Exhibit 10.1

 

CREDIT AGREEMENT

 

between

 

HARTE HANKS, INC.

 

and

 

TEXAS CAPITAL BANK, NATIONAL ASSOCIATION

 

DATED AS OF APRIL 17, 2017

 

 

TABLE OF CONTENTS

 

			Page
SECTION 1 Definitions			1
	Section 1.1	Definitions	9
	Section 1.2	Accounting Matters	9
	Section 1.3	ERISA Matters	9
	Section 1.4	Other Definitional Provisions	9
SECTION 2 Advances and Letters of Credit			10
	Section 2.1	Revolving Credit Advances	10
	Section 2.2	General Provisions Regarding Interest; Etc.	11
	Section 2.3	Unused Facility Fee	11
	Section 2.4	Use of Proceeds	11
	Section 2.5	Letters of Credit	12
SECTION 3 Payments			13
	Section 3.1	Method of Payment	13
	Section 3.2	Prepayments	13
SECTION 4 Security			13
	Section 4.1	Collateral	13
	Section 4.2	Setoff	14
SECTION 5 Conditions Precedent			14
	Section 5.1	Initial Extension of Credit	14
	Section 5.2	All Extensions of Credit	16
SECTION 6 Representations and Warranties			16
	Section 6.1	Entity Existence	16
	Section 6.2	Financial Statements; Etc.	17
	Section 6.3	Action; No Breach	17
	Section 6.4	Operation of Business	17
	Section 6.5	Litigation and Judgments	17
	Section 6.6	[Reserved]	18
	Section 6.7	Enforceability	18
	Section 6.8	Approvals	18
	Section 6.9	Taxes	18
	Section 6.10	Use of Proceeds; Margin Securities	18
	Section 6.11	ERISA	19
	Section 6.12	Disclosure	19
	Section 6.13	Subsidiaries	19
	Section 6.14	[Reserved]	19
	Section 6.15	Compliance with Laws	19
	Section 6.16	[Reserved]	20

 

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	Section 6.17	Regulated Entities	20
	Section 6.18	[Reserved]	20
	Section 6.19	[Reserved]	20
	Section 6.20	Foreign Assets Control Regulations and Anti-Money Laundering	20
	Section 6.21	Patriot Act	20
SECTION 7 Affirmative Covenants			21
	Section 7.1	Reporting Requirements	21
	Section 7.2	Maintenance of Existence; Conduct of Business	23
	Section 7.3	Maintenance of Properties	23
	Section 7.4	Taxes and Claims	23
	Section 7.5	Insurance	23
	Section 7.6	Inspection Rights	24
	Section 7.7	Keeping Books and Records	24
	Section 7.8	Compliance with Laws	24
	Section 7.9	[Reserved]	24
	Section 7.10	Further Assurances	24
	Section 7.11	ERISA	25
	Section 7.12	Depository Relationship	25
SECTION 8 Negative Covenants			25
	Section 8.1	Debt	25
	Section 8.2	[Reserved]	25
	Section 8.3	Mergers, Etc.	25
	Section 8.4	[Reserved]	25
	Section 8.5	[Reserved]	26
	Section 8.6	[Reserved]	26
	Section 8.7	[Reserved]	26
	Section 8.8	[Reserved]	26
	Section 8.9	[Reserved]	26
	Section 8.10	[Reserved]	26
	Section 8.11	[Reserved]	26
	Section 8.12	[Reserved]	26
	Section 8.13	Accounting	26
	Section 8.14	[Reserved]	26
	Section 8.15	[Reserved]	26
	Section 8.16	[Reserved]	27
	Section 8.17	OFAC	27
SECTION 9 [[RESERVED]]			27
SECTION 10 Default			27
	Section 10.1	Events of Default	27
	Section 10.2	Remedies Upon Default	29
	Section 10.3	Application of Funds	29

 

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	Section 10.4	Performance by Lender	29
	Section 10.5	Cash Collateral	30
SECTION 11 Miscellaneous			30
	Section 11.1	Expenses	30
	Section 11.2	INDEMNIFICATION	31
	Section 11.3	Limitation of Liability	31
	Section 11.4	No Duty	32
	Section 11.5	Lender Not Fiduciary	32
	Section 11.6	Equitable Relief	32
	Section 11.7	No Waiver; Cumulative Remedies	32
	Section 11.8	Successors and Assigns	32
	Section 11.9	Survival	32
	Section 11.10	Amendment	33
	Section 11.11	Notices	33
	Section 11.12	Governing Law; Venue; Service of Process	33
	Section 11.13	Counterparts	34
	Section 11.14	Severability	34
	Section 11.15	Headings	34
	Section 11.16	Participations; Etc.	34
	Section 11.17	Construction	34
	Section 11.18	Independence of Covenants	34
	Section 11.19	WAIVER OF JURY TRIAL	34
	Section 11.20	Additional Interest Provision	35
	Section 11.21	Ceiling Election	36
	Section 11.22	USA Patriot Act Notice	36
	Section 11.23	NOTICE OF FINAL AGREEMENT	37

 

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INDEX TO EXHIBITS

 

 

INDEX TO SCHEDULES

 

Schedule		Description of Schedule		Section
6.2		Financial Statements		6.2
6.5		Litigation and Judgments		6.5

 

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CREDIT AGREEMENT

 

THIS CREDIT AGREEMENT (the “ Agreement ”), dated as of April 17, 2017, is between HARTE HANKS, INC., a Delaware corporation (“ Borrower ”), and TEXAS CAPITAL BANK, NATIONAL ASSOCIATION, a national banking association (“ Lender ”).

 

RECITALS

 

Borrower has requested that Lender extend credit to Borrower as described in this Agreement.  Lender is willing to make such credit available to Borrower upon and subject to the provisions, terms and conditions hereinafter set forth.

 

NOW THEREFORE, in consideration of the premises and the mutual covenants herein contained, the parties hereto agree as follows:

 

SECTION 1

 

DEFINITIONS

 

Section 1.1        Definitions.

 

As used in this Agreement, all exhibits, appendices and schedules hereto and in any note, certificate, report or other Loan Documents made or delivered pursuant to this Agreement, the following terms will have the meanings given such terms in this Section 1 or in the provision, section or recital referred to below:

 

“ Advance ” means an advance by Lender to Borrower pursuant to Section 2 or any advance made by Lender to cover any drawing under any Letter of Credit.

 

“ Advance Request Form ” means a certificate, in a form approved by Lender, properly completed and signed by Borrower requesting a Revolving Credit Advance.

 

“ Affiliate ” means, as to any Person, any other Person (a) that directly or indirectly, through one or more intermediaries, controls or is controlled by, or is under common control with, such Person; (b) that directly or indirectly beneficially owns or holds five percent (5%) or more of any class of voting stock of such Person; or (c) five percent (5%) or more of the voting stock of which is directly or indirectly beneficially owned or held by such Person.  The term “control” means the possession, directly or indirectly, of the power to direct or cause direction of the management and policies of a Person, whether through the ownership of voting securities, by contract, or otherwise; provided, however , in no event shall Lender be deemed an Affiliate of Borrower or any of its Subsidiaries or Affiliates.

 

“ Agreement ” has the meaning set forth in the introductory paragraph hereto, and includes all schedules, exhibits and appendices attached or otherwise identified therewith.

 

“ Borrower ” means the Person identified as such in the introductory paragraph hereto, and its successors and assigns to the extent permitted by Section 11.8 .

 

 

“ Borrowing Base ” means, as of any date, an amount equal to the sum of (a) eighty-five percent (85%) of the value of Investment Grade Bonds held in the Custodian Account, plus (b) one hundred percent (100%) of the value of cash in the Custodian Account.

 

“ Business Day ” has the meaning assigned to it in the Note.

 

“ Capital Expenditure ” means, with respect to any Person, any expenditure by such Person for (a) an asset which will be used in a year or years subsequent to the year in which the expenditure is made and which asset is properly classified in relevant financial statements of such Person as equipment, real property, a fixed asset or a similar type of capitalized asset in accordance with GAAP or (b) an asset relating to or acquired in connection with an acquired business, and any and all acquisition costs related to clause (a)  or (b)  above.

 

“ Capitalized Lease Obligation ” means, with respect to any Person, the amount of Debt under a lease of Property by such Person that would be shown as a liability on a balance sheet of such Person prepared for financial reporting purposes in accordance with GAAP.

 

“ Code ” means the Internal Revenue Code of 1986.

 

“ Collateral ” has the meaning set forth in Section 4.1 .

 

“ Custodian Account ” means Account No. 849HT883 maintained at Raymond James & Associates, Inc. in the name of Pledgor.

 

“ Commitment ” means the obligation of Lender to make Revolving Credit Advances pursuant to Section 2.1(a)  in an aggregate principal amount at any time outstanding up to but not exceeding $20,000,000.00, subject, however, to termination pursuant to Section 10.2 .

 

“ Commitment Fee ” means $100,000.00 with respect to the Commitment.

 

“ Commodity Exchange Act ” means the Commodity Exchange Act ( 7 U.S.C. § 1 et seq. ), and any successor statute.

 

“ Constituent Documents ” means (a) in the case of a corporation, its articles or certificate of incorporation and bylaws; (b) in the case of a general partnership, its partnership agreement; (c) in the case of a limited partnership, its certificate of limited partnership and partnership agreement; (d) in the case of a trust, its trust agreement; (e) in the case of a joint venture, its joint venture agreement; (f) in the case of a limited liability company, its articles of organization, operating agreement, regulations and/or other organizational and governance documents and agreements; and (g) in the case of any other entity, its organizational and governance documents and agreements.

 

“ Debt ” means, of any Person as of any date of determination (without duplication): (a) all obligations of such Person for borrowed money; (b) all obligations of such Person evidenced by bonds, notes, debentures, or other similar instruments; (c) all obligations of such Person to pay the deferred purchase price of Property or services, except trade accounts payable of such Person arising in the ordinary course of business that are not past due by more than ninety (90) days; (d) all Capitalized Lease Obligations of such Person; (e) all Debt or other obligations of others

 

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Guaranteed by such Person; (f) all obligations secured by a Lien existing on Property owned by such Person, whether or not the obligations secured thereby have been assumed by such Person or are non-recourse to the credit of such Person; (g) any other obligation for borrowed money or other financial accommodations which in accordance with GAAP would be shown as a liability on the balance sheet of such Person; (h) any repurchase obligation or liability of a Person with respect to accounts, chattel paper or notes receivable sold by such Person; (i) any liability under a sale and leaseback transaction that is not a Capitalized Lease Obligation; (j) any obligation under any so-called “synthetic leases;” (k) any obligation arising with respect to any other transaction that is the functional equivalent of borrowing but which does not constitute a liability on the balance sheets of a Person; (l) all payment and reimbursement obligations of such Person (whether contingent or otherwise) in respect of letters of credit, bankers’ acceptances, surety or other bonds and similar instruments; and (m) all liabilities of such Person in respect of unfunded vested benefits under any Plan.

 

“ Default ” means an Event of Default or the occurrence of an event or condition which with notice or lapse of time or both would become an Event of Default.

 

“ Default Interest Rate ” has the meaning assigned to it in the Revolving Credit Note.

 

“ Dollars ” and “ $ ” mean lawful money of the United States of America.

 

“ Eligible Contract Participant ” has the meaning set forth in the Commodity Exchange Act and the regulations thereunder.

 

“ Environmental Laws ” means any and all federal, state, and local laws, regulations, judicial decisions, orders, decrees, plans, rules, permits, licenses, and other governmental restrictions and requirements pertaining to health, safety, or the environment, including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. § 9601 et seq., the Resource Conservation and Recovery Act of 1976, 42 U.S.C. § 6901 et seq., the Occupational Safety and Health Act, 29 U.S.C. § 651 et seq., the Clean Air Act, 42 U.S.C. § 7401 et seq., the Clean Water Act, 33 U.S.C. § 1251 et seq., and the Toxic Substances Control Act, 15 U.S.C. § 2601 et seq.

 

“ Environmental Liabilities ” means, as to any Person, all liabilities, obligations, responsibilities, Remedial Actions, losses, damages, punitive damages, consequential damages, treble damages, costs, and expenses (including, without limitation, all reasonable fees, disbursements and expenses of counsel, expert and consulting fees and costs of investigation and feasibility studies), fines, penalties, sanctions, and interest incurred as a result of any claim or demand, by any Person, whether based in contract, tort, implied or express warranty, strict liability, criminal or civil statute, including any Environmental Law, permit, order or agreement with any Governmental Authority or other Person, arising from environmental, health or safety conditions or the Release or threatened Release of a Hazardous Material into the environment, resulting from the past, present, or future operations of such Person or its Affiliates.

 

“ ERISA ” means the Employee Retirement Income Security Act of 1974.

 

“ ERISA Affiliate ” means any corporation or trade or business which is a member of the same controlled group of corporations (within the meaning of Section 414(b) of the Code) as an

 

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Obligated Party or is under common control (within the meaning of Section 414(c) of the Code and Sections 414(m) and (o) of the Code for purposes of the provisions relating to Section 412 of the Code) with an Obligated Party.

 

“ ERISA Event ” means (a) a Reportable Event with respect to a Plan, (b) a withdrawal by any Obligated Party or any ERISA Affiliate from a Plan subject to Section 4063 of ERISA during a plan year in which it was a substantial employer (as defined in Section 4001(a)(2) of ERISA) or a cessation of operations which is treated as such a withdrawal under Section 4062(e) of ERISA, (c) a complete or partial withdrawal by any Obligated Party or any ERISA Affiliate from a Multiemployer Plan or notification that a Multiemployer Plan is in reorganization, (d) the filing of a notice of intent to terminate, the treatment of a Plan amendment as a termination under Section 4041 or 4041A of ERISA, or the commencement of proceedings by the PBGC to terminate a Plan or Multiemployer Plan, (e) the occurrence of an event or condition which might reasonably be expected to constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan or Multiemployer Plan, (f) the imposition of any liability to the PBGC under Title IV of ERISA, other than for PBGC premiums due but not delinquent under Section 4007 of ERISA, upon any Obligated Party or any ERISA Affiliate, (g) the failure of any Obligated Party or ERISA Affiliate to meet any funding obligations with respect to any Plan or Multiemployer Plan, or (h) a Plan becomes subject to the at-risk requirements in Section 303 of ERISA and Section 430 of the Code.

 

“ Event of Default ” has the meaning set forth in Section 10.1 .

 

“ GAAP ” means generally accepted accounting principles, applied on a consistent basis, as set forth in opinions of the Accounting Principles Board of the American Institute of Certified Public Accountants and/or in statements of the Financial Accounting Standards Board and/or their respective successors and which are applicable in the circumstances as of the date in question.  Accounting principles are applied on a “consistent basis” when the accounting principles applied in a current period are comparable in all material respects to those accounting principles applied in a preceding period.

 

“ Governmental Authority ” means any nation or government, any state or political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory, or administrative functions of or pertaining to government.

 

“ Guarantee ” by any Person means any obligation or liability, contingent or otherwise, of such Person directly or indirectly guaranteeing any Debt or other obligation of any other Person as well as any obligation or liability, direct or indirect, contingent or otherwise, of such Person (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Debt or other obligation or liability (whether arising by virtue of partnership arrangements, by agreement to keep-well, to purchase assets, goods, securities or services, to operate Property, to take-or-pay, or to maintain net worth or working capital or other financial statement conditions or otherwise) or (b) entered into for the purpose of indemnifying or assuring in any other manner the obligee of such Debt or other obligation or liability of the payment thereof or to protect the obligee against loss in respect thereof (in whole or in part), provided that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business.  The term “Guarantee” used as a verb has a corresponding meaning.

 

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“ Hazardous Material ” means any substance, product, waste, pollutant, material, chemical, contaminant, constituent, or other material which is or becomes listed, regulated, or addressed under any Environmental Law, including, without limitation, asbestos, petroleum, and polychlorinated biphenyls.

 

“ Hedge Agreement ” means (a) any and all interest rate swap transactions, basis swaps, credit derivative transactions, forward rate transactions, commodity swaps, commodity options, forward commodity contracts, equity or equity index swaps or options, bond or bond price or bond index swaps or options or forward bond or forward bond price or forward bond index transactions, interest rate options, forward foreign exchange transactions, cap transactions, floor transactions, collar transactions, currency swap transactions, cross-currency rate swap transactions, currency options, spot contracts, or any other similar transactions or any combination of any of the foregoing (including any options to enter into any of the foregoing), whether or not any such transaction is governed by or subject to any master agreement, or (b) any and all transactions of any kind, and the related confirmations, which are subject to the terms and conditions of, or governed by, any form of master agreement published by the International Swaps and Derivatives Association, Inc., any International Foreign Exchange Master Agreement, or any other master agreement.

 

“ Intellectual Property ” means all copyrights, copyright licenses, patents, patent licenses, trademarks, trademark licenses and other types of intellectual property, in whatever form, now owned or hereafter acquired.

 

“ Investment Grade Bonds ” means securities (as defined in Section 8.102 of the UCC) that are listed and traded on the New York Stock Exchange, the American Stock Exchange or the NASDAQ — National Market System which constitute debt, as opposed to equity, and which are acceptable to Lender in its reasonable discretion.

 

“ IRS ” means the Internal Revenue Service or any entity succeeding to all or any of its functions.

 

“ Lender ” means the Person identified as such in the introductory paragraph hereto, and includes its successors and assigns.

 

“ Letter of Credit ” means any letter of credit issued by Lender for the account of or at the direction of Borrower pursuant to Section 2 of this Agreement.

 

“ Letter of Credit Application ” means an application and agreement for the issuance or amendment of a Letter of Credit in the form from time to time in use by Lender.

 

“ Letter of Credit Liabilities ” means, at any time, the sum of (a) the aggregate face amount of all outstanding Letters of Credit, plus (b) any amounts drawn under any Letters of Credit for which Lender has not been fully reimbursed by Borrower (unless Lender, in its sole discretion, has cleared the drawn amount by means of an Advance under the Revolving Credit Note, in which case the drawn amount would not constitute a Letter of Credit Liability).

 

“ Lien ” means any lien, mortgage, security interest, tax lien, pledge, charge, hypothecation, assignment, preference, priority, or other encumbrance of any kind or nature

 

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whatsoever (including, without limitation, any conditional sale or title retention agreement), whether arising by contract, operation of law, or otherwise.

 

“ Loan ” means any Revolving Credit Advance.

 

“ Loan Documents ” means this Agreement, the Security Documents, the Note, each guaranty, and all other promissory notes, security agreements, deeds of trust, assignments, letters of credit, guaranties, and other instruments, documents, or agreements executed and delivered pursuant to or in connection with this Agreement or the Security Documents.

 

“ Material Adverse Event ” means any act, event, condition, or circumstance which could materially and adversely affect: (a) the operations, business, properties, liabilities (actual or contingent), condition (financial or otherwise) or prospects of Borrower or Borrower and its Subsidiaries, taken as a whole; (b) the ability of any Obligated Party to perform its obligations under any Loan Document to which it is a party; or (c) the legality, validity, binding effect or enforceability against any Obligated Party of any Loan Document to which it is a party.

 

“ Maximum Rate ” means, at all times, the maximum rate of interest which may be charged, contracted for, taken, received or reserved by Lender in accordance with applicable Texas law (or applicable United States federal law to the extent that such law permits Lender to charge, contract for, receive or reserve a greater amount of interest than under Texas law).  The Maximum Rate shall be calculated in a manner that takes into account any and all fees, payments, and other charges in respect of the Loan Documents that constitute interest under applicable law.  Each change in any interest rate provided for herein based upon the Maximum Rate resulting from a change in the Maximum Rate shall take effect without notice to Borrower at the time of such change in the Maximum Rate.

 

“ Multiemployer Plan ” means a multiemployer plan defined as such in Section 3(37) of ERISA to which contributions are being made or have been made by, or for which there is an obligation to make by or there is any liability, contingent or otherwise, with respect to an Obligated Party or any ERISA Affiliate and which is covered by Title IV of ERISA.

 

“ Note Purchase Agreement ” has the meaning set forth in Section 5.1(f) .

 

“ Obligated Party ” means Borrower, Pledgor or any other Person who is or becomes party to any agreement that obligates such Person to pay or perform, or that Guarantees or secures payment or performance of, the Obligations or any part thereof.

 

“ Obligations ” means all obligations, indebtedness, and liabilities of Borrower and any other Obligated Party to Lender or any Affiliate of Lender, or both, now existing or hereafter arising, whether direct, indirect, related, unrelated, fixed, contingent, liquidated, unliquidated, joint, several, or joint and several, including, without limitation, the obligations, indebtedness, and liabilities under this Agreement, the other Loan Documents (including, without limitation, all Letter of Credit Liabilities), any cash management or treasury services agreements and all interest accruing thereon (whether a claim for post-filing or post-petition interest is allowed in any bankruptcy, insolvency, reorganization or similar proceeding) and all attorneys’ fees and other expenses incurred in the enforcement or collection thereof.

 

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“ OFAC ” means the Office of Foreign Assets Control.

 

“ Operating Lease ” means any lease (other than a lease constituting a Capitalized Lease Obligation) of real or personal Property.

 

“ Patriot Act ” means the Uniting and Strengthening America by Providing Appropriate Tools to Intercept and Obstruct Terrorism Act of 2001 (Title III of Pub. L. 107-56, signed into law October 26, 2001).

 

“ PBGC ” means the Pension Benefit Guaranty Corporation or any entity succeeding to all or any of its functions under ERISA.

 

“ Person ” means any individual, corporation, limited liability company, business trust, association, company, partnership, joint venture, Governmental Authority, or other entity, and shall include such Person’s heirs, administrators, personal representatives, executors, successors and assigns.

 

“ Perfection Certificate ” has the meaning set forth in the Security Agreement

 

“ Plan ” means any employee benefit or other plan, other than a Multiemployer Plan, established or maintained by, or for which there is an obligation to make contributions by or there is any liability, contingent or otherwise with respect to Borrower or any ERISA Affiliate and which is covered by Title IV of ERISA or subject to Section 412 of the Code.

 

“ Pledge Agreement ” has the meaning set forth in Section 5.1(f) .

 

“ Pledgor ” means HHS Guaranty, LLC, a Texas limited liability company.

 

“ Principal Office ” means the principal office of Lender, presently located at 745 E. Mulberry Ave., Suite 350, San Antonio, Texas 78212.

 

“ Prohibited Transaction ” means any transaction set forth in Section 406 of ERISA or Section 4975 of the Code.

 

“ Property ” of a Person means any and all property, whether real, personal, tangible, intangible or mixed, of such Person, or any other assets owned, operated or leased by such Person.

 

“ Related Indebtedness ” has the meaning set forth in Section 11.20 .

 

“ Release ” means, as to any Person, any release, spill, emission, leaking, pumping, injection, deposit, disposal, disbursement, leaching, or migration of Hazardous Materials into the indoor or outdoor environment or into or out of property owned by such Person, including, without limitation, the movement of Hazardous Materials through or in the air, soil, surface water, ground water, or Property.

 

“ Remedial Action ” means all actions required to (a) clean up, remove, treat, or otherwise address Hazardous Materials in the indoor or outdoor environment, (b) prevent the Release or

 

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threat of Release or minimize the further Release of Hazardous Materials so that they do not migrate or endanger or threaten to endanger public health or welfare or the indoor or outdoor environment, or (c) perform pre-remedial studies and investigations and post-remedial monitoring and care.

 

“ Reportable Event ” means any of the events set forth in Section 4043 of ERISA.

 

“ Responsible Officer ” means the chief executive officer, president, chief financial officer, or treasurer of Borrower or any Person designated by a Responsible Officer to act on behalf of a Responsible Officer; provided that such designated Person may not designate any other Person to be a Responsible Officer.  Any document delivered hereunder that is signed by a Responsible Officer of Borrower shall be conclusively presumed to have been authorized by all necessary corporate, partnership and/or other action on the part of Borrower and such Responsible Officer shall be conclusively presumed to have acted on behalf of Borrower.

 

“ Revolving Credit Advance ” means any Advance made by Lender to Borrower pursuant to Section 2.1(a)  of this Agreement.

