LOAN AND SECURITY AGREEMENT
THIS AGREEMENT is entered into as of September 19, 1996 between Conversion
Technologies International, a Delaware corporation (hereinafter called
"Lender"), and Octagon, Inc., a Delaware corporation with its executive
office at ▇▇▇ ▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇., ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇, ▇▇▇▇▇
and its wholly owned subsidiary Power Systems Energy Services, Inc. a
Delaware corporation with its executive office at ▇▇▇ ▇. ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇.,
▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ (together the "Borrower"),
WHEREAS, Borrower desires to obtain a loan from Lender on the terms and
conditions herein set forth and Lender is willing to make a loan to Borrower
on the terms and conditions set forth herein,
NOW, THEREFORE, in consideration of the premises set forth above the
terms and conditions contained herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged
Lender and Borrower agree as follows:
1. DEFINITIONS
1.1 "ACCOUNTS" shall mean all of Borrower's presently existing and
hereafter arising accounts, instruments, contract rights, documents and
chattel paper.
1.2 "ACCOUNT DEBTOR" shall mean any "Person" (as defined below) who is
or who may become obligated to Borrower under, with respect to, or on account
of an Account.
1.3 "AFFILIATE" shall mean (a) any Person (other than Lender) which,
directly and/or indirectly, owns or controls, on an aggregate basis,
beneficially or of record (including all beneficial ownership and ownership
or control as a trustee, guardian or other fiduciary) at least 10 percent
(10%) of the outstanding capital stock having ordinary voting power to elect
a majority of the board of directors (irrespective of whether, at the time,
stock of any other class or classes of such corporation shall have or might
have voting power by reason of the happening of any contingency) of Borrower
or Lender, as applicable, (b) any "Subsidiary" (as defined below) of Borrower
or Lender, as applicable, (c) any Person which is controlled by or is under
common control with Borrower or Lender, as applicable, or (d) any
stockholders of any of the foregoing. For the purpose of this definition,
"control" means the possession, directly or indirectly, of the power to
direct or cause the direction of management and policies, whether through the
ownership of voting securities, by contract or otherwise.
1.4 "AGREEMENT" shall mean this Loan and Security Agreement, any
concurrent or subsequent rider to this Loan and Security Agreement and any
extensions, supplements, amendments or modifications to this Loan and
Security Agreement and any such rider thereto.
1.5 "BORROWERS BOOKS" shall mean all of Borrower's books and records
including but not limited to: ledgers; records indicating, summarizing or
evidencing Borrower's assets, including its Accounts, business operations or
financial condition; and computer-prepared information and equipment of any
kind.
1.6 "BUSINESS DAY" shall mean any day not a Saturday, Sunday or legal
holiday in the State of New York.
1.7 "COLLATERAL" shall mean all of Borrower's Accounts, "Inventory"
(as defined below) "Equipment" (as defined below), "General Intangibles" (as
defined below) and all property of Borrower in the possession or under the
control of Lender, any Affiliate of Lender, any bailee of
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Lender or any bailee of any Affiliate of Lender (whether now owned or
existing or hereafter acquired or arising or in which Borrower now has or may
hereafter acquire any rights) and all accessions to, substitutions for and
all replacements, proceeds (including, without limitation, proceeds of any
insurance policies) and products of all such Accounts, Inventory, Equipment,
General Intangibles and property and all Borrower's Books related to any of
the foregoing, together with all of Borrower's right, title and interest in
and to any deposits or other sums at any time credited by or due from any
Affiliate of Lender to Borrower.
1.8 "EQUIPMENT" shall mean all of Borrower's now owned or hereafter
acquired fixtures and equipment, including, without limitation, furniture,
vehicles and trade fixtures, together with all accessions thereto and all
substitutions and replacements thereof and parts therefor.
1.9 "EVENT OF DEFAULT" shall have the meaning set forth in Section 6
below.
1.10 "GENERAL INTANGIBLES" shall mean all chooses in action, causes of
action and all other intangible personal property of Borrower of every kind
of nature (other than Accounts) now owned or hereafter acquired by Borrower,
including, without limitation, corporate or other business records, deposit
accounts, inventions, designs, patents, patent applications, patent rights,
trademarks, trademark applications, trade names, service marks, service ▇▇▇▇
applications, trade secrets, good will, copyrights, computer programs, and
other computer software, proprietary processes and formulae, registrations,
licenses, franchises, tax refund claims and any letters of credit, guarantee
claims, security interests or other security held by or granted to Borrower
to secure payment by an Account Debtor of any of the Accounts.
