SECURITY AGREEMENT
THIS AGREEMENT is made as of the 13th day of October, 1994, by and
among FIRST FIDELITY BANK, NATIONAL ASSOCIATION, as Agent (in such
capacity, "Secured Party") for the Lenders, the Issuing Bank and the
Noteholders (as those terms are hereinafter defined), and AAI
CORPORATION, a Maryland corporation ("Debtor").
SECTION 1. CONSTRUCTION OF AGREEMENT AND DEFINITIONS
Unless the context otherwise requires, all of the terms used herein
without definition which are defined by the Maryland Uniform
Commercial Code shall have the meanings assigned to them by the
Maryland Uniform Commercial Code except to the extent varied by this
Agreement. Unless the context otherwise requires, all capitalized
terms hereinbefore or hereinafter used in this Agreement without
definition shall have the meanings assigned to such terms in the
Credit Agreement. The phrases "satisfactory to Secured Party,"
"acceptable to Secured Party" and similar phrases shall mean
satisfactory or acceptable to Secured Party, in Secured Party's
discretion exercised in good faith. The use of the singular herein
shall also refer to the plural and vice versa, and the use herein of
any gender, including the neuter, shall also refer to each of the
other genders, including the neuter. The captions and headings
contained in this Agreement are for convenience of reference only and
shall not affect the meaning, or the construction or interpretation,
of this Agreement. In addition to terms defined elsewhere in this
Agreement, the following terms shall have the following meanings when
used herein:
"COLLATERAL" shall mean: (a) all Receivables, General
Intangibles, Inventory, Equipment and Computer Hardware and Software,
each Cash Collateral Account and, in addition, all other property of
Debtor in which Secured Party has, or may in the future acquire or be
granted, a security interest hereunder; (b) all amounts now or in the
future owed by any of Secured Party, Lenders, Issuing Bank or
Noteholders to Debtor and all property and funds of Debtor (including
deposit accounts, certificates of deposit, and investments made or
managed by Secured Party on behalf of Debtor), now owned or hereafter
acquired by Debtor and now or hereafter in the possession or control
of any of Secured Party, Lenders, Issuing Bank or Noteholders; (c) all
present and future substitutions, replacements, appurtenances,
accessories, accessions and materials and supplies relating to any of
the foregoing; (d) all present and future books and records of Debtor
in any form, in or on any media, including data processing materials
in any form (including software, tapes, disks and the like), whether
in the possession of Debtor or any other person; and (e) all present
and
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future proceeds and products of all of the foregoing in any form
whatsoever and all rights, including rights to the payment of money
for any reason, arising on account of any sale, assignment, lease,
rental, license, exchange, liquidation, condemnation, taking, theft or
any disposition of any nature of, or any damage or casualty to, or any
loss with respect to, any of the foregoing or any rights or interests
of Debtor in any of the foregoing, including, without limitation, cash
proceeds (including all payments under any indemnities, warranties or
guaranties payable with respect to any of the foregoing), non-cash
proceeds and proceeds acquired with cash proceeds, whether any such
proceeds constitute consumer goods, farm products, equipment,
inventory, documents of title, chattel paper, accounts, instruments or
general intangibles, and all proceeds of insurance policies insuring
any of the foregoing or any risks to Debtor associated with any of the
foregoing.
"COLLATERAL LOCATIONS" shall mean the locations identified
on the Collateral Locations Exhibit attached hereto.
"COMPUTER HARDWARE AND SOFTWARE" shall mean: (a) all of
Debtor's computer and other electronic data processing hardware,
integrated computer systems, central processing units, memory units,
display terminals, printers, features, computer elements, card
readers, tape drives, hard and soft disk drives, cables, electrical
supply hardware, generators, power equalizers, accessories and all
peripheral devices and other related computer hardware, whether now
owned, licensed or leased or hereafter acquired by Debtor; (b) all
software programs, including source codes and object codes, whether
now owned, licensed or leased or hereafter acquired by Debtor,
designed for use or used on the equipment described in the preceding
clause (a), and all firmware associated therewith, whether now owned,
licensed or leased or hereafter acquired by Debtor; and (c) all
present and future manuals and other written materials and
documentation (and packaging thereof or relating thereto) for such
equipment, software or firmware, whether now owned, licensed or leased
or hereafter acquired by Debtor.
"COPYRIGHT RIGHTS" shall mean all right, title and interest
of Debtor, whether now owned or existing or hereafter acquired or
arising, in and to all domestic and foreign copyrights, copyright
registrations and copyright applications, whether or not registered or
filed with any Governmental Authority, together with (a) all renewals
thereof, (b) all present and future rights of Debtor under all present
and future license agreements relating thereto, whether Debtor is
licensee or licensor thereunder, (c) all income, royalties, damages
and payments now or hereafter due and/or payable to Debtor thereunder
or with respect thereto, including, without limitation, damages and
payments for past, present or future infringements thereof, (d) all
present and future claims of Debtor, causes of action of
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Debtor and rights of Debtor to sue for past, present or future
infringements thereof, and (e) all rights corresponding thereto
throughout the world, other than as may hereafter be transferred or
licensed by Debtor to IMAX Corporation or Ridefilm Corporation, or any
of their successors or assigns, in connection with the sale of
Debtor's Entertainment Business.
"CREDIT AGREEMENT" shall mean, as the same may be waived,
amended, modified, extended, renewed, supplemented or replaced from
time to time, that certain Credit Agreement of even date herewith
among Debtor, Secured Party, Lenders and Issuing Bank.
"DEBTOR NOTICE ADDRESS" shall mean York Road and Industry
Lane, Hunt Valley, Maryland 21030.
"EQUIPMENT" shall mean: (a) all equipment of Debtor of
every type and description, now owned and hereafter acquired and
wherever located, including, without limitation, all machinery,
vehicles and other rolling stock, furniture, furnishings, tools, dies,
leasehold improvements, fixtures, and materials and supplies relating
to any of the foregoing; (b) all present and future documents of title
and trust receipts relating to any of the foregoing; (c) all present
and future rights, claims and causes of action of Debtor in connection
with purchases by Debtor of (or contracts for the purchase by Debtor
of), or warranties relating to, or damages to, goods held or to be
held by Debtor as equipment; (d) all present and future warranties,
manuals and other written materials (and packaging thereof or relating
thereto) relating to any of the foregoing; and (e) all present and
future rights, claims and causes of action of Debtor in connection
with any agreements pursuant to which any suppliers, manufacturers or
other persons have agreed or may agree, conditionally or otherwise, to
purchase or repurchase from Debtor, in bulk or otherwise, any goods
held or to be held by Debtor as equipment.