 

“ Revolving Credit Note ” means the promissory note of Borrower payable to the order of Lender, in substantially the form of Exhibit A .

 

“ RICO ” means the Racketeer Influenced and Corrupt Organization Act of 1970.

 

“ Secured Parties ” means the collective reference to Lender and any other Person the Obligations owing to which are, or are purported to be, secured by the Collateral under the terms of the Security Documents.

 

“ Security Documents ” means each and every security agreement, pledge agreement, mortgage, deed of trust or other collateral security agreement required by or delivered to Lender from time to time that purport to create a Lien in favor of any of the Secured Parties to secure payment or performance of the Obligations or any portion thereof.

 

“ Subordinated Debt ” means any unsecured Debt of Borrower (other than the Obligations) that has been subordinated to the Obligations by written agreement, in form and content satisfactory to Lender and which has been approved in writing by Lender as constituting Subordinated Debt for purposes of this Agreement.

 

“ Subsidiary ” means (a) any corporation of which at least a majority of the outstanding shares of stock having by the terms thereof ordinary voting power to elect a majority of the board of directors of such corporation (irrespective of whether or not at the time stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time directly or indirectly owned or controlled by Borrower or one or more of other Subsidiaries or by Borrower and one or more of such Subsidiaries, and (b) any other entity (i) of which at least a majority of the ownership, equity or voting interest is at the time directly or indirectly owned or controlled by one or more of Borrower and other Subsidiaries and (ii) which is treated as a subsidiary in accordance with GAAP.

 

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“ Termination Date ” means 11:00 A.M. Dallas, Texas time on April 17, 2019, or such earlier date on which the Commitment terminates as provided in this Agreement.

 

“ UCC ” means Chapters 1 through 11 of the Texas Business and Commerce Code.

 

“Unfunded Pension Liability” means the excess, if any, of (a) the funding target as defined under Section 430(d) of the Code without regard to the special at-risk rules of Section 430(i) of the Code, over (b) the value of plan assets as defined under Section 430(g)(3)(A) of the Code determined as of the last day of each calendar year, without regard to the averaging which may be allowed under Section 310(g)(3)(B) of the Code and reduced for any prefunding balance or funding standard carryover balance as defined and provided for in Section 430(f) of the Code.

 

Section 1.2        Accounting Matters.

 

Any accounting term used in this Agreement or any other Loan Document shall have, unless otherwise specifically provided therein, the meaning customarily given such term in accordance with GAAP, and all financial computations thereunder shall be computed, unless otherwise specifically provided therein, with respect to Borrower and its Subsidiaries on a consolidated basis in accordance with GAAP consistently applied; provided, however , that all financial covenants and calculations in the Loan Documents shall be made in accordance with GAAP as in effect on the date of this Agreement unless Borrower and Lender shall otherwise specifically agree in writing.  That certain items or computations are explicitly modified by the phrase “in accordance with GAAP” shall in no way be construed to limit the foregoing

 

Section 1.3        ERISA Matters.

 

If, after the date hereof, there shall occur, with respect to ERISA, the adoption of any applicable law, rule, or regulation, or any change therein, or any change in the interpretation or administration thereof by the PBGC or any other Governmental Authority, then either Borrower or Lender may request a modification to this Agreement solely to preserve the original intent of this Agreement with respect to the provisions hereof applicable to ERISA, and the parties to this Agreement shall negotiate in good faith to complete such modification.

 

Section 1.4        Other Definitional Provisions.

 

All definitions contained in this Agreement are equally applicable to the singular and plural forms of the terms defined.  The words “hereof”, “herein”, and “hereunder” and words of similar import referring to this Agreement refer to this Agreement as a whole and not to any particular provision of this Agreement.  Unless otherwise specified, all references in a Loan Document to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, the Loan Document in which such references appear.  Terms used herein that are defined in the UCC, unless otherwise defined herein, shall have the meanings specified in the UCC.  Any definition of or reference to any agreement, instrument or other document shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein or in any other Loan Document).  Any reference to any law shall include all statutory and regulatory provisions consolidating, amending, replacing or interpreting such law and any reference to any

 

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law or regulation shall, unless otherwise specified, refer to such law or regulation as amended, modified or supplemented from time to time.

 

SECTION 2

 

ADVANCES AND LETTERS OF CREDIT

 

Section 2.1        Revolving Credit Advances .

 

Subject to the terms and conditions of this Agreement, Lender agrees to make one or more revolving credit loans to Borrower from time to time from the date hereof to and including the Termination Date in an aggregate principal amount at any time outstanding up to but not exceeding the amount of the Commitment, provided that the aggregate amount of all Revolving Credit Advances at any time outstanding plus all outstanding Letter of Credit Liabilities shall not exceed the lesser of (i) the amount of the Commitment and (ii) the Borrowing Base.  Subject to the foregoing limitations, and the other terms and provisions of this Agreement, Borrower may borrow, repay, and reborrow hereunder.

 

(i)         The Revolving Credit Note .  The obligation of Borrower to repay the Revolving Credit Advances and interest thereon shall be evidenced by the Revolving Credit Note executed by Borrower, and payable to the order of Lender, in the principal amount of the Commitment as originally in effect.

 

(ii)         Repayment of Revolving Credit Advances .  Borrower shall repay the unpaid principal amount of all Advances on the Termination Date, unless sooner due by reason of acceleration by Lender as provided in this Agreement.

 

(iii)        Interest .  The unpaid principal amount of the Revolving Credit Advances shall, subject to the following sentence, bear interest as provided in the Revolving Credit Note.  If at any time the rate of interest specified in the Revolving Credit Note would exceed the Maximum Rate but for the provisions thereof limiting interest to the Maximum Rate, then any subsequent reduction shall not reduce the rate of interest on the Revolving Credit Advances below the Maximum Rate until the aggregate amount of interest accrued on the Revolving Credit Advances equals the aggregate amount of interest which would have accrued on the Revolving Credit Advances if the interest rate had not been limited by the Maximum Rate.  Accrued and unpaid interest on the Revolving Credit Advances shall be payable as provided in the Revolving Credit Note and on the Termination Date.

 

(iv)        Borrowing Procedure .  Borrower shall give Lender notice of each Revolving Credit Advance either telephonically, by e-mail or by such other method approved by Lender submitted to Lender no later than 1:00 p.m. (Texas time) on the day on which the Revolving Credit Advance is desired to be funded.  Advances shall be in a minimum amount of $100,000.  At Lender’s request any telephonic request shall be promptly confirmed by Borrower in writing.  Lender shall have no liability to Borrower for any loss or damage suffered by Borrower as a result of Lender’s honoring of any requests, execution of any instructions, authorizations or agreements or reliance on any reports communicated to it

 

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telephonically, by facsimile or electronically and purporting to have been sent to Lender by Borrower and Lender shall have no duty to verify the origin of any such communication or the identity or authority of the Person sending it.  Subject to the terms and conditions of this Agreement, each Revolving Credit Advance shall be made available to Borrower by depositing the same, in immediately available funds, in an account of Borrower designated by Borrower maintained with Lender at the Principal Office; provided, however, that until Borrower opens an account with Lender (which shall not take more than thirty (30) days) Lender shall make such funds available to Borrower in the manner requested by Borrower.

 

Section 2.2        General Provisions Regarding Interest; Etc.

 

(a)         Default Interest Rate .  Any outstanding principal of any Advance and (to the fullest extent permitted by law) any other amount payable by Borrower under this Agreement or any other Loan Document that is not paid in full when due (whether at stated maturity, by acceleration, or otherwise) shall bear interest at the Default Interest Rate for the period from and including the due date thereof to but excluding the date the same is paid in full.  Additionally (but not in duplication of the foregoing), at any time that an Event of Default exists, all outstanding and unpaid principal amounts of all of the Obligations shall, to the extent permitted by law, bear interest at the Default Interest Rate.  Interest payable at the Default Interest Rate shall be payable from time to time on demand.

 

(b)         Computation of Interest .  Interest on the Advances and all other amounts payable by Borrower hereunder shall be computed on the basis of a year of 360 days and the actual number of days elapsed (including the first day but excluding the last day) unless such calculation would result in a usurious rate, in which case interest shall be calculated on the basis of a year of 365 or 366 days, as the case may be.

 

Section 2.3        Unused Facility Fee.

 

Borrower agrees to pay to Lender an unused facility fee on the daily average unused amount of the Commitment for the period from and including the date of this Agreement to and including the Termination Date, at the rate of one-half of one percent (0.50%) per annum based on a 360 day year and the actual number of days elapsed.  For the purpose of calculating the unused facility fee hereunder, the Commitment shall be deemed utilized by the amount of all outstanding Advances and Letter of Credit Liabilities.  Accrued unused facility fees shall be payable quarterly in arrears on the last day of each April, July, October, and January during the term of this Agreement and on the Termination Date.

 

Section 2.4        Use of Proceeds.

 

The proceeds of the Revolving Credit Advances shall be used by Borrower for working capital in the ordinary course of business.

 

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Section 2.5        Letters of Credit.

 

Subject to the terms and conditions of this Agreement, Lender agrees to issue one or more letters of credit for the account of Borrower from time to time from the date hereof through the date that is five (5) Business Days prior to the Termination Date; provided , however , that the outstanding Letter of Credit Liabilities shall not at any time exceed the least of : (a) Five Million Dollars ($5,000,000.00); (b) an amount equal to the amount of the commitment minus the outstanding Revolving Credit Advances and (c) the Borrowing Base minus the outstanding Revolving Credit Advances.  Each Letter of Credit shall have an expiration date not to exceed three hundred sixty-five (365) days, shall not have an expiration date beyond the Termination Date, shall be payable in Dollars, shall have a minimum face amount of Fifty Thousand Dollars ($50,000.00), must support a transaction that is entered into in the ordinary course of Borrower’s and its Subsidiaries’ business, must be satisfactory in form and substance to Lender, will be subject to the payment of such Letter of Credit fees as Lender may require, and shall be issued pursuant to such documents and instruments executed by Borrower (including, without limitation, Borrower’s form of Letter of Credit Application as then in effect) as Lender may require.  Notwithstanding that a Letter of Credit issued or outstanding hereunder is in support of any obligations of, or is for the account of, a Subsidiary of Borrower, Borrower shall be obligated to reimburse Lender hereunder for any and all drawings under such Letter of Credit.  Borrower hereby acknowledges that the issuance of Letters of Credit for the account of any of its Subsidiaries inures to the benefit of Borrower, and that Borrower’s business derives substantial benefits from the businesses of such Subsidiaries.

 

(i)         Fees.  Borrower agrees to pay to Lender, as a condition precedent to the issuance (including the extension) of each Letter of Credit, an issuance fee payable on the date of issuance equal to the greater of (i) one percent (1%) per annum of the face amount of such Letter of Credit, and (ii) $1,000 (including any extension).

 

(ii)         Reimbursement.  Each payment by Lender pursuant to a drawing under a Letter of Credit is required to be reimbursed by Borrower to Lender and payable immediately upon such drawing and, at the sole option of Lender, can be charged by Lender as (and in such event will be deemed to be) a Revolving Credit Advance under the Revolving Credit Note and this Agreement as of the day and time such payment is made by Lender and in the amount of such payment.

 

(iii)        Additional Costs in Respect of Letters of Credit.   If, after the date hereof, there shall occur the adoption of any applicable law, rule, or regulation, or any change therein, or any change in the interpretation or administration thereof by any Governmental Authority, central bank, or comparable agency charged with the interpretation or administration thereof, or compliance by Lender with any request or directive (whether or not having the force of law) of any such authority, central bank, or comparable agency there shall be imposed, modified, or deemed applicable any tax, reserve, special deposit, or similar requirement against or with respect to or measured by reference to Letters of Credit issued or to be issued hereunder or Lender’s commitment to issue Letters of Credit hereunder, and the result shall be to increase the cost to Lender of issuing or maintaining any Letter of Credit or its commitment to issue Letters of Credit hereunder or reduce any amount receivable by Lender hereunder in respect of any Letter of Credit (which

 

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increase in cost, or reduction in amount receivable, shall be the result of Lender’s reasonable allocation of the aggregate of such increases or reductions resulting from such event), then, upon demand by Lender, Borrower agrees to pay to Lender, from time to time as specified by Lender, such additional amounts as shall be sufficient to compensate Lender for such increased costs or reductions in amount.  A statement as to such increased costs or reductions in amount incurred by Lender, submitted by Lender to Borrower, shall be conclusive as to the amount thereof; provided that the determination thereof is made on a reasonable basis.

 

SECTION 3

 

PAYMENTS

 

Section 3.1        Method of Payment.

 

All payments of principal, interest, and other amounts to be made by Borrower under this Agreement and the other Loan Documents shall be made to Lender at the Principal Office in Dollars and immediately available funds, without setoff, deduction, or counterclaim, and free and clear of all taxes at the time and in the manner provided in the Revolving Credit Note.

 

Section 3.2        Prepayments.

 

(a)         Voluntary Prepayments .  Borrower may prepay all or any portion of the Revolving Credit Note to the extent and in the manner provided for therein.

 

(b)         Mandatory Prepayment .

 

(i)         If at any time the unpaid principal balance of the Revolving Credit Note plus the aggregate Letter of Credit Liabilities exceeds the Borrowing Base then in effect, then Borrower shall immediately prepay the entire amount of such excess to Lender.

 

(ii)         If Borrower or any of its Subsidiaries directly or indirectly, sells, leases, assigns, transfers, or otherwise disposes of any of its assets (including, without limitation, sale and leaseback transactions), all net cash proceeds of such disposition that are in excess of $1,000,000.00 in the aggregate and which are not reinvested by Borrower in business assets within ninety (90) days shall be applied to prepay the Revolving Advances and, to the extent such net cash proceeds are greater than $15,000,000.00 in the aggregate, the prepayment shall be accompanied by a permanent reduction in the Commitment equal to fifty percent (50%) of such net cash proceeds; provided, however that the Commitment shall not be decreased to an amount less than the outstanding Letter of Credit Liabilities.

 

SECTION 4

 

SECURITY

 

Section 4.1        Collateral.

 

To secure full and complete payment and performance of the Obligations, Borrower shall, and shall cause the other Obligated Parties to, execute and deliver or cause to be executed

 

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and delivered all of the Security Documents required by Lender covering substantially all of the Property of Borrower as described in such Security Documents (which, together with any other Property and collateral described in the Security Documents, and any other Property which may now or hereafter secure the Obligations or any part thereof, is sometimes herein called the “ Collateral ”).  Borrower shall execute and cause to be executed such further documents and instruments, including without limitation, UCC financing statements, as Lender, in its sole discretion, deems necessary or desirable to create, evidence, preserve, and perfect its liens and security interests in the Collateral.

 

Section 4.2        Setoff.

 

If an Event of Default exists, Lender shall have the right to set off and apply against the Obligations in such manner as Lender may determine, at any time and without notice to Borrower, any and all deposits (general or special, time or demand, provisional or final) or other sums at any time credited by or owing from Lender to Borrower whether or not the Obligations are then due.  As further security for the Obligations, Borrower hereby grants to Lender a security interest in all money, instruments, and other Property of Borrower now or hereafter held by Lender, including, without limitation, Property held in safekeeping.  In addition to Lender’s right of setoff and as further security for the Obligations, Borrower hereby grants to Lender a security interest in all deposits (general or special, time or demand, provisional or final) and other accounts of Borrower now or hereafter on deposit with or held by Lender and all other sums at any time credited by or owing from Lender to Borrower.  The rights and remedies of Lender hereunder are in addition to other rights and remedies (including, without limitation, other rights of setoff) which Lender may have.

 

SECTION 5

 

CONDITIONS PRECEDENT

 

Section 5.1        Initial Extension of Credit.

 

The obligation of Lender to make the initial Advance under any Note or issue the initial Letter of Credit is subject to the condition precedent that Lender shall have received on or before the day of such Advance or Letter of Credit all of the following, each dated (unless otherwise indicated) the date hereof, in form and substance satisfactory to Lender:

 

(a)         Resolutions .  Resolutions of the Board of Directors (or other governing body) of Borrower and each other Obligated Party certified by the Secretary or an Assistant Secretary (or other custodian of records) of such Person which authorize the execution, delivery, and performance by such Person of this Agreement and the other Loan Documents to which such Person is or is to be a party;

 

(b)         Incumbency Certificate .  A certificate of incumbency certified by a Responsible Officer certifying the names of the individuals or other Persons authorized to sign this Agreement and each of the other Loan Documents to which Borrower and each other Obligated Party is or is to be a party (including the certificates contemplated herein) on behalf of such Person together with specimen signatures of such individual Persons;

 

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(c)         Constituent Documents .  The Constituent Documents for Borrower and each other Obligated Party certified as of a date acceptable to Lender by the appropriate government officials of the state of incorporation or organization of Borrower and each other Obligated Party;

 

(d)         Governmental Certificates .  Certificates of the appropriate government officials of the state of incorporation or organization of Borrower and each other Obligated Party as to the existence and good standing of Borrower, each dated within ten (10) days prior to the date of the initial Advance or Letter of Credit;

 

(e)         Revolving Credit Note .  The Revolving Credit Note executed by Borrower;

 

(f)          Security Documents .  The Security Documents executed by Borrower and other Obligated Parties including, without limitation, the Security Agreement executed by the Borrower in favor of Lender dated as of even date herewith, the Pledge Agreement executed by Pledgor in favor of Lender dated as of even date herewith (the “Pledge Agreement”) and the Note Purchase Agreement executed by Pledgor in favor of Lender dated as of even date herewith (the “Note Purchase Agreement”);

 

(g)         Financing Statements .  UCC financing statements reflecting Borrower and the other Obligated Parties, as debtors, and Lender, as secured party, which are required to grant a Lien which secures the Obligations and covering such Collateral as Lender may request;

 

(h)         Insurance Matters .  Copies of insurance certificates describing all insurance policies required by Section 7.5 , together with loss payable and lender endorsements in favor of Lender with respect to all insurance policies covering Collateral;

 

(i)          Lien Searches .  The results of UCC, tax lien and judgment lien searches showing all financing statements and other documents or instruments on file against Borrower and each other Obligated Party in the appropriate filing offices, such search to be as of a date no more than ten (10) days prior to the date of the initial Advance or Letter of Credit;

 

(j)          Opinions of Counsel.  (a) A favorable opinion of Dykema Gossett PLLC, legal counsel to Borrower, as to such matters as Lender may reasonably request, and (b) a favorable opinion of Strasburger & Price, LLP, legal counsel to the Pledgor, as to such matters as Lender may request;

 

(k)         Beneficiary Certificate.  A certificate from the beneficiaries of the trusts which organized and capitalized Pledgor satisfactory to Lender.

 

(l)          Attorneys’ Fees and Expenses .  Evidence that the costs and expenses (including reasonable attorneys’ fees) referred to in Section 11.1 , to the extent incurred, shall have been paid in full by Borrower;

 

(m)        Closing Fees.  Evidence that the Commitment Fee and any other fees due at closing have been paid.

 

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Section 5.2        All Extensions of Credit .

 

The obligation of Lender to make any Advance or issue any Letter of Credit (including the initial Advance and the initial Letter of Credit) is subject to the following additional conditions precedent:

 

(a)         Request for Advance or Letter of Credit .  Lender shall have received in accordance with this Agreement, as the case may be, an Advance Request Form or Letter of Credit Application pursuant to Lender’s requirements and executed by a Responsible Officer of Borrower;

 

(b)         No Default .  No Default shall have occurred and be continuing, or would result from or after giving effect to such Advance or Letter of Credit ;

 

(c)         No Material Adverse Event .  No Material Adverse Event has occurred and no circumstance exists that could be a Material Adverse Event;

 

(d)         Representations and Warranties .  All of the representations and warranties contained in Section 6 and in the other Loan Documents shall be true and correct on and as of the date of such Advance or Letter of Credit with the same force and effect as if such representations and warranties had been made on and as of such date; and

 

(e)         Additional Documentation .  Lender shall have received such additional approvals, opinions, or documents as Lender or its legal counsel may reasonably request.

 

Each Advance hereunder shall be deemed to be a representation and warranty by Borrower that the conditions specified in this Section 5.2 have been satisfied on and as of the date of the applicable Advance.

 

SECTION 6

 

REPRESENTATIONS AND WARRANTIES

 

To induce Lender to enter into this Agreement, and to make Advances and issue Letters of Credit hereunder, and except as set forth on the Schedules hereto, Borrower represents and warrants to Lender that:

 

Section 6.1        Entity Existence.

 

Each of Borrower and its Subsidiaries (a) is duly incorporated or organized, as the case may be, validly existing, and in good standing under the laws of the jurisdiction of its incorporation or organization; (b) has all requisite power and authority to own its assets and carry on its business as now being or as proposed to be conducted; and (c) is qualified to do business in all jurisdictions in which the nature of its business makes such qualification necessary and where failure to so qualify could result in a Material Adverse Event.  Each of Borrower and the other Obligated Parties has the power and authority to execute, deliver, and perform its obligations under this Agreement and the other Loan Documents to which it is or may become a party.

 

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Section 6.2        Financial Statements; Etc.

 

Borrower has delivered to Lender audited financial statements of Borrower and its Subsidiaries as at and for the fiscal year ended December 31, 2015 and unaudited financial statements of Borrower and its Subsidiaries for the nine (9)-month period ended September 30, 2016.  Such financial statements are true and correct, have been prepared in accordance with GAAP, and fairly and accurately present, on a consolidated basis, the financial condition of Borrower and its Subsidiaries as of the respective dates indicated therein and the results of operations for the respective periods indicated therein.  Neither Borrower nor any of its Subsidiaries has any material contingent liabilities, liabilities for taxes, unusual forward or long-term commitments, or unrealized or anticipated losses from any unfavorable commitments except as referred to or reflected in such financial statements.  No Material Adverse Event has occurred since the effective date of the financial statements referred to in this Section 6.2 .  All projections delivered by Borrower to Lender have been prepared in good faith, with care and diligence and use assumptions that are reasonable under the circumstances at the time such projections were prepared and delivered to Lender and all such assumptions are disclosed in the projections. Neither Borrower nor any of its Subsidiaries has any material Guarantees, contingent liabilities, liabilities for taxes, or any long-term leases or unusual forward or long-term commitments, or any Hedge Agreement or other transaction or obligation in respect of derivatives, that are not reflected in the most-recent financial statements referred to in this Section 6.2 other than reflected on Schedule 6.2 .

 

Section 6.3        Action; No Breach.

 

The execution, delivery, and performance by each of Borrower and each other Obligated Party of this Agreement and the other Loan Documents to which such Person is or may become a party and compliance with the terms and provisions hereof and thereof have been duly authorized by all requisite action on the part of such Person and do not and will not (a) violate or conflict with, or result in a breach of, or require any consent under (i) the Constituent Documents of such Person, (ii) any applicable law, rule, or regulation or any order, writ, injunction, or decree of any Governmental Authority or arbitrator, or (iii) any agreement or instrument to which such Person is a party or by which it or any of its Properties is bound or subject, or (b) constitute a default under any such agreement or instrument, or result in the creation or imposition of any Lien upon any of the revenues or assets of such Person.

 

Section 6.4        Operation of Business.

 

Each of Borrower and its Subsidiaries possess all licenses, permits, franchises, patents, copyrights, trademarks, and trade names, or rights thereto, necessary to conduct its respective businesses substantially as now conducted and as presently proposed to be conducted, and neither Borrower nor any of its Subsidiaries is in violation of any valid rights of others with respect to any of the foregoing.

 

Section 6.5        Litigation and Judgments.

 

Except as specifically disclosed in Schedule 6.5 as of the date hereof, there is no action, suit, investigation, or proceeding before or by any Governmental Authority or arbitrator pending,

 

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or to the knowledge of Borrower, threatened against or affecting Borrower, any of its Subsidiaries, or any other Obligated Party that could, if adversely determined, result in a Material Adverse Event.  There are no outstanding judgments against Borrower, any of its Subsidiaries, or any other Obligated Party in excess of accrued loss contingencies.

 

Section 6.6        [Reserved].

 

Section 6.7        Enforceability.

