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EXHIBIT 10.19
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FIRST AMENDED AND RESTATED SECURITY AGREEMENT
dated as of March 3, 1997
Between
ADVANCED NEUROMODULATION SYSTEMS, INC.
as Debtor
and
NATIONSBANK OF TEXAS, N.A.
as Secured Party
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TABLE OF CONTENTS
Page
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ARTICLE I. GRANT
1.1 Assignment and Grant of Security . . . . . . . . . . . . . . 2
1.2 Description of Obligations . . . . . . . . . . . . . . . . . 5
1.3 Debtor Remains Liable . . . . . . . . . . . . . . . . . . . 6
1.4 Delivery of Security Collateral . . . . . . . . . . . . . . 6
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1 Representations and Warranties . . . . . . . . . . . . . . . 6
ARTICLE III. COVENANTS
3.1 Further Assurances . . . . . . . . . . . . . . . . . . . . . 8
3.2 Equipment, Fixtures and Inventory . . . . . . . . . . . . . 10
3.3 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.4 Place of Perfection; Records; Collection of Receivables,
Chattel Paper and Instruments . . . . . . . . . . . . . . . 12
3.5 Transfers and Other Liens . . . . . . . . . . . . . . . . . 12
3.6 Brokerage Agreements . . . . . . . . . . . . . . . . . . . . 13
3.7 Rights to Dividends and Distributions . . . . . . . . . . . 14
3.8 Right of Secured Party to Notify Issuers . . . . . . . . . . 14
3.9 Secured Party Appointed Attorney-in-Fact . . . . . . . . . . 14
ARTICLE IV. RIGHTS AND POWERS OF SECURED PARTY
4.1 Secured Party May Perform . . . . . . . . . . . . . . . . . 15
4.2 Secured Party's Duties . . . . . . . . . . . . . . . . . . . 15
4.3 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.4 Further Approvals Required . . . . . . . . . . . . . . . . . 17
4.5 INDEMNITY AND EXPENSES . . . . . . . . . . . . . . . . . . . 18
ARTICLE V. MISCELLANEOUS
5.1 Cumulative Rights . . . . . . . . . . . . . . . . . . . . . 18
5.2 Modifications; Amendments; Schedules; Etc. . . . . . . . . . 18
5.3 Continuing Security Interest . . . . . . . . . . . . . . . . 19
5.4 MANDATORY ARBITRATION . . . . . . . . . . . . . . . . . . . 19
5.5 GOVERNING LAW; TERMS . . . . . . . . . . . . . . . . . . . . 20
5.6 WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . 20
5.7 Secured Party's Right to Use Agents . . . . . . . . . . . . 20
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5.8 No Interference, Compensation or Expense . . . . . . . . . . 20
5.9 Waivers of Rights Inhibiting Enforcement . . . . . . . . . . 20
5.10 Notices and Deliveries . . . . . . . . . . . . . . . . . . . 21
(a) Manner of Delivery . . . . . . . . . . . . . . . . . 21
(b) Addresses . . . . . . . . . . . . . . . . . . . . . . 21
(c) Effectiveness . . . . . . . . . . . . . . . . . . . . 22
5.11 Successors and Assigns . . . . . . . . . . . . . . . . . . . 22
5.12 Loan Paper . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.13 Definitions . . . . . . . . . . . . . . . . . . . . . . . . 22
5.14 Severability . . . . . . . . . . . . . . . . . . . . . . . . 23
5.15 Obligations Not Affected . . . . . . . . . . . . . . . . . . 23
5.16 Prior Security Agreements . . . . . . . . . . . . . . . . . 23
5.17 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . 23
5.18 ENTIRE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . 23
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SCHEDULES:
Schedule 1 - Inventory Locations
Schedule 2 - Required Consents
Schedule 3 - Bank Accounts
Schedule 4 - Insurance
Schedule 5 - Vendor Agreements
Schedule 6 - Excluded Equipment and Furnishings
Schedule 7 - Brokerage Agreements
Schedule 8 - Filing Locations
Schedule 9 - Permits
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FIRST AMENDED AND RESTATED SECURITY AGREEMENT
FIRST AMENDED AND RESTATED SECURITY AGREEMENT, dated as of March 3, 1997
(this "Agreement"), made by Advanced Neuromodulation Systems, Inc., a Texas
corporation ("Debtor"), in favor of NationsBank of Texas, N.A., a national
banking association ("Secured Party").
BACKGROUND.
(1) Secured Party and Quest Medical, Inc. ("Borrower") have entered
into the Credit Agreement dated as of October 22, 1993 (as amended, the
"Original Credit Agreement"), pursuant to which Debtor, successor by merger to
Neuromed, Inc., each a wholly-owned Subsidiary of Borrower entered in a
Security Agreement dated May 28, 1993 ("Facility A Security Agreement") as
amended and restated from time to time, the Security Agreement dated as of
October 22, 1993 ("Existing Security Agreement") as amended and restated from
time to time and related agreements.
(2) Secured Party and Borrower have entered into the First Amended
and Restated Credit Agreement dated as of March 31, 1995 (such agreement,
together with all amendments and restatements thereof, the "1995 Credit
Agreement") which restates in its entirety the Original Credit Agreement.
(3) Secured Party and Borrower have entered into the Second Amended
and Restated Credit Agreement dated as of February 9, 1996 (such agreement,
together with all amendments and restatements thereof, the "Existing Credit
Agreement") which restates in its entirety the 1995 Credit Agreement.
(4) Secured Party and Borrower have entered into the Third Amended
and Restated Credit Agreement dated as of March 3, 1997 (such agreement,
together with all amendments and restatements thereof, the "Credit Agreement")
which restates in its entirety the Existing Credit Agreement.
(5) It is the intention of the parties hereto that this Agreement
create a first priority security interest securing the payment of the
obligations set forth in Section 1.2.
(6) It is a condition precedent to the effectiveness of the Credit
Agreement that Debtor shall have executed and delivered this Security
Agreement.
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AGREEMENT.
