SUBORDINATED SECURITY AGREEMENT
Date: September 15, 2003
For good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, and intending to be legally bound,
GENERAL DATACOMM INDUSTRIES, INC., a Delaware corporation ("Parent"), GENERAL
DATACOMM, INC., a Delaware corporation, with its chief executive office located
at 0 Xxxxxx Xxxxxx, Xxxxxxxxx, Xxxxxxxxxxx 00000 ("General DataComm"), DATACOMM
LEASING CORPORATION, a Delaware corporation ("DataComm Leasing"), GDC FEDERAL
SYSTEMS, INC., a Delaware corporation ("GDC Federal"), GDC HOLDING COMPANY, LLC,
a Delaware limited liability company formerly known as Vital Network Services,
L.L.C. ("GDC Holding"), GDC REALTY, INC., a Texas corporation ("GDC Realty"),
and GDC NAUGATUCK, INC., a Delaware corporation, ("GDC Naugatuck", and together
with the Parent, General DataComm, DataComm Leasing, GDC Federal, GDC Holding
and GDC Realty, collectively the "Debtors"), and HSBC BANK USA, as Trustee under
that certain Trust Indenture dated as of September 15, 2003 (together with its
successors or assigns the "Secured Party"), agree as follows:
1. Defined Terms. Unless otherwise defined in this Security
Agreement (the "Security Agreement"), capitalized terms used in this Security
Agreement shall have the meanings ascribed to such terms by Section 9-102 of the
New York Uniform Commercial Code as in effect on the date hereof.
2. Security Interest. Subject to Section 12 hereof, Debtors
hereby grants to Secured Party a security interest ("Security Interest") in the
property described on the attached Schedule 1, whether now owned or hereafter
owned or acquired, in all Proceeds and Products thereof in any form, in all
parts, accessories, attachments, special tools, additions and accessions
thereto, in all increases or profits received therefrom, and in all
substitutions therefor ("Collateral").
3. Indebtedness Secured. The Security Interest granted by
Debtors secures payment of any and all indebtedness of Parent and its
subsidiaries incurred under the 10% Adjustable Senior Subordinated Debentures
due 2008 of even date herewith in the original aggregate principal amount equal
to the allowed claims of unsecured creditors under Debtors' Bankruptcy Plan of
Reorganization Confirmed by the United States Bankruptcy Court for the District
of Delaware on August 5, 2003 (the "Debentures") issued pursuant to that certain
Trust Indenture Agreement of even date herewith by and between Parent and
Secured Party (the "Indenture") whether or not any such indebtedness is now
existing or hereafter incurred, of every kind and character, direct or indirect,
and whether any such indebtedness is from time to time reduced and thereafter
increased, or entirely extinguished and thereafter reincurred, including,
without limitation, any sums advanced by Secured Party for taxes, assessments,
insurance and other charges and expenses as hereinafter provided, and all
amounts owed under any modifications, renewals or extensions of any of the
foregoing obligations (collectively, the "Indebtedness").
4. Representations and Warranties of Debtors. Debtors
represent and warrant, and so long as any Indebtedness remains unpaid, shall be
deemed continuously to represent and warrant, that:
(a) Debtors have good and indefeasible title to the Collateral
free of all security interests or other encumbrances, except the Security
Interest, the Senior Secured Interest (as hereinafter defined) and any Permitted
Liens. For purposes of this Security Agreement, "Permitted Liens" shall mean (i)
any liens securing Additional Senior Secured Debt (as hereinafter defined) (ii)
liens for unpaid taxes that either (A) are not yet delinquent or (B) do not
constitute an Event of Default hereunder and are the subject of Debtors' good
faith protest, (iii) liens set forth on Schedule 4(a), (iv) purchase money liens
or the interests of lessors under capital leases to the extent that such liens
or interests secure purchase money indebtedness so long as the lien attaches
only to the assets purchased or acquired and the proceeds thereof, (v) liens
arising by operation of law in favor of warehousemen, landlords, carriers,
mechanics, materialmen, laborers, or suppliers, incurred in the ordinary course
of business of each Debtor and not in connection with the borrowing of money,
and which liens either (A) are for sums not yet due and payable, or (B) are the
subject of Debtors' good faith protests, (vi) liens arising from deposits made
in connection with obtaining worker's compensation or other unemployment
insurance, (vii) liens or deposits to secure performance of bids, tenders, or
leases, incurred in the ordinary course of business of each Debtor and not in
connection with the borrowing of money, (viii) liens arising by reason of
security for surety or appeal bonds in the ordinary course of business of each
Debtor, (ix) liens resulting from any judgment or award that would not have a
material adverse effect on the operation of Debtors' business and as to which
the time for appeal or petition for rehearing of which has not yet expired, or
in respect of which Debtors are in good faith prosecuting an appeal or
proceeding for a review, and in respect of which a stay of execution pending
such appeal or proceeding for review has been secured, (x) liens with respect to
the Naugatuck Property (as hereinafter defined) that are exceptions to the
commitments for title insurance issued in connection with the New Naugatuck
Mortgage (xi) with respect to any real property constituting Collateral,
easements, rights of way, zoning and similar covenants and restrictions, and
similar encumbrances that customarily exist on properties of Persons engaged in
similar activities and similarly situated and that in any event do not
materially interfere with or impair the use or operation of the Collateral by
any Debtor or the value of the Secured Party's lien thereon or therein, or
materially interfere with the ordinary conduct of the business of any Debtor,
(xii) liens on leases (and the underlying Equipment) in which DataComm Leasing
is the lessor, provided that Secured Party receives not less than 30 days prior
written notice of the incurrence of such liens and the indebtedness secured
thereby, and (xiii) liens with respect to the Naugatuck Property described on
Schedule 4(a) or as provided for or contemplated under the Debtors'
Reorganization Plan; provided, however, that any such lien constitutes a
"permitted lien" under the Senior Loan Documents (as hereinafter defined) and is
permissible under the terms of the Indenture.
