Exhibit 10.3
SECURITY AGREEMENT
THIS SECURITY AGREEMENT is dated as of this 19th day of June, 2002, by and
among TREX COMPANY, LLC, a Delaware limited liability company, TREX COMPANY,
INC., a Delaware corporation (collectively, the "Debtor") and BRANCH BANKING AND
TRUST COMPANY OF VIRGINIA, a national banking association (the "Collateral
Agent"), as collateral agent for the benefit of the Secured Parties (as defined
in the Intercreditor Agreement (as hereinafter defined)).
The Debtor and Branch Banking and Trust Company of Virginia, a Virginia
banking corporation (the "Lender") are parties to a Credit Agreement dated as
even date herewith (as from time to time amended, restated, supplemented or
otherwise modified, the "Credit Agreement"), pursuant to which the Lender is
making a $20,000,000 revolving credit facility (the "Revolving Credit Facility")
and term loans of up to $12,600,000 (the "Term Loans") available to the Debtor.
The Debtor and the Noteholders (as defined in and identified therein) are
parties to a Note Purchase Agreement dated as of June 19, 2002 (as from time to
time amended, restated, supplemented or otherwise modified, the "Note
Agreement"), pursuant to which the Debtor is selling Senior Secured Notes (as
defined in the Note Agreement) in the aggregate principal amount of $40,000,000
to the Noteholders.
The Collateral Agent has entered into that certain Intercreditor and
Collateral Agency Agreement dated as of June 19, 2002 by and among the
Collateral Agent and certain Secured Parties identified and defined therein in
connection with certain extensions of credit and financial accommodations to the
Debtor (as from time to time amended, restated, supplemented or otherwise
modified, the "Intercreditor Agreement").
The execution and delivery of this Security Agreement by the Debtor is
required by Section 4.01 of the Credit Agreement and Section 4.10 of the Note
Agreement, and the Debtor desires to grant to the Collateral Agent for the
benefit of the Secured Parties a security interest in and Lien on and against
its property to secure its obligations under the Credit Agreement and the Note
Agreement.
Accordingly, for and in consideration of good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the Debtor and the
Collateral Agent hereby agree as follows:
SECTION 1 - DEFINITIONS
The following terms shall have the following respective meanings:
"Accounts" means all of the Debtor's now owned or hereafter acquired
or arising "accounts," as defined in the UCC, including any rights to payment
for the sale or lease of goods or rendition of services, whether or not they
have been earned by performance.
"Chattel Paper" means all of the Debtor's now owned or hereafter
acquired "chattel paper," as defined in the UCC, including electronic chattel
paper.
"Collateral" has the meaning set forth in Section 2.
"Collection Account" has the meaning set forth in Section 6.3.
"Deposit Accounts" means all "deposit accounts," as defined in the
UCC, now or hereafter held in the name of the Debtor.
"Dispute" has the meaning set forth in Section 10.4.
"Documents" means all "documents," as defined in the UCC, including
bills of lading, warehouse receipts or other documents of title, now owned or
hereafter acquired by Debtor.
"Equipment" means all of the Debtor's now owned or hereafter acquired
"equipment," as defined in the UCC, including all of the Debtor's machinery,
equipment, furniture, furnishings, fixtures, and other tangible personal
property (except Inventory), including embedded software, motor vehicles with
respect to which a certificate of title has been issued, aircraft, dies, tools,
jigs, molds and office equipment, as well as all of such types of property
leased by the Debtor and all of the Debtor's rights and interests with respect
thereto under such leases (including, without limitation, options to purchase);
together with all present and future additions and accessions thereto,
replacements therefor, component and auxiliary parts and supplies used or to be
used in connection therewith, and all substitutes for any of the foregoing, and
all manuals, drawings, instructions, warranties and rights with respect thereto;
wherever any of the foregoing is located.
"Event of Default" and "Default" have the respective meanings assigned
thereto in the Intercreditor Agreement.
"General Intangibles" means all of the Debtor's now owned or hereafter
acquired "general intangibles," as defined in the UCC, including all general
intangibles, choses in action and causes of action and all other intangible
personal property of the Debtor of every kind and nature (other than Accounts),
including, without limitation, all contract rights, payment intangibles,
Proprietary Rights, corporate or other business records, inventions, designs,
blueprints, plans, specifications, patents, patent applications, trademarks,
service marks, trade names, trade secrets, goodwill, copyrights, computer
software, customer lists, registrations, licenses, franchises, tax refund
claims, any funds which may become due to the Debtor in connection with the
termination of any employee benefit plan or any rights thereto and any other
amounts payable to the Debtor from any employee benefit plan, rights and claims
against carriers and shippers, rights to indemnification, business interruption
insurance and proceeds thereof, property, casualty or any similar type of
insurance and any proceeds thereof, proceeds of insurance covering the lives of
key employees on which the Debtor is beneficiary, rights to receive dividends,
distributions, cash, Instruments and other property in respect of or in exchange
for pledged equity interests or Investment Property and any letter of credit,
guarantee, claim, security interest or other security held by or granted to the
Debtor.
"Goods" means all "goods," as defined in the UCC, now owned or
hereafter acquired by the Debtor, wherever located, including embedded software
to the extent included in
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"goods" as defined in the UCC, manufactured homes, standing timber that is cut
and removed for sale and unborn young of animals.
"Instruments" means all "instruments," as defined in the UCC, now
owned or hereafter acquired by the Debtor.
"Intercreditor Agreement" has the meaning set forth in the
introductory paragraphs of this Agreement.
"Inventory" means all of the Debtor's now owned or hereafter acquired
"inventory," as defined in the UCC, including all goods and merchandise,
wherever located, to be furnished under any contract of service or held for sale
or lease, all returned goods, raw materials, work-in-process, finished goods
(including embedded software), other materials and supplies of any kind, nature
or description which are used or consumed in the Debtor's business or used in
connection with the packing, shipping, advertising, selling or finishing of such
goods, merchandise, and all documents of title or other Documents representing
them.
"Investment Property" means all of the Debtor's now existing or
hereafter arising right, title and interest in and to any and all "investment
property," as defined in the UCC, including all: (a) securities whether
certificated or uncertificated; (b) securities entitlements; (c) securities
accounts; (d) commodity contracts; or (e) commodity accounts.
"Lease" has the meaning set forth in Section 4.4 hereof.
"Letter-of-Credit Rights" means "letter-of-credit rights," as defined
in the UCC, now owned or hereafter acquired by the Debtor, including rights to
payment or performance under a letter of credit, whether or not the Debtor, as
beneficiary, has demanded or is entitled to demand payment or performance.
"Obligations" has the meaning set forth in Section 3.
"Permitted Liens" means "Permitted Liens" under the Credit
Agreement and the Liens permitted under Section 10.3 of the Note Agreement.
"Proprietary Rights" means all of the Debtor's now owned or hereafter
arising or acquired: licenses, franchises, permits, patents, patent rights,
copyrights, works which are the subject matter of copyrights, trademarks,
service marks, trade names, trade styles, patent, trademark and service xxxx
applications, and all licenses and rights related to any of the foregoing, and
all other rights under any of the foregoing, all extensions, renewals, reissues,
divisions, continuations, and continuations-in-part of any of the foregoing, and
all rights to xxx for past, present and future infringement of any of the
foregoing.
"Secured Party" and "Secured Parties" have the meanings assigned
thereto in the Intercreditor Agreement.
"Secured Obligations" has the meaning assigned thereto in the
Intercreditor Agreement.
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"Software" means all "software" as such term is defined in the UCC,
now owned or hereafter acquired by the Debtor, other than software embedded in
any category of Goods, including all computer programs and all supporting
information provided in connection with a transaction related to any program.
"Supporting Obligations" means all supporting obligations as such term
is defined in the UCC.
"UCC" means the Uniform Commercial Code, as in effect from time to
time, of the Commonwealth of Virginia or of any other state the laws of which
are required as a result thereof to be applied in connection with the issue of
perfection of security interests.