"EVENT OF DEFAULT" shall mean an "Event of Default," as
defined in the Credit Agreement, or an "Event of Default," as defined
in the Note Purchase Agreement.
"GENERAL INTANGIBLES" shall mean all present and future
personal property, interests and rights of Debtor (including things in
action), other than goods, accounts, chattel paper, documents,
instruments and money, but including, without limitation: (a) all
Intellectual Property; (b) all uncertificated capital stock and other
securities, partnership interests, joint venture interests and other
investments and similar interests of Debtor, whether now owned or
hereafter acquired by Debtor (other than Debtor's equity and joint
venture interests in Transit), together with all present and future
rights, titles, interests, powers, authorities, options,
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warrants, privileges and benefits thereof or accruing or in any way
relating thereto, and all present and future claims, rights, titles
and interests of Debtor in and to all present and future payments,
receipts, collections, profits, revenues, dividends, distributions,
surplus, income, entitlements, exchanges, benefits and other proceeds
and avails thereof or in any way relating thereto; and (c) all present
and future customer lists of Debtor.
"GOOD FAITH" shall mean, with respect to a determination,
request or other action to be made or taken by Secured Party "in good
faith," that Secured Party shall make or take such determination,
request or other action honestly and not maliciously.
"INTELLECTUAL PROPERTY" shall mean: (a) all Copyright
Rights; (b) all Patent Rights; (c) all Trademark Rights; (d) all
License Rights; (e) all goodwill of Debtor; (f) all present and future
trade secrets of Debtor; and (g) all other present and future
intellectual property of Debtor.
"INTERCREDITOR AGREEMENT" shall mean, as the same may be
waived, amended, modified, extended, renewed, supplemented or replaced
from time to time, that certain Intercreditor Agreement of even date
herewith among Secured Party, Lenders, Issuing Bank and Noteholders.
"INVENTORY" shall mean: (a) all inventory of Debtor of
every type and description, now owned and hereafter acquired and
wherever located, including, without limitation, raw materials, work
in process, finished goods, goods returned or repossessed, and goods
held for demonstration, marketing or similar purposes; (b) all present
and future materials and supplies of Debtor used, usable or consumed
in the course of business of Debtor, whether relating to the
manufacture, assembly, installation, repair, packaging, packing or
shipment of goods by Debtor, or relating to advertising or any other
aspect of any business of Debtor; (c) all present and future property
of Debtor in or on which any of the foregoing is stored or maintained;
(d) all present and future warranties, manuals and other written
materials (and packaging thereof or relating thereto) relating to any
of the foregoing; (e) all present and future documents of title and
trust receipts relating to any of the foregoing; (f) all present and
future customer lists of Debtor; (g) all present and future rights of
Debtor in connection with goods consigned to or by Debtor; (h) all
present and future rights of Debtor as an unpaid seller of goods,
including rights of stoppage in transit, detinue and reclamation;
(i) all present and future rights, claims and causes of action of
Debtor in connection with purchases by Debtor of (or contracts for the
purchase by Debtor of), or warranties relating to, or damages to,
goods held or to be held by Debtor as inventory; and (j) all present
and future rights, claims and
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causes of action of Debtor in connection with any agreements pursuant
to which any suppliers, manufacturers or other persons have agreed or
may agree, conditionally or otherwise, to purchase or repurchase from
Debtor, in bulk or otherwise, any goods held or to be held by Debtor
as inventory.
"ISSUING BANK" shall mean the person from time to time party
to the Credit Agreement as "Issuing Bank."
"LENDER DOCUMENTS" shall mean, as the same may be waived,
amended, modified, extended, renewed, supplemented or replaced from
time to time, the Credit Agreement, the Revolving Credit Notes, the
Borrower Pledge Agreement, the Deed of Trust, the Guaranty, the
Guarantor Security Agreement, the UIC Pledge Agreement, the UIC
Subordination Agreement, the UIC-DEL Subordination Agreement, the L/C
Agreements, this Agreement, and any and all other agreements,
contracts, promissory notes and other instruments, security
agreements, assignments, pledge agreements, indemnification
agreements, mortgages, deeds of trust, leases, guaranties and other
documents now or hereafter existing and evidencing, securing (directly
or indirectly), guaranteeing (or in effect guaranteeing) or
indemnifying (or in effect indemnifying) any of Lenders or Issuing
Bank with respect to, any of the aforementioned documents or any
obligations of any person to any of Lenders or Issuing Bank
thereunder.
"LENDER OBLIGATIONS" shall mean, as the same may be waived,
amended, modified, extended, renewed, supplemented, refinanced,
consolidated or replaced from time to time, all present and future
Revolving Credit Loans, L/C Reimbursement Obligations and other
obligations, indebtedness and liabilities of Debtor to each of Lenders
and Issuing Bank arising under, evidenced by or in connection with the
Credit Agreement or the other Lender Documents, including, without
limitation, all principal amounts, including future advances,
indemnification obligations, interest charges, fees, premiums,
commissions and all other charges and sums, as well as all costs and
expenses, including reasonable attorneys' fees and expenses, payable
or reimbursable by Debtor under or in connection with the Credit
Agreement or the other Lender Documents, whether direct or indirect,
contingent or noncontingent, matured or unmatured, accrued or not
accrued, liquidated or unliquidated, as well as all claims, demands,
actions, causes of action and judgments arising from or relating to
any of the foregoing, and including, without limitation, all claims
against Debtor arising or re-arising on account of or as a result of
any payment made by Debtor or any other person with respect to any
obligations included in this definition which is rescinded or
recovered from any of Lenders or Issuing Bank or restored or returned
by any of Lenders or Issuing Bank under authority of any law, rule,
regulation, order of court or Governmental Authority, or in connection
with any compromise or settlement relating thereto or
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relating to any pending or threatened action, suit or proceeding
relating thereto, whether arising out of any proceedings under the
United States Bankruptcy Code or otherwise.