(b) Each Debtor's exact legal name is as set forth in
the definition of "Debtor" in the first sentence of this Security Agreement;
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(c) Debtors are authorized to enter into this Security
Agreement;
(d) Each Debtor is a business organization legally
created and registered in the office of the Secretary of State of its
organization;
(e) Each Account, Contract Right, Supporting Obligation and
Chattel Paper constituting Collateral is genuine and enforceable in accordance
with its terms against the party obligated to pay the same subject to (i)
bankruptcy, insolvency, fraudulent transfer, fraudulent conveyance, moratorium,
receivership, reorganization, liquidation and other similar laws relating to or
affecting the rights and remedies of creditors generally, and (ii) principles of
equity (regardless of whether considered and applied in a proceeding in equity
or at law);
(f) Debtors' records concerning the Collateral are kept
at the following address:
0 Xxxxxx Xxxxxx
Xxxxxxxxx, XX 00000
Attn: Chief Financial Officer
(g) Each Instrument and each Document of Title
constituting Collateral, if any, is genuine and in all respects what it
purports to be;
(h) If any Collateral is or will be a fixture, it will be
affixed to real property at Debtors' real property more particularly described
in Exhibit "A" attached hereto as a part hereof, and such real property is owned
by Debtor;
(i) If any Collateral is or will be Investment Property, then,
except as set forth in Schedule 4(i), such Investment Property is duly and
validly authorized and issued, fully paid and nonassessable, is free of all
options and charges, and is not subject to any charter, bylaw, statutory,
contractual or other restrictions governing its issuance, transfer, ownership or
control, except as indicated on the stock certificates for the Investment
Property, if any; and
(j) If any Collateral is or will be Investment Property, the
appropriate Debtor has delivered to the Secured Party all stock certificates or
other instruments or documents representing or evidencing the Investment
Property, together with corresponding assignments or transfer powers duly
executed in blank by such Debtor; provided, however, that to the extent such
Investment Property has been pledged as collateral for the Senior Secured
Interest, then such stock certificates or other instruments or documents
representing or evidencing the Investment Property shall be delivered upon
request to the Secured Party after termination of the Senior Secured Interest.
(k) All of the Equipment is used or held for use in
Debtors' business.
(l) The Inventory and Equipment are not stored with a bailee,
warehouseman, or similar party (without Secured Party's prior written consent)
and no material part of the Inventory or Equipment is located at locations other
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than those identified on Schedule 4(l); provided, however, that Debtors may
amend Schedule 4(l) so long as such amendment occurs by written notice to
Secured Party not less than 30 days prior to the date on which the Inventory or
Equipment is moved to such new location, so long as such new location is within
the continental United States, and so long as, at the time of such written
notification, each Debtor provides to Secured Party a Collateral Access
Agreement.
(m) Each Debtor keeps records itemizing and describing the
kind, type, quality, and quantity of the Inventory, and such Debtor's cost
therefor that are correct and accurate in all material respects.
(n) Each Debtor's FEIN and organizational identification
number is identified in Schedule 4(n).
(o) None of the Debtors holds any commercial tort claim
as of the date hereof, except as set forth in Schedule 4(o).
(p) Set forth on Schedule 4(p) is a complete and accurate list
of all permits, patents, patent applications, trademarks, trademark
applications, service marks, service xxxx applications, trade names, copyrights,
trade secrets and know-how (collectively, the "Intellectual Property"), owned by
each Debtor, showing as of the date hereof the jurisdiction in which registered,
the registration or application number. Each Debtor owns or possesses adequate
licenses or other rights that are necessary for the operation of its business as
currently conducted or proposed to be conducted. No claim is pending or, to the
knowledge of Debtors, threatened to the effect that any Debtor infringes upon,
or conflicts with, the asserted rights of any other Person under any
Intellectual Property, and, to the best of each Debtor's knowledge without
independent investigation other than those investigations customarily undertaken
by owners of similar businesses, there is no basis for any such claim (whether
pending or threatened) that is likely to have a material adverse effect on
Debtors operation of its business. No claim is pending or, to the knowledge of
Debtors, threatened to the effect that any such Intellectual Property owned or
licensed by any Debtor, or in which any Debtor otherwise has the right to use is
invalid or unenforceable by any Debtor, and, to the best of each Debtor's
knowledge without independent investigation other than those investigations
customarily undertaken by owners of similar businesses, there is no basis for
any such claim (whether or not pending or threatened).
5. Covenants of Debtors. Subject to the provisions of
Section 12 and 13 hereof and so long as any Indebtedness remains unpaid,
Debtors:
(a) will defend the Collateral against the claims and demands
of all other parties, will keep the Collateral free from all security interests
or other encumbrances, except the Security Interest, the Senior Secured
Interest, Permitted Liens, and liens securing any Additional Senior Secured Debt
(as hereinafter defined) and Secured Party does not authorize, and Debtors agree
not to, sell, transfer, lease, license, or otherwise dispose of any Collateral
or any interest therein without the prior written consent of Debenture Holders
then holding 35% or more in principal amount of the Outstanding Debentures;
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except that (i) until the occurrence of an Event of Default that is continuing
as hereinafter provided, Debtors may sell or dispose of Inventory and Equipment
in the ordinary course of Debtors' business, (ii) until termination of the
Senior Secured Interest, the written consent of the Debenture Holders as herein
provided shall not be required in order for Debtors to sell, transfer, lease,
license or otherwise dispose of Collateral or any interest therein, and (iii)
after termination of the Senior Secured Interest, the written consent of the
Debenture Holders as herein provided shall not be required in order for Debtors
to sell, transfer, lease, license or otherwise dispose of the Collateral or any
interest therein set forth in Schedule 5(a) if the sale is for fair market value
and the proceeds of such sale are paid to reduce the Indebtedness;
(b) will notify Secured Party promptly in writing of any
change in any Debtor's name, and of any change in address as specified in
Section 4(e) above, and of any change in the location of any Collateral or of
the records with respect thereto, and will permit Secured Party or its agents to
inspect the Collateral;
(c) will keep the Collateral in good condition and repair, and
will not use the Collateral in violation of any provisions of this Security
Agreement, of any applicable statute, regulation or ordinance or of any policy
insuring the Collateral;
(d) in connection herewith, will execute and file in all
appropriate jurisdictions such financing statements, mortgages and other
documents, pay all costs of title searches and filing financing statements and
other documents in all public offices as may be required by applicable law, and
do such other things as Debenture Holders and Secured Party may reasonably
request;
(e) except for any taxes, assessments or charges as are being
contested in good faith, will pay all taxes, assessments and other charges of
every nature that may be levied or assessed against the Collateral, will insure
the Collateral against risks, and in coverage, form and amount, to the extent
presently so insured and, after termination of the Senior Secured Interest, will
deliver each policy or certificate of insurance therefor to Secured Party;
(f) will prevent the Collateral or any part thereof from
being or becoming an accession to other goods not covered by this Security
Agreement;
(g) will keep, in accordance with generally accepted
accounting principles, consistently applied, accurate and complete records
concerning the Collateral, will, to the extent required by applicable law, xxxx
any and all such records to indicate the Security Interest, and, upon Secured
Party's request, will upon reasonable notice permit Secured Party or its agents
to audit and make extracts from such records or any of Debtors' ledgers,
reports, correspondence or other records;
(h) will not create any Chattel Paper without placing a legend
on the Chattel Paper indicating that Secured Party has a security interest in
the Chattel Paper;
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(i) except as set forth in Schedule 5(i), shall maintain its
organization as an entity in good standing in the jurisdiction of its
organization or formation at all times; and Debtors shall not reorganize, merge,
restructure, or dissolve; and
(j) to the extent not otherwise delivered to or held by the
holder of the Senior Secured Interest and as required by applicable law, will
deliver to Secured Party any Documents of Title and any Chattel Paper
constituting, representing or relating to the Collateral or any part thereof, if
any, any schedules, invoices, shipping documents, delivery receipts, purchase
orders, contracts or other documents representing or relating to purchases or
other acquisitions, or sales, leases or other disposition of Collateral and
Proceeds thereof, and any and all schedules, documents and statements that
Secured Party may, from time to time, request.
