Exhibit 10.1
LOAN AND SECURITY AGREEMENT
among
WILTON FUNDING, LLC,
as Lender
and
THE ALLIED DEFENSE GROUP, INC.
and
CERTAIN OF its subsidiaries named herein,
as Borrowers
Dated as of May 28, 2004
TABLE OF CONTENTS
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1 DEFINITIONS...........................................................1
1.1 General Definitions..............................................1
1.2 Index to Other Definitions......................................13
1.3 Accounting Terms................................................14
1.4 Others Defined in New York Uniform Commercial Code..............14
2 LOAN AND FEES........................................................14
2.1 Loan............................................................14
2.2 Loan Advances...................................................14
2.3 Payment of Principal and Interest; Default Rate.................15
2.4 Voluntary Prepayments; Termination of the Commitments...........16
2.5 Use of Funds....................................................17
2.6 Loan Fees.......................................................17
2.7 Borrowers' Loan Account.........................................17
2.8 Statements......................................................18
2.9 Termination of Agreement........................................18
2.1 Loan............................................................18
3 WARRANTS.............................................................19
4 CONDITIONS TO LOAN ADVANCES..........................................19
4.1 Approval of Lender's Counsel....................................19
4.2 Compliance......................................................19
4.3 Documentation for the Initial Advance...........................19
4.4 Documentation for Initial Working Capital Advance or
Acquisition Advance...........................................19
4.5 Delivery of Financial Statements, Projections, Compliance
Certificate and Appraisals....................................20
4.6 Completion of Forensic Accounting Due Diligence
Reports and Background Checks.................................20
4.7 Closing of Each Permitted Acquisition...........................20
4.8 Additional Documentation for Acquisition Advances...............21
4.9 Funding by Fund Lender..........................................23
5 SECURITY.............................................................24
5.1 Security Interests and Liens....................................24
5.2 Endorsement by Lender...........................................25
5.3 Delivery of Warehouse Receipts to Lender........................25
5.4 Preservation of Collateral and Perfection of
Security Interests............................................25
5.5 Loss of Value of Collateral.....................................26
5.6 Collection of Accounts; Power of Attorney.......................26
5.7 Account Covenants...............................................26
5.8 Account Records and Verification Rights.........................26
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5.9 Notice to Account Debtors.......................................27
5.10 Inventory Records...............................................27
5.11 Special Collateral..............................................27
5.12 Remittance of Proceeds to Lender................................27
5.13 Safekeeping of Collateral.......................................27
5.14 Sales and Use of Collateral.....................................28
5.15 Margin Accounts.................................................28
5.16 Real Property...................................................28
5.17 Title Insurance.................................................29
6 WARRANTIES.............................................................
6.1 Litigation and Proceedings......................................29
6.2 Other Agreements................................................29
6.3 Licenses, Patents, Copyrights, Trademarks and Trade Names.......30
6.4 Collateral......................................................30
6.5 Location of Assets; Chief Executive Office......................30
6.6 Tax Liabilities.................................................30
6.7 Indebtedness and Producer Payables..............................31
6.8 Other Names.......................................................
6.9 Affiliates......................................................31
6.10 Environmental Matters...........................................31
6.11 Existence; Organization.........................................31
6.12 Authority.......................................................32
6.13 Binding Effect..................................................32
6.14 Correctness of Financial Statements.............................33
6.15 Employee Controversies..........................................33
6.16 Compliance with Laws and Regulations............................33
6.18 Inventory Warranties............................................33
6.19 Solvency........................................................34
6.20 Pension Reform Act..............................................34
6.21 Margin Security.................................................34
6.22 Investment Company Act Not Applicable...........................34
6.23 Public Utility Holding Company Act Not Applicable...............34
6.24 Full Disclosure.................................................34
6.25 Intellectual Property...........................................35
6.26 Government Contracts............................................35
6.27 SEC Filings and Reports.........................................35
6.28 Compliance with Xxxxxxxx-Xxxxx Act..............................36
6.29 Projections and Pro Forma Financial Statements..................36
6.30 Purchase Agreements and Subordinated Debenture
Purchase Agreement Representations............................37
6.31 Survival of Warranties..........................................37
7 AFFIRMATIVE COVENANTS................................................37
7.1 Financial and Other Information.................................37
7.2 Conduct of Business.............................................39
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7.3 Maintenance of Properties.......................................39
7.4 Borrowers' Liability Insurance..................................39
7.5 Borrowers' Property Insurance...................................40
7.6 Financial Covenants and Ratios..................................41
7.7 Benefit Plans...................................................41
7.8 Notice of Suit, Adverse Change in Business or Default...........41
7.9 Use of Proceeds.................................................42
7.10 Books and Records...............................................42
7.11 Compliance with Material Agreements.............................42
7.12 Board and Stockholder Meetings and Actions......................42
8 NEGATIVE COVENANTS.....................................................
8.1 Encumbrances....................................................43
8.2 Consolidations, Mergers or Acquisitions.........................44
8.3 Deposits, Investments, Advances or Loans........................44
8.4 Indebtedness....................................................44
8.5 Guarantees and Other Contingent Obligations.....................44
8.6 Disposition of Property.........................................45
8.7 Capital Expenditure Limitations.................................45
8.8 Affiliate Transactions..........................................45
8.9 Distributions in Respect of Equity; Prepayment of Debt..........45
8.10 Amendment of Organizational Documents; Subsidiaries.............45
8.11 Use of Names or Trademarks......................................46
8.12 Amendment of Subordinated Loan Documents........................46
8.13 Unconditional Purchase Obligations..............................46
8.14 Inconsistent Agreements.........................................46
8.15 Fiscal Year.....................................................47
9 DEFAULT AND RIGHTS AND REMEDIES......................................47
9.1 Liabilities.....................................................47
9.2 Rights and Remedies.............................................47
9.3 Waiver of Demand................................................48
9.4 Waiver of Notice................................................48
9.5 Verification of Borrowing Notices...............................49
10 MISCELLANEOUS........................................................49
10.1 Timing of Payments..............................................49
10.2 Attorneys' Fees and Costs.......................................49
10.3 Expenditures by Lender..........................................50
10.4 Lender's Costs and Expenses as Additional Liabilities...........50
10.5 Claims and Taxes................................................50
10.6 Custody and Preservation of Collateral..........................51
10.7 Inspection......................................................51
10.8 Examination of Banking Records..................................51
10.9 Governmental Reports............................................51
10.10 Reliance by Lender..............................................51
10.11 Parties.........................................................52
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10.12 Applicable Law; Severability....................................52
10.13 SUBMISSION TO JURISDICTION; WAIVER OF BOND AND TRIAL BY
JURY..........................................................52
10.14 Application of Payments; Waiver.................................52
10.15 Marshaling; Payments Set Aside..................................53
10.16 Section Titles..................................................53
10.17 Continuing Effect...............................................53
10.18 No Waiver.......................................................53
10.19 Notices.........................................................53
10.20 [Reserved.].....................................................55
10.21 Taxes...........................................................55
10.22 Assignment and Participation....................................56
10.23 Maximum Interest................................................57
10.24 Additional Advances.............................................57
10.25 Loan Agreement Controls.........................................57
10.26 Confidentiality.................................................57
10.27 Independence of Covenants.......................................58
10.28 Amendments and Waivers..........................................58
10.29 Counterparts and Facsimile Signatures...........................58
10.30 Set-off.........................................................58
10.31 Binding Effect..................................................58
10.32 FINAL AGREEMENT.................................................59
Exhibit 2A Form of Promissory Note
Exhibit 3A Form of Warrant Agreement
Exhibit 4A List of Closing Documents for Initial Advance
Exhibit 4B List of Closing Documents for Initial Working
Capital Advance/Acquisition Advance
Exhibit 4C List of Closing Documents for each Acquisition Advance
Exhibit 5A Form of Master Pledge Agreement
Exhibit 5B Form of Belgian Share Pledge Agreement
Exhibit 5C Form of Deposit Account Security Agreement
Exhibit 6A Disclosure Schedule
Exhibit 7A Compliance Certificate
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LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT (as amended, modified, supplemented,
renewed or restated from time to time, the "Agreement") is made as of May 28,
2004, by and among The Allied Defense Group, Inc., a Delaware corporation (the
"Company"), News/Sports Microwave Rental, Inc., a California corporation
("Microwave Rental"), Titan Dynamics Systems, Inc., a Texas corporation ("Titan
Dynamics Systems"), SeaSpace Corporation, a California corporation ("SeaSpace"),
MECAR USA, INC., a Delaware corporation ("MECAR USA"), ALLIED RESEARCH
CORPORATION LIMITED, a company formed under the laws of England and Wales ("ARC
Ltd."), ENERGA CORPORATION, a Maryland corporation ("Energa"), and Arc Europe,
S.A., a Belgium company ("ARC Europe"), as borrowers (individually, a "Borrower"
and collectively, the "Borrowers"), and Wilton Funding, LLC, a Delaware limited
liability company, as lender (the "Lender").
Recitals
A. Borrowers and Lender are entering into this Agreement to set forth the
terms and conditions pursuant to which Lender will make to Borrowers term loans
in an aggregate amount of up to $18,000,000.
B. Borrowers and Lender desire to establish the security for and the
conditions under which each of the above-described loans will be established.
Agreement
NOW, THEREFORE, in consideration of the foregoing and of the terms and
conditions contained in this Agreement, and for any loans or extensions of
credit or other financial accommodations at any time made to or for the benefit
of Borrowers (or any of them) by Lender, Borrowers and Lender agree as follows:
1 DEFINITIONS.
1.1 General Definitions. When used herein, the following capitalized terms
shall have the meanings indicated, whether used in the singular or the plural:
"Accounts" of a Domestic Borrower shall mean all present and future rights
(including, without limitation, rights under any Margin Accounts) of such
Borrower to payment for Inventory or other Goods sold or leased or for services
rendered, which rights are not evidenced by Instruments or Chattel Paper,
regardless of whether such rights have been earned by performance and any other
"accounts" (as defined in the Code).
"Account Debtor" shall mean any Person that is obligated on or under an
Account or a General Intangible.
"Adjusted Pro Forma EBITDA", for any specified fiscal year of the Company,
shall mean the sum of (a) the consolidated EBITDA of the Domestic Subsidiaries
and the VSK Group for such fiscal year (assuming for purposes of Section 4.5(b)
that, with respect to any proposed Acquisition Advance, the applicable Target
Company became a Domestic Subsidiary as of the first day of such fiscal year)
plus (b) two-thirds of the total dividends and management fees (if any) paid by
MECAR to the Company during such fiscal year in excess of (i) with respect to
fiscal year 2003 or 2004, $3,000,000, (ii) with respect to fiscal year 2005,
$3,100,000 and (iii) with respect to each subsequent fiscal year, the Dollar
amount applicable to the immediately preceding fiscal year plus $100,000;
provided, however, that if (i) the amount of debt evidenced by the MECAR Credit
Agreement or performance guarantee credit facilities of MECAR is increased
without the prior written consent of Lender, (ii) MECAR's product sales contract
backlog falls below $70,000,000 at any time after the Closing Date or (iii)
MECAR's gross profit margin for any rolling calendar twelve month period falls
below 20%, then Lender, in its sole discretion, may thereafter exclude item (b)
above from the calculation of Adjusted Pro Forma EBITDA.
"Affiliate" shall mean any Person other than a Borrower: (a) that directly
or indirectly, through one or more intermediaries, controls or is controlled by,
or is under common control with, any Borrower; (b) that directly or beneficially
owns or holds ten percent (10%) or more of any class of the voting equity
interest of any Borrower; (c) ten percent (10%) or more of the voting equity
interest of which is owned directly or beneficially or held by any Borrower; or
(d) that is a director, officer, agent or employee of any Borrower.
"Belgian Automation" shall mean Belgian Automation Units, N.V., a Belgium
company.
"Boards" shall mean, collectively, the boards of directors (or their
applicable equivalents) of the Loan Parties.
"Borrower Senior Funded Debt" shall mean, for any date of determination,
Senior Funded Debt as of such date minus any and all liabilities and obligations
of ARC Ltd., ARC Europe and MECAR to the extent the same are included in Senior
Funded Debt as of such date.
"Business Day" shall mean any day of the year on which commercial banks in
New York, New York are not required or authorized to close.
"Capital Expenditures" shall mean all expenditures (by the expenditure of
cash or the incurrence of indebtedness) during any measuring period for any
fixed assets or improvements or for replacements, substitutions or additions
thereto that have a useful life of more than one year and that are required to
be capitalized under GAAP.
"Change of Control" means (i) an event or series of events by which any
Person or Persons or entity or entities, or Person(s) and/or entity(ies) acting
in concert as a partnership or other group (a "Group of Persons") shall, as a
result of a tender or exchange offer, open market purchases, privately
negotiated purchases, merger, consolidation or otherwise, have become the
beneficial owner (within the meaning of Rule 13d-3 promulgated under the
Securities Exchange Act
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of 1934, as amended), of 50% or more of the Voting Power of the Company; (ii)
the Company is merged with or into another corporation with the effect that
immediately after such transaction the stockholders of the Company immediately
prior to such transaction hold less than a majority of the combined Voting Power
of the person surviving the transaction; (iii) the direct or indirect, sale,
lease, exchange or other transfer of all or substantially all of the assets of
the Company and its Subsidiaries to any Person(s), entity(ies) or Group of
Persons; (iv) the Company shall fail to maintain the quotation of its Common
Shares on the American Stock Exchange, the New York Stock Exchange or the NASDAQ
National Market; or (v) the Company shall engage in or be the subject of a "Rule
13e-3 transaction", as such term is defined in Rule 13-e(a)(3) promulgated under
the Securities Exchange Act of 1934, as amended.
"Close Affiliate" shall mean an Affiliate that is owned in part or in
whole, directly or indirectly, by any Borrower.
"Closing Date" shall mean the date of this Agreement.
"Collateral" shall mean any and all real or personal property in which
Lender may at any time have a lien or security interest under or pursuant to
Section 5.1 or otherwise to secure the Liabilities.
"Common Shares" is defined in the Warrant Agreement.
"Default" shall mean the occurrence or existence of: (a) an event which,
through the passage of time or the service of notice or both, would (assuming no
action is taken by any Borrower or any other Person to cure the same) mature
into a Matured Default; or (b) an event which requires neither the passage of
time nor the service of notice to mature into a Matured Default.
"Documents" shall mean any and all warehouse receipts, bills of lading or
similar Documents of title relating to Goods in which any Borrower at any time
has an interest and any other "documents" (as defined in the Code).
"Dollars" and "$" shall mean lawful currency of the United States of
America.
"Domestic Borrower" shall mean the Company or a Domestic Subsidiary.
"Domestic Senior Leverage Ratio" shall mean, for any date of
determination, the ratio of (a) the Domestic Borrowers' Senior Funded Debt as of
such date (excluding any Senior Funded Debt which is not a direct liability of
any Domestic Borrower and which has not been guaranteed by any Domestic
Borrower) divided by (b) the Domestic Borrower's EBITDA for the then preceding
four fiscal quarters (excluding the EBITDA of the Foreign Subsidiaries). The
Domestic Senior Leverage Ratio shall be calculated, in a manner reasonably
acceptable to Lender, using the amounts set forth in the Company's consolidating
financial statements delivered by Borrowers to Lender pursuant to Section 7.1.
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"Domestic Subsidiaries" shall mean collectively Microwave Rental, Titan
Dynamics Systems, SeaSpace, MECAR USA, Energa and any other wholly owned
Subsidiaries of the Company that may hereafter become Borrowers under the
Financing Agreements, provided that such Subsidiaries are incorporated or formed
under the laws of a jurisdiction of the United States of America and
substantially all of the assets and operations of such Subsidiaries are located
in the United States of America.
"Draw Period" shall mean the period commencing on the date of the Initial
Advance and continuing through and including November 28, 2005.
"EBITDA" of a Person shall mean, during any period of determination,
without duplication, the consolidated net income of such Person before provision
for income taxes, interest expense (including without limitation, implicit
interest expense on capitalized leases), depreciation expense, amortization
expense and other non-cash expenses or charges, excluding (to the extent
included): (a) non-operating gains (including without limitation, extraordinary
or nonrecurring gains, gains from discontinuance of operations and gains arising
from the sale of assets other than Inventory) during the applicable period; and
(b) similar non-operating losses during such period.
"Excess Sale Proceeds" shall mean, during any period of determination,
Borrowers' aggregate proceeds from the sale of assets (other than the sale of
Inventory in the ordinary course of business), which is not used by Borrowers
for the replacement of the assets sold, in excess of $100,000 in the aggregate
in any fiscal year of the Company.
"Equipment" of a Borrower shall mean any and all Goods, other than
Inventory (including without limitation, equipment, machinery, motor vehicles,
implements, tools, parts and accessories) that are at any time owned by such
Borrower, together with any and all accessions, parts and appurtenances and any
other "equipment" (as defined in the Code).
"Financing Agreements" shall mean all agreements, instruments and
documents, including without limitation, this Agreement, the Note, the Fee
Agreement, the Master Pledge Agreement, the Foreign Pledge Agreements, the
Landlord Waivers, the Deposit Account Security Agreement, the Control Agreement,
the Warrant Agreement, the Warrants, the Subordination Agreement and all other
security agreements, loan agreements, notes, letter of credit applications,
guarantees, mortgages, deeds of trust, subordination agreements, pledges, powers
of attorney, consents, assignments, contracts, notices, leases, financing
statements and all other written matter at any time executed by or on behalf of
any Borrower or any guarantor of any of the Liabilities and delivered to Lender,
together with all amendments, modifications and supplements thereto and
restatements thereof and all agreements and documents referred to therein or
contemplated thereby.
"Foreign Borrowers" shall mean collectively ARC Ltd. and ARC Europe.
"Foreign Subsidiaries" shall mean collectively ARC Ltd., ARC Europe,
MECAR, Sedachim, Hendrickx, the VSK Group and any other Subsidiaries of the
Company that are not Domestic Subsidiaries.
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"GAAP" shall mean generally accepted accounting principles set forth in
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board, or in such other
statements by such other entity as may be in general use by significant segments
of the accounting profession, which are applicable to the circumstances as of
the date of determination.
"General Intangibles" of a Borrower shall mean all of such Borrower's
present and future right, title and interest in and to any customer deposit
accounts, deposits, rights related to prepaid expenses, chose in action, causes
of action and all other intangible personal property of every kind and nature
(other than Accounts), including without limitation, Payment Intangibles,
beneficial interests in trusts, corporate or other business records, inventions,
designs, patents, patent applications, trademarks, trade names, trade secrets,
goodwill, registrations, copyrights, licenses, franchises, customer lists, tax
refunds, tax refund claims, customs claims, guarantee claims, obligations
payable to such Borrower for equity interests or other claims against any
stockholders, rights to any government subsidy, set aside, diversion, deficiency
or disaster payment or payment in kind, brands and brand registrations, water
rights, contracts, leasehold interests in real and personal property and any
security interests or other security held by or granted to such Borrower to
secure payment by any Account Debtor of any of the Accounts, and any other
"general intangibles" (as defined in the Code).
"Government" means the United States of America and any agency or
instrumentality thereof.
"Government Contract" means any prime contract, basic ordering agreement,
letter contract, purchase order, task order or delivery order of any kind,
including all additions and supplements thereto, amendments and modifications
thereof, and options thereunder between a Borrower and the Government.
"Governmental Authority" shall mean the United States of America, any
nation or government, any state or other political subdivision thereof and any
entity exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government, including without limitation, any
arbitration panel, any court, any commission, any agency or any instrumentality
of the foregoing.
"Governmental Requirement" shall mean any material law, statute, code,
ordinance, order, rule, regulation, judgment, decree, injunction, franchise,
permit, certificate, license, authorization or other directive or requirement of
any federal, state, county, municipal, parish, provincial or other Governmental
Authority or any department, commission, board, court, agency or any other
instrumentality of any of them (including any of the foregoing that relate to
environmental standards or controls and occupational safety and health standards
or controls).
"Hendrickx" shall mean Hendrickx N.V., a Belgium company.
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"Highest Lawful Rate" shall mean, with respect to Lender, the maximum
non-usurious interest rate, if any, that at any time or from time to time may be
contracted for, taken, reserved, charged, or received with respect to the Note
or on other amounts, if any, payable to Lender pursuant to this Agreement or any
other Financing Agreement, under laws applicable to Lender which are presently
in effect, or, to the extent allowed by law, under such applicable laws which
may hereafter be in effect and which allow a higher maximum non-usurious
interest rate than applicable laws now allow.
"IDCS" shall mean IDCS, N.V., a Belgium company.
"Immediately Available Funds" shall mean funds with good value on the day
and in the city in which payment is received.
"Inventory" of a Domestic Borrower shall mean any and all Goods which
shall at any time constitute "inventory" (as defined in the Code) of such
Borrower, wherever located (including without limitation, Goods in transit and
Goods in the possession of third parties), or which from time to time are held
for sale, lease or consumption in such Borrower's business, furnished under any
contract of service or held as raw materials, work in process, finished
inventory or supplies (including without limitation, packaging and/or shipping
materials).
"IRC" shall mean the Internal Revenue Code of 1986, as amended, as at any
time in effect, together with all regulations and rulings thereof or thereunder
issued by the Internal Revenue Service.
"Liabilities" shall mean any and all liabilities, obligations and
indebtedness of Borrowers or any of them to Lender of any and every kind and
nature, at any time owing, arising, due or payable and howsoever evidenced,
created, incurred, acquired or owing, whether primary, secondary, direct,
contingent, fixed or otherwise and whether arising or existing under this
Agreement or any of the other Financing Agreements or by operation of law.
"Loan" is defined in Section 2.1.
"Loan Parties" shall mean collectively Borrowers and each of their
respective Subsidiaries.
"Margin Accounts" shall mean, collectively, all Commodity Accounts and all
Commodity Contracts.
"Material Adverse Effect" shall mean (i) a material adverse effect on the
business, properties, operations, financial condition, prospects, liabilities or
capitalization of Borrowers taken as a whole, (ii) a material impairment of the
legal ability of any Borrower to perform its obligations under this Agreement or
any of the other Financing Agreements in any material respects or (iii) a
material impairment of the rights and remedies of Lender under this Agreement or
any of the other Financing Agreements, including without limitation impairment
or unenforceability of the perfection or priority of any security interest,
mortgage, pledge, lien or other encumbrance held by Lender.
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"Matured Default" shall mean the occurrence or existence of any one or
more of the following events: (a) any Borrower fails to pay any principal
pursuant to any of the Financing Agreements at the time such principal becomes
due or is declared due; (b) any Borrower fails to pay any interest pursuant to
any of the Financing Agreements on or before five (5) days after such interest
becomes due or is declared due or any Borrower fails to pay any of the
Liabilities (other than principal and interest) on or before ten (10) days after
such Liabilities become due or are declared due; (c) any Borrower fails or
neglects to perform, keep or observe any of the covenants, conditions, promises
or agreements contained in Sections 8.1, 8.2, 8.4 or 8.12; (d) any Borrower
fails or neglects to perform, keep or observe any of the covenants, conditions,
promises or agreements contained in this Agreement or in any of the other
Financing Agreements (other than those covenants, conditions, promises and
agreements referred to or covered in (a), (b), and (c) above), and such failure
or neglect continues for more than thirty (30) days after such failure or
neglect first occurs, provided, however, that such grace period shall not apply,
and a Matured Default shall be deemed to have occurred and to exist immediately
if such failure or neglect may not, in Lender's reasonable determination, be
cured by Borrowers during such thirty (30) day grace period; (e) any warranty or
representation at any time made by or on behalf of any Borrower in connection
with this Agreement or any of the other Financing Agreements is untrue or
incorrect in any material respect, or any schedule, certificate, statement,
report, financial data, notice, or writing furnished at any time by or on behalf
of any Borrower to Lender is untrue or incorrect in any material respect on the
date as of which the facts set forth therein are stated or certified; (f) a
judgment in excess of $100,000 is rendered against any Borrower and such
judgment remains unsatisfied or un-discharged and in effect for thirty (30)
consecutive days without a stay of enforcement or execution, provided, however,
that this clause (f) shall not apply to any judgment for which such Borrower is
fully insured and with respect to which the insurer has admitted liability in
writing for such judgment; (g) all or any part of the assets of any Borrower
come within the possession of any receiver, trustee, custodian or assignee for
the benefit of creditors; (h) a proceeding under any bankruptcy, reorganization,
arrangement of debt, insolvency, readjustment of debt or receivership law or
statute is filed against any Borrower and such proceeding is not dismissed
within sixty (60) days of the date of its filing, or a proceeding under any
bankruptcy, reorganization, arrangement of debt, insolvency, readjustment of
debt or receivership law or statute is filed by any Borrower, or any Borrower
makes an assignment for the benefit of creditors; (i) any Borrower voluntarily
or involuntarily dissolves or is dissolved, terminates or is terminated or dies;
(j) any Borrower is enjoined, restrained, or in any way prevented by the order
of any court or any administrative or regulatory agency or by the termination or
expiration of any permit or license, from conducting all or any material part of
any Borrower's business affairs for more than five (5) days; (k) any Borrower
fails to make any payment due or otherwise defaults on any other obligation for
borrowed money in excess of $100,000 and the effect of such failure or default
is to cause or permit the holder of such obligation or a trustee to cause such
obligation to become due prior to its date of maturity; (l) Lender makes an
expenditure under Section 10.3 which expenditure is not reimbursed by Borrowers
within ten (10) days after demand therefore by Lender; (m) the occurrence of a
non-curable breach or default or a matured default under any other agreement at
any time in existence between any Borrower and Lender; (n) a Change of Control
occurs; (o) any Borrower shall receive notification of any of the following,
which, in the reasonable opinion of Lender, has or could have a Material Adverse
Effect: (i) a notice of suspension of progress payments, a cure
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notice, a show-cause notice or any notice of whole or partial termination for
default, alleged default or convenience pertaining to any Government Contract or
any subcontract between any Borrower and a prime contractor of the Government,
(ii) notice that any Borrower has materially breached or violated any
regulation, statute, certification, representation, clause, provision or
requirement with respect to (A) any Government Contract or any subcontract
between any Borrower and a prime contractor of the Government or (B) any bid,
quotation or proposal submitted by any Borrower to the Government or any
prospective prime contractor of the Government, (iii) a negative determination
of responsibility issued against any Borrower with respect to any bid, quotation
or proposal submitted by any Borrower to the Government or any prospective prime
contractor of the Government, or (iv) notice of any Borrower's facility security
clearance or the security clearance of any key employee of any Borrower has been
revoked or suspended; (p) any Borrower shall suffer a debarment or suspension
from contracting or subcontracting with the Government; (q) there shall occur
and be continuing any "Event of Default" under and as defined in the
Subordinated Debenture Purchase Agreement; (r) any security interest, pledge,
lien, levy, assessment, attachment, seizure, writ, distress warrant or other
encumbrance of any nature whatsoever shall be created, incurred, assumed or
suffered to exist on or with regard to any shares of capital stock of any
Subsidiary of the Company (including, without limitation, any Foreign
Subsidiary) other than those in favor of Lender (other than the shares of any
current and future Subsidiary of VSK Electronics); or (s) the Master Pledge
Agreement or any Foreign Pledge Agreement or any material provision thereof
shall cease to be in full force and effect as to the pledge of the shares of any
Subsidiary of the Company (other than the shares of any current or future
Subsidiary of VSK Electronics), which are not being pledged to Lender
thereunder), or any Person acting on behalf of the Company or any Subsidiary or
Affiliate thereof shall deny, disaffirm or challenge the enforceability of any
such pledge or any material obligations of any Loan Party thereunder, or any
Loan Party shall default in the due performance or observance of any term,
covenant or agreement on its part to be performed or observed pursuant to the
Master Pledge Agreement or any Foreign Pledge Agreement and such default shall
continue beyond any grace period specifically applicable thereto.
"Maturity Date" shall mean, as applicable, the earlier of: (a) November
28, 2010; or (b) the termination in whole of the Working Capital Commitment and
the Acquisition Commitment by Borrowers and the payment and/or satisfaction in
full of the Liabilities pursuant to Section 2.4.
"MECAR Credit Agreement" shall mean that certain Credit Agreement among
MECAR, as borrower, and WafaBank, Deutsche Bank, Commerzbank AG, CBC Banque and
Fortis Banque, as amended, modified, supplemented, renewed or restated from time
to time.
"MECAR Loan Documents" shall mean the MECAR Credit Agreement and all other
agreements, documents and instruments evidencing or securing the loans made to
MECAR thereunder.
"Net Worth" shall mean the sum of (i) the total of capital stock (less
treasury stock), paid in surplus, general contingency reserves and retained
earnings (deficit) of the Company on a consolidated basis, determined in
accordance with GAAP, after eliminating all amounts properly
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attributable to minority interests, if any, in the stock and surplus, plus (ii)
the then aggregate outstanding principal balance of the Subordinated Debenture
and any other indebtedness for borrowed money that is subordinated to the
Liabilities upon terms and conditions acceptable to Lender in its sole
discretion minus (iii) the amounts of accumulated other comprehensive income
(loss) set forth on the Company's consolidated balance sheet.
"Note" is defined in Section 2.1.
"Permitted Acquisition" shall mean (a) the acquisition by one or more
Domestic Subsidiaries of (i) all or substantially all of the assets of a Target
Company or (ii) all of the outstanding shares of capital stock of a Target
Company, if the same is a corporation, or all of the partnership or membership
interests of the Target Company, if the same is a partnership or limited
liability company, as applicable, or (b) the merger of a Borrower or a
newly-formed (direct or indirect) acquisition subsidiary of a Borrower with a
Target Company, in each case which acquisition or merger satisfies all of the
following conditions:
(A) the Target Company is a U.S. domiciled entity engaged in a
Permitted Business;
(B) one or more Borrowers and the Target Company and/or the owners
thereof, as applicable, shall have executed and delivered a written
Purchase Agreement, a correct and complete copy of which shall have been
delivered to Lender, together with all other documents required to be
provided to Lender under the provisions of Sections 4.7 and 4.8 of this
Agreement;
(C) the sum of the Purchase Price payable under the applicable
Purchase Agreement plus the aggregate purchase price of all prior
Permitted Acquisitions financed, in whole or in part, by Acquisition
Advances shall not exceed $50,000,000;
(D) all of the assets of the Target Company and, if applicable, the
stock or other equity interests of the Target Company to be acquired by
Borrowers shall be free and clear of all liens and encumbrances, other
than those in favor of Lender or otherwise permitted under the Financing
Agreements;
(E) the dollar amount of goodwill that shall be reflected on the
Company's consolidated balance sheet as a result of the proposed Permitted
Acquisition shall not exceed fifty percent (50%) of the Purchase Price for
such Permitted Acquisition;
(F) the sum of the Purchase Price for such Permitted Acquisition
plus all related fees and expenses paid or payable (directly or
indirectly) by any Borrower shall not exceed the product of (i) seven (7)
multiplied by (ii) the EBITDA of the Target Company for the twelve (12)
month period ending on the date on which the Permitted Acquisition is
consummated (subject to such adjustments (if any) as may be made by
Borrowers with the written approval of Lender);
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(G) the consummation of the proposed Permitted Acquisition and the
satisfaction of the conditions hereunder to Lender's requirement to make
the related Acquisition Advance to finance the same shall not result in a
Default or Matured Default;
(H) upon completion of any proposed Permitted Acquisition that is
structured as a merger, the surviving corporation of the merger shall be a
Borrower (or immediately upon consummation of the Permitted Acquisition
become an additional Borrower) hereunder and under the Note;
(I) if the applicable Purchase Agreement or any related agreement,
document or instrument executed by any Borrower in connection therewith
provides for any earnout or other contingent liability payments by any
Borrower or the execution and delivery of any promissory notes or
guaranties by any Borrower, then the beneficiaries and/or holders of any
such obligations of such Borrowers shall agree to subordinate the payment
and performance of such obligations to the Liabilities upon terms and
conditions acceptable to Lender; and
(J) upon completion of the proposed Permitted Acquisition, Borrower
that is the survivor of the merger with the Target Company or that
acquires the assets of the Target Company or the stock thereof, as
applicable, shall have granted Lender a first-priority, perfected lien,
mortgage and security interest in all of its real and personal property
and the equityholders of such Borrower (other than the stockholders of the
Company) shall have pledged and granted to Lender a first-priority,
perfected security interest in all of the shares of capital stock or
partnership or membership interests, as applicable, of such Borrower, all
as required under Section 4 of this Agreement.
"Person" shall mean any individual, sole proprietorship, partnership,
limited liability company, joint venture, trust, unincorporated organization,
association, corporation, institution, entity, party or government (whether
national, federal, state, provincial, county, city, municipal or otherwise,
including without limitation, any instrumentality, division, agency, body or
department thereof).
"Producer Payables" of a Borrower shall mean all amounts at any time
payable by such Borrower for the purchase of Inventory.
"Property" of a Borrower shall mean those premises owned or operated by
such Borrower.
"Purchase Agreement" for a Permitted Acquisition shall mean the asset or
stock purchase agreement or merger agreement, as applicable, setting forth the
terms and conditions pursuant to which one or more Borrowers shall complete such
Permitted Acquisition, which terms and conditions shall be reasonable and
customary for a transaction of the type proposed therein.
"Purchase Price" for a Permitted Acquisition shall mean the Dollar amount
of the total consideration paid or payable by the acquiror under the related
Purchase Agreement.
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"SEC" shall mean the Securities and Exchange Commission, or any other
Federal agency at the time administering the Securities Act.
"Sedachim" shall mean Sedachim Sales International S.A., a Belgium
company.
"Senior Funded Debt" shall mean, for any date of determination, the
Company's consolidated total liabilities, as they would normally be shown on the
consolidated balance sheet of the Company, (i) minus the outstanding principal
balance of the Subordinated Debenture included therein; (ii) minus liabilities
(other than of the type referred to in the following subsections (iii) through
(v)) which do not accrue interest; (iii) plus the face amount of letters of
credit issued and outstanding for the account of the Company (to the extent not
included therein); (iv) plus capital and synthetic lease obligations (to the
extent not included therein); (v) plus guaranty or surety obligations of the
Company with respect to the indebtedness of any third person (to the extent not
included therein).
"Senior Leverage Ratio" shall mean, for any date of determination, the
ratio of the Company's (a) Senior Funded Debt as of such date minus the
aggregate Dollar amount of unrestricted cash and cash equivalents of Borrowers
as of such date divided by (b) EBITDA for the then preceding four fiscal
quarters.
"Servicer" shall mean Patriot Capital Funding, Inc., a Delaware
corporation.
"Subordinated Debenture" shall mean the Company's Convertible Debenture
Series A, dated as of June 28, 2002, in the aggregate original principal amount
of $7,500,000 that was sold to the Subordinated Lender pursuant to the
Subordinated Debenture Purchase Agreement and any subsequent subordinated debt
that might replace such convertible debenture or, in the event that such
debenture is converted into Common Shares, any additional subordinated debt,
provided that in each case the same is subordinated to the Liabilities upon
terms and conditions approved in writing by Lender in its sole discretion.
"Subordinated Debenture Purchase Agreement" shall mean that certain
Purchase Agreement dated as of June 28, 2002 between the Company and the
Subordinated Lender.
"Subordinated Debt" shall mean any obligation or indebtedness for borrowed
money (other than the Liabilities), including those under capitalized leases and
under the Subordinated Loan Documents (or any refinancing thereof approved in
writing by Lender), of any Loan Party, which is subordinated to the Liabilities
on specific terms and conditions satisfactory to, and approved in writing by,
the Lender, excluding, however, any indebtedness incurred by ARC Europe, the VSK
Group, MECAR and/or any of their respective Subsidiaries.
"Subordinated Lender" shall mean Riverview Group, LLC, a Delaware limited
liability company, and its successors and assigns and any replacement
Subordinated Lender permitted hereunder.
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"Subordinated Loan Documents" shall mean the Subordinated Debenture,
Subordinated Debenture Purchase Agreement, Subordinated Warrant, Subordinated
Registration Rights Agreement and all other agreements, documents and
instruments related thereto.
"Subordinated Registration Rights Agreement" shall mean that certain
Registration Rights Agreement dated as of June 28, 2002 between the Company and
the Subordinated Lender.
"Subordinated Warrant" shall mean that certain Common Stock Purchase
Warrant dated as of June 28, 2002 issued by the Company to the Subordinated
Lender, pursuant to which the Subordinated Lender is entitled, upon the terms
and subject to the conditions set forth therein, to subscribe for and purchase
from the Company 15,000 Common Shares of the Company at an exercise price of
$28.75 per share.
"Subsidiary" of a corporation shall mean any corporation of which more
than 50% of the outstanding shares of capital stock having ordinary voting power
to elect a majority of the board of directors of such corporation is directly or
indirectly owned by such corporation or by such corporation and any of its
Subsidiaries taken together.
"Target Company" shall mean a corporation, partnership or limited
liability company (or a division or an identified business and assets thereof)
that one or more of Borrowers proposes to purchase pursuant to a Permitted
Acquisition.
"Tele Technique Generale" shall mean Tele Technique Generale, S.A., a
Belgium company.
"Unused Commitment" shall mean, as of the applicable date of
determination, the total unused amount of the Working Capital Commitment and the
Acquisition Commitment as of such date.
"Vigitec" shall mean Vigitec S.A., a Belgium company.
"Voting Power" of any Person means the aggregate number of votes of all
classes of capital stock (or other securities) of such Person which ordinarily
has voting power for the election of the board of directors or their equivalents
of such Person.
"VSK Electronics" shall mean VSK Electronics N.V., a Belgium company.
"VSK Group" shall mean collectively VSK Electronics and its wholly owned
subsidiaries, Tele Technique Generale, IDCS, Belgian Automation and Vigitec, and
any additional Subsidiaries of any member of the VSK Group formed after the date
hereof in accordance with the provisions of Section 8.10(b).
"Wachovia Bank" means Wachovia Bank, National Association, and its
successors and permitted assigns.
"Warrants" is defined in the Warrant Agreement.
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1.2 Index to Other Definitions. When used herein, the following
capitalized terms shall have the meanings given in the indicated portions of
this Agreement:
Term Location
---- --------
Acquisition Advance and Acquisition Advances Section 2.2(c)
Acquisition Commitment Section 2.2(c)
Acquisition Documents Section 4.8(c)
Additional Cash Collateral Section 4.4
Agreement introduction
Assignee Section 10.22(a)
Belgian Share Pledge Agreements Section 5.1(b)
Benefit Plans Section 6.20
Borrower and Borrowers introduction
Broker Section 5.15
Code Section 1.4
Collateral Assignee Section 10.22(d)
Company introduction
Compliance Certificate Section 7.1(c)
Company's SEC Reports Section 6.27
Control Agreement Section 5.1(d)
Default Rate Section 2.3(c)(ii)
Deposit Account Security Agreement Section 5.1(d)
Environmental Laws Section 6.10
ERISA Section 6.20
Excess Section 10.23
Existing Leases Section 6.5
Fee Agreement Section 2.6(b)
Foreign Pledge Agreements Section 5.1(b)
Fund Credit Agreement Section 4.9
Fund Lender Section 4.9
Interest Payment Date Section 2.3(c)(i)
Initial Advance Section 2.2(a)
Landlord Waiver and Landlord Waivers Section 5.1(c)
Lender introduction
Loan Section 2.1
Loan Account Section 2.7
Loan Advance Section 2.2
Master Pledge Agreement Section 5.1(b)
New Lease Section 7.3
Note Section 2.1
Permitted Business Section 4.7(a)
Pro Forma Balance Sheet Section 4.8(d)(ii)
Projections Section 4.8(d)(iii)
Required Acquisition Funding Amount Section 2.4
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Term Location
---- --------
Xxxxxxxx-Xxxxx Act Section 6.28
Subordination Agreement Section 4.4
Supplemental Disclosure Schedule Section 4.8(e)
Taxes Section 10.21(a)
Target Company Financial Statements Section 4.8(d)(i)
Warrant Agreement Article 3
Working Capital Advance and
Working Capital Advances Section 2.2(b)
Working Capital Commitment Section 2.2(b)
1.3 Accounting Terms. Any accounting terms used in this Agreement which
are not specifically defined in this Agreement shall have the meanings
customarily given them in accordance with GAAP, as consistently applied as of
the date of this Agreement.
1.4 Others Defined in New York Uniform Commercial Code. All other terms
contained in this Agreement (which are not specifically defined in this
Agreement) shall have the meanings set forth in the Uniform Commercial Code of
New York ("Code") to the extent the same are used or defined therein,
specifically including, but not limited to the following: Chattel Paper,
Commercial Tort Claims, Commodity Accounts, Commodity Contracts, Deposit
Accounts, Goods, Investment Property, Instruments, Letter of Credit Rights,
Money, Payment Intangibles, Securities Accounts and Tangible Chattel Paper.
2 LOAN AND FEES.
2.1 Loan. Lender hereby agrees on the terms and subject to the conditions
of this Agreement to lend to Borrowers the maximum sum of Eighteen Million and
00/100 Dollars ($18,000,000.00) (the "Loan"). The Loan shall be evidenced by and
repayable in accordance with the terms of a promissory note of Borrowers to
Lender in the form attached as Exhibit 2A (the "Note").
2.2 Loan Advances. Subject to all of the terms and conditions of this
Agreement (including, without limitation, the conditions set forth in Section 4)
and the other Financing Agreements, Lender agrees to make advances of the Loan
("Loan Advances") to Borrowers from time to time upon their request therefor in
accordance with the provisions of this Section 2.2. Each request for a Working
Capital Advance shall be in a minimum amount of Two Hundred Fifty Thousand
Dollars ($250,000); each request for an Acquisition Advance shall be in a
minimum amount of One Million Dollars ($1,000,000); and each request for a
Working Capital Advance or an Acquisition Advance shall be in an integral
multiple of One Hundred Thousand Dollars ($100,000). In no event shall Lender be
required to make more than two (2) Loan Advances during any thirty (30) day
period. Amounts representing Loan Advances that have been repaid by Borrowers
may not be reborrowed.
(a) Initial Advance. On the Closing Date, Lender shall make a Loan
Advance to Borrowers in the amount of $2,000,000 (the "Initial Advance").
Borrowers shall use the proceeds from the Initial Advance solely for the working
capital and general corporate purposes of Borrowers, to fund the Account (as
defined in the Deposit Account Security
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Agreement) as required under the Deposit Account Security Agreement or to
finance Permitted Acquisitions and for no other purpose.
(b) Working Capital Advances. Lender agrees to make additional Loan
Advances (individually, a "Working Capital Advance" and collectively, the
"Working Capital Advances") to Borrowers from time to time on any one or more
Business Days from and after the making of the Initial Advance and continuing
through and including the last Business Day of the Draw Period, upon the
Company's written (including facsimile) notice given by the Company to Lender
not later than 11:00 a.m. (local time of Lender) on the third (3rd) Business Day
prior to the date of any such Loan Advance, up to an aggregate principal amount
not exceeding Three Million Dollars ($3,000,000) (the "Working Capital
Commitment"); provided, however, that if and to the extent Acquisition Advances
are made in excess of $13,000,000, such excess amounts shall be deemed to reduce
the unused portion of the Working Capital Commitment. Borrowers may use the
proceeds from Working Capital Advances solely for the working capital and
general corporate purposes of Borrowers, including, without limitation, Capital
Expenditures of Borrowers to the extent permitted under this Agreement.
