EXHIBIT 10.37
COLLATERAL AGREEMENT, dated as of June 27, 2007, by and among TAG-IT
PACIFIC, INC., a Delaware corporation (the "BORROWER"), Tag-It Pacific, Inc.,
Talon International, Inc., Tag-It, Inc., A.G.S. Stationary, inc., Tag-It Pacific
Limited, Tag-It Pacific (HK) Ltd, Tagit de Mexico, S.A. de C.V., Talon Zipper
(Shenzhen) Company, Ltd. and Talon International Pvt. Ltd, and any and all
Additional Grantors who may become party to this Agreement (the Borrower, such
other named entities, and such Additional Grantors are hereinafter referred to
each as a "GRANTOR" and collectively as the "GRANTORS"), and BLUEFIN CAPITAL,
LLC (the "SECURED PARTY") as Lender under the Revolving Credit and Term Loan
Agreement of even date herewith (as same may be amended, modified, supplemented
and/or restated from time to time, the "LOAN AGREEMENT") by and between the
Borrower and the Secured Party.
STATEMENT OF PURPOSE
Pursuant to the Loan Agreement, the Secured Party is making and may
hereafter from time to time make Loans to the Borrower in the aggregate
principal amount of up to $14,500,000 at any time outstanding, upon the terms
and subject to the conditions set forth therein.
Pursuant to the terms of a Guaranty Agreement of even date herewith,
the Grantors (other than the Borrower), which are Subsidiaries of the Borrower,
have guaranteed the payment and performance of the Obligations of the Borrower.
It is a condition precedent to the obligation of the Secured Party to
make the Loans to the Borrower under the Loan Agreement that the Grantors shall
have executed and delivered this Agreement to the Secured Party.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the parties hereto, and to
induce the Secured Party to enter into the Loan Agreement and make the Loans to
the Borrower thereunder, each Grantor hereby agrees with the Secured Party, as
follows:
ARTICLE I
DEFINED TERMS
Section 1.1. TERMS DEFINED IN THE UNIFORM COMMERCIAL CODE.
(a) The following terms when used in this Agreement shall have
the meanings assigned to them in the UCC (as defined in Section 1.2
below) as in effect from time to time: "Account", "Account Debtor",
"Authenticate", "Certificated Security", "Chattel Paper"; "Commercial
Tort Claim", "Deposit Account", "Documents", "Electronic Chattel
Paper", "Equipment", "Farm Products" "Fixture", "General Intangible",
"Instrument", "Inventory", "Investment Company Security", "Investment
Property", "Issuer", "Letter of Credit Rights", "Proceeds", "Record",
"Registered Organization", "Security", "Securities Entitlement",
"Securities Intermediary", "Securities Account", "Supporting
Obligation", "Tangible Chattel Paper", and "Uncertificated Security".
(b) Terms defined in the UCC and not otherwise defined herein
or in the Loan Agreement shall have the meaning assigned in the UCC as
in effect from time to time.
Section 1.2. DEFINITIONS. The following terms when used in this
Agreement shall have the meanings assigned to them below:
"ADDITIONAL GRANTOR" means each Subsidiary of the Borrower which
hereafter becomes a Grantor pursuant to Section 7.15 hereof and Section 5.11 of
the Loan Agreement.
"AGREEMENT" means this Collateral Agreement, as amended, modified,
supplemented and/or restated from time to time.
"APPLICABLE INSOLVENCY LAWS" means all Applicable Laws governing
bankruptcy, reorganization, arrangement, adjustment of debts, relief of debtors,
dissolution, insolvency, fraudulent transfers or conveyances or other similar
laws (including, without limitation, 11 U.S.C. Sections 547, 548 and 550 and
other "avoidance" provisions of Title 11 of the United States Code, as amended
or supplemented).
"ASSIGNMENT OF CLAIMS ACT" means the Assignment of Claims Act of 1940
(41 U.S.C. Section 15, 31 U.S.C. Section 3737, and 31 U.S.C. Section 3727),
including all amendments thereto and regulations promulgated thereunder.
"COLLATERAL" has the meaning assigned thereto in Section 2.1.
"COLLATERAL ACCOUNT" means any collateral account established by the
Secured Party as provided in Section 5.2.
"CONTROL" means the manner in which "control" is achieved under the UCC
with respect to any Collateral for which the UCC specifies a method of achieving
"control".
"CONTROLLED INTERMEDIARY" has the meaning assigned thereto in Section
4.6(a).
"COPYRIGHTS" means collectively, all of the following of any Grantor:
(a) all copyrights, rights and interests in copyrights, works protectable by
copyright, copyright registrations and copyright applications, (b) all reissues,
extensions, continuations (in whole or in part) and renewals of any of the
foregoing, (c) all income, royalties, damages and payments now or hereafter due
and/or payable under any of the foregoing or with respect to any of the
foregoing, including, without limitation, damages or payments for past or future
infringements of any of the foregoing, (d) the right to sue for past, present
and future infringements of any of the foregoing, and (e) all rights
corresponding to any of the foregoing.
"COPYRIGHT LICENSES" means any written agreement naming any Grantor as
licensor or licensee, granting any right under any Copyright, including, without
limitation, the grant of rights to manufacture, distribute, exploit and sell
materials derived from any Copyright.
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"EFFECTIVE ENDORSEMENT AND ASSIGNMENT" means, with respect to any
specific type of Collateral, all such endorsements, assignments and other
instruments of transfer reasonably requested by the Secured Party with respect
to the Security Interest granted in such Collateral, and in each case, in form
and substance satisfactory to the Secured Party.
"EXCESS COLLATERAL" has the meaning assigned thereto in Section 4.6(c).
"GOVERNMENT CONTRACT" means a contract between any Grantor and an
agency, department or instrumentality of the United States or any state,
municipal or local Governmental Authority located in the United States or all
obligations of any such Governmental Authority arising under any Account now or
hereafter owing by any such Governmental Authority, as account debtor, to any
Grantor.
"GRANTORS" has the meaning set forth in the preamble of this Agreement.
"GUARANTORS" has the meaning assigned thereto in the Guaranty
Agreement.
"GUARANTY AGREEMENT" has the meaning assigned thereto in the Loan
Agreement.
"INTELLECTUAL PROPERTY" means collectively, all of the following of any
Grantor: (a) all systems software, applications software and internet rights,
including, without limitation, screen displays and formats, internet domain
names, web sites (including web links), program structures, sequence and
organization, all documentation for such software, including, without
limitation, user manuals, flowcharts, programmer's notes, functional
specifications, and operations manuals, all formulas, processes, ideas and
know-how embodied in any of the foregoing, and all program materials,
flowcharts, notes and outlines created in connection with any of the foregoing,
whether or not patentable or copyrightable, (b) concepts, discoveries,
improvements and ideas, (c) any useful information relating to the items
described in clause (a) or (b), including know-how, technology, engineering
drawings, reports, design information, trade secrets, practices, laboratory
notebooks, specifications, test procedures, maintenance manuals, research,
development, manufacturing, marketing, merchandising, selling, purchasing and
accounting, (d) Patents and Patent Licenses, Copyrights and Copyright Licenses,
Trademarks and Trademark Licenses, and (e) other licenses to use any of the
items described in the foregoing clauses (a), (b), (c) and (d) or any other
similar items of such Grantor necessary for the conduct of its business.
"ISSUER" means any issuer of any Investment Property or Partnership/LLC
Interests (including, without limitation, any Issuer as defined in the UCC).
"LOAN AGREEMENT" has the meaning assigned thereto in the preamble of
this Agreement.
"OBLIGATIONS" means, with respect to the Borrower, the meaning assigned
to such term in the Loan Agreement, and with respect to each Guarantor, the
obligations of such Guarantor under the Guaranty Agreement, and with respect to
all Grantors, all liabilities and obligations of the Grantors hereunder.
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"PARTNERSHIP/LLC INTERESTS" means, with respect to any Grantor, the
entire partnership, membership interest or limited liability company interest,
as applicable, of such Grantor in each partnership, limited partnership or
limited liability company owned thereby, including, without limitation, such
Grantor's capital account, its interest as a partner or member, as applicable,
in the net cash flow, net profit and net loss, and items of income, gain, loss,
deduction and credit of any such partnership, limited partnership or limited
liability company, as applicable, such Grantor's interest in all distributions
made or to be made by any such partnership, limited partnership or limited
liability company, as applicable, to such Grantor and all of the other economic
rights, titles and interests of such Grantor as a partner or member, as
applicable, of any such partnership, limited partnership or limited liability
company, as applicable, whether set forth in the partnership agreement or
membership agreement, as applicable, of such partnership, limited partnership or
limited liability company, as applicable, by separate agreement or otherwise.