 

This Agreement constitutes, and the other Loan Documents to which Borrower or any other Obligated Party is a party, when delivered, shall constitute legal, valid, and binding obligations of such Person, enforceable against such Person in accordance with their respective terms, except as limited by bankruptcy, insolvency, or other laws of general application relating to the enforcement of creditors’ rights.

 

Section 6.8        Approvals.

 

Other than filings to be made on or around the Closing Date, no authorization, approval, or consent of, and no filing or registration with, any Governmental Authority or third party is or will be necessary for the execution, delivery, or performance by Borrower or any other Obligated Party of this Agreement and the other Loan Documents to which such Person is or may become a party or the validity or enforceability thereof.

 

Section 6.9        Taxes.

 

Each of Borrower and its Subsidiaries has filed all tax returns (federal, state, and local) required to be filed, including all income, franchise, employment, Property, and sales tax returns, and has paid all of their respective liabilities for taxes, assessments, governmental charges, and other levies that are due and payable, other than, in each case, (a) those which are being contested in good faith by appropriate proceedings and for which Borrower has set aside on its books adequate reserves to the extent required by GAAP, or (b) to the extent the failure to pay could not reasonably be expected to cause a Material Adverse Event.  Borrower knows of no pending investigation of Borrower or any of its Subsidiaries by any taxing authority or of any pending but unassessed tax liability of Borrower or any of its Subsidiaries.

 

Section 6.10      Use of Proceeds; Margin Securities.

 

Neither Borrower nor any of its Subsidiaries is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulations T, U, or X of the Board of Governors of the Federal Reserve System), and no part of the proceeds of any Advance will be used to purchase or carry any margin stock or to extend credit to others for the purpose of purchasing or carrying margin stock.

 

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Section 6.11      ERISA.

 

Each Plan that is intended to qualify under Section 401(a) of the Code has received a favorable determination letter from the IRS or an application for such a letter is currently being processed by the IRS with respect thereto and, to the knowledge of Borrower, nothing has occurred which would prevent, or cause the loss of, such qualification.  No application for a funding waiver or an extension of any amortization period pursuant to Section 412 of the Code has been made with respect to any Plan.  There are no pending or, to the knowledge of Borrower, threatened claims, actions or lawsuits, or action by any Governmental Authority, with respect to any Plan.  There has been no Prohibited Transaction or violation of the fiduciary responsibility rules with respect to any Plan.  No ERISA Event has occurred or is reasonably expected to occur that could reasonably be expected to result in a Material Adverse Event.  No Plan has any Unfunded Pension Liability except as otherwise reflected in Borrower’s most recent financial statements.  No Obligated Party or ERISA Affiliate has incurred, or reasonably expects to incur, any liability under Title IV of ERISA with respect to any Plan (other than premiums due and not delinquent under Section 4007 of ERISA).  No Obligated Party or ERISA Affiliate has incurred, or reasonably expects to incur, any liability (and no event has occurred which, with the giving of notice under Section 4219 of ERISA, would result in such liability) under Section 4201 or 4243 of ERISA with respect to a Multiemployer Plan.  No Obligated Party or ERISA Affiliate has engaged in a transaction that could be subject to Section 4069 or 4212(c) of ERISA.

 

Section 6.12      Disclosure.

 

No statement, information, report, representation, or warranty made by Borrower or any other Obligated Party in this Agreement or in any other Loan Document or furnished to Lender in connection with this Agreement or any of the transactions contemplated hereby contains any untrue statement of a material fact or omits to state any material fact necessary to make the statements herein or therein not misleading.  There is no fact known to Borrower which is a Material Adverse Event, or which might in the future be a Material Adverse Event that has not been disclosed in writing to Lender.

 

Section 6.13      Subsidiaries.

 

Borrower has no Subsidiaries other than those listed in the Perfection Certificate, and the Perfection Certificate sets forth the jurisdiction of incorporation or organization of each such Subsidiary and the percentage of Borrower’s ownership interest in such Subsidiary.  All of the outstanding capital stock or other equity interests of each Subsidiary described on the Perfection Certificate has been validly issued, is fully paid, and is nonassessable. There are no outstanding subscriptions, options, warrants, calls, rights or other agreements or commitments of any nature relating to any equity interests of any Subsidiary.

 

Section 6.14      [Reserved].

 

Section 6.15      Compliance with Laws.

 

Neither Borrower nor any of its Subsidiaries is in violation in any material respect of any law, rule, regulation, order, or decree of any Governmental Authority or arbitrator.

 

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Section 6.16      [Reserved].

 

Section 6.17      Regulated Entities.

 

Neither Borrower nor any of its Subsidiaries is (a) an “investment company” or a company “controlled” by an “investment company” within the meaning of the Investment Company Act of 1940 or (b) subject to regulation under the Federal Power Act, the Interstate Commerce Act, any state public utilities code, or any other federal or state statute, rule or regulation limiting its ability to incur Debt, pledge its assets or perform its obligations under the Loan Documents.

 

Section 6.18      [Reserved].

 

Section 6.19      [Reserved].

 

Section 6.20      Foreign Assets Control Regulations and Anti-Money Laundering.

 

Each Obligated Party and each Subsidiary of each Obligated Party is and will remain in compliance in all material respects with all United States economic sanctions laws, Executive Orders and implementing regulations as promulgated by the United States Treasury Department’s Office of Foreign Assets Control (“ OFAC ”), and all applicable anti-money laundering and counter-terrorism financing provisions of the Bank Secrecy Act and all regulations issued pursuant to it.  No Obligated Party and no Subsidiary or Affiliate of any Obligated Party (a) is a Person designated by the United States government on the list of the Specially Designated Nationals and Blocked Persons (the “ SDN List ”) with which a United States Person cannot deal with or otherwise engage in business transactions, (b) is a Person who is otherwise the target of United States economic sanction laws such that a United States Person cannot deal or otherwise engage in business transactions with such Person, or (c) is controlled by (including without limitation by virtue of such person being a director or owning voting shares or interests), or acts, directly or indirectly, for or on behalf of, any person or entity on the SDN List or a foreign government that is the target of United States economic sanctions prohibitions such that the entry into, or performance under, this Agreement or any other Loan Document would be prohibited under United States law.

 

Section 6.21      Patriot Act.

 

The Obligated Parties, each of their Subsidiaries, and each of their Affiliates are in compliance with (a) the Trading with the Enemy Act, and each of the foreign assets control regulations of the United States Treasury Department ( 31 CFR, Subtitle B Chapter V , as amended), and all other enabling legislation or executive order relating thereto, (b) the Patriot Act, and (c) all other federal or state laws relating to “know your customer” and anti-money laundering rules and regulations.  No part of the proceeds of any Loan will be used directly or

 

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indirectly for any payments to any government official or employee, political party, official of a political party, candidate for political office, or anyone else acting in an official capacity, in order to obtain, retain or direct business or obtain any improper advantage, in violation of the United States Foreign Corrupt Practices Act of 1977.

 

SECTION 7

 

AFFIRMATIVE COVENANTS

 

Borrower covenants and agrees that, as long as the Obligations or any Letters of Credit or any part thereof are outstanding or Lender has any Commitment hereunder:

 

Section 7.1        Reporting Requirements.

 

Borrower will furnish to Lender:

 

(a)         Annual Financial Statements .  As soon as available, and in any event within one hundred twenty (120) days after the last day of each fiscal year of Borrower or such longer period as allowed under applicable Securities Exchange Commission rules and regulations, beginning with the fiscal year ending December 31, 2017, a copy of the annual audit report of Borrower and its Subsidiaries for such fiscal year containing, on a consolidated basis, balance sheets and statements of income, retained earnings, and cash flow as of the end of such fiscal year and for the twelve (12)-month period then ended, in each case setting forth in comparative form the figures for the preceding fiscal year, all in reasonable detail and audited and certified by independent certified public accountants of recognized standing, to the effect that such report has been prepared in accordance with GAAP and containing no material qualifications or limitations on scope; provided, however, the annual audit report for the fiscal year ending December 31, 2016 shall be delivered to Lender when such financial statements are filed with the Securities and Exchange Commission.

 

(b)         Quarterly Financial Statements .  As soon as available, and in any event within forty-five (45) days after the last day of each fiscal quarter of each fiscal year of Borrower or such longer period as allowed under applicable Securities Exchange Commission rules and regulations, beginning with the fiscal quarter ending June 30, 2017, a copy of an unaudited financial report of Borrower and its Subsidiaries as of the end of such fiscal quarter and for the portion of the fiscal year then ended, containing, on a consolidated and consolidating basis, balance sheets and statements of income, retained earnings, and cash flow, in each case setting forth in comparative form the figures for the corresponding period of the preceding fiscal year, all in reasonable detail certified by a Responsible Officer to have been prepared in accordance with GAAP and to fairly and accurately present (subject to year-end audit adjustments) the financial condition and results of operations of Borrower and its Subsidiaries, on a consolidated and consolidating basis, as of the dates and for the periods indicated therein; provided, however, the quarterly financial statement for the fiscal quarter ending March 31, 2017, shall be delivered to Lender when such financial reports are filed with the Securities and Exchange Commission;

 

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(c)         Management Letters .  Promptly upon receipt thereof, a copy of any management letter or written report submitted to Borrower or any of its Subsidiaries by independent certified public accountants with respect to the business, condition (financial or otherwise), operations, prospects, or Properties of Borrower or any of its Subsidiaries;

 

(d)         Notice of Litigation .  Promptly after the commencement thereof, notice of all actions, suits, and proceedings before any Governmental Authority or arbitrator affecting Borrower or any of its Subsidiaries which, if determined adversely to Borrower or such Subsidiary, could be a Material Adverse Event;

 

(e)         Notice of Default .  As soon as possible and in any event within five (5) days after the occurrence of any Default, a written notice setting forth the details of such Default and the action that Borrower has taken and proposes to take with respect thereto;

 

(f)          ERISA Reports .  Promptly after the filing or receipt thereof, but only in the event that such notices or reports pertain to an event which could reasonably be expected to result in a Material Adverse Event, copies of all reports, including annual reports, and notices which any Borrower or ERISA Affiliate files with or receives from the PBGC, the IRS, or the U.S. Department of Labor under ERISA; as soon as possible and in any event within five (5) days after Borrower or any ERISA Affiliate knows or has reason to know that any ERISA Event or Prohibited Transaction has occurred with respect to any Plan, a certificate of the chief financial officer of Borrower setting forth the details as to such ERISA Event or Prohibited Transaction and the action that Borrower proposes to take with respect thereto; annually, copies of the notice described in Section 101(f) of ERISA that Borrower or ERISA Affiliate receives with respect to a Plan or Multiemployer Plan; within ten (10) Business Days following the execution of this Agreement, Borrower and each ERISA Affiliate shall request in writing from each Multiemployer Plan the information described in Sections 101(k) and 101(l) of ERISA and shall provide a copy of such requests to Lender; promptly upon receiving such information from the Multiemployer Plans, provide such information to Lender, and thereafter, such requests and such information shall only be required to be provided upon Lender’s request, which shall be made no more frequently than annually;

 

(g)         Notice of Material Adverse Effect .  As soon as possible, and in any event within five (5) days after the occurrence thereof, written notice of any event or circumstance that could result in a Material Adverse Effect.

 

(h)         Proxy Statements, Etc.  As soon as available, one copy of each financial statement, report, notice or proxy statement sent by Borrower or any of its Subsidiaries to its stockholders generally and one copy of each regular, periodic or special report, registration statement, or prospectus filed by Borrower or any of its Subsidiaries with any securities exchange or the Securities and Exchange Commission or any successor agency; and

 

(i)          General Information .  Promptly, such other information concerning Borrower, any of its Subsidiaries, or any other Obligated Party as Lender may from time to time request.

 

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All representations and warranties set forth in the Loan Documents with respect to any financial information concerning Borrower shall apply to all financial information delivered to Lender by Borrower, or any Person purporting to be an Responsible Officer or other representative of Borrower regardless of the method of transmission to Lender or whether or not signed by Borrower, or such Responsible Officer or other representative, as applicable.

 

Section 7.2        Maintenance of Existence; Conduct of Business.

 

Borrower shall, and shall cause each of its Subsidiaries to, preserve and maintain its existence and all of its leases, privileges, licenses, permits, franchises, qualifications, and rights that are necessary or desirable in the ordinary conduct of its business.  Borrower shall, and shall cause each of its Subsidiaries to, conduct its business in an orderly and efficient manner in accordance with good business practices.

 

Section 7.3        Maintenance of Properties.

 

Borrower shall, and shall cause each of its Subsidiaries to, maintain, keep, and preserve all of its Properties (tangible and intangible) necessary or useful in the proper conduct of its business in good working order and condition.

 

Section 7.4        Taxes and Claims.

 

Borrower shall, and shall cause each of its Subsidiaries to, pay or discharge at or before maturity or before becoming delinquent (a) all taxes, levies, assessments, and governmental charges imposed on it or its income or profits or any of its Property, and (b) all lawful claims for labor, material, and supplies, which, if unpaid, might become a Lien upon any of its Property; provided, however , that neither Borrower nor any of its Subsidiaries shall be required to pay or discharge any tax, levy, assessment, or governmental charge which is being contested in good faith by appropriate proceedings diligently pursued, and for which adequate reserves in accordance with GAAP have been established.

 

Section 7.5        Insurance.

 

(a)         Borrower shall, and shall cause each of its Subsidiaries to, maintain insurance with financially sound and reputable insurance companies in such amounts and covering such risks as is usually carried by corporations engaged in similar businesses and owning similar Properties in the same general areas in which Borrower and its Subsidiaries operate, provided that in any event Borrower will maintain and cause each of its Subsidiaries to maintain workmen’s compensation insurance, property insurance, comprehensive general liability insurance , reasonably satisfactory to Lender.  Each insurance policy covering Collateral shall name Lender as loss payee and each insurance policy covering liabilities shall name Lender as additional insured, and each such insurance policy shall provide that such policy will not be cancelled or reduced without thirty (30) days prior written notice to Lender.

 

(b)         Borrower may apply the net proceeds of a casualty or condemnation (each a “ Loss ”) to the repair, restoration, or replacement of the assets suffering such Loss, so long as (i) such repair, restoration, or replacement is completed within one hundred

 

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eighty (180) days after the date of such Loss (or such longer period of time agreed to in writing by Lender), and (ii) such Loss did not cause an Event of Default.  If an Event of Default occurs pursuant to which Lender exercises its rights to accelerate the Obligations as provided in Section 10.2 or such repair, restoration, or replacement is not completed within one hundred eighty (180) days of the date of such Loss (or such longer period of time agreed to in writing by Lender), then Borrower shall deliver such net proceeds to Lender and Lender may immediately and without notice to any Person apply all of such net proceeds to the Obligations, regardless of any other prior agreement regarding the disposition of such net proceeds.

 

Section 7.6        Inspection Rights.

 

At any reasonable time and from time to time, but not more than once per calendar year unless an Event of Default exists, Borrower shall, and shall cause each of its Subsidiaries to, (a) permit representatives of Lender to examine, inspect, review, evaluate and make physical verifications and appraisals of the inventory and other Collateral in any manner and through any medium that Lender considers advisable, (b) to examine, copy, and make extracts from its books and records, (c) to visit and inspect its Properties, and (d) to discuss its business, operations, and financial condition with its officers, employees, and independent certified public accountants, in each instance, at Borrower’s expense.

 

Section 7.7        Keeping Books and Records.

 

Borrower shall, and shall cause each of its Subsidiaries to, maintain proper books of record and account in which full, true, and correct entries in conformity with GAAP shall be made of all dealings and transactions in relation to its business and activities.

 

Section 7.8        Compliance with Laws.

 

Borrower shall, and shall cause each of its Subsidiaries to, comply in all material respects with all applicable laws, rules, regulations, orders, and decrees of any Governmental Authority or arbitrator.

 

Section 7.9        [Reserved].

 

Section 7.10      Further Assurances.

 

Borrower shall, and shall cause each of its Subsidiaries and each other Obligated Party to, execute and deliver such further agreements and instruments and take such further action as may be requested by Lender to carry out the provisions and purposes of this Agreement and the other Loan Documents and to create, preserve, and perfect the Liens of Lender in the Collateral.

 

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Section 7.11      ERISA.

 

Borrower shall, and shall cause each of its Subsidiaries to, comply with all minimum funding requirements, and all other material requirements, of ERISA, if applicable, so as not to give rise to any liability thereunder.

 

Section 7.12      Depository Relationship.

 

To induce Lender to establish the interest rates provided for in the Revolving Credit Note, Borrower shall, and shall cause each of its Subsidiaries to, use Lender as its principal depository bank for all domestic operations and Borrower shall, and shall cause each of its Subsidiaries to, maintain Lender as its principal depository bank for all domestic operations, including for the maintenance of business, cash management, operating and administrative deposit accounts, except, in each case, where there are commercially reasonable business reasons to do otherwise.

 

SECTION 8

 

NEGATIVE COVENANTS

 

Borrower covenants and agrees that, as long as the Obligations or any Letters of Credit or any part thereof are outstanding or Lender has any Commitment hereunder:

 

Section 8.1        Debt.

 

Borrower shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, incur, create, assume, or permit to exist any Debt for borrowed money or Debt evidenced by bonds, notes, debentures or similar investments (collectively, “ Funded Debt ”) or Funded Debt Guaranteed by Borrower, except:

 

(a)         Debt to Lender; and

 

(b)         Intercompany Debt incurred consistent with past practices; and;

 

(c)         Purchase money Debt incurred consistent with past practices; and

 

(d)         Capitalized Lease Obligations incurred consistent with past practices.

 

Section 8.2        [Reserved].

 

Section 8.3        Mergers, Etc.

 

Borrower shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, become a party to a merger or consolidation, or purchase or otherwise acquire all or any part of the assets of any Person or any shares or other evidence of beneficial ownership of any Person, or wind-up, dissolve, or liquidate other than dissolution of immaterial Subsidiaries and mergers with or among Subsidiaries and, if involving Borrower, Borrower is the surviving company.

 

Section 8.4        [Reserved].

 

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Section 8.5        [Reserved].

 

Section 8.6        [Reserved].

 

Section 8.7        [Reserved].

 

Section 8.8        [Reserved].

 

Section 8.9        [Reserved].

 

Section 8.10      [Reserved].

 

Section 8.11      [Reserved].

 

Section 8.12      [Reserved].

 

Section 8.13      Accounting.

 

Borrower shall not, and shall not permit any of its Subsidiaries to, change its fiscal year or make any change (a) in accounting treatment or reporting practices, except as required by GAAP and disclosed to Lender, or (b) in tax reporting treatment, except as required by law and disclosed to Lender.

 

Section 8.14      [Reserved].

 

Section 8.15      [Reserved].

 

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Section 8.16      [Reserved].

 

Section 8.17      OFAC.

 

Borrower shall not, and shall not permit any of its Subsidiaries to, fail to comply with the laws, regulations and executive orders referred to in Section 6.20 and Section 6.21 .

 

SECTION 9

 

[[RESERVED]]

 

SECTION 10

 

DEFAULT

 

Section 10.1      Events of Default.

 

Each of the following shall be deemed an “ Event of Default ”:

 

(a)         Borrower shall fail to pay the Obligations or any part thereof shall not be paid when due or declared due;

 

(b)         Borrower shall fail to provide to Lender timely any notice of Default as required by Section 7.1(e)  of this Agreement or Borrower shall breach any provision of Section 8 or Section 9 of this Agreement;

 

(c)         Any representation or warranty made or deemed made by Borrower or any other Obligated Party (or any of their respective officers) in any Loan Document or in any certificate, report, notice, or financial statement furnished at any time in connection with this Agreement shall be false, misleading, or erroneous in any material respect (without duplication of any materiality qualifier contained therein) when made or deemed to have been made;

 

(d)         Borrower, any of its Subsidiaries, or any other Obligated Party shall fail to perform, observe, or comply with any covenant, agreement, or term contained in this Agreement or any other Loan Document, and, only with respect to Pledgor’s obligation under the Pledge Agreement to pledge additional Investment Grade Bonds or cash to cure any Borrowing Base deficiency, such failure continues for more than five  (5) Business Days following the date such failure first began;

 

(e)         Borrower, any of its Subsidiaries, or any other Obligated Party shall commence a voluntary proceeding seeking liquidation, reorganization, or other relief with respect to itself or its debts under any bankruptcy, insolvency, or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian, or other similar official of it or a substantial part of its Property or shall consent to any such relief

 

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or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it or shall make a general assignment for the benefit of creditors or shall generally fail to pay its debts as they become due or shall take any corporate action to authorize any of the foregoing;

 

(f)          An involuntary proceeding shall be commenced against Borrower, any of its Subsidiaries, or any other Obligated Party seeking liquidation, reorganization, or other relief with respect to it or its debts under any bankruptcy, insolvency, or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian, or other similar official for it or a substantial part of its Property, and such involuntary proceeding shall remain undismissed and unstayed for a period of thirty (30) days;

 

(g)         Borrower, any of its Subsidiaries, or any other Obligated Party shall fail to pay when due any principal of or interest on any Debt (other than the Obligations), or the maturity of any such Debt shall have been accelerated, or any such Debt shall have been required to be prepaid prior to the stated maturity thereof, or any event shall have occurred that permits (or, with the giving of notice or lapse of time or both, would permit) any holder or holders of such Debt or any Person acting on behalf of such holder or holders to accelerate the maturity thereof or require any such prepayment which, in each case, could reasonably be expected to result in a Material Adverse Event;

 

(h)         This Agreement or any other Loan Document shall cease to be in full force and effect or shall be declared null and void or the validity or enforceability thereof shall be contested or challenged by Borrower, any of its Subsidiaries, any other Obligated Party or any of their respective equity holders, or Borrower or any other Obligated Party shall deny that it has any further liability or obligation under any of the Loan Documents, or any Lien created by the Loan Documents shall for any reason cease to be a valid, first priority perfected Lien upon any of the Collateral purported to be covered thereby;

 

(i)          Any of the following events shall occur or exist with respect to Borrower or any ERISA Affiliate: (i) any ERISA Event occurs with respect to a Plan or Multiemployer Plan, or (ii) any Prohibited Transaction involving any Plan; and in each case above, such event or condition, together with all other events or conditions, if any, have subjected or could in the reasonable opinion of Lender subject Borrower or any ERISA Affiliate to any tax, penalty, or other liability to a Plan, a Multiemployer Plan, the PBGC, the IRS, the U. S. Department of Labor, or otherwise (or any combination thereof) which in the aggregate could reasonably be expected to result in a Material Adverse Event;

 

(j)          Borrower, any of its Subsidiaries, or any other Obligated Party shall fail to discharge within a period of thirty (30) days after the commencement thereof any attachment, sequestration, or similar proceeding or proceedings which could reasonably be expected to result in a Material Adverse Event;

 

(k)         A final judgment or judgments for the payment of money in an amount which could reasonably be expected to result in a Material Adverse Event shall be rendered by a court or courts against Borrower, any of its Subsidiaries, or any other Obligated Party and

 

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the same shall not be discharged (or provision shall not be made for such discharge), or a stay of execution thereof shall not be procured, within thirty (30) days from the date of entry thereof and Borrower, such Subsidiary, or such Obligated Party shall not, within such period of thirty (30) days, or such longer period during which execution of the same shall have been stayed, appeal therefrom and cause the execution thereof to be stayed during such appeal.

 

Section 10.2      Remedies Upon Default.

 

If any Event of Default shall occur and be continuing, then Lender may without notice terminate the Commitment or declare the Obligations or any part thereof to be immediately due and payable, or both, and the same shall thereupon become immediately due and payable, without notice, demand, presentment, notice of dishonor, notice of acceleration, notice of intent to accelerate, notice of intent to demand, protest, or other formalities of any kind, all of which are hereby expressly waived by Borrower; provided, however , that upon the occurrence of an Event of Default under Section 10.1(e)  or (f) , the Commitment shall automatically terminate, and the Obligations shall become immediately due and payable, in each case without notice, demand, presentment, notice of dishonor, notice of acceleration, notice of intent to accelerate, notice of intent to demand, protest, or other formalities of any kind, all of which are hereby expressly waived by Borrower.  In addition to the foregoing, if any Event of Default shall occur and be continuing, Lender may exercise all rights and remedies available to it in law or in equity, under the Loan Documents, or otherwise.  Notwithstanding the foregoing, Lender shall be under no obligation to exercise any of its rights and remedies under any of the Security Documents or other Loan Documents executed by Borrower.  Lender shall have the right, but not the obligation, to limit the exercise of its rights to the Note Purchase Agreement and the Pledge Agreement without exercising any rights or remedies against Borrower or any other Person .