(c) Acquisition Advances. Lender agrees to make additional Loan
Advances (individually, an "Acquisition Advance" and collectively, the
"Acquisition Advances") to Borrowers from time to time on any one or more
Business Days from and after the making of the Initial Advance and continuing
through and including the last Business Day of the Draw Period, upon the
Company's written (including facsimile) notice given by the Company to Lender
not later than 11:00 a.m. (local time of Lender) on the fifth (5th) Business Day
prior to the date of any such Loan Advance, up to an aggregate principal amount
(the "Acquisition Commitment") not exceeding the sum of (i) Thirteen Million
Dollars ($13,000,000) plus (ii) any then used portion of the Working Capital
Commitment. Borrowers shall use the proceeds of Acquisition Advances solely to
finance Permitted Acquisitions and for no other purpose.
2.3 Payment of Principal and Interest; Default Rate.
(a) Principal Payments. Except as otherwise provided in this
Agreement, the principal amount outstanding under the Note shall be payable in
monthly installments as follows: (i) fifty-nine (59) equal consecutive monthly
installments of principal, each in an amount equal to the quotient of (A) the
principal amount of the Loan outstanding and unpaid as of the last day of the
Draw Period divided by (B) fifty-nine (59), shall be due and payable on December
1, 2005 and continuing on each Interest Payment Date thereafter to and including
November 1, 2010; and (ii) any and all remaining principal outstanding on the
Maturity Date shall be due and payable on the Maturity Date.
(b) Mandatory Prepayments. On or before the tenth (10th) day after
the receipt thereof, Borrowers shall pay Lender as a prepayment of the principal
amount outstanding under the Note an amount equal to any Excess Sale Proceeds.
(c) Interest. Borrowers shall pay interest on the unpaid principal
amount of each Loan Advance made by Lender from the date of such Loan Advance
until such principal amount shall be paid in full, at the times and at the rates
per annum set forth below:
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(i) So long as no Matured Default has occurred or is continuing, a
fixed rate per annum equal to eleven and one-half percent (11.5%), payable
monthly in arrears on the first day of each month commencing July 1, 2004
(each, an "Interest Payment Date"), and on the Maturity Date, without
prior demand by Lender.
(ii) After the occurrence of a Matured Default and for so long as
such Matured Default is continuing, Lender may notify Borrowers that any
and all amounts due hereunder, under the Note or under any other Financing
Agreement, whether for principal, interest (to the extent permitted by
applicable law), fees, expenses or otherwise, shall bear interest, from
the date of such notice by Lender and for so long as such Matured Default
continues, payable on demand, at a rate per annum (the "Default Rate")
equal to the lesser of (i) fourteen percent (14.0%) per annum or (ii) the
Highest Lawful Rate.
(iii) All computations of interest pursuant to this Section 2.3
shall be made by Lender with respect to Loan Advances, on the basis of a
year of 360 days, unless the foregoing would result in a rate exceeding
the Highest Lawful Rate, in which case such computations shall be based on
a year of 365 or 366 days, as the case may be. Interest with respect to
Loan Advances, whether based on a year of 360, 365 or 366 days, shall be
charged for the actual number of days (including the first day but
excluding the last day) occurring in the period for which such interest is
payable. Each determination by Lender of an interest rate shall be
conclusive and binding for all purposes, absent manifest error. In the
event any Governmental Authority subjects Lender to any new or additional
charge, fee, withholding or tax of any kind with respect to any Loan
Advances hereunder or changes the method of taxation of such Loan Advances
or, if and to the extent applicable to Lender or its assignee, changes the
reserve or deposit requirements applicable to such Loan Advances,
Borrowers shall pay to Lender such additional amounts as will compensate
Lender for such costs or lost income resulting therefrom as reasonably
determined by Lender.
2.4 Voluntary Prepayments; Termination of the Commitments. Borrowers may
at any time prepay the outstanding principal amount of the Loan, in either case
in whole or in part, in accordance with this Section 2.4. The Company shall give
prior written notice of any such prepayment to Lender, which notice shall state
the proposed date of such prepayment (which shall be a Business Day) and the
aggregate amount of the prepayment, which shall be a minimum amount of $100,000
and an integral multiple of $100,000, and which notice shall be delivered to
Lender not later than 11:00 a.m. (local time of Lender) on a day that is at
least three (3) Business Days prior to the date of the proposed prepayment. All
prepayments of the Loan made after the first anniversary of the Closing Date
shall be without premium or penalty. Subject to the following paragraph of this
Section 2.4 and the provisions of Section 4.9, if Borrowers make any prepayments
of the Loan prior to the first anniversary of the Closing Date, then Borrowers
shall pay Lender a prepayment premium in an amount equal to five percent (5%) of
the principal amount prepaid. All notices of prepayment shall be irrevocable and
the payment amount specified in each such notice shall be due and payable on the
prepayment date described in such notice. Any prepayment made after the
expiration of the Draw Period shall be applied
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against scheduled principal payments in the inverse order of their due date.
Interest accrued to the date of payment shall be due and payable on the next
following Interest Payment Date unless the Note is paid in full, in which event,
accrued interest shall become due and payable on the payment date.
Notwithstanding the foregoing provisions of this Section 2.4 to the
contrary, if (i) Borrowers enter into a letter of intent for the acquisition of
a Target Company pursuant to a Permitted Acquisition and in order to complete
such acquisition Borrowers require a senior loan in an amount (the "Required
Acquisition Funding Amount") in excess of the then unused portion of the
Acquisition Commitment, and (ii) within sixty (60) days after Lender's receipt
of a copy of an executed letter of intent with respect to such proposed
acquisition, Lender gives Borrowers written notice that Lender (and its
co-lenders and/or participants, as applicable) is not willing or is unable to
increase the amount of the Acquisition Commitment so as to permit the same and
to make an Acquisition Advance to Borrowers in the required amount, then
notwithstanding any other provision of this Agreement to the contrary, within
one hundred fifty (150) days after Borrowers' receipt of such written notice
from Lender, Borrowers shall have the right and option to prepay in full the
entire outstanding principal balance of the Note, any accrued, unpaid interest
thereon and all other Liabilities, without any prepayment premium or penalty,
and upon such payment, Lender shall have no obligation hereunder to make any
further Loan Advances to any Borrower and the Working Capital Commitment and
Acquisition Commitment shall be irrevocably terminated. The parties hereto agree
that, in addition to any other rights Lender may have hereunder, Lender and its
successors and assigns shall have the right to sell and assign all or any
portion of its interest in the Loan or participation rights therein to one or
more other lenders in connection with any proposed increase in the Acquisition
Commitment necessary to fund any Required Acquisition Funding Amount.
2.5 Use of Funds. The Initial Advance, Working Capital Advances and
Acquisition Advances shall be used solely for the purposes permitted under
Sections 2.2(a), (b) and (c), respectively, and for no other purposes
whatsoever.
2.6 Fee Agreement. On or prior to the date hereof, Borrowers and Servicer
have entered into a certain Fee Agreement pursuant to which Borrowers have,
jointly and severally, agreed to pay certain fees to Servicer (the "Fee
Agreement"). Such fees represent compensation for services rendered and to be
rendered separate and apart from the lending of money or the provision of credit
and do not constitute compensation for the use, detention, or forbearance of
money, and the obligation of Borrowers to pay such fees shall be in addition to,
and not in lieu of, the obligation of Borrowers to pay interest, other fees
described in this Agreement, and expenses otherwise described in this Agreement.
Such fees shall be payable when due in Dollars and in Immediately Available
Funds and shall be non-refundable.
2.7 Borrowers' Loan Account. Lender shall maintain a loan account ("Loan
Account") on its books in which shall be recorded: (a) all Loan Advances made by
Lender to Borrowers pursuant to this Agreement; (b) all payments made by
Borrowers; and (c) all other appropriate debits and credits as provided in this
Agreement, including without limitation, all receipts of cash proceeds of
collateral, fees, charges, expenses and interest. All entries in Borrowers' Loan
Account shall be made in accordance with Lender's customary accounting
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practices as in effect from time to time. Borrowers, jointly and severally,
promise to pay the amount reflected as owing by and under their Loan Account and
all other obligations hereunder as such amounts become due or are declared due
pursuant to the terms of this Agreement.
2.8 Statements. All Loan Advances to Borrowers, and all other debits and
credits provided for in this Agreement, shall be evidenced by entries made by
Lender in its internal data control systems showing the date, amount and reason
for each such debit or credit. Until such time as Lender shall have rendered to
Borrowers written statements of account, the balance in Borrowers' Loan Account,
as set forth on Lender's most recent printout, shall be rebuttable presumptive
evidence of the amounts due and owing Lender by Borrowers. On or about the last
day of each calendar month, Lender shall mail or email to Borrowers a statement
setting forth the balance of Borrowers' Loan Account, including without
limitation, principal, interest, expenses and fees. Each such statement shall be
subject to subsequent adjustment by Lender but shall, absent manifest errors or
omissions, be presumed correct and binding upon Borrowers and shall constitute
an account stated unless, within sixty (60) days after receipt of any statement
from Lender, Borrowers shall deliver to Lender written objection specifying the
error or errors, if any, contained in such statement.
2.9 Termination of Agreement. Subject to and in accordance with Section
9.1, Lender shall have the right, without notice to Borrowers, to terminate
Lender's commitments to make Loan Advances pursuant to this Agreement
immediately upon a Matured Default. In addition, Lender's commitment to make
Loan Advances pursuant to this Agreement shall be deemed immediately terminated,
without notice to Borrowers, on the last day of the Draw Period. Borrowers shall
have the right to irrevocably and permanently terminate Lender's commitments to
make Loan Advances pursuant to this Agreement immediately upon providing written
notice thereof to Lender. In the event Lender's commitment to make Loan Advances
pursuant to this Agreement is terminated, the remainder of this Agreement shall
remain in full force and effect until the payment in full of the Liabilities.
Notwithstanding the foregoing, in the event that a proceeding under any
bankruptcy, reorganization, arrangement of debt, insolvency, readjustment of
debt or receivership law or statute is filed by or against any Borrower, or any
Borrower makes an assignment for the benefit of creditors, this Agreement shall
be deemed to be terminated immediately, and all the Liabilities shall be due and
payable, without presentment, demand, protest or further notice (including
without limitation, notice of intent to accelerate and notice of acceleration)
of any kind, all of which are expressly waived by Borrowers, provided, however,
that in the event a proceeding against any Borrower is dismissed within sixty
(60) days of the date of its filing then this Agreement shall be deemed to be
reinstated as of the date the order of dismissal becomes final and Lender is
given notice thereof.
2.10 Limitation of Liability of Foreign Borrowers. Notwithstanding any
other provision of this Agreement, the Note or the other Financing Agreements to
the contrary, and notwithstanding any breach by any Foreign Borrower of any
representation, warranty, covenant or agreement contained herein or in any other
Financing Agreement, liability of each Foreign Borrower hereunder or pursuant to
any of the other Financing Agreements shall be limited to the sum of (i) the
amount of Loan Advances made to such Foreign Borrower or any, direct or
indirect, Subsidiary thereof plus (ii) to the extent not included in (i) above,
the aggregate amount of any loans, payments, capital contributions, dividends,
distributions or other asset transfers,
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directly or indirectly, made after the date hereof by any Domestic Borrower to
such Foreign Borrower or any, direct or indirect, Subsidiary thereof.
3 WARRANTS.
On the Closing Date, the Company and Lender shall enter into a Warrant
Agreement, the form of which is attached as Exhibit 3A (the "Warrant
Agreement"), pursuant to which the Company shall issue to Lender Warrants to
purchase Common Shares of the Company in connection with and as a condition of
the making of the Loan by Lender to Borrowers.
4 CONDITIONS TO LOAN ADVANCES.
Notwithstanding any other provisions to the contrary contained in this
Agreement, the making of each Loan Advance provided for in this Agreement shall
be conditioned upon the following:
4.1 Approval of Lender's Counsel. Legal matters, if any, relating to such
Loan Advance shall have been reviewed by and shall be satisfactory to counsel
for Lender.
4.2 Compliance. All representations and warranties contained in this
Agreement shall be true on and as of the date of the making of such Loan Advance
as if such representations and warranties had been made on and as of such date,
and no Default or Matured Default shall have occurred and be continuing or shall
exist.
4.3 Documentation for Initial Advance. Prior to the making of the Initial
Advance, Borrowers shall have executed and/or delivered to Lender all of the
documents listed on the List of Closing Documents for the Initial Advance
attached as Exhibit 4A.
4.4 Documentation for Initial Working Capital Advance or Acquisition
Advance. Prior to the making of any additional Loan Advance after the Initial
Advance, Borrowers shall have executed and/or delivered to Lender all of the
documents listed on the List of Closing Documents for the Initial Working
Capital Advance/Acquisition Advance attached as Exhibit 4B. Such documents shall
include, without limitation, (i) all documents reasonably requested by Lender to
evidence and effect the pledge to Lender of all of the shares of capital stock
of ARC Ltd., ARC Europe, MECAR and VSK Electronics and (ii) a subordination
agreement between Lender and the Subordinated Lender, duly executed and
delivered by an authorized officer of the Subordinated Lender and in form and
content acceptable to Lender in its sole discretion (the "Subordination
Agreement"). Notwithstanding the foregoing, in lieu of causing the Subordinated
Lender to execute and deliver the Subordination Agreement, the Company may
deposit into the Account (as defined in the Deposit Account Security Agreement)
additional cash in an amount equal to the then outstanding principal amount of
the Subordinated Debenture, together with an amount sufficient to pay all
accrued and unpaid interest thereon and all interest that will accrue thereafter
through the maturity date thereof (the "Additional Cash Collateral"). If the
Company deposits the Additional Cash Collateral into the Account, then (i) the
amount of the Collateral Requirement (as defined in the Deposit Account Security
Agreement) that otherwise would apply shall be increased by such amount, (ii)
the Additional Cash Collateral
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shall be additional collateral for the Liabilities and shall remain in the
Account subject to the provisions of this Section 4.4 and the terms of the
Deposit Account Control Agreement until the earlier of (A) the payment in full
of the Subordinated Debt or (B) the payment in full of the Liabilities and the
termination of the Lender's obligation hereunder to extend further credit to the
Borrowers, and (iii) upon receipt of the Company's written request from time to
time, Lender shall permit disbursements of the Additional Cash Collateral to be
made from the Account to the Subordinated Lender to pay regularly scheduled
principal and interest payments due and payable under the Subordinated Loan
Documents so long as no Matured Default shall have occurred or would occur as
the result of the making of any such payment.
4.5 Delivery of Financial Statements, Projections, Compliance Certificate
and Appraisals.
(a) Prior to the making of the Initial Advance, the Company shall
have delivered to Lender each of the following: (i) the audited consolidated
financial statements of the Company for the preceding three fiscal years of the
Company; and (ii) projected consolidated income statements, consolidated balance
sheets and consolidated cash flow statements for the two (2) year period from
the date hereof.
(b) Prior to the making of each Loan Advance, the Company shall have
delivered to Lender a calculation certified by the chief financial officer,
president or a vice president of the Company demonstrating that the ratio of (i)
the sum of (A) Borrower Senior Funded Debt as of the expected date of such Loan
Advance (assuming that such Loan Advance has been made) minus (B) the Dollar
amount as of such date of the Collateral (as defined in the Deposit Account
Security Agreement) pledged by the Company to Lender under the Deposit Account
Security Agreement divided by (ii) Adjusted Pro Forma EBITDA for the four (4)
fiscal quarters of the Company ending as of the last day of the prior fiscal
quarter (assuming in the case of a proposed Acquisition Advance that the
applicable Target Company became a Domestic Subsidiary as of the first day of
such period, as provided in the definition of Adjusted Pro Forma EBITDA) does
not exceed 3.00 to 1.0.
4.6 Completion of Forensic Accounting Due Diligence Reports and Background
Checks. Prior to the making of the Initial Advance, Lender, or one or more third
parties acceptable to Lender, shall have conducted and completed (i) a forensic
accounting due diligence review of the assets and business operations of
Borrowers and (ii) a background check of certain senior managers of Borrowers
selected by Lender, all with results satisfactory to Lender in its sole
discretion.
4.7 Closing of Each Permitted Acquisition. Prior to the making of each
Acquisition Advance, the Company shall have delivered to Lender satisfactory
evidence that the proposed acquisition is a Permitted Acquisition, including,
without limitation, evidence that:
(a) the Target Company is primarily engaged in one or more of the
following lines of business (each, a "Permitted Business"): (i) the production
and/or sale of ammunition and weapon systems; (ii) the manufacture, distribution
or service of security products for industry and/or Government; (iii) the
development and/or sale of battlefield effects simulators;
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(iv) the development and/or sale of environmental security or safety products;
(v) the provision of engineering, software and/or information technology
solutions to government and/or industrial customers (it being understood and
agreed however that, following the completion of the initial Permitted
Acquisition of a Permitted Business described in this clause (v), any additional
businesses described in this clause (v) acquired by Borrowers must sell
substantially the same types of products and/or services as such initially
acquired Permitted Business or products and services reasonably related
thereto); or (vi) such other businesses ancillary or related to any of the
foregoing that may be approved from time to time in writing by Lender in its
sole discretion;
(b) all conditions to the closing and consummation of the applicable
Purchase Agreement have been satisfied, or will simultaneously with the making
of the related Acquisition Advance be satisfied;
(c) all conveyance documents under such Purchase Agreement conveying
interests in real property (including fixtures), certificate of title property,
registered patents, registered copyrights, registered trademarks and registered
trade names have been, or will be not later than five (5) days after their
delivery, properly recorded;
(d) the sum of (i) the Purchase Price payable under such Purchase
Agreement plus (ii) the aggregate purchase price of all prior Permitted
Acquisitions financed in whole or in part by Acquisition Advances does not
exceed $50,000,000;
(e) the assets and/or stock or other equity interests, as
applicable, proposed to be acquired by the purchaser under the Purchase
Agreement shall be free and clear of all liens and encumbrances, other than
those in favor of Lender or otherwise permitted under the Financing Agreements;
(f) the Dollar amount of goodwill that will be reflected on the
Company's consolidated balance sheet as a result of the proposed Permitted
Acquisition will not exceed 50% of the Purchase Price for such Permitted
Acquisition;
(g) the sum of the Purchase Price for such Permitted Acquisition
plus all related fees and expenses paid or payable by Borrowers will not exceed
the product of (i) seven (7) multiplied by (ii) the adjusted trailing twelve
(12) months EBITDA of the Target Company (subject to such adjustments (if any)
as may be made by Borrowers with the written approval of Lender); and
(h) the proposed Permitted Acquisition will not result in a Default
or Matured Default.
4.8 Additional Documentation for Acquisition Advances.
(a) Upon the execution and delivery of a letter of intent for a
proposed Permitted Acquisition of a Target Company, the Company shall provide
Lender an executed copy thereof.
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(b) The Borrowers shall promptly provide Lender with copies of all
drafts of any Acquisition Documents for any Permitted Acquisition.
(c) At least five (5) days prior to the disbursement of any
Acquisition Advance, the Company shall deliver to Lender a copy of the
applicable Purchase Agreement, including all exhibits and schedules thereto and
copies of all material agreements, documents and instruments contemplated by the
parties thereto to be executed and/or delivered at or prior to, or as a
condition precedent to, the closing of such Permitted Acquisition (collectively,
the "Acquisition Documents").
(d) At least ten (10) Business Days prior to the disbursement of any
Acquisition Advance, the Company shall deliver to Lender the following documents
related to the applicable proposed Permitted Acquisition of a Target Company:
(i) copies of consolidated financial statements for such
Target Company for each of the three (3) most recent fiscal years of
the Target Company and for the most current interim period for which
such financial statements are then available (collectively, the
"Target Company Financial Statements");
(ii) a pro forma consolidated and consolidating balance sheet
of the Company (each, a "Pro Forma Balance Sheet") setting forth the
assets and liabilities of the Company and its Subsidiaries on a pro
forma consolidated and consolidating basis after taking into account
the consummation of the transactions contemplated in the applicable
Acquisition Documents as of the date of the applicable Target
Company Financial Statements;
(iii) copies of the latest projections of the consolidated
income and cash flows of the Company and its Subsidiaries for the
next succeeding two (2) years taking into account the consummation
of the transactions contemplated in the applicable Acquisition
Documents ("Projections");
(iv) copies of the organizational documents of such Target
Company and each of its Subsidiaries;
(v) copies of any offering memoranda or circulars, business
plans or other materials prepared by the Target Company or its
owners, representatives, agents, advisors or affiliates that have
been provided to any Borrower or any of its representatives, agents
or advisors in connection with such Permitted Acquisition; and
(vi) copies of any budgets, forecasts, projections,
appraisals, valuations, due diligence memoranda, studies or reports
relating to the Target Company, any of its assets, liabilities,
businesses or operations, or the proposed Permitted Acquisition that
are in the possession or control of any Borrower or any of its
representatives, agents or advisors.
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(e) At least fifteen (15) days prior to the making of each
Acquisition Advance, in addition to the documents required to be delivered
pursuant to the provisions of Sections 4.8(a) through (d) and Section 4.7,
Borrowers shall have executed and/or delivered and, as applicable, caused the
Target Company, the other parties to the applicable Purchase Agreement, each new
Subsidiary (if any) and their respective owners, representatives, agents,
advisors or affiliates to have delivered, to Lender (i) a schedule updating the
Disclosure Schedule attached as Exhibit 6A with respect to the applicable Target
Company and the Permitted Acquisition, assuming that the same had been
consummated as of the date thereof (each, a "Supplemental Disclosure Schedule"),
and (ii) all of the other documents listed on the List of Closing Documents for
each Acquisition Advance attached as Exhibit 4C. An additional condition
precedent to Lender's obligation to make each Acquisition Advance shall be that
neither any Supplemental Disclosure Schedule nor any provision of any Purchase
Agreement or any exhibit or schedule thereto shall disclose any fact or
circumstance that, either alone or in conjunction with all other known facts and
circumstances, could reasonably be expected to have a Material Adverse Effect.
4.9 Funding by Fund Lender. Borrowers hereby acknowledge and agree that:
(i) Lender and a certain third party disclosed to Borrowers ("Fund Lender") have
entered into a certain Credit Agreement dated February 11, 2003, as amended (the
"Fund Credit Agreement"), for the purpose of providing Lender with financing to
make certain loans and other investments permitted thereunder; (ii) Lender may
obtain funds to make Loan Advances from borrowings under the Fund Credit
Agreement; and (iii) Lender's obligation hereunder to make each Loan Advance to
Borrowers is conditional upon and subject to the prior receipt by Lender from
Fund Lender of sufficient funds to make such Loan Advance. Upon the termination
of the Fund Credit Agreement for any reason and Lender's failure to promptly
obtain adequate alternative financing for the then Unused Commitment, Lender
shall promptly give Borrowers written notice thereof and, in such event, Lender
shall have no further obligation to make any additional Loan Advances to
Borrowers hereunder and each of the Company and Lender shall have the right and
option, exercisable upon written notice thereof to the other party, to
irrevocably terminate the Working Capital Commitment and the Acquisition Advance
Commitment. In addition, if Lender determines that it is or will be unable to
fund any Loan Advance requested by Borrowers in accordance with the provisions
of this Agreement as a result of Fund Lender's inability or unwillingness for
any reason to provide financing therefor to Lender, then Lender shall promptly
give Borrowers written notice thereof, whereupon Borrowers shall have the right
and option, exercisable upon ten (10) days' prior written notice thereof to the
Company at any time after Borrowers' receipt of Lender's notice and prior to
such time (if any) as Lender obtains sufficient replacement financing, to prepay
in full the Liabilities without any fee or penalty and irrevocably terminate the
Working Capital Commitment and the Acquisition Commitment. Lender represents and
warrants to Borrowers that (i) Lender is permitted under the Fund Credit
Agreement to enter into this Agreement; and (ii) subject to the terms and
conditions of the Fund Credit Agreement, Lender has adequate committed capital
from Fund Lender to cover its funding obligations hereunder. Upon the Company's
reasonable request from time to time, Lender shall provide Borrowers with
written notice that, to Lender's actual knowledge, Lender continues to have
continued access to adequate committed capital. Lender shall provide Borrowers
prompt written notice of any event which would cause it to have insufficient
committed capital to cover its funding obligations hereunder.
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5 SECURITY.
5.1 Security Interests and Liens. To secure the payment and performance of
the Liabilities:
(a) Personal Property. Each of the Domestic Borrowers has granted and
hereby grants to Lender a continuing security interest in and to the following
property and interests in property of such Domestic Borrower, whether now owned
or existing or hereafter acquired or arising and wheresoever located: all
Accounts, Inventory, Equipment, Goods, General Intangibles, Payment Intangibles,
Commercial Tort Claims, Deposit Accounts, Margin Accounts, Securities Accounts,
Investment Property, Instruments, Letter of Credit Rights, Documents, Chattel
Paper, Tangible Chattel Paper, Money, all accessions to, substitutions for, and
all replacements, products and proceeds of the foregoing (including without
limitation, proceeds of insurance policies insuring any of the foregoing), all
books and records pertaining to any of the foregoing (including without
limitation, customer lists, credit files, computer programs, printouts and other
computer materials and records), and all insurance policies insuring any of the
foregoing.
(b) Master Pledge Agreement. Pursuant to the execution and delivery of the
Pledge Agreement in the form attached as Exhibit 5A (the "Master Pledge
Agreement"), each Borrower shall pledge and grant to Lender a continuing
security interest in all of the shares of capital stock of each of its
Subsidiaries and all of the partnership interests and limited liability company
membership interests owned at any time by such Borrower or any of its
Subsidiaries (other than current and future Subsidiaries of VSK Electronics);
provided, however, that with respect to the pledge of any shares of any Foreign
Subsidiary, Borrower that owns such shares shall execute and deliver (or, as
applicable, cause its Subsidiaries to execute and deliver) such other
agreements, documents and instruments as may be necessary or desirable in the
opinion of Lender and its counsel to evidence and effect such pledge under the
laws of the jurisdiction in which the issuer of such shares is organized
(collectively, the "Foreign Pledge Agreements") including, without limitation,
with respect to the pledge of shares of any Belgian company, a Share Pledge
Agreement in the form attached as Exhibit 5B (collectively, the "Belgian Share
Pledge Agreements").
(c) Landlord Waivers. Upon the request of Lender from time to time, each
Domestic Borrower shall use its reasonable best efforts to cause the landlord
under each Existing Lease to execute and deliver to Lender a landlord waiver and
consent between such landlord and Lender in form and content reasonably
acceptable to Lender waiving such landlord's lien on the inventory, trade
fixtures and other assets of such Borrower and granting Lender the right to
enter upon the premises and to remove such assets following a Matured Default
(individually, a "Landlord Waiver" and collectively, the "Landlord Waivers").
Within five (5) days after entering into any New Lease, Borrowers shall cause
the landlord under such New Lease to deliver such a Landlord Waiver to Lender.
(d) Deposit Account Security Agreement. The Company, by a certain Deposit
Account Security Agreement of even date herewith between the Company and Lender
in the form
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attached as Exhibit 5C (the "Deposit Account Security Agreement") and a certain
Deposit Account Control Agreement of even date herewith among Wachovia Bank, the
Company and Lender (the "Control Agreement") and by other instruments
contemplated thereby, shall, as provided in the Deposit Account Security
Agreement, assign and grant to Lender a first perfected security interest in all
the collateral described in the Deposit Account Security Agreement.
5.2 Endorsement by Lender. Each Domestic Borrower authorizes Lender
(following a Matured Default) to endorse, in such Borrower's name, any item,
however received by Lender, representing payment on or other proceeds of any of
the Collateral.
5.3 Delivery of Warehouse Receipts to Lender. In the event that any
Inventory becomes the subject of a negotiable or nonnegotiable warehouse
receipt, said warehouse receipt shall be promptly delivered to Lender with such
endorsements and assignments as are necessary to vest title and possession in
Lender. Provided that a Matured Default does not then exist and would not be
created thereby, Lender shall return such warehouse receipts to the appropriate
Domestic Borrower(s) within two (2) Business Days of the request of such
Domestic Borrower(s) therefor, but only for purposes of negotiation, delivery or
exchange in the ordinary course of the business of such Domestic Borrower(s),
and provided, however, that Domestic Borrowers shall comply with such terms and
conditions deemed appropriate by Lender to secure the return to Lender of the
proceeds of such warehouse receipts, where such return of proceeds would be
required in accordance with Domestic Borrowers' obligations to Lender under the
Financing Agreements.
5.4 Preservation of Collateral and Perfection of Security Interests.
(a) Each Borrower shall execute and deliver to Lender, concurrently
with the execution of this Agreement and at any time hereafter, all documents
(and pay the cost of filing or recording the same in all public offices deemed
necessary by Lender), as Lender may request, in a form satisfactory to Lender,
to perfect and keep perfected the security interest in the Collateral granted by
such Borrower to Lender and otherwise to protect and preserve the Collateral and
Lender's security interests. Lender is hereby irrevocably authorized to file
(and sign on behalf of such Borrower, if necessary) UCC or effective financing
statements (or such other equivalent documents as may be necessary or desirable
under any applicable foreign law) on the Collateral at the time of this
Agreement or from time to time hereafter. Borrowers further agree that an
electronic, carbon, photographic, or other reproduction of a financing statement
is sufficient as a financing statement.
(b) Upon Lender's request from time to time after the occurrence of
a Default or Matured Default, Domestic Borrowers shall use their reasonable
efforts to cause each financial institution at which any Domestic Borrower
maintains any lockbox, deposit account or other similar account to deliver
promptly to Lender a writing, in form and substance satisfactory to Lender, (i)
acknowledging and consenting to the security interest of Lender in such lockbox
or account and all cash, checks, drafts and other instruments or writings for
the payment of money from time to time therein, (ii) confirming such financial
institution's agreement to follow the instructions of Lender with respect to all
such cash, checks, drafts and other instruments or writings for the payment of
money following receipt from Lender of notice of the occurrence of
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any Matured Default and (iii) waiving all rights of setoff and banker's lien on
all items held in any such lockbox or account (other than with respect to
payment of fees and expenses for account services).
5.5 Loss of Value of Collateral. Borrowers shall immediately notify Lender
of any material loss or decrease in the value of the Collateral.
5.6 Collection of Accounts; Power of Attorney. Upon and during the
occurrence of a Matured Default, Domestic Borrowers, jointly and severally,
agree, upon Lender's demand, to establish a lockbox into which Account Debtors
shall make payments. Upon a Matured Default, Domestic Borrowers, jointly and
severally, designate, make, constitute and appoint Lender (and all Persons
designated by Lender) as each Domestic Borrower's true and lawful
attorney-in-fact, with power, in each such Borrower's or Lender's name, to: (a)
demand payment of Accounts; (b) enforce payment of Accounts by legal proceedings
or otherwise; (c) exercise all of such Domestic Borrower's rights and remedies
with respect to proceedings brought to collect an Account; (d) sell or assign
any Account upon such terms, for such amount and at such time or times as Lender
deems advisable; (e) settle, adjust, compromise, extend or renew any Account;
(f) discharge and release any Account; (g) take control in any manner of any
item of payment or proceeds of any Account; (h) prepare, file and sign such
Domestic Borrower's name upon any items of payment or proceeds and deposit the
same to Lender's account on account of the Liabilities; (i) endorse such
Domestic Borrower's name upon any Chattel Paper, Document, Instrument, invoice,
warehouse receipt, xxxx of lading, or similar Document or agreement relating to
any Account or any other Collateral; (j) sign such Domestic Borrower's name on
any verification of Accounts and notices to Account Debtors; (k) prepare, file
and sign such Domestic Borrower's name on any proof of claim in bankruptcy or
similar proceeding against any Account Debtor; and (l) do all acts and things
which are necessary, in Lender's sole discretion, to sell, transfer or otherwise
obtain the proceeds of any Collateral or otherwise to fulfill such Domestic
Borrower's obligations under this Agreement. The foregoing power of attorney is
coupled with an interest and is therefore irrevocable.
5.7 Account Covenants. Each Domestic Borrower shall: (a) promptly upon
such Borrower's learning thereof, inform Lender, in writing, of any material
delay in such Borrower's performance of any of such Borrower's obligations to
any Account Debtor or of any assertion of any claims, offsets or counterclaims
by any Account Debtor in excess of $250,000; (b) not permit or agree to any
extension, compromise or settlement or make any change or modification of any
kind or nature in excess of $250,000 with respect to any Account without the
prior written consent of Lender, which consent shall not be unreasonably
withheld; and (c) promptly upon such Borrower's learning thereof, furnish to and
inform Lender of all material adverse information relating to the financial
condition of any Account Debtor if Accounts attributable to such Account Debtor
aggregate in excess of $250,000.
5.8 Account Records and Verification Rights. Borrowers, jointly and
severally, represent and warrant to and covenant with Lender that each Borrower
now keeps and at all times shall keep correct and accurate records relating to
the Accounts and the financial and payment records of the Account Debtors, all
of which records shall be available upon demand during such Borrower's usual
business hours to any of Lender's officers, employees or agents.
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Any of Lender's officers, employees or agents shall have the right at any time,
in Lender's name, in the name of a fictional nominee or in the name of any
Borrower, to verify the validity, amount or any other matter relating to any
Accounts, by mail, telephone, telegraph or otherwise. Borrowers shall promptly
notify Lender of any amounts that are in dispute for any reason in excess of
$250,000 which are due and owing from an Account Debtor.
5.9 Notice to Account Debtors. Lender may, at any time or times upon and
during the occurrence of a Matured Default, and without prior notice to any
Borrower, notify any or all Account Debtors that the Accounts have been assigned
to Lender and that Lender has been granted a security interest therein and may
direct any or all Account Debtors to make all payments upon the Accounts
directly to Lender or to a lockbox to be established pursuant to Section 5.6.
Lender shall furnish Borrowers with a copy of such notice.
5.10 Inventory Records. Borrowers, jointly and severally, represent and
warrant to and covenant with Lender that each Borrower now keeps and at all
times shall keep correct and accurate records itemizing and describing the kind,
type, quality and quantity of Inventory, such Borrower's costs and selling
prices of Inventory and daily withdrawals and additions of Inventory, all of
which records shall be available on demand during such Borrower's usual business
hours to any of Lender's officers, employees or agents.
5.11 Special Collateral. Immediately upon any Domestic Borrower's receipt
thereof and upon request by Lender, such Borrower shall (except as provided for
in Section 5.3 with regard to warehouse receipts) deliver or cause to be
delivered to Lender, with such endorsements and assignments as are necessary to
vest title and possession in Lender, all Chattel Paper, Instruments and
Documents which such Borrower now owns or which such Borrower may at any time
acquire. Each Domestic Borrower shall promptly xxxx all copies of such Chattel
Paper, Instruments and Documents to show that they are subject to Lender's
security interest.
5.12 Remittance of Proceeds to Lender. Except as otherwise provided in
Section 5.6, in the event any proceeds of any Collateral (other than proceeds of
Inventory or Accounts Receivable received in the ordinary course of business)
shall come into the possession of any Borrower (or any of such Borrower's
directors, officers, managers, employees, agents or any Persons acting for or in
concert with any Borrower) following the occurrence of a Matured Default, such
Borrower or such Person shall receive, as the sole and exclusive property of
Lender, and as trustee for Lender, all monies, checks, notes, drafts and all
other payments for and/or other proceeds of Collateral, and no later than the
first Business Day following receipt, such Borrower shall remit the same (or
cause the same to be remitted), in kind, to Lender or to such agent or agents
(at such agent's or agents' designated address or addresses) as are appointed by
Lender for that purpose, to be applied to the Liabilities pursuant to Section
10.14.
5.13 Safekeeping of Collateral. Lender shall not be responsible for: (a)
the safekeeping of the Collateral; (b) any loss or damage to the Collateral; (c)
any diminution in the value of the Collateral; or (d) any act or default of any
carrier, warehouseman, bailee, forwarding agency or any other Person relating to
the Collateral. All risk of loss, damage, destruction or diminution in value of
the Collateral shall be borne by Borrowers.
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5.14 Sales and Use of Collateral. Except as set forth in this Section or
as otherwise consented to by Lender in writing, no Domestic Borrower shall sell,
lease, transfer or otherwise dispose of any Collateral. So long as there shall
not have occurred and be continuing a Matured Default, (a) Inventory may be sold
by each Borrower in the ordinary course of such Borrower's business, but shall
not otherwise be taken or removed from such Borrower's premises or approved
third party locations, except for raw materials or work in process for the
purpose of conversion into finished Goods and (b) each Borrower may sell
Collateral that is obsolete or no longer used or useful in Borrower's business
and having a value not in excess of $250,000 in the aggregate. Upon and during
the occurrence of a Matured Default and if Lender so notifies Borrowers in
writing, neither Inventory nor any other Collateral shall be sold or taken or
removed from any Borrower's premises or approved third party locations, except
with the prior written consent of Lender and upon payment of an amount
equivalent to the value of the Collateral to be sold or removed, such amounts to
be paid to Lender to be applied upon the Liabilities. So long as there shall not
have occurred a Matured Default, Collateral may be used by each Borrower in the
ordinary course of such Borrower's business, subject to Lender's continuing
security interest. Upon and during the occurrence of a Matured Default and if
Lender so notifies Borrowers in writing, Collateral shall not be used except
with the prior written consent of Lender.
5.15 Margin Accounts. As of the date of this Agreement, no Borrower has
established any Margin Accounts. Unless Lender shall otherwise consent in
writing, all Margin Accounts established by any Domestic Borrower shall be kept
with a broker acceptable to Lender and approved in writing by Lender ("Broker").
Domestic Borrowers, jointly and severally, represent and warrant to Lender that:
(a) with regard to any Margin Accounts established by any Domestic Borrower,
such Borrower is the owner, free and clear of all liens, security interests and
encumbrances, except for those in favor of Lender or Broker, of any and all
Margin Accounts which are listed in any financial statements or books and
records of such Borrower as being the property of such Borrower; and (b) except
as otherwise permitted by this Agreement, no Borrower owns any open futures
positions which are not either covered by existing, unsold Inventory or covered
by reciprocal contracts for future delivery of the product by reliable sellers,
or directly related to Inventory which such Borrower plans to purchase in the
ordinary course of such Borrower's business. With regard to any Margin Accounts
established by any Domestic Borrower, such Borrower, the Broker and Lender shall
execute an Assignment of Commodity Accounts and Commodity Contracts, in a
standard form reasonably acceptable to Lender and the Broker. All of Lender's
rights under such Assignment of Commodity Accounts and Commodity Contracts shall
be in addition to Lender's rights hereunder. Domestic Borrowers, jointly and
severally, warrant that any such Margin Accounts shall be used solely for the
hedging of the applicable Borrower's investments in Inventory and not for
speculative purposes.
5.16 Real Property. Domestic Borrowers shall give Lender at least thirty
(30) days' prior written notice of any interests in real property acquired by
any Borrower after the Closing Date (including, without limitation, any real
property interests acquired by any Domestic Borrower or any Subsidiary thereof
through a Permitted Acquisition). Upon Lender's request from time to time,
Domestic Borrowers shall promptly execute and deliver such mortgages, deeds of
trust, leasehold mortgages and other agreements, documents and instruments
reasonably
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requested by Lender to grant in favor of Lender a first-priority perfected
mortgage lien on and security interest in any such real property. Domestic
Borrowers shall pay all costs associated with the recording of any such
mortgage, deed of trust, leasehold mortgage or other agreement, document or
instrument, together with any subsequent amendments thereto, with the
appropriate authorities, and shall take all other actions requested by Lender in
order to vest in Lender a perfected lien on the interest in each such parcel of
real property described therein, subject to no other liens, claims or
encumbrances, except those expressly acknowledged thereby.
5.17 Title Insurance. With respect to any real property referred to in
Section 5.16, Domestic Borrowers shall cooperate with Lender to obtain delivery
to Lender of a policy of title insurance, insuring Lender's mortgagee's
interests, which cooperation shall be deemed to include, without limitation,
doing all things necessary to satisfy the requirements set forth in any
applicable title insurance commitment or other requirements of the issuer
thereof (including, without limitation, the payment of premiums). Lender shall
have no obligation to make any further Loan Advances hereunder unless and until
all requirements set forth in any such title insurance commitment or other
requirements of the issuer thereof have been satisfied. Lender shall have the
right to request such title insurance commitment updates at such times as
Lender, in its sole discretion, shall deem appropriate, and shall have the right
to instruct the issuer of the title insurance commitment to set forth as added
requirements such things as would be necessary to eliminate added exceptions to
coverage. In the event Lender reasonably determines that a policy of title
insurance will not be issued in accordance with any such title insurance
commitment by reason of any Domestic Borrower's failure to cooperate as
aforesaid, then Lender shall have the right to terminate this Agreement pursuant
to Section 2.9 and Domestic Borrowers shall remain, jointly and severally,
obligated to Lender for all Liabilities incurred to date thereof (including
without limitation, all fees and cost reimbursements provided for herein).
6 WARRANTIES.
Borrowers, jointly and severally, represent and warrant to Lender that:
6.1 Litigation and Proceedings. Except as set forth on part 1 of Exhibit
6A, no judgments are outstanding against any Loan Party, nor is there pending or
threatened any litigation, contested claim, or governmental proceeding by,
against or with respect to any Loan Party as of the date of this Agreement.
After the Closing Date, no judgments shall be outstanding at any time against
any Loan Party, nor shall there be pending or threatened at any time any
litigation, contested claim, or governmental proceeding by, against or with
respect to any Loan Party, except for judgments and pending or threatened
litigation, contested claims and governmental proceedings which do not (and
could not reasonably be expected to) have a Material Adverse Effect.
6.2 Other Agreements. Except as set forth on part 2 of Exhibit 6A, no Loan
Party is in default under any contract, lease or commitment to which any Loan
Party is a party or by which any Loan Party is bound except those which do not
(and could not reasonably be expected to) have a Material Adverse Effect.
Borrowers know of no dispute, except as set forth on part 2 of Exhibit 6A,
relating to any contract, lease, or commitment except those which do not (and
could not reasonably be expected to) have a Material Adverse Effect.
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6.3 Licenses, Patents, Copyrights, Trademarks and Trade Names. All of
Borrowers' licenses, patents, copyrights, trademarks and trade names and all of
Borrowers' applications for any registrations of any of the foregoing are set
forth on part 3 of Exhibit 6A as updated from time to time by Borrowers. There
is no action, proceeding, claim or complaint pending or threatened to be brought
against any Borrower by any Person which might jeopardize any of such Borrower's
interest in any of the foregoing licenses, patents, copyrights, trademarks,
trade names or applications except those which do not (and could not reasonably
be expected to) have a Material Adverse Effect.
6.4 Collateral. Except as permitted under Section 8.1 and except as set
forth on part 4 of Exhibit 6A, all of the Collateral is free and clear of all
security interests, liens, claims and encumbrances. No Goods held by any
Borrower on consignment or under sale or return contracts have been represented
to be Inventory and no amounts receivable by any Borrower in respect of the sale
of such Goods (except markups or commissions which have been fully earned by
such Borrower) have been represented to be Accounts. All Producer Payables which
are owing to suppliers of any of the Collateral have been paid when due, other
than those being contested in good faith by the applicable Borrower, and no
Person to whom such Producer Payables are owed has demanded turnover of any
Collateral or proceeds thereof. Each Borrower has adequate procedures in place
to insure that Collateral purchased by such Borrower is free of security
interests in favor of Persons other than Lender and other creditors permitted
under the provisions of this Agreement. Each Borrower shall furnish, at Lender's
request, the names and addresses of all Persons who supply Inventory to such
Borrower or who deliver Goods to such Borrower on consignment or under sale or
return contracts.
6.5 Location of Assets; Chief Executive Office. The chief executive office
of each Borrower is located at the address indicated in part 5(a) of Exhibit 6A
as updated from time to time by Borrowers, and such Borrower's assets (including
without limitation, Inventory and Equipment) are all located in the locations
set forth on part 5(b) of Exhibit 6A as updated from time to time by such
Borrower. Part 5(b) of Exhibit 6A lists all real property owned by any Borrower
(if any) and all real property leased by any Borrower, together with all lease
agreements related thereto ("Existing Leases"). As of the Closing Date, the
books and records of each Borrower, and all of each Borrower's Chattel Paper and
records of account are located at the chief executive office of such Borrower.