6. Verification of Collateral. Secured Party shall have the
right to verify all or any Collateral in any manner and through any medium
Secured Party may consider appropriate and Debtors agree to furnish all
assistance and information and perform any acts that Secured Party may
reasonably require in connection therewith.
7. Registered Holder of Collateral. If any Collateral consists
of Investment Property and to the extent not otherwise delivered to or held by
the holder of the Senior Secured Interest, Debtors authorize Secured Party,
subject to any limitations applicable to such Investment Property under the
terms of such Investment Property, to transfer the same or any part thereof into
its own name or that of its nominee so that Secured Party or its nominee may
appear of record as the sole owner thereof; provided that so long as no Event of
Default has occurred and is continuing as hereinafter provided, Secured Party
shall deliver promptly to Debtors all notices, statements or other
communications received by it or its nominee as such registered owner, and upon
demand and receipt of payment of necessary expenses thereof, shall issue to
Debtors or Debtors' designee a proxy or proxies to vote and take all action with
respect to such Investment Property. After the occurrence of any such Event of
Default, Debtors waive all rights to be advised or to receive any notices,
statements or communications received by Secured Party or its nominee as such
record owner, and agrees that no proxy or proxies issued by Secured Party to
Debtors or their designee as aforesaid shall thereafter be effective.
8. Income from and Interest on Collateral. Subject to
the provisions of Section 12 and 13 hereof:
(a) Until the occurrence of an Event of Default that is
continuing as hereinafter provided, Debtors reserve the right to receive all
income from or interest on the Collateral, including, without limitation, any
income from any sale of the Collateral in the ordinary course of Debtors'
business, and if Secured Party receives any such income or interest prior to
such Event of Default, Secured Party shall pay the same promptly to Debtors;
(b) At all times until the Senior Loan Documents (as
hereinafter defined) have terminated and the indebtedness and obligations
evidenced and secured thereby are paid in full, Debtors, without the consent of
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Secured Party and with the consent of the Senior Lenders (as hereinafter
defined), may sell any portion of the Collateral without regard to whether such
sale is within the ordinary course of Debtors' business. In the event of any
such sale of Collateral, Secured Party will release its security interest in
such Collateral upon Secured Party's receipt of confirmation of the Senior
Lender's consent.
(c) In the event of any Event of Default and during the
continuance thereof occurring after the Senior Loan Documents (as hereinafter
defined) and any Additional Senior Secured Debt have terminated and the
respective indebtedness and obligations evidenced and secured thereby are paid
in full, Debtors will not demand or receive any income from or interest on the
Collateral and if Debtors receive any such income or interest without any demand
by Secured Party, Debtors will pay the same promptly to Secured Party. Secured
Party may apply the net cash receipts from such income or interest to payment of
any of the Indebtedness, provided that Secured Party shall account for and pay
over to Debtors any such income or interest remaining after payment in full of
the Indebtedness.
9. Increases, Profits, Payments or Distributions.
(a) Whether or not an Event of Default has occurred as
hereinafter provided and subject to the provisions of Section 12 and 13 hereof,
Debtors authorize Secured Party:
(i) To hold any increase in or profits on the
Collateral as part of the Collateral; and
(ii) If any Collateral consists of Investment
Property, receive any payment or distribution upon redemption, or upon
dissolution and liquidation of the issuer, of any Collateral; to surrender such
Collateral or any part thereof in exchange therefor; and to hold the net cash
receipts from any such payment or distribution as part of the Collateral.
10. [Intentionally Omitted].
11. Events of Default; Remedies.
(a) To the extent that it is continuing, the occurrence or
existence of any of the events or conditions defined as Events of Default in the
Debentures, the Indenture or any document or instrument evidencing or securing
the Indebtedness (continuing beyond any applicable cure period therein, if any)
including, without limitation, the failure of Parent to repay the Indebtedness
shall constitute an "Event of Default" hereunder.
(b) Subject to the provisions of Sections 12 and 13 hereof,
Secured Party, at its sole election, may declare all or any part of any
Indebtedness not payable on demand to be immediately due and payable without
demand or notice of any kind upon the happening of any Event of Default
hereunder.
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(c) Upon the happening and during the continuance of any Event
of Default and subject to the provisions of Sections 12 and 13 hereof, Secured
Party's rights and remedies with respect to the Collateral shall be those of a
Secured Party under the New York Uniform Commercial Code, as amended, and under
any other applicable law, as the same may from time to time be in effect, in
addition to those rights granted herein and in any other agreement now or
hereafter in effect between Debtors and Secured Party including, without
limitation, those granted in the Debentures. Secured Party's rights and remedies
under this Security Agreement, the Indenture, and all other agreements shall be
cumulative. No exercise by Secured Party of one right or remedy shall be deemed
an election, and no waiver by Secured Party of any Event of Default shall be
deemed a continuing waiver. No delay by Secured Party shall constitute a waiver,
election, or acquiescence by it.