NOW, THEREFORE, in consideration of the premises set forth herein and
for other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, and in order to induce Secured Party to make the
Advances under the Credit Agreement, Debtor hereby agrees with Secured Party as
follows:
ARTICLE I. GRANT
1.1 Assignment and Grant of Security. Subject to the last paragraph
of this Section 1.1, Debtor hereby assigns and pledges to Secured Party and
hereby grants to Secured Party a security interest in, the entire right, title
and interest of Debtor, in and to the following assets of Debtor, whether now
owned or hereafter acquired ("Collateral"):
(a) all inventory in all of its forms, wherever located, now or
hereafter existing, including, but not limited to, (i) all raw materials and
work in process therefor, finished goods thereof, and materials used or
consumed in the manufacture or production thereof, (ii) goods in which Debtor
has an interest in mass or a joint or other interest or right of any kind
(including, without limitation, goods in which Debtor has an interest or right
as consignee), and (iii) goods which are returned to or repossessed by Debtor,
and all accessions thereto and products thereof and documents therefor (any and
all such inventory, accessions, products and documents being the "Inventory");
(b) other than equipment described in the last paragraph of this
Section 1.1, all equipment (as defined in the Uniform Commercial Code) and
(whether or not included in such definition), all vehicles, machinery,
chattels, tools, parts, furniture, furnishings and supplies, of every nature,
wherever located, all additions, accessories and improvements thereto and
substitutions therefor and all accessories, parts and equipment which may be
attached to or which are necessary for the operation and use of such personal
property, together with all accessions thereto, and all rights under or arising
out of present or future contracts relating to the foregoing ("Equipment");
(c) all property so related to particular real estate that an
interest in it arises under the real estate law of the jurisdiction in which
such Collateral is located, including all equipment, fixtures and articles of
personal property now or hereafter attached to or used in or about any building
or buildings now erected or hereafter to be erected on any real property now or
hereafter owned or leased by Debtor (the "Property"), which are necessary to
the complete and comfortable use and occupancy of such building or buildings
for the purposes for which they were or are to be erected; all materials to be
delivered to the Property and used or to be used in connection with the
construction of any building to be constructed on the Property, including, but
not limited to, all masonry, siding, roof shingles, flooring, doors, windows,
tile, shutters, stoves, ovens, awnings, screens, cabinets, shades, blinds,
carpets, draperies, furniture, furnishings, plumbing, heating, air
conditioning, lighting, ventilating, refrigerating, cooking,
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laundry and incinerating equipment and all fixtures and appurtenances thereto,
and such other goods and chattels and personal property as are ever used or
furnished in operating such buildings or the activities conducted therein, and
all building materials and equipment now or hereafter delivered to the Property
and intended to be installed thereon ("Fixtures");
(d) all general intangibles (as defined in the Uniform Commercial
Code), and (whether or not included in such definition) all contract rights
other than Receivables; all inventions, processes, production methods,
proprietary information and know-how; and all licenses or other agreements
granted to Debtor with respect to any of the foregoing; all information,
customer lists, advertising lists, advertising contracts, identification of
suppliers, data, plans, blueprints, specifications, designs, drawings, recorded
knowledge, surveys, engineering reports, test reports, manuals, materials
standards, processing standards, performance standards, telephone numbers and
telephone listings, catalogs, books, records, computer and automatic machinery
software and programs, and the like pertaining to operations by or the business
of Debtor; all field accounting information and all media in which or on which
any of the information or knowledge or data or records may be recorded or
stored and all computer programs used for the compilation or printout of such
information, knowledge, records or data; all licenses, consents, permits,
variances, certifications and approvals of all Tribunals now or hereafter held
by Debtor pertaining to operations or business now or hereafter conducted; all
rights to receive return of deposits and trust payments; all rights to payment
under letters of credit and similar agreements; all tax refunds (including,
without limitation, all federal and state income tax refunds and benefits of
net operating loss carry forwards); and all causes of action, rights, claims
and warranties now or hereafter owned or acquired by Debtor ("General
Intangibles");
(e) all of the following, to the extent that not included in "General
Intangibles": trade secrets, all know-how, inventions, processes, methods,
information, data, plans, blueprints, specifications, designs, drawings,
engineering reports, test reports, materials standards, processing standards
and performance standards, and all computer and automatic machinery software
and programs directly related thereto, and all licenses or other agreements to
which Debtor is a party with respect to any of the foregoing ("Trade Secrets");
(f) all instruments and letters of credit (each as defined in the
Uniform Commercial Code), and (whether or not included in such definitions) all
promissory notes, drafts, bills of exchange and trade acceptances
("Instruments");
(g) all writings which evidence both a monetary obligation and a
security interest in or a lease of specific goods ("Chattel Paper");
(h) all documents, warehouse receipts, bills of lading, including,
without limitation, documents of title (as defined in the Uniform Commercial
Code) or other receipts covering, evidencing or representing any property
described in this Section 1.1 ("Documents");
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(i) all accounts, contract rights, Chattel Paper, Documents,
Instruments, deposit accounts, General Intangibles, tax refunds and other
obligations of any kind owing to Debtor, now or hereafter existing, arising out
of or in connection with the sale or lease of goods or the rendering of
services, and all rights now or hereafter existing in and to all security
agreements, leases, and other contracts securing or otherwise relating to any
such accounts, contract rights, Chattel Paper, Documents, Instruments, deposit
accounts, General Intangibles, tax refunds or obligations (any and all such
accounts, contract rights, Chattel Paper, Documents, Instruments, deposit
accounts, General Intangibles, tax refunds and obligations being the
"Receivables");
(j) all licenses, permits and other similar rights now or hereafter
owned by Debtor (including but not limited to all licenses, permits and similar
rights issued by the FDA) and necessary to the operation of its business,
including but not limited to all licenses, permits and other rights listed on
Schedule 9;
(k) all agreements and accounts of Debtor described on Schedule 7,
all interest in any security subject to such agreement or account (including
but not limited to all interest in any equity or debt security, option,
warrant, put, call, futures agreements, commodity agreements, margin accounts,
short positions and partnership interests), all property subject to or
maintained in each such account or pursuant to such agreement, each deposit
account (time, demand or other) in which any proceeds of or income from the
foregoing may be on deposit, all cash maintained with each Person pursuant to
any such agreement or account, all general intangibles consisting of the
foregoing and each agreement, document or Instrument governing or evidencing
any of the foregoing and all amendments and restatements thereof, and all
claims of Debtor against any Person with respect to any of the foregoing (all
of the foregoing being herein collectively called the "Brokerage Agreements");
(l) all rights, claims and benefits of Debtor against any Person
arising out of, relating to or in connection with any property described in
this Section 1.1 purchased by Debtor, including, without limitation, any such
rights, claims or benefits against any Person storing or transporting any
property described in this Section 1.1;
(m) the balance of every deposit account of Debtor under control of
Secured Party and each of its Affiliates and any other claim of Debtor against
Secured Party, now or hereafter existing, liquidated or unliquidated, and all
money, Instruments, securities, Documents, Chattel Paper, credits, claims,
demands, income, and any other property, rights and interests of Debtor which
at any time shall come into the possession or custody or under the control of
Secured Party or any of its agents, affiliates or correspondents, for any
purpose, and the proceeds of any thereof (Secured Party shall be deemed to have
possession of any of the Collateral in transit to or set apart for it or any of
its agents, affiliates or correspondents. The holder of any participation in
the Obligations shall have a right of setoff with respect to any obligation of
such holder to Debtor to satisfy the Obligations);
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(n) all Acquisition Documents;
(o) all agreements with vendors and other distributors of Inventory,
including but not limited to those described in Schedule 5;
(p) all insurance policies and bonds and claims and payments
thereunder;
(q) all property similar to the above hereafter acquired by Debtor;
and
(r) all accessions to, substitutions for and replacements, proceeds
and products of any and all of the foregoing Collateral (including, without
limitation, proceeds which constitute property of the types described in this
Section 1.1) and, to the extent not otherwise included, all (i) payments under
insurance (whether or not Secured Party is the loss payee thereof), or any
indemnity, warranty or guaranty, payable by reason of loss or damage to or
otherwise with respect to any of the foregoing Collateral and (ii) cash.
Nothing in this Section 1.1 or otherwise in any Loan Paper is intended
as a grant of a security interest in any of the following property of Debtor:
(i) heating, ventilation or air conditioning systems now or hereafter
located on the Allen Property,
(ii) the furniture and equipment described on Schedule 6, whether now
owned or hereafter acquired, and all accessions to, substitutions
for and replacements, proceeds and products of such office
furniture and equipment, and
(iii) the computer systems described on Schedule 6, whether now owned
or hereafter acquired, and all accessions to, substitutions for
and replacements, proceeds and products of such computer systems.
The assets described in clauses (i) through (iii) of this paragraph shall not
constitute Collateral for purposes of this Agreement. Secured Party agrees
that, upon request of Debtor, it will execute and deliver to Debtor and MetLife
Capital Corporation or its affiliates (collectively, "MetLife") any documents
reasonably requested by Debtor or MetLife to evidence that Secured Party does
not have a security interest in the assets described in clauses (i) through
(iii) of this paragraph.