If any Borrower shall intend to make any change in any of such locations, such
Borrower shall notify Lender at least thirty (30) days prior to such change.
6.6 Tax Liabilities. Each Borrower has filed all federal, state and local
tax reports and returns required by any law or regulation to be filed by such
Borrower and has either duly paid all taxes, duties and charges indicated to be
due on the basis of such returns and reports or has made adequate provision for
the payment thereof, and the assessment of any material amount of additional
taxes in excess of those paid and reported is not reasonably expected. The
reserves for taxes reflected on the Company's consolidated balance sheet are
adequate in amount for the payment of all liabilities for all taxes (whether or
not disputed) of Borrowers accrued through the date of such balance sheet. There
are no material unresolved questions or claims concerning any tax liability of
any Borrower, except as described on part 6 of Exhibit 6A.
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6.7 Indebtedness and Producer Payables. Except as contemplated by this
Agreement, as disclosed on part 7 of Exhibit 6A and as disclosed on the
financial statements identified in Section 6.14, no Loan Party has any other
indebtedness, contingent obligations or liabilities, outstanding bonds, letters
of credit or acceptances to any other Person or loan commitments from any other
Person, other than accounts payable and obligations under operating leases
incurred in the ordinary course of business.
6.8 Other Names. No Borrower has, during the preceding five (5) years,
been known by or used any names other than those disclosed on part 8 of Exhibit
6A.
6.9 Affiliates. No Loan Party has any Affiliates, other than its
directors, officers, agents and employees and those Persons disclosed on part 9
of Exhibit 6A as updated from time to time by Borrowers, and the legal
relationships of each Loan Party to each such Affiliate are generally described
thereon.
6.10 Environmental Matters. Except as disclosed on part 10 of Exhibit 6A,
(a) no Borrower has received any notice to the effect, or has any knowledge,
that the Property or its operations are not in compliance with any of the
requirements of applicable federal, state and local environmental, health and
safety statutes and regulations ("Environmental Laws") or are the subject of any
federal or state investigation evaluating whether any remedial action is needed
to respond to a release of any toxic or hazardous waste or substance into the
environment, which noncompliance or remedial action could have a Material
Adverse Effect; (b) there have been no releases of hazardous materials at, on or
under the Property that, singly or in the aggregate could have a Material
Adverse Effect; (c) there are no underground storage tanks, active or abandoned,
including without limitation petroleum storage tanks, on or under the Property
that, singly or in the aggregate could have a Material Adverse Effect; (d) no
Borrower has directly transported or directly arranged for the transportation of
any hazardous material to any location which is listed or proposed for listing
on the National Priorities List pursuant to CERCLA or on any similar state list
or which is the subject of federal, state or local enforcement actions or other
investigations which may lead to material claims against any Borrower for any
remedial work, damage to natural resources or personal injury, including without
limitation, claims under CERCLA; and (e) no conditions exist at, on or under the
Property which, with the giving of notice, would rise to any material liability
under any Environmental Laws.
6.11 Existence; Organization.
(a) Each Borrower is an entity as described in the preamble of this
Agreement, duly organized and in good standing under the laws of the
jurisdiction in which it is organized and is duly qualified to do business and
is in good standing in each jurisdiction in which it is "doing business", except
for those jurisdictions in which the failure so to qualify would not, in the
aggregate, have a Material Adverse Effect.
(b) The Company owns beneficially and of record all of the issued
and outstanding shares of capital stock of ARC Ltd., Microwave Rental, Titan
Dynamics Systems, SeaSpace, MECAR USA and Energa.
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(c) The Company owns beneficially and of record 51% of the issued
and outstanding shares of capital stock of ARC Europe; Energa owns beneficially
and of record 1% of the issued and outstanding shares of capital stock of ARC
Europe; and the remaining 48% of such shares are owned beneficially and of
record by ARC Ltd.
(d) ARC Europe owns beneficially and of record 99.9% of the issued
and outstanding shares of capital stock of MECAR, Sedachim, Hendrickx and VSK
Electronics. Sedachim owns beneficially and of record 0.1% of the issued and
outstanding shares of capital stock of MECAR. Arc Europe owns beneficially and
of record 0.1% of the issued and outstanding shares of capital stock of VSK
Electronics. Xxxxxxx Xxxxxx owns beneficially and of record 1% of the issued and
outstanding shares of capital stock of Sedachim and 0.1% of the issued and
outstanding shares of capital stock of Hendrickx.
(e) VSK Electronics owns beneficially and of record all of the
issued and outstanding shares of capital stock of Belgian Automation. VSK
Electronics owns beneficially and of record 99.9% of the issued and outstanding
shares of capital stock of each of IDCS and Vigitec and 99% of the issued and
outstanding shares of capital stock of Tele Technique Generale. Belgian
Automation owns beneficially and of record 0.1% of the issued and outstanding
shares of capital stock of each of Vigitec and IDCS and 1% of the issued and
outstanding shares of capital stock of Tele Technique Generale.
6.12 Authority. The execution and delivery by each Borrower of this
Agreement and all of the other Financing Agreements and the performance of each
Borrower's obligations hereunder and thereunder: (a) are within such Loan
Party's powers; (b) are duly authorized by such Loan Party's board of directors,
managers or partners (as applicable) and, if necessary, such Loan Party's
stockholders and/or other securityholders (and their respective governing
boards, members or governing persons, as applicable); (c) are not in
contravention of the terms of such Loan Party's governing agreements and
documents; (d) are not in contravention of any law or laws, or of the terms of
any indenture, agreement or undertaking to which any Loan Party is a party or by
which any Loan Party or any of such Loan Party's property is bound; (e) do not
require any consent, registration or approval of any Governmental Authority or
of any other Person, except such consents or approvals as have been obtained;
(f) do not contravene any contractual restriction or Governmental Requirement
binding upon any Loan Party; and (g) will not, except as contemplated or
permitted by this Agreement, result in the imposition of any lien, charge,
security interest or encumbrance upon any property of any Loan Party under any
existing indenture, mortgage, deed of trust, loan or credit agreement or other
material agreement or instrument to which any Loan Party is a party or by which
any Loan Party or any of such Loan Party's property may be bound or affected.
Each Borrower shall deliver to Lender, upon Lender's request therefor, a written
opinion of counsel as to the matters described in the foregoing clauses (a)
through (g).
6.13 Binding Effect. This Agreement and all of the other Financing
Agreements set forth the legal, valid and binding obligations of Borrowers and
are enforceable against Borrowers in accordance with their respective terms.
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6.14 Correctness of Financial Statements. The financial statements
delivered from time to time by Borrowers to Lender (including, without
limitation, any and all Target Company Financial Statements) present fairly the
financial condition of the applicable Borrowers (or Target Company, as
applicable), and have been prepared in accordance with GAAP consistently
applied. Since the date of the most recent financial statements delivered to
Lender, there has been no materially adverse change in the condition or
operation of Borrowers, taken as a whole.
6.15 Employee Controversies. There are no controversies pending or
threatened between any Borrower or any of such Borrower's employees, other than
employee grievances arising in the ordinary course of such Borrower's business
or which do not (and could not reasonably be expected to) have a Material
Adverse Effect.
6.16 Compliance with Laws and Regulations. Each Loan Party is in
compliance with all Governmental Requirements relating to the business
operations and the assets of each Loan Party, except for Governmental
Requirements, the violation of which would not have a Material Adverse Effect.
To Borrowers' knowledge, no Loan Party or Affiliate thereof has sold any
ammunition, weapons systems or other products or services to any terrorist
organization or for use by any terrorist organization.
6.17 Account Warranties.
(a) Except as disclosed to Lender from time to time in writing, all
Accounts of Borrowers which are reflected on the Company's consolidated
financial statements delivered to Lender pursuant to Section 7.1 are genuine, in
all respects what they purport to be, have not been reduced to any judgment, are
evidenced by not more than one executed original agreement, contract or
document, and represent undisputed, bona fide transactions completed in
accordance with the terms and conditions of any related document.
(b) The Accounts have not been sold or pledged to any Person other
than Lender.
(c) Except as disclosed to Lender from time to time in writing, no
Borrower has any knowledge of any fact or circumstance which would impair the
validity or collectibility of any of the Accounts that in the aggregate are
material in amount.
6.18 Inventory Warranties.
(a) Except for Goods covered by Documents that have been delivered
to Lender, and except as promptly disclosed to Lender from time to time in
writing, all Inventory is located on the premises described in Section 6.5 or is
in transit.
(b) Except as promptly disclosed to Lender from time to time in
writing, all Inventory shall be of good and merchantable quality, free from any
defects which might affect the market value of such Inventory.
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6.19 Solvency. Each Borrower is solvent, able to pay such Borrower's debts
generally as such debts mature, and has capital sufficient to carry on such
Borrower's business and all businesses in which such Borrower is about to
engage. The saleable value of each Borrower's total assets at a fair valuation,
and at a present fair saleable value, is greater than the amount of such Loan
Party's total obligations to all Persons. No Borrower will be rendered insolvent
by the execution or delivery of this Agreement or of any of the other Financing
Agreements or by the transactions contemplated hereunder or thereunder.
6.20 Pension Reform Act. No events, including without limitation, any
"reportable event" or "prohibited transactions," as those terms are defined in
the Employee Retirement Income Security Act of 1974 as the same may be amended
from time to time ("ERISA"), other than "reportable events" for which a waiver
or extension applies under ERISA Regulations Sections 4043.20-35 have occurred
in connection with any type of plan, arrangement, association or fund covered by
ERISA in which any personnel of any Domestic Borrower or an Affiliate which is
under common control with any Domestic Borrower (within the meaning of
applicable provisions of the IRC) participate ("Benefit Plans"). The Benefit
Plans are otherwise in material compliance with all applicable provisions of
ERISA and the IRC and meet the minimum funding standards of ERISA and the IRC.
6.21 Margin Security. No Borrower owns any margin security and none of the
loans advanced hereunder shall be used for the purpose of purchasing or carrying
any margin securities or for the purpose of reducing or retiring any
indebtedness which was originally incurred to purchase any margin securities or
for any other purpose not permitted by Regulations T, U or X of the Board of
Governors of the Federal Reserve System.
6.22 Investment Company Act Not Applicable. No Borrower is an "investment
company", or a company "controlled" by an "investment company", within the
meaning of the Investment Company Act of 1940, as amended.
6.23 Public Utility Holding Company Act Not Applicable. No Borrower is a
"holding company", or a "subsidiary company" of a "holding company", or an
"affiliate" of a "holding company", or an affiliate of a "subsidiary company" of
a "holding company", or a "public utility", as such terms are defined in the
Public Utility Holding Company Act of 1935, as amended.
6.24 Full Disclosure. All factual information taken as a whole in the
materials furnished by or on behalf of any Borrower to Lender for purposes of or
in connection with the transactions contemplated under this Agreement and the
other Financing Agreements, does not contain any untrue statement of a material
fact or omit to state any material fact necessary to keep the statements
contained therein from being misleading as of the date of this Agreement, and
thereafter as supplemented by information provided to Lender in writing pursuant
to this Agreement. The financial projections and other financial information
furnished to Lender and by Borrowers and to be delivered under this Agreement,
were prepared in good faith on the basis of information and assumptions that
each Borrower believed to be reasonable as of the date of such information.
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6.25 Intellectual Property. Each Loan Party owns or possesses (or will be
licensed or otherwise have the full right to use) all intellectual property that
is necessary for the operation of its business, without any known conflict with
the rights of others. No product of any Loan Party infringes upon any
intellectual property owned by any other Person and no claim or litigation is
pending or (to the knowledge of any Borrower) threatened against or affecting
such Person, contesting its right to sell or to use any product or material, in
any case which could have a Material Adverse Effect. There is no violation by
any Loan Party of any right of any Loan Party with respect to any material
patent, trademark, trade name, service xxxx, copyright or license owned or used
by any Loan Party.
6.26 Government Contracts.
(a) No Borrower has a Government Contract, on which delivery or
performance is currently in a materially unsatisfactory or delinquent status or
behind schedule or which any Borrower knows, or has reason to know after
reasonable investigation, will be in a materially unsatisfactory or delinquent
status or behind schedule in the future.
(b) No Borrower is currently debarred or suspended from doing
business with the Government, and no Borrower knows of any facts that would
warrant the institution of debarment or suspension proceedings against any
Borrower in the future.
(c) No show cause notices, cure notices or default terminations have
been issued against any Borrower on any Government Contract awarded within the
past five (5) years.
(d) No negative determinations of responsibility have been issued
against any Borrower with respect to any bid, quotation or proposal submitted by
Borrower to the Government or any prospective prime contractor of the Government
within the past three (3) years.
(e) No Borrower has any knowledge of any facts or circumstances that
could reasonably be expected to lead to a disallowance of costs, incurred by any
Borrower and allocated to any Government Contract, in excess of $250,000.
(f) To the best of each Borrower's knowledge, no Borrower is
currently under administrative, civil or criminal investigation or indictment
with respect to any alleged irregularity, misstatement or omission arising under
or in any way relating to any Government Contracts or any bids, quotations or
proposals, past or present, submitted to the Government or any prospective prime
contractor of the Government, and no Borrower has any knowledge of any such
irregularities, misstatements or omissions that could reasonably be expected to
lead to an administrative, civil or criminal investigation or indictment of any
Borrower.
(g) No Borrower has ever been denied a security clearance.
6.27 SEC Filings and Reports. The Company has previously delivered to
Lender true and complete copies of: (i) its Annual Report on Form 10-K for the
fiscal years ended December 31, 2001, 2002 and 2003, respectively, as filed with
the SEC; (ii) Proxy Statements
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related to all meetings of the Company's stockholders (whether annual or
special) during 2001, 2002 and 2003; and (iii) all other reports, statements and
registration statements (including current reports on Form 8-K and quarterly
reports on Form 10-Q) filed by it with the SEC since December 31, 1999
(collectively, together with the SEC filings required to be delivered after the
Closing Date by the Company to Lender under Section 7.1(e), the "Company's SEC
Reports"). As of their respective filing dates, the Company's SEC Reports did
not or, as applicable, will not, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary in
order to make the statements made therein, in light of the circumstances under
which they were made, not misleading. The audited and unaudited consolidated
financial statements of the Company included in the Company's SEC Reports have
been or, as applicable, will be, prepared in accordance with GAAP applied on a
consistent basis (except as stated in such financial statements) and fairly
present in all material respects the financial position of the Company and its
consolidated Subsidiaries as of the dates thereof and the results of their
operations and changes in financial position of the Company and its consolidated
Subsidiaries for the periods then ended, subject, in the case of the unaudited
financial statements, to normal year-end audit adjustments which shall not be
materially adverse.
6.28 Compliance with Xxxxxxxx-Xxxxx Act. The Company has taken all
necessary actions to ensure that, at all times, it has been and will continue to
be in compliance with all applicable provisions of the Xxxxxxxx-Xxxxx Act of
2002 (the "Xxxxxxxx-Xxxxx Act") that are then in effect and the Company is
actively taking steps to ensure that it will be in compliance with other
applicable provisions of the Xxxxxxxx-Xxxxx Act not currently in effect upon and
at all times after the effectiveness of such provisions.
6.29 Projections and Pro Forma Financial Statements.
(a) Each Pro Forma Balance Sheet hereafter delivered by Borrowers to
Lender shall be prepared in accordance with GAAP and fairly present in all
material respects the assets and liabilities of the Company and its
Subsidiaries, reflecting the consummation of the transactions contemplated in
the applicable Acquisition Documents and based on the assumptions set forth
therein as of the date thereof. Such balance sheet shall contain all pro forma
adjustments necessary in order to fairly reflect such assumption.
(b) With respect to each Permitted Acquisition, the related
Projections required to be delivered hereunder by Borrowers to Lender shall be
based on underlying assumptions of Borrowers which, to the knowledge of
Borrowers, shall provide a reasonable basis for the projections contained
therein. Such Projections shall be prepared on the basis of the assumptions set
forth therein, which assumptions will be, to the knowledge of Borrowers, fair
and reasonable in light of the historical financial performance of Borrowers and
the applicable Target Company and of current and reasonably foreseeable business
conditions, as of the date hereof, and shall reflect the reasonable estimate of
Borrowers, as of the date thereof, of the results of operations and other
information projected therein.
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6.30 Purchase Agreements and Subordinated Debenture Purchase Agreement
Representations.
(a) The transactions contemplated by each Purchase Agreement shall
be consummated substantially in accordance with the respective terms and
conditions thereof, except for waivers of conditions consented to by the
applicable Borrowers in writing. Each Purchase Agreement shall not be altered or
amended or any condition thereof waived in a manner adverse to the applicable
Borrowers without their prior written consent.
(b) To the knowledge of Borrowers, each of the representations and
warranties made by the other parties thereto in each Purchase Agreement on the
dates referenced therein shall be true and correct.
(c) On the Closing Date, each of the representations and warranties
made in the Subordinated Debenture Purchase Agreement by the Company are true
and correct except for representations and warranties that relate to a
particular date and, with regard to such representations and warranties, the
same were true and correct as of such date. On the Closing Date, no default or
event of default shall exist under the Subordinated Debenture Purchase
Agreement, the Subordinated Debenture or the other Subordinated Loan Documents
after giving effect to the consummation of the transactions contemplated hereby
and in the other Financing Agreements.
6.31 Survival of Warranties. All representations and warranties contained
in this Agreement or any of the other Financing Agreements shall survive the
execution and delivery of this Agreement and, except for changes in the ordinary
course of business which are not prohibited by this Agreement, shall be true
from the date of this Agreement until the Liabilities shall be paid in full and
Lender shall cease to be committed to make Loan Advances under this Agreement.
7 AFFIRMATIVE COVENANTS.
Borrowers, jointly and severally, covenant and agree that so long as any
Liabilities remain outstanding, and (even if there shall be no Liabilities
outstanding) so long as Lender remains committed to make Loan Advances under
this Agreement:
7.1 Financial and Other Information. Except as otherwise expressly
provided for in this Agreement, each Borrower shall keep proper books of record
and account in which full and true entries will be made of all dealings and
transactions of or in relation to the business and affairs of such Borrower
(including, without limitation, all costs incurred, invoices submitted, payments
received and other transactions under Government Contracts in accordance with
the applicable Government cost accounting standards and regulations), in
accordance with GAAP consistently applied, and each Borrower shall cause to be
furnished to Lender, from time to time and in a form acceptable to Lender, such
information as Lender may reasonably request, including without limitation, the
following:
(a) as soon as practicable and in any event within one hundred twenty
(120) days after the end of each fiscal year of the Company, (i) audited
consolidated and unaudited
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consolidating statements of income, retained earnings and cash flow of the
Company for each year, and an audited consolidated and unaudited consolidating
balance sheet of the Company for such year, setting forth in each case, in
comparative form, corresponding figures as of the end of the preceding fiscal
year, all in reasonable detail and satisfactory in scope to Lender and certified
to the Company by such independent public accountants as are selected by the
Company and reasonably satisfactory to Lender, whose opinion shall be in scope
and substance satisfactory to Lender; and (ii) a budget of the Company, detailed
by calendar quarter, covering the one year period from the fiscal year end;
(b) as soon as practicable and in any event within forty-five (45) days
after the end of each quarterly accounting period in each fiscal year of the
Company: (i) unaudited consolidated and consolidating statements of income and
retained earnings of the Company for such quarterly period and for the period
from the beginning of the then current fiscal year to the end of such quarterly
period, and an unaudited consolidated and consolidating balance sheet of the
Company as of the end of such quarterly period, setting forth in each case, in
comparative form, figures for the corresponding periods in the preceding fiscal
year, all in reasonable detail and certified as accurate by the chief financial
officer of the Company, subject to changes resulting from normal year end
adjustments, and (ii) copies of all operating statements for such quarter
prepared by the Company for its internal use, including without limitation,
statements of cash flow, purchases and sales of Inventory and other Goods;
(c) as soon as practicable and in any event within forty-five (45) days
after the end of each quarterly accounting period in each fiscal year of the
Company, a compliance certificate of the chief financial officer of the Company
in the form attached as Exhibit 7A ("Compliance Certificate");
(d) promptly after any Borrower's receipt thereof:
(i) a decision of a Government contracting officer or auditor of the
prime contractor disallowing costs aggregating more than $250,000 allocated to a
Government Contract or a subcontract under a prime contract with the Government;
(ii) notice that any Borrower has breached or violated any
regulation, statute, certification, representation, clause, provision or
requirement with respect to (A) any Government Contract or (B) any bid,
quotation or proposal submitted by such Borrower to the Government or any
prospective prime contractor of the Government;
(iii) a negative determination of responsibility issued against any
Borrower with respect to any bid, quotation or proposal submitted by such
Borrower to the Government or any prospective prime contractor of the
Government;
(iv) notice that any Borrower's facility security clearance or the
security clearance of any key employee of such Borrower has been or may be
revoked or suspended; and
(v) facts with respect to any alleged irregularity, misstatement or
omission, arising under or in any way relating to any Government Contracts or
any bids, quotations or
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proposals, past or present, submitted to the Government or any prospective prime
contractor of the Government, that could reasonably be expected to lead to (A)
any administrative, civil or criminal investigation or indictment of any
Borrower or any of its employees, (B) the formal questioning or disallowance of
any costs submitted for payment by such Borrower (C) the recoupment of any
payments previously made to any Borrower, (D) the assessment of any penalties or
damages of any kind against any Borrower or (E) the suspension or disbarment of
such Borrower;
(e) within one (1) Business Day after the filing thereof, copies of all of
the Company's SEC Reports that are filed by the Company with the SEC after the
Closing Date; provided, however, that in lieu of delivering to Lender copies of
any of the same that are available to the public on the SEC's Electronic Data
Gathering and Retrieval System (XXXXX), the Company may provide Lender with
written notice of the type of filing made and the date thereof; and
(f) promptly after delivery thereof, copies of all other communications by
the Company with its stockholders.
7.2 Conduct of Business. Except as contemplated by this Agreement, each
Borrower shall: (a) maintain its existence and maintain in full force and effect
all licenses, bonds, franchises, leases, patents, contracts and other rights
necessary to the conduct of its business; (b) continue in, and limit its
operations to, the same general line of business as that presently conducted by
it; (c) comply with all Governmental Requirements, except for such Governmental
Requirements the violation of which would not, in the aggregate, have a Material
Adverse Effect; and (d) otherwise do all things necessary to make the
Representations and Warranties set forth in Section 6 of this Agreement true and
correct at all times.
7.3 Maintenance of Properties. Each Borrower shall keep its real estate,
leaseholds, equipment and other fixed assets in good condition, repair and
working order, normal wear and tear excepted, and shall not allow any of the
Collateral to be moved from the locations set forth in Section 6.5 (or to be
placed on consignment) without the written consent of Lender, which consent
shall not be unreasonably withheld. Each Borrower shall keep the Inventory in
good and merchantable condition and shall, as applicable, shelter, store, secure
and otherwise maintain the Inventory in accordance with the standards and
practices adhered to generally by others in the same businesses as such
Borrower. At least thirty (30) days prior to entering into any agreement to
lease any additional real property (a "New Lease") or any agreement to purchase
or acquire fee simple title to any additional real property, Borrowers shall
give Lender written notice thereof together with the copies of all agreements,
documents and instruments proposed to be entered into by any Borrower in
connection therewith.
7.4 Borrowers' Liability Insurance. Borrowers shall maintain, at their
expense, such liability insurance (including as applicable commercial general
liability insurance, products liability insurance and xxxxxxx'x compensation
insurance) as is ordinarily maintained by other companies in similar businesses,
provided, however, that in no event shall such liability insurance provide for
coverage less than $1,000,000 per occurrence for personal injury and $1,000,000
per occurrence for property damage. Borrowers' liability insurance may provide
for
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a deductible of not more than $10,000 per occurrence. All such policies of
insurance shall be in form and with insurers reasonably acceptable to Lender and
copies thereof, together with all amendments and schedules, shall be provided to
Lender within ten (10) days of Borrowers' receipt of the same. Lender shall be
shown as an additional named insured party under all such insurance policies.
7.5 Borrowers' Property Insurance. Borrowers shall bear the full risk of
loss from any cause of any nature whatsoever in respect to the Collateral. At
Borrowers' own cost and expense, Borrowers shall keep all Collateral fully
insured, with carriers, and in amounts acceptable to Lender, against the hazards
of fire, theft, collision, spoilage, hail, those covered by extended or all risk
coverage insurance and such others as may be required by Lender. Borrowers shall
cause to be delivered to Lender the insurance policies therefor or proper
certificates evidencing the same. Such policies shall provide, in manner
satisfactory to Lender, that any losses in excess of $50,000 under such policies
shall be payable first to Lender, for the ratable benefit of Lender, as Lender's
interest may appear. Each such policy shall include a provision for thirty (30)
days' prior written notice to Lender of any cancellation or expiration and show
Lender, as agent for the benefit of Lender, as mortgagee and loss payee as
provided in a form of loss payable endorsement in form and substance
satisfactory to Lender. In the event of any loss in excess of $50,000 covered by
any such policy, the carrier named in such policy is directed by Borrowers to
make payment for such loss to Lender, for the ratable benefit of Lender, and not
to any Borrower. In the event of any loss in excess of $50,000 covered by any
such insurance policies or so long as any Default or Matured Default has
occurred and is continuing, each Borrower makes, constitutes and appoints Lender
(and all Persons designated by Lender) as such Borrower's true and lawful agent
and attorney-in-fact, with power to make, settle or adjust claims under such
policies of insurance (provided, however, that so long as there shall not have
occurred a Matured Default, Lender shall consult with the Company prior to
finally making, settling or adjusting claims under such policies of insurance
and will not settle such claims without the Company's consent, which consent
will not be unreasonably withheld). The foregoing power of attorney is coupled
with an interest and is therefore irrevocable. If payment as a result of any
insurance losses shall be paid by check, draft or other Instrument payable to
any Borrower, or to any Borrower and Lender jointly, and such payment is in
excess of $50,000 or a Default or Matured Default has occurred and is
continuing, Lender may endorse the name of each applicable Borrower on such
check, draft or other Instrument, and may do such other things as Lender may
deem advisable to reduce the same to cash. Subject to the provisions of the
Leasehold Mortgages referred to in Section 5.1, all loss recoveries received by
Lender on account of any such insurance may be applied and credited by Lender to
the Liabilities. Insurance proceeds that are not applied to the Liabilities or
used for property replacement shall be paid to Borrowers as directed by the
Company. In the event it is reasonably determined by Lender that a deficiency in
the ability of Borrowers to repay the Liabilities exists after application or
use of insurance proceeds, then such deficiency (but only up to the amount, if
any by which the value of the property, the loss of which resulted in such
insurance recovery, exceeds the insurance proceeds received by Lender) shall be
paid by Borrowers to Lender on demand. If any Borrower fails to procure
insurance as provided in this Agreement, or to keep the same in force, or fails
to perform any of such Borrower's other obligations hereunder, then Lender may,
at the option of Lender, and without obligation to do so, obtain such insurance
and pay the premium thereon for the account of such Borrower, or make whatever
other payments
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Lender may deem appropriate to protect Lender's security for the Liabilities.
Any such payments shall be additional Liabilities of Borrowers to Lender,
payable on demand and secured by the Collateral. To the extent the provisions
relating to insurance in any Leasehold Mortgage or any Mortgage are different
from the provisions relating to insurance in this Section 7.5, the provisions
relating to insurance in such Leasehold Mortgage and/or Mortgage, as applicable,
shall be controlling with respect to the Property covered thereby.
7.6 Financial Covenants and Ratios. The Company shall maintain at the end
of each fiscal quarter commencing with the fiscal quarter ending March 31, 2004:
(a) Minimum EBITDA. EBITDA for the four (4) fiscal quarters ending March
31, 2004 of not less than $14,000,000; EBITDA for the four (4) fiscal quarters
ending June 30, 2004 of not less than $14,000,000; prior to the completion of
Borrowers' initial Permitted Acquisition after the date hereof, EBITDA for the
then preceding four fiscal quarters of not less than $15,000,000; and
thereafter, EBITDA for then preceding four fiscal quarters of not less than
$19,000,000.
(b) Senior Leverage Ratio. A Senior Leverage Ratio as of the end of any
fiscal quarter ending after December 31, 2003 of not more than 1.50:1.
(c) Minimum Net Worth. A Net Worth of not less than the sum of (i)
$77,000,000 plus (ii) 50% of the Company's consolidated Net Income for the
period from January 1, 2004 through the applicable date of determination (with
no deduction for any fiscal year in which the Company's Net Income is negative).
(d) Maximum Subordinated Debt. Consolidated Subordinated Debt of not more
than $17,500,000.
7.7 Benefit Plans. Each Domestic Borrower shall: (a) keep in full force
and effect any and all Benefit Plans which are presently in existence or may,
from time to time, come into existence under ERISA, unless such Benefit Plans
can be terminated without material liability to such Borrower in connection with
such termination (as distinguished from any continuing funding obligation); (b)
make contributions to all Benefit Plans in a timely manner and in an amount
sufficient to comply with the requirements of ERISA; (c) comply with all
requirements of ERISA which relate to such Benefit Plans; and (d) notify Lender
immediately upon receipt by any Domestic Borrower of any notice of the
institution of any proceeding or other action relating to any Benefit Plans that
would reasonably be expected to have a Material Adverse Effect.
7.8 Notice of Suit, Adverse Change in Business or Default. Each Borrower
shall, as soon as possible, and in any event within five (5) days after such
Borrower learns of the following, give written notice to Lender of: (a) any
proceeding being instituted or threatened to be instituted by or against such
Borrower in any federal, state, local or foreign court or before any commission
or other regulatory body (federal, state, local or foreign) for which claimed
damages exceed $100,000; (b) any adverse change in the business, assets or
condition, financial or otherwise, of such Borrower resulting in a Material
Adverse Effect; and (c) the occurrence of any Default.
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7.9 Use of Proceeds. Borrowers shall use Loan Advances only for the
purposes stated in Section 2.5 and for no other purpose.
7.10 Books and Records. Each Borrower shall maintain proper books of
record and account in accordance with GAAP consistently applied in which true,
full and correct entries will be made of all their respective dealings and
business affairs. If any changes in accounting principles are hereafter required
or permitted by GAAP and are adopted by any Borrower with the concurrence of its
independent certified public accountants and such changes in GAAP result in a
change in the method of calculation or the interpretation of any of the
financial covenants, standards or terms found in Section 7.6 or any other
provision of this Agreement, Borrowers and Lender agree to amend any such
affected terms and provisions so as to reflect such changes in GAAP with the
result that the criteria for evaluating Borrowers' financial condition shall be
the same after such changes in GAAP as if such changes in GAAP had not been
made.
7.11 Compliance with Material Agreements. Each Borrower will comply in all
material respects with all Debts, Obligations, agreements, covenants or
conditions contained in any bond, debenture, notice or other evidence of
indebtedness or in any material contract, Government contract, indenture,
mortgage, loan agreement, franchise agreement, joint venture, lease, rental
agreement and other agreements binding it or affecting its properties or
business.
7.12 Board and Stockholders' Meetings and Actions.
(a) Except for regular or general stockholders' meetings held exclusively
for routine corporate household purposes (being the approval of annual accounts
and the appointment or discharge of directors and auditors, but not including in
particular the declaration of dividends), Borrowers shall provide, and cause all
Loan Parties to timely provide, Lender copies of the following documents within
the time periods specified below:
(i) any convening notice or agenda of any meeting of the Board
and/or stockholders of any Loan Party (which documents shall be provided to
Lender at the same time as they are provided to the directors and/or
stockholders, as applicable, but in no event later than seven (7) days prior to
the applicable meeting);
(ii) minutes of each meeting referenced in clause (i), above (which
minutes shall be provided to Lender within fifteen (15) days after the holding
of the relevant meeting); and
(iii) any written actions taken by any such directors or
stockholders in lieu of a meeting) (which written actions shall be provided to
Lender at least two (2) days prior to the execution of the same).
(b) Without the prior written consent of Lender, none of the Loan Parties
shall, and Borrowers shall cause the Loan Parties not to, consent to any
amendment, supplement or modification of any terms or provisions contained in,
or applicable to the bylaws of any of the
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Loan Parties if the effect thereof could reasonably be expected to be adverse to
Lender hereunder.
(c) Each Borrower undertakes not to allow any of the Loan Parties' Board
meetings or stockholders' meetings to deliberate upon any items that have not
been specifically mentioned in a written notice or agenda theretofor provided to
Lender in accordance with Section 7.12(a)(i), except as may otherwise be
required under applicable law.
8 NEGATIVE COVENANTS.
Borrowers, jointly and severally, covenant and agree that so long as any
Liabilities remain outstanding, and (even if there shall be no Liabilities
outstanding) so long as Lender remains committed to make Loan Advances under
this Agreement (unless Lender shall give Lender's prior written consent):
8.1 Encumbrances.
(a) Except for those liens, security interests and encumbrances
presently in existence and reflected in the Company's financial statements
referred to in Section 6.14 and disclosed in Exhibit 6A under Section 6.4, no
Domestic Borrower shall create, incur, assume or suffer to exist any security
interest, mortgage, pledge, lien, capitalized lease, levy, assessment,
attachment, seizure, writ, distress warrant, or other encumbrance of any nature
whatsoever on or with regard to any of such Domestic Borrower's assets
(including, without limitation, any Collateral) other than: (a) liens securing
the payment of taxes, either not yet due or the validity of which is being
contested in good faith by appropriate proceedings, and as to which such
Domestic Borrower shall, if appropriate under GAAP, have set aside on its books
and records adequate reserves; (b) liens securing deposits under workmen's
compensation, unemployment insurance, social security and other similar laws, or
securing the performance of bids, tenders, contracts (other than for the
repayment of borrowed money) or leases, or securing indemnity, performance or
other similar bonds for the performance of bids, tenders, contracts (other than
for the repayment of borrowed money) or leases, or securing statutory
obligations or surety or appeal bonds, or securing indemnity, performance or
other similar bonds in the ordinary course of such Domestic Borrower's business,
which are not past due; (c) liens and security interests in favor of Lender for
the ratable benefit of Lender; (d) liens securing the interests of Broker in any
Margin Account; (e) zoning restrictions, easements, licenses, covenants and
other restrictions affecting the use of such Domestic Borrower's real property,
and other liens, security interests and encumbrances on property which are
subordinate to the liens and security interests of Lender and which do not, in
Lender's sole determination: (i) materially impair the use of such property, or
(ii) materially lessen the value of such property for the purposes for which the
same is held by such Domestic Borrower; and (f) purchase money security
interests securing amounts relating to items of equipment or other capital
assets (provided that no such purchase money security interests shall extend to
or cover other property of such Domestic Borrower other than the items of
equipment or other capital assets so acquired).
(b) No Borrower shall create, incur, assume or suffer to exist, or
permit any of its Subsidiaries to create, incur, assume or suffer to exist, any
security interest, pledge, lien, levy,
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assessment, attachment, seizure, writ, distress warrant or other encumbrance of
any nature whatsoever on or with regard to any shares of capital stock of any
Subsidiary of the Company (including, without limitation, any Foreign
Subsidiary) other than (i) liens, security interests and pledges in favor of
Lender and (ii) liens on, security interests in, and pledges of shares of
current and future Subsidiaries of VSK Electronics. Borrowers shall give Lender
at least thirty (30) days' prior written notice of the grant to any Person
(other than Lender) of a lien on, security interest in or pledge of any shares
of any Subsidiary of VSK Electronics.
8.2 Consolidations, Mergers or Acquisitions. No Domestic Borrower shall
recapitalize or consolidate with, merge with, or otherwise acquire all or
substantially all of the assets or properties of any other Person, other than
pursuant to a Permitted Acquisition.
8.3 Deposits, Investments, Advances or Loans. No Domestic Borrower shall
make or permit to exist deposits, investments, advances or loans (other than
loans existing on the date of the execution of this Agreement and disclosed to
Lender in writing on or prior to such date) in or to Affiliates or any other
Person, except: (a) investments in short term direct obligations of the United
States Government and other Permitted Investments (as defined in the Deposit
Account Security Agreement); (b) investments in negotiable certificates of
deposit issued by a bank satisfactory to Lender in Lender's reasonable
determination, made payable to the order of such Borrower or to bearer; and (c)
loans to officers, directors, employees or Affiliates as and when permitted by
Section 8.8.
8.4 Indebtedness. Except for those obligations and that indebtedness
presently in existence and reflected in the Company's financial statements
referred to in Section 6.14 or referred to in Section 6.7, no Domestic Borrower
shall incur, create, assume, become or be liable in any manner with respect to,
or permit to exist, any obligations or indebtedness, direct or indirect fixed or
contingent, including obligations under capitalized leases, except: (a) the
Liabilities; (b) consolidated Subordinated Debt of the Company of not more than
$17,500,000; (c) obligations secured by liens or security interests permitted
under Section 8.1 or contingent obligations permitted under Section 8.5; (d)
unsecured or secured (per Section 8.1(f)) debt incurred (including obligations
incurred under capitalized leases) to purchase items of equipment or other
capital assets up to the limits in each fiscal year of such Domestic Borrower
set forth in Section 8.7; and (e) trade obligations, Producer Payables and
normal accruals in the ordinary course of such Domestic Borrower's business not
yet due and payable, or with respect to which such Domestic Borrower is
contesting in good faith the amount or validity thereof by appropriate
proceedings, and then only to the extent that such Domestic Borrower has set
aside on such Domestic Borrower's books adequate reserves therefor, if
appropriate under GAAP.
8.5 Guarantees and Other Contingent Obligations. Except as permitted under
Section 8.4, no Domestic Borrower shall guarantee, endorse or otherwise in any
way become or be responsible for obligations of any other Person, whether by
agreement to purchase the indebtedness of such Person or through the purchase of
Goods, supplies or services, or maintenance of working capital or other balance
sheet covenants or conditions, or by way of stock purchase, capital
contribution, advance or loan for the purpose of paying or discharging any
indebtedness or obligation of such Person or otherwise, except: (a) for
endorsements of negotiable Instruments for collection in the ordinary course of
business; and (b) that any Loan
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Party may indemnify its officers, directors and managers to the extent permitted
under the laws of the jurisdiction in which such Loan Party is organized.
8.6 Disposition of Property. Except as permitted by Section 5.14, no
Domestic Borrower shall sell, lease, transfer or otherwise dispose of any of
such Borrower's properties, assets or rights.
8.7 Capital Expenditure Limitations. The Domestic Borrowers shall not
incur Capital Expenditures during any fiscal year of the Company in excess of:
(i) $1,750,000 from the Closing Date through December 31, 2004; and (ii)
$750,000 during any fiscal year thereafter; provided, however, to the extent
that Capital Expenditures are less than that allowed in a fiscal year, then
fifty percent (50%) of the difference shall be added to the limitation otherwise
applicable to the following fiscal year; and provided, further, that upon any
Borrower's consummation of a Permitted Acquisition, the parties hereto shall
negotiate in good faith reasonable adjustments to the foregoing amounts
8.8 Affiliate Transactions. Except for advances for travel and expenses to
a Domestic Borrower's officers, directors, managers, general partners or
employees in the ordinary course of such Borrower's business, no Domestic
Borrower shall make any loans or other payments, or transfer any assets, to any
Affiliate of any Borrower (other than to other Borrowers). Without limiting the
foregoing, no Domestic Borrower shall, directly or indirectly, make any loans or
other payments, or transfer any assets, to any Foreign Subsidiary without the
prior written consent of Lender in each instance. In addition, no Domestic
Borrower shall enter into or be a party to any transaction or arrangement with
any Affiliate of any Borrower (other than other Borrowers) including, without
limitation, the purchase from, sale to or exchange of property with, any merger
or consolidation with or into, or the rendering of any service by or for, any
such party, except pursuant to the reasonable requirements of such Borrower's
business and upon fair and reasonable terms no less favorable to such Borrower
than would be obtained in a comparable arm's-length transaction with a Person
other than any such Affiliate.
8.9 Distributions in Respect of Equity; Prepayment of Debt. No Domestic
Borrower shall directly or indirectly: (a) make any distributions in respect of
or redeem any of such Borrower's equity interests other than dividends or other
distributions to other Borrowers or to pay income tax liabilities of the direct
and indirect holders of such Borrower's equity interests on the income and gain
of such Borrower allocated to such holders; or (b) prepay any principal,
interest or other payments on or in connection with any indebtedness of such
Borrower other than the Liabilities.
8.10 Amendment of Organizational Documents; Subsidiaries.
(a) Except as otherwise consented to by Lender in writing, (i) no
Borrower shall amend its articles/certificate of incorporation or organization,
bylaws, operating agreement or partnership agreement, as applicable, or any
other agreement, instrument or document affecting such Borrower's organization,
management or governance, (ii) no Domestic Borrower shall form any Subsidiaries
(other than Subsidiaries existing as of the date hereof and any Subsidiaries
formed in accordance with Section 8.10(b), below), and (iii) the Company shall
at
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all times own, directly or indirectly, one hundred percent (100%) of the issued
and outstanding shares of capital stock and other equity interests of all
Foreign Subsidiaries.
(b) Upon the creation of any additional Subsidiaries of any Borrower
permitted hereunder, such Borrower shall immediately cause such Subsidiary to
execute and deliver to Lender an allonge to the Note and a joinder agreement, in
form and content acceptable to Lender, pursuant to which such Subsidiary shall
agree to (i) become an additional Borrower thereunder and hereunder and an
additional Pledgee under the Master Pledge Agreement and (ii) be bound by the
terms and conditions hereof and thereof to the same extent as if such Subsidiary
were an original party hereto and thereto. In addition, each Borrower shall
cause any such additional Subsidiary to immediately deliver to Lender all
certificated Ownership Interests (as defined in the Master Pledge Agreement) in
such additional Subsidiary and stock powers or other transfer instruments with
respect to such Ownership Interests endorsed in blank.
8.11 Use of Names or Trademarks. No Borrower shall use any trademarks or
trade names other than those referred to in Section 6.8. Except as set forth in
this Section 8.11, no Borrower shall use any trademarks or trade names with
respect to Inventory except for such trademarks or trade names as have been
properly licensed to Lender for the ratable benefit of Lender. Each Borrower may
package inventory for sale to customers using those customers trademarks or
trade names provided that: (a) the customer is creditworthy, in the reasonable
determination of Lender; and (b) the inventory so packaged is covered by a
purchase order from the customer (or is reasonably expected by such Borrower to
be covered by a purchase order from the customer within ten (10) days of the
date the inventory is ready to be sold).
8.12 Amendment of Subordinated Loan Documents. Except as otherwise
specifically provided in the Subordination Agreement, Borrowers shall not cause
or permit, directly or indirectly, any amendment, waiver, consent or
modification of the Subordinated Loan Documents without the prior written
consent of Lender; provided, however, that the foregoing shall not preclude any
holder of the Subordinated Debenture from waiving any default by the Company
under the Subordinated Debenture Purchase Agreement or the Subordinated
Debenture or from waiving compliance by the Company with any provisions of the
Subordinated Debenture Purchase Agreement or the Subordinated Debenture.
8.13 Unconditional Purchase Obligations. No Domestic Borrower shall enter
into or be a party to any contract for the purchase of materials, supplies or
other property or services if such contract requires that payment be made by it
regardless of whether delivery is ever made of such materials, supplies or other
property or services.