1.11 "INVENTORY" shall mean any and all goods, merchandise and other
personal property (including without limitation, goods in transit),
wheresoever located and whether now owned or hereafter acquired by Borrower
which is or may at any time be held for sale or lease, furnished under any
contract of service or held as raw materials, work in process, supplies or
materials used or consumed in Borrower's business, and all such property the
sale or other disposition of which has given rise to Accounts and which has
been returned to or repossessed or stopped in transit by Borrower.
1.12 "LENDER'S COSTS" shall mean all costs, fees and expenses incurred
by Lender in connection with this Agreement or any of the Other Agreements
(as defined below), including without limitation, taxes of every nature and
kind of Borrower paid by Lender in protection of its interests hereunder,
filing, recording, publication and search fees in connection with this
Agreement paid by Lender, costs incurred by Lender in collecting the
Accounts, with or without suit, costs incurred by Lender in gaining
possession of, maintaining, handling, preserving, storing, shipping, selling,
preparing for sale and advertising to sell the Collateral, whether or not a
sale is consummated; costs of suit incurred by Lender in enforcing or
defending this Agreement or any portion hereof; and reasonable attorneys and
paralegals' fees and expenses incurred by Lender in drafting, reviewing,
enforcing, defending or obtaining legal advice with respect to this Agreement
or any of the Other Agreements or any portion thereof, whether or not suit is
brought.
1.13 "LETTER OF INTENT" shall mean the Letter of Intent dated August
13, 1996, as amended, between Lender and Borrower.
1.14 "LIEN" shall mean any mortgage, pledge, hypothecation, assignment,
deposit arrangement, encumbrance, lien (statutory or other), or preference,
priority or other security agreement or preferential arrangement of any kind
or nature whatsoever (including, without limitation, any conditional sale or
other title retention agreement, any financing lease having substantially the
same economic effect as any of the foregoing), and the filing of any
financing statement under the Uniform Commercial Code as the same may from
time to time be in effect in
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the states of Florida, Ohio and Virginia (collectively, the "Code") or
comparable laws of any jurisdictions.
1.15 "MERGER AGREEMENT" shall mean the Agreement and Plan of
Reorganization contemplated by the Letter of Intent to be entered into
between the Lender and the Borrower to effect the proposed merger.
1.16 "OBLIGATIONS" shall mean all of Borrower's liabilities,
obligations and indebtedness to Lender or any Affiliate of Lender of any and
every kind and nature (including, without limitation, Lender's Costs,
interest, charges, expenses, attorneys fees and other sums chargeable to
Borrower by Lender or any Affiliate of Lender and future advances made to or
for the benefit of Borrower), whether arising under this Agreement, under any
of the Other Agreements or acquired by Lender or any Affiliate of Lender from
any other source, whether heretofore, now or hereafter owing, arising, due or
payable from Borrower to Lender or any Affiliate of Lender and howsoever
evidenced, created, incurred, acquired or owing, whether primary, secondary,
direct, contingent, fixed, or otherwise, including obligations of performance
and forbearance.
1.17 "OTHER AGREEMENTS" shall mean all "Supplemental Documentation" (as
defined below) and all agreements, instruments and documents, including,
without limitation, notes, guaranties, mortgages, deed of trust, chattel
mortgages, pledges, powers of attorney, consents, assignments, contracts,
notices, security agreements, leases, financing statements, subordination,
agreements, trust account agreements and all other written matter whether
heretofore, now, or hereafter executed by or on behalf of Borrower or any
other Person and/or delivered to Lender or any Affiliate of Lender with
respect to this Agreement or any other agreement between Lender and Borrower
or with respect to the financing by Borrower or any Affiliate of Borrower.
1.18 "PERSON" shall mean any individual, sole proprietorship,
partnership, joint venture, trust, unincorporated organization, associations
corporation, institutions entity, party or government (whether national,
Federal, state, county, city, municipal or otherwise, including, without
limitation, any instrumentality, division, agency, body or department
thereof).
1.19 "SUBSIDIARY" shall mean any corporation of which fifty percent
(50%) or more of the outstanding capital stock having ordinary voting power
to elect a majority of the board of directors of such corporation
(irrespective of whether, at the time, stock of any other class or classes of
such corporation shall have or might have voting power by reason of the
happening of any contingency) is at the time, directly or indirectly, owned
beneficially or of record by Lender or Borrower, as applicable.
1.20 "SUPPLEMENTAL DOCUMENTATION" shall mean any and all agreements,
instruments, documents, financing statements, warehouse receipts,
certificates of title, bills of lading, notices of assignment of accounts,
schedules of accounts assigned, mortgages and other written matter necessary
or requested by Lender to perfect and maintain perfected Lender's security
interest in the Collateral.
1.21 "OTHER TERMS" Any and all terms used in this Agreement shall be
construed and defined in accordance with the meaning and definition of such
terms under and pursuant to the Code.