1.2 Description of Obligations. This Agreement creates a first
priority security interest securing the payment and performance of the
Obligations, including, but not limited to any and all obligations now or
hereafter existing of Debtor and each other Obligor under the Credit Agreement
and other Loan Papers, including any extensions, modifications, substitutions,
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amendments and renewals thereof, whether for principal, interest, fees,
premium, expenses, indemnification or otherwise (all such obligations of Debtor
and each other Obligor being the "Obligations"). Without limiting the
generality of the foregoing, this Agreement secures the payment of all amounts
which constitute part of the Obligations and would be owed by Debtor and each
other Obligor to Secured Party under any Loan Paper, but for the fact that they
are unenforceable or not allowable due to the existence of a bankruptcy,
reorganization or similar proceeding involving Debtor or any other Person
(including all after, or that would have secured but for, the filing of any
petition in bankruptcy, or the commencement of any insolvency, reorganization
or like proceeding of Debtor or any other Obligor).
1.3 Debtor Remains Liable. Anything herein to the contrary
notwithstanding, (a) Debtor shall remain liable under the contracts and
agreements included in the Collateral to the extent set forth therein to
perform all of its duties and obligations thereunder to the same extent as if
this Agreement had not been executed, (b) the exercise by Secured Party of any
of the Rights hereunder shall not release Debtor from any of its duties or
obligations under the contracts and agreements included in the Collateral, and
(c) Secured Party shall not have any obligation or liability under the
contracts and agreements included in the Collateral by reason of this
Agreement, nor shall Secured Party be obligated to perform any of the
obligations or duties of Debtor thereunder or to take any action to collect or
enforce any claim for payment assigned hereunder.
1.4 Delivery of Security Collateral. All certificates or instruments
representing or evidencing the Collateral and which are issued in the name of
Debtor shall be delivered to and held by or on behalf of Secured Party pursuant
hereto and shall be in suitable form for transfer by delivery, or shall be
accompanied by duly executed instruments of transfer or assignment in blank,
all in form and substance satisfactory to Secured Party. If an Event of
Default exists, Secured Party shall have the right, at any time during such
time in its discretion and without notice to Debtor, to (a) require the
issuance in the name of Debtor and delivery to Secured Party of certificates or
instruments evidencing the interest owned by Debtor in the issuer of such
certificate or instrument (if the security is subject to a Brokerage Agreement
and the Brokerage Agreement permits such issuance) and (b) transfer to or to
register in the name of Secured Party or any of its nominees any or all of the
Collateral. In addition, Secured Party shall have the right at any time to
exchange certificates or instruments representing or evidencing Collateral for
certificates or instruments of smaller or larger denominations.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1 Representations and Warranties. Debtor represents and warrants,
with respect to itself and the Collateral, as follows:
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(a) All of the Equipment, Fixtures and Inventory pledged by Debtor
hereunder is located at the places specified on Schedule 1 hereto (as
supplemented from time to time by Debtor by written notice to Secured Party) or
Inventory in transit to a place specified on Schedule 1 hereto (as supplemented
from time to time by Debtor by written notice to Secured Party) or Inventory in
transit (i) for sale to a third-party purchaser that upon such sale will become
the obligor under a Receivable and (ii) pursuant to a sale in the ordinary
course of Debtor's business. The chief place of business and chief executive
office of Debtor and the office where Debtor keeps all of its records
concerning the Receivables, are located at One Allentown Parkway, Allen, Texas
75002. All Chattel Paper, promissory notes or other instruments evidencing the
Receivables have been delivered and pledged to Secured Party duly endorsed and
accompanied by such duly executed instruments of transfer or assignment as are
necessary for such pledge, to be held as pledged collateral. Debtor has
possession and control of the Equipment and Inventory pledged by it hereunder.
The record owner of the real estate upon which the Equipment, Fixtures and
Inventory are located are indicated on Schedule 1.
(b) Debtor is the legal and beneficial owner of the Collateral
pledged by it free and clear of any Lien, security interest, option or other
charge or encumbrance except for the security interest created by this
Agreement and Permitted Liens. No effective financing statement or other
similar document used to perfect and preserve a security interest under the
Laws of any jurisdiction covering all or any part of the Collateral is on file
in any recording office, except (i) such as may have been filed in favor of
Secured Party relating to this Agreement and (ii) financing statements for
which Debtor will provide to Secured Party on the Closing Date proper original
executed termination statements. As of the date hereof, Debtor (including any
corporate or partnership predecessor) has no trade names and has not existed or
operated under any name other than "Advanced Neuromodulation Systems, Inc." or
"Neuromed, Inc.," since March 3, 1987.
(c) This Agreement and the pledge of the Collateral pursuant hereto
creates a valid and, upon filing of financing statements in the Uniform
Commercial Code records described on Schedule 8, perfected first priority
security interest in the Collateral (other than deposit accounts in financial
institutions which are not Secured Party or subject to a Broker Agreement),
securing the payment of the Obligations, and all filings and other actions
necessary or desirable to perfect and protect such security interest and such
priority have been duly taken (or will be taken).
(d) Except as described on Schedule 2, no consent of any other Person
and no authorization, approval or other action by, and no notice to or filing
with, any Tribunal is required (i) for the pledge by Debtor of the Collateral
pledged by it hereunder, for the grant by Debtor of the security interest
granted hereby or for the execution, delivery or performance of this Agreement
by Debtor, (ii) for the perfection or maintenance of the pledge, assignment and
security interest created hereby (including the first priority nature of such
pledge, assignment and security interest) or (iii) for the exercise by Secured
Party of the Rights provided for in this Agreement or the remedies in respect
of the Collateral pursuant to this Agreement.
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(e) Schedule 3 is a complete and correct list of all deposit accounts
(demand, time, special or other) maintained by or in which Debtor has an
interest and correctly describes the financial institution in which such
account is maintained (including the specific branch), the address and ABA
number of such institution, the officer of such institution having primary
responsibility for Debtor's accounts, the account number and type (as
supplemented from time to time by Debtor by written notice to Secured Party).
(f) Debtor possesses all licenses and Permits, including but not
limited to all applicable certificates of occupancy, licenses and Permits, and
all health and sanitation permits, required for the operations of its business.
Schedule 9 is a complete and correct description of all of such licenses and
Permits.
(g) Schedule 4 is a complete and correct list of all insurance
policies for which Debtor is an insured or for which Debtor is a loss payee.
(h) Schedule 5 is a complete and correct list of all agreements with
each Person related to the resale and distribution of Inventory for each Person
who, during the preceding fiscal year, sold or distributed $25,000 or more of
Debtor's Inventory.
(i) All Inventory of Debtor produced by Debtor in the United States
of America has been produced in compliance with the Fair Labor Standards Act.
(j) Debtor's federal taxpayer identification number is 59-2071994.
(k) There are no conditions precedent to the effectiveness of this
Agreement that have not been satisfied or waived.
ARTICLE III. COVENANTS
3.1 Further Assurances. (a) Debtor agrees that, where any agreement
intended to be Collateral existing as of the date hereof or hereafter to which
Debtor is a party contains any restriction prohibiting Debtor from granting any
security interest under this Agreement, Debtor will use its best efforts to
obtain the necessary consent to or waiver of such restriction from any Person
so as to enable Debtor to effectively grant to Secured Party such security
interest under this Agreement.
