[EXECUTION COPY]
FORECLOSURE AGREEMENT
This Foreclosure Agreement, dated as of August 5, 2005 (this
"Agreement"), by and among SCAN-OPTICS, INC., a Delaware corporation (the
"Borrower"), SO ACQUISITION, LLC, as the lender party to the Credit Agreement
(as defined hereinafter) (the "Lender"), and PATRIARCH PARTNERS AGENCY SERVICES,
LLC, a Delaware limited liability company, as agent for the Lender (in such
capacity, together with any successor agent, the "Agent").
RECITALS
I. Pursuant to that certain Third Amended and Restated Credit
Agreement, dated as of March 30, 2004, by and among the Borrower, certain
subsidiaries of the Borrower as guarantors thereto, the Lender and the Agent, as
amended by that certain First Amendment to Third Amended and Restated Credit
Agreement dated as of June 27, 2005 (as so amended, and as further amended,
restated, supplemented or otherwise modified from time to time, the "Credit
Agreement"), and certain other documents, instruments and agreements executed
pursuant thereto or in connection therewith (collectively, the "Related
Agreements" and together with the Credit Agreement, the "Loan Documents"), the
Lender (or its predecessors in interest in the Loans (as defined hereinafter)
has made loans to and other financial accommodations to, or for the benefit of,
the Borrower (all such loans and other financial accommodations being herein
referred to collectively as the "Loans"). The Loans and all other obligations of
the Borrower to the Lender, howsoever created, arising or evidenced
(collectively, the "Loan Obligations"), are secured by substantially all of the
Borrower's assets.
II. Pursuant to those certain Assignment Agreements, dated as of August
5, 2005, between Zohar CDO 2003-1, Limited and Zohar II 2005-1, Limited, on the
one hand (together, the "Prior Lenders"), and Lender, on the other hand, the
Lender purchased all of the Prior Lenders' right, title and interest in the Loan
Documents and the Loan Obligations.
III. The Borrower acknowledges that as of August 5, 2005, (a) the
aggregate outstanding principal amount of the Loans is $14,310,000, (b) the
Borrower has failed to repay certain principal amounts in accordance with the
requirements of Section 2.9 of the Credit Agreement, and (c) the Borrower has
defaulted on its obligations under Section 6.2(c) of the Credit Agreement by
permitting Consolidated Earnings Before Interest Taxes and Depreciation and
Amortization for the four consecutive Fiscal Quarters ending June 30, 2005 to be
less than $208,000.
IV. As of the date of this Agreement, the Lender and the Borrower each
have determined, independently, that the principal amount of all Loans
outstanding exceeds the fair market value of the Borrower's business as a going
concern.
V. The Borrower acknowledges that, as a result of continuing defaults
by the Borrower in the performance of the Loan Obligations, the Lender has the
right, with the written consent of the Borrower, under Section 9-620 of the
Delaware Commercial Code or the equivalent provisions of any relevant state's
Uniform Commercial Code (collectively, the "UCC") to accept the Collateral (as
hereinafter defined) in partial satisfaction of the Loan Obligations.
VI. The Borrower acknowledges that, effective as of the date hereof,
all Loan Obligations have been accelerated and are immediately due and payable.
VII. The Lender has asked the Borrower and the Borrower has agreed to
(a) surrender possession of the Subject Assets to the Lender in partial
satisfaction of the Loan Obligations to the extent such assets are subject to
foreclosure under the UCC and (b) surrender possession of all remaining Subject
Assets to the Lender as payment in kind for the remaining balance of the Loan
Obligations.
VIII. In order to maximize the value of the Collateral as part of a
going concern, the Lender has agreed to assume certain obligations of the
Borrower, as further described in this Agreement.
AGREEMENT
NOW THEREFORE, in consideration of the mutual promises and agreements
set forth herein, the Borrower, the Agent and the Lender agree as follows:
1. Incorporation of Recitals. The Recitals set forth above are true and
correct, and are incorporated into and form an integral part of the agreement
among the parties contained in this Agreement.
2. Acceptance.
2.1 Subject Assets. Subject to the terms and conditions set forth
in this Agreement, at the Closing (as defined hereinafter) the Borrower shall
assign, transfer and deliver to the Lender, and the Lender shall accept, acquire
and take assignment and delivery of, all of the Borrower's right, title and
interest in and to all of the assets of the Borrower (in each case, including,
but not limited to, those assets set forth on Schedule 2.1, hereinafter referred
to collectively as the "Subject Assets"), as follows: (i) to the extent the
Subject Assets are subject to a security interest in favor of the Agent or the
Lender under Article 9 of the UCC (the "Collateral"), such Subject Assets shall
be assigned, transferred and delivered to the Lender free and clear of all
liens, claims, security interests and encumbrances pursuant to Section 9-620 of
the UCC, in partial satisfaction of the Loan Obligations and (ii) all remaining
Subject Assets shall be assigned, transferred and delivered to the Lender by
other applicable law or as payment in kind in consideration of the Lender's
releasing on the Closing Date (as hereinafter defined) the Borrower from the
remaining balance of such Loan Obligations; provided,
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however, that the Subject Assets shall not include the Excluded Assets (as
defined in Section 2.2).
2.2 Excluded Assets. Notwithstanding the foregoing, the Borrower
is not transferring, and the Lender is not accepting, any of the assets more
particularly described on Schedule 2.2 (such assets hereinafter being referred
to collectively as the "Excluded Assets").