 

Section 10.3      Application of Funds.

 

After the exercise of remedies provided for in Section 10.2 (or after the Loans have automatically become immediately due and payable), any amounts received on account of the Obligations shall be applied by Lender in such order as it elects in its sole discretion.

 

Section 10.4      Performance by Lender.

 

If Borrower shall fail to perform any covenant or agreement contained in any of the Loan Documents, then Lender may perform or attempt to perform such covenant or agreement on behalf of Borrower.  In such event, Borrower shall, at the request of Lender, promptly pay to Lender any amount expended by Lender in connection with such performance or attempted performance, together with interest thereon at the Default Interest Rate from and including the date of such expenditure to but excluding the date such expenditure is paid in full.  Notwithstanding the foregoing, it is expressly agreed that Lender shall not have any liability or responsibility for the performance of any covenant, agreement, or other obligation of Borrower under this Agreement or any other Loan Document.

 

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Section 10.5      Cash Collateral.

 

If any Event of Default shall occur and be continuing or the Termination Date shall have occurred, Borrower shall, if requested by Lender, immediately deposit with and pledge to Lender cash or cash equivalent investments in an amount equal to the outstanding Letter of Credit Liabilities as security for the Obligations; provided, however, that if Lender reasonably determines that Pledgor has sufficient Investment Grade Bonds and cash pledged to cover the outstanding Letter of Credit Liabilities no such deposit and pledge from Borrower will be requested.

 

SECTION 11

 

MISCELLANEOUS

 

Section 11.1      Expenses.

 

Borrower hereby agrees to pay on demand: (a) all costs and expenses of Lender in connection with the preparation, negotiation, execution, and delivery of this Agreement and the other Loan Documents and any and all amendments, modifications, renewals, extensions, and supplements thereof and thereto, including, without limitation, the reasonable fees and expenses of legal counsel, advisors, consultants, and auditors for Lender; (b) all costs and expenses of Lender in connection with any Default and the enforcement of this Agreement or any other Loan Document, including, without limitation, the fees and expenses of legal counsel, advisors, consultants, and auditors for Lender; (c) all transfer, stamp, documentary, or other similar taxes, assessments, or charges levied by any Governmental Authority in respect of this Agreement or any of the other Loan Documents; (d) all costs, expenses, assessments, and other charges incurred in connection with any filing, registration, recording, or perfection of any Lien contemplated by this Agreement or any other Loan Document; and (e) all other costs and expenses incurred by Lender in connection with this Agreement or any other Loan Document, any litigation, dispute, suit, proceeding or action; the enforcement of its rights and remedies, and the protection of its interests in bankruptcy, insolvency or other legal proceedings, including, without limitation, all costs, expenses, and other charges (including Lender’s internal charges) incurred in connection with evaluating, observing, collecting, examining, auditing, appraising, selling, liquidating, or otherwise disposing of the Collateral or other assets of Borrower.

 

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Section 11.2      INDEMNIFICATION.

 

BORROWER SHALL INDEMNIFY LENDER AND EACH AFFILIATE THEREOF AND THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES, ATTORNEYS, AND AGENTS FROM, AND HOLD EACH OF THEM HARMLESS AGAINST, ANY AND ALL LOSSES, LIABILITIES, CLAIMS, DAMAGES, PENALTIES, JUDGMENTS, DISBURSEMENTS, COSTS, AND EXPENSES (INCLUDING ATTORNEYS’ FEES) TO WHICH ANY OF THEM MAY BECOME SUBJECT WHICH DIRECTLY OR INDIRECTLY ARISE FROM OR RELATE TO (A) THE NEGOTIATION, EXECUTION, DELIVERY, PERFORMANCE, ADMINISTRATION, OR ENFORCEMENT OF ANY OF THE LOAN DOCUMENTS, (B) ANY OF THE TRANSACTIONS CONTEMPLATED BY THE LOAN DOCUMENTS, (C) ANY BREACH BY BORROWER OF ANY REPRESENTATION, WARRANTY, COVENANT, OR OTHER AGREEMENT CONTAINED IN ANY OF THE LOAN DOCUMENTS, (D) THE PRESENCE, RELEASE, THREATENED RELEASE, DISPOSAL, REMOVAL, OR CLEANUP OF ANY HAZARDOUS MATERIAL LOCATED ON, ABOUT, WITHIN, OR AFFECTING ANY OF THE PROPERTIES OR ASSETS OF BORROWER OR ANY OF ITS SUBSIDIARIES OR ANY OTHER OBLIGATED PARTY, (E) THE USE OR PROPOSED USE OF ANY LETTER OF CREDIT, (F) ANY AND ALL TAXES, LEVIES, DEDUCTIONS, OR CHARGES IMPOSED ON LENDER OR ANY OF LENDER’S CORRESPONDENTS IN RESPECT OF ANY LETTER OF CREDIT, OR (G) ANY INVESTIGATION, LITIGATION, OR OTHER PROCEEDING, INCLUDING, WITHOUT LIMITATION, ANY THREATENED INVESTIGATION, LITIGATION, OR OTHER PROCEEDING, RELATING TO ANY OF THE FOREGOING.  WITHOUT LIMITING ANY PROVISION OF THIS AGREEMENT OR OF ANY OTHER LOAN DOCUMENT, IT IS THE EXPRESS INTENTION OF THE PARTIES HERETO THAT EACH PERSON TO BE INDEMNIFIED UNDER THIS SECTION SHALL BE INDEMNIFIED FROM AND HELD HARMLESS AGAINST ANY AND ALL LOSSES, LIABILITIES, CLAIMS, DAMAGES, PENALTIES, JUDGMENTS, DISBURSEMENTS, COSTS, AND EXPENSES (INCLUDING ATTORNEYS’ FEES) ARISING OUT OF OR RESULTING FROM THE SOLE CONTRIBUTORY OR ORDINARY NEGLIGENCE OF SUCH PERSON.

 

Section 11.3      Limitation of Liability.

 

Neither Lender nor any Affiliate, officer, director, employee, attorney, or agent of Lender shall have any liability with respect to, and Borrower hereby waives, releases, and agrees not to sue any of them upon, any claim for any special, indirect, incidental, or consequential damages suffered or incurred by Borrower or any other Obligated Party in connection with, arising out of, or in any way related to, this Agreement or any of the other Loan Documents, or any of the transactions contemplated by this Agreement or any of the other Loan Documents.  Borrower hereby waives, releases, and agrees not to sue Lender or any of Lender’s Affiliates, officers, directors, employees, attorneys, or agents for punitive damages in respect of any claim in connection with, arising out of, or in any way related to, this Agreement or any of the other Loan Documents, or any of the transactions contemplated by this Agreement or any of the other Loan Documents.

 

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Section 11.4      No Duty.

 

All attorneys, accountants, appraisers, and other professional Persons and consultants retained by Lender shall have the right to act exclusively in the interest of Lender and shall have no duty of disclosure, duty of loyalty, duty of care, or other duty or obligation of any type or nature whatsoever to Borrower or any of Borrower’s equity holders, Affiliates, officers, employees, attorneys, agents, or any other Person.

 

Section 11.5      Lender Not Fiduciary.

 

The relationship between Borrower and Lender is solely that of debtor and creditor, and Lender has no fiduciary or other special relationship with Borrower, and no term or condition of any of the Loan Documents shall be construed so as to deem the relationship between Borrower and Lender to be other than that of debtor and creditor.

 

Section 11.6      Equitable Relief.

 

Borrower recognizes that in the event Borrower fails to pay, perform, observe, or discharge any or all of the Obligations, any remedy at law may prove to be inadequate relief to Lender.  Borrower therefore agrees that Lender, if Lender so requests, shall be entitled to temporary and permanent injunctive relief in any such case without the necessity of proving actual damages.

 

Section 11.7      No Waiver; Cumulative Remedies.

 

No failure on the part of Lender to exercise and no delay in exercising, and no course of dealing with respect to, any right, remedy, power, or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power, or privilege under this Agreement preclude any other or further exercise thereof or the exercise of any other right, remedy, power, or privilege. The rights and remedies provided for in this Agreement and the other Loan Documents are cumulative and not exclusive of any rights and remedies provided by law.

 

Section 11.8      Successors and Assigns.

 

This Agreement is binding upon and shall inure to the benefit of Lender and Borrower and their respective successors and assigns, except that Borrower may not assign or transfer any of its rights, duties, or obligations under this Agreement or the other Loan Documents without the prior written consent of Lender.

 

Section 11.9      Survival.

 

All representations and warranties made in this Agreement or any other Loan Document or in any document, statement, or certificate furnished in connection with this Agreement shall survive the execution and delivery of this Agreement and the other Loan Documents, and no investigation by Lender or any closing shall affect the representations and warranties or the right of Lender to rely upon them. Without prejudice to the survival of any other obligation of

 

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Borrower hereunder, the obligations of Borrower under Sections 2.5, 11.1, and 11.2 shall survive repayment of the Obligations and termination of the Commitment and the Letters of Credit.

 

Section 11.10    Amendment.

 

The provisions of this Agreement and the other Loan Documents to which Borrower is a party may be amended or waived only by an instrument in writing signed by the parties hereto.

 

Section 11.11    Notices.

 

Unless otherwise expressly provided herein, all notices and other communications provided for hereunder shall be in writing (including by facsimile transmission) and mailed, faxed or delivered, to the address, facsimile number or subject to the last sentence hereof electronic mail address specified for notices below the signatures hereon or to such other address as shall be designated by such party in a notice to the other parties.  All such other notices and other communications shall be deemed to have been given or made upon the earliest to occur of (a) actual receipt by the intended recipient or (b)(i) if delivered by hand or courier, (ii) if delivered by mail, four (4) business days after deposit in the mail, postage prepaid; (iii) if delivered by facsimile, when sent; and (iv) if delivered by electronic mail (which form of delivery is subject to the provisions of the last sentence below), when delivered; provided, however , that notices and other communications pursuant to Section 2 shall not be effective until actually received by Lender.  Electronic mail and intranet websites may be used only to distribute routine communications, such as financial statements and other information, and to distribute Loan Documents for execution by the parties thereto, and may not be used for any other purpose.

 

Section 11.12    Governing Law; Venue; Service of Process.

 

THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS; PROVIDED THAT LENDER SHALL RETAIN ALL RIGHTS UNDER FEDERAL LAW.  THIS AGREEMENT HAS BEEN ENTERED INTO IN BEXAR COUNTY, TEXAS, AND IS PERFORMABLE FOR ALL PURPOSES IN BEXAR COUNTY, TEXAS.  THE PARTIES HEREBY AGREE THAT ANY LAWSUIT, ACTION, OR PROCEEDING THAT IS BROUGHT (WHETHER IN CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO ANY OF THE LOAN DOCUMENTS, THE TRANSACTIONS CONTEMPLATED THEREBY, OR THE ACTIONS OF THE LENDER IN THE NEGOTIATION, ADMINISTRATION OR ENFORCEMENT OF ANY OF THE LOAN DOCUMENTS SHALL BE BROUGHT IN A STATE OR FEDERAL COURT OF COMPETENT JURISDICTION LOCATED IN BEXAR COUNTY, TEXAS.  BORROWER HEREBY IRREVOCABLY AND UNCONDITIONALLY (A) SUBMITS TO THE EXCLUSIVE JURISDICTION OF SUCH COURTS, (B) WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH LAWSUIT, ACTION, OR PROCEEDING BROUGHT IN ANY SUCH COURT, AND (C) FURTHER WAIVES ANY CLAIM THAT IT MAY NOW OR HEREAFTER HAVE THAT ANY SUCH COURT IS AN INCONVENIENT FORUM.  EACH OF THE PARTIES HERETO AGREE THAT SERVICE OF PROCESS UPON IT MAY BE MADE BY

 

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CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED AT THE ADDRESS FOR NOTICES REFERENCED IN SECTION 11.11 HEREOF.

 

Section 11.13    Counterparts.

 

This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

 

Section 11.14    Severability.

 

Any provision of this Agreement held by a court of competent jurisdiction to be invalid or unenforceable shall not impair or invalidate the remainder of this Agreement and the effect thereof shall be confined to the provision held to be invalid or illegal.

 

Section 11.15    Headings.

 

The headings, captions, and arrangements used in this Agreement are for convenience only and shall not affect the interpretation of this Agreement.

 

Section 11.16    Participations; Etc.

 

Lender shall have the right at any time and from time to time to grant participations in, and sell and transfer, the Obligations and any Loan Documents.  Each actual or proposed participant or assignee, as the case may be, shall be entitled to receive all information received by Lender regarding Borrower and its Subsidiaries, including, without limitation, information required to be disclosed to a participant or assignee pursuant to Banking Circular 181 (Rev., August 2, 1984), issued by the Comptroller of the Currency (whether the actual or proposed participant or assignee is subject to the circular or not).

 

Section 11.17    Construction.

 

Borrower and Lender acknowledge that each of them has had the benefit of legal counsel of its own choice and has been afforded an opportunity to review this Agreement and the other Loan Documents with its legal counsel and that this Agreement and the other Loan Documents shall be construed as if jointly drafted by Borrower and Lender.

 

Section 11.18    Independence of Covenants.

 

All covenants hereunder shall be given independent effect so that if a particular action or condition is not permitted by any of such covenants, the fact that it would be permitted by an exception to, or be otherwise within the limitations of, another covenant shall not avoid the occurrence of a Default if such action is taken or such condition exists.

 

Section 11.19    WAIVER OF JURY TRIAL

 

TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, BORROWER HEREBY IRREVOCABLY AND EXPRESSLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM (WHETHER BASED

 

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UPON CONTRACT, TORT, OR OTHERWISE) ARISING OUT OF OR RELATING TO ANY OF THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY OR THE ACTIONS OF LENDER IN THE NEGOTIATION, ADMINISTRATION, OR ENFORCEMENT THEREOF.  EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PERSON HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PERSON WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 11.19 .

 

Section 11.20    Additional Interest Provision.

 

It is expressly stipulated and agreed to be the intent of Borrower and Lender at all times to comply strictly with the applicable law governing the maximum rate or amount of interest payable on the indebtedness evidenced by the Revolving Credit Note, any Loan Document, and the Related Indebtedness (or applicable United States federal law to the extent that it permits Lender to contract for, charge, take, reserve or receive a greater amount of interest than under applicable law).  If the applicable law is ever judicially interpreted so as to render usurious any amount (a) contracted for, charged, taken, reserved or received pursuant to the Revolving Credit Note, any of the other Loan Documents or any other communication or writing by or between Borrower and Lender related to the transaction or transactions that are the subject matter of the Loan Documents, (b) contracted for, charged, taken, reserved or received by reason of Lender’s exercise of the option to accelerate the maturity of the Revolving Credit Note and/or any and all indebtedness paid or payable by Borrower to Lender pursuant to any Loan Document other than any Note (such other indebtedness being referred to in this Section as the “ Related Indebtedness ”), or (c) Borrower will have paid or Lender will have received by reason of any voluntary prepayment by Borrower of the Revolving Credit Note and/or the Related Indebtedness, then it is Borrower’s and Lender’s express intent that all amounts charged in excess of the Maximum Rate shall be automatically canceled, ab initio , and all amounts in excess of the Maximum Rate theretofore collected by Lender shall be credited on the principal balance of the Revolving Credit Note and/or the Related Indebtedness (or, if the Note and all Related Indebtedness have been or would thereby be paid in full, refunded to Borrower), and the provisions of the Revolving Credit Note and the other Loan Documents shall immediately be deemed reformed and the amounts thereafter collectible hereunder and thereunder reduced, without the necessity of the execution of any new document, so as to comply with the applicable law, but so as to permit the recovery of the fullest amount otherwise called for hereunder and thereunder; provided, however , if the Revolving Credit Note or Related Indebtedness has been paid in full before the end of the stated term thereof, then Borrower and Lender agree that Lender shall, with reasonable promptness after Lender discovers or is advised by Borrower that interest was received in an amount in excess of the Maximum Rate, either refund such excess interest to Borrower and/or credit such excess interest against the Revolving Credit Note and/or any Related Indebtedness then owing by Borrower to Lender.  Borrower hereby agrees that as a condition precedent to any claim seeking usury penalties against Lender, Borrower will provide written notice to Lender, advising Lender in reasonable detail of the nature and amount of the violation, and Lender shall have sixty (60) days after receipt of such notice in which to correct

 

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such usury violation, if any, by either refunding such excess interest to Borrower or crediting such excess interest against the Note to which the alleged violation relates and/or the Related Indebtedness then owing by Borrower to Lender.  All sums contracted for, charged, taken, reserved or received by Lender for the use, forbearance or detention of any debt evidenced by the Revolving Credit Note and/or the Related Indebtedness shall, to the extent permitted by applicable law, be amortized or spread, using the actuarial method, throughout the stated term of such Note and/or the Related Indebtedness (including any and all renewal and extension periods) until payment in full so that the rate or amount of interest on account of the Revolving Credit Note and/or the Related Indebtedness does not exceed the Maximum Rate from time to time in effect and applicable to such Note and/or the Related Indebtedness for so long as debt is outstanding.  In no event shall the provisions of Chapter 346 of the Texas Finance Code (which regulates certain revolving credit loan accounts and revolving triparty accounts) apply to the Revolving Credit Note and/or any of the Related Indebtedness.  Notwithstanding anything to the contrary contained herein or in any of the other Loan Documents, it is not the intention of Lender to accelerate the maturity of any interest that has not accrued at the time of such acceleration or to collect unearned interest at the time of such acceleration.

 

Section 11.21    Ceiling Election.

 

To the extent that Lender is relying on Chapter 303 of the Texas Finance Code to determine the Maximum Rate payable on any such Note and/or any other portion of the Indebtedness, Lender will utilize the weekly ceiling from time to time in effect as provided in such Chapter 303.  To the extent United States federal law permits Lender to contract for, charge, take, receive or reserve a greater amount of interest than under Texas law, Lender will rely on United States federal law instead of such Chapter 303 for the purpose of determining the Maximum Rate.  Additionally, to the extent permitted by applicable law now or hereafter in effect, Lender may, at its option and from time to time, utilize any other method of establishing the Maximum Rate under such Chapter 303 or under other applicable law by giving notice, if required, to Borrower as provided by applicable law now or hereafter in effect.

 

Section 11.22    USA Patriot Act Notice.

 

Lender hereby notifies Borrower that pursuant to the requirements of the Patriot Act, it is required to obtain, verify and record information that identifies Borrower and each other Obligated Party, which information includes the name and address of Borrower and each other Obligated Party and other information that will allow Lender to identify Borrower and each other Obligated Party in accordance with the Patriot Act.  In addition, Borrower agrees to (a) ensure that no Person who owns a controlling interest in or otherwise controls Borrower or any Subsidiary of Borrower is or shall be listed on the Specially Designated Nationals and Blocked Person List or other similar lists maintained by the OFAC, the Department of the Treasury or included in any Executive Order, (b) not to use or permit the use of proceeds of the Obligations to violate any of the foreign asset control regulations of the OFAC or any enabling statute or Executive Order relating thereto, and (c) comply, or cause its Subsidiaries to comply, with the applicable laws.

 

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Section 11.23    NOTICE OF FINAL AGREEMENT.

 

THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.  THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

 

[ Remainder of Page Intentionally Left Blank; Signature Page Follows ]

 

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EXECUTED to be effective as of the date first written above.

 

	BORROWER:
	HARTE HANKS, INC.
	By:	/s/ Robert L. R. Munden
		Name:	Robert L. R. Munden
		Title:	EVP, CFO & General Counsel
	Address for Notices:
	9601 McAllister Freeway, Suite 610
	San Antonio, Texas 78216
	Fax No.:  210.829.9139
	Telex No.:
	Telephone No.:  210.829.9235
	Attention:  CFO/General Counsel
	e-mail:  robert.munden@hartehanks.com
	LENDER:
	TEXAS CAPITAL BANK, NATIONAL ASSOCIATION
	By:	/s/ Annalese Smolik
		Annalese Smolik
		Senior Vice President
	Address for Notices:
	745 E. Mulberry Ave., Suite 300
	San Antonio, Texas 78212
	Fax No.: 210.390.3777
	Telephone No.: 210.390.3804
	Attention: Annalese Smolik
	e-mail: Annalese.Smolik@texascapitalbank.com

 

Exhibit 10.2

 

SECURITY AGREEMENT

 

THIS SECURITY AGREEMENT (this “ Security Agreement ”) is entered into as of April 17, 2017 by and among HARTE HANKS, INC. (“ Borrower ”, and sometimes, “ Grantors ”), and TEXAS CAPITAL BANK, NATIONAL ASSOCIATION, a national banking association (“ Lender ”) on behalf of itself and its Affiliates (“ Secured Party ”).

 

RECITALS

 

WHEREAS, Borrower and Lender are entering into a Credit Agreement dated as of April 17, 2017 (as it may be amended, restated or modified from time to time, the “ Credit Agreement ”).

 

WHEREAS, Grantors are entering into this Security Agreement (as it may be amended, restated or modified from time to time, the “ Security Agreement ”) in order to, among other things, induce Lender to enter into and extend credit to Borrower under the Credit Agreement.

 

NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereby agree as follows:

 

1.                                      DEFINITIONS

 

1.1                               Reference to Security Agreement .  Unless otherwise specified, all references herein to Articles, Sections, Recitals, and Schedules refer to Articles and Sections of, and Recitals and Schedules to, this Security Agreement. All Schedules include amendments and supplements thereto from time to time.

 

1.2                               Principles of Construction .  Words used herein, regardless of the number and gender specifically used, shall be deemed and construed to include any other number, singular or plural, and any other gender, masculine, feminine or neutral, as the context indicates is appropriate. Whenever the words “include,” “includes” or “including” are used in this Security Agreement, they shall be deemed to be followed by the words “without limitation”.  All references to agreements and other contractual Instruments shall be deemed to include subsequent amendments, permitted assignments and other modifications thereto, but only to the extent such amendments, assignments and other modifications are not prohibited by the terms of any Loan Document.  Furthermore, any reference to any law shall include all statutory and regulatory provisions consolidating, amending, replacing, or interpreting such law and any reference to any law or regulation shall, unless otherwise specified, refer to such law or regulation as amended, modified, or supplemented from time to time.

 

1.3                               Definitions .  Unless otherwise defined herein, or the context hereof otherwise requires, each term defined in either the Credit Agreement or the UCC is used in this Security Agreement with the same meaning; provided that , if the definition given to such term in the Credit Agreement conflicts with the definition given to such term in the UCC, the Credit Agreement definition shall control to the extent legally allowable; and if any definition given to such term in Article 9 of the UCC conflicts with the definition given to such term in any other

 

 

chapter of the UCC, the Article 9 definition shall prevail. As used herein, the following terms have the meanings indicated:

 

“ Account ” means any “ account ,” as such term is defined in Section 9.102(a)(2)  of the UCC.

 

“ Account Debtor ” means any person who is obligated on a Receivable.

 

“ Cash Collateral Account ” has the meaning set forth in Section 5.5 .

 

“ Chattel Paper ” means any “ chattel paper ”, as such term is defined in Section 9.102(a)(11) of the UCC, including all Electronic Chattel Paper and Tangible Chattel Paper.

 

“ Claims ” has the meaning set forth in Section 6.18 .

 

“ Collateral ” has the meaning set forth in Section 2.1 .

 

“ Collateral Note Security ” means all rights, titles, interests, and Liens any Grantor may have, be, or become entitled to under all present and future loan agreements, security agreements, pledge agreements, deeds of trust, mortgages, guarantees, or other Documents assuring or securing payment of or otherwise evidencing the Collateral Notes, including those set forth on the Perfection Certificate.