8.14 Inconsistent Agreements. No Borrower shall enter into any agreement
containing any provision which would (a) be violated or breached by any
borrowing by Borrowers hereunder or by the performance by Borrowers of any of
their obligations hereunder or under any other Financing Agreement, (b) prohibit
Domestic Borrowers from granting to Lender a lien, mortgage or security interest
on or in any of their assets or (c) create or permit to exist or become
effective any encumbrance or restriction on the right of any Borrower or
Subsidiary thereof to (i) pay dividends or make other distribution to any
Borrower or any Subsidiary of any Borrower, or pay any debt owed to any Domestic
Borrower or any Subsidiary
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of any Borrower, (ii) make loans or advances to any Borrower or (iii) transfer
any of its assets or properties to any Borrower.
8.15 Fiscal Year. No Borrower shall change its fiscal year from being the
same as the calendar year.
9 DEFAULT AND RIGHTS AND REMEDIES.
9.1 Liabilities. Upon a Matured Default, Lender may, by notice to
Borrowers, (i) declare the obligation of Lender to make Loan Advances, the
Working Capital Commitment and the Acquisition Commitment to be terminated,
whereupon such obligation of Lender, the Working Capital Commitment and the
Acquisition Commitment shall terminate, and (ii) declare all of the Liabilities
to be due and payable, whereupon the Liabilities shall become and be due and
payable, without presentment, demand, protest or further notice (including
without limitation, notice of intent to accelerate and notice of acceleration)
of any kind, all of which are expressly waived by Borrowers.
9.2 Rights and Remedies. Upon the occurrence and during the continuance of
any Matured Default, Lender may (subject to the provisions of the other
Financing Agreements) proceed to protect and enforce the rights of Lender as set
forth in this Section 9.2.
(a) Rights and Remedies Generally. Lender may proceed by suit in equity,
by action at law or both, whether for the specific performance of any covenant
or agreement contained in this Agreement or in any other Financing Agreement or
in aid of the exercise of any power granted in this Agreement or any other
Financing Agreement, (i) to enforce the payment of the Liabilities, or (ii) to
foreclose upon any liens, claims, security interests and/or encumbrances granted
pursuant to this Agreement and other Financing Agreements in the manner set
forth therein; it being intended that no remedy conferred herein or in any of
the other Financing Agreements is to be exclusive of any other remedy, and each
and every remedy contained herein or in any other Financing Agreement shall be
cumulative and shall be in addition to every other remedy given hereunder and
under the other Financing Agreements, or at any time existing at law or in
equity or by statute or otherwise. Lender shall have, in addition to any other
rights and remedies contained in this Agreement or in any of the other Financing
Agreements, all of the rights and remedies of a secured party under the Code or
other applicable laws. In addition to all such rights and remedies, the sale,
lease or other disposition of all or any part of the Collateral by Lender after
a Matured Default, may be for cash, credit or both, and Lender may purchase all
or any part of the Collateral at public or, if permitted by law, private sale,
and in lieu of actual payment of such purchase price, may setoff the amount of
such purchase price against the Liabilities then owing. Any sales of the
Collateral may involve the sale of portions of the Collateral at different
times, and at different locations, and may, at Lender's option, be held at a
site or sites different from the site at which all or any part of the Collateral
is located. Any such sales, at Lender's option, may be in conjunction with or
separate from the foreclosure of any mortgage on any Collateral consisting of
real property, and may be adjourned from time to time with or without notice.
Lender may, in its sole discretion, cause the Collateral to remain on the
applicable Borrower's premises, at Borrowers' expense, pending sale or other
disposition of the Collateral. Lender shall have the right to conduct such sales
on any
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Borrower's premises, at Borrowers' expense, or elsewhere, on such occasion or
occasions as Lender may see fit.
(b) Entry upon Premises. Subject to any applicable security clearance of a
Governmental Authority or any other restrictions under applicable law, Lender
shall have the right to enter upon the premises of any Borrower at which any of
the Collateral is located (or is believed to be located) without incurring any
obligation to pay rent to any Borrower, or any other place or places where the
Collateral is located (or is believed to be located) and kept, and remove the
Collateral therefrom to the premises of Lender or any agent of Lender, for such
time as Lender may desire, in order to effectively collect or liquidate the
Collateral, or Lender may require Borrowers to assemble the Collateral and make
it available to Lender at a place or places to be designated by Lender which is
reasonably convenient to both parties. Each Borrower expressly agrees that
Lender may, if necessary to gain occupancy to the premises at which Collateral
is located (or is believed to be located), without further notice to any
Borrower: (a) hire any Borrower's employees to assist in the loading and
transportation of such Collateral; (b) utilize any Borrower's equipment for use
in such operation; (c) cut or otherwise temporarily move or remove any barbed
wire or other fencing or similar boundary-maintenance devices; and (d) pick or
otherwise render inoperative any locks on any property not customarily inhabited
by people. Each Borrower agrees that any such actions authorized by this Section
shall be authorized and not a breach of the peace if Lender takes reasonable
efforts to safeguard all of such Borrower's property.
(c) Sale or Other Disposition of Collateral by Lender. Any notice required
to be given by Lender of a sale, lease or other disposition or other intended
action by Lender with respect to any of the Collateral which is deposited in the
United States mail, postage prepaid and duly addressed to a Borrower at the
address specified in Section 10.19, at least ten (10) business days prior to
such proposed action, shall constitute fair and commercially reasonable notice
to such Borrower of any such action. The net proceeds realized by Lender upon
any such sale or other disposition, after deduction for the expense of retaking,
holding, preparing for sale, selling or the like, and the reasonable legal fees
and expenses and other proper fees and expenses incurred by Lender in connection
therewith, shall be applied toward satisfaction of the Liabilities. Lender shall
account to Borrowers for any surplus realized upon such sale or other
disposition, and Borrowers shall remain, jointly and severally, liable for any
deficiency. The commencement of any action, legal or equitable, or the rendering
of any judgment or decree for any deficiency, shall not affect Lender's security
interest in the Collateral until the Liabilities shall have been paid in full.
9.3 Waiver of Demand. Each Borrower expressly waives demand, presentment,
protest, notice of nonpayment, notice of intent to accelerate and notice of
acceleration. Each Borrower also waives the benefit of all valuation, appraisal
and exemption laws.
9.4 Waiver of Notice. Upon the occurrence and during the continuance of
any Matured Default, each Borrower waives, to the fullest extent permitted by
applicable law, all rights to notice and hearing of any kind prior to the
exercise by Lender of Lender's rights to repossess the Collateral without
judicial process or to replevy, attach or levy upon the Collateral.
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9.5 Verification of Borrowing Notices. The natural Person(s) signing this
Agreement on behalf of Borrowers, or any natural Person designated by them (or
any one of them) shall be presumed to have the authority to request Loan
Advances under this Agreement. Lender shall have no duty to verify the
authenticity of the signature appearing on any notice of borrowing, and with
respect to any oral request for a Loan Advance, Lender shall have no duty to
verify the identity of any Person representing himself as one of the natural
Persons authorized to make such request on behalf of any Borrower. Lender shall
not incur any liability to any Borrower in acting upon any telephonic notice
referred to above which Lender believes in good faith to have been given by a
duly authorized Person authorized to borrow on behalf of any Borrower or for
otherwise acting in good faith.
10 MISCELLANEOUS.
10.1 Timing of Payments. For purposes of determining the outstanding
balance of the Liabilities, including without limitation, the computations of
interest which may from time to time be owing to Lender, the receipt by Lender
of any check or any other item of payment whether through a blocked account or
lockbox described in Section 5.6 or otherwise, shall not be treated as a payment
on account of the Liabilities until such check or other item of payment is
actually received by Lender and is paid to Lender in cash or a cash equivalent.
10.2 Attorneys' Fees and Costs. If at any time Lender employs counsel in
connection with protecting or perfecting Lender's security interest in the
Collateral or in connection with any matters contemplated by or arising out of
this Agreement, whether: (a) to commence, defend, or intervene in any litigation
or to file a petition, complaint, answer, motion or other pleading; (b) to take
any other action in or with respect to any suit or proceeding (bankruptcy or
otherwise); (c) to consult with officers of Lender to advise Lender or to draft
documents for Lender in connection with any of the foregoing or in connection
with any release of Lender's claims or security interests or any proposed
extension, amendment or refinancing of the Liabilities or any proposed Loan
Advance or Permitted Acquisition; (d) to protect, collect, lease, sell, take
possession of, or liquidate any of the Collateral; or (e) to attempt to enforce
or to enforce any security interest in any of the Collateral, or to enforce any
rights of Lender to collect any of the Liabilities; then in any of such events,
all of the reasonable attorneys' fees arising from such services, and any
related expenses, costs and charges, including without limitation, all fees of
all paralegals, legal assistants and other staff employed by such attorneys
whether outside Lender or in Lender's legal department, together with interest
at the highest interest rate then payable by Borrowers under this Agreement or
any other Financing Agreement, shall constitute additional Liabilities, payable
on demand and secured by the Collateral. In addition, if a Matured Default has
occurred and is continuing, and thereafter Lender employs counsel in connection
with, arising out of, or any way related to, protecting, exercising or enforcing
Lender's interest in the Collateral or this Agreement or the other Financing
Agreements or (f) to commence, defend or intervene in any litigation or to file
a petition, complaint, answer, motion or other pleading; (g) to take any other
action in or with respect to any suit or proceeding (bankruptcy or otherwise);
(h) to protect, collect, lease, sell, take possession of, or liquidate any of
the Collateral; or (i) to attempt to enforce or to enforce any security interest
in any of the Collateral, or to enforce any rights of Lender to collect any of
the Liabilities; then in any of such events, all of the reasonable attorneys'
fees arising from such services, and any reasonable
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expenses, costs and charges relating thereto, including without limitation, all
reasonable fees of all paralegals, legal assistants and other staff employed by
such attorneys whether outside Lender or in Lender's legal department, together
with interest at the highest interest rate then payable by Borrowers under this
Agreement or any other Financing Agreement, shall constitute additional
Liabilities, payable on demand and secured by the Collateral. This Section 10.2
shall survive the termination of this Agreement.
10.3 Expenditures by Lender. In the event that any Borrower shall fail to
pay taxes, insurance, assessments, costs or expenses which such Borrower is,
under any of the terms hereof or of any of the other Financing Agreements,
required to pay, or fails to keep the Collateral free from other security
interests, liens or encumbrances, except as permitted herein, Lender may, in
Lender's sole discretion and without obligation to do so, make expenditures for
any or all of such purposes, and the amount so expended, together with interest
at the highest interest rate then payable by Borrowers under this Agreement or
any other Financing Agreement, shall constitute additional Liabilities, payable
on demand and secured by the Collateral.
10.4 Lender's Costs and Expenses as Additional Liabilities. Borrowers
shall reimburse Lender for all expenses and fees paid or incurred in connection
with the documentation, negotiation and closing of the Loan, each Loan Advance
and other financial accommodations described in this Agreement (including
without limitation, filing fees, recording fees, document or recording taxes,
search fees, appraisal fees and expenses, and the fees and expenses of Lender's
attorneys, paralegals, and legal assistants, whether outside Lender or in
Lender's legal department, and whether such expenses and fees are incurred prior
to or after the Closing Date). Borrowers further, jointly and severally, agree
to reimburse Lender for all expenses and reasonable fees paid or incurred in
connection with the documentation of any renewal or extension of the Loan, any
Loan Advance, any additional financial accommodations, or any other amendments,
modifications or supplements to, or restatement of, this Agreement. All costs
and expenses incurred by Lender with respect to such negotiation and
documentation, together with interest at the highest interest rate then payable
by Borrowers under this Agreement or any other Financing Agreement, shall
constitute additional Liabilities, payable on demand and secured by the
Collateral.
10.5 Claims and Taxes. Borrowers, jointly and severally, agree to
indemnify and hold Lender harmless from and against any and all claims, demands,
liabilities, losses, damages, penalties, costs, and expenses (including without
limitation, reasonable attorneys' fees) relating to, or in any way arising out
of the possession, use, operation or control of any of any Borrower's assets,
which agreement to indemnify and hold Lender harmless shall survive the
termination of this Agreement. Borrowers shall pay or cause to be paid all
license fees, bonding premiums and related taxes and charges, and shall pay or
cause to be paid all of each Borrower's real and personal property taxes,
assessments and charges and all of each Borrower's franchise, income,
unemployment, use, excise, old age benefit, withholding, sales and other taxes
and other governmental charges assessed against any Borrower, or payable by any
Borrower, at such times and in such manner as to prevent any penalty from
accruing or any lien or charge from attaching to any Borrower's property,
provided, however, that each Borrower shall have the right to contest in good
faith, by an appropriate proceeding promptly initiated and diligently conducted,
the validity, amount or imposition of any such tax, and upon such good faith
contest to delay or
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refuse payment thereof, if: (a) such Borrower establishes adequate reserves to
cover such contested taxes; and (b) such contest does not have a Material
Adverse Effect.
10.6 Custody and Preservation of Collateral. Lender shall be deemed to
have exercised reasonable care in the custody and preservation of any of the
Collateral in Lender's possession if Lender takes such action for that purpose
as the Company shall request in writing, but failure by Lender to comply with
any such request shall not of itself be deemed a failure to exercise reasonable
care, and no failure by Lender to preserve or protect any right with respect to
such Collateral against prior parties, or to do any act with respect to the
preservation of such Collateral not so requested by the Company, shall of itself
be deemed a failure to exercise reasonable care in the custody or preservation
of such Collateral.
10.7 Inspection. Lender (by and through its officers and employees), or
any Person designated by Lender in writing, shall have the right from time to
time, to call at any Borrower's place or places of business (or any other place
where Collateral or any information as to Collateral is kept or located) during
reasonable business hours, and, without hindrance or delay, to: (a) inspect,
audit, check and make copies of and extracts from any Borrower's books, records,
journals, orders, receipts and any correspondence and other data relating to any
Borrower's business or to any transactions between the parties to this
Agreement; (b) make such verification concerning the Collateral as Lender may
consider reasonable under the circumstances; and (c) review operating
procedures, review maintenance of property and discuss the affairs, finances and
business of any Borrower with any Borrower's officers, employees or directors.
10.8 Examination of Banking Records. Each Borrower consents to the
examination by Lender (by and through its officers and employees), or any Person
designated by Lender in writing, whether or not there shall have occurred a
Default or a Matured Default, of any and all of such Borrower's banking records,
wherever they may be found, and directs any Person that may be in control or
possession of such records (including without limitation, any bank, financial
institution, accountant or lawyer) to provide such records to Lender and
Lender's officers, employees and agents, upon their request. Such examination
may be conducted by Lender with or without notice to Borrowers at the option of
Lender, any such notice being waived by Borrowers.
10.9 Governmental Reports. Each Borrower shall furnish to Lender, upon the
reasonable request of Lender, copies of the reports of examinations or
inspections of any Borrower by all Governmental Authorities, and if any Borrower
fails to furnish such copies to Lender, Borrowers authorize all such Government
Authorities to furnish to Lender copies of their reports of examinations or
inspections of any Borrower.
10.10 Reliance by Lender. All covenants, agreements, representations and
warranties made herein by Borrowers shall, notwithstanding any investigation by
Lender, be deemed to be material to and to have been relied upon by Lender.
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10.11 Parties. Whenever in this Agreement there is reference made to any
of the parties, such reference shall be deemed to include, wherever applicable,
a reference to the respective successors and assigns of each Borrower and
Lender.
10.12 Applicable Law; Severability. This Agreement shall be construed in
all respects in accordance with, and governed by, the laws and decisions of
(without regard to the conflict of laws provisions) the State of New York and
the laws, regulations and decisions of the United States applicable to national
banks. Wherever possible, each provision of this Agreement shall be interpreted
in such manner as to be effective and valid under applicable law, but if any
provision of this Agreement shall be prohibited by or invalid under applicable
law, such provision shall be ineffective only to the extent of such prohibition
or invalidity, without invalidating the remainder of such provisions or the
remaining provisions of this Agreement.
10.13 SUBMISSION TO JURISDICTION; WAIVER OF BOND AND TRIAL BY JURY. WITH
RESPECT TO ANY AND ALL ACTIONS, CAUSES OF ACTION, SUITS, CLAIMS, DEMANDS, DEBTS,
DAMAGES, COSTS AND EXPENSES, WHATSOEVER, WHETHER BASED ON STATUTE, COMMON LAW,
PRINCIPLES OF EQUITY OR OTHERWISE, ARISING OUT OF ANY MATTER, THING OR EVENT
WHICH IS DIRECTLY OR INDIRECTLY RELATED TO THIS AGREEMENT, EACH BORROWER
CONSENTS TO THE JURISDICTION OF ANY LOCAL, STATE, OR FEDERAL COURT LOCATED
WITHIN THE CITY OF NEW YORK, NEW YORK AND WAIVES ANY OBJECTION WHICH SUCH
BORROWER MAY HAVE BASED ON IMPROPER VENUE OR FORUM NON CONVENIENS TO THE CONDUCT
OF ANY PROCEEDING IN ANY SUCH COURT AND WAIVES PERSONAL SERVICE OF ANY AND ALL
PROCESS UPON SUCH BORROWER, AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS BE
MADE BY MAIL OR MESSENGER DIRECTED TO SUCH BORROWER AT THE ADDRESS SET FORTH IN
SECTION 10.19. SERVICE, SO MADE, SHALL BE DEEMED TO BE COMPLETE UPON THE EARLIER
OF ACTUAL RECEIPT OR THREE (3) DAYS AFTER THE SAME SHALL HAVE BEEN POSTED. AT
THE OPTION OF LENDER, EACH BORROWER WAIVES, TO THE EXTENT PERMITTED BY LAW,
TRIAL BY JURY, AND WAIVES ANY BOND OR SURETY OR SECURITY UPON SUCH BOND WHICH
MIGHT, BUT FOR THIS WAIVER, BE REQUIRED OF LENDER.
10.14 Application of Payments; Waiver. Payments made by Borrowers under
this Agreement shall generally be applied first to any costs or fees owing by
Borrowers to Lender, shall be applied second to any interest payments owing
hereunder which are due and unpaid, shall be applied third to any outstanding
principal owing hereunder, and shall be applied fourth to interest accrued but
not yet due. Unless otherwise specified in this Agreement, prepayments of
principal made by Borrowers on the Loan shall be applied to the most remote
installment then due (which shall be deemed to include, as applicable, any
balloon payment due at maturity). Notwithstanding any contrary provision
contained in this Agreement or in any of the other Financing Agreements, each
Borrower irrevocably waives the right to direct the application of any and all
payments at any time received by Lender from any Borrower or with respect to any
of the Collateral, and each Borrower irrevocably agrees that Lender shall have
the continuing exclusive right to apply and reapply any and all payments
received at any time, whether with respect to the Collateral or otherwise,
against the Liabilities, in such manner as Lender may
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deem advisable, notwithstanding any entry by Lender upon any of Lender's books
and records. Provided, however, this Section 10.14 shall not apply to any
transactions unrelated to this Agreement in which Lender or its Affiliates may
have accepted deposits from, lent money to, acted as trustee under indentures
of, or generally engaged in business with, any Borrower, any of its respective
Affiliates or any Person who may do business with or own securities of any
Borrower or any such Affiliate.
10.15 Marshaling; Payments Set Aside. Lender shall be under no obligation
to marshal any assets in favor of any Borrower or against or in payment of any
or all of the Liabilities. To the extent that any Borrower makes a payment or
payments to Lender or Lender receives any payment or proceeds of the Collateral
for any Borrower's benefit or enforces Lender's security interests or exercises
Lender's rights of setoff, and such payment or payments or the proceeds of such
Collateral, enforcement or setoff or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside and/or
required to be repaid to a trustee, receiver or any other party under any
bankruptcy law, state or federal law, common law or equitable cause, then to the
extent of such recovery, the obligation or part thereof originally intended to
be satisfied shall be revived and continued in full force and effect as if such
payment had not been made or such enforcement or setoff had not occurred.
10.16 Section Titles. The section titles contained in this Agreement shall
be without substantive meaning or content of any kind whatsoever and are not a
part of the agreement between the parties.
10.17 Continuing Effect. This Agreement, Lender's security interests in
the Collateral, and all of the other Financing Agreements shall continue in full
force and effect so long as any Liabilities shall be owed to Lender and (even if
there shall be no Liabilities outstanding) so long as Lender remains committed
to make Loan Advances under this Agreement.
10.18 No Waiver. Lender's failure, at any time or times hereafter, to
require strict performance by any Borrower of any provision of this Agreement
shall not waive, affect or diminish any right of Lender thereafter to demand
strict compliance and performance therewith. Any suspension or waiver by Lender
of any Default or Matured Default under this Agreement or any of the other
Financing Agreements, shall not suspend, waive or affect any other Default or
Matured Default under this Agreement or any of the other Financing Agreements,
whether the same is prior or subsequent thereto and whether of the same or of a
different kind or character. None of the undertakings, agreements, warranties,
covenants and representations of Borrowers contained in this Agreement or any of
the other Financing Agreements and no Default or Matured Default under this
Agreement or any of the other Financing Agreements, shall be deemed to have been
suspended or waived by Lender unless such suspension or waiver is in writing
signed by an officer of Lender and is directed to Borrowers specifying such
suspension or waiver.
10.19 Notices. Except as otherwise expressly provided herein, any notice
required or desired to be served, given or delivered pursuant to this Agreement
shall be in writing, and shall be sent by manual delivery, facsimile
transmission, overnight courier or United States mail (postage prepaid)
addressed to the party to be notified as follows:
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(a) If to Lender at:
Wilton Funding, LLC
c/o Patriot Capital Funding, Inc.
00 Xxxxxx Xxxx, 0xx Xxxxx
Xxxxxxxx, Xxxxxxxxxxx 00000
Attn: Xxxxxxx X. Xxxxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
with copies to:
Squire, Xxxxxxx & Xxxxxxx L.L.P.
0000 Xxxxxxxxxx Xxxxxx
00 Xxxxx Xxxx Xxxxxx
Xxxxxxxx, Xxxx 00000
Attn: Xxxxxxx X. Sugar, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
(b) If to any Borrower at:
c/o The Allied Defense Group, Inc.
0000 Xxxxxx Xxxxxxxx Xxxxx, Xxxxx 000
Xxxxxx, Xxxxxxxx 00000
Attn: Xxxxxxx X. Xxxxxx, Chief Financial Officer
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
and
Baxter, Baker, Xxxxx, Conn & Xxxxx, P.A.
000 X. Xxxxxxxxx Xxxxxx
Xxxxxxxxx, Xxxxxxxx 00000
Attn: Xxxxx X. Xxxxx, Xx., Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
or, as to each party, addressed to such other address as shall be designated by
such party in a written notice to the other parties. All such notices shall be
deemed given on the date of delivery if manually delivered, on the date of
sending if sent by facsimile transmission, on the first business day after the
date of sending if sent by overnight courier, or three (3) days after the date
of mailing if mailed.
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Notwithstanding any other provision hereof to the contrary, each Borrower
has appointed the Company as its representative to receive and give all notices
to or from such Borrower, and Lender shall have acted in accordance with this
Agreement in accepting notices from and giving notice to the Company as being
notices from or to such Borrower.
10.20 [Reserved].
10.21 Taxes.
(a) Except as otherwise provided in Section 10.21(d), any and all payments
by any Borrower hereunder or under the Note shall be made free and clear of and
without deduction for any and all present or future taxes, deductions, charges
or withholdings, and all liabilities with respect thereto, including without
limitation, such taxes, deductions, charges, withholdings or liabilities
whatsoever imposed, assessed, levied or collected by any taxing authority and
all (other than to the extent due to the gross negligence or willful misconduct
of Lender) interest, penalties, expenses or similar liabilities with respect
thereto ("Taxes"), excluding, however, from the definition of Taxes, in the case
of Lender, taxes imposed on its income (including penalties and interest payable
in respect thereof), and franchise taxes imposed on it, by the jurisdiction
under the laws of which Lender is organized or any political subdivision
thereof. If any Borrower shall be required by law to deduct any Taxes from or in
respect of any sum payable hereunder or under the Note to Lender (other than
payments for which taxes are withheld pursuant to the last sentence of Section
10.21(d)), (i) the sum payable shall be increased as may be necessary so that
after making all required deductions (including deductions applicable to
additional sums payable under this Section 10.21) Lender receives an amount
equal to the sum it would have received had no such deductions been made and
(ii) Borrowers shall pay the full amount deducted to the relevant taxation
authority or other authority in accordance with applicable law, less any credits
due to Borrowers.
(b) In addition, each Borrower agrees to pay any present or future stamp
or documentary taxes or any other excise or property taxes, charges or similar
levies which arise from any payment made hereunder or under the Note or from the
execution, delivery or registration of, or otherwise with respect to, this
Agreement or the Note (hereinafter included within the definition of "Taxes").
(c) Each Borrower shall indemnify Lender for the full amount of Taxes
(including without limitation, any Taxes imposed by any jurisdiction on amounts
payable under this Section 10.21) paid by Lender and any liability arising
therefrom or with respect thereto, whether or not such Taxes were correctly or
legally asserted. This indemnification shall be made within five (5) days from
the date Lender makes written demand therefor; provided, however, that to the
extent that Lender is reimbursed for any Taxes that were incorrectly or
illegally asserted with respect to any Borrower, Lender shall promptly return to
Borrowers the amount of such reimbursement net of any costs of recovery incurred
by Lender, together with any interest that may have been paid by the taxing
jurisdiction with respect thereto, to the extent Borrowers have actually paid
Lender with respect thereto.
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(d) Promptly after the date on which payment of any Taxes are due pursuant
to applicable law, each Borrower shall, at the request of Lender, furnish to
Lender evidence in form and substance satisfactory to Lender, that such Borrower
has met its obligations under this Section 10.21.
(e) Without prejudice to the survival of any other agreement of any
Borrower, the agreement and obligations of such Borrower contained in this
Section 10.21 shall survive the payment in full of the Liabilities.
10.22 Assignment and Participation.
(a) After the Closing Date, Lender may assign to any Person (the
"Assignee") all or a portion of its rights and obligations under this Agreement.
(b) Lender may sell participations to one or more banks or other entities
in or to all or a portion of its rights and obligations under this Agreement
(including, without limitation, all or a portion of the Working Capital
Commitment, the Acquisition Advance Commitment and the Note held by it);
provided, however, that (i) Lender's obligations under this Agreement
(including, without limitation, the Working Capital Commitment and the
Acquisition Advance Commitment to Borrowers hereunder) shall remain unchanged,
(ii) Lender shall remain solely responsible to the other parties hereto for the
performance of such obligations, (iii) Lender shall remain the holder of the
Note for all purposes of this Agreement, (iv) the sale of the participation will
not cause any Borrower to incur any additional liability, and (v) Borrowers
shall continue to deal solely and directly with Lender in connection with
Lender's rights and obligations under this Agreement, provided that no
participant shall be entitled to recover under the above-described provisions an
amount in excess of the proportionate share which such participant holds of the
original aggregate principal amount hereunder to which Lender would otherwise be
entitled.
(c) Lender may, in connection with any assignment or participation or
proposed assignment or participation pursuant to this Section 10.22, disclose to
the assignee or participant or proposed assignee or participant, any information
relating to any Borrower furnished to Lender by or on behalf of any Borrower;
provided that, prior to any such disclosure, the assignee or participant or
proposed assignee or participant shall agree in writing to preserve the
confidentiality of any confidential information relating to any Borrower
received by it from Lender.
(d) Lender may assign and pledge all or any of its rights, interests or
other benefits hereunder or in the Loan (including, without limitation, all
promissory notes, agreements, chattel paper, payment intangibles, collateral or
security interests or instruments held by it) as collateral security to Fund
Lender or any other unaffiliated lender of Lender (each such lender, a
"Collateral Assignee"); provided that unless and until Borrowers receive
notification from a Collateral Assignee of such assignment directing payments to
be made to such Collateral Assignee, any payment made by Borrowers for the
benefit of Lender in accordance with the terms of the Financing Agreements shall
satisfy Borrowers' obligations thereunder to the extent of such payment. No such
assignment and/or pledge shall release Lender from its obligations
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hereunder. Nor shall any such assignment or pledge constitute an assumption by a
Collateral Assignee of Lender's obligations and liabilities hereunder or under
any promissory note, chattel paper or other agreement pledged or assigned to
such Collateral Assignee, unless the terms of such assignment expressly provide
otherwise.
10.23 Maximum Interest. No agreements, conditions, provisions or
stipulations contained in this Agreement or in any of the other Financing
Agreements, or any Default or Matured Default, or any exercise by Lender of the
right to accelerate the payment of the maturity of principal and interest, or to
exercise any option whatsoever, contained in this Agreement or any of the other
Financing Agreements, or the arising of any contingency whatsoever, shall
entitle Lender to collect, in any event, interest exceeding the maximum
authorized by law, and in no event shall Borrowers be obligated to pay interest
exceeding such rate, and all agreements, conditions or stipulations, if any,
which may in any event or contingency whatsoever operate to bind, obligate or
compel Borrowers to pay a rate of interest exceeding the maximum allowed by law,
shall be without binding force or effect, at law or in equity, to the extent
only of the excess of interest over such maximum interest allowed by law. In the
event any interest is charged in excess of the maximum allowed by law
("Excess"), Borrowers acknowledge and stipulate that any such charge shall be
the result of an accidental and bona fide error, and such Excess shall be,
first, applied to reduce the principal of any Liabilities due, and, second,
returned to Borrowers, it being the intention of the parties not to enter at any
time into a usurious or otherwise illegal relationship. Borrowers and Lender
both recognize that, with fluctuations of index rates and applicable margins,
such an unintentional result could inadvertently occur. By the execution of this
Agreement, Borrowers covenant that: (a) the credit or return of any Excess shall
constitute the acceptance by Borrowers of such Excess; and (b) Borrowers shall
not seek or pursue any other remedy, legal or equitable, against Lender based,
in whole or in part, upon the charging or receiving of any interest in excess of
the maximum authorized by law. For the purpose of determining whether or not any
Excess has been contracted for, charged or received by Lender, all interest at
any time contracted for, charged or received by Lender in connection with the
Liabilities shall be amortized, prorated, allocated and spread in equal parts
during the entire term of this Agreement.
10.24 Additional Advances. All fees, charges, expenses, costs,
expenditures, obligations, liabilities, losses, penalties and damages incurred
or suffered by Lender and for which Borrowers are bound to indemnify or
reimburse Lender under this Agreement may, at the option of Lender, be paid by
Lender initiated Working Capital Advances pursuant to Section 2.1 if such
amounts remain unpaid for a period of ten (10) days after Lender has made demand
therefor.
10.25 Loan Agreement Controls. If there are any conflicts or
inconsistencies among this Agreement and any of the other Financing Agreements,
the provisions of this Agreement shall prevail and control.
10.26 Confidentiality. Lender agrees that it will use its best efforts to
keep confidential, in accordance with its customary procedures for handling
confidential information and in accordance with safe and sound lending
practices, any proprietary information of Borrowers identified in writing by
Borrowers identified as being proprietary and confidential;
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provided that Lender may disclose any such information (a) to enable it to
comply with any Governmental Requirement applicable to it, (b) in connection
with the defense of any litigation or other proceeding brought against it
arising out of the transactions contemplated by this Agreement and the other
Financing Agreements, (c) in connection with the supervision and enforcement of
the rights and remedies of Lender under any Financing Agreement, (d) to any
Collateral Assignee and (e) as set forth in Section 10.22.
10.27 Independence of Covenants. All covenants under this Agreement and
the other Financing Agreements 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 or
a Matured Default if such action is taken or condition exists.
10.28 Amendments and Waivers. Any term, covenant, agreement or condition
of this Agreement may be amended only by a written amendment executed by
Borrowers and, if the rights or duties of Lender are affected thereby, Lender,
or compliance therewith only may be waived (either generally or in a particular
instance and either retroactively or prospectively), if Borrowers shall have
obtained the consent in writing of Lender. No such amendment or waiver shall
extend to or affect any obligation not expressly amended or waived.
10.29 Counterparts and Facsimile Signatures. This Agreement, any other
Financing Agreement and any subsequent amendment to any of them may be executed
in several counterparts, each of which shall be construed together as one
original. Facsimile signatures on this Agreement, any other Financing Agreement
and any subsequent amendment to any of them shall be considered as original
signatures.
10.30 Set-off. Each Borrower gives and confirms to Lender a right of
set-off of all moneys, securities and other property of such Borrower (whether
special, general or limited) and the proceeds thereof, at any time delivered to
remain with or in transit in any manner to Lender, its correspondent or its
agents from or for such Borrower, whether for safekeeping, custody, pledge,
transmission, collection or otherwise or coming into possession of Lender in any
way, and also, any balance of any deposit accounts and credits of such Borrower
with, and any and all claims of security for the payment of the Liabilities owed
by such Borrower to Lender, contracted with or acquired by Lender, whether such
liabilities and obligations be joint, several, absolute, contingent, secured,
unsecured, matured or unmatured, and each Borrower authorizes Lender at any time
or times, without prior notice, to apply such money, securities, other property,
proceeds, balances, credits of claims, or any part of the foregoing, to such
liabilities in such amounts as it may select, whether such Liabilities be
contingent, unmatured or otherwise, and whether any collateral security therefor
is deemed adequate or not. The rights described herein shall be in addition to
any collateral security described in any separate agreement executed by any
Borrower.
10.31 Binding Effect. This Agreement and all of the other Financing
Agreements set forth the legal, valid and binding obligations of Borrowers and
Lender and are enforceable against Borrowers in accordance with their respective
terms. Should more than one Person be a Borrower under this Agreement or any
Note, the obligations of each such Person shall be joint
-58-
and several. Lender may settle, release, compromise, collect or otherwise
liquidate the obligations of any Borrower, any guarantor of such obligations,
and any security or collateral for such obligations or for any such guaranty, in
any manner, without affecting or impairing the obligations of any Borrower.
10.32 FINAL AGREEMENT. THIS WRITTEN AGREEMENT AND THE OTHER FINANCING
AGREEMENTS 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.
-59-
IN WITNESS WHEREOF, this Agreement has been duly executed as of the day
and year first above written.
BORROWERS:
----------
THE ALLIED DEFENSE GROUP, INC.,
a Delaware corporation
By: _________________________________________
Name:________________________________________
Title:_______________________________________
NEWS/SPORTS MICROWAVE RENTAL, INC.,
a California corporation
By: _________________________________________
Name:________________________________________
Title:_______________________________________
TITAN DYNAMICS SYSTEMS, INC.,
a Texas corporation
By: _________________________________________
Name:________________________________________
Title:_______________________________________
SEASPACE CORPORATION,
a California corporation
By: _________________________________________
Name:________________________________________
Title:_______________________________________
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MECAR USA, INC., a Delaware corporation
By: _________________________________________
Name:________________________________________
Title:_______________________________________
ALLIED RESEARCH CORPORATION
LIMITED, a company formed under the laws of
England and Wales
By: _________________________________________
Name:________________________________________
Title:_______________________________________
ARC EUROPE, S.A., a Belgium company
By: _________________________________________
Name:________________________________________
Title:_______________________________________
ENERGA CORPORATION, a Maryland
corporation
By: _________________________________________
Name:________________________________________
Title:_______________________________________
LENDER:
-------
WILTON FUNDING, LLC,
a Delaware limited liability company
By: _________________________________________
Name:________________________________________
Title:_______________________________________
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Exhibit 2A to
Loan and Security Agreement
Form of Promissory Note
[See attached]
PROMISSORY NOTE
$18,000,000 May 28, 2004
FOR VALUE RECEIVED, the undersigned (hereinafter collectively referred to
as "Borrowers"), jointly and severally, promise to pay to the order of WILTON
FUNDING, LLC, a Delaware limited liability company (hereinafter referred to as
"Lender"), or its successors and assigns, at such place as Lender may designate,
in lawful money of the United States of America and in immediately available
funds, the principal sum of EIGHTEEN MILLION and 00/100 Dollars ($18,000,000.00)
or so much thereof as may be advanced and be outstanding, together with interest
on any and all principal amounts outstanding calculated in accordance with the
provisions set forth below. This Note is issued under that certain Loan and
Security Agreement dated as of May 28, 2004 (as the same may be amended,
replaced, restated and/or supplemented from time to time, the "Loan Agreement")
among Borrowers and Lender.
Capitalized terms used and not defined herein shall have the meanings
given to such terms in the Loan Agreement.
Borrowers shall have the right to make prepayments of principal only in
accordance with the Loan Agreement.
Borrowers shall pay interest on the unpaid principal amount of each Loan
Advance made by Lender from the date of such Loan Advance until such principal
amount shall be paid in full, at the times and at the rates per annum set forth
in the Loan Agreement.
The unpaid balance of this obligation at any time shall be the total
amounts advanced hereunder by Lender, together with accrued and unpaid interest,
less the amount of payments made hereon by or for Borrowers, which balance may
be endorsed hereon from time to time by Lender.
In addition to the repayment requirements imposed upon Borrowers under the
Loan Agreement, together with the agreements referred to therein, the principal
and interest owing under this Note shall be due and payable in full on the
Maturity Date, without presentment, demand, protest or further notice (including
without limitation, notice of intent to accelerate and notice of acceleration)
of any kind, all of which are expressly waived by Borrowers. Time is of the
essence hereof.
Interim payments made by Borrowers pursuant to and in accordance with the
Loan Agreement shall be applied as provided therein.
Should any Matured Default occur, then all sums of principal and interest
outstanding hereunder may be declared immediately due and payable in accordance
with the Loan Agreement, without presentment, demand or notice of dishonor, all
of which are expressly
waived, and Lender shall have no obligation to make any further Loan Advances
pursuant to the Loan Agreement.
The obligations of Borrowers to Lender hereunder and under the Loan
Agreement are secured by the Collateral granted to Lender pursuant to and as set
forth in the Loan Agreement.
Notwithstanding any other provision of this Note, the Loan Agreement or
the other Financing Agreements to the contrary, and notwithstanding any breach
by any Foreign Borrower of any representation, warranty, covenant or agreement
contained in the Loan Agreement or in any other Financing Agreement, liability
of each Foreign Borrower hereunder or pursuant to any of the other Financing
Agreements shall be limited to the sum of (i) the amount of Loan Advances made
to such Foreign Borrower or any, direct or indirect, Subsidiary thereof plus
(ii) to the extent not included in (i) above, the aggregate amount of any loans,
payments, capital contributions, dividends, distributions or other asset
transfers, directly or indirectly, made after the date hereof by any Domestic
Borrower to such Foreign Borrower or any, direct or indirect, Subsidiary
thereof.
This Note shall be construed in accordance with the laws of the State
of New York.
THE ALLIED DEFENSE GROUP, INC.,
a Delaware corporation
By: _________________________________________
Name:________________________________________
Title:_______________________________________
NEWS/SPORTS MICROWAVE RENTAL, INC.,
a California corporation
By: _________________________________________
Name:________________________________________
Title:_______________________________________
TITAN DYNAMICS SYSTEMS, INC.,
a Texas corporation
By: _________________________________________
Name:________________________________________
Title:_______________________________________
-2-
SEASPACE CORPORATION,
a California corporation
By: _________________________________________
Name:________________________________________
Title:_______________________________________
MECAR USA, INC., a Delaware corporation
By: _________________________________________
Name:________________________________________
Title:_______________________________________
ALLIED RESEARCH CORPORATION
LIMITED, a company formed under the laws of
England and Wales
By: _________________________________________
Name:________________________________________
Title:_______________________________________
ARC EUROPE, S.A., a Belgium company
By: _________________________________________
Name:________________________________________
Title:_______________________________________
ENERGA CORPORATION, a Maryland
corporation
By: _________________________________________
Name:________________________________________
Title:_______________________________________
-3-
Exhibit 3A to
Loan and Security Agreement
Form of Warrant Agreement
[See attached]
================================================================================
Warrant Agreement
among
THE ALLIED DEFENSE GROUP, INC.
and
WILTON FUNDING, LLC
Dated as of May 28, 2004
================================================================================
Table of Contents
Section Heading Page
------- ------- ----
SECTION 1. CERTAIN DEFINITIONS AND TERMS......................................1
Section 1.1 Definitions.........................................1
SECTION 2. AUTHORIZATION OF WARRANTS; ISSUANCE OF WARRANTS....................3
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY......................4
Section 3.1 Authorization, Etc..................................4
Section 3.2 Private Offering by the Company.....................5
Section 3.3 Authorized Capital Stock............................5
SECTION 4. CLOSING 5
SECTION 5. CONDITIONS TO CLOSING..............................................5
SECTION 6. REPRESENTATIONS AND WARRANTIES.....................................6
Section 6.1 Purchase for Investment.............................6
Section 6.2 Source of Funds.....................................6
SECTION 7. TRANSFER; REGISTRATION.............................................6
Section 7.1 Restrictions on Transferability.....................6
Section 7.2 Notice of Proposed Transfer; Registration Not
Required; Deemed Representation...................6
Section 7.3 Required Registration...............................6
Section 7.4 Conditions to Required Registration................12
Section 7.5 Incidental Registrations...........................12
Section 7.6 Underwritten Offerings.............................13
Section 7.7 Expenses; Reliance.................................13
Section 7.8 Indemnification and Contribution...................14
Section 7.9 Additional Registration Rights.....................15
Section 7.10 Restrictive Legends................................16
Section 7.11 Miscellaneous......................................17
SECTION 8. REDEMPTION OF WARRANTS AND/OR RESTRICTED SHARES...................17
Section 8.1 Redemption.........................................17
SECTION 9. LOST, STOLEN WARRANTS, ETC........................................17
SECTION 10. PROTECTIVE PROVISIONS............................................17
SECTION 11. INDEX AND CAPTIONS...............................................18
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SECTION 12. MISCELLANEOUS 18
Section 12.1 Notices............................................18
Section 12.2 Successors and Assigns.............................18
Section 12.3 Severability.......................................18
Section 12.4 Headings; Governing Law............................19
Section 12.5 Amendment and Waiver...............................19
-ii-
WARRANT AGREEMENT
This Warrant Agreement (this "Agreement") is made and entered into as of
May 28, 2004, among THE ALLIED DEFENSE GROUP, INC., a Delaware corporation (the
"Company"), and WILTON FUNDING, LLC, a Delaware limited liability company (the
"Purchaser").
Recitals
Concurrently with the execution and delivery hereof, the Company will be
issuing (and agrees to issue hereafter upon Purchaser's making of additional
loans to Borrowers) its Warrants to purchase Common Shares (defined below) of
the Company to the Purchaser in connection with and as a condition to the making
by the Purchaser to the Company and its subsidiaries of loans in the aggregate
principal amount of up to Eighteen Million Dollars ($18,000,000) (the "Loan"),
pursuant to a certain Loan and Security Agreement dated of even date herewith
among the Company and certain of its subsidiaries named therein, as borrowers
(collectively, the "Borrowers"), and the Purchaser, as lender (the "Loan
Agreement"). The Loan is evidenced by a promissory note of even date herewith in
the original principal amount of $18,0000,000 issued by Borrowers to Purchaser
(the "Note"). In consideration of the acquisition by the Purchaser of the
Warrants and the making of the Loan, the Company is willing to offer the
Purchaser the rights described hereinbelow, including, without limitation,
registration rights and rights of indemnity and other rights and privileges
relating to the Warrants, the Warrant Shares and the Underlying Shares, all as
more specifically set forth herein.
Agreement
Now, Therefore, for and in consideration of the foregoing and the mutual
covenants herein contained, the parties hereto agree as follows:
SECTION 1. CERTAIN DEFINITIONS AND TERMS.
Section 1.1 Definitions. Terms not otherwise defined herein shall have the
respective meanings assigned thereto in the Loan Agreement, as in effect on the
Closing Date. As used herein, the following terms have the meanings indicated:
"Agreement" is defined in the preamble of this Agreement.