2.3 Assumption of Obligations or Liabilities.
(a) The Lender is not assuming any liabilities or obligations of
any kind or nature whatsoever of the Borrower except as
specifically indicated on Schedule 2.3(a).
(b) The Lender hereby assumes the obligation to fund all
disbursement requests on the Borrower's bank accounts (as
set forth on Attachment 1 to Schedule 2.1 (the "Bank
Accounts") with respect to checks or debit advices dated on
or before August 5, 2005. The Lender shall satisfy such
obligations by depositing or arranging to deposit in the
Bank Accounts funds sufficient to cover such Obligations on
a timely basis following a request for such funding from the
Borrower.
2.4 Employees. The Lender shall offer employment, subject to and
effective upon Closing, to all employees employed by the Borrower as of the
Closing Date (the "Employees"). The offer by Lender shall be on terms
substantially equivalent to those terms on which each such Employee was employed
by the Borrower immediately prior to Closing. Nothing in this Section 2.4 shall
be construed as a guarantee of employment for any particular period, or any
limitation on the right of the Lender, in its sole and exclusive discretion, to
establish, modify, or eliminate the employment terms and conditions of its
employees. In addition, for the avoidance of doubt, the Lender is not assuming
any liabilities or obligations with respect to any employment agreements.
2.5 Employee Benefit Plans. Upon the Closing Date, the Lender (i)
shall assume sponsorship of each contract, plan, arrangement or policy and each
other plan or arrangement providing for compensation, bonuses, profit-sharing,
forms of incentive or deferred compensation, vacation benefits, insurance
(including any self-insured arrangements), health or medical benefits, employee
assistance programs, disability or sick leave benefits, workers' compensation,
supplemental unemployment benefits, severance benefits and post-employment or
retirement benefits (including compensation, pension, health, medical or life
insurance benefits) (collectively, the "Employee Benefit Plans") sponsored by
the Borrower and (ii) is hereby substituted for the previous sponsor and
previous administrator as plan sponsor and plan administrator, respectively,
under each of the Employee Benefit Plans. As of the Closing Date, the previous
sponsor and all previous participating employers shall cease to be a
"participating employer" under the Employee Benefit Plans. All references in the
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Employee Benefit Plans to the previous sponsor are hereby changed to references
to the Lender, and the Lender assumes all powers, duties, rights, privileges,
obligations and liabilities of the previous plan sponsor under those plans. Each
of the Employee Benefit Plans shall be maintained and administered by the Lender
in accordance with its terms subject to the same powers to amend or terminate
such plan previously reserved to the previous plan sponsor. As of the Closing
Date, the Lender hereby assumes all responsibilities and liabilities for making
contributions and paying benefits under each Employee Benefit Plan whether
incurred or accrued prior to or subsequent to the Closing Date. As of the
Closing Date, the Lender hereby assumes any and all agreements and insurance
contracts relating to any Employee Benefit Plan between the previous sponsor and
any insurance company, third party administrator, recordkeeper, trustee or
actuary. The Borrower shall use its best efforts to assist the Lender in
securing any consents required for the Lender to assume any agreements and
insurance contracts relating to the Employee Benefit Plans. Notwithstanding the
foregoing, Lender is not assuming any liabilities or obligations of any kind or
nature whatsoever of the Borrower regarding or related to accrued retirement
benefits owed by Borrower to Clarence Rife.
2.6 Accrued Benefits. The Lender agrees that each Employee will be
given credit for all service with the Borrower for the purposes of determining
eligibility, participation and vesting in all employee benefits offered by the
Lender. Such grant of past service credit will include, without limitation, for
benefit accrual and computation purposes, all vacation, sick leave and paid time
off. In addition, the Lender agrees to continue to recognize, or otherwise be
responsible for satisfying accrued benefits with respect to, all vacation time,
sick leave, paid time off, or other leave accrued by each Employee as of the
Closing.
2.7 Compliance with the UCC. It is the express intent of the
parties hereto that the acceptance and transfer of the Collateral contemplated
hereby be consummated pursuant to Section 9-620 of the UCC. The Borrower
acknowledges and agrees that this Agreement shall be deemed the Borrower's
acceptance of and consent to Lender's proposal pursuant to Section 9-620 of the
UCC of the Lender's proposal for acceptance of the Collateral in partial
satisfaction of the Loan Obligations, which shall be received by the Lender in
partial satisfaction of the Loan Obligations as provided herein, and shall
discharge, by operation of law, any security interests or liens subordinate to
the security interests and liens on the Collateral of the Agent and the Lender.
The parties acknowledge and agree that effective as of the Closing Date the
Borrower has transferred all of its right, title and interest in and to the
Subject Assets to the Lender and from and after the Closing Date the Borrower
shall have no beneficial interest in the Subject Assets notwithstanding the
failure to obtain any consents, approvals or acknowledgements by any third
party.
3. Liabilities.
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3.1 No Assumption of Liabilities. The Borrower agrees that the
Agent and the Lender have not assumed any liability or obligation with respect
to any of the Subject Assets except as set forth on Schedule 2.3(a).