"PATENTS" means collectively, all of the following of any Grantor: (a)
all patents, rights and interests in patents, patentable inventions and patent
applications, (b) all reissues, extensions, continuations (in whole or in part)
and renewals of any of the foregoing, (c) all income, royalties, damages or
payments now or hereafter due and/or payable under any of the foregoing or with
respect to any of the foregoing, including, without limitation, damages or
payments for past or future infringements of any of the foregoing, (d) the right
to sue for past, present and future infringements of any of the foregoing, and
(e) all rights corresponding to any of the foregoing.
"PATENT LICENSE" means all agreements now or hereafter in existence,
whether written or oral, providing for the grant by or to any Grantor of any
right to manufacture, use or sell any invention covered in whole or in part by a
Patent.
"PERFECTION CERTIFICATE" means the perfection certificate dated as of
the date hereof, substantially in the form of EXHIBIT A attached hereto, and
otherwise in form and substance satisfactory to the Secured Party, and duly
certified by an officer, partner or member, as applicable, of each Grantor.
"RESTRICTED SECURITIES COLLATERAL" has the meaning assigned thereto in
Section 5.3(a) below.
"SECURED PARTY" has the meaning assigned thereto in the preamble of
this Agreement.
"SECURITIES ACT" means the Securities Act of 1933, including all
amendments thereto and regulations promulgated thereunder.
"SECURITY INTERESTS" means the liens and security interests granted
pursuant to Article II.
"SUBSIDIARY ISSUER" means any Issuer of Investment Property or any
Partnership/LLC Interests, which is a direct or indirect Subsidiary of any
Grantor.
"TRADEMARKS" means collectively, all of the following of any Grantor:
(a) all trademarks, rights and interests in trademarks, trade names, corporate
names, company names, business names, fictitious business names, trade styles,
service marks, logos, other business identifiers,
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prints and labels on which any of the foregoing have appeared or appear, all
registrations and recordings thereof, and all applications in connection
therewith, (b) all reissues, extensions, continuations (in whole or in part) and
renewals of any of the foregoing, (c) all income, royalties, damages and
payments now or hereafter due and/or payable under any of the foregoing or with
respect to any of the foregoing, including, without limitation, damages or
payments for past or future infringements of any of the foregoing, (d) the right
to sue for past, present and future infringements of any of the foregoing, and
(e) all rights corresponding to any of the foregoing.
"TRADEMARK LICENSE" means any agreement now or hereafter in existence,
whether written or oral, providing for the grant by or to any Grantor of any
right to use any Trademark.
"UCC" means the Uniform Commercial Code as in effect in the State of
New York, as amended or modified from time to time.
"VEHICLES" means all cars, trucks, trailers, and other vehicles covered
by a certificate of title under the laws of any state, all tires and all other
appurtenances to any of the foregoing.
Section 1.3. OTHER DEFINITIONAL PROVISIONS. Terms defined in the Loan Agreement
and not otherwise defined herein shall have the meanings assigned thereto in the
Loan Agreement. The words "hereof," "herein", "hereto" and "hereunder" and words
of similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement, and Section and
Schedule references are to this Agreement unless otherwise specified. The
meanings given to terms defined herein shall be equally applicable to both the
singular and plural forms of such terms. Where the context requires, terms
relating to the Collateral or any part thereof, when used in relation to a
Grantor, shall refer to such Grantor's Collateral or the relevant part thereof.
The word "including" and words of similar import when used in this Agreement
shall mean "including, without limitation," unless otherwise specified.
ARTICLE II
SECURITY INTEREST
Section 2.1. GRANT OF SECURITY INTEREST.
(a) Each Grantor hereby grants, pledges and collaterally
assigns to the Secured Party a security interest in all of such
Grantor's right, title and interest in the following property now owned
or at any time hereafter acquired by such Grantor or in which such
Grantor now has or at any time in the future may acquire any right,
title or interest, and wherever located or deemed located
(collectively, the "COLLATERAL"), as collateral security for the prompt
and complete payment and performance when due (whether at the stated
maturity, by acceleration or otherwise) of the Obligations:
(i) all Accounts;
(ii) all cash and currency;
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(iii) all Chattel Paper;
(iv) all Commercial Tort Claims;
(v) all Deposit Accounts;
(vi) all Documents;
(vii) all Equipment;
(viii) all Fixtures;
(ix) all General Intangibles, including but not
limited to all rights of the Borrower to indemnification under
the Acquisition Agreement;
(x) all Instruments;
(xi) all Intellectual Property;
(xii) all Inventory;
(xiii) all Investment Property;
(xiv) all Letter of Credit Rights;
(xv) all Vehicles;
(xvi) all other personal property not otherwise
described above;
(xvii) all books and records pertaining to the
Collateral; and
(xviii) to the extent not otherwise included, all
Proceeds and products of any and all of the foregoing and all
collateral security and Supporting Obligations (as now or
hereafter defined in the UCC) given by any Person with respect
to any of the foregoing.
(b) Notwithstanding clause (a) of this Section 2.1, to the
extent that, at any time, the grant of a security interest in any
contract rights would, notwithstanding Sections 9-407 and 9-408 of the
UCC or other applicable law, cause a breach of the subject Contract
permitting the conterparty thereto to terminate such Contract under
applicable law, such contract rights shall not at such time be part of
the Collateral (but the proceeds thereof and any supporting obligations
therefor shall be part of the Collateral). Each Grantor shall use all
commercially reasonable efforts to obtain any necessary consents or
waivers required in order for such Grantor to grant the Security
Interests in any affected Contract.
Section 2.2. GRANTORS REMAIN LIABLE. Anything herein to the contrary
notwithstanding: (a) each Grantor 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
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Secured Party of any of the rights hereunder shall not release any Grantor from
any of its duties or obligations under the contracts and agreements included in
the Collateral, (c) the Secured Party shall have no obligation or liability
under the contracts and agreements included in the Collateral by reason of this
Agreement, nor shall the Secured Party be obligated to perform any of the
obligations or duties of any Grantor thereunder or to take any action to collect
or enforce any claim for payment assigned hereunder, and (d) the Secured Party
shall have no liability in contract or tort for any Grantor's acts or omissions.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
To induce the Secured Party to enter into the Loan Agreement and to
make the Loans to the Borrower thereunder, each Grantor hereby represents and
warrants to the Secured Party that:
Section 3.1. EXISTENCE. Each Grantor is duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or formation, has the requisite power and authority to own, lease
and operate its properties and to carry on its business as now being and
hereafter proposed to be conducted and is duly qualified and authorized to do
business in each jurisdiction in which the character of its properties or the
nature of its business requires such qualification and authorization other than
in any such jurisdiction where failure to so qualify would not reasonably be
expected to have a Material Adverse Effect.
Section 3.2. AUTHORIZATION OF AGREEMENT; NO CONFLICT. Each Grantor has
the right, power and authority and has taken all necessary corporate or other
organizational action to authorize the execution, delivery and performance of,
this Agreement. This Agreement has been duly executed and delivered by the duly
authorized officers of each Grantor, and this Agreement constitutes the legal,
valid and binding obligation of the Grantors, enforceable against the Grantors
in accordance with its terms, except as such enforcement may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar state or federal
debtor relief laws from time to time in effect which affect the enforcement of
creditors' rights in general, and general limitations on the availability of
equitable remedies. The execution, delivery and performance by the Grantors of
this Agreement will not, by the passage of time, the giving of notice or
otherwise, violate any material provision of any Applicable Law or any Contract
material to the business of any Grantor and will not result in the creation or
imposition of any Lien, other than the Security Interests, upon or with respect
to any property or revenues of any Grantor.
Section 3.3. CONSENTS. No approval, consent, exemption, authorization
or other action by, or notice to, or filing with, any Governmental Authority or
any other Person is necessary or required in connection with the execution,
delivery or performance by, or enforcement against any Grantor or any Subsidiary
Issuer of this Agreement, except (i) as may be required by laws affecting the
offering and sale of securities generally, (ii) filings with the United States
Copyright Office and/or the United States Patent and Trademark Office, and (iii)
filings under the UCC and/or the Assignment of Claims Act.
Section 3.4. PERFECTED FIRST PRIORITY LIENS. The Security Interests
granted pursuant to this Agreement (a) constitute valid security interests in
all of the Collateral in favor
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of the Secured Party, as collateral security for the Obligations, enforceable in
accordance with the terms hereof against all creditors of such Grantor and any
Persons purporting to purchase any Collateral from such Grantor, and (b) are
prior to all other Liens on the Collateral in existence on the date hereof
except to the extent of any priority accorded under Applicable Law to any
Permitted Liens. Upon the filing of financing statements in the jurisdiction of
formation of the respective Grantors reflected in the Perfection Certificate,
and the filing of appropriate collateral assignments with the United States
Copyright Office and the United States Patent and Trademark Office, the Security
Interests will be perfected first priority security interests in all Collateral
in which a security interest can be perfected by means of filing; and upon
delivery to the Secured Party of the certificates representing the Collateral
consisting of Certificated Securities, the Security Interests will be perfected
first priority security interests in such Collateral.
