Exhibit 10.6
PLEDGE AND SECURITY AGREEMENT
THIS PLEDGE AND SECURITY AGREEMENT (the "Agreement"), dated as of March
31, 1999 by and among AMERICAN CAPITAL STRATEGIES, LTD. (the "Seller"), a
Delaware corporation, ACS FUNDING TRUST I (the "Buyer"), and NORWEST BANK,
NATIONAL ASSOCIATION ("Norwest"), as Escrow Agent (the "Escrow Agent").
Capitalized terms used but not defined herein shall have the meanings given to
such terms in the Purchase Agreement (as defined below) and the principles of
interpretation set forth therein.
W I T N E S S E T H
WHEREAS, concurrently with the execution of this Agreement, the Seller
is entering into the Purchase and Sale Agreement, dated as of March 31, 1999 by
and between the Buyer and the Seller (the "Purchase Agreement"), pursuant to
which the Seller has agreed to sell, transfer, assign and set over and otherwise
convey to the Buyer, from time to time, certain Loans and the Related Property,
Loan Documents, Supplemental Interests, Collections, interest and Proceeds
related thereto;
WHEREAS, prior to the Approval Date, the Pledged Supplemental Interests
(as defined below) are not being transferred, assigned, set-over or otherwise
conveyed by the Seller to the Buyer so as to permit the Seller and the Buyer to
operate in accordance with the Investment Company Act of 1940, as amended (the
"1940 Act");
WHEREAS, Section 2.1(b) of the Purchase Agreement provides that on and
after the Approval Date, the Seller will contribute to the Buyer without
recourse, as a capital contribution, all right, title and interest of the Seller
in, to and under the Pledged Supplemental Interests (as defined below);
WHEREAS, prior to the Approval Date, the Seller has agreed to grant to
the Buyer a first priority perfected security interest in such Pledged
Supplemental Interests to secure the Seller's obligation to make such capital
contribution;
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, and intending to be legally bound hereby, the Seller hereby
covenants and agrees as follows:
Section 1. Grant of Security. The Seller hereby pledges and assigns to
the Buyer, as security for the Secured Obligations (as defined below), all of
the Seller's right, title and interest in and to, whether now existing and/or
hereafter arising and/or acquired, in any Supplemental Interests related to any
Purchased Assets sold to the Buyer under the Purchase Agreement on a Purchase
Date prior to the Approval Date (collectively, the "Pledged Supplemental
Interests").
Section 2. Continuing Security Interest; Pledge Termination Date. This
Agreement hereby creates a continuing security interest in the Pledged
Supplemental Interests and shall (i) remain in full force and effect until the
earlier to occur of (a) the Collection Date under (and as defined in) the Loan
Funding and Servicing Agreement and (b) the date, after the Approval Date, that
such Pledged Supplemental Interests are contributed to the Buyer pursuant to the
Purchase Agreement (collectively, the "Pledge Termination Date"), (ii) be
binding upon the Seller, its successors and assigns, and (iii) inure to the
benefit of the Buyer and its successors, transferees and assigns. Upon the
occurrence of the Pledge Termination Date, the security interest granted hereby
shall terminate.
Section 3. Secured Obligations. This Agreement is made and the security
interest created hereby is granted to the Buyer to secure the full and punctual
performance of all of the Seller's Secured Obligations. "Secured Obligations"
shall mean the agreement and undertaking on the part of the Seller under the
Purchase Agreement to contribute to the Buyer, as a capital contribution, on or
after the Approval Date all of the Seller's right, title and interest to all
Pledged Supplemental Interests hereunder.