 

“ Collateral Notes ” means a ll rights, titles, and interests of any Grantor in and to all promissory notes and other Instruments payable to such Grantor, including all inter-company notes from the subsidiaries of such Grantor and those set forth on the Perfection Certificate.

 

“ Collateral Records ” means books, records, ledger cards, files, correspondence, customer lists, blueprints, technical specifications, manuals, computer software, computer printouts, tapes, disks and related data processing software and similar items that at any time evidence or contain information relating to any of the Collateral or are otherwise necessary or helpful in the collection thereof or realization thereupon.

 

“ Collateral Support ” means all property (real or personal) assigned, hypothecated or otherwise securing any Collateral and shall include any security agreement or other agreement granting a Lien or security interest in such real or personal property.

 

“ Commercial Tort Claims ” means any “ commercial tort claim ”, as such term is defined in Section 9.102(a)(13) of the UCC, including all commercial tort claims listed on Schedule 3.10 .

 

“ Commodity Account ” means any “ commodity account ”, as such term is defined in Section 9.102(a)(14) of the UCC, and all sub-accounts thereof.

 

“ Contractual Obligations ” means, as to any Person, any provision of any security issued by such Person or of any agreement, undertaking, contract, indenture, mortgage, deed of trust or

 

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other instrument, document or agreement to which such Person is a party or by which it or any of its Property is bound.

 

“ Control ” has the meaning set forth in Sections 7.106 , 8.106 , 9.104 , 9.105 , 9.106 , or 9.107 of the UCC, as applicable.

 

“ Controlled Foreign Corporation ” means “ controlled foreign corporation ” as defined in the Internal Revenue Code of 1986.

 

“ Copyright Licenses ” means any and all agreements providing for the granting of any right in or to Copyrights (whether a Grantor is licensee or licensor thereunder), including each agreement referred to on the Perfection Certificate.

 

“ Copyrights ” means all United States and foreign copyrights (including Community designs), including copyrights in software and databases, whether registered or unregistered, and, with respect to any and all of the foregoing: (a) all registrations and applications therefor, including the registrations and applications referred to on the Perfection Certificate; (b) all extensions and renewals thereof; (c) all rights corresponding thereto throughout the world; (d) all rights to sue for past, present and future infringements thereof; and (e) all products and Proceeds of the foregoing, including any income, royalties, and awards and any claim by any Grantor against third parties for past, present, or future infringement of any Copyright or any Copyright licensed under any Copyright License.

 

“ Deposit Accounts ” means any “ deposit account ”, as such term is defined in Section 9.102(a)(29) of the UCC, including those deposit accounts identified on Schedule 3.10 , and any account which is a replacement or substitute for any of such accounts, together with all monies, Instruments, certificates, checks, drafts, wire transfer receipts, and other property deposited therein and all balances therein.

 

“ Documents ” means any “ document ”, as such term is defined in Section 9.102(a)(30) of the UCC.

 

“ Electronic Chattel Paper ” means any “ electronic chattel paper ”, as such term is defined in Section 9.102(a)(31) of the UCC.

 

“ Equipment ” means: (a) any “ equipment ”, as such term is defined in Section 9.102(a)(33) of the UCC; (b) all machinery, equipment, furnishings, Fixtures, and Vehicles; and (c) any and all additions, substitutions, and replacements of any of the foregoing, wherever located, together with all attachments, components, parts, equipment, and accessories installed thereon or affixed thereto (in each case, regardless of whether characterized as equipment under the UCC).

 

“ Excluded Equity ” means any voting stock in excess of sixty-five percent (65%) of the outstanding voting stock of any Controlled Foreign Corporation, which, pursuant to the terms of the Credit Agreement, is not required to guaranty the Obligations.  For the purposes of this definition, “ voting stock ” means, with respect to any issuer, the issued and outstanding shares of

 

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each class of stock of such issuer entitled to vote (within the meaning of Treasury Regulations §1.956-2(c)(2) ).

 

“ Excluded Property ” means, collectively, (a) Excluded Equity, (b) any permit or license or any Contractual Obligation of any Grantor (i) that prohibits or requires the consent of any Person other than Borrower and its Affiliates which has not been obtained as a condition to the creation by such Grantor of a Lien on any right, title or interest in such permit, license or Contractual Obligation related thereto or (ii) to the extent that any Requirement of Law applicable thereto prohibits the creation of a Lien thereon, but only, with respect to the prohibition in clauses (i)  and (ii)  of this definition, to the extent, and for as long as, such prohibition is not terminated or rendered unenforceable or otherwise deemed ineffective by the UCC or any other Requirement of Law, (iii) any Property owned by any Grantor that is subject to a purchase money Lien or a capital lease permitted under the Credit Agreement if the Contractual Obligation pursuant to which such Lien is granted (or in the document providing for such capital lease) prohibits or requires the consent of any Person other than Borrower and its Affiliates which has not been obtained as a condition to the creation of any other Lien on such equipment, and (iv) any “intent to use” Trademark applications for which a statement of use has not been filed (but only until such statement is filed); provided, however , “ Excluded Property ” shall not include any proceeds, products, substitutions, or replacements of Excluded Property (unless such proceeds, products, substitutions, or replacements would otherwise constitute Excluded Property).

 

“ Fixtures ” means any “ fixtures ”, as such term is defined in Section 9.102(a)(41) of the UCC.

 

“ General Intangibles ” means: (a) any “ general intangibles ”, as such term is defined in Section 9.102(a)(42) of the UCC; and (b) all interest rate or currency protection or hedging arrangements, computer software, computer programs, all tax refunds and tax refund claims, all licenses, permits, concessions and authorizations, all contract rights, all joint venture interests, partnership interests, or membership interests that do not constitute a Security, all Material Agreements, and all Intellectual Property (in each case, regardless of whether characterized as general intangibles under the UCC).

 

“ Goods ” means: (a) “ goods ”, as that term is defined in Section 9.102(a)(44) of the UCC; (b) all Inventory; and (c) all Equipment (in each case, regardless of whether characterized as goods under the UCC).

 

“ Grantors ” has the meaning set forth in the introductory paragraph, and “ Grantor ” means any one of the Grantors.

 

“ Hedge Agreement ” means (a) any and all interest rate swap transactions, basis swaps, credit derivative transactions, forward rate transactions, commodity swaps, commodity options, forward commodity contracts, equity or equity index swaps or options, bond or bond price or bond index swaps or options or forward bond or forward bond price or forward bond index transactions, interest rate options, forward foreign exchange transactions, cap transactions, floor transactions, collar transactions, currency swap transactions, cross-currency rate swap transactions, currency options, spot contracts, or any other similar transactions or any

 

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combination of any of the foregoing (including any options to enter into any of the foregoing), whether or not any such transaction is governed by or subject to any master agreement, (b) any and all transactions of any kind, and the related confirmations, which are subject to the terms and conditions of, or governed by, any form of master agreement published by the International Swaps and Derivatives Association, Inc., any International Foreign Exchange Master Agreement, or any other master agreement (any such master agreement, together with any related schedules and annexes, a “ Master Agreement ”) and (c) any and all Master Agreements and any and all related confirmations.

 

“ Instrument ” means any “ instrument ”, as such term is defined in Section 9.102(a)(47) of the UCC, including the Collateral Notes.

 

“ Intellectual Property ” means, collectively, the Copyrights, the Copyright Licenses, the Patents, the Patent Licenses, the Trademarks, the Trademark Licenses, the Trade Secrets, and the Trade Secret Licenses.

 

“ Inventory ” means: (a) any “ inventory ”, as such term is defined in Section 9.102(a)(48) of the UCC; (b) all wrapping, packaging, advertising, and shipping materials; (c) all goods that have been returned, repossessed, or stopped in transit; (d) all Documents evidencing any of the foregoing; and (e) all computer programs embedded in any goods and all accessions thereto and products thereof (in each case, regardless of whether characterized as inventory under the UCC).

 

“ Investment Related Property ” means: (a) any “ investment property ”, as such term is defined in Section 9.102(a)(49) of the UCC; and (b) all Pledged Equity Interests (regardless of whether such interest is classified as investment property under the UCC).

 

“ Letter-of-Credit Right ” means any “ letter-of-credit right ”, as such term is defined in Section 9.102(a)(51) of the UCC.

 

“ Maximum Liability ” has the meaning set forth in Section 6.2(a) .

 

“ Money ” means “ money ” as defined in Section 1.201(b)(24) of the UCC.

 

“ Obligations ” means:

 

(a)                                  each Grantor’s present and future obligations, liabilities and indebtedness under the Credit Agreement, each Loan Document, and this Security Agreement;

 

(b)                                 all future advances by Lender or its Affiliates to any Grantor;

 

(c)                                  all costs and expenses, including all attorneys’ fees and legal expenses, incurred by Lender or its Affiliates to preserve and maintain the Collateral, collect the obligations herein described, and enforce this Security Agreement or any rights under the other Loan Documents;

 

(d)                                 all obligations under or in connection with any Hedge Agreements with Lender or its Affiliates;

 

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(e)                                  the obligation to reimburse any amount that Secured Party (in its sole and absolute discretion) elects to pay or advance on behalf of any Grantor following the occurrence of any Event of Default;

 

(f)                                    all other obligations, indebtedness, and liabilities of each Grantor to Lender or its Affiliates, now existing or hereafter arising;

 

(g)                                 all amounts owed under any extension, renewal, or modification of any of the foregoing; and

 

(h)                                  any of the foregoing that arises after the filing of a petition by or against any Grantor under the Bankruptcy Code, even if the obligations due do not accrue because of the automatic stay under Bankruptcy Code § 362 or otherwise.

 

“ Patent Licenses ” means all agreements providing for the granting of any right in or to Patents (whether a Grantor is licensee or licensor thereunder), including each agreement referred to on the Perfection Certificate.

 

“ Patents ” means all United States and foreign patents and certificates of invention, or similar industrial property rights, and applications for any of the foregoing, including: (a) each patent and patent application referred to on the Perfection Certificate; (b) all reissues, divisions, continuations, continuations-in-part, extensions, renewals, and reexaminations thereof; (c) all rights corresponding thereto throughout the world; (d) all inventions and improvements described therein; (e) all rights to sue for past, present and future infringements thereof; (f) all licenses, claims, damages, and Proceeds of suit arising therefrom; and (g) all products and Proceeds of the foregoing, including any income, royalties, and awards and any claim by any Grantor against third parties for past, present, or future infringement of any Patent or any Patent licensed under any Patent License.

 

“ Perfection Certificate ” means the Perfection Certificate in the form of Exhibit “A” attached hereto.

 

“ Permitted Liens ” means Liens permitted under Section  Error! Reference source not found..

 

“ Pledged Equity Interests ” means all Pledged Stock, Pledged LLC Interests, and Pledged Partnership Interests.  Pledged Equity Interests shall specifically exclude any Excluded Property.

 

“ Pledged LLC Interests ” means all interests owned by a Grantor in any limited liability company, including all limited liability company interests listed on the Perfection Certificate and the certificates, if any, representing such limited liability company interests and any interest of such Grantor on the books and records of such limited liability company or on the books and records of any securities intermediary pertaining to such interest and all dividends, distributions, cash, warrants, rights, options, Instruments, securities and other property or Proceeds from time to time received, receivable, or otherwise distributed in respect of or in exchange for any or all of such limited liability company interests.

 

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“ Pledged Partnership Interests ” means all interests owned by a Grantor in any general partnership, limited partnership, limited liability partnership or other partnership, including all partnership interests listed on the Perfection Certificate and the certificates, if any, representing such partnership interests and any interest of such Grantor on the books and records of such partnership or on the books and records of any securities intermediary pertaining to such interest and all dividends, distributions, cash, warrants, rights, options, Instruments, securities and other property or Proceeds from time to time received, receivable, or otherwise distributed in respect of or in exchange for any or all of such partnership interests.

 

“ Pledged Stock ” means all shares of capital stock owned by a Grantor, including all shares of capital stock described on the Perfection Certificate, and the certificates, if any, representing such shares and any interest of such Grantor in the entries on the books of the issuer of such shares or on the books of any securities intermediary pertaining to such shares, and all dividends, distributions, cash, warrants, rights, options, Instruments, securities, and other property or Proceeds from time to time received, receivable, or otherwise distributed in respect of or in exchange for any or all of such shares.

 

“ Proceeds ” means any “ proceeds ,” as such term is defined in Section 9.102(a)(65) of the UCC.

 

“ Receivables ” means the Accounts, Chattel Paper, Documents, Investment Related Property, Instruments, or Commercial Tort Claims, and any other rights or claims to receive Money which are General Intangibles or which are otherwise included as Collateral, together with all of the applicable Grantor’s rights, if any, in all Collateral Support and Supporting Obligations related thereto.

 

“ Requirement of Law ” means, as to any Person, any law (statutory or common), ordinance, treaty, rule, regulation, order, policy, other legal requirement or determination of an arbitrator or of a Governmental Authority, in each case applicable to or binding upon such Person or any of its Property or to which such Person or any of its Property is subject.

 

“ Secured Obligations ” means the Obligations, whether or not (a) such Obligations arise or accrue before or after the filing by or against any Grantor of a petition under the Bankruptcy Code, or any similar filing by or against any Grantor under the laws of any jurisdiction, or any bankruptcy, insolvency, receivership or other similar proceeding, (b) such Obligations are allowable under Section 502(b)(2)  of the Bankruptcy Code or under any other insolvency proceedings, (c) the right of payment in respect of such Obligations is reduced to judgment, or (d) such Obligations are liquidated, unliquidated, similar, dissimilar, related, unrelated, direct, indirect, fixed, contingent, primary, secondary, joint, several, or joint and several, matured, disputed, undisputed, legal, equitable, secured, or unsecured.

 

“ Securities Account ” means any “ securities account ”, as such term is defined in Section 8.501(a)  of the UCC, and all sub-accounts thereof.

 

“ Security ” has the meaning set forth in Section 8.102(a)(15) of the UCC.

 

“ Security Agreement Supplement ” has the meaning set forth in Section 4.21 .

 

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“ Supporting Obligation ” means all “ supporting obligations ” as defined in Section 9.102(a)(78) of the UCC.

 

“ Tangible Chattel Paper ” means any “ tangible chattel paper ”, as such term is defined in Section 9.102(a)(79) of the UCC.

 

“ Trademark Licenses ” means any and all agreements providing for the granting of any right in or to Trademarks (whether a Grantor is licensee or licensor thereunder), including each agreement referred to on Schedule 3.17 .

 

“ Trademarks ” means all United States and foreign trademarks, trade names, corporate names, company names, business names, fictitious business names, Internet domain names, service marks, certification marks, collective marks, logos, other source or business identifiers, designs and general intangibles of a like nature, all registrations and applications for any of the foregoing, including: (a) the registrations and applications referred to on the Perfection Certificate; (b) all extensions or renewals of any of the foregoing; (c) all of the goodwill of the business connected with the use of and symbolized by the foregoing; (d) the right to sue for past, present and future infringement or dilution of any of the foregoing or for any injury to goodwill; and (e) all products and Proceeds of the foregoing, including any income, royalties, and awards and any claim by any Grantor against third parties for past, present, or future infringement of any Trademark or any Trademark licensed under any Trademark License.

 

“ Trade Secret Licenses ” means any and all agreements providing for the granting of any right in or to Trade Secrets (whether a Grantor is licensee or licensor thereunder), including each agreement referred to on the Perfection Certificate.

 

“ Trade Secrets ” means all trade secrets and all other confidential or proprietary information and know-how, whether or not such Trade Secret has been reduced to a writing or other tangible form, including all Documents and things embodying, incorporating, or referring in any way to such Trade Secret, including: (a) the right to sue for past, present and future misappropriation or other violation of any Trade Secret; and (b) all products and Proceeds of the foregoing, including any income, royalties, and awards and any claim by any Grantor against third parties for past, present, or future infringement of any Trade Secrets or any Trade Secrets licensed under any Trade Secret License.

 

“ UCC ” means the Uniform Commercial Code as the same may, from time to time, be in effect in the State of Texas; provided , however , that in any event, by reason of mandatory provisions of law, any or all of the attachment, perfection or priority (or terms of similar import in any applicable jurisdiction) of Secured Party’s security interest in any Collateral is governed by the Uniform Commercial Code (or other similar law) as in effect in a jurisdiction (whether within or outside the United States) other than the State of Texas, the term “UCC” shall mean the Uniform Commercial Code (or other similar law) as in effect in such other jurisdiction for purposes of the provisions hereof relating to such attachment, perfection or priority (or terms of similar import in such jurisdiction) and for purposes of definitions related to such provisions.

 

“ Vehicles ” means all present and future automobiles, trucks, truck tractors, trailers, semi-trailers, or other motor vehicles or rolling stock, now owned or hereafter acquired by a Grantor.

 

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2.                                      GRANT OF SECURITY INTEREST

 

2.1                               Security Interest .  To secure the prompt and complete payment and performance of the Secured Obligations when due, whether at stated maturity, by required prepayment, declaration, acceleration, demand or otherwise (including the payment of amounts that would become due but for the operation of the automatic stay under Section 362(a)  of the Bankruptcy Code or any similar provisions of other applicable laws), each Grantor hereby grants to Secured Party a continuing security interest in, a Lien upon, and a right of set off against, and hereby assigns to Secured Party as security, all personal property of such Grantor, whether now owned or hereafter acquired or existing, and wherever located (together with all other collateral security for the Secured Obligations at any time granted to or held or acquired by Secured Party, collectively, the “ Collateral ”), including:

 

(a)                                  Accounts;

 

(b)                                 Chattel Paper;

 

(c)                                  Commercial Tort Claims;

 

(d)                                 Deposit Accounts, Securities Accounts, and Commodity Accounts;

 

(e)                                  Documents;

 

(f)                                    General Intangibles;

 

(g)                                 Goods;

 

(h)                                  Instruments;

 

(i)                                      Investment Related Property;

 

(j)                                      Letter of Credit Rights;

 

(k)                                  Money;

 

(l)                                      to the extent not otherwise included above, all Collateral Records, Collateral Support, and Supporting Obligations relating to any of the foregoing; and

 

(m)                              to the extent not otherwise included above, all accessions to, substitutions for, and all replacements, products, Proceeds of the foregoing, including Proceeds of and unearned premiums with respect to insurance policies, and claims against any Person for loss, damage, or destruction of any Collateral.

 

If the security interest granted hereby in any rights of any Grantor under any contract included in the Collateral is expressly prohibited by such contract, then the security interest hereby granted therein nonetheless remains effective to the extent allowed by Article 9 of the UCC or other applicable law but is otherwise limited by that prohibition.  Notwithstanding the foregoing, no Lien or security interest is hereby granted on any Excluded Property; provided that (i) if and

 

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when any Property shall cease to be Excluded Property, a Lien on and security in such Property shall be deemed granted therein and (ii) immediately upon the amendment of the Internal Revenue Code to allow the pledge of a greater percentage of the voting power of capital stock in a Controlled Foreign Corporation without adverse tax consequences, the Collateral shall include, and the security interest granted by each Grantor shall attach to, such greater percentage of capital stock of each Controlled Foreign Corporation. Furthermore, notwithstanding any contrary provision, each Grantor agrees that, if, but for the application of this paragraph, granting a security interest in the Collateral would constitute a fraudulent conveyance under 11 U.S.C. § 548 or a fraudulent conveyance or transfer under any state fraudulent conveyance, fraudulent transfer, or similar law in effect from time to time (each a “ fraudulent conveyance ” ), then the security interest remains enforceable to the maximum extent possible without causing such security interest to be a fraudulent conveyance, and this Security Agreement is automatically amended to carry out the intent of this sentence.

 

2.2                               Grantors Remain Liable .  Notwithstanding anything to the contrary contained herein, (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 respective duties and Obligations thereunder to the same extent as if this Security Agreement had not been executed, (b) the exercise by Secured Party of any of its rights hereunder shall not release any Grantor from any of its duties or Obligations under the contracts and agreements included in the Collateral, and (c) Secured Party shall not have any obligation or liability under any of the contracts and agreements included in the Collateral by reason of this Security Agreement, nor shall 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.

 

2.3                               Authorization to File Financing Statements .  Each Grantor hereby irrevocably authorizes Secured Party at any time and from time to time to file in any UCC jurisdiction any initial financing statements and amendments thereto that (a) indicate the Collateral (i) as all assets of such Grantor or words of similar effect, regardless of whether any particular asset comprised in the Collateral falls within the scope of Article 9 of the UCC, or (ii) as being of an equal or lesser scope or with greater detail, and (b) contain any other information required by Subchapter E of Article 9 of the UCC for the sufficiency or filing office acceptance of any financing statement or amendment, including (A) whether such Grantor is an organization, the type of organization and any organization identification number issued to such Grantor and (B) in the case of a financing statement filed as a fixture filing or indicating Collateral as as-extracted collateral or timber to be cut, a sufficient description of real property to which the Collateral relates.  Each Grantor agrees to furnish any such information to Secured Party promptly upon request.

 

3.                                      REPRESENTATIONS AND WARRANTIES .  Each Grantor represents and warrants to Secured Party that:

 

3.1                               Credit Agreement .  Certain representations and warranties in the Loan Documents to which a Grantor is a party are applicable to such Grantor or its assets or operations, and each such representation and warranty is true and correct.

 

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3.2                               Title; Authorization; Enforceability; Perfection .  (a) Each Grantor has good and valid rights in and title to the Collateral with respect to which it has purported to grant a security interest hereunder, free and clear of all Liens except for Permitted Liens, and has full power and authority to grant to Secured Party the security interest in such Collateral; (b) the execution and delivery by each Grantor of this Security Agreement has been duly authorized, and this Security Agreement constitutes a legal, valid and binding obligation of such Grantor and creates a security interest enforceable against such Grantor in all now owned and hereafter acquired Collateral; (c)(i) upon the filing of all UCC financing statements naming each Grantor as “debtor” and Secured Party as “secured party” and describing the Collateral in the filing offices set forth opposite such Grantor’s name on the Perfection Certificate hereof, (ii) upon delivery of all Instruments, Chattel Paper, certificated Pledged Equity Interests, and Collateral Notes, (iii) upon sufficient identification of Commercial Tort Claims, (iv) upon execution of a control agreement establishing Secured Party’s Control with respect to any Deposit Account, Securities Account, or Commodity Account, (v) upon consent of the issuer or any nominated person with respect to Letter of Credit Rights, and (vi) to the extent not subject to Article 9 of the UCC, upon recordation of the security interests granted hereunder in Intellectual Property in the applicable intellectual property registries, including the United States Patent and Trademark Office and the United States Copyright Office, the security interests granted to Secured Party hereunder constitute valid and perfected first priority Liens (subject in the case of priority only to (1)  Permitted Liens, and (2) the rights of the United States government (including any agency or department thereof) with respect to United States government Receivables on all of the Collateral).

 

3.3                               Conflicting Legal Requirements and Contracts .  Neither the execution and delivery by any Grantor of this Security Agreement, the creation and perfection of the security interest in the Collateral granted hereunder, nor compliance with the terms and provisions hereof will (a) violate (i) any legal requirement binding on such Grantor, (ii) such Grantor’s organizational documents, or (iii) the provisions of any indenture, Instrument or agreement to which such Grantor is a party or is subject, or by which it, or its property, is bound; or (b) conflict with or constitute a default under, or result in the creation or imposition of any Lien pursuant to, the terms of any such indenture, Instrument or agreement (other than any Lien of Secured Party).

 

3.4                               Governmental Authority .  No authorization, approval, or other action by, and no notice to or filing with, any Governmental Authority is required either (a) for the pledge by any Grantor of the Collateral pursuant to this Security Agreement or for the execution, delivery, or performance of this Security Agreement by any Grantor, or (b) for the exercise by Secured Party of the voting or other rights provided for in this Security Agreement or the remedies in respect of the Collateral pursuant to this Security Agreement (except as may be required in connection with the disposition of the Pledged Equity Interests by legal requirements affecting the offering and sale of securities generally).