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2. LOAN AND TERMS OF PAYMENT
2.1 LOAN. Subject to the terms and conditions hereof, on the date
hereof Lender is making a loan to Borrower in the principal amount of
$250,000 (the "Loan") by Purchasing a secured promissory note of Borrower in
substantially the form of Exhibit A attached hereto in the principal amount
of $250,000 (the "Note") at a closing (the "Closing") to be held on the date
hereof. The Note shall be payable as to principal and interest as set forth
therein, subject to acceleration thereof upon the occurrence of an Event of
Default, and shall bear interest as set forth in Section 2.4 hereof.
2.2 CLOSING, ISSUANCE OF NOTE. The Loan to be made by Lender shall be
made by wire transfer to Borrower against delivery to Lender of a Note in the
principal amount of $250,000.
2.3 TIME AND PLACE OF CLOSING. The Closing hereunder shall be held at
the offices of Borrower simultaneously with the execution and delivery of
this Agreement.
2.4 INTEREST ON LOAN. The Loan shall bear interest on the principal
amount outstanding from time to time at an annual rate equal to 8.25%
(computed on the basis of the actual number of days lapsed in a year of 360
days).
2.5 PREPAYMENT OF LOAN. Borrower shall have the right at any time and
from time to time to prepay the Loan, in whole or in part, without premium or
penalty, upon at least three business Days' prior written notice to Lender,
PROVIDED, HOWEVER that (i) each such partial prepayment shall be in the
principal amount of not less than $10,000, and (ii) the Loan must be prepaid
in full in the event that the Borrower consummates an Acquisition Transaction
(as defined in the Letter of Intent) with a party other than Lender,
simultaneously with the closing of such Acquisition Transaction. Each notice
of prepayment shall specify the prepayment date and the principal amount of
the Loan to be prepaid, shall be irrevocable and shall commit Borrower to
prepay the Loan by the amount stated therein on the date stated therein. All
prepayments shall be accompanied by accrued interest on the principal amount
being prepaid to the date of prepayment.
3. SECURITY INTEREST; COLLATERAL
3.1 GRANT OF SECURITY INTEREST. As collateral security for the prompt
and complete payment and performance when due of all of the Obligations of
Borrower hereunder and in order to induce Lender to enter into this
Agreement, Borrower hereby grants to Lender an irrevocable and unconditional
security interest in all Borrower's right, title and interest in, to and
under all of the Collateral. Lender acknowledges that its security interest
shall be second in priority to Foothill Capital, and in accordance with the
terms of the intercreditor agreement entered into between Lender and Foothill
Capital dated the date hereof.
3.2 SUPPLEMENTAL DOCUMENTATION. Borrower shall execute and deliver to
Lender concurrently with Borrower's execution of this Agreement, and at any
time or times hereafter at the request of Lender, all Supplemental
Documentation requested by Lender. Borrower agrees that a carbon,
photographic, photostatic or other reproduction of this Agreement or of a
financing statement is sufficient as a financing statement. Borrower shall
make appropriate entries in Borrower's Books disclosing Lender's security
interest in the Accounts.
3.3 COLLATERAL; ACCOUNTS: Promptly at such intervals as Lender may from
time to time specify, Borrower shall provide Lender with schedules describing
all Accounts created or acquired by Borrower. Borrower's failure to execute
and deliver such schedules shall not affect or limit Lender's security
interest and other rights in and to the Accounts.
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3.4 RETURNS AND DISPUTES: Returns and allowances between Borrower and
its Account Debtors will be in accordance with the usual and customary
practices of the Borrower. Borrower shall promptly notify Lender of all
returns and recoveries and, on request, deliver the returned inventory to
Lender. Borrower shall also promptly notify Lender of all disputes and claims
other than in accordance with the usual and customary practices of the
Borrower and settle or adjust them on terms approved by Lender. After the
occurrence of an Event of Default, no discount, credit or allowance shall be
granted to any Account Debtor by Borrower and no return of Inventory shall be
accepted by Borrower without Lender's consent.
3.5 SALE OF INVENTORY: Until an Event of Default occurs, Borrower may
sell inventory in the ordinary course of its business (which does not include
a transfer in partial or total satisfaction of a debt or other obligation).