"Borrowers" is defined in the recitals hereto.
"Closing" is defined in Section 4 hereof.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, and the rules and regulations promulgated thereunder from time to time.
"Commission" shall mean the Securities and Exchange Commission, or any
other Federal agency at the time administering the Securities Act.
"Common Shares" shall mean the shares of Common Stock, $0.10 par value per
share, of the Company.
"Company" is defined in the preamble of this Agreement.
"Cutback Determination" is defined in Section 7.3(a) hereof.
"Demand Registration" is defined in Section 7.3(a) hereof.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the rules and regulations promulgated thereunder
from time to time in effect.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
or any successor statute.
"Exchange Act Reporting Company" shall mean any corporation or other
entity which is subject to the reporting requirements of the Exchange Act.
"Expiration Date" is defined in the Warrants.
"Fully Diluted Outstanding Shares" shall mean, at any date of
determination, the sum of (i) the number of outstanding Common Shares, plus (ii)
the number of Underlying Shares plus (iii) the maximum number of Common Shares
issuable in respect of Securities exchangeable or convertible into Common Shares
("Convertible Securities") and options and warrants to purchase Common Shares or
Convertible Securities outstanding on such date (whether or not the rights to
convert, exchange or exercise thereunder are presently exercisable).
"Holder" shall mean any beneficial owner of (i) any Warrant Share or (ii)
any Warrant.
"Incidental Cutback Determination" is defined in Section 7.5 hereof.
"Liquidity Event" shall mean a "Change of Control" as defined in the Loan
Agreement, as in effect on the Closing Date.
"Loan" is defined in the recitals hereto.
"Loan Advance Date" is defined in Section 2 hereof.
"Loan Agreement" is defined in the recitals hereto.
"Majority Holders" shall mean the holders of a majority in aggregate
number of the then outstanding Warrants and Warrant Shares, determined on a
Common Share equivalent basis.
-2-
"Note" is defined in the recitals hereto.
"Person" shall mean an individual, partnership, limited liability company,
corporation, trust or unincorporated organization, or a government or agency or
political subdivision thereof.
"Purchaser" is defined in the preamble of this Agreement.
"Related Party" shall mean, with respect to any Person, (A) any Affiliate
of such Person, (B) any investment manager, investment advisor or partner, or
any principal thereof, of such Person, (C) any investment fund, investment
account or investment entity whose investment manager, investment advisor or
general partner, or any principal thereof, is such Person or a Related Party of
such Person.
"Restricted Shares" shall mean the Common Shares of the Company issued
upon the exercise of any of the Warrants and evidenced by a certificate required
to bear the legend specified in Section 7.4 hereof.
"Securities Act" shall mean the Securities Act of 1933, as amended, or any
successor Federal statute, and the rules and regulations promulgated thereunder,
all as the same shall be in effect at the time.
"Security" or "Securities" shall have the same meaning as in Section
2(a)(1) of the Securities Act.
"Third Party Rights" is defined in Section 7.9 hereof.
"Underlying Shares" shall mean the Common Shares of the Company issuable
upon exercise of any of the Warrants and any references contained herein to a
Holder or Holders of any Underlying Shares shall be deemed to refer to the
Holder of the Warrants relating thereto.
"Warrant Shares" shall mean Common Shares issued upon exercise of the
Warrants. As to any particular Warrant Shares, such shares shall cease to be
Warrant Shares when they have been (a) effectively registered under the
Securities Act and disposed of in accordance with a registration statement
covering them or (b) distributed to the public through a broker, dealer or
market maker pursuant to Rule 144 under the Securities Act (or any similar
provision then in force).
"Warrants" is defined in Section 2 hereof.
SECTION 2. AUTHORIZATION OF WARRANTS; ISSUANCE OF WARRANTS.
In consideration of, and as an inducement to, the Purchaser entering into
the Loan Agreement and making the Loan, the Company shall authorize the issuance
and sale of, and the Company agrees to deliver to the Purchaser on the Closing
Date and on the making of each subsequent Loan Advance (each, a "Loan Advance
Date"), one or more warrants (all warrants being delivered to the Purchaser
being referred to collectively as the "Warrants") substantially
-3-
in the form attached hereto as Exhibit A to purchase for the consideration of
$0.01 per Warrant Share an aggregate number of Common Shares of the Company
equal to the product of (i) the cumulative Dollar amount of Loan Advances made
by the Purchaser to Borrowers on or before such Loan Advance Date multiplied by
(ii) 0.002 Common Shares per Dollar (subject to adjustment as provided in said
Warrants). Based on the foregoing formula for determining the number of Warrant
Shares, upon the making of the Initial Advance to Borrowers in the amount of
$2,000,000 on the Closing Date, the Company shall issue and deliver to the
Purchaser a Warrant to purchase 4,000 Common Shares (i.e., $2,000,000 x 0.002
shares per $1.00). As an additional example of the manner in which the foregoing
formula is intended to be applied, if the Purchaser thereafter makes an
additional Loan Advance to Borrowers in the amount of $1,500,000, then the
Company shall issue and deliver to the Purchaser on the applicable Loan Advance
Date a Warrant to purchase an additional 3,000 Common Shares (i.e., $1,500,000 x
0.002 shares per $1.00). The number of shares that may be purchased upon the
exercise of the Warrants held by the Purchaser and the price per share are and
shall be subject to adjustment in the manner and on the terms and conditions set
forth in the Warrants.
The rights, powers and terms of and relating to the Common Shares will be
provided for in the Company's Certificate of Incorporation as in effect on the
Closing Date, as amended and supplemented from time to time in accordance with
the provisions thereof to the extent permitted hereby and under the provisions
of the Loan Agreement. In addition, the Warrants and the Common Shares issuable
upon exercise thereof are subject to the terms and provisions specified in this
Agreement.
Subject to the terms and conditions of this Agreement, the Company shall
issue and sell to the Purchaser, and the Purchaser shall acquire from the
Company, (i) at the Closing provided for in Section 4, Warrants to purchase
4,000 Common Shares and (ii) thereafter upon the making of each additional Loan
Advance, Warrants to purchase the number of Common Shares determined based upon
the foregoing formula.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
As an inducement to the Purchaser to enter into and perform this Agreement
and the Loan Agreement, the Company hereby represents and warrants to the
Purchaser as follows:
Section 3.1 Authorization, Etc. The execution, delivery and performance of
this Agreement, and the issue and sale of the Warrants, have been duly
authorized by all necessary corporate action on the part of the Company. The
Warrants, when executed and delivered at the Closing will constitute the legal,
valid and binding obligations of the Company enforceable against the Company in
accordance with the terms hereof and thereof, except as such enforceability may
be limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium
or other similar laws affecting the enforcement of creditors' rights generally
and (ii) general principles of equity (regardless of whether such enforceability
is considered in a proceeding in equity or at law).
-4-
Section 3.2 Private Offering by the Company. Neither the Company nor
anyone acting on its behalf has offered the Warrants, or any similar Securities,
for sale to, or solicited any offer to buy any of the same from, or otherwise
approached or negotiated in respect thereof with, any Person other than the
Purchaser, which has been offered Warrants at a private sale for investment.
Neither the Company nor anyone acting on its behalf has taken, or will take, any
action that would subject the issuance or sale of the Warrants to the
registration requirements of Section 5 of the Securities Act.
Section 3.3 Authorized Capital Stock. At the Closing, the authorized
capital stock of the Company will consist of 30,000,000 Common Shares, of which
5,553,729 shares will be issued and outstanding. Except as set forth on attached
Exhibit A hereto, the Company does not have outstanding any warrants, options,
convertible securities or other rights for the purchase or acquisition of shares
of its capital stock other than the Warrants issued to the Purchaser at the
Closing. The Board of Directors of the Company has duly reserved for issuance
upon exercise of the Warrants 36,000 Common Shares (representing less than 1% of
the Fully Diluted Outstanding Shares as of the Closing Date). No stockholder of
the Company or of any other Person is entitled to preemptive or similar rights
with respect to the Common Shares which are issuable upon exercise of the
Warrants and, if and when issued upon exercise of the Warrants in accordance
with the provisions thereof, such shares will be validly issued, fully paid and
non-assessable shares.
SECTION 4. CLOSING.
The closing of the Loan and the sale and purchase of the Warrants shall
occur at the offices of Squire, Xxxxxxx & Xxxxxxx L.L.P., 000 Xxxx Xxxxxx, Xxx
Xxxx, Xxx Xxxx 00000-0000, at 10:00 a.m., New York City time, at a closing (the
"Closing") on May 28, 2004 or at such other place and time and on such other
Business Day as may be agreed upon by the Company and the Purchaser. At the
Closing, (i) subject to the satisfaction of the applicable conditions precedent
set forth in the Loan Agreement, the Purchaser shall make the Initial Advance to
Borrowers and (ii) the Company shall deliver to the Purchaser the Note as
provided in the Loan Agreement and Warrants to purchase 4,000 Common Shares,
such Warrants to be in the form of a single Warrant for the Purchaser registered
in the Purchaser's name (or in the name of its nominee). If at the Closing the
Company shall fail to tender to the Purchaser the Note as provided in the Loan
Agreement or Warrants as provided above in this Section 4, or if any of the
conditions specified in Section 5 shall not have been fulfilled to its
satisfaction, then the Purchaser shall, at its sole election, be relieved of all
further obligations under this Agreement, without thereby waiving any rights the
Purchaser may have by reason of such failure or such nonfulfillment.
SECTION 5. CONDITIONS TO CLOSING.
The Purchaser's obligation to acquire the Warrants is subject to the
fulfillment to the Purchaser's satisfaction, prior to or at the Closing, of the
conditions to the Initial Advance set forth in Section 4 of the Loan Agreement,
which conditions shall be and are hereby incorporated herein by reference; and
the Company's obligation to issue the Warrants is subject to the closing
-5-
of the transactions contemplated by the Loan Agreement to occur in connection
with the Initial Advance.
SECTION 6. REPRESENTATIONS AND WARRANTIES.
Section 6.1 Purchase for Investment. The Purchaser represents that it is
purchasing the Warrants for its own account or for one or more separate accounts
maintained by the Purchaser or for the account of one or more pension or trust
funds and not with a view to the public distribution thereof, provided that the
disposition of its property shall at all times be within its control. The
Purchaser further represents that it is an accredited investor within the
meaning of Rule 501(a) promulgated under the Securities Act. The Purchaser
understands that the Warrants have not been registered under the Securities Act
and may be resold only if registered pursuant to the provisions of the
Securities Act or if an exemption from registration is available, except under
circumstances where neither such registration nor such an exemption is required
by law, and that the Company is not required (except as provided herein) to
register the Warrants.
Section 6.2 Source of Funds. The Purchaser represents that the source of
funds to be used by it to pay the purchase price of the Warrants does not
include assets of any employee benefit plan, within the meaning of 29 CFR
Section 2510.3-101, of the Company.
SECTION 7. TRANSFER; REGISTRATION.
Section 7.1 Restrictions on Transferability. The Warrants and the
Restricted Shares shall not be transferable except upon the conditions
hereinafter specified, which conditions are intended to insure compliance with
the provisions of the Securities Act and any applicable state securities laws.
Section 7.2 Notice of Proposed Transfer; Registration Not Required; Deemed
Representation. The Holder of each Warrant or any Restricted Shares, by
acceptance thereof, agrees to give prior written notice to the Company of such
Holder's intention to transfer such Warrant (or the Underlying Shares relating
thereto) or such Restricted Shares (or, in each case, any portion thereof),
describing briefly the manner and circumstances of the proposed transfer;
provided, however, that no such notice shall be required for a transfer under a
registration made in accordance with the provisions of Section 7.3.
Section 7.3 Required Registration.
(a) At any time after the making of the Loan Advance (if any) which
increases the outstanding principal balance of the Loan to at least $10,000,000,
the Holders of at least a majority of the aggregate then outstanding number of
Underlying Shares and Restricted Shares may, upon written request, require the
Company to effect the registration (a "Demand Registration") or qualification
under applicable Federal or state securities laws of such Underlying Shares
and/or Restricted Shares. Upon receipt of such written request, the Company
shall promptly give written notice to all Holders of Warrants and Restricted
Shares of a proposed
-6-
registration or qualification, and shall, subject to the conditions of Section
7.4, as expeditiously as possible, use its best efforts to effect any such
registration or qualification of:
(i) such Underlying Shares or such Restricted Shares, or any
combination thereof; and
(ii) all other Underlying Shares and Restricted Shares of
Holders of Warrants or Restricted Shares which shall have advised the Company in
writing within 30 days after the giving of such written notice by the Company of
their desire to have their Underlying Shares or Restricted Shares registered or
qualified or exempted, with, or notification to or approval of, any governmental
authority under any Federal or state securities laws, or listing with any
securities exchange, which may be required to permit the sale or other
disposition of any such Underlying Shares or Restricted Shares which the Holders
thereof propose to make, and the Company will, if the registration does not
relate to an underwritten distribution, keep effective such registration,
qualification, exemption, notification or approval for such period as may be
necessary to effect such sales or dispositions up to a maximum period of six
months after initial effectiveness.
If the managing underwriter engaged in connection with an underwritten
public offering of such Securities proposed for registration under this Section
7.3 determines in good faith and for valid business reasons that registration of
such Underlying Shares or Restricted Shares would have an adverse effect on the
marketability or the price of such offering (a "Cutback Determination"), such
managing underwriter shall give prompt written notice of such Cutback
Determination to such requesting Holder or Holders. In such event, the Company,
upon written notice to the Holders of such Underlying Shares or Restricted
Shares, shall have the right to limit such Underlying Shares or such Restricted
Shares to be registered, if any, to the largest number which would not result in
such adverse effect on marketability or the price of such offering (such
limitation being applied to each such requesting Holder of Underlying Shares or
Restricted Shares pro rata in respect of the number of shares subject to such
request). No Securities of any Person, other than a Holder, may be included in
any registration pursuant to this Section 7.3 without the written consent of the
Holders of at least a majority of the Underlying Shares and/or Restricted Shares
participating in such offering.
(b) Registration Procedures. In connection with the Company's
obligations with respect to a Demand Registration pursuant to Section 7.3(a)
hereof, the Company shall use its best efforts to effect or cause the
registration or qualification of the Underlying Shares and/or Restricted Shares
under the Securities Act and applicable state securities laws to permit the sale
of such Underlying Shares and/or Restricted Shares by the Holders thereof in
accordance with the intended method of distribution thereof (if such
distribution is possible), and pursuant thereto, the Company shall:
(i) prepare and, within 120 days after receipt of the request
pursuant to Section 7.3(a) hereof, file with the Commission a registration
statement or registration statements with respect to a Demand Registration on
any form which may be utilized by the Company and which shall permit the
disposition of the Underlying Shares and/or Restricted Shares in accordance with
the intended method or methods thereof, and use its best efforts to
-7-
cause such registration statement or registration statements to become effective
as expeditiously as possible;
(ii) prepare and file with the Commission such amendments and
supplements to a registration statement or statements hereunder and the
prospectus used in connection therewith as may be necessary to maintain the
effectiveness of such registration statement for the applicable period specified
in Section 7.3(a) hereof, and comply in all material respects with the
provisions of the Securities Act and applicable state securities laws with
respect to the disposition of all of the Underlying Shares and/or Restricted
Shares to be included in such registration statement during such applicable
period in accordance with the intended methods of disposition by the Holders
thereof set forth in the registration statement;
(iii) provide the Holders of the Underlying Shares and/or
Restricted Shares to be included in a registration statement hereunder and the
underwriters (which term, for purposes of this Agreement, shall include a Person
deemed to be an underwriter within the meaning of Section 2(11) of the
Securities Act), if any, of the Common Shares being sold and counsel for such
underwriters and not more than one counsel for such Holders (selected by the
Holders of at least a majority of the Underlying Shares and/or Restricted Shares
participating in such offering) the opportunity to participate in the
preparation of such registration statement, each prospectus included therein or
filed with the Commission, and each amendment or supplement thereto; and make
available for inspection by such Persons such financial and other information,
books and records of the Company, and cause the officers, directors and
employees of the Company, and counsel and independent certified public
accountants for the Company, to respond to such inquiries, as shall be
reasonably necessary, in the opinion of the respective counsel to such Holders
and such underwriters, to conduct a reasonable investigation within the meaning
of the Securities Act;
(iv) promptly notify the selling Holders of Underlying Shares
and/or Restricted Shares to be included in a registration statement hereunder
and the managing underwriters, if any, of the Securities being sold and (if
requested by any such Person) confirm such advice in writing, (1) when such
registration statement, the prospectus or any prospectus supplement or
post-effective amendment has been filed, and, with respect to such registration
statement or any post-effective amendment, when the same has become effective,
(2) of any request by the Commission for amendments or supplements to such
registration statement or the prospectus or for additional or supplemental
information, (3) of the issuance by the Commission of any stop order suspending
the effectiveness of such registration statement or the initiation of any
proceedings for that purpose, (4) if at any time the representations and
warranties of the Company contemplated by paragraph (xi) below cease to be true
and correct in all material respects, (5) of the receipt by the Company of any
notification with respect to the suspension of the qualification of the
Underlying Shares or Restricted Shares for sale in any jurisdiction or the
initiation or threat of any proceeding for such purpose, or (6) at any time when
a prospectus is required to be delivered under the Securities Act, of the
happening of any event as a result of which such registration statement,
prospectus, any prospectus supplement, or any document incorporated by reference
in any of the foregoing contains an untrue statement of a material fact or omits
to state any material fact required to be stated therein or necessary to make
the statements therein not misleading in light of the circumstances then
existing;
-8-
(v) make reasonable efforts to obtain the withdrawal of any
order suspending the effectiveness of a registration statement hereunder or any
post-effective amendment thereto at the earliest practicable date;
(vi) if requested by the managing underwriter or underwriters
or the Holders of at least a majority of the Underlying Shares and/or Restricted
Shares being sold, promptly incorporate in a prospectus supplement or
post-effective amendment such information as such managing underwriter or
underwriters, if any, or such Holders of at least a majority of the Underlying
Shares and/or Restricted Shares being sold specify should be included therein
relating to the sale of the Underlying Shares and/or Restricted Shares,
including, without limitation, information with respect to the number of
Underlying Shares and/or Restricted Shares being sold to such underwriters, the
purchase price being paid therefor by such underwriters and with respect to any
other terms of the underwritten (or best efforts underwritten) offering of the
Underlying Shares and/or Restricted Shares to be sold in such offering, except
to the extent that the Company is advised in a written opinion of outside
counsel that the inclusion of such information is reasonably likely to violate
the federal securities laws; and make all required filings of such prospectus
supplement or post-effective amendment promptly after notification of the
matters to be incorporated in such prospectus supplement or post-effective
amendment;
(vii) furnish to each Holder of Underlying Shares and/or
Restricted Shares to be included in a registration statement hereunder and each
underwriter, if any, of the Securities being sold such number of copies of such
registration statement, each such amendment and supplement thereto (in each case
including all exhibits thereto), the prospectus included in such registration
statement and such other documents as such Holder and underwriter, if any, may
reasonably request in order to facilitate the disposition of the Underlying
Shares and/or Restricted Shares owned by such Holder; the Company consents to
the use of the prospectus or any amendment or supplement thereto by each of the
selling Holders of Underlying Shares and/or Restricted Shares and the
underwriters in connection with the offering and sale of the Underlying Shares
and/or Restricted Shares covered by the prospectus or any supplement or
amendment thereto;
(viii) use its best efforts to (1) register or qualify the
Underlying Shares and/or Restricted Shares to be included in a registration
statement hereunder under such other securities laws or Blue Sky laws of such
jurisdictions as any Holder of such Underlying Shares and/or Restricted Shares
and each underwriter, if any, of the Securities being sold shall reasonably
request, (2) keep such registrations or qualifications in effect for so long as
the registration statement remains in effect and (3) take any and all such
actions as may be reasonably necessary or advisable to enable such Holder and
underwriter, if any, to consummate the disposition in such jurisdictions of such
Underlying Shares and/or Restricted Shares owned by such Holder; provided,
however, that the Company shall not be required for any such purpose to (A)
qualify generally to do business as a foreign corporation in any jurisdiction
wherein it would not otherwise be required to qualify but for the requirements
of this paragraph (viii) or (B) consent to general service of process in any
such jurisdiction;
-9-
(ix) use its best efforts to cause all of the Underlying
Shares and/or Restricted Shares that are to be included in a registration
statement hereunder to be registered with or approved by such other governmental
agencies or authorities as may be necessary by virtue of the business and
operations of the Company to enable the Holder or Holders thereof to consummate
the disposition of such Underlying Shares and/or Restricted Shares;
(x) cooperate with the Holders of the Underlying Shares and/or
Restricted Shares to be included in a registration statement hereunder and the
managing underwriters, if any, to facilitate the timely preparation and delivery
of certificates representing Underlying Shares and/or Restricted Shares to be
sold and not bearing any restrictive legends; and, in the case of an
underwritten offering, enable such Underlying Shares and/or Restricted Shares to
be in such denominations and registered in such names as the managing
underwriters may request at least two Business Days prior to any sale of the
Underlying Shares and/or Restricted Shares;
(xi) enter into such customary agreements (including an
underwriting agreement, in the event that the shares to be included are to be
distributed by means of an underwritten public offering) and take such other
actions in connection therewith as the Holders of at least a majority of the
Underlying Shares and/or Restricted Shares to be included in a registration
statement hereunder shall reasonably request in order to expedite or facilitate
the disposition of such Underlying Shares and/or Restricted Shares and in such
connection, whether or not an underwriting agreement is entered into and whether
or not the disposition is an underwritten offering, (1) make such
representations, warranties and indemnities to the Holders of such Underlying
Shares and/or Restricted Shares and the underwriters, if any, in form, substance
and scope as are customarily made in an underwritten offering; (2) obtain an
opinion of counsel to the Company in customary form and covering such matters of
the type customarily covered by such opinion as the Holders of at least a
majority of the Underlying Shares and/or Restricted Shares to be included in
such registration statement and the underwriters, if any, may reasonably
request, addressed to the selling Holders and the underwriters, if any, and
dated the date of the closing as specified in the underwriting agreement; (3)
obtain a "cold comfort" or procedures letter from the independent certified
public accountants of the Company addressed to the selling Holders of Underlying
Shares and/or Restricted Shares and to the underwriters, if any, dated the date
of the closing, such letter to be in customary form and covering such matters of
the type customarily covered by such letter in an underwritten offering; and (4)
deliver such documents and certificates as may be reasonably requested by the
Holders of at least a majority of the Underlying Shares and/or Restricted Shares
being sold and the managing underwriters, if any, to evidence compliance with
clause (1) above and with any customary conditions contained in the underwriting
agreement or other agreement entered into by the Company;
(xii) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make available to its
security holders, as soon as reasonably practicable, an earnings statement
covering a period of at least twelve months which shall satisfy the provisions
of Section 11(a) of the Securities Act and Rule 158 of the Commission
thereunder;
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(xiii) provide a transfer agent and registrar for all
Underlying Shares and/or Restricted Shares registered pursuant to such
registration statement and a CUSIP number for all such Underlying Shares and/or
Restricted Shares, in each case not later than the effective date of such
registration; and
(xiv) use its best efforts to have the Underlying Shares
and/or Restricted Shares listed, subject to notice, on the American Stock
exchange, The Nasdaq Stock Market or other applicable national securities
exchange as the Company shall determine to be appropriate.
Upon the occurrence of any event contemplated by paragraph (iv) above, the
Company shall, as soon as reasonably practicable, prepare and furnish to each
Holder included in such registration statement and underwriter, if any, a
reasonable number of copies of a prospectus supplemented or amended so that, as
thereafter delivered to the Purchaser of the Underlying Shares and/or Restricted
Shares, such prospectus shall not contain an untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in light of the circumstances then
existing. Each Holder of Underlying Shares and/or Restricted Shares agrees that
upon receipt of any notice from the Company of the happening of any event of the
kind described in paragraph (iv) hereof, such Holder shall forthwith discontinue
the disposition of Underlying Shares and/or Restricted Shares pursuant to the
registration statement applicable to such Underlying Shares and/or Restricted
Shares until such Holder receives copies of such amended or supplemented
registration statement or prospectus, and, if so directed by the Company, such
Holder shall deliver to the Company (at the Company's expense) all copies, other
than permanent file copies, then in such Holder's possession of the prospectus
covering such Underlying Shares and/or Restricted Shares at the time of receipt
of such notice.
The Company may require each Holder of Underlying Shares and/or Restricted
Shares as to which any registration is being effected to furnish to the Company
such information regarding such Holder and the distribution of such Underlying
Shares and/or Restricted Shares as the Company may from time to time reasonably
request in writing in order to comply with the Securities Act. Each Holder of
Underlying Shares and/or Restricted Shares as to which any registration is being
effected agrees to notify the Company as promptly as practicable of any
inaccuracy or change in information previously furnished by such Holder to the
Company or of the happening of any event, in either case as a result of which
any prospectus relating to such registration contains an untrue statement of a
material fact regarding such Holder or the distribution of such Underlying
Shares and/or Restricted Shares or omits to state any material fact regarding
such Holder or the distribution of such Underlying Shares and/or Restricted
Shares required to be stated therein or necessary to make the statements therein
not misleading in light of the circumstances then existing, and to furnish
promptly to the Company any additional information required to correct and
update any previously furnished information or required so that such prospectus
shall not contain, with respect to such Holder or the intended method of
distribution of such Underlying Shares and/or Restricted Shares, an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances then existing.
-11-
Section 7.4 Conditions to Required Registration. The Company shall not be
required to register or effect any registration or qualification of Underlying
Shares and/or Restricted Shares pursuant to Section 7.3:
(a) more than two (2) times, provided that no registration shall be
included as a demand registration pursuant to this Section 7.4(a) until such
time, if any, as the registration statement filed in connection therewith shall
be declared effective; provided further that no registration subject to a
Cutback Determination shall be included as a demand registration pursuant to
this Section 7.4(a);
(b) unless there shall have elapsed after a previous registration of
Underlying Shares and/or Restricted Shares pursuant to Section 7.3, or after a
registration of other shares in which the Holders of the Underlying Shares or
Restricted Shares could participate pursuant to Section 7.5, a period of 120
days or such longer period, not to exceed 180 days, as the managing underwriter
in any such registration shall have determined to be necessary or desirable in
light of then current market conditions; and
(c) unless the request therefor is to register at least 51% of the
aggregate number of Underlying Shares and Restricted Shares not theretofore
registered pursuant to Section 7.3 or Section 7.5.
Section 7.5 Incidental Registrations. The Company agrees that at any time
it proposes to register any of its Common Shares in a primary or secondary
offering under the Securities Act (otherwise than pursuant to Section 7.3) on
Form S-3 or any other form of registration statement (other than Form S-4 or
Form S-8) then available for the registration under the Securities Act, it will
give timely written notice to all Holders of outstanding Warrants and Restricted
Shares of its intention so to do and upon the written request of the Holder of
any such Warrants or Restricted Shares, given within 30 days after receipt of
any such notice from the Company, the Company will in each instance; subject to
the next paragraph of this Section 7.5, use its best efforts to cause all
Underlying Shares or Restricted Shares requested to be included in such
registration by any such requesting Holder to be registered under the Securities
Act and registered or qualified under any state securities laws, all to the
extent necessary to permit the sale or other disposition thereof in the manner
stated in such request by the prospective seller of the Securities so
registered. Nothing in this Section 7.5 shall be deemed to require the Company
to proceed with any registration of its Common Shares after giving the notice
herein provided. Registration pursuant to this Section 7.5 shall, to the extent
applicable, be in accordance with, and subject to the provisions of, the
"Registration Procedures" set forth in Section 7.3(b).
If the managing underwriter engaged by the Company in connection with an
underwritten public offering of such Common Shares proposed for registration
under this Section 7.5 determines in good faith and for valid business reasons
that registration of such Underlying Shares or Restricted Shares would have an
adverse effect on the marketability or the price of such offering (an
"Incidental Cutback Determination"), such managing underwriter shall give prompt
written notice of such Incidental Cutback Determination to such requesting
Holder or Holders. In such event the Company, upon written notice to the Holders
of such Underlying Shares or Restricted Shares, shall have the right to limit
such Underlying Shares or such
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Restricted Shares to be registered, if any, to the largest number which would
not result in such adverse effect on marketability or the price of such offering
(such limitation being applied to each such requesting Holder of Underlying
Shares or Restricted Shares pro rata in respect of the number of shares subject
to such request); provided that, if Common Shares of the Company held by any
Person other than the Purchaser and its permitted transferees are to be included
in such underwritten public offering pursuant to so-called "demand" or
"piggy-back" rights given to such other Person, such reduction in the number of
Underlying Shares or Restricted Shares (treating all such shares as one class of
Securities for this purpose) shall be only after the exclusion of all equity
instruments proposed to be included by such other Person pursuant to so-called
"demand" or "piggy-back" rights.
Section 7.6 Underwritten Offerings. If the intended method of distributing
the Underlying Shares and/or Restricted Shares to be included in a registration
pursuant to Section 7.3 or Section 7.5 is an underwritten public offering, then
the Company shall select the managing underwriter(s) for such offering, subject
in the case of a registration pursuant to Section 7.3 to the written consent of
the Holders of at least a majority of the Underlying Shares and/or Restricted
Shares to be included in such registration, which consent shall not be
unreasonably withheld. Each Holder of Underlying Shares and/or Restricted Shares
to be included in a registration pursuant to Section 7.3 or Section 7.5 which is
an underwritten public offering shall enter into an underwriting agreement,
custody agreement and power of attorney in such forms as the managing
underwriter(s) and the Company shall reasonably request, which shall in no event
contain indemnity or contribution provisions inconsistent with the provisions of
Section 7.8, provided that in the case of a registration pursuant to Section 7.3
such agreements and documents are in customary form and substance or reasonably
acceptable to the Holders of a majority of said Underlying Shares and/or
Restricted Shares. Each Holder of the Warrants or Restricted Shares shall
refrain from selling Warrants or Restricted Shares for a period not to exceed 90
days from the date of the public offering or if such offering is an underwritten
distribution such longer period, not to exceed 180 days, as the managing
underwriter in such registration shall have determined to be necessary or
desirable in light of then current market conditions, any Underlying Shares or
Restricted Shares which are not included in registration pursuant to Section 7.3
or Section 7.5.
Section 7.7 Expenses; Reliance. The Company shall pay all expenses (other
than the expenses of underwriters), including, without limitation, registration
fees, qualification fees, legal expenses (including the reasonable fees and
expenses of one counsel to the Holders of the Warrants or Restricted Shares
whose Underlying Shares or Restricted Shares are being registered), printing
expenses and the costs of special audits, if any, and "cold comfort" letters in
connection with the registration and qualification, notification or exemption
requested by any Holder or Holders of Warrants or Restricted Shares pursuant to
Section 7.3 and Section 7.5. In addition, the Company shall pay the expenses of
underwriters (excluding underwriting discounts and commissions, but including
the reasonable fees and expenses of any necessary special experts) in connection
with the registration and qualification, notification or exemption requested by
any Holder or Holders of Warrants or Restricted Shares pursuant to Section 7.3
and Section 7.5. The Holders of the Underlying Shares and/or Restricted Shares
shall be responsible for applicable transfer taxes, brokerage commissions and
their pro rata share of the underwriting
-13-
discounts and commissions in connection with any registration requested by any
Holder or Holders of Warrants or Restricted Shares pursuant to Section 7.3 or
Section 7.5.
Section 7.8 Indemnification and Contribution.
(a) In connection with any registration, qualification,
notification, or exemption of Securities under Section 7.3 or Section 7.5, the
Company hereby indemnifies each Holder of the Warrants, Underlying Shares and/or
Restricted Shares, including each Person, if any, who controls each such Holder
within the meaning of Section 15 of the Securities Act, against all losses,
claims, damages and liabilities (including, without limitation, any liability of
any such Holder or Person to any underwriter participating in any such
registration, qualification, notification or exemption) caused by any untrue, or
alleged untrue, statement of a material fact contained in any registration
statement or prospectus or notification or offering circular (and as amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto) or any preliminary prospectus or caused by any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
losses, claims, damages or liabilities are caused by any untrue statement or
alleged untrue statement or omission or alleged omission based upon information
furnished in writing to the Company by such Holder expressly for use therein,
and the Company and each officer, director and controlling Person of the Company
shall be indemnified by each Holder of the Underlying Shares and/or Restricted
Shares for all such losses, claims, damages and liabilities caused by any untrue
statement or alleged untrue statement or omission or alleged omission based upon
information furnished in writing to the Company by each such Holder thereof
expressly for any such use; provided, however, that the liability of any such
Holder for indemnification under this Section 7.8 shall not exceed the gross
proceeds from the sale of such Holder's Warrants, Underlying Shares or
Restricted Shares. The foregoing is subject to the condition that, insofar as it
relates to any untrue statement, alleged untrue statement or omission or alleged
omission made in any preliminary prospectus but eliminated or remedied in the
final prospectus (or in any amendment or supplement thereto), the indemnity of
the Company shall not inure to the benefit of any underwriter or Holder from
whom the Person asserting any loss, claim or damage purchased the Underlying
Shares and/or Restricted Shares which were the subject thereof (or to the
benefit of any Person who controls such underwriter), if a copy of the final
prospectus (or such amendment or supplement thereto) was not sent or given to
such Person at or prior to the time such action is required by the Securities
Act.
(b) Promptly upon receipt by a party indemnified under this Section
7.8 of notice of the commencement of any action against such indemnified party
in respect of which indemnity or reimbursement may be sought against any
indemnifying party under this Section 7.8, such indemnified party shall notify
the indemnifying party in writing of the commencement of such action, but the
failure so to notify the indemnifying party shall not relieve it of any
liability which it may have to any indemnified party (i) under this Section 7.8
except to the extent that the indemnifying party is materially prejudiced by
such failure to notify, or (ii) otherwise than under this Section 7.8. In case
notice of commencement of any such action of shall be given to the indemnifying
party as above provided, the indemnifying party shall be entitled to participate
in and, to the extent it may wish, jointly with any other indemnifying party
-14-
similarly notified, to assume the defense of such action at its own expense,
with counsel chosen by it and satisfactory to such indemnified party. The
indemnified party shall have the right to employ separate counsel in any such
action and participate in the defense thereof, and the fees and expenses of such
counsel shall be paid by the indemnified party.
(c) If the indemnification provided for in this Section 7.8 from the
indemnifying party is unavailable to an indemnified party hereunder in respect
of any losses, claims, damages, liabilities or expenses to which such
indemnified party would be otherwise entitled under Section 7.8(a), then the
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities or expenses in such proportion as
is appropriate to reflect the relative fault of the indemnifying party and
indemnified parties in connection with the actions which resulted in such
losses, claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative fault of such indemnifying party and
indemnified parties shall be determined by reference to, among other things,
whether any action in question, including any untrue or alleged untrue statement
of a material fact or omission or alleged omission to state a material fact, has
been made by, or relates to information supplied by, such indemnifying party or
indemnified parties, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action. The amount paid
or payable by a party as a result of the losses, claims, damages, liabilities
and expenses referred to above shall be deemed to include any legal or other
fees or expenses reasonably incurred by such party in connection with any
investigation or proceeding. In no event shall any Holder of Warrants,
Underlying Shares or Restricted Shares be required to contribute an amount
greater than the dollar amount of the proceeds received by such Person with
respect to the sale of any Warrants, Underlying Shares or Restricted Shares.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 7.8(c) were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
No Person guilty of fraudulent misrepresentation (within the meaning of Section
11 (f) of the Securities Act) shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation.
(d) The indemnification and contribution provided for in this
Section 7.8 shall survive, with respect to a Holder of Underlying Shares of
Restricted Shares, the transfer of Underlying Shares or Restricted Shares by
such Holder and with respect to a Holder of Underlying Shares or Restricted
Shares, shall remain in full force and effect regardless of any investigation
made by or on behalf of any indemnified party.
(e) In connection with any registration pursuant to Section 7.3 or
Section 7.5, the Company agrees, and each Holder of Warrants or Restricted
Shares (other than any such Holder which shall have executed and delivered a
counterpart of this Agreement) by acceptance of such Warrants, or Restricted
Shares, agrees that it will enter into an agreement containing substantially the
indemnification provisions of this Section 7.8.
-15-
Section 7.9 Additional Registration Rights. The Company shall not grant to
any Person at any time after the date hereof the right to request the Company to
effect the registration or qualification or filing for exemption under
applicable Federal or state securities laws of any Securities of the Company
unless the agreement or agreements providing for such rights specifically
provide that the holders of such rights ("Third Party Rights") (i) may not
participate in any registration requested pursuant to Section 7.3 unless the
underwriters of the distribution confirm that the inclusion of the Securities
proposed to be included pursuant to said Third Party Rights will not have an
adverse effect on the marketability or price of the offering pursuant to the
registration under Section 7.3 hereof and (ii) shall not exercise so-called
"demand" or "piggyback" rights except on a junior and subordinate basis to the
rights granted under Section 7.5 hereof. In addition to, and not in limitation
of, the foregoing, the Company shall not grant to any Person registration rights
which are more advantageous to such Person than the registration rights afforded
hereunder.
Section 7.10 Restrictive Legends. Each Warrant initially issued and each
Warrant issued in exchange therefor shall, unless otherwise permitted by the
provisions of this Section 7.10, bear on the face thereof a legend reading
substantially as follows:
"This Warrant and the Common Shares issuable upon exercise hereof
have not been registered or qualified for sale under the Securities
Act of 1933, as amended, or any state securities laws and may not be
offered for sale, sold or otherwise transferred unless such offer,
sale or transfer is registered or qualified pursuant to the
registration requirements of such Securities Act and any applicable
state securities laws, or is preceded by an opinion of counsel
addressed to The Allied Defense Group, Inc. that such sale or other
transfer is exempt from all such registration requirements. This
Warrant and the Common Shares issuable upon exercise hereof are
subject to the terms and provisions specified in the Warrant
Agreement dated as of May 28, 2004 between The Allied Defense Group,
Inc. and Wilton Funding, LLC."
Each certificate for Common Shares of the Company initially issued upon
the exercise of any Warrant and each certificate for Common Shares of the
Company issued to a subsequent transferee of such certificate shall, unless
otherwise permitted by the provisions of this Section 7.10, bear on the face
thereof a legend reading substantially as follows:
"The shares represented by this certificate have not been registered
under the Securities Act of 1933, as amended, or any state
securities laws and may not be sold or transferred in the absence of
such registration unless such sale or transfer is preceded by an
opinion of counsel addressed to The Allied Defense Group, Inc. that
such sale or other transfer is exempt from a registration
requirements of said Securities Act and any such state securities
laws which may be applicable and are subject to of the terms and
provisions specified in that certain Warrant Agreement dated as of
-16-
May 28, 2004 between The Allied Defense Group, Inc. and Wilton
Funding, LLC."
In the event that a registration statement covering Underlying Shares or
Restricted Shares shall become effective under the Securities Act and under any
applicable state securities laws or in the event that the Company shall receive
an opinion of its counsel (or, at the Company's election, nationally recognized
counsel to a Holder) that, in the opinion of such counsel, such legend is not,
or is no longer, necessary or required (including, without limitation, because
of the availability of the exemptions afforded by Rule 144 of the General Rules
and Regulations of the Commission), the Company shall, or shall instruct its
transfer agents and registrars to, remove such legend from the Warrants and
certificates evidencing Restricted Shares or issue new Warrants and certificates
without such legend in lieu thereof. Upon the written request of the Holder or
Holders of any Warrants or any Restricted Shares, the Company covenants and
agrees forthwith to request its counsel to render an opinion with respect to the
matters covered by this Section 7.10 and to bear all reasonable expenses in
connection with any opinion of counsel contemplated hereinabove.
Section 7.11 Miscellaneous. The Company shall comply with all reporting
requirements set forth or referred to in Rule 144 promulgated under the
Securities Act and shall do all such other things as may be reasonably necessary
to permit the expeditious sale at any time of any Warrants, Restricted Shares or
Underlying Shares by the Holder thereof in accordance with and to the extent
permitted by said Rule 144 or any other similar Rule or Rules promulgated by the
Commission from time to time.
SECTION 8. REDEMPTION OF WARRANTS AND/OR RESTRICTED SHARES.
Section 8.1 Redemption. The Warrants and Underlying Shares and Warrant
Shares are not and shall not be redeemable.
SECTION 9. LOST, STOLEN WARRANTS, ETC.
In case any Warrant shall be mutilated, lost, stolen or destroyed, the
Company shall issue a new Warrant of like date, tenor and denomination and
deliver the same in exchange and substitution for and upon surrender and
cancellation of the mutilated Warrant, or in lieu of the lost, stolen or
destroyed Warrant, upon receipt of evidence satisfactory to the Company of the
loss, theft or destruction of such Warrant, and upon receipt of indemnity
satisfactory to the Company (which, in the case of the Purchaser, shall consist
of its unsecured agreement to indemnify the Company for a loss in connection
with such loss, theft or destruction of such Warrant).
-17-
SECTION 10. PROTECTIVE PROVISIONS.
The Company will not, without the written consent of the Majority Holders:
(i) be bound by or subject to (or permit the Company to be
bound by or subject to) any debt or other agreement (other than the Loan
Agreement) which restricts the right or ability of the Company to perform its
obligations hereunder or under the Warrants; or
(ii) amend the terms of the Common Shares or otherwise amend
or change its certificate of incorporation or bylaws (each as currently amended
and/or restated) in a manner which could materially and adversely affect this
Agreement, the Warrants, the Warrant Shares or the rights of any Holder of any
of the foregoing or violate any of the terms or provisions hereof or thereof.
SECTION 11. INDEX AND CAPTIONS.
The index and the descriptive headings of the various sections of this
Agreement are for convenience only and shall not affect the meaning or
construction of the provisions hereof.
SECTION 12. MISCELLANEOUS
Section 12.1 Notices. All notices and communications provided for
hereunder shall be in writing and sent (a) by telecopy if the sender on the same
day sends a confirming copy of such notice by a recognized overnight delivery
service (charges prepaid), or (b) by registered or certified mail with return
receipt requested (postage prepaid), or (c) by a recognized overnight delivery
service (specifying next business day delivery, with charges prepaid). Any such
notice must be sent:
(i) if to the Purchaser or its nominee, to the Purchaser at
the address specified for such communications in the Loan Agreement, or at such
other address as the Purchaser shall have specified to the Company in writing;
(ii) if to a Holder (other than the Purchaser), to such Holder
at its or his address appearing on the records of the Company or such other
address as such Holder shall have specified to the Company in writing; or
(iii) if to the Company, at 0000 Xxxxxx Xxxxxxxx Xxxxx, Xxxxx
000, Xxxxxx, Xxxxxxxx 00000 or to such other address as the Company may
designate to the Holders in writing. Notices under this Section 12.1 will be
deemed given only when actually received.
Section 12.2 Successors and Assigns. This Agreement shall be binding upon
the Company and its respective successors and assigns and shall inure to the
benefit of the Purchasers and their successors and permitted assigns, including
each successive Holder.
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Section 12.3 Severability. Should any part of this Agreement for any
reason be declared invalid or unenforceable, such decision will not affect the
validity or enforceability of any remaining portion, which remaining portion
will remain in force and effect as if this Agreement had been executed with the
invalid or unenforceable portion thereof eliminated and it is hereby declared
the intention of the parties hereto that they would have executed the remaining
portion of this Agreement without including therein any such part or portion
which may, for any reason, be hereafter declared invalid or unenforceable.
Section 12.4 Headings; Governing Law. The descriptive headings of the
several sections of this Agreement are inserted for convenience only and do not
constitute a part of this Agreement. This Agreement shall be construed and
enforced in accordance with, and the rights of the parties shall be governed by,
the law of the State of New York excluding choice-of-law principles of the law
of such State that would require the application of the laws of a jurisdiction
other than such state.
