Further Indemnification. Grantor agrees to pay,
and to save and hold the Lenders harmless from, any and all liabilities with
respect to, or resulting from any delay in Grantor's paying, any and all excise,
sales or other similar taxes which may be payable or determined to be payable
with respect to any of the Collateral or in connection with any of the
transactions contemplated by this Security Agreement.
Section 19. Waiver of Jury Trial. The Grantor, the Agent
and each of 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, the Loan Agreement or any other agreement evidencing, securing or
otherwise executed in connection with any Obligations.
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IN WITNESS WHEREOF, each of the parties hereto has caused
this Security Agreement to be executed and delivered by its duly authorized
officer on the date first set forth above.
XXXXXXX JEWELERS, INC.
By: /s/ Xxxxx XxXxxxxxxx
-----------------------------------
Name: Xxxxx XxXxxxxxxx
Title: President and CEO
Accepted and Acknowledged by:
DDJ Capital Management, LLC,
as Agent under the Loan Agreement
By: /s/ Xxxxx X. Xxxxxxxxx
-------------------------------
Name: Xxxxx X. Xxxxxxxxx
Title: Member
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