(b) Debtor agrees that from time to time, at the expense of Debtor,
Debtor will promptly execute and deliver all further instruments and documents,
and take all further action, that may be reasonably necessary or desirable, or
that Secured Party may reasonably request, in order to perfect and protect any
pledge, assignment or security interest granted or purported to
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be granted hereby, and the priority thereof, or to enable Secured Party to
exercise and enforce its rights and remedies hereunder with respect to any
Collateral. Without limiting the generality of the foregoing, upon written
request by Secured Party, Debtor will: (i) mark conspicuously each Chattel
Paper included in Receivables, and, at the request of Secured Party, each of
its records pertaining to the Collateral with the following legend:
THIS INSTRUMENT IS SUBJECT TO A SECURITY INTEREST AND LIEN PURSUANT TO A
FIRST AMENDED AND RESTATED SECURITY AGREEMENT DATED MARCH 3, 1997 (AS
THE SAME MAY BE MODIFIED OR RESTATED) MADE BY ADVANCED NEUROMODULATION
SYSTEMS, INC., IN FAVOR OF NATIONSBANK OF TEXAS, N.A.
or such other legend, in form and substance satisfactory to and as specified by
Secured Party, indicating that such Chattel Paper or Collateral is subject to
the pledge, assignment and security interest granted hereby; (ii) if any
Collateral shall be evidenced by a promissory note or other Instrument or be
Chattel Paper, deliver and pledge to Secured Party hereunder such note,
Instrument or Chattel Paper duly indorsed and accompanied by duly executed
instruments of transfer or assignment, all in form and substance satisfactory
to Secured Party; and (iii) execute and file such financing or continuation
statements, or amendments thereto, and such other instruments or notices, as
may be necessary or desirable, or as Secured Party may request, in order to
perfect and preserve the pledge, assignment and security interest granted (and
the priority thereof) or purported to be granted hereby.
(c) Debtor hereby authorizes Secured Party to file one or more
financing or continuation statements, and amendments thereto, relating to all
or any part of the Collateral without the signature of Debtor where permitted
by Law. A photocopy or other reproduction of this Agreement or any financing
statement covering the Collateral or any part thereof shall be sufficient as a
financing statement where permitted by Law.
(d) Debtor will furnish to Secured Party from time to time statements
and schedules further identifying and describing the Collateral (including
information in connection with the protection, preservation, maintenance or
enforcement of the security interest) and such other reports in connection with
the Collateral as Secured Party may reasonably request, all in reasonable
detail; provided, if no Default or Event of Default exists, Secured Party will
not make more than one request in any six month period.
(e) Debtor shall not establish or maintain any deposit or similar
bank account not listed on Schedule 3 unless Secured Party receives prior
written notice thereof, Debtor executes and delivers to Secured Party
assignments of such account in such form as Secured Party may request and the
financial institution in which such account will be maintained delivers to
Secured
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Party acknowledgments of the assignment of such account in form and substance
satisfactory to Secured Party.
(f) In addition to such other information as shall be specifically
provided for herein, Debtor shall, if a Default or an Event of Default exists,
furnish to Secured Party such other information with respect to the Collateral
as Secured Party may reasonably request from time to time in connection with
the Collateral, including, without limitation, all documents and things in
Debtor's possession, or subject to its demand for possession, related to the
production and sale by Debtor, or any subsidiary, licensee or subcontractor
thereof, of products or services sold by or under the authority of Debtor,
including by way of example, without limiting the interest granted by this
Agreement: (i) all lists and ancillary documents which identify and describe
any of Debtor's customers, advertisers, or those of its Subsidiaries or
licensees, for products sold or services rendered, including without
limitation, such existing lists and ancillary documents which contain each
customer's full name and address, the identity of the Person or Persons having
the principal responsibility on each customer's behalf for ordering products or
services of the kind supplied by Debtor, the credit, payment, discount,
delivery and other sale terms applicable to such customer, together with
detailed information setting forth the total purchases and the patterns of such
purchases; (ii) all product and service specification documents and production
and quality of services sold; (iii) all documents which reveal the names and
addresses of all sources of supply, and all terms of purchase and delivery, for
all materials and components used in the production of products or provision of
services sold; and (iv) all documents constituting or concerning the then
current or proposed advertising and promotion by Debtor or its subsidiaries,
licensees or subcontractors of products or services sold, including, by way of
example and not in limitation, all documents which reveal the media used or to
be used and the cost for all such advertising conducted within the described
period or planned for such products or services. In connection with its
enforcement of the security interest, Secured Party may use such information or
transfer it to any assignee or sublicensee permitted hereunder for such
assignee's or sublicensee's use.
3.2 Equipment, Fixtures and Inventory.
(a) Debtor shall keep the Equipment, Fixtures and Inventory pledged
by it hereunder (other than Inventory sold in the ordinary course of business)
at the places therefor specified in Section 2.1(a) or, upon thirty days' prior
written notice to Secured Party, at such other places in such jurisdiction
where all action required by Section 3.1 shall have been taken with respect to
the Equipment, Fixtures and Inventory.
(b) Debtor shall cause the Equipment and Fixtures pledged by it
hereunder to be maintained and preserved in the same condition, repair and
working order as when new, ordinary wear and tear excepted, and shall
forthwith, or in the case of any loss or damage to any of the Equipment and
Fixtures as quickly as practicable after the occurrence thereof, make or cause
to be made all repairs, replacements, and other improvements in connection
therewith
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which are necessary or desirable to such end (if, pursuant to Section 3.3,
Secured Party releases to Debtor insurance payments in respect of the loss or
damage). Debtor shall promptly furnish to Secured Party a statement respecting
any loss or damage which singly equals or exceeds $25,000 to any of the
Equipment and Fixtures pledged by it hereunder.
(c) Debtor shall pay promptly when due or before penalty all property
and other taxes, assessments and governmental charges or levies imposed upon,
and all claims (including claims for labor, materials and supplies) against,
the Collateral pledged by it hereunder, except such taxes as are being
contested in good faith by appropriate proceedings for which adequate reserves
have been established in accordance with GAAP, except where the failure to file
such returns, pay such taxes or establish such reserves does not involve unpaid
or allegedly unpaid amounts, in aggregate, in excess of $50,000. Debtor shall
comply with, and shall cause its licensees to comply with, all requirements of
the FDA Act and the Fair Labor Standards Act.
3.3 Insurance. Debtor shall, at its own expense, maintain insurance
with respect to the Collateral in accordance with the terms set forth in
Section 4.4 of the Credit Agreement. Debtor further covenants and agrees to
keep the Collateral which is Equipment, Fixtures and Inventory and other
tangible personal property insured in such amounts, against such risks and with
such insurers as Secured Party may reasonably require. All such policies of
insurance shall be written for the benefit of Secured Party and Debtor, as
their interests may appear, and shall provide for at least thirty Business
Days' prior written notice of cancellation to Secured Party. Debtor shall
promptly furnish to Secured Party evidence of such insurance in form and
content satisfactory to Secured Party. If Debtor fails to perform or observe
any applicable covenants as to insurance on any of such Collateral, Secured
Party may at its own option obtain insurance on only Secured Party's interest
in such Collateral, any premium thereby paid by Secured Party to become part of
the Obligations, bear interest prior to the existence of an Event of Default,
at the then applicable Prime Base Rate, and during the existence of an Event of
Default, at the lesser of (a) the Prime Base Rate, plus 3% and (b) the Highest
Lawful Rate. In the event Secured Party maintains such substitute insurance,
the additional premium for such insurance shall be due on demand and payable by
Debtor to Secured Party in accordance with any notice delivered to Debtor by
Secured Party. Debtor hereby grants Secured Party a security interest in any
refunds of unearned premiums in connection with any cancellation, adjustment or
termination of any policy of insurance required by Secured Party and in all
proceeds of such insurance and hereby appoints Secured Party its
attorney-in-fact to endorse any check or draft that may be payable to Debtor in
order to collect such refunds or proceeds. Any such sums collected by Secured
Party shall be credited, except to the extent applied to the purchase by
Secured Party of similar insurance, to any amounts then owing on the
Obligations in accordance with the Credit Agreement. If no Default under
Section 4.2, 5.6, 5.7, 5.8, 5.9 or 5.11 of the Credit Agreement or an Event of
Default exists, Lender shall deliver to Debtor all insurance payments in
respect of any covered loss and any refund of any premium or other payment;
provided Debtor uses the payment in respect of an insured loss to acquire a
replacement asset of similar value.