3.6 POWER OF ATTORNEY. After the occurrence of an Event of Default
Borrower appoints Lender or any other person whom Lender may designate as
Borrower's attorney, with power to: (a) endorse Borrower's name on any
checks, notes, acceptances, money orders, drafts or other forms, of payment
or security that may come into Lender's possession; (b) sign Borrower's name
on any invoice or ▇▇▇▇ of lading relating to any Accounts, on drafts against
customers, on schedules and assignments of Accounts, on verifications of
Accounts and on notices to Account Debtors; (c), notify the post office
authorities to change the address for delivery of Borrower's mail to an
address designated by Lender, (d) receive, open and distribute all mail
addressed to Borrower, retaining all mail relating to Collateral and
forwarding all other mail to Borrower, (e) settle or adjust disputes and
claims directly with Account Debtors for amounts and upon terms which Lender
considers reasonable under the circumstances and in such cases Lender may
execute and cause to be delivered any and all documents and releases which
Lender may deem necessary or desirable and Lender will credit Borrower's loan
account with Lender with only the net amounts received by Lender in payment
of the Accounts, after deducting all Lender's Costs in connection therewith;
(f) send requests for Verification of Accounts and to do all things necessary
to carry out this Agreement; and (g) take any other actions necessary to
carry out the terms and provisions of this Agreement. Borrower ratifies and
approves all acts of the attorney. Neither Lender nor its attorney will be
liable for any acts or omissions or for any error of judgment or mistake of
fact of law taken in good faith in accordance with the terms of this Agreement
and in the absence of willful misconduct. This power is coupled with an
interest, and is irrevocable until all of the obligations have been fully
satisfied.
3.7 RELEASE OF COLLATERAL. Upon payment in full of all of the
Obligations Lender shall reassign to Borrower all Collateral held by Lender,
and shall execute a termination of all security agreements and security
interests given by Borrower to Lender.
4. CONDITIONS OF LENDING
The commitment of Lender to make the Loan hereunder is subject in all
respects to the accuracy, as of the date of Closing, of the representations
and warranties of Borrower contained in Sections 5.1 and 5.2 hereof and to
the performance by Borrower of its Obligations to be performed hereunder on
or prior to the date of the Closing.
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5. WARRANTIES, REPRESENTATIONS AND COVENANTS
5.1 EQUIPMENT REPRESENTATIONS, WARRANTIES AND COVENANTS. Borrower
represents, warrants and covenants that:
(a) Borrower shall keep the equipment (except for equipment which is
in transit) only at the locations listed on Exhibit B attached hereto and
made a Part hereof;
(b) All of the equipment in and shall remain free from all purchase
money or other security interests, liens or encumbrances, except those held
by Lender,
(c) Borrower shall keep correct and a accurate, records itemizing and
describing the kind, type and quantity of the equipment;
5.2 GENERAL REPRESENTATIONS, WARRANTIES AND COVENANTS. Borrower
represents, warrants and covenants that:
(a) Borrower is and shall at all times hereafter be a corporation duly
organized and validly existing in good standing under the laws of the State
of Delaware and qualified and licensed to do business in all other states in
which the conduct of its affairs or the ownership of its assets requires such
qualification;
(b) Borrower has the right and power and is duly authorized to execute
and deliver this Agreement and the Other Agreements and to perform all of its
obligations hereunder and thereunder;
(c) The execution and delivery by Borrower of this Agreement and the
other Agreements shall not constitute a breach of any provision contained in
Borrower's Certificate of Incorporation or By-Laws;
(d) Borrower's executive office is located at the address described in
the preamble to this Agreement and Borrower will not, during the term of this
Agreement, without prior written notification of Lender, relocate said
executive office;
(e) The execution, delivery and performance by Borrower of all of the
terms and provisions contained in this Agreement and the other Agreements
shall not, by the lapse of time, the giving of notice or otherwise,
constitute a violation of any applicable law or a breach of any provision
contained in any agreement, note, indenture or other instrument to which
Borrower is now or may hereafter become a party or by which Borrower is now
or may hereafter be bound;
(f) All assessments and taxes, whether real, personal or otherwise due
or payable by, or imposed, levied or assessed against borrower or any of its
property shall be paid in full, before delinquency; Borrower shall make due
and timely payment or deposit of all federal, state and local taxes,
assessments or contributions required of it by law, and will execute and
deliver to Lender, on demand, appropriate certificates attesting to the
payment or deposit thereof Borrower will make timely payment of deposit of
all F.I.C.A. payments and withholding taxes required of by applicable laws,
and will upon request furnish Lender with proof satisfactory to it that
Borrower has made such payments or deposits;
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(g) There are no actions or proceedings pending by or against Borrower
or before any court or administrative agency and Borrower has no knowledge of
any pending, threatened or imminent litigation, governmental investigations or
claims, complaints, actions or prosecutions involving Borrower or any
guarantor of Borrower, except as specifically disclosed in Borrowers audited
financial statements for the year ended December 31, 1995 and as heretofore
specifically disclosed in writing to Lender; if any of the foregoing arise
during the term of this Agreement, Borrower shall, immediately notify Lender
in writing;
(h) Borrower, subject to its loan and security agreement with Foothill
Capital, has, and shall at all times hereafter have, good and indefeasible
title to the Collateral; and,
(i) The Collateral is adequately insured against loss by fire,
explosion, theft and such other casualties, hazards and risks as are usually
insured against by companies of comparable size and financial condition
engaged in the same or similar business,
(j) Borrower shall not at any time while the Loan or any part thereof
is outstanding grant to any party other than Foothill Capital a security
interest in any of its assets which ranks on a parity with or senior to the
security interest granted to the Lender hereby.