Section 3.5. TITLE; NO OTHER LIENS. Except for the Security Interests,
each Grantor owns each item of the Collateral free and clear of any and all
Liens or claims other than Permitted Liens. No financing statement under the UCC
of any state which names a Grantor as debtor or other public notice with respect
to all or any part of the Collateral is on file or of record in any public
office, except such as have been filed in favor of the Secured Party pursuant to
this Agreement or in connection with Permitted Liens. No Collateral is in the
possession or Control of any Person asserting any claim thereto or security
interest therein, except that (a) the Secured Party or its designee may have
possession or Control of Collateral as contemplated hereby, (b) a depositary
bank may have Control of a Deposit Account owned by a Grantor at such depositary
bank and a Securities Intermediary may have Control over a Securities Account
owned by a Grantor at such Securities Intermediary, in each case subject to the
terms of any Deposit Account control agreement or Securities Account control
agreement, as applicable and to the extent required by Section 4, in favor of
the Secured Party, and (c) a bailee, consignee or other Person may have
possession of Collateral as contemplated by, and so long as, the applicable
Grantors have complied to the satisfaction of the Secured Party with the
applicable provisions of Section 4.
Section 3.6. STATE OF ORGANIZATION; LOCATION OF INVENTORY, EQUIPMENT
AND FIXTURES; OTHER INFORMATION.
(a) The exact legal name of each Grantor is as set forth in
the Perfection Certificate.
(b) Each Grantor is a Registered Organization organized under
the laws of the jurisdiction identified for such Grantor in the
Perfection Certificate. The taxpayer identification number and
Registered Organization number of each Grantor is as set forth for such
Grantor in the Perfection Certificate.
(c) All Collateral consisting of Inventory, Equipment and
Fixtures (whether now owned or hereafter acquired) is (or will be)
located at the locations specified in the Perfection Certificate.
(d) The mailing address, chief place of business, chief
executive office and office where each Grantor keeps its books and
records relating to the Accounts, Documents, General Intangibles,
Instruments and Investment Property in which it has any interest is
located at the locations specified for such Grantor in the Perfection
Certificate. No Grantor has any other
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places of business. No Grantor does business or has done business
during the past five years under any trade name or fictitious business
name except as disclosed for such Grantor in the Perfection
Certificate. Except as disclosed in the Perfection Certificate, no
Grantor has acquired assets from any Person, other than assets acquired
in the ordinary course of such Grantor's business, during the past five
years.
Section 3.7. ACCOUNTS. Each existing Account constitutes, and each
hereafter arising Account will constitute, the legally valid and binding
obligation of the applicable Account Debtor. The amount represented by each
Grantor to the Secured Party as owing by each Account Debtor is, or will be, the
correct amount actually and unconditionally owing, except for normal cash
discounts and allowances in the ordinary course of business where applicable. No
Account Debtor has any defense, set-off, claim or counterclaim against any
Grantor that can be asserted against the Secured Party, whether in any
proceeding to enforce Secured Party's rights in the Collateral or otherwise,
except defenses, set-offs, claims or counterclaims that are not, in the
aggregate, material to the value of the Accounts. None of the Accounts is, nor
will any hereafter arising Account be, evidenced by a promissory note or other
Instrument, other than a check, that has not been pledged and delivered to the
Secured Party in accordance with the terms hereof.
Section 3.8. CHATTEL PAPER. As of the date hereof, to the Grantors'
knowledge, no Grantor holds any Chattel Paper.
Section 3.9. COMMERCIAL TORT CLAIMS. As of the date hereof, no Grantor
holds any Commercial Tort Claims except as described in the Perfection
Certificate; and, upon becoming aware at any time and from time to time of any
further Commercial Tort Claims, the Grantors shall notify the Secured Party
thereof in accordance with Section 4.4.
Section 3.10. DEPOSIT ACCOUNTS. As of the date hereof, all Deposit
Accounts (including, without limitation, lockboxes and cash management accounts
that are Deposit Accounts) owned by any Grantor are listed in the Perfection
Certificate.
Section 3.11. INTELLECTUAL PROPERTY. None of the Intellectual Property
owned by any Grantor is the subject of any written licensing or franchise
agreement pursuant to which such Grantor is the licensor or franchisor, except
as would not reasonably be expected to have a Material Adverse Effect.
Section 3.12. INVENTORY. Collateral consisting of Inventory is of good
and merchantable quality, free from any material defects, and has been
manufactured in accordance with the requirements of the Fair Labor Standards Act
and all other Applicable Law. To the knowledge of each Grantor, none of such
Inventory is subject to any licensing, Patent, Trademark, trade name or
Copyright with any Person that restricts any Grantor's ability to manufacture
and/or sell such Inventory. The completion of the manufacturing process of such
Inventory by a Person other than the applicable Grantor would be permitted under
any contract to which such Grantor is a party or to which the Inventory is
subject.
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Section 3.13. INVESTMENT PROPERTY; PARTNERSHIP/LLC INTERESTS.
(a) As of the date hereof, all Investment Property (including,
without limitation, Securities Accounts and cash management accounts
that are Investment Property) and all Partnership/LLC Interests owned
by any Grantor is listed in the Perfection Certificate.
(b) All Investment Property and all Partnership/LLC Interests
issued by any Subsidiary Issuer to any Grantor (i) have been duly and
validly issued and, if applicable, are fully paid and nonassessable,
(ii) are beneficially owned as of record by such Grantor, and (iii)
constitute all the issued and outstanding shares of all classes of the
capital stock or equity interest of such Subsidiary Issuer issued to
such Grantor.
(c) None of the Partnership/LLC Interests (i) are traded on a
securities exchange or in securities markets, (ii) by their terms
expressly provide that they are Securities governed by Article 8 of the
UCC, or (iii) are Investment Company Securities.
Section 3.14. INSTRUMENTS. As of the date hereof, no Grantor holds any
Instruments or is named a payee of any promissory note or other evidence of
indebtedness.
ARTICLE IV
COVENANTS
Until the Obligations shall have been indefeasibly paid in full and the
Revolving Credit Commitment has been terminated, unless express written consent
has been obtained from the Lender, the Grantors covenant and agree that:
Section 4.1. MAINTENANCE OF PERFECTED SECURITY INTEREST; FURTHER
INFORMATION.
(a) Each Grantor shall maintain the Security Interest created
by this Agreement as a perfected Security Interests having at least the
priority described in Section 3.4 and shall defend such Security
Interest against the claims and demands of all Persons whomsoever.
(b) Each Grantor will furnish to the Secured Party from time
to time statements and schedules further identifying and describing the
assets and property of such Grantor and such other reports in
connection therewith as the Secured Party may reasonably request, all
in reasonable detail.
Section 4.2. MAINTENANCE OF INSURANCE.
(a) Each Grantor will maintain, with financially sound and
reputable companies, insurance policies (i) insuring the Collateral
against loss by fire, explosion, theft, fraud and such other
casualties, including business interruption, as may be reasonably
satisfactory to the Secured Party in amounts and with deductibles at
least as favorable as those generally maintained by businesses of
similar size engaged in similar activities, and (ii) insuring such
Grantor and the Secured Party against liability for hazards, risks and
liability to persons and property relating to the Collateral
(including, without limitation, products liability coverage), in
amounts and with deductibles at least as favorable as those generally
maintained by businesses of similar size
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engaged in similar activities, such policies to be in such form and
having such coverage as may be reasonably satisfactory to the Lender.
(b) All such insurance (other than workers' compensation)
shall (i) name the Secured Party as loss payee (to the extent covering
risk of loss or damage to tangible property) and as an additional
insured as its interests may appear (to the extent covering any other
risk), (ii) provide that no cancellation shall be effective until at
least thirty (30) days after receipt by the Secured Party of written
notice thereof, and (iii) be reasonably satisfactory in all other
respects to the Secured Party.
(c) Upon the request of the Secured Party, each Grantor shall
deliver to the Secured Party periodic information from a reputable
insurance broker with respect to the insurance referred to in this
Section 4.2.
Section 4.3. CHANGES IN LOCATIONS; CHANGES IN NAME OR STRUCTURE. No
Grantor will, except upon fifteen (15) days' prior written notice to the Secured
Party and delivery to the Secured Party of (a) all additional financing
statements (executed if necessary for any particular filing jurisdiction) and
other instruments and documents reasonably requested by the Secured Party to
maintain the validity, perfection and priority of the Security Interests, and
(b) if applicable, a written supplement to the Perfection Certificate:
(i) permit any Deposit Account to be held by or at a
depositary bank other than the depositary bank that held such
Deposit Account as of the date hereof as set forth in the
Perfection Certificate;
(ii) permit any of the Inventory, Equipment or
Fixtures to be kept at a location other than those listed in
the Perfection Certificate, except as otherwise permitted
hereunder;
(iii) permit any Investment Property (other than
Certificated Securities delivered to the Secured Party
pursuant to Section 4.5) to be held by a Securities
Intermediary;
(iv) change its organizational form or structure,
jurisdiction of organization or the location of its chief
executive office from that identified in the Perfection
Certificate; or
(v) change its name or identity to such an extent
that any financing statement filed by the Secured Party in
connection with this Agreement would become misleading.