"LENDERS" shall mean the persons from time to time parties
to the Credit Agreement as "Lenders."
"LICENSE RIGHTS" shall mean all present and future licenses
and license agreements of Debtor, and all rights of Debtor under or in
connection therewith, whether Debtor is licensee or licensor
thereunder, including, without limitation, any present or future
franchise agreements under which Debtor is franchisee or franchisor,
together with (a) all renewals thereof, (b) all income, royalties,
damages and payments now or hereafter due and/or payable to Debtor
thereunder or with respect thereto, including, without limitation,
damages and payments for past, present or future infringements
thereof, (c) all claims, causes of action and rights to sue for past,
present or future infringements thereof, and (d) all rights
corresponding thereto throughout the world.
"NOTE PURCHASE AGREEMENT" shall mean, as the same has been
or may hereafter be amended, modified, extended, renewed, supplemented
or replaced from time to time, that certain Note Purchase Agreement
dated July 15, 1992, among Debtor and Noteholders.
"NOTEHOLDER DOCUMENTS" shall mean, as the same have been or
may hereafter be waived, amended, modified, extended, renewed,
supplemented or replaced from time to time, the Note Purchase
Agreement, the Noteholder Notes, the UIC Noteholder Guaranty and any
and all other agreements, contracts, promissory notes and other
instruments, security agreements, assignments, pledge agreements,
indemnification agreements, mortgages, deeds of trust, leases,
guaranties and other documents now or hereafter existing and
evidencing, securing, directly or indirectly, guaranteeing (or in
effect guaranteeing) or indemnifying (or in effect indemnifying)
Noteholders with respect to, any of the aforementioned documents or
any obligations of any person to Noteholders thereunder.
"NOTEHOLDER NOTES" shall mean, as the same have been or may
hereafter be amended, modified, extended, renewed, supplemented or
replaced from time to time, that certain 8.65% Senior Note Due
July 31, 1999, dated August 11, 1992, issued by Debtor to TRAL & CO,
nominee of The Travelers Insurance Company, pursuant to the Note
Purchase Agreement in the original principal amount of $9,000,000.00,
that certain 8.65% Senior Note Due July 31, 1999, dated August 11,
1992, issued by Debtor to TRAL & CO, nominee of The Travelers
Indemnity Company of Rhode Island, pursuant to the Note Purchase
Agreement in the original principal amount of $3,000,000.00 and
assigned by The Travelers Indemnity
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Company of Rhode Island to The Travelers Insurance Company, that
certain 8.65% Senior Note Due July 31, 1999, dated August 11, 1992,
issued by Debtor to Principal Mutual Life Insurance Company pursuant
to the Note Purchase Agreement in the original principal amount of
$10,000,000.00, and that certain 8.65% Senior Note Due July 31, 1999,
dated August 11, 1992, issued by Debtor to Principal Mutual Life
Insurance Company pursuant to the Note Purchase Agreement in the
original principal amount of $3,000,000.00.
"NOTEHOLDER OBLIGATIONS" shall mean, as the same have been
or may hereafter be waived, amended, modified, extended, renewed,
supplemented, refinanced, consolidated or replaced from time to time,
all present and future obligations, indebtedness and liabilities of
Debtor to each of Noteholders arising under, evidenced by or in
connection with the Noteholder Documents, including, without
limitation, principal amounts (but not including any additional loans
or advances by Noteholders to Debtor), interest charges, fees,
premiums and all other charges and sums, as well as all costs and
expenses, including reasonable attorneys' fees and expenses, payable
or reimbursable by Debtor to each of Noteholders under or in
connection with the Noteholder Documents, whether direct or indirect,
contingent or noncontingent, matured or unmatured, accrued or not
accrued, liquidated or unliquidated, as well as all claims, demands,
actions, causes of action and judgments arising from or relating to
any of the foregoing and including, without limitation, all claims
against Debtor arising or re-arising on account of or as a result of
any payment made by Debtor or any other person with respect to any
obligations included in this definition which is rescinded or
recovered from any of Noteholders or restored or returned by any of
Noteholders under authority of any law, rule, regulation, order of
court or Governmental Authority, or in connection with any compromise
or settlement relating thereto or relating to any pending or
threatened action, suit or proceeding relating thereto, whether
arising out of any proceedings under the United States Bankruptcy Code
or otherwise.
"NOTEHOLDERS" shall mean, collectively, Principal Mutual
Life Insurance Company, an Iowa corporation, and The Travelers
Insurance Company, a Connecticut corporation.
"PATENT RIGHTS" shall mean all right, title and interest of
Debtor, whether now owned or existing or hereafter acquired or
arising, in and to all United States and foreign patents, and pending
United States and foreign patent applications, including, without
limitation, the inventions and improvements described or claimed
therein (other than the patent application for the Three Axis Motion
Platform filed October 1, 1993, to be assigned by Debtor to IMAX
Corporation or Ridefilm Corporation, or their successors or assigns,
in connection with the sale of Debtor's Entertainment Business),
together with
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(a) any reissues, divisions, continuations, certificates of re-
examination, extensions and continuations-in-part thereof, (b) all
present and future rights of Debtor under all present and future
license agreements relating thereto, whether Debtor is licensee or
licensor thereunder, (c) all income, royalties, damages and payments
now or hereafter due and/or payable to Debtor thereunder or with
respect thereto, including, without limitation, damages and payments
for past, present or future infringements thereof, (d) all present and
future claims of Debtor, causes of action of Debtor and rights of
Debtor to sue for past, present or future infringements thereof, and
(e) all rights corresponding thereto throughout the world.
"PERSON" shall mean any individual, corporation, limited
liability company, partnership, joint venture, association, trust,
business trust, Governmental Authority (or subdivision, agency or
department thereof) or other entity of any kind.