3.2 Directors and Officers Insurance. The Borrower shall obtain a
D&O "tail" insurance policy covering the Borrower and the Borrower's, directors
and officers for liability with respect to events which occurred on or prior to
the Closing Date. The policy shall provide coverage in the amount of $10,000,000
of loss for any event incurred prior to the Closing but claimed anytime prior to
three years after the Closing. The Lender agrees to fund Borrower for, or pay
the insurer directly on behalf of Borrower upon appropriate direction of
Borrower, the premium payable on such policy, provided, however, the premium on
such policy shall not exceed $268,000 in the aggregate. (the "D&O
Reimbursement"). In the event the Lender shall fail to fund Borrower for the D&O
Reimbursement, the Prior Lenders agree to fund Borrower for, or pay the insurer
directly on behalf of Borrower upon appropriate direction of Borrower, the D&O
Reimbursement on a pro rata basis based upon their respective prior ownership
percentage of the Loans.
3.3 Closing Date. The "Closing Date" shall mean August 5, 2005 or
such other date as agreed upon by the parties hereunder.
3.4 Time and Place. The transfer and delivery of all documents and
instruments necessary to consummate the transfer of the Subject Assets and the
other transactions contemplated by this Agreement (the "Closing") shall be held
at the offices of Richards Spears Kibbe & Orbe LLP, One World Financial Center,
New York, New York 10281, at 10:00 a.m. New York City time on the Closing Date,
or at such other time and such other place as the parties may agree.
3.5 Transactions at Closing. At the Closing:
(a) The Borrower shall execute and deliver a General
Assignment and Bill of Sale in substantially the form
of Exhibit A hereto to Lender.
(b) To the extent not set forth in Attachment 1 to Schedule
2.1, the Borrower shall deliver to Lender, as
applicable, a list of all persons who are signatories
to all bank accounts included in the Subject Assets.
(c) The Borrower shall deliver to the Lender a copy of the
resolution of the full Board of Directors of the
Borrower authorizing the Borrower to enter into this
Agreement and the transactions contemplated hereby.
(d) The Borrower shall have received an opinion acceptable
to it from Parker Benjamin, Inc. regarding the
transactions contemplated in this Agreement.
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(e) The Lender shall deliver to the Borrower a written
consent of Ark CLO 2000-1, Limited, as the holder of
(i) 100% of the Borrower's issued and outstanding 4%
Series I Cumulative Redeemable Preferred Stock and (ii)
approximately 80% of the Borrower's issued and
outstanding Common Stock, in form and substance
reasonably satisfactory to the Borrower.
(f) The Borrower shall have delivered a wind down budget
for the wind up of the affairs of Borrower and the
dissolution of the Borrower (the "Wind Down Budget"),
in form and substance satisfactory to Lender, which is
attached hereto as Schedule 3.5(f).
(g) The Borrower shall have delivered a letter authorizing
the Lender to use the name "Scan-Optics", in
substantially the form of Exhibit B hereto.
(h) The Borrower shall deliver to the Lender executed
documents for recording the assignment of patents and
trademarks in each case, as requested by the Lenders
and in substantially the form of Exhibit C-1 and
Exhibit C-2 hereto as applicable.
(i) The Borrower shall deliver to the Lender and each of
Borrower's banks an Instruction Letter in substantially
the form of Exhibit D.
(j) The Borrower shall transfer to the Lender in
immediately available funds, and in accordance with the
wire transfer instructions set forth on Schedule 3.5(j)
or as otherwise instructed by the Lender, all amounts
in the Borrower's Bank Accounts and any other bank
account held by Borrower.
4. Representations, Warranties, and Covenants of the Borrower. The
Borrower represents and warrants to the Agent and the Lender as follows:
4.1 Power and Authority. Borrower is duly organized, validly
existing, and in good standing under the laws of its jurisdiction of
organization and has all requisite corporate power and authority to enter into
this Agreement and to carry out the transactions contemplated by, and perform
its obligations under, this Agreement, except that the assignment of certain
contracts that are part of the Subject Assets may require the consent of the
contracting counterparty, and except as may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws relating to or limiting
creditors' rights generally or by equitable principles relating to
enforceability.
4.2 No Conflict. The execution and delivery by the Borrower of
this Agreement and the performance by the Borrower of this Agreement does not
and will not (i) violate any provision of any law or any governmental rule or
regulation applicable to the Borrower, or any order, judgment or decree of any
court or other agency of government binding on the Borrower, except that the
assignment of certain government contracts that are part of the Subject Assets
may require the consent of the contracting
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agency, or (ii) violate any provision of the certificate of incorporation and
bylaws of the Borrower.
4.3 Binding Obligation. This Agreement has been duly executed and
delivered by the Borrower and is the legally valid and binding obligation of the
Borrower, enforceable against the Borrower in accordance with its terms, except
as may be limited by bankruptcy, insolvency, reorganization, moratorium or
similar laws relating to or limiting creditors' rights generally or by equitable
principles relating to enforceability.
4.4 Location of Subject Assets. The Borrower represents and
warrants that, except for certain spare parts associated with the Borrower's
Access Services Division, all of the Subject Assets are located within the State
of Connecticut.