Section 4. Delivery of Pledged Supplemental Interests. All certificates
or instruments evidencing the Pledged Supplemental Interests shall be delivered
by LaSalle National Bank ("LaSalle") to the Escrow Agent, pursuant to the Bailee
Letter (the "Bailee Letter"), dated as of March 31, 1999, between LaSalle and
the Seller. Prior to the Pledge Termination Date, such certificates or
instruments shall be held by the Escrow Agent 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 the Escrow Agent and the Buyer. In connection with the
certificates and instruments evidencing the Pledged Supplemental Interests
delivered to the Escrow Agent: (i) the Escrow Agent shall act as a "securities
intermediary" (as defined in Article 8 of the UCC) for the Buyer, (ii) the
Pledged Supplemental Interests and the certificates and/or instruments
evidencing the same shall be treated as "financial assets" (as defined in and
governed by Article 8 of the UCC), (iii) the Escrow Agent, as such securities
intermediary, shall establish and maintain on its records an account in the name
of the Buyer which shall be a "securities account" (as defined in Article 8 of
the UCC) to which the Escrow Agent by book entry shall credit the Pledged
Supplemental Interests delivered to the Escrow Agent as described above, (iv)
the Escrow Agent shall maintain and exercise "control" (as defined in Article 8
of the UCC) over such Pledged Supplemental Interests for the exclusive benefit
of the Buyer, and (v) the Escrow Agent waives and agrees not to assert or claim
any interest, lien or other rights in or to the Pledged Supplemental Interests.
Section 5. Representation and Warranties.
The Seller hereby represents and warrants as follows:
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(a) Organization and Good Standing. The Seller is a corporation duly
organized and validly existing in good standing under the laws of the
jurisdiction of its formation and has full corporate power, authority and legal
right to own its properties and conduct its business as such properties are
presently owned and as such business is presently conducted and to execute,
deliver and perform its obligations under this Agreement and each other document
or instrument to be delivered by the Seller hereunder.
(b) Due Qualification. The Seller is duly qualified to do business and
is in good standing as a foreign corporation (or is exempt from such
requirements), and has obtained all necessary licenses and approvals, in each
jurisdiction in which failure to so qualify or to obtain such licenses and
approvals would have a Material Adverse Effect on its ability to perform its
obligations hereunder.
(c) Due Authorization. The execution and delivery of this Agreement,
and the consummation of the transactions provided for herein and therein have
been duly authorized by the Seller by all necessary corporate action on the part
of the Seller.
(d) No Conflict. The execution and delivery of this Agreement, the
performance of the transactions contemplated hereby and the fulfillment of the
terms hereof, will not conflict with, result in any breach of any of the
material terms and provisions of, or constitute (with or without notice or lapse
of time or both) a material default under, any material indenture, contract,
agreement, mortgage, deed of trust, or other instrument to which the Seller is a
party or by which it or any of its property is bound.
(e) No Violation. The execution and delivery of this Agreement, the
performance of the transactions contemplated hereby and the fulfillment of the
terms hereof will not conflict with or violate, in any material respect, any
Applicable Law.
(f) No Proceedings. There are no proceedings or investigations pending
or, to the best knowledge of the Seller, threatened against the Seller before
any Governmental Authority (i) asserting the invalidity of this Agreement, (ii)
seeking to prevent the consummation of any of the transactions contemplated by
this Agreement, or (iii) seeking any determination or ruling that could
reasonably be expected to have a material adverse effect on the business,
condition (financial or otherwise), operations, performance or prospects of the
Seller.
(g) All Consents Required. All approvals, authorizations, consents,
orders or other actions of any Person or of any Governmental Authority required
in connection with the execution and delivery of this Agreement, the performance
of the transactions contemplated by this Agreement and the fulfillment of or
terms hereof, have been obtained.
(h) Not an Investment Company. The Seller is an "investment company"
within the meaning of the Investment Company Act of 1940, as amended (the "1940
Act"), that has elected to be regulated as a business development company under
the 1940 Act.
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(i) Other Names. The legal name of the Seller is as set forth in this
Agreement and within the preceding five years the Seller has not used, and the
Seller currently does not use, any tradenames, fictitious names, assumed names
or "doing business as" names.
(j) Taxes. The Seller has filed or caused to be filed all tax returns
which, to its knowledge, are required to be filed and has paid all taxes shown
to be due and payable on such returns or on any assessments made against it or
any of its property and all other taxes, fees or other charges imposed on it or
any of its property by any Governmental Authority (other than any amount of tax
due the validity of which is currently being contested in good faith by
appropriate proceedings and with respect to which reserves in accordance with
generally accepted accounting principles have been provided on the books of the
Seller); no tax lien has been filed and, to the Seller's knowledge, no claim is
being asserted, with respect to any such tax, fee or other charge.