"Uniform Commercial Code jurisdiction" means any jurisdiction that has
adopted "Revised Article 9" of the UCC on or after July 1, 2001.
All other capitalized terms used but not otherwise defined herein have the
meanings given to them in the Credit Agreement. All other undefined terms
contained in this Security Agreement, unless the context indicates otherwise,
have the meanings provided for by the UCC to the extent the same are used or
defined therein.
SECTION 2 - GRANT OF SECURITY INTEREST
The Debtor hereby grants to the Collateral Agent for the ratable benefit of
the Secured Parties a continuing security interest in, lien on, assignment of
and right of set-off against, all of the following property and assets of the
Debtor, whether now owned or hereafter acquired or arising, regardless of where
located:
(i) all Accounts;
(ii) all Inventory;
(iii) all Chattel Paper;
(iv) all Documents;
(v) all Instruments;
(vi) all Supporting Obligations and Letter-of-Credit Rights;
(vii) all General Intangibles (including payment intangibles and
Software);
(viii) all Investment Property;
(ix) all Goods;
(x) all Equipment;
(xi) all money, cash, cash equivalents, securities and other
property of any kind of the Debtor held directly or indirectly by the Collateral
Agent or any Secured Party;
(xii) all of the Debtor's Deposit Accounts, credits, and balances
with and other claims against the Collateral Agent or any Secured Party or any
of their respective affiliates or
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any other financial institution with which the Debtor maintains deposits,
including the Collection Account;
(xiii) all books, records and other property related to or referring
to any of the foregoing, including books, records, account ledgers, data
processing records, computer software and other property and General Intangibles
at any time evidencing or relating to any of the foregoing; and
(xiv) all accessions to, substitutions for and replacements, products
and proceeds of any of the foregoing, including, but not limited to, proceeds of
any insurance policies (whether or not such policy shall contain an endorsement
in favor of the Collateral Agent or any Secured Party), claims against third
parties, and condemnation or requisition payments with respect to all or any of
the foregoing.
All of the foregoing is herein collectively referred to as the "Collateral."
Notwithstanding the foregoing, it is understood and agreed that the Collateral
shall not include: (a) fixtures (as defined in the UCC) located in or at the
Debtor's Winchester, Virginia facilities excluding manufacturing equipment or
production equipment located at such facility, (b) fixtures (as defined in the
Uniform Commercial Code as in effect from time to time in the State of Nevada)
located in or at the Debtor's Lyon County, Nevada facility excluding
manufacturing equipment or production equipment located at such facility, or (c)
any Investment Property consisting of equity interests in TREX Company, LLC or
any Subsidiary or Affiliate.
SECTION 3 - OBLIGATIONS SECURED
The security interests granted to the Collateral Agent herein for the
ratable benefit of the Secured Parties shall secure: (a) the payment and
performance of the Secured Obligations; and (b) all reasonable costs and
expenses, including, without limitation, reasonable attorneys' fees incurred by
the Collateral Agent or the Secured Parties, or any of them, for taxes and/or
insurance relating to, or maintenance or preservation of, the Collateral or any
part thereof or incurred by the Collateral Agent or any of the Secured Parties,
or any of them, arising from or in connection with the modification, workout,
collection or enforcement of any of Secured Obligations, including, without
limitation, any such collection or enforcement of the Obligations by any action
or participation in, or in connection with a case or proceeding under, Chapter 7
or Chapter 11 of the U.S. Bankruptcy Code or any successor statute
(collectively, the "Obligations").
SECTION 4 - REPRESENTATIONS
The Debtor represents and warrants to the Collateral Agent and to each of
the Secured Parties (which representations and warranties will survive the
execution of the Revolving Note, the making of the Revolving Loans and the
purchase of the Notes by the purchasers identified in the Note Agreement) that:
4.1 Ownership of Collateral. The Debtor now owns or will become the owner
of the Collateral in which it has granted the Collateral Agent a security
interest hereunder and has the unrestricted right to grant the Collateral Agent
a security interest therein.
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4.2 Location of Records. The chief executive office of the Debtor and the
principal office where the Debtor maintains its books and records relating to
the Collateral is located at the address listed next to the Debtor's name on
Schedule 4.2 attached hereto and by this reference incorporated herein. The
Debtor will not change the location of its chief executive office or the
location of the principal office in which it maintains its books and records
without giving the Collateral Agent and each of the Secured Parties at least
thirty (30) days' prior written notice and, unless prior to such change, the
Debtor shall have taken all action reasonably necessary or desirable or that the
Collateral Agent may reasonably request, to preserve, perfect, confirm and
protect in the manner and to the extent provided for in this Security Agreement
the security interests granted hereby.
4.3 [Reserved.]
4.4 Inventory. The Inventory owned by the Debtor is maintained at the
locations specified on Schedule 4.4 attached hereto and by this reference
incorporated herein. Except for Inventory in transit to manufacturing plants or
warehouses owned or leased by the Debtor or to customers in the ordinary course
of business, the Debtor does not store and will not store any Inventory on any
real property which is not owned by the Debtor in fee simple or subject to a
lease of real property under which the Debtor is the lessee (each such lease, a
"Lease"), and the Debtor will not permit any finished goods Inventory of any
dollar amount or any other Inventory having an aggregate value of $250,000 or
greater to be maintained or stored in any location other than those listed on
Schedule 4.4 without giving the Collateral Agent at least fifteen (15) days'
prior written notice and, unless prior to such change, the Debtor shall have
taken all action reasonably necessary or desirable or that the Collateral Agent
may reasonably request, to preserve, perfect, confirm and protect in the manner
and to the extent provided for in this Security Agreement the security interests
granted hereby. Without limiting the foregoing, the Debtor represents that all
of its finished goods Inventory (other than finished goods Inventory in transit)
is, and covenants that all of its finished goods Inventory will be, located
either (a) on premises owned by the Debtor in fee simple, (b) on premises leased
by the Debtor, provided that the Collateral Agent has received an executed
landlord waiver from the landlord of such premises in form and substance
satisfactory to the Collateral Agent, or (c) in a warehouse or with a bailee,
provided that the Collateral Agent has received an executed bailee letter from
the applicable Person in form and substance satisfactory to the Collateral
Agent.
4.5 Location of Equipment. The Equipment owned by the Debtor is maintained
at the locations specified next to the Debtor's name on Schedule 4.5 attached
hereto and by this reference incorporated herein. The Debtor does not store and
will not store any Equipment having a value in excess of $250,000 on any real
property which is not owned by the Debtor in fee simple or subject to a Lease,
and the Debtor will not permit any Equipment to be maintained or stored in any
location other than those listed on Schedule 4.5 without giving the Collateral
Agent at least thirty (30) days' prior written notice and, unless prior to such
change, the Debtor shall have taken all action reasonably necessary or desirable
or that the Collateral Agent may reasonably request, to preserve, perfect,
confirm and protect in the manner and to the extent provided for in this
Security Agreement the security interests granted hereby. Without limiting the
foregoing, the Debtor represents that all of its Equipment is, and covenants
that all of its Equipment will be, located either (a) on premises owned by the
Debtor in fee simple, or (b) on premises leased by the Debtor, provided that the
Collateral Agent has received an executed
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landlord waiver from the landlord and mortgagee of such premises in form and
substance satisfactory to the Collateral Agent.
4.6 Documents, Instruments and Chattel Paper. All Documents, Instruments,
and Chattel Paper describing, evidencing, or constituting Collateral are and
will be owned by the Debtor, free and clear of all Liens other than Permitted
Liens. If the Debtor retains possession of any Chattel Paper or Instruments with
the Collateral Agent's consent, such Chattel Paper and Instruments shall be
marked with the following legend: "This writing and the obligations evidenced or
secured hereby are subject to the security interest of Branch Banking and Trust
Company of Virginia, as Collateral Agent, for the benefit of the Secured Parties
under and pursuant to Intercreditor and Collateral Agency Agreement dated as of
June 19, 2002."