Section 4.4. REQUIRED NOTIFICATIONS. Each Grantor shall promptly notify
the Secured Party, in writing, of: (a) any Lien (other than the Security
Interests or Permitted Liens) on any of the Collateral, (b) the occurrence of
any other event which could reasonably be expected to have a material adverse
effect on the aggregate value of the Collateral or on the Security Interests,
(c) any Collateral which, to the knowledge of such Grantor, constitutes a
Government Contract, and (d) the acquisition or ownership by such Grantor of any
(i) Commercial Tort Claim, (ii) Deposit Account, or (iii) Investment Property
after the date hereof.
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Section 4.5. DELIVERY COVENANTS. Each Grantor will deliver and pledge
to the Secured Party all Certificated Securities, Partnership/LLC Interests
evidenced by a certificate, negotiable Documents, Instruments, and Tangible
Chattel Paper owned or held by such Grantor, in each case, together with an
Effective Endorsement and Assignment and all Supporting Obligations, as
applicable, unless such delivery and pledge has been waived in writing by the
Secured Party.
Section 4.6. CONTROL COVENANTS.
(a) Each Grantor shall instruct (and otherwise use its
reasonable efforts) to cause (i) each depositary bank holding a Deposit
Account owned by such Grantor, and (ii) each Securities Intermediary
holding any Investment Property owned by such Grantor, to execute and
deliver a control agreement, sufficient to provide the Secured Party
with Control of such Deposit Account or Investment Property, and
otherwise in form and substance satisfactory to the Secured Party (any
such depositary bank executing and delivering any such control
agreement, a "CONTROLLED DEPOSITARY", and any such Securities
Intermediary executing and delivering any such control agreement, a
"CONTROLLED INTERMEDIARY"). In the event any such depositary bank or
Securities Intermediary refuses to execute and deliver such control
agreement, the Secured Party, in its sole discretion, may require the
applicable Deposit Account and Investment Property to be transferred to
the Secured Party or a Controlled Depositary or Controlled
Intermediary, as applicable.
(b) Each Grantor will, promptly upon request of the Secured
Party, take such actions and deliver all such agreements as are
requested by the Secured Party to provide the Secured Party with
Control of all Letter of Credit Rights and Electronic Chattel Paper
owned or held by such Grantor, including, without limitation, with
respect to any such Electronic Chattel Paper, by having the Secured
Party identified as the assignee of the Record(s) pertaining to the
single authoritative copy thereof.
(c) If any Collateral (other than Collateral specifically
subject to the provisions of Section 4.6(a) and Section 4.6(b))
exceeding in value $100,000 in the aggregate (such Collateral exceeding
such amount, the "EXCESS COLLATERAL") is at any time in the possession
or control of any single consignee, warehouseman, bailee (other than a
carrier transporting Inventory to a purchaser in the ordinary course of
business), processor, or any other third party, such Grantor shall
notify in writing such Person of the Security Interests created hereby,
shall use its reasonable efforts to obtain such Person's written
agreement in writing to hold all such Collateral for the Secured
Party's account subject to the Secured Party's instructions, and shall,
promptly upon request of the Secured Party, cause such Person to issue
and deliver to the Secured Party warehouse receipts, bills of lading or
any similar documents relating to such Collateral to the Secured
Party's together with an Effective Endorsement and Assignment; provided
that if such Grantor is not able to obtain such agreement and cause the
delivery of such items, the Secured Party, in its sole discretion, may
require such Excess Collateral to be moved to another location
specified by the Secured Party. Further, each Grantor shall perfect and
protect such Grantor's ownership interests in all Inventory exceeding
$100,000 in the aggregate stored with a consignee against creditors of
the consignee by filing and maintaining financing statements against
the consignee reflecting the consignment arrangement filed in all
appropriate filing offices, providing any written notices required to
notify any prior creditors of the consignee of the consignment
arrangement, and taking such other actions as may be appropriate to
perfect and
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protect such Grantor's interests in such Inventory under Section 2-326,
Section 9-103, Section 9-324 and Section 9-505 of the UCC or otherwise.
All such financing statements filed pursuant to this Section 4.6(c)
shall be assigned, on the face thereof, to the Secured Party.
Section 4.7. FILING COVENANTS. Pursuant to Section 9-509 of the UCC and
any other Applicable Law, each Grantor authorizes the Secured Party to file or
record financing statements and other filing or recording documents or
instruments with respect to the Collateral without the signature of such Grantor
in such form and in such offices as the Secured Party determines appropriate to
perfect the Security Interests of the Secured Party under this Agreement. Such
financing statements may describe the Collateral in the same manner as described
herein or may contain an indication or description of Collateral that describes
such property in any other manner as the Secured Party may determine, in its
sole discretion, is necessary, advisable or prudent to ensure the perfection of
the Security Interest in the Collateral granted herein, including, without
limitation, describing such property as "all assets" or "all personal property."
Further, a photographic or other reproduction of this Agreement shall be
sufficient as a financing statement or other filing or recording document or
instrument for filing or recording in any jurisdiction. Each Grantor hereby
authorizes, ratifies and confirms all financing statements and other filing or
recording documents or instruments filed by Secured Party prior to the date of
this Agreement.
Section 4.8. ACCOUNTS.
(a) Other than in the ordinary course of business consistent
with its past practice, no Grantor will (i) grant any extension of the
time of payment of any Account, (ii) compromise or settle any Account
for less than the full amount thereof, (iii) release, wholly or
partially, any Account Debtor, (iv) allow any credit or discount
whatsoever on any Account, or (v) amend, supplement or modify any
Account in any manner that could adversely affect the value thereof.
(b) Each Grantor will deliver to the Secured Party a copy of
each material demand, notice or document received by such Grantor that
questions or calls into doubt the validity or enforceability of any
material Account.
(c) The Secured Party shall have the right, upon prior notice
to the Borrower (provided that no such notice shall be required during
the continuance of any Default or Event of Default), to make test
verifications of the Accounts in any manner and through any medium that
it reasonably considers advisable, and each Grantor shall furnish all
such assistance and information as the Secured Party may require in
connection with such test verifications. At any time and from time to
time, upon the Secured Party's reasonable request and at the expense of
the relevant Grantor, such Grantor shall cause independent public
accountants or others satisfactory to the Secured Party to furnish to
the Secured Party reports showing reconciliations, aging and test
verifications of, and trial balances for, the Accounts.
(d) Upon request of the Secured Party at any time after five
(5) days' notice to the Borrower and for good reason (provided that no
such notice or reason shall be required during the continuance of any
Default or Event of Default), each Grantor shall direct is Account
Debtors to remit all payments on Accounts owing to such Grantor from
time to time to a lockbox
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maintained in the name or under the Control of the Secured Party and
swept on a regular basis into a Deposit Account at a Controlled
Depositary or the Collateral Account.
Section 4.9. INTELLECTUAL PROPERTY.
(a) Within thirty (30) days after the close of each calendar
quarter (or more frequently if reasonably requested by the Secured
Party), each Grantor shall give written notice to the Secured Party of
the existence of any new registered Intellectual Property owned or
claimed to be owned by such Grantor, which notice shall set forth the
particulars thereof (including the name or title of the subject
Intellectual Property, the filing office in which any filings may have
been made in respect thereof, and the filing date and registration
number of each such filing); and each such Grantor shall execute and
deliver to the Secured Party, for filing, any and all such collateral
assignments as the Secured Party may reasonably request in order to
confirm and/or perfect the Security Interests in such Intellectual
Property.
(b) If deemed by the Grantors, in their reasonable business
judgment, to be necessary or beneficial for use in their business, each
Grantor (either itself or through licensees) (i) will continue to use
each registered Trademark (owned by such Grantor) and Trademark for
which an application (owned by such Grantor) is pending, to the extent
reasonably necessary to maintain such Trademark in full force free from
any claim of abandonment for non-use, (ii) will maintain products and
services offered under such Trademark at a level substantially
consistent with the quality of such products and services as of the
date hereof, (iii) will not (and will not permit any licensee or
sublicensee thereof to) do any act or knowingly omit to do any act
whereby such Trademark could reasonably be expected to become
invalidated or impaired in any way, (iv) will not do any act, or
knowingly omit to do any act, whereby any issued Patent owned by such
Grantor would reasonably be expected to become forfeited, abandoned or
dedicated to the public, (v) will not (and will not permit any licensee
or sublicensee thereof to) do any act or knowingly omit to do any act
whereby any registered Copyright owned by such Grantor or Copyright for
which an application is pending (owned by such Grantor) could
reasonably be expected to become invalidated or otherwise impaired, and
(vi) will not (either itself or through licensees) do any act whereby
any material portion of the Copyrights may fall into the public domain.