"RECEIVABLES" shall mean: (a) all present and future
accounts, contract rights, receivables, chattel paper, documents and
promissory notes and other negotiable and non-negotiable instruments
of Debtor, including, without limitation, that certain Mortgage Note
dated March 23, 1993, executed and delivered in favor of Debtor by
Timothy O'Brien in the original principal amount of Four Hundred
Eighty-Eight Thousand Seven Hundred Fifty Dollars ($488,750.00) and
all promissory notes heretofore or hereafter delivered to Debtor by
Pioneer, and all certificated securities (other than certificated
securities evidencing capital stock of Transit) and other certificates
evidencing capital stock of any person or any other ownership, equity
or other rights in any person or property, together with all present
and future rights, titles, interests, powers, authorities, options,
warrants, privileges and benefits thereof or accruing or in any way
relating thereto, and all present and future claims, rights, titles
and interests of Debtor in and to all present and future payments,
receipts, collections, profits, revenues, dividends, distributions,
surplus, income, entitlements, exchanges, benefits and other avails
thereof or in any way relating thereto; (b) all present and future tax
refunds of Debtor and all present and future rights of Debtor to
refunds or returns of prepaid expenses, including unearned insurance
premiums; (c) all present and future cash of Debtor; (d) all present
and future proceeds of Revolving Credit Loans; (e) all deposit
accounts now or hereafter maintained or established by, for or on
behalf of Debtor with any bank or other institution, and all balances
of funds now or hereafter on deposit in all such accounts, including,
without limitation, all checking accounts, collection accounts,
lockbox accounts, disbursement accounts, concentration accounts and
all other deposit accounts of every kind and nature; (f) all present
and future judgments, orders, awards and decrees in favor of Debtor
and causes of action in
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favor of Debtor; (g) all present and future claims, rights of
indemnification and other rights of Debtor under or in connection with
any contracts or agreements to which Debtor is or becomes a party or
third party beneficiary; (h) all rights and claims of Debtor with
respect to any deposits of money or other property made with any
lessors of any property, insurers, bonding agents or any other
persons; (i) all present and future rights and claims which Debtor may
now or hereafter have under any insurance policies, contracts or
coverages now or hereafter in effect; (j) all goods previously or
hereafter returned, repossessed or stopped in transit, the sale, lease
or other disposition of which contributed to the creation of any
account, instrument or chattel paper of Debtor; (k) all present and
future rights of Debtor as an unpaid seller of goods, including rights
of stoppage in transit, detinue and reclamation; (l) all rights which
Debtor may now or at any time hereafter have, by law or agreement,
against any account debtor or other obligor of Debtor, and all rights,
liens and security interests which Debtor may now or at any time
hereafter have, by law or agreement, against any property of any
account debtor or other obligor of Debtor; (m) all present and future
interests and rights of Debtor, including rights to the payment of
money, under or in connection with all present and future leases and
subleases of real or personal property to which Debtor is a party, as
lessor, sublessor, lessee or sublessee; and (n) all present and future
contingent and noncontingent rights of Debtor to the payment of money
for any reason whatsoever, whether arising in contract, tort or
otherwise, whether or not such rights are otherwise included in this
definition.
"SECURED OBLIGATIONS" shall mean, collectively, the Lender
Obligations and the Noteholder Obligations.
"SECURED PARTY NOTICE ADDRESS" shall mean 123 South Broad
Street, Philadelphia, Pennsylvania 19109.
"TRADEMARK RIGHTS" shall mean all right, title and interest
of Debtor, whether now owned or existing or hereafter acquired or
arising, in and to all domestic and foreign servicemarks, servicemark
registrations, servicemark applications, trademarks, trademark
registrations, trademark applications and trade names, whether or not
registered or filed with any Governmental Authority, together with
(a) all renewals thereof, (b) all present and future rights of Debtor
under all present and future license agreements relating thereto,
whether Debtor is licensee or licensor thereunder, (c) all income,
royalties, damages and payments now or hereafter due and/or payable to
Debtor thereunder or with respect thereto, including, without
limitation, damages and payments for past, present or future
infringements thereof, (d) all present and future claims of Debtor,
causes of action of Debtor and rights of Debtor to sue for past,
present or future infringements thereof, and (e) all rights
corresponding thereto throughout the world.
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"UIC NOTEHOLDER GUARANTY" shall mean, as the same may have
been or may hereafter be waived, amended, modified, extended, renewed,
supplemented or replaced from time to time, that certain Guaranty
Agreement dated July 15, 1992, executed and delivered by UIC in favor
of Noteholders.
SECTION 2. SECURITY INTEREST AND COLLATERAL
2.1Grant of Security Interest. As security for the Secured
--------------------------
Obligations, Debtor hereby grants to Secured Party, for the ratable
benefit of Lenders, Issuing Bank and Noteholders according to the
provisions of this Agreement and the Intercreditor Agreement, a lien
and continuing security interest in, and pledges and assigns to
Secured Party, for the ratable benefit of Lenders, Issuing Bank and
Noteholders according to the provisions of this Agreement and the
Intercreditor Agreement, the Collateral. Even if any of the Secured
Obligations shall at any time or from time to time be paid in full,
Secured Party's security interest shall continuously exist until all
of the Lender Obligations have been paid in full and there exists no
commitment by any of Lenders or Issuing Bank which could give rise to
any Lender Obligations.
2.2 Notices, Additional Documents. Debtor agrees to execute
-----------------------------
and deliver to Secured Party, or cause to be executed and delivered to
Secured Party, from time to time promptly after request by Secured
Party and in form and content satisfactory to Secured Party, such
security agreements, financing statements, amendments of financing
statements, assignments of financing statements, security interest
filing statements, mortgages, deeds of trust, assignments, notices,
consents and other documents as Secured Party may request in good
faith in order to confirm, supplement, preserve, protect or perfect,
or to maintain the perfection of, Secured Party's security interest in
the Collateral and Secured Party's rights under this Agreement. If
any Intellectual Property, or any interest therein, shall, to the
knowledge of Debtor, become the subject of any application,
registration or other filing with any Governmental Authority, Debtor
agrees to notify Secured Party thereof within fifteen (15) Business
Days after any such filing. If any Receivable arises out of a
contract with the United States of America or any state, county,
municipality or other Governmental Authority, or any department or
agency thereof, Debtor agrees to notify Secured Party thereof within
ten (10) Business Days after execution of such contract and Debtor
agrees, if requested by Secured Party, to execute and deliver to
Secured Party, or cause to be executed and delivered to Secured Party,
from time to time promptly after request by Secured Party and in form
and content satisfactory to Secured Party, such agreements, notices,
consents, assignments, acknowledgments and other documents as Secured
Party may request
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in good faith, and to do such other things as Secured Party may
request in good faith, in order that all sums due and to become due to
Debtor under or in connection with such contract shall be duly
assigned and paid to Secured Party in accordance with the Federal
Assignment of Claims Act and/or any other laws, rules and regulations
relating to the assignment or payment of such conract and sums.