4.7 Patents, Trademarks and Copyrights. (a) The Debtor does not have any
interest in, or title to, any registered patent, trademark or copyright except
as set forth in Schedule 4.7 attached hereto and by this reference incorporated
herein; (b) this Security Agreement is effective to create a valid and
continuing Lien on and, upon the filing of this Security Agreement together with
an appropriately completed Recordation Form Cover Sheet (Patents Only) with the
United States Patent and Trademark Office, Assignment Division, the filing of
this Security Agreement together with an appropriately completed Recordation
Form Cover Sheet (Trademarks Only) with the United States Patent and Trademark
Office, Assignments Division, the filing of this Security Agreement, together
with an appropriately completed Document Coversheet for Recordation of Documents
with the Copyright Office of the Library of Congress and the filing of
appropriate financing statements in the Uniform Commercial Code records of the
Delaware Secretary of State and the Virginia State Corporation Commission,
perfected Liens in favor of the Collateral Agent on the Debtor's registered
United States patents, trademarks and copyrights disclosed on Schedule 4.7, and
such perfected Liens are enforceable as against any and all creditors of and
purchasers from the Debtor; and (c) upon the filing of this Security Agreement,
together with an appropriately completed Recordation Form Cover Sheet (Patents
Only) with the United States Patent and Trademark Office, the filing of this
Security Agreement together with an appropriately completed Recordation Form
Cover Sheet (Trademarks Only) with the United States Patent and Trademark
Office, the filing of this Security Agreement together an appropriately
completed Document Coversheet for Recordation of Documents with the Copyright
Office of the Library of Congress, and the filing of the appropriate financing
statements in the UCC records of the Delaware Secretary of State and the
Virginia State Corporation Commission, all actions necessary or desirable to
perfect the Collateral Agent's Lien on the Debtor's registered United States
patents, trademarks and copyrights shall have been duly taken.
4.8 Prior Encumbrances. There are no existing mortgages, pledges, liens or
other encumbrances of any kind upon, or any security interests in, any of the
Collateral, except for Permitted Liens. The Debtor will defend the Collateral
against all claims and demands of all Persons at any time claiming any interest
therein, except for claims and demands relating to Permitted Liens.
4.9 Financing Statements. Except for financing statements specified on
Schedule 4.9 attached hereto and by this reference incorporated herein, no
financing statement under the UCC of any state which names the Debtor or any of
its trade names or divisions as debtor is on file in any state or other
jurisdiction, and the Debtor has not signed or authorized any financing
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statement to be filed and the Debtor has not signed any security agreement
authorizing any secured party thereunder to file any financing statements,
except financing statements filed to perfect Permitted Liens.
4.10 Organizational Information. The jurisdiction of incorporation, the
organizational identification number and the Federal Employer Identification
Number of the Debtor are specified next to the Debtor's name on Schedule 4.10
attached hereto and by this reference incorporated herein. The Debtor has only
one state of organization.
SECTION 5 - COVENANTS
Until all of the Obligations have been finally and indefeasibly paid and
satisfied in full and the Revolving Commitment terminated, the Debtor covenants
and agrees that:
5.1 Perfection and Protection of Security Interest. (a) The Debtor shall,
at its expense, perform all steps reasonably requested by the Collateral Agent
at any time to perfect, maintain, protect, and enforce the Collateral Agent's
Liens, including: (i) filing financing or continuation statements, and
amendments thereof, in form and substance reasonably satisfactory to the
Collateral Agent; (ii) delivering to the Collateral Agent warehouse receipts
covering any portion of the Collateral located in warehouses and for which
warehouse receipts are issued and certificates of title covering any portion of
the Collateral for which certificates of title have been issued; (iii) when any
Event of Default has occurred and is continuing, transferring Inventory to
warehouses or other locations designated by the Collateral Agent; (iv) placing
notations on the Debtor's books of account to disclose the Collateral Agent's
security interest; and (v) taking such other steps as are deemed reasonably
necessary or desirable by the Collateral Agent to maintain and protect the
Collateral Agent's Liens. Notwithstanding the foregoing, unless any Event of
Default shall have occurred and be continuing, the Debtor shall not be required
to take any action to perfect the Collateral Agent's Liens in (w) Investment
Property with an aggregate value less than $100,000, (x) any Letter-of-Credit
Rights with respect to any letter of credit with a face amount of $150,000 or
less, but only to the extent that the aggregate face amount of all letters of
credit does not exceed $750,000, (y) any Deposit Account with a balance of
$150,000 or less at the close of any Business Day, but only to the extent that
the aggregate number of Deposit Accounts does not exceed five (5) at any time,
or (z) electronic chattel paper in an aggregate amount of less than $100,000.
The Debtor agrees that a carbon, photographic, photostatic, or other
reproduction of this Security Agreement or of a financing statement is
sufficient as a financing statement.
(b) Upon the Collateral Agent's request, the Debtor shall deliver
to the Collateral Agent all Collateral consisting of negotiable Documents,
certificated securities (accompanied by stock powers executed in blank), Chattel
Paper and Instruments promptly after the Debtor receives the same.
(c) Subject to Section 5.1(a) hereof, the Debtor shall take all
steps necessary to grant the Collateral Agent control of all electronic chattel
paper in accordance with the UCC.
(d) The Debtor hereby irrevocably authorizes the Collateral Agent
at any time and from time to time to file in any filing office in any Uniform
Commercial Code jurisdiction
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any initial financing statements and amendments thereto that (a) indicate the
Collateral (i) as all personal property assets of the Debtor 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 of the State of Delaware or such
jurisdiction, or (ii) as being of an equal or lesser scope or with greater
detail, and (b) contain any other information required by part 5 of Article 9 of
the UCC of the State of Delaware for the sufficiency or filing office acceptance
of any financing statement or amendment, including (A) whether the Debtor is an
organization, the type of organization and any organizational identification
number issued to the Debtor, 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 the real property to which the
Collateral relates. The Debtor agrees to furnish any such information to the
Collateral Agent promptly upon request, and to pay on demand all fees, costs and
expenses associated with all such filings. The Debtor also ratifies its
authorization for the Collateral Agent to have filed in any Uniform Commercial
Code jurisdiction any like initial financing statements or amendments thereto if
filed prior to the date hereof.
(e) The Debtor shall promptly notify the Collateral Agent of any
commercial tort claim (as defined in the UCC) in excess of $250,000 acquired by
it and unless otherwise consented to by the Collateral Agent, the Debtor shall
enter into a supplement to this Security Agreement, granting to the Collateral
Agent a Lien in such commercial tort claim.
(f) Upon the Collateral Agent's request, but not more frequently
than once during each calendar year, the Debtor shall provide to the Collateral
Agent a certificate of good standing from its state of incorporation or
organization.
(g) Without limiting the prohibitions on mergers involving the
Debtor contained in the Credit Agreement and the Note Agreement, the Debtor will
not change its name, operate under any assumed name, change its structure,
reincorporate or reorganize itself, or change its jurisdiction of incorporation
without giving the Collateral Agent at least thirty (30) days' prior written
notice and, unless prior to such change, the Debtor shall have taken all action
reasonably necessary or desirable or that the Collateral Agent may reasonably
request, to preserve, perfect, confirm and protect in the manner and to the
extent provided for in this Security Agreement the security interests granted
hereby.
(h) The Debtor acknowledges that it is not authorized to file any
financing statement or amendment or termination statement with respect to any
financing statement without the prior written consent of the Collateral Agent
and agrees that it will not do so without the prior written consent of the
Collateral Agent, subject to the Debtor's rights under Section 9-509(d)(2) of
the UCC.
(i) The Debtor shall not, except in connection with any Permitted
Lien, enter into any contract or agreement that restricts or prohibits the grant
of a security interest in Accounts, Chattel Paper, Instruments or payment
intangibles or the proceeds of the foregoing to the Collateral Agent.