(c) Each Grantor will notify the Secured Party promptly if it
knows, or has reason to know, that any application or registration
relating to any material Intellectual Property owned by such Grantor
may become forfeited, abandoned or dedicated to the public, or of any
adverse determination or development (including, without limitation,
the institution of, or any such determination or development in, any
proceeding in the United States Patent and Trademark Office, the United
States Copyright Office or any court or tribunal in any country)
regarding such Grantor's ownership of, or the validity of, any material
Intellectual Property owned by such Grantor or such Grantor's right to
register the same or to own and maintain the same.
(d) Whenever such Grantor, either by itself or through any
agent, employee, licensee or designee, shall file an application for
the registration of any Intellectual Property with the United States
Patent and Trademark Office, the United States Copyright Office or any
similar office or agency in any other country or any political
subdivision thereof, such Grantor shall report such filing to the
Secured Party within thirty (30) days after the last day of the fiscal
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quarter in which such filing occurs. Upon request of the Secured Party,
such Grantor shall execute and deliver, and have recorded, any and all
agreements, instruments, documents, and papers as the Secured Party may
reasonably request to evidence the Secured Party's security interest in
any material Copyright, Patent or Trademark and the goodwill and
General Intangibles of such Grantor relating thereto or represented
thereby.
(e) Each Grantor will, if deemed by the Grantors, in their
reasonable business judgment, to be necessary or beneficial for use in
their business, take all commercially reasonable and necessary steps,
at such Grantor's sole cost and expense, including, without limitation,
in any proceeding before the United States Patent and Trademark Office,
the United States Copyright Office or any similar office or agency in
any other country or any political subdivision thereof, to maintain and
pursue each application (and to obtain the relevant registration) and
to maintain each registration of the material Intellectual Property,
including, without limitation, filing of applications for renewal,
affidavits of use and affidavits of incontestability.
(f) In the event that any material Intellectual Property owned
by a Grantor is infringed, misappropriated or diluted by a third party,
the applicable Grantor shall (i) at such Grantor's sole cost and
expense, take such actions as such Grantor shall reasonably deem
appropriate under the circumstances to protect such Intellectual
Property, and (ii) if such Intellectual Property is of material
economic value, promptly notify the Secured Party after it learns of
such infringement, misappropriation or dilution.
Section 4.10. INVESTMENT PROPERTY; PARTNERSHIP/LLC INTERESTS.
(a) Without the prior written consent of the Lender, no
Grantor will (i) vote to enable, or take any other action to permit,
any Subsidiary Issuer to issue any Investment Property or
Partnership/LLC Interests, except for those additional Investment
Property or Partnership/LLC Interests that will be subject to the
Security Interest granted herein in favor of the Secured Party, or (ii)
enter into any agreement or undertaking restricting the right or
ability of such Grantor or the Secured Party to sell, assign or
transfer any Investment Property or Partnership/LLC Interests or
Proceeds thereof. The Grantors will defend the right, title and
interest of the Secured Party in and to any Investment Property and
Partnership/LLC Interests against the claims and demands of all Persons
whomsoever.
(b) If any Grantor shall become entitled to receive or shall
receive (i) any Certificated Securities (including, without limitation,
any certificate representing a stock dividend or a distribution in
connection with any reclassification, increase or reduction of capital
or any certificate issued in connection with any reorganization),
option or rights in respect of the ownership interests of any Issuer,
whether in addition to, in substitution of, as a conversion of, or in
exchange for, any Investment Property, or otherwise in respect thereof,
or (ii) any sums paid upon or in respect of any Investment Property
upon the liquidation or dissolution of any Issuer, such Grantor shall
accept the same as the agent of the Secured Party, hold the same in
trust for the Secured Party, segregated from other funds of such
Grantor, and promptly deliver the same to the Secured Party in
accordance with the terms hereof.
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Section 4.11. EQUIPMENT. Each Grantor will maintain each item
of Equipment in good working order and condition (reasonable wear and
tear and obsolescence excepted), and in accordance with any
manufacturer's manual and/or recommendations, and will as quickly as
practicable provide all maintenance, service and repairs necessary for
such purpose and will promptly furnish to the Secured Party a statement
respecting any material loss or damage to any of the Equipment.
Section 4.12. VEHICLES. Upon the request of the Secured Party
at any time and from time to time, any and all applications for
certificates of title or ownership indicating the Secured Party's first
priority Lien on the Vehicle covered by such certificate, and any other
necessary documentation, shall be filed in each office in each
jurisdiction which the Secured Party shall deem reasonably advisable to
perfect its Liens on the Vehicles. Prior thereto, each certificate of
title or ownership relating to each Vehicle shall be maintained by the
applicable Grantor in accordance with Applicable Law to reflect the
ownership interest of such Grantor.
Section 4.13. FURTHER ASSURANCES. Upon the request of the
Secured Party and at the sole expense of the Grantors, each Grantor
will promptly and duly execute and deliver, and have recorded, such
further instruments and documents and take such further actions as the
Secured Party may reasonably request for the purpose of obtaining or
preserving the full benefits of this Agreement and of the rights and
powers herein granted, including, without limitation, (a) the
collateral assignment of any Contract, (b) with respect to Government
Contracts, collateral assignment agreements and notices of collateral
assignment, in form and substance satisfactory to the Secured Party,
duly executed by the subject Grantor in compliance with the Assignment
of Claims Act (or analogous state Applicable Law), and (c) all
applications, certificates, instruments, registration statements, and
all other documents and papers the Secured Party may reasonably request
and as may be required by law in connection with the obtaining of any
consent, approval, registration, qualification, or authorization of any
Person deemed necessary or appropriate for the effective exercise of
any rights under this Agreement.
ARTICLE V
REMEDIAL PROVISIONS
Section 5.1. GENERAL REMEDIES. If an Event of Default shall occur and
be continuing, the Secured Party may exercise, in addition to all other rights
and remedies granted to it in this Agreement and in any other instrument or
agreement securing, evidencing or relating to the Obligations, all rights and
remedies of a secured party under the UCC or any other Applicable Law. Without
limiting the generality of the foregoing, the Secured Party, without demand of
performance or other demand, presentment, protest, advertisement or notice of
any kind (except any notice required by law referred to below) to or upon any
Grantor or any other Person (all and each of which demands, defenses,
advertisements and notices are hereby waived), may in such circumstances
forthwith collect, receive, appropriate and realize upon the Collateral, or any
part thereof, and/or may forthwith sell, lease, assign, give option or options
to purchase, or otherwise dispose of and deliver the Collateral or any part
thereof (or contract to do any of the foregoing), in one or more parcels at
public or private sale or sales, at any exchange, broker's board or office of
the Secured Party or elsewhere upon such terms and conditions as it may deem
advisable and at such prices as it may deem best, for cash or on credit or for
future
16
delivery without assumption of any credit risk. The Secured Party may disclaim
any warranties of title, possession and quiet enjoyment. The Secured Party shall
have the right upon any such public sale or sales, and, to the extent permitted
by law, upon any such private sale or sales, to purchase the whole or any part
of the Collateral so sold, free of any right or equity of redemption in any
Grantor, which right or equity is hereby waived and released. Each Grantor
further agrees, at the Secured Party's request, to assemble the Collateral and
make it available to the Secured Party at places which the Secured Party shall
reasonably select, whether at such Grantor's premises or elsewhere. To the
extent permitted by Applicable Law, each Grantor waives all claims, damages and
demands it may acquire against the Secured Party arising out of the exercise by
it of any rights hereunder except to the extent any such claims, damages, or
demands result solely from the gross negligence or willful misconduct of the
Secured Party. If any notice of a proposed sale or other disposition of
Collateral shall be required by law, such notice shall be deemed reasonable and
proper if given at least ten (10) days before such sale or other disposition.
Section 5.2. SPECIFIC REMEDIES.
(a) The Secured Party hereby authorizes each Grantor to
collect its Accounts, under the Secured Party's direction and control;
provided that, the Secured Party may curtail or terminate such
authority at any time after the occurrence and during the continuance
of an Event of Default.
(b) Upon the occurrence and during the continuance of an Event
of Default:
(i) the Secured Party may communicate with Account
Debtors of any Account subject to a Security Interest and upon
the request of the Secured Party, each Grantor shall notify
(such notice to be in form and substance satisfactory to the
Secured Party) its Account Debtors and parties to the
Contracts subject to a Security Interest that such Accounts
and the Contracts have been assigned to the Secured Party;
(ii) each Grantor shall forward to the Secured Party,
on the last Business Day of each week (or more frequently if
requested by the Secured Party), deposit slips related to all
cash, money, checks or any other similar items of payment
received by the Grantor during such week, and, if requested by
the Secured Party, copies of such checks or any other similar
items of payment, together with a statement showing the
application of all payments on the Collateral during such week
and a collection report with regard thereto, in form and
substance satisfactory to the Secured Party.