(d) Subject to the provisions of Sections 12 and 13 hereof,
without in any way requiring notice to be given in the following manner; Debtors
agree that any notice by Secured Party of sale, disposition or other intended
action hereunder or in connection therewith, whether required by the Uniform
Commercial Code or otherwise, shall constitute reasonable notice to Debtors if
such notice is mailed by regular or certified mail, postage prepaid, at least
five (5) days prior to such action, to Debtors' address specified below or to
any other address that Debtors have specified in writing to Secured Party as the
address to which notices hereunder shall be given to Debtors.
(e) Debtors agrees to pay all costs and expenses incurred by
Secured Party in enforcing this Security Agreement, in realizing upon any
Collateral and in enforcing and collecting any Indebtedness, including, without
limitation, if Secured Party retains counsel for any such purpose, reasonable
attorneys' fees.
(f) Subject to the provisions of Sections 12 and 13 hereof,
upon the happening and during the continuance of any Event of Default, at the
request of Secured Party, Debtors shall assemble the Collateral and make it
available to Secured Party at the Debtors' real property described in Exhibit
"A" attached hereto or at such Debtor's principal place of business if such
principal place of business is not located at the property described in Exhibit
"A". Secured Party has no obligation to clean-up or otherwise prepare the
Collateral for sale.
(g) Subject to the provisions of Sections 12 and 13 hereof and
except as otherwise expressly provided in this Security Agreement, each Debtor
hereby waives notice of acceptance of its joint and several liability, notice of
the occurrence of any Event of Default, or of any demand for any payment under
this Security Agreement, notice of any action at any time taken or omitted by
Secured Party under or in respect of any of the Indebtedness, any requirement of
diligence or to mitigate damages and, generally, to the extent permitted by
applicable law, all demands, notices and other formalities of every kind in
connection with this Security Agreement (except as otherwise provided in this
Security Agreement). Each Debtor hereby assents to, and waives notice of, any
extension or postponement of the time for the payment of any of the
Indebtedness, the acceptance of any payment of any of the Indebtedness, the
acceptance of any partial payment thereon, any waiver, consent or other action
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or acquiescence by Secured Party at any time or times in respect of any default
by any Debtor in the performance or satisfaction of any term, covenant,
condition or provision of this Security Agreement, any and all other indulgences
whatsoever by Secured Party in respect of any of the Indebtedness, and the
taking, addition, substitution or release, in whole or in part, at any time or
times, of any security for any of the Indebtedness or the addition, substitution
or release, in whole or in part, of any Debtor. Without limiting the generality
of the foregoing, each Debtor assents to any other action or delay in acting or
failure to act on the part of Secured Party with respect to the failure by any
Debtor to comply with any of its respective obligations hereunder, including,
without limitation, any failure strictly or diligently to assert any right or to
pursue any remedy or to comply fully with applicable laws or regulations
thereunder, that might, but for the provisions of this Section 11(g) afford
grounds for terminating, discharging or relieving any Debtor, in whole or in
part, from any of its obligations under this Section 11, it being the intention
of each Debtor that, so long as any of the Indebtedness remains unsatisfied, the
obligations of such Debtors under this Section 11 shall not be discharged except
by performance and then only to the extent of such performance. The obligations
of each Debtor under this Section 11 shall not be diminished or rendered
unenforceable by any winding up, reorganization, arrangement, liquidation,
reconstruction or similar proceeding with respect to any Debtor, Secured Party
or any Debenture holder. The joint and several liability of the Debtors
hereunder shall continue in full force and effect notwithstanding any
absorption, merger, amalgamation or any other change whatsoever in the name,
constitution or place of formation of any Debtor, Secured Party or any Debenture
Holder.
(h) Each Debtor hereby agrees that it will not enforce any of
its rights of contribution or subrogation against the other Debtors with respect
to any liability incurred by it hereunder, any payments made by it to Secured
Party or any Debenture holder with respect to any of the Indebtedness or any
Collateral security therefor. Any claim that any Debtor may have against any
other Debtor with respect to any payments to Secured Party hereunder or under
any of the Indenture or Debentures are hereby expressly made subordinate and
junior in right of payment, without limitation as to any increases in the
Indebtedness arising thereunder, to the prior indefeasible payment in full in
cash of the Indebtedness and, in the event of any insolvency, bankruptcy,
receivership, liquidation, reorganization or other similar proceeding under the
laws of any jurisdiction relating to any Debtor, its debts or its assets,
whether voluntary or involuntary, all such Indebtedness shall be paid in full in
cash before any payment or distribution of any character, whether in cash,
securities or other property, shall be made to any other Debtor therefor.