5.2 Accounts. (a) The Debtor shall not re-date any invoice, provided that
the Debtor shall have the right, in the exercise of its reasonable business
judgment, to re-date
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invoices that in the aggregate do not exceed at any one time $100,000. The
Debtor shall not make sales on extended terms dating beyond that customary in
the Debtor's business (which customary terms include customer incentive terms)
or extend or modify any Account except in the ordinary course of business.
(b) The Debtor shall not accept any note or other instrument
(except a check or other instrument for the immediate payment of money) with
respect to any Account without providing to the Collateral Agent prompt written
notice thereof. Any such instrument shall be considered as evidence of the
Account and not payment thereof and the Debtor will promptly deliver such
instrument to the Collateral Agent, endorsed without recourse by the Debtor to
the Collateral Agent in a manner reasonably satisfactory in form and substance
to the Collateral Agent.
(c) The Debtor shall notify the Collateral Agent promptly of all
disputes and claims in excess of $250,000 with any Account Debtor, and agrees to
settle, contest, or adjust such dispute or claim at no expense to the Collateral
Agent. No discount, credit or allowance shall be granted to any such Account
Debtor without the Collateral Agent's prior written consent, except for
discounts, credits and allowances made or given in the ordinary course of the
Debtor's business when no Event of Default exists hereunder. The Debtor shall
send the Collateral Agent a copy of each credit memorandum in excess of $250,000
as soon as issued, and the Debtor shall promptly report that credit on Borrowing
Base Certificates submitted by it.
(d) If an Account Debtor returns any Inventory to the Debtor when
no Event of Default exists, then the Debtor shall promptly determine the reason
for such return and shall issue a credit memorandum to the Account Debtor in the
appropriate amount. The Debtor shall immediately report to the Collateral Agent
any return involving an amount in excess of $250,000. Each such report shall
indicate the reasons for the return and the locations and condition of the
returned Inventory. In the event any Account Debtor returns Inventory to the
Debtor when any Event of Default exists, the Debtor, upon the request of the
Collateral Agent, shall: (i) hold the returned Inventory in trust for the
Collateral Agent; (ii) segregate all returned Inventory from all of its other
property; (iii) dispose of the returned Inventory solely according to the
Collateral Agent's written instructions; and (iv) not issue any credits or
allowances with respect thereto without the Collateral Agent's prior written
consent. All returned Inventory shall be subject to the Collateral Agent's Liens
thereon. Whenever any Inventory is returned, the related Account shall be deemed
ineligible to the extent of the amount owing by the Account Debtor with respect
to such returned Inventory and such returned Inventory shall not be Eligible
Inventory.
5.3 Inventory. (a) The Debtor will keep its Inventory in good and
marketable condition, except for damaged or defective goods arising in the
ordinary course of the Debtor's business. The Debtor will not, without the prior
written consent of the Collateral Agent, acquire or accept any Inventory on
consignment or approval. The Debtor agrees that all Inventory produced by the
Debtor in the United States of America will be produced in accordance with the
Federal Fair Labor Standards Act of 1938, as amended, and all rules,
regulations, and orders thereunder. The Debtor will conduct a physical count of
the Inventory at least once during each of its fiscal years, and after and
during the continuation of any Event of Default, at such other times as the
Collateral Agent requests. The Debtor will maintain a perpetual inventory
reporting
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system at all times. The Debtor will not, without the Collateral Agent's written
consent, sell any Inventory on a xxxx-and-hold, guaranteed sale, sale and
return, sale on approval, consignment, or other repurchase or return basis.
(b) In connection with all Inventory financed by a Letter of Credit
with a face amount in excess of $150,000, the Debtor will, at the Collateral
Agent's request, instruct all suppliers, carriers, forwarders, customs brokers,
warehouses or others receiving or holding cash, checks, Inventory, Documents or
Instruments in which the Collateral Agent holds a security interest to deliver
them to the Collateral Agent and/or subject to the Collateral Agent's order, and
if they shall come into the Debtor's possession, to deliver them, upon request,
to the Collateral Agent in their original form. The Debtor shall also, at the
Collateral Agent's request, designate the Collateral Agent as the consignee on
all bills of lading and other negotiable and non-negotiable documents.
5.4 Equipment. The Debtor shall keep and maintain its Equipment in good
operating condition and repair (ordinary wear and tear excepted) and shall make
all necessary replacements thereof. The Debtor shall not permit any Equipment
that is part of the Collateral to become a fixture with respect to real property
or to become an accession with respect to other personal property with respect
to which real or personal property the Collateral Agent does not have a Lien.
The Debtor will not, without the Collateral Agent's prior written consent, alter
or remove any identifying symbol or number on any of the Debtor's Equipment
constituting Collateral. Except to the extent permitted by the Credit Agreement
and the Note Agreement, the Debtor shall not, without the Collateral Agent's
prior written consent, sell, license, lease as a lessor, or otherwise dispose of
any of the Equipment. The Debtor will not use the Equipment or any of the other
Collateral illegally.
5.5 Patents, Trademarks and Copyrights. (a) The Debtor shall notify the
Collateral Agent immediately if it knows or has reason to know that any
application or registration relating to any patent, trademark or copyright (now
or hereafter existing) will be abandoned or dedicated, or of any material
adverse determination or development (including the institution of, or any such
determination or development in, any proceeding in the United States Patent and
Trademark Office, the United States Copyright Office or any court) regarding the
Debtor's ownership of any patent, trademark or copyright, its right to register
the same, or to keep and maintain the same.
(b) In no event shall the Debtor, either directly or through any
agent, employee, licensee or designee, file an application for the registration
of any patent, trademark or copyright with the United States Patent and
Trademark Office, the United States Copyright Office or any similar office or
agency without giving the Collateral Agent prior written notice thereof, and,
upon request of the Collateral Agent, the Debtor shall execute and deliver any
and all such agreements, assignments and security agreements as the Collateral
Agent may reasonably request to evidence the Collateral Agent's Lien on such
patent, trademark or copyright, and the General Intangibles of the Debtor
relating thereto or represented thereby.
(c) The Debtor shall take all actions necessary or advisable, in
the exercise of its prudent business judgment, to maintain and pursue each
application, to obtain the relevant
-11-
registration and to maintain the registration of each of the patents, trademarks
and copyrights (now or hereafter existing), including the filing of applications
for renewal, affidavits of use, affidavits of noncontestability and opposition
and interference and cancellation proceedings.
(d) In the event that any of the patent, trademark or copyright
Collateral is infringed upon, or misappropriated or diluted by a third party,
the Debtor shall notify the Collateral Agent promptly after the Debtor learns
thereof. The Debtor shall, unless it shall reasonably determines that such
patent, trademark or copyright Collateral is not material to the conduct of its
business or operations, take such actions as the Debtor shall deem appropriate
to protect such patent, trademark or copyright Collateral.
5.6 Maintenance of Records. The Debtor will keep and maintain, at its own
cost and expense, in a manner consistent with past practice, complete and
current records of the Collateral owned by it, including, but not limited to, a
record of all shipments received, deliveries made, contracts performed, payments
received, credits granted thereon and other dealings therewith. The Debtor shall
timely provide the Collateral Agent with all such collateral reports as are
required by the Credit Agreement and the Note Agreement, and all such additional
reports as the Collateral Agent shall reasonably require. These reports shall be
in the form previously provided to the Collateral Agent for its review or in
form and detail as is reasonably satisfactory to the Collateral Agent. The
Debtor will use all reasonable efforts to protect its records and books
pertaining to any Collateral against fire, theft, loss or any other manner of
destruction or loss. Such protection will consist of such protective means and
devices as from time to time reasonably deemed necessary by the Collateral
Agent. If the Debtor maintains its records of Accounts on a computer, it will
maintain backup copies of such records, updated at reasonable intervals.