2.3 Additional Warranties, Agreements Concerning Collateral.
-------------------------------------------------------
Debtor warrants and agrees that: (a) no financing statement,
mortgage, deed of trust, assignment, notice of lien or other security
document publicizing a security interest in or lien upon any of the
Collateral is or will be on file in any recording or filing office,
except for financing statements or other security documents
publicizing Permitted Liens (other than liens for taxes) or security
interests or other liens with respect to which effective and
recordable termination statements or other releases have been
delivered to Secured Party, and the Collateral is and shall remain
free and clear of all Liens except for Permitted Liens; (b) no
Intellectual Property of Debtor is the subject of any application,
registration or other filing with any Governmental Authority (other
than foreign Governmental Authorities), including the United States
Patent and Trademark Office and the United States Copyright Office,
except as set forth on the Intellectual Property Exhibit attached
hereto; (c) Debtor will not, without Secured Party's prior written
consent, sell, assign, transfer, convey or lease, or suffer or permit
to occur any sale, assignment, transfer, conveyance or lease of, any
of the Collateral, or any interest therein, except for transactions in
the ordinary course of business and except for transactions expressly
permitted by the Credit Agreement; (d) except as otherwise heretofore
disclosed to Secured Party in writing and except for (i) vehicles of
Debtor, (ii) Collateral in transit to Debtor or to job sites of
Debtor, (iii) Collateral at job sites of Debtor, (iv) the Prototype
Ground Data Terminal with Shelter and the Prototype Mission Planning
and Control Station with Shelter and Cabling located in Seattle,
Washington, and (v) mobile goods of a type normally used in more than
one jurisdiction, all of the tangible Collateral not in Secured
Party's possession is located at the Collateral Locations and, unless
Secured Party shall consent otherwise in writing, shall remain located
at the Collateral Locations; (e) in the case of any item of Equipment
or Inventory having a fair market value of Five Hundred Thousand
Dollars ($500,000.00) or more which is located at any location or
locations other than the Collateral Locations for a period of four (4)
months or more, keep Secured Party informed at all times of the
location of such Equipment or Inventory; (f) Debtor will not, without
Secured Party's prior written consent, store or place any Collateral
with any warehouseman, artisan, processor, contractor or bailee,
except in the ordinary course of business of Debtor as now being
conducted; (g) Debtor will use prudent business judgment in extending
credit
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to account debtors and other customers of Debtor; (h) Debtor will not
permit, consent to or agree to, without Secured Party's prior written
consent, any material extension, modification or compromise of any
kind with respect to any Receivable, other than in the ordinary course
of business of Debtor; (i) whenever requested by Secured Party and
periodically if Secured Party shall so request, Debtor will promptly
deliver to Secured Party, with such indorsements and/or assignments as
Secured Party may from time to time request in good faith, all
promissory notes and other instruments, certificates, chattel paper,
guaranties and documents of title, as well as other documents
requested by Secured Party, previously or hereafter coming into the
possession or control of Debtor and constituting, evidencing,
securing, guaranteeing or otherwise relating to, any of the Collateral
or proceeds of any of the Collateral; (j) no check, draft, money order
or other item of payment made or applied on account of any of the
Obligations shall constitute a final payment to Secured Party unless
and until the item of payment shall be honored and finally paid to
Secured Party in immediately available funds; and (k) a carbon,
photographic or other reproduction of this Agreement or any financing
statement signed by Debtor in connection with this Agreement shall be
sufficient as a financing statement.
2.4 Collateral Collections. (a) Debtor shall deposit in a
----------------------
Cash Collateral Account, not later than the second Business Day
following the day on which the same are received, all cash, checks,
drafts, money orders and other items of payment constituting
Collateral, or collections or other proceeds of Collateral. Secured
Party shall have the right at any time and from time to time, at its
option, to notify, and/or to require Debtor to notify, any or all
account debtors and other obligors of Debtor in connection with
accounts, promissory notes or other instruments, guaranties, chattel
paper, security agreements, contract rights, tax refunds or other
Receivables or General Intangibles of Debtor, or in connection with
any or all other obligations, indebtedness or liabilities payable to
Debtor, to make payments thereon directly to Secured Party or in care
of a post office lockbox which shall be maintained by Secured Party,
subject to Secured Party's customary arrangements and charges therefor
as established by Secured Party from time to time and which shall be
under the exclusive control of Secured Party, which payments shall be
deposited by Secured Party in a Cash Collateral Account.
(b) On each Business Day, Secured Party will transfer
to the First Fidelity Cash Collateral Account any balance of funds in
any other Cash Collateral Account. On each Business Day, Secured
Party will transfer any balance of funds in the First Fidelity Cash
Collateral Account and apply the same to pay any Base Rate Loans then
outstanding. To the extent that any such balance of funds so applied
consists of any items deposited
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or credited to the First Fidelity Cash Collateral Account which have
not been finally collected and paid, such application shall be
provisional and subject to revocation in the event any such items are
not finally collected and paid. Upon request by Debtor from time to
time, Secured Party will transfer to or for Debtor, or as directed by
Debtor, any balance of collected funds in the Cash Collateral Accounts
in excess of the amount of contingent and noncontingent Secured
Obligations.
(c) Secured Party shall have the right to indorse the
name or names of Debtor on any promissory notes or other instruments,
acceptances, checks, drafts, money orders or other items of payment
constituting Collateral, or collections or other proceeds of
Collateral, that may come into Secured Party's possession or control
from time to time. Secured Party shall also have the right to send,
or to require Debtor to send, to account debtors and other obligors of
Debtor from time to time requests for verification of accounts and
other amounts which may be due to Debtor.