(i) Subject to the provisions of Sections 12 and 13 hereof,
upon the occurrence, and during the continuation, of an Event of Default,
Secured Party may do any one or more of the following on behalf of the Debenture
holders, all of which are authorized by each Debtor:
(i) Settle or adjust disputes and claims
directly with Account Debtors for amounts and upon terms that Secured Party
considers reasonable, and in such cases, Secured Party will credit the
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Indebtedness with only the net amounts received by Secured Party in payment of
such disputed Accounts after deducting all expenses incurred or expended in
connection therewith;
(ii) Cause each Debtor to hold all returned
Inventory in trust for Secured Party, segregate all returned Inventory from all
other property of such Debtor or in such Debtor's possession and conspicuously
label said returned Inventory as the property of Secured Party;
(iii) Without notice to or demand upon any Debtor,
make such payments and do such acts as Secured Party considers necessary or
reasonable to protect its security interests in the Collateral (for the benefit
of the Debenture holders). Each Debtor agrees to assemble the Collateral if
Secured Party so requires, and to make the Collateral available to Secured Party
as Secured Party may designate. Each Debtor authorizes Secured Party to enter
the premises where the Collateral is located, to take and maintain possession of
the Collateral, or any part of it, and to pay, purchase, contest, or compromise
any encumbrance, charge, or lien that in Secured Party's determination appears
to conflict with the security interests of Secured Party and to pay all expenses
incurred in connection therewith. With respect to a Debtors' owned or leased
premises, such Debtor hereby grants Secured Party a license to enter into
possession of such premises and to occupy the same, without charge, for up to
120 days in order to exercise any of Secured Party's rights or remedies provided
herein, at law, in equity, or otherwise;
(iv) Without notice to any Debtor (such notice
being expressly waived), and without constituting a retention of any Collateral
in satisfaction of an obligation, set off and apply to the Indebtedness any and
all (i) balances and deposits of each Debtor held by Secured Party, or (ii)
indebtedness at any time owing to or for the credit or the account of Debtors
held by Secured Party;
(v) Hold, as cash collateral, any and all
balances and deposits of each Debtor held by Secured Party to secure the full
and final repayment of all of the Indebtedness;
(vi) Ship, reclaim, recover, store, finish,
maintain, repair, prepare for sale, advertise for sale, and sell (in the manner
provided for herein) the Collateral. Secured Party is hereby granted a license
or other right to use, without charge for the benefit of Debenture holders, each
Debtor's labels, patents, copyrights, rights of use of any name, trade secrets,
trade names, trademarks, service marks, and advertising matter, or any property
of a similar nature, as it pertains to the Collateral, in completing production
of, advertising for sale, and selling any Collateral and each Debtor's rights
under all licenses and all franchise agreements shall inure to Secured Party's
benefit;
(vii) Sell the Collateral at either a public or
private sale, or both, by way of one or more contracts or transactions, for cash
or on terms, in such manner and at such places (including any Debtor's premises)
as Secured Party determines is commercially reasonable. It is not necessary that
the Collateral be present at any such sale;
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(viii) Secured Party shall give notice of the
disposition of the Collateral as follows:
(A) Secured Party shall give the
Debtors with rights in the applicable Collateral and each holder of a security
interest in the Collateral who has filed with Secured Party a written request
for notice, a notice in writing of the time and place of public sale, or, if the
sale is a private sale or some other disposition other than a public sale is to
be made of the Collateral, then the time on or after which the private sale or
other disposition is to be made;
(B) The notice shall be personally
delivered or mailed, postage prepaid, to the Debtor with rights in the
applicable Collateral at the address provided for notice in the Indenture at
least 5 days before the date fixed for the sale, or at least 5 days before the
date on or after which the private sale or other disposition is to be made; no
notice needs to be given prior to the disposition of any portion of the
Collateral that is perishable or threatens to decline speedily in value or that
is of a type customarily sold on a recognized market. Notice to Persons other
than the Debtor with rights in the applicable Collateral shall be sent to such
addresses as they have furnished to Agent;
(ix) Secured Party, on behalf of the Debenture
holders, may credit bid and purchase at any public sale; and
(x) Secured Party may seek the appointment of a
receiver or keeper to take possession of all or any portion of the Collateral or
to operate same and, to the maximum extent permitted by law, may seek the
appointment of such a receiver without the requirement of prior notice or a
hearing.
12. Subordination With Respect to Senior Loan Documents.
(a) Secured Party hereby acknowledges and agrees that all
Collateral is subject to a prior lien therein ("Senior Secured Interest")
granted to Ableco Finance LLC ("Senior Secured Agent") to secure the repayment
of all obligations under that certain Loan and Security Agreement dated as of
August 20, 2002 (as amended, supplemented or otherwise modified from time to
time, the "Senior Loan Agreement"), by and among Debtors, as borrowers, the
lenders from time to time party thereto (the "Senior Lenders") and the Senior
Secured Agent as agent for the Senior Lenders, and the other Loan Documents (as
defined in the Senior Loan Agreement) (collectively, the "Senior Loan
Documents").
(b) At all times until the Senior Loan Documents have
terminated and the indebtedness and obligations evidenced and secured thereby
are paid in full, Secured Party and Debtors agree for the benefit of the Senior
Secured Lender and any and all future holders of the Senior Loan Documents or
any interest therein as follows:
(i) The Security Interest and the lien of any
judgment obtained by Secured Party against Debtors pursuant to the Debentures or
Indenture are and at all times hereafter shall be subject, junior, subordinate
and inferior in line, operation, payment and effect to the Senior Loan Documents
11
and the indebtedness and obligations evidenced and secured thereby, and to any
extension, consolidation, modification or supplement to any thereof. No payments
of principal and/or interest under the Debentures shall be made until all
indebtedness and obligations evidenced and secured by the Senior Loan Documents
shall have been paid and satisfied in full, in cash. The provisions of this
Section 12(b)(i) shall be deemed to prohibit payments by Parent to the holders
of the Debentures unless and until Secured Party shall have received written
notice from Senior Secured Agent that it consents to such payment.
(ii) In the event of an Event of Default under
any of the terms or conditions of the Debentures or Indenture resulting in the
exercise of the rights of the holder thereof, such proceedings shall be
especially advertised as being under and subject to the operation, lien, payment
and effect of the Senior Loan Documents.
(iii) The Debentures and Indenture shall be
expressly subject, junior, inferior and subordinate to all future advances by
Senior Lenders to or for the benefit of Debtors pursuant to the Senior Loan
Documents and to any expenses (including without limitation taxes, insurance,
repairs, appraisals), charges and fees reasonably incurred by the holder of the
Senior Loan Documents, including any interest, expenses, charges, and fees which
may increase the indebtedness and obligations evidenced and secured by the
Senior Loan Documents above the original principal amount thereof. Debtors agree
to subordinate all future subordinated notes or other subordinated indebtedness
to Senior Lenders if the same are created after the date of this Security
Agreement until such time as the indebtedness and obligations evidenced and
secured by the Senior Loan Documents shall have been paid and satisfied in full.
(iv) Until the Senior Loan Documents have been
terminated and the indebtedness and obligations under the Senior Loan Documents
have been paid in full:
(A) the Secured Party and the holders of
the Debentures will not (I) exercise or seek to exercise any rights or remedies
(including recoupment or set-off) with respect to any Collateral (whether under
this Security Agreement, applicable law or otherwise), (II) institute any action
or proceeding with respect to such rights or remedies (including any action of
foreclosure, to seek relief from the automatic stay pursuant to Section 362 of
Title 11 of the U.S. Code with respect to the Collateral), (III) contest,
protest or object to any foreclosure proceeding or action brought by the Senior
Secured Agent or any Senior Lender, the exercise of any right by Senior Secured
Agent or any Senior Lender under any lockbox agreement, landlord waiver or
bailee's letter or similar agreement or arrangement, or any other exercise by
any such party, of any rights and remedies relating to the Collateral under the
Senior Loan Documents or otherwise, or (IV) object to the forbearance by the
Senior Secured Agent or the Senior Lenders from bringing or pursuing any
foreclosure proceeding or action or any other exercise of any rights or remedies
relating to the Collateral; and
(B) the Senior Secured Agent and the Senior
Lenders shall have the exclusive right to enforce rights, exercise remedies
(including recoupment, set-off and the right to credit bid their debt) and make
12
determinations regarding the release, disposition, or restrictions with respect
to the Collateral without any consultation with or the consent of the Secured
Party or any holder of the Debentures; provided, that (I) in any insolvency or
similar proceeding commenced by or against the Debtors, the Secured Party may
file a claim or statement of interest with respect to the Debentures and any
other obligations under the Indenture, (II) the Secured Party may take any
action in order to perfect or maintain the perfection of its Security Interest
in the Collateral and (III) Senior Secured Agent and Senior Lenders shall at all
times act in a manner that is commercially reasonable.