5.7 Inspection and Delivery of Collateral, Books and Records. The
Collateral Agent or the Secured Parties, or any of them, or their respective
agents, may at any reasonable time and from time to time and, if no Event of
Default has occurred, upon reasonable prior notice, inspect the Collateral, and
the books and records of the Debtor pertaining thereto. Not more frequently than
one (1) time during each calendar year if no Event of Default has occurred and
is continuing (there being no such limitation if any Event of Default has
occurred and is continuing), the Debtor shall, at its own expense and cost,
deliver or make available, at the Collateral Agent's election, books and records
pertaining to the Accounts (including chattel paper) to the Collateral Agent, or
any designated agent of the Collateral Agent, at such time and place as the
Collateral Agent may reasonably request.
5.8 Expenses. The Debtor shall be liable for, and agrees to pay the
Collateral Agent on demand, any and all reasonable expenses incurred or paid by
the Collateral Agent or the Secured Parties, or any of them, in protecting or
enforcing their respective rights under this Security Agreement, including,
without limitation, reasonable attorneys' fees, whether incurred in collecting
specific Accounts or otherwise. If the Debtor shall fail, in violation of the
terms of the Credit Agreement or the Note Agreement, to discharge taxes, liens,
security interests or other encumbrances on the Collateral, other than Permitted
Liens, or to repair any damage to the Collateral, or to maintain or preserve the
Collateral or to maintain adequate insurance on the Collateral, in each case
within twenty (20) days after written notice from the Collateral Agent, the
Collateral Agent may, at its option, discharge such taxes, liens, security
interests or other
-12-
encumbrances on or in the Collateral, pay for the repair or damage to the
Collateral, pay for the maintenance and preservation of the Collateral,
and/or pay for insurance on the Collateral. The Debtor agrees to reimburse the
Collateral Agent on demand for any payments so made and, until such
reimbursement, to pay interest thereon at a fluctuating rate of interest equal
to the Default Rate applicable to the Revolving Loans from the date of the
payment until reimbursement therefor, which reimbursement and interest shall be
a part of the Obligations. Any payment made or other action taken by the
Collateral Agent under this Section 5.8 shall be without prejudice to any right
to assert an Event of Default hereunder and to proceed thereafter as herein
provided.
5.9 Insurance. The Debtor will continuously insure the Collateral with a
responsible company or companies reasonably satisfactory to the Collateral Agent
against fire (with extended coverage) in the full insurable value of the
Collateral, and against such other casualties and in such amounts and with such
deductibles as are usually carried by owners of similar businesses and
properties in the same general areas in which the Debtor operates. The insurance
policy (or policies) shall have attached thereto a standard loss payable clause,
without contribution, in favor of the Collateral Agent as agent for the Secured
Parties as its interest may appear, and shall otherwise be in form reasonably
acceptable to the Collateral Agent, and the Debtor will cause such policy (or
policies) to provide that it (they) may not be canceled without thirty (30)
days' prior written notice to the Collateral Agent. The Debtor will deliver to
the Collateral Agent as agent for the Secured Parties evidence of the renewal or
continuation of insurance at least ten (10) days before the expiration of the
existing insurance. The Debtor hereby assigns to the Collateral Agent as agent
for the Secured Parties any return of unearned premiums which may be due upon
cancellation of any such policy or policies for any reason whatsoever and, upon
the occurrence of any Event of Default and during the continuance thereof,
directs the insurer(s) to pay to the Collateral Agent as agent for the Secured
Parties any amounts so due.
5.10 Damage or Loss and Replacement. (a) The Debtor shall promptly notify
the Collateral Agent of any fire, theft, water damage, vandalism or other damage
to or loss of any Inventory or Equipment to the extent that the uninsured
portion of such damaged or lost Inventory or Equipment is in excess of $250,000.
In the case of any loss, damage to or destruction of the Inventory or Equipment
or any part thereof, the Debtor, whether or not the insurance proceeds, if any,
received on account of such damage or destruction shall be sufficient for that
purpose, at the Debtor's cost and expense, will promptly repair or replace the
Inventory or Equipment so lost, damaged or destroyed.
(b) In the event that the Debtor or the Collateral Agent shall
receive any proceeds of insurance with respect to Inventory, provided no Default
or Event of Default then exists, (a) the Debtor shall pay to the Collateral
Agent, or the Collateral Agent shall retain, as applicable, an amount of such
proceeds equal to the balance then outstanding under the Revolving Credit Loan
Obligations, which amount the Collateral Agent shall promptly pay to BB&T-VA for
application to the Revolving Credit Loan Obligations, and the Debtor shall be
entitled to retain, or the Collateral Agent shall pay to the Debtor, as
applicable, any such excess insurance proceeds or (b) if there is no balance
then outstanding under the Revolving Credit Loan Obligations, then the Debtor
shall be entitled to retain, or the Collateral Agent shall pay to the Debtor, as
applicable, all such proceeds of insurance with respect to Inventory.
-13-
(c) In the event the Debtor shall receive any proceeds of insurance
with respect to the Equipment in excess of $1,000,000 in the aggregate in any
fiscal year of the Debtor, the Debtor shall immediately pay over such proceeds
in excess of $1,000,000 to the Collateral Agent. Insurance proceeds received by
the Collateral Agent under the provisions hereof or under any policy or policies
of insurance covering the Equipment or any part thereof pursuant to the terms
hereof in excess of $1,000,000 in the aggregate in any fiscal year of the Debtor
shall be applied to the reduction of, or otherwise held as security for, the
Secured Obligations (whether or not then due); provided, however, that the
Collateral Agent agrees to release such insurance proceeds to the Debtor for the
replacement, repair or restoration of the portion of the Equipment lost, damaged
or destroyed if, but only if, (i) at the time of release no Default or Event of
Default exists, (ii) a written request for such release is received from the
Debtor within thirty (30) calendar days of receipt of, or in the event received
by the Collateral Agent notice of the Collateral Agent's receipt of, such
insurance proceeds and (iii) the Debtor provides the Collateral Agent purchase
orders or invoices for replacement property for, or for the repair or
restoration of, the Equipment that was lost, damaged or destroyed giving rise to
the payment of such insurance proceeds within 210 days of the occurrence of such
loss, damage or destruction. Notwithstanding the foregoing, if, following the
application of insurance proceeds to replace, repair or restore Equipment as
provided in this Section 5.10(c), there is an amount of such proceeds which is
less than $50,000 remaining, provided that no Default or Event of Default shall
have occurred and be continuing, the Collateral Agent shall return such amount
to the Debtor.
5.11 Further Assurances. Subject to the provisions of Section 5.1(a)
hereof, the Debtor will from time to time, at the sole expense of the Debtor,
promptly execute, deliver, file and record (as appropriate) all further
instruments and documents, and take all further action as the Collateral Agent
or the Secured Parties, or any of them, may reasonably deem necessary or prudent
in order to perfect, continue and protect the security interests granted hereby
or to enable the Collateral Agent or the Secured Parties, or any of them, to
exercise and enforce its rights and remedies hereunder with respect to the
Collateral or any part thereof.
SECTION 6 - SALES AND COLLECTIONS
6.1 Processing and Sales of Inventory. So long as no Event of Default
shall have occurred and be continuing and the Collateral Agent shall not have
notified the Debtor to the contrary, the Debtor shall have the right in the
regular course of its business to process and sell the Inventory. The security
interests granted hereunder to the Collateral Agent as agent for the Secured
Parties shall attach to all proceeds of all sales, leases, or other dispositions
of the Inventory.
6.2 Inventory Controls. Upon the occurrence and during the continuation of
any Event of Default, the Collateral Agent or its agents may secure all
entrances to those parts of the premises of the Debtor in which any Inventory is
stored and keep such entrances locked or otherwise sealed or institute such
other control measures with respect to the movement of Inventory as the
Collateral Agent may deem necessary or prudent, subject to the rights of third
parties under the Leases.