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3.4 Place of Perfection; Records; Collection of Receivables, Chattel
Paper and Instruments.
(a) Debtor shall keep its chief place of business and chief executive
office and the office where it keeps its records concerning the Receivables,
and the originals of all Chattel Paper, at the location therefor specified in
Section 2.1(a) or at such other location in the State of Texas as Debtor shall
have given written notice thereof to Secured Party no later than 30 days prior
to the moving thereto. Debtor shall deliver to Secured Party all original
Brokerage Agreements to be held by Secured Party as collateral. Debtor will
hold and preserve such records and Chattel Paper and will permit
representatives of Secured Party at any time during normal business hours to
inspect and make abstracts from and copies of such records and Chattel Paper.
Debtor shall deliver to Secured Party all Instruments to be held by Secured
Party as collateral.
(b) Except as otherwise provided in this Section 3.4(b), Debtor shall
continue to collect, at its own expense, all amounts due or to become due
Debtor under the Receivables, Chattel Paper and Instruments. In connection
with such collections, Debtor may take (and, at Secured Party's direction,
shall take) such action as Debtor or Secured Party may deem reasonably
necessary or advisable to enforce collection of the Receivables, Chattel Paper
and Instruments; provided, however, that Secured Party shall have the right (if
an Event of Default exists) (without notice to Debtor) to notify the account
debtors or obligors under any Receivables, Chattel Paper and Instruments of the
assignment of such Receivables, Chattel Paper and Instruments to Secured Party
and to direct such account debtors or obligors to make payment of all amounts
due or to become due to Debtor thereunder directly to Secured Party and, at the
expense of Debtor, to enforce collection of any such Receivables, Chattel Paper
and Instruments, and to adjust, settle or compromise the amount or payment
thereof, in the same manner and to the same extent as Debtor might have done.
All amounts and proceeds (including Instruments) received by Debtor in respect
of the Receivables, Chattel Paper and Instruments shall be received in trust
for the benefit of Secured Party hereunder, shall be segregated from other
funds of Debtor and shall be forthwith paid over to Secured Party in the same
form as so received (with any necessary indorsement) to be held as cash
collateral and either (A) released to Debtor so long as no Default under
Section 4.2, 5.5, 5.7, 5.8, 5.9 or 5.11 of the Credit Agreement or Event of
Default exists or (B) if any Default under Section 4.2, 5.6, 5.7, 5.8, 5.9 or
5.11 of the Credit Agreement or Event of Default exists, applied as provided
herein. Debtor shall not adjust, settle or compromise the amount or payment of
any Receivable, Chattel Paper or Instrument, release wholly or partly any
account debtor or obligor thereof, or allow any credit or discount thereon
except in accordance with Debtor's historical operating procedure.
3.5 Transfers and Other Liens. Debtor shall not (i) sell, assign (by
operation of Law or otherwise) or otherwise dispose of, or grant any option
with respect to, any of the Collateral, except as permitted under the Credit
Agreement and this Agreement, or (ii) create or permit to exist any Lien,
security interest, option or other charge or encumbrance upon or with respect
to
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any of the Collateral, except for the security interest under this Agreement
(and except as provided for in the Credit Agreement). Debtor may sell
Inventory in the ordinary course of business. Debtor may sell investments
subject to a Brokerage Agreement in which Secured Party has a security
interest; provided, that the proceeds of such sale are subject to a Brokerage
Agreement in which Secured Party has a perfected, first priority security
interest in favor of Secured Party and such sale is in the ordinary course of
Debtor's investment portfolio management. Debtor shall not permit any
amendment, restatement or termination of any Brokerage Agreement without the
prior written consent of Secured Party.
3.6 Brokerage Agreements.
(a) Debtor shall, if any of the shares, securities, moneys or
property previously held by a Person other than Debtor pursuant to a Brokerage
Agreement are received by Debtor, forthwith transfer and deliver to Secured
Party such shares, securities, moneys or property so received by Debtor
(together with the certificates for any such shares and securities duly
endorsed in blank or accompanied by undated stock powers duly executed in
blank), all of which thereafter shall be held by Secured Party, pursuant to the
terms of this Agreement, as part of the Collateral; provided, that if no Event
of Default exists, Debtor may receive cash distributions and dividends (not
consisting of a distribution of or return of capital) declared and paid with
respect to any securities.
(b) (i) For the better perfection of Secured Party's Rights in and
to the Brokerage Agreements or any part thereof and to facilitate
implementation of such Rights, Debtor shall, insofar as possible, if an
Event of Default exists and upon the request of Secured Party (if
Secured Party deems such action necessary to the perfection or priority
of the Liens in the Collateral), cause the Brokerage Agreements to be
transferred, registered or otherwise put into the name or names of such
nominee or nominees of Secured Party as Secured Party shall from time to
time direct.
(ii) So long as no Event of Default exists (and after any Event
of Default until, by notice to Debtor, Secured Party elects while the
Event of Default is continuing to exercise the right to vote or
consent), Debtor shall retain the right to exercise all voting,
consensual and other power of ownership pertaining to the Brokerage
Agreements owned by it for all purposes not inconsistent with the terms
of this Agreement or any other Loan Paper; and Secured Party shall
execute and deliver to Debtor or cause to be executed and delivered to
Debtor all such proxies, powers of attorney, dividend and other orders,
and all such instruments, without recourse, as Debtor may reasonably
request for the purpose of enabling Debtor to exercise the rights and
powers which it is entitled to exercise pursuant to this Section 3.6.
(iii) If any Event of Default exists, and whether or not Secured
Party exercises any available Right to declare any Obligations due and
payable or seeks or
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pursues any other relief or remedy available under applicable Laws or
under any agreement relating to such Obligations, all distributions and
dividends on any securities and payments and distributions in respect of
each Brokerage Agreement shall be paid directly to Secured Party and
retained by it as part of the Collateral subject to the terms of this
Agreement, and, if Secured Party shall so request, Debtor agrees to
execute and deliver to Secured Party appropriate additional dividend,
distribution and other orders and documents to that end.
3.7 Rights to Dividends and Distributions. With respect to any
certificates, bonds, or other instruments or securities (including but not
limited to any certificate or participation issued in any proceeding under any
Debtor Relief Law) constituting a part of the Collateral, Secured Party shall
have authority if an Event of Default exists, without notice to Debtor, either
to have the same registered in Secured Party's name or in the name of a
nominee, and, with or without such registration, to demand of the issuer
thereof, and to receive and receipt for, any and all distributions (including
any stock or similar dividend or distribution) payable in respect thereof,
whether they be ordinary or extraordinary. Except for any property maintained
in a Brokerage Account, if Debtor shall become entitled to receive or shall
receive any interest in or certificate (including, without limitation, any
interest in or certificate representing a distribution in connection with any
reclassification, increase, or reduction of capital, or issued in connection
with any reorganization), or any option or rights arising from or relating to
any of the Collateral, whether as an addition to, in substitution of, as a
conversion of, or in exchange for any of the Collateral, or otherwise, Debtor
agrees to accept the same as Secured Party's agent and to hold the same in
trust on behalf of and for the benefit of Secured Party, and to deliver the
same immediately to Secured Party in the exact form received, with appropriate
undated stock or similar powers, duly executed in blank, to be held by Secured
Party, subject to the terms hereof, as Collateral. Unless an Event of Default
is in existence, Debtor shall be entitled to receive all cash dividends paid in
respect of any of the Collateral (subject to the restrictions of any other Loan
Paper).