(iii) whenever any Grantor shall receive any cash,
money, checks or any other similar items of payment relating
to any Collateral (including any Proceeds of any Collateral),
such Grantor agrees that it will, within one (1) Business Day
of such receipt, deposit all such items of payment into the
Collateral Account or in a Deposit Account at a Controlled
Depositary; and until such Grantor shall deposit such cash,
money, checks or any other similar items of payment in the
Collateral Account or in a Deposit Account at a Controlled
Depositary, such Grantor shall hold such cash, money, checks
or any other similar items of payment in trust for the Secured
Party and as property of the Secured Party, separate from the
other funds of such Grantor, and the Secured Party shall have
the
17
right to transfer or direct the transfer of the balance of
each Deposit Account to the Collateral Account. All such
Collateral and Proceeds of Collateral received by the Secured
Party hereunder shall be held by the Secured Party in the
Collateral Account as collateral security for all the
Obligations and shall not constitute payment thereof until
applied as provided in Section 5.4.
(iv) the Secured Party shall have the right to
receive any and all cash dividends, payments or distributions
made in respect of any Investment Property or Partnership/LLC
Interests or other Proceeds paid in respect of any Investment
Property or Partnership/LLC Interests, and any or all of any
Investment Property or Partnership/LLC Interests shall be
registered in the name of the Secured Party or its nominee,
and the Secured Party or its nominee may thereafter exercise
(A) all voting, corporate and other rights pertaining to such
Investment Property or Partnership/LLC Interests, at any
meeting of shareholders, partners or members of the relevant
Issuers, and (B) any and all rights of conversion, exchange
and subscription and any other rights, privileges or options
pertaining to such Investment Property or Partnership/LLC
Interests as if it were the absolute owner thereof (including,
without limitation, the right to exchange at its discretion
any and all of the Investment Property or Partnership/LLC
Interests upon the merger, consolidation, reorganization,
recapitalization or other fundamental change in the corporate,
partnership or company structure of any Issuer or upon the
exercise by any Grantor or the Secured Party of any right,
privilege or option pertaining to such Investment Property or
Partnership/LLC Interests, and in connection therewith, the
right to deposit and deliver any and all of the Investment
Property or Partnership/LLC Interests with any committee,
depositary, transfer agent, registrar or other designated
agency upon such terms and conditions as the Secured Party may
determine), all without liability except to account for
property actually received by it; but the Secured Party shall
have no duty to any Grantor to exercise any such right,
privilege or option and the Secured Party shall not be
responsible for any failure to do so or delay in so doing. In
furtherance thereof, each Grantor hereby authorizes and
instructs each Issuer with respect to any Collateral
consisting of Investment Property and Partnership/LLC
Interests to (i) comply with any instruction received by it
from the Secured Party in writing that (A) states that an
Event of Default has occurred and is continuing, and (B) is
otherwise in accordance with the terms of this Agreement,
without any other or further instructions from such Grantor,
and each Grantor agrees that each Issuer shall be fully
protected in so complying, and (ii) except as otherwise
expressly permitted hereby, pay any dividends, distributions
or other payments with respect to any Investment Property or
Partnership/LLC Interests directly to the Secured Party; and
(v) the Secured Party shall be entitled to (but shall
not be required to): (A) proceed to perform any and all
obligations of the applicable Grantor under any Contract and
exercise all rights of such Grantor thereunder as fully as
such Grantor itself could, (B) do all other acts which the
Secured Party may deem necessary or proper to protect its
Security Interest granted hereunder, provided such acts are
not inconsistent with or in violation of the terms of the Loan
Agreement or Applicable Law, and (C) sell, assign or otherwise
transfer any Contract constituting Collateral, subject,
however, to the prior approval of each other party to such
Contract, to the extent required under the Contract.
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(c) Unless an Event of Default shall have occurred and be
continuing and the Secured Party shall have given notice to the
relevant Grantor of the Secured Party's intent to exercise its
corresponding rights pursuant to Section 5.2(b), each Grantor shall be
permitted to receive all cash dividends, payments or other
distributions made in respect of any Investment Property and
Partnership/LLC Interests, in each case paid in the normal course of
business of the relevant Issuer and consistent with past practice, to
the extent permitted in the Loan Agreement, and to exercise all voting
and other corporate, company or partnership rights with respect to any
Investment Property and Partnership/LLC Interests; provided that no
vote shall be cast or other corporate, company or partnership right
exercised or other action taken which, in the Secured Party's
reasonable judgment, would impair the Collateral or which would result
in a Default or Event of Default under any provision of the Loan
Agreement, this Agreement or any other Loan Document.
Section 5.3. PRIVATE SALE.
(a) Each Grantor recognizes that the Secured Party may be
unable to effect a public sale of any or all Collateral consisting of
Securities which have not been registered for resale under the
Securities Act ("RESTRICTED SECURITIES COLLATERAL"), by reason of
certain prohibitions contained in the Securities Act and applicable
state securities laws or otherwise, and may be compelled to resort to
one or more private sales thereof to a restricted group of purchasers
which will be obliged to agree, among other things, to acquire such
securities for their own account for investment and not with a view to
the distribution or resale thereof. Each Grantor acknowledges and
agrees that any such private sale may result in prices and other terms
less favorable than if such sale were a public sale and,
notwithstanding such circumstances, agrees that any such private sale
shall not by reason thereof be deemed not to have been made in a
commercially reasonable manner. The Secured Party shall be under no
obligation to delay a sale of any of the Restricted Securities
Collateral for the period of time necessary to permit the Issuer
thereof to register such securities for public sale under the
Securities Act, or under applicable state securities laws, even if such
Issuer would agree to do so.
(b) Each Grantor agrees to use its best efforts to do or cause
to be done all such other acts as may be necessary to make such sale or
sales of all or any portion of the Restricted Securities Collateral
valid and binding and in compliance with any and all other Applicable
Laws.
Section 5.4. APPLICATION OF PROCEEDS. At such intervals as may be
agreed upon by the Borrower and the Secured Party, or, if an Event of Default
shall have occurred and be continuing, at any time at the Lender's election, the
Secured Party may apply all or any part of the Collateral or any Proceeds of the
Collateral in payment in whole or in part of the Obligations (after deducting
all reasonable costs and expenses of every kind incurred in connection therewith
or incidental to the care or safekeeping of any of the Collateral or in any way
relating to the Collateral or the rights of the Secured Party hereunder,
including, without limitation, reasonable attorneys' fees and disbursements) in
accordance with Section 2.06 of the Loan Agreement. Any balance of such Proceeds
remaining after payment in full of the Obligations shall be paid over to the
Grantors, or to whomever else may be lawfully entitled to receive the same. Only
after (a) the payment by the Secured Party of any other amount required by any
provision of law, including, without limitation, Section 9-610 and Section 9-615
of the UCC, and (b) the payment in full of
19
the Obligations, shall the Secured Party account for the surplus, if any, to any
Grantor, or to whomever else may be lawfully entitled to receive the same.
Section 5.5. WAIVER, DEFICIENCY. Each Grantor hereby waives, to the
extent permitted by Applicable Law, all rights of redemption, appraisement,
valuation, stay, extension or moratorium now or hereafter in force under any
Applicable Law in order to prevent or delay the enforcement of this Agreement or
the absolute sale of the Collateral or any portion thereof. Each Grantor shall
remain liable for any deficiency if the proceeds of any sale or other
disposition of the Collateral are insufficient to pay its Obligations and the
fees and disbursements of any attorneys employed by the Secured Party to collect
such deficiency.
ARTICLE VI
THE SECURED PARTY
Section 6.1. SECURED PARTY'S APPOINTMENT AS ATTORNEY-IN-FACT.