In exercising rights and remedies with respect to the Collateral, the Senior
Secured Agent and the Senior Lenders may enforce the provisions of the Senior
Loan Documents and exercise remedies thereunder, all in such order and in such
manner as they may determine in the exercise of their sole discretion. Such
exercise and enforcement shall include the ability of an agent appointed by the
Senior Secured Agent to sell or otherwise dispose of Collateral by private or
public sale or any other means permissible under applicable law. In the event of
any such private or public sale, the Secured Party agrees, on behalf of itself
and the holders of the Debentures, that such sale will be free and clear of the
Security Interests securing the Debentures. In furtherance thereof, the Secured
Party agrees that it will execute any and all Security Interest releases
reasonably requested by Senior Secured Agent in connection therewith, so long as
the proceeds from such disposal of Collateral are applied to repay the
indebtedness and obligations under the Senior Loan Documents and any excess
proceeds are paid over to the Secured Party to satisfy indebtedness and
obligations under the Debentures. The Senior Secured Agent is entitled to incur
expenses in connection with such sale or disposition, and to exercise all the
rights and remedies of a secured lender under the Uniform Commercial Code of any
applicable jurisdiction and of a secured creditor under bankruptcy or insolvency
laws of any applicable jurisdiction.
(v) The Secured Party, on behalf of itself and
the holders of the Debentures, agrees that it will not take or receive any
Collateral or any proceeds of Collateral in connection with the exercise of any
right or remedy (including recoupment or set-off) with respect to any Collateral
(whether under this Security Agreement, applicable law or otherwise), unless and
until all indebtedness and obligations under the Senior Loan Documents has been
paid in full. Without limiting the generality of the foregoing, unless and until
all indebtedness and obligations under the Senior Loan Documents have been paid
in full, the sole right of the Secured Party and the holders of the Debentures
with respect to the Collateral is to hold a Security Interest in the Collateral
pursuant to this Security Agreement for the period and to the extent granted
therein and to receive a share of the proceeds thereof, if any, only after all
indebtedness and obligations under the Senior Loan Documents have been paid in
full.
(vi) The provisions of this Section 12 are
intended to be for the benefit of, and shall be enforceable directly by, the
Senior Secured Agent and each Senior Lender.
13
13. Subordination to Other Indebtedness.
(a) In addition and subject to the Senior Secured Interest,
Secured Party hereby acknowledges and agrees that Collateral consisting of real
property and the improvements thereon owned by GDC Naugatuck, Inc. and located
at 0 Xxxxxx Xxxxxx, Xxxxxxxxx, Xxxxxxxxxxx 00000 (the "Naugatuck Property") may,
without the consent of Secured Party, become subject to a senior mortgage lien
to be granted therein ("New Naugatuck Mortgage") in connection with the Debtors'
borrowing of money ("Naugatuck Debt") from a lender (the "Senior Secured Real
Estate Lender") that is secured by the Naugatuck Property; provided, however, in
the event of the granting of the New Naugatuck Mortgage, the proceeds of such
borrowing are used to satisfy the obligations to the Senior Lenders under the
Senior Loan Documents and any proceeds in excess of the amounts necessary to
satisfy such obligations are paid to Secured Party to satisfy the Debentures. In
the event any Senior Secured Real Estate Lender requires that Secured Party's
security interest in the Naugatuck Property be released, Secured Party shall
release such interest so long as the proceeds of the New Naugatuck Mortgage have
been paid in accordance with the first sentence of this subsection (a).
(b) In addition and subject to the Senior Secured Interest,
Secured party hereby acknowledges and agrees that the Collateral may, without
the consent of Secured Party, become subject to a senior lien(s) in the
Collateral to secure (i) indebtedness that replaces the indebtedness and
obligations evidenced and secured by the Senior Loan Documents ("Replacement
Debt"); (ii) indebtedness of the Debtors to fund Debtors' working capital needs
("Working Capital Debt"); and (iii) indebtedness of the Debtors the proceeds of
which are used to satisfy the Debentures ("Debenture Refinancing Debt" and,
together with the Naugatuck Debt, the Replacement Debt and the Working Capital
Debt, the "Additional Senior Secured Debt"); provided, however, that amount of
any Replacement Debt may not exceed and the term of any Replacement Debt may not
extend beyond the amount and term of the indebtedness and obligations evidenced
and secured by the Senior Loan Documents at the time the Replacement Debt is
incurred; provided, further, however, that Working Capital Debt can be incurred
only to the extent that the Debtors' aggregate inventory and accounts receivable
with respect to ongoing operations exceed the Debtors' aggregate inventory and
accounts receivable on the effective date of the Debtors' Plan (as defined in
the Indenture); and provided, further, however, that the total amount of
indebtedness that is senior to the Debentures does not exceed thirty million
dollars ($30,000,000) at any time.
(c) At all times until the Additional Senior Secured Debt is
paid in full and subject to all rights of the Senior Lenders under the Senior
Loan Documents, Secured Party and Debtors agree for the benefit of the holders
of the Additional Senior Secured Debt and any and all future holders of the
Additional Senior Secured Debt or any interest therein as follows:
(i) The Security Interest and the lien of any
judgment obtained by Secured Party against Debtors pursuant to the Debentures or
Indenture are and at all times hereafter shall be subject, junior, subordinate
and inferior in line, operation, payment and effect to the Additional Senior
14
Secured Debt, and to any extension, consolidation, modification or supplement to
any thereof. Except as specifically provided herein, no payments of principal
and/or interest under the Debentures shall be made until all indebtedness and
obligations constituting the Additional Senior Secured Debt shall have been paid
and satisfied in full, in cash. Except as specifically provided, herein, the
provisions of this Section 13(c)(i) shall be deemed to prohibit payments by
Parent to the holders of the Debentures unless and until Secured Party shall
have received written notice from the holders, if any, of the Additional Senior
Secured Debt that such holder consents to such payment.