(k) Place of Business. The principal executive offices of the Seller
are at 3 Bethesda Metro Center, Suite 860, Bethesda, Maryland 20814.
(l) No Liens. The Seller, is, and at the time of delivery of any
Pledged Supplemental Interests pursuant to this Agreement will be, the legal and
beneficial owner of such Pledged Supplemental Interests free and clear of any
lien, security interest or encumbrance whatsoever except for the lien and
security interest created by this Agreement. No effective financing statement or
other instrument similar in effect covering any of the Pledged Supplemental
Interests shall at any time be on file in any recording office, except such as
may be filed in favor of the Buyer, pursuant to this Agreement.
(m) Security Interest. Pursuant to Section 1 hereof, the Seller has
granted a security interest (as defined in the UCC) to the Buyer in the Pledged
Supplemental Interests, which is enforceable in accordance with the UCC upon
execution and delivery of this Agreement. Upon delivery of the Pledged
Supplemental Interests to the Escrow Agent, the Seller shall have validly
granted to the Buyer a first priority perfected security interest in the Pledged
Supplemental Interests. All filings (including, without limitation, such UCC
filings) and other actions as are necessary in any jurisdiction to perfect the
interest of the Buyer, in the Pledged Supplemental Interests have been (or prior
to the execution of this Agreement will be) made.
(n) Margin Stock. The Pledged Supplemental Interests are not "margin
stock" (as defined in Regulation U of the Federal Reserve Board), and the pledge
of the Pledged Supplemental Interests pursuant to this Agreement does not
violate Regulation T, U or X of the Federal Reserve Board or Section 7 of the
Securities Exchange Act of 1934, as amended.
(o) Accuracy of Representations and Warranties. Each representation or
warranty by the Seller contained herein or in any certificate or other document
furnished by the Seller pursuant hereto or in connection herewith is true and
correct in all material respects.
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The representations and warranties set forth in this Section 4 shall
survive the grant of security interest in the Pledged Supplemental Interests to
the Buyer. Upon discovery by the Buyer or the Seller of a breach of any of the
foregoing representations and warranties, the party discovering such breach
shall give prompt written notice thereof to the other immediately upon obtaining
knowledge of such breach.
Section 6. Covenants of the Seller.
(a) Transfers and other Liens. The Seller shall not (i) sell, assign or
otherwise dispose of any of the Pledged Supplemental Interests, except to or in
favor of the Buyer and except as otherwise provided herein, or (ii) create or
suffer to exist any lien upon or with respect to any of the Pledged Supplemental
Interests except for the security interest granted pursuant to this Agreement.
(b) Further Assurances. The Seller agrees that at any time and from
time to time, at the expense of the Seller, it will promptly execute and deliver
all further instruments and documents, and take all further action, that may be
necessary or that the Escrow Agent or the Buyer, may reasonably request, in
order to perfect and protect any security interest granted or purported to be
granted hereby or to enable the Escrow Agent or the Buyer, to exercise and
enforce its rights and remedies hereunder with respect to the Pledged
Supplemental Interests.
(c) Additional Pledged Supplemental Interests. The Seller further
agrees that it will promptly (and in any event within five (5) Business Days
following any Purchase Date prior to the Approval Date) deliver to the Escrow
Agent all Supplemental Interests, if any, related to the Purchased Assets sold
to the Buyer under the Purchase Agreement on such Purchase Date, and take all
other actions as may be reasonably necessary or requested by the Escrow Agent or
the Buyer in order to protect and perfect the security interest granted hereby
in such Supplemental Interests to the Buyer. The Seller hereby agrees that all
Supplemental Interests so delivered to the Escrow Agent after the date of this
Agreement shall for all purposes hereunder be considered Pledged Supplemental
Interests.
Section 7. Remedies. If the Buyer shall fail to perform any Secured
Obligation, the Buyer may exercise from time to time any and all rights and
remedies available to it as a secured party on default (under the UCC in the
relevant jurisdiction(s)) with respect to the Pledged Supplemental Interests.