5.3 INSURANCE. Borrower, at its expense shall keep and maintain (i) the
Collateral insured for the full insurable value thereof against loss or
damage by fire, flood, earthquake, burglary, loss in transit, theft,
explosion, sprinkler, and such other hazards and risks ordinarily insured
against by other owners who use such properties in similar businesses for the
full insurable value thereof, and (ii) business interruption insurance and
public liability and property damage insurance relating to Borrower's
ownership and use of the collateral and its other assets. All such policies
of insurance maintained pursuant to this Agreement shall be in such form,
with such companies and in such amounts as may be satisfactory to Lender,
which Lender acknowledges to be satisfactory having review such policies in
connection with the contemplated Merger Agreement.
5.4 REPORTING; INSPECTION OF PREMISES. Borrower at all times hereafter
shall: (a) maintain a standard and modern system of accounting in accordance
with generally accepted accounting principles consistently applied, together
with ledger and sub-ledgers and/or computer tapes and computer discs,
computer printouts and computer records pertaining to the Accounts which
contain information as may from time to time be requested by Lender; (b)
permit Lender and any of its employees, officers or agents, upon demand,
during Borrower's usual business hours, or the usual business hours of third
persons having control of any of Borrower's Books, to have access to and
examine all of Borrower's Books relating to the Accounts, the Obligations,
Borrower's financial condition and the results of Borrower's operations, and
in connection therewith, permit Lender or any of its agents, employees or
officers to copy and make extracts therefrom; (c) promptly supply Lender with
such other information concerning its affairs as Lender may reasonably
request from time to time hereafter, and (d) promptly notify Lender of any
material adverse change in Borrower's financial condition and of any
condition or event which constitutes an Event of Default.
5.5 SURVIVAL OF WARRANTIES AND REPRESENTATION. Borrower covenants,
warrants and represents to Lender that all representations and warranties of
Borrower contained in this Agreement and the Other Agreements shall be true
at the time of Borrower's execution of this Agreement, and the Other
Agreements, and shall survive the execution, delivery and accepted hereof and
thereof by the parties hereto and thereto and the closing of the transactions
described herein and therein or related hereto and thereto. Borrower and
Lender expressly agree that any misrepresentation or breach of any warranty
whatsoever contained in this Agreement or the Other Agreements shall be
deemed material.
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6. EVENTS OF DEFAULT
Any one or more of the following events ("Events of Default") shall
constitute a default under this Agreement:
(a) Borrower or any Affiliate of Borrower fails or neglects to
perform, keep or observe any term, provision, condition, covenant,
agreement, warranty or representation contained in this Agreement or
any of the Other Agreements, including, without limitation, any term,
provision or condition contained in any promissory note now or hereafter
executed by Borrower and delivered to Lender to evidence a portion of
the obligations.
(b) Any representation statement, report or certificate made or
delivered by Borrower or any Affiliate of Borrower or any of their
respective officers, employees or agents to Lender hereunder or under
any of the Other Agreements was not true and correct.
(c) Borrower fails to pay any of the Obligations when due and
payable or declared due and payable, or Borrower is in material default
or commits a material breach under the terms of the Letter of Intent or
the Merger Agreement and such default is not cured (if curable) within
ten (10) days following notice thereof.
(d) Borrower fails to pay any account payable, excluding the work
out accounts payable previously disclosed to Lender by Borrower, in
excess of $10,000 when due and such failure continues for more than thirty
(30) days.
(e) A material portion of Borrower's assets are attached, seized,
subjected to a writ or distress warrant, or are levied upon, or come
into the possession of, any judicial officer or assignee and the same
are not released, discharged or bonded against within thirty (30) days
thereafter.
(f) Any proceeding is filed or commenced by or against Borrower for
its dissolution or liquidation and is not dismissed within thirty (30)
days.
(g) Borrower is enjoined, restrained or in any way prevented by
court order from continuing to conduct all or any material part of its
business affairs.
(h) A notice of lien, levy or assessment with respect to a claim in
excess of ten thousand dollars ($10,000.00) is filed or record with
respect to any or all of Borrower's assets by the United States
Government, or any departments agency, or instrumentality thereof, or by
any state, county, municipal or other governmental agency, or any taxes or
debts owing at any time or times hereafter to any one or more of such
entities becomes a lien or encumbrance upon the collateral or any of the
Borrower's other assets and the same is not released within ten (10)
days after the same becomes a lien or encumbrance.