4.5 Notice of Default; Other Liens. Notice of default has been
given to Borrower by the Agent with respect to the Loan Documents and Borrower
hereby waives any right for additional or further notice. Borrower acknowledges
that it is in material default under the Loan Documents and that such default is
continuing and has not been waived by the Lender. Borrower acknowledges that the
Loan Obligations have been accelerated. To the best Borrower's knowledge after
due inquiry with the secretaries of state of the State of Connecticut and the
State of Delaware, other than those perfected purchase money security interests
or other liens on the Subject Assets indicated on the UCC-1 financing statements
attached to Schedule 4.5, the Subject Assets are not subject to any liens,
claims, and encumbrances that are senior to or pari passu with the Lender's
liens. The Borrower acknowledges that, as of the date hereof, it is indebted to
Agent and the Lender pursuant to the Loan Document in an amount not less than
$14,310,000 in outstanding principal plus accrued and unpaid interest thereon
and all costs, fees and expenses incurred under the Loan Documents
(collectively, the "Current Outstanding Indebtedness"). The Borrower agrees that
it owes the Current Outstanding Indebtedness free of any offset, defense or
counterclaim and agrees that it will not assert any set off, defense or
counterclaim to the Current Outstanding Indebtedness.
4.6 Access. For the period between the date hereof and the
Closing, the Borrower shall make available to the Agent and the Lender, and
allow the Agent and the Lender access to, the Subject Assets and the books and
records of the Borrower.
4.7 Name Change. Upon Lender's request, the Borrower shall use its
reasonable best efforts to change its name to a name which has no resemblance or
connection to and is not likely to be identified or associated with its current
name or the name of the Lender.
4.8 Bank Accounts. The Borrower agrees that it is in the best
interest of Borrower and its employees to assign all right, title and interest
in the amounts in the Bank Accounts to the Lender effective as of the Closing
Date and the Borrower acknowledges and agrees that the Borrower has transferred
all of its right, title and interest in and to all amounts in the Bank Accounts
to the Lender and from and after the Closing Date the Borrower shall have no
beneficial interest in the amounts in such Bank Accounts. Accordingly, the
Borrower agrees to use commercially reasonable efforts to cause each bank to
recognize the Lender as the owner of all amounts in such Bank
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Accounts and shall execute all appropriate documentation in connection
therewith. In addition, the Borrower represents and warrants that as of the
Closing Date Borrower has no cash or cash equivalents other than the amounts in
the Bank Accounts.
4.9 Post-Closing Notices. Promptly upon, and in any event no later
than one business day after, any officer of the Borrower obtaining knowledge of
any law suit or other judicial process commenced or to be commenced against
Borrower and/or its officers and directors (in their capacity as officers and/or
directors of Borrower), Borrower shall provide written notice to Lender of such
law suit or judicial process, along with copies of pleadings or documents
relating to such law suit or judicial process (each such notice, a "Notice of
Judicial Action").
5. Representations, Warranties and Covenants of the Lender: The Lender,
as to itself, represents and warrants to the Borrower as follows:
5.1 Power and Authority. The Lender has all requisite corporate
power and authority to enter into this Agreement and to carry out the
transactions contemplated by, and perform its obligations under, this Agreement.
5.2 Binding Obligation. This Agreement has been duly executed and
delivered by the Lender and is the legally valid and binding obligation of the
Lender enforceable against the Lender in accordance with its terms, expect as
may be limited by bankruptcy, insolvency, reorganization, moratorium or similar
laws relating to or limiting creditors' rights generally or by equitable
principles relating to enforceability.
5.3 Lender. Lender is the sole lender under the Loan Document
entitled to all rights and benefits as Lender under the Loan Documents.
5.4 Bulk Transfer Act. The Lender acknowledges that the Borrower
will not comply with the provisions of any bulk transfer laws of any
jurisdiction in connection with the transactions contemplated by this Agreement
6. Agreement Concerning Post-Closing Collections. The Borrower agrees
that it will promptly turn over to the Agent for the benefit of itself and the
Lender, in the form received, all cash, checks and other items of payment which
are received by or otherwise come into its possession (other than the Excluded
Assets) from and after the Closing Date, which represent payments by account
debtors or payments on or proceeds of or otherwise related to the Subject Assets
which shall after the Closing be the property of the Agent for the benefit of
itself and the Lender. Prior to delivery to the Agent for the benefit of itself
and the Lender of amounts which are received by the Borrower, the Borrower, will
hold all such cash, checks and other items of payment in trust for the Agent for
the benefit of itself and the Lender. The Borrower hereby irrevocably
constitutes and appoints the Lender with full power of substitution, as the
Borrower's true and lawful attorney-in-fact, with full irrevocable power and
authority, in the place and
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stead of the Borrower and in the name of the Borrower or in its own name, from
time to time in the Lender's discretion, to take any and all appropriate action
and to execute and deliver any and all documents and instruments which may be
necessary or desirable to accomplish the purposes of this Agreement and, without
limiting the generality of the foregoing, the Borrower grants to the Lender the
power and right, on behalf of the Borrower, without notice or assent by the
Borrower and at any time, to do the following (i) take any action deemed
appropriate by the Lender for the purpose of collecting any and all monies due
Lender and (ii) take all actions the Lender deems necessary to perfect, preserve
or realize upon the Subject Assets, all as fully and effectively as the Borrower
might do.