 

3.5                               Grantor Information .  Each Grantor’s exact legal name, jurisdiction of organization, type of entity, state issued organizational identification number and the location of its principal place of business, or chief executive office (or the principal residence if such Grantor is a natural person) and of the books and records relating to the Receivables, are disclosed on the Perfection Certificate; no Grantor has any other places of business except those

 

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set forth on the Perfection Certificate.  Except as noted on the Perfection Certificate hereto, all such books, records, and Collateral are in such Grantor’s possession. No Grantor has done in the last five (5) years, and does, business under any other name (including any trade-name or fictitious business name) except for those names set forth on the Perfection Certificate. Except as provided on the Perfection Certificate, no Grantor has changed its name, jurisdiction of organization, principal place of business, or chief executive office (or principal residence if such Grantor is a natural person) or its corporate structure in any way (e.g., by merger, consolidation, change in corporate form or otherwise) within the past five (5) years.

 

3.6                               Property Locations .  The Inventory, Equipment, and Fixtures are located solely at the locations described on the Perfection Certificate.  All of such locations are owned by a Grantor except for locations (a) which are leased by a Grantor as lessee and designated in the Perfection Certificate, and (b) at which Inventory is held in a public warehouse or is otherwise held by a bailee or on consignment as designated in the Perfection Certificate, with respect to which Inventory such Grantor has delivered bailment agreements, warehouse receipts, financing statements or other Documents satisfactory to Secured Party to protect Secured Party’s security interest in such Inventory.

 

3.7                               Litigation .  There is no litigation, investigation, or governmental proceeding threatened against any Grantor or any of its properties which if adversely determined would result in a Material Adverse Event with respect to the Collateral or such Grantor other than set forth in Schedule 6.5 to the Credit Agreement.

 

3.8                               No Financing Statements or Control Agreements .  Other than the financing statements and control agreements with respect to this Security Agreement, there are no other financing statements or control agreements covering any Collateral, other than those evidencing Permitted Liens.

 

3.9                               Maintenance of Collateral .  All tangible Collateral which is necessary to any Grantor’s business is in good repair and condition, ordinary wear and tear excepted.

 

3.10                        Collateral .  The Perfection Certificate accurately lists all Pledged Equity Interests, Securities Accounts, Commodity Accounts, Deposit Accounts, Collateral Notes, Collateral Note Security, Commercial Tort Claims, Material Agreements, and all letters of credit, in which any Grantor has any right, title, or interest. All information supplied by any Grantor to Secured Party with respect to any of the Collateral (in each case taken as a whole with respect to any particular Collateral) is true, correct, and complete in all material respects.

 

3.11                        Deposit, Commodity, and Securities Accounts .  The Perfection Certificate correctly identifies all Deposit Accounts, Commodity Accounts, and Securities Accounts in which a Grantor has an interest and the institutions holding such accounts.  Each Grantor is the sole account holder of each such account, and such Grantor has not consented to, and is not otherwise aware of, any person (other than Secured Party) having Control over, or any other interest in, any such account or the property credited thereto.

 

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3.12                        Receivables .

 

(a)                                  Each Receivable (i) is and will be the legal, valid and binding obligation of the Account Debtor in respect thereof, representing an unsatisfied obligation of such Account Debtor, (ii) is and will be enforceable in accordance with its terms, (iii) is not and will not be subject to any setoffs, defenses, taxes, counterclaims (except with respect to refunds, returns and allowances in the ordinary course of business with respect to damaged merchandise), and (iv) is and will be in compliance with all applicable laws, whether federal, state, local or foreign.

 

(b)                                 Other than Receivables which in the aggregate do not exceed $1,000,000.00, none of the Account Debtors in respect of any Receivable is the government of the United States, any agency or instrumentality thereof, any state or municipality or any foreign sovereign.  No Receivable requires the consent of the Account Debtor in respect thereof in connection with the pledge hereunder, except any consent which has been obtained.

 

(c)                                  The names of the Account Debtors, amounts owing, due dates and other information with respect to each Account or Chattel Paper are and will be correctly stated in all records of each Grantor relating thereto and in all invoices and reports with respect thereto furnished to Secured Party by each Grantor from time to time.  As of the time when each Account or each item of Chattel Paper arises, the applicable Grantor shall be deemed to have represented and warranted that such Account or Chattel Paper, as the case may be, and all records relating thereto, are genuine and in all respects what they purport to be.

 

3.13                        Letter of Credit Rights .  All letters of credit to which any Grantor has rights is listed on the Perfection Certificate, and such Grantor has obtained the consent of each issuer or the nominated person of any letter of credit to the assignment of the Proceeds of the letter of credit to Secured Party.

 

3.14                        Instruments; Chattel Paper; Collateral Notes; and Collateral Note Security .  Within five (5) Business Days after Secured Party’s request therefor, Grantor will deliver all Instruments and Chattel Paper, including the Collateral Notes to Secured Party, together with corresponding endorsements duly execute by the applicable Grantor in favor of Secured Party, and such endorsements have been duly and validly executed and are binding and enforceable against such Grantor in accordance with their terms.  Each Collateral Note and the Documents evidencing the Collateral Note Security are in full force and effect; there have been no renewals or extensions of, or amendments, modifications, or supplements to, any thereof about which Secured Party has not been advised in writing; and no “default” or “potential default” has occurred and is continuing under any such Collateral Note or Documents evidencing the Collateral Note Security, except as disclosed on the Perfection Certificate.

 

3.15                        [Reserved] .  .

 

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3.16                        Investment Related Property .

 

(a)                                  The Perfection Certificate sets forth all of the Pledged Stock, Pledged LLC Interests, and Pledged Partnership Interests owned by any Grantor and such Pledged Equity Interests constitute the percentage of issued and outstanding shares of stock, percentage of membership interests, percentage of partnership interests or percentage of beneficial interest of the respective issuers thereof indicated on such Schedule.

 

(b)                                 Except as set forth on the Perfection Certificate, no Grantor has acquired any equity interests of another entity or substantially all the assets of another entity within the past five (5) years.

 

(c)                                  Each Grantor is the record and beneficial owner of the Pledged Equity Interests owned by it free of all Liens, rights or claims of other persons other than Permitted Liens, and there are no outstanding warrants, options or other rights to purchase, or shareholder, voting trust or similar agreements outstanding with respect to, or property that is convertible into, or that requires the issuance or sale of, any Pledged Equity Interests.

 

(d)                                 No consent of any person including any other general or limited partner, any other member of a limited liability company, any other shareholder or any other trust beneficiary is necessary or desirable in connection with the creation, perfection or first priority status of the security interest of Secured Party in any Pledged Equity Interests or the exercise by Secured Party of the voting or other rights provided for in this Security Agreement or the exercise of remedies in respect thereof.

 

(e)                                  None of the Pledged LLC Interests or Pledged Partnership Interests are or represent interests in issuers that (i) are registered as investment companies or (ii) are dealt in or traded on securities exchanges or markets.

 

(f)                                    Except as otherwise set forth on the Perfection Certificate, all of the Pledged LLC Interests and Pledged Partnership Interests are or represent interests in issuers that have not opted to be treated as securities under the UCC of any jurisdiction.

 

(g)                                 (i) Within five (5) Business Days of the request therefor Grantor will deliver to Secured Party all stock certificates, or other Instruments or Documents representing or evidencing the Pledged Equity Interests, together with corresponding assignment or transfer powers duly executed in blank by such Grantor, and such powers have been duly and validly executed and are binding and enforceable against such Grantor in accordance with their terms and (ii) to the extent such Pledged Equity Interests are uncertificated, each Grantor will take all actions necessary or desirable to establish Secured Party’s Control over such Pledged Equity Interests.

 

3.17                        Intellectual Property .

 

(a)                                  All of the Intellectual Property is subsisting, valid, and enforceable. The information contained on the Perfection Certificate is true, correct, and complete.  All

 

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issued Patents, Patent Licenses, Trademarks, Trademark Licenses, Copyrights, Copyright Licenses, Trade Secret, and Trade Secret Licenses of each Grantor are identified on the Perfection Certificate.

 

(b)                                 Each Grantor is the sole and exclusive owner of the entire and unencumbered right, title, and interest in and to the Intellectual Property purported to be owned by such Grantor free and clear of any Liens, including any pledges, assignments, licenses, user agreements, and covenants by such Grantor not to sue third persons, other than Permitted Liens.

 

(c)                                  To the best of each Grantor’s knowledge, no third party is infringing in any material respect, or in such Grantor’s reasonable business judgment, may be infringing in any material respect, any of such Grantor’s rights under the Intellectual Property.

 

(d)                                 Each Grantor has performed and will continue to perform all acts reasonably necessary and has paid and will continue to pay all required fees and taxes to maintain each and every item of the Intellectual Property in full force and effect throughout the world, as applicable.

 

(e)                                  Each of the Patents and Trademarks identified on the Perfection Certificate has been properly registered with the United States Patent and Trademark Office and in corresponding offices throughout the world (where appropriate) and each of the Copyrights identified on the Perfection Certificate has been properly registered with the United States Copyright Office and in corresponding offices throughout the world (where appropriate).

 

(f)                                    To the best of each Grantor’s knowledge, no claims with respect to the Intellectual Property have been asserted and are pending (i) to the effect that the sale, licensing, pledge, or use of any of the products of such Grantor’s business infringes any other party’s valid copyright, trademark, service mark, trade secret, or other intellectual property right, (ii) against the use by such Grantor of any Intellectual Property used in such Grantor’s business as currently conducted, or (iii) challenging the ownership or use by such Grantor of any of the Intellectual Property that such Grantor purports to own or use, nor, to such Grantor’s knowledge, is there a valid basis for such a claim described in this the Perfection Certificate.

 

3.18                        Excluded Property.  Each Grantor hereby represents and warrants that the Excluded Property, when taken as a whole, is not material to the business operations or financial condition of Borrower and its Subsidiaries, taken as a whole.

 

The foregoing representations and warranties will be true and correct in all respects with respect to any additional Collateral or additional specific descriptions of certain Collateral delivered to Secured Party in the future by any Grantor.  The failure of any of these representations or warranties or any description of Collateral therein to be accurate or complete shall not impair the security interest in any such Collateral.

 

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4.                                      COVENANTS .  From the date of this Security Agreement, and thereafter until this Security Agreement is terminated:

 

4.1                               Loan Documents .  Each Grantor shall (a) comply with, perform, and be bound by all covenants and agreements in the Loan Documents that are applicable to it, its assets, or its operations, each of which is hereby ratified and confirmed (INCLUDING THE INDEMNIFICATION AND RELATED PROVISIONS IN SECTION 11.2 OF THE CREDIT AGREEMENT) ; AND (b) CONSENT TO AND APPROVE THE VENUE AND SERVICE OF PROCESS IN SECTION 11.12 OF THE CREDIT AGREEMENT, AND WAIVER OF JURY TRIAL PROVISIONS OF SECTION 11.19 OF THE CREDIT AGREEMENT.

 

4.2                               General .

 

(a)                                  Inspection .  Each Grantor will permit Secured Party, by its representatives and agents (a) to inspect the Collateral, (b) to examine and make copies of the records of such Grantor relating to the Collateral, and (c) to discuss the Collateral and the related records of such Grantor with, and to be advised as to the same by, such Grantor’s officers, employees, and accountants (and, in the case of any Receivable, with any Account Debtor), all at such reasonable times and intervals as Secured Party may determine, and all at such Grantor’s expense.

 

(b)                                 Records and Reports; Notification of Default or Event of Default .  Each Grantor will maintain true, complete, and accurate books and records with respect to the Collateral, and furnish to Secured Party such reports relating to the Collateral at such intervals as Secured Party shall from time to time request.  Each Grantor will give prompt notice in writing to Secured Party of the occurrence of any Default or Event of Default and of any other development, financial or otherwise, which might materially and adversely affect the Collateral.  Each Grantor shall mark its books and records to reflect the security interest of Secured Party under this Security Agreement.

 

(c)                                  Schedules .  Each Grantor shall reasonably promptly update the Perfection Certificate if any information therein shall become inaccurate or incomplete in any material respect.  The failure of property descriptions to be accurate or complete on the Perfection Certificate shall not impair Secured Party’s security interest in such property.

 

(d)                                 Financing Statements and Other Actions; Defense of Title .  Each Grantor will deliver to Secured Party all financing statements and execute and deliver control agreements and other Documents and take such other actions as may from time to time be requested by Secured Party in order to maintain a first priority perfected security interest in and, in the case of Investment Related Property, Deposit Accounts, Letter-of-Credit-Rights, and Electronic Chattel Paper, Control of, the Collateral.  Each Grantor will take any and all actions necessary to defend title to the Collateral against all persons and to defend the security interest of Secured Party in the Collateral and the priority thereof against any Lien not expressly permitted hereunder.

 

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(e)                                  Disposition of Collateral .  No Grantor will sell, lease, license or otherwise dispose of the Collateral except (i) prior to the occurrence of an Event of Default, dispositions specifically permitted pursuant to the Credit Agreement, (ii) until such time following the occurrence of an Event of Default, as such Grantor receives a notice from Secured Party instructing such Grantor to cease such transactions, sales or leases of Inventory in the ordinary course of business, and (iii) until such time as such Grantor receives a notice from Secured Party pursuant to Section 5.4 , Proceeds of Inventory and Accounts collected in the ordinary course of business.

 

(f)                                    Change in Location, Jurisdiction of Organization or Name .  No Grantor will (i) change its name or taxpayer identification number, or (ii) change its jurisdiction of organization, unless such Grantor shall have given Secured Party not less than thirty (30) days’ prior written notice thereof, and Secured Party shall have determined that such change will not adversely affect the validity, perfection or priority of Secured Party’s security interest in the Collateral. Prior to making any of the foregoing changes, each Grantor shall execute and deliver all such additional Documents and perform all additional acts as Secured Party, in its sole discretion, may request in order to continue or maintain the existence and priority of its security interest in all of the Collateral.

 

(g)                                 Taxes .  Each Grantor will pay when due all taxes, assessments and governmental charges and levies upon the Collateral, except those which are being contested in good faith by appropriate proceedings and with respect to which no Lien exists and as to which appropriate reserves are being maintained.

 

(h)                                  Compliance with Agreements .  Each Grantor shall comply in all material respects with all mortgages, deeds of trust, Instruments, and other agreements binding on it or affecting its properties or business.

 

(i)                                      Compliance with Legal Requirements .  Each Grantor shall comply with all applicable laws, rules, regulations, and orders of any court or Governmental Authority.

 

4.3                               Receivables .

 

(a)                                  Delivery of Invoices . Each Grantor will deliver to Secured Party immediately upon its request after the occurrence of an Event of Default duplicate invoices with respect to each Account bearing such language of assignment as Secured Party shall specify.

 

4.4                               Inventory and Equipment .

 

(a)                                  Maintenance of Goods .  Each Grantor will do all things necessary to maintain, preserve, protect and keep the Inventory and the Equipment in good repair and working and saleable condition.

 

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(b)                                 Insurance .  Each Grantor will (i) maintain fire and extended coverage insurance on the Inventory and Equipment containing a lender’s loss payable clause in favor of Secured Party, and providing that said insurance will not be terminated except after at least thirty (30) days’ written notice from the insurance company to Secured Party, (ii) maintain such other insurance on the Collateral for the benefit of Secured Party as Secured Party shall from time to time request, (iii) furnish to Secured Party upon the request of Secured Party from time to time the originals of all policies of insurance on the Collateral and certificates with respect to such insurance, and (d) maintain general liability insurance naming Secured Party as an additional insured.

 

(c)                                  Inventory Warranties .  Each Grantor warrants and represents that (i) Secured Party may rely, without independent investigation, on all statements or representations made by it on or with respect to any Borrowing Base Report, and (ii) unless otherwise indicated in writing by Grantors (in which case any such affected Inventory shall not be considered Eligible Inventory), each of the criteria set forth in the definition of “Eligible Inventory” has been met with respect to all Inventory included as Eligible Inventory on any Borrowing Base Report.

 

(d)                                 Safekeeping of Inventory; Inventory Covenants .  Secured Party shall not be responsible for (i) the safekeeping of the Inventory, (ii) any loss or damage thereto or destruction thereof occurring or arising in any manner or fashion from any cause, (iii) any diminution in the value of Inventory, or (iv) any act or default of any carrier, warehouseman, bailee or forwarding agency or any other person in any way dealing with or handling the Inventory, except to the extent that any Grantor incurs any loss, cost, claim or damage from any of the foregoing as a result of the gross negligence or willful misconduct of Secured Party as determined by a court of competent jurisdiction in final and nonappealable judgment.  All risk of loss, damage, distribution or diminution in value of the Inventory shall, except as noted in the previous sentence, be borne by Grantors.

 

(e)                                  Records and Schedules of Inventory .  Each Grantor shall keep correct and accurate daily records on a first-in, first-out basis, itemizing and describing the kind, type, quality and quantity of Inventory, such Grantor’s cost therefor and selling price thereof, and the daily withdrawals therefrom and additions thereto and Inventory then on consignment, and shall, at the request of Secured Party, furnish to Secured Party daily copies of the working papers related thereto and, at the times required under the Credit Agreement, a current Borrowing Base Report, based on the FIFO cost assumption.  A physical count of the Inventory shall be conducted no less often than annually and a report based on such count of Inventory shall promptly thereafter be provided to Secured Party together with such supporting information including invoices relating to such Grantor’s purchase of goods listed in said report, as Secured Party shall, in its sole and absolute discretion, request.

 

(f)                                    Certificates of Title .  With respect to any item of Equipment which is covered by a certificate of title and indication of a security interest on such certificate is required as a condition of perfection, upon the request of Secured Party, the applicable Grantor shall cause Secured Party’s security interest to be properly indicated thereon.

 

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(g)                                 Landlord Waivers .  Within thirty (30) days of Secured Party’s request therefor, Grantor shall obtain a landlord waiver reasonably acceptable to Secured Party for each property leased by Borrower.

 

4.5                               Investment Related Property .

 

(a)                                  No Modification of Rights and Obligation . Without the prior written consent of Secured Party, no Grantor shall vote to enable or take any other action to: (i) amend or terminate any partnership agreement, limited liability company agreement, certificate of incorporation, by-laws or other organizational documents in any way that materially changes the rights of such Grantor with respect to any Investment Related Property or adversely affects the validity, perfection or priority of Secured Party’s security interest; (ii) permit any issuer of any Pledged Equity Interest to issue any additional stock, partnership interests, limited liability company interests or other equity interests of any nature or to issue securities convertible into or granting the right of purchase or exchange for any stock or other equity interest of any nature of such issuer; (iii) other than as permitted under the Credit Agreement, permit any issuer of any Pledged Equity Interest to dispose of all or a material portion of its assets; (iv) waive any default under or breach of any terms of organizational document relating to the issuer of any Pledged Equity Interest; or (v) cause any issuer of any Pledged Partnership Interests or Pledged LLC Interests which are not securities (for purposes of the UCC) on the date hereof to elect or otherwise take any action to cause such Pledged Partnership Interests or Pledged LLC Interests to be treated as securities for purposes of the UCC; provided , however , notwithstanding the foregoing, if any issuer of any Pledged Partnership Interests or Pledged LLC Interests takes any such action in violation of the foregoing in this clause (v) , such Grantor shall promptly notify Secured Party in writing of any such election or action and, in such event, shall take all steps necessary or advisable to establish Secured Party’s Control thereof.

 

(b)                                 Performance of Underlying Obligations . Each Grantor shall comply with all of its Obligations under any partnership agreement or limited liability company agreement relating to Pledged Partnership Interests or Pledged LLC Interests and shall enforce all of its rights with respect to any Investment Related Property.

 

(c)                                  Changes in Capital Structure of Issuers . No Grantor shall permit any issuer of any Pledged Equity Interest to merge or consolidate unless (i) such issuer creates a security interest that is perfected by a filed financing statement (that is not effective solely under Section 9-508 of the UCC) in collateral in which such new debtor has or acquires rights, and (ii) all the outstanding capital stock or other equity interests of the surviving or resulting corporation, limited liability company, partnership or other entity is, upon such merger or consolidation, pledged hereunder; provided that if the surviving or resulting issuer upon any such merger or consolidation involving an issuer which is a Controlled Foreign Corporation, then such Grantor shall only be required to pledge equity interests in accordance with Section 2.1 .

 

(d)                                 Consent of Grantor . Each Grantor consents to the grant by each other Grantor of a security interest in all Investment Related Property to Secured Party and,

 

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without limiting the foregoing, consents to the transfer of any Pledged Partnership Interest and any Pledged LLC Interest to Secured Party or its nominee following an Event of Default and to the substitution of Secured Party or its nominee as a partner in any partnership or as a member in any limited liability company with all the rights and powers related thereto.

 

(e)                                  Voting of Securities .  Prior to the occurrence of an Event of Default, each Grantor is entitled to exercise all voting rights pertaining to any Pledged Equity Interests; provided , however , that no vote shall be cast or consent, waiver, or ratification given or action taken without the prior written consent of Secured Party which would (i) be inconsistent with or violate any provision of this Security Agreement or any other Loan Document or (ii) amend, modify, or waive any term, provision or condition of the certificate of incorporation, bylaws, certificate of formation, or other charter document, or other agreement relating to, evidencing, providing for the issuance of, or securing any Collateral; and provided further that such Grantor shall give Secured Party at least five (5) Business Days’ prior written notice in the form of an officers’ certificate of the manner in which it intends to exercise, or the reasons for refraining from exercising, any voting or other consensual rights pertaining to the Collateral or any part thereof which might have a material adverse effect on the value of the Collateral or any part thereof.  On and after the occurrence of an Event of Default and if Secured Party elects to exercise such right, the right to vote any Pledged Equity Interests shall be vested exclusively in Secured Party.  To this end, each Grantor hereby irrevocably constitutes and appoints Secured Party the proxy and attorney-in-fact of such Grantor, with full power of substitution, to vote, and to act with respect to, any and all Collateral that is Pledged Equity Interests standing in the name of such Grantor or with respect to which such Grantor is entitled to vote and act, subject to the understanding that such proxy may not be exercised unless an Event of Default has occurred.  The proxy herein granted is coupled with an interest, is irrevocable, and shall continue until the termination of this Security Agreement pursuant to Section 6.16 .

 

4.6                               Accounts .

 

(a)                                  Account Warranties .  Each Grantor warrants and represents that (i) Secured Party may, in determining which Accounts listed on any Borrowing Base Report are Eligible Accounts, rely without independent investigation on all statements or representations made by Borrower or such Grantor on or with respect to any such Borrowing Base Report, and (ii) unless otherwise indicated in writing by Grantors (in which case such Account shall not be considered an Eligible Account), each of the criteria set forth in the definition of “Eligible Account” has been met with respect to each Account included as an Eligible Account on any Borrowing Base Report.

 

(b)                                 Verification of Accounts .  Secured Party shall have the right, at any time or times hereafter, in its name or in the name of a nominee of Secured Party, to verify the validity, amount or any other matter relating to any Accounts, by mail, telephone, telegraph or otherwise.

 

(c)                                  [Reserved]

 

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(d)                                 Notice to Account Debtor .  Secured Party may, in its sole discretion, at any time or times after an Event of Default has occurred, and without prior notice to any Grantor, notify any or all Account Debtors that the Accounts have been assigned to Secured Party and that Secured Party has a security interest therein.  Secured Party may direct any or all Account Debtors to make all payments upon the Accounts directly to Secured Party.  Secured Party shall furnish Grantors with a copy of such notice.

 

4.7                               Intellectual Property .

 

(a)                                  Prosecution of Applications . Each Grantor shall prosecute in accordance with good business judgement consistent with past practices all applications in respect of Intellectual Property, now or hereafter pending.

 

(b)                                 [Reserved] .

 

(c)                                  Maintenance of Rights . To the extent such Intellectual Property is material to its current or planned business, each Grantor shall preserve and maintain all of its material rights in the Intellectual Property and protect its Intellectual Property from infringement, unfair competition, cancellation, or dilution by all appropriate action necessary in such Grantor’s reasonable business judgment, including the commencement and prosecution of legal proceedings to recover damages for infringement and to defend and preserve its rights in the Intellectual Property.