Section 12.5 Amendment and Waiver. Except as otherwise provided herein,
the provisions of this Agreement and the Warrants may be amended and the Company
may take any action herein prohibited, or omit to perform any act herein
required to be performed by it, only if the Company has obtained the prior
written consent of the Majority Holders; provided that no such action may change
the number of shares or class of stock obtainable upon exercise of each Warrant
or the Exercise Price therefor or the provisions of Section 8 without the
consent of the holders of at least 75% of the Underlying Shares and the Warrant
Shares.
-19-
The execution hereof by the undersigned shall constitute a contract as of
the date first above written between the Company and the Purchaser for the uses
and purposes hereinabove set forth. This Agreement may be executed in any number
of counterparts, each executed counterpart constituting an original but all
together only one agreement.
PURCHASER: COMPANY:
---------- --------
WILTON FUNDING, LLC, THE ALLIED DEFENSE GROUP, INC.,
a Delaware limited liability company a Delaware corporation
By:_______________________________ By:______________________________
Name:_____________________________ Name:____________________________
Title:____________________________ Title:___________________________
-20-
EXHIBIT A
FORM OF WARRANT
WARRANT
================================================================================
This Warrant and the Common Shares issuable upon exercise hereof have not
been registered or qualified for sale under The Securities Act of 1933, as
amended, or any state securities laws and may not be offered for sale, sold or
otherwise transferred unlEss such offer, sale or transfer is registered or
qualified pursuant to the registration requirements of such Act and any
applicable state securities laws, or is preceded by an opinion of counsel
addressed to THE ALLIED DEFENSE GROUP, INC. that such sale or other transfer is
exempt from all such registration requirements.] This Warrant and the Common
Shares issuable upon exercise hereof are subject to the terms and provisions
specified in the Warrant Agreement dated as of MAY 28, 2004 BETWEEN THE ALLIED
DEFENSE GROUP, INC. AND WILTON FUNDING, LLC.
No. [__________]
Warrant to Purchase
Common Shares
of
THE ALLIED DEFENSE GROUP, INC.
================================================================================
Table of Contents
Section Heading Page
------- ------- ----
SECTION 1. EXERCISE OF WARRANT....................................................1
SECTION 2. RESERVATION............................................................2
SECTION 3. PROTECTION AGAINST DILUTION............................................2
Section 3.1 Stock Dividends; Subdivision or Combination of Common Shares...........2
Section 3.2 [Reserved].............................................................3
Section 3.3 Adjustment of Per Share Warrant Price..................................3
Section 3.4 Adjustments to be Made Successively....................................3
Section 3.5 Consideration..........................................................3
Section 3.6 Certificates...........................................................3
SECTION 4. MERGERS, CONSOLIDATIONS, SALES.........................................3
SECTION 5. DISSOLUTION OR LIQUIDATION.............................................4
SECTION 6. NOTICE OF EXTRAORDINARY DIVIDENDS......................................4
SECTION 7. FRACTIONAL SHARES......................................................5
SECTION 8. FULLY PAID STOCK; TAXES................................................5
SECTION 9. CLOSING OF TRANSFER BOOKS..............................................5
SECTION 10. PARTIAL EXERCISE AND PARTIAL ASSIGNMENT................................5
Section 10.1 Partial Exercise.......................................................5
Section 10.2 Assignment.............................................................5
SECTION 11. DEFINITIONS............................................................6
SECTION 12. WARRANT HOLDER NOT STOCKHOLDER.........................................7
SECTION 13. SEVERABILITY...........................................................7
SECTION 14 GOVERNING LAW..........................................................7
No. [__________]
Warrant to Purchase
Common Shares
of
THE ALLIED DEFENSE GROUP, INC.
This is to certify that, for value received and subject to the provisions
hereinafter set forth,
[________________________________]
or its permitted assigns,
is entitled to purchase from THE ALLIED DEFENSE GROUP, INC., a Delaware
corporation (the "Company"), at any time and from time to time after the
expiration of the Draw Period (as defined in the Loan Agreement) and on or
before the Expiration Date, [_____________] Common Shares of the Company
(representing approximately [___]% of the Fully Diluted Outstanding Shares as of
the date hereof), subject to the terms, provisions and conditions hereinafter
set forth, at a price of $0.01 per Common Share, for an aggregate price equal to
$[________] (the "Aggregate Warrant Price").
The Aggregate Warrant Price of the Common Shares subject to purchase
hereunder shall be equal to the product of the price per share multiplied by the
number of Common Shares initially purchasable hereunder. The Aggregate Warrant
Price is not subject to adjustment. The price per share is, however, subject to
adjustment as hereinafter provided (such price, or such price as last adjusted,
as the case may be, being herein referred to as the "per share Warrant Price").
The number of Common Shares purchasable hereunder is likewise subject to
adjustment as hereinafter provided.
The terms which are capitalized herein shall have the meanings specified
in Section 11 unless the context shall otherwise require.
SECTION 1. EXERCISE OF WARRANT.
Subject to the conditions hereinafter set forth, this Warrant may be
exercised in whole or in part at any time and from time to time after the
expiration of the Draw Period and on or prior to the Expiration Date by the
surrender of this Warrant (with the subscription form at the end hereof duly
executed) at the principal office of the Company in Vienna, Virginia (or at such
other office of the Company as may be designated by the Company in a written
notice to the holder hereof) and upon payment to the Company of the Aggregate
Warrant Price (or, if exercised in part, upon payment of a proportionate part
thereof) for the shares so purchased,
which payment shall be made, at the option of the holder hereof, (i) by the wire
transfer or other delivery to the Company of cash or other Immediately Available
Funds to the Company or (ii) by authorizing the Company to withhold from
issuance a number of Common Shares issuable hereunder which when multiplied by
the Current Market Price of such Common Shares is equal to the Aggregate Warrant
Price (or, if this Warrant is exercised in part, a proportionate part thereof)
(and such withheld shares shall no longer be issuable under this Warrant).
If this Warrant is exercised in respect of less than all of the Common
Shares at the time purchasable hereunder, the holder hereof shall be entitled to
receive a new Warrant covering the number of shares in respect of which this
Warrant shall not have been exercised (adjusted in accordance with Section 3(b),
if applicable) and setting forth the Aggregate Warrant Price applicable to such
shares.
This Warrant and all rights and options hereunder shall expire to the
extent that it has not been exercised on or before the Expiration Date.
The Company shall pay all reasonable expenses, stamp, documentary and
transfer taxes and other charges payable in connection with the preparation,
execution and delivery of stock certificates pursuant to this Section,
regardless of the name or names in which such stock certificates shall be
registered.
SECTION 2. RESERVATION.
The Company will at all times reserve and keep available such number of
authorized Common Shares, solely for the purpose of issue upon the exercise of
the rights represented by this Warrant as herein provided for, as may at any
time be issuable (based upon the number of Common Shares outstanding at any such
time on a fully diluted basis) upon the exercise of this Warrant.
SECTION 3. PROTECTION AGAINST DILUTION.
The provisions of this Section 3 do not and are expressly not intended to
permit or contemplate the issuance of equity prohibited by the provisions of
this Warrant or the Warrant Agreement, including, without limitation, Section 10
of the Warrant Agreement. The per share Warrant Price and the number of shares
deliverable hereunder shall be adjusted from time to time as hereinafter set
forth.
Section 3.1. Stock Dividends; Subdivision or Combination of Common Shares.
In the event that the Company shall at any time after the Closing Date:
(a) make a distribution on the Common Shares in shares;
(b) split or subdivide the outstanding Common Shares; or
(c) combine the outstanding Common Shares into a smaller number of
shares,
-2-
this Warrant shall thereafter entitle the holder hereof to own or receive the
aggregate number and kind of shares that, if this Warrant had been exercised
immediately prior to such time, the holder hereof would have owned or have
become entitled to receive by virtue of such distribution, split, subdivision or
combination.
Section 3.2 [Reserved.]
Section 3.3 Adjustment of Per Share Warrant Price. Upon each adjustment
pursuant to this Section 3 to the number of Common Shares issuable under this
Warrant, the per share Warrant Price shall be adjusted to equal the product of:
(a) the per share Warrant Price immediately prior to such adjustment;
multiplied by
(b) a fraction of which:
(i) the numerator is the number of Common Shares issuable under this
Warrant immediately prior to such adjustment; and
(ii) the denominator is the number of Common Shares issuable under
this Warrant immediately after the adjustment.
Section 3.4 Adjustments to be Made Successively. Any adjustment pursuant
to this Section 3, shall be made successively whenever an event referred to
herein shall occur.
Section 3.5 Consideration. All grants or issuances of options or other
rights to acquire Common Shares (or securities convertible into or exchangeable
for Common Shares) under or pursuant to a management stock option, stock
purchase or other incentive or employee benefit plan, and all issuances of
Common Shares (or securities convertible into or exchangeable for Common Shares)
under or pursuant to such a plan or upon exercise of such options or other
rights (or conversion or exchange of such convertible or exchangeable
securities) shall, for purposes of Section 3(b), be deemed to be granted and
issued for no consideration except to the extent cash is paid therefor.
Section 3.6 Certificates. Upon any adjustment of the number of shares
purchasable upon exercise of this Warrant pursuant to this Section 3, the
Company shall promptly but in any event within twenty (20) days thereafter,
cause to be given to the holder of this Warrant at its address in accordance
with the notice provisions contained in the Warrant Agreement, a certificate
signed by its chairman, chief executive officer or chief financial officer
setting forth the number of shares purchasable upon exercise of this Warrant as
so adjusted and describing in reasonable detail the facts accounting for such
adjustment and the method of calculation used.
SECTION 4. MERGERS, CONSOLIDATIONS, SALES.
In the case of any consolidation or merger of the Company with another
entity, or the sale of all or substantially all of its assets to another entity,
or any reorganization, recapitalization or
-3-
reclassification of the Common Shares or other equity securities of the Company,
then, as a condition of such consolidation, merger, sale, reorganization,
recapitalization or reclassification, lawful and adequate provision shall be
made whereby the holder of this Warrant shall thereafter have the right to
receive upon the basis and upon the terms and conditions specified herein and in
lieu of the Common Shares immediately theretofore purchasable hereunder, such
shares of stock, securities or assets as may (by virtue of such consolidation,
merger, sale, reorganization or reclassification) be issued or payable with
respect to or in exchange for a number of outstanding Common Shares equal to the
number of Common Shares immediately theretofore so purchasable hereunder had
such consolidation, merger, sale, reorganization, recapitalization or
reclassification not taken place. In any such case, appropriate provisions shall
be made with respect to the rights and interests of the holder of this Warrant
to the end that the provisions hereof shall thereafter be applicable, as nearly
as may be, in relation to any shares of stock, securities or assets thereafter
deliverable upon exercise of this Warrant. The Company shall not effect any such
consolidation, merger or sale, unless prior to or simultaneously with the
consummation thereof, the successor entity (if other than the Company) resulting
from such consolidation or merger or the entity purchasing such assets shall
assume by written instrument executed and mailed or delivered to the holder of
this Warrant, the obligation to deliver to such holder such shares of stock,
securities or assets as, in accordance with the foregoing provisions, such
holder may be entitled to receive.
SECTION 5. DISSOLUTION OR LIQUIDATION.
In the event of any proposed distribution of the assets of the Company in
dissolution or liquidation except under circumstances when the foregoing Section
4 shall be applicable, the Company shall mail notice thereof to the holder of
this Warrant and shall make no distribution to stockholders until the expiration
of thirty (30) days from the date of mailing of the aforesaid notice and, in any
such case, the holder of this Warrant may exercise the purchase rights with
respect to this Warrant within thirty (30) days from the date of mailing such
notice and all rights herein granted not so exercised within such thirty (30)
day period shall thereafter become null and void.
SECTION 6. NOTICE OF EXTRAORDINARY DIVIDENDS.
If the Board of Directors of the Company proposes to declare any dividend
or other distribution on its Common Shares, except by way of a stock dividend
payable on its Common Shares and except as permitted by Section 10 of the
Warrant Agreement, the Company shall mail notice thereof to the holder of this
Warrant as soon as possible (such notice being referred to as the "Distribution
Notice"). The Company shall not fix a record date until the lapse of a 30-day
period beginning on the date of delivery of the Distribution Notice. The holder
of this Warrant shall not participate in such dividend or other distribution or
be entitled to any rights on account or as a result thereof unless and to the
extent that this Warrant is exercised prior to such record date. The provisions
of this paragraph shall not apply to distributions made in connection with
transactions covered by Section 4.
-4-
SECTION 7. FRACTIONAL SHARES.
Fractional shares shall not be issued upon the exercise of this Warrant.
Any reference contained herein or in the Warrant Agreement to Warrant Shares or
Common Shares shall be deemed to include whole shares only, it being understood
and agreed that any fractional shares shall be rounded up to the next whole
number.
SECTION 8. FULLY PAID STOCK; TAXES.
The Company covenants and agrees that the shares of stock represented by
each and every certificate for its Common Shares to be delivered on the exercise
of the purchase rights and the payment of the applicable purchase price herein
provided for shall, at the time of such delivery, be validly issued and
outstanding and be fully paid and nonassessable. The Company further covenants
and agrees that it will pay when due and payable any and all Federal and State
taxes (other than income taxes) which may be payable in respect of this Warrant
or any Common Shares or certificates therefor upon the exercise of the rights
herein and in the Warrant Agreement provided for pursuant to the provisions
hereof and thereof. The Company shall not, however, be required to pay any tax
which may be payable solely in respect of any transfer and delivery of stock
certificates in a name other than that of the holder exercising this Warrant,
and any such tax shall be paid by such holder at the time of presentation.
SECTION 9. CLOSING OF TRANSFER BOOKS.
The right to exercise this Warrant shall not be suspended during any
period that the stock transfer books of the Company for its Common Shares may be
closed. The Company shall not be required, however, to deliver certificates of
its Common Shares upon such exercise while such books are duly closed for any
purpose, but the Company may postpone the delivery of the certificates for such
Common Shares until the opening of such books, and they shall, in such case, be
delivered forthwith upon the opening thereof, or as soon as practicable
thereafter.
SECTION 10. PARTIAL EXERCISE AND PARTIAL ASSIGNMENT.
Section 10.1 Partial Exercise. If this Warrant is exercised in part only,
the holder hereof shall surrender this Warrant upon such exercise and shall
receive a new Warrant, registered in the name of the holder or its nominee and
setting forth a new number of shares in respect of which this Warrant shall not
have been exercised as provided for in Section 1 and a new Aggregate Warrant
Price in the first paragraph of page one hereof, which shall be proportionately
adjusted to reflect such partial exercise.
Section 10.2 Assignment. (a) Subject to the conditions set forth in
Section 10.2(b) hereof, this Warrant may be assigned either in whole or in part
by surrender of this Warrant at the principal office of the Company in Vienna,
Virginia (with the assignment or, as the case may be, partial assignment form at
the end hereof duly executed). If this Warrant is being assigned in whole and
the holder hereof previously has not partially exercised this Warrant, the
assignee shall receive a new Warrant (registered in the name of such assignee or
its nominee), which new Warrant shall cover the number of shares assigned and
the Aggregate Warrant Price applicable to
-5-
such shares. If this Warrant is being assigned in part and the holder hereof
previously has not partially exercised this Warrant, the assignor and assignee
shall each receive a new Warrant (which, in the case of the assignee, shall be
registered in the name of the assignee or its nominee), each of which new
Warrants shall cover the number of shares not so assigned and the number of
shares so assigned, respectively, and in each case setting forth the
proportionate Aggregate Warrant Price applicable to such shares. If this Warrant
is being assigned in whole and the holder hereof previously has partially
exercised this Warrant, the assignee shall receive a new Warrant (registered in
the name of such assignee or its nominee), which new Warrant shall cover the
number of shares so assigned and set forth the proportionate Aggregate Warrant
Price applicable to such assigned shares. If this Warrant is being assigned in
part and the holder hereof previously has partially exercised this Warrant, the
assignor and assignee shall each receive a new Warrant (which, in the case of
the assignee, shall be registered in the name of the assignee or its nominee),
each of which new Warrants shall cover the number of shares not so assigned and
in respect of which no such exercise has been made in the case of the assignor
and the number of shares so assigned in the case of the assignee, and in each
case setting forth the proportionate Aggregate Warrant Price applicable to such
shares.
(b) Neither this Warrant nor any Warrant Shares may be sold, assigned or
otherwise transferred except in accordance with the terms of the Warrant
Agreement.
SECTION 11. DEFINITIONS.
Terms not otherwise defined herein shall have the respective meanings
assigned thereto in the Warrant Agreement or the Loan Agreement, as applicable.
In addition to the terms defined elsewhere in this Warrant and in the Warrant
Agreement, the following terms have the following respective meanings:
"Aggregate Warrant Price" shall mean, as of the date of any determination,
the amount then so designated on the first page of this Warrant.
"Distribution Notice" is defined in Section 6 hereof.
"Exempted Securities" shall mean (i) Warrants, (ii) Warrant Shares and
(iii) Common Shares issued as a dividend described in Section 3.1(a).
"Exercise Date" shall mean a date on which this Warrant is exercised.
"Expiration Date" shall mean from and after 5:00 p.m. New York City time
on May 28, 2012 (being the eighth anniversary of the Closing Date).
"Warrant Agreement" shall mean that certain Warrant Agreement dated as of
May 28, 2004 between the Company and Wilton Funding, LLC, as amended or modified
from time to time in accordance with the terms thereof.
-6-
SECTION 12. WARRANT HOLDER NOT STOCKHOLDER.
This Warrant does not confer upon the holder hereof any right to vote or
to consent or to receive notice as a stockholder of the Company, as such, in
respect of any matters whatsoever, or any other rights or liabilities as a
stockholder, prior to the exercise hereof as hereinbefore provided.
SECTION 13. SEVERABILITY.
Should any part of this Warrant for any reason be declared invalid or
unenforceable, such decision shall not affect the validity or enforceability of
any remaining portion, which remaining portion shall remain in force and effect
as if this Warrant had been executed with the invalid or unenforceable portion
thereof eliminated, and it is hereby declared the intention of the parties
hereto that they would have executed and accepted the remaining portion of this
Warrant without including therein any such part, parts or portion which may, for
any reason, be hereafter declared invalid or unenforceable.
SECTION 14. GOVERNING LAW.
This Agreement shall be construed and enforced in accordance with, and the
right of the parties shall be governed by, the law of the State of NEW YORK
(excluding choice-of-law principles of the law of such State that would require
the application of the laws of a jurisdiction other than such State).
In Witness Whereof, the Company has caused this Warrant to be signed by
its undersigned duly authorized officer and to be dated as of May 28, 2004.
THE ALLIED DEFENSE GROUP, INC.,
a Delaware corporation
By:____________________________
Name:__________________________
Title:_________________________
-7-
SUBSCRIPTION
_____________________________
The undersigned, _______________________, pursuant to the provisions of
the within Warrant, hereby elects to purchase __________ Common Shares pursuant
to the attached Warrant.
Signature:_________________
Address:___________________
Dated:____________
ASSIGNMENT
For Value Received _________________________ hereby sells, assigns and
transfers unto ____________________ the within Warrant and all rights evidenced
thereby and does irrevocably constitute and appoint ________________, attorney,
to transfer the said Warrant on the books of _______________________________.
Signature:_________________
Address:___________________
Dated:____________
PARTIAL ASSIGNMENT
For Value Received ______________________ hereby sells, assigns and
transfers unto __________________________ that portion of the within Warrant and
the rights evidenced thereby which will on the date hereof entitle the holder to
purchase _______ Common Shares of ____________________ and irrevocably
constitutes and appoints ________________________, attorney, to transfer that
part of the said Warrant on the books of ____________________________.
Signature:_________________
Address:___________________
Dated:____________
Exhibit 4A to
Loan and Security Agreement
List of Closing Documents for Initial Advance
1. This Loan and Security Agreement
2. Promissory Note
3. Deposit Account Security Agreement, Control Agreements and an account
statement from the Wachovia Bank listing the Collateral pledged thereunder
4. Pledge Agreement of Domestic Borrowers together with any stock
certificates that would be "Collateral" as defined therein and together
with stock powers in blank for any such stock certificates
5. Certified Directors' Resolutions for each Domestic Borrower
6. Certificates of Good Standing for each Domestic Borrower
7. Certified Articles and Bylaws for all Domestic Borrowers
8. UCC Searches for each Domestic Borrower as requested by Lender and its
counsel
9. UCC-1 Financing Statements for each Domestic Borrower, as determined by
Lender and its counsel
10. Payoff Letters, mortgage and lien releases and UCC termination statements
from any lien holder to be paid from proceeds of the Initial Advance
11. Bailee Letters (for locations as indicated on Exhibit 3B)
12. A General Opinion of Legal Counsel for each Domestic Borrower
13. [Intentionally Omitted]
14. Updated or additional Certificates of Insurance and Loss Payable
Endorsements
15. Fee Agreement
16. Warrant Agreement
17. Warrant to Purchase Common Stock of The Allied Defense Group, Inc.
-1-
Exhibit 4B to
Loan and Security Agreement
List of Closing Documents for Initial Working
Capital Advance/Acquisition Advance
1. Foreign Pledge Agreements for all shares of capital stock of ARC Ltd., ARC
Europe, MECAR and VSK Electronics
2. Certified Directors' Resolutions for ARC Ltd., ARC Europe, MECAR and VSK
Electronics
3. Certificates of Good Standing (or their foreign equivalent, if any) for
each Foreign Subsidiary
4. Certified Articles and Bylaws (or their foreign equivalent, if any) for
each Foreign Subsidiary
5. Incumbency Certificate for each Foreign Subsidiary that is a party to any
Financing Agreement
6. Legal opinions of foreign counsel relating to the Foreign Subsidiaries
that are parties to any Financing Agreement in form and content acceptable
to Lender and its counsel
7. Subordination Agreement with Subordinated Lender
-1-
Exhibit 4C to
Loan and Security Agreement
List of Closing Documents for Each Acquisition Advance
A. Due Diligence - At Least 5 Days Prior to Closing
1. Purchase Agreement
2. Exhibits and Schedules to Purchase Agreement and other Acquisition
Documents
B. Due Diligence - At Least 10 Business Days Prior to Closing
1. Organizational Documents of Target Company
2. Financial Statements of Target Company
- last three fiscal years
- current interim period
3. Pro Forma Balance Sheet required under Section 4.8(d)(ii)
4. Projections required under Section 4.8(d)(iii)
5. Offering Memoranda and Circulars, Business Plans and Other Materials
Provided by the Target Company or its owners, representatives,
agents, advisors or affiliates
6. Budgets, Forecasts, Projections, Appraisals, Valuations, Due
Diligence Memoranda, Studies and Reports relating to the Target
Company, any of its assets, liabilities, businesses or operations,
or the proposed Permitted Acquisition
C. Other Due Diligence - At Least 15 Days Prior to Closing
1. Any additional items noted under (A), above, or amendments,
modifications or supplements thereto
2. Employment Agreements
3. Lease Agreements
4. Government Contracts
5. Other Material Contracts
6. Intellectual Property
7. Other Special Collateral
8. Real Estate Title Insurance Commitments and Surveys
9. Environmental Reports
10. UCC, Tax, Judgment and Other Lien Searches
11. Other Due Diligence Materials (as requested by Lender)
12. Supplemental Disclosure Schedule
-1-
D. Permitted Acquisition Closing Documents
1. Xxxx of Sale; Deeds; Certificates of Title; Intellectual Property
Assignments; Assignment of Intangible Property; Certificate of
Merger; Stock Certificates; Stock Powers; Etc. (as applicable)
2. Closing Statement
3. Wire Transfer Instructions
4. Cross-Receipts
5. Buyer's Closing Certificate
6. Seller's Closing Certificate
7. Opinion of Buyer's Counsel (including express provisions permitting
Lender, its successors and assigns and any subsequent holder of the
Note or any Warrants to rely on the same)
8. Opinion of Seller's Counsel (including express provisions permitting
Lender, its successors and assigns and any subsequent holder of the
Note or any Warrants to rely on the same)
9. Buyer's Certified Director Resolutions and Incumbency Certificate
10. Seller's Certified Director Resolutions and Incumbency Certificate
11. Seller's/Target Company's Good Standing Certificate(s)
12. Buyer's Good Standing Certificate
13. Seller's/Target Company's Certified Articles of Incorporation and
Bylaws
14. Buyer's Certified Articles of Incorporation and Bylaws
15. Third Party and Government Consents
16. Transfer of Licenses and Permits
17. Other Closing Deliveries
18. Payoff Letters from Lien Holders and UCC Termination Statements
D. Acquisition Advance Closing Documents
1. Request for Acquisition Advance
2. Joinder Agreement Executed by Target Company and its Subsidiaries
3. Allonge to Note Executed by Target Company and its Subsidiaries
4. Stock Certificates and Blank Stock Powers for Target Company and its
Subsidiaries
5. UCC Financing Statements for Target Company and its Subsidiaries
6. Mortgages
7. Leasehold Mortgages
8. Landlord Waivers
9. Filings with U.S. Patent and Trademark Office
10. Pro Forma Compliance Certificate
11. Updated Disclosure Schedule of Borrowers to Loan Agreement (Schedule
6A)
12. Funding of Acquisition Advance by Fund Lender
13. Copies of Company's SEC Filings Related to Permitted Acquisitions
-2-
Exhibit 5A to
Loan and Security Agreement
Form of Pledge Agreement
[See attached]
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT (this "Agreement"), dated as of May 28, 2004, is
made by THE ALLIED DEFENSE GROUP, INC., a Delaware corporation, NEWS/SPORTS
MICROWAVE RENTAL, INC., a California corporation, TITAN DYNAMICS SYSTEMS, INC.,
a Texas corporation, SEASPACE CORPORATION, a California corporation, MECAR
U.S.A., INC., a Delaware corporation, and ENERGA CORPORATION, a Maryland
corporation, as pledgors (individually, a "Pledgor" and collectively, the
"Pledgors"), in favor of WILTON FUNDING, LLC, a Delaware limited liability
company, as pledgee (the "Pledgee").
RECITALS:
A. Pursuant to that certain Loan and Security Agreement (as the same may
be amended, restated, substituted, supplemented or otherwise modified from time
to time, the "Loan Agreement") dated as of the date hereof among Pledgors,
Pledgee and the other parties named therein, the Pledgee has agreed to lend to
the Pledgors the maximum sum of $18,000,000 (the "Loan"). The Loan is evidenced
by a master promissory note of the Pledgors (the "Note").
B. In order to induce Pledgee to enter into the Loan Agreement, the
Pledgors have agreed to enter into this Agreement.
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Definitions and Interpretation of Agreement. In addition to the terms
defined elsewhere in this Agreement, the following terms shall have the meanings
indicated for purposes of this Agreement (such meanings to be equally applicable
to both the singular and plural forms of the terms defined). Capitalized terms
not otherwise defined herein shall have the meaning ascribed thereto in the Loan
Agreement.
"Agreement" means this Pledge Agreement, as it may be amended, modified or
supplemented from time to time in accordance with its terms, which shall be a
Financing Agreement (as defined in the Loan Agreement).
"Default" means the occurrence of any of the following events: (i) a
"Matured Default" as defined in the Loan Agreement; or (ii) any Pledgor shall
breach in any material respect any warranty contained herein or otherwise
default in any material respect in the observance or performance of any of the
covenants, terms, conditions or agreements on the part of such Pledgor contained
herein and the failure to cure the same within thirty (30) days following
written notice thereof.
"Ownership Interest" means any shares of stock (common, preferred or
otherwise) in a corporation, membership interests in a limited liability
company, partnership interests in a general or limited partnership or any other
unit of ownership interest in any other incorporated or unincorporated entity.
"Uniform Commercial Code" means the Uniform Commercial Code as in effect
in the State of New York from time to time.
A Section is, unless otherwise stated, a reference to a section hereof, as
the case may be. Section captions used in this Agreement are for convenience
only, and shall not affect the construction of this Agreement. The words
"hereof," "herein," "hereto" and "hereunder" and words of similar purport when
used in this Agreement shall refer to this Agreement as a whole and not to any
particular provision of this Agreement. Unless otherwise defined therein, all
terms defined in this Agreement shall have the defined meanings when used in any
certificate or other documents made or delivered pursuant hereto.
2. Pledge. To secure the prompt and complete payment and performance of
the Liabilities when due and, as applicable, the obligations of any Pledgee
under any guaranty thereof, each Pledgor pledges, hypothecates, assigns,
transfers, sets over and delivers unto the Pledgee and grants to the Pledgee a
continuing security interest in and to the following (hereinafter collectively
called the "Collateral"):
(a) all of the Ownership Interests now held and hereafter acquired
by such Pledgor in any of the Pledgors, and each of their respective
Subsidiaries (other than current and future Subsidiaries of VSK Electronics), at
any time, including, without limitation, those Ownership Interests set forth on
Schedule 2(a) attached hereto, and any certificates representing such Ownership
Interests, all of the right, title and interest of such Pledgor in, to and under
its respective percentage interest, shares or units as an owner of any of the
Pledgors, and each of their respective Subsidiaries (other than current and
future Subsidiaries of VSK Electronics), and all investment property in respect
of such Ownership Interests, including, without limitation, such Pledgor's
interests in (or allocations of) the profits, losses, income, gains, deductions,
credits or similar items of any of the Pledgors, or any of their respective
Subsidiaries (other than current and future Subsidiaries of VSK Electronics),
and the right to receive dividends or distributions of any of the Pledgors, or
any of their respective Subsidiaries (other than current and future Subsidiaries
of VSK Electronics), cash, other property, assets, and all options and warrants
for the purchase of Ownership Interests, all of such Pledgor's rights, title and
interests to receive payments of principal and interest on any loans and/or
other extensions of credit made by such Pledgor or its affiliates to such
Pledgors, all of such Pledgor's voting rights, whether now existing or hereafter
arising, whether arising under the terms of the articles, bylaws, the
certificate of formation, the limited liability company agreement or any of the
other organization documents of the Pledgors, at law or in equity, or otherwise
and any and all of the proceeds thereof (all of said Ownership Interests,
certificates and warrants being hereinafter collectively referred to as the
"Pledged Interests"), and all distributions, cash, instruments, investment
property and other property from time to time received, receivable or otherwise
distributed in respect of, or in exchange for, any or all of the Pledged
Interests;
(b) all other property hereafter delivered to the Pledgee by such
Pledgor in substitution for or in addition to any of the foregoing, all
certificates and instruments representing or evidencing such other property and
all cash, securities, interest, dividends, rights and other property at any time
and from time to time received, receivable or otherwise distributed in respect
of or in exchange for any or all thereof; and
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(c) all products and proceeds of all of the foregoing;
TO HAVE AND TO HOLD the Collateral, together with all rights, titles,
interests, privileges and preferences appertaining or incidental thereto, unto
the Pledgee forever, subject, however, to the terms, covenants and conditions
hereafter set forth.
Notwithstanding the foregoing to the contrary, each Pledgor hereby agrees
to execute and deliver or cause its Subsidiaries to execute and deliver, to
Pledgee, upon its request from time to time, (i) a separate Share Pledge
Agreement in the form attached as Exhibit 5B to the Loan Agreement with respect
to the pledge of shares of any Subsidiary of the Company that is a Belgian
company (other than current and future Subsidiaries of VSK Electronics) (each, a
"Belgian Share Pledge Agreement") and (ii) a separate Deed of Charge over Shares
in a form acceptable to Pledgee with respect to the pledge of shares of any
Subsidiary of the Company that is a company formed under the laws of England and
Wales (each, a "UK Share Pledge Agreement"). In the case of any conflict between
this Agreement and any such Belgian Share Pledge Agreement or UK Share Pledge
Agreement, the provisions of such Belgian Share Pledge Agreement or UK Share
Pledge Agreement, as applicable, shall take priority over the provisions of this
Agreement.
3. Representations, Warranties and Covenants.
(a) The Pledgors, jointly and severally, represent and warrant to
the Pledgee that: (i) the Pledgors have delivered to the Pledgee all
certificated Ownership Interests and stock powers or other transfer instruments
with respect to each such certificated Ownership Interests endorsed in blank;
(ii) the Pledgee has a valid, perfected security interest in the Collateral and
the proceeds thereof free of all liens, claims and rights of third parties
whatsoever; (iii) all documentary, stamp or other similar taxes or fees owing in
connection with the issuance, transfer and/or pledge of the Pledged Interests
have been paid and will hereafter be paid by the Pledgors as such become due and
payable; (iv) each Pledgor is the lawful owner of the Collateral pledged by it
hereunder, with full right to deliver, pledge, assign and transfer such
Collateral to the Pledgee hereunder; (v) the Collateral represents all of each
Pledgor's interest in the Pledgors (other than the Company), or any of their
respective Subsidiaries, as applicable, and there are no equity interests in the
Pledgors, or any of their respective Subsidiaries, as applicable, held by any
other person; and (vi) the execution and delivery of this Agreement and the
performance by the Pledgors of their obligations hereunder do not and will not
contravene or conflict with any provision of law or of any agreement binding
upon or applicable to it or the Collateral and this Agreement is its legal,
valid and binding obligation, enforceable against it in accordance with its
terms and except as such enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to the
enforcement of creditors' or secured creditors' rights generally and subject to
the qualification that general equitable principles may limit the availability
of enforcement of certain remedies, including the remedy of specific
performance.
(b) So long as any of the Liabilities remain outstanding, each
Pledgor shall, unless the Pledgee shall otherwise consent in writing: (i) at its
sole expense, promptly deliver to the Pledgee, from time to time upon request of
the Pledgee, such certificates and other documents, reasonably satisfactory in
form and substance to the Pledgee, with respect to the
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Collateral as the Pledgee may reasonably request, to preserve and protect, and
to enable the Pledgee to enforce, its rights and remedies hereunder; (ii) note
in the books and records of such Pledgor the security interest granted to
Pledgee pursuant to this Agreement; (iii) not sell, assign, exchange or
otherwise transfer any of its rights to any of the Collateral; (iv) not create
or suffer to exist any lien, security interest or other charge, claim, right or
encumbrance against, in or with respect to any of the Collateral except for the
pledge hereunder and the lien and security interest created hereby; (v) not
enter into any agreement or permit to exist any restriction with respect to any
of its right, title and interest in or to the Collateral other than pursuant
hereto; and (vi) not take or fail to take any action which would in any manner
impair the enforceability of the Pledgee's lien and security interest in any of
the Collateral.
4. Certain Permitted Activities.
(a) The Pledgee may, from time to time, and in accordance with the
Loan Agreement, without notice to the Pledgors, take any or all of the following
actions: (i) retain or obtain a lien upon, or a security interest in, any
property to secure the Liabilities or any obligation hereunder; (ii) retain or
obtain the primary or secondary obligation of any obligor or obligors, with
respect to any of the Liabilities or any obligation hereunder; (iii) extend or
renew for any period (whether or not longer than the original period) or alter
or exchange any of the Liabilities, or release or compromise any obligation of
the Pledgors or any obligation of any nature of any other obligor with respect
to any of the Liabilities; (iv) release or fail to perfect its lien upon or
security interest in, or impair, surrender, release or permit any substitution
or exchange for, all or any part of any property securing any of the Liabilities
or any obligation hereunder, or create, extend or renew for any period (whether
or not longer than the original period) or release, compromise, alter or
exchange any obligations of any nature of any obligor with respect to any such
property; and (v) during the continuance of a Default following reasonable prior
written notice to the Pledgors, resort to the Collateral (without any
marshalling) for payment of any of the Liabilities, whether or not the Pledgee
(A) shall have resorted to any other property securing any of the Liabilities or
any obligation hereunder or (B) shall have proceeded against any other obligor
primarily or secondarily obligated with respect to any of the Liabilities (all
of the actions referred to in preceding clauses (A) and (B) being hereby
expressly waived by the Pledgors).
(b) The Pledgee shall have no right to vote the Pledged Interests or
other Collateral or give consents, waivers or ratifications in respect thereof
prior to the occurrence of a Default. During the continuance of a Default, each
Pledgor shall have the right to vote any and all of its Pledged Interests and
other Collateral pledged by them hereunder and give consents, waivers and
ratifications in respect thereof unless and until it receives notice from the
Pledgee that such right has been terminated. Upon such notice, each Pledgor
hereby grants to the Pledgee or its nominee, an irrevocable proxy to exercise
all voting and corporate rights relating to the Pledged Interests. In such
event, upon the request of the Pledgee, each Pledgor agrees to deliver to the
Pledgee, such further evidence of such irrevocable proxy or such further
irrevocable proxies to vote the Pledged Interests as the Pledgee may request.
(c) Upon notice from the Pledgee to the Pledgors, during the
existence of a Default and so long as that Default continues, all rights and
powers that each Pledgor is entitled to exercise pursuant to Section 4(b) of
this Agreement, and all rights of such Pledgor to receive
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and retain dividends, interest and payments pursuant to Section 5 of this
Agreement, shall immediately cease, and all such rights and powers shall
automatically become vested in the Pledgee, which shall have, during the
continuance of the Default, the sole and exclusive authority to exercise such
rights and powers, in accordance with the Loan Agreement (including the right to
become a stockholder, member or partner, as applicable, of the Pledgors (other
than the Company), or any of their respective Subsidiaries, as the case may be)
and to receive such dividends, interest and payments. All money or other
property, paid or delivered to the Pledgee pursuant to this subsection, shall be
additional Collateral, hereunder.
(d) Each Pledgor agrees to deliver (properly endorsed when required)
to the Pledgee, after a Default shall have occurred, promptly upon request of
the Pledgee, such documents as may be necessary for the Pledgee to exercise its
rights under Section 4(c) with respect to the Pledged Interests and other
Collateral then or previously owned by such Pledgor.
5. Dividends, Distributions, etc. In case any distribution of capital
shall be made on or in respect of the Pledged Interests or any tangible or
intangible property shall be distributed upon or with respect to the Pledged
Interests, the property so distributed shall be delivered to Pledgee to be held
by it as additional Pledged Interests. All sums of money and property so paid or
distributed in respect of the Pledged Interests which are received by Pledgor
shall, until paid or delivered to Pledgee, be held by Pledgor in trust as
additional Pledged Collateral. Upon a Default, and while the same is continuing,
and in accordance with the Loan Agreement, each Pledgor shall immediately upon
demand by Pledgee, deliver to the Pledgee all dividends, and all other
distributions and payments made on or in respect of the Collateral any time and
from time to time.
6. Default.
(a) Upon the occurrence of a Default, and in accordance with the
Loan Agreement, the Pledgee may exercise from time to time any rights and
remedies available to it under the Uniform Commercial Code or otherwise
available to it, including, without limitation, sale, assignment, or other
disposal of the Collateral in exchange for cash or credit. If any notification
of intended disposition of any of the Collateral is required by law, such
notification, if mailed, shall be deemed reasonably and properly given if mailed
at least ten (10) days before such disposition, postage prepaid, addressed to
the Pledgors at any address of the Pledgors appearing on the records of the
Pledgee. Any proceeds of any disposition of Collateral shall be applied as
provided in Section 7 hereof. No rights and remedies of the Pledgee expressed
hereunder are intended to be exclusive of any other right or remedy, but every
such right or remedy shall be cumulative and shall be in addition to all other
rights and remedies herein conferred, or conferred upon the Pledgee under any
other agreement or instrument relating to any of the Liabilities or security
therefor or now or hereafter existing at law or in equity or by statute. No
delay on the part of the Pledgee in the exercise of any right or remedy shall
operate as a waiver thereof, and no single or partial exercise by the Pledgee of
any right or remedy shall preclude other or further exercise thereof or the
exercise of any other right or remedy. No action of the Pledgee permitted
hereunder shall impair or affect the rights of the Pledgee in and to the
Collateral.
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(b) (i) The Pledgors agree that, in any sale of any of the
Collateral when a Default shall have occurred and be continuing, the
Pledgee is authorized to comply with any limitation or restriction in
connection with such sale as is necessary in order to avoid any violation
of applicable law (including, without limitation, compliance with such
procedures as may restrict the number of prospective bidders and
purchasers, require that such prospective bidders and purchasers have
certain qualifications, and restrict such prospective bidders and
purchasers to persons who will represent and agree that they are
purchasing for their own account for investment and not with a view to the
distribution or resale of such Collateral), or in order to obtain any
required approval of the sale or of the purchaser by any governmental
regulatory authority or official, and the Pledgors further agree that such
compliance shall not result in such sale being considered or deemed not to
have been made in a commercially reasonable manner, nor shall the Pledgee
be liable nor accountable to the Pledgors for any discount allowed by the
reason of the fact that such Collateral is sold in compliance with any
such limitation or restriction. At any sale made pursuant to this Section
6, the Pledgee may bid for or purchase the Pledged Interests and may make
payment on account thereof by using any claim then due and payable to the
Pledgee from the Pledgors as a credit against the purchase price, and the
Pledgee may, upon compliance with the terms of sale, hold, retain and
dispose of such Pledged Interests without further accountability to the
Pledgors therefor.
(ii) Pledgors further agree, after a Default shall have
occurred and be continuing, and upon written request from the Pledgee, to
(A) deliver to the Pledgee such information in the Pledgors' possession or
control as the Pledgee shall reasonably request for inclusion in any
registration statement, prospectus or offering memorandum or in any
preliminary prospectus or preliminary offering memorandum or any amendment
or supplement to any thereof or in any other writing prepared in
connection with the offer, sale or resale of all or any portion of such
Pledged Interests or other Collateral, which information shall not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated or necessary to make such information not
misleading, and (B) do or cause to be done all such other acts and things
as may be necessary to make such offer, sale or resale of all or any
portion of such Pledged Interests or other Collateral valid and binding
and in compliance with any and all applicable laws, regulations, orders,
writs, injunctions, decrees or awards of any and all courts, arbitrators
or governmental agencies or instrumentalities, domestic or foreign, having
jurisdiction over any such offer, sale or resale.
Without limiting the foregoing paragraph, if the Pledgee decides to
exercise its right to sell all or any of the Pledged Interests or other
Collateral, upon written request, the Pledgors shall furnish or cause to
be furnished to the Pledgee all such information as the Pledgee may
request in order to qualify such Pledged Interests or other Collateral as
exempt securities, or the sale or resale of such Pledged Interests or
other Collateral as exempt transactions, under federal and state
securities laws. To the extent it is within their control, the Pledgors
agree to allow the Pledgee and any underwriter access at reasonable times
and places to the books, records and premises of the Pledgors, or any of
their respective Subsidiaries, as applicable; the Pledgors further agree
to assist the Pledgee, any underwriter, any agent of any thereof, and any
counsel, accountant or other expert for any thereof, in inspection,
evaluation, and any other "due diligence" action of
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or with respect to any such books, records and premises; and the Pledgors
further agree to cause any independent public accountant for the Pledgors,
or any of their respective Subsidiaries, as applicable, to furnish a
letter to the Pledgee and underwriters in customary form and covering
matters of the type customarily covered by letters of accountants for
issuers to underwriters.
(c) Except for payments made by the Pledgors in accordance with the
Loan Agreement, all items or amounts, which are received by the Pledgee from the
Pledgors or any other party on account of partial or full payment or otherwise
as proceeds of any of the Collateral shall be deposited to the credit of a
deposit account (the "Assignee Deposit Account") of the Pledgors maintained at a
bank selected by the Pledgee in its sole discretion, and "controlled" (as
defined in the Uniform Commercial Code) by the Pledgee, as security for payment
of the Liabilities. During the continuance of a Default, the Pledgors shall have
no right to withdraw any funds deposited in the Assignee Deposit Account. The
Pledgee may, from time to time, in its discretion, and shall upon request of the
Pledgors made not more than once in any week, apply all or any of the then
balance, representing collected funds, in the Assignee Deposit Account, in
accordance with Section 7 hereof, and the Pledgee may, from time to time, in
accordance with the Loan Agreement, release all or any of such balance to the
Pledgors.