7. The Lender's Conditions to Closing; Deliveries to the Lender at
Closing. The obligation of the Lender to consummate the Closing shall be subject
to the satisfaction, in Lender's sole discretion, at or prior to Closing, of the
following conditions: (a) the Lender shall have received all items required by
Section 3.5 of this Agreement; (b) no bankruptcy or insolvency petition shall
have been filed by the Borrower or filed against the Borrower which has not been
dismissed (unless waived in writing by the Agent and the Lender); and (c) the
representations, warranties and covenants are true and correct and fully
performed as the case may be at or before the Closing.
8. Post-Closing Transactions.
8.1 Satisfaction of Assumed Obligations. On behalf of the
Borrower, the Lender shall satisfy in full, in the ordinary course of business,
all Assumed Obligations that are due as of the Closing Date or become due after
the Closing Date, and shall perform fully all of the Borrower's obligations
under the Subject Assets. The assumption and payment by the Lender of
liabilities of the Borrower, including payments to certain of the Borrower's
unsecured creditors is made as an accommodation to the unsecured creditors in
order to avoid disruption in the Lender's future relationship with critical
vendors and customers and to assure continuity of business. Further, the Lender
is making such payments with the intention that it will minimize residual claims
against the Borrower and achieve an outcome for the Borrower and its unsecured
creditors that is more favorable than might be achieved in any bankruptcy,
reorganization, liquidation or other similar proceeding under federal or state
law.
8.2 Wind Down Budget. Lender agrees to fund, from time to time,
those expenses incurred by Borrower in accordance with the Wind Down Budget.
Whenever the Borrower desires that Lender fund an expense item in the Wind Down
Budget, the Borrower shall deliver to Lender a written funding request, which
request shall (i) specify in detail the specific wind down cost item to which
the requested funding will be applied and (ii) provide additional documentation
of such costs, which documentation shall be in form and substance satisfactory
to the Lender. Within a reasonable time following receipt of the funding
request, Lender shall fund the requested amount to Borrower, or, at the request
and direction of the Borrower, pay such requested
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amount to the party designated by the Borrower; provided that in connection with
and as a condition to such funding, Borrower shall provide to Lender such
documents and information as the Lender may reasonably request; provided
further, the maximum amount to be funded by Lender to Borrower pursuant to the
Wind Down Budget shall not be greater than $827,794. Any and all amounts
requested by the Borrower under this Section 8.2 shall be used by Borrowers
solely for the specific expense item or items for which such funding request was
made.
8.3 Post-Closing Actions Against Borrower. Borrower and Lender
agree that upon Lender's receipt of a Notice of Judicial Action pursuant to
Section 4.9, (a) Lender shall, at its sole and absolute discretion, either (i)
fund the Borrower's defense of the action or proceeding that is the subject of
such Notice of Judicial Action or (ii) take over and assume the defense of the
action or proceeding that is the subject of such Notice of Judicial Action and
(b) Borrower shall cooperate with the Lender with respect to the defense of or
response to any action or proceeding that is the subject of such Notice of
Judicial Action.
8.4 Errors and Omissions Insurance Policy. Borrower and Lender
agree that until the earlier of (a) the date on which the Lender secures all
required consents, approvals or acknowledgements by any third party to assume
any contracts or agreements related to work performed by Borrower's Access
Services Division or (b) September 30, 2005, Borrower shall be named as an
additional insured under the Lender's errors and omissions insurance policy.
9. Miscellaneous.
9.1 General. All expenses of the preparation, execution and
consummation of this Agreement and of the transactions contemplated hereby,
including, without limitation, attorneys, accountants and outside advisor's fees
and disbursements, shall be borne by the party incurring such fees.
9.2 Notice. All notices, demands and other communications
hereunder shall be in writing or by written telecommunication, and shall be
deemed to have been duly given if delivered personally or by courier, if mailed
by certified mail return receipt requested, postage prepaid, or if sent by
written telecommunication, confirmation of receipt received, as follows:
If to the Agent, to:
Patriarch Partners Agency Services, LLC
112 South Tryon Street, Suite 700
Charlotte, North Carolina 28284
Attention: Loan Administration/Scan-Optics
Facsimile No.: (704) 375-0358
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With a copy sent contemporaneously to:
Richards Spears Kibbe & Orbe LLP
One World Financial Center
New York, New York 10281
Attention: Michael Friedman, Esq.
Facsimile No.: (917) 344-8846
If to the Borrower, to:
Scan Optics, Inc.
169 Progress Drive
Manchester, Connecticut 06040
Telephone: (860) 645-7878
Facsimile: (860) 645-7995
Attention: Scott Schooley
With a copy sent contemporaneously to:
Day, Berry & Howard LLP
CityPlace I
Harford, Connecticut 06103-3499
Telephone: (860) 275-0100
Facsimile: (860) 275-0343
Attention: Richard D. Harris, Esq.
If to the Lender, to:
SO Acquisition, LLC
169 Progress Drive
Manchester, Connecticut 06040
Telephone: (860) 645-7878
Facsimile: (860) 645-7995
Attention: Chief Executive Officer
With a copy sent contemporaneously to:
Lawrence A. Dvorin, Esq.
Levin, Ford & Paulekas, LLP
280 Trumbull Street
Hartford, CT 06103
Phone: 860-808-4208
Fax: 860-249-7500
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9.3 Entire Agreement. This Agreement and the related schedules,
exhibits and agreements delivered in connection herewith contain the entire
understanding of the parties with respect to the subject matter hereof,
supersede all prior agreements and understandings relating to the subject matter
hereof, and shall not be amended except by a written instrument hereafter signed
by all of the parties hereto.