 

(d)                                 No Abandonment .  No Grantor may abandon any of the Intellectual Property necessary to the conduct of its business other than in the exercise of such Grantor’s reasonable business judgment.

 

(e)                                  Licenses .  No Grantor shall sell or assign any of its interest in any of the Intellectual Property other than in the ordinary course of business for full and fair consideration without the prior written consent of Secured Party.

 

(f)                                    No Conflicting Agreements . No Grantor shall enter into any agreement, including any licensing agreement, that is or may be inconsistent with such Grantor’s Obligations under this Security Agreement or any of the other Loan Documents.

 

(g)                                 Additional Intellectual Property .  Each Grantor shall give Secured Party prompt written notice if such Grantor shall obtain rights to or become entitled to the benefit of any Intellectual Property not identified on Schedule 3.17 which is material to its business.  Each Grantor shall execute and deliver any and all Patent Security Agreements, Copyright Security Agreements, or Trademark Security Agreements, each in form and substance satisfactory to Secured Party, as Secured Party may request to evidence Secured Party’s Lien on such Intellectual Property.

 

(h)                                  Obligation upon Default .  On and after the occurrence of an Event of Default, each Grantor shall use its reasonable efforts to obtain any consents, waivers, or agreements necessary to enable Secured Party to exercise its rights and remedies with respect to the Intellectual Property.

 

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4.8                               Collateral Notes and Collateral Note Security .  Without the prior written consent of Secured Party, no Grantor may (a) modify or substitute, or permit the modification, or substitution of, any Collateral Note or any Document evidencing the Collateral Note Security or (b) release any Collateral Note Security unless specifically required by the terms thereof.

 

4.9                               Instruments; Chattel Paper; and Documents .  Each Grantor will (a) deliver to Secured Party immediately upon execution of this Security Agreement the originals of all Chattel Paper and Instruments (if any then exists), (b) hold in trust for Secured Party upon receipt and immediately thereafter deliver to Secured Party any Chattel Paper and Instruments constituting Collateral, (c) mark conspicuously all Chattel Paper and Instruments (other than any delivered to Secured Party) with an appropriate reference to the security interest of Secured Party, and (d) upon Secured Party’s request, deliver to Secured Party (and thereafter hold in trust for Secured Party upon receipt and immediately deliver to Secured Party) any Document evidencing or constituting Collateral.

 

4.10                        Deposit, Commodity, and Securities Accounts .  With respect to any Deposit Account, Commodity Account, or Securities Account, each Grantor shall (a) maintain such accounts at the institutions described on the Perfection Certificate or such additional institutions as have complied with clause (b)  hereof; (b) within thirty (30) days of Secured Party’s request therefor, deliver to each depository bank and security intermediary a letter in form and substance satisfactory to Secured Party with respect to Secured Party’s rights in such account and use its best efforts to obtain the execution of such letter by each institution stating that the pledge of such account has been recorded in the books and records of such institution and that Secured Party shall have exclusive Control over such account; (c) deliver to Secured Party all certificates or Instruments, if any, now or hereafter representing or evidencing such accounts, accompanied by duly executed instruments of transfer or assignment in blank, all in form and substance reasonably satisfactory to Secured Party. Without Secured Party’s consent, no Grantor shall establish any additional accounts, unless such accounts are subject to Secured Party’s exclusive Control.

 

4.11                        Commercial Tort Claims .  If any Grantor at any time holds or acquires a Commercial Tort Claim, such Grantor shall (a) immediately forward to Secured Party written notification of any and all Commercial Tort Claims, including any and all actions, suits and proceedings before any court or Governmental Authority by or affecting such Grantor; and (b) execute and deliver such statements, Documents and notices and do and cause to be done all such things as may be required by Secured Party, or required by law, including all things which may from time to time be necessary under the UCC to fully create, preserve, perfect and protect the priority of Secured Party’s security interest in any Commercial Tort Claims.

 

4.12                        Letters-of-Credit Rights .  If any Grantor is at any time a beneficiary under a letter of credit now or hereafter issued in favor of any Grantor, such Grantor shall promptly notify Secured Party thereof in writing and, at Secured Party’s request, such Grantor shall, pursuant to an agreement in form and substance satisfactory to Secured Party, either (a) arrange for the issuer or any confirmer of such letter of credit to consent to an assignment to Secured Party of the Proceeds of any drawing under the letter of credit or (b) arrange for Secured Party to become the transferee beneficiary of the letter of credit, with Secured Party agreeing, in each

 

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case, that the Proceeds of any drawing under the letter of credit are to be applied to the Secured Obligations as provided in the Credit Agreement.

 

4.13                        Fixtures .  For any Collateral that is a Fixture or an accession which has been attached to real estate or other goods prior to the perfection of the security interest of Secured Party, the applicable Grantor shall furnish Secured Party, upon reasonable demand, a disclaimer of interest in each such Fixture or accession and a consent in writing to the security interest of Secured Party therein, signed by all persons having any interest in such Fixture or accession by virtue of any interest in the real estate or other goods to which such Fixture or accession has been attached.

 

4.14                        Federal, State or Municipal Claims .  Each Grantor will notify Secured Party of any Collateral which constitutes a claim against a Governmental Authority, or any instrumentality or agency thereof, the assignment of which claim is restricted by federal, state or municipal law.

 

4.15                        Warehouse Receipts Non-Negotiable .  Each Grantor agrees that if any warehouse receipt or receipt in the nature of a warehouse receipt is issued with respect to any of its inventory, such warehouse receipt or receipt in the nature thereof shall not be “negotiable” (as such term is used in Section 7-104 of the UCC).

 

4.16                        [Reserved] .

 

4.17                        Lockboxes .  Upon request of Secured Party, each Grantor shall execute and deliver to Secured Party irrevocable lockbox agreements in the form provided by or otherwise acceptable to Secured Party, which agreements shall be accompanied by an acknowledgment by the bank where the lockbox is located of the Lien of Secured Party granted hereunder and of irrevocable instructions to wire all amounts collected therein to a special collateral account at Secured Party.

 

4.18                        Use and Operation of Collateral .  Should any Collateral come into the possession of Secured Party, Secured Party may use or operate such Collateral for the purpose of preserving it or its value, pursuant to the order of a court of appropriate jurisdiction or in accordance with any other rights held by Secured Party in respect of such Collateral.  Each Grantor covenants to promptly reimburse and pay to Secured Party, at Secured Party’s request, the amount of all expenses (including the cost of any insurance and payment of taxes or other charges) incurred by Secured Party in connection with its custody and preservation of the Collateral, and all such expenses, costs, taxes, and other charges shall bear interest at the Default Rate until repaid and, together with such interest, shall be payable by Grantors to Secured Party upon demand and shall become part of the Secured Obligations. However, the risk of accidental loss or damage to, or diminution in value of, the Collateral is on Grantors, and Secured Party shall have no liability whatever for failure to obtain or maintain insurance, nor to determine whether any insurance ever in force is adequate as to amount or as to the risks insured. With respect to the Collateral that is in the possession of Secured Party, Secured Party shall have no duty to fix or preserve rights against prior parties to such Collateral and shall never be liable for any failure to use diligence to collect any amount payable in respect of such Collateral, but shall

 

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be liable only to account to Grantors for what it may actually collect or receive thereon. The provisions of this subparagraph are applicable whether or not an Event of Default has occurred.

 

4.19                        Certain Proceeds .  Notwithstanding any contrary provision herein, any and all Proceeds of any Collateral consisting of cash, checks and other non-cash items shall be part of the Collateral hereunder, and shall, if received by any Grantor, be held in trust for the benefit of Secured Party, and shall forthwith be delivered to Secured Party (accompanied by proper instruments of assignment and/or stock and/or bond powers executed by such Grantor in accordance with Secured Party’s instructions) to be held subject to the terms of this Security Agreement.  Any cash Proceeds of the Collateral which come into the possession of Secured Party on and after the occurrence of an Event of Default (including insurance Proceeds) may, at Secured Party’s option, be applied in whole or in part to the Secured Obligations (to the extent then due), be released in whole or in part to or on the written instructions of such Grantor for any general or specific purpose, or be retained in whole or in part by Secured Party as additional Collateral.  The provisions of this subparagraph are applicable whether or not an Event of Default has occurred.

 

4.20                        Further Assurances.   At any time and from time to time, upon the request of Secured Party, and at the sole expense of Grantors, each Grantor shall promptly execute and deliver all such further Instruments and Documents and take such further actions as Secured Party may deem necessary or desirable (a) to assure Secured Party that its security interests hereunder are perfected with a first priority Lien, (b) to carry out the provisions and purposes of this Security Agreement, including (i) the filing of such financing statements as Secured Party may require, (ii) executing control agreements with respect to the Collateral, in each case naming Secured Party, as secured party, in form and substance satisfactory to Secured Party, (iii) furnishing to Secured Party from time to time statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as Secured Party may reasonably request, all in reasonable detail, (iv) the deposit of all certificates of title issuable with respect to any of the Collateral and noting thereon the security interest hereunder, (v) taking all actions required by law in any relevant UCC, or by other law as applicable in any foreign jurisdiction, and (vi) to ensure that a Lien and security interest is granted on any of the Excluded Property set forth in clause (b)  of the definition of “ Excluded Property ”, such Grantor shall use its best efforts to obtain any required consents from any Person other than Borrower and its Affiliates with respect to any permit or license or any Contractual Obligation with such Person entered into by such Grantor that requires such consent as a condition to the creation by such Grantor of a Lien on any right, title or interest in such permit, license or Contractual Obligation related thereto.  A carbon, photographic, or other reproduction of this Security Agreement or of any financing statement covering the Collateral or any part thereof shall be sufficient as a financing statement and may be filed as a financing statement.

 

4.21                        Additional Grantors . Upon the execution and delivery by any person of a security agreement supplement in form and substance satisfactory to Secured Party (each a “ Security Agreement Supplement ”), such person shall be and become a Grantor hereunder and each reference in this Security Agreement and the other Loan Documents to “Grantor” shall also mean and be a reference to such person.  Upon the written request of Secured Party or if Grantor so chooses, Grantor shall cause its domestic Subsidiaries to execute and deliver a Security Agreement Supplement.

 

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5.                                      REMEDIES UPON EVENT OF DEFAULT

 

5.1                               Remedies .  On and after the occurrence of an Event of Default under the Credit Agreement or any other Loan Document, Secured Party may exercise any or all of the following rights and remedies:

 

(a)                                  Contractual Remedies . Those rights and remedies provided in this Security Agreement, the Credit Agreement, or any other Loan Document, provided that this Section 5.1(a)  shall not limit any rights or remedies available to Secured Party prior to the occurrence of an Event of Default.

 

(b)                                 Legal Remedies .  Those rights and remedies available to a secured party under the UCC (whether or not the UCC applies to the affected Collateral) or under any other applicable law (including any law governing the exercise of a bank’s right of setoff or bankers’ lien) when a debtor is in default under a security agreement.

 

(c)                                  Disposition of Collateral .  Without notice except as specifically provided in Section 5.2(c)  or elsewhere herein, sell, lease, assign, grant an option or options to purchase or otherwise dispose of the Collateral or any part thereof in one or more parcels at public or private sale, for cash, on credit or for future delivery, and upon such other terms as Secured Party may deem commercially reasonable. Neither Secured Party’s compliance with any applicable state or federal law in the conduct of such sale, nor its disclaimer of any warranties relating to the Collateral, shall be considered to affect the commercial reasonableness of such sale. Each Grantor hereby waives (to the extent permitted by applicable law) all rights of redemption, stay and/or appraisal which it now has or may at any time in the future have under any rule of law or statute now existing or hereafter enacted.

 

(d)                                 Distributions . On and after the occurrence of an Event of Default, all payments and distributions made to any Grantor upon or with respect to the Collateral shall be paid or delivered to Secured Party, and each Grantor agrees to take all such action as Secured Party may deem necessary or appropriate to cause all such payments and distributions to be made to Secured Party.  Further, Secured Party shall have the right, at any time after the occurrence of any Event of Default, to notify and direct any issuer to thereafter make all payments, dividends, and any other distributions payable in respect thereof directly to Secured Party.  Such issuer shall be fully protected in relying on the written statement of Secured Party that it then holds a security interest which entitles it to receive such payments and distributions.  Any and all Money and other property paid over to or received by Secured Party hereunder shall be retained by Secured Party as additional collateral hereunder and may be applied in accordance with Section 5.10 hereof.

 

(e)                                  Use of Premises .  Secured Party shall be entitled to occupy and use any premises owned or leased by any Grantor where any of the Collateral or any records relating to the Collateral are located until the Secured Obligations are paid or the Collateral is removed therefrom, whichever first occurs, without any obligation to pay such Grantor for such use and occupancy.

 

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5.2                               Grantors’ Obligations Upon Event of Default .  Upon the request of Secured Party on and after the occurrence of an Event of Default, each Grantor will:

 

(a)                                  Assembly of Collateral .  Assemble and make available to Secured Party the Collateral and all records relating thereto at any place or places specified by Secured Party.

 

(b)                                 Secured Party Access .  Permit Secured Party, by Secured Party’s representatives and agents, to enter any premises where all or any part of the Collateral, or the books and records relating thereto, or both, are located, to take possession of all or any part of the Collateral and to remove all or any part of the Collateral.

 

(c)                                  Notice of Disposition of Collateral .  Each Grantor hereby waives notice of the time and place of any public sale or the time after which any private sale or other disposition of all or any part of the Collateral may be made.  To the extent such notice may not be waived under applicable law, any notice made shall be deemed reasonable if sent to any Grantor, addressed as set forth in Section 6.13 , at least ten (10) days prior to (i) the date of any such public sale or (ii) the time after which any such private sale or other disposition may be made. Secured Party shall not be obligated to make any sale or other disposition of the Collateral regardless of notice having been given.  Subject to the provisions of applicable law, Secured Party may postpone or cause the postponement of the sale of all or any portion of the Collateral by announcement at the time and place of such sale, and such sale may, without further notice, to the extent permitted by law, be made at the time and place to which the sale was postponed, or Secured Party may further postpone such sale by announcement made at such time and place.

 

5.3                               Condition of Collateral; Warranties .  Secured Party has no obligation to clean-up or otherwise prepare the Collateral for sale.  Secured Party may sell the Collateral without giving any warranties as to the Collateral.  Secured Party may specifically disclaim any warranties of title or the like.  This procedure will not be considered adversely to affect the commercial reasonableness of any sale of the Collateral.

 

5.4                               Collection of Receivables .  On and after the occurrence of an Event of Default, Secured Party may at any time in its sole discretion, by giving Grantors written notice, elect to require that the Receivables be paid directly to Secured Party.  In such event, each Grantor shall, and shall permit Secured Party to, promptly notify the Account Debtors under the Receivables of Secured Party’s interest therein and direct such Account Debtors to make payment of all amounts then or thereafter due under the Receivables directly to Secured Party.  Upon receipt of any such notice from Secured Party, each Grantor shall thereafter hold in trust for Secured Party, all amounts and Proceeds received by it with respect to the Receivables and immediately and at all times thereafter deliver to Secured Party all such amounts and Proceeds in the same form as so received, whether by cash, check, draft or otherwise, with any necessary endorsements.  Secured Party shall hold and apply funds so received as provided by the terms of Section 5.10 .  If after the occurrence of an Event of Default, any Account Debtor fails or refuses to make payment on any Collateral when due, Secured Party is authorized, in its sole discretion, either in its own name or in the name of Grantors, to take such action as Secured Party shall deem appropriate for the collection of any amounts owed with respect to Collateral or upon which a delinquency

 

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exists.  Each Grantor agrees that Secured Party may at any time and from time to time, if an Event of Default has occurred, compromise with the obligor on any Receivable, accept in full payment of any Receivable such amount as Secured Party in its sole discretion shall determine or abandon any Receivable, and any such action by Secured Party shall be commercially reasonable so long as Secured Party acts in good faith based on information known to it at the time it takes any such action. Regardless of any other provision hereof, however, Secured Party shall never be liable for its failure to collect, or for its failure to exercise diligence in the collection of, any amounts owed with respect to Collateral, nor shall it be under any duty whatsoever to anyone except Grantors to account for funds that it shall actually receive hereunder.

 

5.5                               Cash Collateral Account .  On and after the occurrence of an Event of Default, Secured Party shall have, and each Grantor hereby grants to Secured Party, the right and authority to transfer all funds on deposit in the Deposit Accounts to a “ Cash Collateral Account ” (herein so called) maintained with a depository institution acceptable to Secured Party and subject to the exclusive direction, domain, and Control of Secured Party, and no disbursements or withdrawals shall be permitted to be made by any Grantor from such Cash Collateral Account.  Such Cash Collateral Account shall be subject to the security interest in favor of Secured Party herein created, and each Grantor hereby grants a security interest to Secured Party in and to, such Cash Collateral Account and all checks, drafts, and other items ever received by any Grantor for deposit therein.  Furthermore, if an Event of Default has occurred, Secured Party shall have the right, at any time in its discretion without notice to any Grantor, (a) to transfer to or to register in the name of Secured Party or nominee any certificates of deposit or deposit instruments constituting Deposit Accounts and shall have the right to exchange such certificates or Instruments representing Deposit Accounts for certificates or Instruments of smaller or larger denominations and (b) to take and apply against the Obligations any and all funds then or thereafter on deposit in the Cash Collateral Account or otherwise constituting Deposit Accounts.

 

5.6                               Intellectual Property .  For purposes of enabling Secured Party to exercise its rights and remedies under this Security Agreement and enabling Secured Party and its successors and assigns to enjoy the full benefits of the Collateral, each Grantor hereby grants to Secured Party an irrevocable, nonexclusive license (exercisable without payment of royalty or other compensation to any Grantor) to use, license, or sublicense any of the Intellectual Property.  Each Grantor shall provide Secured Party with reasonable access to all media in which any of the Intellectual Property may be recorded or stored and all computer programs used for the completion or printout thereof.  This license shall also inure to the benefit of all successors, assigns, and transferees of Secured Party.  On and after the occurrence of an Event of Default, Secured Party may require that Grantors assign all of their right, title, and interest in and to the Intellectual Property or any part thereof to Secured Party or such other person as Secured Party may designate pursuant to Documents satisfactory to Secured Party.  If no Event of Default has occurred, Grantors shall have the exclusive, non-transferable right and license to use the Intellectual Property in the ordinary course of business and the exclusive right to grant to other persons licenses and sublicenses with respect to the Intellectual Property for full and fair consideration.

 

5.7                               Record Ownership of Securities . On and after the occurrence of an Event of Default, Secured Party at any time may have any Collateral that is Pledged Equity Interests and that is in the possession of Secured Party, or its nominee or nominees, registered in its name, or

 

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in the name of its nominee or nominees, as Secured Party; and, as to any Collateral that is Pledged Equity Interests so registered, Secured Party shall execute and deliver (or cause to be executed and delivered) to the applicable Grantor all such proxies, powers of attorney, dividend coupons or orders, and other Documents as such Grantor may reasonably request for the purpose of enabling such Grantor to exercise the voting rights and powers which it is entitled to exercise under this Security Agreement or to receive the dividends and other distributions and payments in respect of such Collateral that is Pledged Equity Interests or Proceeds thereof which it is authorized to receive and retain under this Security Agreement.

 

5.8                               Investment Related Property .  Each Grantor recognizes that, by reason of certain prohibitions contained in the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder (collectively, the “ Securities Act ”) and applicable state securities laws, Secured Party may be compelled, with respect to any sale of all or any part of the Investment Related Property conducted without prior registration or qualification of such Investment Related Property under the Securities Act and/or such state securities laws, to limit purchasers to those who will agree, among other things, to acquire the Investment Related Property for their own account, for investment and not with a view to the distribution or resale thereof.  Each Grantor acknowledges that any such private sale may be at prices and on terms less favorable than those obtainable through a public sale without such restrictions (including a public offering made pursuant to a registration statement under the Securities Act) and, notwithstanding such circumstances, each Grantor agrees that any such private sale shall be deemed to have been made in a commercially reasonable manner and that Secured Party shall have no obligation to engage in public sales and no obligation to delay the sale of any Investment Related Property for the period of time necessary to permit the issuer thereof to register it for a form of public sale requiring registration under the Securities Act or under applicable state securities laws, even if such issuer would, or should, agree to so register it.  If Secured Party determines to exercise its right to sell any or all of the Investment Related Property, upon written request, each Grantor shall and shall cause each issuer of any Pledged Stock to be sold hereunder, each partnership and each limited liability company from time to time to furnish to Secured Party all such information as Secured Party may request in order to determine the number and nature of interest, shares or other Instruments included in the Investment Related Property which may be sold by Secured Party in exempt transactions under the Securities Act and the rules and regulations of the Securities and Exchange Commission thereunder. In case of any sale of all or any part of the Investment Related Property on credit or for future delivery, such Collateral so sold may be retained by Secured Party until the selling price is paid by the purchaser thereof, but Secured Party shall not incur any liability in case of the failure of such purchaser to take up and pay for such assets so sold and in case of any such failure, such Collateral may again be sold upon like notice.  Secured Party, instead of exercising the power of sale herein conferred upon them, may proceed by a suit or suits at law or in equity to foreclose security interests created hereunder and sell such Investment Related Property, or any portion thereof, under a judgment or decree of a court or courts of competent jurisdiction.

 

5.9                               Sales on Credit .  If Secured Party sells any of the Collateral upon credit, Grantors will be credited only with payments actually made by the purchaser, received by Secured Party, and applied to the indebtedness of the purchaser.  In the event the purchaser fails to pay for the Collateral, Secured Party may resell the Collateral and Grantors shall be credited with the Proceeds of the sale.

 

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5.10                        Application of Proceeds .  On and after the occurrence of an Event of Default, the Proceeds of the Collateral shall be applied by Secured Party to payment of the Secured Obligations in such manner and order as Secured Party may elect in its sole discretion. If the Proceeds of any sale or other disposition of the Collateral are insufficient to pay all the Secured Obligations, Grantors shall be liable for the deficiency and the fees of any attorneys employed by Secured Party to collect such deficiency.

 

5.11                        Power of Attorney .  Each Grantor hereby appoints Secured Party and Secured Party’s designee as its attorney, with power: (a) on and after the occurrence of an Event of Default, to endorse such Grantor’s name on any checks, notes, acceptances, money orders, or other forms of payment or security that come into Secured Party’s possession; (b) to sign such Grantor’s name on any invoice, bill of lading, warehouse receipt, or other negotiable or non-negotiable Document constituting Collateral, on drafts against customers, on assignments of Accounts, on notices of assignment, financing statements, and other public records, and to file any such financing statements by electronic means with or without a signature as authorized or required by applicable law or filing procedure; (c) so long as any Event of Default has occurred, to notify the post office authorities to change the address for delivery of any Grantor’s mail to an address designated by Secured Party and to receive, open, and dispose of all mail addressed to any Grantor; (d) to send requests for verification of Accounts to customers or Account Debtors; (e) to complete in any Grantor’s name or Secured Party’s name, any order, sale, or transaction, obtain the necessary Documents in connection therewith, and collect the Proceeds thereof; (f) to clear Inventory through customs in any Grantor’s name, Secured Party’s name, or the name of Secured Party’s designee, and to sign and deliver to customs officials powers of attorney in any Grantor’s name for such purpose; (g) to the extent that any Grantor’s authorization given in Section 2.3 of this Security Agreement is not sufficient, to file such financing statements with respect to this Security Agreement, with or without such Grantor’s signature, or to file a photocopy of this Security Agreement in substitution for a financing statement, as Secured Party may deem appropriate and to execute in such Grantor’s name such financing statements and amendments thereto and continuation statements which may require such Grantor’s signature; and (h) subject to the terms and conditions of this Security Agreement and, if applicable, after Secured Party has determined that any Grantor has failed to take any action required under the Credit Agreement, this Security Agreement or any other Loan Documents, to do all things reasonably necessary to carry out the terms and conditions of the Credit Agreement and this Security Agreement.  Each Grantor ratifies and approves all acts of such attorney.  None of Lender or Secured Party nor their attorneys will be liable for any acts or omissions or for any error of judgment or mistake of fact or law except for their willful misconduct, gross negligence, or violation of law as determined by a court of competent jurisdiction in final and nonappealable judgment.  This power, being coupled with an interest, is irrevocable until this Security Agreement is terminated in accordance with Section 6.16 .