(d) Nothing contained in this Subsection shall, or
shall be construed to, affect, limit, diminish or in any way impair
any security interest, right of setoff or other Lien of Secured Party,
any of Lenders, Issuing Bank or any of Noteholders under any of the
Lender Documents or any of the Noteholder Documents. Debtor
acknowledges its understanding and agreement that the services to be
performed by Secured Party for Debtor under Subsection 2.4(b) of this
Agreement are provided by Secured Party as a service accommodation to
Debtor and do not constitute conditions to, or consideration for, any
of the Lender Obligations. Debtor agrees that Secured Party shall
have no liability to Debtor, and Debtor shall not be entitled to any
reduction in interest, fees, commissions or other amounts charged to
Debtor or owing under the Credit Agreement or otherwise on account of
any failure of Secured Party to cause any reduction to be made in any
Base Rate Loans outstanding pursuant to Subsection 2.4(b) of this
Agreement.
2.5 Insurance Proceeds. Debtor hereby assigns to Secured
------------------
Party all proceeds of all insurance policies and coverages insuring
any of the Collateral or any risks associated with any of the
Collateral. After the occurrence and during the continuance of a
Default or an Event of Default, Debtor authorizes and directs each
insurance company to pay all such proceeds directly and solely to
Secured Party and not to Debtor and Secured Party jointly, and
authorizes and empowers Secured Party to adjust or compromise any loss
under such policies, to collect and receive all such proceeds, and,
for those purposes, to execute and indorse in the name of Debtor all
proofs of loss, drafts, checks and any other documents or instruments,
and any persons making payments to Secured Party under the terms of
this provision are hereby relieved absolutely from any obligation or
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responsibility to see to the application of any sums so paid, which
sums, after deduction of all costs and expenses (including reasonable
attorneys' fees) paid or incurred by Secured Party in the collection
and handling thereof, may be applied, at Secured Party's option but
subject to applicable law and agreements, either toward replacing or
restoring the Collateral, in a manner and on terms satisfactory to
Secured Party, or as a credit against such of the Secured Obligations,
whether matured or unmatured, as Secured Party shall determine in its
discretion. Except when a Default or an Event of Default shall have
occurred and be continuing, Debtor shall have the right to collect the
proceeds of any such policies, provided that all such proceeds
collected by Debtor are either applied promptly by Debtor to
repairing, replacing or restoring the Collateral, in a manner and on
terms satisfactory to Secured Party, or paid promptly by Debtor to
Secured Party for application against such of the Obligations, whether
matured or unmatured, as Secured Party shall determine in its
discretion but subject to applicable law and agreements.
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SECTION 3. DEFAULT
3.1Remedies. Upon and at any time after the occurrence and during the
--------
continuance of any Event of Default, Secured Party may, without notice
or demand, exercise in any jurisdiction in which enforcement hereof is
sought, the following rights and remedies, in addition to all other
rights and remedies available to Secured Party, Lenders, Issuing Bank
and Noteholders under the Lender Documents and the Noteholder
Documents, the rights and remedies of a secured party under the
Uniform Commercial Code and all other rights and remedies available to
Secured Party under law, all such rights and remedies being cumulative
and enforceable alternatively, successively or concurrently: (a) take
exclusive possession of any or all of the Collateral from time to time
and/or place a custodian in exclusive possession of any or all of the
Collateral from time to time and, so far as Debtor may give authority
therefor, enter upon any premises on which any of the Collateral may
be situated and remove the same therefrom, Debtor hereby waiving any
and all rights to prior notice and to judicial hearing with respect to
repossession of Collateral, and/or require Debtor, at Debtor's
expense, to assemble and deliver any or all of the Collateral to such
place or places as Secured Party may reasonably request; (b) enforce
the liens and security interests granted to Secured Party hereunder by
collecting or liquidating all or any part of the Collateral or
selling, assigning, leasing, renting, licensing or otherwise disposing
of all or any part of the Collateral or any interest therein, in one
or more parcels, at the same or different times, at public or private
sale or disposition, or otherwise; (c) demand, compromise, collect,
sue for and receive any money or property at any time due, payable or
receivable on account of any or all accounts, promissory notes or
other instruments, guaranties, chattel paper, security agreements,
contract rights, tax refunds or other Receivables or General
Intangibles of Debtor, or on account of any or all other debts,
liabilities or obligations payable to Debtor; (d) institute any
proceeding or proceedings to enforce any security interests, liens or
other rights or interests of Secured Party hereunder; (e) sign the
name of Debtor on any invoices to, drafts against and other notices
and documents to account debtors or other obligors of Debtor and
requests for verification of accounts and other amounts which may be
due to Debtor; (f) execute proofs of claim and loss on behalf of
Debtor; (g) subject to applicable law and agreements, apply all
Collateral and proceeds of Collateral delivered to Secured Party or
coming into Secured Party's possession or control from time to time to
such of the Secured Obligations, whether matured or unmatured, as
Secured Party may determine in its discretion, or hold the same as
security for any contingent or future Secured Obligations; (h) at
Debtor's expense, continue or complete, or cause to be continued or
completed, performance of obligations of Debtor under any
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contracts of Debtor, and collect all income and revenues therefrom;
and/or (i) use, operate, manage, control and exercise all rights of
Debtor relating to, the Collateral and any other assets of Debtor, and
collect all income and revenues therefrom.
3.2 Collateral Dispositions. Debtor agrees that commercial
-----------------------
reasonableness and good faith require Secured Party to give Debtor no
more than ten (10) days prior written notice of the time and place of
any public disposition of Collateral or of the time after which any
private disposition or any other intended disposition is to be made.
All sales or other dispositions of Collateral may be made for cash,
upon credit or for future delivery. In no event shall Debtor be
credited with any part of the proceeds of liquidation, sale or other
disposition of any Collateral until final payment thereon has been
received by Secured Party in immediately available funds, and Secured
Party shall have no obligation to delay any liquidation, sale or other
disposition because the same may result in the imposition of any
forfeiture, premium or penalty.