9.4 Governing Law. The validity and construction of this Agreement
shall be governed by the internal laws of the State of New York without regard
to principles of conflicts of laws.
9.5 Sections, Section Headings and Defined Terms. All enumerated
subdivisions of this Agreement are herein referred to as "sections" or
"subsections." The headings of the sections and subsections are for reference
only and shall not limit or control the meaning thereof. Capitalized terms
contained in the Exhibits or Schedules to this Agreement, which are not
otherwise defined in such Exhibits or Schedules, shall have the meaning ascribed
to them in this Agreement.
9.6 Successors. This Agreement shall be binding upon and inure to
the benefit of each of the parties hereto and their respective heirs, successors
and assigns.
9.7 Survival of Representations and Warranties. All
representations and warranties contained in this Agreement shall survive the
Closing.
9.8 Further Assurances. From time to time, at the reasonable
request of another party hereto, each party hereto shall execute and deliver
such further instruments and take such further actions at the expense of the
requesting party, as such requesting party may in good faith deem necessary or
desirable in order to assure that the transfers, purposes and objectives of this
Agreement are fully accomplished. Without limiting the generality of the
foregoing, the Borrower will render every commercially reasonable assistance to
the Agent and the Lender with respect to the assignment, transfer, and delivery
of the Subject Assets to the Agent and the Lender and to effectuate the
transactions contemplated hereby; and in the event of commencement hereafter of
any case by or against the Borrower pursuant to Title 11 of the United States
Code, the Borrower shall take all necessary action to move the bankruptcy court
and support the effectuation of such assignment, transfer, and delivery of the
Subject Assets to the Agent and the Lender pursuant to the terms of this
Agreement, including but not limited to, (i) objecting to the entry of an order
of relief against Borrower and/or (ii) moving for the dismissal of any
bankruptcy petition filed against Borrower; provided that as a condition to
taking such action, the Lender shall have funded Borrower such amount as
reasonably necessary for Borrower to take such action. The Borrower shall
deliver to the Lender all books and records of the Borrower in the possession of
the Borrower, except for Borrower's corporate records (including, but not
limited to, all corporate minute books), as soon as reasonably practicable after
the Closing Date; provided that Borrower may retain copies of any such records
as needed in order to wind-down its business, and that Lender and Agent grant
Borrower access to such books and records on an as-needed basis.
12
9.9 No Implied Rights or Remedies. Nothing herein is intended or
shall be construed to confer upon or to give any person, firm, or corporation
other than the Borrower, the Agent and the Lender (and their successors and
permitted assigns) any rights or remedies under or by reason of this Agreement.
9.10 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same agreement. Delivery of an executed
counterpart of this Agreement by facsimile shall be equally as effective as
delivery of an original executed counterpart of this Agreement.
9.11 Releases.
(a) The Borrower, the Lender and the Agent, and, to the
full extent applicable, their respective affiliates,
subsidiaries, stockholders, general partners, limited
partners, members, creditors, successors, assigns,
attorneys, employees, agents, representatives,
managers, officers and directors (collectively, in such
capacity, the "Releasors"), hereby waives and releases,
as applicable, the Borrower, the Lender, and the Agent,
including, to the full extent applicable, their
respective affiliates, subsidiaries, stockholders,
general partners, limited partners, members, creditors,
successors, assigns, attorneys, employees, agents,
representatives, managers, officers and directors
(collectively, in such capacity, the "Releasees"), from
all claims, rights, demands, debts, liabilities,
actions and causes of action of any and every type or
nature whatsoever, whether known or unknown, whether
arising on or before the Closing Date in law or equity,
or by tort or contract, relating directly or indirectly
to the Borrower, or the Loan Documents; provided,
however, that nothing herein shall be, or shall be
construed as, a waiver or release of any claim, right
or cause of action (i) under this Agreement or arising,
whether directly or indirectly, from any breach
hereunder or (ii) arising from the gross negligence,
willful misconduct, fraud, breach of fiduciary duty or
malpractice; provided further, that the release set
forth herein is not intended, and shall not be read, to
release a Releasee in the event such Releasee brings an
action or suit against a Releasor and any release of
such Releasee hereunder shall be null and void ab
initio; provided still further, that nothing herein
shall be, or shall be construed as, a waiver or release
of any claim, right or cause of action by the Borrower,
the Lender or the Agent against any of James C. Mavel,
Joel K. Howser, Richard Goyette or Joseph Crouch
(collectively, the "Specified Individuals"), in their
individual capacity or in their capacity as an officer
or director of the Borrower.
(b) Notwithstanding the provision in the last proviso in
clause (a) above regarding the Specified Individuals,
in the event any Specified Individual enters into an
agreement pursuant to which such Specified Individual
releases the Borrower, the Lender and the Agent, and,
to the full extent applicable, their stockholders,
general partners, limited partners, members, creditors,
13
successors, assigns, attorneys, employees, agents,
representatives, managers, officers and directors from
all claims, rights, demands, debts, liabilities,
actions and causes of action of any and every type or
nature whatsoever, whether known or unknown, whether
arising on or before the Closing Date in law or equity,
or by tort or contract, relating directly or indirectly
to the Borrower, or the Loan Documents, then such
Specified Individual shall be deemed to have been
released pursuant to the release provision set forth in
clause (a) above.