The Pledgee is authorized to endorse, in the name of the Pledgors,
any item, howsoever received by the Pledgee, representing any payment on or
other proceeds of any of the Collateral.
7. Application of Proceeds. The proceeds of the sale of Collateral sold
pursuant to the terms of Section 6 hereof, or, after a Default, the cash held as
Collateral hereunder, whether or not deposited in the Assignee Deposit Account,
shall be applied by the Pledgee as follows:
First: to the Liabilities in accordance with the provisions of the Loan
Agreement;
Second: the balance, if any, of such proceeds shall be held by the Pledgee
until this Agreement shall terminate pursuant to Section 14, and if any
proceeds shall then remain, such proceeds shall be paid to the Pledgors or
such other person as may be entitled thereto, their successors and
assigns, or as a court of competent jurisdiction in any pending proceeding
may direct.
8. Nature of Liabilities. The Pledgors acknowledge and agree that the
Pledgors shall be liable for the Liabilities. The Pledgors, jointly and
severally, represent and warrant to the Pledgee at all times that the loans made
under the Loan Agreement to the Pledgors directly or indirectly confer a
material benefit on the Pledgors.
9. No Marshalling. To the extent the Pledgee holds a security interest in
other assets or interests of the Pledgors, nothing contained herein shall
require the Pledgee to proceed against any security interest in any of the
assets or interests of the Pledgors prior to enforcing its rights against the
Collateral.
10. Indemnity. The Pledgors shall indemnify, defend and hold harmless the
Pledgee, its agents, officers and employees, and every attorney appointed
pursuant to this Agreement (a) in respect of all liabilities and expenses
incurred by them in good faith in the execution,
-7-
enforcement or purported execution of any rights, powers or discretions vested
in them pursuant to this Agreement, and (b) for any losses arising in connection
with the exercise or purported exercise of any of their rights, powers and
discretions hereunder except that the Pledgee, its agents, officers and
employees and each attorney will be liable for any liabilities, expenses and
losses which arise as a result of their own willful misconduct or gross
negligence.
11. Filing as a Financing Statement. The Pledgee shall be authorized to
execute and file such Uniform Commercial Code financing statements and other
documents (in all public offices reasonably deemed necessary or appropriate by
the Pledgee), and the Pledgors shall do such other acts and things, all as the
Pledgee may from time to time request, to establish and maintain a valid,
perfected security interest in the Collateral to secure the payment of the
Liabilities.
12. Notices.
(a) All notices, requests and other communications to any party
hereunder shall be in writing (including electronic transmission, facsimile
transmission or similar writing) and shall be given to such party: (a) in the
case of the Pledgors or the Pledgee, at its address or facsimile number set
forth in Section 10.19 of the Loan Agreement; or (b) in the case of any party,
at such other address or facsimile number as such party may hereafter specify
for the purpose by notice to the Pledgee and the Pledgors in accordance with the
provisions of this Section 12(a). Each such notice, request or other
communication shall be effective (i) if given by facsimile transmission, when
transmitted to the facsimile number specified in the Loan Agreement and
confirmation of receipt is received, (ii) if given by mail, seventy-two (72)
hours after such communication is deposited in the mails with first class
postage prepaid, addressed as aforesaid, or (iii) if given by any other means,
when delivered (or, in the case of electronic transmission, received) at the
address specified in this Section.
(b) The Pledgors and the Pledgee may each change the address for
service of notice upon it by a notice in writing to the other parties hereto.
13. Amendments. No amendment, modification or waiver of, or consent with
respect to, any provision of this Agreement shall in any event be effective
unless the same shall be in writing and signed and delivered by the Pledgee and
Pledgors. Any waiver of any provision of this Agreement, and any consent to any
departure by the Pledgors from the terms of any provision of this Agreement,
shall be effective only in the specific instance and for the specific purpose
for which given.
14. Termination of Agreement. The Pledgors agree that their pledge
hereunder shall, unless sooner terminated by the Pledgee (notwithstanding,
without limitation, that at any time or from time to time all Liabilities may
have been indefeasibly paid in full) terminate only when (i) the Liabilities
(including, without limitation, any and all extensions or renewals of any
thereof, any and all interest on any thereof, and any and all expenses incurred
by the Pledgee in seeking to collect any of the Liabilities and to collect or
enforce any rights under the Collateral) have been satisfied in full, (ii) all
other obligations of the Pledgors hereunder and thereunder have been fully
performed and (iii) the Pledgee shall have no further obligation to extend an
additional credit to any Pledgor, at which time the Pledgee shall reassign and
redeliver (or cause
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to be reassigned and redelivered) to the Pledgors, or to such Person or Persons
as such the Pledgors shall designate, such of the Collateral (if any) pledged
hereunder by the Pledgors as shall not have been sold or otherwise applied by
the Pledgee pursuant to the terms hereof and shall still be held by it
hereunder, together with appropriate instruments of reassignment and release.
Any such reassignment pursuant to the foregoing provisions shall be without
recourse upon, or representation or warranty by, the Pledgee.
15. Severability. Any provision in this Agreement that is held to be
inoperative, unenforceable, or invalid in any jurisdiction shall, as to that
jurisdiction, be inoperative, unenforceable, or invalid without affecting the
remaining provisions in that jurisdiction or the operation, enforceability, or
validity of that provision in any other jurisdiction, and to this end the
provisions of this Agreement are declared to be severable.
16. Successors and Assigns. The terms and provisions of this Agreement
shall be binding upon and inure to the benefit of the Pledgors and the Pledgee
and their respective successors and permitted assigns, except that (a) the
Pledgors shall not have the right to assign their rights or obligations under
this Agreement and (b) any assignment by the Pledgee must be made in compliance
of the Loan Agreement.
17. Choice of Law. This Agreement shall be construed in accordance with
the internal laws (without regard to the conflict of laws provisions) of the
State of New York.
18. WAIVER OF JURY TRIAL. THE PLEDGORS AND THE PLEDGEE HEREBY WAIVE TRIAL
BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER
(WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF,
RELATED TO, OR CONNECTED WITH THIS AGREEMENT OR THE RELATIONSHIP ESTABLISHED
HEREUNDER.
19. CONSENT TO JURISDICTION. THE PLEDGORS HEREBY IRREVOCABLY SUBMIT TO THE
EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR NEW YORK STATE COURT
SITTING IN NEW YORK, NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO THIS AGREEMENT AND THE PLEDGORS HEREBY IRREVOCABLY AGREE THAT ALL
CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN
ANY SUCH COURT AND IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE
AS TO THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT
OR THAT SUCH COURT IS AN INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT THE
RIGHT OF THE PLEDGEE OR ANY PURCHASER TO BRING PROCEEDINGS AGAINST THE PLEDGORS
IN THE COURTS OF ANY OTHER JURISDICTION. ANY JUDICIAL PROCEEDING BY THE PLEDGORS
AGAINST THE PLEDGEE OR ANY PURCHASER OR ANY AFFILIATE OF THE PLEDGEE OR ANY
PURCHASER INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT
OF, RELATED TO, OR CONNECTED WITH THIS AGREEMENT SHALL BE BROUGHT ONLY IN A
COURT IN NEW YORK, NEW YORK.
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20. Counterparts. This Agreement may be executed in any number of
counterparts, all of which, taken together shall constitute one agreement, and
any of the parties hereto may execute this Agreement by signing any such
counterpart. This Agreement shall be effective upon execution by the Pledgors
and the Pledgee.
21. Miscellaneous.
(a) Except as provided herein, the Pledgors hereby expressly waive:
(i) notice of the acceptance by the Pledgee of this Agreement, (ii) notice of
the existence or creation or non-payment of all or any of the Liabilities, (iii)
presentment, demand, notice of dishonor, protest, and all other notices
whatsoever, and (iv) all diligence in defense, collection or protection of or
realization upon the Liabilities, any obligation hereunder, or any security for
or guaranty of any of the foregoing.
(b) No action of the Pledgee permitted hereunder shall in any way
affect or impair the rights of the Pledgee and the obligations of the Pledgors
under this Agreement. The Pledgors hereby acknowledge that there are no
conditions to the effectiveness of this Agreement.
(c) All obligations of the Pledgors and rights of the Pledgee
expressed in this Agreement shall be in addition to and not in limitation of
those provided in applicable law or in any other written instrument or agreement
relating to any of the Liabilities.
22. Joint and Several. Each Pledgor hereby acknowledges and agrees the
liabilities and obligations of each such Pledgor created under or arising with
respect to this Agreement shall be the joint and several liabilities and
obligations of all such Pledgors.
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IN WITNESS WHEREOF, this Agreement has been duly executed as of the day
and year first above written.
PLEDGORS:
THE ALLIED DEFENSE GROUP, INC.,
a Delaware corporation
By: ___________________________________
Name: _________________________________
Title: ________________________________
NEWS/SPORTS MICROWAVE RENTAL, INC.,
a California corporation
By: ___________________________________
Name: _________________________________
Title: ________________________________
TITAN DYNAMICS SYSTEMS, INC.,
a Texas corporation
By: ___________________________________
Name: _________________________________
Title: ________________________________
SEASPACE CORPORATION,
a California corporation
By: ___________________________________
Name: _________________________________
Title: ________________________________
MECAR USA, INC., a Delaware corporation
By: ___________________________________
Name: _________________________________
Title: ________________________________
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ENERGA CORPORATION, a Maryland
corporation
By: ___________________________________
Name: _________________________________
Title: ________________________________
PLEDGEE:
WILTON FUNDING, LLC,
a Delaware limited liability company
By: ___________________________________
Name: _________________________________
Title: ________________________________
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ACKNOWLEDGMENT OF PLEDGE
Each of the undersigned (collectively, the "Company") acknowledges this
Pledge Agreement, consents to the pledge of the Pledged Interests, and shall
duly make a notation in its books and records that the Pledged Interests and all
Ownership and other Interests in the Company now or hereafter owned by the
Pledgors and all proceeds thereof (the "Collateral") have been pledged to the
Pledgee and that the Pledgee has a security interest therein.
In addition, the Company agrees to comply exclusively with instructions
originated by the Pledgee in accordance with the Loan Agreement and the Pledge
Agreement with respect to the Pledged Interests and the Collateral without
further consent of the Pledgors. The Company acknowledges that the Pledgee or
any purchaser of the Pledged Interests may become the owner of the Pledged
Interests if the Pledgee exercises its rights and remedies under the Pledge
Agreement or the Loan Agreement or both, and the Company consents to the
admission of the Pledgee and/or such purchaser as a stockholder, member or
partner, as applicable of the Company in such event.
NEWS/SPORTS MICROWAVE RENTAL, INC.,
a California corporation
By: ___________________________________
Name: _________________________________
Title: ________________________________
SEASPACE CORPORATION,
a California corporation
By: ___________________________________
Name: _________________________________
Title: ________________________________
TITAN DYNAMICS SYSTEMS, INC.,
a Texas corporation
By: ___________________________________
Name: _________________________________
Title: ________________________________
-13-
MECAR U.S.A., INC.,
a Delaware corporation
By: ___________________________________
Name: _________________________________
Title: ________________________________
ALLIED RESEARCH CORPORATION
LIMITED, a company formed under the
laws of England and Wales
By: ___________________________________
Name: _________________________________
Title: ________________________________
ENERGA CORPORATION,
a Maryland corporation
By: ___________________________________
Name: _________________________________
Title: ________________________________
ARC EUROPE, S.A.,
a Belgium company
By: ___________________________________
Name: _________________________________
Title: ________________________________
MECAR S.A.,
a Belgium company
By: ___________________________________
Name: _________________________________
Title: ________________________________
-14-
HENDRICKX N.V.,
a Belgium company
By: ___________________________________
Name: _________________________________
Title: ________________________________
SEDACHIM SALES INTERNATIONAL S.A.,
a Belgium company
By: ___________________________________
Name: _________________________________
Title: ________________________________
-15-
Schedule 2(a) to
Pledge Agreement
Ownership Interests
Ownership
Pledgor Corporation No. of Shares Percentage
------- ----------- ------------- ----------
The Allied Defense Group, Inc. News/Sports Microwave Rental, Inc. 100 100%
The Allied Defense Group, Inc. SeaSpace Corporation 100 100%
The Allied Defense Group, Inc. Titan Dynamics Systems, Inc. 100,000 100%
The Allied Defense Group, Inc. MECAR USA, Inc. 100 100%
The Allied Defense Group, Inc. Allied Research Corporation Limited -- 100%
The Allied Defense Group, Inc. Energa Corporation 100 100%
The Allied Defense Group, Inc. ARC Europe S.A. 49,204 51%
Allied Research Corporation Limited ARC Europe S.A. 46,911 48%
Energa Corporation ARC Europe S.A. 35 1%
ARC Europe S.A. MECAR S.A. 28,074 99.9%
Sedachim Sales International S.A. MECAR S.A. 1 0.1%
ARC Europe S.A. VSK Electronics N.V. 13,523 100%
ARC Europe X.X. Xxxxxxxxx N.V. 2,999 99.9%
ARC Europe S.A. Sedachim Sales International S.A. 249 99%
Xxxxxxx Xxxxxx Sedachim Sales International S.A. 1 1%
Xxxxxxx Xxxxxx Xxxxxxxxx N.V. 1 0.1%
-16-
Exhibit 5B to
Loan and Security Agreement
Form of Belgian Share Pledge Agreement
[See attached]
___________________, 2004
--------------------------------------------------------------------------------
SHARE PLEDGE AGREEMENT
--------------------------------------------------------------------------------
between
[PLEDGOR]
as Pledgor
and
WILTON FUNDING L.L.C.
as Pledgee
Squire, Xxxxxxx & Xxxxxxx
Xxxxxxxxxx 000, 00-00
0000 Xxxxxxxx
Xxxxxxx
-1-
Table of contents
ARTICLE 1 DEFINITIONS..................................................... 4
ARTICLE 2 PLEDGE.......................................................... 5
ARTICLE 3 FURTHER PLEDGES................................................. 5
ARTICLE 4 PERFECTION...................................................... 5
ARTICLE 5 REPRESENTATIONS AND WARRANTIES.................................. 6
ARTICLE 6 CONTINUING COVENANTS OF THE PLEDGOR............................. 7
ARTICLE 7 RIGHTS ATTACHING TO THE SHARES.................................. 8
ARTICLE 8 CONTINUING SECURITY AND OTHER MATTERS........................... 9
ARTICLE 9 POWERS OF PLEDGEE............................................... 10
ARTICLE 10 ATTORNEY........................................................ 11
ARTICLE 11 DURATION AND DISCHARGE.......................................... 11
ARTICLE 12 LIABILITY TO PERFORM............................................ 12
ARTICLE 13 GENERAL......................................................... 12
ARTICLE 14 GOVERNING LAW AND JURISDICTION.................................. 13
-2-
SHARE PLEDGE AGREEMENT
BETWEEN:
1. [PLEDGOR], a [Belgian] company with its registered office at [ADDRESS],
Enterprise Number [NUMBER], Commercial Court of [PLACE],
represented by ,
hereinafter referred to as the "Pledgor"
2. [COMPANY], a Belgian company with its registered office at [ADDRESS],
Enterprise Number [NUMBER], Commercial Court of [PLACE] (the "Company");
AND:
3. [WILTON FUNDING LLC], a limited liability company organized under the laws
of Delaware with its registered office at [REGISTERED OFFICE],
represented by ,
hereinafter referred to as the "Pledgee"
WHEREAS:
(A) Pursuant to a Loan and Security Agreement dated as of May 14, 2004 by and
among amongst others the Pledgor and the Pledgee (including all annexes,
exhibits, and schedules thereto, and as from time to time amended,
restated, supplemented or otherwise modified (the "Loan and Security
Agreement"), the Pledgee has agreed to make a term loan to The Allied
Defense Group, Inc., a Delaware corporation ("Allied"), and certain of its
direct and indirect subsidiaries, upon the satisfaction of certain terms
and conditions.
(B) The Pledgor owns [AMOUNT] registered shares numbered 1 up through and
including [AMOUNT] (the "Shares") in the capital of the Company
representing [__]% of the share capital of the Company.
(C) It is a condition precedent under the Loan and Security Agreement that the
Pledgor enters into this Share Pledge Agreement (the "Agreement").
(D) The Pledgor and the Pledgee wish to create a pledge in respect of one
hundred percent (100%) of the shares of the Company owned by the Pledgor
(the "Pledged Shares") under the following terms:
-3-
THE PARTIES HAVE AGREED AS FOLLOWS:
ARTICLE 1 DEFINITIONS
In this Agreement, unless the context otherwise requires:
"Future Shares" means (1) any additional shares in the capital of the
Company (other than the Shares), including shares in the
capital of the Company acquired by the Pledgor as a
result of the exercise of options or other rights to
purchase such additional shares, that the Pledgor would
subscribe to or acquire in the future and (2) all the
securities that would be substituted for the Shares for
any reason whatsoever.
"Security Interests" means any mortgage, pledge, lien, usufruct (usufruit),
charge, assignment, hypothecation or any other agreement
or arrangement having the effect of conferring security.
"Secured Liabilities" means (1) all Liabilities and all other obligations and
liabilities of the Pledgor pursuant to the Loan and
Security Agreement now or hereafter existing hereunder
and under the Loan and Security Agreement and the other
Financing Agreements to which the Pledgor is a party, in
whatsoever manner in any currency or currencies, whether
present or future, actual or contingent, whether
incurred solely or jointly with any other person and
whether as principal or surety together with all
interests accruing and all costs, changes and expenses
incurred in connection therewith; (2) all obligations
and liabilities referred to under (1) above that, by
succession to rights under any title whatsoever, would
be continued or assumed by the legal successors of each
Pledgor by reason of, among other things, merger,
splitting, contribution of a complete entity or business
division, assignment, novation or subrogation of
contract or debt or whatever other reason; (3) all
present and future obligations and liabilities of the
Pledgor (whether actual or contingent and whether
incurred solely or jointly with any other person or in
any other capacity whatsoever) by reason of any present
or future loan granted by the Pledgee (or its
successor), including but not
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limited to assignments by way of novation and
amendments, increases and refinancings of the Loan and
Security Agreement.
Unless the context otherwise requires or unless otherwise defined in this
Agreement, words and expressions defined in the Loan and Security Agreement
shall have the same meaning when used in this Agreement.
In this Agreement, each reference to a document will be deemed to be a reference
to such document as amended and/or supplemented by the parties to such document
from time to time.
ARTICLE 2 PLEDGE
2.1 The Pledgor hereby grants to the Pledgee, which accepts, a pledge on all
the Pledged Shares (including in each case, all present or future rights
relating thereto or arising thereout), in accordance with the Belgian Law
of 5 May 1872 on commercial pledges in order to secure all Secured
Liabilities.
2.2 The Pledged Shares are in registered from and the Pledgor shall not,
without the Pledgee's prior written consent, permit the conversion of the
Pledged Shares into bearer shares.
ARTICLE 3 FURTHER PLEDGES
If the Pledgor acquires in any manner any Future Shares, it undertakes to pledge
such Future Shares under the same terms and conditions as mentioned in this
Agreement. The Pledgor shall take all such further action that may be reasonably
necessary or appropriate to confirm and perfect such pledge, including the
recording of the pledge on such Future Shares in the shareholders' register of
the Company.
The Pledgor hereby irrevocably appoints the Pledgee to be its attorney in its
name and on its behalf to execute any documents which the Pledgee reasonably
considers necessary for perfecting its title to or for vesting the pledge on the
Future Shares.
The Pledgor shall comply with the requirements of this Article 3 concurrently
with the subscription to, or purchase of Future Shares.
ARTICLE 4 PERFECTION
4.1 The Pledgor shall arrange for the following notice to be recorded in the
shareholders' register of the Company and signed therein on behalf of the
Pledgor and the Pledgee simultaneously with the execution hereof, and
shall procure that a registered share certificate representing the Pledged
Shares, bearing the same notice and accompanied with a photocopy of the
pages of the shareholders' register, shall be duly issued and delivered to
the Pledgee:
-5-
"[NUMBER OF PLEDGED SHARES] aandelen op naam nr. [NUMMER] tot en met
[NUMMER] zijn in pand aan [AANVULLEN] op basis van een Share Pledge
Agreement dd. ________________."
OR [if the Company is not located in Flanders]
"[NUMBER OF PLEDGED SHARES] actions nominatifs nr. [NUMMER] jusqu'a
[NUMMER] ont ete donne en gage a [AANVULLEN] sur base d'un Share
Pledge Agreement en date du __________________."
4.2 The Pledgor hereby appoints as its special attorneys [NAME] and [NAME],
and the Pledgee hereby appoints as its special attorneys Xxxxxxx Van der
Hauwaert and each other lawyer of Squire, Xxxxxxx & Xxxxxxx, Xxxxxxxxxx
000, 0000 Xxxxxxxx (Xxxxxxx), in each case with power to act alone and to
substitute, for the purpose of recording the second rank pledge pursuant
to this Agreement in the Company's shareholders' register.
4.3 The Pledgor shall, upon execution of this Agreement, deliver to the
Pledgee an acknowledgement by the Company of the pledge of the Pledged
Shares, in the form of Schedule 1 hereto.
ARTICLE 5 REPRESENTATIONS AND WARRANTIES
The Pledgor represents and warrants to the Pledgee that, on the date of this
Agreement and on each other date on which the representations and warranties of
the Loan and Security Agreement are deemed repeated:
(a) The Pledgor is a corporation duly incorporated and validly existing under
the laws of [Belgium] and is not in liquidation, with power to enter into
this Agreement and to exercise its rights and perform its obligations
hereunder and all corporate and other action required to authorise its
execution and the performance of this Agreement has been duly taken.
(b) The Company is a societe anonyme duly incorporated under the laws of
Belgium, validly existing and not in liquidation, and has the power to own
its assets and conduct its business as currently conducted.
(c) On the date hereof, the capital of the Company is represented by [NUMBER]
identical registered shares. There are no profit shares or other shares
which do not represent the capital of the Company in existence, nor any
warrant, convertible bond or other right whatsoever to acquire shares in
the Company.
(d) The Pledgor owns the Shares free and clear of any Security Interests.
There are no limitations, whether pursuant to the bylaws of the Company or
to any agreement, to the transferability of the Shares or to the exercise
of the voting rights attached thereto.
(e) The Shares are validly issued and fully paid up. The Company has not
declared any dividends in respect of the Shares that are still unpaid on
the date hereof.
-6-
(f) This Agreement does not breach any contractual or other obligation binding
upon the Pledgor and the Company.
(g) This Agreement constitutes legally binding obligations for the Pledgor,
enforceable in accordance with its terms, and creates those encumbrances
it purports to create.
(h) There is no business pledge (gage sur fonds de commerce) in existence on
the business of the Pledgor nor any mandate with a view to the creation
thereof. [This clause to be deleted for VSK Electronics only.]
(i) The Pledgor has satisfied itself that the benefits it expects to derive
from the Loan and Security Agreement are an adequate consideration for it
to grant this pledge.
ARTICLE 6 CONTINUING COVENANTS OF THE PLEDGOR
The Pledgor:
(a) shall not create or permit to subsist any other pledge, charge or
encumbrance in respect of the Shares and the Future Shares or any part
thereof or interest therein (irrespective of whether ranking behind the
pledge created hereby);
(b) shall not sell, transfer or otherwise dispose of the Shares or the Future
Shares or any part thereof or interest therein or attempt or agree to do
so;
(c) shall not permit the Company to make any alteration to, or reorganise, the
share capital of the Company or to cancel, reduce, redeem, or put under
option any share capital or other securities convertible or exchangeable
into shares or other securities;
(d) shall procure that no executory seizure (uitvoerend beslag/saisie
execution) is made on its shares, and that any conservatory seizure
(bewarend beslag/saisie conservatoire) is lifted within 90 days of its
first being made;
(e) shall cooperate with the Pledgee and sign or cause to be signed all such
further documents and take all such further action as the Pledgee may from
time to time reasonably request to perfect and protect the pledge of the
Pledged Shares and the Future Shares and to carry out the provisions and
purposes of this Agreement;
(f) shall notify the Pledgee promptly of any change in the shareholding in or
the capital contributions to the Company;
(g) shall not do or cause or permit to be done anything which will, or could
be reasonably be expected to, materially adversely affect this pledge or
the rights of the Pledgee hereunder or which in any way is inconsistent
with or materially depreciates, jeopardises or otherwise prejudices this
pledge.
-7-
ARTICLE 7 RIGHTS ATTACHING TO THE SHARES
7.1. Voting Rights
(a) The Pledgor shall exercise their voting rights in respect of the Shares in
a manner consistent with the interests of the Pledgee. In particular, and
unless agreed otherwise by the Pledgee, the Pledgor shall cast its vote
against any proposal for the liquidation, merger or split-up of the
Company.
(b) If there occurs any Default (that has not been waived in accordance with
the terms of the Loan and Security Agreement) and as long as such
situation shall be continuing in the opinion of the Pledgee, the Pledgor
shall cast the votes and all other rights attaching to the Shares in
accordance with the Pledgee's instructions, if any, which instructions the
Pledgor shall timely seek. The Pledgee's instructions shall be reasonable
and not in violation of any duties, fiduciary or other, which the Pledgor
may have as holder of the Shares.
(c) Except for general shareholders' meetings held exclusively for routine
corporate household purposes (being the approval of annual accounts and
the appointment of or discharge to directors and auditors, but not
including in particular the declaration of dividends), the Pledgor shall
forthwith give the Pledgee a copy of any convening notice or agenda of the
general shareholders meetings of the Company. The Pledgor will transmit to
the Pledgee copies of the minutes of the Company's shareholders' meetings
at the latest fifteen days after the holding of the relevant shareholder's
meeting.
(d) Unless agreed otherwise by the Pledgee, the Pledgor shall exercise all
subscription rights to which the Pledged Shares may be entitled. The
shares that the Pledgor would subscribe to pursuant to the exercise of any
such right, shall be part of the Future Shares and pledged in accordance
with Article 2.
(e) The Pledgor shall forthwith pay up any contribution duly called in respect
of the Pledged Shares.
(f) Without the prior written consent of the Pledgee, the Pledgor will not
consent to any amendment, supplement or modification of any terms or
provisions contained in, or applicable to the bylaws of the Company if the
effect thereof could reasonably be expected to be adverse to the Pledgee
hereunder or under the Loan and Security Agreement.
(g) The Pledgor undertakes not to allow the Company's shareholder's meeting to
deliberate upon items which would not have been mentioned in the notice or
on the agenda communicated to the Pledgee.
7.2 Dividends and Other Cash Returns
(a) Any return on the Pledged Shares, irrespective of whether in the form of
dividends, bonus shares, scripts or otherwise, other than repayment of
capital shall be paid directly to the
-8-
Pledgor until the occurrence of a Default. If a Default occurs that has
not been waived in accordance with the terms of the Loan and Security
Agreement and as long as such Default shall be continuing and upon notice
to the Pledgor, the returns shall be exclusively paid to the Pledgee which
shall apply the same towards satisfaction of the Secured Liabilities.
(b) If the event that any return on the Pledged Shares which, pursuant to the
above paragraphs is to be paid or delivered to the Pledgee, shall entitle
the Pledgor to a tax credit for account of withholding taxes, the Pledgor
shall, forthwith upon the declaration of such return, pay to the Pledgee
for the account of the Pledgee an amount equivalent to such tax credit and
such amount shall be deemed a return on the Pledged Shares for the
purposes of this Article 7.
(c) This Agreement shall not in any way be affected by any stamping,
regrouping, splitting or renewal of the Pledged Shares, or by any similar
operation, and the securities resulting from any such operation shall be
part of the Pledged Shares and of this Agreement.
ARTICLE 8 CONTINUING SECURITY AND OTHER MATTERS
8.1 Continuing Security
The pledge created by this Agreement:
(a) shall be a continuing security for the Secured Liabilities, shall remain
in force until released in accordance with Article 11, and shall in
particular not be discharged by reason of the circumstance that there is
at any time no obligation currently owing from the Pledgor to the Pledgee;
(b) shall be in addition to and shall not prejudice or affect, and may be
enforced by the Pledge without prior recourse to, any other Security
Interest or remedy;
(c) shall not be satisfied by any intermediate payment or satisfaction of any
part of the Secured Liabilities or by any settlement of accounts;
(d) shall not be discharged by the entry of any Secured Liabilities into any
current account; in which case this pledge shall secure any, provisional
or final balance of such current account up to the amount in which the
Secured Liabilities were entered therein;
(e) shall not in any way be prejudiced or affected by any change in the
constitution or status of the Company or any other person or by any legal
limitation, disability, incapacity or other circumstances relating to the
Company or any other person, by any invalidity, illegality or
unenforceability of the obligations of any Pledgor or any other person,
and the Company agrees to keep the Pledgee fully indemnified against any
loss suffered as a result of any failure by the Company or any other party
to perform any such obligation or purported obligation.
-9-
8.2 No Subrogation
Until the release of this pledge pursuant to Article 11, the Pledgor shall not
by virtue of any payment made, security realised or monies received hereunder
for or on the account of the Secured Liabilities of any other party be
subrogated to any rights, security or monies held, received or receivable by the
Pledgee or be entitled to any right of contribution or indemnity.
8.3 Preservation of Security in the Event of Novation
In accordance with article 1278 of the Belgian Civil Code and without prejudice
to the scope of the Secured Liabilities, the Pledgor and the Pledgee agree that
in the event of novation of all or any part of the Secured Liabilities or the
change or replacement of the Pledgee, this Agreement will be maintained,
automatically without any further formality or consent, to secure the Secured
Liabilities as novated and in favour of the Pledgee or, as the case may be, the
new Pledgee(s).
8.4 Waiver of Specific Rights
The Pledgor waives, to the extent applicable, the benefit of articles 2037 and
1285, second paragraph of the Belgian Civil Code. The Pledgor waives any,
benefit of discussion or division. None of the references made to such
provisions of the Belgian Civil Code shall be construed as imposing a surety
obligation as "caution personnelle/ persoonlijke borgtocht" on the Pledgor.
ARTICLE 9 POWERS OF PLEDGEE
9.1 Event of Default
At any time on or after a Default that has not been waived in accordance with
the terms of the Loan and Security Agreement:
(a) the Pledgee may, after having sent notice to the Pledgor, request
authorisation from the court to sell the Pledged Shares, in accordance
with the Law of 5 May 1872 on commercial pledges;
(b) any payments which may be received or receivable by the Pledgee in respect
of the pledged Pledged Shares may be applied by it as though they were
proceeds of sale; and
(c) the Pledgee may exercise all rights and remedies it possesses, and may act
generally in relation to the Pledged Shares in such manner as it shall
reasonably determine.
9.2 Application of Proceeds
(a) Subject to any limitations under the Loan and Security Agreement, all
monies received by the Pledgee after the security has become enforceable
shall be applied towards satisfaction of the Secured Liabilities,
including any costs and expenses of the Pledgee without prejudice to the
rights of the Pledgee to recover any shortfall from the Pledgor.
-10-
(b) Should the proceeds of the sale of the Pledged Shares be greater than the
outstanding amount of the Secured Liabilities, the Pledgee shall as soon
as reasonably practicable pay to the Pledgor any such excess, subject to
any limitations under [the Guaranty or] the Loan and Security Agreement.
9.3 Indemnity
The Pledgor shall fully indemnify the Pledgee and every attorney appointed
pursuant hereto in respect of all liabilities and reasonable expenses incurred
by it, in the execution of any rights, powers or discretions vested in it
pursuant hereto, except to the extent that they are determined in a final
non-appealable judgement by a court of competent jurisdiction to have resulted
from the from the gross negligence or willful misconduct of the Pledgee.
9.4 Liability of the Pledgee
The Pledgee shall not be liable for any acts, losses or omissions including,
without limitation, acts, losses or omissions with respect to the exercise of
any of its rights, powers and discretions hereunder, except to the extent that
they are determined in a final non-appealable judgement by a court of competent
jurisdiction to have resulted from the from the gross negligence or willful
misconduct of the Pledgee. The Pledgee shall be under no obligation to take any
steps necessary to preserve any rights in the Pledged Shares against any other
parties but may do so at its option, and all expenses incurred in connection
therewith shall be for the account of the Pledgor and shall be part of the
Secured Liabilities.
ARTICLE 10 ATTORNEY
Subject to fulfillment of the relevant provisions of Belgian law, the Pledgor
hereby irrevocably appoints the Pledgee to be its attorney in its name and on
its behalf to execute any documents which the Pledgee reasonably considers
necessary for perfecting title to or for vesting the pledge on the Pledged
Shares and the Future Shares and to do all such acts and things as may be
necessary, for the full exercise of the powers hereby conferred, including,
after a Default has occurred that has not been waived in accordance with the
terms of the Loan and Security Agreement, any sale or other disposition or
realisation of the Pledged Shares and Future Shares and the Pledgor ratifies and
confirms, and agrees to ratify and confirm any agreement, assurance, instrument,
act or thing which any such attorney may lawfully execute or do.
ARTICLE 11 DURATION AND DISCHARGE
11.1 The present Agreement will remain in full force and effect until full and
complete performance of the Secured Liabilities. This pledge shall be
discharged by, and only by, the express written release thereof granted by
the Pledgee.
11.2 The Pledgee shall, at the Pledgors' cost, grant an express release of this
pledge no earlier than the latest date of the following: (i) all Secured
Liabilities shall have been finally discharged and there is no possibility
of any further Secured Liability coming or re-entering into existence;
(ii) the Loan and Security Agreement has been terminated; and (iii) all
other conditions of the present Agreement have been satisfied. The Pledgee
shall
-11-
inform the Company of such release, and shall provide the Pledgor with a
power of attorney in favour of the agent designated by the Pledgor for the
purpose of recording the release of the pledge in the Company's share
register.
11.3 Any release of this pledge shall be null and void and without effect if
any payment received by the Pledgee and applied towards satisfaction of
all or part of the Secured Liabilities (a) is avoided or declared invalid
as against the creditors of the maker of such payment, or (b) becomes
repayable by the Pledgee to a third party, or (c) proves not to have been
effectively received by the Pledgee. In this case the Pledge will be
entitled to renew the inscription of this pledge in the shareholders'
register of the Company.
ARTICLE 12 LIABILITY TO PERFORM
The Pledgor shall remain liable to observe and perform all its obligations in
respect of their Pledged Shares and any Future Shares, and the Pledgee shall
have no obligations or liability of any kind in connection therewith other than
the duties of the Pledgee.
ARTICLE 13 GENERAL
13.1 Notices
All notices or other communications under or in connection with this Agreement
shall be given in accordance with the provisions of Section 10.19 of the Loan
and Security Agreement.
In addition, a copy of all notices to the Pledgee shall be sent to:
Squire, Xxxxxxx & Xxxxxxx L.L.P.
Xxxxxxxxxx 000, 00-00
0000 Xxxxxxxx- Xxxxxxx
Attn: Xxxxxxx Van der Hauwaert
Telephone: x00 (0) 0 000 00 00
Facsimile: x00 (0) 0 000 00 00
13.2 Expenses
Any and all costs, internal charges and out-of-pocket expenses (including
attorney's disbursements and fees and time charges of attorneys for the Pledgee,
which attorneys may be employees of the Pledgee, and of any expert and agents),
which Pledgee may incur in connection with this Agreement, in particular with
regard to the establishment and perfection of this pledge and the granting of
any release, shall be borne by the Pledgor. The Pledgor shall on first demand
reimburse the Pledgee for any such costs, charges and expenses, and the same
shall be part of the Secured Liabilities.
13.3 No Waiver
No failure or delay by the Pledgee to exercise any right, power or remedy under
this Agreement shall operate as a waiver thereof nor shall any single or partial
exercise or waiver of any right,
-12-
power or remedy. The remedies provided in this Agreement are cumulative and are
not exclusive of any remedies provided by law.
13.4 Severability
Each of the provisions of this Agreement is several and distinct from the others
and if at any time one or more of such provisions is or becomes invalid illegal
or unenforceable the validity, legality and enforceability of the remaining
provisions hereof shall not in any way be affected or impaired thereby.
In case of any such illegality, invalidity or unenforceability, the parties
shall negotiate in good faith with a view to agree on the replacement of such
provision by a provision which is legal, valid and enforceable and which is to
the extent practicable in accordance with the intents and purposes of this
Agreement and which in its economic effect comes as close as practicable to the
provision being replaced.
13.5 Delegation of Powers
The Pledgee shall be entitled, at any time and as often as may be expedient, to
delegate all or any of the powers and discretion vested in it by, this Agreement
in such manner, upon such terms and to such person as the Pledgee in its
absolute discretion may think fit.
13.6 Benefit of this Agreement
This Agreement shall be binding on, and inure for the benefit of, the Pledgor
and the Pledgee.
13.7 Assignment
The Pledgor may not assign or transfer any of its rights or obligations under
this Agreement without the prior written and express authorisation of the
Pledgee.
13.8 Evidence of the Secured Liabilities
A certificate by the Pledgee as to the amount and the terms and conditions of
the Secured Liabilities shall be prima facie evidence of the matters to which it
relates.
13.9 Other Security
This pledge shall not impair the other personal or collateral security the
Pledgee has or in the future will have. The Pledgor expressly agrees that the
pledge established by means of this Agreement and the other elements of security
established or to be established to cover the Secured Liabilities by this pledge
shall supplement each other until settlement in full of the Secured Liabilities.
13.10 Priority [only when there is a main pledge agreement]
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In case of any conflict between this Agreement and the [Main Pledge Agreement]
the provisions of this Agreement shall take priority over the provisions of such
[Main Pledge Agreement].
ARTICLE 14 GOVERNING LAW AND JURISDICTION
14.1 This Agreement shall be governed by and interpreted in accordance with
Belgian law.
14.2 All disputes arising in connection with this Agreement shall be settled
exclusively by the courts of Brussels, without prejudice to the rights of
the Pledgee to take legal action before any other court of competent
jurisdiction.
Done in Brussels, on _____________ 2004 in [four] originals, of which one
original will be attached to the Company's shareholders' register. Each party
acknowledges receipt of its own original.
For the Pledgee, For the Pledgor,
_____________________________________ _____________________________________
Name: Name:
Title: Title:
For the Company,
_____________________________________
Name:
Title:
-00-
XXXXXXXX 0 - XXXXXXXXXXXXXXX
[Xxxxxxxxxx of [COMPANY]]
To: Pledgee
[DATE]
Dear Sir or Madam,
We, [COMPANY], with registered office at [ADDRESS], Enterprise Number [NUMBER]
Commercial Court of [PLACE] (the "Company"), refer to the Share Pledge Agreement
to be executed on or about the date of this declaration, between [PLEDGOR] as
Pledgor and [PLEDGEE] as Pledgee, in respect of [NUMBER] shares in the Company
(the "Pledged Shares"), and hereby declare and acknowledge that:
1. we have not received notice of and are not aware of any transfer of the
Pledged Shares by the Pledgor;
2. we have not received notice of and are not aware of any other pledges over
the Pledged Shares other than the pledge created pursuant to the Share
Pledge Agreement; and
3. we acknowledge the pledge of the Pledged Shares by the Pledgor in favour
of the Pledgee.
Yours faithfully,
[COMPANY]
_____________________________________ _____________________________________
Name: Name:
Title: Title:
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Exhibit 5C to
Loan and Security Agreement
Form of Deposit Account Security Agreement
[See attached]
DEPOSIT ACCOUNT SECURITY AGREEMENT
This DEPOSIT ACCOUNT SECURITY AGREEMENT (the "Security Agreement") is made
and entered into as of May 28, 2004, by and between The Allied Defense Group,
Inc., a Delaware corporation (the "Pledgor"), and Wilton Funding, LLC, a
Delaware limited liability company with its principal offices located in
Westport, Connecticut (the "Lender").
Background
The following is a mutual statement by the parties of certain factual
matters which form the basis of this Security Agreement.
A. Loans. Pledgor and the other Borrowers named in the Loan Agreement
(defined below), and Lender have entered into a certain Loan and Security
Agreement of even date herewith (as the same may be hereafter amended, restated,
modified or supplemented from time to time, the "Loan Agreement") pursuant to
which Lender has agreed to lend to Borrowers term loans in the aggregate maximum
sum of up to $18,000,000 (the "Loan"). The Loan shall be evidenced by and
repayable in accordance with the terms of a promissory note of Borrowers to
Lender (as the same may be hereafter amended, restated, modified or supplemented
from time to time, the "Note"). Capitalized terms used in this Security
Agreement that are not otherwise defined herein shall have the meanings ascribed
to them in the Loan Agreement.
B. Pledge of Securities Account. Lender is willing to enter into the Loan
Agreement upon the condition that (i) Pledgor deposit cash in the deposit
account maintained in the name of Pledgor by Wachovia Bank, National
Association, as depositary bank (the "Bank"), and given Account Number
2000021008254 by the Bank (together with any successor or replacement account,
the "Account") and (ii) Pledgor pledge, assign and grant to Lender a security
interest in the Account and all funds and other items deposited in, credited to
or held for deposit or credit to, the Account, as security for the following
obligations (collectively, the "Secured Obligations"): (i) the payment of the
Note, (ii) the payment of any and all liabilities, obligations and indebtedness
of Borrowers or any of them to Lender of any and every kind and nature, at any
time owing, arising, due or payable and howsoever evidenced, created, incurred,
acquired or owing, whether primary, secondary, direct, contingent, fixed or
otherwise and whether arising or existing under the Loan Agreement or any of the
other Financing Agreements, (iii) the performance by Borrowers of, and
compliance with, all of the terms, covenants, conditions, stipulations and
agreements contained in this Security Agreement, the Loan Agreement, the Note
and the Financing Agreements, (iv) the repayment of (a) any amounts Lender may
advance or spend for the maintenance or preservation of the Collateral (defined
below) and (b) any other expenditures that Lender may make under the provisions
of this Security Agreement or for the benefit of Pledgor, (v) all amounts owed
under any modification, renewals or extensions of any of the foregoing
obligations, and (vi) any of the foregoing that arises after the filing of a
petition by or against Pledgor under the Bankruptcy Code, even if the
obligations do not accrue because of the automatic stay under Bankruptcy Code
ss.362 or otherwise.
Statement of Agreement
For good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties hereto covenant and agree as follows:
ARTICLE I
SECURITY INTEREST
Section 1.1. Grant of Security Interest. Pledgor hereby assigns to Lender
and grants a security interest in all of Pledgor's right, title and interest in
and to the Account and in and to the following:
(a) any checks, drafts, instruments, cash and other items at any
time received for deposit in the Account;
(b) any wire transfers of funds, automated clearing house ("ACH")
entries, credits from merchant card transactions and other electronic
funds transfers or other funds deposited in, credited to, or held for
deposit in or credit to, the Account, either now or in the future;
(c) all books and records relating thereto, whether presently
existing or hereafter created;
(d) all of the existing and future proceeds of any of the foregoing,
or any other disposition of the foregoing, including but not limited to,
any interest payment or other distribution of cash or property in respect
thereof; and
(e) any existing and future rights incidental to the ownership of
any of the foregoing
(all of the foregoing referred to herein as the "Collateral").
Pledgor grants to Lender a further security interest in the Collateral and
in the Account interest to the extent that the Account is property separate from
the Collateral.
Section 1.2. Secured Obligations. The security interest granted by Pledgor
to Lender herein secures all of Borrowers' obligations arising out of the
Secured Obligations, and extends to any renewal, refinancing, refunding,
extension, restatement or modification of any Secured Obligations on one or more
occasions and to any interest that accrues on any of the Secured Obligations
before or after the bankruptcy of any Borrower.