Section 8. Security Interest Absolute. All rights of the Escrow Agent
and the Buyer, and the security interest granted hereunder, and all of the
obligations of the Seller hereunder, shall be absolute and unconditional,
irrespective of:
(a) any lack of validity or enforceability of the Purchase Agreement or
other agreement or instrument relating thereto;
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(b) any change in any term of all or any of the obligations of the
Seller under the Purchase Agreement, or any other amendment or waiver of or any
consent to any departure from any provision of the Purchase Agreement; or
(c) any other circumstance which might otherwise constitute a defense
available to, or a discharge of, the Seller or any third party.
Section 9. Escrow Agent. The Escrow Agent shall be obligated, and shall
have the right hereunder to make demands, to give notices, to exercise or
refrain from existing any rights, and to take or refrain from taking action
solely in accordance with this Agreement. The Escrow Agent may not resign, or be
removed, except in accordance with the Escrow Agreement dated as of March 31,
1999, between the Seller and the Escrow Agent. Upon the acceptance of any
appointment as a Escrow Agent by a successor Escrow Agent by execution of an
instrument accepting the same and all obligations of a Escrow Agent hereunder,
that successor Escrow Agent shall thereupon succeed to and become vested with
all the rights, powers, privileges and duties of the predecessor Escrow Agent
under this Agreement, and the predecessor Escrow Agent shall thereupon be
discharged from its duties and obligations under this Agreement. After any
predecessor Escrow Agent's resignation or removal, the provisions of this
Agreement shall inure to its benefit as to any actions taken or omitted to be
taken by it under this Agreement while it was Escrow Agent. Upon its
resignation, any Escrow Agent shall be entitled to payment by the Seller of all
reasonable expenses incurred by it in acting as Escrow Agent hereunder. The
Seller agrees to execute and deliver to any successor Escrow Agent appointed
hereunder all such documents as may be necessary to preserve and protect the
rights of the Buyer. Any corporation into which the Escrow Agent may be merged
or with which it may be consolidated or converted, or to which substantially all
of its corporate trust business may be transferred, shall automatically succeed
to all of the rights and obligations of its predecessor and shall become the
Escrow Agent hereunder without further action on the part of any of the parties
hereto.
Section 10. Indemnification. The Seller hereby agrees to indemnify
Escrow Agent, and the Buyer (collectively, the "Indemnified Parties") for any
and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind and nature
whatsoever that may be imposed on, incurred by or asserted against the
Indemnified Parties arising out of this Agreement or the pledge of the Pledged
Supplemental Interests pursuant to the Purchase Agreement; provided, however,
that the Seller shall not be liable for any of the foregoing to the extent they
arise from the gross negligence or willful misconduct of such Indemnified Party.
Section 11. Directions to Escrow Agent. The Escrow Agent shall take any
action specified in Section 7 hereof only when so requested in writing by the
Buyer. In the absence of such direction, the Escrow Agent will administer the
Pledged Supplemental Interests and take such action with respect thereto as it
deems to be in the best interest of the Buyer.
Section 12. Amendments. This Agreement and the rights and obligations
of the parties hereunder may not be amended, waived or changed orally, but only
with written consent of the Buyer.
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Section 13. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. EACH OF THE
PARTIES HERETO HEREBY AGREES TO THE JURISDICTION OF ANY FEDERAL COURT LOCATED
WITHIN THE STATE OF NEW YORK. EACH OF THE PARTIES HERETO HEREBY WAIVES, TO THE
EXTENT PERMITTED BY APPLICABLE LAW, ANY OBJECTION BASED ON FORUM NON CONVENIENS,
AND ANY OBJECTION TO VENUE OF ANY ACTION INSTITUTED HEREUNDER IN ANY OF THE
AFOREMENTIONED COURTS AND CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE
RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT.
Section 14. Notices. All demands, notices and communications hereunder
shall be in writing and addressed or delivered to each party at its address set
forth under its name on the signature pages hereof.