-14-
6.3 Collection of Accounts. The Collateral Agent as agent for the Secured
Parties hereby authorizes the Debtor to collect and dispose of the proceeds of
the Accounts, which authority the Collateral Agent may curtail or terminate at
any time following the occurrence and during the continuance of any Event of
Default. After such authority has been curtailed or terminated, the Debtor
shall, upon receipt of all checks, drafts, cash, and other remittances in
payment of or on account of the Accounts, deposit the same in a special account
designated by the Collateral Agent, over which account the Collateral Agent as
agent for the Secured Parties alone shall have the power of withdrawal (the
"Collection Account"). The remittance of the proceeds of such Accounts shall
not, however, constitute payment or liquidation of such Accounts until the
Collateral Agent as agent for the Secured Parties shall receive good funds for
such proceeds.
For purposes of computing interest, the Collateral Agent shall treat
deposited checks, drafts and other items as collected in accordance with the
Collateral Agent's normal availability schedule, but in doing so the Collateral
Agent is not agreeing that such funds have in fact been paid, nor is the
Collateral Agent as agent for the Secured Parties waiving any right it may have
to charge back returned items to the Debtor and to collect interest on such
charged-back items. Funds placed in the Collection Account shall be held by the
Collateral Agent as agent for the Secured Parties as security for the
Obligations. These proceeds shall be deposited in precisely the form received,
except for the endorsement of the Debtor where necessary to permit collection of
items, which endorsement the Debtor agrees to make, and which endorsement the
Collateral Agent is also hereby authorized to make on behalf of the Debtor.
Pending such deposit, the Debtor agrees that it will not commingle any such
checks, drafts, cash or other remittances with any funds or other property of
the Debtor but will hold them separate and apart therefrom, and upon an express
trust for the Collateral Agent until deposit thereof is made in the Collection
Account. The Collateral Agent as agent for the Secured Parties will from time to
time apply the funds on deposit in the Collection Account against the
Obligations in such order of application as is required by the Intercreditor
Agreement.
SECTION 7 - POWER OF ATTORNEY
Effective upon the occurrence and during the continuance of any Event of
Default, the Debtor hereby appoints the Collateral Agent and the Collateral
Agent's designee as the Debtor's attorney-in-fact, with full power of
substitution: (a) to endorse the Debtor's name on any checks, notes,
acceptances, money orders, or other forms of payment or security that come into
the Collateral Agent's or any Secured Party's possession; (b) to sign the
Debtor's name on any invoice, xxxx 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) to execute loss claims and other
applications for payment of benefits under any insurance policy covering any of
the Collateral in the name of the Debtor or the Collateral Agent, to receive all
monies and endorse drafts, checks, and other instruments for the payment of any
proceeds of any insurance or in order to collect any return of unearned
premiums, (d) to notify the post office authorities to change the address for
delivery of the Debtor's mail to an address designated by the Collateral Agent
and to receive, open and dispose of all mail addressed to the Debtor; (e) to
send requests for verification of Accounts to customers
-15-
or Account Debtors; (f) to complete in the Debtor's name or the Collateral
Agent's name, any order, sale or transaction, obtain the necessary Documents in
connection therewith, and collect the proceeds thereof; (g) to clear Inventory
through customs in the Debtor's name, the Collateral Agent's name or the name of
the Collateral Agent's designee, and to sign and deliver to customs officials
powers of attorney in the Debtor's name for such purpose; (h) to the extent that
the Debtor's authorization given in Section 5.1(d) of this Security Agreement is
not sufficient (which authorization in Section 5.1(d) is effective, and which
powers under Section 5.1(d) may be exercised by the Collateral Agent, before the
occurrence of an Event of Default), to file such financing statements with
respect to this Security Agreement, with or without the Debtor's signature, or
to file a photocopy of this Security Agreement in substitution for a financing
statement, as the Collateral Agent may deem appropriate and to execute in the
Debtor's name such financing statements and amendments thereto and continuation
statements which may require the Debtor's signature; and (i) to do all things
necessary to carry out the terms of this Security Agreement. The Collateral
Agent shall not be obligated to do any of the acts or exercise any of the powers
hereinabove authorized, but, if the Collateral Agent elects to do any such act
or exercise any such power, unless the Collateral Agent is guilty of gross
negligence or willful misconduct in the exercise of such power, it shall not be
accountable to the Debtor for more than it actually receives as a result of such
exercise of power, and, in any event, none of the Collateral Agent or any of the
Secured Parties, nor any of their respective attorneys, will be liable for any
acts or omissions or for any error of judgment or mistake of fact or law except
for their gross negligence or willful misconduct. This appointment shall be
deemed a power coupled with an interest, shall be irrevocable, and shall not
terminate until the Obligations have been fully satisfied, the Credit Agreement
has been terminated and the Notes (as defined in the Note Agreement) have been
paid in full under the Note Agreement. The Debtor hereby ratifies and approves
all acts of such attorney-in-fact.
SECTION 8 - NO LIABILITY
(a) The Debtor assumes all responsibility and liability arising
from or relating to the use, sale, license or other disposition of the
Collateral. The Obligations shall not be affected by any failure of the
Collateral Agent or any of the Secured Parties to take any steps to perfect the
Collateral Agent's Liens or to collect or realize upon the Collateral, nor shall
loss of or damage to the Collateral release the Debtor from any of the
Obligations. Following the occurrence and during the continuation of any Event
of Default, the Collateral Agent may (but shall not be required to), without
notice to or consent from the Debtor, xxx upon or otherwise collect, extend the
time for payment of, modify or amend the terms of, compromise or settle for
cash, credit, or otherwise upon any terms, grant other indulgences, extensions,
renewals, compositions, or releases, and take or omit to take any other action
with respect to the Collateral, any security therefor, any agreement relating
thereto, any insurance applicable thereto, or any Person liable directly or
indirectly in connection with any of the foregoing, without discharging or
otherwise affecting the liability of the Debtor for the Obligations, or any
other agreement now or hereafter existing between the Collateral Agent and/or
any Secured Party and the Debtor.
(b) It is expressly agreed by the Debtor that, anything herein to
the contrary notwithstanding, the Debtor shall remain liable under each of its
contracts and each of its licenses to observe and perform all the conditions and
obligations to be observed and performed by it thereunder. None of the
Collateral Agent or any of the Secured Parties shall have any
-16-
obligation or liability under any contract or license by reason of or arising
out of this Security Agreement or the granting herein of a Lien thereon or the
receipt by the Collateral Agent or any Secured Party of any payment relating to
any contract or license pursuant hereto. None of the Collateral Agent or any
Secured Party shall be required or obligated in any manner to perform or fulfill
any of the obligations of the Debtor under or pursuant to any contract or
license, or to make any payment, or to make any inquiry as to the nature or the
sufficiency of any payment received by it or the sufficiency of any performance
by any party under any contract or license, or to present or file any claims, or
to take any action to collect or enforce any performance or the payment of any
amounts which may have been assigned to it or to which it may be entitled at any
time or times.
(c) The Collateral Agent may at any time after any Event of Default
shall have occurred and be continuing (or if any rights of set-off (other than
set-offs against an Account arising under the contract giving rise to the same
Account) or contra accounts may be asserted with respect to the following),
without prior notice to the Debtor, notify Account Debtors, and other Persons
obligated on the Collateral that the Collateral Agent has a security interest
therein, and that payments shall be made directly to the Collateral Agent, for
the benefit of the Secured Parties. Upon the request of the Collateral Agent,
the Debtor shall so notify Account Debtors, and other Persons obligated on
Collateral. Once any such notice has been given to any Account Debtor or other
Person obligated on the Collateral, the Debtor shall not give any contrary
instructions to such Account Debtor or other Person without the Collateral
Agent's prior written consent.