(i) A judgment or court order for payment of money in excess of
ten thousand dollars ($10,000.00) or any other claim becomes a lien or
encumbrance upon any or all of Borrower's assets and the same is not
satisfied, dismissed or bonded against within ten (10) days thereafter.
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(j) Borrower fails to provide Lender with any reasonably requested
information or financial data pertaining to the Collateral, Borrower's
financial condition or the results of Borrower's operations.
(k) A default shall occur under any agreement, document or
instrument for goods purchased, money borrowed or property leased, other
than this Agreement, now or hereafter existing to which Borrower is a
party.
(l) Any misrepresentation or omission now or hereafter exists in
any warranty or representation made herein or in any of the other
Agreements by any officer or director individually or as an officer or
director of Borrower, or any such warranty or representation is withdrawn
by any officer or director.
(m) Borrower is unable at any time or times hereafter, whether by
court order or otherwise, to perform and satisfy all provisions,
warranties, terms and conditions contained herein which are required by
Lender to be performed and satisfied hereunder.
(n) An application is made by Borrower for the appointment of a
trustee or custodian for the Collateral or any other of Borrower's
assets.
(o) An application is made by any Person, other than Borrower for
the appointment of a trustee or custodian of the Collateral or any other
of Borrower's assets and the same is not dismissed within thirty (30) days
after the application therefor.
7. LENDER'S RIGHTS AND REMEDIES
7.1 LENDER'S RIGHTS AND REMEDIES. Upon the occurrence of an Event of
Default, Lender may at its election and without notice of its election and
without demand, do any one or more of the following, all of which are
authorized by Borrower:
(a) Declare the obligations, whether evidenced by installment notes,
demand notes or otherwise, immediately due and payable, without any
presentment, demand, protest or other notice of any kind, all of which are
hereby expressly waived.
(b) Terminate this Agreement as to any future liability or obligation
of Lender, but without affecting the Obligations or Lender's rights and
security interests in the Collateral.
(c) Without notice to or demand upon Borrower or any guarantor, make
such payments and do such acts as Lender considers necessary or reasonable
to protect its security interest in the Collateral. Borrower authorizes
Lender to enter the premises where the Collateral is located, take
possession of the Collateral, or any part of it, and to pay, purchase,
contest or compromise any encumbrance, charge or lien which in the opinion
of Lender appears to be prior or superior to its security interest and to
pay all expenses incurred in connection therewith.
(d) Ship reclaim recover, store, finish, maintain and repair the
collateral, and prepare the Collateral for sale.
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(e) Sell the Collateral at either a public or private sale, or both, by
way of one or more contracts or transactions, for cash or on terms, in
such manner and at such places (including Borrower's premises) as is
commercially reasonable in the opinion of Lender, the Collateral need not
be present at any such sale.
(f) Purchase all or any portion of the Collateral at any public sale
thereof.
(g) Require Borrower to take any or all of the following actions:
pledge assemble and deliver the Inventory to Lender or to a third party
as Lender's bailee; or hold the same in trust for Lender's account; or
store the same in a warehouse in Lender's name; or deliver to Lender
documents of title representing said inventory; or evidence Lender's
security interest in any other manner acceptable to Lender.
7.2 NOTICE OF DISPOSITION OF COLLATERAL. Lender shall (unless notice has
been waived after an Event of-default pursuant to the provisions of the Code)
give notice of the disposition of the Collateral as follows;
(a) Lender shall give the Borrower and each holder of a security
interest in the Collateral who has filed with Lender a written request
for notice, a notice in writing of the time and place of public sale or,
if the sale is a private sale or some other disposition other than a
public sale is to be made of the Collateral, the time on or after which
the private sale or other disposition is to be made,
(b) The notice shall be personally delivered or mailed, postage
prepaid, to Borrower's address set forth in Section 10 of this Agreement
at least five (5) days before the date fixed for the sale, or at least
five (5) days before the date on or after which the private sale or other
disposition is to be made, unless the Collateral is perishable or
threatens to decline speedily in value. Notice to persons other than
Borrower claiming an interest in the Collateral shall be sent to such
addresses as they have furnished to Lender,
(c) If the sale is to be public sale, Lender shall also give
notice of the time and place by publishing a one-time notice at least
ten (10) days; before the date of the sale in a newspaper of general
circulation in the county in which the sale is to be held.
7.3 DEFICIENCIES. Any deficiency which exists after disposition of the
Collateral as provided above will be paid immediately by Borrower. Any excess
will be returned to Borrower by Lender.