3.3 Expenses. Debtor agrees to pay to Secured Party, each
--------
Lender, each Noteholder and Issuing Bank upon its demand from time to
time, the amount of all expenses, including reasonable attorneys' fees
and expenses, paid or incurred by it (a) in exercising or enforcing or
consulting with counsel concerning, any of its rights hereunder or
under law, or (b) in defending any and all non-meritorious or
previously waived demands, claims, counterclaims, cross-claims, causes
of action, litigation and proceedings of every kind and nature
asserted, commenced or instituted against it or any of its officers,
directors, employees or agents, by Debtor, any Subsidiary of Debtor or
any Other Obligor on account of, as a result of or relating to, any
action taken or not taken by Secured Party, any Lender, any Noteholder
or Issuing Bank in connection with the Collateral or enforcement or
exercise by it of any of its rights or remedies under this Agreement
or under law. Debtor also agrees to pay to Secured Party, each
Lender, each Noteholder and Issuing Bank upon its demand from time to
time, interest on the outstanding amount of such expenses, from the
date of demand for payment of such expenses until the same are paid in
full, at the rate from time to time applicable to Base Rate Loans.
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SECTION 4. ADDITIONAL PROVISIONS
4.1Further Assurances, Power of Attorney. Debtor agrees promptly to
-------------------------------------
do, make, execute and deliver all such additional and further acts,
things, deeds, assurances, instruments and documents as Secured Party
may request in good faith to vest in and assure to Secured Party its
rights hereunder or in any of the Collateral. Debtor hereby appoints
Secured Party and its designees as attorney-in-fact of Debtor,
irrevocably and with power of substitution, with authority to execute
and deliver from time to time, in the name and stead of Debtor, all
documents which Debtor is required to, but has failed or refused to,
execute and deliver to Secured Party pursuant to this Agreement, and
with authority to take all of the actions from time to time on behalf
of Debtor, and in the name and stead of Debtor, which Secured Party is
authorized to take under this Agreement or which Secured Party in its
discretion exercised in good faith deems necessary or advisable in
order to cause Debtor to be in compliance with any of the terms of
this Agreement or in order to carry out and enforce this Agreement.
Said attorney or designee shall not be liable for any acts of
commission or omission nor for any error of judgment or mistake of
fact or law which does not arise from its gross negligence or willful
misconduct. This power of attorney is coupled with an interest and is
irrevocable so long as any of the Secured Obligations remain unpaid or
unperformed or there exists any commitment by Lenders or Noteholders
which could give rise to any Secured Obligations.
4.2 Waiver of Trial by Jury. Each of Debtor and Secured
-----------------------
Party agrees that any action, suit or proceeding involving any claim,
counterclaim or cross-claim arising out of or in any way relating,
directly or indirectly, to this Agreement, or any liabilities, rights
or interests of Debtor, Secured Party or any other person arising out
of or in any way relating, directly or indirectly, to this Agreement,
shall be tried by a court and not by a jury. Debtor and Secured Party
hereby waives any right to trial by jury in any such action, suit or
proceeding, with the understanding and agreement that this waiver
constitutes a waiver of trial by jury of all claims, counterclaims and
cross-claims against all parties to such actions, suits or
proceedings, including claims, counterclaims and cross-claims against
parties who are not parties to this Agreement. This waiver is
knowingly, willingly and voluntarily made by Debtor and Secured Party,
and Debtor and Secured Party acknowledges and agrees that this waiver
of trial by jury is a material aspect of the agreements between Debtor
and Secured Party and that no representations of fact or opinion have
been made by any person to induce this waiver of trial by jury or to
modify, limit or nullify its effect.
4.3 Additional Waivers. Except in the case of any
------------------
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notices specifically required to be given to Debtor by Secured Party,
any Lender, Issuing Bank or any Noteholder pursuant to this Agreement,
any of the Lender Documents or any of the Noteholder Documents, Debtor
hereby waives notice of each and every one of the following acts,
events and/or conditions and agrees that, without necessity for any
express reservation of rights against Debtor, neither the occurrence
or existence of any such act, event or condition, nor Secured Party's,
any Lender's, Issuing Bank's or any Noteholder's commission of or
omission to do any such act, event or condition, in any number of
instances, shall in any way release, discharge, impair or diminish any
of the Secured Obligations, except as otherwise specifically agreed by
Secured Party in writing: (a) the amendment, modification, renewal,
extension or refinancing of, or the granting by Secured Party, any
Lender, Issuing Bank or any Noteholder of any indulgence of any nature
with respect to, or the invalidity, voidability, unenforceability,
compromise, settlement, release, waiver, discharge or impairment, in
whole or in part, of, any of the Secured Obligations or any obligation
of any Other Obligor with respect to any of the Secured Obligations;
(b) any defense of Debtor or any Other Obligor to payment of any of
the Secured Obligations; (c) the addition of any maker, guarantor,
surety, endorser, indemnitor or other person primarily or secondarily
liable for or obligated upon any of the Secured Obligations;
(d) assumption of any of the Secured Obligations by any other person,
whether by assignment, sale, merger, consolidation, sublease,
conveyance or otherwise; (e) delivery to Secured Party, any Lender,
Issuing Bank or any Noteholder or acceptance by Secured Party, any
Lender, Issuing Bank or any Noteholder of any promissory note or other
instrument or writing evidencing or otherwise relating to any of the
Secured Obligations; (f) the institution of any suit, the obtaining of
any judgment or the exercise of any other right or remedy against
Debtor or any Other Obligor; (g) the sale, exchange, pledge, release,
disposition, surrender, loss, destruction, damage to or impairment of,
any Collateral; (h) the creation, perfection, continuation, amendment,
modification, invalidity, voidability, unenforceability, compromise,
settlement, subordination, release, waiver, discharge, impairment or
loss of priority, in whole or in part, of, any security interest, lien
other encumbrance directly or indirectly securing any of the
Obligations; or (i) any other event, circumstance or condition which
might otherwise constitute a legal or equitable discharge of a
borrower. Debtor also hereby waives, to the extent the same may be
waived under applicable law: (a) notice of acceptance by Secured
Party of this Agreement; (b) all claims, causes of action and rights
of Debtor against Secured Party on account of actions taken or not
taken by Secured Party in the exercise of Secured Party's rights or
remedies under this Agreement or under law, provided that the same did
not arise from Secured Party's negligence or willful misconduct;
(c) all claims and causes of action of Debtor against Secured Party
for punitive, exemplary, indirect, special,
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consequential or other non-compensatory damages; (d) all rights of
redemption of Debtor with respect to any of the Collateral; (e) in the
event Secured Party seeks to repossess any or all of the Collateral by
judicial proceedings, any bonds or demands for possession which
otherwise may be required; (f) all rights of Debtor to have marshalled
the Collateral or any other security for any of the Secured
Obligations; (g) diligence in the enforcement or collection of all of
the Obligations; (h) presentment, protest, notice of protest and
notice of non-payment with respect to all of the Secured Obligations;
and (i) any duty or obligation of Secured Party to disclose to Debtor
any information concerning any other customer or client, or
prospective customer or client, of Secured Party. Debtor agrees that
Secured Party may exercise any or all of its rights and/or remedies
without resorting to, without regard to, and regardless of the
adequacy of, any security or other sources of liability with respect
to any of the Secured Obligations. Neither any failure nor any delay
on the part of Secured Party in exercising any right, power or remedy
shall operate as a waiver thereof, nor shall a single or partial
exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or remedy.