(d) After the occurrence and during the continuance of any Event of
Default, the Collateral Agent may at any time in the Collateral Agent's own name
or in the name of the Debtor communicate with Account Debtors, parties to
contracts and agreements to which the Debtor is a party, and obligors in respect
of Instruments to verify with such Persons, to the Collateral Agent's
satisfaction, the existence, amount and terms of Accounts, contracts and
agreements, payment intangibles, Instruments or Chattel Paper. If any Event of
Default shall have occurred and be continuing, the Debtor, at its own expense,
shall cause the independent certified public accountants then engaged by the
Debtor to prepare and deliver to the Collateral Agent and each of the Secured
Parties at any time and from time to time promptly upon the Collateral Agent's
request the following reports with respect to the Debtor: (i) a reconciliation
of all Accounts; (ii) an aging of all Accounts; (iii) trial balances; and (iv) a
test verification of such Accounts as the Collateral Agent may request. The
Debtor, at its own expense, shall deliver to the Collateral Agent the results of
each physical verification, if any, which the Debtor may in its discretion have
made, or caused any other Person to have made on its behalf, of all or any
portion of its Inventory.
(e) The Collateral Agent shall use reasonable care with respect to
the Collateral in its possession or under its control. The Collateral Agent
shall not have any other duty as to any Collateral in its possession or control
or in the possession or control of any agent or nominee of the Collateral Agent,
or any income thereon or as to the preservation of rights against prior parties
or any other rights pertaining thereto.
-17-
SECTION 9 - DEFAULT AND REMEDIES
(a) In addition to all other rights and remedies granted to it
under this Security Agreement, the Credit Agreement, the other Loan Documents,
the Note Agreement, and under any other instrument or agreement securing,
evidencing or relating to any of the Obligations, upon the occurrence of any
Event of Default, the Collateral Agent, as agent for the Secured Parties, may,
subject to the provisions of the Intercreditor Agreement, exercise all rights
and remedies of a secured party under the UCC. Without limiting the generality
of the foregoing, the Debtor expressly agrees that in any such event the
Collateral Agent, without demand of performance or other demand, advertisement
or notice of any kind (except the notice specified below of time and place of
public or private sale) to or upon the Debtor or any other Person (all and each
of which demands, advertisements and notices are hereby expressly waived to the
maximum extent permitted by the UCC and other applicable law), may forthwith
enter upon the premises of the Debtor where any Collateral is located through
self-help, without judicial process, without first obtaining a final judgment or
giving the Debtor or any other Person notice and opportunity for a hearing on
the Collateral Agent's claim or action and may collect, receive, assemble,
process, appropriate and realize upon the Collateral, or any part thereof, and
may forthwith sell, lease, license, assign, give an option or options to
purchase, or sell or otherwise dispose of and deliver the Collateral (or
contract to do so), or any part thereof, in one or more parcels at a public or
private sale or sales, at any exchange at such prices as it may deem acceptable,
for cash or on credit or for future delivery without assumption of any credit
risk. The Collateral Agent shall have the right upon any such public sale or
sales and, to the extent permitted by law, upon any such private sale or sales,
to purchase for the benefit of the Collateral Agent and the Secured Parties the
whole or any part of the Collateral so sold, free of any right or equity of
redemption, which equity of redemption the Debtor hereby releases. Such sales
may be adjourned and continued from time to time with or without notice. The
Collateral Agent shall have the right to conduct such sales on the Debtor's
premises or elsewhere and shall have the right to use the Debtor's premises
without charge for such time or times as the Collateral Agent deems necessary or
advisable. Expenses of retaking, holding, preparing for sale, selling and the
like shall include the reasonable attorneys' fees and legal expenses of the
Collateral Agent and the Secured Parties, and each of them.
(b) After the occurrence and during the continuance of any Event of
Default, the Debtor further agrees, at the Collateral Agent's request, to
assemble the Collateral and make it available to the Collateral Agent at a place
or places designated by the Collateral Agent which are reasonably convenient to
the Collateral Agent and the Debtor, whether at the Debtor's premises or
elsewhere. Until the Collateral Agent is able to effect a sale, lease, or other
disposition of Collateral, the Collateral Agent shall have the right to hold or
use Collateral, or any part thereof, to the extent that it deems appropriate for
the purpose of preserving the Collateral or its value or for any other purpose
deemed appropriate by the Collateral Agent. The Collateral Agent shall have no
obligation to the Debtor to maintain or preserve the rights of the Debtor as
against third parties with respect to Collateral while Collateral is in the
possession of the Collateral Agent. The Collateral Agent may, if it so elects,
seek the appointment of a receiver or keeper to take possession of Collateral
and to enforce any of the Collateral Agent's remedies (for the benefit of the
Collateral Agent and the Secured Parties), with respect to such appointment
without prior notice or hearing as to such appointment. The Collateral Agent
shall apply the net proceeds of any such collection, recovery, receipt,
appropriation, realization or sale
-18-
to the Obligations in such order of application as is required by the
Intercreditor Agreement, and only after so paying over such net proceeds, and
after the payment by the Collateral Agent of any other amount required by any
provision of law, need the Collateral Agent account for the surplus, if any, to
the Debtor. To the maximum extent permitted by applicable law, the Debtor waives
all claims, damages, and demands against the Collateral Agent and each Secured
Party arising out of the repossession, retention or sale of the Collateral
except such as arise solely out of the gross negligence or willful misconduct of
the Collateral Agent or any Secured Party as finally determined by a court of
competent jurisdiction. The Collateral Agent will give the Debtor reasonable
notice of the time and place of any public sale of the Collateral or any part
thereof or of the time after which any private sale or any other intended
disposition thereof is to be made. The Debtor and the Collateral Agent agree
that the requirements of reasonable notice shall be met if such notice is given
to the Debtor at the address of the Debtor specified in Section 10.2 of this
Security Agreement (or such other address that the Debtor may provide to the
Collateral Agent in writing) at least ten (10) days before the time of the sale
or disposition, but nothing contained herein shall be construed to mean that any
other notice or a shorter period of time does not constitute reasonable notice
for the sale of the Collateral or any part thereof. The Debtor shall remain
liable for any deficiency if the proceeds of any sale or disposition of the
Collateral are insufficient to pay all Obligations, including any attorneys'
fees or other expenses incurred by the Collateral Agent or any Secured Party to
collect such deficiency.
(c) After the occurrence and during the continuance of any Event of
Default, the Collateral Agent shall have the right to enter upon the premises of
the Debtor at any time for the purpose of reducing to possession the Accounts
(including Chattel Paper) and all cash or non-cash proceeds thereof, for the
purpose of taking possession of and using the current version of the Debtor's
accounts receivable computer software, and/or for the purpose of inspecting the
Inventory and Equipment and inspecting and/or auditing the books, records and
procedures of the Debtor. The Collateral Agent may deduct its expenses in
collecting the Accounts from the proceeds applicable to the Obligations. Such
expenses shall include, without limitation, the costs of posting transactions to
the books of the Debtor and performing such other bookkeeping and accounting
tasks as the Collateral Agent may deem appropriate to collect any Account.
(d) Except as otherwise specifically provided herein, the Debtor
hereby waives presentment, demand, protest or any notice (to the maximum extent
permitted by applicable law) of any kind in connection with this Security
Agreement or any Collateral.
(e) For the purpose of enabling the Collateral Agent to exercise
rights and remedies under this Section 9 (including, without limiting the terms
of this Section, in order to take possession of, hold, preserve, process,
assemble, prepare for sale, market for sale, sell or otherwise dispose of
Collateral) at such time as the Collateral Agent shall be lawfully entitled to
exercise such rights and remedies, the Debtor hereby grants to the Collateral
Agent, for the benefit of the Collateral Agent and the Secured Parties, an
irrevocable, nonexclusive license (exercisable without payment of royalty or
other compensation to the Debtor) to use, license or sublicense any Proprietary
Rights now owned or hereafter acquired by the Debtor, and wherever the same may
be located, and including in such license access to all media in which any of
the licensed items may be recorded or stored and to all computer software and
programs used for the compilation or printout thereof.
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SECTION 10 - MISCELLANEOUS
10.1 Cumulative Rights and No Waiver. Each and every right granted to the
Collateral Agent and the Secured Parties, and each of them, hereunder or under
any other document delivered under or in connection with the Credit Agreement or
the Note Agreement, or allowed it by law or equity, shall be cumulative and may
be exercised from time to time. No failure on the part of the Collateral Agent
or the Secured Parties, or any of them, to exercise, and no delay in exercising
any right, shall operate as a waiver thereof, nor shall any single or partial
exercise by the Collateral Agent or the Secured Parties, or any of them, of any
right preclude any other or future exercise thereof or the exercise of any other
right.