(ii) In the event of an Event of Default under
any of the terms or conditions of the Debentures or Indenture resulting in the
exercise of the rights of the holder thereof, such proceedings shall be
especially advertised as being under and subject to the operation, lien, payment
and effect of the Additional Senior Secured Debt.
(iii) The Debentures and Indenture shall be
expressly subject, junior, inferior and subordinate to all future advances under
the Additional Senior Secured Debt to or for the benefit of Debtors and to any
expenses (including without limitation taxes, insurance, repairs, appraisals),
charges and fees reasonably incurred by the holder(s) of the Additional Senior
Secured Debt, including any interest, expenses, charges, and fees which may
increase the Additional Senior Secured Debt above the original principal amount
thereof, provided that such future advances are permitted under Section 13(b),
above, at the time such advances are made.
(iv) Until the Additional Senior Secured Debt, if
any, has been paid in full:
(A) the Secured Party and the holders of
the Debentures will not (I) exercise or seek to exercise any rights or remedies
(including recoupment or set-off) with respect to any Collateral (whether under
this Security Agreement, applicable law or otherwise), (II) institute any action
or proceeding with respect to such rights or remedies (including any action of
foreclosure, to seek relief from the automatic stay pursuant to Section 362 of
Title 11 of the U.S. Code with respect to the Collateral), (III) contest,
protest or object to any foreclosure proceeding or action brought by the holders
of the Additional Senior Secured Debt, the exercise of any right by the holders
of any Additional Senior Secured Debt under any lockbox agreement, landlord
waiver or bailee's letter or similar agreement or arrangement, or any other
exercise by any such party, of any rights and remedies relating to the
Collateral securing the Additional Senior Secured Debt or otherwise, or (IV)
object to the forbearance by any holder of Additional Senior Secured Debt from
bringing or pursuing any foreclosure proceeding or action or any other exercise
of any rights or remedies relating to the Collateral; and
(B) subject to the rights of the Senior
Secured Agent and the Senior Lenders set forth in Section 12(b)(iv)(B), the
holders of any Additional Senior Secured Debt shall have the exclusive right to
enforce rights, exercise remedies (including recoupment, set-off and the right
to credit bid their debt) and make determinations regarding the release,
disposition, or restrictions with respect to the Collateral without any
15
consultation with or the consent of the Secured Party or any holder of the
Debentures; provided, that (I) in any insolvency or similar proceeding commenced
by or against the Debtors, the Secured Party may file a claim or statement of
interest with respect to the Debentures and any other obligations under the
Indenture, (II) the Secured Party may take any action in order to perfect or
maintain the perfection of its Security Interest in the Collateral and (III) the
holder(s) of any Additional Senior Secured Debt shall at all times act in a
manner that is commercially reasonable.
In exercising rights and remedies with respect to the Collateral, any holder of
Additional Senior Secured Debt may enforce such debt and exercise remedies
thereunder, all in such order and in such manner as they may determine in the
exercise of their sole discretion. Such exercise and enforcement shall include
the ability of an agent appointed by a holder of Additional Senior Secured Debt
to sell or otherwise dispose of Collateral by private or public sale or any
other means permissible under applicable law. In the event of any such private
or public sale, the Secured Party agrees, on behalf of itself and the holders of
the Debentures, that such sale will be free and clear of the Security Interests
securing the Debentures. In furtherance thereof, the Secured Party agrees that
it will execute any and all Security Interest releases reasonably requested by a
holder of Additional Senior Secured Debt in connection therewith, so long as the
proceeds from such disposal of Collateral are applied (i) to repay the
indebtedness and obligations under the Senior Loan Documents, (ii) to repay the
indebtedness and obligations under any Additional Senior Secured Debt, and (iii)
any excess proceeds are paid over to the Secured Party to satisfy indebtedness
and obligations under the Debentures. A holder of Additional Senior Secured Debt
is entitled to incur expenses in connection with such sale or disposition, and
to exercise all the rights and remedies of a secured lender under the Uniform
Commercial Code of any applicable jurisdiction and of a secured creditor under
bankruptcy or insolvency laws of any applicable jurisdiction.
(v) The Secured Party, on behalf of itself and
the holders of the Debentures, agrees that it will not take or receive any
Collateral or any proceeds of Collateral in connection with the exercise of any
right or remedy (including recoupment or set-off) with respect to any Collateral
(whether under this Security Agreement, applicable law or otherwise), unless and
until all indebtedness and obligations under the Senior Loan Documents and any
Additional Senior Secured Debt has been paid in full. Without limiting the
generality of the foregoing, unless and until all indebtedness and obligations
under the Senior Loan Documents and any Additional Senior Secured Debt has been
paid in full, the sole right of the Secured Party and the holders of the
Debentures with respect to the Collateral is to hold a Security Interest in the
Collateral pursuant to this Security Agreement for the period and to the extent
granted therein and to receive a share of the proceeds thereof, if any, only
after all indebtedness and obligations under the Senior Loan Documents and
Additional Senior Secured Debt have been paid in full. Notwithstanding the prior
provisions of this Section 13(c)(v), Secured Party shall not be prohibited from
receiving the payments described in Sections 13(a) and 13(b) out of the proceeds
of any Naugatuck Debt or the Debenture Refinancing Debt.
(vi) The provisions of this Section 13 are
intended to be for the benefit of, and shall be enforceable directly by, any
holder of Additional Senior Secured Debt.
16
14. Miscellaneous.
(a) Pursuant to Section 9-509(a) (1) of the New York Uniform
Commercial Code, Debtors hereby authorize Secured Party, at Debtors' expense, to
file in any or all offices of the Secretary of State or other public central
filing offices for filing under the Uniform Commercial Code in the applicable
jurisdictions, and in offices designated for the filing or recording of a record
of mortgage, initial financing statements, amendments to financing statements
and continuation statements, all without the Debtors' signatures or execution,
that cover all assets of Debtors and/or all Collateral described herein, and all
property that becomes collateral under Section 9-315(a) (2) of the New York
Uniform Commercial Code. Debtors authorize Secured Party to perform all other
acts which Secured Party deems appropriate to perfect and continue the Security
Interest and to protect and preserve the Collateral.