4.4 Modifications, Notices. No modification or waiver of
----------------------
any provision of this Agreement, and no consent by Secured Party to
any failure of Debtor to comply with any provision of this Agreement,
shall in any event be effective unless the same shall be in writing
and signed by the person against whom enforcement thereof is sought,
and then such waiver or consent shall be effective only in the
specific instance and for the purpose for which given. No notice to
or demand upon Debtor in any circumstance shall entitle Debtor to any
other or further notice or demand in the same, similar or other
circumstances. All notices, requests and demands to or upon the
respective parties hereto to be effective shall be in writing and
shall be deemed to have been duly given or made when delivered by
hand, or, if earlier, three (3) calendar days after being deposited in
the mail, postage prepaid, or when transmitted by telecopy
transmission, provided that any such notice or communication to Debtor
shall be hand-delivered or transmitted to Debtor at the Debtor Notice
Address (or at such other address as Debtor may specify to Secured
Party in writing from time to time), and any such notice or
communication to Secured Party shall be hand-delivered or transmitted
to Secured Party at the Secured Party Notice Address (or at such other
address as Secured Party may specify to Debtor in writing from time to
time).
4.5 Survival, Merger and Counterparts. All representations,
---------------------------------
warranties, covenants, conditions and agreements contained herein
shall survive the execution and delivery hereof. Debtor shall
continue to observe, comply with and perform all warranties,
covenants, conditions and agreements to be observed,
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complied with or performed by Debtor under this Agreement until all of
the Lender Obligations have been paid in full, there exists no
commitment by any of Lenders or Issuing Bank which could give rise to
any Lender Obligations. This Agreement contains the entire agreement
of the parties with respect to the matters covered and the
transactions contemplated hereby and thereby, and no agreement,
statement or promise made by any party hereto, or by any employee,
officer, agent or attorney of any party hereto, which is not contained
herein or therein, shall be valid or binding. This Agreement may be
executed in any number of counterparts and by different parties on
separate counterparts, each of which, when so executed and delivered,
shall be an original, but all such counterparts shall together
constitute one and the same agreement.
4.6 Law, Jurisdiction, Process, Transfers and
-----------------------------------------
Unenforceability. The performance and construction of this Agreement
----------------
shall be governed by the internal laws of the State of Maryland
(exclusive of principles of conflicts of laws). Debtor agrees that
any suit, action or proceeding with respect to the Collateral or this
Agreement may be brought in any state or federal court located in the
State of Maryland. Debtor consents to the in personam jurisdiction of
-- --------
such courts and Debtor irrevocably waives any objection to, and any
right of immunity from, the jurisdiction of such courts or the
execution of judgments resulting therefrom, on the grounds of venue or
the convenience of the forum. In addition, any such suit, action or
proceeding instituted by Secured Party may be brought in such other
courts in which jurisdiction and venue may be appropriate. Debtor
agrees that service of process in any such suit, action or proceeding
may be effected by mailing a copy thereof by registered or certified
mail (or any substantially similar form of mail), postage prepaid, to
Debtor at the Debtor Notice Address (or at such other address as
Debtor may specify to Secured Party in writing from time to time).
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns, and each
reference in this Agreement to any of the parties hereto shall be
deemed to include the successors and assigns of such party, including,
in the case of Debtor, the debtor, the debtor in possession and
trustee in any case under any chapter of the United States Bankruptcy
Code in which Debtor is debtor. Debtor may not assign this Agreement
or any of its rights hereunder without Secured Party's prior written
consent. Subject to applicable law and agreements, any of Lenders,
Issuing Bank or Noteholders may at any time, in its discretion,
assign, transfer or pledge to any person, or grant to any person a
security interest in, this Agreement or any of its rights hereunder.
Subject to applicable law and agreements, any of Lenders, Issuing Bank
or Noteholders may sell, in such amounts, upon such terms and to such
persons as it may determine, participations in its beneficial
interests under this Agreement. If any term, provision or condition,
or any part thereof, of this
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Agreement shall for any reason be found or held invalid or
unenforceable by any court or governmental agency, such invalidity or
unenforceability shall not affect te remainder of such term, provision
or condition, nor any other term, provision or condition, and this
Agreement shall survive and be construed as if such invalid or
unenforceable term, provision or condition had not been contained
herein or therein; provided, however, that if any rate of interest
provided under this Agreement does or shall exceed the maximum
interest rate which Debtor is permitted by law to contract or agree to
pay, then such rate of interest shall immediately be deemed to be
reduced to such maximum rate and all previous payments of interest in
excess of the maximum rate shall be deemed to have been payments in
reduction of principal and not of interest.
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IN WITNESS WHEREOF, Debtor and Secured Party have duly
executed this Agreement under seal as of the day and year first
written above.
ATTEST/WITNESS: FIRST FIDELITY BANK, NATIONAL
ASSOCIATION, as Agent
_________________________
By:__________________________(SEAL)
Michael W. Coiley
Vice President
AAI CORPORATION
By:__________________________(SEAL)
-------------------------
Paul J. Michaud
Vice President
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