10.2 Notices.
(a) Method of Communication. Unless otherwise specified herein, all
notices, requests and other communications to a party hereunder shall be in
writing (including facsimile transmission) and shall be given to such party: (a)
at its address or facsimile number set forth below, or (b) at such other address
or facsimile number as such party may hereafter specify for the purpose of
communication hereunder by notice to the other party hereto. Each such notice,
request or other communication shall be effective (i) if given by facsimile
transmission, when transmitted to the facsimile number specified in this Section
and confirmation of receipt is received, (ii) if given by mail, 72 hours after
such communication is deposited in the mails, certified mail, return receipt
requested, with appropriate first-class postage prepaid, addressed as specified
in this Section, or (iii) if given by any other means, when delivered at the
address specified in this Section 10.2. Rejection or refusal to accept or the
inability to deliver because of a changed address of which no notice was given
shall not affect the validity of notice given in accordance with this Section.
(b) Addresses for Notices. All notices to any party shall be sent
to it at the following addresses, or any other address as to which all other
parties are notified in writing.
If to the Debtor: TREX Company, LLC
Trex Company, Inc.
000 Xxxxxx Xxxxx
Xxxxxxxxxx, Xxxxxxxx 00000-0000
Attention: Chief Financial Officer
Telecopy No.: (000) 000-0000
With copies to: TREX Company, LLC
Trex Company, Inc.
000 Xxxxxx Xxxxx
Xxxxxxxxxx, Xxxxxxxx 00000-0000
Attention: Xxxxxxx X. Xxxx, Esquire
Telecopy No.: (000) 000-0000
and
-00-
Xxxxx X. Xxxxxxx, Xxxxxxx
Xxxxx & Xxxxxxx L.L.P.
000 Xxxxx Xxxxxxx Xxxxxx, Xxxxx 0000
Xxxxxxxxx, Xxxxxxxx 00000
Telecopy No.: (000) 000-0000
If to the Collateral Agent: Branch Banking & Trust Company of Virginia
000 Xxxxx Xxxxxxxxx Xxxx, Xxxxx 000
Xxxxxxx-Xxxxx, Xxxxx Xxxxxxxx 00000
Attention: Xxxx Xxxxx
Telecopy No.: (000) 000-0000000-0000
With copies to: Xxxxxx X. duB. Xxxxx, Esquire
Xxxxxxxx Xxxxxxx LLP
0000 Xxxx Xxxx Xxxxxx, 00xx Xxxxx
Xxxxxxxx, Xxxxxxxx 00000
Telecopy No.: (000) 000-0000
10.3 Applicable Law. This Security Agreement shall be construed in
accordance with and governed by the laws of the Commonwealth of Virginia, except
as otherwise required by mandatory provisions of law and except to the extent
that remedies provided by the laws of any jurisdiction other than Virginia are
governed by the laws of such jurisdiction.
10.4 Arbitration; Submission to Jurisdiction; Waiver of Jury Trial.
(a) Upon demand of any party hereto, whether made before or after
institution of any judicial proceeding, any claim or controversy arising out of
or relating to this Security Agreement or any other Loan Documents between the
parties hereto (a "Dispute") shall be resolved by binding arbitration conducted
under and governed by the Commercial Financial Disputes Arbitration Rules (the
"Arbitration Rules") of the American Arbitration Association (the "AAA") and the
Federal Arbitration Act. Disputes may include, without limitation, tort claims,
counterclaims, disputes as to whether a matter is subject to arbitration, claims
brought as class actions, or claims arising from documents executed in the
future. A judgment upon the award may be entered in any court having
jurisdiction. Notwithstanding the foregoing, this arbitration provision does not
apply to disputes under or related to swap agreements.
(b) All arbitration hearings shall be conducted in the City of
Richmond, Virginia. A hearing shall begin within 90 days of demand for
arbitration and all hearings shall be concluded within 120 days of demand for
arbitration. These time limitations may not be extended unless a party shows
cause for extension and then for no more than a total of 60 days. The expedited
procedures set forth in Rule 51 et seq. of the Arbitration Rules shall be
applicable to claims of less than $1,000,000. Arbitrators shall be licensed
attorneys selected from the Commercial Financial Dispute Arbitration Panel of
the AAA. The parties do not waive applicable federal or state substantive law
except as provided herein.
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(c) Notwithstanding the preceding binding arbitration provisions,
the parties agree to preserve, without diminution, certain remedies that any
party may exercise before or after an arbitration proceeding is brought. The
parties shall have the right to proceed in any court of proper jurisdiction or
by self-help to exercise or prosecute the following remedies, as applicable: (i)
all rights to foreclose against any real or personal property or other security
by exercising a power of sale or under applicable law by judicial foreclosure,
including a proceeding to confirm the sale; (ii) all rights of self-help,
including peaceful occupation of real property and collection of rents, setoff
and peaceful possession of personal property; and (iii) obtaining provisional or
ancillary remedies, including injunctive relief, sequestration, garnishment,
attachment, appointment of receiver and filing an involuntary bankruptcy
proceeding. Any claim or controversy with regard to the parties' entitlement to
such remedies is a Dispute.
(d) Each party agrees that it shall not have a remedy of punitive
or exemplary damages against the other in any Dispute and hereby waives any
right or claim to punitive or exemplary damages it may have now or which may
arise in the future in connection with any Dispute, whether the Dispute is
resolved by arbitration or judicially.
(e) TO THE FULLEST EXTENT PERMITTED BY LAW, THE PARTIES HERETO
HEREBY IRREVOCABLY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL WITH RESPECT TO
ANY DISPUTE.
10.5 Severability; Modification. If any provision hereof is invalid or
unenforceable in any jurisdictions, then, to the fullest extent permitted by
law, (a) the other provisions hereof shall remain in full force and effect in
such jurisdiction; and (b) the invalidity or unenforceability of any provision
hereof in any jurisdiction shall not affect the validity or enforceability of
such provisions in any other jurisdiction. No modification, amendment or waiver
of any provision of this Security Agreement, nor consent to any departure by the
Debtor therefrom, shall in any event be effective unless the same shall be in
writing, made in accordance with the Intercreditor Agreement, and signed by the
Collateral Agent and the Debtor, and then such waiver or consent shall be
effective only in the specific instance and for the purpose for which given. No
notice to or demand upon the Debtor in any case shall entitle the Debtor to any
other or further notice or demand in the same or similar circumstances.
10.6 Execution in Counterparts. This Security Agreement may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed to be
an original and all of which taken together shall constitute but one and the
same instrument.
10.7 Obligations Joint and Several. Each and every obligation of the Debtor
contained in this Security Agreement shall be the joint and several obligations
of TREX Company, LLC and Trex Company, Inc.
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IN WITNESS WHEREOF, the Debtor and the Collateral Agent have caused this
Security Agreement to be duly executed by their duly authorized officers, all as
of the date first above written.
TREX COMPANY, LLC
By: /s/ Xxxxxxx X. Xxxxxxx
--------------------------------(SEAL)
Name: Xxxxxxx X. Xxxxxxx
Title: Executive Vice President and
Chief Financial Officer
TREX COMPANY, INC.
By: /s/ Xxxxxxx X. Xxxxxxx
--------------------------------(SEAL)
Name: Xxxxxxx X. Xxxxxxx
Title: Executive Vice President and
Chief Financial Officer
BRANCH BANKING AND TRUST COMPANY OF
VIRGINIA, as Collateral Agent for
the Secured Parties herein
By: /s/ Xxxxx X. Xxxxxxxx
-------------------------------------
Name: Xxxxx X. Xxxxxxxx
-------------------------------------
Title: Senior Vice President
-------------------------------------
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