 

6.                                      GENERAL PROVISIONS

 

6.1                               Joint and Several Obligations of Grantors.

 

(a)                                  Each Grantor is accepting joint and several liability hereunder with other persons that have executed or will execute a Security Agreement in consideration of the financial accommodation to be provided by the holders of the Secured Obligations, for

 

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the mutual benefit, directly and indirectly, of each Grantor and in consideration of the undertakings of each Grantor to accept joint and several liability for the Obligations of each of them.

 

(b)                                 Each Grantor jointly and severally hereby irrevocably and unconditionally accepts, not merely as a surety but also as a co-debtor, joint and several liability with the other Grantors with respect to the payment and performance of all of the Secured Obligations, it being the intention of the parties hereto that all the Secured Obligations shall be the joint and several Obligations of each Grantor without preferences or distinction among them.

 

6.2                               Limitation of Obligations .

 

(a)                                  The provisions of this Security Agreement are severable, and in any action or proceeding involving any applicable law affecting the rights of creditors generally, if the Obligations of any Grantor under this Security Agreement would otherwise be held or determined to be avoidable, invalid or unenforceable on account of the amount of such Grantor’s liability under this Security Agreement, then, notwithstanding any other provision of this Security Agreement to the contrary, the amount of such liability shall, without any further action by Grantors or Secured Party, be automatically limited and reduced to the highest amount that is valid and enforceable as determined in such action or proceeding (such highest amount determined hereunder being the relevant Grantor’s “ Maximum Liability ”).  This Section 6.2 with respect to the Maximum Liability of each Grantor is intended solely to preserve the rights of Secured Party hereunder to the maximum extent not subject to avoidance under applicable law, and none of Grantors or any other Person shall have any right or claim under this Section 6.2(a)  with respect to the Maximum Liability, except to the extent necessary to ensure that the Obligations of Grantors hereunder shall not be rendered voidable under applicable law.

 

(b)                                 Each Grantor agrees that the Secured Obligations may at any time and from time to time exceed the Maximum Liability of such Grantor, and may exceed the aggregate Maximum Liability of all other Grantors, without impairing this Security Agreement or affecting the rights and remedies of Secured Party.  Nothing in this Section 6.2(b)  shall be construed to increase any Grantor’s Obligations hereunder beyond its Maximum Liability.

 

(c)                                  Notwithstanding any or all of the Secured Obligations becoming unenforceable against any Grantor or the determination that any or all of the Secured Obligations shall have become discharged, disallowed, invalid, illegal, void or otherwise unenforceable as against any Grantor (whether by operation of any present or future law or by order of any court or governmental agency), the Secured Obligations shall, for the purposes of this Security Agreement, continue to be outstanding and in full force and effect.

 

6.3                               NO RELEASE OF GRANTORS.  THE OBLIGATIONS OF GRANTORS UNDER THIS SECURITY AGREEMENT SHALL NOT BE REDUCED, LIMITED OR TERMINATED, NOR SHALL GRANTORS BE DISCHARGED FROM ANY

 

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OBLIGATION HEREUNDER, FOR ANY REASON WHATSOEVER (other than pursuant to Section 6.16 ), including (and whether or not the same shall have occurred or failed to occur once or more than once and whether or not Grantors shall have received notice thereof):

 

(a)                                  (i) any increase in the principal amount of, or interest rate applicable to, (ii) any extension of the time of payment, observance or performance of, (iii) any other amendment or modification of any of the other terms and provisions of, (iv) any release, composition or settlement (whether by way of acceptance of a plan of reorganization or otherwise) of, (v) any subordination (whether present or future or contractual or otherwise) of, or (vi) any discharge, disallowance, invalidity, illegality, voidness or other unenforceability of, the Secured Obligations;

 

(b)                                 (i) any failure to obtain, (ii) any release, composition or settlement of, (iii) any amendment or modification of any of the terms and provisions of, (iv) any subordination of, or (v) any discharge, disallowance, invalidity, illegality, voidness or other unenforceability of, any Loan Documents;

 

(c)                                  (i) any failure to obtain or any release of, any failure to protect or preserve, (ii) any release, compromise, settlement or extension of the time of payment of any Obligations constituting, (iii) any failure to perfect or maintain the perfection or priority of any Lien upon, (iv) any subordination of any Lien upon, or (v) any discharge, disallowance, invalidity, illegality, voidness or other unenforceability of any Lien or intended Lien upon, any collateral now or hereafter securing, the Secured Obligations or any other guaranties thereof;

 

(d)                                 any termination of or change in any relationship between Grantors and Secured Party or the addition or release of any Grantor;

 

(e)                                  any exercise of, or any failure or election not to exercise, delay in the exercise of, waiver of, or forbearance of or other indulgence with respect to, any right, remedy or power available to Secured Party, including (i) any election not to or failure to exercise any right of setoff, recoupment or counterclaim, (ii) any election of remedies effected by Secured Party, including the foreclosure upon any real estate constituting collateral, whether or not such election affects the right to obtain a deficiency judgment, and (iii) any election by Secured Party in any proceeding under the Bankruptcy Code of the application of Section 1111(b)(2)  of the Bankruptcy Code; and

 

(f)                                    ANY OTHER ACT OR FAILURE TO ACT OR ANY OTHER EVENT OR CIRCUMSTANCE THAT (i) VARIES THE RISK OF GRANTORS UNDER THIS SECURITY AGREEMENT OR (ii) BUT FOR THE PROVISIONS HEREOF, WOULD, AS A MATTER OF STATUTE OR RULE OF LAW OR EQUITY, OPERATE TO REDUCE, LIMIT OR TERMINATE THE OBLIGATIONS OF GRANTORS HEREUNDER OR DISCHARGE GRANTORS FROM ANY OBLIGATION HEREUNDER.

 

6.4                               Subordination of Certain Claims .  Any and all rights and claims of Grantors against Borrower or against any other Person or property, arising by reason of any payment by

 

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any Grantors to Secured Party pursuant to the provisions, or in respect, of this Security Agreement shall be subordinate, junior and subject in right of payment to the prior and indefeasible payment in full of all Secured Obligations to Secured Party, and until such time, Grantors defer all rights of subrogation, contribution or any similar right and until such time agree not to enforce any such right or remedy Secured Party may now or hereafter have against Borrower, any endorser or any other Grantor of all or any part of the Secured Obligations and any right to participate in, or benefit from, any security given to Secured Party to secure any of the Secured Obligations.  All Liens and security interests of Grantors, whether now or hereafter arising and howsoever existing, in assets of Borrower or any assets securing the Secured Obligations shall be and hereby are subordinated to the rights and interests of Secured Party and in those assets until the prior and indefeasible final payment in full of all Secured Obligations to Secured Party.  If any amount shall be paid to Grantors contrary to the provisions of this Section 6.4 at any time when any of the Secured Obligations shall not have been indefeasibly paid in full, such amount shall be held in trust for the benefit of Secured Party and shall forthwith be turned over in kind in the form received to Secured Party (duly endorsed if necessary) to be credited and applied against the Secured Obligations, whether matured or unmatured, in accordance with the terms of the Credit Agreement.

 

6.5                               Recovered Payments . The Secured Obligations shall be deemed not to have been paid, observed or performed, and Grantors’ Obligations under this Security Agreement in respect thereof shall continue and not be discharged, to the extent that any payment, observance or performance thereof by any Grantor is recovered from or paid over by or for the account of Secured Party for any reason, including as a preference or fraudulent transfer or by virtue of any subordination (whether present or future or contractual or otherwise) of the Secured Obligations, whether such recovery or payment over is effected by any judgment, decree or order of any court or governmental agency, by any plan of reorganization or by settlement or compromise by Secured Party (whether or not consented to by Grantors) of any claim for any such recovery or payment over.  Each Grantor hereby expressly waives the benefit of any applicable statute of limitations and agrees that it shall be liable hereunder whenever such a recovery or payment over occurs.

 

6.6                               No Waiver . No delay or omission of Secured Party to exercise any right or remedy granted under this Security Agreement shall impair such right or remedy or be construed to be a waiver of any Event of Default, or an acquiescence therein, and any single or partial exercise of any such right or remedy shall not preclude any other or further exercise thereof or the exercise of any other right or remedy.  No waiver, amendment or other variation of the terms, conditions or provisions of this Security Agreement whatsoever shall be valid unless in writing signed by Secured Party and then only to the extent in such writing specifically set forth.  All rights and remedies contained in this Security Agreement or by law afforded shall be cumulative and all shall be available to Secured Party until the Secured Obligations have been paid in full.

 

6.7                               Secured Party Performance of Grantors’ Obligations .  Without having any obligation to do so, Secured Party may perform or pay any Obligation which any Grantor has agreed to perform or pay in this Security Agreement and each Grantor shall, jointly and severally, reimburse Secured Party for any amounts paid by Secured Party pursuant to this Section 6.7 .  Each Grantor’s Obligation to reimburse Secured Party pursuant to the preceding sentence shall be a Secured Obligation payable on demand.

 

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6.8                               Specific Performance of Certain Covenants .  Each Grantor acknowledges and agrees that a breach of any of the covenants contained in Sections 4.2(d) , Error! Reference source not found., 4.9 , 4.17 , 5.4 , 5.5 , 5.6 , 5.10 , 5.11 , or 6.9 will cause irreparable injury to Secured Party, that Secured Party has no adequate remedy at law in respect of such breaches and therefore agrees, without limiting the right of Secured Party to seek and obtain specific performance of other Obligations of such Grantor contained in this Security Agreement, that the covenants of such Grantor contained in the Sections referred to in this Section 6.8 shall be specifically enforceable against such Grantor.

 

6.9                               Dispositions Not Authorized .  No Grantor is authorized to sell or otherwise dispose of the Collateral except as set forth in Section 4.2(e)  and notwithstanding any course of dealing between any Grantor and Secured Party or other conduct of Secured Party, no authorization to sell or otherwise dispose of the Collateral (except as set forth in Section 4.2(e) ) shall be binding upon Secured Party unless such authorization is in writing signed by Secured Party.

 

6.10                        Waivers .  Except to the extent expressly otherwise provided herein or in other Loan Documents and to the fullest extent permitted by applicable law, each Grantor waives (a) any right to require Secured Party to proceed against any other Person, to exhaust its rights in Collateral, or to pursue any other right which Secured Party or any Lender may have; (b) with respect to the Secured Obligations, presentment and demand for payment, protest, notice of protest and nonpayment, notice of intent to accelerate, and notice of acceleration; and (c) all rights of marshaling in respect of any and all of the Collateral.

 

6.11                        Benefit of Agreement .  The terms and provisions of this Security Agreement shall be binding upon and inure to the benefit of Grantors, Secured Party and their respective successors and assigns, except that no Grantor shall have the right to assign its rights or delegate its Obligations under this Security Agreement or any interest herein, without the prior written consent of Secured Party.

 

6.12                        Survival .  All representations and warranties of each Grantor contained in this Security Agreement shall survive the execution and delivery of this Security Agreement. Without prejudice to the survival of any other Obligation of each Grantor hereunder, the Obligations of each Grantor under Sections 6.14 and 6.18 shall survive termination of this Security Agreement.

 

6.13                        Sending Notices .  Whenever any notice is required or permitted to be given under the terms of this Security Agreement, the same shall, except as otherwise expressly provided for in this Security Agreement, be given in writing, and sent by: (a) certified mail, return receipt requested, postage pre paid; (b) a national overnight delivery service; (c) hand delivery with written receipt acknowledged; or (d) facsimile, followed by a copy sent in accordance with clause (b)  or (c)  of this Section 6.13 sent the same day as the facsimile, in each case to the address or facsimile number (together with a contemporaneous copy to each copied addressee), as applicable, set forth on the signature page to this Security Agreement or in the Credit Agreement.  Lender and Grantors shall not conduct communications contemplated by this Security Agreement by electronic mail or other electronic means, except by facsimile transmission as expressly provided in this Section 6.13 , and the use of the phrase “in writing” or

 

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the word “written” shall not be construed to include electronic communications except by facsimile transmissions as expressly provided in this Section 6.13 .  Any notice required or given hereunder shall be deemed received the same Business Day if sent by hand delivery or facsimile, the next Business Day if sent by overnight courier, or three (3) Business Days after posting if sent by certified mail, return receipt requested; provided that any notice received after 5:00 p.m. San Antonio, Texas time on any Business Day or received on any day that is not a Business Day shall be deemed to have been received on the following Business Day.

 

6.14                        Taxes and Expenses .  Any taxes (including income taxes) payable or ruled payable by federal or state authority in respect of this Security Agreement shall be paid by each Grantor, together with interest and penalties, if any.  Grantors shall jointly and severally reimburse Secured Party for any and all out-of-pocket expenses and internal charges (including reasonable attorneys’, auditors’ and accountants’ fees and reasonable time charges of attorneys, paralegals, auditors and accountants who may be employees of Secured Party) paid or incurred by Secured Party in connection with the preparation, execution, delivery, and administration, of this Security Agreement and in the audit, analysis, administration, collection, preservation or sale of the Collateral (including the expenses and charges associated with any periodic or special audit of the Collateral). In addition, Grantors shall be jointly and severally obligated to pay all of the costs and expenses incurred by Secured Party, including attorneys’ fees and court costs, in obtaining or liquidating the Collateral, in enforcing payment of the Secured Obligations, or in the prosecution or defense of any action or proceeding by or against Secured Party or any Grantor concerning any matter arising out of or connected with this Security Agreement, any Collateral or the Secured Obligations, including any of the foregoing arising in, arising under or related to a case under any bankruptcy, insolvency or similar law.  Any and all costs and expenses incurred by each Grantor in the performance of actions required pursuant to the terms hereof shall be borne solely by such Grantor.

 

6.15                        Headings .  The title of and section headings in this Security Agreement are for convenience of reference only, and shall not govern the interpretation of any of the terms and provisions of this Security Agreement.

 

6.16                        Termination .  This Security Agreement shall continue in effect (notwithstanding the fact that from time to time there may be no Secured Obligations outstanding) until (a) the Credit Agreement has terminated pursuant to its express terms and (b) all of the Secured Obligations have been indefeasibly paid and performed in full and no commitments of Secured Party which would give rise to any Secured Obligations are outstanding; provided that the termination of this Security Agreement under this Section 6.16 is subject to Section 6.5 .

 

6.17                        GOVERNING LAW.  THIS SECURITY AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE STATE OF TEXAS, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS.

 

6.18                        Indemnity .  Each Grantor does hereby assume all liability for the Collateral, for the security interest of Secured Party, and for any use, possession, maintenance, and management of, all or any of the Collateral, including any taxes arising as a result of, or in connection with, the transactions contemplated herein, and agrees to assume liability for, and to

 

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indemnify and hold Secured Party and its respective successors, assigns, agents, attorneys, and employees harmless from and against, any and all claims, causes of action, or liability, for injuries to or deaths of persons and damage to property, howsoever arising from or incident to such use, possession, maintenance, and management, whether such persons be agents or employees of any Grantor or of third parties, or such damage be to property of any Grantor or of others.  Each Grantor does hereby indemnify, save, and hold Secured Party and its respective successors, assigns, agents, attorneys, and employees harmless from and against, and covenants to defend Secured Party against, any and all losses, damages, claims, costs, penalties, liabilities, and expenses (collectively, “ Claims ”), including court costs and attorneys’ fees, and any of the foregoing, ARISING FROM THE NEGLIGENCE OF SECURED PARTY OR ANY OF ITS OFFICERS, EMPLOYEES, AGENTS, ADVISORS, OR REPRESENTATIVES, howsoever arising or incurred because of, incident to, or with respect to Collateral or any use, possession, maintenance, or management thereof; provided , however , that the indemnity set forth in this Section 6.18 will not apply to Claims caused by the gross negligence or willful misconduct of Secured Party or any of its officers, employees, agents, advisors, or representatives, as determined by a court of competent jurisdiction in final and nonappealable judgment.

 

6.19                        FINAL AGREEMENT .  THIS AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.  THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

 

REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.
SIGNATURE PAGE TO FOLLOW.

 

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IN WITNESS WHEREOF, Grantors and Secured Party have executed this Security Agreement as of the date first above written.

 

	BORROWER :
	HARTE HANKS, INC.
	By:		/s/ Robert L. R. Munden
	Name:		Robert L. R. Munden
	Title:		EVP, CFO & General Counsel
	SECURED PARTY :
	TEXAS CAPITAL BANK, NATIONAL ASSOCIATION
	By:	/s/ Annalese Smolik
		Annalese Smolik
		Senior Vice President

 

Exhibit 10.3

 

FEE, REIMBURSEMENT AND INDEMNITY AGREEMENT

 

This Fee, Reimbursement and Indemnity Agreement (the “Agreement”) is made and entered into effective as of the 17 th  day of April, 2017, by and between HHS GUARANTY, LLC, a Texas limited liability company (the “LLC”), and HARTE HANKS, INC., a Delaware corporation (“Harte Hanks”).

 

W I T N E S S E T H:

 

WHEREAS, pursuant to a loan agreement and related documents dated as of the date hereof by and between Texas Capital Bank, N.A. (the “Bank”) and Harte Hanks, the Bank agreed to provide Harte Hanks a revolving line of credit in the maximum aggregate principal amount of $20,000,000 (the “Loan”); and

 

WHEREAS, at the request of Harte Hanks and as required by the Bank, the LLC agreed to guaranty all of the payment obligations of Harte Hanks under the Loan by pledging the Collateral (as hereinafter defined) to the Bank, pursuant to the terms of that one certain Pledge Agreement (the “Pledge Agreement”) and Note Purchase Agreement (the “Note Purchase Agreement”) (the Pledge Agreement and Note Purchase Agreement are collectively referred to herein as the “Pledge Documents”); and

 

WHEREAS, pursuant to the Pledge Documents, the LLC will pledge a minimum of $24,000,000 in cash and marketable securities to the Bank, and the Bank will have custody and control over such cash and marketable securities (the “Collateral”); and

 

WHEREAS, Harte Hanks desires to compensate the LLC for the LLC’s pledge of the Collateral to secure the Loan for the benefit of Harte Hanks, pursuant to the terms and conditions as set forth herein; and

 

WHEREAS, in exchange for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties wish to enter into this Agreement;

 

NOW, THEREFORE, for good and adequate consideration, the receipt and sufficiency of which is hereby acknowledged, Harte Hanks and the LLC agree as follows:

 

1.                                      Payments, Performance, Covenants .

 

(a)                                  In the event the Bank makes any demand on Harte Hanks, or Harte Hanks is otherwise required to perform any obligations under the Loan (including without limitation, any payment obligation) or any Loan Documents (as hereafter defined), Harte Hanks shall promptly perform its obligations under the Loan or applicable Loan Document.

 

(b)                                 In the event any such amount is not timely paid or such obligation is not timely performed by Harte Hanks and the Bank seeks to enforce the LLC’s guaranty under the Pledge Documents, or, in the event the LLC is required to purchase the Loan from the Bank as set forth in the Loan Documents, Harte Hanks shall reimburse, within five days of receiving notice from

 

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the LLC, to the LLC the aggregate amount of all funds advanced by the LLC or paid to the Bank for the purchase of the Loan or otherwise, on account of such obligation, together with interest on such amount at an annual rate equal to the prime rate (as defined below) plus 6%, from the date of payment by the LLC until all such amounts have been repaid by Harte Hanks. For the purpose of this Agreement, “prime rate” shall mean the variable rate of interest, per annum, most recently announced by the Bank, as its “prime rate,” whether or not such announced rate is the lowest rate available from such bank.

 

(c)                                  Harte Hanks will not agree to any amendment, modification, waiver or supplement to the Loan or any of the documents, instruments or agreements executed in connection therewith (collectively, the “Loan Documents”) without the prior written consent of the LLC.  Harte Hanks will use reasonable best efforts to accommodate the LLC’s written request that any subsidiary of Harte Hanks become party to that certain Security Agreement dated as of April 17, 2017 between Harte Hanks and the Bank (the “Security Agreement”) pursuant to Section 4.21 of the Security Agreement.

 

2.                                      Fees and Reimbursement of Expenses .

 

(a)                                  As consideration for the pledge of the Collateral, Harte Hanks hereby agrees to pay to the LLC an annual fee equal to $480,000 (the “Annual Fee”), for so long the Collateral is pledged to and held by the Bank, to be paid quarterly as described in (b) below.

 

(b)                                 The Annual Fees due under this Agreement shall be payable in quarterly installments of $120,000 each, with the first quarterly payment due upon execution of this Agreement and all following quarterly payments due in advance of the next calendar quarter such that the first quarterly installment shall be due on April 17, 2017, the second quarterly installment shall be due on July 17, 2017, the third quarterly installment shall be due on October 17, 2017, and the fourth quarterly installment shall be due on January 17, 2018, with all subsequent quarterly installments due on the same 17 th  day of each of April, July, October, and January of the applicable year during the term of this Agreement.

 

(c)                                  In addition to the Annual Fees due under this Agreement, Harte Hanks shall, within five days of receiving a request from the LLC, reimburse the LLC for all LLC costs and expenses incurred by the LLC in connection with this Agreement, the Loan, the Loan Documents, the Pledge Documents, and the pledge of the collateral (collectively, the “Reimbursed Expenses”).  The Reimbursed Expenses shall include, but are not limited to, reasonable legal, accounting, custody and Bank fees, expenses, and costs incurred by the LLC in its formation, initial funding, and throughout the term of this Agreement (except to the extent related to LLC activities after the date hereof which are unrelated to this Agreement or the Loan Documents).

 

(d)                                 All payments made under this Agreement shall be paid by Harte Hanks in cash pursuant to a check or wire transfer made payable to the LLC.

 

3.                                      Obligations of Harte Hanks . The obligations of Harte Hanks under this Agreement shall be absolute, unconditional and irrevocable, shall apply to the fullest extent authorized or

 

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permitted by any applicable law, under and shall be paid and performed strictly in accordance with the terms of this Agreement, under all circumstances whatsoever, including, without limitation, the following circumstances:

 

(a)                                  Any lack of validity or enforceability of this Agreement;

 

(b)                                 the existence of any claim, set-off, defense or other rights which Harte Hanks may have at any time against the LLC or any other person or entity, whether or not in connection with this Agreement; or

 

(c)                                  Any other circumstance or happening whatsoever, whether or not similar to any of the foregoing.

 

4.                                      Representations and Warranties of Harte Hanks . Harte Hanks hereby represents and warrants to the LLC as follows:

 

(a)                                  Organization and Standing . Harte Hanks is a corporation, duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite power and authority to carry on its business as now being conducted.

 

(b)                                 Authority; Enforceability . Harte Hanks has all requisite power and authority to enter into this Agreement and to consummate the transactions contemplated hereby.

 

(c)                                  Execution of Agreement . This Agreement has been duly executed and delivered by Harte Hanks. The execution, delivery and performance of this Agreement will not cause any default, breach or violation of any provision of any material agreement to which Harte Hanks is a party or by which any of Harte Hanks’s assets are bound.

 

(d)                                 Validity of Agreement . This Agreement constitutes the legal, valid and binding obligation of Harte Hanks, enforceable in accordance with its terms.

 

(e)                                  Approvals . No approval, authorization, consent or other order or action of or filing with any governmental or administrative entity or any other person is required for the execution and delivery by Harte Hanks of this Agreement or such other agreements and instruments required hereunder or for the consummation by Harte Hanks of the transactions contemplated hereby or thereby.

 

(f)                                    Violation of Laws or Agreements . The making and performance of this Agreement and the other documents, agreements and actions required hereunder or thereunder will not violate any provisions of any law, federal, state or local rule or regulation, or any judgment, decree, award or order of any court or other governmental entity, agency or arbitrator to which Harte Hanks is subject.

 

5.                                      Termination . This Agreement shall remain in full force and effect and shall terminate on the later to occur of (i) the date that the Pledge Documents are terminated or (ii) the date that all obligations of Harte Hanks to the LLC, and all obligations of Harte Hanks hereunder have been

 

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