(c) The Borrower, the Lender and the Agent also waives and
releases and promises never to assert any such claims,
even if such person does not now know or believe that
it has such claims.
(d) The Borrower and, to the full extent applicable, its
affiliates, subsidiaries, stockholders, general
partners, limited partners, members, creditors,
successors, assigns, attorneys, employees, agents,
representatives, managers, officers and directors
hereby waives and releases Ark CLO 2000-1, Limited and,
to the full extent applicable, its affiliates,
subsidiaries, stockholders, general partners, limited
partners, members, creditors, successors, assigns,
attorneys, employees, agents, representatives,
managers, officers and directors from all claims,
rights, demands, debts, liabilities, actions and causes
of action of any and every type or nature whatsoever,
whether known or unknown, whether arising on or before
the Closing Date in law or equity, or by tort or
contract, relating directly or indirectly to the
Borrower, the Loan Documents, this Agreement and the
transactions contemplated hereby.
9.12 Jurisdiction. The parties irrevocably and unconditionally
submit to and accept the exclusive jurisdiction of the United States District
Court for the Southern District of New York located in the Borough of Manhattan
or the courts of the State of New York located in the County of New York for any
action, suit or proceeding arising out of or based upon this Agreement or any
matter relating to it and waive any objection that they may have to the laying
of venue in any such court or that such court is an inconvenient forum or does
not have personal jurisdiction over them.
9.13 Several Liability. The Borrower acknowledges and agrees that
the Agent's and each Lender's obligations hereunder are several and not joint
and several.
[Remainder of page intentionally left blank; signature pages follow]
14
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly respective officers as of the date and the year first
above written.
BORROWER:
SCAN-OPTICS, INC.
By: /s/ Paul M. Yantus
Name: Paul M. Yantus
Title: President & CEO
15
LENDER:
SO ACQUISITION, LLC
By: /s/ Lynn Tilton
Name: Lynn Tilton
Title: Manager
AGENT:
PATRIARCH PARTNERS AGENCY SERVICES, LLC
By: /s/ Lynn Tilton
Name: Lynn Tilton
Title: Manager
16
PRIOR LENDERS
For purposes of Section 3.2 Only:
ZOHAR CDO 2003-1, LIMITED
By: Patriarch Partners VIII, LLC,
its Collateral Manager
By: /s/ Lynn Tilton
Name: Lynn Tilton
Title: Manager
ZOHAR II 2005-1, LIMITED
By: Patriarch Partners XIV, LLC,
its Collateral Manager
By: /s/ Lynn Tilton
Name: Lynn Tilton
Title: Manager
ARK CLO 2000-1, LIMITED
Acknowledged and Agreed to with Respect
to Section 9.11(d) Only:
ARK CLO 2000-1, LIMITED
By: /s/ Lynn Tilton
Name: Lynn Tilton
Title: Director
17
EXHIBIT A
---------
GENERAL ASSIGNMENT AND BILL OF SALE
For good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, SCAN-OPTICS, INC. (the "Borrower"), hereby sells,
assigns, transfers and conveys to SO Acquisition, LLC (the "Lender"), any and
all of Borrower's right title and interest in, to and under all of its assets
and properties which constitute "Collateral" under the Loan Documents (as
defined in the below-referenced Credit Agreement) (including, but not limited to
those assets listed on Exhibit I annexed hereto, hereinafter referred to
collectively as the "Subject Assets"), as follows: (a) to the extent the Subject
Assets are subject to a security interest in favor of the Lender or the Agent
under the Credit Agreement under Article 9 of the Uniform Commercial Code of the
State of Delaware and the equivalent provisions of each other relevant
jurisdiction (collectively, the "UCC") such Subject Assets shall be sold,
assigned, transferred and conveyed to the Lender by virtue of the provisions of
Section 9-620 of the UCC free and clear of all liens and security interests
including, but not limited to, all parties whose interests are subordinate to
the liens and security interests of the Lender in partial satisfaction of
Obligations (as defined in the Credit Agreement) and (b) all remaining Subject
Assets shall be sold, assigned, transferred and conveyed to the Lender by other
applicable law or as payment in kind for the remaining balance of the
Obligations; provided, however, that the Subject Assets shall not include the
Excluded Assets (as defined on Exhibit II annexed hereto). This General
Assignment and Bill of Sale is being delivered pursuant to the Foreclosure
Agreement (as defined below).
This sale is made to the Lender as secured creditor of the Borrower
pursuant to its rights under (i) that certain Third Amended and Restated Credit
Agreement dated as of March 30,
2004, as amended by that certain First Amendment to Third Amended and Restated
Credit Agreement dated as of June 27, 2005 (as so amended, and as further
amended, restated, supplemented or otherwise modified from time to time, and
certain other documents, instruments and agreements executed pursuant thereto or
in connection therewith, the "Credit Agreement"), (ii) that certain Foreclosure
Agreement dated as of August 5, 2005 (the "Foreclosure Agreement") among the
Agent, the Lender and the Borrower, and (iii) applicable law.
[Remainder of page intentionally left blank; signature page follows]
IN WITNESS WHEREOF, the undersigned have caused this Bill of Sale and
General Assignment to be duly executed as of the 5th day of August, 2005.