3.8 Right of Secured Party to Notify Issuers. If an Event of Default
exists and at such other times as Secured Party is entitled to receive
dividends or distributions and other property in respect of or consisting of
Instruments and securities, Secured Party may notify each party to a Brokerage
Agreement and issuers of the Instruments and securities to make payments of all
dividends and distributions directly to Secured Party and Secured Party may
take control of all proceeds of any Instruments and securities. Until Secured
Party elects to exercise such Rights, during the continuance of an Event of
Default, Debtor, as agent of Secured Party, shall collect and segregate all
dividends and distributions and other amounts paid or distributed with respect
to the Instruments and securities.
3.9 Secured Party Appointed Attorney-in-Fact. Debtor hereby
irrevocably appoints Secured Party Debtor's attorney-in-fact, with full
authority in the place and stead of Debtor and in the name of Debtor or
otherwise to take any action and to execute any instrument which
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Secured Party may deem necessary or advisable to accomplish the purposes of
this Agreement, including, without limitation (provided that the actions listed
in each clause below other than the obtainment of insurance may only be taken
or exercised if an Event of Default exists):
(a) to obtain and adjust insurance required to be paid to Secured
Party pursuant to Section 3.3,
(b) to ask, demand, collect, sue for, recover, compromise, receive
and give acquittance and receipts for moneys due and to become due under or in
connection with the Collateral,
(c) to receive, indorse, and collect any drafts or other Instruments,
documents and Chattel Paper, in connection therewith, and
(d) to file any claims or take any action or institute any
proceedings which Secured Party may deem necessary or desirable for the
collection of any of the Collateral or otherwise to enforce compliance with the
terms and conditions of any Collateral or the rights of Secured Party with
respect to any of the Collateral. DEBTOR HEREBY IRREVOCABLY GRANTS TO SECURED
PARTY DEBTOR'S PROXY (EXERCISABLE IF AN EVENT OF DEFAULT EXISTS) TO VOTE ANY
SECURITIES COLLATERAL AND APPOINTS SECURED PARTY DEBTOR'S ATTORNEY-IN-FACT TO
PERFORM ALL OBLIGATIONS OF DEBTOR UNDER THIS AGREEMENT AND TO EXERCISE ALL OF
SECURED PARTY'S RIGHTS HEREUNDER. THE PROXY AND EACH POWER OF ATTORNEY HEREIN
GRANTED, AND EACH STOCK POWER AND SIMILAR POWER NOW OR THEREAFTER GRANTED
(INCLUDING ANY EVIDENCED BY A SEPARATE WRITING), ARE COUPLED WITH AN INTEREST
AND ARE IRREVOCABLE PRIOR TO FINAL PAYMENT IN FULL OF THE OBLIGATIONS.
ARTICLE IV. RIGHTS AND POWERS OF SECURED PARTY
4.1 Secured Party May Perform. If Debtor fails to perform any
agreement contained herein, Secured Party may itself perform, or cause
performance of, such agreement, and the expenses of Secured Party incurred in
connection therewith shall be payable by Debtor under Section 4.5.
4.2 Secured Party's Duties. The powers conferred on Secured Party
hereunder are solely to protect its interest in the Collateral and shall not
impose any duty upon it or any Secured Party to exercise any such powers.
Except for the safe custody of any Collateral in its possession and the
accounting for moneys actually received by it hereunder, Secured Party shall
have no duty as to any Collateral, as to ascertaining or taking action with
respect to calls, conversions, exchanges, maturities, tenders or other matters
relative to any Collateral, whether
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or not Secured Party has or is deemed to have knowledge of such matters, or as
to the taking of any necessary steps to preserve rights against prior parties
or any other rights pertaining to any reasonable care in the custody and
preservation of any Collateral in its possession if such Collateral is accorded
treatment substantially equal to that which Secured Party accords its own
property. Except as provided in this Section 4.2, Secured Party shall not have
any duty or liability to protect or preserve any Collateral or to preserve
rights pertaining thereto. Nothing contained in this Agreement shall be
construed as requiring or obligating Secured Party, and Secured Party shall not
be required or obligated, to (a) present or file any claim or notice or take
any action, with respect to any Collateral or in connection therewith or (b)
notify Debtor of any decline in the value of any Collateral.
4.3 Remedies. If any Event of Default exists:
(a) Secured Party may exercise in respect of the Collateral, in
addition to other rights and remedies provided for herein or otherwise
available to it, all the rights and remedies of a secured party on default
under the Uniform Commercial Code in effect in the State of Texas at that time
(the "UCC") (whether or not the Uniform Commercial Code applies to the affected
Collateral), and also may (i) require Debtor to, and Debtor hereby agrees that
it will at its expense and upon request of Secured Party forthwith, assemble
all or part of the Collateral as directed by Secured Party and make it
available to Secured Party at a place to be designated by Secured Party which
is reasonably convenient to both parties at public or private sale, at any of
Secured Party's offices or elsewhere, for cash, on credit or for future
delivery, and upon such other terms as Secured Party may deem commercially
reasonable. Debtor agrees that, to the extent notice of sale shall be required
by Law, ten days' notice to Debtor of the time and place of any public sale or
the time after which any private sale is to be made shall constitute reasonable
notification. Secured Party shall not be obligated to make any sale of
Collateral regardless of notice of sale having been given. Secured Party may
adjourn any public or private sale from time to time by announcement at the
time and place fixed therefor, and such sale may, without further notice, be
made at the time and place to which it was so adjourned.
(b) All cash proceeds received by Secured Party upon any sale of,
collection of, or other realization upon, all or any part of the Collateral
shall be applied as follows:
First: To the payment of all out-of-pocket costs and expenses incurred
in connection with the sale of, collection of or other realization upon
Collateral, including reasonable attorneys' fees and disbursements;
Second: To the payment of the Obligations in such order and in such
manner consistent with applicable Laws as Secured Party in its
discretion shall decide (with Debtor remaining liable for any
deficiency); and
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Third: To the extent of the balance (if any) of such proceeds, to
Debtor or other Person legally entitled thereto.
(c) All payments received by Debtor under or in connection with any
Collateral shall be received in trust for the benefit of Secured Party, shall
be segregated from other funds of Debtor and shall be forthwith paid over to
Secured Party in the same form as so received (with any necessary indorsement).
(d) Because of the FDA Act, the Securities Act of 1933, as amended
("Securities Act") and other Laws, including without limitation state blue sky
Laws, or contractual restrictions or agreements imposed by any licensor or
licensee of certain Rights, there may be legal restrictions or limitations
affecting Secured Party in any attempts to dispose of the Collateral and the
enforcement of its Rights hereunder. For these reasons, Secured Party is
hereby authorized by Debtor, but not obligated, if any Event of Default exists,
to sell or otherwise dispose of any of the Collateral at private sale, subject
to an investment letter, or in any other manner which will be in compliance
with the FDA Act, will not require the Collateral, or any part thereof, to be
registered in accordance with the Securities Act, and the rules and regulations
promulgated under the foregoing, and each other Law applicable to the
Collateral. Secured Party is also hereby authorized by Debtor, but not
obligated, to take such actions, give such notices, obtain such consents, and
do such other things as Secured Party may deem required or appropriate under
the FDA Act, Securities Act or other Laws or contractual restrictions or
agreements in the event of a sale or disposition of any Collateral. Debtor
clearly understands that Secured Party may in its discretion approach a
restricted number of potential purchasers and that a sale under such
circumstances may yield a lower price for the Collateral than would otherwise
be obtainable if same were registered and sold in the open market. No sale so
made in good faith by Secured Party shall be deemed to be not "commercially
reasonable" because so made. Debtor agrees that in the event Secured Party
shall, if an Event of Default exists, sell the Collateral or any portion
thereof at any private sale or sales, Secured Party shall have the right to
rely upon the advice and opinion of appraisers and other Persons, which
appraisers and other Persons are acceptable to Secured Party, as to the best
price reasonably obtainable upon such a private sale thereof. In the absence
of fraud, such reliance shall be conclusive evidence that Secured Party handled
such matter in a commercially reasonable manner under applicable Law.