(a) Each Grantor hereby irrevocably constitutes and appoints
the Secured Party and any officer or agent thereof, with full power of
substitution, as its true and lawful attorney-in-fact with full
irrevocable power and authority in the place and stead of such Grantor
and in the name of such Grantor or in its own name, for the purpose of
carrying out the terms of this Agreement, to take any and all
appropriate action and to execute 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, each
Grantor hereby gives the Secured Party the power and right, on behalf
of such Grantor, without notice to or assent by such Grantor, to do any
or all of the following upon the occurrence and during the continuance
of an Event of Default:
(i) in the name of such Grantor or its own name, or
otherwise, take possession of and indorse and collect any
checks, drafts, notes, acceptances or other instruments for
the payment of moneys due under any Account or Contract
subject to a Security Interest or with respect to any other
Collateral and file any claim or take any other action or
proceeding in any court of law or equity or otherwise deemed
appropriate by the Secured Party for the purpose of collecting
any and all such moneys due under any Account or Contract
subject to a Security Interest or with respect to any other
Collateral whenever payable;
(ii) in the case of any Intellectual Property,
execute and deliver, and have recorded, any and all
agreements, instruments, documents and papers as the Secured
Party may request to evidence the Secured Party's security
interest in such Intellectual Property and the goodwill and
General Intangibles of such Grantor relating thereto or
represented thereby;
(iii) pay or discharge taxes and Liens levied or
placed on or threatened against the Collateral, effect any
repairs or any insurance called for by the terms of this
Agreement and pay all or any part of the premiums therefor and
the costs thereof,
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(iv) execute, in connection with any sale provided
for in this Agreement, any endorsements, assignments or other
instruments of conveyance or transfer with respect to the
Collateral; and
(v) (A) direct any party liable for any payment under
any of the Collateral to make payment of any and all moneys
due or to become due thereunder directly to the Secured Party
or as the Secured Party shall direct; (B) ask or demand for,
collect, and receive payment of and receipt for, any and all
moneys, claims and other amounts due or to become due at any
time in respect of or arising out of any Collateral; (C) sign
and indorse any invoices, freight or express bills, bills of
lading, storage or warehouse receipts, drafts against debtors,
assignments, verifications, notices and other documents in
connection with any of the Collateral; (D) commence and
prosecute any suits, actions or proceedings at law or in
equity in any court of competent jurisdiction to collect the
Collateral or any portion thereof and to enforce any other
right in respect of any Collateral; (E) defend any suit,
action or proceeding brought against such Grantor with respect
to any Collateral; (F) settle, compromise or adjust any such
suit, action or proceeding and, in connection therewith, give
such discharges or releases as the Secured Party may deem
appropriate; (G) assign any Copyright, Patent or Trademark
(along with the goodwill of the business to which any such
Copyright, Patent or Trademark pertains), for such term or
terms, on such conditions, and in such manner, as the Secured
Party shall in its sole discretion determine; and (H)
generally, sell, transfer, pledge and make any agreement with
respect to or otherwise deal with any of the Collateral as
fully and completely as though the Secured Party were the
absolute owner thereof for all purposes, and do, at the
Secured Party's option and such Grantor's expense, at any
time, or from time to time, all acts and things which the
Secured Party deems necessary to protect, preserve or realize
upon the Collateral and the Secured Party's Security Interests
therein and to effect the intent of this Agreement, all as
fully and effectively as such Grantor might do.
(b) If any Grantor fails to perform or comply with any of its
agreements contained herein, the Secured Party, at its option, but
without any obligation so to do, may perform or comply, or otherwise
cause performance or compliance, with such agreement in accordance with
the provisions of Section 6.1(a).
(c) The expenses of the Secured Party incurred in connection
with actions taken pursuant to the terms of this Agreement shall be
deemed to be Advances under the Loan Agreement and shall, together with
interest thereon at the rate(s) in effect from time to time pursuant to
the Revolving Credit Note, from the date of payment by the Secured
Party to the date reimbursed by the Grantors, be payable by the
Grantors to the Secured Party on demand.
(d) Each Grantor hereby ratifies all that said attorneys shall
lawfully do or cause to be done by virtue hereof in accordance with
Section 6.1(a). All powers, authorizations and agencies contained in
this Agreement are coupled with an interest and are irrevocable until
this Agreement is terminated and the Security Interests created hereby
are released.
Section 6.2. DUTY OF SECURED PARTY. The Secured Party's sole duty with
respect to the custody, safekeeping and physical preservation of the Collateral
in its possession, under
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Section 9-207 of the UCC or otherwise, shall be to deal with it in the same
manner as the Secured Party deals with similar property for its own account.
Neither the Secured Party nor any of its officers, directors, employees or
agents shall be liable for failure to demand, collect or realize upon any of the
Collateral or for any delay in doing so or shall be under any obligation to sell
or otherwise dispose of any Collateral upon the request of any Grantor or any
other Person or to take any other action whatsoever with regard to the
Collateral or any part thereof. The powers conferred on the Secured Party
hereunder are solely to protect the Secured Party's interests in the Collateral
and shall not impose any duty upon the Secured Party to exercise any such
powers. The Secured Party shall be accountable only for amounts that it actually
receives as a result of the exercise of such powers, and neither it nor any of
its officers, directors, employees or agents shall be responsible to any Grantor
for any act or failure to act hereunder, except for their own gross negligence
or willful misconduct.
ARTICLE VII
MISCELLANEOUS
Section 7.1. AMENDMENTS IN WRITING. None of the terms or provisions of
this Agreement may be waived, amended, supplemented or otherwise modified except
in accordance with Section 9.04 of the Loan Agreement.
Section 7.2. NOTICES. All notices, requests and demands to or upon the
Secured Party or any Grantor hereunder shall be effected in the manner provided
for in Section 9.06 of the Loan Agreement.
Section 7.3. NO WAIVER BY COURSE OF CONDUCT, CUMULATIVE REMEDIES. The
Secured Party shall not by any act (except by a written instrument pursuant to
Section 7.1), delay, indulgence, omission or otherwise be deemed to have waived
any right or remedy hereunder or to have acquiesced in any Default or Event of
Default. No failure to exercise, nor any delay in exercising on the part of the
Secured Party, any right, power or privilege hereunder shall operate as a waiver
thereof. No single or partial exercise of any right, power or privilege
hereunder shall preclude any other or further exercise thereof or the exercise
of any other right, power or privilege. A waiver by the Secured Party of any
right or remedy hereunder on any one occasion shall not be construed as a bar to
any right or remedy which the Secured Party would otherwise have on any future
occasion. The rights and remedies herein provided are cumulative, may be
exercised singly or concurrently and are not exclusive of any other rights or
remedies provided by law.
Section 7.4. ENFORCEMENT EXPENSES, INDEMNIFICATION.
(a) Each Grantor agrees to pay or reimburse the Secured Party
on demand for all of its reasonable costs and expenses incurred in
connection with enforcing or preserving any rights under this Agreement
and the other Loan Documents (including, without limitation, in
connection with any workout, restructuring, bankruptcy or other similar
proceeding), including, without limitation, the reasonable fees and
disbursements of counsel to the Secured Party.
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(b) Each Grantor agrees to pay, and to save the Secured Party
harmless from, any and all liabilities with respect to, or resulting
from any delay in paying, any and all stamp, excise, sales or other
taxes which may be payable or determined to be payable with respect to
any of the Collateral or in connection with any of the transactions
contemplated by this Agreement (but not including franchise taxes or
taxes based on net income of the Secured Party).
(c) Each Grantor agrees to pay, and to save the Secured Party
harmless from any and all liabilities, obligations, losses, damages,
penalties, costs and expenses in connection with actions, judgments,
suits, costs, expenses or disbursements of any kind or nature
whatsoever with respect to the execution, delivery, enforcement,
performance and administration of this Agreement to the extent any
Grantor would be required to do so pursuant to Section 9.02 of the Loan
Agreement.
(d) The agreements in this Section 7.4 shall survive repayment
of the Obligations and the termination of this Agreement and/or any
other Loan Documents.
Section 7.5. WAIVER OF JURY TRIAL; PRESERVATION OF REMEDIES.
(a) EACH GRANTOR HEREBY IRREVOCABLY WAIVES ITS RIGHTS TO A
JURY TRIAL WITH RESPECT TO ANY ACTION, CLAIM OR OTHER PROCEEDING
ARISING OUT OF ANY DISPUTE IN CONNECTION WITH THIS AGREEMENT, ANY
RIGHTS OR OBLIGATIONS HEREUNDER, OR THE PERFORMANCE OF SUCH RIGHTS AND
OBLIGATIONS.
(b) The parties hereto preserve, without diminution, certain
remedies that such Persons may employ or exercise freely, either alone,
in conjunction with or during a dispute. Each such Person shall have
and hereby reserves the right to proceed in any court of proper
jurisdiction or by self-help to exercise or prosecute the following
remedies, as applicable: (i) all rights to foreclose against any real
or personal property or other security by exercising a power of sale
granted in the Loan Documents or under Applicable Law or by judicial
foreclosure and sale, including a proceeding to confirm the sale, (ii)
all rights of self-help including peaceful occupation of property and
collection of rents, set-off, and peaceful possession of property,
(iii) obtaining provisional or ancillary remedies including injunctive
relief, sequestration, garnishment, attachment, appointment of receiver
and in filing an involuntary bankruptcy proceeding, and (iv) when
applicable, a judgment by confession of judgment. Preservation of these
remedies does not limit the power of an arbitrator to grant similar
remedies that may be requested by a party in a dispute.