Section 15. Expenses. The Seller will pay upon demand to the Escrow
Agent the amount of any and all reasonable expenses, including the reasonable
fees and expenses of its counsel and of any experts and agents, that the Escrow
Agent may incur in connection with (a) the administration of this Agreement, (b)
the custody or preservation of, or the sale of, collection from, or other
realization upon, any of the Pledged Supplemental Interests, (c) the exercise or
enforcement of any of the rights of the Escrow Agent or the Buyer, or (d) the
failure of the Seller to perform or observe any of the provisions hereof.
Section 16. No Waiver; Cumulative Remedies. No failure to exercise and
no delay in exercising, on the part of the Escrow Agent or the Buyer, any right,
remedy, power or privilege hereunder, shall operate as a waiver thereof; nor
shall any single or partial exercise of any right, remedy, power or privilege
hereunder preclude any other or further exercise thereof or the exercise of any
other right, remedy, power or privilege. The rights, remedies, powers and
privileges herein provided are cumulative and not exhaustive of any rights,
remedies, powers and privilege provided by law.
Section 17. Counterparts. This Agreement may be executed in two or more
counterparts including telefax transmission thereof (and by different parties on
separate counterparts), each of which shall be an original, but all of which
together shall constitute one and the same instrument.
Section 18. Binding Effect; Assignment; Third-Party Beneficiaries. This
Agreement shall inure to the benefit of and the obligations thereunder shall be
binding upon the parties hereto and their respective successors and permitted
assigns. This Agreement is not assignable by the Seller without the prior
written consent of the Escrow Agent and the Buyer. Simultaneously with the
execution and delivery of this Agreement, the Buyer shall assign all of its
right, title and interest herein to the Deal Agent as agent for the Secured
Parties under the Loan Funding Agreement as provided in the Loan Funding
Agreement, to which assignment the Seller hereby expressly consents. On the
Approval Date, the Seller shall be deemed to have
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contributed the Pledged Supplemental Interests to the Buyer, without recourse
and without further action on the part of the Seller, and the Escrow Agent shall
release the Pledged Supplemental Interests to the Collateral Custodian for the
benefit of the Deal Agent. Each of the Buyer and the Seller hereby expressly
consents to such release. The Seller agrees that the Deal Agent, as agent for
the Secured Parties under the Loan Funding Agreement, shall be a third-party
beneficiary hereof. The Deal Agent as agent for the Secured Parties under the
Loan Funding Agreement may enforce the provisions of this Agreement, exercise
the rights of the Buyer and enforce the obligations of the Seller hereunder as
provided in the Loan Funding Agreement.
Section 19. Attorney-in-Fact. The Seller hereby irrevocably appoints
the Escrow Agent, as the Seller's attorney-in-fact, with full authority in the
place and stead of the Seller and in the name of the Seller or otherwise, from
time to time in Escrow Agent's discretion, to take any action and to execute any
instrument that the Escrow Agent may deem necessary or advisable to accomplish
the purposes of this Agreement, including, without limitation, to file any
claims or take any action or institute any proceedings that the Escrow Agent may
deem necessary or desirable for the collection of any of the Pledged
Supplemental Interests. It is understood and agreed that the appointment of the
Escrow Agent as attorney-in-fact of the Seller for the purposes set forth above
is coupled with an interest and is irrevocable. With respect to any action taken
pursuant this Section, the Escrow Agent shall not be liable for any acts of
omission or commission nor for any misconduct other than its gross negligence or
willful misconduct.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
AMERICAN CAPITAL STRATEGIES, LTD.
By__________________________________
Title:
American Capital Strategies, Ltd.
3 Bethesda Metro Center
Suite 860
Bethesda, Maryland 20814
Attention: Chief Financial Officer
Facsimile No.: (301) 654-6714
Confirmation No.: (301) 951-6122
ACS Funding Trust I
By__________________________________
Title:
ACS Funding Trust I
6302 Maiden Lane
Bethesda, Maryland 20817
Attention: Malon Wilkus, Beneficiary Trustee
Facsimile No.: (301) 654-6714
Confirmation No.: (301) 951-6122
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NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
By__________________________________
Title:
Norwest Bank Minnesota, National Association
Sixth and Marquette Avenue
Minneapolis, MN 55479-0070
Attention: Corporate Trust Services
Asset-Backed Administration
Facsimile No.: (612) 667-3539
Telephone No.: (612) 667-8058
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