4.4 Further Approvals Required.
(a) In connection with the exercise by Secured Party of its Rights
hereunder that effects the disposition of or use of any Collateral, it may be
necessary to obtain the prior consent or approval of Tribunals and other
Persons to a transfer or assignment of Collateral, including, without
limitation, the FDA.
(b) Debtor hereby agrees, if an Event of Default exists, to execute,
deliver, and file, and hereby appoints (to the extent permitted under
applicable Law) Secured Party as its attorney-
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in-fact, if an Event of Default exists, to execute, deliver, and file on
Debtor's behalf and in Debtor's name, all applications, certificates, filings,
instruments, and other documents (including without limitation any application
for an assignment or transfer of control or ownership) that may be necessary or
appropriate, in Secured Party's opinion, to obtain such consents, waivers, or
approvals. Debtor further agrees to use its best efforts to obtain the
foregoing consents, waivers, and approvals, including receipt of consents,
waivers, and approvals under applicable agreements prior to a Default or Event
of Default. Debtor acknowledges that there is no adequate remedy at Law for
failure by it to comply with the provisions of this Section 4.4(b) and that
such failure would not be adequately compensable in damages, and therefore
agrees that this Section 4.4(b) may be specifically enforced.
4.5 INDEMNITY AND EXPENSES. (A) DEBTOR AGREES TO INDEMNIFY SECURED
PARTY FROM AND AGAINST ANY AND ALL CLAIMS, LOSSES AND LIABILITIES (INCLUDING
REASONABLE ATTORNEYS' FEES) GROWING OUT OF OR RESULTING FROM THIS AGREEMENT
(INCLUDING, WITHOUT LIMITATION, ENFORCEMENT OF THIS AGREEMENT), EXCEPT CLAIMS,
LOSSES OR LIABILITIES RESULTING FROM SECURED PARTY'S GROSS NEGLIGENCE OR
WILLFUL MISCONDUCT.
(b) Debtor will upon demand pay to Secured Party the amount of any
and all reasonable expenses, including the reasonable fees and expenses of its
counsel and of any experts and agents, which Secured Party may incur in
connection with (i) the administration of this Agreement, (ii) the custody,
preservation, use or operation of, or the sale of, collection from, or other
realization upon, any of the Collateral, (iii) the exercise or enforcement of
any of the Rights of Secured Party hereunder or (iv) the failure by Debtor to
perform or observe any of the provisions hereof. Any payments so made shall be
a part of the Obligation, shall be payable upon demand, and shall bear interest
(i) if no Event of Default exists, at the Prime Base Rate, and (ii) if an Event
of Default exists, at the lesser of (A) the Prime Base Rate plus 3% and (B) the
Highest Lawful Rate.
ARTICLE V. MISCELLANEOUS
5.1 Cumulative Rights. All Rights of Secured Party under the Loan
Papers are cumulative of each other and of every other Right which Secured
Party may otherwise have at Law or in equity or under any other contract or
other writing for the enforcement of the security interest herein or the
collection of the Obligations. The exercise of one or more Rights shall not
prejudice or impair the concurrent or subsequent exercise of other Rights.
5.2 Modifications; Amendments; Schedules; Etc. No amendment or
waiver of any provision of this Agreement, and no consent to any departure by
Debtor here from, shall in any event be effective unless the same shall be in
writing and signed by Secured Party, and then such
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waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given. Upon any change in any material information
disclosed on any schedule, Debtor shall promptly prepare and deliver to Secured
Party a replacement schedule, indicating its effective date, in form and
substance satisfactory to Secured Party and amendments to and additional
financing statements as Secured Party may require to preserve and perfect a
first priority security interest in the Collateral.
5.3 Continuing Security Interest. This Agreement shall create a
continuing security interest in the Collateral and shall (a) remain in full
force and effect until the later of (i) the final payment in full of the
Obligations and all amounts payable under this Agreement and (ii) the
expiration or termination of the obligations of Secured Party to extend credit
to Debtor, (b) be binding upon Debtor, its successors and assigns, and (c)
inure to the benefit of, and be enforceable by, Secured Party and its
successors, transferees and assigns. Upon any such termination, Secured Party
will, at Debtor's expense, execute and deliver to Debtor such documents as such
Debtor shall reasonably request to evidence such termination.
5.4 MANDATORY ARBITRATION. (A) ANY CONTROVERSY OR CLAIM BETWEEN OR
AMONG THE PARTIES HERETO INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR ANY RELATED AGREEMENTS OR INSTRUMENTS, INCLUDING
ANY CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT, SHALL BE DETERMINED BY
BINDING ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION ACT (OR IF NOT
APPLICABLE, THE APPLICABLE STATE LAW), THE RULES OF PRACTICE AND PROCEDURE FOR
THE ARBITRATION OF COMMERCIAL DISPUTES OF JUDICIAL ARBITRATION AND MEDIATION
SERVICES, INC. ("JAMS"), AND THE "SPECIAL RULES" SET FORTH BELOW. IN THE EVENT
OF ANY INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL. JUDGMENT UPON ANY
ARBITRATION AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. ANY PARTY
TO THIS AGREEMENT MAY BRING AN ACTION, INCLUDING A SUMMARY OR EXPEDITED
PROCEEDING, TO COMPEL ARBITRATION OF ANY CONTROVERSY OR CLAIM TO WHICH THIS
AGREEMENT APPLIES IN ANY COURT HAVING JURISDICTION OVER SUCH ACTION.
(b) Special Rules. The arbitration shall be conducted in Dallas,
Texas and administered by JAMS who will appoint an arbitrator; if JAMS is
unable or legally precluded from administering the arbitration, then the
American Arbitration Association will serve. All arbitration hearings will be
commenced within ninety days of the demand for arbitration; further, the
arbitrator shall only, upon a showing of cause, be permitted to extend the
commencement of such hearing for up to an additional sixty days.
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(c) Reservations of Rights. Nothing in this Agreement or any other
Loan Paper shall be deemed to (i) limit the applicability of any otherwise
applicable statutes of limitation or repose and any waivers contained in this
Agreement; or (ii) be a waiver by Secured Party of the protection afforded to
it by 12 U.S.C. Section 91 or any substantially equivalent state law; or (iii)
limit the right of Secured Party hereto (A) to exercise self help remedies such
as (but not limited to) setoff, or (B) to foreclose against any real or
personal property collateral, or (C) to obtain from a court provisional or
ancillary remedies such as (but not limited to) injunctive relief or the
appointment of a receiver. Secured Party may exercise such self help rights,
foreclose upon such property, or obtain such provisional or ancillary remedies
before, during or after the pendency of any arbitration proceeding brought
pursuant to this Agreement. At Secured Party's option, foreclosure under a
deed of trust or mortgage may be accomplished by any of the following: the
exercise of a power of sale under the deed of trust or mortgage, or by judicial
sale under the deed of trust or mortgage, or by judicial foreclosure. Neither
this exercise of self help remedies nor the institution or maintenance of an
action for foreclosure or provisional or ancillary remedies shall constitute a
waiver of the right of any party, including the claimant in any such action, to
arbitrate the merits of the controversy or claim occasioning resort to such
remedies.
5.5 GOVERNING LAW; TERMS. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, EXCEPT TO THE
EXTENT THAT THE VALIDITY OR PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR
REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY THE
LAWS OF A JURISDICTION OTHER THAN THE STATE OF TEXAS. UNLESS OTHERWISE DEFINED
HEREIN OR IN THE CREDIT AGREEMENT, TERMS USED IN ARTICLE 9 OF THE UCC ARE USED
HEREIN AS THEREIN DEFINED.