7.4 RIGHTS AND REMEDIES CUMULATIVE. Lender's rights and remedies under
this Agreement and the Other Agreements shall be cumulative. Lender shall
have all other rights and remedies not inconsistent herewith as provided by
law or in equity. No exercise by Lender of one right or remedy shall be
deemed an election, and no waiver by Lender of any default on Borrower's part
shall be deemed a continuing waiver. No delay by Lender shall constitute a
waiver, election or acquiescence by it.
10
8. TAXES AND EXPENSES REGARDING BORROWER'S PROPERTY
-------------------------------------------------
If Borrower fails to pay any assessments, taxes, contributions, or make
any deposits, or furnish any required proof thereof as met forth in
Section 5.2(f) above or in any other provision of this Agreement, Lender may,
in its sole and absolute discretion and without notice to Borrower, (a) make
payment of the same or any part thereof, or (b) set up such reserves in
Borrower's account as Lender deems necessary to satisfy the liability
therefor, or both, if Borrower fails to pay promptly when due, to any other
person or entity, monies which Borrower is required to pay by reason of any
provision in this Agreement, Lender may, but need not, pay the same and
charge Borrower's account therefor, and Borrower shall promptly reimburse
Lender. All such sums shall constitute part of the Obligations, shall bear
interest at the rate herein above provided, shall be secured by all
Collateral and shall constitute Lender's costs. Any payment made by Lender
shall not constitute (a) an agreement by it to make similar payments in the
future, or (b) a waiver by Lender of any Event of Default. Lender need not
contest nor inquire as to the validity of any such expense, tax, security
interest, encumbrance or lien, and the receipt of the usual official notice
for the payment thereof shall be conclusive evidence that the same was
validly due and owing.
9. WAIVERS BY BORROWER
-------------------
9.1 APPLICATION OF PAYMENTS AND COLLECTIONS. Borrower agrees that checks
and other instruments received by Lender in payment or on account of the
Obligations constitute only conditional payment until such items are actually
paid to Lender, Borrower waives the right to direct the application of any
payments at any time or times received by Lender on account of the
Obligations and Borrower agrees that Lender shall have the continuing
exclusive right to apply and reapply such payments in any manner as Lender
may deem advisable.
9.2 BORROWER'S WAIVERS. Borrower waives demand, protest, notice of
protest, notice of default or dishonor, notice of payment and nonpayment,
notice of any default, nonpayment at maturity, release, compromise,
settlement, extension or renewal of any or all commercial paper, accounts,
documents, instruments, chattel paper and guaranties at any time held by
Lender an which Borrower may in any way be liable except as required hereby.
Borrower waives any right to trial by jury in any action or proceeding
relating to this Agreement or the other Agreements or any transactions
thereunder.
9.3 RISK OF LOSS. Lender shall not in any way or manner be liable or
responsible for (a) the safekeeping of the Collateral; (b) any loss or damage
thereto occurring or arising in any manner or fashion from any cause; (c) any
diminution in the value thereof; or (d) any act or default of any carrier,
warehouseman, bailee, forwarding agency or other person whomsoever. All risk
of loss, damage or destruction of the Collateral shall be borne by Borrower.
10. NOTICES
-------
Unless otherwise provided in this Agreement any notice required
hereunder shall be in writing, and shall be deemed to have been validly
served, given or delivered upon deposit in the
▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇ mails, with proper postage prepaid, and addressed to the party
to be notified as follows:
(A) If to Lender, to:
Conversion Technologies International, Inc.
▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: General Counsel
(B) If to Borrower, to:
Octagon, Inc.
▇▇▇ ▇. ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇.
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: Chief Financial Officer
or to such other address as each party may designate for itself by like
notice.
11. GENERAL PROVISIONS
------------------
11.1 LENDER'S COSTS. Borrower shall immediately, and without demand,
reimburse Lender for all sums expended by Lender in connection with the
filing of any third party claim(s) as to the Collateral or any part thereof,
which Lender may deem necessary or desirable or in connection with any action
brought by Lender to correct any Event of Default or enforce any provision of
this Agreement, including attorneys' and paralegals, fees and expenses and
court costs. Borrower authorizes and approves all advances and payments by
Lender for items described in this Agreement as Lender's Costs. Borrower
agrees to pay promptly, upon demand by Lender, all Lender's Costs.
11.2 PARTIES; ASSIGNMENTS. This Agreement shall bind, and inure to the
benefit, of the respective successors and assigns of each of the parties
hereto; PROVIDED, HOWEVER, Borrower may not assign this Agreement or any
rights hereunder without Lender's prior written consent and any prohibited
assignment shall be absolutely void. No consent to any assignment by Lender
shall release Borrower from its obligations to Lender. Lender may at any time
sell, assign, transfer, grant participations in or otherwise dispose of this
Agreement and its rights and duties hereunder. Any such purchaser, assignee,
transferee or participant shall have all the rights of Lender hereunder.