SCAN-OPTICS, INC.
By:
------------------------
Name:
Title:
EXHIBIT B
FORM OF LETTER AUTHORIZING USE OF NAME
August __, 2005
State of Delaware
Division of Corporations
401 Federal Street, Suite 4
Dover, DE 19901
Re: Scan-Optics, LLC - Consent to Use Name
Ladies and Gentlemen:
Scan-Optics, Inc., a corporation organized on or about September 20,
1968, under the laws of the State of Delaware, does hereby consent to the use of
the name "Scan-Optics, LLC" by SO Acquisition, LLC.
Scan-Optics, Inc.
By: ______________________________
Peter Stelling
Chief Financial Officer, Vice
President, Secretary and Treasurer
EXHIBIT C-1
FORM OF ASSIGNMENT OF PATENT
This assignment is made between ____________________, a __________
corporation whose address is ______________________________ ("Assignor"), and
____________________, a __________ corporation whose address is --------
______________________________ ("Assignee"). --------
WHEREAS, Assignor is the owner of all rights, title, and interest in
and to United States Patent No. __________, entitled ______________ that issued
on __________ (the "Patent"); and ------
WHEREAS, Assignee is desirous of acquiring Assignor's right, title and
interest in and to said Patent so as to become the sole owner of the Patent;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, that:
Assignor hereby sells, assigns, transfers, and sets over unto Assignee,
its successors and assigns, free of all encumbrances subordinate to security
interests held by Assignee, Assignor's entire right, title, and interest in and
to said Patent and the inventions claimed therein, including: all original,
reissued, and reexamined letters patent that originate therefrom in this and in
foreign countries, all rights of priority, all related nonprovisional,
continuation, divisional, continuation-in-part and substitute patent
applications that may be filed therefor in this and in foreign countries, and
all original, reissued, and reexamined letters patents that may issue from said
continuation, divisional, continuation-in-part and substitute applications,
together with the rights to all income derived from said Patent, including the
right to sue for past infringement thereof and to recover all damages therefrom
for its own use and behalf and for the use and behalf of its successors and
assigns or other legal representatives; said Patent to be held and enjoyed by
Assignee, its successors and assigns, as fully and entirely as the same would
have been held and enjoyed by Assignor if this Assignment had not been made.
Assignor agrees to perform such proper additional acts, and to execute
such additional documents, as are deemed necessary by the governmental agencies
having jurisdiction over said Patent to effect the transfer of all of Assignor's
right, title and interest therein to Assignee, its successors and assigns. In
furtherance thereof, Assignor hereby authorizes such governmental agencies to
identify Assignee as the owner of all letters patent issuing from applications
pending among said Patent.
Dated: ____________________
ASSIGNOR _________ ASSIGNEE
- -------- --------
By:______________________________ By:____________________________
Name:____________________________ Name:__________________________
Title:_____________________________ Title:___________________________
EXHIBIT C-2
FORM OF ASSIGNMENT OF TRADEMARK AND ACCOMPANYING GOODWILL
This assignment is made between ____________________, a __________
corporation whose address is ______________________________ ("Assignor"), and
____________________, a __________ corporation whose address is
______________________________ ("Assignee"). --------
WHEREAS, Assignor is the owner of the trademark _______________________
in the United States and the registration therefor in the United States Patent
and Trademark Office, Registration No. __________________ (the "Mark"), and all
the rights appurtenant thereto, including but not limited to, all common law
rights, causes of action and the right to recover for past infringement,
dilution or other misappropriation thereof; and
WHEREAS, Assignee is desirous of acquiring Assignor's rights in the
Mark and all rights appurtenant thereto;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, that:
Assignor assigns to Assignee all its rights, title and interest in and
to the Mark in the United States, and the registration therefor in the United
States Patent and Trademark Office, Registration No. _____________, together
with the goodwill of the business connected with the use of and symbolized by
said Mark, and together with any and all interests, claims and rights for
damages and profits by reason of any past infringement or unauthorized use of
the Mark, false designations of origin, unfair competition, deceptive trade
practices and/or dilution related to the Mark, use of confusingly similar marks
or names by others and all other related causes of action and the right to sue
therefor.
Assignor agrees to perform all reasonable and proper additional acts
and to execute any additional documents at the request and expense of Assignee
which Assignee may require in order to transfer all of Assignor's rights, title
and interest in and to the Mark to Assignee, its successors or assigns.
Dated: ____________________
ASSIGNOR _________ ASSIGNEE
- -------- --------
By:______________________________ By:____________________________
Name:____________________________ Name:__________________________
Title:_____________________________ Title:___________________________
EXHIBIT D
FORM OF INSTRUCTION LETTER
[Borrower Letterhead]
August [___], 2005
[BANK]
Re: Bank Account [_______]
Dear Ladies and Gentlemen:
This letter is to inform you that effective August 5, 2005,
Scan-Optics, Inc. has transferred all of its rights, title and interest in all
amounts deposited in or credited to Account No. _____ from time to time to SO
Acquisition, LLC ( the "Accounts"). Please follow the instructions of SO
Acquisition, LLC with respect to such Accounts.
Should you have any questions regarding the foregoing, please call
________ at __________.
Very truly yours,
Scan-Optics, Inc.
By: ______________________________
Peter Stelling
Chief Financial Officer, Vice
President, Secretary and Treasurer