Section 1.3. Control Agreement. Simultaneously with the execution and
delivery of this Security Agreement, the Bank has executed and delivered a
certain Deposit Account Control Agreement of even date herewith (the "Control
Agreement") for the purpose of, among other things, perfecting the security
interest granted by Pledgor to Lender herein.
Section 1.4. [Reserved].
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Section 1.5. Duty of Lender. If Lender takes possession of any of the
Collateral, the duty of Lender with respect to the Collateral shall be solely to
use reasonable care in the physical custody thereof, and Lender shall not be
under any obligation to take any action with respect to any of the Collateral or
to preserve rights against prior parties. The powers conferred on Lender
hereunder are solely to protect its interest in the Collateral and do not impose
any duty upon it to exercise any such powers. Pledgor is not looking to Lender
to provide it with investment advice. Lender shall have no duty to ascertain or
take any action with respect to any matters concerning any Collateral whether or
not Lender has or is deemed to have knowledge of such matters, or as to the
taking of any necessary steps to preserve any rights pertaining to any
Collateral. Lender shall have no duty to exercise reasonable care to preserve
the value of any of the Collateral.
Section 1.6. Subsequent Changes Affecting Collateral. Pledgor acknowledges
that it has made its own arrangements for keeping informed of changes or
potential changes affecting the Collateral and Pledgor agrees that Lender has no
responsibility to inform Pledgor of such matters or to take any action with
respect thereto.
Section 1.7. Return of Collateral. Subject to the provisions of Section
4.4 of the Loan Agreement and Section 1.9 hereof, the security interest granted
to Lender hereunder shall not terminate and Lender shall not be required to
return the Collateral to Pledgor or to terminate its security interest therein,
including notifying the Bank, unless and until the earliest to occur of the
following:
(i) (a) the Secured Obligations shall have been fully paid or
performed and Lender has no obligation to extend further credit to any
Borrower, (b) all of Pledgor's obligations hereunder shall have been fully
paid or performed, (c) the obligations of Borrowers under the Financing
Agreements shall have been discharged or released, and (d) Pledgor shall
have reimbursed Lender for any reasonable expenses of returning the
Collateral and filing any termination statements and other instruments as
are required to be filed in any offices under applicable laws; or
(ii) with respect to any four (4) consecutive fiscal quarters of the
Company commencing on or after January 1, 2005, the Company's Domestic
Senior Leverage Ratio (as defined in the Loan Agreement) for each trailing
twelve (12) month period ending on the last day of each such quarter shall
have been less than 2.5:1.0 at the end of each of such quarters and prior
to such time, no Event of Default shall have occurred hereunder or under
the Loan Agreement or any of the Financing Agreements; provided, however,
that in accordance with the provisions of Section 4.4 of the Loan
Agreement, Lender's security interest in the Additional Cash Collateral,
if any, shall continue and such funds shall continue to be held in the
Account (subject to disbursement as provided in Section 4.4 of the Loan
Agreement) notwithstanding the satisfaction of the conditions set forth in
this clause (ii).
Pledgor shall cause its Quarterly Compliance Certificate delivered to
Lender pursuant to Section 7.1(c) of the Loan Agreement to include a calculation
of its Domestic Senior Leverage Ratio for the trailing twelve (12) month period
as of the end of each applicable quarter.
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Section 1.8. Tax Reporting. All items of income, gain, expense and loss
recognized in the Account shall be reported to the Internal Revenue Service and
all state and local taxing authorities under the name and taxpayer
identification number of Pledgor.
Section 1.9. Collateral Requirement. Pledgor represents, warrants and
covenants that, at all times during the term hereof, the sum of the cash held in
the Account shall not be less than the applicable amount set forth below based
upon the outstanding principal balance of the Loan as of the applicable date of
determination (the "Collateral Requirement"):
Outstanding Principal Balance of the Loan Required Cash Balance of Account
----------------------------------------- --------------------------------
$0.01 - $5,000,000.00 $2,000,000
$5,000,000.01 - $6,000,000.00 $2,750,000
$6,000,000.01 - $7,000,000.00 $3,500,000
$7,000,000.01 - $8,000,000.00 $4,250,000
$8,000,000.01 - $9,000,000.00 $5,000,000
$9,000,000.01 - $10,000,000.00 $5,750,000
$10,000,000.01 - $18,000,000.00 $6,000,000
; provided, however, that if the outstanding principal balance of the Loan as of
the end of any fiscal quarter of the Pledgor exceeds $10,000,000, then the
Collateral Requirement shall be increased by an amount equal to the lesser of
(a) the amount by which the outstanding principal balance of the Loan as of such
date exceeds $10,000,000 and (b) amount (if any) by which $13,000,000 exceeds
the VSK Group Equity Value (defined below) as of such date. In addition, if
Pledgor elects to deposit the Additional Cash Collateral into the Account in
accordance with the provisions of Section 4.4 of the Loan Agreement, then the
Collateral Requirement shall be increased by the amount of such additional
deposit and the security interest granted hereunder in such funds shall continue
and such funds shall continue to be held in the Account until the earlier of (A)
the payment in full of the Subordinated Debt or (B) the payment in full of the
Liabilities and the termination of the Lender's obligation under the Loan
Agreement to extend further credit to the Borrowers.
As used herein, "VSK Group Equity Value" as of any date of determination
shall mean the sum of (i) the product of (a) five (5) multiplied by (b) the
consolidated EBITDA of the VSK Group for the prior four (4) fiscal quarters of
the VSK Group plus (ii) the consolidated amount of unrestricted cash and cash
equivalents of the VSK Group as of such date minus (iii) the VSK Group Funded
Debt (defined below) as of such date, all as determined in accordance with GAAP.
"VSK Group Funded Debt" means, for any date of determination, the VSK Group's
consolidated total liabilities, as they would normally be shown on the
consolidated balance sheet of the VSK Group, (i) if VSK Electronics has not
theretofor granted to any Person (other than Lender) a lien on, security
interest in or pledge of any shares of any Subsidiary of VSK Electronics, minus
liabilities (other than of the type referred to in the following subsections
(ii) through (iv)) which do not accrue interest, (ii) plus the face amount of
letters of credit issued and outstanding for the account of any member of the
VSK Group (to the extent not included therein), (iii) plus capital and synthetic
lease obligations (to the extent not included therein), (iv) plus guaranty or
surety obligations of any member of the VSK Group with respect to the
indebtedness of any other person (to the extent not included therein), (v) plus
liabilities owed to
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any other Foreign Subsidiaries (including, without limitation, those which do
not accrue interest), all as determined in accordance with GAAP.
Pledgor shall cause its Quarterly Compliance Certificate delivered to
Lender pursuant to Section 7.1(c) of the Loan Agreement to include a calculation
of the Collateral Requirement and the VSK Group Equity Value.
If at any time the cash balance of the Account falls below the Collateral
Requirement, Pledgor shall, within five Business Days after its receipt of
written notice thereof from Lender, deposit in the Account additional cash such
that the sum of the cash held in the Account equals or exceeds the Collateral
Requirement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Pledgor hereby represents and warrants to Lender as follows:
Section 2.1. Enforceability. This Security Agreement and the Control
Agreement have been duly executed and delivered by Pledgor, constitute Pledgor's
valid and legally binding obligations and are enforceable in accordance with
their respective terms against Pledgor.
Section 2.2. No Conflict. The execution, delivery and performance of this
Security Agreement and the Control Agreement, the grant of the security interest
in the Collateral hereunder and the consummation of the transactions
contemplated hereby and thereby will not, with or without the giving of notice
or the lapse of time, (a) violate any material law applicable to Pledgor; (b)
violate any judgment, writ, injunction or order of any court or governmental
body or officer applicable to Pledgor; (c) violate or result in the breach of
any material agreement to which Pledgor is a party or by which any of Pledgor's
properties, including the Collateral is bound; or (d) violate any restriction on
the transfer of any of the Collateral.
Section 2.3. No Consents. No consent, approval, license, permit or other
authorization of any third party (other than the Bank) or any governmental body
or officer is required for the valid and lawful execution and delivery of this
Security Agreement and the Control Agreement, the creation and perfection of
Lender's security interest in the Collateral or the valid and lawful exercise by
Lender of remedies available to it under this Security Agreement, the Control
Agreement or applicable law or of the rights granted to it in this Security
Agreement or the Control Agreement.
Section 2.4. Account. Pledgor has provided Lender with a complete and
accurate statement of the cash credited to the Account as of the date hereof, a
copy of which is attached hereto as Exhibit A.
Section 2.5. Security Interest. Pledgor is the sole owner of the
Collateral free and clear of all liens, encumbrances and adverse claims (other
than those created by this Security Agreement), has the unrestricted right to
grant the security interest provided for herein to Lender and has granted to
Lender a valid and perfected first priority security interest in the Collateral
free of all liens, encumbrances, transfer restrictions and adverse claims.
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ARTICLE III
COVENANTS
Pledgor hereby covenants and agrees with Lender that Pledgor shall:
Section 3.1. Defend Title. Defend Pledgor's title to the Collateral and
the security interest of Lender therein against the claims of any person
claiming rights in the Collateral against or through Pledgor and maintain and
preserve such security interest so long as this Security Agreement shall remain
in effect.
Section 3.2. No Withdrawals or Transfer. Without Lender's specific prior
written consent, neither withdraw the Collateral from the Account nor sell nor
offer to sell nor otherwise transfer nor encumber any portion of the Collateral.
Section 3.3. Control and Customer Agreements. Neither attempt to modify
nor attempt to terminate the Control Agreement, the commercial deposit account
agreement between Pledgor and the Bank or any other agreement with the Bank
relating to the Account.
Section 3.4. Further Assurances.
(a) At Pledgor's expense, do such further acts and execute and deliver
such additional conveyances, certificates, instruments, legal opinions and other
assurances as Lender may at any time request or require to protect, assure or
enforce its interests, rights and remedies under this Security Agreement.
Pledgor hereby authorizes Lender to file with the appropriate governmental
offices in the State of Delaware, and/or any other state(s) and/or
jurisdiction(s) reasonably desired by Lender, one or more Uniform Commercial
Code ("UCC") financing statements describing the Collateral, or amendments or
continuations thereof whenever necessary to continue the perfection of Lender's
security interest hereunder and whenever desired by Lender.
(b) Promptly deliver any certificate or instrument constituting or
representing any of the Collateral, it may obtain possession of from time to
time, to the Bank for credit to the Account, forthwith duly indorsed in blank
without restriction.
(c) Promptly deliver to Lender any endorsements or instruments which may
be necessary or convenient to transfer any Collateral which is registered in the
name of, payable to the order of, or specially indorsed to Pledgor or its
securities or to one of their respective nominees.
Section 3.5. Name and Address. Notify Lender of any change of Pledgor's
name or the address of Pledgor's principal place of business at least thirty
(30) days prior to any such change.
Section 3.6. Statements. Send or cause the Bank to send to Lender a
monthly (or such shorter period as Lender may reasonably require from time to
time) statement of the Account in reasonable detail as of a date not more than
three (3) business days prior to the date of delivery, and a complete and
accurate copy of every other statement, confirmation, notice or other
communication concerning the Collateral that the Bank sends to Pledgor. All
information furnished by Pledgor concerning the Collateral or otherwise in
connection with this Security Agreement is, or shall be at the time the same is
furnished, accurate, correct and complete in all material respects.
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Section 3.7. Advice. Advise Lender promptly, completely, accurately, in
writing and in reasonable detail (a) of any material encumbrance upon or claim
asserted against any of the Collateral of which Pledgor is aware; and (b) of the
occurrence of any event of which Pledgor is aware, other than changes in general
market conditions adequately reported in the general news media, that would have
a material adverse effect upon the aggregate value of the Collateral or upon the
security interest of Lender.
ARTICLE IV
DEFAULT
Section 4.1. Events of Default. An Event of Default shall mean the
occurrence of one or more of the following described events:
(a) If Borrowers fail to pay or perform, as the case may be, any of the
Secured Obligations when the same become due and payable or performable, as the
case may be, after the expiration of any applicable cure or notice provisions;
or
(b) If at any time the sum of the cash held in the Account falls below the
Collateral Requirement; or
(c) If an event of default occurs under any of the Financing Agreements or
any other agreement between Lender and Borrowers after the expiration of any
applicable cure or notice provisions; or
(d) If any lien, interest, charge and/or encumbrance is created in, on,
and/or with respect to the Collateral or the Account or any part thereof, or if
any levy, seizure, or attachment of the Collateral or the Account or any part
thereof occurs; or
(e) If any sale, attempted sale, or any other disposition of the
Collateral or the Account or any interest in either occurs, without the prior
written consent of Lender; or
(f) If the Collateral or the Account should become the subject matter of
litigation which might, in the opinion of Lender, result in substantial
impairment or loss of the security intended to be provided by this Security
Agreement; or
(g) If any of the following shall occur by or to Pledgor: any general
assignment for the benefit of creditors; the filing of any petition for relief
under the provisions of the Bankruptcy Code or the Bankruptcy Act, or for relief
under any insolvency law, either voluntarily or involuntarily; or the merger,
consolidation or appointment of a receiver of any part of the property of
Pledgor; or
(h) If Pledgor fails to perform any obligation or violates any covenant
contained in this Security Agreement, other than those referred to in paragraphs
(a) or (b) above, and such failure or violation continues for a period of thirty
(30) days after Lender requests Pledgor to remedy such failure or violation; or
-7-
(i) If either or both of Pledgor or the Bank, respectively, shall fail to
perform any obligation or shall violate any covenant contained in the Control
Agreement, including the acknowledgement attached thereto; or
(j) If any representation or warranty made by Pledgor in this Security
Agreement, the Control Agreement or any information contained in any financial
statement or other document delivered to Lender by or on behalf of Pledgor
contains any untrue statement of a material fact or omits to state a material
fact necessary to make the statements therein not misleading in light of the
circumstances in which they were made; or Pledgor shall be in default and Lender
shall have, in addition to any other remedies available to it under Section 4.2
below and under the law or any agreement, the rights and remedies of a secured
party under Article 9 of the UCC.
Section 4.2. Remedies.
(a) If an Event of Default has occurred and is continuing, Lender may, in
its discretion, take one or more of the following actions: (i) deliver a notice
of exclusive control under the Control Agreement to the Bank and upon any such
notice shall be entitled directly or as the agent of Pledgor to do any of the
following: (A) sell the Collateral at public or private sale, and dispose of the
proceeds of such sale, all in accordance with the requirements of the Uniform
Commercial Code or other law regulating such sale; (B) recover the reasonable
expenses of preparing the Collateral for sale and for selling the Collateral, or
for collecting any amounts due under any of the Collateral, and other like
expenses, together with court costs and reasonable attorneys' fees incurred in
realizing upon the Collateral or enforcing any provision of this Security
Agreement; (C) notify the issuers of any securities that are part of the
Collateral, makers of any notes or bonds that are part of the Collateral, or any
other obligors on any other part of the Collateral, and require such obligors to
make payment directly to Lender whether or not Pledgor was theretofore making
collections on any of the Collateral; (D) endorse, receive and give receipt for,
all dividends, interest, principal payments and other sums now or hereafter
payable on, or on account of, the Collateral, and proceed against the obligors
on any of the Collateral by any legal or equitable means in its own name and
with or without the consent or assistance of Pledgor to the same extent as
Pledgor could have if this Security Agreement had not been entered into,
provided that Pledgor shall assist Lender in bringing or maintaining any suit to
enforce any obligations evidenced by any of the Collateral; and provided further
that in connection therewith, Lender may make any compromise or settlement with
respect to the Collateral that Lender deems desirable or proper; and (E) retain
the Collateral and become the owner thereof, in accordance with the UCC; (ii)
cause the Account to be reregistered in its sole name or transfer the Account to
another bank in its sole name; (iii) remove any Collateral from the Account and
deposit such Collateral in another deposit account in its name or in the name of
its agent or nominee or any of their nominees; (iv) take immediate possession of
any Collateral not in the possession of the Bank without requirement of any
notice, demand or legal process; (v) sell the Collateral at public or private
sale, and dispose of the proceeds of any such sale in accordance with the UCC;
(vi) recover the reasonable expenses of selling the Collateral or the Account
and other like expenses, together with court costs and reasonable attorneys'
fees incurred in realizing on the Collateral or the Account or enforcing any
provision of this Security Agreement; (vii) proceed by appropriate legal process
to enforce any provision of this Security Agreement or in aid of the execution
of power of sale, or for foreclosure of the security interest of Lender or for
the sale of the Collateral or of the Account under the judgment or decree of any
court; (viii) exchange certificates representing any of the Collateral for
certificates of larger or smaller denominations, or reduce the
-8-
same to cash; (ix) exercise any voting, conversion, registration, purchase or
other rights of a holder of any of the Collateral and any reasonable expense of
such exercise shall be deemed to be an expense of preserving the value of such
Collateral for the purposes of Section 5.1 below; or (x) collect, including by
legal action, any notes, checks or other instruments for the payment of money
included in the Collateral and compromise or settle with any obligor of such
instruments.
(b) If notice of the time and place of any public sale of the Collateral
or the time after which any private sale or other intended disposition is
required by the UCC, Pledgor acknowledges that five (5) days advance notice
thereof will be a reasonable notice. Lender shall not be obligated to make any
sale of Collateral regardless of notice of sale having been given. Lender may
adjourn any public or private sale from time to time by announcement at the time
and place fixed therefor, and such sale may, without further notice, be made at
the time and place to which it was so adjourned.
(c) If, under the UCC, Lender may purchase any part of the Collateral, it
may in payment of any part of the purchase price thereof, cancel any part of the
Secured Obligations.
(d) If any of the Collateral is sold on credit or for future delivery, it
need not be retained by Lender until the purchase price is paid and Lender shall
incur no liability if the purchaser fails to take up or pay for such collateral.
In case of any such failure, such collateral may be sold again.
(e) Pledgor shall execute and deliver to the purchasers of the Collateral
all instruments and other documents necessary or proper to sell, convey, and
transfer title to such Collateral and, if approval of any sale of Collateral by
any governmental body or officer is required, Pledgor shall prepare or cooperate
fully in the preparation of and cause to be filed with such governmental body or
officer all necessary or proper applications, reports, and forms and do all
other things necessary or proper to expeditiously obtain such approval.
(f) Any cash held by Lender as Collateral and all cash proceeds of any
sale of, collection from, or other realization upon all or any part of the
Collateral may, in the discretion of Lender, be held by Lender as collateral
for, or then or at any time thereafter be applied (after payment of any amounts
payable to Lender pursuant to Article 5 below) in whole or in part against, all
or any part of the Secured Obligations in such order as Lender may elect. Any
surplus of such cash or cash proceeds held by Lender and remaining after payment
in full of all of Lender's expenses hereunder and the Secured Obligations shall
be paid over to Pledgor or to whomever may be lawfully entitled to receive such
surplus.
(g) Upon Lender's giving notice of exclusive control, Lender shall have
the rights and obligations of a secure party in possession of collateral under
the Uniform Commercial Code with respect to the Collateral and shall have the
right to take actions with respect to the Collateral as set forth in this
Security Agreement.
Section 4.3. Appointment of Lender as Agent. Pledgor hereby appoints and
constitutes Lender, its successors and assigns, as its agent and
attorney-in-fact for the purpose of carrying out the provisions of this Security
Agreement and taking any action or executing any instrument that Lender
considers necessary or convenient for such purpose, including the power to
indorse and deliver checks, notes and other instruments for the payment of money
in the name of and on behalf
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of Pledgor, and to execute and file in the name of and on behalf of Pledgor
financing statements (which may be photocopies of this Security Agreement) and
continuations and amendments to financing statements in the State of Delaware or
elsewhere. This appointment is coupled with an interest and is irrevocable and
will not be affected by the bankruptcy of Pledgor nor by the lapse of time. If
Pledgor fails to perform any act required by this Security Agreement, Lender may
perform such act in the name of and on behalf of Pledgor and at its expense
which shall be chargeable to Pledgor under Article 5 below. Pledgor hereby
consents and agrees that the issuers of or obligors on the Collateral or any
other person shall be entitled to accept the provisions hereof as conclusive
evidence of the rights of Lender to effect any transfer pursuant to this
Security Agreement and the authority granted to Lender herein, notwithstanding
any other notice or direction to the contrary heretofore or hereafter given by
Pledgor, or any other person, to any of such parties.
ARTICLE V
EXPENSES
Section 5.1. Payment. Pledgor agrees that it will forthwith upon demand
pay to Lender:
(a) the amount of any taxes which Lender may have been required to pay by
reason of holding the Collateral or to free any of the Collateral from any lien,
encumbrance or adverse claim thereon, and
(b) the amount of any and all reasonable out-of-pocket expenses, including
the reasonable fees and disbursements of counsel and of any brokers, investment
brokers, appraisers or other experts, that Lender may incur in connection with
(i) the administration or enforcement of this Security Agreement, including such
expenses as are incurred to preserve the value of the Collateral and the
validity, perfection, rank and value of Lender's security interest therein, (ii)
the collection, sale or other disposition of any of the Collateral, (iii) the
exercise by Lender of any of the rights conferred upon it hereunder, or (iv) any
action or proceeding to enforce its rights under this Security Agreement or in
pursuit of any nonjudicial remedy hereunder including the sale of the
Collateral.
Any such amount not paid on demand shall bear interest (computed on the
basis of the number of days elapsed over a year of three hundred sixty (360)
days) at the default rate of interest provided for in the Financing Agreements.
Section 5.2. Indemnity. Pledgor shall indemnify Lender and its managers,
members, officers, employees, agents and attorneys against, and hold them
harmless from, any liability, cost or expense, including the reasonable fees and
disbursements of their legal counsel, incurred by any of them under the
corporate or securities laws applicable to holding or selling any of the
Collateral, except for liability, cost or expense arising out of the
recklessness or willful misconduct of the indemnified parties.
Section 5.3. Discharge of Liens. At its option, ten (10) days after notice
to Pledgor, Lender may pay and discharge taxes, liens, security interests or
other encumbrances on the Collateral. Pledgor agrees to reimburse Lender under
Section 5.1 above for any payment made or any expense incurred (including
reasonable attorneys' fees) by Lender pursuant to the foregoing authorization.
-10-
ARTICLE VI
MISCELLANEOUS
Section 6.1. Entire Agreement. This Security Agreement, the schedules and
exhibits hereto, and the agreements and instruments required to be executed and
delivered hereunder and the Financing Agreements set forth the entire agreement
of the parties with respect to the subject matter hereof and supersede and
discharge all prior agreements (written or oral) and negotiations and all
contemporaneous oral agreements concerning such subject matter and negotiations.
There are no oral conditions precedent to the effectiveness of this Security
Agreement.
Section 6.2. Non-Waiver. Neither the failure of nor any delay by any party
to this Security Agreement to enforce any right hereunder or to demand
compliance with its terms is a waiver of any right hereunder. No action taken
pursuant to this Security Agreement on one or more occasions is a waiver of any
right hereunder or constitutes a course of dealing that modifies this Security
Agreement.
Section 6.3. Waivers. No waiver of any right or remedy under this Security
Agreement shall be binding on any party unless it is in writing and is signed by
the party to be charged. No such waiver of any right or remedy under any term of
this Security Agreement shall in any event be deemed to apply to any subsequent
default under the same or any other term contained herein.
Section 6.4. Amendments. No amendment, modification or termination of this
Security Agreement shall be binding on any party hereto unless it is in writing
and is signed by the party to be charged.
Section 6.5. Severability. Wherever possible, each provision of this
Security Agreement shall be interpreted in such manner as to be effective and
valid under applicable law, but if any provision of this Security Agreement
shall be prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provisions or the remaining provisions of
this Security Agreement
Section 6.6. Successors. The terms of this Security Agreement shall be
binding upon Pledgor, its successors and assigns, and shall inure to the benefit
of Lender, its corporate successors and any holder, owner or assignee of any
rights in any of the Financing Agreements and will be enforceable by them as
their interest may appear.
Section 6.7. Third Parties. Nothing herein expressed or implied is
intended or shall be construed to give any person other than the parties hereto
any rights or remedies under this Security Agreement.
Section 6.8. Saturdays, Sundays and Holidays. Where this Security
Agreement authorizes or requires a payment or performance on a Business Day,
such payment or performance shall be deemed to be timely if made on the next
succeeding Business Day.
Section 6.9. Rules of Construction; Definitions. In this Security
Agreement, words in the singular number include the plural, and in the plural
include the singular, words of the masculine
-11-
gender include the feminine and the neuter, and when the sense so indicates
words of the neuter gender may refer to any gender and the word "or" is
disjunctive but not exclusive. The captions and section numbers appearing in
this Security Agreement are inserted only as a matter of convenience. They do
not define, limit or describe the scope or intent of the provisions of this
Security Agreement.
Section 6.10. Notices. Except as otherwise expressly provided herein, any
notice required or desired to be served, given or delivered pursuant to this
Security Agreement shall be in writing, and shall be sent by manual delivery,
facsimile transmission, overnight courier or United States mail (postage
prepaid) addressed to the party to be notified as follows:
If to Lender, to: Wilton Funding, LLC
c/o Patriot Capital Funding, Inc.
00 Xxxxxx Xxxx, 0xx Xxxxx
Xxxxxxxx, Xxxxxxxxxxx 00000
Attn: Xxxxxxx X. Xxxxxxx
Facsimile: (000) 000-0000
with a copy to: Squire, Xxxxxxx & Xxxxxxx L.L.P.
0000 Xxxxxxxxxx Xxxxxx
00 Xxxxx Xxxx Xxxxxx
Xxxxxxxx, Xxxx 00000
Attn: Xxxxxxx X. Sugar, Esq.
Facsimile: (000) 000-0000
If to Pledgor: The Allied Defense Group, Inc.
0000 Xxxxxx Xxxxxxxx Xxxxx, Xxxxx 000
Xxxxxx, Xxxxxxxx 00000
Attn: Xxxxxxx X. Xxxxxx, Chief
Financial Officer
Facsimile: (000) 000-0000
with a copy to: Baxter, Baker, Xxxxx, Conn & Xxxxx, P.A.
000 X. Xxxxxxxxx Xxxxxx
Xxxxxxxxx, Xxxxxxxx 00000
Attn: Xxxxx X. Xxxxx, Xx., Esq.
Facsimile: (000) 000-0000
or, as to each party, addressed to such other address as shall be designated by
such party in a written notice to the other parties. All such notices shall be
deemed given on the date of delivery if manually delivered, on the date of
sending if sent by facsimile transmission, on the first business day after the
date of sending if sent by overnight courier, or three (3) days after the date
of mailing if mailed.
Section 6.11. Counterparts. This Security Agreement may be executed in any
number of counterparts, all of which shall constitute one and the same
instrument, and any party hereto may execute this Security Agreement by signing
and delivering one or more counterparts. Facsimile
-12-
signatures on this Security Agreement and any subsequent amendment hereto shall
be considered as original signatures.
Section 6.12. Governing Law; etc.
(a) Choice of Law. This Security Agreement shall be construed in all
respects in accordance with, and governed by, the laws and decisions of (without
regard to the conflict of laws provisions) the State of New York and the laws,
regulations and decisions of the United States applicable to national banks.
(b) Consent to Jurisdiction. WITH RESPECT TO ANY AND ALL ACTIONS, CAUSES
OF ACTION, SUITS, CLAIMS, DEMANDS, DEBTS, DAMAGES, COSTS AND EXPENSES,
WHATSOEVER, WHETHER BASED ON STATUTE, COMMON LAW, PRINCIPLES OF EQUITY OR
OTHERWISE, ARISING OUT OF ANY MATTER, THING OR EVENT WHICH IS DIRECTLY OR
INDIRECTLY RELATED TO THIS SECURITY AGREEMENT, THE CONTROL AGREEMENT AND/OR ONE
OR MORE OF THE OTHER FINANCING AGREEMENTS, PLEDGOR CONSENTS TO THE JURISDICTION
OF ANY LOCAL, STATE, OR FEDERAL COURT LOCATED WITHIN THE CITY OF NEW YORK, NEW
YORK AND WAIVES ANY OBJECTION WHICH PLEDGOR MAY HAVE BASED ON IMPROPER VENUE OR
FORUM NON CONVENIENS TO THE CONDUCT OF ANY PROCEEDING IN ANY SUCH COURT AND
WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON PLEDGOR, AND CONSENTS THAT
ALL SUCH SERVICE OF PROCESS BE MADE BY MAIL OR MESSENGER DIRECTED TO PLEDGOR AT
THE ADDRESS SET FORTH IN SECTION 6.10. SERVICE, SO MADE, SHALL BE DEEMED TO BE
COMPLETE UPON THE EARLIER OF ACTUAL RECEIPT OR THREE (3) DAYS AFTER THE SAME
SHALL HAVE BEEN POSTED. PLEDGOR ALSO AGREES THAT IT SHALL NOT COMMENCE OR
MAINTAIN ANY ACTION IN ANY COURT OR ADMINISTRATIVE AGENCY OR OTHER TRIBUNAL
OTHER THAN ANY LOCAL, STATE, OR FEDERAL COURT LOCATED WITHIN THE CITY OF NEW
YORK, NEW YORK WITH RESPECT TO THIS SECURITY AGREEMENT, THE CONTROL AGREEMENT,
OR ANY OF THE OTHER FINANCING AGREEMENTS, ANY OF THE TRANSACTIONS PROVIDED FOR
OR CONTEMPLATED IN ANY OF THE FINANCING AGREEMENTS OR ANY CAUSE OR ACTION OR
ALLEGED CAUSE OF ACTION ARISING OUT OF OR IN CONNECTION WITH ANY RELATIONSHIP
BETWEEN LENDER, PLEDGOR OR ANY BORROWER THAT MAY EXIST FROM TIME TO TIME. AT THE
OPTION OF LENDER, PLEDGOR WAIVES, TO THE EXTENT PERMITTED BY LAW, TRIAL BY JURY,
AND WAIVES ANY BOND OR SURETY OR SECURITY UPON SUCH BOND WHICH MIGHT, BUT FOR
THIS WAIVER, BE REQUIRED OF LENDER.
Section 6.13. Acknowledgement. Pledgor acknowledges that Pledgor has
received a copy of this Security Agreement and each of the Financing Agreements,
as fully executed by the parties thereto. Pledgor acknowledges that Pledgor (a)
HAS READ THIS SECURITY AGREEMENT AND THE OTHER FINANCING AGREEMENTS OR HAS
CAUSED SUCH DOCUMENTS TO BE EXAMINED BY PLEDGOR'S REPRESENTATIVES OR ADVISORS;
(b) is thoroughly familiar with the transactions contemplated in this Security
Agreement and the other Financing Agreements; and (c) has had the opportunity to
ask such questions to representatives of Lender and the other Borrowers, and
receive answers thereto, concerning the terms and conditions of the
-13-
transactions contemplated in this Security Agreement and the other Financing
Agreements as Pledgor deems necessary in connection with Pledgor's decision to
enter into this Security Agreement. Pledgor represents that this Security
Agreement and the Financing Agreements have been examined on behalf of Pledgor
by its representatives or advisors, and that those representatives and/or
advisors have explained this Security Agreement and the Financing Agreements and
their legal, business and financial implications to Pledgor to the satisfaction
of Pledgor.
-14-
IN WITNESS WHEREOF, the parties hereto, by their officers thereunto duly
authorized, as applicable, have executed and delivered this Security Agreement
as of the day and year first above written.
PLEDGOR:
THE ALLIED DEFENSE GROUP, INC.,
a Delaware corporation
By: ___________________________________
Name: _________________________________
Title: ________________________________
LENDER:
WILTON FUNDING, LLC,
a Delaware limited liability company
By: ___________________________________
Name: _________________________________
Title: ________________________________
-15-
EXHIBIT A
Account Statement
[See attached]
Exhibit 6A to
Loan and Security Agreement
Disclosure Schedule
Part 1: Judgments, Litigation, Claims and Proceedings
The first two (2) paragraphs of Note L to the Company's 2003
financial statements are incorporated herein by reference.
Part 2: Defaults and Disputes
Titan has been advised that it is in default of a small U.S.
government pyrotechnics contract.
Part 3: Licenses, Patents, Copyrights, Trademarks, Trade Names and
Applications
Titan Dynamics Systems, Inc.
U.S. Patent No. Date of Issue
--------------- -------------
5,235,127 08-10-93
5,996,500 12-07-99
6,205,927 03-27-01
6,354,033 03-12-02
Seaspace Corporation
U.S. Trademark Date of Issue
-------------- -------------
"TeraScan" - 03-14-89
Serial No. 73/724,609
Registration No. 1,529,448
"SeaSpace" - 11-15-83
Serial No. 73/379,449
Registration No. 1,258,015
News/Sports Microwave Rental, Inc.
U.S. Patent No. Date of Issue
--------------- -------------
6,046,706 04-04-00
Part 4: Security Interests, Liens, Claims and Encumbrances
None
Part 5: Locations of Borrower's Assets
(a) The Allied Defense Group, Inc.
0000 Xxxxxx Xxxxxxxx Xxxxx, Xxxxx 000
Xxxxxx, Xxxxxxxx 00000
News/Sport Microwave Rental, Inc.
0000 Xxx Xxxxxx Xxx, Xxxxx X
Xxxxxx Xxxxxx, Xxxxxxxxxx 00000
Titan Dynamics Systems, Inc.
000 Xxxxxx Xxxxxx
Xxxxxxxx, Xxxxx 00000
SeaSpace Corporation
00000 Xxxx Xxxxx
Xxxxx, Xxxxxxxxxx 00000
VSK Electronics X.X.
Xxxxxxxxxxx, 00
X-0000 Xxxxxxxxx
Xxxxxxx
IDCS, N.V.
Industriezone "Xx Xxxxx Xxxx"
Xxxxxxxxxxxx, 0
X-0000 Xxxxxxx
Xxxxxxx
Tele Technique Generale S.A.
Zoning Industriel Ovest
B-6220 Heppignies
Belgium
Belgian Automation Units, N.V.
Venetielaan, 39
B-8530 Harelbeke
Belgium
MECAR USA, Inc.
000 Xxxxxx Xxxxxx
Xxxxxxxx, Xxxxx 00000
Vigitec S.A.
Waterranonkelstraat
Xxx xx xx Xxxxxxxxxxxxx, 0X
X-0000 Xxxxxxxx
Xxxxxxx
Allied Research Corporation Limited
X.X. Xxx 00
Xxxxxxxxx
Xxxxxxxxxxxxx X0X 0XX
Xxxxxx Xxxxxxx
ARC Europe X.X.
Xxx Xxxxxxxx, 00
0000 Xxxxx Xxxxxx xxx Xxxxxxxx
Xxxxxxx
(x) All locations listed in Part 5(a) are leased except for the
locations of the VSK Group which are owned facilities.
Part 6: Tax Liability Claims
None
Part 7: Other Indebtedness
None
Part 8: Other Names Used by Borrower
NS Microwave
Part 9: Affiliates
None except MECAR S.A. and its Subsidiaries
Part 10: Environmental Matters
None
Exhibit 7A to
Loan and Security Agreement
Compliance Certificate
[See attached]
Compliance Certificate
Pursuant to Section 7.1 of the Loan and Security Agreement dated as of May
28, 2004 (as the same may be amended, replaced, restated or supplemented from
time to time, the "Loan Agreement") by and among THE ALLIED DEFENSE GROUP, INC.,
a Delaware corporation (the "Company"), and certain of its subsidiaries named
therein, as borrowers (collectively referred to as "Borrowers"), and WILTON
FUNDING, LLC, a Delaware limited liability company, as lender (referred to as
"Lender"), the undersigned certifies to Lender as follows:
1. The consolidated financial statements of the Company, attached hereto, for
the period ending _______________________ (the "Financial Statements"),
have been prepared in accordance with the requirements of Section 7.1 of
the Loan Agreement and have been delivered on or before the date they are
due.
2. The representations and warranties contained in Section 6 of the Loan
Agreement are true and correct as of the date hereof as though made on
this date.
3. Borrowers are in compliance with all of the affirmative and negative
covenants set forth in Section 7 and 8 of the Loan Agreement as of the
date hereof.
4. Specifically, as of the date of the Financial Statements:
a. The Company's "EBITDA" (as defined in the Loan Agreement) for the
four fiscal quarters ending March 31, 2004 is required to be not
less than $14,000,000; the Company's EBITDA for the four (4) fiscal
quarters ending June 30, 2004 is required to be not less than
$14,000,000; prior to the completion of Borrowers' initial Permitted
Acquisition after the Closing Date, the Company's EBITDA for the
then preceding four fiscal quarters is required to be not less than
$15,000,000; and thereafter, the Company's EBITDA for then preceding
four fiscal quarters is required to be not less than not less than
$19,000,000. The Company's actual EBITDA as so described for the
most recent four fiscal quarters was $[_______________].
In Compliance: Yes ___ No ___
b. The Company's "Senior Leverage Ratio" (as defined in the Loan
Agreement) as of the end of any fiscal quarter ending after December
31, 2003 is required to be not more than 1.50:1. The Company's
actual Senior Leverage Ratio as of the end of the most recent fiscal
quarter was __________________.
In Compliance: Yes ___ No ___
c. The Company's "Net Worth" (as defined in the Loan Agreement) as of
the end of any fiscal quarter ending after December 31, 2003 is
required not to be less than the sum of (i) $77,000,000 plus (ii)
50% of the Company's consolidated Net Income for the period from
January 1, 2004 through the applicable date of determination (with
no deduction for any fiscal year in which the Company's Net Income
is negative). The Company's actual Net Worth as of the end of the
most recent fiscal quarter was $[_______________].
In Compliance: Yes ___ No ___
d. The Company is prohibited from making Capital Expenditures (as
defined in the Loan Agreement) (excluding Capital Expenditures of
the Foreign Subsidiairies) during any fiscal year in excess of (i)
$1,750,000 from the Closing Date through December 31, 2004 and (ii)
$750,000 during any fiscal year thereafter; provided, however, to
the extent that Capital Expenditures are less than that allowed in a
fiscal year, then 50% of the difference shall be added to the
limitation otherwise applicable to the following fiscal year. The
Company's actual fiscal year-to-date Capital Expenditures are
$[__________].
In Compliance: Yes ___ No ___
e. The Company`s consolidated Subordinated Debt (as defined in the Loan
Agreement) as of the end of any fiscal quarter ending after December
31, 2003 is required to be not more than $17,500,000. The Company's
actual consolidated Subordinated Debt as of the end of the most
recent fiscal quarter was $[__________].
In Compliance: Yes ___ No ___
f. Pursuant to Section 1.7 of the Deposit Account Security Agreement,
Lender is required to return to the Company the collateral subject
to the security interest created thereby if at any time after
December 31, 2005 the Company's Domestic Senior Leverage Ratio (as
defined in Loan Agreement) for the trailing twelve (12) month period
was less than 2.5:1.0 at the end of each of the then four (4) most
recent consecutive calendar quarters. The Company's Domestic Senior
Leverage Ratio for the trailing twelve (12) month period at the end
of each of the four (4) most recent calendar quarters was as
follows: ____:1.0 at _____________; ____:1.0 at ______________;
____:1.0 at _______________; and ____:1.0 at ______________________.
Return of Collateral Required: Yes ___ No ___
g. Pursuant to Section 1.9 of the Deposit Account Security Agreement,
the market value of the Collateral (as defined therein) must not at
any time be less than the Collateral Requirement (as defined
therein). Attached hereto is a Statement of the Account (as defined
therein) showing the market value of the Collateral as of the end of
the most recent fiscal quarter to be $________. The Collateral
Requirement as of such date was $________.
In Compliance: Yes ___ No ___
5. All adjustments and calculations related to the amounts set forth in each
of 4.a. through 4.g. above are attached hereto.
Dated: _____________________, 200__
______________________________,
a(n) _________________________
By: ___________________________________
Name: _________________________________
Title: ________________________________
Schedule 4.a. EBITDA
Defined EBITDA Amounts (From ______ to ________) $__________________
Calculation of Amount not Defined
(From ______ to ________)
Net Income $__________________
Plus Provision For Income Taxes $__________________
Plus Interest Expense $__________________
Plus Depreciation Expense $__________________
Plus Amortization Expense $__________________
Plus Other Non-cash Expenses or Charges $__________________
Minus Non-Operating Gains $__________________
Plus Non-Operating Losses $__________________
EBITDA $__________________
Schedule 4.b. Senior Leverage Ratio
Total Liabilities $__________________
Minus Subordinated Debt $__________________
Minus Non-Interest Accruing Liabilities $__________________
Plus Issued and Outstanding Letters of Credit
(if not included) $__________________
Plus Capital and Synthetic Lease Obligations
(if not included) $__________________
Plus Third-Party Guaranty Obligations
(if not included) $__________________
Senior Funded Debt $__________________
Less Unrestricted Cash $__________________
Divided by EBITDA $__________________
Senior Leverage Ratio
Schedule 4.c. Net Worth
Capital Stock $__________________
Minus Treasury Stock $__________________
Paid in Surplus $__________________
General Contingency Reserves $__________________
Retained Earnings (Deficit) $__________________
Minus Minority Interest $__________________
Minus Accumulated other Comprehensive Income (Loss) $__________________
Net Worth $__________________
Schedule 4.d. Capital Expenditure Limitations
Listing of Capital Expenditures:
__________________ $__________________
__________________ $__________________
__________________ $__________________
__________________ $__________________
__________________ $__________________
__________________ $__________________
__________________ $__________________
Capital Expenditures (As Defined) $__________________
Capital Expenditures Previous Fiscal Year
(Beginning 200_) $__________________
Carry Forward Amount $__________________
Capital Expenditures Limit Plus Carry Forward Amount $__________________
Long-Term Debt to Finance Capital Expenditures
(Year to Date) $__________________
Schedule 4.e. Consolidated Subordinated Debt
Outstanding Principal Balance of Subordinated Notes $__________________
Plus Other Subordinated Debt $__________________
Total Consolidated Subordinated Debt $__________________
Schedule 4.f. Domestic Senior Leverage Ratio
For Domestic Borrowers only:
Total Liabilities $__________________
Minus Subordinated Debt $__________________
Minus Non-Interest Accruing Liabilities $__________________
Plus Issued and Outstanding Letters of Credit
(if not included) $__________________
Plus Capital and Synthetic Lease Obligations
(if not included) $__________________
Plus Third-Party Guaranty Obligations
(if not included) $__________________
Senior Funded Debt of Domestic Borrowers $__________________
Divided by EBITDA of Domestic Borrowers $__________________
Domestic Senior Leverage Ratio ___________________
Schedule 4.g. Deposit Account Security Agreement
Outstanding Principal Amount of Loan $__________________
Initial Collateral Requirement (per Schedule in
Section 1.9 of Deposit Account Security Agreement) $__________________
For the VSK Group only:
Consolidated Total Liabilities $__________________
Plus Issued and Outstanding Letters of Credit
(if not included) $__________________
Plus Capital and Synthetic Lease Obligations
(if not included) $__________________
Plus Third-Party Guaranty Obligations (if not included) $__________________
VSK Group Funded Debt $__________________
Consolidated EBITDA for prior 4 fiscal quarters $__________________
x 5
___________________
Plus Consolidated Unrestricted Cash and Cash Equilavents $__________________
Minus VSK Group Funded Debt $__________________
VSK Group Equity Value $__________________
(A): Amount by which $13,000,000 Exceeds VSK Group
Equity Value $__________________
(B): Amount (if any) by which Outstanding Principal
Balance of Loan Exceeds $10,000,000 $__________________
Additional Collateral Requirement (lesser of
(A) and (B)) $__________________
Total Collateral Requirement $__________________