11.3 SECTION TITLES. Section headings and section numbers have been set
forth herein for convenience only; unless the contrary is compelled by the
context, everything contained in each paragraph applies equally to this
entire Agreement.
11.4 CONSTRUCTION OF AGREEMENT. Neither this Agreement nor any
uncertainty or ambiguity herein shall be construed or resolved against Lender
or Borrower, whether under any rule of construction or otherwise; on the
contrary, this Agreement has been reviewed by all parties and shall be
construed and interpreted according to the ordinary meaning of the words
used so as to fairly accomplish the purposes and intentions of all parties
hereto. When permitted by the context, the singular includes the plural and
vice versa.
12
11.5 GOVERNING LAW. The validity of this Agreement, its construction,
interpretation and enforcement and the rights of the parties hereunder
concerning the Collateral, shall be determined under and according to the
internal laws of the State of Delaware.
11.6 SEVERABILITY. Each provision of this Agreement shall be severable
from every other provision of this Agreement for the purpose of determining
the legal enforceability of any specific provision.
11.7 MODIFICATION. This Agreement shall be binding and deemed effective
when executed by the Borrower and accepted and executed by Lender, and can be
changed only in writing signed by the parties hereto. All prior agreements,
understandings, representations, warranties, and negotiations, if any, are
merged into this Agreement.
11.8 STANDARD OF LIABILITY. Lender shall be liable only for its
intentional misconduct, and not its negligence or gross negligence, in
the event Lender fails to comply with any terms of this agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first hereinabove written.
Octagon, Inc. and its wholly owned subsidiary
Power Systems Energy Services, Inc.
By /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
----------------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
Chief Financial Officer
Conversion Technologies International, Inc.
By /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
----------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Vice President and General Counsel
13
EXHIBIT A
---------
SECURED PROMISSORY NOTE
$250,000 September 19, 1996
FOR VALUE RECEIVED, the undersigned, Octagon, Inc., a Delaware corporation
and its wholly owned subsidiary Power Systems Energy Services, Inc. A
Delaware corporation (the "Company"), hereby promises to pay to the order of
Conversion Technologies International, Inc. a Delaware corporation (the
"Lender") or its successors or assigns (the "Holder"), at such location as
the Holder may designate, ON DEMAND at any time on or after February 13, 1997
the principal sum of Two Hundred Fifty Thousand dollars ($250,000), together
with interest, payable (subject to prepayment in the manner provided in the
Loan Agreement (as hereinafter defined)), in lawful money of the United
States of America in immediately available funds.
The Company hereby waives diligence, presentment, demand, protest and
notice of any kind whatsoever. The non-exercise by the Holder of any of its
rights hereunder in any particular instance shall not constitute a waiver
thereof in that or any subsequent instance.
Upon the occurrence of an Event of Default (as defined in the Loan and
Security Agreement dated the date hereof (the "Loan Agreement"), between the
Company and the Lender, the principal hereof and the accrued interest hereon
may be declared to be due and payable in the manner and with the affect
provided within the Loan Agreement.
Should the indebtedness evidenced by this Note or any part hereof be
collected in any suit in equity, action at law or in bankruptcy receivership
or other court or administrative proceedings, or this Note be placed in the
hands of attorneys for collection after default, the Company agrees to pay,
in addition to the principal and interest due and payable hereon, all costs
of collecting this Note, including reasonable attorneys fees and expenses.
Payment and performance of this Note is secured pursuant to the Loan
Agreement, and the Holder of this Note is entitled to the rights and benefits
thereof.
The Company agrees that any suit, action or proceeding instituted with
respect to the Loan Agreement or the Note may be brought in a Federal court
or state court located in New York, New York and the Company shall not
institute or maintain any suit, action or proceeding in any court of any other
jurisdiction and the Company irrevocably waives any objection it may have or
may hereafter acquire to, or any right of immunity on the ground of, venue,
the convenience of the forum, of jurisdiction of such courts or the execution
or the forum, of jurisdiction of such courts or the execution of judgments
resulting therefrom, and the Company irrevocably accepts and submits to the
jurisdiction of the aforesaid courts in any such suit, action or proceeding.
This Note shall be construed in accordance with and governed by the laws
of the State of Delaware.
Octagon, Inc. And its wholly owned subsidiary
Power Systems Energy Services, Inc.
By _______________________________________
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
Chief Financial Officer
14
EXHIBIT B
---------
EQUIPMENT LOCATIONS
Octagon, Inc.
▇▇▇ ▇. ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇., ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Octagon Inc.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇., ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Octagon, Inc.
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇.
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
15