5.6 WAIVER OF JURY TRIAL. SECURED PARTY AND DEBTOR HEREBY WAIVE
TRIAL BY JURY IN ANY JUDICIAL PROCEEDINGS INVOLVING, DIRECTLY OR INDIRECTLY,
ANY MATTER (WHETHER IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF,
RELATED TO, OR CONNECTED WITH THIS AGREEMENT OR THE RELATIONSHIP ESTABLISHED
HEREUNDER.
5.7 Secured Party's Right to Use Agents. Secured Party may exercise
its Rights under this Agreement through an agent or other designee.
5.8 No Interference, Compensation or Expense. Secured Party may
exercise its Rights under this Agreement without payment of any rent, license
fee or compensation of any kind to Debtor.
5.9 Waivers of Rights Inhibiting Enforcement. Debtor waives (a) any
claim that, as to any part of the Collateral, a public sale, should the Secured
Party elect so to proceed, is, in and
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of itself, not a commercially reasonable method of sale for such Collateral,
(b) except as otherwise provided in this Agreement, TO THE EXTENT PERMITTED BY
APPLICABLE LAW, NOTICE OR JUDICIAL HEARING IN CONNECTION WITH SECURED PARTY'S
DISPOSITION OF ANY OF THE COLLATERAL INCLUDING ANY AND ALL PRIOR NOTICE AND
HEARING FOR ANY PREJUDGMENT REMEDY OR REMEDIES AND ANY SUCH RIGHT THAT DEBTOR
WOULD OTHERWISE HAVE UNDER THE CONSTITUTION OR ANY STATUTE OF THE UNITED STATES
OR OF ANY STATE, AND ALL OTHER REQUIREMENTS AS TO THE TIME, PLACE AND TERMS OF
SALE OR OTHER REQUIREMENTS WITH RESPECT TO THE ENFORCEMENT OF SECURED PARTY'S
RIGHTS HEREUNDER and (c) all rights of redemption, appraisal or valuation.
5.10 Notices and Deliveries.
(a) Manner of Delivery. All notices, communications and materials to
be given or delivered pursuant to this Agreement shall, except in those cases
where giving notice by telephone is expressly permitted, be given or delivered
in writing. All written notices, communications and materials shall be sent by
registered or certified mail, postage prepaid, return receipt requested, by
telecopier, or delivered by hand. In the event of a discrepancy between any
telephonic notice and any written confirmation thereof, such written
confirmation shall be deemed the effective notice except to the extent Secured
Party or Debtor has acted in reliance on such telephonic notice.
(b) Addresses. All notices, communications and materials to be given
or delivered pursuant to this Agreement shall be given or delivered at the
following respective addresses and telecopier and telephone numbers and to the
attention of the following individuals or departments:
(i) if to Debtor, to it at:
Advanced Neuromodulation Systems, Inc.
c/o Quest Medical, Inc.
One Allentown Parkway
Allen, Texas 75002
Telecopier No.: (972) 390-9687
Telephone No.: (972) 390-9800
Attention: F. Robert Merrill III
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(ii) if to Secured Party, to it at:
NationsBank of Texas, N.A.
NationsBank Plaza
901 Main Street
7th Floor
Dallas, Texas 75202
Telecopier No.: (214) 508-3140
Telephone No.: (214) 508-2825
Attention: Commercial Banking
or at such other address or, telecopier or telephone number or to the attention
of such other individual or department as the party to which such information
pertains may hereafter specify for the purpose in a notice to the other
specifically captioned "Notice of Change of Address".
(c) Effectiveness. Each notice, communication and any material to be
given or delivered to Secured Party or Debtor pursuant to this Agreement shall
be effective or deemed delivered or furnished (i) if sent by certified mail,
return receipt requested, on the fifth Business Day after such notice,
communication or material is deposited in the mail, addressed as above
provided, (ii) if sent by telecopier, when such notice, communication or
material is transmitted to the appropriate number determined as above provided
in this Section 5.10 and the appropriate receipt is received or otherwise
acknowledged, (iii) if sent by hand delivery or overnight courier, when left at
the address of the addressee addressed as above provided, and (iv) if given by
telephone, when communicated to the individual or any member of the department
specified as the individual or department to whose attention notices,
communications and materials are to be given or delivered except that notices
of a change of address, telecopier or telephone number or individual or
department to whose attention notices, communications and materials are to be
given or delivered shall not be effective until received.
5.11 Successors and Assigns. All of the provisions of this Agreement
shall be binding and inure to the benefit of the parties thereto and their
respective successors and assigns.
5.12 Loan Paper. This Agreement is a Loan Paper executed pursuant to
the Credit Agreement and shall (unless otherwise expressly indicated herein) be
construed, administered and applied in accordance with the terms and provisions
thereof.
5.13 Definitions. Capitalized terms not otherwise defined herein have
the meaning specified in the Credit Agreement and, to the extent of any
conflict, terms as defined in the Credit Agreement shall control (provided,
that a more expansive or explanatory definition shall not be deemed a
conflict).
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5.14 Severability. If any provision of any Loan Paper is held to be
illegal, invalid, or unenforceable under present or future Laws during the term
thereof, such provision shall be fully severable, the appropriate Loan Paper
shall be construed and enforced as if such illegal, invalid, or unenforceable
provision had never comprised a part thereof, and the remaining provisions
thereof shall remain in full force and effect and shall not be affected by the
illegal, invalid, or unenforceable provision or by its severance therefrom.
Furthermore, in lieu of such illegal, invalid, or unenforceable provision there
shall be added automatically as a part of such Loan Paper a legal, valid, and
enforceable provision as similar in terms to the illegal, invalid, or
unenforceable provision as may be possible.
5.15 Obligations Not Affected. To the fullest extent permitted by
applicable Law, the obligations of Debtor under this Agreement shall remain in
full force and effect without regard to, and shall not be impaired or affected
by:
(a) any amendment or modification or addition or supplement to any
Loan Paper, any instrument delivered in connection therewith or any assignment
or transfer thereof;
(b) any exercise, non-exercise, or waiver by Secured Party of any
Right, remedy, power or privilege under or in respect of, or any release of any
guaranty, any collateral or the Collateral or any part thereof provided
pursuant to, this Agreement or any Loan Paper;
(c) any waiver, consent, extension, indulgence or other action or
inaction in respect of this Agreement or any Loan Paper or any assignment or
transfer of any thereof; or
(d) any bankruptcy, insolvency, reorganization, arrangement,
readjustment, composition, liquidation or the like of Debtor, or any other
Person, whether or not Debtor shall have notice or knowledge of any of the
foregoing.
5.16 Prior Security Agreements. This Agreement restates in their
entirety each of the Facility A Security Agreement and the Existing Security
Agreement.
5.17 Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed an
original, but all such counterparts together shall constitute but one and the
same instrument.
5.18 ENTIRE AGREEMENT. THIS WRITTEN AGREEMENT, TOGETHER WITH THE
OTHER LOAN PAPERS, REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY
NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE
PARTIES.
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REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
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IN WITNESS WHEREOF, Debtor and Secured Party have caused this Agreement
to be duly executed and delivered as of the date first above written.
DEBTOR:
ADVANCED NEUROMODULATION
SYSTEMS, INC.
By: /s/ F. ROBERT MERRILL III
------------------------------------
F. Robert Merrill III,
Vice President
SECURED PARTY:
NATIONSBANK OF TEXAS, N.A.
By: /s/ BRIAN K. SCHNEIDER
------------------------------------
Brian K. Schneider,
Vice President
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