(b) (i) As further security for payment of the Indebtedness
but subject to Sections 12 and 13 hereof, Debtors hereby grant to Secured Party
a Security Interest in and lien on any and all property and proceeds of Debtors
that are or may hereafter be in Secured Party's possession in any capacity,
including, without limitation, all monies, escrows and reserves owed or to be
owed by Secured Party to Debtors. With respect to all of such property, Secured
Party shall have the same rights hereunder as it has with respect to the
Collateral.
(ii) Without limiting any other right of Secured
Party, whenever Secured Party has the right to declare any Indebtedness to be
immediately due and payable (whether or not it has so declared), Secured Party
at its sole election may set off against the Indebtedness any and all monies
then owed to Debtors by Secured Party in any capacity, whether or not due, and
Secured Party shall be deemed to have exercised such right of setoff immediately
at the time of such election even though any charge therefor is made or entered
on Secured Party's records subsequent thereto.
(c) Subject to the provisions of Sections 12 and 13 hereof,
upon Debtors' failure to perform any of their duties hereunder, Secured Party
may, but shall not be obligated to, perform any or all such duties, and Debtors
shall pay an amount equal to the expense thereof to Secured Party forthwith upon
written demand by Secured Party.
(d) Subject to the provisions of Sections 12 and 13 hereof,
upon the occurrence of and Event of Default that is continuing, Secured Party
may demand, collect and xxx on the Collateral (in either Debtors' or Secured
Party's name at the latter's option) with the right to enforce, compromise,
settle or discharge the Collateral, and may endorse any Debtor's name on any and
all checks, commercial paper, and any other Instruments pertaining to or
constituting the Collateral.
(e) No delay or omission by Secured Party in exercising any
right or remedy hereunder or with respect to any Indebtedness shall operate as a
waiver thereof or of any other right or remedy, and no single or partial
exercise thereof shall preclude any other or further exercise thereof or the
exercise of any other right or remedy. Secured Party may remedy any default by
17
Debtors hereunder or with respect to any Indebtedness in any reasonable manner
without waiving the default remedied and without waiving any other prior or
subsequent default by Debtors. All rights and remedies of Secured Party
hereunder are cumulative. All duties and obligations of Debtors hereunder are
joint and several.
(f) Secured Party shall have no obligation to take, and
Debtors shall have the sole responsibility for taking, any and all steps to
preserve rights against any and all prior parties to any Instrument or Chattel
Paper, whether Collateral or Proceeds and whether or not in Secured Party's
possession. Debtors waive protest of any Instrument constituting Collateral at
any time held by Secured Party on which Debtors are in any way liable and waives
notice of any other action taken by Secured Party.
(g) The rights and benefits of Secured Party hereunder shall,
if Secured Party so agrees, inure to any party acquiring any interest in the
Indebtedness or any part thereof. This Security Agreement shall bind all persons
who become bound as a debtor to this Security Agreement pursuant to the New York
Uniform Commercial Code.
(h) No modification, rescission, waiver, release or amendment
of any provision of this Security Agreement shall be made except by a written
agreement subscribed by Debtors and by a duly authorized officer of Secured
Party.
(i) This Security Agreement and the transaction evidenced
hereby shall be construed under the laws of the State of New York.
(j) No extension, alteration or other such modification of the
Indenture, the Debentures or any of the collateral documents evidencing or
securing the Indebtedness shall effect the attachment, perfection, validity or
priority of this Security Agreement or the associated financing statements.
[SIGNATURE PAGE FOLLOWS]
18
SIGNED, SEALED AND
DELIVERED
IN THE PRESENCE OF: DEBTORS:
ATTEST: GENERAL DATACOMM INDUSTRIES,
INC., a Delaware corporation
/S/XXXXXX XXXXXX /S/ XXXXXX XXXXXX
________________________ By: ____________________________
Xxxxxx Xxxxxx, Assistant Secretary Name: Xxxxxx X. Xxxxxx
Title: Chairman
GENERAL DATACOMM, INC.,
ATTEST: a Delaware corporation
/S/ XXXXXX XXXXXX /S/ XXXXXX XXXXXX
________________________ By: ____________________________
Xxxxxx Xxxxxx, Assistant Secretary Name: Xxxxxx X. Xxxxxx
Title: Chairman
DATACOMM LEASING
ATTEST: CORPORATION, a Delaware corporation
/S/ XXXXXX XXXXXX /S/ XXXXXX XXXXXX
________________________ By: ____________________________
Xxxxxx Xxxxxx, Assistant Secretary Name: Xxxxxx X. Xxxxxx
Title: Chairman
GDC HOLDING COMPANY, L.L.C.,
a Delaware limited liability company
/S/ XXXXXX XXXXXX /S/ XXXXXX XXXXXX
________________________ By: ____________________________
Witness Assistant Secretary Name: Xxxxxx X. Xxxxxx
Title: Chairman
19
GDC FEDERAL SYSTEMS, INC.,
a Delaware corporation
ATTEST: /S/ XXXXXX XXXXXX /S/ XXXXXX XXXXXX
________________________ By: ____________________________
Xxxxxx Xxxxxx, Assistant Secretary Name: Xxxxxx X. Xxxxxx
Title: Chairman
GDC REALTY, INC.,
ATTEST: a Texas corporation
/S/ XXXXXX XXXXXX /S/ XXXXXX XXXXXX
________________________ By: ____________________________
Xxxxxx Xxxxxx, Assistant Secretary Name: Xxxxxx X. Xxxxxx
Title: Chairman
GDC NAUGATUCK, INC.,
ATTEST: a Delaware Corporation
/S/ XXXXXX XXXXXX /S/ XXXXXX XXXXXX
________________________ By: ____________________________
Xxxxxx Xxxxxx, Assistant Secretary Name: Xxxxxx X. Xxxxxx
Title: Chairman
SECURED PARTY:
ATTEST: HSBC BANK USA, as Trustee
/S/XXXXXX XXXXXX /S/ XXXXX X. XXXXXX
________________________ By:__________________________
Name: Xxxxxx Xxxxxx Name: Xxxxx X. Xxxxxx
Title: Assistant Secretary Title: Vice President
20