Section 7.6. SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon the successors and assigns of each Grantor and shall inure to the benefit
of each Grantor (and shall bind all Persons who become bound as a Grantor to
this Agreement), the Secured Party and their successors and assigns; PROVIDED,
that no Grantor may assign, transfer or delegate any of its rights or
obligations under this Agreement without the prior written consent of all
holders of Obligations.
Section 7.7. SET-OFF. Each Grantor hereby irrevocably authorizes the
Secured Party at any time and from time to time, without notice to such Grantor,
any such notice being
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expressly waived by each Grantor, to set off and appropriate and apply any and
all deposits (general or special, time or demand, provisional or final), in any
currency, and any other credits, indebtedness or claims, in any currency, in
each case whether direct or indirect, absolute or contingent, matured or
unmatured, at any time held or owing by the Secured Party (or any agent of the
Secured Party) to or for the credit or the account of such Grantor, or any part
thereof in such amounts as the Secured Party may elect, against and on account
of the obligations and liabilities of such Grantor to the Secured Party
hereunder and claims of every nature and description of the Secured Party
against such Grantor, in any currency, whether arising hereunder, under the Loan
Agreement, any other Loan Document or otherwise, as the Secured Party may elect,
whether or not the Secured Party has made any demand for payment and although
such obligations, liabilities and claims may be contingent or unmatured. The
Secured Party shall notify such Grantor promptly of any such set-off and the
application made by the Secured Party of the proceeds thereof; PROVIDED, that
the failure to give such notice shall not affect the validity of such setoff and
application. The rights of the Secured Party under this Section 7.7 are in
addition to other rights and remedies (including, without limitation, other
rights of set-off) which the Secured Party may have.
Section 7.8. COUNTERPARTS. This Agreement may be executed by one or
more of the parties to this Agreement on any number of separate counterparts
(including by telecopy), and all of said counterparts taken together shall be
deemed to constitute one and the same instrument.
Section 7.9. SEVERABILITY. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective only to the extent of such prohibition or unenforceability
without invalidating the remainder of such provision or the remaining provisions
hereof or thereof or affecting the validity or enforceability of such provision
in any other jurisdiction.
Section 7.10. SECTION HEADINGS. The Section headings used in this
Agreement are for convenience of reference only and are not to affect the
construction hereof or be taken into consideration in the interpretation hereof.
Section 7.11. INTEGRATION. This Agreement and the other agreements,
instruments and documents referred to herein represent the agreement of the
Grantors and the Secured Party with respect to the subject matter hereof and
thereof, and there are no promises, undertakings, representations or warranties
by the Secured Party relative to subject matter hereof and thereof not expressly
set forth or referred to herein or in the other agreements, instruments and
documents referred to herein.
Section 7.12. GOVERNING LAW. This Agreement shall be governed by,
construed, interpreted and enforced in accordance with, the laws of the State of
New York, without giving effect to principles of conflicts of laws; PROVIDED,
HOWEVER, that to the extent that the laws of any other jurisdiction govern the
perfection of the Security Interests in any Collateral located in such
jurisdiction or owned by a Grantor located in such jurisdiction, then the laws
of that jurisdiction shall govern as respects such perfection, and the Grantors
shall comply therewith to the same extent as herein provided with respect to the
UCC and other New York law.
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Section 7.13. CONSENT TO JURISDICTION. Each Grantor hereby irrevocably
consents to the personal jurisdiction of all state and federal courts located in
New York, New York, in any action, claim or other proceeding arising out of any
dispute in connection with this Agreement, the Loan Agreement, the Notes and the
other Loan Documents, any rights or obligations hereunder or thereunder, or the
performance of such rights and obligations. Each Grantor hereby irrevocably
consents to the service of a summons and complaint and other process in any
action, claim or proceeding brought by the Secured Party in connection with this
Agreement, the Loan Agreement, the Notes or the other Loan Documents, any rights
or obligations hereunder or thereunder, or the performance of such rights and
obligations, on behalf of itself or its property, by registered or certified
mail, return receipt requested, in the manner specified in Section 9.06 of the
Loan Agreement. Nothing in this Section 7.13 shall affect the right of the
Secured Party to serve legal process in any other manner permitted by Applicable
Law or affect the right of the Secured Party to bring any action or proceeding
against any Grantor or its properties in the courts of any other jurisdictions.
Section 7.14. ACKNOWLEDGEMENTS.
(a) Each Grantor hereby acknowledges that (i) it has been
advised by counsel in the negotiation, execution and delivery of this
Agreement, (ii) the Secured Party has no fiduciary relationship with or
duty to any Grantor arising out of or in connection with the Loan
Agreement, this Agreement or any of the other Loan Documents, and the
relationship between the Grantors (on the one hand) and the Secured
Party (on the other hand) in connection herewith or therewith is solely
that of debtor and creditor, and (iii) no joint venture is created
hereby or otherwise exists by virtue of the transactions contemplated
hereby.
(b) Each Issuer party to this Agreement acknowledges receipt
of a copy of this Agreement and agrees to be bound thereby and to
comply with the terms thereof insofar as such terms are applicable to
it. Each Issuer agrees to provide such notices to the Secured Party as
may be necessary to give full effect to the provisions of this
Agreement.
Section 7.15. ADDITIONAL GRANTORS. Each Subsidiary of the Borrower that
is required to become a party to this Agreement pursuant to Section 5.11 of the
Loan Agreement shall become a Grantor for all purposes of this Agreement upon
execution and delivery by such Subsidiary of a joinder agreement (with a
Perfection Certificate and/or other appropriate disclosure schedules respecting
such Additional Grantor) in form and substance satisfactory to the Secured
Party.
Section 7.16. RELEASES.
(a) At such time as the Obligations shall have been
indefeasibly paid in full and the Revolving Credit Commitment has been
terminated, the Collateral shall be released from the Liens created
hereby, and this Agreement and all obligations (other than those
expressly stated to survive such termination) of the Secured Party and
each Grantor hereunder shall terminate, all without delivery of any
instrument or performance of any act by any party, and all rights to
the Collateral shall revert to the Grantors. At the request and sole
expense of any Grantor following any such termination, the Secured
Party shall deliver to such Grantor any Collateral held by the
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Secured Party hereunder, and execute and deliver to such Grantor such
documents as such Grantor shall reasonably request to evidence such
termination.
(b) If any of the Collateral shall be sold, transferred or
otherwise disposed of by any Grantor in a transaction permitted by the
Loan Agreement, then the Secured Party, at the request and sole expense
of such Grantor, shall execute and deliver to such Grantor all releases
or other documents reasonably necessary or desirable for the release of
the Liens created hereby on such Collateral.
[Signature Page to Follow]
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IN WITNESS WHEREOF, the parties hereto have caused this Collateral
Agreement to be executed by their duly authorized officers, all as of the day
and year first written above.
TAG-IT PACIFIC, INC.,
a Delaware corporation
By: /s/ Lonnie D. Schnell
----------------------------------------
Name: Lonnie D. Schnell
Title: Chief Financial Officer
TALON INTERNATIONAL, INC.,
a Delaware corporation
By: /s/ Lonnie D. Schnell
----------------------------------------
Name: Lonnie D. Schnell
Title: Chief Financial Officer
TAG-IT, INC.,
a California corporation
By: /s/ Lonnie D. Schnell
----------------------------------------
Name: Lonnie D. Schnell
Title: Chief Financial Officer
A.G.S. STATIONARY, INC., a
California corporation
By: /s/ Lonnie D. Schnell
----------------------------------------
Name: Lonnie D. Schnell
Title: Chief Financial Officer
TAG-IT PACIFIC LIMITED,
a Hong Kong corporation
By: /s/ Lonnie D. Schnell
----------------------------------------
Name: Lonnie D. Schnell
Title: Chief Financial Officer
TAG-IT PACIFIC (HK) LTD.,
a British Virgin Islands corporation
By: /s/ Lonnie D. Schnell
----------------------------------------
Name: Lonnie D. Schnell
Title: Chief Financial Officer
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TAGIT de MEXICO, S.A. de C.V.
By: /s/ Lonnie D. Schnell
----------------------------------------
Name: Lonnie D. Schnell
Title: Chief Financial Officer
TALON ZIPPER (SHENZHEN) COMPANY, LTD.,
a Chinese corporation
By: /s/ Lonnie D. Schnell
----------------------------------------
Name: Lonnie D. Schnell
Title: Chief Financial Officer
TALON INTERNATIONAL PVT. LTD.,
an Indian corporation
By: /s/ Lonnie D. Schnell
----------------------------------------
Name: Lonnie D. Schnell
Title: Chief Financial Officer
BLUEFIN CAPITAL, LLC
By: /S/ LARRY E. LENIG, JR.
---------------------------------------
Name: Larry E. Lenig, Jr.
Title: Senior Partner/Portfolio Manager
28